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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):   October 30, 2017

 

Cooper Tire & Rubber Company

 

(Exact name of registrant as specified in its charter)

 

Delaware   001-04329   344297750
(State or other jurisdiction of incorporation)   (Commission File Number)   (I.R.S. Employer 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))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 
 

 

 

Item 2.02.Results of Operations and Financial Condition.

 

On October 30, 2017, Cooper Tire & Rubber Company (the "Company") issued a press release reporting its financial results for the third quarter 2017. 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 October 30, 2017, the Company posted a summary slide presentation regarding third quarter 2017 (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

 

99.1Press release dated October 30, 2017

 

99.2Slide Presentation regarding third quarter 2017

 

 

 

 

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
       
       
October 30, 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 October 30, 2017
     
99.2   Slide presentation regarding third quarter 2017

 

 

 

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

 

 

NEWS

 

Cooper Tire & Rubber Company Reports Third Quarter 2017 Results;

Management Updates Guidance

 

FINDLAY, Ohio, Oct. 30, 2017 – Cooper Tire & Rubber Company (NYSE: CTB) today reported third quarter 2017 net income of $62 million, or diluted earnings per share of $1.18, compared with $49 million, or $0.90 per share, last year. The quarter included a $39 million benefit from lower product liability costs. For comparison purposes, the third quarter of 2016 included a non-cash pension settlement charge of $11.5 million related to the lump-sum distribution of benefits offered to certain former employees.

 

Third Quarter Highlights:

 

·Consolidated unit volume decreased 2.0 percent compared to the prior year, with strong growth in the International segment that was more than offset by lower volume in the Americas segment.
·Net sales decreased 2.3 percent to $734 million.
·Operating profit was $101 million, or 13.8 percent of net sales, which is an increase of $23 million from the prior year.
·The quarter included a $39 million benefit in operating profit from lower product liability costs, primarily related to a reduction of the company’s product liability reserves.
·Cooper’s raw material index increased 6.4 percent from the third quarter of 2016, with raw material costs increasing by $19 million from the prior year.
·The company repurchased $32 million of its common stock during the quarter at an average price of $35.05 per share. Average shares outstanding have decreased 4.1 percent from the third quarter of 2016.

 

Total company unit volume was down 2.0 percent for the quarter. Unit volume in the Americas segment was down 7.5 percent compared to the prior year, with decreases in both North America and Latin America. International segment unit volume was up 31.3 percent, driven by a significant increase in Asia.

 

“Our third quarter performance, particularly the decline in North America unit volume, reflects continued challenges within the tire industry, including raw material cost variability, weak trends in retail sell-out of tires to consumers, elevated inventory in the channels and a fluid promotional landscape,” said President & Chief Executive Officer Brad Hughes. “These conditions were exacerbated by the hurricanes in Texas and Florida.

 

“In North America, we continue to respond to current market conditions by being competitive on pricing and promotions. We are addressing the unit volume decline, which was partially the result of the ongoing reduction in our private brand business, by expanding into additional channels with new positions in the car dealer and e-commerce channels, as well as new OE fitments that we will announce in the future. In addition, we have an aggressive schedule of new product introductions underway that continues throughout 2018 and 2019.

 

“Cooper continues to believe that positive macro-economic factors, such as gas prices, miles driven, low unemployment, growing wages and others will support growth for the tire industry. We think our strong business model and global footprint position us well going forward.”

 

-more-

 

Cooper Tire Q3 2017—2

 

 

Consolidated Results:

 

Cooper Tire  Q3 2017 ($M)   Q3 2016 ($M)   Change 
Net Sales  $734   $751    (2.3)%
Operating Profit  $101   $78    29.6%
Operating Margin   13.8%   10.4%   3.4 ppts. 

 

Third quarter net sales were $734 million, a decrease of 2.3 percent compared with $751 million in the third quarter of 2016. Third quarter net sales were negatively impacted by $19 million of lower unit volume and $1 million of unfavorable price and mix, partially offset by $3 million of favorable foreign currency impact.

 

Third quarter 2017 operating profit was $101 million compared with $78 million for the same period last year. Operating profit included $15 million in unfavorable raw material costs, net of price and mix, $8 million of lower unit volume, and $7 million of higher manufacturing costs. These higher costs were offset by $39 million of lower product liability costs, the $11.5 million non-cash pension settlement charge that was recorded in 2016, and lower other costs of $3 million.

 

As part of its regular review, Cooper monitors trends and analyzes developments and variables likely to impact pending and anticipated product liability claims against the company. Based on the review completed in the third quarter, the company reduced its estimate of pending and anticipated product liability claims. Primarily as a result of this review, product liability expense was $39 million lower than the third quarter of 2016.

 

Cooper’s third quarter raw material index increased 6.4 percent from the third quarter of 2016. The raw material index decreased from 163.5 in the second quarter to 150.2 in the third quarter.

 

Higher manufacturing costs were driven by increases in the Americas segment, primarily due to lower production volumes, an outcome of the decline in unit volume year over year, and the pull ahead of production down days into September out of concern for potential hurricane related disruption of raw material supply. SG&A expense for the quarter was flat compared to the prior year.

 

The effective tax rate for the third quarter was 33.8 percent, compared to 32.0 percent in the prior year. The increase in tax rate was primarily due to improved domestic results, which increased earnings in a higher rate tax jurisdiction. The rate is based on forecasted annual earnings and tax rates for the various jurisdictions in which the company operates.

 

At quarter end, Cooper had $258 million in cash and cash equivalents, compared with $450 million at the end of the same period last year. Since the end of the third quarter of 2016, cash has continued to be invested in the company, including $87 million spent to acquire and fund the capital requirements of Qingdao Ge Rui Da Rubber Company (GRT), and in the continuation of the company’s share repurchase program. Capital expenditures in the third quarter were $53 million compared with $41 million in the same period last year.

 

Cooper generated a 15.2 percent return on invested capital for the trailing four quarters.

 

In February 2017, the company announced an increased and extended $300 million share repurchase program through December 2019. During the third quarter, 902,494 shares were repurchased for $31.6 million at an average price of $35.05 per share. Through the first nine months of 2017, Cooper has

 

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Cooper Tire Q3 2017—3

 

 

repurchased 1,943,685 shares for $70.2 million. As of September 30, 2017, $244 million remains of the $300 million authorization. Since share repurchases began in August 2014, the company has repurchased a total of 14.2 million shares at an average price of $34.36 per share.

 

Americas Tire Operations:

 

Americas Tire Operations  Q3 2017 ($M)   Q3 2016 ($M)   Change 
Net Sales  $625   $673    (7.0)%
Operating Profit  $117   $102    15.7%
Operating Margin   18.8%   15.1%   3.7 ppts. 


Third quarter net sales in the Americas segment declined 7.0 percent as a result of $51 million of lower unit volume, partially offset by $2 million of favorable price and mix, primarily due to net price increases related to higher raw material costs, and $1 million of favorable foreign currency impact. Segment unit volume decreased 7.5 percent from the prior year, with unit volume decreases in North America and Latin America.

 

Cooper’s third quarter total light vehicle tire shipments in the United States decreased 10.4 percent in a competitive pricing and promotional environment, as the industry experienced weak sell-out volume. In addition, shipments were negatively impacted by the hurricanes in Texas and Florida. The U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. were down 1.7 percent. Total industry shipments (including an estimate for non-USTMA members) decreased 1.4 percent for the period. Cooper’s shipments in Mexico declined 8.6 percent in the quarter, which drove a decline for Latin America. However, Cooper performed better than the tire industry as a whole in Mexico, which was down by nearly 15 percent for the quarter.

 

Third quarter operating profit was $117 million, or 18.8 percent of net sales, compared with $102 million, or 15.1 percent of net sales, a year ago. Operating profit was impacted by $12 million of lower unit volume, $8 million of unfavorable manufacturing costs, and $7 million of unfavorable raw material costs, net of price and mix. These were offset by $39 million of lower product liability costs, $2 million of favorable SG&A costs, and $1 million of reduced other expense, including foreign currency impact.

 

The segment’s $8 million of unfavorable manufacturing costs in the third quarter was primarily the result of curtailed production levels to manage inventory based on lower unit shipments in the U.S. and the pull ahead of production down days into September.

 

International Tire Operations:

 

 

International Tire Operations  Q3 2017 ($M)   Q3 2016 ($M)   Change 
Net Sales  $163   $113    44.8%
Operating Profit  $1   $3    (81.9)%
Operating Margin   0.4%   2.9%   (2.5) ppts. 

 

Third quarter net sales in the International segment increased 44.8 percent as a result of $27 million of higher unit volume and $22 million of favorable price and mix, primarily due to net price increases related to higher raw material costs, and $1 million of favorable foreign currency impact. Segment unit volume was up 31.3 percent, with increased unit volume in Asia that was partially offset by a small unit volume decline in Europe.

 

-more-

 

Cooper Tire Q3 2017—4

 

 

Third quarter operating profit was $1 million compared with operating profit of $3 million in the third quarter of 2016. The decline was driven by $7 million of unfavorable raw material costs, net of price and mix, which were partially offset by $4 million of higher unit volume and $1 million of favorable manufacturing costs.

 

Outlook

“Weak sell-out of tires to consumers and heavy promotional activity are likely to persist into the fourth quarter in North America,” Hughes said. “As a result, we expect that operating margin in the fourth quarter will be below our previously stated expectations. Cooper will continue to price our products appropriately given market conditions and will remain focused on executing the programs we have in place to expand into additional channels. In addition, we will continue to manage our production levels and inventories, helping to position Cooper for a strong start to 2018.”

 

Management expectations for the fourth quarter include:

·Operating margin below the previously announced mid-term target of 8 to 10 percent.
·A modest sequential increase in raw material costs.
·Unit volume in the Americas segment will improve sequentially from the third quarter, but U.S. unit volume is expected to lag the industry. Unit volume growth is expected in the International segment.
·The International segment is expected to continue to improve profitability relative to 2016, inclusive of the recently acquired majority interest in GRT.

 

Management expectations for the full year 2017 include:

·Consolidated operating margin near the high end of the company’s previously announced mid-term target of 8 to 10 percent.
·Effective tax rate in a range between 30 percent and 33 percent.
·Capital expenditures to range between $190 and $210 million.


 

Third Quarter 2017 Conference Call Today at 10 a.m. Eastern

Management will discuss the financial and operating results for the third quarter, as well as the company’s business outlook, on a conference call for analysts and investors today at 10 a.m. EDT. The call may be accessed on the investor relations page of the company’s website at http://coopertire.com/Investors.aspx or at http://services.choruscall.com/links/ctb171030.html. Following the conference call, the webcast will be archived and available for 90 days at these websites.

 

A summary slide 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 U.S. and other countries, or the performance of the company itself, which involve uncertainty and risk. 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.

 

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Cooper Tire Q3 2017—5

 

 

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 or services in accordance with contract specifications;
·changes to tariffs or trade agreements, or the imposition of new tariffs or trade restrictions, including changes related to tariffs on tires imported into the U.S. from China, as well as tariffs imposed on raw materials which the company uses;
·changes in economic and business conditions in the world, including changes related to the United Kingdom’s decision to withdraw from the European Union;
·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 the company’s pension strategy, investment performance of the company’s pension plan assets and changes in discount rate or 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 ERP systems;
·the risks associated with doing business outside of the U.S.;
·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;

 

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Cooper Tire Q3 2017—6

 

 

·changes in the company’s relationship with its joint-venture partners or suppliers, including any changes with respect to its former PCT joint venture’s production of Cooper-branded products;
·the ability to find alternative sources for products supplied by PCT;
·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.

 

It is not possible to foresee or identify all such factors. Any forward-looking statements in this release are 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 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 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 the 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’ operating profit, 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: Media Contact:
Jerry Bialek Anne Roman
419.424.4165 419.429.7189
investorrelations@coopertire.com alroman@coopertire.com

 

 

 

 

Cooper Tire & Rubber Company

Condensed Consolidated Statements of Income

(Unaudited)

 

(Amounts in thousands except per share amounts)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2017   2016   2017   2016 
Net sales  $733,843   $750,913   $2,097,621   $2,140,982 
Cost of products sold   569,116    597,961    1,692,137    1,657,932 
Gross profit   164,727    152,952    405,484    483,050 
Selling, general and administrative expense   63,350    63,262    180,605    192,339 
Pension settlement charge       11,462        11,462 
Operating profit   101,377    78,228    224,879    279,249 
Interest expense   (7,591)   (6,795)   (23,629)   (19,717)
Interest income   1,776    1,018    5,333    2,907 
Other non-operating (expense) income   (978)   1,785    (1,468)   4,672 
Income before income taxes   94,584    74,236    205,115    267,111 
Provision for income taxes   31,924    23,757    67,250    86,509 
Net income   62,660    50,479    137,865    180,602 
Net income attributable to noncontrolling shareholders' interests   973    1,176    307    1,545 
Net income attributable to Cooper Tire & Rubber Company  $61,687   $49,303   $137,558   $179,057 
                     
Earnings per share:                    
Basic  $1.19   $0.91   $2.62   $3.26 
Diluted  $1.18   $0.90   $2.59   $3.23 
                     
Weighted average shares outstanding:                    
Basic   52,042    54,055    52,555    54,869 
Diluted   52,435    54,680    53,046    55,459 
                     
Segment information:                    
Net Sales                    
Americas Tire  $625,423   $672,641   $1,772,138   $1,906,699 
International Tire   163,345    112,789    456,680    339,693 
Eliminations   (54,925)   (34,517)   (131,197)   (105,410)
                     
Operating profit (loss):                    
Americas Tire  $117,465   $101,522   $263,951   $323,667 
International Tire   591    3,265    3,518    4,645 
Unallocated corporate charges   (15,792)   (26,442)   (41,177)   (48,191)
Eliminations   (887)   (117)   (1,413)   (872)

 

 

 

 

Cooper Tire & Rubber Company

Condensed Consolidated Balance Sheets

(Unaudited)

 

(Dollar amounts in thousands)

 

   September 30, 
   2017   2016 
Assets        
Current assets:          
Cash and cash equivalents  $258,362   $450,348 
Notes receivable   15,213    5,947 
Accounts receivable   512,626    434,580 
Inventories   573,731    496,095 
Other current assets   54,028    44,797 
Total current assets   1,413,960    1,431,767 
           
Property, plant and equipment, net   926,986    812,291 
Goodwill   56,361    18,851 
Intangibles   135,776    132,380 
Restricted cash   1,376    1,014 
Deferred income tax assets   133,455    133,990 
Other assets   5,634    15,575 
Total assets  $2,673,548   $2,545,868 
           
Liabilities and Equity          
Current liabilities:          
Notes payable  $36,056   $12,222 
Accounts payable   266,033    225,662 
Accrued liabilities   186,261    221,258 
Income taxes payable   38,897    10,973 
Current portion of long-term debt   1,464    600 
Total current liabilities   528,711    470,715 
           
Long-term debt   296,084    295,874 
Postretirement benefits other than pensions   247,551    251,219 
Pension benefits   252,701    284,223 
Other long-term liabilities   115,606    145,048 
Deferred income tax liabilities   670    2,049 
Total parent stockholders' equity   1,173,305    1,060,752 
Noncontrolling shareholders' interests in consolidated subsidiaries   58,920    35,988 
Total liabilities and equity  $2,673,548   $2,545,868 

 

 

 

 

Cooper Tire & Rubber Company

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

(Dollar amounts in thousands)

 

   Nine Months Ended 
   September 30, 
   2017   2016 
Operating activities:          
Net income  $137,865   $180,602 
Adjustments to reconcile net income to net cash (used in) provided by operations:          
Depreciation and amortization   106,652    96,928 
Stock-based compensation   3,711    11,800 
Change in LIFO inventory reserve   (14,413)   (3,426)
Amortization of unrecognized postretirement benefits   31,463    32,266 
Pension settlement charge       11,462 
Changes in operating assets and liabilities:          
Accounts and notes receivable   (99,767)   (67,940)
Inventories   (75,628)   (89,877)
Other current assets   (25,121)   (13,788)
Accounts payable   (25,621)   13,370 
Accrued liabilities   4,884    21,956 
Other items   (58,250)   (13,725)
Net cash (used in) provided by operating activities   (14,225)   179,628 
Investing activities:          
Additions to property, plant and equipment and capitalized software   (143,067)   (126,921)
Proceeds from the sale of assets   42    331 
Net cash used in investing activities   (143,025)   (126,590)
Financing activities:          
Net payments on short-term debt   (6,393)   (645)
Repayments of long-term debt   (600)   (600)
Repurchase of common stock   (70,198)   (82,486)
Payments of employee taxes withheld from shared-based awards   (6,669)   (2,948)
Payment of dividends to noncontrolling shareholders   (282)   (804)
Payment of dividends to Cooper Tire & Rubber Company Stockholders   (16,548)   (17,242)
Issuance of common shares related to stock-based compensation   4,091    3,533 
Excess tax benefits on options       177 
Net cash used in financing activities   (96,599)   (101,015)
Effects of exchange rate changes on cash of continuing operations   7,788    (6,832)
Changes in cash and cash equivalents   (246,061)   (54,809)
Cash and cash equivalents at beginning of year   504,423    505,157 
Cash and cash equivalents at end of year  $258,362   $450,348 

 

 

 

 

Cooper Tire & Rubber Company

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

 

(Amounts in thousands except per share amounts)

 

ADJUSTED EARNINGS

 

   Three Months Ended September 30, 2016 
   Net Sales   Cost of products sold   Gross profit   Selling,
general and administrative expense
   Pension settlement charge   Operating profit   Operating profit % 
Reported (GAAP)  $750,913   $597,961   $152,952   $63,262   $11,462   $78,228    10.4%
Pension settlement charge                   (11,462)   11,462     
Adjusted (Non-GAAP)  $750,913   $597,961   $152,952   $63,262   $   $89,690    11.9%

 

   Three Months Ended September 30, 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)  $74,236   $23,757   $50,479   $1,176   $49,303 
Pension settlement charge   11,462    3,756    7,706        7,706 
Adjusted (Non-GAAP)  $85,698   $27,513   $58,185   $1,176   $57,009 

 

   Three Months Ended September 30, 2016 
   Net income attributable to Cooper Tire & Rubber Company   Weighted average number of shares outstanding - Diluted   Diluted earnings per share 
Reported (GAAP)  $49,303    54,680   $0.90 
Pension settlement charge   7,706         
Adjusted (Non-GAAP)  $57,009    54,680   $1.04 

 

 

 

 

Cooper Tire & Rubber Company

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

 

(Dollar amounts in thousands)

 

RETURN ON INVESTED CAPITAL (ROIC)

 

    Trailing Four Quarters Ended
September 30, 2017
          Trailing Four Quarters Ended
September 30, 2017
 
Calculation of ROIC                   Calculation of Effective Tax Rate                  
                                       
Operating profit           $ 330,017     Provision for income taxes (c)             $ 96,541  
Effective tax rate     31.6 %           Income before income taxes (d)                305,098  
Income tax expense on operating profit     104,426             Effective income tax rate (c)/(d)               31.6 %
Operating profit after taxes (a)             225,591                        
Total invested capital (b)           $ 1,484,964                        
ROIC, including noncontrolling equity (a)/(b)             15.2 %                      

 

 

Calculation of Invested Capital (five quarter average)  Equity   Long-term debt   Current portion of long-term debt   Notes payable   Total invested capital 
September 30, 2017  $1,232,225   $296,084   $1,464   $36,056   $1,565,829 
June 30, 2017   1,192,922    296,179    1,514    38,374    1,528,989 
March 31, 2017   1,156,063    296,516    1,370    14,581    1,468,530 
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 
Five quarter average  $1,161,637   $296,349   $1,474   $25,504   $1,484,964 

 

 

Calculation of Trailing Four Quarter Income and Expense Inputs            
Quarter-ended:  Operating profit   Provision for income taxes   Income before income taxes 
September 30, 2017  $101,377   $31,924   $94,584 
June 30, 2017   74,832    22,298    68,122 
March 31, 2017   48,670    13,029    42,410 
December 31, 2016   105,138    29,290    99,982 
Trailing four quarters  $330,017   $96,541   $305,098 

 

 

 

 

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Section 3: EX-99.2 (EXHIBIT 99.2)

 

Exhibit 99.2

 

Company Update Third Quarter 2017 October 30, 2017

 

 

Safe Harbor Statement This 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

 

 

Three Months Ended September 30, 2017 Financial Performance Highlights 4 Amounts are unaudited and may not add due to rounding. (millions USD, except EPS) Net Sales by Segment Q3 2017 Q3 2016 Change from Prior Year Americas Tire $ 625 $ 673 (7.0 %) International Tire 163 113 44.8 % Eliminations (55 ) (35 ) (59.1 %) Total Company $ 734 $ 751 (2.3 %) Operating Profit (Loss) by Segment OP % OP % Americas Tire $ 117 18.8 $ 102 15.1 $ 15 International Tire 1 0.4 3 2.9 (2 ) Corporate (16 ) (26 ) 10 Eliminations (1 ) — (1 ) Total Company $ 101 13.8 $ 78 10.4 $ 23 Earnings per share, diluted $ 1.18 $ 0.90 $ 0.28 Cash and cash equivalents $ 258 $ 450 $ (192 )

 

 

Nine Months Ended September 30, 2017 Financial Performance Highlights 5 Amounts are unaudited and may not add due to rounding. (millions USD, except EPS) Net Sales by Segment 9 Months Ended September 30, 2017 9 Months Ended September 30, 2016 Change from Prior Year Americas Tire $ 1,772 $ 1,907 (7.1 %) International Tire 457 340 34.4 % Eliminations (131 ) (105 ) (24.5 %) Total Company $ 2,098 $ 2,141 (2.0 %) Operating Profit (Loss) by Segment OP % OP % Americas Tire $ 264 14.9 $ 324 17.0 $ (60 ) International Tire 4 0.8 5 1.4 (1 ) Corporate (41 ) (48 ) 7 Eliminations (1 ) (1 ) — Total Company $ 225 10.7 $ 279 13.0 $ (54 ) Earnings per share, diluted $ 2.59 $ 3.23 $ (0.64 ) Cash and cash equivalents $ 258 $ 450 $ (192 )

 

 

6 CTB Raw Material Price Index North America Q3 2017 Average = 150.2 Q4 2017 is an estimate

 

 

Operating Profit Walk Total Company Q3 2016 to Q3 2017 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 tires which were in effect in Q3 2016 and subsequently reversed in Q1 2017. ** Other costs are inclusive of $1.0 million of insurance recoveries and $2.2 million of direct expenses related to tornado d ama ge at a North American distribution center in Q1 2017. ($millions) (15) Net Price/Mix vs. Raw Materials $23

 

 

Operating Profit Walk Americas Tire Operations Q3 2016 to Q3 2017 8 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 tires which were in effect in Q3 2016 and subsequently reversed in Q1 2017. ** Other costs are inclusive of $1.0 million of insurance recoveries and $2.2 million of direct expenses related to tornado d ama ge at a North American distribution center in Q1 2017. ($millions) (7) Net Price/Mix vs. Raw Materials $15

 

 

Operating Profit Walk International Tire Operations Q3 2016 to Q3 2017 Amounts are unaudited and may not add due to rounding. 9 ($millions) ( 7) Net Price/Mix vs. Raw Materials $(2)

 

 

Non - GAAP Measures 10 Non - GAAP financial measures should be considered in addition to, not as a substitute for, 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 September 30, 2017 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’ operating profit, 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 October 1, 2016 – September 30, 2017 (millions USD) Operating profit $ 330 Effective tax rate 31.6 % Income tax expense on operating profit 104 Operating profit after taxes $ 226 Total invested capital $ 1,485 Return on invested capital 15.2 %

 

 

Non - GAAP Measures 12 Calculation of Trailing Four Quarter Income and Expense Inputs (millions USD) Quarter - ended: Operating profit Provision for income taxes Income before income taxes September 30, 2017 $ 101 $ 32 $ 95 June 30, 2017 75 22 68 March 31, 2017 49 13 42 December 31, 2016 105 29 100 Total $ 330 $ 97 $ 305 Trailing Four Quarter Effective Tax Rate Provision for income taxes $ 97 Income before income taxes 305 Effective income tax rate 31.6 %

 

 

Non - GAAP Measures 13 Calculation of Total Invested Capital (five quarter average) (millions USD) Equity Long - term Debt Current Portion of Long - term Debt Short - term Notes Payable Total Invested Capital September 30, 2017 $ 1,232 $ 296 $ 1 $ 36 $ 1,566 June 30, 2017 1,193 296 2 38 1,529 March 31, 2017 1,156 297 1 15 1,469 December 31, 2016 1,130 297 2 26 1,456 September 30, 2016 1,097 296 1 12 1,405 Average Balance $ 1,162 $ 296 $ 1 $ 26 $ 1,485

 

 

Risks 14 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 the unavailability of such raw materials or energy sources; • the failure of the company’s suppliers to timely deliver products or services in accordance with contract specifications; • changes to tariffs or trade agreements, or the imposition of new tariffs or trade restrictions, including changes related to tar iffs on tires imported into the U.S. from China, as well as tariffs imposed on raw materials which the company uses; • changes in economic and business conditions in the world, including changes related to the United Kingdom’s decision to withd raw from the European Union; • 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 com mit ment 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, coul d a dversely affect the company’s business operations and financial performance; • changes in pension expense and/or funding resulting from the company’s pension strategy, investment performance of the compan y’s pension plan assets and changes in discount rate or 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 abi lity to consummate stock repurchases; changes in the company’s results of operations or financial conditions or strategic priorities may lead to a modification, su spe nsion 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 ma rke ts; • failure to implement information technologies or related systems, including failure by the company to successfully implement ERP systems; • the risks associated with doing business outside of the U.S.; • 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 cus tomers 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 succ ess fully 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 PCT joint venture’s production of Cooper - branded products; • the ability to find alternative sources for products supplied by PCT; • 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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