Cooper-Standard Holdings Inc. — Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are against first-quarter 2012. The filing is unaudited. Cooper-Standard manufactures fluid-handling, body-sealing and anti-vibration components primarily for automotive OEMs and replacement markets.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Sales | $747.6 million | $765.3 million |
| Gross profit / margin | $120.3 million / 16.1% | $121.7 million / 15.9% |
| Operating profit / margin | $36.6 million / 4.9% | $39.7 million / 5.2% |
| Net income attributable to Cooper-Standard | $20.7 million | $23.8 million |
| Net income available to common stockholders | $15.3 million | $17.2 million |
| Diluted EPS | $0.86 | $0.90 |
| Net cash used in operating activities | $13.3 million | $34.6 million |
| Capital expenditures | $34.3 million | $29.2 million |
Sales declined 2.3%, reflecting lower volumes, customer price concessions and $4.8 million of unfavorable foreign exchange. Gross margin improved modestly on lean and restructuring savings, but operating profit fell as selling, administration and engineering expense rose to $75.1 million from $72.0 million. The company reported $4.8 million of restructuring expense, down from $6.1 million. Adjusted EBITDA, a non-GAAP measure, was $76.7 million versus $83.2 million.
Liquidity, debt and capital
- Cash was $216.7 million at March 31, down $53.8 million from year-end 2012. Current assets were $1.03 billion and current liabilities $522.2 million.
- Total debt was $485.7 million, including $450.0 million of 8.5% senior notes due 2018; $34.9 million was current. Net debt was approximately $269.0 million.
- Operating cash use reflected $67.2 million consumed by changes in operating assets and liabilities, principally higher receivables and inventories. Investing cash use was $31.9 million; financing cash use was $11.5 million.
- No amounts were drawn under the Senior ABL Facility at quarter-end; approximately $27.0 million of letters of credit were outstanding. On April 8, 2013, the company amended and restated the facility, increasing revolving availability to $150 million, subject to borrowing-base availability.
- Management estimated 2013 capital expenditures of approximately $165 million and said available cash, operating cash flow and ABL availability were expected to meet working-capital needs for the next 12 months and funding needs for the foreseeable future, subject to operating performance, covenants and other risks.
Segments, outlook and risks
- North America sales declined 1.4% to $382.8 million and segment profit fell to $33.8 million from $38.0 million. International sales declined 3.3% to $364.7 million; its segment loss widened to $6.0 million from $5.8 million.
- Management cited automotive production and economic conditions as key demand drivers. Its cited industry estimates projected 2013 production growth in North America, South America and Asia Pacific, but a decline in Europe. First-quarter European production was down 8.7% year over year.
- Risks highlighted include automotive cyclicality, weak European conditions, customer and platform concentration, pricing pressure, raw-material costs and supply availability, foreign exchange, joint-venture exposure, product liability and recalls, pension funding, and the ability to generate cash and service debt.
- After quarter-end, the company issued $175 million of Senior PIK Toggle Notes due 2018 and used proceeds plus cash on hand to fund a tender offer. In the second quarter it purchased 4,651,162 common shares at $43 each for approximately $200 million. This materially changes the capital structure and reduces shares outstanding.
- Other notable items: equity earnings increased to $2.7 million from $0.8 million, while other income of $2.9 million in Q1 2012 shifted to other expense of $0.3 million in Q1 2013, largely due to different unrealized forward-contract results. The company reported disclosure controls effective and no material change in internal control over financial reporting.
Investor verification priorities
- Confirm the post-quarter PIK-note terms, resulting debt and interest burden, and the completed tender offer’s effect on cash, leverage and diluted share count.
- Track working-capital conversion and operating cash flow, especially receivables and inventory, against planned capital spending of about $165 million.
- Assess whether cost savings can offset lower volumes, pricing concessions, higher engineering and launch costs, and continued losses in the International segment.
- Review ABL borrowing-base availability, covenant headroom and the company’s ability to meet debt service and preferred-stock obligations under weaker automotive conditions.
- Monitor European production, foreign-exchange exposure, restructuring execution and potential pension, legal, environmental or product-liability costs.