CPS-2014.9.30-10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  ___________________________________ 
FORM 10-Q
  ___________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
or
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number: 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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer
 
¨
 
Accelerated filer
 
ý
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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  ý    No  ¨
As of October 28, 2014 there were 17,124,273 shares of the registrant’s common stock, $0.001 par value, outstanding.



COOPER-STANDARD HOLDINGS INC.
Form 10-Q
For the period ended September 30, 2014
 
 
 
Page
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.


2


PART I — FINANCIAL INFORMATION
Item 1.         Financial Statements
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollar amounts in thousands except per share amounts) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2014
 
2013
 
2014
Sales
$
764,057

 
$
780,954

 
$
2,296,341

 
$
2,476,113

Cost of products sold
649,028

 
669,701

 
1,928,735

 
2,084,492

Gross profit
115,029

 
111,253

 
367,606

 
391,621

Selling, administration & engineering expenses
72,968

 
67,365

 
220,807

 
228,609

Amortization of intangibles
3,785

 
3,892

 
11,534

 
12,325

Restructuring
1,907

 
4,845

 
7,755

 
11,690

Other operating profit
—

 
(18,385
)
 
—

 
(18,385
)
Operating profit
36,369

 
53,536

 
127,510

 
157,382

Interest expense, net of interest income
(15,171
)
 
(9,405
)
 
(39,953
)
 
(35,332
)
Equity earnings
2,595

 
1,094

 
8,693

 
4,075

Other income (expense), net
960

 
(4,129
)
 
(5,385
)
 
(32,932
)
Income before income taxes
24,753

 
41,096

 
90,865

 
93,193

Income tax expense
4,467

 
18,866

 
24,560

 
35,354

Net income
20,286

 
22,230

 
66,305

 
57,839

Net (income) loss attributable to noncontrolling interests
310

 
436

 
2,424

 
(2,244
)
Net income attributable to Cooper-Standard Holdings Inc.
$
20,596

 
$
22,666

 
$
68,729

 
$
55,595

Net income available to Cooper-Standard Holdings Inc. common stockholders
$
15,144

 
$
22,666

 
$
51,059

 
$
55,595

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.16

 
$
1.33

 
$
3.49

 
$
3.29

Diluted
$
1.08

 
$
1.23

 
$
3.26

 
$
3.07

 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
33,913

 
$
(12,860
)
 
$
57,714

 
$
26,489

Comprehensive (income) loss attributable to noncontrolling interests
535

 
576

 
2,365

 
(2,257
)
Comprehensive income (loss) attributable to Cooper-Standard Holdings Inc.
$
34,448

 
$
(12,284
)
 
$
60,079

 
$
24,232

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


3


COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except share amounts)
 
 
December 31, 2013
 
September 30, 2014
 
 
 
(unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
184,370

 
$
244,855

Accounts receivable, net
365,750

 
394,563

Tooling receivable
156,205

 
152,117

Inventories
179,766

 
181,475

Prepaid expenses
26,940

 
23,465

Other
82,301

 
87,541

Total current assets
995,332

 
1,084,016

Property, plant and equipment, net
732,902

 
729,948

Goodwill
139,701

 
138,090

Intangibles, net
101,436

 
88,313

Deferred tax assets
34,235

 
17,914

Other assets
99,148

 
107,466

Total assets
$
2,102,754

 
$
2,165,747

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Debt payable within one year
$
28,329

 
$
26,138

Accounts payable
355,394

 
294,165

Payroll liabilities
97,146

 
110,101

Accrued liabilities
89,302

 
79,939

Total current liabilities
570,171

 
510,343

Long-term debt
656,095

 
759,999

Pension benefits
151,113

 
129,005

Postretirement benefits other than pensions
57,224

 
54,620

Deferred tax liabilities
11,146

 
5,045

Other liabilities
36,280

 
44,329

Total liabilities
1,482,029

 
1,503,341

Redeemable noncontrolling interests
5,153

 
4,454

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

 
—

Equity:
 
 
 
Common stock, $0.001 par value, 190,000,000 shares authorized at December 31, 2013 and September 30, 2014; 18,226,223 shares issued and 16,676,539 outstanding at December 31, 2013 and 18,669,927 shares issued and 17,120,243 outstanding at September 30, 2014
17

 
17

Additional paid-in capital
489,052

 
505,658

Retained earnings
156,775

 
210,956

Accumulated other comprehensive loss
(27,694
)
 
(59,057
)
Total Cooper-Standard Holdings Inc. equity
618,150

 
657,574

Noncontrolling interests
(2,578
)
 
378

Total equity
615,572

 
657,952

Total liabilities and equity
$
2,102,754

 
$
2,165,747

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

4


COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
 
 
Nine Months Ended September 30,
 
2013
 
2014
Operating Activities:
 
 
 
Net income
$
66,305

 
$
57,839

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
71,741

 
72,416

Amortization of intangibles
11,534

 
12,325

Stock-based compensation expense
8,660

 
10,748

Equity earnings, net of dividends related to earnings
(3,345
)
 
(1,806
)
Loss on extinguishment of debt
—

 
30,488

Gain on divestiture
—

 
(18,385
)
Gain on sale of investment
—

 
(1,882
)
Deferred income taxes
14,604

 
10,220

Other
584

 
294

Changes in operating assets and liabilities
(152,510
)
 
(83,539
)
Net cash provided by operating activities
17,573

 
88,718

Investing activities:
 
 
 
Capital expenditures
(132,794
)
 
(154,299
)
Acquisition of businesses, net of cash acquired and deposit on acquisition of business
(13,504
)
 
(5,046
)
Return on equity investments
2,120

 
951

Proceeds from divestiture
—

 
44,937

Proceeds from sale of investment
—

 
3,216

Proceeds from sale of fixed assets and other
3,584

 
3,374

Net cash used in investing activities
(140,594
)
 
(106,867
)
Financing activities:
 
 
 
Proceeds from issuance of Senior PIK Toggle Notes, net of debt issuance costs
194,357

 
—

Proceeds from issuance of long-term debt, net of debt issuance costs
—

 
737,462

Repurchase of Senior Notes and Senior PIK Toggle Notes
—

 
(675,615
)
Increase (decrease) in short-term debt, net
1,648

 
(3,717
)
Borrowings on long-term debt
—

 
6,609

Principal payments on long-term debt
(3,825
)
 
(2,202
)
Preferred stock cash dividends paid
(4,747
)
 
—

Purchase of noncontrolling interest
(1,911
)
 
—

Repurchase of common stock
(217,549
)
 
—

Proceeds from exercise of warrants
11,252

 
8,492

Taxes withheld and paid on employees' share based payment awards
(5,851
)
 
(4,175
)
Other
549

 
(103
)
Net cash provided by (used in) financing activities
(26,077
)
 
66,751

Effects of exchange rate changes on cash and cash equivalents
(2,225
)
 
11,883

Changes in cash and cash equivalents
(151,323
)
 
60,485

Cash and cash equivalents at beginning of period
270,555

 
184,370

Cash and cash equivalents at end of period
$
119,232

 
$
244,855

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

5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)


1. Overview
Basis of presentation
Cooper-Standard Holdings Inc. (together with its consolidated subsidiaries, the “Company,” “Cooper-Standard,” “we,” “our,” or “us”) is a leading manufacturer of sealing and trim, fuel and brake delivery, fluid transfer, 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 (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the "2013 Annual Report"), as filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States 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 September 30, 2014 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.
Divestiture
In the third quarter of 2014, the Company completed the sale of its thermal and emissions product line to Halla Visteon Climate Control Corp. The Company received proceeds of $44,937 and recognized a gain of $18,385, which is recorded in other operating profit in the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2014. This divestiture did not meet the discontinued operations criteria.
Acquisition
In the third quarter of 2014, the Company announced that it agreed to purchase an additional 47.5 percent of Huayu-Cooper Standard Sealing Systems Co., Ltd., its joint venture with Huayu Automotive Systems Co. and made an initial deposit of $5,046.
Recent accounting pronouncements
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-15, Presentation of Financial Statements: Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This ASU requires management to perform interim and annual assessments of an entity's ability to continue as a going concern. This guidance is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. The adoption of this ASU is not expected to have a material impact on the Company's condensed consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of this guidance is that a company should recognize revenue to depict the transfer of promised goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The guidance is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The guidance allows for companies to use either a full retrospective or a modified retrospective approach when adopting. The Company is currently evaluating the impact of adopting this guidance on its condensed consolidated financial statements.
In April 2014, FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU changes the criteria for reporting discontinued operations and requires expanded disclosures about discontinued operations. The guidance is effective for fiscal years beginning on or after December 15, 2014 and should be applied prospectively. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company's condensed consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): 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

6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

similar tax loss or a tax credit carryforward if certain criteria are met. The Company adopted this guidance effective January 1, 2014. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.
2. Goodwill and Intangibles
The changes in the carrying amount of goodwill by reportable operating segment for the nine months ended September 30, 2014 are summarized as follows:
 
North America
 
Europe
 
South America
 
Asia Pacific
 
Total
Balance at January 1, 2014
$
119,870

 
$
14,460

 
$
—

 
$
5,371

 
$
139,701

Foreign exchange translation
(323
)
 
(1,213
)
 
—

 
(75
)
 
(1,611
)
Balance at September 30, 2014
$
119,547

 
$
13,247

 
$
—

 
$
5,296

 
$
138,090

Goodwill is not amortized, but is tested for impairment by reporting unit either annually or when events or circumstances indicate that impairment may exist. There were no indicators of potential impairment as of September 30, 2014.
The following table presents intangible assets and accumulated amortization balances of the Company as of December 31, 2013 and September 30, 2014, respectively:
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
135,483

 
$
(46,466
)
 
$
89,017

Developed technology
9,757

 
(5,817
)
 
3,940

Other
9,530

 
(1,051
)
 
8,479

Balance at December 31, 2013
$
154,770

 
$
(53,334
)
 
$
101,436

 
 
 
 
 
 
Customer relationships
$
134,327

 
$
(56,888
)
 
$
77,439

Developed technology
9,400

 
(6,645
)
 
2,755

Other
9,534

 
(1,415
)
 
8,119

Balance at September 30, 2014
$
153,261

 
$
(64,948
)
 
$
88,313


Amortization expense totaled $3,785 and $3,892 for the three months ended September 30, 2013 and 2014, respectively, and $11,534 and $12,325 for the nine months ended September 30, 2013 and 2014, respectively. Amortization expense is estimated to be approximately $16,000 for the year ending December 31, 2014.
3. Restructuring
Restructuring activities initiated prior to 2013
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 January 1, 2013 and continued to execute these initiatives during 2014. 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.

7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

The following table summarizes the restructuring expense (reversal) for these initiatives for the three and nine months ended September 30, 2013 and 2014:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2014
 
2013
 
2014
Employee separation costs (reversals)
$
162

 
$
3

 
$
3,023

 
$
(56
)
Other exit costs (reversals)
408

 
(50
)
 
1,687

 
176

Asset impairments
1,023

 
—

 
1,110

 
—


$
1,593

 
$
(47
)
 
$
5,820

 
$
120

The following table summarizes the activity in the restructuring liability for these initiatives for the nine months ended September 30, 2014:
 
Employee Separation Costs
 
Other Exit Costs
 
Asset Impairments
 
 Total
Balance at January 1, 2014
$
819

 
$
16

 
$
—

 
$
835

Expense (reversal)
(56
)
 
176

 
—

 
120

Cash payments and foreign exchange translation
(686
)
 
(192
)
 
—

 
(878
)
Balance at September 30, 2014
$
77

 
$
—

 
$
—

 
$
77

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, all of which is paid. No additional expense is expected to be incurred related to this initiative.
In the third quarter of 2013, the Company initiated the closure of a facility in Korea and the transfer of equipment to another facility in Korea. The Company has recognized $974 of costs related to this initiative and, as of September 30, 2014, this initiative was substantially completed. For each of the three and nine months ended September 30, 2013, the Company recorded $314 of other exit costs related to this initiative. For the three and nine months ended September 30, 2014, the Company recorded $67 and $352 of other exit costs, respectively, related to this initiative. As of September 30, 2014, there is no liability associated with this initiative.
In the fourth quarter of 2013, the Company initiated the restructure of a facility in Europe. The estimated cost of this initiative is $23,100 and is expected to be completed in 2016. The Company has recognized $22,355 of costs related to this initiative. The following table summarizes the restructuring expense (reversal) for this initiative for the three and nine months ended September 30, 2013 and 2014:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2014
 
2013
 
2014
Employee separation costs (reversals)
$
—

 
$
(8
)
 
$
—

 
$
404

Other exit costs
—

 
2,959

 
—

 
7,765

 
$
—

 
$
2,951

 
$
—

 
$
8,169

 
 
 
 
 
 
 
 

8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

The following table summarizes the activity in the restructuring liability for this initiative for the nine months ended September 30, 2014:
 
Employee Separation Costs
 
Other Exit Costs
 
Asset Impairments
 
Total
Balance at January 1, 2014
$
13,501

 
$
—

 
$
—

 
$
13,501

Expense
404

 
7,765

 
—

 
8,169

Cash payments and foreign exchange translation
(3,977
)
 
(7,765
)
 
—

 
(11,742
)
Balance at September 30, 2014
$
9,928

 
$
—

 
$
—

 
$
9,928

Restructuring activities initiated in 2014
In 2014, the Company initiated the restructure of certain facilities in Europe. The following table summarizes the restructuring expense for these initiatives for the three and nine months ended September 30, 2014:
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
Employee separation costs
$
1,738

 
$
2,369

Other exit costs
136

 
680

 
$
1,874

 
$
3,049

The following table summarizes the activity in the restructuring liability for these initiatives for the nine months ended September 30, 2014:
 
Employee Separation Costs
 
Other Exit Costs
 
Asset Impairments
 
Total
Expense
$
2,369

 
$
680

 
$
—

 
$
3,049

Cash payments and foreign exchange translation
(866
)
 
(680
)
 
—

 
(1,546
)
Balance at September 30, 2014
$
1,503

 
$
—

 
$
—

 
$
1,503

4. Inventories
Inventories were comprised of the following at December 31, 2013 and September 30, 2014:
 
December 31, 2013
 
September 30, 2014
Finished goods
$
48,787

 
$
46,666

Work in process
38,929

 
41,207

Raw materials and supplies
92,050

 
93,602

 
$
179,766

 
$
181,475

5. Debt
Outstanding debt consisted of the following at December 31, 2013 and September 30, 2014:
 
December 31, 2013
 
September 30, 2014
Term loan
$
—

 
$
744,643

Senior notes
450,000

 
—

Senior PIK toggle notes
196,484

 
—

Other borrowings
37,940

 
41,494

Total debt
$
684,424

 
$
786,137

Less current portion
(28,329
)
 
(26,138
)
Total long-term debt
$
656,095

 
$
759,999


9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Senior ABL Facility
On April 8, 2013, the Company and certain of its subsidiaries entered into the Amended and Restated Senior Loan and Security Agreement (the “Amended Senior ABL Facility”), with certain lenders, which amended and restated the then existing senior secured asset-based revolving credit facility of the Company, dated May 27, 2010. The Amended Senior ABL Facility provided 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 Amended Senior ABL Facility also provided for an uncommitted $75,000 incremental loan facility, for a potential total Amended Senior ABL Facility of $225,000 (if requested by the Company and one or more new or existing lenders agreed to fund such increase).
On April 4, 2014, the Company and certain of its subsidiaries entered into the Second Amended and Restated Loan Agreement (the "Senior ABL Facility"), which amended and restated the Amended Senior ABL Facility, in order to permit the Term Loan Facility (described below) and other related transactions. The Senior ABL Facility continues to provide for an aggregate revolving loan availability of up to $150,000, subject to borrowing base availability, including a $60,000 letter of credit sub-facility and the same $25,000 swing line sub-facility. The Senior ABL Facility also provided for an uncommitted $105,000 incremental loan facility, for a potential total Senior ABL Facility of $255,000 (if requested by the Company and one or more new or existing lenders agreed to fund such increase). The obligations under the Senior ABL Facility are secured by amongst other items (a) a first priority security interest in accounts receivable of the U.S. borrower and the U.S. guarantors arising from the sale of goods and services, and inventory, excluding certain property and subject to certain limitations (with obligations of the Canadian borrower secured also by comparable assets of the Canadian borrower and Canadian guarantors) and (b) a second priority security interest (subject to permitted liens and other customary exceptions) on (i) all the capital stock in restricted subsidiaries directly held by the U.S. borrower and each of the U.S. guarantors, (ii) substantially all material owned real property located in the U.S. and equipment of the U.S. borrower and the U.S. guarantors and (iii) all other material personal property of the U.S. borrower and the U.S. guarantors.
On June 11, 2014, the Company and certain of its subsidiaries entered into Amendment No. 1 to the Senior ABL Facility, which increased the aggregate revolving loan availability to $180,000, subject to borrowing base availability, principally by expanding a tooling receivable category of eligible borrowing base availability for the U.S. borrower and Canadian borrower. The Senior ABL Facility, as amended, also now provides for an uncommitted $75,000 incremental loan facility, for a potential total Senior ABL Facility of $255,000 (if requested by the Company and one or more new or existing 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 September 30, 2014, subject to borrowing base availability, the Company had $180,000 in availability under the Senior ABL Facility supporting outstanding letters of credit of $35,576.
Term Loan Facility
On April 4, 2014, certain subsidiaries of the Company entered into a term loan facility (the “Term Loan Facility”) in order to (i) refinance the Senior PIK Toggle Notes due 2018 of the Company and the 8 1/2% Senior Notes due 2018 of Cooper-Standard Automotive Inc. (the "Senior Notes"), including applicable call premiums and accrued and unpaid interest, (ii) pay related fees and expenses and (iii) provide for working capital and other general corporate purposes. The Term Loan Facility provides for loans in an aggregate principal amount of $750,000 and may be expanded (or a new term loan facility added) by an amount that will not cause the consolidated first lien debt ratio to exceed 2.25 to 1.00 plus $300,000. All obligations of the borrower are guaranteed jointly and severally on a senior secured basis by the direct parent company of the borrower and each existing and subsequently acquired or organized direct or indirect wholly-owned U.S. restricted subsidiary of the borrower. The obligations are secured by amongst other items (a) a first priority security interest (subject to permitted liens and other customary exceptions) on (i) all the capital stock in restricted subsidiaries directly held by the borrower and each of the guarantors, (ii) substantially all plant, material owned real property located in the U.S. and equipment of the borrower and the guarantors and (iii) all other personal property of the borrower and the guarantors, and (b) a second priority security interest (subject to permitted liens and other customary exceptions) in accounts receivable of the borrowers and the guarantors arising from the sale of goods and services, inventory, excluding certain collateral and subject to certain limitations. Loans under the Term Loan Facility bear interest at a rate equal to, at the Borrower’s option, LIBOR, subject to a 1.00% LIBOR Floor or the base rate option (the highest of the Federal Funds rate, prime rate, or one-month Eurodollar rate plus the appropriate spread), in each case, plus an applicable margin of 3.00%. The Term Loan Facility matures on April 4, 2021. On April 4, 2014, the aggregate principal amount of $750,000 was fully drawn to extinguish the Senior PIK Toggle Notes and the Senior Notes and to pay related fees and expenses. As of September 30, 2014, the principle amount of $748,125 was outstanding. Debt issuance costs of approximately $7,900 were incurred on this transaction, along with the original issue discount of $3,750. Both the debt issuance costs and the original issue discount will be amortized into interest expense over the term of the Term Loan Facility. As of September 30, 2014, the Company had $3,482 of unamortized original issue discount.

10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Prepayment of the Notes
On March 21, 2014, the Company and Cooper-Standard Automotive Inc. commenced cash tender offers for any and all of the outstanding Senior PIK Toggle Notes and Senior Notes, respectively. Approximately 99% of the Senior PIK Toggle Notes and 49% of the Senior Notes were tendered and purchased on April 4, 2014, and the funds to redeem the remainder were deposited with the Trustee. The remaining redemptions were completed on April 21, 2014 for the Senior Notes and May 5, 2014 for the Senior PIK Toggle Notes.
As a result of the purchases and redemptions, the Company recognized a loss on extinguishment of debt of $30,488 in the nine months ended September 30, 2014, which was primarily due to call and make-whole premiums and the write off of approximately $4,500 in original issue discount and debt issuance costs.
The Company used borrowings under the Term Loan Facility, together with cash on hand, to finance the repurchase and redemption of the Senior PIK Toggle Notes and the Senior Notes.
6. Pension and Postretirement Benefits other than Pensions
The following tables disclose the amount of net periodic benefit cost (gain) for the three and nine months ended September 30, 2013 and 2014 for the Company’s defined benefit plans and other postretirement benefit plans:
 
 Pension Benefits
 
Three Months Ended September 30,
 
2013
 
2014
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
305

 
$
881

 
$
213

 
$
843

Interest cost
3,052

 
1,694

 
3,370

 
1,775

Expected return on plan assets
(4,342
)
 
(927
)
 
(4,764
)
 
(970
)
Amortization of prior service cost and recognized actuarial loss
344

 
325

 
16

 
222

Net periodic benefit cost (gain)
$
(641
)
 
$
1,973

 
$
(1,165
)
 
$
1,870

 
 
 
 
 
 
 
 
 
 Pension Benefits
 
Nine Months Ended September 30,
 
2013
 
2014
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
915

 
$
2,646

 
$
639

 
$
2,571

Interest cost
9,156

 
5,095

 
10,110

 
5,389

Expected return on plan assets
(13,026
)
 
(2,812
)
 
(14,292
)
 
(2,900
)
Amortization of prior service cost and recognized actuarial loss
1,032

 
981

 
48

 
683

Settlement
783

 
—

 
—

 
—

Net periodic benefit cost (gain)
$
(1,140
)
 
$
5,910

 
$
(3,495
)
 
$
5,743

 

11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

 
 Other Postretirement Benefits
 
Three Months Ended September 30,
 
2013
 
2014
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
147

 
$
163

 
$
106

 
$
138

Interest cost
407

 
183

 
397

 
191

Amortization of prior service credit and recognized actuarial gain
(281
)
 
(35
)
 
(481
)
 
(73
)
Other
6

 
—

 
6

 
—

Net periodic benefit cost
$
279

 
$
311

 
$
28

 
$
256

 
 
 
 
 
 
 
 
 
 Other Postretirement Benefits
 
Nine Months Ended September 30,
 
2013
 
2014
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
441

 
$
497

 
$
318

 
$
412

Interest cost
1,221

 
557

 
1,191

 
569

Amortization of prior service credit and recognized actuarial gain
(843
)
 
(106
)
 
(1,443
)
 
(217
)
Other
18

 
—

 
18

 
—

Net periodic benefit cost
$
837

 
$
948

 
$
84

 
$
764

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 nine months ended September 30, 2014 was 46% and 38%, respectively. The effective tax rate for the three and nine months ended September 30, 2013 was 18% and 27%, respectively. The effective tax rate for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 is higher primarily due to a discrete tax expense related to an uncertain tax position in one of the Company's foreign subsidiaries recorded in the three months ended September 30, 2014. The effective tax rate for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 is higher due to a liability recorded for an uncertain tax position as a result of an ongoing audit in one of the Company's foreign subsidiaries, and the U.S. research and development tax credit not being reenacted for 2014; therefore it is not reflected as a benefit in the 2014 effective tax rate. The income tax rate for the three and nine months ended September 30, 2014 varies from statutory rates due to the impact of discrete items in the quarter, uncertain tax positions, 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, income taxes on foreign earnings taxed at rates lower than the U.S. statutory rate, tax credits, income tax incentives, 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. 

12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

8. Accumulated Other Comprehensive Income (Loss), Equity and Redeemable Noncontrolling Interests
The changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30, 2013 and 2014, net of related tax, are as follows:
 
Three Months Ended September 30, 2013
 
Cumulative currency translation adjustment
 
Benefit plan
liability
 
Unrealized gain on investment securities
 
Fair value change of derivatives
 
Accumulated other comprehensive loss
Balance at July 1, 2013
$
(5,111
)
 
$
(62,673
)
 
$
—

 
$
(166
)
 
$
(67,950
)
Other comprehensive income (loss) before reclassifications
14,501

 
(979
)
 
—

 
130

 
13,652

Amounts reclassified from accumulated other comprehensive income (loss)
—

 
239

 
—

 
(39
)
 
200

Net current period other comprehensive income (loss)(1)
14,501

 
(740
)
 
—

 
91

 
13,852

Balance at September 30, 2013
$
9,390

 
$
(63,413
)
 
$
—

 
$
(75
)
 
$
(54,098
)
 
 
 
 
 
 
 
 
 
 
Amounts in parentheses indicate debits.

(1)
Other comprehensive income (loss) related to the benefit plan liability is net of a tax effect of $24. Other comprehensive income (loss) related to the fair value change of derivatives is net of a tax effect of $3.
 
Three Months Ended September 30, 2014
 
Cumulative currency translation adjustment
 
Benefit plan
liability
 
Unrealized gain on investment securities
 
Fair value change of derivatives
 
Accumulated other comprehensive loss
Balance at July 1, 2014
$
9,283

 
$
(33,489
)
 
$
—

 
$
99

 
$
(24,107
)
Other comprehensive income (loss) before reclassifications
(37,048
)
 
1,864

 
—

 
396

 
(34,788
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
(114
)
 
—

 
(48
)
 
(162
)
Net current period other comprehensive income (loss)(1)
(37,048
)
 
1,750

 
—

 
348

 
(34,950
)
Balance at September 30, 2014
$
(27,765
)
 
$
(31,739
)
 
$
—

 
$
447

 
$
(59,057
)
 
 
 
 
 
 
 
 
 
 
Amounts in parentheses indicate debits.

(1)
Other comprehensive income (loss) related to the benefit plan liability is net of a tax effect of $(87). Other comprehensive income (loss) related to the fair value change of derivatives is net of a tax effect of $(113).




13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

 
Nine Months Ended September 30, 2013
 
Cumulative currency translation adjustment
 
Benefit plan
liability
 
Unrealized gain on investment securities
 
Fair value change of derivatives
 
Accumulated other comprehensive loss
Balance at January 1, 2013
$
18,320

 
$
(64,018
)
 
$
—

 
$
250

 
$
(45,448
)
Other comprehensive loss before reclassifications
(8,930
)
 
(74
)
 
—

 
(53
)
 
(9,057
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
679

 
—

 
(272
)
 
407

Net current period other comprehensive income (loss)(1)
(8,930
)
 
605

 
—

 
(325
)
 
(8,650
)
Balance at September 30, 2013
$
9,390

 
$
(63,413
)
 
$
—

 
$
(75
)
 
$
(54,098
)
 
 
 
 
 
 
 
 
 
 
Amounts in parentheses indicate debits.
(1)
Other comprehensive income (loss) related to the benefit plan liability is net of a tax effect of $(376). Other comprehensive income (loss) related to the fair value change of derivatives is net of a tax effect of $128.

 
Nine Months Ended September 30, 2014
 
Cumulative currency translation adjustment
 
Benefit plan
liability
 
Unrealized gain on investment securities (2)
 
Fair value change of derivatives
 
Accumulated other comprehensive loss
Balance at January 1, 2014
$
5,712

 
$
(33,406
)
 
$
—

 
$
—

 
$
(27,694
)
Other comprehensive income (loss) before reclassifications
(33,477
)
 
2,198

 
1,146

 
545

 
(29,588
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
(531
)
 
(1,146
)
 
(98
)
 
(1,775
)
Net current period other comprehensive income (loss)(1)
(33,477
)
 
1,667

 
—

 
447

 
(31,363
)
Balance at September 30, 2014
$
(27,765
)
 
$
(31,739
)
 
$
—

 
$
447

 
$
(59,057
)
 
 
 
 
 
 
 
 
 
 
Amounts in parentheses indicate debits.
(1)
Other comprehensive income (loss) related to the benefit plan liability is net of a tax effect of $(143). Other comprehensive income (loss) related to the fair value change of derivatives is net of a tax effect of $(194).
(2)
The unrealized gain on investment securities that was reclassified out of accumulated other comprehensive income (loss) related to the gain on the sale of investment of $1,882, which is recorded in other income (expense), net, less income tax expense of $736.


14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

The reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2013 and 2014 are as follows: 
 
 
Gain (loss) reclassified
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
Details about accumulated other comprehensive income (loss) components
 
2013
 
2014
 
2013
 
2014
 
Location of gain (loss) reclassified into income
Fair value change of derivatives
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
(21
)
 
$
—

 
$
209

 
$
—

 
Interest expense, net of interest income
Foreign exchange contracts
 
68

 
87

 
181

 
161

 
Cost of products sold
 
 
47

 
87

 
390

 
161

 
Income before income taxes
 
 
(8
)
 
(39
)
 
(118
)
 
(63
)
 
Income tax expense
 
 
$
39

 
$
48

 
$
272

 
$
98

 
Consolidated net income
 
 
 
 
 
 
 
 
 
 
 
Amortization of defined benefit and other postretirement benefit plans
 
 
 
 
 
 
 
 
 
 
Prior service credits
 
$
161

 
$
10

 
$
472

 
$
261

 
(1)
Actuarial gains (losses)
 
(495
)
 
254

 
(1,427
)
 
704

 
(1)
 
 
(334
)
 
264

 
(955
)
 
965

 
Income before income taxes
 
 
95

 
(150
)
 
276

 
(434
)
 
Income tax expense
 
 
$
(239
)
 
$
114

 
$
(679
)
 
$
531

 
Consolidated net income
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(200
)
 
$
162

 
$
(407
)
 
$
629

 
 
 
(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 nine months ended September 30, 2014:
 
Cooper-Standard Holdings Inc.
 
Noncontrolling Interests
 
Total Equity
 
Redeemable Noncontrolling Interest
Equity at January 1, 2014
$
618,150

 
$
(2,578
)
 
$
615,572

 
$
5,153

Net income (loss)
55,595

 
2,961

 
58,556

 
(717
)
Warrant exercise
8,492

 
—

 
8,492

 
—

Other comprehensive income (loss)
(31,363
)
 
(5
)
 
(31,368
)
 
18

Stock-based compensation, net
7,419

 
—

 
7,419

 
—

Shares issued under stock option plans
(719
)
 
—

 
(719
)
 
—

Equity at September 30, 2014
$
657,574

 
$
378

 
$
657,952

 
$
4,454

 

15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except 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 by dividing net income attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding during the period excluding unvested restricted shares. Diluted net income per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net income available to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding, including the dilutive effect of common stock equivalents, using the average share price during the period.
A summary of information used to compute basic and diluted net income per share attributable to Cooper-Standard Holdings Inc. is shown below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2014
 
2013
 
2014
Net income attributable to Cooper-Standard Holdings Inc.
$
20,596

 
$
22,666

 
$
68,729

 
$
55,595

Less: 7% Preferred stock dividends (paid or unpaid)
(1,419
)
 
—

 
(4,569
)
 
—

Less: Undistributed earnings allocated to participating securities
(4,033
)
 
—

 
(13,101
)
 
—

Net income available to Cooper-Standard Holdings Inc. common stockholders
$
15,144

 
$
22,666

 
$
51,059

 
$
55,595

 
 
 
 
 
 
 
 
Increase (decrease) in fair value of share-based awards
212

 
(18
)
 
466

 
$
—

Diluted net income available to Cooper-Standard Holdings Inc. common stockholders
$
15,356

 
$
22,648

 
$
51,525

 
$
55,595

 
 
 
 
 
 
 
 
Basic weighted average shares of common stock outstanding
13,045,575

 
17,066,067

 
14,621,535

 
16,882,229

Dilutive effect of:
 
 
 
 
 
 
 
Restricted common stock
144,086

 
169,227

 
206,588

 
152,386

Restricted 7% preferred stock
—

 
—

 
19,949

 
—

Warrants
899,420

 
944,002

 
800,116

 
996,840

Options
162,878

 
236,388

 
139,655

 
101,397

Diluted weighted average shares of common stock outstanding
14,251,959

 
18,415,684

 
15,787,843

 
18,132,852

 
 
 
 
 
 
 
 
Basic net income per share attributable to Cooper-Standard Holdings Inc.
$
1.16

 
$
1.33

 
$
3.49

 
$
3.29

 
 
 
 
 
 
 
 
Diluted net income per share attributable to Cooper-Standard Holdings Inc.
$
1.08

 
$
1.23

 
$
3.26

 
$
3.07

 


16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

The effect of certain common stock equivalents was excluded from the computation of weighted average diluted shares outstanding as inclusion would have been antidilutive. A summary of common stock equivalents excluded from the computation of weighted average diluted shares outstanding is shown below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2014
 
2013
 
2014
Number of options
131,000

 
161,000

 
131,000

 
464,504

Exercise price
$52.25-52.50

 
 $64.74-70.20

 
$52.25-52.50

 
$25.52-70.20

Restricted common stock
—

 
—

 
—

 
42,717

7% Preferred stock, as if converted
3,479,719

 
—

 
3,751,800

 
—

7% Preferred stock dividends, undistributed earnings and premium allocated to participating securities that would be added back in the diluted calculation
$
5,460

 
$
—

 
$
17,670

 
$
—

10. Stock-Based Compensation
Under the Company's Omnibus incentive plans, stock options, restricted common stock, restricted 7% preferred stock, unrestricted common stock and restricted stock units have been granted to key employees and directors. Total compensation expense recognized was $3,026 and $2,919 for the three months ended September 30, 2013 and 2014, respectively, and $8,660 and $10,748 for the nine months ended September 30, 2013 and 2014, respectively. 
11. Other Income (Expense), Net
The components of other income (expense), net are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2014
 
2013
 
2014
Loss on extinguishment of debt
$
—

 
$
—

 
$
—

 
$
(30,488
)
Foreign currency gains (losses)
813

 
(4,820
)
 
(6,351
)
 
(4,022
)
Gains (losses) related to forward contracts
401

 
—

 
(92
)
 
(34
)
Loss on sale of receivables
(437
)
 
(462
)
 
(1,235
)
 
(1,423
)
Gain on sale of investment
—

 
—

 
—

 
1,882

Miscellaneous income
183

 
1,153

 
2,293

 
1,153

Other income (expense), net
$
960

 
$
(4,129
)
 
$
(5,385
)
 
$
(32,932
)
12. Related Party Transactions
Sales to Nishikawa Standard Company ("NISCO"), a 40% owned joint venture, totaled $11,694 and $6,798 for the three months ended September 30, 2013 and 2014, respectively, and $35,528 and $25,844 for the nine months ended September 30, 2013 and 2014, respectively. 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. In March 2014, the Company received from NISCO a dividend of $1,760, consisting of $809 related to earnings and a $951 return of capital.
In the second quarter of 2014, the Company sold the remaining 17% of the common stock in Guyoung Technology Co. Ltd. for $3,216 and recorded a gain on the investment of $1,882. The gain is recorded in other income (expense), net on the Company's condensed consolidated statements of comprehensive income (loss).

17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

13. Business Segments
ASC 280, “Segment Reporting,” establishes the standards for reporting information about operating segments in financial statements. In applying the criteria set forth in ASC 280, the Company has determined that it operates in four reportable segments, North America, Europe, South America and Asia Pacific. The Company’s principal product lines within each of these segments are sealing and trim systems, fuel and brake delivery systems, fluid transfer systems, and anti-vibration systems. The Company evaluates segment performance based on segment profit before tax. The results of each segment include certain allocations for general, administrative, interest, and other shared costs.
     The following tables detail information on the Company’s business segments:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2014
 
2013
 
2014
Sales to external customers:
 
 
 
 
 
 
 
North America
$
408,615

 
$
413,486

 
$
1,191,521

 
$
1,298,278

Europe
258,028

 
265,182

 
806,182

 
879,081

South America
43,069

 
39,967

 
138,746

 
121,139

Asia Pacific
54,345

 
62,319

 
159,892

 
177,615

Consolidated
$
764,057

 
$
780,954

 
$
2,296,341

 
$
2,476,113

Intersegment sales:
 
 
 
 
 
 
 
North America
$
2,121

 
$
3,488

 
$
8,959

 
$
9,981

Europe
2,440

 
2,395

 
6,837

 
6,745

South America
—

 
—

 
—

 
—

Asia Pacific
3,013

 
1,350

 
7,434

 
4,822

Eliminations and other
(7,574
)
 
(7,233
)
 
(23,230
)
 
(21,548
)
Consolidated
$
—

 
$
—

 
$
—

 
$
—

Segment profit (loss):
 
 
 
 
 
 
 
North America
$
31,726

 
$
45,516

 
$
103,158

 
$
120,445

Europe
(7,500
)
 
5,497

 
(14,784
)
 
(10,548
)
South America
(1,838
)
 
(11,115
)
 
(5,760
)
 
(17,931
)
Asia Pacific
2,365

 
1,198

 
8,251

 
1,227

Income before income taxes
$
24,753

 
$
41,096

 
$
90,865

 
$
93,193

Restructuring cost included in segment profit (loss):
 
 
 
 
 
 
 
North America
$
73

 
$
(72
)
 
$
1,961

 
$
105

Europe
1,517

 
4,854

 
5,476

 
11,232

South America
—

 
—

 
—

 
—

Asia Pacific
317

 
63

 
318

 
353

Consolidated
$
1,907

 
$
4,845

 
$
7,755

 
$
11,690

 
 
December 31,
2013
 
September 30,
2014
Segment assets:
 
 
 
North America
$
866,847

 
$
930,369

Europe
680,920

 
711,351

South America
138,469

 
122,276

Asia Pacific
243,736

 
262,708

Eliminations and other
172,782

 
139,043

Consolidated
$
2,102,754

 
$
2,165,747


18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

14. Financial Instruments
Fair value of the Senior Notes approximated $477,000 at December 31, 2013, based on quoted market prices, compared to the recorded value of $450,000. During the second quarter 2014, the Company extinguished its Senior Notes (see Note 5. "Debt" for additional details). This fair value measurement was classified within Level 1 of the fair value hierarchy.
Fair value of the Senior PIK Toggle Notes approximated $197,466 at December 31, 2013, based on quoted market prices, compared to the recorded value of $196,484. During the second quarter 2014, the Company extinguished its Senior PIK Toggle Notes (see Note 5. "Debt" for additional details). This fair value measurement was classified within Level 1 of the fair value hierarchy.
The Company completed an agreement with Fonds de Modernisation des Equipementiers Automobiles (“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% ownership and FMEA has 49% ownership in CS France. 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% 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 the formula described above. The Company records the noncontrolling interest 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. According to authoritative accounting guidance, the redeemable noncontrolling interest was classified outside of permanent equity, in mezzanine equity, on the Company’s condensed consolidated balance sheets.
At December 31, 2013 and September 30, 2014, the estimated redemption value of the put option relating to the noncontrolling interest in CS France was $0. The redemption amount, if any, 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 September 30, 2014 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 statements of comprehensive income (loss). For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive loss 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 accumulated other comprehensive loss is recorded in earnings and reflected in the condensed consolidated statements of comprehensive income (loss) 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, other assets, accrued liabilities, and other liabilities.

19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Cash Flow Hedges
Forward foreign exchange contracts—The Company enters into forward contracts to hedge currency risk of the U.S. Dollar against the Mexican Peso and the Euro against the Czech Koruna, the Polish Zloty, the Romanian Leu 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 September 30, 2014, the notional amount of these contracts was $20,743. The amount reclassified from accumulated other comprehensive loss into cost of products sold was $87 and $161 for the three and nine months ended September 30, 2014. These foreign currency derivative contracts consist of hedges of transactions up to December 2014.
Interest Rate Swap - In August 2014, the Company entered into interest rate swap transactions to manage cash flow variability associated with its variable rate Term Loan Facility. The interest rate swap contracts, which fix the interest payments of variable rate debt instruments, are used to manage exposure to fluctuations in interest rates. As of September 30, 2014, the notional amount of these contracts was $300,000 with maturities through September 2018. The fair market value of all outstanding interest rate swap and other derivative contracts is subject to changes in value due to changes in interest rates.
The location and fair value of the Company's derivative instruments qualifying as cash flow hedges as of December 31, 2013 and September 30, 2014 are as follows:
 
December 31, 2013
 
September 30, 2014
Other current assets:
 
 
 
Forward foreign exchange contracts
$
—

 
$
459

Other assets:
 
 
 
Interest rate swaps
—

 
256

Total assets
$
—

 
$
715

 
 
 
 
Accrued liabilities:
 
 
 
Forward foreign exchange contracts
$
—

 
$
(9
)
Other liabilities:
 
 
 
Interest rate swaps
—

 
(72
)
Total liabilities
$
—

 
$
(81
)
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 were used to mitigate the potential volatility of cash flows arising from changes in currency exchange rates that impacted the Company’s foreign currency transactions. These foreign currency derivative contracts related to hedge transactions through April 2014. The gain or loss on the forward contracts is reported as a component of other income (expense), net. The gain amounted to $401 for the three months ended September 30, 2013. There was no gain or loss recorded on this derivative for the three months ended September 30, 2014. The loss amounted to $(92) and $(34), for the nine months ended September 30, 2013 and 2014, 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.

20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except 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, 2013 and September 30, 2014, are shown below:
 
December 31, 2013
 
September 30, 2014
 
Input
Forward foreign exchange contracts - other current assets
$
36

 
$
459

 
Level 2
Forward foreign exchange contracts - accrued liabilities
(1
)
 
(9
)
 
Level 2
Interest rate swaps - other assets
—

 
256

 
Level 2
Interest rate swaps - other liabilities
—

 
(72
)
 
Level 2

 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.”
15. 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 Term Loan Facility and Senior ABL Facility.
At September 30, 2013 and 2014, the Company had $95,642 and $106,709, respectively, outstanding under receivable transfer agreements without recourse entered into by various locations. The total amount of accounts receivable factored were $347,473 and $396,732 for the nine months ended September 30, 2013 and 2014, respectively. Costs incurred on the sale of receivables were $720 and $990 for the three months ended September 30, 2013 and 2014, respectively, and $2,049 and $2,541 for the nine months ended September 30, 2013 and 2014, respectively. These amounts are recorded in other income (expense), net and interest expense, net of interest income in the condensed consolidated statements of comprehensive income (loss).
At September 30, 2013 and 2014, the Company had $13,727 and $7,097, 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 $69,809 and $45,577 for the nine months ended September 30, 2013 and 2014, respectively. Costs incurred on the sale of receivables were $106 and $103 for the three months ended September 30, 2013 and 2014, respectively, and $327 and $290 for the nine months ended September 30, 2013 and 2014, respectively. These amounts are recorded in other income (expense), net and interest expense, net of interest income in the condensed consolidated statements of comprehensive income (loss).

21


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 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” below) and in our 2013 Annual Report (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, manufacturer and dealer sales incentives, fuel prices, consumer confidence, employment levels, income growth trends and government and tax incentives.
Details on light vehicle production in certain regions for the three and nine months ended September 30, 2013 and 2014 are provided in the following table:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions of units)
2013(1,2)
 
2014(1)
 
% Change
 
2013(1,2)
 
2014(1)
 
% Change
North America
3.9

 
4.2

 
8.2%
 
12.2

 
12.8

 
5.4%
Europe
4.6

 
4.5

 
(0.6)%
 
14.5

 
15.1

 
3.7%
South America
1.2

 
1.0

 
(20.5)%
 
3.5

 
2.9

 
(18.0)%
Asia Pacific
10.3

 
10.8

 
4.7%
 
31.4

 
33.2

 
5.5%
(1)
Production data based on IHS Automotive, September 2014.
(2)
Production data for 2013 has been updated to reflect actual production levels.
The expected annualized light vehicle production volumes for 2014, compared to the actual production volumes for 2013 are provided in the following table:
(In millions of units)
2013(1,2)
 
2014(1)
 
% Change
North America
16.2

 
17.0

 
5.2%
Europe
19.5

 
20.0

 
2.4%
South America
4.5

 
3.8

 
(15.6)%
Asia Pacific
43.0

 
44.9

 
4.5%
(1)
Production data based on IHS Automotive, September 2014.
(2)
Production data for 2013 has been updated to reflect actual production levels.

The expected light vehicle production volume for the fourth quarter of 2014, compared to the actual production volumes for the fourth quarter of 2013 are provided in the following table:
(In millions of units)
Q4 2013(1)
 
Q4 2014(1)
 
% Change
North America
4.0

 
4.2

 
4.4
 %
Europe
5.0

 
4.9

 
(1.3
)%
South America
1.1

 
1.0

 
(7.6
)%
Asia Pacific
11.5

 
11.7

 
1.7
 %
(1)
Production data based on IHS Automotive, September 2014.

22


Competition in the automotive supplier industry is intense and has increased in recent years as OEMs have demonstrated a preference for stronger relationships with fewer suppliers. There are typically three or more significant competitors and numerous smaller competitors for most of the products we produce. Globalization and the importance of servicing customers around the world will continue to shape the success of suppliers going forward.
OEMs have shifted some research and development, design and testing responsibility to suppliers, while at the same time shortening new product cycle times. To remain competitive, suppliers must have state-of-the-art engineering and design capabilities and must be able to continuously improve their engineering, design and manufacturing processes to effectively service the customer. Suppliers are increasingly expected to collaborate on, or assume the product design and development of, key automotive components and to provide innovative solutions to meet evolving technologies aimed at improved emissions, fuel economy, fit and finish and overall performance.
Consolidations and market share shifts among vehicle manufacturers continues to put additional pressures on the supply chain. At the same time, the introduction of multiple new vehicle platforms across most OEMs, coupled with volume recovery in some regions, has put increased pressure on the supply chain’s capital and capacity. We expect to continue to add necessary infrastructure to support our customers' new vehicle launch needs and transfer capacity to low cost regions to both address pricing pressure and provide local support to customers in emerging markets.
Results of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2014
 
2013
 
2014
 
(dollar amounts in thousands)
Sales
$
764,057

 
$
780,954

 
$
2,296,341

 
$
2,476,113

Cost of products sold
649,028

 
669,701

 
1,928,735

 
2,084,492

Gross profit
115,029

 
111,253

 
367,606

 
391,621

Selling, administration & engineering expenses
72,968

 
67,365

 
220,807

 
228,609

Amortization of intangibles
3,785

 
3,892

 
11,534

 
12,325

Restructuring
1,907

 
4,845

 
7,755

 
11,690

Other operating profit
—

 
(18,385
)
 
—

 
(18,385
)
Operating profit
36,369

 
53,536

 
127,510

 
157,382

Interest expense, net of interest income
(15,171
)
 
(9,405
)
 
(39,953
)
 
(35,332
)
Equity earnings
2,595

 
1,094

 
8,693

 
4,075

Other income (expense), net
960

 
(4,129
)
 
(5,385
)
 
(32,932
)
Income before income taxes
24,753

 
41,096

 
90,865

 
93,193

Income tax expense
4,467