Cooper-Standard Holdings Inc. — Form 10-K Summary
Period note: The supplied filing is for the fiscal year ended December 31, 2013, not a 2012 Q4 filing. It includes unaudited fourth-quarter results for both 2012 and 2013.
Business context and reporting period
Cooper-Standard manufactures sealing and trim, fuel and brake delivery, fluid transfer, thermal and emissions, and anti-vibration systems, primarily for automotive OEMs. At year-end 2013 it operated 84 facilities in 19 countries and employed approximately 25,300 people. About 77% of 2013 sales were to OEMs. Ford represented 25% of sales; GM and FCA each represented 12%.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Sales | $3,090.5 million | $2,880.9 million |
| Gross profit / margin | $472.7 million / 15.3% | $438.9 million / 15.2% |
| Operating profit | $142.1 million | $103.3 million |
| Net income attributable to Cooper-Standard | $47.9 million | $102.8 million |
| Diluted earnings per share | $2.24 | $4.14 |
| Cash from operations | $133.3 million | $84.4 million |
| Capital expenditures | $183.3 million | $131.1 million |
| Cash and cash equivalents at year-end | $184.4 million | $270.6 million |
| Total debt at year-end | $684.4 million | $483.4 million |
Sales rose 7.3%, reflecting higher volumes across all segments, $7.6 million of favorable foreign exchange and $32.7 million of incremental Jyco sales, partly offset by customer price concessions. Gross margin edged up. Operating profit improved as restructuring charges fell and volumes and lean savings helped, but net income attributable to the company declined, notably amid higher interest expense and a shift from a tax benefit in 2012 to tax expense in 2013. The 2013 effective tax rate was 50.2%.
Operating cash flow less capital expenditures was approximately negative $50.1 million. The company reported net working capital of $269.1 million, defined as current assets excluding cash less current liabilities excluding debt payable within one year. Debt included $450.0 million of 8.5% Senior Notes due 2018 and $196.5 million of Senior PIK Toggle Notes due 2018. The $150 million revolving ABL facility had $36.7 million of outstanding letters of credit, subject to borrowing-base availability. The company said it was covenant-compliant at year-end and expected cash, operating flows and ABL availability to meet needs for the next 12 months.
Material changes and unusual items
- In May 2013, the company repurchased approximately $200 million of common stock through a tender offer, funded with cash and proceeds from Senior PIK Toggle Notes. Total 2013 common-stock repurchases were $217.5 million.
- All outstanding 7% preferred stock converted into 3,518,366 common shares in November 2013.
- The Jyco Sealing Technologies acquisition closed July 31, 2013 for $14.4 million in cash consideration.
- Restructuring expense was $21.7 million, mainly associated with a European manufacturing footprint initiative. No goodwill impairment was recorded in 2013; 2012 included $10.1 million of goodwill and fixed-asset impairment charges.
- Fourth-quarter 2013 sales were $794.2 million and net loss attributable to Cooper-Standard was $20.8 million, compared with fourth-quarter 2012 sales of $697.1 million and net loss of $9.9 million.
Outlook, management commentary and risks
Management cited higher production volumes and lean savings, while identifying pricing pressure, staffing and operating costs, volatile raw materials, and foreign exchange as offsets. Europe remained loss-making, though its segment loss improved to $40.0 million from $56.6 million; South America also reported a segment loss of $11.9 million. North America and Asia Pacific reported segment profits of $134.7 million and $8.1 million, respectively.
The filing presents third-party IHS production estimates, not formal company revenue or earnings guidance. IHS estimated 2014 light-vehicle production of 16.8 million units in North America, 19.6 million in Europe, 4.7 million in South America and 44.1 million in Asia Pacific. The company expected 2014 capital expenditures of approximately $195 million to $205 million.
- Automotive production is cyclical; the business is exposed to regional downturns and customer/platform losses. Ford, GM and FCA together represented about 49% of sales.
- Raw materials represented approximately 49% of 2013 cost of products sold; customer pricing pressure may limit cost pass-through.
- Debt service and restrictive covenants pose liquidity risks. A fixed-charge coverage covenant applies if ABL availability falls below specified thresholds. PIK interest, if permitted and elected under the indenture, accrues at 8.125%.
- Pension plans were underfunded: U.S. projected benefit obligations exceeded plan assets by $23.9 million and international obligations exceeded assets by $125.6 million at year-end. Estimated 2014 pension and other postretirement funding/payments are material cash needs.
- Other exposures include foreign currency movements, supplier disruption, labor negotiations, warranty and recall claims, environmental obligations, and tax-asset realization. Environmental reserves were $7.7 million.
Ernst & Young issued unqualified audit opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Reconcile the $217.5 million share repurchase and PIK-note financing with year-end cash, total debt and diluted share count.
- Review the cash-flow impact of capital spending, working-capital growth and receivables factoring; $94.5 million of receivables were outstanding under no-recourse transfer agreements at year-end.
- Assess debt maturities concentrated in 2018, interest costs, ABL borrowing-base availability and covenant headroom.
- Check whether European restructuring delivers planned savings and whether the Europe segment can approach profitability.
- Evaluate the durability of volume growth against customer concentration, pricing concessions, raw-material exposure and 2014 production assumptions.
- Consider the sensitivity of reported earnings to tax valuation allowances, pension assumptions and the company’s non-GAAP Adjusted EBITDA adjustments.