Cooper-Standard Holdings Inc. — Form 10-Q Summary
Reporting-period note: The request metadata says 2010 Q2, but the supplied filing is for the quarter ended June 30, 2011, signed August 10, 2011. The figures below summarize the filing supplied.
Business context and reporting period
Cooper-Standard manufactures fluid handling, body sealing and anti-vibration components primarily for automotive original equipment manufacturers and replacement markets. The filing reports the three and six months ended June 30, 2011. Comparisons with 2010 require caution: the company emerged from Chapter 11 in May 2010 and adopted fresh-start accounting as of June 1, creating separate Predecessor and Successor reporting periods that are not directly comparable.
Financial results and liquidity
Unless otherwise stated, dollar amounts are in millions. Fiscal 2011 figures are Successor results.
| Metric | Q2 2011 | Six months 2011 |
|---|---|---|
| Sales | $760.5 | $1,449.2 |
| Gross profit / margin | $123.7 / 16.3% | $244.5 / 16.9% |
| Operating profit / margin | $17.2 / 2.3% | $68.6 / 4.7% |
| Income before taxes | $8.2 | $65.8 |
| Consolidated net income | $1.7 | $46.9 |
| Net income attributable to Cooper-Standard | $19.0 | $64.0 |
| Net income available to common stockholders; EPS | $13.7; $0.78 basic, $0.71 diluted | $48.2; $2.75 basic, $2.49 diluted |
| Adjusted EBITDA (non-GAAP) | $90.3 | $182.2 |
Attributable income exceeded consolidated net income because the filing recorded a $17.4 million net loss attributable to noncontrolling interests in Q2. Q2 restructuring charges were $37.0 million; the six-month charge was $41.6 million. Q2 net interest expense was $10.6 million and the income tax provision was $6.5 million, an 80% effective tax rate; the six-month effective rate was 29%.
- Cash flow: Six-month operating cash flow was $26.5 million, including a $76.6 million use from changes in operating assets and liabilities. Investing cash flow was positive $1.9 million, reflecting acquired cash and joint-venture proceeds offset by $45.5 million of capital spending. Financing cash flow was negative $6.2 million. Cash increased $19.0 million to $313.5 million.
- Balance sheet and liquidity: Current assets were $1,088.7 million and current liabilities $564.0 million at June 30, 2011 (current ratio about 1.93). Total debt was $501.4 million, including $42.3 million current debt, versus $476.7 million at December 31, 2010. Cash less total debt was approximately $187.9 million. The $125 million Senior ABL revolver had no borrowings, subject to borrowing-base availability; approximately $30.7 million of letters of credit were outstanding.
- Other balances: Pension and postretirement obligations were $169.4 million and $82.4 million, respectively. Redeemable noncontrolling interest was $22.9 million; its associated put option’s estimated redemption value was $31.9 million.
Material changes and business developments
- Management attributed 2011 sales to higher volumes, favorable foreign exchange and the FMEA joint venture. For the first half, favorable foreign exchange contributed $46.9 million to sales. Management said volume growth and lean savings supported gross profit, while higher raw-material costs were a partial offset.
- Q2 sales were $760.5 million versus $215.6 million for the one-month Successor period in 2010 and $412.8 million for the two-month Predecessor period. These different-length periods, fresh-start accounting, and acquisitions/JV activity prevent a like-for-like quarterly growth comparison from those figures alone.
- North America reported Q2 sales of $366.3 million and segment profit of $45.8 million. International reported sales of $394.2 million and a segment loss of $37.6 million, primarily reflecting FMEA-related restructuring, higher compensation and material costs, and increased depreciation and amortization; improved volumes and lean savings partly offset these factors.
- In May, the company formed CS France with FMEA, contributing French body-sealing operations for a 51% interest and consolidating SPBT, renamed CS France. It received $38.2 million net cash in the transaction. A four-year put option permits the noncontrolling shareholders to require purchase of their remaining 49% interest under a formula-based price.
- The company sold a 10% interest in NISCO for $16.0 million, reducing its ownership from 50% to 40%, and recorded an $11.4 million gain. It also acquired USi, Inc. in March for $6.5 million. A July 1 agreement to buy a 20% interest in a Thailand-based joint venture for $10.5 million was disclosed as a subsequent event.
Outlook, risks and unusual items
- Management expected cash on hand, operating cash flow and ABL availability to cover working capital and other requirements for the next 12 months and foreseeable future, while noting dependence on operating performance, cash flow, borrowing-base limits and covenant compliance.
- Management forecast 2011 capital expenditures of approximately $105–$115 million. It cited IHS Automotive estimates of 2011 light-vehicle production of 13 million units in North America and 20 million in Europe; Q3 2011 production was estimated at 3.2 million and 4.4 million units, respectively.
- Cost pressures include raw materials, OEM pricing concessions, intense competition and dependence on automotive production. The filing also identifies risks involving major customers, suppliers, labor, interest rates, pensions, product liability, environmental regulation, international operations and cost-reduction execution.
- French body-sealing restructuring was estimated to cost $43.5 million through 2012; $34.3 million was charged in the first half under that initiative. Another North American closure and European shared-services initiative was estimated at $9.6 million through 2012.
- The company said a release of U.S. deferred-tax valuation allowances could possibly occur within the next 12 months; any release could materially affect earnings in the quarter recognized. Legal and environmental matters arise in the ordinary course; management did not expect their ultimate resolution to have a material adverse effect.
- Non-GAAP Adjusted EBITDA was $90.3 million for Q2 and $182.2 million for the first half. The reconciliation includes restructuring, noncontrolling-interest restructuring, stock compensation, the NISCO gain and an inventory fair-value adjustment; the measure is not a substitute for GAAP earnings or operating cash flow.
Important facts for investors to verify
- Confirm the correct period: the supplied filing is Q2 2011, not Q2 2010, and assess performance using comparable Successor periods where available.
- Review the $37.0 million quarterly restructuring charge, the $43.5 million French initiative estimate and the remaining expected cash costs and timing.
- Assess the quality and sustainability of earnings, including the NISCO gain, noncontrolling-interest loss, tax valuation allowances and Adjusted EBITDA adjustments.
- Monitor working-capital use, capital spending against the $105–$115 million plan, ABL borrowing-base availability, debt maturities and covenant compliance.
- Evaluate the CS France put-option exposure, preliminary acquisition fair values, raw-material and pricing pressures, and automotive production assumptions.