Date of Report (Date of Earliest Event Reported): | April 29, 2019 | |||
Cooper Tire & Rubber Company | ||||
(Exact name of registrant as specified in its charter) | ||||
Delaware | 001-04329 | 344297750 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S Employer Identification No.) | ||
701 Lima Avenue, Findlay, Ohio | 45840 | |||
(Address of principal executive offices) | (Zip Code) | |||
Registrant's telephone number, including area code: 419-423-1321 | ||||
Not Applicable | ||||
Former name or former address, if changed since last report |
Dated: | Cooper Tire & Rubber Company | |||
April 29, 2019 | By: /s/ Jack Jay McCracken | |||
Name: Jack Jay McCracken | ||||
Title: Vice President, Assistant General Counsel & Assistant Secretary | ||||
• | Net sales increased 2.9 percent to $619 million. |
• | Consolidated unit volume decreased 0.7 percent compared to the first quarter of 2018. |
• | Operating profit was $26 million, or 4.3 percent of net sales, despite $10 million in costs related to tariffs enacted in the quarter on truck and bus radial (TBR) tires imported into the United States from China and $5 million of restructuring charges in Europe. |
Cooper Tire | Q1 2019 ($M) | Q1 2018 ($M) | Change | ||||||||||
Net Sales | $ | 619 | $ | 601 | 2.9 | % | |||||||
Operating Profit | $ | 26 | $ | 26 | (0.1 | %) | |||||||
Operating Margin | 4.3 | % | 4.4 | % | (0.1 | ) ppts. |
Americas Tire Operations | Q1 2019 ($M) | Q1 2018 ($M) | Change | |||||||||
Net Sales | $ | 515 | $ | 485 | 6.1% | |||||||
Operating Profit | $ | 39 | $ | 31 | 24.2% | |||||||
Operating Margin | 7.5 | % | 6.4 | % | 1.1 ppts. |
International Tire Operations | Q1 2019 ($M) | Q1 2018 ($M) | Change | ||||||||||
Net Sales | $ | 144 | $ | 161 | (10.8%) | ||||||||
Operating (Loss)/Profit | $ | (1 | ) | $ | 7 | (118.0 | %) | ||||||
Operating Margin | (0.9 | %) | 4.6 | % | (5.5 | ) ppts. |
• | Modest unit volume growth compared to 2018. |
• | Improving operating profit margin throughout the year, with the full year exceeding 2018. |
• | Capital expenditures to range between $190 and $210 million. This does not include capital contributions related to Cooper’s pro rata share of the previously announced joint venture with Sailun Vietnam or other potential manufacturing footprint investments. |
• | Charges related to the Melksham, England restructuring to be in a range of $8 to $11 million, including $5 million already incurred in the first quarter. |
• | Effective tax rate in a range between 23 and 26 percent. |
• | 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 or increased 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 inability to obtain and maintain price increases to offset higher production, tariffs or material costs; |
• | 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 failure to develop technologies, processes or products needed to support consumer demand or changes in consumer behavior, including changes in sales channels; |
• | the costs and timing of restructuring actions and impairments or other charges resulting from such actions, including the possible outcome of the recently announced decision to cease light vehicle tire production 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, or the inability or failure to successfully implement such plans or to realize the anticipated savings or benefits from strategic actions; |
• | risks relating to investments and acquisitions, including the failure to successfully integrate them into operations or their related financings may impact liquidity and capital resources; |
• | 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; |
• | 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, including access for refinancing the company's unsecured notes due in December 2019; |
• | changes in interest or foreign exchange rates or the benchmarks used for establishing the 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.; |
• | technology advancements; |
• | the inability to recover the costs to refresh existing products or 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; |
• | 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; |
• | 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 TBR products; |
• | the ability to find and develop alternative sources for products supplied by PCT; |
• | 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; |
• | the inability to adequately protect the company’s intellectual property rights; and |
• | the inability to use deferred tax assets. |
Cooper Tire & Rubber Company | ||||||||
Consolidated Statements of Operations | ||||||||
(Unaudited) | ||||||||
(Dollar amounts in thousands except per share amounts) | ||||||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Net sales | $ | 619,163 | $ | 601,496 | ||||
Cost of products sold | 530,904 | 517,011 | ||||||
Gross profit | 88,259 | 84,485 | ||||||
Selling, general and administrative expense | 56,855 | 58,031 | ||||||
Restructuring expense | 4,973 | — | ||||||
Operating profit | 26,431 | 26,454 | ||||||
Interest expense | (8,314 | ) | (7,691 | ) | ||||
Interest income | 3,380 | 2,315 | ||||||
Other pension and postretirement benefit expense | (9,362 | ) | (6,986 | ) | ||||
Other non-operating income (expense) | 1,380 | (1,658 | ) | |||||
Income before income taxes | 13,515 | 12,434 | ||||||
Provision for income taxes | 6,337 | 3,451 | ||||||
Net income | 7,178 | 8,983 | ||||||
Net income attributable to noncontrolling shareholders' interests | 199 | 698 | ||||||
Net income attributable to Cooper Tire & Rubber Company | $ | 6,979 | $ | 8,285 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.14 | $ | 0.16 | ||||
Diluted | $ | 0.14 | $ | 0.16 | ||||
Weighted average shares outstanding (000s): | ||||||||
Basic | 50,100 | 50,838 | ||||||
Diluted | 50,378 | 51,179 | ||||||
Segment information: | ||||||||
Net Sales | ||||||||
Americas Tire | $ | 514,936 | $ | 485,392 | ||||
International Tire | 143,785 | 161,244 | ||||||
Eliminations | (39,558 | ) | (45,140 | ) | ||||
Operating profit (loss): | ||||||||
Americas Tire | $ | 38,789 | $ | 31,236 | ||||
International Tire | (1,339 | ) | 7,434 | |||||
Unallocated corporate charges | (10,453 | ) | (11,966 | ) | ||||
Eliminations | (566 | ) | (250 | ) |
Cooper Tire & Rubber Company | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(Unaudited) | ||||||||
(Dollar amounts in thousands) | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 212,331 | $ | 213,091 | ||||
Notes receivable | 12,514 | 66,073 | ||||||
Accounts receivable | 540,813 | 499,130 | ||||||
Inventories | 563,736 | 611,524 | ||||||
Other current assets | 54,829 | 63,921 | ||||||
Total current assets | 1,384,223 | 1,453,739 | ||||||
Property, plant and equipment, net | 1,010,715 | 978,494 | ||||||
Operating lease right-of-use assets, net | 97,646 | — | ||||||
Goodwill | 18,851 | 56,056 | ||||||
Intangibles, net | 117,433 | 126,143 | ||||||
Deferred income tax assets | 26,923 | 57,057 | ||||||
Other assets | 21,377 | 7,493 | ||||||
Total assets | $ | 2,677,168 | $ | 2,678,982 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Notes payable | $ | 20,074 | $ | 41,043 | ||||
Accounts payable | 268,780 | 268,556 | ||||||
Accrued liabilities | 248,029 | 244,371 | ||||||
Income taxes payable | 4,993 | 5,098 | ||||||
Current portion of long-term debt and finance leases | 173,974 | 1,446 | ||||||
Total current liabilities | 715,850 | 560,514 | ||||||
Long-term debt and finance leases | 121,305 | 295,221 | ||||||
Noncurrent operating leases | 72,730 | — | ||||||
Postretirement benefits other than pensions | 235,974 | 256,188 | ||||||
Pension benefits | 144,908 | 218,280 | ||||||
Other long-term liabilities | 138,183 | 144,753 | ||||||
Total parent stockholders' equity | 1,186,640 | 1,140,723 | ||||||
Noncontrolling shareholders' interests in consolidated subsidiaries | 61,578 | 63,303 | ||||||
Total liabilities and equity | $ | 2,677,168 | $ | 2,678,982 |
Cooper Tire & Rubber Company | ||||||||
Consolidated Statements of Cash Flows | ||||||||
(Unaudited) | ||||||||
(Dollar amounts in thousands) | ||||||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Operating activities: | ||||||||
Net income | $ | 7,178 | $ | 8,983 | ||||
Adjustments to reconcile net income to net cash from operations: | ||||||||
Depreciation and amortization | 37,298 | 36,424 | ||||||
Stock-based compensation | 869 | 1,280 | ||||||
Change in LIFO inventory reserve | (168 | ) | (9,900 | ) | ||||
Amortization of unrecognized postretirement benefits | 9,131 | 9,210 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts and notes receivable | 2,278 | (14,955 | ) | |||||
Inventories | (81,354 | ) | (81,156 | ) | ||||
Other current assets | (2,170 | ) | (5,532 | ) | ||||
Accounts payable | 2,740 | 13,063 | ||||||
Accrued liabilities | (63,228 | ) | (34,778 | ) | ||||
Other items | (8,986 | ) | 58 | |||||
Net cash used in operating activities | (96,412 | ) | (77,303 | ) | ||||
Investing activities: | ||||||||
Additions to property, plant and equipment and capitalized software | (59,867 | ) | (59,722 | ) | ||||
Proceeds from the sale of assets | 38 | 133 | ||||||
Net cash used in investing activities | (59,829 | ) | (59,589 | ) | ||||
Financing activities: | ||||||||
Net payments on short-term debt | 6,608 | (5,356 | ) | |||||
Repayments of long-term debt and finance lease obligations | (797 | ) | (809 | ) | ||||
Payment of financing fees | — | (1,230 | ) | |||||
Repurchase of common stock | — | (15,565 | ) | |||||
Payments of employee taxes withheld from share-based awards | (1,158 | ) | (1,891 | ) | ||||
Payment of dividends to Cooper Tire & Rubber Company stockholders | (5,262 | ) | (5,334 | ) | ||||
Excess tax benefits on stock-based compensation | — | 270 | ||||||
Net cash used in financing activities | (609 | ) | (29,915 | ) | ||||
Effects of exchange rate changes on cash | (1,058 | ) | 1,399 | |||||
Net change in cash, cash equivalents and restricted cash | (157,908 | ) | (165,408 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of year | 378,246 | 392,306 | ||||||
Cash, cash equivalents and restricted cash at end of year | $ | 220,338 | $ | 226,898 |
Cooper Tire & Rubber Company | ||||||||||||||||||||||||||||||
Reconciliation of Non-GAAP Financial Measures | ||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||||
RETURN ON INVESTED CAPITAL (ROIC) | ||||||||||||||||||||||||||||||
Trailing Four Quarters Ended March 31, 2019 | ||||||||||||||||||||||||||||||
Calculation of ROIC | Calculation of Net Interest Tax Effect | |||||||||||||||||||||||||||||
Adjusted (Non-GAAP) operating profit | $ | 199,048 | Provision for income taxes (c) | $ | 36,381 | |||||||||||||||||||||||||
Adjusted (Non-GAAP) effective tax rate | 24.4 | % | Adjusted (Non-GAAP) income before income taxes (d) | $ | 148,967 | |||||||||||||||||||||||||
Income tax expense on operating profit | 48,612 | Adjusted (Non-GAAP) effective income tax rate (c)/(d) | 24.4 | % | ||||||||||||||||||||||||||
Adjusted operating profit after taxes (a) | 150,436 | |||||||||||||||||||||||||||||
Total invested capital (b) | $ | 1,541,940 | ||||||||||||||||||||||||||||
ROIC, including noncontrolling equity (a)/(b) | 9.8 | % | ||||||||||||||||||||||||||||
Calculation of Invested Capital (five quarter average) | Equity | Long-term debt and finance leases | Current portion of long-term debt and finance leases | Notes payable | Total invested capital | |||||||||||||||||||||||||
March 31, 2019 | $ | 1,248,218 | $ | 121,305 | $ | 173,974 | $ | 20,074 | $ | 1,563,571 | ||||||||||||||||||||
December 31, 2018 | 1,232,443 | 121,284 | 174,760 | 15,288 | 1,543,775 | |||||||||||||||||||||||||
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 | |||||||||||||||||||||||||
Five quarter average | $ | 1,218,093 | $ | 225,534 | $ | 70,591 | $ | 27,723 | $ | 1,541,940 | ||||||||||||||||||||
Calculation of Trailing Four Quarter Income and Expense Inputs | ||||||||||||||||||||||||||||||
Quarter-ended: | Operating profit as reported | Goodwill impairment charge* | Adjusted operating profit | Provision for income taxes as reported | Income before income taxes as reported | Goodwill impairment charge* | Adjusted income before income taxes | |||||||||||||||||||||||
March 31, 2019 | $ | 26,431 | $ | — | $ | 26,431 | $ | 6,337 | $ | 13,515 | $ | — | $ | 13,515 | ||||||||||||||||
December 31, 2018 | 24,826 | 33,827 | 58,653 | 11,550 | 11,989 | 33,827 | 45,816 | |||||||||||||||||||||||
September 30, 2018 | 81,201 | — | 81,201 | 16,227 | 71,660 | — | 71,660 | |||||||||||||||||||||||
June 30, 2018 | 32,763 | — | 32,763 | 2,267 | 17,976 | — | 17,976 | |||||||||||||||||||||||
Trailing four quarters | $ | 165,221 | $ | 33,827 | $ | 199,048 | $ | 36,381 | $ | 115,140 | $ | 33,827 | $ | 148,967 | ||||||||||||||||
*The Company recorded a non-cash goodwill impairment charge of $33,827 in the fourth quarter of 2018 related to the Company's Chinese joint venture. |
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