• | Global unit volume increased 0.5 percent compared to the third quarter of 2019. |
◦ | Strong light vehicle unit volume growth of 9 percent in the United States was offset by a unit volume decline in Latin America due to challenging market conditions and lower production levels as the company ramps up its plant in Mexico. |
◦ | International segment unit volume increased 10.1 percent, led by Asia. |
• | Net sales increased 8.6 percent from the third quarter of 2019 to $765 million, with increases in both the Americas and International segments. |
• | Operating profit was $172 million, or 22.4 percent of net sales, compared to operating profit of $53 million, or 7.5 percent of net sales, in 2019. |
◦ | The quarter included a $49 million benefit in operating profit from lower product liability costs related to an adjustment of the company's product liability reserves. The third quarter of 2019 included a similar adjustment of $4 million. |
◦ | Operating profit for the Americas segment was $176 million, an all-time record for the segment in any quarter, even after excluding the $49 million benefit from the product liability adjustment. |
◦ | International segment operating profit was $9 million, compared to an operating loss of $5 million for the same period a year ago. |
• | At the end of the third quarter, Cooper had $496 million in unrestricted cash and cash equivalents compared with $137 million in 2019. During the quarter, the company repaid $240 million on its revolving credit facilities. |
Cooper Tire | Q3 2020 ($M) | Q3 2019 ($M) | Change | |||||
Net Sales | $ | 765 | $ | 704 | 8.6 | % | ||
Operating Profit | $ | 172 | $ | 53 | 225.5 | % | ||
Operating Margin | 22.4 | % | 7.5 | % | 14.9 | ppts. |
Americas Tire Operations | Q3 2020 ($M) | Q3 2019 ($M) | Change | |||||
Net Sales | $ | 660 | $ | 602 | 9.6 | % | ||
Operating Profit | $ | 176 | $ | 68 | 158.7 | % | ||
Operating Margin | 26.6 | % | 11.3 | % | 15.3 | ppts. |
International Tire Operations | Q3 2020 ($M) | Q3 2019 ($M) | Change | |||||
Net Sales | $ | 142 | $ | 132 | 7.5 | % | ||
Operating Profit/(Loss) | $ | 9 | $ | (5 | ) | N.M. | ||
Operating Margin | 6.2 | % | (3.7 | )% | 9.9 | ppts. |
• | the impact of the ongoing coronavirus (COVID-19) pandemic, or similar public health crises, on the company’s financial condition, operations, distribution channels, customers and suppliers, as well as potentially exacerbating other factors discussed herein; |
• | changes in the company’s customer or supplier relationships or distribution channels, due to the ongoing COVID-19 pandemic or otherwise, including the write-off of outstanding accounts receivable or loss of particular business for competitive, credit, liquidity, supply chain, bankruptcy, restructuring or other reasons; |
• | the company's ability to maintain full operations at facilities that had been idled and restarted due to the COVID-19 pandemic, and the impact of other disruptions to the company's operations relating to the pandemic, including due to travel and other government-imposed restrictions; |
• | the costs and timing of restructuring actions and impairments or other charges resulting from such actions, or disruptions or other adverse impacts of such actions, including restructuring and related actions in Europe, the U.S. and at the company's manufacturing facility in Mexico, after the company's purchase of the remaining noncontrolling interest in such facility in January, or from adverse industry, market or other developments, including the impact of the COVID-19 pandemic; |
• | volatility in raw material and energy prices, including those of rubber, steel, petroleum-based products and natural gas or the unavailability of such raw materials or energy sources; |
• | the failure to achieve expected sales levels; |
• | volatility in the capital and financial markets or changes to the credit markets and/or access to those markets; |
• | the failure of the company’s suppliers to timely deliver products or services in accordance with contract specifications; |
• | changes to tariffs or trade agreements, or the imposition of new or increased tariffs or trade restrictions, imposed on tires, raw materials or manufacturing equipment which the company uses, including changes related to tariffs on tires, raw materials and tire manufacturing equipment imported into the U.S. from China or other countries; |
• | the impact of labor problems, including labor disruptions at the company, its joint ventures, or at one or more of its large customers or suppliers; |
• | changes in economic and business conditions in the world, including changes related to the COVID-19 pandemic and to the United Kingdom’s withdrawal from the European Union; |
• | the inability to obtain and maintain price increases to offset higher production, tariffs, raw material, energy or other costs; |
• | a disruption in, or failure of, the company’s information technology systems, including those related to cybersecurity, could adversely affect the company’s business operations and financial performance; |
• | increased competitive activity, including actions by larger competitors or lower-cost producers; |
• | the failure to develop technologies, processes or products needed to support consumer or customer demand or changes in consumer or customer behavior, brand perceptions, and preferences, including changes in sales channels; |
• | consolidation or other cooperation by and among the company’s competitors or customers; |
• | inaccurate assumptions used in developing the company’s strategic plan or operating plans, or the inability or failure to successfully implement such plans or to realize the anticipated savings or benefits from strategic actions; |
• | risks relating to investments and acquisitions, including the failure to successfully integrate them into operations or their related financings may impact liquidity and capital resources; |
• | the ultimate outcome of litigation brought against the company, including product liability claims, which could result in commitment of significant resources and time to defend and possible material damages against the company or other unfavorable outcomes; |
• | the failure to successfully ramp up production at the company's ACTR joint venture to produce TBR tires according to plans, and the ability to find and develop alternative sources for TBR tires; |
• | government regulatory and legislative initiatives including environmental, healthcare, privacy and tax matters; |
• | changes in interest or foreign exchange rates or the benchmarks used for establishing the rates; |
• | an adverse change in the company’s credit ratings, which could increase borrowing costs and/or hamper access to the credit markets; |
• | failure to implement information technologies or related systems, including failure by the company to successfully implement ERP systems; |
• | the risks associated with doing business outside of the U.S.; |
• | technology advancements; |
• | the inability to recover the costs to refresh existing products or develop and test new products or processes; |
• | failure to attract or retain key personnel; |
• | changes in pension expense and/or funding resulting from the company’s pension strategy, investment performance of the company’s pension plan assets and changes in discount rate or expected return on plan assets assumptions, changes to participant behavior, or changes to related accounting regulations; |
• | changes in the company’s relationship with its joint venture partners or suppliers, including any changes with respect to its former PCT joint venture's production of TBR tires; |
• | tax-related issues, including the ability to support certain tax positions, the impact of tax reform legislation and the inability to utilize deferred tax assets; |
• | a variety of factors, including market conditions, may affect the actual amount expended on stock repurchases; the company’s ability to consummate stock repurchases; changes in the company’s results of operations or financial conditions or strategic priorities may lead to a modification, suspension or cancellation of stock repurchases, which may occur at any time; and |
• | the inability to adequately protect the company’s intellectual property rights. |
Cooper Tire & Rubber Company | ||||||||||||||||
Condensed Consolidated Statements of Income | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(Dollar amounts in thousands except per share amounts) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net sales | $ | 764,850 | $ | 704,134 | $ | 1,792,803 | $ | 2,002,428 | ||||||||
Cost of products sold | 527,575 | 589,768 | 1,433,976 | 1,700,662 | ||||||||||||
Gross profit | 237,275 | 114,366 | 358,827 | 301,766 | ||||||||||||
Selling, general and administrative expense | 65,768 | 60,786 | 175,833 | 183,452 | ||||||||||||
Restructuring expense | — | 811 | 12,404 | 7,442 | ||||||||||||
Operating profit | 171,507 | 52,769 | 170,590 | 110,872 | ||||||||||||
Interest expense | (5,400 | ) | (7,476 | ) | (16,914 | ) | (23,599 | ) | ||||||||
Interest income | 559 | 1,507 | 2,905 | 6,887 | ||||||||||||
Other pension and postretirement benefit expense | (5,621 | ) | (9,562 | ) | (15,413 | ) | (28,212 | ) | ||||||||
Other non-operating income (expense) | 2,303 | (509 | ) | 3,678 | (593 | ) | ||||||||||
Income before income taxes | 163,348 | 36,729 | 144,846 | 65,355 | ||||||||||||
Income tax provision | 40,225 | 7,721 | 38,683 | 19,908 | ||||||||||||
Net income | 123,123 | 29,008 | 106,163 | 45,447 | ||||||||||||
Net income (loss) attributable to noncontrolling shareholders' interests | 519 | (336 | ) | 1,365 | 301 | |||||||||||
Net income attributable to Cooper Tire & Rubber Company | $ | 122,604 | $ | 29,344 | $ | 104,798 | $ | 45,146 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 2.44 | $ | 0.58 | $ | 2.08 | $ | 0.90 | ||||||||
Diluted | 2.42 | 0.58 | 2.08 | 0.90 | ||||||||||||
Weighted average shares outstanding (000s): | ||||||||||||||||
Basic | 50,323 | 50,179 | 50,281 | 50,148 | ||||||||||||
Diluted | 50,616 | 50,358 | 50,425 | 50,366 | ||||||||||||
Segment information: | ||||||||||||||||
Net Sales | ||||||||||||||||
Americas Tire | $ | 659,538 | $ | 601,957 | $ | 1,542,116 | $ | 1,699,201 | ||||||||
International Tire | 142,153 | 132,270 | 345,464 | 414,569 | ||||||||||||
Eliminations | (36,841 | ) | (30,093 | ) | (94,777 | ) | (111,342 | ) | ||||||||
Operating profit (loss): | ||||||||||||||||
Americas Tire | $ | 175,747 | $ | 67,941 | $ | 207,970 | $ | 153,544 | ||||||||
International Tire | 8,766 | (4,831 | ) | (67 | ) | (7,466 | ) | |||||||||
Unallocated corporate charges | (13,355 | ) | (11,051 | ) | (38,761 | ) | (34,781 | ) | ||||||||
Eliminations | 349 | 710 | 1,448 | (425 | ) |
Cooper Tire & Rubber Company | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(Unaudited) | ||||||||
(Dollar amounts in thousands) | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 495,599 | $ | 137,093 | ||||
Notes receivable | 15,622 | 8,647 | ||||||
Accounts receivable | 568,937 | 617,753 | ||||||
Inventories | 421,142 | 566,880 | ||||||
Other current assets | 42,676 | 48,501 | ||||||
Total current assets | 1,543,976 | 1,378,874 | ||||||
Property, plant and equipment, net | 1,028,002 | 1,011,792 | ||||||
Operating lease right-of-use assets, net | 85,230 | 86,285 | ||||||
Goodwill | 18,851 | 18,851 | ||||||
Intangibles, net | 100,309 | 113,510 | ||||||
Deferred income tax assets | 32,791 | 24,256 | ||||||
Investment in joint venture | 50,794 | 48,936 | ||||||
Other assets | 20,444 | 14,112 | ||||||
Total assets | $ | 2,880,397 | $ | 2,696,616 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Short-term borrowings | $ | 15,422 | $ | 16,188 | ||||
Accounts payable | 263,567 | 253,821 | ||||||
Accrued liabilities | 299,272 | 305,477 | ||||||
Income taxes payable | 39,080 | 15,787 | ||||||
Current portion of long-term debt and finance leases | 22,923 | 173,578 | ||||||
Total current liabilities | 640,264 | 764,851 | ||||||
Long-term debt and finance leases | 319,438 | 120,657 | ||||||
Noncurrent operating leases | 63,952 | 60,335 | ||||||
Postretirement benefits other than pensions | 227,264 | 234,773 | ||||||
Pension benefits | 136,900 | 106,577 | ||||||
Other long-term liabilities | 142,176 | 140,960 | ||||||
Deferred income tax liabilities | 1,773 | — | ||||||
Total parent stockholders' equity | 1,328,107 | 1,209,110 | ||||||
Noncontrolling shareholders' interests in consolidated subsidiaries | 20,523 | 59,353 | ||||||
Total liabilities and equity | $ | 2,880,397 | $ | 2,696,616 |
Cooper Tire & Rubber Company | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(Unaudited) | ||||||||
(Dollar amounts in thousands) | ||||||||
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Operating activities: | ||||||||
Net income | $ | 106,163 | $ | 45,447 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 118,131 | 111,518 | ||||||
Stock-based compensation | 4,071 | 3,473 | ||||||
Change in LIFO inventory reserve | (39,845 | ) | 2,438 | |||||
Amortization of unrecognized postretirement benefits | 27,212 | 27,314 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts and notes receivable | (41,929 | ) | (80,571 | ) | ||||
Inventories | 78,008 | (96,043 | ) | |||||
Other current assets | (10,411 | ) | (352 | ) | ||||
Accounts payable | 3,563 | (2,492 | ) | |||||
Accrued liabilities | (5,008 | ) | (5,350 | ) | ||||
Other items | 5,935 | (19,795 | ) | |||||
Net cash provided by (used in) operating activities | 245,890 | (14,413 | ) | |||||
Investing activities: | ||||||||
Additions to property, plant and equipment and capitalized software | (96,604 | ) | (155,808 | ) | ||||
Investment in joint venture | — | (49,001 | ) | |||||
Proceeds from the sale of assets | 146 | 6 | ||||||
Net cash used in investing activities | (96,458 | ) | (204,803 | ) | ||||
Financing activities: | ||||||||
Issuances of short-term debt | 327,860 | 1,488 | ||||||
Repayment of short-term debt | (333,129 | ) | (588 | ) | ||||
Issuance of long-term debt | 31,142 | — | ||||||
Repayment of long-term debt and finance lease obligations | (11,299 | ) | (1,196 | ) | ||||
Acquisition of noncontrolling shareholder interest | (62,272 | ) | — | |||||
Payment of financing fees | — | (2,207 | ) | |||||
Payments of employee taxes withheld from share-based awards | (990 | ) | (1,376 | ) | ||||
Payment of dividends to Cooper Tire & Rubber Company stockholders | (15,840 | ) | (15,799 | ) | ||||
Issuance of common shares related to stock-based compensation | 2,122 | 114 | ||||||
Net cash used in financing activities | (62,406 | ) | (19,564 | ) | ||||
Effects of exchange rate changes on cash | (693 | ) | 1,958 | |||||
Net change in cash, cash equivalents and restricted cash | 86,333 | (236,822 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 413,124 | 378,246 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 499,457 | $ | 141,424 | ||||
Cash and cash equivalents | $ | 495,599 | $ | 137,093 | ||||
Restricted cash included in Other current assets | 2,361 | 2,850 | ||||||
Restricted cash included in Other assets | 1,497 | 1,481 | ||||||
Total cash, cash equivalents and restricted cash | $ | 499,457 | $ | 141,424 |
Cooper Tire & Rubber Company | |||||||||
Reconciliation of Non-GAAP Financial Measures | |||||||||
(Unaudited) | |||||||||
(Dollar amounts in thousands) | |||||||||
RETURN ON INVESTED CAPITAL (ROIC) | ||||||||||||||||||||||
Trailing Four Quarters Ended September 30, 2020 | ||||||||||||||||||||||
Calculation of ROIC | Calculation of Net Interest Tax Effect | |||||||||||||||||||||
Operating profit | $ | 234,173 | Adjusted (Non-GAAP) provision for income taxes (c) | $ | 48,736 | |||||||||||||||||
Adjusted (Non-GAAP) effective tax rate | 25.8 | % | Income before income taxes (d) | $ | 189,164 | |||||||||||||||||
Income tax expense on operating profit | 60,332 | Adjusted (Non-GAAP) effective income tax rate (c)/(d) | 25.8 | % | ||||||||||||||||||
Adjusted operating profit after taxes (a) | 173,841 | |||||||||||||||||||||
Total invested capital (b) | $ | 1,704,849 | ||||||||||||||||||||
ROIC, including noncontrolling equity (a)/(b) | 10.2 | % | ||||||||||||||||||||
Calculation of Invested Capital (five quarter average) | ||||||||||||||||||||||
Equity | Long-term debt and finance leases | Current portion of long-term debt and finance leases | Short-term borrowings | Total invested capital | ||||||||||||||||||
September 30, 2020 | $ | 1,348,630 | $ | 319,438 | $ | 22,923 | $ | 15,422 | $ | 1,706,413 | ||||||||||||
June 30, 2020 | 1,197,471 | 324,610 | 21,696 | 244,745 | 1,788,522 | |||||||||||||||||
March 31, 2020 | 1,195,740 | 301,920 | 15,477 | 277,844 | 1,790,981 | |||||||||||||||||
December 31, 2019 | 1,327,733 | 309,148 | 10,265 | 12,296 | 1,659,442 | |||||||||||||||||
September 30, 2019 | 1,268,463 | 120,657 | 173,578 | 16,188 | 1,578,886 | |||||||||||||||||
Five quarter average | $ | 1,267,607 | $ | 275,155 | $ | 48,788 | $ | 113,299 | $ | 1,704,849 | ||||||||||||
Calculation of Trailing Four Quarter Income and Expense Inputs | ||||||||||||||||||||||
Quarter-ended: | Operating profit (loss) as reported | Income tax (benefit) provision as reported | Income tax overlay* | Adjusted (benefit) provision for income taxes | (Loss) income before income taxes as reported | |||||||||||||||||
September 30, 2020 | $ | 171,507 | $ | 40,225 | $ | — | $ | 40,225 | $ | 163,348 | ||||||||||||
June 30, 2020 | 5,311 | (882 | ) | — | (882 | ) | (6,525 | ) | ||||||||||||||
March 31, 2020 | (6,228 | ) | (659 | ) | — | (659 | ) | (11,976 | ) | |||||||||||||
December 31, 2019 | 63,583 | (8,554 | ) | 18,606 | 10,052 | 44,317 | ||||||||||||||||
Trailing four quarters | $ | 234,173 | $ | 30,130 | $ | 18,606 | $ | 48,736 | $ | 189,164 | ||||||||||||
*The company recorded an income tax benefit of $18,606 as a result of the implementation of a business realignment strategy in Europe in the fourth quarter of 2019. |