Cooper-Standard Holdings Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2020; filed August 5, 2020. The request metadata says “2019 Q2,” but the supplied filing is for 2020 Q2. Amounts below are in millions of dollars unless noted.
Business context and results
Cooper-Standard manufactures sealing, fuel and brake delivery, and fluid transfer systems, primarily for automotive OEMs. It reports North America, Europe, Asia Pacific, and South America segments. The comparison is affected by the April 1, 2019 divestiture of its anti-vibration systems (AVS) business.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Sales | $340.5 | $764.7 | $995.4 | $1,642.7 |
| Gross profit (loss) | $(60.4) | $97.9 | $(17.2) | $213.4 |
| Gross margin | (17.7)% | 12.8% | (1.7)% | 13.0% |
| Operating profit (loss) | $(154.5) | $200.3 | $(268.8) | $207.4 |
| Net income (loss) attributable to Cooper-Standard | $(134.2) | $145.2 | $(244.8) | $139.8 |
| Basic and diluted EPS | $(7.93) | $8.39 / $8.36 | $(14.49) | $8.02 / $7.99 |
| Adjusted EBITDA | $(93.8) | $58.0 | $(85.5) | $122.1 |
Financial position and cash flow
- Cash and cash equivalents were $388.0 at June 30, 2020, versus $359.5 at December 31, 2019. Total assets were $2,488.6 and total equity was $606.2.
- Total debt was $1,039.3, up from $807.6 at year-end 2019; long-term debt was $982.9. The company issued $250.0 of 13% Senior Secured Notes due 2024 in May, using proceeds to provide liquidity. Reported net interest expense was $12.8 in Q2 and $23.0 for the first half.
- The amended ABL facility has $180.0 of revolving commitments and no borrowings outstanding. After borrowing-base restrictions and letters of credit, reported availability was $31.8.
- First-half operating cash flow was $(126.2), versus $(9.0) in 2019; capital expenditures were $62.9, versus $95.5. Financing activities provided $232.7, chiefly from the secured-note issuance. Cash, cash equivalents and restricted cash totaled $390.8 at period end.
- Current assets were $1,114.7 and current liabilities $572.5. Receivables factoring outstanding was $43.7 at June 30, compared with $103.8 at year-end.
Material changes and unusual items
- Sales fell 55.5% in Q2 and 39.4% for the first half. Management attributed the decline principally to COVID-19-related automotive plant shutdowns and lower production; Q2 production also reflected customer price reductions and currency effects.
- Q2 segment adjusted EBITDA was negative in every segment: North America $(42.9), Europe $(41.4), Asia Pacific $(2.2), and South America $(4.4). First-half consolidated adjusted EBITDA was $(85.5), versus $122.1 in 2019.
- The company recorded $86.5 of first-half non-cash impairment charges on businesses classified as held for sale, including $12.4 in Q2. These charges reduced the carrying value of its European rubber fluid transfer and specialty sealing businesses and Indian operations.
- On July 1, 2020, after quarter-end, the company completed that divestiture to Mutares for €9.0: €6.5 cash and €2.5 deferred until December 2021. At June 30, assets held for sale were $30.3 and related liabilities were $41.1.
- The 2019 comparison includes a $189.9 gain on the AVS sale and $243.4 of cash proceeds. This makes year-over-year operating and investing comparisons less directly comparable.
- Q2 tax benefit was $39.0; first-half tax benefit was $53.1. The first-half rate reflects a $12.9 valuation-allowance expense and a $14.3 benefit associated with CARES Act NOL carrybacks.
Outlook, risks and contingencies
Management gave no specific revenue or earnings guidance in the supplied filing. It stated that, based on production recovery to date, expected customer production plans, cash-preservation actions and available funding sources, it expects to meet working-capital, capital-expenditure and debt-service needs for the next 12 months. It cautioned that this depends on operating performance, cash flows, automotive conditions and other factors, including COVID-19.
Management reported substantial uncertainty in the global automotive outlook. Most North American and European facilities resumed production in May at reduced capacity; South American production also resumed at lower capacity. The company reduced capital spending to preserve liquidity and expects lower capital expenditures in the second half of 2020. Risks include renewed production weakness, pricing pressure, raw-material volatility, foreign exchange, customer and supply-chain issues, substantial indebtedness, variable interest rates, debt covenants, and potential future asset impairments. The company reported compliance with debt covenants at June 30.
Environmental investigation and remediation reserves were approximately $7.6. The company said it did not believe material losses beyond amounts recognized were reasonably possible for disclosed litigation matters, while noting that outcomes remain unpredictable. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Confirm the intended reporting year: the supplied filing covers Q2 2020, not Q2 2019 as stated in the request metadata.
- Track automotive production recovery and its effect on sales, gross margins, and operating cash flow.
- Assess liquidity beyond reported cash: ABL availability was $31.8 after borrowing-base limits, and first-half operating cash flow was materially negative.
- Review the cost and servicing burden of the 13% secured notes, total debt, covenant terms, and refinancing needs.
- Verify final divestiture proceeds, deferred-payment collectability, and any further held-for-sale valuation adjustments.
- Consider impairment and tax-estimate sensitivity, including foreign deferred-tax valuation allowances and the assumptions behind the CARES Act benefit.