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Section 1: 8-K (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):   August 6, 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 August 6, 2018, Cooper Tire & Rubber Company (the "Company") issued a press release reporting its financial results for the second quarter 2018. 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 August 6, 2018, the Company posted a summary slide presentation regarding second quarter 2018 (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 August 6, 2018
   
99.2 Slide Presentation regarding second quarter 2018

 

 

  

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
     
August 6, 2018   By: /s/Jack Jay McCracken
     
    Name: Jack Jay McCracken
    Title: Vice President, 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 Second Quarter 2018

Results In Line with Outlook; Revises Second Half Outlook

 

FINDLAY, Ohio, August 6, 2018 – Cooper Tire & Rubber Company (NYSE: CTB) today reported second quarter 2018 net income of $15 million, or diluted earnings per share of $0.30, compared with $45 million, or $0.85 per share, for the same period last year.

 

Second Quarter Highlights:

Consolidated unit volume decreased 2.1 percent compared to the prior year, with a decrease in the Americas segment, partially offset by an increase in the International segment.
Net sales decreased 3.1 percent to $698 million.
Operating profit was $33 million, or 4.7 percent of net sales.
Cooper repurchased $14 million of common stock at an average price of $26.66 per share.
The company began shipping the new Discoverer AT3™ all-terrain product line in mid-June.

 

“Cooper delivered second quarter results in line with our stated expectations, including operating profit margin of 4.7 percent of net sales, up slightly from the previous quarter,” said Brad Hughes, President & Chief Executive Officer. “While challenging industry conditions have continued longer than expected, we are confident in our strategic plan, as detailed at our recent investor event. We continue to make solid progress in our strategic initiatives, including expanding into new sales channels and driving sell-in with exciting new products, such as our new AT3 line. Cooper's brand strength and attractive value proposition, combined with our strategic initiatives, provide a solid foundation for volume and profit growth."

 

Consolidated Results:

 

 

Cooper Tire

  Q2 2018 ($M)   Q2 2017 ($M)   Change 
Net Sales  $698   $721    (3.1)%
Operating Profit  $33   $84    (61.1)%
Operating Margin   4.7%   11.7%   (7.0) ppts.

 

Second quarter net sales were $698 million, a decrease of 3.1 percent compared with $721 million in the second quarter of 2017. Second quarter net sales were negatively impacted by $16 million of lower unit volume, $13 million of unfavorable price and mix and $6 million of favorable foreign currency impact.

 

Second quarter 2018 operating profit was $33 million compared with $84 million for the same period last year. Operating profit for the second quarter of 2017 has been restated to reclassify $9 million of other pension and postretirement benefit costs out of operating profit.

 

Operating profit for the second quarter included $21 million of higher manufacturing costs and $20 million of unfavorable price and mix, net of raw material costs. Higher manufacturing costs reflect the alignment of production to demand in order to control inventory levels. In addition, operating profit decreased $4 million related to lower unit volume. SG&A increased $6 million in the quarter due to higher professional fees related to strategic initiatives and mark-to-market cost of stock based liabilities.

 

Cooper's second quarter raw material index increased slightly from the second quarter of 2017. The raw material index increased 4.6 percent sequentially from 156.6 in the first quarter of 2018 to 163.8 in the second quarter of 2018.

 

-more-

 

 

 

Cooper Tire Q2 2018—2

 

The effective tax rate for the second quarter was 12.6 percent, compared to 32.7 percent in the prior year. The second quarter 2018 tax rate includes the benefit of a lower blended U.S. statutory tax rate as a result of U.S. income tax reform and approximately $1 million of net discrete items recorded in the quarter. 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 $180 million in cash and cash equivalents compared with $302 million at the end of the same period last year. Capital expenditures in the second quarter were $38 million compared with $45 million in the same period of last year.

 

Cooper generated a return on invested capital, excluding the impact of discrete tax items in the fourth quarter of 2017, of 10.3 percent for the trailing four quarters.

 

During the second quarter, 517,354 shares were repurchased for $14 million at an average price of $26.66 per share. Since share repurchases began in August 2014, the company has repurchased a total of 15.7 million shares at an average price of $34.12 per share.

 

Americas Tire Operations:

 

Americas Tire Operations  Q2 2018 ($M)   Q2 2017 ($M)   Change 
Net Sales  $584   $615    (5.0)%
Operating Profit  $40   $91    (55.5)%
Operating Margin   6.9%   14.8%   (7.9) ppts.

 

Second quarter net sales in the Americas segment declined 5.0 percent as a result of $23 million of lower unit volume, $6 million of unfavorable price and mix and $2 million of unfavorable foreign currency impact. Segment unit volume decreased 3.7 percent from the prior year, with unit volume decreases in North America and Latin America.

 

Cooper’s second quarter total light vehicle tire shipments in the U.S. decreased 3.3 percent. The U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. were down 0.6 percent. Total industry shipments (including an estimate for non-USTMA members) increased 4.2 percent for the period.

 

Second quarter operating profit was $40 million, or 6.9 percent of net sales, compared with $91 million, or 14.8 percent of net sales, a year ago. Operating profit for the second quarter was impacted by $25 million of unfavorable price and mix, as well as $2 million of higher raw materials cost. Operating profit was also impacted by higher manufacturing costs of $17 million, as production was adjusted to align with demand in order to control inventory levels. Additionally, the segment incurred $4 million of lower unit volume and other costs increased $3 million in the quarter, including increased SG&A.

 

International Tire Operations:

 

International Tire Operations  Q2 2018 ($M)   Q2 2017 ($M)   Change 
Net Sales  $168   $151    10.9%
Operating Profit  $6   $3    110.1%
Operating Margin   3.4%   1.8%   1.6 ppts.

 

Second quarter net sales in the International segment increased 10.9 percent as a result of $5 million of favorable price and mix, $1 million of higher unit volume and $11 million of favorable foreign currency impact. Segment unit volume increased 0.7 percent from the prior year, driven by an increase in unit volume in Asia, which was partially offset by a slight unit volume decline in Europe.

 

-more-

 

 

 

Cooper Tire Q2 2018—3

 

Second quarter operating profit was $6 million, or 3.4 percent of net sales, compared with $3 million, or 1.8 percent of net sales, a year ago. The increase was driven by $6 million of lower raw material costs, net of price and mix. Manufacturing costs were $4 million unfavorable, while other costs decreased $1 million in the quarter.

 

Outlook

“Due to continuing industry challenges and, in particular, rising raw material costs, we are revising our expectations for the balance of the year. Cooper now anticipates unit volume to be flat in 2018 compared to 2017, with a modest sequential improvement in operating profit margin in the second half of this year,” Hughes said. “We continue to believe that we have the right strategic plan in place and remain confident in our five-year financial targets, which include operating profit of 10 to 14 percent, as well as annual unit volume growth in the low- to mid-single digits and return on invested capital of 14 to 16 percent.”

Additional management expectations for 2018 include:

Effective tax rate in a range between 23 and 26 percent, and
Capital expenditures in a range between $200 and $220 million.

 

Second Quarter 2018 Conference Call Today at 10 a.m. Eastern

Management will discuss the financial and operating results for the second 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 https://services.choruscall.com/links/ctb180806.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, imposed on tires or materials or manufacturing equipment which the Company uses, including changes related to tariffs on automotive imports, as well as on tires, raw materials and tire-manufacturing equipment imported into the U.S. from China;
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;
changes in the company’s customer or supplier relationships or distribution channels, including loss of particular business for competitive, credit, liquidity, bankruptcy, restructuring or other reasons;

 

-more-

 

 

Cooper Tire Q2 2018—4

 

consolidation or other cooperation by and among the company’s competitors or customers;
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;
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;
the costs and timing of restructuring actions and impairments or other charges resulting from such actions or from adverse industry, market or other developments;
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.

 

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”).

 

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Cooper Tire Q2 2018—5

 

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, 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 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 Q4 2017 tax items affecting comparability of results from period to period, 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
June 30,
   Six Months Ended
June 30,
 
   2018   2017   2018   2017 
Net sales  $698,408   $720,753   $1,299,904   $1,363,778 
Cost of products sold   604,185    581,202    1,121,196    1,105,642 
Gross profit   94,223    139,551    178,708    258,136 
Selling, general and administrative expense   61,460    55,350    119,490    115,941 
Operating profit   32,763    84,201    59,218    142,195 
Interest expense   (8,417)   (8,210)   (16,108)   (16,037)
Interest income   1,988    1,755    4,303    3,557 
Other pension and postretirement benefit expense   (6,967)   (9,369)   (13,953)   (18,693)
Other non-operating expense   (1,391)   (255)   (3,050)   (491)
Income before income taxes   17,976    68,122    30,410    110,531 
Provision for income taxes   2,267    22,298    5,718    35,325 
Net income   15,709    45,824    24,692    75,206 
Net income (loss) attributable to noncontrolling shareholders' interests   701    514    1,400    (666)
Net income attributable to Cooper Tire & Rubber Company  $15,008   $45,310   $23,292   $75,872 
                     
Earnings per share:                    
Basic  $0.30   $0.86   $0.46   $1.44 
Diluted  $0.30   $0.85   $0.46   $1.42 
                     
Weighted average shares outstanding:                    
Basic   50,436    52,796    50,636    52,815 
Diluted   50,590    53,191    50,883    53,357 
                     
Segment information:                    
Net Sales                    
Americas Tire  $584,412   $615,356   $1,069,804   $1,146,715 
International Tire   167,839    151,370    329,083    293,335 
Eliminations   (53,843)   (45,973)   (98,983)   (76,272)
                     
Operating profit (loss):                    
Americas Tire  $40,480   $90,884   $71,715   $161,669 
International Tire   5,652    2,690    13,086    5,715 
Unallocated corporate charges   (13,705)   (9,199)   (25,670)   (24,663)
Eliminations   336    (174)   87    (526)

 

 

 

Cooper Tire & Rubber Company

Condensed Consolidated Balance Sheets

(Unaudited)

 

(Dollar amounts in thousands)        
   June 30, 
   2018   2017 
Assets        
Current assets:          
Cash and cash equivalents  $180,493   $302,386 
Notes receivable   24,022    12,542 
Accounts receivable   582,524    568,050 
Inventories   580,095    578,763 
Other current assets   59,600    44,853 
Total current assets   1,426,734    1,506,594 
           
Property, plant and equipment, net   964,158    899,589 
Goodwill   53,960    53,673 
Intangibles   125,979    138,210 
Deferred income tax assets   54,006    137,247 
Other assets   7,942    7,103 
Total assets  $2,632,779   $2,742,416 
           
Liabilities and Equity          
Current liabilities:          
Notes payable  $47,378   $38,374 
Accounts payable   240,506    261,814 
Accrued liabilities   262,233    272,016 
Income taxes payable   2,295    25,451 
Current portion of long-term debt   1,398    1,514 
Total current liabilities   553,810    599,169 
           
Long-term debt   295,017    296,179 
Postretirement benefits other than pensions   255,527    247,258 
Pension benefits   198,421    274,510 
Other long-term liabilities   152,736    131,592 
Deferred income tax liabilities       786 
Total parent stockholders' equity   1,118,347    1,135,187 
Noncontrolling shareholders' interests in consolidated subsidiaries   58,921    57,735 
Total liabilities and equity  $2,632,779   $2,742,416 

 

 

 

Cooper Tire & Rubber Company

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

(Dollar amounts in thousands)        
   Six Months Ended
June 30,
 
   2018   2017 
Operating activities:          
Net income  $24,692   $75,206 
Adjustments to reconcile net income to net cash used in operations:          
Depreciation and amortization   73,587    70,676 
Stock-based compensation   2,627    2,575 
Change in LIFO inventory reserve   2,411    (3,484)
Amortization of unrecognized postretirement benefits   18,396    20,939 
Changes in operating assets and liabilities:          
Accounts and notes receivable   (68,485)   (61,691)
Inventories   (74,104)   (94,490)
Other current assets   (12,572)   (15,541)
Accounts payable   (12,622)   (23,202)
Accrued liabilities   (13,970)   (21,011)
Other items   (18,599)   (33,223)
Net cash used in operating activities   (78,639)   (83,246)
Investing activities:          
Additions to property, plant and equipment and capitalized software   (97,759)   (89,803)
Proceeds from the sale of assets   160    43 
Net cash used in investing activities   (97,599)   (89,760)
Financing activities:          
Net payments on short-term debt   10,718    (359)
Repayments of long-term debt   (1,013)   (600)
Payment of financing fees   (1,230)    
Repurchase of common stock   (29,355)   (38,567)
Payments of employee taxes withheld from shared-based awards   (1,894)   (6,429)
Payment of dividends to Cooper Tire & Rubber Company stockholders   (10,623)   (11,081)
Issuance of common shares related to stock-based compensation   270    4,122 
Net cash used in financing activities   (33,127)   (52,914)
Effects of exchange rate changes on cash   1,344    6,008 
Changes in cash, cash equivalents, and restricted cash   (208,021)   (219,912)
Cash, cash equivalents, and restricted cash at beginning of year   392,306    524,249 
Cash, cash equivalents, and restricted cash at end of period  $184,285   $304,337 

 

 

 

Cooper Tire & Rubber Company

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

 

(Amounts in thousands)

 

RETURN ON INVESTED CAPITAL (ROIC)

 

   Trailing Four Quarters
Ended June 30, 2018
      Trailing Four Quarters
Ended June 30, 2018
 
Calculation of ROIC          Calculation of
Effective Tax Rate
    
Adjusted operating profit      $226,265   Adjusted (non-GAAP) provision for income taxes (c)  $49,537 
Adjusted (non-GAAP) effective tax rate   30.2%       Income before income taxes (d)   163,803 
Income tax expense on adjusted operating profit   68,427        Adjusted (non-GAAP) effective tax rate (c)/(d)   30.2%
Adjusted operating profit after taxes (a)        157,838         
Total invested capital (b)       $1,536,044         
ROIC, including noncontrolling equity (a)/(b)        10.3%        

 

Calculation of Invested Capital (five quarter average)

 

   Equity   Long-term debt   Current
portion of
long-term
debt
   Notes
payable
   Total
invested
capital
 
June 30, 2018  $1,177,268   $295,017   $1,398   $47,378   $1,521,061 
March 31, 2018   1,204,026    295,221    1,446    41,043    1,541,736 
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 
Five quarter average  $1,198,439   $295,698   $1,447   $40,460   $1,536,044 

 

Calculation of Trailing Four Quarter Income and Expense Inputs

 

Quarter-ended:  Operating
profit as
reported*
   ASU 2017-07
Reclassification
*
   Adjusted
operating
profit
   Provision
for income
taxes as
reported
   Adjustments
to provision
for income
taxes**
   Adjusted
(non-GAAP)
provision for
income
taxes**
   Income
before
income
taxes
 
June 30, 2018  $32,763   $   $32,763   $2,267   $   $2,267   $17,976 
March 31, 2018   26,454        26,454    3,451        3,451    12,434 
December 31, 2017   46,844    9,423    56,267    79,929    68,034    11,895    38,809 
September 30, 2017   101,377    9,404    110,781    31,924        31,924    94,584 
Trailing four quarters  $207,438   $18,827   $226,265   $117,571   $68,034   $49,537   $163,803 

 

* - Prior to the adoption of ASU 2017-07 on January 1, 2018, all net periodic pension benefit costs were included within operating profit. Prior year quarters have been adjusted to reflect the adoption of the new accounting standard.

** - Fourth quarter 2017 provision for income taxes included $35,378 of deemed repatriation tax and $20,413 for the re-measurement of deferred tax assets related to U.S. tax reform. Q4 2017 also included a U.K. valuation allowance charge of $18,915, less the reversal of an Asia valuation allowance of $6,672. These items have been excluded from the provision for income taxes as they are deemed to impact the comparability of results from period to period.

 

 

 

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Section 3: EX-99.2 (EXHIBIT 99.2)

 

Exhibit 99.2

 

Company Update Second Quarter 2018 August 6, 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 June 30, 2018 Financial Performance Highlights 4 Amounts are unaudited and may not add due to rounding. (millions USD, except EPS) Net Sales by Segment Q2 2018 Q2 2017 Change from Prior Year Americas Tire $ 584 $ 615 (5.0 %) International Tire 168 151 10.9 % Eliminations (54 ) (46 ) (17.1 %) Total Company $ 698 $ 721 (3.1 %) Operating Profit (Loss) by Segment OP % OP % Americas Tire $ 40 6.9 $ 91 14.8 $ (51 ) International Tire 6 3.4 3 1.8 3 Corporate (14 ) (9 ) (5 ) Eliminations — — — Total Company $ 33 4.7 $ 84 11.7 $ (51 ) Earnings per share, diluted $ 0.30 $ 0.85 $ (0.55 ) Cash and cash equivalents $ 180 $ 302 $ (122 )

 

Six Months Ended June 30, 2018 Financial Performance Highlights 5 Amounts are unaudited and may not add due to rounding. (millions USD, except EPS) Net Sales by Segment Six Months Ended June 30, 2018 Six Months Ended June 30, 2017 Change from Prior Year Americas Tire $ 1,070 1,147 (6.7 %) International Tire 329 293 12.2 % Eliminations (99 ) (76 ) 29.8 % Total Company $ 1,300 $ 1,364 (4.7 %) Operating Profit (Loss) by Segment OP % OP % Americas Tire $ 72 6.7 $ 162 14.1 $ (90 ) International Tire 13 4.0 6 1.9 7 Corporate (26 ) (25 ) (1 ) Eliminations — (1 ) 1 Total Company $ 59 4.6 $ 142 10.4 $ (83 ) Earnings per share, diluted $ 0.46 $ 1.42 $ (0.96 ) Cash and cash equivalents $ 180 $ 302 $ (122 )

 

Operating Profit Walk Total Company Q2 2017 to Q2 2018 6 Amounts are unaudited and may not add due to rounding. * The adoption of ASU 2017 - 07 resulted in the reclassification of the 2017 net periodic benefit costs, excluding service costs, outside of operating profit to other pension and postretirement benefit expense. ($millions) $(20) million Net Price/Mix vs. Raw Materials $(51)

 

CTB Raw Material Price Index North America 7 Q2 2018 Average = 163.8 Q3 2018 is an estimate

 

Operating Profit Walk Americas Tire Operations Q2 2017 to Q2 2018 8 Amounts are unaudited and may not add due to rounding. * The adoption of ASU 2017 - 07 resulted in the reclassification of the 2017 net periodic benefit costs, excluding service costs, outside of operating profit to other pension and postretirement benefit expense. ($millions) $(27) million Total Price/Mix and Raw Materials $(51)

 

Operating Profit Walk International Tire Operations Q2 2017 to Q2 2018 Amounts are unaudited and may not add due to rounding. * The adoption of ASU 2017 - 07 resulted in the reclassification of net periodic benefit costs, excluding service costs, outside of operating profit to other pension and postretirement benefit expense. 9 ($millions) $3 $6 million Net Price/Mix vs. Raw Materials

 

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 June 30, 2018 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’ after tax operating profit, utilizing the company's adjusted effective tax rate, excluding discrete Q4 2017 income tax items affecting comparability of results from period to period, 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 July 1, 2017 – June 30, 2018 (millions USD) Adjusted operating profit $ 226 Adjusted (non - GAAP) effective tax rate 30.2 % Income tax expense on adjusted operating profit 68 Adjusted operating profit after taxes $ 158 Total invested capital $ 1,536 Return on invested capital 10.3 % Amounts may not add due to rounding.

 

Non - GAAP Measures 12 Calculation of Trailing Four Quarter Income and Expense Inputs (millions USD) Quarter - ended: Operating profit as reported* ASU 2017 - 07 Reclassification* Adjusted operating profit Provision for income taxes as reported Adjustments to provision for income taxes** Adjusted (non - GAAP) provision for income taxes** Income before income taxes June 30, 2018 $ 33 $ — $ 33 $ 2 $ — $ 2 $ 18 March 31, 2018 26 — 26 3 — 3 12 December 31, 2017 47 9 56 80 68 12 39 September 30, 2017 101 9 111 32 — 32 95 Total $ 207 $ 19 $ 226 $ 118 $ 68 $ 50 $ 164 * - Prior to the adoption of ASU 2017 - 07 on January 1, 2018, all net periodic pension benefit costs were included within operati ng profit. Prior year quarters have been adjusted to reflect the adoption of the new accounting standard. ** - Fourth quarter 2017 provision for income taxes included $35 of deemed repatriation tax and $20 for the re - measurement of de ferred tax assets related to U.S. tax reform. Q4 2017 also included a U.K. valuation allowance charge of $19, less the reversal of an Asia val uat ion allowance of $7. These items have been excluded from the provision for income taxes as they are deemed to impact the comparability of results fro m period to period. Trailing Four Quarter Effective Tax Rate Adjusted (non - GAAP) provision for income taxes $ 50 Income before income taxes 164 Adjusted (non - GAAP) effective income tax rate 30.2 % Amounts may not add due to rounding.

 

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 June 30, 2018 $ 1,177 $ 295 $ 1 $ 47 $ 1,521 March 31, 2018 1,204 295 1 41 1,542 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 Average Balance $ 1,198 $ 296 $ 1 $ 40 $ 1,536 Amounts may not add due to rounding.

 

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, imposed on tires or materials or manufacturing equipment which the Company uses, including changes related to tariffs on automotive imports, as well as on tires, raw materials and tire - manufacturing equi pment imported into the U.S. from China; • 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 or supplier relationships or distribution channels, including loss of particular business f or competitive, credit, liquidity, bankruptcy, restructuring or other reasons; • consolidation or other cooperation by and among the company’s competitors or customers; • 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; • 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; • the costs and timing of restructuring actions and impairments or other charges resulting from such actions or from adverse in dus try, market or other developments; • 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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