Cooper-Standard Holdings Inc. — Form 10-Q Summary
Period: Quarter and nine months ended September 30, 2012; filed November 8, 2012. The filing states the financial statements are unaudited. Metadata discrepancy: The request identifies “2011 Q3,” but the supplied filing covers 2012 Q3 and compares against 2011.
Business context and results
The company manufactures fluid-handling, body-sealing and anti-vibration products, primarily for global automotive OEMs and replacement markets. It reports North America and International segments. Unless stated otherwise, amounts below are in millions of U.S. dollars.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Sales | $684.0 | $708.5 | $2,183.8 | $2,157.8 |
| Gross profit / margin | $103.1 / 15.1% | $108.6 / 15.3% | $339.2 / 15.5% | $353.0 / 16.4% |
| Operating profit | $23.6 | $33.7 | $105.4 | $102.3 |
| Income before taxes | $15.8 | $16.1 | $77.5 | $81.8 |
| Net income attributable to Cooper-Standard Holdings | $11.6 | $15.7 | $112.7 | $79.6 |
| Diluted earnings per share | $0.44 | $0.58 | $4.63 | $3.08 |
Cash flow, debt and liquidity
- Cash from operating activities was negative $22.0 million for the first nine months of 2012, versus positive $45.8 million in 2011. The company cited $187.4 million of cash use from changes in operating assets and liabilities, including a $110.6 million increase in receivables, and $29.8 million of pension contributions.
- Investing cash use was $83.6 million, including $91.5 million in capital expenditures. Financing cash use was $37.8 million, including $20.6 million of common-stock repurchases, $4.9 million of preferred-stock repurchases, debt payments and dividends.
- Cash declined from $361.7 million at year-end 2011 to $217.8 million at September 30, 2012. Total debt was $482.2 million, including $450.0 million of senior notes; debt was down from $488.7 million at year-end. No borrowings were outstanding under the $125 million Senior ABL Facility, though $27.6 million of letters of credit were outstanding.
- Current assets were $998.6 million and current liabilities $461.2 million at September 30. Management said cash, operating cash flow and ABL availability were expected to meet working-capital, capital-spending and debt-service needs for the next 12 months and foreseeable future, subject to operating performance, market conditions and facility covenants.
Material changes and management commentary
- Q3 sales fell 3.5%, primarily from $42.5 million of unfavorable foreign exchange and lower International volumes, partly offset by North American growth. Nine-month sales rose 1.2%, with North American volumes and the USi and FMEA transactions offsetting foreign exchange and lower International volumes.
- North American Q3 sales increased 4.4%; International sales declined 11.1%. For nine months, North American segment profit fell to $113.9 million from $131.9 million, while the International segment loss narrowed to $36.4 million from $50.1 million.
- Gross margin declined year over year for both periods. Management cited higher material costs, launch and expansion expenses, unfavorable currency effects and lower margins at acquired businesses; lean savings and North American volumes partly offset these pressures. Nine-month selling, administration and engineering costs increased to $206.4 million from $190.9 million.
- Nine-month attributable earnings benefited substantially from a $32.8 million income-tax benefit. The company reversed its U.S. deferred-tax valuation allowance after reaching a three-year cumulative income position; it expected approximately $67.8 million of 2012 tax benefits related to U.S. valuation-allowance reductions. The reported nine-month effective tax rate was negative 42%; excluding the discrete release, it was 20%.
- Management expected 2012 capital expenditures of approximately $120 million to $130 million. It cited IHS Automotive forecasts of 2012 light-vehicle production of 15.1 million units in North America and 19 million in Europe. Fourth-quarter production was estimated at 3.6 million North American and 4.5 million European units.
- The company said it had maintained customer supply despite a supplier chemical-plant shutdown affecting PA-12 resin, and anticipated supply normalization in Q4 2012. It warned that a fourth-quarter goodwill impairment charge of up to $2.9 million might be recorded for its South America reporting unit.
Restructuring, risks and other notable items
- Q3 restructuring expense was $10.2 million; nine-month expense was $15.8 million, down from $48.1 million in the comparable 2011 period. A European footprint initiative was estimated to cost $20.3 million and was expected to be completed in 2013.
- The FMEA joint venture’s noncontrolling shareholders can put their remaining interest to the company after the specified four-year period. The estimated redemption value was $28.9 million at September 30, 2012; the obligation is guaranteed by the company.
- Key disclosed risks include automotive production and customer concentration, pricing and raw-material pressures, foreign exchange, international operations, labor and pension costs, execution of restructuring and acquisitions, liquidity and debt covenants, and possible goodwill or intangible-asset impairment. Ordinary-course legal and environmental matters were disclosed; management did not expect their resolution to materially adversely affect results, while noting uncertainty.
- Jeffrey S. Edwards was appointed CEO effective October 15, 2012, succeeding James S. McElya, who was expected to remain as non-executive chairman. Management reported disclosure controls were effective.
Important facts for investors to verify
- Whether operating cash flow recovers as receivables and other working-capital balances normalize.
- Whether the expected U.S. tax benefits are realized and how much of reported earnings reflects the valuation-allowance reversal.
- Progress on European restructuring, its remaining cash costs, and profitability of the International segment and acquired operations.
- Actual 2012 capital spending, automotive production trends, PA-12 supply normalization, and whether the potential South America impairment is recorded.
- Available borrowing capacity under the ABL after borrowing-base limits and letters of credit, along with compliance with debt covenants and the FMEA put obligation.