Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K/A

(Amendment No. 1)

For Annual and Transition Reports Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934



☒	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2019



☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-04329

COOPER TIRE & RUBBER COMPANY

(Exact name of registrant as specified in its charter)



Delaware		34-4297750
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

701 Lima Avenue, Findlay, Ohio 45840

(Address of principal executive offices)

(Zip code)

(419) 423-1321

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Common Stock, $1 par value per share	CTB	New York Stock Exchange
(Title of Each Class)	(Trading Symbol)	(Name of Each Exchange on which Registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):



Large accelerated filer	☒		Accelerated filer	☐
Non-Accelerated Filer	☐	(Do not check if a smaller reporting company)	Smaller Reporting Company	☐
			Emerging growth company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the voting common stock held by non-affiliates of the registrant at June 28, 2019 was $1,516,245,816.

The number of shares outstanding of the registrant’s common stock as of February 21, 2020 was 50,249,760.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information from the registrant’s definitive proxy statement for its 2020 Annual Meeting of Stockholders will be herein incorporated by reference into Part III, Items 10 – 14, of this report.

EXPLANATORY NOTE

Cooper Tire & Rubber Company (the “Company”) is filing this Annual Report on Form 10-K/A, Amendment No. 1 (the “Amendment”) to replace the report of Ernst & Young LLP, our Independent Registered Public Accounting Firm, which appeared on pages 79-80 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on February 24, 2020 (the “Original Report”). The report of Ernst & Young LLP previously incorrectly excluded language required to conform to PCAOB Auditing Standards 3101, resulting from a clerical error. The report of Ernst & Young LLP, as replaced in the Amendment, does not modify the unqualified opinion previously expressed in the Original Report. Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, we have repeated the entire text of Item 8 and Item 15 of the Form 10-K in this Amendment, however, there have been no changes to such items other than to replace the report of Ernst & Young LLP as described above.

Except as expressly set forth above, the Amendment does not, and does not purport to, amend, update or restate the information in any other item in the Original Report or reflect any events that have occurred after the filing of the Original Report. Accordingly, the Amendment should be read in conjunction with the Original Report and the Company’s other filings with the SEC subsequent to the filing of the Original Report.

TABLE OF CONTENTS

COOPER TIRE & RUBBER COMPANY – FORM 10-K/A

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019



	Page reference
Part II
Item 8 – Financial Statements and Supplementary Data	2
Part IV
Item 15 – Exhibits and Financial Statement Schedules	50
Signatures	50
Exhibit Index	52

-1-


Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands except per share amounts)

	Year Ended December 31,
	2019			2018			2017
Net sales	$	2,752,639		$	2,808,062		$	2,854,656
Cost of products sold	2,319,349			2,364,769			2,303,261
Gross profit	433,290			443,293			551,395
Selling, general and administrative expense	250,017			244,221			242,148
Restructuring expense	8,818			—			—
Goodwill impairment charge	—			33,827			—
Operating profit	174,455			165,245			309,247
Interest expense	(31,189		)	(32,181		)	(32,048		)
Interest income	9,458			10,216			7,362
Other pension and postretirement benefit expense	(41,567		)	(27,806		)	(37,523		)
Other non-operating expense	(1,485		)	(1,416		)	(3,113		)
Income before income taxes	109,672			114,058			243,925
Income tax provision	11,355			33,495			147,180
Net income	98,317			80,563			96,745
Net income attributable to noncontrolling shareholders' interests	1,913			3,977			1,345
Net income attributable to Cooper Tire & Rubber Company	$	96,404		$	76,586		$	95,400

Earnings per share:
Basic	$	1.92		$	1.52		$	1.83
Diluted	$	1.91		$	1.51		$	1.81

See accompanying Notes to Consolidated Financial Statements.

-2-




COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands except per share amounts)

	Year Ended December 31,
	2019			2018			2017
Net income	$	98,317		$	80,563		$	96,745
Other comprehensive income (loss):
Cumulative currency translation adjustments	4,742			(24,430		)	38,850
Financial instruments:
Change in the fair value of derivatives	(3,753		)	2,628			(2,473		)
Income tax benefit (provision) on derivative instruments	1,054			(827		)	855
Financial instruments, net of tax	(2,699		)	1,801			(1,618		)
Postretirement benefit plans:
Amortization of actuarial loss	35,843			37,203			42,570
Amortization of prior service cost (credit)	603			(541		)	(566		)
Actuarial (loss) gain	(12,877		)	12,913			13,385
Pension settlement charges	4,262			—			—
Prior service effect of plan amendment	(3,069		)	(3,704		)	—
Income tax provision on postretirement benefit plans	(9,333		)	(8,326		)	(14,718		)
Foreign currency translation effect	(2,668		)	(264		)	(7,855		)
Postretirement benefit plans, net of tax	12,761			37,281			32,816
Other comprehensive income	14,804			14,652			70,048
Comprehensive income	113,121			95,215			166,793
Less: Comprehensive income attributable to noncontrolling shareholders' interests	2,708			1,740			4,720
Comprehensive income attributable to Cooper Tire & Rubber Company	$	110,413		$	93,475		$	162,073

See accompanying Notes to Consolidated Financial Statements.

-3-




COOPER TIRE & RUBBER COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)

	December 31,
	2019		2018
ASSETS
Current assets:
Cash and cash equivalents	$	391,332	$	356,254
Notes receivable	535		5,737
Accounts receivable, less allowances of $8,109 at 2019 and $5,836 at 2018	544,257		546,905
Inventories:
Finished goods	326,839		338,133
Work in process	28,250		27,265
Raw materials and supplies	109,132		114,582
Total inventories	464,221		479,980
Other current assets	52,635		67,856
Total current assets	1,452,980		1,456,732
Property, plant and equipment:
Land and land improvements	53,516		52,668
Buildings	344,142		314,555
Machinery and equipment	2,042,578		1,981,857
Molds, cores and rings	262,444		238,911
Total property, plant and equipment	2,702,680		2,587,991
Less: Accumulated depreciation	1,655,438		1,586,070
Property, plant and equipment, net	1,047,242		1,001,921
Operating lease right-of-use assets, net of accumulated amortization of $26,121 at 2019	80,752		—
Goodwill	18,851		18,851
Intangibles, net of accumulated amortization of $123,735 at 2019 and $112,621 at 2018	111,356		120,321
Deferred income tax assets	29,336		28,146
Investment in joint venture	48,912		—
Other assets	12,909		8,234
Total assets	$	2,802,338	$	2,634,205

See accompanying Notes to Consolidated Financial Statements.

-4-



COOPER TIRE & RUBBER COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)
	December 31,
(Continued)	2019			2018
LIABILITIES AND EQUITY
Current liabilities:
Notes payable	$	12,296		$	15,288
Accounts payable	276,732			286,671
Accrued liabilities	302,477			282,650
Income taxes payable	2,304			975
Current portion of long-term debt and finance leases	10,265			174,760
Total current liabilities	604,074			760,344
Long-term debt and finance leases	309,148			121,284
Noncurrent operating leases	55,371			—
Postretirement benefits other than pensions	227,216			236,454
Pension benefits	126,707			147,950
Other long-term liabilities	149,065			135,730
Deferred income tax liabilities	3,024			—
Equity:
Preferred stock, $1 par value; 5,000,000 shares authorized; none issued	—			—
Common stock, $1 par value; 300,000,000 shares authorized; 87,850,292 shares issued at 2019 and 2018	87,850			87,850
Capital in excess of par value	22,175			21,124
Retained earnings	2,524,963			2,449,714
Accumulated other comprehensive loss	(447,580		)	(461,589		)
Parent stockholders' equity before treasury stock	2,187,408			2,097,099
Less: Common shares in treasury at cost (37,647,058 at 2019 and 37,776,659 at 2018)	(922,783		)	(925,056		)
Total parent stockholders' equity	1,264,625			1,172,043
Noncontrolling shareholders' interests in consolidated subsidiaries	63,108			60,400
Total equity	1,327,733			1,232,443
Total liabilities and equity	2,802,338			2,634,205

See accompanying Notes to Consolidated Financial Statements.

-5-



COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(Dollar amounts in thousands except per share amounts)

	Common Stock $1 Par Value		Capital in Excess of Par Value			Retained Earnings			Cumulative Other Comprehensive (Loss) Income			Common Shares in Treasury			Total Parent Stockholders’ Equity			Noncontrolling Shareholders’ Interests in Consolidated Subsidiaries			Total
Balance at December 31, 2016	$	87,850	$	25,876		$	2,321,424		$	(545,151	)	$	(813,985	)	$	1,076,014		$	54,222		$	1,130,236
Net income	—		—			95,400			—			—			95,400			1,345			96,745
Other comprehensive loss	—		—			—			66,673			—			66,673			3,375			70,048
Comprehensive income (loss)	—		—			95,400			66,673			—			162,073			4,720			166,793
Dividends payable to noncontrolling shareholder	—		—			—			—			—			—			(282		)	(282		)
Share repurchase program	—		—			—			—			(90,868		)	(90,868		)	—			(90,868		)
Stock compensation plans	—		(5,136		)	(538		)	—			7,465			1,791			—			1,791
Cash dividends - $0.42 per share	—		—			(21,914		)	—			—			(21,914		)	—			(21,914		)
Balance at December 31, 2017	87,850		20,740			2,394,372			(478,478		)	(897,388		)	1,127,096			58,660			1,185,756
Net income	—		—			76,586			—			—			76,586			3,977			80,563
Other comprehensive income	—		—			—			16,889			—			16,889			(2,237		)	14,652
Comprehensive income	—		—			76,586			16,889			—			93,475			1,740			95,215
Share repurchase program	—		—			—			—			(30,183		)	(30,183		)	—			(30,183		)
Stock compensation plans	—		384			(106		)	—			2,515			2,793			—			2,793
Cash dividends - $0.42 per share	—		—			(21,138		)	—			—			(21,138		)	—			(21,138		)
Balance at December 31, 2018	87,850		21,124			2,449,714			(461,589		)	(925,056		)	1,172,043			60,400			1,232,443
Net income	—		—			96,404			—			—			96,404			1,913			98,317
Other comprehensive income	—		—			—			14,009			—			14,009			795			14,804
Comprehensive income	—		—			96,404			14,009			—			110,413			2,708			113,121
Stock compensation plans	—		1,051			(87		)	—			2,273			3,237			—			3,237
Cash dividends - $0.42 per share	—		—			(21,068		)	—			—			(21,068		)	—			(21,068		)
Balance at December 31, 2019	$	87,850	$	22,175		$	2,524,963		$	(447,580	)	$	(922,783	)	$	1,264,625		$	63,108		$	1,327,733

See accompanying Notes to Consolidated Financial Statements.

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COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)

	Twelve Months Ended December 31,
	2019			2018			2017
Operating activities:
Net income	$	98,317		$	80,563		$	96,745
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	148,054			147,161			140,228
Deferred income taxes	1,746			30,519			61,571
Stock-based compensation	4,362			3,868			4,009
Change in LIFO inventory reserve	2,548			(3,026		)	2,981
Amortization of unrecognized postretirement benefits	36,446			36,662			42,004
Goodwill impairment charge	—			33,827			—
Changes in operating assets and liabilities:
Accounts and notes receivable	8,980			(19,729		)	(18,646		)
Inventories	14,355			27,438			(31,820		)
Other current assets	15,261			(2,080		)	(15,648		)
Accounts payable	9,809			10,646			(31,217		)
Accrued liabilities	(4,517		)	7,635			(12,226		)
Pension and postretirement benefits	(49,714		)	(77,883		)	(54,385		)
Other items	4,946			(21,298		)	(5,972		)
Net cash provided by operating activities	290,593			254,303			177,624
Investing activities:
Additions to property, plant and equipment and capitalized software	(202,722		)	(193,299		)	(197,186		)
Investment in joint venture	(49,001		)	—			—
Proceeds from the sale of assets	119			160			278
Net cash used in investing activities	(251,604		)	(193,139		)	(196,908		)
Financing activities:
Issuances of short-term debt	12,296			19,423			39,450
Repayment of short-term debt	(15,288		)	(39,450		)	(40,957		)
Issuance of long-term debt	200,000			—			—
Repayment of long-term debt and finance lease obligations	(177,251		)	(1,395		)	(2,421		)
Payment of financing fees	(2,207		)	(1,230		)	—
Repurchase of common stock	—			(30,183		)	(90,868		)
Payments of employee taxes withheld from share-based awards	(1,376		)	(2,111		)	(7,002		)
Payment of dividends to noncontrolling shareholders	—			—			(282		)
Payment of dividends to Cooper Tire & Rubber Company stockholders	(21,068		)	(21,138		)	(21,914		)
Issuance of common shares related to stock-based compensation	232			306			4,224
Net cash used in financing activities	(4,662		)	(75,778		)	(119,770		)
Effects of exchange rate changes on cash	552			554			7,111
Net change in cash, cash equivalents and restricted cash	34,879			(14,060		)	(131,943		)
Cash, cash equivalents and restricted cash at beginning of period	378,246			392,306			524,249
Cash, cash equivalents and restricted cash at end of period	$	413,125		$	378,246		$	392,306

Cash and cash equivalents	$	391,332		$	356,254		$	371,684
Restricted cash included in Other current assets	20,305			19,967			19,200
Restricted cash included in Other assets	1,488			2,025			1,422
Total cash, cash equivalents and restricted cash	$	413,125		$	378,246		$	392,306

See accompanying Notes to Consolidated Financial Statements.

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COOPER TIRE & RUBBER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)


Note 1.	Significant Accounting Policies

Principles of consolidation – The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. Acquired businesses are included in the consolidated financial statements from the dates of acquisition. All intercompany accounts and transactions have been eliminated.

The Company consolidates into its financial statements the accounts of the Company, all wholly-owned subsidiaries, and any partially-owned subsidiary that the Company has the power to control. Control generally equates to ownership percentage, whereby investments that are more than 50 percent owned are consolidated, investments in subsidiaries of 50 percent or less but greater than 20 percent are accounted for using the equity method, and investments in subsidiaries of 20 percent or less are accounted for using the cost method. The Company does not consolidate any entity for which it has a variable interest based solely on power to direct the activities and significant participation in the entity’s expected results that would not otherwise be consolidated based on control through voting interests. Further, the Company’s joint ventures are businesses established and maintained in connection with the Company’s operating strategy.

Cash and cash equivalents – The Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents.

The Company’s objectives related to the investment of cash not required for operations is to preserve capital, meet the Company’s liquidity needs and earn a return consistent with these guidelines and market conditions. Investments deemed eligible for the investment of the Company’s cash include: 1) U.S. Treasury securities and general obligations fully guaranteed with respect to principal and interest by the government; 2) obligations of U.S. government agencies; 3) commercial paper or other corporate notes of prime quality purchased directly from the issuer or through recognized money market dealers; 4) time deposits, certificates of deposit or bankers’ acceptances of banks rated “A-” by Standard & Poor’s or “A3” by Moody’s; 5) collateralized mortgage obligations rated “AAA” by Standard & Poor’s and “Aaa” by Moody’s; 6) tax-exempt and taxable obligations of state and local governments of prime quality; and 7) mutual funds or outside managed portfolios that invest in the above investments. The Company had cash and cash equivalents totaling $391,332 and $356,254 at December 31, 2019 and December 31, 2018, respectively. The majority of the cash and cash equivalents were invested in eligible financial instruments in excess of amounts insured by the Federal Deposit Insurance Corporation and, therefore, subject to credit risk. Management believes that the probability of losses related to credit risk on investments classified as cash and cash equivalents is remote.

Notes receivable – The Company has received bank secured notes from certain of its customers in the PRC to settle trade accounts receivable. These notes generally have maturities of six months or less and are redeemable at the bank of issuance. The Company evaluates the credit risk of the issuing bank prior to accepting a bank secured note from a customer. Management believes that the probability of material losses related to credit risk on notes receivable is remote.

Accounts receivable – The Company records trade accounts receivable when revenue is recorded in accordance with its revenue recognition policy and relieves accounts receivable when payments are received from customers.

Allowance for doubtful accounts – The allowance for doubtful accounts is established through charges to the provision for bad debts. The Company evaluates the adequacy of the allowance for doubtful accounts throughout the year. The evaluation includes historical trends in collections and write-offs, management’s judgment of the probability of collecting specific accounts and management’s evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part, and are written off at that time through a charge against the allowance for doubtful accounts.

Inventories – Inventory costs are determined using the LIFO method for substantially all U.S. inventories. Costs of other inventories have been determined by the first-in, first-out FIFO method. Inventories include direct material, direct labor, and applicable manufacturing and engineering overhead costs. FIFO inventories are valued at cost, which is not in excess of the net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. LIFO inventories are valued at the lower of cost or market.

-8-

Long-lived assets, including goodwill and right-of-use assets – Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the following expected useful lives:



Land improvements		10 to 20 years
Buildings		10 to 40 years
Machinery and equipment		5 to 14 years
Furniture and fixtures		5 to 10 years
Molds, cores and rings		2 to 10 years

The Company capitalizes certain internal and external costs incurred to acquire or develop internal-use software. Capitalized software costs are amortized over the estimated useful life of the software, which ranges from one to ten years.

Intangibles with definite lives include trademarks, technology and intellectual property which were fully amortized as of December 31, 2019. Land use rights are amortized over their remaining useful lives, which range from 36 to 43 years.

On January 1, 2019, the Company adopted ASC 842, "Leases," which requires lessees to record right-of-use assets and related lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements.

The Company evaluates the recoverability of long-lived assets, including property, plant and equipment and right-of-use assets for operating and finance leases, based on undiscounted projected cash flows, excluding interest and taxes, when any impairment is indicated. Goodwill and indefinite-lived intangibles are assessed for potential impairment at least annually or when events or circumstances indicate impairment may have occurred.

Earnings per common share – Net income per share is computed on the basis of the weighted average number of common shares outstanding each year. Diluted earnings per share includes the dilutive effect of stock options and other stock units. The following table sets forth the computation of basic and diluted earnings per share:



(Number of shares and dollar amounts in thousands except per share amounts)
	2019		2018		2017
Numerator
Numerator for basic and diluted earnings per share - income from continuing operations available to common stockholders	$	96,404	$	76,586	$	95,400
Denominator
Denominator for basic earnings per share - weighted average shares outstanding	50,159		50,350		52,206
Effect of dilutive securities - stock options and other stock units	219		247		467
Denominator for diluted earnings per share - adjusted weighted average shares outstanding	50,378		50,597		52,673
Earnings per share:
Basic	$	1.92	$	1.52	$	1.83
Diluted	$	1.91	$	1.51	$	1.81

At December 31, 2019, 2018 and 2017, all options to purchase shares of the Company’s common stock were included in the computation of diluted earnings per share as the options’ exercise prices were less than the average market price of the common shares.

Derivative financial instruments – Derivative financial instruments are utilized by the Company to reduce foreign currency exchange risks. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into financial instruments for trading or speculative purposes. The Company offsets fair value amounts recognized on the Consolidated Balance Sheets for derivative financial instruments executed with the same counter-party.

The Company uses foreign currency forward contracts as hedges of the fair value of certain non-U.S. dollar denominated net asset and liability positions. Gains and losses resulting from the impact of currency exchange rate movements on these forward contracts are recognized in the accompanying Consolidated Statements of Income in the period in which the exchange rates change and offset the foreign currency gains and losses on the underlying exposure being hedged.

-9-

have been designated as cash flow hedges. Accordingly, the effective portion of the change in fair value of unrealized gains and losses on such forward contracts are recorded as a separate component of stockholders’ equity in the accompanying Consolidated Balance Sheets and reclassified into earnings as the hedged transaction affects earnings.

The Company is exposed to interest rate risk on borrowings that bear interest at floating rates. The Company utilizes derivative instruments to manage the risk associated with the floating rate debt and has effectively fixed the variable interest rate component on the notional amount of this swap . The swaps qualify for hedge accounting and, therefore, changes in the fair value of the swaps have been recorded as a separate component of stockholders’ equity in the accompanying Consolidated Balance Sheets and reclassified into earnings as the hedged transaction affects earnings.

The Company assesses hedge effectiveness quarterly. In doing so, the Company monitors the actual and forecasted foreign currency sales and purchases versus the amounts hedged to identify any hedge ineffectiveness. The Company also performs regression analysis comparing the change in value of the hedging contracts versus the underlying foreign currency sales and purchases, which confirms a high correlation and hedge effectiveness. Any hedge ineffectiveness is recorded as an adjustment in the accompanying Consolidated Statements of Income in the period in which the ineffectiveness occurs.

The Company is exposed to price risk related to forecasted purchases of certain commodities that are used as raw materials, principally natural rubber. Accordingly, it uses commodity contracts with forward pricing for a portion of its production requirements. These contracts generally qualify for the normal purchase exception under guidance for derivative instruments and hedging activities, and therefore are not subject to its provisions.

Income taxes – Income tax expense is based on reported earnings or losses before income taxes in accordance with the tax rules and regulations of the specific legal entities within the various specific taxing jurisdictions where the Company’s income is earned. Taxable income may differ from earnings before income taxes for financial accounting purposes. To the extent that differences are due to revenue or expense items reported in one period for tax purposes and in another period for financial accounting purposes, a provision for deferred income taxes is made using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset may not be realized. Deferred income taxes generally are not recorded on the majority of undistributed earnings of international subsidiaries based on the Company’s intention that these earnings will continue to be reinvested. Upon enactment of the Tax Act, the Transition Tax was recorded based on approximately $495 million of unremitted foreign earnings. During 2018 and 2019, the Company re-evaluated its position on potential earnings repatriation and has concluded that repatriation implications of the Tax Act had no impact on its indefinite reinvestment assertion. As such, no change has been made with respect to that assertion for the year ended December 31, 2019.

Product liability – The Company accrues costs for product liability at the time a loss is probable and the amount of loss can be estimated. The Company believes the probability of loss can be established and the amount of loss can be estimated only after certain minimum information is available, including verification that Company-produced product were involved in the incident giving rise to the claim, the condition of the product purported to be involved in the claim, the nature of the incident giving rise to the claim and the extent of the purported injury or damages. In cases where such information is known, each product liability claim is evaluated based on its specific facts and circumstances. A judgment is then made to determine the requirement for establishment or revision of an accrual for any potential liability. Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. The liability often cannot be determined with precision until the claim is resolved.

Pursuant to ASC 450 "Contingencies," the Company accrues the minimum liability for each known claim when the estimated outcome is a range of probable loss and no one amount within that range is more likely than another. The Company uses a range of losses because an average cost would not be meaningful since the product liability claims faced by the Company are unique and widely variable, and accordingly, the resolutions of those claims have an enormous amount of variability. The costs have ranged from zero dollars to $33 million in one case with no “average” that is meaningful. No specific accrual is made for individual unasserted claims or for premature claims, asserted claims where the minimum information needed to evaluate the probability of a liability is not yet known. However, an accrual for such claims based, in part, on management’s expectations for future litigation activity and the settled claims history is maintained. The Company periodically reviews such estimates and any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs. Because of the speculative nature of litigation in the U.S., the Company does not believe a meaningful aggregate range of potential loss for asserted and unasserted claims can be determined. While the Company believes its reserves are reasonably stated, it is possible an individual claim from time to time may result in an aberration from the norm and could have a material impact.

The product liability expense reported by the Company includes amortization of insurance premium costs, adjustments to settlement reserves and legal costs incurred in defending claims against the Company. Legal costs are expensed as incurred and product liability insurance premiums are amortized over coverage periods.

Advertising expense – Expenses incurred for advertising include production and media and are generally expensed when incurred. Costs associated with dealer-earned cooperative advertising are recorded as a reduction of the revenue component of Net sales at the time of sale. Advertising expense for 2019, 2018 and 2017 was $58,453, $54,177 and $52,798, respectively.

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Stock-based compensation – The Company’s incentive compensation plans allow the Company to grant awards to employees in the form of stock options, stock awards, restricted stock units, stock appreciation rights, performance stock units, dividend equivalents and other awards. Compensation related to these awards is determined based on the fair value on the date of grant and is amortized to expense over the vesting period. If awards can be settled in cash, these awards are recorded as liabilities and marked to market. See Note 14 – Stock-Based Compensation for additional information.

Warranties – Warranties are provided on the sale of certain of the Company’s products and an accrual for estimated future claims is recorded at the time revenue is recognized. Tire replacement under most of the warranties the Company offers is on a prorated basis. The Company provides for the estimated cost of product warranties based primarily on historical return rates, estimates of the eligible tire population and the value of tires to be replaced. The following table summarizes the activity in the Company’s product warranty liabilities, which are recorded in Accrued liabilities and Other long-term liabilities on the Company’s Condensed Consolidated Balance Sheets:



	2019		2018		2017
Reserve at beginning of year	12,431		12,093		10,634
Additions	11,609		13,187		10,310
Payments	(11,306	)	(12,849	)	(8,851	)
Reserve at December 31	12,734		12,431		12,093

Use of estimates – The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of: (1) revenues and expenses during the reporting period; and (2) assets and liabilities, as well as disclosure of contingent assets and liabilities, at the date of the consolidated financial statements. Actual results could differ from those estimates.

Revenue recognition – In accordance with ASC 606 and ASU 2014-09, effective January 1, 2018, revenues are recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. Shipping and handling costs are recorded in cost of products sold. Allowance programs such as volume rebates and cash discounts are recorded at the time of sale as a reduction to revenue based on anticipated accrual rates for the year.

Research and development – Costs are charged to Cost of products sold as incurred and amounted to approximately $69,928, $64,007 and $59,869 during 2019, 2018 and 2017, respectively.

Related Party Transactions – The Company’s COOCSA joint venture paid $26,589, $28,023 and $40,279 in 2019, 2018 and 2017, respectively, to an employment services company in Mexico owned by members of the joint venture workforce. COOCSA also recorded sales of $4,373, $4,713 and $8,209 to the noncontrolling shareholder in 2019, 2018 and 2017, respectively. The Company purchased $10,920 and $775 of TBR tires from Sailun Vietnam in 2019 and 2018, respectively, through an off-take agreement between the two parties.

Pensions and Postretirement Benefits Other than Pensions - The Company provides certain pension and postretirement benefits other than pensions to employees and retired employees, including pensions, postretirement health care benefits, other postretirement benefits, and supplemental pensions. In general, the Company's policy is to fund its pension benefit obligation based on legal requirements, tax and liquidity considerations and local practices. The Company does not fund its postretirement benefit obligation.

Plan assets and obligations are measured using various actuarial assumptions, such as discount rates, rate of compensation increase, mortality rates, turnover rates and health care cost trend rates, which are determined as of the current year measurement date. The measurement of net periodic benefit cost is based on various actuarial assumptions, including discount rates, expected return on plan assets and rate of compensation increase, which are determined as of the prior year measurement date. The Company reviews its actuarial assumptions on an annual basis and modifies these assumptions when appropriate. As required by GAAP, the effects of the modifications are recorded currently or are amortized over future periods.

Tariffs - The Company is subject to tariffs on the import of tires, raw materials and tire-manufacturing equipment in certain of the jurisdictions in which it operates. Tariff costs are included within inventory as they pertain to tires and raw materials, while tariffs on tire-manufacturing equipment are included as part of the cost of fixed assets. Material components of the Company's tariff costs include:

•

Passenger Car and Light Truck Tire Tariffs - Antidumping and countervailing duty investigations into certain passenger car and light truck tires imported from the PRC into the United States were initiated on July 14, 2014. The determinations announced in both investigations were affirmative and resulted in the imposition of significant additional duties from each. The rates are subject to review annually and a material change in the new rates could have a significant impact on the Company's results.

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•

Truck and Bus Tire Tariffs – Antidumping and countervailing duty investigations into certain TBR tires imported from the PRC into the U.S. were initiated on January 29, 2016. On February 22, 2017, the ITC made a final determination that the U.S. market had not suffered material injury because of imports of TBR tires from the PRC. However, on November 1, 2018, the CIT remanded the case back to the ITC for reconsideration. On January 30, 2019, the ITC reversed its earlier decision and made an affirmative determination of material injury. On February 15, 2019, the determination was published in the Federal Register and countervailing duties of 42.16 percent were imposed on the Company's TBR tire imports into the U.S. from China. The ITC’s re-determination, along with comments from the parties regarding the re-determination, were filed with the CIT. The CIT will make a final determination. Since the publication of the determination in the Federal Register, the Company incurred duties of $33,507 for the year ended December 31, 2019. This was recorded as a component of Cost of products sold in the Consolidated Statements of Income.

•

Section 301 Tariffs - Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, passenger, light truck and truck and bus tires, raw materials and tire-manufacturing equipment from the PRC imported into the U.S. became subject to additional 10 percent duties effective September 24, 2018. These tariffs increased to 25 percent effective May 10, 2019. The Company has incurred duties of $19,053 and $6,431 for the years ended December 31, 2019 and 2018, respectively, related to these Section 301 tariffs. These amounts were recorded as a component of Cost of products sold in the Consolidated Statements of Income.

•

Duty Drawbacks - The enactment of the Modernized Drawback Final Rule under the TFTEA in December 2018 expanded the Company's ability to recover Section 301 and Ad Valorem duties paid on goods imported into the US when such goods, or similar items, are subsequently exported. Under the rule, recovery of duties is allowable for up to five years subsequent to the incurrence of the duty. In 2019, the Company recovered $20,091 of duties, $11,346 related to duties paid in prior years. These amounts were recorded as a component of Cost of products sold in the Consolidated Statements of Income.

North American Distribution Center – On January 22, 2017, a tornado hit the Company’s leased Albany, Georgia distribution center, causing damage to the Company's assets and disrupting certain operations. Insurance, less applicable deductibles, covered the repair or replacement of the Company's assets that suffered loss or damage, and the Company worked closely with its insurance carriers and claims adjusters to ascertain the full amount of insurance proceeds due to the Company as a result of the damages and the loss the Company suffered. The Company's insurance policies also provided coverage for interruption to its business, including lost profits, and reimbursement for other expenses and costs that were incurred relating to the damages and losses suffered. For the year ended December 31, 2017, the Company incurred direct expenses of $12,583, less proceeds of $7,000 recovered from insurance. For the year ended December 31, 2018, the Company recorded insurance recoveries of $7,300, less direct costs of $1,569. These amounts were recorded as a component of Cost of products sold in the Consolidated Statements of Income for the respective periods. The Company's insurance claim related to the tornado was closed in the year ended December 31, 2018, with no subsequent direct expenses or insurance recoveries.

Recent Accounting Pronouncements

Each change to U.S. GAAP is established by the Financial Accounting Standards Board (“FASB”) in the form of an accounting standards update (“ASU”) to the FASB’s Accounting Standards Codification (“ASC”).

The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial statements.

Accounting Pronouncements – Recently adopted

SEC Disclosure Regulation Simplifications

During the fourth quarter of 2018, the U.S. Securities and Exchange Commission (“SEC”) published Final Rule Release No. 33-10532, "Disclosure Update and Simplification." This standard, effective for quarterly and annual reports submitted after November 5, 2018, streamlines disclosure requirements by removing certain redundant topics. For the Company, the most notable simplification implemented in 2019 was the expansion of the shareholders' equity reconciliation to display quarter-to-quarter details beginning in the first quarter of 2019. The changes to the SEC rules impacted the presentation of the Company's filings, but did not materially impact the Company's consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires balance sheet recognition of lease liabilities and right-of-use assets for most leases having terms of twelve months or longer. The Company adopted the standard on the required effective date of January 1, 2019 using the transition option, “Comparatives Under 840 Option,” established by ASU 2018-11,

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Leases (Topic 842), Targeted Improvements (ASU 2018-11). The FASB issued multiple amendments to the standard which provided clarification, additional guidance, practical expedients and other improvements to ASU 2016-02. The new guidance requires recognition of lease assets and liabilities for operating leases with terms of more than 12 months, in addition to those currently recorded, on the Company's Consolidated Balance Sheets. See Note 11 for additional details.

Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The Company adopted this standard effective January 1, 2019. The adoption of this standard did not materially impact the Company's consolidated financial statements.

Additionally, in October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815)." The Federal Reserve and Alternative Reference Rates Committee expressed the importance of including the Overnight Index Swap ("OIS") rate based on the Secured Overnight Financing Rate ("SOFR") as a benchmark rate for hedge accounting purposes in facilitating broader use of the underlying SOFR rate in the marketplace to facilitate the market's move away from the London Interbank Offered Rate ("LIBOR"). This update, effective on January 1, 2019, provides the option to use the OIS rate based on SOFR as a benchmark for hedge accounting. The Company does not currently hold any SOFR-based instruments, but will continue to evaluate its use as the markets transition away from LIBOR.

Related Parties

In October 2018, the FASB issued ASU 2018-17 "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for VIEs." When determining if fees paid to decision makers and service providers are variable interests, entities must now also consider indirect interests of those decision makers and service providers held through related parties under common control. This standard is effective January 1, 2020, with early adoption permitted. The Company has incorporated this consideration into the related party procedures conducted as part of this annual report. No indirect interests of decision makers or service providers held through related parties under common control were identified. The adoption of this standard did not materially impact the Company's consolidated financial statements.

Accounting Pronouncements – To be adopted

Credit Losses

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit losses (CECL) methodology. The FASB issued subsequent amendments to the initial guidance in November 2018, April 2019 and May 2019 with ASU 2018-19, ASU 2019-04 and ASU 2019-05, respectively. Trade receivables (including the allowance for doubtful accounts) is the only financial instrument in scope for ASU 2016-13 currently held by the Company. Implementation is anticipated to include an update to the Company's allowance for doubtful accounts methodology from one based on accounts receivable aging to one based on sales stratified by customer credit score. Disclosures will be updated accordingly. The Company expects minimal, if any, impact on the consolidated financial statements as implementation analyses show materially equivalent results between the two methods. This standard is effective for interim and annual reporting periods beginning after December 15, 2019 with a modified retrospective approach. The Company plans to adopt the standard effective January 1, 2020.

Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)," which removes, modifies and adds various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. For example, disclosures around transfers between fair value hierarchy levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs determining level 3 fair value measurements will be added. This standard is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements and plans to adopt the standard effective January 1, 2020.

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Defined Benefit Plans

In August 2018, the FASB issued ASU 2018-14, "Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20)," which removes, modifies and adds various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. For example, disclosures around the effect of a one-percentage-point change in assumed health care costs will be removed and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period will be added. This standard is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. These amendments must be applied on a retrospective basis for all periods presented. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.

Internal-Use Software

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)," which aligns the requirements for capitalizing implementation costs incurred in a service contract hosting arrangement with those of developing or obtaining internal-use software. This standard is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements and plans to adopt the standard effective January 1, 2020.


Note 2.	Restructuring

On January 17, 2019, Cooper Tire Europe, a wholly owned subsidiary of the Company, committed to a plan to cease light vehicle tire production at its Melksham, U.K. facility, which is included in the International Segment. The phasing out of light vehicle tire production was substantially completed in the third quarter of 2019. Approximately 300 roles were eliminated at the site. Cooper Tire Europe now obtains light vehicle tires to meet customer needs from other production sites within the Company’s global production network. Approximately 400 roles remain in Melksham to support the functions that continue there, including motorsports and motorcycle tire production, a materials business, Cooper Tire Europe headquarters, sales and marketing, and the Europe Technical Center. Costs related to the decision to cease light vehicle tire production at the Melksham, U.K. facility were $8,315 in 2019. In connection with this business realignment, a one-time payment from the U.S. to Serbia was made during the fourth quarter of 2019 in order to allow the Serbian operations to improve their financial standing and serve as a reliable and fully operational contract manufacturer for the U.S.

In the fourth quarter of 2019, the Company's Asian operations, included in the International Segment, completed a headcount optimization review. As a result of this optimization, the Company incurred $1,262 of restructuring expense during 2019.

For the year ended December 31, 2019, the Company recorded restructuring expense of $8,818, made up of employee severance, asset write-downs and other costs. At December 31, 2019, the Company's accrued restructuring balance is 1,398, composed primarily of severance costs related to the Asian operations.



	Twelve Months Ended December 31, 2019
Melksham employee severance costs	$	5,308
Asset write-downs & other costs	2,248
Asian operations employee severance costs	1,262
Total restructuring expense	$	8,818

Beginning balance of accrued restructuring	$	—
Accrued severance costs	6,630
Payment of severance costs	(5,368		)
Accrued professional fees	819
Payment of professional fees	(683		)
Ending balance of total accrued restructuring	$	1,398

In addition to the costs classified as restructuring expense on the Consolidated Statement of Income, the Company incurred additional costs of $759 in 2019 as a result of Cooper Tire Europe's decision to cease light vehicle tire production at it's Melksham facility. These additional costs relate to professional fees associated with the Company's evaluation of its legal entity structure moving forward, as well as other matters, and are included within selling, general and administrative expense on the Consolidated Statement of Income.

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Note 3.	Revenue from Contracts with Customers

Accounting policy

On January 1, 2018, the Company adopted the new U.S. GAAP revenue standard using the modified retrospective transition method applied to contracts which were not completed as of January 1, 2018. Results from reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported under previous revenue recognition guidance. The new revenue standard requires revenue to be recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services.

In accordance with the new revenue standard, revenue is measured based on the consideration specified in a contract with a customer and excludes any sales incentives or rebates. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. This occurs with shipment or delivery, depending on the underlying terms with the customer. The transaction price will include estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. At the time of sale, the Company estimates provisions for different forms of variable consideration (discounts and rebates) based on historical experience, current conditions and contractual obligations, as applicable. Payment terms with customers vary by region and customer, but are generally 30-90 days. The Company does not have significant financing components or significant payment terms. Incidental items that are immaterial in the context of the contract are expensed as incurred.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and not as a separate performance obligation. Therefore, such items are accrued upon recognition of revenue.

Nature of goods and services

The following is a description of principal activities, separated by reportable segments, from which the Company generates its revenue. See Note 18 - Business Segments for additional details on the Company's reportable segments.

The Company’s reportable segments have the following revenue characteristics:


•	Americas Tire Operations - The Americas Tire Operations segment manufactures and markets passenger car and light truck tires. The segment also markets and distributes racing, motorcycle and TBR tires.


•	International Tire Operations - The International Tire Operations segment manufactures and markets passenger car, light truck, motorcycle, racing and TBR tires and tire retread material for global markets.

Disaggregation of revenue

In the following tables, revenue is disaggregated by major market channel for the twelve months ended December 31, 2019 and 2018, respectively:



	Twelve Months Ended December 31, 2019
	Americas		International		Eliminations			Total
Light Vehicle ⁽¹⁾	$	2,096,864	$	403,524	$	(68,658	)	$	2,431,730
Truck and bus radial	200,088		80,797		(66,432		)	214,453
Other ⁽²⁾	56,774		49,682		—			106,456
Net sales	$	2,353,726	$	534,003	$	(135,090	)	$	2,752,639



	Twelve Months Ended December 31, 2018
	Americas		International		Eliminations			Total
Light Vehicle ⁽¹⁾	$	2,115,942	$	481,499	$	(109,400	)	$	2,488,041
Truck and bus radial	$	194,558	$	101,744	$	(86,160	)	210,142
Other ⁽²⁾	$	52,146	$	57,733	$	—		109,879
Net sales	$	2,362,646	$	640,976	$	(195,560	)	$	2,808,062


⁽¹⁾	Light vehicle includes passenger car and light truck tires


⁽²⁾	Other includes motorcycle and racing tires, wheels, tire retread material, and other items

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Contract balances

Contract liabilities relate to customer payments received in advance of shipment. As the Company does not generally have rights to consideration for work completed but not billed at the reporting date, the Company does not have any contract assets. Accounts receivable are not considered contract assets under the new revenue standard as contract assets are conditioned upon the Company's future satisfaction of a performance obligation. Accounts receivable, in contrast, are unconditional rights to consideration.

Significant changes in the contract liabilities balance during the twelve months ended December 31, 2019 are as follows:



	Contract Liabilities
Contract liabilities at beginning of year	$	947
Increases to deferred revenue for cash received in advance from customers	16,297
Decreases due to recognition of deferred revenue	(16,164		)
Contract liabilities at December 31, 2019	$	1,080

Transaction price allocated to remaining performance obligations

For the twelve months ended December 31, 2019 and 2018, respectively, revenue recognized from performance obligations related to prior periods was not material.

Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, is not material.

The Company applies the practical expedient in ASC 606 "Revenue from Contracts with Customers" and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

Changes in accounting policies

The Company adopted ASC 606 with a date of initial application of January 1, 2018. As a result, the guidance has been applied to all contracts at the date of initial application. There were no significant changes to the Company's accounting for revenue following the adoption of the new revenue standard.

Impacts on financial statements

Aside from the enhanced disclosures, adoption of the new revenue standard had no impact on the Company's consolidated financial statements.


Note 4.	Inventories

Inventory costs are determined using the LIFO method for substantially all U.S. inventories. The current cost of the U.S. inventories under the FIFO method was $365,585 and $380,990 at December 31, 2019 and December 31, 2018, respectively. These FIFO values have been reduced by approximately $87,616 and $85,068 at December 31, 2019 and December 31, 2018, respectively, to arrive at the LIFO value reported on the Consolidated Balance Sheets. The remaining inventories have been valued under the FIFO method. All LIFO inventories are valued at the lower of cost or market. All other inventories are stated at the lower of cost or net realizable value.

Note 5. Goodwill and Intangibles

Goodwill is recorded in the segment where it was generated by acquisitions. In 2011, the Company recorded $18,851 of goodwill related to the acquisition of additional ownership of COOCSA in the Americas Tire Operations segment and, in 2016, the Company recorded goodwill in the amount of $33,250 related to the acquisition of GRT in the International Tire Operations segment. Goodwill prior to 2011 was zero.

Purchased goodwill and indefinite-lived intangible assets are tested annually for impairment, unless indicators are present that would require an earlier test. On December 12, 2018, Cooper Vietnam and Sailun Vietnam entered into an equity joint venture contract to establish a joint venture in Vietnam which will produce and sell TBR tires. The new joint venture is expected to begin commercially producing tires in 2020. The capacity created by this planned facility will decrease expected production requirements for Cooper's GRT joint venture. The Company included the expected impact of the new Vietnam joint venture on

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projected future cash flows in performing its annual goodwill impairment assessment on GRT in 2018. Based on the assessment performed, the goodwill balance was deemed to be fully impaired and resulted in a non-cash fourth quarter 2018 impairment charge of $33,827 recorded in the Consolidated Statement of Income. The fair value of GRT utilized in the goodwill impairment assessment was determined based upon internal and external inputs considering various market transactions and discounted cash flow valuation methods, among other factors. This valuation approach represented a Level 3 fair value measurement measured on a non-recurring basis in the fair value hierarchy due to the Company's use of Company-specific inputs and unobservable measurement inputs.

During the fourth quarter of 2019, the Company completed its annual goodwill and intangible asset impairment tests and no impairment was indicated for the goodwill related to the 2011 acquisition of additional ownership of COOCSA or the Company's other indefinite-lived intangible assets.

The following table presents intangible assets and accumulated amortization balances as of December 31, 2019 and 2018:



	December 31, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived:
Capitalized software costs	$	205,929	$	(115,090	)	$	90,839	$	197,338	$	(97,972	)	$	99,366
Land use rights	14,145		(3,545		)	10,600		14,526		(3,860		)	10,666
Trademarks and tradenames	3,800		(3,800		)	—		8,000		(7,823		)	177
Other	1,400		(1,300		)	100		3,261		(2,966		)	295
	225,274		(123,735		)	101,539		223,125		(112,621		)	110,504
Indefinite-lived:
Trademarks	9,817		—			9,817		9,817		—			9,817
	$	235,091	$	(123,735	)	$	111,356	$	232,942	$	(112,621	)	$	120,321

Estimated amortization expense over the next five years is as follows: 2020 - $19,274, 2021 - $18,723, 2022 - $16,935, 2023 - $15,866 and 2024 - $14,378.

Note 6. Accrued Liabilities

Accrued liabilities at December 31 were as follows:



	2019		2018
Volume and customer rebate programs	$	99,168	$	115,623
Payroll and employee benefits, excluding postemployment benefits	75,218		63,557
Operating lease liability, current	27,663		—
Product liability	25,366		30,550
Other postretirement benefits	14,334		15,344
Advertising	13,281		16,036
Taxes other than income taxes	12,505		13,571
Warranty	8,041		8,273
Other	26,901		19,696
Accrued liabilities	$	302,477	$	282,650


Note 7.	Income Taxes

Components of income (loss) from continuing operations before income taxes and noncontrolling shareholders’ interests were as follows:



	2019			2018		2017
United States	$	(4,720	)	$	108,838	$	211,225
Foreign	114,392			5,220		32,700
Total	$	109,672		$	114,058	$	243,925

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The provision (benefit) for income tax for continuing operations consisted of the following:



	2019			2018			2017
Current:
Federal	$	2,659		$	56		$	69,463
State and local	5,386			5,350			6,304
Foreign	9,733			7,214			9,842
	17,778			12,620			85,609
Deferred:
Federal	1,356			18,293			48,866
State and local	(4,027		)	3,266			4,915
Foreign	(3,752		)	(684		)	7,790
	(6,423		)	20,875			61,571
	$	11,355		$	33,495		$	147,180

On December 22, 2017, the U.S. enacted comprehensive tax legislation ("Tax Act"), which made broad and complex changes to the tax code. In conjunction with guidance set forth under SAB 118 pertaining to the Tax Act, the Company recorded provisional amounts both for the impact of remeasurement on its U.S. deferred tax assets to the new U.S. statutory rate of 21 percent and for the mandatory Transition Tax on unrepatriated foreign earnings. During the year ended December 31, 2018, the Company concluded its accounting under the Tax Act and updated its SAB 118 provisional estimates with respect to remeasurement of U.S. deferred tax assets and the Transition Tax on unrepatriated foreign earnings and recorded a tax benefit of $3,576 and tax expense of $5,026, respectively. During the year ended December 31, 2019, final Transition Tax regulations were issued resulting in the Company recording an additional Transition Tax liability of $1,661. The Company's outstanding Transition Tax payable as a result of the enactment of the Tax Act, subsequent SAB 118 revisions, and adjustments related to the final regulations was $20,434 and $18,773 at December 31, 2019 and 2018, respectively.

The Tax Act also subjects a U.S. parent shareholder to current tax on its global intangible low-taxed income ("GILTI"). At December 31, 2017, a provisional estimate under SAB 118 could not be made and the Company had not yet elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as a period cost when incurred. For the year ended December 31, 2018, the Company determined that its accounting policy is to record GILTI as a period cost only in the period it is incurred. For the years ended December 31, 2019 and 2018, the Company recognized additional tax expense associated with GILTI, exclusive of GILTI foreign tax credits, which is reflected in the rate reconciliation below.

Prior to enactment of the Tax Act, the Company did not recognize a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes on unremitted foreign earnings because it overcame the presumption of the repatriation of those earnings. Upon enactment of the Tax Act, the Transition Tax was recorded based on approximately $495 million of unremitted foreign earnings. During 2018 and 2019, the Company re-evaluated its position on potential earnings repatriation and has concluded that repatriation implications of the Tax Act had no impact on its indefinite reinvestment assertion. As such, no change has been made with respect to the Company's indefinite reinvestment assertion for the year ended December 31, 2019 and foreign income, foreign withholding, and state income tax liabilities have not been recorded on approximately $727 million of undistributed foreign earnings. Determination of the amount of any deferred income or withholding tax liability on these earnings is not practicable because of the complexities of the hypothetical calculation.

During the year ended December 31, 2019, the Company's rate was primarily driven by a change in the mix of earnings between the U.S. and non-U.S. jurisdictions compared to 2018 and 2017. The change in the mix of earnings resulted from a business realignment strategy executed during 2019, as further described in Note 2, to improve the Company's market share for its European light vehicle tire business. The resulting tax effects are reflected as the difference in effective tax rates of international operations in the rate reconciliation below.

The Company's Serbian operations are benefiting from a ten-year tax holiday that is based largely on historical investments in property, plant, and equipment which has the impact of reducing the effective tax rate in Serbia to approximately 1.5%. The Company utilized remaining loss carryforwards during 2019 and recognized a tax holiday benefit of $15,030 inclusive of the impact of the business realignment strategy. The tax holiday will expire in 2026.

A reconciliation of income tax expense (benefit) for continuing operations to the tax based on the U.S. statutory rate is as follows:

-18-



	2019			2018			2017
Income tax provision at 35 percent	$	—		$	—		$	85,375
Income tax provision at 21 percent	23,031			23,952			—
Difference in effective tax rates of international operations	(21,399		)	(1,124		)	(4,667		)
State and local income tax, net of federal income tax effect	(2,366		)	2,983			7,867
Net U.S. GILTI inclusion	8,419			1,455			—
Valuation allowance	6,306			(2,433		)	11,593
Income tax contingencies, net of federal income tax effect	4,246			1,263			(551		)
Domestic manufacturing deduction	—			—			(2,940		)
U.S. tax credits	(6,292		)	(4,401		)	(2,474		)
Goodwill impairment	—			8,432			—
Mexico inflationary deferred tax adjustments	(1,790		)	259			(1,383		)
U.S. tax reform - transition tax	1,661			5,026			35,378
U.S. tax reform - remeasurement of deferred taxes	—			(3,576		)	20,413
Other - net	(461		)	1,659			(1,431		)
Provision for income taxes	$	11,355		$	33,495		$	147,180

Payments for income taxes in 2019, 2018 and 2017, net of refunds, were $10,244, $19,763 and $67,782, respectively.

Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial reporting purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31 were as follows:



	2019			2018
Deferred tax assets:
Postretirement and other employee benefits	$	94,581		$	97,269
Product liability	30,791			27,922
Net operating loss, capital loss, and tax credit carryforwards	14,291			11,064
All other items	37,296			29,375
Total deferred tax assets	176,959			165,630
Deferred tax liabilities:
Property, plant and equipment	(117,148		)	(108,668		)
All other items	(6,141		)	(6,196		)
Total deferred tax liabilities	(123,289		)	(114,864		)
	53,670			50,766
Valuation allowances	(27,270		)	(22,620		)
Net deferred tax asset	$	26,400		$	28,146

At December 31, 2019, the Company has gross U.S. federal and foreign tax losses available for carryforward of $6,560 and $76,748, respectively. U.S. federal and foreign tax attributes will expire from 2020 through 2026. For these jurisdictions, valuation allowances have been recorded against those attributes for which, based upon an assessment, it is more likely than not that some portion may not be realized.

The Company considers, on a quarterly basis, all available positive and negative evidence in assessing whether it is more likely than not that some portion or all of its deferred tax assets are realizable. The Company considers the historical and projected financial results of the tax paying component recording the deferred tax asset as well as all other positive and negative evidence including cumulative losses in recent years, a history of potential tax benefits expiring unused and whether a period of sustainable earnings has been demonstrated. During the year ended December 31, 2019, the Company has assessed all available positive and negative evidence and, based on the weight of significant negative evidence, including cumulative losses, the Company has maintained valuation allowances totaling $27,270 against deferred tax assets primarily in China and the U.K.

The Company applies the rules under ASC 740-10 in its Accounting for Uncertainty in Income Taxes for uncertain tax positions using a “more likely than not” recognition threshold. Pursuant to these rules, the Company will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not”

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threshold, the measurement of the tax benefit will be based on the Company’s estimate of the largest amount that meets the more likely than not recognition threshold. The Company’s unrecognized tax benefits, exclusive of interest, totaled approximately $9,934 at December 31, 2019, as itemized in the tabular roll forward below. The unrecognized tax benefits at December 31, 2019 relate to uncertain tax positions in tax years 2012 through 2017. Based upon the outcome of tax examinations, judicial proceedings, or expiration of statutes of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities.



	Unrecognized Tax Benefits
Balance at December 31, 2016	$	3,197
Settlements for tax positions of prior years	(139		)
Additions for tax positions of current year	47
Additions for tax positions of prior years	438
Statute lapses	(1,260		)
Balance at December 31, 2017	2,283
Settlements for tax positions of prior years	(364		)
Additions for tax positions of the current year	2,555
Additions for tax positions of prior years	2,881
Statute lapses	(830		)
Balance at December 31, 2018	6,525
Settlements for tax positions of prior years	(1,567		)
Additions for tax positions of the prior year	5,644
Statute lapses	(668		)
Balance at December 31, 2019	$	9,934

Of this amount, the effective rate would change upon the recognition of approximately $8,468 of these unrecognized tax benefits, net of federal income tax effect. The Company recorded, through the tax provision, approximately $1,262 of net interest expense for 2019, and immaterial amounts of benefit on interest reductions for 2018 and 2017. At December 31, 2019, the Company has $1,353 of interest accrued as an ASC 740-10 reserve.

The Company operates in multiple jurisdictions throughout the world. The Company has effectively settled U.S. federal tax examinations for tax years before 2016 and state and local examinations for tax years before 2014, with limited exceptions. Furthermore, the Company’s non-U.S. subsidiaries are generally no longer subject to income tax examinations in major foreign taxing jurisdictions for tax years prior to 2014. Income tax returns of certain of our subsidiaries in various jurisdictions are currently under examination and it is possible that these examinations could conclude within the next twelve months; however, the Company does not anticipate any significant increases or decreases in its total amount of unrecognized tax benefits within that period.


Note 8.	Debt

On February 15, 2018, the Company amended its revolving credit facility ("Credit Facility") with a consortium of banks that provided up to $400,000 based on available collateral, including an $110,000 letter of credit subfacility, set to expire in February 2023. As of June 27, 2019, the Company amended this Credit Facility with a consortium of several banks that provides up to $700,000 and is set to expire in June 2024. Of this amended borrowing capacity, $200,000 was allocated to a Delayed Draw Term Loan A ("Term Loan A"), which was drawn in December 2019, while the remaining $500,000 was allocated to the Credit Facility to provide working capital and funds for general corporate purposes. The Term Loan A funds were used primarily to pay for the unsecured notes which matured at that time. The Credit Facility still includes the $110,000 letter of credit sub-facility. The Company may elect, with lender consent, to increase the commitments under the Credit Facility or incur one or more tranches of term loans in an aggregate amount of up to $300,000 (or an unlimited increase if the Proforma Net Secured Leverage Ratio is less than 1.75x). Debt issuance costs related to the Credit Facility amendment totaled $1,507 while those related to the Term Loan A totaled $700, for a combined $2,207 in debt issuance costs. These costs, along with the remaining debt issuance costs from the February 2018 credit facility amendment, will be amortized over the life of the underlying debt instruments and are included in the Other assets classification in the Consolidated Balance Sheets. The Company may elect to add certain foreign subsidiaries as additional borrowers under the Credit Facility, subject to the satisfaction of certain conditions.

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On July 11, 2019, the Company entered into forward-starting interest rate swaps to effectively hedge the cash flow exposure associated with the Company's forthcoming Term Loan A variable-rate borrowings. See Note 9 Fair Value Measurement for further information.

The Company's accounts receivable securitization facility provides up to $150,000 based on available collateral and expires in February 2021. Pursuant to the terms of the facility, the Company is permitted to sell certain of its domestic trade receivables on a continuous basis to its wholly-owned, bankruptcy-remote subsidiary, Cooper Receivables LLC (“CRLLC”). In turn, CRLLC may sell from time to time an undivided ownership interest in the purchased trade receivables, without recourse, to a PNC Bank administered, asset-backed commercial paper conduit. The accounts receivable securitization facility has no significant financial covenants until available credit is less than specified amounts.

The Company had no borrowings under the revolving credit facility or the accounts receivable securitization facility at December 31, 2019 or December 31, 2018, other than amounts used to secure letters of credit. Amounts used to secure letters of credit totaled $21,651 at December 31, 2019 and $16,800 at December 31, 2018. The Company’s additional borrowing capacity, net of borrowings and amounts used to back letters of credit, and based on eligible collateral through use of its credit facility with its bank group and its accounts receivable securitization facility at December 31, 2019, was $601,649.

The Company’s consolidated operations in Asia have renewable unsecured credit lines that provide up to $46,426 of borrowings and do not contain financial covenants. The additional borrowing capacity on the Asian credit lines, based on eligible collateral and the short-term notes payable, totaled $34,130 at December 31, 2019.

In 2010 and 2017, Industrial Revenue Bonds (IRBs) were issued by the City of Texarkana to finance the design, equipping and construction of expansions, as well as the on-going operations of the Texarkana manufacturing facility, in return for real estate and equipment located at the Company’s Texarkana tire manufacturing plant. The assets related to the expansion and on-going plant operations provide security for the bonds issued by the City of Texarkana. As a result, the City retains title to the assets and, in turn, provides a 100 percent property tax exemption to the Company. However, the Company has recorded the property in its Consolidated Balance Sheets, along with a capital lease obligation to repay the proceeds of the IRBs, because the arrangements are cancelable at any time at the Company’s request. The Company has also purchased the IRBs and therefore is the bondholder, as well as the borrower/lessee of the property purchased with the IRB proceeds. The capital lease obligations and IRB assets are recorded net in the Consolidated Balance Sheets. At December 31, 2019 and 2018, the assets and liabilities associated with these City of Texarkana IRBs were $72,080 and $35,000, respectively.

The following table summarizes the long-term debt and finance leases of the Company at December 31, 2019 and December 31, 2018.



	December 31, 2019		December 31, 2018
Parent company
3.3% Term Loan A due June 2024	$	197,500	$	—
8% Unsecured Notes due December 2019	—		173,578
7.625% Unsecured Notes due March 2027	116,880		116,880
Finance leases and other	6,263		6,245
	320,643		296,703
Less: unamortized debt issuance costs	1,230		659
	319,413		296,044
Less: current maturities	10,265		174,760
	$	309,148	$	121,284

Over the next five years, the Company has payments related to the above debt of:



	Future Debt Payments
2020	$	10,000
2021	17,563
2022	15,000
2023	17,500
2024	142,500

Interest paid on debt during 2019, 2018 and 2017 was $33,161, $34,070 and $34,085, respectively. The amount of interest capitalized was $2,233, $2,663 and $2,706 during 2019, 2018 and 2017, respectively.

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In addition, at December 31, 2019 and December 31, 2018, the Company had short-term notes payable of $12,296 and $15,288, respectively, due within twelve months, consisting of funds borrowed by the Company’s operations in the PRC. The weighted average interest rate of the short-term notes payable at December 31, 2019 and December 31, 2018 was 4.70 percent and 4.82 percent, respectively.


Note 9.	Fair Value Measurements

Derivative financial instruments are utilized by the Company to reduce foreign currency exchange risks. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into financial instruments for trading or speculative purposes. The derivative financial instruments include non-designated and cash flow hedges of foreign currency exposures. The change in values of the non-designated foreign currency hedges offset the exchange rate fluctuations related to assets and liabilities recorded on the Consolidated Balance Sheets. The cash flow hedges offset exchange rate fluctuations on the foreign currency-denominated intercompany loans and forecasted cash flows. The Company presently hedges exposures in various currencies generally for transactions expected to occur within the next 12 months. Additionally, the Company utilizes cash flow hedges that hedge already recognized intercompany loans with maturities of up to two years. The notional amount of these foreign currency derivative instruments at December 31, 2019 and December 31, 2018 was $167,915 and $129,542, respectively. The counterparties to each of these agreements are major commercial banks.

The Company uses non-designated foreign currency forward contracts to hedge its net foreign currency monetary assets and liabilities primarily resulting from non-functional currency denominated receivables and payables of certain U.S. and foreign entities.

Foreign currency forward contracts are also used to hedge variable cash flows associated with forecasted sales and purchases denominated in currencies that are not the functional currency of certain entities. The forward contracts have maturities of less than twelve months pursuant to the Company’s policies and hedging practices. These forward contracts meet the criteria for and have been designated as cash flow hedges. Accordingly, the effective portion of the change in fair value of such forward contracts ($(1,033) and $2,216 as of December 31, 2019 and December 31, 2018, respectively) are recorded as a separate component of stockholders’ equity in the accompanying Consolidated Balance Sheets and reclassified into earnings as the hedged transactions occur.

The Company utilizes cross-currency interest rate swaps to hedge the principal and interest repayment of some intercompany loans. The Company also utilizes designated foreign currency forward contracts to hedge the principal amounts of certain intercompany loans. The fair value of these contracts is $(994) and $(1,503) at December 31, 2019 and December 31, 2018, respectively. These contracts have maturities of up to two years and meet the criteria for and have been designated as cash flow hedges. Spot to spot changes are recorded in income and all other effective changes are recorded as a separate component of stockholders' equity.

On July 11, 2019, in order to hedge its upcoming Term Loan A variable rate debt, with an interest rate indexed to LIBOR plus 150 basis points, the Company entered into forward-starting interest rate swaps with effective dates of December 2, 2019 and termination dates of June 27, 2024. The initial notional amount of these swaps is $200,000 and decreases quarterly by varying amounts over the life of the swaps, in accordance with the Term Loan A repayment schedule. The net quarterly payments made as of December 31, 2019 were immaterial. The interest rate swaps effectively fix the variable interest rate component on the notional amount of these swaps at 1.720%. The swaps qualify for hedge accounting and, therefore, changes in the fair value of the swaps have been recorded in accumulated other comprehensive income in the amount of $(1,032) at December 31, 2019.

The Company assesses hedge effectiveness prospectively and retrospectively, based on regression of the change in foreign currency exchange rates. Time value of money is included in effectiveness testing.

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The derivative instruments are subject to master netting arrangements with the counterparties to the contracts. The following table presents the location and amounts of derivative instrument fair values in the Consolidated Balance Sheets:



Assets/(liabilities)	December 31, 2019			December 31, 2018
Designated as hedging instruments:
Gross amounts recognized	$	(3,208	)	$	(1,524	)
Gross amounts offset	149			2,237
Net amounts	(3,059		)	713
Not designated as hedging instruments:
Gross amounts recognized	$	(1,118	)	$	(544	)
Gross amounts offset	76			201
Net amounts	(1,042		)	(343		)
Net amounts presented:
Other current assets	$	(2,420	)	$	1,750
Other long-term liabilities	$	(1,681	)	$	(1,380	)

The following table presents the location and amount of gains and losses on derivative instruments designated as cash flow hedges in the Consolidated Statements of Income:




	Twelve Months Ended December 31,
	2019			2018			2017
Amount of (Loss) Gain Recognized in Other Comprehensive Income on Derivatives	$	(2,612	)	$	5,040		$	(6,092	)
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Net sales	$	988		$	1,453		$	(2,532	)
Interest expense	(123		)	(134		)	(69		)
Other non-operating expense	276			1,093			(1,018		)
	$	1,141		$	2,412		$	(3,619	)

The following table presents the location and amount of gains and losses on foreign exchange contract derivatives not designated as hedging instruments in the Consolidated Statements of Income.



	Twelve Months Ended December 31,
	2019			2018		2017
Other non-operating (expense) income	$	(2,674	)	$	602	$	(3,464	)

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within the different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded on the Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.

Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following.

a.Quoted prices for similar assets or liabilities in active markets;

b.Quoted prices for identical or similar assets or liabilities in non-active markets;

c.Pricing models whose inputs are observable for substantially the full term of the asset or liability; and


d.	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

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Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The valuation of foreign currency derivative instruments was determined using widely accepted valuation techniques. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including forward points. The Company incorporated credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as current credit ratings, to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2019 and December 31, 2018, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety were to be classified in Level 2 of the fair value hierarchy.

The valuation of stock-based liabilities was determined using the Company's stock price, and as a result, these liabilities are classified in Level 1 of the fair value hierarchy.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 and December 31, 2018:



	December 31, 2019
	Total Liabilities			Quoted Prices in Active Markets for Identical Assets Level (1)			Significant Other Observable Inputs Level (2)			Significant Unobservable Inputs Level (3)
Foreign Currency Derivative	$	(3,069	)	$	—		$	(3,069	)	$	—
Interest Rate Swaps	(1,032		)	—			(1,032		)	—
Stock-based Liabilities	(14,971		)	(14,971		)	—			—



	December 31, 2018
	Total Assets (Liabilities)			Quoted Prices in Active Markets for Identical Assets Level (1)			Significant Other Observable Inputs Level (2)		Significant Unobservable Inputs Level (3)


Foreign Currency Derivative	$	370		$	—		$	370	$	—
Stock-based Liabilities	(14,644		)	(14,644		)	—		—

The fair market value of Cash and cash equivalents, Notes receivable, restricted cash included in Other current assets, Notes payable and Current portion of long-term debt and finance leases at December 31, 2019 and December 31, 2018 are equal to their corresponding carrying values as reported on the Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018, respectively. Each of these classes of assets and liabilities is classified within Level 1 of the fair value hierarchy.

The fair market value of Long-term debt and finance leases is $292,719 and $137,343 at December 31, 2019 and December 31, 2018, respectively, and is classified within Level 1 of the fair value hierarchy. The carrying value of Long-term debt is $309,148 and $121,284 as reported on the Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018, respectively.


Note 10.	Pensions and Postretirement Benefits Other than Pensions

The Company has a number of plans providing pension and retirement benefits. These plans include defined benefit and defined contribution plans. The plans cover substantially all U.S. domestic employees. There are also plans that cover employees in the U.K. and Germany. The Company has an unfunded, nonqualified supplemental retirement benefit plan in the U.S. covering certain employees whose participation in the qualified plan is limited by provisions of the Internal Revenue Code.

For defined benefit plans, benefits are generally based on compensation and length of service for salaried employees and length of service for hourly employees. In the U.S., the Company froze the pension benefits in its Spectrum (salaried employees) Plan in 2009. In 2012, the Company closed the U.S. pension plans for the bargaining units to new participants. Certain grandfathered

-24-

participants in the bargaining unit plans continue to accrue pension benefits. Employees of certain of the Company’s foreign operations in the U.K. and Germany are covered by either contributory or non-contributory trusteed pension plans. In 2012, the Company froze the benefits in the U.K. pension plan.

Participation in the Company’s defined contribution plans is voluntary. The Company matches plan participants’ contributions up to various limits. Participants’ contributions are limited based on their compensation and, for certain supplemental contributions which are not eligible for Company matching, based on their age. Certain employees covered by collective bargaining units receive company contributions. Expense for the defined contribution plans was $13,370, $12,424 and $13,931 for 2019, 2018 and 2017, respectively.

The Company currently provides retiree health care and life insurance benefits to a portion of its U.S. salaried and hourly employees. U.S. salaried and non-bargained hourly employees hired on or after January 1, 2003 are not eligible for retiree health care or life insurance coverage. The Company has reserved the right to modify or terminate certain of these salaried benefits at any time.

The Company has implemented household caps on the amounts of retiree medical benefits it will provide to certain retirees in the U.S. The caps do not apply to individuals who retired prior to certain specified dates. Costs in excess of these caps will be paid by plan participants. The Company implemented increased cost sharing in 2004 in the retiree medical coverage provided to certain eligible current and future retirees. Since then, cost sharing has expanded such that nearly all covered retirees pay a charge to be enrolled.

In accordance with U.S. GAAP, the Company recognizes the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligation) of its pension and OPEB plans and the net unrecognized actuarial losses and unrecognized prior service costs in the consolidated balance sheets. The unrecognized actuarial losses and unrecognized prior service costs (components of Accumulated other comprehensive loss in the Equity section of the balance sheet) will be subsequently recognized as net periodic benefit costs pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit costs in the same periods will be recognized as a component of other comprehensive income.

-25-

The following table reflects changes in the projected obligations and fair market values of assets in all defined benefit pension and other postretirement benefit plans of the Company:



	2019 Pension Benefits									2018 Pension Benefits									Other Postretirement Benefits
	Domestic			International			Total			Domestic			International			Total			2019			2018
Change in benefit obligation:
Projected Benefit Obligation at beginning of year	$	1,004,751		$	404,629		$	1,409,380		$	1,088,633		$	461,426		$	1,550,059		$	251,798		$	271,726
Service cost - employer	8,906			—			8,906			10,363			—			10,363			1,573			1,948
Interest cost	39,499			11,061			50,560			36,840			11,161			48,001			9,887			9,251
Actuarial loss/(gain)	113,828			48,721			162,549			(67,543		)	(28,064		)	(95,607		)	(9,664		)	(19,909		)
Benefits paid	(63,176		)	(14,542		)	(77,718		)	(63,542		)	(17,889		)	(81,431		)	(12,044		)	(11,218		)
Plan amendment	3,069			—			3,069			—			3,704			3,704			—			—
Settlements	—			(18,196		)	(18,196		)	—			—			—			—			—
Foreign currency translation effect	—			15,013			15,013			—			(25,709		)	(25,709		)	—			—
Projected Benefit Obligation at December 31	$	1,106,877		$	446,686		$	1,553,563		$	1,004,751		$	404,629		$	1,409,380		$	241,550		$	251,798
Change in plans’ assets:
Fair value of plans’ assets at beginning of year	$	912,129		$	349,001		$	1,261,130		$	944,346		$	385,879		$	1,330,225		$	—		$	—
Actual return on plans’ assets	159,949			38,139			198,088			(33,063		)	(8,591		)	(41,654		)	—			—
Employer contribution	38,312			10,587			48,899			64,388			10,725			75,113			—			—
Benefits paid	(63,176		)	(14,542		)	(77,718		)	(63,542		)	(17,889		)	(81,431		)	—			—
Settlements	—			(18,196		)	(18,196		)	—			—			—			—			—
Foreign currency translation effect	—			14,353			14,353			—			(21,123		)	(21,123		)	—			—
Fair value of plans’ assets at December 31	$	1,047,214		$	379,342		$	1,426,556		$	912,129		$	349,001		$	1,261,130		$	—		$	—
Funded status	$	(59,663	)	$	(67,344	)	$	(127,007	)	$	(92,622	)	$	(55,628	)	$	(148,250	)	$	(241,550	)	$	(251,798	)
Amounts recognized in the balance sheets:
Accrued liabilities	$	(300	)	$	—		$	(300	)	$	(300	)	$	—		$	(300	)	$	(14,334	)	$	(15,344	)
Postretirement benefits other than pensions							—						—			—			$	(227,216	)	$	(236,454	)
Pension benefits	$	(59,363	)	$	(67,344	)	$	(126,707	)	$	(92,322	)	$	(55,628	)	$	(147,950	)	—			—

Included in Accumulated other comprehensive loss at December 31, 2019 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service costs of $5,780 ($4,338 net of tax) and unrecognized actuarial losses of $413,676 ($384,507 net of tax).

Included in Accumulated other comprehensive loss at December 31, 2018 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($497) (($373) net of tax) and unrecognized actuarial losses of $438,176 ($401,979 net of tax).

The prior service cost and actuarial loss included in accumulated other comprehensive loss that are expected to be recognized in net periodic benefit cost during the fiscal year-ended December 31, 2020 are $620 and $33,169, respectively.

The accumulated benefit obligation for all defined benefit pension plans was $1,552,037 and $1,406,263 at December 31, 2019 and 2018, respectively.

In 2019, lump-sum distributions out of the U.K. pension plan of $18,196 were made from plan assets. The vested benefit obligation associated with these former employees was approximately four percent of the U.K. plan's benefit obligation. Due to

-26-

the size of the lump-sum distributions, in accordance with U.S. GAAP, the Company was required to recognize a non-cash settlement charge of $4,262 for all 2019 settlements out of the U.K. plan.

Additionally, in 2019, an amendment to a domestic pension plan resulted in a retroactive increase in benefit levels for plan participants and has been accounted for as a prior service cost deferred in Other comprehensive loss, to be amortized as a component of net periodic benefit cost in future periods. The domestic pension plan projected benefit obligation increased $3,069 as a result of the amendment.

On October 26, 2018, in Lloyds Banking Group Pensions Trustees Limited vs. Lloyds Bank plc and Others, the High Court of Justice in the United Kingdom issued a ruling ("Court Ruling") requiring Lloyds Bank plc to equalize benefits payable to men and women under its U.K. defined benefit pension plan. The Court Ruling noted that the formulas used to determine guaranteed minimum pension (GMP) benefits violated gender-pay equality laws due to differences in the way benefits were calculated for men and women. As a result of this ruling, the U.K. pension plan was required to amend its benefit formulas and account for the higher pension payments resulting from GMP equalization. In accordance with ASC 715, this Court Ruling represents a change to the U.K. pension plan resulting in a retroactive increase in benefit levels for plan participants and has been accounted for as a prior service cost deferred in Other comprehensive loss, to be amortized as a component of net periodic benefit cost in future periods. The U.K. pension plan projected benefit obligation increased $3,704 as a result of the amendment required due to the Court Ruling.

Weighted average assumptions used to determine benefit obligations at December 31:



	Pension Benefits				Other Postretirement Benefits
	2019		2018		2019		2018
All plans
Discount rate	2.78	%	3.70	%	3.12	%	4.05	%
Domestic plans
Discount rate	3.09	%	4.05	%	3.12	%	4.05	%
Foreign plans
Discount rate	1.99	%	2.80	%	—		—

At December 31, 2019, the weighted average assumed annual rate of increase in the cost of medical benefits was 6.75 percent trending linearly to 4.50 percent per annum in 2029.

-27-

The following tables disclose the amount of net periodic benefit costs for the twelve months ended December 31, 2019 and 2018, respectively, for the Company’s defined benefit plans and other postretirement benefits:



	Pension Benefits - Domestic
	Twelve Months Ended December 31,
	2019			2018			2017
Components of net periodic benefit cost:
Service cost	$	8,906		$	10,363		$	9,860
Interest cost	39,499			36,840			39,251
Expected return on plan assets	(48,034		)	(54,035		)	(54,058		)
Amortization of actuarial loss	32,432			32,939			37,122
Amortization of prior service cost	703			—			—
Net periodic benefit cost	$	33,506		$	26,107		$	32,175



	Pension Benefits - International
	Twelve Months Ended December 31,
	2019			2018			2017
Components of net periodic benefit cost:
Interest cost	$	11,061		$	11,161		$	11,525
Expected return on plan assets	(11,554		)	(12,073		)	(11,262		)
Amortization of actuarial loss	3,411			4,264			5,448
Amortization of prior service cost	309			—			—
Effect of settlements	4,262			—			—
Net periodic benefit cost	$	7,489		$	3,352		$	5,711



	Other Post Retirement Benefits
	Twelve Months Ended December 31,
	2019			2018			2017
Components of net periodic benefit cost:
Service cost	$	1,573		$	1,948		$	2,003
Interest cost	9,887			9,251			10,063
Amortization of prior service credit	(409		)	(541		)	(566		)
Net periodic benefit cost	$	11,051		$	10,658		11,500

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Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:



	Pension Benefits						Other Postretirement Benefits
	2019		2018		2017		2019		2018		2017
All plans
Discount rate	3.70	%	3.20	%	3.54	%	4.05	%	3.50	%	3.95	%
Expected return on plan assets	5.00	%	5.34	%	5.57	%	—	%	—	%	—	%
Domestic plans
Discount rate	4.05	%	3.50	%	3.90	%	4.05	%	3.50	%	3.95	%
Expected return on plan assets	5.66	%	6.25	%	6.50	%	—	%	—	%	—	%
Foreign plans
Discount rate	2.80	%	2.50	%	2.50	%	—	%	—	%	—	%
Expected return on plan assets	3.34	%	3.19	%	3.29	%	—	%	—	%	—	%

The following table lists the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets at December 31, 2019 and 2018. The Spectrum Plan is excluded from the December 31, 2019 amounts as the plan assets exceeded the projected benefit obligation and accumulated benefit obligation at that date.



	December 31,
	2019		2018 ^(a)
Projected benefit obligation	$	1,052,824	$	1,409,380
Accumulated benefit obligation	1,051,298		1,406,263
Fair value of plan assets	909,890		1,261,130
The following table lists the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Spectrum Plan, which had plan assets in excess of projected benefit obligations and accumulated benefit obligations at December 31, 2019:
	December 31,
	2019		2018 ^(a)
Projected benefit obligation	$	500,739	$	—
Accumulated benefit obligation	$	500,739	$	—
Fair value of plan assets	$	516,666	$	—

^(a) - In 2018 all plans had projected and accumulated benefit obligations in excess of plan assets.

Assumed health care cost trend rates for other postretirement benefits have a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the following effects:



	Percentage Point
	Increase		Decrease
Increase (decrease) in total service and interest cost components	$	16	$	(17	)
Increase (decrease) in the other postretirement benefit obligation	514		(548		)

The table below presents the weighted average asset allocations for the domestic and U.K. pension plans’ assets at December 31, 2019 and December 31, 2018 by asset category.



	U.S. Plans				U.K. Plan
Asset Category	2019		2018		2019		2018
Fixed Income Collective Trust Funds and Securities	65	%	68	%	68	%	70	%
Equity Collective Trust Funds and Securities	30		26		19		17
Other Investment Collective Trust Funds and Securities	3		3		12		12
Cash	2		3		1		1
Total	100	%	100	%	100	%	100	%

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The Company manages the plans' asset allocation relative to the liability profile and funded status of the plans. It is expected that as the plan’s funded status improves, the portfolio will take less risk as to preserve the funded status of the plan framework. The plans follow a glide path whereby a target return-seeking allocation is followed based upon a given funded ratio level. The plans' position with respect to the glide path is monitored and asset allocation and strategy changes to the plans' portfolio are made as appropriate. The plans' strategy is also monitored in relation to the capital markets, interest rates, and the regulatory environment. The assets of the Company’s pension plan in Germany consist of investments in German insurance contracts.

In 2018, the Company made a $25 million one-time additional discretionary contribution to the U.S. pension plans. This contribution improved the funding of the U.S. pension plans, while generating tax savings for the Company due to the deductibility of the contribution on the Company's 2017 tax return at a 35 percent federal corporate income tax rate, prior to the enactment of the Tax Act as of January 1, 2018.

The fair market value of U.S. plan assets was $1,047,214 and $912,129 at December 31, 2019 and 2018, respectively. The fair market value of the U.K. plan assets was $377,536 and $347,108 at December 31, 2019 and 2018, respectively. The fair market value of the German pension plan assets was $1,806 and $1,893 at December 31, 2019 and 2018, respectively.

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The table below classifies the assets of the U.S. and U.K. plans using the Fair Value Hierarchy described in Note 9 - Fair Value Measurements.



			Fair Value Hierarchy
	Total		Level 1		Level 2		Level 3		NAV⁽¹⁾
December 31, 2019
United States plans
Cash and cash equivalents	$	23,867	$	23,867	$	—	$	—	$	—
Collective Trust Funds - Equity	309,794		—		—		—		309,794
Collective Trust Funds - Fixed income	682,279		—		22,410		—		659,869
Collective Trust Funds - Real Estate	31,274		—		—		—		31,274
	$	1,047,214	$	23,867	$	22,410	$	—	$	1,000,937
United Kingdom plan
Cash and cash equivalents	$	1,802	$	1,802	$	—	$	—	$	—
Equity securities	72,503		72,503		—		—		—
Fixed income securities	259,192		259,192		—		—		—
Other investments	44,039		—		13,859		30,180		—
	$	377,536	$	333,497	$	13,859	$	30,180	$	—
December 31, 2018
United States plans
Cash & Cash Equivalents	$	23,896	$	23,896	$	—	$	—	$	—
Collective Trust Funds - Equity	238,795		—		—		—		238,795
Collective Trust Funds - Fixed Income	622,576		—		10,514		—		612,062
Collective Trust Funds - Real Estate	26,862		—		—		—		26,862
	$	912,129	$	23,896	$	10,514	$	—	$	877,719
United Kingdom plan
Cash & Cash Equivalents	$	1,644	$	1,644	$	—	$	—	$	—
Equity securities	58,848		58,848		—		—		—
Fixed income securities	244,262		244,262		—		—		—
Other investments	42,354		—		13,416		28,938		—
	$	347,108	$	304,754	$	13,416	$	28,938	$	—

(1) Investments in common/ collective trusts invest primarily in publicly traded securities and are valued using net asset value (NAV) of units of a bank collective trust. Therefore, these amounts have not been classified in the fair value hierarchy and are presented in the tables to reconcile the fair value hierarchy to the total fair value of plan assets.

Plan assets are measured at fair value. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The Company’s valuation methodologies used for the plan assets measured at fair value are as follows:

Cash and cash equivalents – Cash and cash equivalents include cash on deposit and investments in money market mutual funds that invest mainly in short-term instruments and cash, both of which are valued using a market approach.

Equity securities – Common, preferred, and foreign stocks are valued using a market approach at the closing price on their principal exchange and are included in Level 1 of the fair value hierarchy.

Fixed income securities – Corporate and foreign bonds are valued using a market approach at the closing price reported on the active market on which the individual securities are traded and are included in Level 1 of the fair value hierarchy.

Collective trust funds – Collective trust funds are valued at the net asset value of units held at year end and are excluded from the fair value hierarchy. The Collective trust funds fair value has been included within the table above based on the underlying investment strategy.

•Equity Funds – Collective trust funds classified as Equity primarily invest in U.S. and non-U.S. securities in both small and large capitalization markets.

•Fixed Income Funds – Collective trust funds classified as Fixed Income primarily invest in debt securities, U.S. treasury securities, and fixed income securities.

-31-

•Real Estate Funds - Collective trust funds classified as Real Estate Funds are invested in global real estate securities.

The fair market values of the Level 3 assets in the U.K. plan are determined by the fund manager using a discounted cash flow methodology. The future cash flows expected to be generated by the assets of the funds and made available to investors are estimated and then discounted back to the valuation date. The discount rate is derived by adding a risk premium to the risk-free interest rate applicable to the country in which the assets are located.

The following table details the activity in these investments for the years ended December 31, 2017, 2018 and 2019:



	U.K. Plan Level 3 Assets
Balance at December 31, 2016	$	33,796
Transfer into level 3	—
Disbursements	—
Change in fair value	969
Foreign currency translation effect	3,305
Balance at December 31, 2017	38,070
Transfer into level 3	—
Disbursements	—
Change in fair value	(7,294		)
Foreign currency translation effect	(1,838		)
Balance at December 31, 2018	28,938
Transfer into level 3	—
Disbursements	—
Change in fair value	97
Foreign currency translation effect	1,145
Balance at December 31, 2019	$	30,180

The Company determines the annual expected rates of return on pension assets by first analyzing the composition of its asset portfolio. Historical rates of return are applied to the portfolio. These computed rates of return are reviewed by the Company’s investment advisers and actuaries. Industry comparables and other outside guidance are also considered in the annual selection of the expected rates of return on pension assets.

During 2019, the Company contributed $48,899 to its domestic and foreign pension plans, and during 2020, the Company expects to contribute between $45,000 and $55,000 to its domestic and foreign pension plans.

The Company estimates its benefit payments for its domestic and foreign pension plans and other postretirement benefit plans during the next ten years to be as follows:



	Pension Benefits		Other Postretirement Benefits
2020	$	86,944	$	14,334
2021	86,886		14,557
2022	88,845		14,697
2023	88,431		14,748
2024	89,937		14,852
2025 through 2029	448,531		72,251


Note 11.	Lease Commitments

The Company leases certain warehouses, distribution centers, office space, material handling equipment, office equipment, cars and information technology hardware. The Company determines if an arrangement is a lease or contains an embedded lease at contract inception.

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Upon implementing the new lease accounting standard in 2019, the Company elected the package of practical expedients, which permits a lessee to not reassess under the new standard its prior conclusions regarding lease identification, lease classification and initial direct costs.

Lease liabilities and their corresponding right-of-use assets, for leases with terms of 12 months or greater, are recorded based on the present value of lease payments over the expected lease term. The Company has elected not to present short term leases on the consolidated balance sheet, in accordance with the standard.

The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more. The exercise of lease renewal options is at the Company's sole discretion. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Certain of the Company's lease agreements include rental payments based on the use of the leased property over contractual levels. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company has lease agreements with lease and non-lease components, which are accounted for separately. Although separation of lease and non-lease components is required, certain practical expedients are available to entities. Entities electing the practical expedient would account for each lease component and the related non-lease component together as a single component. For certain building leases, including the lease of warehouses, distribution centers and office space, the Company accounts for the lease and non-lease components as a single lease component. For all other asset types, the Company accounts for lease and non-lease components separately.

For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

For finance leases, the right-of-use asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term. In cases where the lease term exceeds the useful life, the right-of-use asset is amortized over the useful life of the underlying asset. Amortization of the right-of-use asset is recognized and presented separately from interest expense on the lease liability.

Variable lease expense includes payments based on performance or usage, as well as changes to index and rate-based lease payments.

Right-of-use assets for operating and finance leases are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, "Property, Plant, and Equipment - Overall", to determine whether a right-of-use asset is impaired, and if so, the amount of the impairment loss to recognize. No impairment losses have been recognized to date.

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The following table presents the location and amount of lease assets and liabilities in the Consolidated Balance Sheets:



Assets	Location	December 31, 2019
Operating lease assets, net	Operating lease right-of-use assets, net	$	80,752
Finance lease assets	Property, plant and equipment	4,577
Total leased assets		$	85,329
Liabilities	Location
Current:
Operating	Accrued liabilities	$	27,663
Finance	Current portion of long-term debt and finance leases	265
Noncurrent:
Operating	Noncurrent operating leases	55,371
Finance	Long-term debt and finance leases	935
Total lease liabilities		$	84,234

The following table presents the location and amount of lease expense in the Consolidated Income Statement:



Lease cost	Location	Twelve Months Ended December 31, 2019
Operating lease cost ^(a)	Cost of sales	$	36,321
Operating lease cost	Selling general & administrative expenses	5,632
Total operating lease cost		41,953

Amortization of finance lease assets	Cost of sales	$	352
Interest on finance lease liabilities	Interest expense	32
Total finance lease cost		384
Net lease cost		$	42,337

^(a) - Includes short-term lease costs of $7,328 and variable lease costs of $3,480 for the year ended December 31, 2019.

The following table presents the future maturities of the Company's lease obligations:



	December 31, 2019
	Operating Leases			Finance Leases			Total
2020	$	31,397		$	322		$	31,719
2021	18,020			323			18,343
2022	13,691			311			14,002
2023	9,693			275			9,968
2024	6,236			127			6,363
After 2024	17,793			—			17,793
Total lease payments	96,830			1,358			98,188
Less: Interest	(13,796		)	(158		)	(13,954		)
Present value of lease liabilities	$	83,034		$	1,200		$	84,234

-34-

The following table presents the weighted-average lease term and discount rates of the Company's lease obligations:



Weighted-average remaining lease term (years)	December 31, 2019
Operating leases	4.90
Finance Leases	4.26
Weighted-average discount rate
Operating leases	5.76	%
Finance Leases	5.79	%

The following table presents the cash flow amounts related to lease liabilities included in the Company's Consolidated Statement of Cash Flows



	Twelve Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases	$	33,774
Operating cash outflows from finance leases	332
Financing cash outflows from finance leases	(605		)
Leased assets obtained in exchange for new finance lease liabilities	43
Leased assets obtained in exchange for new operating lease liabilities	342

Note 12. Other Long-Term Liabilities

Other long-term liabilities at December 31 were as follows:



	2019		2018
Product liability	$	91,853	$	81,574
Long-term income taxes payable	20,434		20,145
Stock-based liabilities	14,778		14,451
Other	22,000		19,560
Other long-term liabilities	$	149,065	$	135,730


Note 13.	Share Repurchase Program

Share repurchase programs require the approval of the Company's Board of Directors. The following table summarizes the Company’s Board authorized share repurchase programs and related information for the twelve months ended December 31, 2019:

Program⁽¹⁾

Date Authorized by Board of Directors

Expiration Date⁽²⁾

Amount Authorized (excluding commissions)

Amount Spent as of December 31, 2019 (excluding commissions)

Status

2017 Repurchase Program

February 16, 2017

December 31, 2021

300,000

106,877

Active

(1)

The repurchase programs listed do not obligate the Company to acquire any specific number of shares and can be suspended or discontinued at any time without notice. Shares can be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. All repurchases under the program listed above have been made using cash resources.


(2)	On December 3, 2019, the expiration of the 2017 Repurchase Program, scheduled for December 31, 2019, was extended to December 31, 2021. No other changes were made to the program.

-35-

The following table summarizes the Company’s open market and 10b5-1 plan share repurchase activity and related information during the twelve months ended December 31, 2019 and December 31, 2018:



	Number of Shares	Average Repurchase Price Per Share		Amount (including commissions)
2019 share repurchase activity:
2017 Repurchase Program	—	—		$	—
Total share repurchases	—			—
2018 share repurchase activity:
2017 Repurchase Program	1,018,089	$	29.65	$	30,183
Total share repurchases	1,018,089			30,183

Since the share repurchases began in August 2014 through December 31, 2019, the Company has repurchased 15,768,845 shares of the Company’s common stock at an average cost of $34.11 per share.

Reserved Shares

There were 2,138,910 common shares reserved for grants under compensation plans at December 31, 2019. The Company eliminated the option for plan participants in the Company’s defined contribution plans to purchase additional shares of the Company’s common stock in March 2014. Effective May 2019, common stock held in the Company's defined contribution plans can no longer receive quarterly dividends in the form of the Company's common stock. As a result of this change, common shares previously reserved for the Company's defined contribution plans have been released.


Note 14.	Stock-Based Compensation

The Company’s incentive compensation plans allow the Company to grant awards to employees in the form of stock options, stock awards, restricted stock units, stock appreciation rights, performance stock units, dividend equivalents and other awards. Compensation related to these awards is determined based on the grant-date fair value and is amortized to expense over the vesting period. The Company recognizes compensation expense based on the earlier of the vesting date or the date when the employee becomes eligible to retire without forfeiture of the award. If awards can be settled in cash, these awards are recorded as liabilities and marked to market.

The following table discloses the amount of stock-based compensation expense:



	Stock-Based Compensation
	2019		2018		2017
Stock options	$	—	$	—	$	14
Restricted stock units	2,836		3,196		3,302
Performance stock units	1,526		672		693
Total stock-based compensation	$	4,362	$	3,868	$	4,009

Stock Options

The 2010 and 2014 Incentive Compensation Plans provide for granting options to key employees to purchase common shares at prices not less than market at the date of grant. Options under these plans may have terms of up to ten years becoming exercisable in whole or in consecutive installments, cumulative or otherwise. The plans allow the granting of nonqualified stock options which are not intended to qualify for the tax treatment applicable to incentive stock options under provisions of the Internal Revenue Code.

In February 2014, executives participating in the 2014-2016 Long-Term Incentive Plan were granted 380,064 stock options, which vested one-third each year through February 2017. No stock options have been granted to executives participating in the Long-Term Incentive Plan since then. Outstanding options do not contain any performance-based criteria. The Company recognizes compensation expense based on the earlier of the vesting date or the date when the employee becomes eligible to retire.

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Summarized information for the plans follows:



	Number of Shares		Weighted Average Exercise Price (per share)		Aggregate Intrinsic Value (thousands)
Outstanding at December 31, 2018	268,802		$	22.27
Granted	—		—
Exercised	(24,774	)	12.50
Expired	—		—
Canceled	(5,280	)	21.72
Outstanding at December 31, 2019	238,748		23.30		$	2,157
Exercisable at December 31, 2019	238,748		23.30		2,157




	Year ended December 31,
	2019		2018		2017
Weighted average grant-date fair value of options granted (per share)	$	—	$	—	$	—
Aggregate intrinsic value of options exercised (thousands)	425		298		4,194
Weighted average grant-date fair value of shares vested (thousands)	—		—		1,400

The weighted average remaining contractual life of options outstanding at December 31, 2019 is 3.1 years. All outstanding stock options are exercisable.

Segregated disclosure of options outstanding at December 31, 2019 was as follows:



	Range of Exercise Prices
	Less than or equal to $15.63		Greater than $15.63
Options outstanding	22,965		215,783
Weighted average exercise price	$	15.63	$	24.11
Remaining contractual life	2.1		3.2
Options exercisable	22,965		215,783
Weighted average exercise price	$	15.63	$	24.11

At December 31, 2019, the Company had fully amortized all expense related to its stock option awards.

Restricted Stock Units

Under the 2001 and 2014 Incentive Compensation Plans, restricted stock units may be granted to officers and certain other employees as awards for exceptional performance, as a hiring or retention incentive or as part of the Long-Term Incentive Plan. The restricted stock units granted in 2017, 2018 and 2019 have vesting periods of three to four years. Compensation expense related to the restricted stock units granted is determined based on the fair value of the Company’s stock on the date of grant. The Company recognizes compensation expense based on the earlier of the vesting date or the date when the employee becomes eligible to retire. Employees must remain employed for at least six months after the grant date to vest in the restricted stock units, even if retirement eligible.

-37-

The following table provides details of the nonvested restricted stock units for 2019:



	Number of Restricted Units		Weighted Average Grant-Date Fair Value (per share)		Aggregate Intrinsic Value (thousands)
Nonvested at December 31, 2018	240,991		$	35.69
Granted	120,001		32.52
Vested	(91,237	)	36.56
Canceled	(42,667	)	36.90
Accrued dividend equivalents	3,874		34.07
Nonvested at December 31, 2019	230,962		$	33.49
Vested but not released	1,483		$	18.04
Outstanding at December 31, 2019	232,445		$	33.39	$	7,761

Weighted-average remaining contractual term of shares outstanding (months)	21




	Year ended December 31,
	2019		2018		2017
Weighted average grant-date fair value of restricted shares granted (per share)	$	32.52	$	34.53	$	38.33
Weighted average grant-date fair value of shares vested (thousands)	$	3,336	$	3,000	$	5,627

The number of vested restricted stock units at December 31, 2019 and 2018 was 1,483 and 1,460, respectively. At December 31, 2019, the Company has $2,458 of unvested compensation cost related to restricted stock units and this cost will be recognized as expense over a weighted average period of 25 months.

Performance Stock Units

Compensation related to the performance stock units is determined based on the fair value of the Company’s stock on the date of grant combined with performance metrics. The Company recognizes compensation expense based on the earlier of the vesting date or the date when the employee becomes eligible to retire, and in accordance with the achievement of the underlying performance condition.

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The following table provides details of the nonvested performance stock units earned under the Company’s Long-Term Incentive Plan:



	Number of Performance Units		Weighted Average Grant- Date Fair Value (per share)		Aggregate Intrinsic Value (thousands)
Nonvested at December 31, 2018	32,071		$	27.79
Earned	69,938		33.27
Vested	(30,705	)	34.93
Canceled	(12,472	)	34.35
Accrued dividend equivalents	503		36.13
Nonvested at December 31, 2019	59,335		$	33.79
Vested but not released	22,529		$	34.31
Outstanding at December 31, 2019	81,864		$	33.93	$	2,778

Weighted-average remaining contractual term of performance stock units outstanding (months)	12




	Year ended December 31,
	2019		2018		2017
Weighted average grant-date fair value of performance stock units granted (per share)	$	33.27	$	36.08	$	38.23
Weighted average grant-date fair value of performance stock units vested (thousands)	$	1,073	$	1,821	$	4,213

At December 31, 2019, the Company had $763 of unvested compensation cost related to performance stock units and this cost will be recognized as expense over a weighted average period of 19 months.

The Company’s nonvested restricted stock units and performance stock units are not participating securities. These units will be converted into shares of Company common stock in accordance with the distribution date indicated in the agreements. Restricted stock units earn dividend equivalents from the time of the award until distribution is made in common shares. Performance stock units earn dividend equivalents from the time the units have been earned based upon Company performance metrics until distribution is made in common shares. Dividend equivalents are only earned subject to vesting of the underlying restricted stock units or performance stock units. Accordingly, such units do not represent participating securities.

At December 31, 2019, the company had 2,138,910 shares available for future issuance under equity compensation plans.

At both December 31, 2019 and 2018, excess tax benefits were not material, while in 2017, $1,877 of excess tax benefits were recognized as a discrete item in the provision for income taxes and included as an operating activity in the Consolidated Statement of Cash Flows as a result of the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.”

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Note 15.	Changes in Accumulated Other Comprehensive Income (Loss) by Component

The following tables provide a quarterly reconciliation of each component of accumulated other comprehensive (loss) income in the accompanying Consolidated Statements of Equity for the year to date as of December 31, 2019 and 2018:



	Cumulative Translation Adjustment			Derivative Instruments			Post- retirement Benefits			Total
Ending Balance, December 31, 2018	$	(62,133	)	$	2,150		$	(401,606	)	$	(461,589	)
Other comprehensive income (loss) before reclassifications	3,947			(2,612		)	(12,877		)	(11,542		)
Foreign currency translation effect	—			—			(2,668		)	(2,668		)
Income tax effect	—			804			—			804
Amount reclassified from accumulated other comprehensive (loss) income
Cash flow hedges	—			(1,141		)	—			(1,141		)
Amortization of prior service cost	—			—			603			603
Amortization of actuarial losses	—			—			35,843			35,843
Pension settlement charge	—			—			4,262			4,262
Prior service effect of plan amendment	—			—			(3,069		)	(3,069		)
Income tax effect	—			250			(9,333		)	(9,083		)
Other comprehensive income (loss)	3,947			(2,699		)	12,761			14,009
Ending Balance, December 31, 2019	$	(58,186	)	$	(549	)	$	(388,845	)	$	(447,580	)



	Cumulative Translation Adjustment			Derivative Instruments			Post- retirement Benefits			Total
Ending Balance, December 31, 2017	$	(39,940	)	$	349		$	(438,887	)	$	(478,478	)
Other comprehensive (loss) income before reclassifications	(22,193		)	5,040			12,913			(4,240		)
Foreign currency translation effect	—			—			(264		)	(264		)
Income tax effect	—			(1,213		)	(242		)	(1,455		)
Amount reclassified from accumulated other comprehensive (loss) income
Cash flow hedges	—			(2,412		)	—			(2,412		)
Amortization of prior service credit	—			—			(541		)	(541		)
Amortization of actuarial losses	—			—			37,203			37,203
Prior service effect of plan amendment	—			—			(3,704		)	(3,704		)
Income tax effect	—			386			(8,084		)	(7,698		)
Other comprehensive (loss) income	(22,193		)	1,801			37,281			16,889
Ending Balance, December 31, 2018	$	(62,133	)	$	2,150		$	(401,606	)	$	(461,589	)


Note 16.	Comprehensive Income (Loss) Attributable to Noncontrolling Shareholders’ Interests

The following table provides the details of the comprehensive income (loss) attributable to noncontrolling shareholders' interests:



	Twelve Months Ended December 31,
	2019		2018			2017
Net income attributable to noncontrolling shareholders’ interests	$	1,913	$	3,977		$	1,345
Other comprehensive income (loss):
Currency translation adjustments	795		(2,237		)	3,375
Comprehensive income attributable to noncontrolling shareholders’ interests	$	2,708	$	1,740		$	4,720

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Note 17.	Contingent Liabilities

Product Liability Claims

The Company is a defendant in various product liability claims brought in numerous jurisdictions in which individuals seek damages resulting from motor vehicle accidents allegedly caused by defective tires manufactured by the Company. Each of the product liability claims faced by the Company generally involves different types of tires and circumstances surrounding the accident such as different applications, vehicles, speeds, road conditions, weather conditions, driver error, tire repair and maintenance practices, service life conditions, as well as different jurisdictions and different injuries. In addition, in many of the Company’s product liability lawsuits the plaintiff alleges that his or her harm was caused by one or more co-defendants who acted independently of the Company. Accordingly, both the claims asserted and the resolutions of those claims have an enormous amount of variability. The aggregate amount of damages asserted at any point in time is not determinable since often times when claims are filed, the plaintiffs do not specify the amount of damages. Even when there is an amount alleged, at times the amount is wildly inflated and has no rational basis.

The fact that the Company is a defendant in product liability lawsuits is not surprising given the current litigation climate, which is largely confined to the United States. However, the fact that the Company is subject to claims does not indicate that there is a quality issue with the Company’s tires. The Company sells approximately 30 to 35 million passenger car, light truck, CUV, SUV, TBR and motorcycle tires per year in North America. The Company estimates that approximately 300 million Company-produced tires made up of thousands of different specifications are still on the road in North America. While tire disablements do occur, it is the Company’s and the tire industry’s experience that the vast majority of tire failures relate to service-related conditions, which are entirely out of the Company’s control, such as failure to maintain proper tire pressure, improper maintenance, improper repairs, road hazard and excessive speed.

The Company accrues costs for product liability at the time a loss is probable and the amount of loss can be estimated. The Company believes the probability of loss can be established and the amount of loss can be estimated only after certain minimum information is available, including verification that Company-produced product were involved in the incident giving rise to the claim, the condition of the product purported to be involved in the claim, the nature of the incident giving rise to the claim and the extent of the purported injury or damages. In cases where such information is known, each product liability claim is evaluated based on its specific facts and circumstances. A judgment is then made to determine the requirement for establishment or revision of an accrual for any potential liability. Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. The liability often cannot be determined with precision until the claim is resolved.

The time frame for the payment of a product liability claim is too variable to be meaningful. From the time a claim is filed to its ultimate disposition depends on the unique nature of the case, how it is resolved - claim dismissed, negotiated settlement, trial verdict or appeals process - and is highly dependent on jurisdiction, specific facts, the plaintiff’s attorney, the court’s docket and other factors. Given that some claims may be resolved in weeks and others may take five years or more, it is impossible to predict with any reasonable reliability the time frame over which the accrued amounts may be paid.

The Company regularly reviews the probable outcome of outstanding legal proceedings and the availability and limits of the insurance coverage, and accrues for such legal proceedings at the time a loss is probable and the amount of the loss can be estimated. As part of its regular review, the Company monitors trends that may affect its ultimate liability and analyzes the developments and variables likely to affect pending and anticipated claims against the Company and the reserves for such claims. The Company utilizes claims experience, as well as trends and developments in the litigation climate, in estimating its required accrual. Based on the Company's quarterly reviews, coupled with normal activity, including the addition of another quarter of self-insured incidents, settlements and changes in the amount of reserves, the Company increased its accrual to $117,219 at December 31, 2019 from $112,124 at December 31, 2018.

For the year ended December 31, 2019, the addition of another twelve months of self-insured incidents accounted for an increase of $37,279 in the Company's product liability reserve. Settlements, changes in the amount of reserves for cases where

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sufficient information is known to estimate a liability, and changes in assumptions decreased the liability by $8,272 for the twelve months ended December 31, 2019. The Company paid $24,020 during 2019 to resolve cases and claims.

The Company’s product liability reserve balance at December 31, 2019 totaled $117,219 (the current portion of $25,366 is included in Accrued liabilities and the long-term portion is included in Other long-term liabilities on the Consolidated Balance Sheets), and the balance at December 31, 2018 totaled $112,124 (current portion of $30,550).

Product liability expenses are included in Cost of products sold in the Consolidated Statements of Income. For the twelve months ended December 31, 2019 and 2018, respectively, product liability expense was as follows:



	Twelve Months Ended December 31,
	2019		2018		2017
Product liability expense	$	40,309	$	17,692	$	25,970

Other Litigation

In addition to the proceedings described above, the Company is involved in various other legal proceedings arising in the ordinary course of business. The Company regularly reviews the probable outcome of these proceedings, the expenses expected to be incurred, the availability and limits of the insurance coverage, and accrues for these proceedings at the time a loss is probable and the amount of the loss can be estimated. Although the outcome of these pending proceedings cannot be predicted with certainty and an estimate of any such loss cannot be made, the Company believes that any liabilities that may result from these proceedings are not reasonably likely to have a material adverse effect on the Company’s liquidity, financial condition or results of operations.

Employment Contracts and Agreements

No executives have employment agreements as of December 31, 2019. The Executive Officers and certain other employees are covered by the Cooper Tire & Rubber Company Change in Control Severance Pay Plan.

At December 31, 2019, approximately 38 percent of the Company’s workforce was represented by collective bargaining units.


Note 18.	Business Segments

The Company has four segments under ASC 280, "Segments":


•	North America, composed of the Company’s operations in the United States and Canada;


•	Latin America, composed of the Company’s operations in Mexico, Central America and South America;


•	Europe; and


•	Asia.

North America and Latin America meet the criteria for aggregation in accordance with ASC 280, as they are similar in their production and distribution processes and exhibit similar economic characteristics. The aggregated North America and Latin America segments are presented as “Americas Tire Operations” in the segment disclosure. The Americas Tire Operations segment manufactures and markets passenger car and light truck tires, primarily for sale in the U.S. replacement market. The segment also has a joint venture manufacturing operation in Mexico, COOCSA, which supplies passenger car and light truck tires to the Mexican, North American, Central American and South American markets. On January 24, 2020, the Company acquired the remaining 42 percent noncontrolling ownership interest in COOCSA, making COOCSA a wholly-owned subsidiary. The segment also markets and distributes racing, TBR and motorcycle tires. The racing and motorcycle tires are manufactured by the Company’s European segment and by others. TBR tires are sourced from GRT and through off-take agreements with PCT, through mid-2021, and Sailun Vietnam, through December 31, 2020. On April 5, 2019, Cooper Vietnam and Sailun Vietnam established a joint venture in Vietnam, ACTR, which will produce and sell TBR tires. The new joint venture is expected to begin commercially producing tires in 2020.

Major distribution channels and customers include independent tire dealers, wholesale distributors, regional and national retail tire chains, large retail chains that sell tires as well as other automotive products, mass merchandisers and digital channels. The segment does not currently sell its products directly to end users, except through three Company-owned retail stores. The segment sells a limited number of tires to OEMs.

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Both the Europe and Asia segments have been determined to be individually immaterial, as they do not meet the quantitative requirements for segment disclosure under ASC 280. In accordance with ASC 280, information about operating segments that are not reportable shall be combined and disclosed in an all other category separate from other reconciling items. As a result, these two segments have been combined in the segment operating results discussion. The results of the combined Europe and Asia segments are presented as “International Tire Operations.” The European operations include manufacturing operations in the U.K. and Serbia. The U.K. entity manufactures and markets motorcycle and racing tires and tire retread material for domestic and global markets. The Serbian entity manufactures passenger car and light truck tires primarily for the European markets and for export to the North American segment. The Asian operations are located in the PRC and Vietnam. Cooper Kunshan Tire manufactures passenger car and light truck tires both for the Chinese domestic market and for export to markets outside of the PRC. GRT, a joint venture manufacturing facility located in the PRC, serves as a global source of TBR tire production for the Company. The segment also procures certain TBR tires under off-take agreements with PCT, through mid-2021, and Sailun Vietnam, through December 31, 2020. On April 5, 2019, Cooper Vietnam and Sailun Vietnam established a joint venture in Vietnam, ACTR, which will produce and sell TBR tires in addition to the off-take agreement. The new joint venture is expected to begin commercially producing tires in 2020. The segment sells a majority of its tires in the replacement market, with a portion also sold to OEMs.

On January 17, 2019, Cooper Tire Europe, a wholly owned subsidiary of the Company, committed to a plan to cease light vehicle tire production at its Melksham, U.K. facility. The phasing out of light vehicle tire production was substantially completed in the third quarter of 2019. Approximately 300 roles were eliminated at the site. Cooper Tire Europe now obtains light vehicle tires to meet customer needs from other production sites within the Company’s global production network. Approximately 400 roles remain in Melksham to support the functions that continue there, including motorsports and motorcycle tire production, a materials business, Cooper Tire Europe headquarters, sales and marketing, and the Europe Technical Center.

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The following table details segment financial information:



	Twelve Months Ended December 31,
	2019			2018			2017
Net sales:
Americas Tire
External customers	$	2,315,497		$	2,330,457		$	2,376,808
Intercompany	38,229			32,189			39,970
	2,353,726			2,362,646			2,416,778
International Tire
External customers	437,143			477,621			477,848
Intercompany	96,860			163,355			141,021
	534,003			640,976			618,869
Eliminations	(135,090		)	(195,560		)	(180,991		)
Consolidated net sales	$	2,752,639		$	2,808,062		$	2,854,656
Operating profit (loss):
Americas Tire	237,753			229,500			355,059
International Tire	(13,390		)	(14,044		)	15,168
Unallocated corporate charges	(49,968		)	(51,564		)	(59,153		)
Eliminations	60			1,353			(1,827		)
Consolidated operating profit	$	174,455		$	165,245		$	309,247

Interest expense	(31,189		)	(32,181		)	(32,048		)
Interest income	9,458			10,216			7,362
Other pension and postretirement benefit expense	(41,567		)	(27,806		)	(37,523		)
Other non-operating expense	(1,485		)	(1,416		)	(3,113		)
Income before income taxes	$	109,672		$	114,058		$	243,925
Depreciation and amortization expense:
Americas Tire	44,551			57,265			91,324
International Tire	31,654			34,564			33,303
Corporate	71,849			55,332			15,601
Consolidated depreciation and amortization expense	$	148,054		$	147,161		$	140,228
Segment assets:
Americas Tire	1,543,779			1,513,534			1,552,855
International Tire	739,076			662,226			700,690
Corporate and other	519,483			458,445			454,380
Consolidated assets	$	2,802,338		$	2,634,205		$	2,707,925
Expenditures for long-lived assets:
Americas Tire	111,819			112,444			109,175
International Tire	62,334			71,667			89,008
Corporate	28,569			9,188			(997		)
Consolidated expenditures for long-lived assets	$	202,722		$	193,299		$	197,186

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Geographic information for long-lived assets follows:



	As of December 31,
	2019		2018		2017
Net sales
United States	$	2,175,599	$	2,196,424	$	2,240,882
Rest of world	577,040		611,638		613,774
Consolidated net sales	$	2,752,639	$	2,808,062	$	2,854,656
Long-lived assets ^(a)
United States	683,769		595,768		568,215
PRC	239,889		232,339		218,044
Rest of world	204,336		173,814		180,488
Consolidated long-lived assets	$	1,127,994	$	1,001,921	$	966,747

^(a) - Beginning in 2019, the company includes Right of Use Assets in the Long-lived assets for each segment.

The following customers of the Americas Tire Operations segment contributed ten percent or more of the Company’s total consolidated net sales in 2019, 2018 or 2017. Net sales and percentage of consolidated Company sales for these customers in 2019, 2018 and 2017 were as follows:



	2019				2018				2017
Customer	Net Sales		Consolidated Net Sales		Net Sales		Consolidated Net Sales		Net Sales		Consolidated Net Sales
American Tire Distributors, Inc.	$	311,559	11	%	$	310,070	11	%	$	252,395	9	%
TBC/Treadways	$	214,138	8	%	$	231,896	8	%	$	304,840	11	%


Note 19.	Subsequent Events

On January 24, 2020, the Company acquired the remaining 41.57 percent noncontrolling ownership interest in COOCSA, making COOCSA a wholly-owned subsidiary. In this transaction, the Company acquired the remaining outstanding voting common stock of COOCSA for a total cash price of $54,500. In addition, subsequent to the acquisition, payments of $15,984 were made to members of the joint venture workforce in connection with services rendered.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Cooper Tire & Rubber Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cooper Tire & Rubber Company (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.



	Product liability
Description of the matter	As described in Notes 1 and 17, the Company is a defendant in various product liability claims brought in numerous jurisdictions in which individuals seek damages resulting from motor vehicle accidents allegedly caused by defective tires manufactured by the Company. The Company accrues costs for product liability at the time a loss is probable and the amount of loss can be estimated. Each product liability claim is evaluated based on its specific facts and circumstances, and a judgment is then made to determine the requirement for establishment or revision of an accrual for any potential liability. An accrual for unasserted claims or for premature claims is based, in part, on management’s expectations for future litigation activity and the settled claims history. The Company periodically reviews such estimates, and any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs. At December 31, 2019, the Company’s product liability reserve balance totaled $117 million.
	Auditing management’s estimate of loss contingencies arising from product liability claims was complex and included evaluating the likelihood and amount of loss for asserted and unasserted claims, which are subjective and require significant judgment.

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How we addressed the matter in our audit	We evaluated the design and tested the operating effectiveness of internal controls over the Company’s identification and evaluation of product liability claims, including the reserve on unasserted claims, including management’s review of the estimation model used to establish the best estimate of the required reserve, and the data inputs used in the estimation model.
	Our audit procedures to test the adequacy and completeness of management’s assessment of the probability of loss included, among others, reviews of legal correspondence related to claims identified by management, reviews of confirmation letters obtained from internal and external legal counsel, inquiries of internal and external legal counsel to discuss asserted and known unasserted claims, and review of written representations obtained from the Company. In order to test the measurement of the product liability litigation reserve, we evaluated the Company’s estimation model used to establish the reserve for claims, asserted and unasserted, and tested the accuracy and completeness of the data used in management’s estimation model. In addition, we performed sensitivity analyses over management’s estimated range of losses in order to evaluate the magnitude of potential impact on the liability resulting from changes in assumptions. Lastly, we assessed the competency of management’s estimation model by performing hindsight analyses to assess the adequacy of prior estimates.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1942.

Toledo, Ohio

February 24, 2020

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SELECTED QUARTERLY DATA		(Unaudited)
(Dollar amounts in thousands except per share amounts.)



	2019
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter (a)
Net sales	$	619,163		$	679,130		$	704,134		$	750,212
Gross profit	88,259			99,141			114,366			131,524
Net income attributable to Cooper Tire & Rubber Company	6,979			8,821			29,344			51,259
Earnings per share:
Basic	0.14			0.18			0.58			1.02
Diluted	0.14			0.18			0.58			1.02
Net sales:
Americas Tire	$	514,936		$	582,307		$	601,957		$	654,526
International Tire	143,785			138,514			132,270			119,434
Eliminations	(39,558		)	(41,691		)	(30,093		)	(23,748		)
Consolidated net sales	$	619,163		$	679,130		$	704,134		$	750,212
Operating profit (loss):
Americas Tire	$	38,789		$	46,814		$	67,941		$	84,209
International Tire	(1,339		)	(1,296		)	(4,831		)	(5,924		)
Unallocated corporate charges	(10,453		)	(13,278		)	(11,051		)	(15,186		)
Eliminations	(566		)	(569		)	710			484
Consolidated operating profit	26,431			31,671			52,769			63,583
Interest expense	(8,314		)	(7,810		)	(7,476		)	(7,590		)
Interest income	3,380			1,999			1,507			2,571
Other pension and postretirement benefit expense	(9,362		)	(9,288		)	(9,562		)	(13,355		)
Other non-operating income (expense)	1,380			(1,463		)	(509		)	(892		)
Income before income taxes	$	13,515		$	15,109		$	36,729		$	44,317
Net income	$	7,178		$	9,258		$	29,008		$	52,871
Net income attributable to Cooper Tire & Rubber Company	$	6,979		$	8,821		$	29,344		$	51,259

Basic and diluted earnings per share are computed independently for each quarter presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.

Each quarter's financial data is recorded here as disclosed in its respective 10-Q report. Therefore, the sum of quarterly information here may not equal the annual financial statement amounts due to rounding.


(a)	In the fourth quarter, the Company recorded an income tax benefit of $18,606 as a result of a business realignment strategy implemented in Europe.

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		(Unaudited)



	2018
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter (a)
Net sales	$	601,496		$	698,408		$	737,671		$	770,487
Gross profit	84,485			94,223			139,947			124,638
Net income (loss) attributable to Cooper Tire & Rubber Company	8,285			15,008			53,713			(419		)
Earnings per share:
Basic	0.16			0.30			1.07			(0.01		)
Diluted	0.16			0.30			1.07			(0.01		)
Net sales:
Americas Tire	$	485,392		$	584,412		$	628,704		$	664,138
International Tire	161,244			167,839			162,401			149,492
Eliminations	(45,140		)	(53,843		)	(53,434		)	(43,143		)
Consolidated net sales	$	601,496		$	698,408		$	737,671		$	770,487
Operating profit (loss):
Americas Tire	$	31,236		$	40,480		$	87,353		$	70,432
International Tire	7,434			5,652			5,994			(33,124		)
Unallocated corporate charges (b)	(11,966		)	(13,705		)	(12,518		)	(13,376		)
Eliminations	(250		)	336			372			894
Consolidated operating profit	26,454			32,763			81,201			24,826
Interest expense	(7,691		)	(8,417		)	(7,930		)	(8,142		)
Interest income	2,315			1,988			2,399			3,514
Other pension and postretirement benefit expense (b)	(6,986		)	(6,967		)	(6,932		)	(6,921		)
Other non-operating (loss) income	(1,658		)	(1,391		)	2,922			(1,288		)
Income before income taxes	$	12,434		$	17,976		$	71,660		$	11,989
Net income	$	8,983		$	15,709		$	55,433		$	439
Net income (loss) attributable to Cooper Tire & Rubber Company	$	8,285		$	15,008		$	53,713		$	(419	)

Basic and diluted earnings (loss) per share are computed independently for each quarter presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.


(a)	In the fourth quarter, the Company recorded a non-cash goodwill impairment charge of $33,827. Refer to Note 5 - Goodwill and Intangibles for further details.

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COOPER TIRE & RUBBER COMPANY

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2019, 2018 and 2017



(Dollar amounts in thousands)			Additions
	Balance at Beginning of Year		Charged to Income		Charged to Equity			Acquisition of Business			Deductions			Balance at End of Year
Year Ended December 31, 2017
Allowance for doubtful accounts	$	7,290	$	1,799	$	—		$	—		$	1,519	(a)	$	7,570
Tax valuation allowance	$	20,228	$	20,536	$	(2,828	)	$	(1,057	)	$	6,777	(b)	$	30,102
Year Ended December 31, 2018
Allowance for doubtful accounts	$	7,570	$	2,019	$	—		$	—		$	3,753	(a)	$	5,836
Tax valuation allowance	$	30,102	$	456	$	—		$	—		$	7,938	(b)	$	22,620
Year Ended December 31, 2019
Allowance for doubtful accounts	$	5,836	$	3,401	$	—		$	—		$	1,128	(a)	$	8,109
Tax valuation allowance	$	22,620	$	13,178	$	(6,337	)	$	—		$	2,191	(b)	$	27,270


(a)	Accounts written off during the year, net of recoveries of accounts previously written off.


(b)	Net increase in tax valuation allowance is primarily the result of a net increase in unbenefitted losses.

Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Consolidated Financial Statements



	Page reference
1. Consolidated Financial Statements
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017	2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017	3
Consolidated Balance Sheets at December 31, 2019 and 2018	4
Consolidated Statements of Equity for the years ended December 31, 2019, 2018 and 2017	6
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	7
Notes to Consolidated Financial Statements	8
Report of Independent Registered Public Accounting Firm	46
Selected Quarterly Data (Unaudited)	48

2. Financial Statement Schedule
Valuation and qualifying accounts – Allowance for doubtful accounts and tax valuation allowance	50

All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedules, or because the information required is included in the Consolidated Financial Statements or the notes thereto.

3. Exhibits

The exhibits listed on the accompanying exhibit index are filed as part of this Annual Report on Form 10-K/A.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COOPER TIRE & RUBBER COMPANY

/s/ Bradley E. Hughes

BRADLEY E. HUGHES, President,

Chief Executive Officer and Director

Date: August 20, 2020

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EXHIBIT INDEX

All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by Cooper Tire & Rubber Company (File Number 001-04329), unless otherwise noted.



(23)		Consent of Independent Registered Public Accounting Firm
(31.1)		Certification of Chief Executive Officer pursuant to Rule 13a–14(a)/15d–14(a) of the Exchange Act
(31.2)		Certification of Chief Financial Officer pursuant to Rule 13a–14(a)/15d–14(a) of the Exchange Act
(32)		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(101.INS)		Inline XBRL Instance Document
(101.SCH)		Inline XBRL Taxonomy Extension Schema Document
(101.DEF)		Inline XBRL Taxonomy Extension Definition Linkbase Document
(101.CAL)		Inline XBRL Taxonomy Extension Calculation Linkbase Document
(101.LAB)		Inline XBRL Taxonomy Extension Label Linkbase Document
(101.PRE)		Inline XBRL Taxonomy Extension Presentation Linkbase Document
(104)		The cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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