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WABCO Holdings Inc. Reports Operating Results (10-Q)

November 02, 2012 | About:
10qk

10qk

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WABCO Holdings Inc. (WBC) filed Quarterly Report for the period ended 2012-09-30.

Wabco Holdings Incorporated has a market cap of $3.73 billion; its shares were traded at around $60.21 with a P/E ratio of 12.2 and P/S ratio of 1.3.

Highlight of Business Operations:

Other financing receivables include sales to reputable state owned and public enterprises in China that are settled through notes receivable which are registered and endorsed to the Company. These notes receivable are fully secured and generally have contractual maturities of six months or less. These guaranteed notes are available to be discounted with banking institutions in China or transferred to suppliers to settle liabilities. The total amount of notes receivable discounted or transferred for the first nine months of 2012 and 2011 were $33.5 million and $55.2 million, respectively, resulting in expenses of $0.1 million and $0.6 million for the nine months ended September 30, 2012 and 2011, respectively, and are included in “Other non-operating expense, net.” The carrying amounts of these guaranteed notes receivable are $44.5 million and $40.0 million as of September 30, 2012 and December 31, 2011, respectively. The Company monitors the credit quality of these notes monthly through historical losses and current economic conditions with Chinese banks. As these receivables are guaranteed by banks and the Company has not experienced any historical losses nor is the Company expecting future credit losses, we have not established a loss provision against these receivables as of September 30, 2012 or December 31, 2011.

Our cost of sales for the third quarter of 2012 was $413.1 million, a decrease of $88.8 million (a decrease of $42.6 million excluding foreign currency translation effects) from $501.9 million in 2011. Within cost of sales, our largest expense is material costs, which mainly represents the purchase of components and parts. Our continued focus on productivity generated 5.4% of material savings before the impact of commodity inflation, which had a negative impact of 0.8%, bringing net materials productivity to 4.6% for the quarter. This productivity achievement resulted in $11.5 million of material cost savings. Our second largest expense within the cost of sales is for labor and other costs associated with converting our purchased components and parts into finished goods. Labor and other cost escalations increased conversion costs by approximately $4.0 million, while our productivity efforts generated $5.6 million of savings, or 6.1% of the conversion costs. Warranty expenses were lower compared to the third quarter of 2011 by $4.8 million, driven by an improvement in warranty claims experience. Absorption of overhead costs and other indirect costs were unfavorable by $13.4 million versus the prior year. Volume and mix reduced cost of sales by $35.7 million, but contributed $8.4 million to decline of gross profit. Sales price reductions had a negative impact of $4.3 million on gross profit, or 0.6% of sales, which is a very low level for the quarter. Streamlining and separation charges adversely affected results by $1.6 million versus last year. Foreign currency translational effects decreased cost of sales by $46.1 million and combined with translational effects on sales they negatively affected gross profit in the amount of $20.7 million. Foreign currency transactional impacts decreased cost of sales by $4.0 million and positively affected gross profit in the amount of $1.3 million. The net result of all these changes was a decrease in gross profit of $29.2 million (or $8.5 million excluding foreign currency translation effects).

Our sales for the first nine months of 2012 were $1,880.8 million, a decrease of 11.4% (3.8% excluding foreign currency translation effects) from $2,122.2 million in 2011. The decrease, excluding foreign currency translation effects, was predominately driven by a 9.5% decline in the global production of new trucks and buses greater than 6 tons. Total sales in Europe, our largest market, decreased approximately 14.7% (6.7% excluding foreign currency translation effects) for the first nine months of 2012, driven mainly by lower levels of truck, bus and trailer production. Total sales increased 16.0% in North America, which benefited from increased commercial vehicle production. Total sales in Asia decreased 7.3% (2.4% excluding foreign currency translation effects). The sales reduction in Asia included a decrease in total sales in India of 16.4% (2.5% excluding foreign currency translation effects), a decrease in Korea of 21.5% (17.1% excluding foreign currency translational effects), and a decrease in China of 7.4% (10.0% excluding foreign currency translational effects), partially offset by an increase in total sales in Japan of 18.0% (17.1% excluding foreign currency translation effects). Total sales in South America decreased 30.3% (19.1% excluding foreign currency translation effects) driven by the anticipated decline in production of new trucks and buses in Brazil resulting from higher levels of production in 2011 ahead of the 2012 emission mandate as well as the termination of a government sponsored incentive program at the end of 2011. WABCO's aftermarket sales, included in the geographic numbers provided above, decreased by 5.0% at reported rates, but the growth was 3.8% excluding foreign currency translation effects.

Our cost of sales for the first nine months of 2012 was $1,315.8 million, a decrease of $187.9 million (a decrease of $78.4 million excluding foreign currency translation effects) from $1,503.7 million in 2011. Within cost of sales, our largest expense is material costs, which mainly represents the purchase of components and parts. Our continued focus on productivity generated 5.3% of material savings before the impact of commodity inflation, which had a negative impact of 1.1%, bringing net materials productivity to 4.2% for the first nine months of 2012. This productivity achievement resulted in $33.1 million of material cost savings. Our second largest expense within the cost of sales is for labor and other costs associated with converting our purchased components and parts into finished goods. Labor and other cost escalations increased conversion costs by approximately $12.0 million, while our productivity efforts generated $18.4 million of savings, or 6.3% of the conversion costs. Warranty expenses were lower compared to the first nine months of 2011 by $9.6 million, driven by an improvement in warranty claims experience. Absorption of overhead costs and other indirect costs were unfavorable by $32.9 million versus the prior year. Volume and mix decreased cost of sales by $42.2 million and contributed $21.1 million to decline in gross profit. Sales price reductions had a negative impact of $11.8 million on gross profit, or 0.6% of sales, which is at the lowest level we have historically seen. Streamlining and separation charges increase adversely affected results by $2.4 million versus last year. Foreign currency translational effects decreased cost of sales by $109.5 million and combined with the translational effects on sales they negatively affected gross profit in the amount of $50.5 million. Foreign currency transactional impacts decreased cost of sales by $22.4 million and positively affected gross profit in the amount of $16.2 million. The net result of all these changes was a decrease in gross profit of $53.5 million (an increase of $3.0 million excluding foreign currency translation effects).

Income tax expense is the net result of taxes on earnings in profitable jurisdictions, income offset by fully valued net operating losses, the accrual of interest on uncertain tax positions, and certain foreign tax planning. During the third quarter of 2012, the Company recorded a tax benefit of $4.1 million related to the filing of its 2011 U.S. Federal income tax return in September 2012. As a result, the income tax expense for the first nine months ended September 30, 2012 is also offset by the release of tax accruals for uncertain tax positions due to certain government filings submitted in January 2012 of approximately $24.8 million, as adjusted from an amount of $18.8 million as previously disclosed in the Company's 2011 Form 10K. The tax charge for the first nine months 2011 was partially offset by release of tax accruals of approximately $26.8 million.

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