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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 20, 2018

 

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))

 

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 February 20, 2018, Cooper Tire & Rubber Company (the "Company") issued a press release reporting its financial results for the fourth quarter and full-year 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 February 20, 2018, the Company posted a summary slide presentation regarding fourth quarter and full year 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

 

99.1 Press release dated February 20, 2018

 

99.2 Slide Presentation regarding fourth quarter and full year 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
     
February 20, 2018 By:  /s/Jack Jay McCracken
    Name: Jack Jay McCracken
    Title: Assistant General Counsel & Assistant Secretary

 

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

 

NEWS

 

 

Cooper Tire & Rubber Company Reports Fourth
Quarter and Full Year 2017 Results

 

FINDLAY, Ohio, Feb. 20, 2018 – Cooper Tire & Rubber Company (NYSE: CTB) today reported full year 2017 net income of $95 million, or diluted earnings per share of $1.81, compared with $248 million, or $4.51 per share, last year. The 2017 results include $68 million of discrete tax items recorded in the fourth quarter, primarily related to the impact of tax reform in the United States. Excluding these discrete tax items, earnings per share would have been $3.10.

 

Full Year 2017 Highlights:

Consolidated unit volume decreased 0.5 percent year over year, as challenging conditions led to a unit volume decline in the U.S., which was nearly offset by a strong unit volume increase in Asia. Net sales were $2.85 billion compared with $2.92 billion in 2016.
Operating profit of $272 million, or 9.5 percent of net sales, was near the high end of the company’s previously issued mid-term guidance range of 8 to 10 percent.
Discrete tax items, including the impact of provisional amounts related to U.S. tax reform, resulted in additional income tax expense of $68 million in the fourth quarter.

 

Fourth Quarter Highlights:

Consolidated unit volume decreased 1.9 percent for the quarter compared to the prior year. Unit volume in the Americas segment was down 6.2 percent, which was partially offset by unit volume growth of 15.0 percent in the International segment, driven by strong performance in Asia.
Net sales decreased 3.4 percent to $757 million.
Cooper's raw material index increased 4.1 percent from the fourth quarter of 2016, with raw material costs increasing by $33 million from the prior year.
Operating profit was $47 million, or 6.2 percent of net sales, which is a decrease of $58 million from the same period in 2016.
The quarter included restructuring costs totaling $2 million related to a reduction in force in the U.S.
Including fourth quarter discrete tax items, there was a diluted loss of $0.82 per share. Excluding the tax items, diluted earnings per share were $0.50 in the fourth quarter.

 

“We are pleased to have ended 2017 with operating profit margin of 9.5 percent, which is near the high end of our previously issued 8 to 10 percent guidance range. This is noteworthy given the pricing and volume challenges within the industry throughout the year, and the significant impact of higher raw material costs,” said President & Chief Executive Officer Brad Hughes. “Unit volume declines in the U.S. were caused by industry-wide conditions and our continued exit from some non-strategic private brand business, a process which is largely behind us now.  We are pleased with the performance of our Asia operations, which generated a unit volume increase that nearly offset the U.S. decline. We also congratulate the Asia team for the rapid integration and production ramp of our GRT joint venture in China, which produces truck and bus radial tires. Our prior projections called for GRT to be accretive early in 2018, but it was actually accretive to 2017 earnings.

 

“We have already launched several initiatives to improve unit volume in the U.S., such as expanding on our early inroads in the global original equipment business outside of Asia, where we already have a strong OE presence, entering into new channels, and speeding the cadence of new product introductions to drive growth. In addition to the volume opportunity, we are working to improve profit margin through company-wide efforts to enhance efficiencies and reduce costs, including continued balancing of production capacity within our network, automation in our plants, and a recent corporate reorganization that eliminated about 5 percent of U.S. salaried positions.  Our efforts will take some time to fully manifest in our results, but we are encouraged with the early progress.

 

-more-

 

 

 

 

Cooper Tire Q4 2017—2

 

“Moving forward, we expect results to improve as our initiatives begin to take hold, and as underlying macro-conditions that favor tire industry growth have a positive impact.  For 2018, we expect unit volume growth compared to 2017. Due to the reclassification of certain pension costs, we have restated upwards our mid-term operating profit margin target to be in the range of 9 to 11 percent. For full year 2018, we expect to be near the low end of this range. We will provide more detail on our strategic plans, capital allocation and updated guidance when Cooper hosts an investor event planned for the middle of this year.”

 

Consolidated Results:

 

Cooper Tire  Q4 2017 ($M)   Q4 2016 ($M)   Change   2017($M)   2016 ($M)   Change 
Net Sales  $757   $784    (3.4)%  $2,855   $2,925    (2.4)%
Operating Profit  $47   $105    (55.4)%  $272   $384    (29.3)%
Operating Margin   6.2%   13.4%   (7.2) ppts.   9.5%   13.1%   (3.6) ppts. 

 

Consolidated Fourth Quarter Results:

Fourth quarter net sales were $757 million, a decrease of 3.4 percent compared with $784 million in the fourth quarter of 2016. Fourth quarter net sales were negatively impacted by $15 million of lower unit volume and $14 million of unfavorable price and mix, partially offset by $2 million of favorable foreign currency impact.

 

Fourth quarter 2017 operating profit was $47 million compared with $105 million for the same period last year. Operating profit included $32 million of unfavorable raw material costs, net of price and mix, $13 million of higher manufacturing costs, $11 million of lower unit volume and $2 million of higher product liability costs. Net SG&A expense increased by $1 million and included $2 million related to the reduction in force. Other costs decreased $1 million.

 

Cooper's fourth quarter raw material index increased 4.1 percent from the fourth quarter of 2016. The raw material index also increased sequentially from 150.2 in the third quarter to 153.1 in the fourth quarter.

 

Higher manufacturing costs reflect decisions to lower production volume and control inventory levels due to the decline in unit volume shipments in the Americas segment.

 

On December 22, 2017, the U.S. enacted comprehensive tax legislation, commonly referred to as the “Tax Act,” which made broad and complex changes to the tax code. As a result of the transition to a new tax system, Cooper recorded provisional tax amounts related to a mandatory, one-time deemed repatriation of undistributed earnings of foreign subsidiaries (the “Transition Tax”), payable over eight years, and the impact of re-measurement of its U.S. deferred tax assets and liabilities to the new lower U.S. federal income tax rate of 21 percent. The provisional fourth quarter tax impact of the Transition Tax and deferred tax re-measurement was $35 million and $20 million (non-cash), respectively. Additionally, the fourth quarter tax provision includes the impact of the recording of a non-cash valuation allowance based upon the expected realization of certain foreign deferred tax assets related to the company's European operations of $19 million, partially offset by the reversal of an existing non-cash $7 million valuation allowance in Asia.

 

The effective tax rate for the fourth quarter was 206.0 percent, compared to 29.3 percent in the prior year. Excluding these discrete tax items, the effective tax rate would have been 30.7 percent for the fourth quarter of 2017.

 

At year end, Cooper had $372 million in cash and cash equivalents, compared with $504 million at the end of the same period last year. Capital expenditures in the fourth quarter were $54 million compared with $49 million in the same period last year.

 

Cooper generated a return on invested capital, excluding the impact of discrete tax items in the fourth quarter, of 12.2 percent for the trailing four quarters.

 

-more-

 

 

 

 

Cooper Tire Q4 2017—3

 

In February 2017, the company announced an increased and extended $300 million share repurchase program through December 2019. During the fourth quarter, 576,242 shares were repurchased for $20.7 million at an average price of $35.87 per share. For the full year 2017, Cooper repurchased 2.5 million shares for $90.9 million. As of December 31, 2017, $223 million remains of the $300 million authorization. Since share repurchases began in August 2014 through December 31, 2017, the company repurchased a total of 14.8 million shares at an average price of $34.42 per share.

 

Americas Tire Operations:

 

Americas Tire 

Operations 

  Q4 2017 ($M)   Q4 2016 ($M)   Change   2017($M)   2016 ($M)   Change 
Net Sales  $645   $694    (7.1)%  $2,417   $2,600    (7.1)%
Operating Profit  $61   $116    (47.8)%  $325   $440    (26.2)%
Operating Margin   9.4%   16.8%   (7.4) ppts.    13.4%   16.9%   (3.5) ppts. 


Fourth quarter net sales in the Americas segment declined 7.1 percent as a result of $43 million of lower unit volume and $7 million of unfavorable price and geographical mix within the segment, which was partially offset by $1 million of favorable foreign currency impact. Segment unit volume decreased 6.2 percent from the prior year, with unit volume decreases in both North America and Latin America.

 

Cooper’s fourth quarter total light vehicle tire shipments in the United States decreased 8.3 percent. The U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. were up 0.8 percent. Total industry shipments (including an estimate for non-USTMA members) increased 1.6 percent for the period. Cooper's shipments in Mexico declined 1.7 percent in the fourth quarter, which drove the decline for Latin America. However, Cooper performed better than the tire industry as a whole in Mexico, which was down by nearly 6 percent for the period.

 

Fourth quarter operating profit was $61 million, or 9.4 percent of net sales, compared with $116 million, or 16.8 percent of net sales, a year ago. Operating profit was impacted by $27 million of unfavorable raw material costs, net of price and mix, $17 million of unfavorable manufacturing costs, $12 million of lower unit volume, $2 million of higher product liability costs and $5 million of increased other costs. These costs were partially offset by $8 million of favorable SG&A expense.

 

The segment's $17 million of unfavorable manufacturing costs in the fourth quarter was primarily the result of curtailed production levels to manage inventory based on lower unit shipments in the U.S. The decreased SG&A expense for the quarter was primarily due to lower incentive compensation costs.

 

International Tire Operations:

 

International Tire
Operations
  Q4 2017 ($M)   Q4 2016 ($M)   Change   2017($M)   2016 ($M)   Change 
Net Sales  $162   $124    30.5%  $619   $464    33.4%
Operating Profit  $6   $1    338.9%  $9   $6    57.7%
Operating Margin   3.7%   1.1%   2.6 ppts.   1.5%   1.3%   0.2 ppts. 

 

Fourth quarter net sales in the International segment increased by 30.5 percent to $162 million as a result of $24 million of favorable price and mix, $13 million of higher unit volume and $1 million of favorable foreign currency impact. Segment unit volume was up 15.0 percent, with increased unit volume in Asia that was partially offset by lower unit volume in Europe.

 

Fourth quarter operating profit was $6 million compared with operating profit of $1 million in the fourth quarter of 2016. The increase was driven by $4 million of favorable manufacturing costs, $2 million of higher unit volume and $4 million of reduced other costs, which were partially offset by $5 million of unfavorable raw material costs, net of price and mix.

 

-more-

 

 

 

 

Cooper Tire Q4 2017—4

 

Outlook

 

Management expectations for 2018 include:

 

·Unit volume growth compared to 2017.
·Full year operating profit margin near the low end of the 9 to 11 percent range, with improvement throughout the year following a first quarter which is expected to be below that range.
·The adoption of Accounting Standards Update 2017-07 – Compensation – Retirement Benefits, which became effective January 1, 2018, will result in the reclassification of net periodic benefit costs, excluding service costs, outside of operating profit to other pension costs. In 2018, the company expects this to be approximately $28 million.
·Effective tax rate in a range between 23 and 26 percent. The decrease in the effective tax rate from 2017 is driven by the reduced U.S. tax rate as a result of the Tax Act and the predominance of the company's earnings in the U.S. The 23 to 26 percent range does not include the discrete impact of any tax adjustments that may be recorded during the 2018 measurement period prescribed under SAB 118 as a result of the Tax Act.
·Capital expenditures to range between $215 and $235 million.

 

Fourth Quarter and Full Year 2017 Conference Call Today at 10 a.m. Eastern

 

Management will discuss the financial and operating results for the fourth quarter and full year 2017, 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://coopertire.com/Investors.aspx or at https://services.choruscall.com/links/ctb180220.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.

 

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;
the impact of the recently enacted tax reform legislation;
increased competitive activity including actions by larger competitors or lower-cost producers;
the failure to achieve expected sales levels;

  

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Cooper Tire Q4 2017—5

 

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 cybersecurity, 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, privacy 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 or changes in consumer behavior;
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;
consolidation among the company’s competitors or customers;
failure to attract or retain key personnel;
inaccurate assumptions used in developing the company’s strategic plan or operating plans or the inability or failure to successfully implement such plans or to realize the anticipated savings or benefits from strategic actions;
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 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.

 

-more-

 

 

 

 

Cooper Tire Q4 2017—6

 

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, the provision for income taxes 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, the provision for income taxes 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’ after tax operating profit, utilizing the company’s adjusted effective tax rate (excluding discrete tax items), 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

Consolidated Statements of Operations

 

(Dollar amounts in thousands except per share amounts)

 

   Three Months Ended December 31,         
   (Unaudited)   Year Ended December 31, 
   2017   2016   2017   2016 
Net sales  $757,035   $783,887   $2,854,656   $2,924,869 
Cost of products sold   646,041    614,587    2,338,153    2,272,519 
Gross profit   110,994    169,300    516,503    652,350 
Selling, general and administrative expense   64,150    63,362    244,779    255,701 
Pension settlement charges   -    800    -    12,262 
Operating profit   46,844    105,138    271,724    384,387 
Interest expense   (8,419)   (6,887)   (32,048)   (26,604)
Interest income   2,029    1,471    7,362    4,378 
Other non-operating (expense) income   (1,645)   260    (3,113)   4,932 
Income before income taxes   38,809    99,982    243,925    367,093 
Provision for income taxes   79,929    29,290    147,180    115,799 
Net (loss) income   (41,120)   70,692    96,745    251,294 
Net income attributable to noncontrolling shareholders' interests   1,038    1,368    1,345    2,913 
Net (loss) income attributable to Cooper Tire & Rubber Company  $(42,158)  $69,324   $95,400   $248,381 
                     
(Loss) Earnings per share:                    
Basic  $(0.82)  $1.30   $1.83   $4.56 
Diluted  $(0.82)  $1.28   $1.81   $4.51 
                     
Weighted average shares outstanding (000s):                    
Basic   51,173    53,322    52,206    54,480 
Diluted   51,566    53,991    52,673    55,090 
                     
Segment information:                    
Net Sales                    
Americas Tire  $644,639   $693,624   $2,416,778   $2,600,323 
International Tire   162,189    124,310    618,869    464,003 
Eliminations   (49,793)   (34,047)   (180,991)   (139,457)
                     
Operating profit (loss):                    
Americas Tire  $60,742   $116,273   $324,693   $439,941 
International Tire   5,938    1,353    9,457    5,998 
Unallocated corporate charges   (19,422)   (12,118)   (60,599)   (60,308)
Eliminations   (414)   (370)   (1,827)   (1,244)

 

 

 

 

Cooper Tire & Rubber Company

Condensed Consolidated Balance Sheets

 

(Dollar amounts in thousands)        

 

   December 31, 
   2017   2016 
Assets        
Current assets:          
Cash and cash equivalents  $371,684   $504,423 
Notes receivable   13,753    7,485 
Accounts receivable   428,060    409,913 
Inventories   511,757    470,151 
Other current assets   63,063    28,546 
Total current assets   1,388,317    1,420,518 
           
Property, plant and equipment, net   966,747    864,227 
Goodwill   54,613    52,705 
Intangibles   133,256    140,751 
Restricted cash   1,422    1,327 
Deferred income tax assets   58,665    133,879 
Other assets   4,715    5,988 
Total assets  $2,607,735   $2,619,395 
           
Liabilities and Equity          
Current liabilities:          
Notes payable  $39,450   $26,286 
Accounts payable   277,060    282,416 
Accrued liabilities   180,476    183,804 
Income taxes payable   6,954    5,887 
Current portion of long-term debt   1,413    2,421 
Total current liabilities   505,353    500,814 
           
Long-term debt   295,987    297,094 
Postretirement benefits other than pensions   256,888    247,227 
Pension benefits   219,534    285,852 
Other long-term liabilities   144,217    156,924 
Deferred income tax liabilities   -    1,248 
Total parent stockholders' equity   1,127,096    1,076,014 
Noncontrolling shareholders' interests in consolidated subsidiaries   58,660    54,222 
Total liabilities and equity  $2,607,735   $2,619,395 

 

 

 

 

Cooper Tire & Rubber Company

Consolidated Statements of Cash Flows

(Dollar amounts in thousands)        

 

   Year Ended December 31, 
   2017   2016 
Operating activities:          
Net income  $96,745   $251,294 
Adjustments to reconcile net income to net cash provided by operations:          
Depreciation and amortization   140,228    130,257 
Deferred income taxes   61,571    (12,350)
Stock-based compensation   4,009    13,570 
Change in LIFO reserve   2,981    11,990 
Amortization of unrecognized postretirement benefits   42,004    43,058 
Pension settlement charges   -    12,262 
Changes in operating assets and liabilities:          
Accounts and notes receivable   (12,239)   (45,674)
Inventories   (31,820)   (77,872)
Other current assets   (34,848)   3,831 
Accounts payable   (31,217)   13,128 
Accrued liabilities   (134)   (20,541)
Other items   (60,452)   (10,210)
Net cash provided by operating activities   176,828    312,743 
Investing activities:          
Additions to property, plant and equipment and capitalized software   (197,186)   (175,437)
Acquisition of business, net of cash acquired   -    (5,928)
Proceeds from the sale of assets   278    337 
Net cash used in investing activities   (196,908)   (181,028)
Financing activities:          
Net (payments on) issuances of short-term debt   (1,507)   10,019 
Repayments of long-term debt   (2,421)   (935)
Repurchase of common stock   (90,868)   (107,999)
Payments of employee taxes withheld from share-based awards   (7,002)   (2,948)
Payment of dividends to noncontrolling shareholders   (282)   (804)
Payment of dividends   (21,914)   (22,828)
Issuance of common shares related to stock-based compensation   4,224    3,950 
Excess tax benefits on stock-based compensation   -    274 
Net cash used in financing activities   (119,770)   (121,271)
Effects of exchange rate changes on cash of continuing operations   7,111    (11,178)
Changes in cash and cash equivalents   (132,739)   (734)
Cash and cash equivalents at beginning of year   504,423    505,157 
Cash and cash equivalents at end of year  $371,684   $504,423 

 

 

 

 

Cooper Tire & Rubber Company

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

 

(Dollar amounts in thousands except per share amounts)

 

ADJUSTED PROVISION FOR INCOME TAXES AND EPS

 

   Three Months Ended December 31, 2017 
   Income before income taxes   Provision for income taxes   Net (loss) income   Net income attributable to noncontrolling shareholders' interests   Net (loss) income attributable to Cooper Tire & Rubber Company   Weighted average number of shares outstanding - Diluted   Diluted (loss) earnings per share 
Reported (GAAP)  $38,809   $79,929   $(41,120)  $1,038   $(42,158)   51,566   $(0.82)
U.S. tax reform related items*   -    55,791    55,791    -    55,791    -    1.08 
Tax valuation allowance related items**   -    12,243    12,243    -    12,243    -    0.24 
Adjusted (Non-GAAP)  $38,809   $11,895   $26,914   $1,038   $25,876    51,566   $0.50 

 

* U.S. tax reform related items comprised of $35,378 of deemed repatriation tax and $20,413 for the re-measurement of deferred tax assets.

** Tax valuation allowance related items comprised of the U.K. valuation allowance charge of $18,915, less the reversal of an Asia valuation allowance of $6,672.

                              

   Year Ended December 31, 2017 
   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   Weighted average number of shares outstanding - Diluted   Diluted earnings per share 
Reported (GAAP)  $243,925   $147,180   $96,745   $1,345   $95,400    52,673   $1.81 
U.S. tax reform related items   -    55,791    55,791    -    55,791    -    1.06 
Tax valuation allowance related items   -    12,243    12,243    -    12,243    -    0.23 
Adjusted (Non-GAAP)  $243,925   $79,146   $164,779   $1,345   $163,434    52,673   $3.10 

 

   Three Months Ended December 31, 2017       Year Ended December 31, 2017 
   Income before income taxes   Provision for income taxes   Effective tax rate       Income before income taxes   Provision for income taxes   Effective tax rate 
Reported (GAAP)  $38,809   $79,929    206.0%       $243,925   $147,180    60.3%
U.S. tax reform related items   -    55,791    -         -    55,791    - 
Tax valuation allowance related items   -    12,243    -         -    12,243    - 
Adjusted (Non-GAAP)  $38,809   $11,895    30.7%       $243,925   $79,146    32.4%

 

 

 

 

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    -    0.15                     
Adjusted (Non-GAAP)  $256,718    55,090   $4.66                     

 

 

 

 

Cooper Tire & Rubber Company

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

 

(Dollar amounts in thousands)

 

RETURN ON INVESTED CAPITAL (ROIC)

 

   Year Ended December 31, 2017       Year Ended December 31, 2017 
Calculation of ROIC             Calculation of Net Interest Tax Effect          
Operating profit    $271,724    Adjusted (non-GAAP) provision for income taxes (c)       $79,146 
Adjusted (Non-GAAP) effective tax rate   32.4%        Income before income taxes (d)        243,925 
Income tax expense on operating profit   88,039         Adjusted effective income tax rate (c)/(d)        32.4%
Operating profit after taxes (a)        183,558               
Total invested capital (b)       $1,508,398               
ROIC, including noncontrolling equity (a)/(b)      12.2%              

 

 

Calculation of Invested Capital (five quarter average)  Equity   Long-term debt   Current portion of long-term debt   Notes payable   Total invested capital 
December 31, 2017  $1,185,756   $295,987   $1,413   $39,450   $1,522,606 
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 
Five quarter average  $1,179,440   $296,372   $1,636   $30,949   $1,508,398 

 

 

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Section 3: EX-99.2 (EXHIBIT 99.2)

 

Exhibit 99.2

 

 

Company Update Fourth Quarter 2017 February 20, 2018

 

 

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 December 31, 2017 Financial Performance Highlights 4 Amounts are unaudited and may not add due to rounding. (millions USD, except EPS) Net Sales by Segment Q4 2017 Q4 2016 Change from Prior Year Americas Tire $ 645 $ 694 (7.1 %) International Tire 162 124 30.5 % Eliminations (50 ) (34 ) 46.2 % Total Company $ 757 $ 784 (3.4 %) Operating Profit (Loss) by Segment OP % OP % Americas Tire $ 61 9.4 $ 116 16.8 $ (55 ) International Tire 6 3.7 1 1.1 5 Corporate (19 ) (12 ) (7 ) Eliminations — — — Total Company $ 47 6.2 $ 105 13.4 $ (58 ) (Loss) earnings per share, diluted $ (0.82 ) $ 1.28 $ (2.10 ) Cash and cash equivalents $ 372 $ 504 $ (133 )

 

 

Twelve Months Ended December 31, 2017 Financial Performance Highlights 5 Amounts may not add due to rounding. (millions USD, except EPS) Net Sales by Segment Twelve Months Ended December 31, 2017 Twelve Months Ended December 31, 2016 Change from Prior Year Americas Tire $ 2,417 $ 2,600 (7.1 %) International Tire 619 464 33.4 % Eliminations (181 ) (139 ) (29.8 %) Total Company $ 2,855 $ 2,925 (2.4 %) Operating Profit (Loss) by Segment OP % OP % Americas Tire $ 325 13.4 $ 440 16.9 $ (115 ) International Tire 9 1.5 6 1.3 3 Corporate (61 ) (60 ) (1 ) Eliminations (2 ) (1 ) (1 ) Total Company $ 272 9.5 $ 384 13.1 $ (112 ) Earnings per share, diluted $ 1.81 $ 4.51 $ (2.70 ) Cash and cash equivalents $ 372 $ 504 $ (133 )

 

 

6 CTB Raw Material Price Index North America Q4 2017 Average = 153.1 Q1 2018 is an estimate

 

 

Operating Profit Walk Total Company Q4 2016 to Q4 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 Q4 2016 and subsequently reversed in Q1 2017. ** Other costs are inclusive of $0.5 million of insurance recoveries and $1.8 million of direct expenses related to tornado damage at a North American distribution center in Q1 2017. ($millions) (32) Net Price/Mix vs. Raw Materials $58

 

 

Operating Profit Walk Americas Tire Operations Q4 2016 to Q4 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 Q4 2016 and subsequently reversed in Q1 2017. ** Other costs are inclusive of $0.5 million of insurance recoveries and $1.8 million of direct expenses related to tornado damage at a North American distribution center in Q1 2017. ($millions) (27) Net Price/Mix vs. Raw Materials $56

 

 

Operating Profit Walk International Tire Operations Q4 2016 to Q4 2017 Amounts are unaudited and may not add due to rounding. 9 ($millions) ( 5) Net Price/Mix vs. Raw Materials $5

 

 

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 and year ended December 31, 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 Adjusted Operating Profit, Income Tax Provision, Net Income 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, provision for income taxes, 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, provision for income taxes, net in come and earnings per share exclusive of these items is useful to investors, particularly where the impact of excluded items is si gni ficant in relation to reported earnings, because the measure allows for comparability between periods of the operating performance of t he Company's business and allows investors to evaluate the impact of the excluded items separately from the impact of the operat ion s of the business. ADJUSTED PROVISION FOR INCOME TAXES AND EPS (millions USD, except per share amounts) Three Months Ended December 31, 2017 Income before income taxes Provision for income taxes Net (loss) income Net income attributable to noncontrolling shareholder interests Net (loss) income attributable to Cooper Tire & Rubber Company Weighted average number of shares outstanding - Diluted Diluted (loss) earnings per share Reported (GAAP) $ 39 $ 80 $ (41 ) $ 1 $ (42 ) 51,566 $ (0.82 ) U.S. tax reform related items* — 56 56 — 56 — 1.08 Tax valuation allowance related items** — 12 12 — 12 — 0.24 Adjusted (Non - GAAP) $ 39 $ 12 $ 27 $ 1 $ 26 51,566 $ 0.50 * U.S. tax reform related items comprised of $35,378 of deemed repatriation tax and $20,413 for the re - measurement of deferred t ax assets. ** Tax valuation allowance related items comprised of the U.K. valuation allowance charge of $18,915, less the reversal of an As ia valuation allowance of $6,672.

 

 

Non - GAAP Measures 12 ADJUSTED PROVISION FOR INCOME TAXES AND EPS (millions USD, except per share amounts) Year Ended December 31, 2017 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 Weighted average number of shares outstanding - Diluted Diluted earnings per share Reported (GAAP) $ 244 $ 147 $ 97 $ 1 $ 95 52,673 $ 1.81 U.S. tax reform related items — 56 56 — 56 — 1.06 Tax valuation allowance related items — 12 12 — 12 — 0.23 Adjusted (Non - GAAP) $ 244 $ 79 $ 165 $ 1 $ 163 52,673 $ 3.10 ADJUSTED EFFECTIVE INCOME TAX RATE (millions USD) Three Months Ended December 31, 2017 Year Ended December 31, 2017 Income before income taxes Provision for income taxes Effective tax rate Income before income taxes Provision for income taxes Effective tax rate Reported (GAAP) $ 39 $ 80 206.0 % $ 244 $ 147 60.3 % U.S. tax reform related items — 56 — — 56 — Tax valuation allowance related items — 12 — — 12 — Adjusted (Non - GAAP) $ 39 $ 12 30.7 % $ 244 $ 79 32.4 %

 

 

Non - GAAP Measures 13 ADJUSTED EARNINGS (millions USD, except per share amounts) 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) $ 2,925 $ 2,273 $ 652 $ 256 $ 12 $ 384 13.1 % Pension settlement charges — — — — (12 ) 12 — Adjusted (Non - GAAP) $ 2,925 $ 2,273 $ 652 $ 256 $ — $ 397 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 $ 116 $ 251 $ 3 $ 248 Pension settlement charges 12 4 8 — 8 Adjusted (Non - GAAP) $ 379 $ 120 $ 260 $ 3 $ 257 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 55,090 $ 4.51 Pension settlement charges 8 — 0.15 Adjusted (Non - GAAP) $ 257 55,090 $ 4.66

 

 

Non - GAAP Measures 14 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’ after tax operating profit, utilizing the company’s adjusted effective tax rate excluding discrete tax items, 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, 2017 – December 31, 2017 (millions USD) Operating profit $ 272 Adjusted (non - GAAP) effective tax rate 32.4 % Income tax expense on operating profit 88 Operating profit after taxes $ 184 Total invested capital $ 1,508 Return on invested capital 12.2 %

 

 

Non - GAAP Measures 15 Calculation of Trailing Four Quarter Income and Expense Inputs (millions USD) Quarter - ended: Operating profit Adjusted (non - GAAP) provision for income taxes * Income before income taxes December 31, 2017 $ 47 $ 12 $ 39 September 30, 2017 101 32 95 June 30, 2017 75 22 68 March 31, 2017 49 13 42 Total $ 272 $ 79 $ 244 * The quarter - ended December 31, 2017 is adjusted for discrete tax items, as noted in the Adjusted Provision for Income Taxes and EPS table. The remaining periods are presented in accordance with GAAP. Trailing Four Quarter Effective Tax Rate (millions USD) Adjusted (non - GAAP) provision for income taxes $ 79 Income before income taxes $ 244 Adjusted (non - GAAP) effective income tax rate 32.4 %

 

 

Non - GAAP Measures 16 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 December 31, 2017 $ 1,186 $ 296 $ 1 $ 39 $ 1,523 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 Average Balance $ 1,179 $ 296 $ 2 $ 31 $ 1,508

 

 

Risks 17 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; • the impact of the recently enacted tax reform legislation; • 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 cybersecurity, could ad versely 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, privacy 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 or changes in consumer behavior; • 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 or to realize the anticipated savings or benefits from strategic actions; • 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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