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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
 
October 26, 2018
Cooper Tire & Rubber Company 
(Exact name of registrant as specified in its charter)
Delaware
 
001-04329
 
344297750
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
 (I.R.S Employer Identification No.)
 
 
 
 
 
701 Lima Avenue, Findlay, Ohio
 
 
4584
(Address of principal executive offices)
 
 
(Zip Code)
 
 
 
 
 
Registrant's telephone number, including area code: 419-423-1321
 
 
 
 
 
 
 
 
Not Applicable
 
 
 
Former name or former address, if changed since last report
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.




Item 2.02 Results of Operations and Financial Condition.
On October 29, 2018, Cooper Tire & Rubber Company (the "Company") issued a press release reporting its financial results for the third 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 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On October 26, 2018, the Board of Directors (“Board”) of the Company elected Kathryn P. Dickson and Brian C. Walker as new directors, effective immediately, for an initial term ending at the Company’s 2019 Annual Meeting of Stockholders or until his/her earlier resignation or removal. Neither Ms. Dickson nor Mr. Walker are being appointed to any committees at this time. Ms. Dickson is currently serving as a Senior Vice President of Mattel, Inc. and President of its American Girl subsidiary and Mr. Walker recently retired as President and Chief Executive Officer of Herman Miller, Inc. The Board has determined that, as of October 26, 2018, Ms. Dickson and Mr. Walker both satisfy the definition of “independent director” under the listing standards of the New York Stock Exchange.
As non-employee directors, Ms. Dickson and Mr. Walker will each receive compensation in the same manner as the Company’s other non-employee directors, which compensation the Company previously disclosed in the Company’s definitive proxy statement on Schedule 14A filed on March 22, 2018 with the Securities and Exchange Commission (the “SEC”).
On October 26, 2018, the Company also entered into Indemnification Agreements (the “Indemnification Agreement”) with each of Ms. Dickson and Mr. Walker. Each Indemnification Agreement is substantially the same as the form of indemnification agreement for directors and executive officers that is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 20, 2006.

Item 8.01 Other Events.
On October 29, 2018, the Company posted a summary slide presentation regarding third 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 October 29, 2018,
99.2 Slide Presentation regarding third 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
October 29, 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
395518188_cooperstacked2017a11.jpg NEWS
____________________________________________________________________________________________________________________________________________

Cooper Tire & Rubber Company Reports Third
Quarter 2018 Results

FINDLAY, Ohio, October 29, 2018 – Cooper Tire & Rubber Company (NYSE: CTB) today reported third quarter 2018 net income of $54 million, or diluted earnings per share of $1.07, compared with $62 million, or $1.18 per share, for the same period last year.

Third Quarter Highlights:
•
Consolidated unit volume increased 0.1 percent.
•
Net sales increased 0.5 percent to $738 million.
•
Operating profit was $81 million, or 11.0 percent of net sales.
•
The quarter included a $31 million benefit in operating profit from lower product liability costs related to an adjustment of the company's product liability reserve model. The third quarter of 2017 included a similar adjustment of $41 million.
•
Cooper's raw material index increased 12.4 percent from the third quarter of 2017, with raw material costs increasing by $15 million from the prior year.

"Unit volume in the U.S. improved in the third quarter and outpaced the USTMA. We ended the quarter on an encouraging note, with U.S. unit volume that outperformed both the USTMA and total industry in the month of September,” said Brad Hughes, President & Chief Executive Officer. “Cooper also achieved year-over-year operating profit improvement in our International segment, as well as unit volume growth in our truck and bus radial (TBR) tire business. Our core business delivered strong sequential operating profit margin improvement, even when you exclude the benefit from lower product liability costs."

Consolidated Results:
Cooper Tire
Q3 2018 ($M)
Q3 2017 ($M)
Change
Net Sales
$738
$734
0.5%
Operating Profit
$81
$111
(26.7)%
Operating Margin
11.0%
15.1%
(4.1) ppts.
Third quarter net sales were $738 million, an increase of 0.5 percent compared with $734 million
in the third quarter of 2017. Third quarter net sales were favorably impacted by $5 million of positive price and mix, partially offset by $1 million of unfavorable foreign currency impact.
Third quarter 2018 operating profit was $81 million compared with $111 million for the same period
last year. Operating profit for the third 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 third quarter included $15 million of unfavorable raw material costs, partially offset by $1 million of favorable price and mix. The third quarter also included $12 million of higher manufacturing costs and $3 million of higher product liability costs. SG&A costs decreased $4 million in the quarter, while other costs increased $5 million.
As part of its regular review of product liability reserves, Cooper monitors trends and analyzes developments and variables likely to impact pending and anticipated product liability claims against the company.  Based on the review completed in the third quarter, the company reduced its estimate of pending and anticipated product liability claims, which resulted in a benefit of $31 million during the third quarter of 2018.  In 2017, a similar review was performed and Cooper recognized a benefit of $41 million in the third quarter of that year.  This adjustment, as well as normal activity in product liability expenses, including current case activity and legal fees, resulted in product liability expense in the third quarter of 2018 that was $3 million higher than the same quarter of 2017.
-more-


Cooper Tire Q3 2018—2

Cooper's third quarter raw material index increased 12.4 percent from the third quarter of 2017. The raw material index increased 3.1 percent sequentially from 163.8 in the second quarter of 2018 to 168.8 in the third quarter of 2018.
 
The effective tax rate for the third quarter was 22.6 percent compared to 33.8 percent in the prior year. The third 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 expense items recorded in the quarter. These discrete items include the benefit of approximately $4 million related to a $25 million discretionary pension contribution in the third quarter of 2018, which applied to the 2017 tax year. This was more than offset by approximately $5 million of tax expense related to the true-up of the 2017 Transition Tax. Our effective tax rate is based on forecasted annual earnings and tax rates for the various jurisdictions in which the company operates.
At quarter end, Cooper had $209 million in cash and cash equivalents compared with $258 million at the end of the same period last year. Capital expenditures in the third quarter were $46 million compared with $53 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 2017, of 9.7 percent for the trailing four quarters.

During the third quarter, 31,154 shares of the company's common stock were repurchased for approximately $1 million at an average price of $26.59 per share. Since share repurchases began in August 2014, the company has repurchased a total of 15.8 million shares at an average price of $34.11 per share. As of September 30, 2018, $193 million remains on the previously announced $300 million authorization.

Americas Tire Operations:

Americas Tire Operations
Q3 2018 ($M)
Q3 2017 ($M)
Change
Net Sales
$629
$625
0.5%
Operating Profit
$87
$125
(30.1)%
Operating Margin
13.9%
20.0%
(6.1) ppts.

Third quarter net sales in the Americas segment increased 0.5 percent as a result of $8 million of favorable price and mix, partially offset by $2 million of lower unit volume and $2 million of unfavorable foreign currency impact. Segment unit volume decreased 0.3 percent from the prior year, with a unit volume increase in North America offset by a decrease in Latin America, a region which continues to experience economic and political challenges.

Cooper’s third quarter total light vehicle tire shipments in the U.S. increased 1.5 percent. The U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. were up 0.4 percent. Total industry shipments (including an estimate for non-USTMA members) increased 4.9 percent for the period.

Third quarter operating profit was $87 million, or 13.9 percent of net sales, compared with $125 million, or 20.0 percent of net sales, a year ago. Operating profit for the third quarter was impacted by $21 million of higher raw material costs and $2 million of unfavorable price and mix. Operating profit was also impacted by higher manufacturing costs of $9 million and $3 million of higher product liability costs. Other costs increased $3 million in the quarter.

-more-





Cooper Tire Q3 2018—3
International Tire Operations:

International Tire Operations
Q3 2018 ($M)
Q3 2017 ($M)
Change
Net Sales
$162
$163
(0.6)%
Operating Profit
$6
$2
193.5%
Operating Margin
3.7%
1.3%
2.4 ppts.

Third quarter net sales in the International segment decreased 0.6 percent as a result of $7 million of lower unit volume, partially offset by $5 million of favorable price and mix and $1 million of favorable foreign currency impact. Segment unit volume decreased 4.1 percent from the prior year, driven by a decrease in unit volume in Asia and Europe. For Asia, original equipment (OE) volume was up modestly year over year, but was more than offset by softness in the replacement market due to credit tightening. In Europe, an increase in third party sales was more than offset by lower shipments to the U.S.
Third quarter operating profit was $6 million, or 3.7 percent of net sales, compared with $2 million, or 1.3 percent of net sales, a year ago. The increase was driven by $9 million of lower raw material costs, net of price and mix. Manufacturing costs were $3 million unfavorable, while other costs increased $2 million in the quarter.
Outlook
“We continue to make good progress on our strategic priorities and are seeing some benefits as our initiatives begin to take hold. We expect unit volume growth in the U.S. in the fourth quarter, which is expected to be offset by continued volume declines in our other regions, driven by economic and political challenges," said Hughes. "We continue to expect an impact from higher raw material costs. In the fourth quarter, our raw material index is projected to be flat sequentially, but up more than 10 percent on a year-over-year basis. Tariffs have been enacted on certain materials and tire imports from China, and there are proposed tariffs that represent further potential risk. We have implemented price increases to partially offset some of these higher costs. As a result, we would expect fourth quarter operating margin to be close to what we achieved in the third quarter, excluding the benefit from lower product liability costs.”
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.

Cooper Tire Europe recently announced its decision to enter an employee consultation period to explore ceasing light vehicle tire production at its Melksham, England facility and obtaining such tires from other locations in the broader, global Cooper production network. The fourth quarter outlook does not include any one-time charges related to actions resulting from potential outcomes of this process.

Third Quarter 2018 Conference Call Today at 10 a.m. Eastern
Management will discuss the financial and operating results for the third quarter, as well as the company’s business outlook, on a conference call for analysts and investors today at 10 a.m. EDT. The call may be accessed on the investor relations page of the company’s website at http://coopertire.com/Investors.aspx or at https://services.choruscall.com/links/ctb181029.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.


-more-








Cooper Tire Q3 2018—4
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 the write-off of outstanding accounts receivable or loss of particular business for competitive, credit, liquidity, bankruptcy, restructuring or other reasons;
•
the costs and timing of restructuring actions and impairments or other charges resulting from such actions, including the possible outcome of the recently announced consultation period in the U.K. or from adverse industry, market or other developments;
•
consolidation or other cooperation by and among the company’s competitors or customers;
•
inaccurate assumptions used in developing the company’s strategic plan or operating plans, including impairment of goodwill supported by such plans, or the inability or failure to successfully implement such plans or to realize the anticipated savings or benefits from strategic actions;
•
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;

-more-


Cooper Tire Q3 2018—5

•
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, including changes in sales channels;
•
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;
•
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”)

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
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Net sales
 
$
737,671

 
$
733,843

 
$
2,037,575

 
$
2,097,621

Cost of products sold
 
597,724

 
560,371

 
1,718,920

 
1,666,013

Gross profit
 
139,947

 
173,472

 
318,655

 
431,608

Selling, general and administrative expense
 
58,746

 
62,692

 
178,236

 
178,632

Operating profit
 
81,201

 
110,780

 
140,419

 
252,976

Interest expense
 
(7,930
)
 
(7,591
)
 
(24,038
)
 
(23,629
)
Interest income
 
2,399

 
1,776

 
6,702

 
5,333

Other pension and postretirement benefit expense
 
(6,932
)
 
(9,403
)
 
(20,885
)
 
(28,097
)
Other non-operating income (expense)
 
2,922

 
(978
)
 
(129
)
 
(1,468
)
Income before income taxes
 
71,660

 
94,584

 
102,069

 
205,115

Provision for income taxes
 
16,227

 
31,924

 
21,944

 
67,250

Net income
 
55,433

 
62,660

 
80,125

 
137,865

Net income attributable to noncontrolling shareholders' interests
 
1,720

 
973

 
3,120

 
307

Net income attributable to Cooper Tire & Rubber Company
 
$
53,713

 
$
61,687

 
$
77,005

 
$
137,558

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.07

 
$
1.19

 
$
1.53

 
$
2.62

Diluted
 
$
1.07

 
$
1.18

 
$
1.52

 
$
2.59

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
50,065

 
52,042

 
50,443

 
52,555

Diluted
 
50,279

 
52,435

 
50,678

 
53,046

 
 
 
 
 
 
 
 
 
Segment information:
 
 
 
 
 
 
 
 
Net Sales
 
 
 
 
 
 
 
 
Americas Tire
 
$
628,704

 
$
625,423

 
$
1,698,507

 
$
1,772,138

International Tire
 
162,401

 
163,345

 
491,484

 
456,680

Eliminations
 
(53,434
)
 
(54,925
)
 
(152,416
)
 
(131,197
)
 
 
 
 
 
 
 
 
 
Operating profit (loss):
 
 
 
 
 
 
 
 
Americas Tire
 
$
87,353

 
$
125,056

 
$
159,068

 
$
286,725

International Tire
 
5,994

 
2,042

 
19,080

 
7,757

Unallocated corporate charges
 
(12,518
)
 
(15,431
)
 
(38,188
)
 
(40,093
)
Eliminations
 
372

 
(887
)
 
459

 
(1,413
)



Cooper Tire & Rubber Company
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
 
 
 
(Dollar amounts in thousands)
 
 
 
 
 
 
September 30,
 
 
2018
 
2017
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
208,616

 
$
258,362

Notes receivable
 
7,819

 
15,213

Accounts receivable
 
616,200

 
600,791

Inventories
 
531,362

 
573,731

Other current assets
 
53,897

 
54,127

Total current assets
 
1,417,894

 
1,502,224

 
 
 
 
 
Property, plant and equipment, net
 
964,404

 
926,986

Goodwill
 
52,725

 
56,361

Intangibles
 
122,875

 
135,776

Deferred income tax assets
 
47,043

 
133,455

Other assets
 
7,946

 
7,010

Total assets
 
$
2,612,887

 
$
2,761,812

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Notes payable
 
$
14,831

 
$
36,056

Accounts payable
 
252,551

 
266,033

Accrued liabilities
 
269,862

 
274,525

Income taxes payable
 
17,407

 
38,897

Current portion of long-term debt
 
1,376

 
1,464

Total current liabilities
 
556,027

 
616,975

 
 
 
 
 
Long-term debt
 
294,841

 
296,084

Postretirement benefits other than pensions
 
255,980

 
247,551

Pension benefits
 
146,198

 
252,701

Other long-term liabilities
 
131,332

 
115,606

Deferred income tax liabilities
 
—

 
670

Total parent stockholders' equity
 
1,167,544

 
1,173,305

Noncontrolling shareholders' interests in consolidated subsidiaries
 
60,965

 
58,920

Total liabilities and equity
 
$
2,612,887

 
$
2,761,812




Cooper Tire & Rubber Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
 
 
(Dollar amounts in thousands)
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
2018
 
2017
Operating activities:
 
 
 
 
Net income
 
$
80,125

 
$
137,865

Adjustments to reconcile net income to net cash from (used in) operations:
 
 
 
 
Depreciation and amortization
 
110,210

 
106,652

Stock-based compensation
 
3,867

 
3,711

Change in LIFO inventory reserve
 
1,134

 
(14,413
)
Amortization of unrecognized postretirement benefits
 
27,535

 
31,463

Changes in operating assets and liabilities:
 
 
 
 
Accounts and notes receivable
 
(88,942
)
 
(94,150
)
Inventories
 
(24,957
)
 
(75,628
)
Other current assets
 
(9,190
)
 
(25,121
)
Accounts payable
 
6,500

 
(25,621
)
Accrued liabilities
 
(6,832
)
 
(19,133
)
Other items
 
(65,928
)
 
(58,202
)
Net cash from (used in) operating activities
 
33,522

 
(32,577
)
Investing activities:
 
 
 
 
Additions to property, plant and equipment and capitalized software
 
(143,974
)
 
(143,067
)
Proceeds from the sale of assets
 
160

 
42

Net cash used in investing activities
 
(143,814
)
 
(143,025
)
Financing activities:
 
 
 
 
Net payments on short-term debt
 
(22,152
)
 
(6,393
)
Repayments of long-term debt
 
(1,203
)
 
(600
)
Payment of financing fees
 
(1,230
)
 
—

Repurchase of common stock
 
(30,183
)
 
(70,198
)
Payments of employee taxes withheld from shared-based awards
 
(2,107
)
 
(6,669
)
Payment of dividends to noncontrolling shareholders
 
—

 
(282
)
Payment of dividends to Cooper Tire & Rubber Company stockholders
 
(15,880
)
 
(16,548
)
Issuance of common shares related to stock-based compensation
 
275

 
4,091

Net cash used in financing activities
 
(72,480
)
 
(96,599
)
Effects of exchange rate changes on cash
 
2,812

 
7,788

Changes in cash, cash equivalents, and restricted cash
 
(179,960
)
 
(264,413
)
Cash, cash equivalents, and restricted cash at beginning of year
 
392,306

 
524,249

Cash, cash equivalents, and restricted cash at end of period
 
$
212,346

 
$
259,836




Cooper Tire & Rubber Company
 
 
Reconciliation of Non-GAAP Financial Measures
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RETURN ON INVESTED CAPITAL (ROIC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trailing Four Quarters Ended September 30, 2018
 
 
 
 
 
Trailing Four Quarters Ended September 30, 2018
 
 
Calculation of ROIC
 
Calculation of Effective Tax Rate
 
 
Adjusted operating profit
 
 
 
$
196,685

 
Adjusted (non-GAAP) provision for income taxes (c)
 
 
 
$
33,840

 
 
Adjusted (non-GAAP) effective tax rate
 
24.0
%
 
 
 
Income before income taxes (d)
 
 
 
140,879

 
 
Income tax expense on adjusted operating profit
 
47,245

 
 
 
Adjusted (non-GAAP) effective tax rate (c)/(d)
 
 
 
24.0
%
 
 
Adjusted operating profit after taxes (a)
 
 
 
149,440

 
 
 
 
 
 
 
 
 
 
Total invested capital (b)
 
 
 
$
1,538,158

 
 
 
 
 
 
 
 
 
 
ROIC, including noncontrolling equity (a)/(b)
 
 
 
9.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Calculation of Invested Capital (five quarter average)
 
 
 
Equity
 
Long-term debt
 
Current portion of long-term debt
 
Notes payable
 
Total invested capital
 
 
 
 
September 30, 2018
 
$
1,228,509

 
$
294,841

 
$
1,376

 
$
14,831

 
$
1,539,557

 
 
 
 
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

 
 
 
 
Five quarter average
 
$
1,205,557

 
$
295,430

 
$
1,419

 
$
35,752

 
$
1,538,158

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
September 30, 2018
 
$
81,201

 
$
—

 
$
81,201

 
$
16,227

 
$
—

 
$
16,227

 
$
71,660

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

Trailing four quarters
 
$
187,262

 
$
9,423

 
$
196,685

 
$
101,874

 
$
68,034

 
$
33,840

 
$
140,879

 
* - 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)

ctb09302018slidesr4923d
Company Update Third Quarter 2018 October 29, 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 September 30, 2018 Financial Performance Highlights (millions USD, except EPS) Change from Prior Net Sales by Segment Q3 2018 Q3 2017 Year Americas Tire $ 629 $ 625 0.5% International Tire 162 163 (0.6%) Eliminations (53) (55) 2.7% Total Company $ 738 $ 734 0.5% Operating Profit (Loss) by Segment OP % OP % Americas Tire $ 87 13.9 $ 125 20.0 $ (38) International Tire 6 3.7 2 1.3 4 Corporate (13) (15) 2 Eliminations — (1) 1 Total Company $ 81 11.0 $ 111 15.1 $ (30) Earnings per share, diluted $ 1.07 $ 1.18 $ (0.11) Cash and cash equivalents $ 209 $ 258 $ (50) Amounts are unaudited and may not add due to rounding. 4

 
Nine Months Ended September 30, 2018 Financial Performance Highlights (millions USD, except EPS) Nine Months Nine Months Ended Ended Change September 30, September 30, from Prior Net Sales by Segment 2018 2017 Year Americas Tire $ 1,699 1,772 (4.2%) International Tire 491 457 7.6% Eliminations (152) (131) 16.2% Total Company $ 2,038 $ 2,098 (2.9%) Operating Profit (Loss) by Segment OP % OP % Americas Tire $ 159 9.4 $ 287 16.2 $ (128) International Tire 19 3.9 8 1.7 11 Corporate (38) (40) 2 Eliminations — (1) 2 Total Company $ 140 6.9 $ 253 12.1 $ (113) Earnings per share, diluted $ 1.52 $ 2.59 $ (1.07) Cash and cash equivalents $ 209 $ 258 $ (50) Amounts are unaudited and may not add due to rounding. 5

 
Operating Profit Walk Total Company ($millions) Q3 2017 to Q3 2018 $(30) 120 9 111 101 1 4 (15) 81 (3) (12) (5) 60 $(14) million Net Price/Mix vs. Raw Materials 0 it s x g y r it f t l i A it e f o n * d t ia M in & l h o r e t e fi r / r G i t r P m n t o e e u b O P e e s r t c t S ia g r ju P a ri c L g in ti tm M fa in t e s d g P u t t a r A n w c a r t ju 7 ti a n u r e s d 1 a a d e p o A 0 r R M ro p O P s 2 e P O 7 & t p 8 1 s O 1 0 n o 0 2 io C 2 s t n fi e e n P e B 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. 6

 
CTB Raw Material Price Index North America 300 250 200 150 100 Q3 2018 Average = 168.8 50 0 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Q4 2018 is an estimate 7

 
Operating Profit Walk Americas Tire Operations ($millions) Q3 2017 to Q3 2018 $(38) 140 8 125 117 105 (21) (2) 87 (9) (3) (3) 70 $(23) million 35 Total Price/Mix and Raw Materials 0 t r t fi t ls ix g ty e fi o n * d t a in li h o r e t e fi ri /M r i t r P m n t o e e u b O P e e s r t c t ia g r ju P a ri c L g in ti tm M fa in t e s d g P u t t a r A n w c a r t ju 7 ti a n u r e s d 1 a a d e p o A 0 r R M ro p O P s 2 e P O 7 & t p 8 1 s O 1 0 n o 0 2 io C 2 s t n fi e e n P e B 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. 8

 
Operating Profit Walk International Tire Operations ($millions) Q3 2017 to Q3 2018 $4 12 2 7 (3) 6 6 (2) $9 million Net 1 2 Price/Mix vs. Raw 1 Materials 0 t r t fi t ls ix g e fi o n * d t a in h o r e t e fi ri /M r t r P m n t o e e u O P e e s r t c t g r ju P a ri c g in ti tm M fa in t e s d g P u t a r A n w a r t ju 7 ti a n r e s d 1 a a e p o A 0 r R M p O P s 2 e O 7 & t p 8 1 s O 1 0 n o 0 2 io C 2 s t n fi e e n P e B 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

 
Non-GAAP Measures Non-GAAP financial measures should be considered in addition to, not as a substitute for, other financial measures prepared in accordance with generally accepted accounting principles (“GAAP”). The company’s methods of determining these non-GAAP financial measures may differ from the methods used by other companies for these or similar non-GAAP financial measures. Accordingly, these non-GAAP financial measures may not be comparable to measures used by other companies. Pursuant to the requirements of SEC Regulation G, detailed reconciliations between the company’s GAAP and non-GAAP financial results were posted, by incorporation within this presentation, on the company’s Investor Relations website at http://coopertire.com/investors.aspx on the day the company’s operating and financial results were announced for the quarter ended September 30, 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. 10

 
Non-GAAP Measures 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 October 1, 2017 – September 30, 2018 (millions USD) Adjusted operating profit $ 197 Adjusted (non-GAAP) effective tax rate 24.0% Income tax expense on adjusted operating profit 47 Adjusted operating profit after taxes $ 149 Total invested capital $ 1,538 Return on invested capital 9.7% Amounts may not add due to rounding. 11

 
Non-GAAP Measures Calculation of Trailing Four Quarter Income and Expense Inputs (millions USD) Adjusted Adjustments (non-GAAP) Income Operating Adjusted Provision for to provision provision for before profit as ASU 2017-07 operating income taxes for income income income Quarter-ended: reported* Reclassification* profit as reported taxes** taxes** taxes September 30, 2018 $ 81 $ — $ 81 $ 16 $ — $ 16 $ 72 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 Total $ 187 $ 9 $ 197 $ 102 $ 68 $ 34 $ 141 * - 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 of deemed repatriation tax and $20 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 $19, less the reversal of an Asia valuation allowance of $7. 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. Trailing Four Quarter Effective Tax Rate Adjusted (non-GAAP) provision for income taxes $ 34 Income before income taxes 141 Adjusted (non-GAAP) effective income tax rate 24.0% Amounts may not add due to rounding. 12

 
Non-GAAP Measures Calculation of Total Invested Capital (five quarter average) (millions USD) Current Portion of Short-term Total Long-term Long-term Notes Invested Equity Debt Debt Payable Capital September 30, 2018 $ 1,229 $ 295 $ 1 $ 15 $ 1,540 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 Average Balance $ 1,206 $ 295 $ 1 $ 36 $ 1,538 Amounts may not add due to rounding. 13

 
Risks 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 the write-off of outstanding accounts receivable or loss of particular business for competitive, credit, liquidity, bankruptcy, restructuring or other reasons; • the costs and timing of restructuring actions and impairments or other charges resulting from such actions, including the possible outcome of the recently announced consultation period in the U.K., or from adverse industry, market or other developments; • consolidation or other cooperation by and among the company’s competitors or customers; • inaccurate assumptions used in developing the company’s strategic plan or operating plans, including impairment of goodwill supported by such plans, or the inability or failure to successfully implement such plans or to realize the anticipated savings or benefits from strategic actions; • 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, including changes in sales channels; • 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; • 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. 14

 
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