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Section 1: 8-K (FORM 8-K)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of Earliest Event Reported):   February 17, 2017

 

Cooper Tire & Rubber Company

 

(Exact name of registrant as specified in its charter)

 

Delaware   001-04329   344297750
(State or other jurisdiction    (Commission    (I.R.S. Employer
of incorporation)   File Number)   Identification No.)
         
701 Lima Avenue, Findlay, Ohio       45840
 (Address of principal executive offices)        (Zip Code)

 

Registrant’s telephone number, including area code:   419-423-1321

 

Not Applicable

 

Former name or former address, if changed since last report

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

   

 

 

Item 2.02 Results of Operations and Financial Condition.

 

On February 17, 2017, Cooper Tire & Rubber Company (the "Company") issued a press release reporting its financial results for the fourth quarter and full-year 2016. A copy of the Company's press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

Item 8.01. Other Events.

 

On February 17, 2017, the Company posted a summary slide presentation regarding fourth quarter and full year 2016 (the “Slide Presentation”) on its corporate website. A copy of the Slide Presentation is attached hereto as Exhibit 99.2 and is incorporated by reference into this Item 8.01.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

99.1 Press release dated February 17, 2017

 

99.2 Slide Presentation regarding fourth quarter and full year 2016

 

   

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Cooper Tire & Rubber Company
     
February 17, 2017 By: /s/Jack Jay McCracken
    Name: Jack Jay McCracken
    Title: Assistant General Counsel & Assistant Secretary

 

   

 

 

Exhibit Index

 

Exhibit

No.

  Description
     
99.1   Press release dated February 17, 2017
     
99.2   Slide presentation regarding fourth quarter and full year 2016

 

   

 

 

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

   

 

Cooper Tire & Rubber Company Reports Fourth Quarter and

Full Year 2016 Results; Issues 2017 Guidance

 

Cooper closed 2016 with operating profit of $384 million and a record

operating profit margin of 13.1 percent; unit volume increased 2.6 percent year over year

 

FINDLAY, Ohio, Feb. 17, 2017 – Cooper Tire & Rubber Company (NYSE: CTB) today reported full year 2016 net income of $248 million, or diluted earnings per share of $4.51, compared with $213 million, or $3.69 per share, one year ago. The full year results included non-cash pension settlement charges of $12 million. Excluding these charges, diluted earnings per share for the full year would have been $4.66 per share.

 

Fourth Quarter 2016 Highlights:

·Unit volume up 7.7 percent, with increases in both the Americas and International segments
·Net sales increased 1.1 percent to $784 million
·Operating profit of $105 million, or 13.4 percent of net sales
·Diluted earnings per share of $1.28
·$25.5 million of company stock repurchased
·Launched GRT joint venture for truck and bus radial (TBR) tire production

 

Full Year 2016 Highlights:

·Unit volume up 2.6 percent year over year, driven by strong domestic volume increases in Asia and Latin America

·Net sales of $2.92 billion compared with $2.97 billion in the prior year
·Including $12 million in non-cash pension settlement charges, operating profit was $384 million, or 13.1 percent of net sales, representing an 8.4 percent increase over the prior year and a record operating profit margin for the company
·Excluding $12 million in non-cash pension settlement charges, operating profit was $397 million, or 13.6 percent of net sales, representing an 11.9 percent increase over the prior year
·$108 million of company stock repurchased during the year

 

“Through consistent execution of our strategic plan, and the favorable raw material cycle of the past few years, Cooper ended 2016 in a very strong position, achieving a record full year operating profit margin of 13.1 percent.  Our profit performance was led by record operating profit in our Americas segment and substantial profit improvement in the International segment,” said President & Chief Executive Officer Brad Hughes. “In addition, we delivered unit volumes that were up nearly 8 percent in the fourth quarter, led by double-digit domestic growth in Asia and Latin America. We also continued to return cash to shareholders through our balanced capital allocation program, and remained good stewards of capital, as reflected in our 18.9 percent return on invested capital for 2016. I am proud of the work our teams around the globe did throughout 2016 to deliver these great results.

 

“Looking ahead, we expect raw material costs—which began to increase sharply toward the end of 2016—to continue to rise in 2017. We are confident in the strength of the Cooper business model, which has led to positive mix transformation, improved speed to market with exciting new products, cost efficiencies, and other advances. These business model improvements will help Cooper succeed during this period of rapidly rising raw material costs. However, we do expect rising raw material costs to impact results in the short term, until pricing adjusts for such costs. With raw material cost increases that we believe will level off later this year, and pricing actions by Cooper and competitors beginning to take place, we anticipate that full year 2017 operating profit margins will be at the high end of our previously projected 8 to 10 percent range. This is based on operating profit margins around the low end of this range in the first half of the year, as pricing lags raw material cost increases, and operating profit margins above the high end of this range in the second half of the year, when we expect raw material costs to level off and pricing to begin to catch up. As a reminder, in the United States, we use the LIFO accounting method, charging the most recent costs against sales, which impacts profits more quickly than other inventory accounting methods.

 

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Cooper Tire Q4/Full Year 2016—2

 

“Cooper remains committed to delivering shareholder value as demonstrated by our announcement this morning to increase and extend our share repurchase program to $300 million in common stock through Dec. 31, 2019. This action reflects our confidence in Cooper’s financial strength and in the long-term success of our business,” Hughes concluded.

 

Consolidated Results:

 

Cooper Tire 

Q4 2016

($M)

  

Q4 2015

($M)

   %
Change
  

2016

($M)

  

2015

($M)

   %
Change
 
Net Sales  $784   $776    1.1%  $2,925   $2,973    (1.6)%
Operating Profit  $105   $103    2.5%  $384   $354    8.4%
Operating Margin   13.4%   13.2%   0.2ppts.   13.1%   11.9%   1.2 ppts.

 

Consolidated Fourth Quarter Highlights:

 

·Fourth quarter net sales were $784 million, an increase of 1.1 percent compared to a year ago. Fourth quarter results included higher unit volume of $60 million, with increases in both the Americas and International segments. The unit volume increase was partially offset by unfavorable price and mix of $35 million, primarily due to net price reductions related to lower raw material costs early in the quarter, as well as $17 million of negative foreign currency impact.

 

·Fourth quarter operating profit was $105 million compared with $103 million for the same period last year. Operating profit increased as a result of $6 million of higher unit volume, $6 million of favorable SG&A, and $3 million of lower product liability cost. These benefits were partially offset by $8 million of unfavorable raw material costs, net of price and mix, $1 million of unfavorable manufacturing charges, and $4 million of other costs. Raw material costs are inclusive of tariffs, including the preliminary duties on TBR tires.

 

·Fourth quarter SG&A was $63 million, which compares with $69 million in the fourth quarter of 2015. The decrease was due primarily to lower incentive compensation costs. SG&A expense for the quarter was 8.1 percent of sales, compared with 8.9 percent of sales, in the fourth quarter of 2015.

 

·The effective tax rate for the fourth quarter was 29.3 percent compared with 38.0 percent in the prior year. The effective tax rate decreased due to a more favorable mix of foreign earnings in lower rate jurisdictions. In addition, there were discrete benefits recognized during the quarter of approximately $1 million.

 

·Capital expenditures in the fourth quarter were $49 million compared with $54 million in 2015. At year end, Cooper had $504 million in cash and cash equivalents, compared with $505 million at Dec. 31, 2015.

 

·During the fourth quarter, 678,155 shares of Cooper’s common stock were repurchased for $25.5 million at an average price of $37.62 per share.

 

Consolidated Full Year 2016 Highlights:

 

·Full year 2016 net sales were $2.92 billion. This represents a 1.6 percent decrease over the prior year. While net sales were positively impacted by higher unit volume of $78 million, the increase was offset by $77 million of unfavorable price and mix, primarily due to pricing and promotion actions related to lower raw material costs, and $49 million of negative currency impact.

 

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Cooper Tire Q4/Full Year 2016—3

 

·Operating profit was $384 million compared with $354 million for the same period last year. Operating profit increased as a result of $48 million of favorable raw material costs, net of price and mix, $13 million of favorable product liability costs, $9 million of higher unit volume and $7 million of favorable SG&A. These benefits were partially offset by $21 million of higher manufacturing costs, $12 million in non-cash pension settlement charges, $9 million of negative currency, and $5 million of other costs. Higher manufacturing costs were concentrated in the Americas segment and were primarily related to the greater complexity of manufacturing more higher value, higher margin tires.

 

·The effective tax rate for 2016 was 31.5 percent compared with 35.4 percent for 2015. The effective tax rate decreased due to a more favorable mix of foreign earnings in lower rate jurisdictions. Discrete tax amounts for 2016 were unfavorable compared with the prior year because 2015 included increased research and development credits and higher amounts for the lapse of statutes related to uncertain tax positions.

 

·Full year capital expenditures were $175 million compared with $183 million in 2015.

 

·For the full year, 3,127,527 shares of Cooper stock were repurchased for $108 million, or an average price of $34.53 per share. Share repurchases continued in early 2017 with an additional 330,277 shares purchased at an average cost of $36.59 for $12.1 million through Feb. 14, 2017. Since share repurchases began in August 2014 through Feb. 14, 2017, the company has repurchased 12.6 million of its shares at an average price of $34.15.

 

Americas Tire Operations:

 

  

Q4 2016

($M)

  

Q4 2015

($M)

  

%

Change

  

2016

($M)

  

2015

($M)

  

%

Change

 
Net Sales  $694   $711    (2.4)%  $2,600   $2,685    (3.1)%
Operating Profit  $116   $122    (4.6)%  $440   $423    4.0%
Operating Margin   16.8%   17.1%   (0.3)ppts.   16.9%   15.8%   1.1ppts.

 

Fourth quarter net sales in the Americas segment declined 2.4 percent as a result of $22 million of unfavorable price and mix, primarily due to net price reductions related to lower raw material costs, and $6 million of negative currency impact, partially offset by $11 million of higher unit volume. Segment unit shipments increased 1.5 percent compared with the same period last year. Cooper’s total light vehicle tire shipments in the United States decreased 1.0 percent during the quarter. Unit volume growth in Latin America was strong, with a double-digit year-over-year increase in the fourth quarter. For the fourth quarter, the Rubber Manufacturers Association (RMA) reported that its member shipments were up 0.2 percent, and total industry shipments (including an estimate for non-RMA members) increased 5.7 percent for the period. Cooper’s TBR tire shipments for the United States were down 1.8 percent for the quarter. For the same period, RMA member shipments were up 0.4 percent, and total industry shipments increased 7.2 percent.

 

Cooper’s full year total light vehicle tire shipments in the United States decreased 2.5 percent. For the same period, RMA member shipments were down 1.5 percent, and total industry shipments increased 2.2 percent. Full year TBR tire shipments increased 13.3 percent year over year, compared with a decrease of 0.8 percent for the RMA and an increase of 4.0 percent for the total industry.

 

Fourth quarter operating profit was $116 million, or 16.8 percent of net sales, compared with $122 million, or 17.1 percent of net sales, in the fourth quarter of 2015. The lower operating profit reflected $16 million of unfavorable price and mix, net of raw material costs, $1 million of higher manufacturing costs, and $3 million of other costs. These were partially offset by $8 million of favorable SG&A costs, primarily driven by lower incentive compensation costs, $3 million of higher unit volume, and $3 million of lower product liability costs.

 

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Cooper Tire Q4/Full Year 2016—4

 

International Tire Operations:

 

  

Q4 2016

($M)

  

Q4 2015

($M)

  

%

Change

  

2016

($M)

  

2015

($M)

  

%

Change

 
Net Sales  $124   $101    23.0%  $464   $452    2.7%
Operating Profit (Loss)  $1   $(7)   -   $6   $(19)   - 
Operating Margin   1.1%   (7.3)%   8.4ppts.   1.3%   (4.2)%   5.5ppts.

 

Fourth quarter net sales in the International segment increased to $124 million from $101 million in 2015, driven by $28 million of higher unit volume and $5 million of favorable price and mix, partially offset by $10 million of negative currency impact. Unit volume increased by double digits in both Europe and Asia, with domestic unit sales in China up 88 percent year over year as a result of growth in both original equipment and replacement tire sales.

 

Fourth quarter operating profit was $1 million, up $8 million compared with an operating loss of $7 million for the same period a year ago. Drivers of the improvement included $9 million of favorable raw material costs, net of price and mix, and $4 million of higher unit volume. These favorable items were partially offset by $3 million of other costs and $2 million of higher SG&A.

 

Outlook

 

For 2017, the company anticipates:

·Unit volume growth in each of its four segments
·Raw material costs are volatile and difficult to project, but the company’s latest forecast anticipates raw material costs to be up approximately 25 percent year over year in the first half of 2017, with slight sequential increases throughout the balance of the year
·Full year 2017 total company operating margin is expected to be at the high end of the company’s previously announced mid-term target of 8 to 10 percent based on operating margin around the low end of the range in the first half of the year, but exceeding 10 percent in the second half of the year
·The International segment is expected to continue to improve operating profit in 2017, inclusive of the recently acquired majority interest in Qingdao Ge Rui Da Rubber Co. (GRT)
·The full year 2017 effective tax rate is expected to be in a range of 30 to 33 percent
·Capital expenditures for 2017 are expected be in the range of $220 to $250 million

 

Fourth Quarter and Full Year 2016 Conference Call Today at 10 a.m. Eastern

 

Management will discuss the financial and operating results for the fourth quarter and full year 2016, as well as the company’s business outlook, on a conference call for analysts and investors today at 10 a.m. EST. The call may be accessed on the investor relations page of the company’s website at http://investors.coopertire.com or at http://services.choruscall.com/links/ctb170217.html. Following the conference call, the webcast will be archived and available for 90 days at these websites.

 

A summary presentation of information related to the quarter is posted on the company's website at http://investors.coopertire.com/Quarterly-Results.

 

Forward-Looking Statements

 

This release contains what the company believes are “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995, regarding projections, expectations or matters that the company anticipates may happen with respect to the future performance of the industries in which the company operates, the economies of the United States and other countries, or the performance of the company itself, which involve uncertainty and risk.

 

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Cooper Tire Q4/Full Year 2016—5

 

Such “forward-looking statements” are generally, though not always, preceded by words such as “anticipates,” “expects,” “will,” “should,” “believes,” “projects,” “intends,” “plans,” “estimates,” and similar terms that connote a view to the future and are not merely recitations of historical fact. Such statements are made solely on the basis of the company’s current views and perceptions of future events, and there can be no assurance that such statements will prove to be true.

 

It is possible that actual results may differ materially from projections or expectations due to a variety of factors, including but not limited to:

volatility in raw material and energy prices, including those of rubber, steel, petroleum based products and natural gas or the unavailability of such raw materials or energy sources;
the failure of the company’s suppliers to timely deliver products in accordance with contract specifications;
changes to tariffs or the imposition of new tariffs or trade restrictions, including changes related to the anti-dumping and countervailing duties for passenger car and light truck tires imported into the United States from China; and any duties from the investigation into truck and bus tires imported into the United States from China;
changes in economic and business conditions in the world;
increased competitive activity including actions by larger competitors or lower-cost producers;
the failure to achieve expected sales levels;
changes in the company’s customer relationships, including loss of particular business for competitive or other reasons;
the ultimate outcome of litigation brought against the company, including product liability claims, which could result in commitment of significant resources and time to defend and possible material damages against the company or other unfavorable outcomes;
a disruption in, or failure of, the company’s information technology systems, including those related to cyber security, could adversely affect the company’s business operations and financial performance;
changes in pension expense and/or funding resulting from investment performance of the company’s pension plan assets and changes in discount rate, and expected return on plan assets assumptions, or changes to related accounting regulations;
government regulatory and legislative initiatives including environmental, healthcare and tax matters;
volatility in the capital and financial markets or changes to the credit markets and/or access to those markets;
A variety of factors, including market conditions, may affect the actual amount expended on stock repurchases; the company’s ability to consummate stock repurchases; changes in the company’s results of operations or financial conditions or strategic priorities may lead to a modification, suspension or cancellation of stock repurchases, which may occur at any time;
changes in interest or foreign exchange rates;
an adverse change in the company’s credit ratings, which could increase borrowing costs and/or hamper access to the credit markets;
failure to implement information technologies or related systems, including failure by the company to successfully implement an ERP system;
the risks associated with doing business outside of the United States;
the failure to develop technologies, processes or products needed to support consumer demand;
technology advancements;
the inability to recover the costs to develop and test new products or processes;
the impact of labor problems, including labor disruptions at the company, its joint ventures, or at one or more of its large customers or suppliers;
failure to attract or retain key personnel;
consolidation among the company’s competitors or customers;
inaccurate assumptions used in developing the company’s strategic plan or operating plans or the inability or failure to successfully implement such plans;
risks relating to acquisitions including the failure to successfully integrate them into operations or their related financings may impact liquidity and capital resources;
changes in the company’s relationship with its joint-venture partners or suppliers, including any changes with respect to its former CCT joint venture’s production of Cooper-branded products;
the ability to find sufficient alternative sources for products supplied by CCT;
the inability to obtain and maintain price increases to offset higher production or material costs;
inability to adequately protect the company’s intellectual property rights; and
inability to use deferred tax assets.

 

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Cooper Tire Q4/Full Year 2016—6

 

It is not possible to foresee or identify all such factors. Any forward-looking statement in this release is based on certain assumptions and analyses made by the company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Prospective investors are cautioned that any such statements are not a guarantee of future performance and actual results or developments may differ materially from those projected.

 

The company makes no commitment to update any forward-looking statement included herein or to disclose any facts, events or circumstances that may affect the accuracy of any forward-looking statement. Further information covering issues that could materially affect financial performance is contained in the company's periodic filings with the U. S. Securities and Exchange Commission (“SEC”).

 

Non-GAAP Financial Measures

This press release includes non-GAAP financial measures as defined under SEC rules. Non-GAAP financial measures should be considered in addition to, not as a substitute for, operating profit, net income, earnings per share, total debt or other financial measures prepared in accordance with generally accepted accounting principles (“GAAP”). The company’s methods of determining these non-GAAP financial measures may differ from the methods used by other companies for these or similar non-GAAP financial measures. Accordingly, these non-GAAP financial measures may not be comparable to measures used by other companies. As required by SEC rules, detailed reconciliations between the company’s GAAP and non-GAAP financial results are provided on the attached schedule. The company uses adjusted operating profit, net income and earnings per share to evaluate the performance of the company’s operations exclusive of certain items affecting comparability of results from period to period. The company believes that information about operating profit, net income and earnings per share exclusive of these items is useful to investors, particularly where the impact of the excluded items is significant in relation to reported earnings, because the measure allows for comparability between periods of the operating performance of the company’s business and allows investors to evaluate the impact of the excluded items separately from the impact of the operations of the business. The company believes return on invested capital (“ROIC”) provides additional insight for analysts and investors in evaluating the company’s financial and operating performance. The company defines ROIC as the trailing four quarters’ net income before interest, after tax, divided by the total invested capital, which is the average of ending debt and equity for the last five quarters. The company believes ROIC is a useful measure of how effectively the company uses capital to generate profits.

 

###

 

About Cooper Tire & Rubber Company

Cooper Tire & Rubber Company (NYSE: CTB) is the parent company of a global family of companies that specializes in the design, manufacture, marketing and sale of passenger car, light truck, medium truck, motorcycle and racing tires. Cooper’s headquarters is in Findlay, Ohio, with manufacturing, sales, distribution, technical and design operations within its family of companies located in more than one dozen countries around the world. For more information on Cooper, visit www.coopertire.com, www.facebook.com/coopertire or www.twitter.com/coopertire.

 

Investor Contact:

Jerry Bialek

419.424.4165

investorrelations@coopertire.com

 

Media Contact:

Anne Roman

419.429.7189

alroman@coopertire.com

 

   

 

 

Cooper Tire & Rubber Company

Consolidated Statements of Income

 

(Dollar amounts in thousands except per share amounts)

 

   Three Months Ended December 31,         
   (Unaudited)   Year Ended December 31, 
   2016   2015   2016   2015 
Net sales  $783,887   $775,546   $2,924,869   $2,972,901 
Cost of products sold   614,587    603,696    2,272,519    2,355,451 
Gross profit   169,300    171,850    652,350    617,450 
Selling, general and administrative expense   63,362    69,319    255,701    262,970 
Pension settlement charges   800        12,262     
Operating profit   105,138    102,531    384,387    354,480 
Interest expense   (6,887)   (5,335)   (26,604)   (23,820)
Interest income   1,471    602    4,378    2,211 
Other non-operating income (expense)   260    (1,876)   4,932    1,157 
Income before income taxes   99,982    95,922    367,093    334,028 
Provision for income taxes   29,290    36,406    115,799    118,224 
Net income   70,692    59,516    251,294    215,804 
Net income attributable to noncontrolling shareholders' interests   1,368    270    2,913    3,038 
Net income attributable to Cooper Tire & Rubber Company  $69,324   $59,246   $248,381   $212,766 
Basic earnings per share:                    
Net income attributable to Cooper Tire & Rubber Company common stockholders  $1.30   $1.06   $4.56   $3.73 
Diluted earnings per share:                    
Net income attributable to Cooper Tire & Rubber Company common stockholders  $1.28   $1.04   $4.51   $3.69 
                     
Weighted average shares outstanding (000s):                    
Basic   53,322    56,061    54,480    57,012 
Diluted   53,991    56,699    55,090    57,623 
                     
Segment information:                    
Net Sales                    
Americas Tire  $693,624   $710,760   $2,600,323   $2,684,754 
International Tire   124,310    101,027    464,003    451,879 
Eliminations   (34,047)   (36,241)   (139,457)   (163,732)
                     
Operating profit (loss):                    
Americas Tire  $116,273   $121,889   $439,941   $422,929 
International Tire   1,353    (7,379)   5,998    (19,133)
Unallocated corporate charges   (12,118)   (12,258)   (60,308)   (52,342)
Eliminations   (370)   279    (1,244)   3,026 

 

   

 

 

Cooper Tire & Rubber Company

Condensed Consolidated Balance Sheets

 

(Dollar amounts in thousands)

 

   December 31, 
   2016   2015 
Assets          
Current assets:          
Cash and cash equivalents  $504,423   $505,157 
Notes receivable   7,485    8,750 
Accounts receivable   409,913    371,757 
Inventories   470,151    412,561 
Other current assets   28,546    36,405 
Total current assets   1,420,518    1,334,630 
           
Property, plant and equipment, net   864,227    795,198 
Goodwill   52,705    18,851 
Intangibles   140,751    133,490 
Restricted cash   1,327    802 
Deferred income tax assets   133,879    136,310 
Other assets   5,988    16,895 
Total assets  $2,619,395   $2,436,176 
           
Liabilities and Equity          
Current liabilities:          
Notes payable  $26,286   $12,437 
Accounts payable   282,416    215,850 
Accrued liabilities   183,804    199,368 
Income taxes payable   5,887    4,748 
Current portion of long-term debt   2,421    600 
Total current liabilities   500,814    433,003 
           
Long-term debt   297,094    296,412 
Postretirement benefits other than pensions   247,227    249,650 
Pension benefits   285,852    304,621 
Other long-term liabilities   156,924    132,594 
Deferred income tax liabilities   1,248    2,285 
Total parent stockholders' equity   1,076,014    979,248 
Noncontrolling shareholders' interests in consolidated subsidiaries   54,222    38,363 
Total liabilities and equity  $2,619,395   $2,436,176 

 

   

 

 

Cooper Tire & Rubber Company

Consolidated Statements of Cash Flows

 

(Dollar amounts in thousands)

 

   Year Ended December 31, 
   2016   2015 
Operating activities:          
Net income  $251,294   $215,804 
Adjustments to reconcile net income to net cash provided by operations:          
Depreciation and amortization   130,257    121,408 
Deferred income taxes   (12,350)   25,034 
Stock-based compensation   13,570    14,919 
Change in LIFO reserve   11,990    (53,108)
Amortization of unrecognized postretirement benefits   43,058    46,170 
Pension settlement charges   12,262     
Changes in operating assets and liabilities of continuing operations:          
Accounts and notes receivable   (45,674)   (15,155)
Inventories   (77,872)   51,864 
Other current assets   3,831    (931)
Accounts payable   13,128    (42,068)
Accrued liabilities   (23,489)   21,719 
Other items   (10,210)   (85,342)
Net cash provided by operating activities   309,795    300,314 
Investing activities:          
Additions to property, plant and equipment and capitalized software   (175,437)   (182,544)
Acquisition of business, net of cash acquired   (5,928)    
Proceeds from the sale of assets   337    1,651 
Net cash (used in) provided by investing activities   (181,028)   (180,893)
Financing activities:          
Net (payments on) issuances of short-term debt   10,019    (41,303)
Additions to long-term debt        
Repayments of long-term debt   (935)   (3,125)
Payment of financing fees       (2,586)
Repurchase of common stock   (107,999)   (108,821)
Payment of dividends to noncontrolling shareholders   (804)   (917)
Payment of dividends   (22,828)   (23,880)
Issuance of common shares and excess tax benefits on options   4,224    23,965 
Net cash used in financing activities   (118,323)   (156,667)
Effects of exchange rate changes on cash of continuing operations   (11,178)   (9,249)
Changes in cash and cash equivalents   (734)   (46,495)
Cash and cash equivalents at beginning of year   505,157    551,652 
Cash and cash equivalents at end of year  $504,423   $505,157 
   

 

 

Cooper Tire & Rubber Company

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

 

(Dollar amounts in thousands except per share amounts)

 

ADJUSTED EARNINGS

 

 

   Year Ended December 31, 2016 
     
   Net Sales   Cost of products sold   Gross profit   Selling, general and
administrative expense
   Pension settlement
charge
   Operating profit   Operating profit % 
Reported (GAAP)  $2,924,869   $2,272,519   $652,350   $255,701   $12,262   $384,387    13.1%
Pension settlement charges                   (12,262)   12,262    %
Adjusted (Non-GAAP)  $2,924,869   $2,272,519   $652,350   $255,701   $   $396,649    13.6%

 

   Year Ended December 31, 2016 
     
   Income before income
 taxes
   Provision for income
taxes
   Net income   Net income attributable
 to noncontrolling
shareholder interests
   Net income attributable
 to Cooper Tire &
Rubber Company
 
Reported (GAAP)  $367,093   $115,799   $251,294   $2,913   $248,381 
Pension settlement charges   12,262    3,925    8,337        8,337 
Adjusted (Non-GAAP)  $379,355   $119,724   $259,631   $2,913   $256,718 

 

   Year Ended December 31, 2016 
     
   Net income attributable
 to Cooper Tire &
Rubber Company
   Weighted average
number of shares
outstanding - Diluted
   Diluted earnings per
share
 
Reported (GAAP)  $248,381    55,090   $4.51 
Pension settlement charges   8,337         
Adjusted (Non-GAAP)  $256,718    55,090   $4.66 

 

RETURN ON INVESTED CAPITAL (ROIC)

 

   Year Ended December 31, 2016      Year Ended December 31, 2016 
Calculation of ROIC       Calculation of Net Interest Tax Effect      
Operating profit     $384,387  Provision for income taxes (c)     $115,799 
Provision for income taxes  $115,799        Income before income taxes (d)        367,093 
Less: Net interest tax effect   (7,011)       Effective income tax rate (c)/(d)        31.5%
Income tax expense excluding interest deduction        122,810   Interest expense  $(26,604)     
Net income before interest, after taxes (a)        261,577   Interest income   4,378      
Total invested capital (b)       $1,386,514   Net interest expense        (22,226)
ROIC, including noncontrolling equity (a)/(b)        18.9%  Net interest tax effect       $(7,011)

 

   Equity   Long-term debt   Current portion of long-
term debt
   Notes payable   Total invested capital 
Calculation of Invested Capital (five quarter average)                         
December 31, 2016  $1,130,236   $297,094   $2,421   $26,286   $1,456,037 
September 30, 2016   1,096,740    295,874    600    12,222    1,405,436 
June 30, 2016   1,085,373    295,853    600    3,716    1,385,542 
March 31, 2016   1,054,320    295,837    600    7,737    1,358,494 
December 31, 2015   1,017,611    296,412    600    12,437    1,327,060 
Five quarter average  $1,076,856   $296,214   $964   $12,480   $1,386,514 

 

   

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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit 99.2

 

February 17, 2017

   

 

Safe Harbor Statement T his presentation contains what the company believes are forward - looking statements related to future financial results and business operations for Cooper Tire & Rubber Company. Actual results may differ materially from current management forecasts and projections as a result of factors over which the company may have limited or no control. Information on certain of these risk factors and additional information on forward - looking statements are included in the company’s reports on file with the Securities and Exchange Commission and set forth at the end of this presentation. 2

   

 

Available Information You can find Cooper Tire on the web at coopertire.com. Our company webcasts earnings calls and presentations from certain events that we participate in or host on the investor relations portion of our website (http://coopertire.com/investors.aspx). In addition, we also make available a variety of other information for investors on the site. Our goal is to maintain the investor relations portion of the website as a portal through which investors can easily find or navigate to pertinent information about Cooper Tire, including: • our annual report on Form 10 - K, quarterly reports on Form 10 - Q, current reports on Form 8 - K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material or furnish it to the Securities and Exchange Commission (“SEC”); • information on our business strategies, financial results and selected key performance indicators; • announcements of our participation at investor conferences and other events; • press releases on quarterly earnings, product and service announcements and legal developments; • corporate governance information; and • other news and announcements that we may post from time to time that investors may find relevant. The content of our website is not intended to be incorporated by reference into this presentation or in any report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only. 3

   

 

Net Sales by Segment Q4 2016 Q4 2015 Change from Prior Year Americas Tire $ 694 $ 711 - 2.4% International Tire 124 101 23.0% Eliminations (34) (36) 6.1% Total Company $ 784 $ 776 1.1% Operating Profit by Segment OP % OP % Americas Tire $ 116 16.8 $ 122 17.1 $ ( 6) International Tire 1 1.1 (7) - 7.3 9 Corporate (12) (12) 0 Eliminations (0) 0 (1 ) Total Company $ 105 13.4 $ 103 13.2 $ 3 Earnings Per Share (diluted) from continuing operations attributable to common stockholders $ 1.28 $ 1.04 $ 0.24 Cash and Cash Equivalents $ 504 $ 505 $ (1) Three Months Ended December 31, 2016 Financial Performance Highlights 4 Amounts are unaudited and may not add due to rounding.. (millions USD, except EPS)

   

 

Year Ended December 31, 2016 Financial Performance Highlights 5 (millions USD, except EPS) Net Sales by Segment Year Ended December 31, 2016 Year Ended December 31, 2015 Change from Prior Year Americas Tire $ 2,600 $ 2,685 - 3.1% International Tire 464 452 2.7% Eliminations ( 139) ( 164) 14.8% Total Company $ 2,925 $ 2,973 - 1.6% Operating Profit by Segment OP % OP % Americas Tire $ 440 16.9 $ 423 15.8 $ 17 International Tire 6 1.3 ( 19) - 4.2 25 Corporate ( 60) ( 52) ( 8) Eliminations ( 1) 3 ( 4) Total Company $ 384 13.1 $ 354 11.9 $ 30 Earnings Per Share (diluted) from continuing operations attributable to common stockholders $ 4.51 $ 3.69 $ 0.82 Cash and Cash Equivalents $ 504 $ 505 $ ( 1) Amounts may not add due to rounding..

   

 

6 CTB Raw Material Price Index North America 0 50 100 150 200 250 300 Q4 2016 Average = 147.0 Q1 2017 is an estimate

   

 

6 6 6 3 103 105 14 1 4 - 50 100 150 ($millions) ($millions) Operating Profit Walk Total Company Q4 2015 to Q4 2016 (8) Net Price/Mix vs. Raw Materials $3 7 Amounts are unaudited and may not add due to rounding. * Raw material costs are inclusive of tariffs, including the preliminary tariffs on truck and bus radial tires imported from China into the United States.

   

 

2 8 3 3 122 116 18 1 3 - 150 ($millions) ($millions) Operating Profit Walk Americas Tire Operations Q4 2015 to Q4 2016 8 $(6) (16) Net Price/Mix vs. Raw Materials Amounts are unaudited and may not add due to rounding. * Raw material costs are inclusive of tariffs, including the preliminary tariffs on truck and bus radial tires imported from China into the United States .

   

 

5 4 7 1 4 2 3 (25) - 25 ($millions) Operating Profit Walk International Tire Operations Q4 2015 to Q4 2016 Amounts are unaudited and may not add due to rounding. 9 9 Net Price/Mix vs. Raw Materials $8

   

 

Non - GAAP Measures 10 Non - GAAP financial measures should be considered in addition to, not as a substitute for, operating profit, net income, earnings per share, total debt or other financial measures prepared in accordance with generally accepted accounting principles (“ GAAP”). The Company’s methods of determining these non - GAAP financial measures may differ from the methods used by other companies for these or similar non - GAAP financial measures. Accordingly, these non - GAAP financial measures may not be comparable to measures used by other companies. Pursuant to the requirements of SEC Regulation G, detailed reconciliations between the Company’s GAAP and non - GAAP financial results were posted, by incorporation within this presentation, on the Company’s Investor Relations website at http :// coopertire.com/investors.aspx on the day the Company’s operating and financial results were announced for the quarter ended December 31, 2016 and management presented certain non - GAAP financial measures during a conference call with analysts and investors. Investors are advised to carefully review and consider this information as well as the GAAP financial results that are disclosed in the Company’s earnings releases and annual and quarterly SEC filings.

   

 

Non - GAAP Measures 11 Return on Invested Capital (ROIC) Management is using non - GAAP financial measures in this document because it considers them to be important supplemental measures of the Company’s performance. Management also believes that these non - GAAP financial measures provide additional insight for analysts and investors in evaluating the Company’s financial and operating performance. The Company defines ROIC as the trailing four quarters’ net income before interest, after tax, divided by the total invested capital, which is the average of ending debt and equity for the last five quarters. The Company believes ROIC is a useful measure of how effectively the Company uses capital to generate profits. Calculation of Return on Invested Capital January 1, 2016 – December 31, 2016 Operating profit $ 384 Provision for income taxes ( 116) Net interest tax effect (7) Net operating profit after tax $ 262 Total invested capital $ 1,387 Return on invested capital 18.9% (millions USD)

   

 

Non - GAAP Measures 12 Calculation of Trailing Four Quarter Income and Expense Inputs Quarter - ended: Operating profit Provision for income taxes Income before income taxes Interest expense Interest income Net interest e xpense March 31, 2016 $ 91 $ (28) $ 87 $ (7) $ 1 $ ( 6) June 30, 2016 110 (35) 106 (6) 1 ( 5) September 30, 2016 78 (24) 74 (7) 1 ( 6) December 31, 2016 105 (29) 100 (7) 1 ( 5) Total $ 384 $ ( 116) $ 367 $ ( 27) $ 4 $ ( 22) Trailing Four Quarter Net Interest Tax Effect Income before income taxes $ 367 Provision for income taxes ( 116) Effective income tax rate - 31.5% Net interest expense (22) Net interest tax effect $ 7 (millions USD)

   

 

Non - GAAP Measures 13 Calculation of Total Invested Capital Five Quarter Average Equity Long - term debt Current portion of long - term debt Short - term notes payable Total invested capital December 31, 2015 $ 1,018 $ 296 $ 1 $ 12 $ 1,327 March 31, 2016 1,054 296 1 8 1,358 June 30, 2016 1,085 296 1 4 1,386 September 30, 2016 1,097 296 1 12 1,405 December 31, 2016 1,130 297 2 26 1,456 Average Balance $ 1,077 $ 296 $ 1 $ 12 $ 1,387 (millions USD)

   

 

Non - GAAP Measures 14 Adjusted Operating Profit, Earnings and Earnings per Share Management is using non - GAAP financial measures in this document because it considers them to be important supplemental measures of the Company’s performance. The Company uses adjusted operating profit, net income and earnings per share to evaluate the performance of the Company’s operations exclusive of certain items affecting comparability of results from period to period. The Company believes that information about operating profit, net earnings and earnings per share exclusive of these items is useful to investors, particularly where the impact of the excluded items is significant in relation to reported earnings, because the measure allows for comparability between periods of the operating performance of the Company’s business and allows investors to evaluate the impact of the excluded items separately from the impact of the operations of the business . Year ended December 31, 2016 wwwwwwwwwwwww Net Sales Cost of products sold Gross profit Selling, general and administrative expense Pension settlement charges Operating profit Operating profit % Reported (GAAP) $ 2,925 $ 2,273 $ 652 $ 256 $ 12 $ 384 13.1% Pension settlement charge $ - $ - $ - $ - $ (12) $ 12 - Adjusted (Non - GAAP) $ 2,925 $ 2,273 $ 652 $ 256 $ - $ 397 13.6% (millions USD)

   

 

Non - GAAP Measures 15 Year ended December 31, 2016 vvvvvvvvvvvvvvvvv Income before income taxes Provision for income taxes Net income Net income attributable to noncontrolling shareholder interests Net income attributable to Cooper Tire & Rubber Company Reported (GAAP) $ 367 $ 116 $ 251 $ 3 $ 248 Pension settlement charges $ 12 $ 4 $ 8 $ - $ 8 Adjusted (Non - GAAP) $ 379 $ 120 $ 260 $ 3 $ 257 Year ended December 31, 2016 wwwwwwwwwwwwww Net income attributable to Cooper Tire & Rubber Company Weighted average number of shares outstanding - Diluted Diluted earnings per share Reported (GAAP) $ 248 55,090 $ 4.51 Pension settlement charges $ 8 - $ - Adjusted (Non - GAAP) $ 257 55,090 $ 4.66 (millions USD, except EPS)

   

 

Risks 16 It is possible that actual results may differ materially from projections or expectations due to a variety of factors, includ ing but not limited to: • volatility in raw material and energy prices, including those of rubber, steel, petroleum based products and natural gas or t he unavailability of such raw materials or energy sources; • the failure of the c ompany’s suppliers to timely deliver products in accordance with contract specifications; • changes to tariffs or the imposition of new tariffs or trade restrictions, including changes related to the anti - dumping and cou ntervailing duties for passenger car and light truck tires imported into the United States from China; and any duties from the investigation into truck and bus tires imported into the Uni ted States from China • changes in economic and business conditions in the world; • increased competitive activity including actions by larger competitors or lower - cost producers; • the failure to achieve expected sales levels; • changes in the c ompany’s customer relationships, including loss of particular business for competitive or other reasons; • the ultimate outcome of litigation brought against the c ompany , product liability claims, which could result in commitment of significant resources and time to defend and possible materia l damages against the company or other unfavorable outcomes; • a disruption in, or failure of, the c ompany’s information technology systems, including those related to cyber security, could adversely affect the c ompany’s business operations and financial performance; • changes in pension expense and/or funding resulting from investment performance of the c ompany’s pension plan assets and changes in discount rate, and expected return on plan assets assumptions, or changes to related accounting regulations; • government regulatory and legislative initiatives including environmental, healthcare and tax matters; • volatility in the capital and financial markets or changes to the credit markets and/or access to those markets; • A variety of factors, including market conditions, may affect the actual amount expended on stock repurchases; the c ompany’s ability to consummate stock repurchases; changes in the c ompany’s results of operations or financial conditions or strategic priorities may lead to a modification, suspension or cancellation of stock repurchases, which may occur at any time; • changes in interest or foreign exchange rates; • an adverse change in the c ompany’s credit ratings, which could increase borrowing costs and/or hamper access to the credit markets; • failure to implement information technologies or related systems, including failure by the company to successfully implement an ERP system; • the risks associated with doing business outside of the United States; • the failure to develop technologies, processes or products needed to support consumer demand; • technology advancements; • the inability to recover the costs to develop and test new products or processes; • the impact of labor problems, including labor disruptions at the c ompany , its joint ventures, or at one or more of its large customers or suppliers; • failure to attract or retain key personnel; • consolidation among the c ompany’s competitors or customers; • inaccurate assumptions used in developing the c ompany’s strategic plan or operating plans or the inability or failure to successfully implement such plans; • risks relating to acquisitions including the failure to successfully integrate them into operations or their related financin gs may impact liquidity and capital resources; • changes in the company’s relationship with its joint - venture partners or suppliers, including any changes with respect to its fo rmer CCT joint venture’s production of Cooper - branded products; • the ability to find sufficient alternative sources for products supplied by CCT; • the inability to obtain and maintain price increases to offset higher production or material costs; • inability to adequately protect the c ompany’s intellectual property rights; and • inability to use deferred tax assets.

   

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