Cooper-Standard Holdings Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011, filed March 12, 2012. Although the request metadata says “2010 Q4,” the supplied filing is the 2011 Form 10-K. The company emerged from Chapter 11 in May 2010 and adopted fresh-start accounting; accordingly, comparisons with pre-emergence periods are not directly comparable.
Business context
Cooper-Standard manufactures automotive body sealing, anti-vibration, and fluid handling products for global original equipment manufacturers (OEMs), suppliers, and replacement markets. It operated 71 manufacturing and nine design, engineering, and administrative locations in 19 countries. About 81% of 2011 sales were to OEMs. Body and chassis products represented approximately 68% of sales and fluid handling products 32%.
Key financial results
| Metric | FY 2011 |
|---|---|
| Sales | $2,853.5 million |
| Gross profit / margin | $450.6 million / 15.8% |
| Operating profit | $125.2 million |
| Income before tax | $97.3 million |
| Consolidated net income | $76.5 million |
| Net income attributable to Cooper-Standard Holdings Inc. | $102.8 million |
| Operating cash flow | $172.3 million |
| Capital expenditures | $108.3 million |
| Cash and cash equivalents at year-end | $361.7 million |
| Total debt at year-end | $488.7 million, including $450 million of 8.5% Senior Notes due 2018 |
| Adjusted EBITDA | $324.1 million; non-GAAP measure |
Current assets were $1,005.5 million and current liabilities $483.0 million. The $125 million asset-based revolving facility had no borrowings outstanding at year-end, but $29.8 million of letters of credit and borrowing-base limits constrain availability. The company also had $125.9 million of 7% cumulative participating convertible preferred stock.
Changes and unusual items
- Sales benefited from higher volumes in most regions, $70.9 million of favorable foreign exchange, and $157.9 million of sales from USi and the FMEA joint venture. Raw materials were 51% of cost of products sold; higher material, labor, and other variable costs partly offset volume and lean-manufacturing benefits.
- Restructuring expense was $52.2 million, primarily for the French body-sealing reorganization with FMEA, facility closures, European shared services, and transfers of sealing operations. The International segment recorded a $60.9 million loss, including restructuring and integration costs; North America segment profit was $158.2 million.
- Other income included an $11.4 million gain on the partial sale of the NISCO joint-venture interest, partly offset by foreign-exchange contract losses and receivables-factoring costs.
- Quarterly fourth-quarter 2011 sales were $695.7 million versus $603.7 million in fourth-quarter 2010; gross profit was $97.6 million versus $96.8 million, and consolidated net income was $21.5 million versus $15.2 million. These reported quarters are successor periods, but annual 2010 results combine predecessor and successor periods and are not a like-for-like annual comparison.
Outlook, risks, and contingencies
- Management forecast 2012 light-vehicle production of 13.9 million units in North America and 18.5 million in Europe, based on IHS Automotive estimates, and expected capital expenditures of approximately $110 million. Management said operating cash, factoring, and ABL availability were expected to cover working capital and other needs for the next 12 months, subject to operating performance and market conditions.
- Key risks include automotive cyclicality, pricing pressure, raw-material volatility and supply disruption, foreign-currency exposure, and customer concentration. Ford, GM, and PSA Peugeot Citroën together accounted for approximately 47% of sales. The company reported 74% of sales from operations outside the United States.
- Debt service and preferred dividends compete for cash. The ABL matures May 27, 2014 and includes a fixed-charge coverage covenant that applies if availability falls below specified thresholds. The Senior Notes and ABL impose operating and dividend restrictions.
- Pension plans were underfunded: U.S. projected benefit obligations exceeded plan assets by $94.2 million and international obligations by $100.1 million at year-end. Expected 2012 pension and postretirement funding/payments were approximately $22.3 million combined.
- Environmental reserves were approximately $10.0 million; management considered them adequate, but remediation costs and other legal or commercial claims could exceed estimates. No individual legal matter was expected by management to have a material adverse effect.
- The company recorded no goodwill impairment in its 2011 annual test. It maintained $152.4 million of valuation allowances on deferred tax assets and said a significant release of U.S. allowances could possibly occur within 12 months, which could materially affect earnings in the release period.
- Ernst & Young issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting as of December 31, 2011.
Most important facts for investors to verify
- Confirm the period: this filing reports FY 2011, not 2010 Q4; assess any comparison in light of the May 2010 fresh-start accounting break.
- Track whether 2012 production, sales, and margins support management’s liquidity assessment, particularly given raw-material costs and customer concentration.
- Verify actual usable ABL borrowing capacity after borrowing-base calculations, letters of credit, and covenant triggers.
- Assess restructuring execution and remaining costs, including the French joint venture integration and facility actions.
- Monitor pension funding, preferred-stock dividend obligations, and potential tax-valuation-allowance changes.