UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
For
Annual and Transition Reports Pursuant to Sections 13 or
15(d) of the Securities Exchange Act of 1934
(Mark One)
[X] Annual
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year
ended December 31, 2009
or
[ ] Transition
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition
period from
to
Commission File Number
001-04329
COOPER TIRE & RUBBER
COMPANY
(Exact name of registrant as
specified in its charter)
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DELAWARE
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34-4297750
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(State of incorporation)
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(I.R.S. employer
identification no.)
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701 Lima Avenue, Findlay, Ohio
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45840
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number,
including area code:
(419) 423-1321
Securities registered pursuant to
Section 12(b) of the Act:
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(Title of each class)
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(Name of each exchange on which registered)
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Common Stock, $1 par value per share
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New York Stock Exchange
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Rights to Purchase Series A Preferred Stock
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New York Stock Exchange
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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 [X]
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 [X]
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months.
Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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[ ] Large
accelerated filer
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[X] Accelerated filer
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[ ] Non-Accelerated
Filer
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[ ] Smaller
reporting company
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the voting common stock held by non-affiliates of the
registrant at June 30, 2009 was $565,983,553.
The number of shares outstanding of the registrants common stock as of January 31,
2010 was 60,791,397.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information from the registrants definitive proxy statement for its 2010 Annual Meeting of
Stockholders is hereby incorporated by reference into Part III, Items 10 14, of this
report.
1
TABLE OF CONTENTS
COOPER TIRE & RUBBER COMPANY FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
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PART I
Item 1. BUSINESS
Cooper Tire & Rubber Company (Cooper or the Company) is a leading manufacturer and marketer of
replacement tires. It is the fourth largest tire manufacturer in North America and, according to a
recognized trade source, is the ninth largest tire company in the world based on sales. Cooper
focuses on the manufacture and sale of passenger and light and medium truck replacement tires.
The Company is organized into two separate, reportable business segments: North American Tire
Operations and International Tire Operations. Each segment is managed separately. Additional
information on the Companys segments, including their financial results, total assets, products,
markets and presence in particular geographic areas, appears in Managements Discussion and
Analysis of Financial Condition and Results of Operations and the Business Segments note to the
consolidated financial statements.
Cooper was incorporated in the state of Delaware in 1930 as the successor to a business originally
founded in 1914. Based in Findlay, Ohio, Cooper currently operates 7 manufacturing facilities and
38 distribution centers in 9 countries. As of December 31, 2009, the Company employed 12,568
persons worldwide.
- 2 -
Business Segments
North American Tire Operations
The North American Tire Operations segment produces passenger car and light truck tires, primarily
for sale in the United States replacement market. Major distribution channels and customers
include independent tire dealers, wholesale distributors, regional and national retail tire chains,
and other large automotive products retail chains. The segment does not sell its products directly
to end users, except through three Company-owned retail stores, and does not manufacture tires for
sale to the automobile original equipment manufacturers (OEMs).
The segment operates in a highly competitive industry, which includes Bridgestone Corporation,
Goodyear Tire & Rubber Company and Groupe Michelin. These competitors are substantially larger
than the Company and serve OEMs as well as the replacement portion of the tire market. The segment
also faces competition from low-cost producers in Asia and South America. Some of those producers
are foreign subsidiaries of the segments competitors in North America. The segment had a market
share in 2009 of approximately 13 percent of all light vehicle replacement tire sales in the United
States. In addition to manufacturing tires in the United States, the segment has a minority
interest in a joint venture manufacturing operation in Mexico. A percentage of the products
manufactured by the segment in the United States are exported throughout the world.
Success in competing for the sale of replacement tires is dependent upon many factors, the most
important of which are price, quality, performance, line coverage, availability through appropriate
distribution channels and relationships with dealers. Other factors of importance are warranty,
credit terms and other value-added programs. The segment has built close working relationships
through the years with its independent dealers. It believes those relationships have enabled it to
obtain a competitive advantage in that channel of the market. As a steadily increasing percentage
of replacement tires are sold by large regional and national tire retailers, the segment has
increased its penetration of those distribution channels, while maintaining a focus on its
traditionally strong network of independent dealers.
The replacement tire business has a broad customer base. Overall, a balanced mix of customers and
the offering of both proprietary brand and private label tires help to protect the segment from the
adverse effects that could result from the loss of a major customer. Customers place orders on a
month-to-month basis and the segment adjusts production and inventory to meet those orders which
results in varying backlogs of orders at different times of the year.
International Tire Operations Segment
In the United Kingdom, the segment produces passenger car, light truck, racing and motorcycle tires
and markets these products primarily to dealers in the replacement markets in the United Kingdom,
continental Europe and Scandinavia. The segment does not sell its products directly to end users
and does not manufacture tires for sale to OEMs in Europe, other than several small contracts with
specialty vehicle manufacturers in the United Kingdom.
The segment has two joint venture manufacturing facilities, Cooper Chengshan and Cooper Kenda, in
the Peoples Republic of China (PRC). These facilities produce passenger car, light and medium
truck tires, and off-the-road tires. These products are manufactured for export to Europe, North
America and other markets as well as marketed to dealers in the replacement tire market within the
PRC. Only a small percentage of the tires manufactured in the PRC are sold to OEMs.
The segment has also established sales, marketing, distribution and research and development
capabilities to support the Companys objectives.
As in North America, the segment operates in a highly competitive industry, which includes
Bridgestone Corporation, Goodyear Tire & Rubber Company and Groupe Michelin. These competitors are
substantially larger than the Company and serve OEMs as well as the replacement portion of the tire
market. The segment also faces competition from low-cost producers in cost-advantaged locations.
Discontinued Operations
The discontinued operations as reported in this Form 10-K include the operations of Cooper-Standard
Automotive (formerly the Automotive segment), which was sold on December 23, 2004, and the
operations of the Oliver Rubber Company (formerly a subsidiary which was part of the North American
Tire Operations segment), which was sold on October 5, 2007.
Cooper-Standard Automotive produced components, systems, subsystems and modules for incorporation
into the passenger vehicles and light trucks manufactured by the global automotive OEMs. The
Companys Oliver Rubber Company subsidiary produced tread rubber and retreading equipment.
- 3 -
The Company elected to sell Cooper-Standard Automotive and Oliver Rubber Company in order to more
fully focus management attention and Company resources on the primary business of replacement
tires.
Raw Materials
The Companys principal raw materials include natural rubber, synthetic rubber, carbon black,
chemicals and steel reinforcement components. The Company acquires its raw materials from various
sources around the world to assure continuing supplies for its manufacturing operations and
mitigate the risk of potential supply disruptions.
During 2009, the Company experienced lower raw material costs compared with the historically high
cost levels of 2008. The pricing volatility of natural rubber and petroleum-based materials
contributes to the difficulty in managing the costs of raw materials.
The Company has a purchasing office in Singapore to acquire natural rubber and various raw
materials directly from producers in Southeast Asia. This purchasing operation enables the Company
to work directly with producers to continually improve consistency and quality and to reduce the
costs of materials, transportation and transactions.
The Company is an equity investor in Elemica, Inc., established by major manufacturers in the
chemical and tire and rubber industry to achieve cost savings through increased efficiencies and
opportunities for relevant benchmarking in the procurement and processing of raw materials,
indirect materials and services through the application of strategic sourcing and supply chain
management.
The Companys contractual relationships with its raw material suppliers are generally based on
long-term agreements and/or purchase order arrangements. For natural rubber and natural gas,
procurement is managed through a combination of buying forward production requirements and
utilizing the spot market. For other principal materials, procurement arrangements include supply
agreements that may contain formula-based pricing based on commodity indices, multi-year
agreements or spot purchases. These arrangements only cover quantities needed to satisfy normal
manufacturing demands.
Working Capital
The Companys working capital consists mainly of inventory, accounts receivable and accounts
payable. These working capital accounts are closely managed by the Company. Inventory balances
are valued at a Last In First Out (LIFO) basis for the North American segment. Inventories turn
regularly, but typically increase during the first half of the year before declining as a result of
increased sales in the second half. Accounts receivable and accounts payable are also affected by
this business cycle, typically requiring the Company to have greater working capital needs during
the second and third quarters. The Company engages in a rigorous credit analysis of its customers
and monitors their financial positions. The Company offers incentives to certain customers to
encourage the payment of account balances prior to their scheduled due dates.
At December 31, 2009, the Company held cash and cash equivalents of $427 million. The Companys
finished goods inventory at December 31, 2009 is lower than in the prior year as a result of
inventory management strategies by the Company and increasing demand.
Research, Development and Product Improvement
The Company directs its research activities toward product development, performance and operating
efficiency. The Company conducts extensive testing of current tire lines, as well as new concepts
in tire design, construction and materials. During 2009, approximately 51 million miles of tests
were performed on indoor test wheels and in monitored road tests. The Company has a tire and
vehicle test track in Texas that assists with the Companys testing activities. Uniformity
equipment is used to physically monitor its manufactured tires for high standards of ride quality.
The Company continues to design and develop specialized equipment to fit the precise needs of its
manufacturing and quality control requirements. Research and development expenditures were $22.1
million, $23.1 million and $22.3 million during 2007, 2008 and 2009, respectively.
Patents, Intellectual Property and Trademarks
The Company owns and/or has licenses to use patents and intellectual property, covering various
aspects in the design and manufacture of its products and processes, and equipment for the
manufacture of its products that will continue to be amortized over the next three to ten years.
While the Company believes these assets as a group are of material importance, it does not consider
any one asset or group of these assets to be of such importance that the loss or expiration thereof
would materially affect its business.
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The Company owns and uses tradenames and trademarks worldwide. While the Company believes such
tradenames and trademarks as a group are of material importance, the trademarks the Company
considers most significant to its business are those using the words Cooper, Mastercraft and
Avon. The Company believes all of these significant trademarks are valid and will have
unlimited duration as long as they are adequately protected and appropriately used. Certain other
tradenames and trademarks are being amortized over the next 8 to 20 years.
Seasonal Trends
There is year-round demand for passenger and truck replacement tires, but passenger replacement
tire sales are generally strongest during the third and fourth quarters of the year. Winter tires
are sold principally during the months of June through November.
Environmental Matters
The Company recognizes the importance of compliance in environmental matters and has an
organizational structure to supervise environmental activities, planning and programs. The Company
also participates in activities concerning general industry environmental matters.
The Companys manufacturing facilities, like those of the industry generally, are subject to
numerous laws and regulations designed to protect the environment. In general, the Company has not
experienced difficulty in complying with these requirements and believes they have not had a
material adverse effect on its financial condition or the results of its operations. The Company
expects additional requirements with respect to environmental matters will be imposed in the
future. The Companys 2009 expense and capital expenditures for environmental matters at its
facilities were not material, nor is it expected that expenditures in 2010 for such uses will be
material.
Foreign Operations
The Company has a manufacturing facility, a technical center, a distribution center and its
European headquarters office located in the United Kingdom. There are five distribution centers
and five sales offices in Europe. The Company has two manufacturing facilities, 17 distribution
centers, a technical center, two sales offices and an administrative office in the PRC. The
Company also has a purchasing office in Singapore. In Mexico, the Company has a sales office and
three distribution centers. The Company also has an investment in a manufacturing operation in
Mexico.
The Company believes the risks of conducting business in less developed markets, including the PRC,
other Asian countries and Mexico, are somewhat greater than in the United States, Canadian and
Western European markets. This is due to the increased potential for currency volatility, high
interest and inflation rates, and the general political and economic instability that are
associated with emerging markets.
Additional information on the Companys foreign operations can be found in the Business Segments
note to the consolidated financial statements.
Available Information
The Company makes available free of charge on or through its Internet website its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after it electronically files such material with, or
furnishes it to, the U.S. Securities and Exchange Commission (SEC). The Companys internet
address is http://www.coopertire.com. The Company has adopted charters for each of its Audit,
Compensation and Nominating and Governance Committees, corporate governance guidelines and a code
of business ethics and conduct which are available on the Companys internet website and will be
available to any stockholder who requests them from the Companys Director of Investor Relations.
The information contained on the Companys website is not incorporated by reference in this annual
report on Form 10-K and should not be considered a part of this report.
Item 1A. RISK FACTORS
The more significant risk factors related to the Company and its subsidiaries follow:
The Company is facing heightened risks due to the current business environment.
Current global economic conditions may affect demand for the Companys products, create volatility
in raw material costs and affect the availability and cost of credit. These conditions also affect
the Companys customers and suppliers as well as retail customers.
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A deterioration in the global macroeconomic environment or in specific regions could impact the
Company and, depending upon the severity and duration of these factors, the Companys profitability
and liquidity position could be negatively impacted.
This may also be the result of increased price competition and product discounts, resulting in
lower margins in the business.
Pricing volatility for raw materials could result in increased costs and may affect the Companys
profitability.
The pricing volatility for natural rubber and petroleum-based materials contributes to the
difficulty in managing the costs of raw materials. Costs for certain raw materials used in the
Companys operations, including natural rubber, chemicals, carbon black, steel reinforcements and
synthetic rubber remain volatile. Increasing costs for raw material supplies will increase the
Companys production costs and affect its margins if the Company is unable to pass the higher
production costs on to its customers in the form of price increases.
Further, if the Company is unable to obtain adequate supplies of raw materials in a timely manner,
its operations could be interrupted. In recent years, the severity of hurricanes and the
consolidation of the supplier base have had an impact on the availability of raw materials.
If the price of natural gas or other energy sources increases, the Companys operating expenses
could increase significantly.
The Companys manufacturing facilities rely principally on natural gas, as well as electrical power
and other energy sources. High demand and limited availability of natural gas and other energy
sources have resulted in significant increases in energy costs in the past several years which have
increased the Companys operating expenses and transportation costs. Higher energy costs would
increase the Companys production costs and adversely affect its margins and results of operations.
Further, if the Company is unable to obtain adequate sources of energy, its operations could be
interrupted.
The Companys industry is highly competitive, and it may not be able to compete effectively with
low-cost producers and larger competitors.
The replacement tire industry is a highly competitive, global industry. Some of the Companys
competitors are large companies with relatively greater financial resources. Most of the Companys
competitors have operations in lower-cost countries. Intense competitive activity in the
replacement tire industry has caused, and will continue to cause, pressures on the Companys
business. The Companys ability to compete successfully will depend in part on its ability to
balance capacity with demand, leverage global purchasing of raw materials, improve productivity,
eliminate redundancies and increase production at low-cost, high-quality supply sources. If the
Company is unable to offset continued pressures with improved operating efficiencies, its sales,
margins, operating results and market share would decline and the decline could become material.
The Company may be unable to recover new product and process development and testing costs, which
could increase the cost of operating its business.
The Companys business strategy emphasizes the development of new equipment and new products and
using new technology to improve quality, performance and operating efficiency. Developing new
products and technologies requires significant investment and capital expenditures, is
technologically challenging and requires extensive testing and accurate anticipation of
technological and market trends. If the Company fails to develop new products that are appealing
to its customers, or fails to develop products on time and within budgeted amounts, the Company may
be unable to recover its product development and testing costs.
The Company conducts its manufacturing, sales and distribution operations on a worldwide basis and
is subject to risks associated with doing business outside the United States.
The Company has operations worldwide, including in the U.S., the United Kingdom, Europe, Mexico and
the PRC. The Company has two joint venture manufacturing plants, Cooper Chengshan and Cooper
Kenda, in the PRC and has continued to expand operations in that country. The Company has also
invested in a tire manufacturing operation in Mexico. There are a number of risks in doing
business abroad, including political and economic uncertainty, social unrest, shortages of trained
labor and the uncertainties associated with entering into joint ventures or similar arrangements in
foreign countries. These risks may impact the Companys ability to expand its operations in the
PRC and elsewhere and otherwise achieve its objectives relating to its foreign operations including
utilizing these locations as suppliers to other markets. In addition, compliance with multiple and
potentially conflicting foreign laws and regulations, import and export limitations and exchange
controls is burdensome and expensive. The Companys foreign operations also subject it to the
risks of international terrorism and hostilities and to foreign currency risks, including exchange
rate fluctuations and limits on the repatriation of funds.
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The Companys results could be impacted by the tariffs recently imposed by the United States
government on tires imported from the PRC.
On September 26, 2009, a tariff was imposed on light vehicle tires imported into the United States
from the PRC at a level of 35 percent for the first 12 months, 30 percent for the second 12 months,
and 25 percent for the third 12 months. The Companys ability to competitively source tires from
its operations in the PRC could be significantly impacted. Other effects ranging from impacts on
the price of tires to responsive actions from other governments could also have significant impacts
on the Companys results.
The Companys expenditures for pension and other postretirement obligations could be materially
higher than it has predicted if its underlying assumptions prove to be incorrect.
The Company provides defined benefit and hybrid pension plan coverage to union and non-union U.S.
employees and a contributory defined benefit plan in the U.K. The Companys pension expense and
its required contributions to its pension plans are directly affected by the value of plan assets,
the projected and actual rates of return on plan assets and the actuarial assumptions the Company
uses to measure its defined benefit pension plan obligations, including the discount rate at which
future projected and accumulated pension obligations are discounted to a present value and the
inflation rate. The Company could experience increased pension expense due to a combination of
factors, including the decreased investment performance of its pension plan assets, decreases in
the discount rate and changes in its assumptions relating to the expected return on plan assets.
The Company could also experience increased other postretirement expense due to decreases in the
discount rate and/or increases in the health care trend rate.
In the event of declines in the market value of the Companys pension assets or lower discount
rates to measure the present value of pension obligations, the Company could experience changes to
its Consolidated Balance Sheet which would include an increase to Pension benefits liabilities and
a corresponding decrease in Stockholders equity through Cumulative other comprehensive loss and
could result in higher minimum funding requirements.
Compliance with the TREAD Act and similar regulatory initiatives could increase the cost of
operating the Companys business.
The Company is subject to the Transportation Recall Enhancement Accountability and Documentation
Act, or the TREAD Act, which was adopted in 2000. Proposed and final rules issued under the TREAD
Act regulate test standards, tire labeling, tire pressure monitoring, early warning reporting, tire
recalls and record retention. Compliance with TREAD Act regulations has increased, and will
continue to increase, the cost of producing and distributing tires in the U.S. Compliance with the
TREAD Act and other federal, state and local laws and regulations now in effect, or that may be
enacted, could require significant capital expenditures, increase the Companys production costs
and affect its earnings and results of operations.
In addition, while the Company believes that its tires are free from design and manufacturing
defects, it is possible that a recall of the Companys tires, under the TREAD Act or otherwise,
could occur in the future. A substantial recall could harm the Companys reputation, operating
results and financial position.
Beginning with the third quarter, 2003, the TREAD Act required that all tire companies submit
quarterly data to NHTSA on fatalities, injuries and property damage claims on tires. On July 22,
2008, the U.S. District Court of Appeals for the District of Columbia Circuit ruled that this data
is not subject to automatic exemption from disclosure made in response to requests under the
Freedom of Information Act. Consequently, the Companys data, which is unverified at the time of
submission to NHTSA, has been made public. The impact, if any, of this release on current or
future litigation or on future sales is not known at this time.
Any interruption in the Companys skilled workforce could impair its operations and harm its
earnings and results of operations.
The Companys operations depend on maintaining a skilled workforce and any interruption of its
workforce due to shortages of skilled technical, production and professional workers could
interrupt the Companys operations and affect its operating results. Further, a significant number
of the Companys U.S. employees are currently represented by unions. The labor agreement at the
Findlay, Ohio operation expires October 2011 and the labor agreement at the Texarkana, Arkansas
operations expires January 2012. Although the Company believes that its relations with its
employees are generally good, the Company cannot provide assurance that it will be able to
successfully maintain its relations with its employees. If the Company fails to extend or
renegotiate its collective bargaining agreements with the labor unions on satisfactory terms, or if
its unionized employees were to engage in a strike or other work stoppages, the Companys business
and operating results could suffer.
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The Company has a risk of exposure to products liability claims which, if successful, could have a
negative impact on its financial position, cash flows and results of operations.
The Companys operations expose it to potential liability for personal injury or death as an
alleged result of the failure of or conditions in the products that it designs and manufactures.
Specifically, the Company is a party to a number of products liability cases in which individuals
involved in motor vehicle accidents seek damages resulting from allegedly defective tires that it
manufactured. Products liability claims and lawsuits, including possible class action litigation,
could have a negative effect on the Companys financial position, cash flows and results of
operations.
Those claims may result in material losses in the future and cause the Company to incur significant
litigation defense costs. Further, the Company cannot provide assurance that its insurance
coverage will be adequate to address any claims that may arise. A successful claim brought against
the Company in excess of its available insurance coverage may have a significant negative impact on
its business and financial condition.
Further, the Company cannot provide assurance that it will be able to maintain adequate insurance
coverage in the future at an acceptable cost or at all.
The Company has a risk due to volatility of the capital and financial markets.
The Company periodically requires access to the capital and financial markets as a significant
source of liquidity for capital requirements that it cannot satisfy by cash on hand or operating
cash flows. Substantial volatility in world capital markets and the banking industry may make it
difficult for the Company to access credit markets and to obtain financing or refinancing, as the
case may be, on satisfactory terms or at all. In addition, various additional factors, including a
deterioration of the Companys credit ratings or its business or financial condition, could further
impair its access to the capital markets. See also related comments under There are risks
associated with the Companys global strategy of using joint ventures and partially owned
subsidiaries below.
Additionally, any inability to access the capital markets, including the ability to refinance
existing debt when due, could require the Company to defer critical capital expenditures, reduce or
not pay dividends, reduce spending in areas of strategic importance, sell important assets or, in
extreme cases, seek protection from creditors.
If assumptions used in developing the Companys strategic plan are inaccurate or the Company is
unable to execute its strategic plan effectively, its profitability and financial position could be
negatively impacted.
In February 2008, the Company announced its strategic plan which contains three imperatives:
Build a sustainable, competitive cost position,
Drive profitable top line growth, and
Build bold organizational capabilities and enablers to support strategic goals.
If the assumptions used in developing the strategic plan vary significantly from actual conditions,
the Companys sales, margins and profitability could be harmed.
The Company may not be able to protect its intellectual property rights adequately.
The Companys success depends in part upon its ability to use and protect its proprietary
technology and other intellectual property, which generally covers various aspects in the design
and manufacture of its products and processes. The Company owns and uses tradenames and trademarks
worldwide. The Company relies upon a combination of trade secrets, confidentiality policies,
nondisclosure and other contractual arrangements and patent, copyright and trademark laws to
protect its intellectual property rights. The steps the Company takes in this regard may not be
adequate to prevent or deter challenges, reverse engineering or infringement or other violations of
its intellectual property, and the Company may not be able to detect unauthorized use or take
appropriate and timely steps to enforce its intellectual property rights. In addition, the laws of
some countries may not protect and enforce the Companys intellectual property rights to the same
extent as the laws of the United States.
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The Company may not be successful in executing and integrating acquisitions into its operations,
which could harm its results of operations and financial condition.
The Company routinely evaluates potential acquisitions and may pursue acquisition opportunities,
some of which could be material to its business. While the Company believes there are a number of
potential acquisition candidates available that would complement its business, it currently has no
agreements to acquire any specific business or material assets. The Company cannot predict whether
it will be successful in pursuing any acquisition opportunities or what the consequences of any
acquisition would be. Additionally, in any future acquisitions, the Company may encounter various
risks, including:
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the possible inability to integrate an acquired business into its operations; |
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increased intangible asset amortization; |
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diversion of managements attention; |
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loss of key management personnel; |
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unanticipated problems or liabilities; and |
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increased labor and regulatory compliance costs of acquired businesses. |
Some or all of those risks could impair the Companys results of operations and impact its
financial condition. The Company may finance any future acquisitions from internally generated
funds, bank borrowings, public offerings or private placements of equity or debt securities, or a
combination of the foregoing. Future acquisitions may involve the expenditure of significant funds
and management time. Future acquisitions may also require the Company to increase its borrowings
under its bank credit facilities or other debt instruments, or to seek new sources of liquidity.
Increased borrowings would correspondingly increase the Companys financial leverage, and could
result in lower credit ratings and increased future borrowing costs. These risks could also reduce
the Companys flexibility to respond to changes in its industry or in general economic conditions.
The Company is required to comply with environmental laws and regulations that could cause it to
incur significant costs.
The Companys manufacturing facilities are subject to numerous laws and regulations designed to
protect the environment, and the Company expects that additional requirements with respect to
environmental matters will be imposed on it in the future. Material future expenditures may be
necessary if compliance standards change or material unknown conditions that require remediation
are discovered. If the Company fails to comply with present and future environmental laws and
regulations, it could be subject to future liabilities or the suspension of production, which could
harm its business or results of operations. Environmental laws could also restrict the Companys
ability to expand its facilities or could require it to acquire costly equipment or to incur other
significant expenses in connection with its manufacturing processes.
A portion of the Companys business is seasonal, which may affect its period-to-period results.
Although there is year-round demand for replacement tires, demand for passenger replacement tires
is typically strongest during the third and fourth quarters of the year in the northern hemisphere
where the majority of the Companys business is conducted, principally due to higher demand for
winter tires during the months of June through November. The seasonality of this portion of the
Companys business may affect its operating results from quarter-to-quarter.
The realizability of deferred tax assets may affect the Companys profitability and cash flows.
A valuation allowance is required pursuant to ASC 740 relating to Accounting for Income Taxes,
when, based upon an assessment which is largely dependent upon objectively verifiable evidence
including recent operating loss history, expected reversal of existing deferred tax liabilities and
tax loss carry back capacity, it is more likely than not that some portion of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are determined separately for
each taxing jurisdiction in which the Company conducts its operations or otherwise generates
taxable income or losses. In the United States, the Company has recorded significant deferred tax
assets, the largest of which relate to tax attribute carryforwards, products liabilities, pension
and other post retirement benefit obligations. These deferred tax assets are partially offset by
deferred tax liabilities, the most significant of which relates to accelerated depreciation. Based
upon this assessment, the Company maintains a $174.4 million valuation allowance for the portion of
U.S. deferred tax assets exceeding deferred tax liabilities. In addition, the Company has recorded
valuation allowances of $2.4 million for certain non-U.S. net deferred tax assets primarily
associated with losses in foreign jurisdictions. As a result of changes in the amount of U.S. and
certain foreign net deferred tax assets during the year, the valuation allowance was decreased in
2009 by $56.8 million. The pension liability and associated deferred tax asset accounts for $127.0
million of the total valuation allowance at December 31, 2009.
- 9 -
The impact of new accounting standards on determining pension and other postretirement benefit
plans expense may have a negative impact on the Companys results of operations.
The Financial Accounting Standards Board is considering the second part of its review of accounting
for pension and postretirement benefit plans. This second phase of this project may result in
changes to the current manner in which pension and other postretirement benefit plan costs are
expensed. These changes could result in higher pension and other postretirement costs.
There are risks associated with the Companys global strategy of using joint ventures and partially
owned subsidiaries.
The Companys strategy includes expanding its global footprint through the use of joint ventures
and other partially owned subsidiaries. These entities operate in countries outside of the U.S.,
are generally less well capitalized than the Company and bear risks similar to the risks of the
Company. However, there are specific additional risks applicable to these subsidiaries and these
risks, in turn, add potential risks to the Company. Such risks include: somewhat greater risk of
sudden changes in laws and regulations which could impact their competitiveness, risk of joint
venture partners or other investors failing to meet their obligations under related shareholders
agreements and risk of being denied access to the capital markets which could lead to resource
demands on the Company in order to maintain or advance its strategy. The Companys outstanding
notes and primary credit facility contain cross default provisions in the event of certain defaults
by the Company under other agreements with third parties, including certain of the agreements with
the Companys joint venture partners or other investors. In the event joint venture partners or
other investors do not satisfy their funding or other obligations and the Company does not or
cannot satisfy such obligations, the Company could be in default under its outstanding notes and
primary credit facility and, accordingly, be required to repay or refinance such obligations.
There is no assurance that the Company would be able to repay such obligations or that the current
noteholders or creditors would agree to refinance or to modify the existing arrangements on
acceptable terms or at all. For further discussion of access to the capital markets, see above
Capital and Financial Markets; Liquidity.
The two consolidated Chinese joint ventures have been financed in part using multiple loans from
several lenders to finance facility construction, expansions and working capital needs. These loans
are generally for terms of three years or less. Therefore, debt maturities occur frequently and
access to the capital markets is crucial to their ability to maintain sufficient liquidity to
support their operations.
In connection with its acquisition of Cooper Chengshan, beginning January 1, 2009, and continuing
through December 31, 2011, the minority interest partner has the right to sell and, if exercised,
the Company has the obligation to purchase, the remaining 49 percent minority interest share at a
minimum price of $62.7 million. The Company has received notification from its noncontrolling
shareholder of its intention to exercise a portion of its put option. After receiving governmental
approvals, the Company will purchase the 14 percent share for $17.9 million. The remaining shares
may be sold to the Company under the put option through December 31, 2011.
The minority investment in a tire operation in Mexico, which is not consolidated with the Companys
results, is being funded largely by loans from the Company. The amount of such loans fluctuates
with its results of operations and working capital needs and its ability to repay the existing
loans is heavily dependent upon successful operations and cash flows.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
- 10 -
Item 2. PROPERTIES
As shown in the following table, at December 31, 2009 the Company maintained 67 manufacturing,
distribution, retail stores and office facilities worldwide. The Company owns a majority of the
manufacturing facilities while some manufacturing, distribution and office facilities are leased.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire Operations |
|
International Tire Operations |
|
|
Type of Facility |
|
United States |
|
Mexico |
|
Europe |
|
Asia |
|
Total |
|
Manufacturing |
|
|
4 |
|
|
|
- |
* |
|
|
1 |
|
|
|
2 |
** |
|
|
7 |
|
Distribution |
|
|
12 |
|
|
|
3 |
|
|
|
6 |
|
|
|
17 |
|
|
|
38 |
|
Retail stores |
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
Technical centers
and offices |
|
|
6 |
|
|
|
1 |
|
|
|
7 |
|
|
|
5 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
25 |
|
|
|
4 |
|
|
|
14 |
|
|
|
24 |
|
|
|
67 |
|
|
|
|
* |
|
The Company has a minority interest in a tire manufacturing operation in Mexico. |
|
** |
|
The manufacturing facilities are joint ventures in the PRC. |
The Company believes its properties have been adequately maintained, generally are in good
condition and are suitable and adequate to meet the demands of each segments business.
Item 3. LEGAL PROCEEDINGS
The Company is a defendant in various judicial proceedings arising in the ordinary course of
business. A significant portion of these proceedings are products liability cases in which
individuals involved in vehicle accidents seek damages resulting from allegedly defective tires
manufactured by the Company. In the future, products liability costs could have a materially
greater impact on the consolidated results of operations and financial position of the Company than
in the past. After reviewing all of these proceedings, and taking into account all relevant
factors concerning them, the Company does not believe that any liabilities resulting from these
proceedings are reasonably likely to have a material adverse effect on its liquidity, financial
condition or results of operations in excess of amounts recorded at December 31, 2009.
On February 2, 2010 in the case of Cates, et al v. Cooper Tire & Rubber Company, the United States
District Court for the Northern District of Ohio entered an order approving the settlement
agreement negotiated by the parties in April 2009, in its entirety, as being fair, reasonable and
adequate and dismissed, with prejudice, the case and a related lawsuit, Johnson, et al v. Cooper
Tire & Rubber Company. The settlement agreement provides for 1) a cash payment of $7.05 million to
the Plaintiffs for reimbursement of costs; and 2) modification to the Companys approach and costs
of providing future health care to specified current retiree groups which will result in an
amendment to the Companys retiree medical plan.
A group of the Companys union retirees and surviving spouses filed the Cates lawsuit on behalf of
a purported class claiming that the Company was not entitled to impose any contribution requirement
for the cost of their health care coverage pursuant to a series of letter agreements entered into
by the Company and the United Steelworkers and that Plaintiffs were promised lifetime benefits, at
no cost, after retirement. As a result of settlement discussions, the related Johnson case was
filed with the Court on behalf of a different, smaller group of hourly union-represented retirees.
The Company is making plans to implement the settlement agreement. As a consequence of the
settlement agreement, the Company recorded $7.05 million of expense during the first quarter
relating to the specified cash payments. The estimated present value of costs related to the plan
amendment is expected to be approximately $7.7 million which has been reflected as an increase in
the accrual for Other Post-employment Benefits with an offset to the Cumulative other comprehensive
loss component of Shareholders Equity and will be amortized as a charge to operations over the
remaining life expectancy of the affected plan participants beginning with the effective date of
the changes.
Item 4. RESERVED
- 11 -
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and all positions and offices held by all executive officers of the Company are as
follows:
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
Executive Office Held |
|
Business Experience |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roy V. Armes
|
|
|
57 |
|
|
Chairman of the Board,
President, Chief Executive
Officer and Director
|
|
Chairman of the Board since December 2007,
President, Chief Executive Officer and
Director since January 2007. Previously,
Senior Vice President of Project
Development at Whirlpool
Corporation, a marketer and
manufacturer of home appliances,
since January 2006; Corporate Vice
President and General Director at
Whirlpool Mexico from 2002 to
January 2006. |
|
|
|
|
|
|
|
|
|
Brenda S. Harmon
|
|
|
58 |
|
|
Vice President
|
|
Vice President, Chief Human
Resources Officer since December 2009. Previously
Owner of Harmon Consulting Services since
November 2008. Vice president -
Human Resources of Contech
Construction Products, Inc., a
privately held construction
products and environmental
solutions company from 2004 to
2008. |
|
|
|
|
|
|
|
|
|
Bradley E. Hughes
|
|
|
47 |
|
|
Vice President and
Chief Financial Officer
|
|
Vice President and Chief Financial Officer
since November 2009. Previously Global
Product Development Controller with Ford
Motor Corporation, an automobile
manufacturer, since 2008; Finance Director,
Ford South America Operations from 2005 to
2008; Director, European Business Strategy and Implementation from 2004 to 2005. |
|
|
|
|
|
|
|
|
|
James E. Kline
|
|
|
68 |
|
|
Vice President,
General Counsel
and Secretary
|
|
Vice President, General Counsel and
Secretary since April 2003. Vice President
from February to April 2003. |
|
|
|
|
|
|
|
|
|
Harold C. Miller
|
|
|
57 |
|
|
Vice President
|
|
Vice President since March 2002. |
Each such officer shall hold such office until a successor is selected and qualified.
- 12 -
PART II
Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Cooper Tire & Rubber Company common stock is traded on the New York Stock Exchange under the
symbol CTB. The following table sets forth, for the periods indicated, the high and low
sales prices of the common stock as reported in the consolidated reporting system for the New
York Stock Exchange Composite Transactions:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
20.80 |
|
|
$ |
13.21 |
|
Second Quarter |
|
|
15.81 |
|
|
|
7.74 |
|
Third Quarter |
|
|
12.15 |
|
|
|
7.05 |
|
Fourth Quarter |
|
|
8.86 |
|
|
|
3.67 |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
6.96 |
|
|
$ |
2.96 |
|
Second Quarter |
|
|
11.74 |
|
|
|
3.86 |
|
Third Quarter |
|
|
18.88 |
|
|
|
9.77 |
|
Fourth Quarter |
|
|
20.55 |
|
|
|
14.15 |
|
Five-Year Stockholder Return Comparison
The SEC requires that the Company include in its annual report to stockholders a line graph
presentation comparing cumulative five-year stockholder returns on an indexed basis with the
Standard & Poors (S&P) Stock Index and either a published industry or line-of-business index or
an index of peer companies selected by the Company. The Company in 1993 chose what is now the S&P
500 Auto Parts & Equipment Index as the most appropriate of the nationally recognized industry
standards and has used that index for its stockholder return comparisons in all of its proxy
statements since that time.
The following chart assumes three hypothetical $100 investments on December 31, 2004, and shows the
cumulative values at the end of each succeeding year resulting from appreciation or depreciation in
the stock market price, assuming dividend reinvestment.
- 13 -
Total Return To Shareholders
(Includes reinvestment of dividends)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANNUAL RETURN PERCENTAGE |
|
|
|
Years Ending |
|
Company / Index |
|
Dec05 |
|
|
Dec06 |
|
|
Dec07 |
|
|
Dec08 |
|
|
Dec09 |
|
|
Cooper Tire & Rubber Company |
|
|
-27.14 |
|
|
|
-3.33 |
|
|
|
18.42 |
|
|
|
-60.98 |
|
|
|
241.72 |
|
S&P 500 Index |
|
|
4.91 |
|
|
|
15.79 |
|
|
|
5.49 |
|
|
|
-37.00 |
|
|
|
26.46 |
|
S&P 500 Auto Parts & Equipment |
|
|
-22.47 |
|
|
|
12.37 |
|
|
|
27.49 |
|
|
|
-48.66 |
|
|
|
54.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDEXED RETURNS |
|
|
|
|
|
|
|
|
|
Years Ending |
|
|
|
|
|
|
Base |
|
|
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company / Index |
|
Dec04 |
|
|
Dec05 |
|
|
Dec06 |
|
|
Dec07 |
|
|
Dec08 |
|
|
Dec09 |
|
|
Cooper Tire & Rubber Company |
|
|
100 |
|
|
|
72.86 |
|
|
|
70.44 |
|
|
|
83.41 |
|
|
|
32.55 |
|
|
|
111.24 |
|
S&P 500 Index |
|
|
100 |
|
|
|
104.91 |
|
|
|
121.48 |
|
|
|
128.16 |
|
|
|
80.74 |
|
|
|
102.11 |
|
S&P 500 Auto Parts & Equipment |
|
|
100 |
|
|
|
77.53 |
|
|
|
87.12 |
|
|
|
111.07 |
|
|
|
57.02 |
|
|
|
88.20 |
|
Comparison
of Cumulative Five Year Total Return
- 14 -
The number of holders of record at December 31, 2009 was 2,822.
The Company has paid consecutive quarterly dividends on its common stock since 1973. Future
dividends will depend upon the Companys earnings, financial condition and other factors.
Additional information on the Companys liquidity and capital resources can be found in
Managements Discussion and Analysis of Financial Condition and Results of Operations. The
Companys retained earnings are available for the payment of cash dividends and the purchases
of the Companys shares. Quarterly dividends per common share for the most recent two years
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
2009 |
|
|
March 31 |
|
$ |
0.105 |
|
|
March 31 |
|
$ |
0.105 |
|
June 30 |
|
|
0.105 |
|
|
June 30 |
|
|
0.105 |
|
September 30 |
|
|
0.105 |
|
|
September 30 |
|
|
0.105 |
|
December 30 |
|
|
0.105 |
|
|
December 30 |
|
|
0.105 |
|
|
|
|
|
|
|
|
|
|
Total: |
|
$ |
0.420 |
|
|
Total: |
|
$ |
0.420 |
|
|
|
|
|
|
|
|
|
|
(d) |
|
Issuer purchases of equity securities |
|
|
|
There were no repurchases of Company stock during the fourth quarter of the year ended
December 31, 2009. |
- 15 -
|
|
|
Item 6. |
|
SELECTED FINANCIAL DATA |
The following Selected Financial Data of the Company reflects its continuing operations after the
sale of its automotive operations, known as Cooper-Standard Automotive, in a transaction which
closed on December 23, 2004 and the sale of the Oliver Rubber Company in a transaction which closed
on October 5, 2007.
(Dollar amounts in thousands except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from |
|
|
Earnings (Loss) Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
|
from Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from |
|
|
attributable to |
|
|
attributable to |
|
|
|
Net |
|
|
Operating |
|
|
Continuing Operations |
|
|
Cooper Tire & |
|
|
Cooper Tire & Rubber Company |
|
|
|
Sales |
|
|
Profit (Loss) |
|
|
Before Income taxes |
|
|
Rubber Company |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
2,035,623 |
|
|
$ |
25,150 |
|
|
$ |
(15,953 |
) |
|
$ |
(16,016 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.25 |
) |
2006 |
|
|
2,575,218 |
|
|
|
(45,252 |
) |
|
|
(75,995 |
) |
|
|
(74,320 |
) |
|
|
(1.21 |
) |
|
|
(1.21 |
) |
2007 |
|
|
2,932,575 |
|
|
|
134,392 |
|
|
|
116,030 |
|
|
|
91,435 |
|
|
|
1.48 |
|
|
|
1.46 |
|
2008 |
|
|
2,881,811 |
|
|
|
(216,633 |
) |
|
|
(257,775 |
) |
|
|
(219,444 |
) |
|
|
(3.72 |
) |
|
|
(3.72 |
) |
2009 |
|
|
2,778,990 |
|
|
|
156,269 |
|
|
|
115,523 |
|
|
|
83,420 |
|
|
|
1.40 |
|
|
|
1.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Property, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders |
|
|
Total |
|
|
Plant & |
|
|
Capital |
|
|
|
|
|
|
Long-term |
|
|
|
Equity |
|
|
Assets |
|
|
Equipment |
|
|
Expenditures |
|
|
Depreciation |
|
|
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
943,730 |
|
|
$ |
2,152,186 |
|
|
$ |
751,767 |
|
|
$ |
160,273 |
|
|
$ |
103,047 |
|
|
$ |
491,618 |
|
2006 |
|
|
711,200 |
|
|
|
2,237,136 |
|
|
|
971,072 |
|
|
|
186,190 |
|
|
|
127,693 |
|
|
|
513,213 |
|
2007 |
|
|
882,948 |
|
|
|
2,298,490 |
|
|
|
992,215 |
|
|
|
140,972 |
|
|
|
131,007 |
|
|
|
464,608 |
|
2008 |
|
|
380,966 |
|
|
|
2,042,896 |
|
|
|
901,274 |
|
|
|
128,773 |
|
|
|
138,805 |
|
|
|
325,749 |
|
2009 |
|
|
464,052 |
|
|
|
2,100,340 |
|
|
|
850,971 |
|
|
|
79,333 |
|
|
|
121,483 |
|
|
|
330,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term |
|
|
|
|
|
Average |
|
|
|
|
|
|
Debt To |
|
Dividends |
|
|
Common Shares |
|
|
Number of |
|
|
|
Capitalization |
|
Per Share |
|
|
(000) |
|
|
Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
34.3% |
|
$ |
0.42 |
|
|
|
63,653 |
|
|
|
8,762 |
|
2006 |
|
41.9% |
|
|
0.42 |
|
|
|
61,338 |
|
|
|
13,361 |
|
2007 |
|
34.5% |
|
|
0.42 |
|
|
|
61,938 |
|
|
|
13,355 |
|
2008 |
|
46.1% |
|
|
0.42 |
|
|
|
59,048 |
|
|
|
13,311 |
|
2009 |
|
41.6% |
|
|
0.42 |
|
|
|
59,439 |
|
|
|
12,568 |
|
|
|
Effective February 4, 2006, the Company acquired a 51 percent ownership position in Cooper
Chengshan (Shandong) Passenger Tire Company Ltd. and Cooper Chengshan (Shandong) Tire Company, Ltd.
(Cooper Chengshan). The acquisition has been accounted for as a purchase transaction and the
fair value of fixed assets, liabilities and tangible and identifiable intangible assets have been
included in the Companys Consolidated Balance Sheets at December 31, 2008 and 2009. The operating
results of Cooper Chengshan have been included in the consolidated financial statements of the
Company since the date of acquisition.
The Companys continuing operations recorded an impairment charge during 2006 of $47,973 related to
goodwill and an indefinite-lived intangible asset and recorded an impairment charge during 2008 of
$31,340 related to goodwill as described in Note 2 Goodwill and Intangibles.
In 2008, the Companys continuing operations recorded $76,402 of restructuring charges associated
with the closures of its Albany, Georgia manufacturing facility and Dayton, New Jersey distribution
center as described in Note 14 Restructuring.
- 16 -
|
|
|
Item 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |
Business of the Company
The Company produces and markets passenger, light and medium truck, motorsport and motorcycle tires
which are sold internationally in the replacement tire market to independent tire dealers,
wholesale distributors, regional and national retail tire chains and large retail chains that sell
tires, as well as other automotive and racing products.
In recent years the Company has faced both general industry and company-specific challenges. These
included volatile raw material costs, increasing product complexity and pressure from competitors
with manufacturing in lower-cost regions. Industry demand for tires has been weak in recent
years. The global economic environment began to severely decline in 2007 with a global recession
beginning in 2008.
To address these conditions and position the Company for future success, a Strategic Plan was
developed which the Company is implementing. This plan, originally communicated in February 2008,
has three strategic imperatives:
Building a sustainable cost competitive position,
Driving top-line profitable growth, and
Building bold organizational capabilities and enablers to support strategic goals.
To support these imperatives the Company has undertaken a number of cost saving and profit
improvement initiatives. These included a wide variety of projects in the areas of manufacturing,
supply chain, selling and general administrative and logistics. The implementation of these
projects had a favorable impact on the Companys profitability in 2009.
The Company also is expanding operations in what are considered lower-cost countries. These
initiatives include the Cooper Kenda Tire manufacturing joint venture in the PRC, the Cooper
Chengshan joint venture in the PRC and an investment in a manufacturing operation in Mexico.
Products from these operations will both provide a lower cost source of tires for existing markets
and be used to expand the Companys market share in Mexico and the PRC.
Products that meet changing demands in the market, including improved fuel efficiency and consumer
value, have been recently launched.
The following discussion of financial condition and results of operations should be read together
with Selected Financial Data, the Companys consolidated financial statements and the notes to
those statements and other financial information included elsewhere in this report.
This Managements Discussion and Analysis of Financial Condition and Results of Operations presents
information related to the consolidated results of the continuing operations of the Company,
including the impact of restructuring costs on the Companys results, a discussion of past results
and future outlook of each of the Companys segments and information concerning both the liquidity
and capital resources and critical accounting policies of the Company. A discussion of the past
results of its discontinued operations and information related to the gains recognized on the sales
of Cooper-Standard Automotive and Oliver Rubber Company are also included. This report contains
forward-looking statements that involve risks and uncertainties. The Companys actual results may
differ materially from those indicated in the forward-looking statements. See Risk Factors in Item
1A for information regarding forward-looking statements.
- 17 -
Consolidated Results of Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
|
|
|
(Dollar amounts in millions except per share amounts) |
|
2007 |
|
|
Change |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
2,209.8 |
|
|
|
-3.1 |
% |
|
$ |
2,142.1 |
|
|
|
-6.3 |
% |
|
$ |
2,006.2 |
|
International Tire |
|
|
881.3 |
|
|
|
10.6 |
% |
|
|
975.0 |
|
|
|
1.9 |
% |
|
|
993.8 |
|
Eliminations |
|
|
(158.5 |
) |
|
|
48.5 |
% |
|
|
(235.3 |
) |
|
|
-6.1 |
% |
|
|
(221.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,932.6 |
|
|
|
-1.7 |
% |
|
$ |
2,881.8 |
|
|
|
-3.6 |
% |
|
$ |
2,779.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
119.4 |
|
|
|
n/m |
|
|
$ |
(174.1 |
) |
|
|
n/m |
|
|
$ |
111.0 |
|
International Tire |
|
|
28.9 |
|
|
|
n/m |
|
|
|
(30.1 |
) |
|
|
n/m |
|
|
|
72.8 |
|
Eliminations |
|
|
(0.5 |
) |
|
|
n/m |
|
|
|
(1.3 |
) |
|
|
n/m |
|
|
|
(1.6 |
) |
Unallocated corporate charges |
|
|
(13.4 |
) |
|
|
-17.2 |
% |
|
|
(11.1 |
) |
|
|
133.3 |
% |
|
|
(25.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
134.4 |
|
|
|
n/m |
|
|
|
(216.6 |
) |
|
|
n/m |
|
|
|
156.3 |
|
Interest expense |
|
|
48.5 |
|
|
|
4.1 |
% |
|
|
50.5 |
|
|
|
-6.5 |
% |
|
|
47.2 |
|
Debt extinguishment (gains) losses |
|
|
2.6 |
|
|
|
n/m |
|
|
|
0.6 |
|
|
|
n/m |
|
|
|
- |
|
Interest income |
|
|
(18.0 |
) |
|
|
-28.3 |
% |
|
|
(12.9 |
) |
|
|
-59.7 |
% |
|
|
(5.2 |
) |
Dividend from unconsolidated subsidiary |
|
|
(2.0 |
) |
|
|
-5.0 |
% |
|
|
(1.9 |
) |
|
|
-100.0 |
% |
|
|
- |
|
Other - net |
|
|
(12.7 |
) |
|
|
n/m |
|
|
|
4.9 |
|
|
|
n/m |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
|
116.0 |
|
|
|
n/m |
|
|
|
(257.8 |
) |
|
|
n/m |
|
|
|
115.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
15.8 |
|
|
|
n/m |
|
|
|
(30.3 |
) |
|
|
n/m |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
100.2 |
|
|
|
n/m |
|
|
|
(227.5 |
) |
|
|
n/m |
|
|
|
115.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling shareholders interests |
|
|
(8.8 |
) |
|
|
n/m |
|
|
|
8.1 |
|
|
|
n/m |
|
|
|
(31.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
attributable to Cooper Tire & Rubber Company |
|
$ |
91.4 |
|
|
|
n/m |
|
|
$ |
(219.4 |
) |
|
|
n/m |
|
|
$ |
83.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
1.48 |
|
|
|
- |
|
|
$ |
(3.72 |
) |
|
|
- |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
1.46 |
|
|
|
- |
|
|
$ |
(3.72 |
) |
|
|
- |
|
|
$ |
1.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 18 -
2009 versus 2008
Consolidated net sales decreased by $102.8 million in 2009. The decrease in net sales was
primarily a result of lower volumes in the North American Tire Operations segment, unfavorable
foreign currency impacts in the International Tire Operations segment and decreased pricing and mix
in both the North American Tire Operations and International Tire Operations segments. These were
partially offset by improved volumes in the International segment.
The Company recorded operating profit in 2009 of $156.3 million compared to an operating loss of
$216.6 million in 2008. The favorable impacts of lower raw material costs, improved manufacturing
operations, reduced restructuring costs and non-recurrence of a write off in 2008 of goodwill in
the International Tire Operations segment all contributed to the profit improvement from 2008 to
2009. Partially offsetting improved operating profits were lower volumes, unfavorable pricing and
mix and higher incentive-related compensation. During 2009, the Company recognized a benefit in
its North American Tire Operations segment from inventory valuations as a result of the decline in
finished goods inventory and the elimination of inventory layers at historically lower costs due to
the Companys LIFO accounting for inventory in this segment. This decline in inventory levels
resulted in the Company recognizing a $15.6 million benefit in operating profit.
The principal raw materials for the Company include natural rubber, synthetic rubber, carbon black,
chemicals and steel reinforcement components. Approximately 65 percent of the Companys raw
materials are petroleum-based. The Company experienced significant decreases in the costs of
certain of its principal raw materials during 2009 compared with the record high levels experienced
during 2008. The decreases in the cost of natural rubber and petroleum-based materials were the
most significant drivers of lower raw material costs during 2009, which were down $411.1 million
from 2008.
The Company strives to assure raw material supply and to obtain the most favorable pricing. For
natural rubber and natural gas, procurement is managed through a combination of buying forward of
production requirements and utilizing the spot market. For other principal materials, procurement
arrangements include supply agreements that may contain formula-based pricing based on commodity
indices, multi-year agreements or spot purchase contracts. While these arrangements typically
provide quantities necessary to satisfy normal manufacturing demands, the pricing volatility in
these commodities contributes to the difficulty in managing the costs of raw materials.
Selling, general and administrative expenses were $207.0 million (7.4 percent of net sales) in
2009 compared to $185.1 million (6.4 percent of net sales) in 2008. The increase in selling,
general and administrative expenses was due primarily to higher incentive-based compensation and
increases in accruals for stock-based liabilities.
Products liability costs in 2009 were flat compared to 2008. Included in the $81.5 million total
recorded for 2009 are recoveries of legal fees of $2.5 million. Policies applicable to claims
occurring on April 1, 2003 and thereafter do not provide for recovery of legal fees. Additional
information related to the Companys accounting for products liability costs appears in the
Critical Accounting Policies portion of this Managements Discussion and Analysis.
During 2009, the Company recorded $48.7 million in restructuring costs related to the closure of
its Albany, Georgia manufacturing facility and the closure of three distribution centers located in
Dayton, New Jersey; Moraine, Ohio and Cedar Rapids, Iowa. The Company recorded $76.4 million in
restructuring costs in 2008 related to the two initiatives described in the Restructuring section
below.
Interest expense decreased $3.3 million in 2009 from 2008 primarily due to lower debt levels
primarily in the PRC.
Interest income decreased $7.7 million in 2009 from 2008 primarily as a result of lower interest
rates.
The Company recorded dividend income from its investment in Kumho Tire Co., Inc. in both 2008 and
2007. The Company sold this investment in the third quarter of 2008.
Other net increased $6.1 million in 2009 from 2008 as a result of the Company recording lower
foreign currency losses in 2009, reduced losses from an unconsolidated subsidiary and proceeds from
the settlement of a lawsuit.
For the twelve months ended December 31, 2009, the Company recorded an income tax expense of $0.2
million on income before taxes from continuing operations of $115.5 million, prior to the deduction
of noncontrolling shareholders interests of $31.9 million. Worldwide tax expense was favorably
impacted by the decrease in the valuation allowance against U.S. net deferred tax assets and
certain foreign net deferred tax assets. It was also favorably impacted by the continuation of
tax holidays for some of the Companys operations in the PRC and a tax benefit for U.S. specified
liability loss carrybacks. Comparable amounts for 2008 were an income tax benefit of $30.3
million on a loss before taxes of $257.8 million.
- 19 -
The Company continues to maintain a valuation allowance on the U.S. and certain non-U.S. net
deferred tax assets existing at December 31, 2009. A valuation allowance is required pursuant to
ASC 740 relating to Accounting for Income Taxes, when, based upon an assessment which is largely
dependent upon objectively verifiable evidence including recent operating loss history, expected
reversal of existing deferred tax liabilities and tax loss carry back capacity, it is more likely
than not that some portion of the deferred tax assets will not be realized. Deferred tax assets
and liabilities are determined separately for each taxing jurisdiction in which the Company
conducts its operations or otherwise generates taxable income or losses. In the United States, the
Company has recorded significant deferred tax assets, the largest of which relate to tax attribute
carryforwards, products liabilities, pension and other post retirement benefit obligations. These
deferred tax assets are partially offset by deferred tax liabilities, the most significant of which
relates to accelerated depreciation. Based upon this assessment, the Company maintains a $174.4
million valuation allowance for the portion of U.S. deferred tax assets exceeding deferred tax
liabilities. In addition, the Company has recorded valuation allowances of $2.4 million for
certain non-U.S. net deferred tax assets primarily associated with losses in foreign jurisdictions.
As a result of changes in the amount of U.S. and certain foreign net deferred tax assets during
the year, the valuation allowance was decreased in 2009 by $56.8 million. The pension liability
and associated deferred tax asset adjustment recorded to equity accounts for $127.0 million of the
total valuation allowance at December 31, 2009.
In 2003 the Company initiated bilateral Advance Pricing Agreement (APA) negotiations with the
Canadian and U.S. governments to change its intercompany transfer pricing process between a
formerly owned subsidiary, Cooper-Standard Automotive, Inc., and its Canadian affiliate. In 2009
the governments settled the APA between the governments and the taxpayers for periods 2000-2007.
Under terms of the 2004 sale agreement for the subsidiary, the Company is responsible for all tax
obligations and is entitled to promptly receive all tax refunds for periods relating to its
ownership ending December 23, 2004. The anticipated cash impact to the Company of the above
settlement consisted of a refund of taxes paid in Canada, net of various offsets, of approximately
$70 million and a tax and interest obligation in the U.S. of approximately $31.1 million which was
paid in the fourth quarter of 2009. On July 27, 2009, the Canadian affiliate received a
substantial portion of the anticipated refund. However, the refund was not remitted to the Company
and on August 3, 2009, Cooper-Standard Holdings Inc., the company that acquired the former
subsidiary and its U.S. affiliates filed voluntary petitions for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. The Canadian affiliate filed for bankruptcy protection in Canada on
August 4, 2009. Based upon these facts, the Company does not believe the criteria for recognition
of the receivable for the taxes paid during the Companys ownership has been met and will not
record a receivable until the certainty of realization is assured. The Company is pursuing all
options to recover the tax refunds to which it is entitled and has filed adversary proceedings in
the Delaware Bankruptcy Court against Cooper-Standard Holdings Inc., Cooper-Standard Automotive
Inc., and its Canadian affiliate.
The effects of inflation in areas other than raw materials and utilities did not have a material
effect on the results of operations of the Company in 2009.
2008 versus 2007
Consolidated net sales decreased by $50.8 million in 2008. The decrease in net sales was primarily
a result of lower volume, primarily in the North American Tire Operations segment. Partially
offsetting the lower volumes were improved pricing and mix in both the North American Tire
Operations and International Tire Operations segments. The Company recorded an operating loss in
2008 of $216.6 million compared to an operating profit of $134.4 million in 2007. The favorable
impacts of improved pricing and mix, along with lower incentive-related compensation were offset by
lower volumes, higher raw material costs, production curtailment costs, higher products liability
costs and a lower of cost or market inventory adjustment in the International Tire Operations
segment. During 2007, the Company recognized a benefit in its North American Tire Operations
segment from inventory valuations as a result of the decline in finished goods inventory. In 2008
the Company wrote off the goodwill of the International Tire Operations segment which totaled $31.3
million. In December 2008, the Company announced the planned closure of its Albany, Georgia
manufacturing facility and its Dayton, New Jersey distribution center. The Company recorded $76.4
million of restructuring expenses associated with these initiatives in 2008.
The Company continued to experience significant increases in the costs of certain of its principal
raw materials during 2008 compared with the levels experienced during 2007. The principal raw
materials for the Company include natural rubber, synthetic rubber, carbon black, chemicals and
reinforcement components. Approximately 65 percent of the Companys raw materials are
petroleum-based and crude oil prices reached record high levels during 2008. Natural rubber prices
also peaked at all-time highs during 2008. The increases in the cost of natural rubber and
petroleum-based materials were the most significant drivers of higher raw material costs during
2008, which were up approximately $302.9 million from 2007. The pricing volatility in these
commodities contributes to the difficulty in managing the costs of raw materials. The increased
price of crude oil and natural rubber, along with the growing global demand, remains a fundamental
factor to the cost increases experienced for raw materials used by the Company.
Selling, general and administrative expenses were $185.1 million (6.4 percent of net sales) in 2008
compared to $177.5 million (6.1 percent of net sales) in 2007. The increase in selling, general
and administrative expenses was due primarily to higher advertising costs in the International Tire
Operations segment and the continued ramp-up of the Companys operations in the PRC, partially
offset by lower incentive-related compensation costs.
- 20 -
Products liability costs totaled $70.3 million and $81.3 million in 2007 and 2008, respectively,
and include recoveries of legal fees of $9.8 million and $5.7 million in 2007 and 2008,
respectively. Policies applicable to claims occurring on April 1, 2003 and thereafter do not
provide for recovery of legal fees.
Additional information related to the Companys accounting for products liability costs appears in
the Critical Accounting Policies portion of this Managements Discussion and Analysis.
During 2008, the Company recorded $76.4 million in restructuring costs related to the closure of
its Albany, Georgia manufacturing facility and the closure of a distribution center in Dayton, New
Jersey. The Company recorded $3.5 million in restructuring costs in 2007 related to the four
initiatives described in the Restructuring section below.
Interest expense increased $2.0 million in 2008 from 2007 primarily due to debt related to
investments in PRC, partially offset by the Companys repurchases of debt in 2008.
The Company incurred $.6 million in costs associated with the repurchase of $14.3 million of its
long-term debt during 2008. During 2007, the Company incurred $2.6 million in costs associated
with the repurchase of $80.9 million of its long-term debt.
Interest income decreased $5.1 million in 2008 from 2007 as a result of lower cash levels and
short-term investments in 2008 than in 2007.
The Company recorded dividend income from its investment in Kumho Tire Co., Inc. of $2.0 million
and $1.9 million in 2007 and 2008, respectively.
Other net decreased $17.5 million in 2008 from 2007 as a result of the Company recording a $3.1
million gain on the sale of stock in Nishikawa Rubber Co., Ltd. and a $4.2 million gain on the sale
of a corporate aircraft in 2007. Foreign currency losses were recorded in 2008 compared to foreign
currency gains in 2007 accounting for a $6.9 million decrease. The Company recorded losses from an
unconsolidated subsidiary of $2.4 million in 2008 compared to earnings of $1.7 million in 2007.
For the twelve months ended December 31, 2008, the Company recorded an income tax benefit of $30.3
million on a loss before taxes from continuing operations of $257.8 million prior to the
loss on noncontrolling shareholders interests of $8.1 million. Worldwide tax expense was unfavorably
impacted by the increase in the valuation allowance against U.S. net deferred tax assets and
certain foreign net deferred tax assets. It was favorably impacted by the continuation of tax
holidays for some of the Companys Asian operations and a tax benefit for U.S. specified liability
loss carry backs. Comparable amounts for 2007 were an income tax expense of $15.8 million on
income before taxes of $116.0 million.
The Company continues to maintain a valuation allowance on the U.S. net deferred tax assets and
certain foreign net operating losses existing at December 31, 2008. A valuation allowance is
required pursuant to SFAS No. 109, Accounting for Income Taxes, when, based upon an assessment
which is largely dependent upon objectively verifiable evidence including recent operating loss
history, expected reversal of existing deferred tax liabilities and tax loss carry back capacity,
it is more likely than not that some portion of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are determined separately for each taxing jurisdiction in which
the Company conducts its operations or otherwise generates taxable income or losses. In the United
States, the Company has recorded significant deferred tax assets, the largest of which relate to
tax attribute carryforwards, products liabilities, pension and other post retirement benefit
obligations. These deferred tax assets are partially offset by deferred tax liabilities, the most
significant of which relates to accelerated depreciation. Based upon this assessment, the Company
maintained a $222.1 million valuation allowance for the portion of U.S. deferred tax assets
exceeding deferred tax liabilities. As a result of changes in the amount of U.S. and certain
foreign net deferred tax assets during the year, the valuation allowance was increased in 2008 by
$135.5 million. In addition, the Company has recorded valuation allowances of $9.2 million for net
deferred tax assets primarily associated with losses in foreign jurisdictions. The pension
liability and associated deferred tax asset adjustment recorded to equity accounts for $142.3
million of the total valuation allowance at December 31, 2008.
The effects of inflation in areas other than raw materials and utilities did not have a material
effect on the results of operations of the Company in 2008.
Restructuring
During 2009, the North American Tire Operations and the International Tire Operations segments
recorded $48.3 million and $0.4 million, respectively, of restructuring expense associated with
initiatives announced at various times throughout 2008 and 2009.
- 21 -
On October 21, 2008, the Company announced it would conduct a capacity study of its United States
manufacturing facilities. The study was an evolution of the Strategic Plan as outlined by the
Company in February 2008. All of the Companys U.S. manufacturing facilities were included for
review and were analyzed based on a combination of factors, including long-term financial benefits,
labor relations and productivity.
At the conclusion of the capacity study, on December 17, 2008, the North American Tire Operations
segment announced its plans to close its tire manufacturing facility in Albany, Georgia. This
closure resulted in a workforce reduction of approximately 1,330 people. Certain equipment in the
facility has been relocated to other manufacturing facilities of the Company. The segment ceased
production at the Albany facility in the third quarter of 2009 and has targeted the third quarter
of 2010 to complete the relocation of equipment to its other facilities and completion of this
initiative.
The cost of this initiative is estimated to range from between $135 million and $145 million. This
amount consists of personnel related costs between $28 million and $30 million; and equipment
related and other costs are estimated to be between $107 million and $115 million, including asset
write downs of between $76 million and $79 million. The above estimates of personnel related costs
for this initiative include pension curtailment and settlement costs.
Since the inception of this initiative in December 2008, the Company has recorded $122.7 million of
costs related to this initiative. This amount includes employee related costs of $20.6 million and
equipment related and other costs of $102.1 million, including impairment losses of $76.1 million
to write the Albany land, building and equipment to fair value.
In the North American Tire Operations segment for 2009, the Company recorded $46.7 million of net
restructuring expense related to the Albany closure, with $28.4 million used for equipment
relocation and other costs, $20.2 million for employee related costs and
$.9 million to write the Albany land, building and equipment down to fair value. Included in
employee related costs are severance and other employee related costs of $15.4 million, and $4.8
million of settlement losses partially offset by curtailment gains related to pension benefits.
The Company received $2.8 million in government grant receipts throughout 2009, partially
offsetting gross restructuring expense.
At December 31, 2008, the accrued severance balance was $0.4 million. During 2009, the Company
recorded severance costs of $12.9 million and made $12.5 million of severance payments resulting in
an accrued severance balance at December 31, 2009 of $0.8 million. The severance charges recorded
represent the Companys best estimate of future amounts to be paid and approximate fair value.
During 2009, the Company also recorded restructuring expenses associated with the closure of three
North American distribution centers. The closure of these distribution centers impacted
approximately 73 people and had a total cost of $1.6 million. Personnel related costs totaled $1.0
million and equipment related costs totaled $.6 million. All of the closures had been completed by
the end of 2009 and severance payments totaled $0.8 million, leaving an accrual balance of $.2
million at December 31, 2009. The severance charges recorded represent the Companys best estimate
of future amounts to be paid and approximate fair value.
In the International Tire Operations segment, Cooper Europe initiated a restructuring program to
reduce headcount to align with production volume requirements during the second quarter of 2009.
This initiative resulted in the elimination of 45 positions and was completed early in the third
quarter of 2009. The Company recorded $.4 million of severance cost related to this initiative and
all severance amounts have been paid.
During 2008, the Company incurred restructuring expenses related to the closure of its Albany,
Georgia manufacturing facility and the closure of a distribution center in Dayton, New Jersey.
In connection with the Albany initiative, the Company recorded $0.4 million of personnel related
costs all of which was accrued at December 31, 2008. The Company also recorded an impairment loss
of $75.2 million to write down the Albany land, building and equipment to fair value. The fair
value of the land and buildings was determined using a sales comparison approach using recent
market data and comparing values to the Albany, Georgia location. The fair value of the machinery
and equipment which will not be transferred to other Company locations was determined using the
market value approach. The Company also recorded $0.4 million in other restructuring costs related
to the Albany facility.
In December 2008, the Company also announced the planned closure of its Dayton, New Jersey
distribution center. The cost of this initiative was $0.4 million related to asset write-downs
taken in the fourth quarter of 2008. This initiative was completed during the first quarter 2009
and impacted nine people.
During 2007, the North American Tire Operations and the International Tire Operations segments
recorded $3.3 million and $0.2 million, respectively, of restructuring expense associated with
initiatives announced and started during 2006.
- 22 -
North American Tire Operations Segment
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Change |
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|
Change |
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2007 |
|
|
% |
|
|
2008 |
|
|
% |
|
|
2009 |
|
(Dollar amounts in millions) |
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Sales |
|
$ |
2,209.8 |
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|
-3.1 |
% |
|
$ |
2,142.1 |
|
|
|
-6.3 |
% |
|
$ |
2,006.2 |
|
Operating profit (loss) |
|
$ |
119.4 |
|
|
|
n/m |
|
|
$ |
(174.1 |
) |
|
|
n/m |
|
|
$ |
111.0 |
|
Operating profit margin |
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|
5.4 |
% |
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|
n/m |
|
|
|
-8.1 |
% |
|
|
n/m |
|
|
|
5.5 |
% |
United States unit shipments changes: |
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Passenger tires |
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Segment |
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-16.1 |
% |
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|
|
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|
|
-4.2 |
% |
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|
|
RMA members |
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|
|
|
|
|
-8.1 |
% |
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|
|
|
|
|
-3.4 |
% |
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|
|
|
Total Industry |
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-4.6 |
% |
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|
-2.2 |
% |
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|
Light truck tires |
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Segment |
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|
-18.6 |
% |
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|
|
|
|
|
-13.6 |
% |
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|
|
|
RMA members |
|
|
|
|
|
|
-15.0 |
% |
|
|
|
|
|
|
-5.2 |
% |
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|
|
|
Total Industry |
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|
|
|
|
|
-15.1 |
% |
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|
|
-6.5 |
% |
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|
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Total light vehicle tires |
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Segment |
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-16.6 |
% |
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|
|
|
|
|
-6.0 |
% |
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|
|
|
RMA members |
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|
|
|
|
|
-9.1 |
% |
|
|
|
|
|
|
-3.6 |
% |
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|
|
|
Total Industry |
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|
|
|
|
|
-6.1 |
% |
|
|
|
|
|
|
-2.8 |
% |
|
|
|
|
Total segment unit sales changes |
|
|
|
|
|
|
-11.2 |
% |
|
|
|
|
|
|
-5.2 |
% |
|
|
|
|
Overview
The North American Tire Operations segment produces passenger car and light truck tires, primarily
for sale in the United States replacement market. Major distribution channels and customers
include independent tire dealers, wholesale distributors, regional and national retail tire chains,
and large retail chains that sell tires as well as other automotive products. The segment does not
sell its products directly to end users, except through three Company-owned retail stores, and does
not manufacture tires for sale to the automobile original equipment manufacturers (OEMs). The
segment also distributes in North America radial medium truck and motorcycle tires that are
manufactured in the Companys foreign subsidiaries.
2009 versus 2008
Sales of the North American Tire Operations segment decreased $136 million in 2009 from the sales
levels achieved in 2008. The decrease in sales was a result of lower unit volume ($98.6 million)
and reduced pricing and mix ($37.4 million). The volume decline occurred in all product
categories, but primarily in broadline and light truck tires similar to the decrease experienced in
the industry. The reduced pricing and mix declined as industry pricing mirrored lower raw material
costs as compared to 2008. The pricing reductions all occurred in the first half of 2008 and were
partially recovered by price increases during the third and fourth quarters of 2009 in reaction to
additional tariffs imposed on imported tires from the PRC.
In the United States, the segments unit shipments of total light vehicle tires decreased 6.0
percent in 2009 from 2008. This decrease exceeded the 3.6 percent decrease in total light vehicle
shipments experienced by all members of the Rubber Manufacturers Association (RMA) and also
exceeded the 2.8 percent decrease in total light vehicle shipments for the total industry (which
includes an estimate for non-RMA members) for 2009. The industry decrease in light vehicle tire
units was primarily due to the overall economic conditions in North America during the first half
of 2009 as impacts of a global recession have affected the demand for tires. During the second
half of 2009, the industry began to stabilize and show improvement compared with 2008. Miles
driven data improved .5% during 2009.
- 23 -
Operating profit for the segment increased $285 million in 2009 compared to 2008. The improvement
was due to lower raw material costs ($307.4 million), improved manufacturing operations ($43.3
million) and reduced restructuring charges ($28.1 million) as the segment continues to reduce
manufacturing overhead and scrap costs through the implementation of Six Sigma and LEAN
initiatives. These improvements were partially offset by reduced pricing and mix ($45.7 million),
higher incentive-related compensation expense ($26.8 million), lower unit volumes ($16.9 million)
and the effects of production curtailments during the first half of 2009 required to align
production with demand ($4.2 million). The significant decrease in raw material costs was a result
of lower prices for raw materials throughout 2009. Raw material costs had reached record high
levels during the latter part of 2008.
The segments United States based operations determine inventory cost flows using the last-in,
first-out (LIFO) method. During 2009, inventory levels declined as a result of the segments
inventory management as well as increases in global demand for replacement tires in the third and
fourth quarters. This decline in inventory levels resulted in the segment recognizing a $15.6
million benefit in operating profit from inventory valued at historically lower costs.
During 2009, the North American Tire Operations segment recorded restructuring charges of $48.3
million related to the ongoing initiative to close its Albany, Georgia manufacturing facility, as
well as the decisions to close three distribution centers in Dayton, New Jersey; Moraine, Ohio and
Cedar Rapids, Iowa. During 2008, the North American Tire Operations segment recorded restructuring
charges of $76.4 million related to the previously noted Albany manufacturing facility and the
Dayton distribution center. See the discussion of these initiatives in the Restructuring section.
2008 versus 2007
Sales of the North American Tire Operations segment decreased slightly in 2008 from levels in 2007.
The decrease in sales was a result of lower unit volume ($312.3 million) offset by improved
pricing and mix ($244.6 million). The improved pricing was the result of price increases
implemented during 2007 and 2008. The improved mix was primarily the result of increased sales
volumes of the Cooper brand, which continues to gain market share, while unit sales to private
brand distributors declined from the prior year. The volume decline in the segment was the result
of lower unit sales in almost all product segments, but primarily in broadline and light truck
tires similar to the decrease experienced in the industry.
In the United States, the segments unit shipments of total light vehicle tires decreased 16.6
percent in 2008 from 2007. This decrease exceeded the 9.1 percent decrease in total light vehicle
shipments experienced by all members of the Rubber Manufacturers Association (RMA) and also
exceeded the 6.1 percent decrease in total light vehicle shipments for the total industry (which
includes an estimate for non-RMA members) for 2008. Partially offsetting this decrease in the
United States were increased shipments by the segment to Mexico and Canada. The industry decrease
in light vehicle tire units was primarily due to the macroeconomic conditions in North America.
Higher fuel prices during the first half of the year and recession concerns during the latter half
of the year reduced consumer replacement tire purchases. Volumes in the segment decreased more
significantly than the industry due to a tougher comparable period as the segment benefited in 2007
from a competitors strike. Further impacting the segments volumes were strategic decisions made
by the Company to eliminate one brand and to exit unprofitable lines of business. Sales to both
private brand distributors and to wholesale channel customers decreased as competition increased in
these price sensitive channels.
Segment operating profit in 2008 decreased $293.5 million from 2007. The decreased operating
profit was due to higher raw material costs ($258.7 million), increased restructuring costs ($73.1
million), lower unit volumes ($68.6 million), higher products liability costs ($11.0 million) and
LIFO inventory liquidation benefits experienced in 2007 that were not available in 2008 ($22.1
million). Production curtailments caused by raw material shortages and management actions to
control inventories in response to the weak North American replacement tire market negatively
impacted operating profit ($41.9 million). Partially offsetting these factors were improvements in
pricing and mix ($164 million) and lower incentive-related compensation expense and other costs.
The United States based operations of the segment determines its inventory cost flows using the
last-in, first-out (LIFO) method. During 2007, inventory levels declined as a result of the
segments inventory management initiative. This 2007 decline resulted in the segment recognizing a
$22.1 million benefit in operating profit from inventory liquidations due to the elimination of
LIFO inventory layers at historically lower costs.
During 2008, the North American Tire Operations segment recorded restructuring charges of $76.4
million related to the decisions to close its Albany, Georgia manufacturing facility and its
Dayton, New Jersey distribution center. During 2007, the North American Tire Operations segment
recorded restructuring charges of $3.3 million, primarily related to the reconfiguration of the
Texarkana, Arkansas manufacturing facility and the reduction of salaried support positions. See
the discussion of these initiatives under the Restructuring section above.
- 24 -
International Tire Operations Segment
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|
|
|
|
|
Change |
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|
|
|
|
|
Change |
|
|
|
|
|
|
2007 |
|
|
% |
|
|
2008 |
|
|
% |
|
|
2009 |
|
|
(Dollar amounts in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
881.3 |
|
|
|
10.6 |
% |
|
$ |
975.0 |
|
|
|
1.9 |
% |
|
$ |
993.8 |
|
Operating profit (loss) |
|
$ |
28.9 |
|
|
|
n/m |
|
|
$ |
(30.1 |
) |
|
|
n/m |
|
|
$ |
72.8 |
|
Operating profit margin |
|
|
3.3 |
% |
|
|
n/m |
|
|
|
-3.1 |
% |
|
|
n/m |
|
|
|
7.3 |
% |
Unit sales change |
|
|
|
|
|
|
7.3 |
% |
|
|
|
|
|
|
8.7 |
% |
|
|
|
|
Overview
In the United Kingdom, the segment produces passenger car, light truck, racing and motorcycle tires
and markets these products primarily to dealers in the replacement markets in the United Kingdom,
continental Europe and Scandinavia. The segment does not sell its products directly to end users
and does not manufacture tires for sale to OEMs in Europe, other than several small contracts with
specialty vehicle manufacturers in the United Kingdom.
The segment has two joint venture manufacturing facilities in the PRC, Cooper Chengshan and Cooper
Kenda. These facilities produce passenger car, light and medium truck tires and off-the-road
tires. These products are manufactured for export to Europe, North America and other markets as
well as marketed to dealers in the replacement tire market within the PRC. Only a small percentage
of the tires manufactured in the PRC are sold to OEMs.
The segments Cooper Kenda joint venture manufactures tires to be exported to markets outside of
the PRC. Under the current agreement all of the tires produced by this joint venture will be
exported and sold through Cooper Tire & Rubber Company and its affiliates until May 2012.
2009 versus 2008
Sales of the International Tire Operations segment increased $18.8 million in 2009 from the sales
levels achieved in 2008. The increase in sales was primarily due to higher unit volumes ($86.7
million) partially offset by decreased pricing and mix ($51.3 million) and the foreign currency
impact of a stronger United States dollar in relation to the British pound ($16.6 million). The
increase in unit sales was primarily in the Asian operations of this segment. This increase was
the result of unusually weak demand at the end of 2008 followed by relatively strong demand in 2009
as economic stimulus programs in the PRC were implemented. European volumes decreased for the year
as a result of the carryover effect from the global economic crisis.
Operating profit for the segment in 2009 was $72.8 million, $102.8 million higher than in 2008.
Excluding the $31.3 million write-off of goodwill in 2008, the increase in operating profit was due
to lower raw material costs ($103.7 million), favorable foreign currency impact ($18.0 million) and
improved manufacturing operations ($10.6 million). These impacts were partially offset by
unfavorable pricing and mix ($62.6 million) and the effects of production curtailments in the
European operations required to align production with demand ($2.4 million).
2008 versus 2007
Sales of the International Tire Operations segment increased $93.7 million in 2008 from the sales
levels in 2007. The foreign currency impact increased sales $26.7 million in 2008. The remainder
of the increase in sales was due to higher unit volumes ($35.5 million) and improved pricing and
mix ($31.5 million). The increase in unit sales was the result of increased transfers to the
Companys North American segment. During the first three quarters of 2008 the segment experienced
strong sales in its operations in the PRC. These increases declined during the fourth quarter as a
result of the global economic slow down and its effects on both the PRC market and the segments
exports. European volumes decreased slightly for the year. Throughout 2008 the segment increased
prices to offset raw material cost increases. These contributed to a positive price impact, while
a higher relative percentage of passenger tires versus radial medium truck tires resulted in an
offsetting negative mix impact.
- 25 -
Operating profit for the segment in 2008 was $59.0 million lower than in 2007. The impacts of
improved pricing and mix ($76 million) and volume ($2 million) were offset by higher raw material
costs ($82 million), including a lower of cost or market inventory adjustment to reflect current
prices in PRC ($10 million), the write-off of goodwill ($31 million) and higher advertising,
utility and Cooper Kenda ramp up costs. The segments operations reacted to the declining global
demand for tires by curtailing operations in its manufacturing facilities to align inventory.
During 2007, the segment recorded a gain on the sale of land in Europe ($2.2 million).
Discontinued Operations
On October 5, 2007, the Company sold its Oliver Rubber Company subsidiary which manufactured tread
rubber and retreading equipment. During 2007, this subsidiary recorded net sales of $62.3 million
and generated an operating profit of $5.2 million.
As discussed in Footnote 7 Income Taxes in the Notes to Consolidated Financial Statements, during
2009, the Company recorded an income tax and interest obligation related to the Advance Pricing
Agreement of $31.1 million. This was recorded as a current tax liability for discontinued
operations. The Company is pursuing all options to recover approximately $70 million in tax
refunds to which it is entitled under the 2004 Sale agreement for the disposition of the
Cooper-Standard Automotive group. During the third quarter of 2009, Cooper-Standard Holdings,
Inc., the company that acquired Cooper-Standard Automotive, and its United States and Canadian
affiliates filed for bankruptcy protection and the Company has filed adversary proceedings in the
Delaware Bankruptcy Court.
The following table provides details of the Companys discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Income (loss) related to former
automotive operations, net of tax |
|
$ |
(1.8 |
) |
|
$ |
0.3 |
|
|
$ |
(31.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from Oliver Rubber
subsidiary, net of tax |
|
|
3.5 |
|
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.7 |
|
|
$ |
0.1 |
|
|
$ |
(31.7 |
) |
|
|
|
|
|
|
|
|
|
|
Gain on Sale of Oliver Rubber Company
On October 5, 2007, the Company sold its Oliver Rubber Company subsidiary to Michelin North
America, Inc. Proceeds from the sale were $66.3 million. The sale resulted in a gain of $26.5
million, net of taxes of $1.9 million including the release of a tax valuation allowance.
Outlook for the Company
The Company expects the return to more normal levels of demand in the replacement tire industry
that began in the second half of 2009 will continue into 2010. Demand and growth rates will vary
by region as developing markets, including PRC, present more robust opportunities for improvement.
Mature tire markets are expected to return to growth approximating normal historical growth rates
of two to three percent. While the Company believes pent up demand for tires exists, it does not
believe a surge in demand for tires will occur until consumer confidence recovers more fully.
The heightened demand, in combination with relatively low levels of inventory, means the Company
expects to operate its manufacturing facilities at very high utilization rates in 2010. This is
partially the result of successful efforts to optimize production capacity in recent years. The
Company also expects to invest in increased inventory levels during the year, both as a function of
the normal pattern of seasonal demand and to support service expectations of customers.
As success continues to build through improved competitiveness there will be additional focus
shifted to the imperative of profitable growth. This is designed to leverage the Companys
position and prepare for future growth opportunities. These actions will include the launch of new
products to meet market demands, growth in sales channels where the Company is underrepresented and
progress in emerging markets. The Company expects this will position it for growth at or above
industry rates.
Raw material prices have proven very difficult to accurately predict as commodity markets remain
volatile. The Company expects prices for commodities to be higher in
2010 than in 2009. The Company expects its effective tax rate for
2010 will most likely be between 5 percent and 15 percent.
- 26 -
In 2010, the Company will continue to focus on building a strong foundation to take advantage of
future market opportunities. This will require the Company to continue investing in opportunities
that will make it more cost competitive including automation, LEAN-Six Sigma and manufacturing
located in lower cost countries. Additionally, in 2010 the Company will continue to prepare for
the implementation of a global ERP system that will enhance organizational capabilities.
The Company remains committed to the Strategic Plan initially communicated in February, 2008. The
plan calls for the Company to improve its cost structure, pursue profitable top line growth and
improve organizational capabilities. Successful implementation of the three imperatives detailed
in the Strategic Plan and improvement in market or industry conditions can drive improved operating
results, which may also be subjected to uncontrollable factors including: consumer confidence,
gasoline prices, raw material cost volatility, intense competition, government intervention and
currency fluctuations. The Companys focus remains on prudent management of critical resources to
drive shareholder value. The Companys outlook remains cautiously optimistic. The successes it
achieves combined with improved global industry conditions can result in an even stronger Company
with a more consistent level of profitability.
Liquidity and Capital Resources
Generation and uses of cash Net cash provided by the operating activities of continuing
operations was $478.3 million in 2009, an improvement of $643.3 million from 2008. The improved
operating results of continuing operations and the decrease in inventories in 2009 compared to an
increase in inventories during 2008 were the primary reasons for this improvement. In 2009, the
Company paid the tax and interest liability recorded as discussed in Discontinued Operations.
Net cash used in investing activities during 2009 reflects capital expenditures of $79.3 million, a
decrease of $49.4 million from 2008. During the third quarter of 2008, the Company received
$107.0 million as a result of exercising its put option on its investment in Kumho Tire Co., Inc.
and sold the available-for-sale securities initially purchased in 2007. During 2008, the Company
acquired an approximately 38 percent ownership share of a manufacturing operation in Mexico with an
investment of $29.2 million and increased its investment in 2009 by $0.7 million. The
manufacturing facility is located in Guadalajara, Mexico and is the second largest tire plant in
Mexico. The Company made the final payment related to the purchase of Cooper Chengshan in 2008.
The Company, in 2007, realized proceeds of $66.3 million from the sale of Oliver Rubber Company.
In 2007, Proceeds from the sale of assets related primarily to the sale of the Companys 25
percent interest in the steel cord facility acquired with the Chengshan acquisition, the sale of a
corporate aircraft and the sale of a stock investment. The Companys capital expenditure
commitments at December 31, 2009 are $16.1 million and are included in the Unconditional purchase
line of the Contractual Obligations table which appears later in this section. These commitments
will be satisfied with existing cash and cash flows from operations in early 2010.
In December 2009, the Company repaid $96.9 million of its Senior Notes. The Company repurchased
$80.9 million and $14.3 million of these notes during 2007 and 2008, respectively and has remaining
authorization to repurchase $104 million of debt. During 2007, the Company repurchased 2,991,900
shares of its common stock for $45.9 million and during 2008 the Company repurchased 803,300 shares
of its common stock for $13.9 million. At December 31, 2009, the Company has remaining
authorization of $40 million for share repurchases. The Company has temporarily suspended it debt
and share repurchase programs. During 2009, the Company repaid $63.1 million of debt borrowed in
the PRC. Cooper Kenda received capital contributions in 2007 and 2008 from its non-controlling
owner for construction of the tire manufacturing facility in the PRC.
Dividends paid on the Companys common shares in 2009 were $24.9 million, compared to $24.7 million
in 2008. The Company has maintained a quarterly dividend of 10.5 cents per share in each quarter
during the three years ending December 31, 2009. During 2009, stock options were exercised to
acquire 26,230 shares of common stock and the Company recorded $1.9 million of excess tax benefits
on equity instruments. During 2008 stock options were exercised to acquire 19,192 shares of common
stock compared to 2007 when stock options were exercised to acquire 1,236,660 shares of common
stock.
Available credit facilities - On August 30, 2006, the Company established an accounts receivable
securitization facility of up to $175 million. 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 facility was
initially scheduled to expire in August 2009. On September 14, 2007, the Company amended the
accounts receivable facility to exclude the sale of certain receivables, reduce the size of the
facility to $125 million and to extend the maturity to September 2010. No ownership interests in
the purchased trade receivables had been sold to the bank conduit as of December 31, 2009. The
Company had issued standby letters of credit under this facility totaling $29.5 million and $36.0
million at December 31, 2008 and 2009, respectively.
- 27 -
On November 9, 2007, the Company and its subsidiary, Max-Trac Tire Co., Inc., entered into a Loan
and Security Agreement (New Credit Agreement) with a consortium of six banks. This New Credit
Agreement provides a $200 million credit facility to the Company and Max-Trac Tire Co., Inc. The
New Credit Agreement is a revolving credit facility maturing on November 9, 2012 and is secured by
the Companys United States inventory, certain North American accounts receivable that have not
been previously pledged and general intangibles related to the foregoing. The New Credit Agreement
and the accounts receivable securitization facility have no significant financial covenants until
available credit is less than specified amounts. There were no borrowings under the New Credit
Agreement at December 31, 2008 or December 31, 2009.
The Company established a $1.2 billion universal shelf registration in 1999 in connection with an
acquisition. Fixed rate debt of $800 million was issued pursuant to the shelf registration in
December 1999 to fund the acquisition. The remaining $400 million available under the shelf
registration continues to be available at December 31, 2009. Securities that may be issued under
this shelf registration include debt securities, preferred stock, fractional interests in preferred
stock represented by depositary shares, common stock and warrants to purchase debt securities,
common stock or preferred stock.
Available cash and contractual commitments - At December 31, 2009, the Company had cash and cash
equivalents totaling $427.0 million. The Companys additional borrowing capacity based on eligible
collateral through use of the above credit facilities with its bank group and other bank lines at
December 31, 2009 was $295.6 million. The facilities are sized to meet seasonal working capital
demands which are generally highest in the second and third quarters and lowest at year-end.
The Company believes that available cash and credit facilities will be adequate to fund its
projected capital expenditures, including its portion of capital expenditures in partially-owned
subsidiaries and meet dividend goals. The long-term debt due within one year and the entire amount
of short-term notes payable outstanding at December 31, 2009 is primarily debt of consolidated
subsidiaries. The Company expects its subsidiaries to refinance or pay these amounts during 2010.
In connection with its acquisition of Cooper Chengshan, beginning January 1, 2009 and continuing
through December 31, 2011, the minority interest partner has the right to sell and, if exercised,
the Company has the obligation to purchase, the remaining 49 percent minority interest share at a
minimum price of $62.7 million. The Company has received notification from its noncontrolling
shareholder of its intention to exercise a portion of its put option. After receiving governmental
approvals, the Company will purchase the 14 percent share for $17.9 million. This put option is
not included in the following table.
The Companys cash requirements relating to contractual obligations at December 31, 2009 are
summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
(Dollar amounts in thousands) |
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
After |
|
Contractual Obligations |
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
|
Long-term debt |
|
$ |
335,405 |
|
|
$ |
14,915 |
|
|
$ |
30,032 |
|
|
$ |
- |
|
|
$ |
290,458 |
|
Capital lease obligations and other |
|
|
11,081 |
|
|
|
600 |
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
8,081 |
|
Interest on debt and capital lease obligations |
|
|
297,954 |
|
|
|
24,464 |
|
|
|
47,143 |
|
|
|
46,257 |
|
|
|
180,090 |
|
Operating leases |
|
|
86,136 |
|
|
|
15,522 |
|
|
|
29,072 |
|
|
|
12,222 |
|
|
|
29,320 |
|
Notes payable (b) |
|
|
156,719 |
|
|
|
156,719 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Unconditional purchase (a) |
|
|
83,578 |
|
|
|
83,578 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Postretirement benefits other than pensions (c) |
|
|
261,926 |
|
|
|
17,021 |
|
|
|
34,757 |
|
|
|
35,178 |
|
|
|
174,970 |
|
Other long-term liabilities and noncontrolling
shareholders interests (d) (e) |
|
|
421,630 |
|
|
|
117 |
|
|
|
52,451 |
|
|
|
46,523 |
|
|
|
322,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
1,654,429 |
|
|
$ |
312,936 |
|
|
$ |
194,655 |
|
|
$ |
141,380 |
|
|
$ |
1,005,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Noncancelable purchase order commitments for capital expenditures and raw materials,
principally natural rubber, made in the ordinary course of business. |
|
(b) |
|
Financing obtained from financial institutions in the PRC to support the Companys
operations there. |
|
(c) |
|
Represents both the current and long-term portions of postretirement benefits other than
pensions liability. |
|
(d) |
|
Based on long-term amounts recorded under U.S. generally accepted accounting principles. |
|
(e) |
|
Pension liability, products liability, nonqualified benefit plans, warranty reserve
and other non-current liabilities. |
Credit agency ratings - Standard & Poors has rated the Companys long-term corporate credit and
senior unsecured debt at B with a positive outlook. Moodys Investors Service has assigned a B2
corporate family rating and a B3 rating to senior unsecured debt.
- 28 -
New Accounting Standards
For a discussion of recent accounting pronouncements and their impact on the Company, see the
Significant Accounting Policies Accounting pronouncements note to the consolidated financial
statements.
Critical Accounting Policies
Managements Discussion and Analysis of Financial Condition and Results of Operations discusses
the Companys consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. When more than one accounting
principle, or the method of its application, is generally accepted, the Company selects the
principle or method that is appropriate in its specific circumstances. The Companys accounting
policies are more fully described in the Significant Accounting Policies note to the consolidated
financial statements. Application of these accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses
during the reporting period. Management bases its estimates and judgments on historical experience
and on other factors that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes that of its significant accounting
policies, the following may involve a higher degree of judgment or estimation than other accounting
policies.
Products liability - The Company is a defendant in various products liability claims brought in
numerous jurisdictions in which individuals seek damages resulting from automobile accidents
allegedly caused by defective tires manufactured by the Company. Each of the products liability
claims faced by the Company generally involve different types of tires, models and lines, different
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
Companys products 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 products 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 Companys
tires. The Company sells approximately 35 to 40 million passenger, light truck, SUV, high
performance, ultra high performance and radial medium truck tires per year in North America. The
Company estimates that approximately 300 million Cooper-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 Companys and the tire industrys experience that the vast majority of tire
failures relate to service-related conditions which are entirely out of the Companys control -
such as failure to maintain proper tire pressure, improper maintenance, road hazard and excessive
speed.
The Companys exposure for each claim occurring prior to April 1, 2003 is limited by the coverage
provided by its excess liability insurance program. The program for that period includes a
relatively low per claim retention and a policy year aggregate retention limit on claims arising
from occurrences which took place during a particular policy year. Effective April 1, 2003, the
Company established a new excess liability insurance program. The new program covers the Companys
products liability claims occurring on or after April 1, 2003 and is occurrence-based insurance
coverage which includes an increased per claim retention limit, increased policy limits and the
establishment of a captive insurance company.
The Company accrues costs for products 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 products 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 products 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. The liability often cannot be determined with precision
until the claim is resolved.
Pursuant to applicable accounting rules, the Company accrues the minimum liability for each known
claim when the estimated outcome is a range of possible loss and no one amount within that range is
more likely than another. The Company uses a range of settlements because an average settlement
cost would not be meaningful since the products liability claims faced by the Company are unique
and widely variable. The cases involve different types of tires, models and lines, different
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
Companys products liability lawsuits the plaintiff alleges that his or her harm was caused by one
or more co-defendants who acted independently of the Company.
- 29 -
Accordingly, the claims asserted and the resolutions of those claims have an enormous amount of
variability. The costs have ranged from zero dollars to $12 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 managements
expectations for future litigation activity and the settled claims history is maintained. Because
of the speculative nature of litigation in the United States, the Company does not believe a
meaningful aggregate range of potential loss for asserted and unasserted claims can be determined.
The Companys experience has demonstrated that its estimates have been reasonably accurate and, on
average, cases are settled at amounts close to the reserves established. However, 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 Company determines its reserves using the number of incidents expected during a year. During
2008, the Company increased its products liability reserve by $55.9 million. The addition of
another year of self-insured incidents accounted for $35.3 million of this increase. The Company
revised its estimates of future settlements for unasserted and premature claims. These revisions
increased the reserve by $8.0 million. Finally, changes in the amount of reserves for cases where
sufficient information is known to estimate a liability increased by $12.6 million.
During 2009, the Company increased its products liability reserve by $55.5 million. The addition
of another year of self-insured incidents accounted for $38.4 million of this increase. The
Company revised its estimates of future settlements for unasserted and premature claims. In
addition, the Company also revised its estimate of the number of additional incidents expected
during each year for years subsequent to 2008. These revisions increased the reserve by $3.4
million. Finally, changes in the amount of reserves for cases where sufficient information is
known to estimate a liability increased by $13.7 million.
The time frame for the payment of a products 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 and appeals
process and is highly dependent on jurisdiction, specific facts, the plaintiffs attorney, the
courts 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.
During 2008, the Company paid $39.6 million and during 2009, the Company paid $27.7 million to
resolve cases and claims. The Companys products liability reserve balance at December 31, 2008
totaled $123.6 million (current portion of $28.7 million). At December 31, 2009, the products
liability reserve balance totaled $151.4 million (current portion of $30.8 million).
The products 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 offset by recoveries of legal fees. Legal costs are expensed as incurred and products
liability insurance premiums are amortized over coverage periods. The Company is entitled to
reimbursement, under certain insurance contracts in place for periods ending prior to April 1,
2003, of legal fees expensed in prior periods based on events occurring in those periods. The
Company records the reimbursements under such policies in the period the conditions for
reimbursement are met.
Products liability costs totaled $70.3 million, $81.3 million and $81.5 million in 2007, 2008 and
2009, respectively, and include recoveries of legal fees of $9.8 million, $5.7 million and $2.5
million in 2007, 2008 and 2009, respectively. Policies applicable to claims occurring on April 1,
2003, and thereafter, do not provide for recovery of legal fees.
Income Taxes - The Company is required to make certain estimates and judgments to determine income
tax expense for financial statement purposes. These estimates and judgments are made in the
calculation of tax credits, tax benefits and deductions (such as the U.S. tax incentive for
domestic manufacturing activities) and in the calculation of certain tax assets and liabilities
which arise from differences in the timing of the recognition of revenue and expense for tax and
financial statement purposes. Changes to these estimates will result in an increase or decrease to
tax provisions in subsequent periods.
The Company must assess the likelihood that it will be able to recover its deferred tax assets. If
recovery is not likely, the provision for income tax expense must be increased by recording a
valuation allowance against the deferred tax assets that are deemed to be not recoverable. The
Company has maintained a full valuation allowance against its net U.S. deferred tax asset position
at December 31, 2009, as it cannot assure the utilization of these assets before they expire. In
the event there is a change in circumstances in the future which would affect the utilization of
these deferred tax assets, the tax provision in that accounting period would be adjusted by the
amount of the assets then deemed to be realizable.
- 30 -
In addition, the calculation of the Companys tax liabilities involves a degree of uncertainty in
the application of complex tax regulations. The Company recognizes liabilities for anticipated tax
audit issues in the U. S. and other jurisdictions based on its estimates of whether, and the extent
to which, additional tax payments are more likely than not. If, and at the time, the Company
determines payment of such amounts are less likely than not, the liability will be reversed and a
tax benefit recognized to reduce the provision for income taxes. The Company will record an
increase to its provision for income tax expense in the period it determines it is more likely than
not that recorded liabilities are less than the ultimate tax assessment.
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 for tax
positions. 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 threshold, the measurement of the tax benefit
will be based on the Companys estimate of the ultimate tax benefit to be sustained if audited by
the taxing authority. The Companys liability for unrecognized tax benefits for permanent and
temporary book/tax differences for continuing operations, exclusive of interest, totals
approximately $7.5 million.
Impairment of long-lived assets - The Companys long-lived assets include property, plant and
equipment and other intangible assets. If an indicator of impairment exists for certain groups of
property, plant and equipment or definite-lived intangible assets, the Company will compare the
forecasted undiscounted cash flows attributable to the assets to their carrying values. If the
carrying values exceed the undiscounted cash flows, the Company then determines the fair values of
the assets. If the carrying values exceed the fair values of the assets, then an impairment charge
is recognized for the difference.
The Company assesses the potential impairment of its indefinite-lived assets at least annually or
when events or circumstances indicate impairment may have occurred. The carrying value of these
assets is compared to their fair value. If the carrying values exceed the fair values, then a
hypothetical purchase price allocation is computed and the impairment charge, if any, is then
recorded.
As discussed in the footnotes to the financial statements, Note 4 Goodwill and Intangible Assets,
during 2006, the Company recorded goodwill of $31.3 million and recorded definite-lived intangible
assets of $7.2 million associated with the Chengshan acquisition. At December 1, 2008, the Company
assessed the goodwill in the International Tire Operations segment and determined that impairment
existed. Following a review of the valuation of the segments identifiable assets, the Company
wrote off the goodwill of the segment.
The Company cannot predict the occurrence of future impairment-triggering events. Such events may
include, but are not limited to, significant industry or economic trends and strategic decisions
made in response to changes in the economic and competitive conditions impacting the Companys
businesses.
Pension and postretirement benefits - The Company has recorded significant pension liabilities in
the United States and the United Kingdom and other postretirement benefit liabilities in the United
States that are developed from actuarial valuations. The determination of the Companys pension
liabilities requires key assumptions regarding discount rates used to determine the present value
of future benefits payments, expected returns on plan assets and the rates of future compensation
increases. The discount rate is also significant to the development of other postretirement
benefit liabilities. The Company determines these assumptions in consultation with its actuaries.
The discount rate reflects the rate used to estimate the value of the Companys pension and other
postretirement liabilities for which they could be settled at the end of the year. When
determining the discount rate, the Company discounted the expected pension disbursements over the
next fifty years using Citigroup Pension Discount Liability Index yield curve rates. Based upon
this analysis, the Company used a discount rate of 5.75 percent to measure its United States
pension and postretirement benefit liabilities, which is lower than the 6.0 percent used at
December 31, 2008. A similar analysis was completed in the United Kingdom and the Company
decreased the discount rate used to measure its United Kingdom pension liabilities to 5.7 percent
at December 31, 2009 from 6.5 percent at December 31, 2008.
The rate of future compensation increases is used to determine the future benefits to be paid for
salaried and non-bargained employees, since the amount of a participants pension is partially
attributable to the compensation earned during his or her career. The rate reflects the Companys
expectations over time for salary and wage inflation and the impacts of promotions and incentive
compensation, which is based on profitability. The Company used 3.25 percent for the estimated
future compensation increases in measuring its United States pension liabilities at December 31,
2009 and December 31, 2008. In the United Kingdom, the Company used 3.75 percent for the estimated
future compensation increase at December 31, 2009 compared to a rate of 3.57 percent at December
31, 2008.
- 31 -
The assumed long-term rate of return on pension plan assets is applied to the market value of plan
assets to derive a reduction to pension expense that approximates the expected average rate of
asset investment return over ten or more years. A decrease in the expected long-term rate of
return will increase pension expense, whereas an increase in the expected long-term rate will
reduce pension expense. Decreases in the level of actual plan assets will serve to increase the
amount of pension expense, whereas increases in the level of actual plan assets will serve to
decrease the amount of pension expense. Any shortfall in the actual return on plan assets from the
expected return will increase pension expense in future years due to the amortization of the
shortfall, whereas any excess in the actual return on plan assets from the expected return will
reduce pension expense in future periods due to the amortization of the excess.
The Companys investment policy for United States plans assets is to maintain an allocation
of 70 percent in equity securities and 30 percent in debt securities. The Companys
investment policy for United Kingdom plan assets is to maintain an allocation of 60 percent in
equity securities and 40 percent in fixed income securities. Equity security investments are
structured to achieve a balance between growth and value stocks. The Company determines the
annual rate of return on pension assets by first analyzing the composition of its asset
portfolio. Historical rates of return are applied to the portfolio. This computed rate of
return is reviewed by the Companys investment advisors and actuaries. Industry comparables
and other outside guidance is also considered in the annual selection of the expected rates of
return on pension assets.
The actual return on United States pension plans assets approximated 22.6 percent in 2009 compared
to an asset loss of approximately 26.4 percent in 2008. The actual return on United Kingdom
pension plan assets approximated 15.6 percent in 2009 compared to an asset loss of 18.5 percent in
2008. The Companys estimate for the expected long-term return on its United States plan assets
was 8.5 percent which was used to derive 2008 and 2009 pension expense. The expected long-term
return on United Kingdom plan assets used to derive the 2008 and 2009 pension expense was 7.6
percent and 7.4 percent, respectively.
The Company has accumulated net deferred losses resulting from the shortfalls and excesses in
actual returns on pension plan assets from expected returns and, in the measurement of pensions
liabilities, decreases and increases in the discount rate and the rate of future compensation
increases and differences between actuarial assumptions and actual experience totaling $448.3
million at December 31, 2009. These amounts are being amortized in accordance with the corridor
amortization requirements of US GAAP over periods ranging from 10 years to 15 years. Amortization
of these net deferred losses was $11.6 million and $34.3 million in 2008 and 2009, respectively.
The Company has implemented household caps on the amounts of retiree medical benefits it will
provide to future retirees. 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. See Item 1A. Risk Factors The Companys
expenditures for pension and postretirement obligations could be materially higher than it has
predicted if its underlying assumptions prove to be incorrect.
In accordance with US 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 other
postretirement benefit (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 cumulative other comprehensive loss in the
stockholder equity section of the balance sheet) will be subsequently recognized as net periodic
pension cost pursuant to the Companys 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.
Off-Balance Sheet Arrangements
Certain operating leases related to property and equipment used in the operations of
Cooper-Standard Automotive were guaranteed by the Company. These guarantees require the Company,
in the event Cooper-Standard Automotive fails to honor its commitments, to satisfy the terms of the
lease agreements. As part of the sale of the automotive operations, the Company is seeking
releases of those guarantees but to date has been unable to secure releases from certain lessors.
The most significant of those leases is for a U. S. manufacturing facility with a remaining term of
seven years and total remaining payments of approximately $8.2 million. Other leases cover two
facilities in the United Kingdom. These leases have remaining terms of four years and remaining
payments of approximately $2.6 million. The Company does not believe it is presently probable that
it will be called upon to make these payments. Accordingly, no accrual for these guarantees has
been recorded. If information becomes known to the Company at a later date which indicates its
performance under these guarantees is probable, accruals for the obligations will be required.
- 32 -
|
|
|
Item 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is exposed to fluctuations in interest rates and currency exchange rates from its
financial instruments. The Company actively monitors its exposure to risk from changes in foreign
currency exchange rates and interest rates. Derivative financial instruments are used to reduce
the impact of these risks. See the Significant Accounting Policies Derivative financial
instruments and Fair Value of Financial Instruments notes to the consolidated financial
statements for additional information.
The Company has estimated its market risk exposures using sensitivity analysis. These analyses
measure the potential loss in future earnings, cash flows or fair values of market sensitive
instruments resulting from a hypothetical ten percent change in interest rates or foreign currency
exchange rates.
A decrease in interest rates by ten percent of the actual rates would have adversely affected the
fair value of the Companys fixed-rate, long-term debt by approximately $18.7 million at December
31, 2009 and approximately $15.8 million at December 31, 2008. An increase in interest rates by
ten percent of the actual rates for the Companys floating rate long-term debt obligations would
not have been material to the Companys results of operations and cash flows.
To manage the volatility of currency exchange exposures related to future sales and purchases, the
Company nets the exposures on a consolidated basis to take advantage of natural offsets. For the
residual portion, the Company enters into forward exchange contracts and purchases options with
maturities of less than 12 months pursuant to the Companys policies and hedging practices. The
changes in fair value of these hedging instruments are offset in part or in whole by corresponding
changes in the fair value of cash flows of the underlying exposures being hedged. The Companys
unprotected exposures to earnings and cash flow fluctuations due to changes in foreign currency
exchange rates were not significant at December 31, 2009 and 2008.
The Company enters into foreign exchange contracts to manage its exposure to foreign currency
denominated receivables and payables. The impact from a ten percent change in foreign currency
exchange rates on the Companys foreign currency denominated obligations and related foreign
exchange contracts would not have been material to the Companys results of operations and cash
flows.
- 33 -
|
|
|
Item 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
(Dollar amounts in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,932,575 |
|
|
$ |
2,881,811 |
|
|
$ |
2,778,990 |
|
Cost of products sold |
|
|
2,617,161 |
|
|
|
2,805,638 |
|
|
|
2,359,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
315,414 |
|
|
|
76,173 |
|
|
|
419,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
177,507 |
|
|
|
185,064 |
|
|
|
206,990 |
|
Impairment of goodwill and indefinite-lived intangible asset |
|
|
- |
|
|
|
31,340 |
|
|
|
- |
|
Restructuring |
|
|
3,515 |
|
|
|
76,402 |
|
|
|
48,718 |
|
Settlement of retiree medical case |
|
|
- |
|
|
|
- |
|
|
|
7,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
134,392 |
|
|
|
(216,633 |
) |
|
|
156,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
48,492 |
|
|
|
50,525 |
|
|
|
47,211 |
|
Debt extinguishment costs |
|
|
2,558 |
|
|
|
593 |
|
|
|
- |
|
Interest income |
|
|
(18,004 |
) |
|
|
(12,887 |
) |
|
|
(5,193 |
) |
Dividend from unconsolidated subsidiary |
|
|
(2,007 |
) |
|
|
(1,943 |
) |
|
|
- |
|
Other - net |
|
|
(12,677 |
) |
|
|
4,854 |
|
|
|
(1,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
116,030 |
|
|
|
(257,775 |
) |
|
|
115,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
15,835 |
|
|
|
(30,274 |
) |
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
100,195 |
|
|
|
(227,501 |
) |
|
|
115,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income
taxes |
|
|
1,660 |
|
|
|
64 |
|
|
|
(31,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued operations, net of income taxes |
|
|
26,475 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
128,330 |
|
|
|
(227,437 |
) |
|
|
83,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
noncontrolling shareholders interests |
|
|
8,760 |
|
|
|
(8,057 |
) |
|
|
31,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cooper Tire & Rubber
Company |
|
$ |
119,570 |
|
|
$ |
(219,380 |
) |
|
$ |
51,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
attributable to Cooper Tire & Rubber Company |
|
$ |
1.48 |
|
|
$ |
(3.72 |
) |
|
$ |
1.40 |
|
Income (loss) from discontinued operations |
|
|
0.03 |
|
|
|
- |
|
|
|
(0.53 |
) |
Gain on sale of discontinued operations |
|
|
0.43 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cooper Tire & Rubber
Company |
|
$ |
1.93 |
* |
|
$ |
(3.72 |
) |
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
attributable to Cooper Tire & Rubber Company |
|
$ |
1.46 |
|
|
$ |
(3.72 |
) |
|
$ |
1.37 |
|
Income (loss) from discontinued operations |
|
|
0.03 |
|
|
|
- |
|
|
|
(0.52 |
) |
Gain on sale of discontinued operations |
|
|
0.42 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cooper Tire & Rubber
Company |
|
$ |
1.91 |
|
|
$ |
(3.72 |
) |
|
$ |
0.85 |
|
|
|
|
|
|
|
|
|
|
|
* Amounts do not add due to rounding
See Notes to Consolidated Financial Statements, pages 39 to 69.
- 34 -
CONSOLIDATED BALANCE SHEETS
December 31
(Dollar amounts in thousands, except par value amounts)
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
247,672 |
|
|
$ |
426,981 |
|
Accounts receivable, less allowances
of $10,680 in 2008 and $10,928 in 2009 |
|
|
318,109 |
|
|
|
367,023 |
|
Inventories at lower of cost or market: |
|
|
|
|
|
|
|
|
Finished goods |
|
|
247,187 |
|
|
|
188,323 |
|
Work in process |
|
|
28,234 |
|
|
|
22,090 |
|
Raw materials and supplies |
|
|
144,691 |
|
|
|
88,022 |
|
|
|
|
|
|
|
|
|
|
|
420,112 |
|
|
|
298,435 |
|
Other current assets |
|
|
58,290 |
|
|
|
39,392 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,044,183 |
|
|
|
1,131,831 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
Land and land improvements |
|
|
33,731 |
|
|
|
33,321 |
|
Buildings |
|
|
319,025 |
|
|
|
320,021 |
|
Machinery and equipment |
|
|
1,627,896 |
|
|
|
1,587,306 |
|
Molds, cores and rings |
|
|
273,641 |
|
|
|
246,395 |
|
|
|
|
|
|
|
|
|
|
|
2,254,293 |
|
|
|
2,187,043 |
|
Less accumulated depreciation and amortization |
|
|
1,353,019 |
|
|
|
1,336,072 |
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
901,274 |
|
|
|
850,971 |
|
Intangibles,
net of accumulated amortization of $24,096 in 2008 and $23,165 in 2009 |
|
|
19,902 |
|
|
|
18,546 |
|
Restricted cash |
|
|
2,432 |
|
|
|
2,219 |
|
Other assets |
|
|
75,105 |
|
|
|
96,773 |
|
|
|
|
|
|
|
|
|
|
$ |
2,042,896 |
|
|
$ |
2,100,340 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements, pages 39 to 69.
- 35 -
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
184,774 |
|
|
$ |
156,719 |
|
Accounts payable |
|
|
248,637 |
|
|
|
300,448 |
|
Accrued liabilities |
|
|
123,771 |
|
|
|
158,643 |
|
Income taxes |
|
|
1,409 |
|
|
|
3,955 |
|
Liabilities of discontinued operations |
|
|
1,182 |
|
|
|
1,061 |
|
Current portion of long-term debt |
|
|
147,761 |
|
|
|
15,515 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
707,534 |
|
|
|
636,341 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
325,749 |
|
|
|
330,971 |
|
Postretirement benefits other than pensions |
|
|
236,025 |
|
|
|
244,905 |
|
Pension benefits |
|
|
268,773 |
|
|
|
272,050 |
|
Other long-term liabilities |
|
|
115,803 |
|
|
|
145,978 |
|
Long-term liabilities related to the sale of automotive operations |
|
|
8,046 |
|
|
|
6,043 |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $1 par value; 5,000,000 shares
authorized; none issued |
|
|
- |
|
|
|
- |
|
Common stock, $1 par value; 300,000,000 shares authorized;
86,322,514 shares issued in 2008 and 87,850,292 issued in 2009 |
|
|
86,323 |
|
|
|
87,850 |
|
Capital in excess of par value |
|
|
43,764 |
|
|
|
70,645 |
|
Retained earnings |
|
|
1,106,344 |
|
|
|
1,133,133 |
|
Cumulative other comprehensive loss |
|
|
(450,079 |
) |
|
|
(455,750 |
) |
|
|
|
|
|
|
|
|
|
|
786,352 |
|
|
|
835,878 |
|
|
|
|
|
|
|
|
|
|
Less: common shares in treasury at cost
(27,411,564 in 2008 and 27,327,646 in 2009) |
|
|
(492,236 |
) |
|
|
(490,548 |
) |
|
|
|
|
|
|
|
Total parent stockholders equity |
|
|
294,116 |
|
|
|
345,330 |
|
Noncontrolling shareholders interests in consolidated
subsidiaries |
|
|
86,850 |
|
|
|
118,722 |
|
Total stockholders equity |
|
|
380,966 |
|
|
|
464,052 |
|
|
|
|
|
|
|
|
|
|
$ |
2,042,896 |
|
|
$ |
2,100,340 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements, pages 39 to 69.
- 36 -
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Dollar amounts in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
Total |
|
|
Shareholders |
|
|
|
Common |
|
|
Capital In |
|
|
|
|
|
|
Other |
|
|
Common |
|
|
Parent |
|
|
Interests in |
|
|
|
Stock |
|
|
Excess of |
|
|
Retained |
|
|
Comprehensive |
|
|
Shares in |
|
|
Stockholders |
|
|
Consolidated |
|
|
|
$1 Par Value |
|
|
Par Value |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Treasury |
|
|
Equity |
|
|
Subsidiaries |
|
|
Balance at January 1, 2007 |
|
$ |
86,323 |
|
|
$ |
38,144 |
|
|
$ |
1,256,971 |
|
|
$ |
(282,552 |
) |
|
$ |
(458,995 |
) |
|
$ |
639,891 |
|
|
$ |
71,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
119,570 |
|
|
|
|
|
|
|
|
|
|
|
119,570 |
|
|
|
8,760 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized postretirement
benefits, net of $6,629
tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,462 |
|
|
|
|
|
|
|
68,462 |
|
|
|
|
|
Currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,847 |
|
|
|
|
|
|
|
13,847 |
|
|
|
|
|
Change in the fair value of
derivatives and unrealized
gain on marketable securities,
net of $1,835 tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,434 |
) |
|
|
|
|
|
|
(5,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,445 |
|
|
|
8,760 |
|
Transactions between Cooper Tire &
Rubber Company and noncontrolling
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,588 |
|
Purchase of 2,991,900 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,882 |
) |
|
|
(45,882 |
) |
|
|
|
|
Stock compensation plans, including
tax benefit of $2,915 |
|
|
|
|
|
|
2,532 |
|
|
|
(13 |
) |
|
|
|
|
|
|
25,319 |
|
|
|
27,838 |
|
|
|
|
|
Cash dividends $.42 per share |
|
|
|
|
|
|
|
|
|
|
(26,001 |
) |
|
|
|
|
|
|
|
|
|
|
(26,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
86,323 |
|
|
|
40,676 |
|
|
|
1,350,527 |
|
|
|
(205,677 |
) |
|
|
(479,558 |
) |
|
|
792,291 |
|
|
|
90,657 |
|
Net (loss) |
|
|
|
|
|
|
|
|
|
|
(219,380 |
) |
|
|
|
|
|
|
|
|
|
|
(219,380 |
) |
|
|
(8,057 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized postretirement
benefits, net of $1,306
tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234,455 |
) |
|
|
|
|
|
|
(234,455 |
) |
|
|
|
|
Currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,350 |
) |
|
|
|
|
|
|
(17,350 |
) |
|
|
|
|
Change in the fair value of
derivatives and unrealized
gain on marketable securities,
net of $103 tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,403 |
|
|
|
|
|
|
|
7,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(463,782 |
) |
|
|
(8,057 |
) |
Transactions between Cooper Tire &
Rubber Company and noncontrolling
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,250 |
|
Purchase of 803,300 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,853 |
) |
|
|
(13,853 |
) |
|
|
|
|
Stock compensation plans, including
tax benefit of $26 |
|
|
|
|
|
|
3,088 |
|
|
|
(30 |
) |
|
|
|
|
|
|
1,175 |
|
|
|
4,233 |
|
|
|
|
|
Cash dividends $.42 per share |
|
|
|
|
|
|
|
|
|
|
(24,773 |
) |
|
|
|
|
|
|
|
|
|
|
(24,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
86,323 |
|
|
|
43,764 |
|
|
|
1,106,344 |
|
|
|
(450,079 |
) |
|
|
(492,236 |
) |
|
|
294,116 |
|
|
|
86,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
51,767 |
|
|
|
|
|
|
|
|
|
|
|
51,767 |
|
|
|
31,872 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized postretirement
benefits, net of $17,337
tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,801 |
) |
|
|
|
|
|
|
(4,801 |
) |
|
|
|
|
Currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,948 |
|
|
|
|
|
|
|
3,948 |
|
|
|
|
|
Change in the fair value of
derivatives and unrealized
gain on marketable securities,
net of $2,397 tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,818 |
) |
|
|
|
|
|
|
(4,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,096 |
|
|
|
31,872 |
|
Issuance of 1,527,778 shares of stock |
|
|
1,527 |
|
|
|
20,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000 |
|
|
|
|
|
Stock compensation plans, including
tax benefit of $1,944 |
|
|
|
|
|
|
6,408 |
|
|
|
(52 |
) |
|
|
|
|
|
|
1,688 |
|
|
|
8,044 |
|
|
|
|
|
Cash dividends $.42 per share |
|
|
|
|
|
|
|
|
|
|
(24,926 |
) |
|
|
|
|
|
|
|
|
|
|
(24,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
87,850 |
|
|
$ |
70,645 |
|
|
$ |
1,133,133 |
|
|
$ |
(455,750 |
) |
|
$ |
(490,548 |
) |
|
$ |
345,330 |
|
|
$ |
118,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements, pages 39 to 69.
- 37 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
128,330 |
|
|
$ |
(227,437 |
) |
|
$ |
83,639 |
|
Adjustments to reconcile net income/(loss) to net cash
provided by continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss (income) from discontinued operations, net of income taxes |
|
|
(1,660 |
) |
|
|
(64 |
) |
|
|
31,653 |
|
Gain on sale of discontinued operations, net of income taxes |
|
|
(26,475 |
) |
|
|
|
|
|
|
- |
|
Depreciation |
|
|
131,007 |
|
|
|
138,805 |
|
|
|
121,483 |
|
Amortization |
|
|
5,925 |
|
|
|
3,954 |
|
|
|
2,028 |
|
Deferred income taxes |
|
|
16,717 |
|
|
|
(3,327 |
) |
|
|
(6,950 |
) |
Stock based compensation |
|
|
3,731 |
|
|
|
3,924 |
|
|
|
5,419 |
|
Net impact of inventory write-down and change in LIFO reserve |
|
|
(7,585 |
) |
|
|
92,283 |
|
|
|
(94,790 |
) |
Amortization of unrecognized postretirement benefits |
|
|
18,499 |
|
|
|
12,963 |
|
|
|
32,903 |
|
Loss (gain) on sale of assets |
|
|
(3,477 |
) |
|
|
4,199 |
|
|
|
874 |
|
Debt extinguishment costs |
|
|
2,558 |
|
|
|
593 |
|
|
|
- |
|
Restructuring asset write-down |
|
|
197 |
|
|
|
75,557 |
|
|
|
900 |
|
Impairment of goodwill and indefinite-lived intangible asset |
|
|
|
|
|
|
31,340 |
|
|
|
- |
|
Changes in operating assets and liabilities of
continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
42,748 |
|
|
|
20,149 |
|
|
|
(42,544 |
) |
Inventories |
|
|
48,311 |
|
|
|
(217,557 |
) |
|
|
221,109 |
|
Other current assets |
|
|
(2,654 |
) |
|
|
(34,600 |
) |
|
|
26,769 |
|
Accounts payable |
|
|
30,026 |
|
|
|
(46,906 |
) |
|
|
49,548 |
|
Accrued liabilities |
|
|
19,446 |
|
|
|
(8,518 |
) |
|
|
32,658 |
|
Other items |
|
|
(44,893 |
) |
|
|
(10,350 |
) |
|
|
13,647 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations |
|
|
360,751 |
|
|
|
(164,992 |
) |
|
|
478,346 |
|
Net cash provided by (used in) discontinued operations |
|
|
12,043 |
|
|
|
(2,225 |
) |
|
|
(33,777 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
372,794 |
|
|
|
(167,217 |
) |
|
|
444,569 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(140,972 |
) |
|
|
(128,773 |
) |
|
|
(79,333 |
) |
Proceeds from sale of investment in Kumho Tire Company |
|
|
|
|
|
|
106,950 |
|
|
|
- |
|
Proceeds from the sale of (investment in)
available-for-sale debt securities |
|
|
(49,765 |
) |
|
|
49,765 |
|
|
|
- |
|
Investment in unconsolidated subsidiary |
|
|
|
|
|
|
(29,194 |
) |
|
|
(659 |
) |
Acquisition of businesses, net of cash acquired |
|
|
(11,964 |
) |
|
|
(5,956 |
) |
|
|
- |
|
Proceeds from the sale of business |
|
|
66,256 |
|
|
|
|
|
|
|
- |
|
Proceeds from the sale of assets |
|
|
19,654 |
|
|
|
6,408 |
|
|
|
1,535 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing operations |
|
|
(116,791 |
) |
|
|
(800 |
) |
|
|
(78,457 |
) |
Net cash used in discontinued operations |
|
|
(1,859 |
) |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(118,650 |
) |
|
|
(800 |
) |
|
|
(78,457 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt of parent company |
|
|
(80,867 |
) |
|
|
(14,300 |
) |
|
|
(96,913 |
) |
Premium paid on debt repurchases |
|
|
(2,224 |
) |
|
|
(552 |
) |
|
|
- |
|
Net borrowings (repayments) on debt
in partially owned subsidiaries |
|
|
(10,667 |
) |
|
|
108,818 |
|
|
|
(63,111 |
) |
Contributions of joint venture partner |
|
|
15,588 |
|
|
|
4,250 |
|
|
|
- |
|
Purchase of treasury shares |
|
|
(45,882 |
) |
|
|
(13,853 |
) |
|
|
- |
|
Payment of dividends |
|
|
(26,001 |
) |
|
|
(24,773 |
) |
|
|
(24,926 |
) |
Issuance of common shares and excess
tax benefits on options |
|
|
24,107 |
|
|
|
309 |
|
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(125,946 |
) |
|
|
59,899 |
|
|
|
(182,649 |
) |
Effects of exchange rate changes on cash of
continuing operations |
|
|
(3,906 |
) |
|
|
9,843 |
|
|
|
(4,154 |
) |
|
|
|
|
|
|
|
|
|
|
Changes in cash and cash equivalents |
|
|
124,292 |
|
|
|
(98,275 |
) |
|
|
179,309 |
|
Cash and cash equivalents at beginning of year |
|
|
221,655 |
|
|
|
345,947 |
|
|
|
247,672 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
345,947 |
|
|
$ |
247,672 |
|
|
$ |
426,981 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements, pages 39 to 69.
- 38 -
Notes to Consolidated Financial Statements
(Dollar amounts in thousands except per share amounts)
Note 1 Significant Accounting Policies
Reclassification
On December 23, 2004, the Company sold its automotive business,
Cooper-Standard Automotive (Cooper-Standard), to an entity formed by The Cypress Group and
Goldman Sachs Capital Partners. The operations of the Companys Oliver Rubber Company
subsidiary (formerly part of the North American Tire Operations segment), were sold on
October 5, 2007. Proceeds from the sale were $66,256. The sale resulted in a gain of
$26,475, net of taxes of $1,924 including the release of a tax valuation allowance. These
operations are considered to be discontinued operations.
The Companys consolidated financial statements reflect the accounting and disclosure
requirements which mandate the segregation of operating results for the current year and
comparable prior year periods and the balance sheets related to the discontinued operations
from those related to ongoing operations. Accordingly, the consolidated statements of
operations for the years ended December 31, 2007, 2008 and 2009 reflect this segregation as
income from continuing operations and income from discontinued operations and the
consolidated balance sheets at December 31, 2008 and 2009 display the current and long-term
liabilities related to the sale of the automotive operations. These liabilities reflect
amounts associated with a pension related obligation in the United Kingdom, a deferred
compensation program and tax reserves.
On January 1, 2009, the Company adopted Financial Accounting Standards Board (FASB)
Accounting Standards Codification 820, Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51. This standard changes the reporting of
noncontrolling interests in the consolidated statement of operations and the consolidated
balance sheet. Certain amounts for the prior year have been reclassified to conform to 2009
presentations. On the Consolidated Statements of Operations, the 2009 caption Net income
(loss) attributable to Cooper Tire & Rubber Company is comparable to the caption Net income
(loss) used in prior years.
The Company has evaluated subsequent events for recognition or disclosure through the time it
filed this Form 10-K with the Securities and Exchange Commission on March 2, 2010.
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 equity method of accounting is followed for investments in 20 percent to 50 percent owned
companies. The Companys investment in the Mexican tire manufacturing facility represents an
approximate 38 percent interest ownership interest.
The cost method is followed in those situations where the Companys ownership is less than 20
percent and the Company does not have the ability to exercise significant influence over the
affiliate.
The Company entered into a joint venture with Kenda Tire Company to construct and operate a
tire manufacturing facility in the PRC which began production in 2007. Until May 2012, all
of the tires produced by this joint venture are required to be exported and sold by Cooper
Tire & Rubber Company and its affiliates. Due to this requirement, the Company has the
power to direct the manufacturing operations of the joint venture to produce the types of
tires required by the Company to meet its global demands. The Company has determined it is
the primary beneficiary of this joint venture because of the operational control and the fact
it currently receives all of the tires produced by this manufacturing operation.
The Company has also entered into a joint venture with Nemet International to market and
distribute Cooper, Pneustone and associated brand tires in Mexico. The Company has provided
additional financial support to this joint venture in order to allow it to finance its
business activities. The joint venture partner has not provided such additional support.
The Company has determined it is the primary beneficiary of this joint venture due to the
subordinated financial support it has provided to the entity which would require the Company
to absorb more than 50% of expected losses.
Since the Company has determined that each of these entities is a Variable Interest Entity
(VIE) and it is the primary beneficiary, it has included their assets, liabilities and
operating results in its consolidated financial statements. The Company has recorded the
interest related to the joint venture partners ownership in noncontrolling shareholders
interests in consolidated subsidiaries. The following table summarizes the balance sheets
of these variable interest entities at December 31:
- 39 -
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,911 |
|
|
$ |
23,998 |
|
Accounts receivable |
|
|
11,607 |
|
|
|
9,359 |
|
Inventories |
|
|
28,080 |
|
|
|
16,472 |
|
Prepaid expenses |
|
|
3,221 |
|
|
|
2,688 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
47,819 |
|
|
|
52,517 |
|
Net property, plant and equipment |
|
|
134,639 |
|
|
|
139,705 |
|
Intangibles and other assets |
|
|
14,247 |
|
|
|
12,773 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
196,705 |
|
|
$ |
204,995 |
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
69,430 |
|
|
$ |
87,016 |
|
Accounts payable |
|
|
8,478 |
|
|
|
7,147 |
|
Accrued liabilities |
|
|
11,548 |
|
|
|
1,118 |
|
Current portion of long-term debt |
|
|
|
|
|
|
10,525 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
89,456 |
|
|
|
105,806 |
|
Long-term debt |
|
|
10,500 |
|
|
|
- |
|
Stockholders equity |
|
|
96,749 |
|
|
|
99,189 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
196,705 |
|
|
$ |
204,995 |
|
|
|
|
|
|
|
|
Cash and cash equivalents and Short-term investments The Company considers highly liquid
investments with an original maturity of three months or less to be cash equivalents.
The Companys objectives related to the investment of cash not required for operations is to
preserve capital, meet the Companys liquidity needs and earn a return consistent with these
guidelines and market conditions. Investments deemed eligible for the investment of the
Companys cash include: 1) U.S. Treasury securities and general obligations fully guaranteed
with respect to principle 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 & Poors or A3 by Moodys;
5) collateralized mortgage obligations rated AAA by Standard & Poors and Aaa by Moodys;
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 $247,672 and $426,981 at December 31, 2008 and
December 31, 2009, respectively. The majority of the cash and cash equivalents was invested
in eligible financial instruments in excess of amounts insured by the Federal Deposit
Insurance Corporation and, therefore, subject to credit risk.
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, managements judgment of the probability of collecting specific
accounts and managements 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
Inventories are valued at cost, which is not in excess of market. Inventory
costs have been determined by the last-in, first-out (LIFO) method for substantially all U.
S. inventories. Costs of other inventories have been determined by the first-in, first-out
(FIFO) and average cost methods.
- 40 -
Long-lived assets - Property, plant and equipment are recorded at cost and depreciated or
amortized using the straight-line or accelerated methods over the following expected useful
lives:
|
|
|
|
|
Buildings and improvements |
|
|
10 to 40 years |
|
Machinery and equipment |
|
|
5 to 14 years |
|
Furniture and fixtures |
|
|
5 to 10 years |
|
Molds, cores and rings |
|
|
4 to 10 years |
|
Intangibles with definite lives include trademarks, technology and intellectual property
which are amortized over their useful lives which range from five years to 30 years. The
Company evaluates the recoverability of long-lived assets based on undiscounted projected
cash flows excluding interest and taxes when any impairment is indicated. Indefinite-lived
intangibles are assessed for potential impairment at least annually or when events or
circumstances indicate impairment may have occurred.
Pre-production costs related to long-term supply arrangements - When the Company has a
contractual arrangement for reimbursement of costs incurred during the engineering and design
phase of customer-owned mold projects by the customer, development costs are recorded in
Other assets in the accompanying consolidated balance sheets. Reimbursable costs for
customer-owned molds included in Other assets were $442 and $812 at December 31, 2008 and
2009, respectively. Upon completion and acceptance of customer-owned molds, reimbursable
costs are recorded as accounts receivable. At December 31, 2008 and 2009, respectively, $558
and $243 were included in Accounts receivable for customer-owned molds.
Earnings (loss) per common share - Net income (loss) per share is computed on the basis of
the weighted average number of common shares outstanding each year. Diluted earnings (loss)
per share from continuing operations includes the dilutive effect of stock options and other
stock units. The following table sets forth the computation of basic and diluted earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Number of shares in thousands) |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Numerator for basic and diluted
earnings (loss) per share - income
(loss) from continuing operations
available to common stockholders |
|
$ |
91,435 |
|
|
$ |
(219,444 |
) |
|
$ |
83,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss)
per share - weighted average shares
outstanding |
|
|
61,938 |
|
|
|
59,048 |
|
|
|
59,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
dilutive securities - stock
options and other stock units |
|
|
774 |
|
|
|
- |
|
|
|
1,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings
(loss) per share - adjusted weighted
average shares outstanding |
|
|
62,712 |
|
|
|
59,048 |
|
|
|
60,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from
continuing operations attributable to
Cooper Tire & Rubber Company |
|
$ |
1.48 |
|
|
$ |
(3.72 |
) |
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
from continuing operations
attributable to Cooper Tire & Rubber
Company |
|
$ |
1.46 |
|
|
$ |
(3.72 |
) |
|
$ |
1.37 |
|
- 41 -
Options to purchase shares of the Companys common stock not included in the computation of
diluted earnings per share because the options exercise prices were greater than the average
market price of the common shares were 756,740 in 2007 and 503,114 in 2009. These options
could be dilutive in the future depending on the performance of the Companys stock. Due to
the loss recorded in 2008, 1,239,138 options were not included in the computation of diluted
earnings (loss) per share.
The Company repurchased 2,991,900 shares in 2007 and 803,300 shares in 2008. No shares were
repurchased in 2009.
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 uses foreign currency forward contracts as hedges of the fair value of certain
non-U.S. dollar denominated asset and liability positions, primarily accounts receivable.
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.
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 Companys 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 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 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 financial
statements of operations in the period in which the ineffectiveness occurs. For periods
presented, an immaterial amount of ineffectiveness has been identified and recorded.
Income taxes - Income tax expense for continuing operations and discontinued operations is
based on reported earnings (loss) before income taxes in accordance with the tax rules and
regulations of the specific legal entities within the various specific taxing jurisdictions
where the Companys income is earned. The income tax rates imposed by these taxing
jurisdictions vary substantially. Taxable income may differ from income 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 are not recorded on undistributed earnings of international
affiliates based on the Companys intention that these earnings will continue to be
reinvested.
Products
liability The Company accrues costs for products 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 products 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 products
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. The liability often cannot be determined with precision until the claim
is resolved.
Pursuant to applicable accounting rules, the Company accrues the minimum liability for each
known claim when the estimated outcome is a range of possible loss and no one amount within
that range is more likely than another. The Company uses a range of settlements because an
average settlement cost would not be meaningful since the products liability claims faced by
the Company are unique and widely variable. The cases involve different types of tires,
models and lines, different 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 Companys products 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, the claims asserted and the resolutions of those
claims have an enormous amount of variability. The costs have ranged from zero dollars to
$12 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
- 42 -
accrual for such claims
based, in part, on managements expectations for future litigation activity and the settled
claims history is maintained. Because of the speculative nature of litigation in the United
States, the Company does not believe a meaningful aggregate range of potential loss for
asserted and unasserted claims can be determined. The Companys experience has demonstrated
that its estimates have been reasonably accurate and, on average, cases are settled at
amounts close to the reserves established. However, 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 Company determines its reserves using the number of incidents expected during a year.
During 2008, the Company increased its products liability reserve by $55,970. The addition
of another year of self-insured incidents accounted for $35,348 of this increase. The
Company revised its estimates of future settlements for unasserted and premature claims.
These revisions increased the reserve by $7,956. Finally, changes in the amount of reserves
for cases where sufficient information is known to estimate a liability increased by $12,666.
During 2009, the Company increased its products liability reserve by $55,452. The addition
of another year of self-insured incidents accounted for $38,369 of this increase. The
Company revised its estimates of future settlements for unasserted and premature claims.
These revisions increased the reserve by $3,379. Finally, changes in the amount of reserves
for cases where sufficient information is known to estimate a liability increased by $13,705.
The time frame for the payment of a products 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 and appeals process and is highly dependent on jurisdiction, specific facts, the
plaintiffs attorney, the courts 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.
During 2008, the Company paid $39,643 and during 2009, the Company paid $27,663 to resolve
cases and claims. The Companys products liability reserve balance at December 31, 2008
totaled $123,632 (current portion of $28,737). At December 31, 2009, the products liability
reserve balance totaled $151,421 (current portion of $30,805).
The products 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 offset by recoveries of legal fees. Legal costs are expensed as
incurred and products liability insurance premiums are amortized over coverage periods. The
Company is entitled to reimbursement, under certain insurance contracts in place for periods
ending prior to April 1, 2003, of legal fees expensed in prior periods based on events
occurring in those periods. The Company records the reimbursements under such policies in
the period the conditions for reimbursement are met.
Products liability costs totaled $70,303, $81,262 and $81,475 in 2007, 2008 and 2009,
respectively, and include recoveries of legal fees of $9,795, $5,742 and $2,486 in 2007, 2008
and 2009, respectively. Policies applicable to claims occurring on April 1, 2003, and
thereafter, do not provide for recovery of legal fees.
Advertising
expense Expenses incurred for advertising include production and media and are
generally expensed when incurred. Dealer-earned cooperative advertising expense is recorded
when earned. Advertising expense for 2007, 2008 and 2009 was $42,555, $48,102 and $43,690,
respectively.
Stock-based compensation - The Companys incentive compensation plans allow the Company to
grant awards to key employees in the form of stock options, stock awards, restricted stock
units, stock appreciation rights, performance 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. For restricted stock units and
performance based units, the Company recognizes compensation expense based on the earlier of
the vesting date or the date when the employee becomes eligible to retire. 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
The Company provides for the estimated cost of product warranties at the time
revenue is recognized 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 Companys product warranty liabilities which are recorded in Accrued
liabilities and Other long-term liabilities in the Companys Consolidated Balance Sheets:
- 43 -
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Reserve at January 1 |
|
$ |
16,510 |
|
|
$ |
18,244 |
|
Additions |
|
|
19,816 |
|
|
|
23,134 |
|
Payments |
|
|
(18,082 |
) |
|
|
(17,564 |
) |
|
|
|
|
|
|
|
Reserve at December 31 |
|
$ |
18,244 |
|
|
$ |
23,814 |
|
|
|
|
|
|
|
|
The warranty reserve increase was mainly in the PRC driven by increased sales volumes and an
increase in the mix of domestic tires.
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 Revenues are recognized when title to the product passes to customers.
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 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 $22,186, $23,054 and $22,298 in 2007, 2008 and 2009, respectively.
Accounting pronouncements
Accounting Codification In June 2009, the Financial Accounting Standards Board (FASB)
approved the FASB Accounting Standards Codification (the Codification or ASC) as the
single source of authoritative nongovernmental U.S. GAAP. The Codification does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by
providing all authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other accounting literature
not included in the Codification will be considered nonauthoritative. The Codification was
effective for interim and annual periods ending after September 15, 2009. The adoption of the
Codification changed the Companys references to U.S. GAAP accounting standards but did not
impact the Companys results of operations, financial position or liquidity.
Fair value measurements In September 2006, the FASB issued accounting guidance on fair
value measurements, which provides a common definition of fair value and a framework for
measuring assets and liabilities at fair values when a particular standard prescribes it. In
addition, this guidance expands disclosures about fair value measurements. In February 2008,
the FASB issued additional guidance that (1) deferred the effective date of the original
guidance for one year for certain nonfinancial assets and nonfinancial liabilities and (2)
removed certain leasing transactions from the scope of the original guidance. The Company
has adopted this guidance as of January 1, 2009 and it did not have a material impact on its
consolidated financial statements. See Note 9- Fair Value of Financial Instruments for
additional information.
Business combinations and noncontrolling interests in consolidated financial statements In
December 2007, the FASB issued accounting guidance on business combinations and
noncontrolling interests in consolidated financial statements. The guidance on business
combinations requires the acquiring entity in a business combination to recognize the assets
acquired and liabilities assumed. Further, it also changes the accounting for acquired
in-process research and development assets, contingent consideration, partial acquisitions
and transaction costs. Under the guidance on noncontrolling interests, all entities are
required to report noncontrolling (minority) interests in subsidiaries as equity in the
consolidated financial statements. In addition, transactions between an entity and
noncontrolling interests will be treated as equity transactions. The Company adopted this
new guidance on January 1, 2009. As required, the guidance on noncontrolling interests was
adopted through retrospective application, and all prior period information has been adjusted
accordingly. The adoption of this guidance did not have a material impact on the Companys
consolidated financial statements.
- 44 -
Disclosures about derivative instruments and hedging activities In March 2008, the FASB
issued accounting guidance on disclosures about derivative instruments and hedging
activities. This guidance expands disclosures for derivative instruments by requiring
entities to disclose the fair value of derivative instruments and their gains or losses in
tabular format. It also requires disclosure of information about credit risk-related
contingent features in derivative agreements, counterparty credit risk, and strategies and
objectives for using derivative instruments. The Company adopted this new guidance on
January 1, 2009. The adoption of this guidance did not have a material impact on the
Companys consolidated financial statements. See Note 9 Fair Value of Financial
Instruments for additional information.
Employers disclosures about postretirement benefit plan assets In December 2008, the FASB
issued accounting guidance on employers disclosures about postretirement benefit plan
assets. This guidance expands the disclosure set forth in previous guidance by adding
required disclosures about (1) how investment allocation decisions are made by management,
(2) major categories of plan assets, and (3) significant concentration of risk. Additionally,
this guidance requires an employer to disclose information about the valuation of plan assets
similar to that required under the accounting guidance on fair value measurements. The
Company adopted this guidance for its consolidated financial statements for the annual period
ending December 31, 2009. The adoption of this guidance did not have a material impact on
the Companys consolidated financial statements. See Note 10 Pensions and Postretirement
Benefits Other than Pension for additional information.
Interim disclosures about fair value of financial instruments In April 2009, the FASB
issued accounting guidance that requires that the fair value disclosures previously required
on an annual basis be included for interim reporting periods. The Company adopted this
guidance on April 1, 2009 and the adoption of this guidance did not have a material impact on
its consolidated financial statements. See Note 9 Fair Value of Financial Instruments for
additional information.
Recognition and presentation of other-than-temporary impairments In April 2009, the FASB
issued accounting guidance on the recognition and presentation of other-than-temporary
impairments. This new guidance amends the existing impairment guidance relating to certain
debt securities and requires a company to assess the likelihood of selling the security prior
to recovering its cost basis. When a security meets the criteria for impairment, the
impairment charges related to credit losses would be recognized in earnings, while noncredit
losses would be reflected in other comprehensive income. Additionally, it requires a more
detailed, risk-oriented breakdown of major security types and related information. The
Company adopted this guidance on April 1, 2009 and the adoption of this guidance did not have
a material impact on tits consolidated financial statements.
Subsequent events In May 2009, the FASB issued accounting guidance on subsequent events
that establishes standards of accounting for and disclosure of subsequent events. In
addition, it requires disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date. This new guidance was adopted for the Companys
consolidated financial statements for the quarterly period ending June 30, 2009. The
adoption of this guidance did not have a material impact on the Companys consolidated
financial statements.
Accounting for transfers of financial assets In June 2009, the FASB issued accounting
guidance on accounting for transfers of financial assets. This guidance amends previous
guidance by including: the elimination of the qualifying special-purpose entity (QSPE)
concept; a new participating interest definition that must be met for transfers of portions
of financial assets to be eligible for sale accounting; clarifications and changes to the
derecognition criteria for a transfer to be accounted for as a sale; and a change to the
amount of recognized gain or loss on a transfer of financial assets accounted for as a sale
when beneficial interests are received by the transferor. Additionally, the guidance
requires extensive new disclosures regarding an entitys involvement in a transfer of
financial assets. Finally, existing QSPEs (prior to the effective date of this guidance)
must be evaluated for consolidation by reporting entities in accordance with the applicable
consolidation guidance upon the elimination of this concept. The Company will be required to
adopt this new guidance effective January 1, 2010 and is currently evaluating the provisions
of this guidance and the impact on its consolidated financial statements.
Consolidation of variable interest entities In June 2009, the FASB issued accounting
guidance on the consolidation of variable interest entities (VIEs). This new guidance revises
previous guidance by eliminating the exemption for qualifying special purpose entities, by
establishing a new approach for determining who should consolidate a variable-interest entity
and by changing when it is necessary to reassess who should consolidate a variable-interest
entity. The Company will be required to adopt this new guidance effective January 1, 2010
and is currently evaluating the provisions of this guidance and the impact on its
consolidated financial statements.
- 45 -
Note 2 Inventories
At December 31, 2008, approximately 33 percent of the Companys inventories had been valued
under the LIFO method. During 2009, raw material and finished goods inventory in Asia
returned to more normal levels when compared to the December 31, 2008 balances. This
reduction in inventory in Asia coupled with lower finished goods inventories in North America
caused the percentage of the Companys inventories valued under the LIFO method to increase
to 45 percent at December 31, 2009. The remaining inventories have been valued under the
FIFO or average cost method and all inventories are stated at the lower of cost or market.
Under the LIFO method, inventories have been reduced by approximately $221,854 and $127,064
at December 31, 2008 and 2009, respectively, from current cost which would be reported under
the first-in, first-out method. Inventories in the United States which are accounted for
under the LIFO method declined in 2007 and 2009 from prior years. As a result of these
inventory declines, cost of products sold for these years was reduced $22,009 and $15,600,
respectively in the North American Tire Operations segment.
The Companys International Tire Operations pre-purchased significant amounts of raw
materials, particularly natural rubber during a period when prices for these commodities were
high at the end of 2008. This was done with the intent of assuring supply and minimizing
future costs. At the end of 2008 demand for tires severely declined affecting the rate at
which these raw materials could be used and the number of units in finished goods inventory.
The Company was required to record a charge of $5,809 related to these raw materials and
$4,428 related to finished goods at the end of 2008 to adhere to lower of cost or market
accounting principles.
Note 3 Other Current Assets
Other current assets at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Income tax recoverable |
|
$ |
43,441 |
|
|
$ |
9,967 |
|
Assets held for sale |
|
|
- |
|
|
|
10,000 |
|
Other |
|
|
14,849 |
|
|
|
19,425 |
|
|
|
|
|
|
|
|
|
|
$ |
58,290 |
|
|
$ |
39,392 |
|
|
|
|
|
|
|
|
The land, building and certain manufacturing equipment located at the Albany, Georgia are now
classified as assets held for sale at a fair value determined based on quoted prices for
similar assets in an active market.
Note 4 Goodwill and Intangibles
Goodwill is recorded in the segment where it was generated by acquisitions. Purchased
goodwill and indefinite-lived intangible assets are tested annually for impairment unless
indicators are present that would require an earlier test.
During the fourth quarter of 2007, the Company completed its annual test for impairment and
no impairment was indicated.
During the fourth quarter of 2008, the Company completed its annual test for impairment and
determined that impairment existed in the goodwill of its International Tire Operations
segment. The impact of the global economic environment caused the Company to revise its
future cash flow projections and, following a review of the valuation of the segments
identifiable assets, the Company wrote off the goodwill of the International Tire Operations
segment which totaled $31,340 and represented all of the goodwill recorded.
During the fourth quarter of 2009, the Company completed its annual impairment test and no
impairment was indicated.
- 46 -
The following table presents intangible assets and accumulated amortization balances as of
December 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2009 |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Definite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
|
$ |
10,891 |
|
|
$ |
(3,874 |
) |
|
$ |
7,017 |
|
|
$ |
10,891 |
|
|
$ |
(4,467 |
) |
|
$ |
6,424 |
|
Patents and technology |
|
|
15,038 |
|
|
|
(14,382 |
) |
|
|
656 |
|
|
|
15,038 |
|
|
|
(14,606 |
) |
|
|
432 |
|
Other |
|
|
8,252 |
|
|
|
(5,840 |
) |
|
|
2,412 |
|
|
|
5,965 |
|
|
|
(4,092 |
) |
|
|
1,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,181 |
|
|
|
(24,096 |
) |
|
|
10,085 |
|
|
|
31,894 |
|
|
|
(23,165 |
) |
|
|
8,729 |
|
Indefinite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
9,817 |
|
|
|
- |
|
|
|
9,817 |
|
|
|
9,817 |
|
|
|
- |
|
|
|
9,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
43,998 |
|
|
$ |
(24,096 |
) |
|
$ |
19,902 |
|
|
$ |
41,711 |
|
|
$ |
(23,165 |
) |
|
$ |
18,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense over the next five years is as follows: 2010
- $1,289, 2011 -
$1,259, 2012 - $1,237, 2013 - $863 and 2014 - $613.
Note 5 Other Assets
Other assets at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Investment in unconsolidated subsidiary |
|
$ |
26,848 |
|
|
$ |
20,835 |
|
Deferred tax assets |
|
|
11,147 |
|
|
|
31,892 |
|
Other |
|
|
37,110 |
|
|
|
44,046 |
|
|
|
|
|
|
|
|
|
|
$ |
75,105 |
|
|
$ |
96,773 |
|
|
|
|
|
|
|
|
During 2008, the Company invested $29,200 in a Mexican tire manufacturing operation and
obtained an approximate 38 percent ownership interest and recorded its share of the loss of
the operation in the amount of $2,352. During 2009, the Company invested an additional $659,
recorded its share of the loss of the operations of $672 in Other net on the Statement of
Operations and recorded a currency loss of $6,000 included in the Cumulative currency
translation adjustment of the Cumulative other comprehensive loss component of Stockholders
equity.
Note 6 Accrued Liabilities
Accrued liabilities at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Payroll and withholdings |
|
$ |
22,047 |
|
|
$ |
55,087 |
|
Products liability |
|
|
28,737 |
|
|
|
30,805 |
|
Medical |
|
|
22,396 |
|
|
|
5,351 |
|
Foreign currency (gain) loss on derivative
financial
instruments |
|
|
(1,252 |
) |
|
|
2,080 |
|
Other |
|
|
51,843 |
|
|
|
65,320 |
|
|
|
|
|
|
|
|
|
|
$ |
123,771 |
|
|
$ |
158,643 |
|
|
|
|
|
|
|
|
- 47 -
Note 7 - Income Taxes
Components of income (loss) from continuing operations before income taxes and
noncontrolling shareholders interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
United States |
|
$ |
69,205 |
|
|
$ |
(228,398 |
) |
|
$ |
35,200 |
|
Foreign |
|
|
46,825 |
|
|
|
(29,377 |
) |
|
|
80,323 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
116,030 |
|
|
$ |
(257,775 |
) |
|
$ |
115,523 |
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income tax for continuing operations consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
5,124 |
|
|
$ |
(31,368 |
) |
|
$ |
(3,990 |
) |
State and local |
|
|
753 |
|
|
|
147 |
|
|
|
966 |
|
Foreign |
|
|
2,447 |
|
|
|
4,274 |
|
|
|
10,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,324 |
|
|
|
(26,947 |
) |
|
|
6,996 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
4,171 |
|
|
|
(2,005 |
) |
|
|
(770 |
) |
State and local |
|
|
(183 |
) |
|
|
- |
|
|
|
- |
|
Foreign |
|
|
3,523 |
|
|
|
(1,322 |
) |
|
|
(5,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,511 |
|
|
|
(3,327 |
) |
|
|
(6,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,835 |
|
|
$ |
(30,274 |
) |
|
$ |
231 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of income tax expense (benefit) for continuing operations to the tax
based on the U.S. statutory rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Income tax provision (benefit) at
35% |
|
$ |
40,610 |
|
|
$ |
(90,221 |
) |
|
$ |
40,423 |
|
State and local income tax, net
of federal income tax effect |
|
|
613 |
|
|
|
(6,399 |
) |
|
|
628 |
|
U.S. tax credits |
|
|
(1,689 |
) |
|
|
(2,415 |
) |
|
|
(1,478 |
) |
Difference in effective tax rates
of international operations |
|
|
(8,662 |
) |
|
|
13,235 |
|
|
|
(24,078 |
) |
Interest on tax settlement |
|
|
- |
|
|
|
- |
|
|
|
(4,239 |
) |
Valuation allowance |
|
|
(12,804 |
) |
|
|
54,458 |
|
|
|
(14,139 |
) |
Other net |
|
|
(2,233 |
) |
|
|
1,068 |
|
|
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
15,835 |
|
|
$ |
(30,274 |
) |
|
$ |
231 |
|
Payments, including discontinued operations, for income taxes in 2007, 2008 and 2009, net of
refunds, were $16,200, $10,351 and ($8,405), respectively.
- 48 -
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
Companys deferred tax assets and liabilities at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Postretirement and other employee benefits |
|
$ |
198,881 |
|
|
$ |
189,269 |
|
Products liability |
|
|
40,304 |
|
|
|
45,753 |
|
Net operating loss, capital loss, and tax credits carryforwards |
|
|
63,066 |
|
|
|
47,708 |
|
All other items |
|
|
70,072 |
|
|
|
49,515 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
372,323 |
|
|
|
332,245 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(114,462 |
) |
|
|
(108,398 |
) |
All other items |
|
|
(15,444 |
) |
|
|
(15,189 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(129,906 |
) |
|
|
(123,587 |
) |
|
|
|
|
|
|
|
|
|
|
242,417 |
|
|
|
208,658 |
|
Valuation allowances |
|
|
(231,270 |
) |
|
|
(176,766 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
11,147 |
|
|
$ |
31,892 |
|
|
|
|
|
|
|
|
The net deferred taxes are included in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Other assets |
|
$ |
11,147 |
|
|
$ |
31,892 |
|
|
|
|
|
|
|
|
At December 31, 2009, the Company has U.S. federal tax losses of $31,927, as well as
apportioned state tax losses of $247,139 and foreign tax losses of $8,413 available for
carryforward. The Company also has U.S. federal tax credits of $14,491 and state tax
credits of $6,111 in addition to U.S. capital losses of $1,011 available for carryforward.
Valuation allowances have been provided for those items which, based upon an assessment, it
is more likely than not that some portion may not be realized. The U.S. federal and state
tax loss carryforwards and other tax attributes will expire from 2010 through 2028. The
foreign tax losses expire no sooner than 2012. U.S. capital loss carryforwards of $42,011
expired unutilized as of the end of the year.
The Companys remaining U.S. federal tax loss carryforward is net of a current year
specified liability loss carryback of $23,872. This carryback resulted in a current year
tax benefit of $8,355.
The Company applies ASC 740 in Accounting for Income Taxes including ASC 740-10 relating to
Accounting for Uncertainty in Income Taxes. The Companys liability for unrecognized tax
benefits for permanent and temporary book/tax differences for continuing operations,
exclusive of interest, total approximately $7,517 as itemized in the tabular roll forward
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Balance at January 1 |
|
$ |
1,658 |
|
|
$ |
3,777 |
|
|
$ |
7,623 |
|
Settlements for tax positions of prior years |
|
|
- |
|
|
|
- |
|
|
|
(164 |
) |
Additions for tax positions of the current year |
|
|
403 |
|
|
|
1,640 |
|
|
|
934 |
|
Additions for tax positions of prior years |
|
|
1,716 |
|
|
|
2,307 |
|
|
|
18 |
|
Reductions for tax positions of prior years |
|
|
- |
|
|
|
(101 |
) |
|
|
(894 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
3,777 |
|
|
$ |
7,623 |
|
|
$ |
7,517 |
|
|
|
|
|
|
|
|
|
|
|
Of this amount, the effective rate would change upon the recognition of approximately $6,111
of these unrecognized tax benefits. The Company accrued, through the tax provision,
approximately $319, $419 and $451 of interest expense for 2007, 2008 and 2009 respectively.
At December 31, 2009, the Company has $445 of interest accrued and unpaid.
- 49 -
U. S. income taxes were not provided on a cumulative total of approximately $140,315 of
undistributed earnings, as well as a minimal amount of other comprehensive income for certain
non-U.S. subsidiaries. The Company currently intends to reinvest these earnings in
operations outside the United States. It is not practicable to determine the amount of
additional U.S. income taxes that could be payable upon remittance of these earnings since
taxes payable would be reduced by foreign tax credits based upon income tax laws and
circumstances at the time of distribution. The Company has joint ventures in the PRC that
have been granted full and partial income tax holidays which resulted in a $4,289, $.07 per
share, favorable impact to the Company in 2009. The holidays terminate after five years and
will begin to phase out after 2010.
In 2003 the Company initiated bilateral Advance Pricing Agreement (APA) negotiations with
the Canadian and U.S. governments to change its intercompany transfer pricing process between
a formerly owned subsidiary, Cooper-Standard Automotive, Inc., and its Canadian affiliate.
In 2009 the governments settled the APA between the governments and the taxpayers for periods
2000-2007. Under terms of the 2004 sale agreement for the subsidiary, the Company is
responsible for all tax obligations and is entitled to promptly receive all tax refunds for
periods relating to its ownership ending December 23, 2004. The anticipated cash impact to
the Company of the above settlement consists of a refund of taxes paid in Canada, net of
various offsets, of approximately $70,000 and a tax and interest obligation in the U.S. of
approximately $31,051 which was paid in the fourth quarter. On July 27, 2009, the Canadian
affiliate received a substantial portion of the anticipated refund. However, the refund was
not remitted to the Company and on August 3, 2009, Cooper-Standard Holdings Inc., the company
that acquired the former subsidiary, and its U.S. affiliates filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Canadian affiliate filed
for bankruptcy protection in Canada on August 4, 2009. Based upon these facts, the Company
does not believe the criteria for recognition of the receivable for the taxes paid during the
Companys ownership has been met and will not record a receivable until the certainty of
realization is assured. The Company is pursuing all options to recover the tax refunds to
which it is entitled and has filed adversary proceedings in the Delaware Bankruptcy Court
against Cooper-Standard Holdings Inc., Cooper-Standard Automotive Inc., and its Canadian
affiliate.
The Company and its subsidiaries are subject to income taxes in the U.S. federal jurisdiction
and various state and foreign jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal, state and foreign tax examinations by tax authorities for years
prior to 2000.
Note 8 - Debt
On August 30, 2006, the Company established an accounts receivable securitization facility of
up to $175,000. 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 facility
was initially scheduled to expire in August 2009. On September 14, 2007, the Company amended
the accounts receivable facility to exclude the sale of certain receivables, reduce the size
of the facility to $125 million and to extend the maturity to September 2010. No ownership
interests in the purchased trade receivables had been sold to the bank conduit as of December
31, 2009. The Company had issued standby letters of credit under this facility totaling
$29,500 and $36,000 at December 31, 2008 and 2009, respectively.
In accordance with US GAAP, the ownership interest in the trade receivables sold to the bank
conduit will be recorded as legal transfers without recourse, with those accounts receivable
removed from the consolidated balance sheet. The Company continues to service any sold trade
receivables for the financial institution at market rates; accordingly, no servicing asset or
liability will be recognized.
On November 9, 2007, the Company and its subsidiary, Max-Trac Tire Co., Inc., entered into a
Loan and Security Agreement (New Credit Agreement) with a consortium of six banks. This New
Credit Agreement provides a $200,000 credit facility to the Company and Max-Trac Tire Co.,
Inc. The New Credit Agreement is a revolving credit facility maturing on November 9, 2012
and is secured by the Companys United States inventory, certain North American accounts
receivable that have not been previously pledged and general intangibles related to the
foregoing. The New Credit Agreement and the accounts receivable securitization facility have
no financial covenants. Borrowings under the New Credit Agreement bear a margin based on the
London Interbank Offered Rate. There were no borrowings under the New Credit Agreement at
December 31, 2008 or December 31, 2009.
- 50 -
The following table summarizes the long-term debt of the Company at December 31, 2008 and
2009 and, except for capital leases; the long-term debt is due in an aggregate principal
payment on the due date:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Parent company |
|
|
|
|
|
|
|
|
7.75% unsecured notes due December 2009 |
|
$ |
96,913 |
|
|
$ |
- |
|
8% unsecured notes due December 2019 |
|
|
173,578 |
|
|
|
173,578 |
|
7.625% unsecured notes due March 2027 |
|
|
116,880 |
|
|
|
116,880 |
|
Capitalized leases and other |
|
|
5,081 |
|
|
|
11,081 |
|
|
|
|
|
|
|
|
|
|
|
392,452 |
|
|
|
301,539 |
|
Subsidiaries |
|
|
|
|
|
|
|
|
3.693% to 5.58% unsecured notes due in 2009 |
|
|
50,848 |
|
|
|
- |
|
3.718% to 7.47% unsecured notes due in 2010 |
|
|
14,880 |
|
|
|
14,915 |
|
5.67% to 7.56% unsecured notes due in 2011 |
|
|
15,330 |
|
|
|
9,522 |
|
4.86% to 5.13% unsecured notes due in 2012 |
|
|
- |
|
|
|
20,510 |
|
|
|
|
|
|
|
|
|
|
|
81,058 |
|
|
|
44,947 |
|
|
|
|
|
|
|
|
|
|
|
473,510 |
|
|
|
346,486 |
|
Less current maturities |
|
|
147,761 |
|
|
|
15,515 |
|
|
|
|
|
|
|
|
|
|
$ |
325,749 |
|
|
$ |
330,971 |
|
|
|
|
|
|
|
|
Over the next five years, the Company has payments related to the above debt of: 2010 -
$15,515, 2011 $10,122, 2012 $21,110, 2013 $600 and 2014 $600. In addition, the
Companys partially owned, consolidated subsidiary operations in PRC have short-term notes
payable of $158 million due in 2010. The weighted average interest rate of the short-term
notes payable at December 31, 2008 and 2009 was 7.75 percent and 3.68 percent, respectively.
Interest paid on debt during 2007, 2008 and 2009 was $51,970, $51,964 and $48,125,
respectively. The amount of interest capitalized was $2,983, $1,683 and $663 during 2007,
2008 and 2009, respectively.
Note 9 Fair Value of 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 training or speculative purposes. The
derivative financial instruments include fair value and cash flow hedges of foreign currency
exposures. Exchange rate fluctuations on the foreign currency-denominated intercompany loans
and obligations are offset by the change in values of the fair value foreign currency hedges.
The Company presently hedges exposures in the Euro, Canadian dollar, British pound sterling,
Swiss franc, Swedish kronar, Mexican peso and Chinese yuan generally for transactions
expected to occur within the next 12 months. The notional amount of these foreign currency
derivative instruments at December 31, 2008 and 2009 was $178,100 and $207,600, respectively.
The counterparties to each of these agreements are major commercial banks. Management
believes that the probability of losses related to credit risk on investments classified as
cash and cash equivalents is unlikely.
The Company uses foreign currency forward contracts as hedges of the fair value of certain
non-U.S. dollar denominated asset and liability positions, primarily accounts receivable and
debt. 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.
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 Companys 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 (approximately $3,272 and
$(2,136) as of December 31, 2008 and 2009, respectively) 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.
- 51 -
The Company assesses hedge ineffectiveness quarterly using the hypothetical derivative
methodology. In doing so, the Company monitors the actual and forecasted foreign currency
sales and purchases versus the amounts hedged to identify any hedge ineffectiveness. Any
hedge ineffectiveness is recorded as an adjustment in the accompanying consolidated financial
statements of operations in the period in which the ineffectiveness occurs. 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.
The following table presents the location and amounts of derivative instrument fair values in
the Statement of Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
(assets)/liabilities |
|
December 31, 2008 |
|
|
December 31, 2009 |
|
|
Derivatives designated as hedging
instruments |
|
Accrued liabilities |
|
$ |
(1,058 |
) |
|
Accrued liabilities |
|
$ |
2,158 |
|
Derivatives not designated as hedging
instruments |
|
Accrued liabilities |
|
$ |
(194 |
) |
|
Accrued liabilities |
|
$ |
(78 |
) |
The following table presents the location and amount of gains and losses on derivative
instruments in the Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Reclassified |
|
|
Amount of Gain (Loss) |
|
|
|
Recognized in |
|
|
from Cumulative |
|
|
Recognized in |
|
|
|
Other Comprehensive |
|
|
Other Comprehensive |
|
|
Other - net |
|
|
|
Income on Derivative |
|
|
Loss into Net Sales |
|
|
on Derivative |
|
|
|
(Effective Portion) |
|
|
(Effective Portion) |
|
|
(Ineffective Portion) |
|
|
|
Year |
|
|
Year |
|
|
Year |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
Derivatives Designated as Cash Flow Hedges |
|
Dec. 31, 2009 |
|
|
Dec. 31, 2009 |
|
|
Dec. 31, 2009 |
|
|
Foreign exchange
contracts |
|
$ |
(7,208 |
) |
|
$ |
(4,198 |
) |
|
$ |
(458 |
) |
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
Location of |
|
Recognized in Income |
|
|
|
Gain (Loss) |
|
on Derivatives |
|
|
|
Recognized |
|
Year |
|
|
|
in Income on |
|
Ended |
|
Derivatives not Designated as Hedging Instruments |
|
Derivatives |
|
Dec. 31, 2009 |
|
|
Foreign exchange contracts |
|
Other - net |
|
$ |
142 |
|
Interest swap contracts |
|
Interest expense |
|
|
1,855 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,997 |
|
|
|
|
|
|
|
For effective designated foreign exchange hedges, the Company reclassifies the gain (loss)
from Other Comprehensive Income into Net Sales and the ineffective portion is recorded
directly into Other net.
- 52 -
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 Sheet 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. |
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 managements own assumptions about the assumptions a
market participant would use in pricing the asset or liability.
The Company defines the fair value of foreign exchange contracts as the amount of the
difference between the contracted and current market value at the end of the period. The
Company estimates the current market value of foreign exchange contracts by obtaining
month-end market quotes of foreign exchange rates and forward rates for contracts with
similar terms.
The following table presents the Companys fair value hierarchy for those assets and
liabilities measured at fair value on a recurring basis as of December 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
Total |
|
|
in Active Markets |
|
|
Other |
|
|
Significant |
|
|
|
Derivative |
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
(Assets) |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
Foreign Exchange Contracts |
|
Liabilities |
|
|
Level (1) |
|
|
Level (2) |
|
|
Level (3) |
|
|
December 31, 2009 |
|
$ |
(2,080 |
) |
|
|
|
|
|
$ |
(2,080 |
) |
|
|
|
|
December 31, 2008 |
|
$ |
(1,252 |
) |
|
|
|
|
|
$ |
(1,252 |
) |
|
|
|
|
The fair value of the Companys debt is computed using discounted cash flow analyses based on
the Companys estimated current incremental borrowing rates. The carrying amounts and fair
values of the Companys financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
Cash and cash equivalents |
|
$ |
247,672 |
|
|
$ |
247,672 |
|
|
$ |
426,981 |
|
|
$ |
426,981 |
|
Notes payable |
|
|
(184,774 |
) |
|
|
(184,774 |
) |
|
|
(156,719 |
) |
|
|
(156,719 |
) |
Current portion of long-term debt |
|
|
(147,761 |
) |
|
|
(142,161 |
) |
|
|
(15,515 |
) |
|
|
(15,515 |
) |
Long-term debt |
|
|
(325,749 |
) |
|
|
(158,949 |
) |
|
|
(330,971 |
) |
|
|
(309,371 |
) |
Derivative financial instruments |
|
|
1,252 |
|
|
|
1,252 |
|
|
|
(2,080 |
) |
|
|
(2,080 |
) |
- 53 -
Note 10
- Pensions and Postretirement Benefits Other than Pensions
The Company and its subsidiaries have a number of plans providing pension, retirement or
profit-sharing benefits for substantially all domestic employees. These plans include
defined benefit and defined contribution plans. The Company has an unfunded,
nonqualified supplemental retirement benefit plan 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 2002, a
new hybrid pension plan covering all domestic salaried and non-bargained hourly
employees was established. Employees at the effective date, meeting certain
requirements, were grandfathered under the previous defined benefit rules. The new
hybrid pension plan covering non-grandfathered employees resembles a savings account.
Nominal accounts are credited based on a combination of age, years of service and
percentage of earnings. A cash-out option is available upon termination or retirement.
Employees of certain of the Companys foreign operations are covered by either
contributory or non-contributory trusteed pension plans.
Participation in the Companys defined contribution plans is voluntary. The Company
matches certain 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. Company
contributions for certain of these plans are dependent on operating performance.
Expense for those plans was $5,122, $0 and $6,619 for 2007, 2008 and 2009, respectively.
The Company currently provides retiree health care and life insurance benefits to a
significant percentage 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 future retirees. 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 US 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 other postretirement benefit (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 cumulative other
comprehensive loss in the stockholder equity section of the balance sheet) will be
subsequently recognized as net periodic pension cost pursuant to the Companys 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.
- 54 -
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at January 1 |
|
$ |
1,098,859 |
|
|
$ |
994,531 |
|
|
$ |
261,145 |
|
|
$ |
252,679 |
|
Service cost employer |
|
|
21,875 |
|
|
|
8,384 |
|
|
|
4,974 |
|
|
|
3,431 |
|
Service cost employee |
|
|
2,109 |
|
|
|
2,273 |
|
|
|
- |
|
|
|
- |
|
Interest cost |
|
|
63,899 |
|
|
|
58,414 |
|
|
|
15,492 |
|
|
|
14,740 |
|
Amendments |
|
|
- |
|
|
|
(28,225 |
) |
|
|
- |
|
|
|
7,700 |
|
Actuarial (gain)/loss |
|
|
(54,311 |
) |
|
|
158,047 |
|
|
|
(16,213 |
) |
|
|
(5,790 |
) |
Benefits paid |
|
|
(58,789 |
) |
|
|
(78,626 |
) |
|
|
(12,719 |
) |
|
|
(10,834 |
) |
Foreign currency translation effect |
|
|
(79,111 |
) |
|
|
25,318 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at December 31 |
|
$ |
994,531 |
|
|
$ |
1,140,116 |
|
|
$ |
252,679 |
|
|
$ |
261,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plans assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plans assets at January 1 |
|
$ |
1,056,252 |
|
|
$ |
725,905 |
|
|
$ |
- |
|
|
$ |
- |
|
Actual return on plans assets |
|
|
(248,978 |
) |
|
|
147,875 |
|
|
|
- |
|
|
|
- |
|
Employer contributions |
|
|
39,886 |
|
|
|
51,600 |
|
|
|
- |
|
|
|
- |
|
Participant contributions |
|
|
2,258 |
|
|
|
2,273 |
|
|
|
- |
|
|
|
- |
|
Benefits paid |
|
|
(58,789 |
) |
|
|
(78,626 |
) |
|
|
- |
|
|
|
- |
|
Foreign currency translation effect |
|
|
(64,724 |
) |
|
|
19,152 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plans assets at December 31 |
|
$ |
725,905 |
|
|
$ |
868,179 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans |
|
$ |
(268,626 |
) |
|
$ |
(271,937 |
) |
|
$ |
(252,679 |
) |
|
$ |
(261,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
147 |
|
|
$ |
113 |
|
|
$ |
- |
|
|
$ |
- |
|
Accrued liabilities |
|
|
- |
|
|
|
- |
|
|
|
(16,654 |
) |
|
|
(17,021 |
) |
Postretirement benefits other than
pensions |
|
|
- |
|
|
|
- |
|
|
|
(236,025 |
) |
|
|
(244,905 |
) |
Pension benefits |
|
|
(268,773 |
) |
|
|
(272,050 |
) |
|
|
- |
|
|
|
- |
|
During 2009, the Company froze the pension benefits in its Spectrum (salaried employees)
Plan in the United States, and in the United Kingdom, it modified its early retirement
benefits, both actions resulting in lower pension liabilities.
Included in cumulative other comprehensive loss at December 31, 2008 are the following
amounts that have not yet been recognized in net periodic benefit cost: unrecognized
prior service credits of ($18,046) (($16,698) net of tax) and unrecognized actuarial
losses of $541,679 ($487,010 net of tax).
Included in cumulative other comprehensive loss at December 31, 2009 are the following
amounts that have not yet been recognized in net periodic benefit cost: unrecognized
prior service credits of ($11,951) (($9,455) net of tax) and unrecognized actuarial
losses of $557,722 ($484,568 net of tax). The prior service credit and actuarial loss
included in cumulative other comprehensive loss and expected to be recognized in net
periodic benefit cost during the fiscal year-ended December 31, 2010 are ($1,200) and
$34,000, respectively.
The underfunded status of the pension plans of $271,937 at December 31, 2009 is
recognized in the accompanying consolidated balance sheets as Other assets for those
overfunded plans and Other long-term liabilities for those underfunded plans. The
unfunded status of the other postretirement benefits is recognized as Accrued
liabilities for the current portion of $17,021 and as Postretirement benefits other than
pensions for the long-term portion of $244,905.
The accumulated benefit obligation for all defined benefit pension plans was $954,971
and $1,135,328 at December 31, 2008 and 2009, respectively.
- 55 -
Weighted average assumptions used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
All plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.12 |
% |
|
|
5.74 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Rate of compensation increase |
|
|
3.33 |
% |
|
|
3.74 |
% |
|
|
- |
|
|
|
- |
|
Domestic plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.00 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Rate of compensation increase |
|
|
3.25 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.50 |
% |
|
|
5.70 |
% |
|
|
- |
|
|
|
- |
|
Rate of compensation increase |
|
|
3.56 |
% |
|
|
3.74 |
% |
|
|
- |
|
|
|
- |
|
At December 31, 2009, the weighted average assumed annual rate of increase in the cost
of medical benefits was 9.0 percent for 2010 trending linearly to 5.0 percent in 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
21,991 |
|
|
$ |
21,875 |
|
|
$ |
8,384 |
|
|
$ |
5,570 |
|
|
$ |
4,974 |
|
|
$ |
3,431 |
|
Interest cost |
|
|
62,012 |
|
|
|
63,899 |
|
|
|
58,414 |
|
|
|
15,674 |
|
|
|
15,492 |
|
|
|
14,740 |
|
Expected return on plan assets |
|
|
(77,893 |
) |
|
|
(81,484 |
) |
|
|
(55,581 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortization of prior service cost |
|
|
714 |
|
|
|
483 |
|
|
|
(1,051 |
) |
|
|
(308 |
) |
|
|
(308 |
) |
|
|
(307 |
) |
Amortization of actuarial loss |
|
|
15,257 |
|
|
|
11,593 |
|
|
|
34,261 |
|
|
|
2,836 |
|
|
|
1,196 |
|
|
|
- |
|
Spectrum plan freeze |
|
|
- |
|
|
|
- |
|
|
|
(10,133 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Albany curtailment gain |
|
|
- |
|
|
|
- |
|
|
|
(5,220 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Albany settlement loss |
|
|
- |
|
|
|
- |
|
|
|
9,956 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
22,081 |
|
|
$ |
16,366 |
|
|
$ |
39,030 |
|
|
$ |
23,772 |
|
|
$ |
21,354 |
|
|
$ |
17,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits in the Spectrum (salaried employees) Plan were frozen effective
July 1, 2009. The impact of the pension freeze was a reduction of pension expense for
2009 of $7,800.
- 56 -
Weighted-average assumptions used to determine net periodic benefit cost for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
All plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.61 |
% |
|
|
5.97 |
% |
|
|
6.11 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
Expected return on plan assets |
|
|
8.58 |
% |
|
|
8.25 |
% |
|
|
8.22 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Rate of compensation increase |
|
|
3.37 |
% |
|
|
3.46 |
% |
|
|
3.32 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Domestic plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
Expected return on plan assets |
|
|
9.00 |
% |
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Rate of compensation increase |
|
|
3.25 |
% |
|
|
3.25 |
% |
|
|
3.25 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.29 |
% |
|
|
5.89 |
% |
|
|
6.49 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Expected return on plan assets |
|
|
7.45 |
% |
|
|
7.55 |
% |
|
|
7.32 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Rate of compensation increase |
|
|
3.65 |
% |
|
|
3.96 |
% |
|
|
3.55 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
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,
2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
|
Projected |
|
|
Accumulated |
|
|
Projected |
|
|
Accumulated |
|
|
|
benefit |
|
|
benefit |
|
|
benefit |
|
|
benefit |
|
|
|
obligation |
|
|
obligation |
|
|
obligation |
|
|
obligation |
|
|
|
exceeds plan |
|
|
exceeds plan |
|
|
exceeds plan |
|
|
exceeds plan |
|
|
|
assets |
|
|
assets |
|
|
assets |
|
|
assets |
|
|
Projected benefit obligation |
|
$ |
992,228 |
|
|
$ |
992,228 |
|
|
$ |
1,137,709 |
|
|
$ |
1,137,709 |
|
Accumulated benefit
obligation |
|
|
952,751 |
|
|
|
952,751 |
|
|
|
1,132,988 |
|
|
|
1,132,988 |
|
Fair value of plan assets |
|
|
723,455 |
|
|
|
723,455 |
|
|
|
867,500 |
|
|
|
867,500 |
|
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 |
|
$ |
137 |
|
|
$ |
(122 |
) |
|
|
|
|
|
|
|
|
|
Increase (decrease) in the postretirement benefit obligation |
|
|
1,885 |
|
|
|
(1,678 |
) |
- 57 -
The Companys weighted average asset allocations for its domestic and foreign pension plans
assets at December 31, 2008 and December 31, 2009 by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Plans |
|
|
U. K. Plan |
|
Asset Category |
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
Equity securities |
|
|
70 |
% |
|
|
66 |
% |
|
|
52 |
% |
|
|
59 |
% |
Debt securities |
|
|
30 |
|
|
|
34 |
|
|
|
39 |
|
|
|
35 |
|
Other investments |
|
|
0 |
|
|
|
0 |
|
|
|
6 |
|
|
|
5 |
|
Cash |
|
|
0 |
|
|
|
0 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investment policy for United States plans assets is to maintain an
allocation of 70 percent in equity securities and 30 percent in debt securities. The
Companys investment policy for United Kingdom plan assets is to maintain an allocation
of 60 percent in equity securities and 40 percent in fixed income securities.
Rebalancing of the asset portfolios occurs periodically if the mix differs from the
target allocation. Equity security investments are structured to achieve a balance
between growth and value stocks. The Company also has a pension plan in Germany and the
assets of that plan consist of investments in a German insurance company.
The fair market value of U. S. plan assets was $553,005 and $654,991 at December 31,
2008 and 2009, respectively. The fair market value of the United Kingdom plan assets
was $170,450 and $210,669 at December 31, 2008 and 2009, respectively. The fair market
value of the German pension plan assets was $2,450 and $2,519 at December 31, 2008 and
2009, respectively.
The table below classifies the assets of the United States and United Kingdom plans
using the Fair Value Hierarchy described in Note 9 Fair Value of Financial
Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Heirarchy |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
United States plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
254 |
|
|
$ |
254 |
|
|
$ |
- |
|
|
$ |
- |
|
Equity securities |
|
|
432,338 |
|
|
|
6,255 |
|
|
|
426,083 |
|
|
|
- |
|
Fixed income securities |
|
|
222,399 |
|
|
|
- |
|
|
|
222,399 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
654,991 |
|
|
$ |
6,509 |
|
|
$ |
648,482 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,538 |
|
|
$ |
2,538 |
|
|
$ |
- |
|
|
$ |
- |
|
Equity securities |
|
|
123,626 |
|
|
|
- |
|
|
|
123,626 |
|
|
|
- |
|
Fixed income securities |
|
|
74,717 |
|
|
|
- |
|
|
|
74,717 |
|
|
|
- |
|
Other investments |
|
|
9,788 |
|
|
|
- |
|
|
|
- |
|
|
|
9,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
210,669 |
|
|
$ |
2,538 |
|
|
$ |
198,343 |
|
|
$ |
9,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual equity and fixed income securities are valued using quoted prices from the
published market prices. Commingled equity and fixed income funds are valued using
significant observable inputs of net asset value provided by the fund manager. The net asset value is based on the value of the underlying assets owned by the funds.
The Level 3 asset in the United Kingdom plan is an investment in a European
Infrastructure fund. The fair market value is determined by the fund manager using a
discounted cash flow methodology. The future cash flows expected to be generated by the
assets of the fund and made available to investors are estimated and then discounted
back to the valuation data. The discount rate is derived by adding a risk premium to
the risk-free interest rate applicable to the country in which the asset is located.
- 58 -
The following table details the activity in this investment for the year ended December
31, 2009:
|
|
|
|
|
Balance at January 1, 2009 |
|
$ |
10,007 |
|
Disbursements |
|
|
(153 |
) |
Change in fair value |
|
|
(1,102 |
) |
Foreign currency translation effect |
|
|
1,036 |
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
9,788 |
|
|
|
|
|
The change in fair value of the Level 3 investment does not directly impact earnings as
it is included in the pension assets and is accounted for under pension accounting
guidance.
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 Companys
investment advisors 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 2009, the Company contributed $51,600 to its domestic and foreign pension plans
of which $22,000 was funded through the contribution of Company stock to its Spectrum
Plan. During 2010, the Company expects to contribute between $35,000 and $40,000 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Pension |
|
Postretirement |
|
|
Benefits |
|
Benefits |
|
2010 |
|
|
84,000 |
|
|
|
17,000 |
|
2011 |
|
|
62,000 |
|
|
|
18,000 |
|
2012 |
|
|
65,000 |
|
|
|
18,000 |
|
2013 |
|
|
65,000 |
|
|
|
18,000 |
|
2014 |
|
|
67,000 |
|
|
|
18,000 |
|
2015 through 2019 |
|
|
363,000 |
|
|
|
91,000 |
|
Note 11
- Other Long-term Liabilities
Other long-term liabilities at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Products liability |
|
$ |
94,895 |
|
|
$ |
120,616 |
|
Other |
|
|
20,908 |
|
|
|
25,362 |
|
|
|
|
|
|
|
|
|
|
$ |
115,803 |
|
|
$ |
145,978 |
|
|
|
|
|
|
|
|
Note 12
- Common Stock
There were 14,072 common shares reserved for grants under compensation plans and
contributions to the Companys Spectrum Investment Savings Plan and Pre-Tax Savings plans at
December 31, 2009. The Company matches contributions made by participants to these plans in
accordance with a formula based upon the financial performance of the Company. Matching
contributions are directed to the Company Stock Fund; however, employees may transfer these
contributions to any of the other investment funds offered under the plans.
- 59 -
Note
13 Cumulative Other Comprehensive Loss
The balances of each component of cumulative other comprehensive loss in the accompanying
consolidated statements of stockholders equity are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Cumulative currency translation adjustment |
|
$ |
17,544 |
|
|
$ |
21,492 |
|
Changes in the fair value of derivatives and
unrealized gains/(losses) on marketable securities |
|
|
267 |
|
|
|
(2,154 |
) |
Tax effect |
|
|
2,422 |
|
|
|
25 |
|
|
|
|
|
|
|
|
Net |
|
|
2,689 |
|
|
|
(2,129 |
) |
Unrecognized postretirement benefit plans |
|
|
(523,633 |
) |
|
|
(545,771 |
) |
Tax effect, net of valuation allowance |
|
|
53,321 |
|
|
|
70,658 |
|
|
|
|
|
|
|
|
Net |
|
|
(470,312 |
) |
|
|
(475,113 |
) |
|
|
|
|
|
|
|
|
|
$ |
(450,079 |
) |
|
$ |
(455,750 |
) |
|
|
|
|
|
|
|
Note 14
Stock-Based Compensation
Stock Options
The Companys 1998, 2001 and 2006 incentive compensation plans allow the Company to grant
awards to key employees in the form of stock options, stock awards, restricted stock units,
stock appreciation rights, performance units, dividend equivalents and other awards. The
1996 incentive stock option plan and the 1998, 2001 and 2006 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.
The Companys 2002 nonqualified stock option plan provides for granting options to directors
who are not current or former employees of the Company to purchase common shares at prices
not less than market at the date of grant. Options granted under this plan have a term of
ten years and become exercisable one year after the date of grant.
In April 2009, executives participating in the 2009 2011 Long-Term Incentive Plan were
granted 1,155,000 stock options which will vest one third each year through April 2012. This
plan does not contain any performance based criteria. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing model with the following
weight-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2009 |
|
|
Risk-free interest rate |
|
|
4.6 |
% |
|
|
2.2 |
% |
Dividend yield |
|
|
2.2 |
% |
|
|
2.7 |
% |
Expected volatility of the Companys
common stock |
|
|
0.360 |
|
|
|
0.568 |
|
Expected life in years |
|
|
8.0 |
|
|
|
6.0 |
|
The weighted average fair value of options granted in 2007 and 2009 was $7.28 and $2.08,
respectively. No stock options were granted in 2008.
Compensation expense for these options is recorded over the vesting period. The Company
recorded compensation expense of $321, $351 and $943 for 2007, 2008 and 2009, respectively,
related to stock options.
- 60 -
Summarized information for the plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Number of |
|
|
Exercise |
|
|
Available |
|
|
|
|
|
Shares |
|
|
Price |
|
|
For Grant |
|
|
January 1, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
3,032,551 |
|
|
|
17.76 |
|
|
|
|
|
|
|
Exercisable |
|
|
2,670,865 |
|
|
|
18.22 |
|
|
|
|
|
|
|
|
Granted |
|
|
8,280 |
|
|
|
19.33 |
|
|
|
|
|
|
|
Exercised |
|
|
(1,245,910 |
) |
|
|
17.01 |
|
|
|
|
|
|
|
Expired |
|
|
(6,827 |
) |
|
|
24.33 |
|
|
|
|
|
|
|
Cancelled |
|
|
(180,617 |
) |
|
|
18.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
4,787,535 |
|
|
|
Outstanding |
|
|
1,607,477 |
|
|
|
18.23 |
|
|
|
|
|
|
|
Exercisable |
|
|
1,390,828 |
|
|
|
18.80 |
|
|
|
|
|
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Exercised |
|
|
(19,192 |
) |
|
|
14.75 |
|
|
|
|
|
|
|
Expired |
|
|
(246,215 |
) |
|
|
20.57 |
|
|
|
|
|
|
|
Cancelled |
|
|
(107,470 |
) |
|
|
18.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
4,708,946 |
|
|
|
Outstanding |
|
|
1,234,600 |
|
|
|
17.76 |
|
|
|
|
|
|
|
Exercisable |
|
|
1,108,910 |
|
|
|
18.12 |
|
|
|
|
|
|
|
|
Granted |
|
|
1,155,000 |
|
|
|
4.82 |
|
|
|
|
|
|
|
Exercised |
|
|
(26,230 |
) |
|
|
13.61 |
|
|
|
|
|
|
|
Expired |
|
|
(145,018 |
) |
|
|
14.19 |
|
|
|
|
|
|
|
Cancelled |
|
|
(178,882 |
) |
|
|
13.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
2,710,965 |
|
|
|
Outstanding |
|
|
2,039,470 |
|
|
|
11.14 |
|
|
|
|
|
|
|
Exercisable |
|
|
1,011,231 |
|
|
|
17.09 |
|
|
|
|
|
The weighted average remaining contractual life of options outstanding at December 31, 2009
is 6.6 years.
- 61 -
Segregated disclosure of options outstanding at December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Prices |
|
|
|
Less than or |
|
|
Greater than $12.14 and |
|
|
Greater than or |
|
|
|
equal to $12.14 |
|
|
less than $19.75 |
|
|
equal to $19.75 |
|
|
Options outstanding |
|
|
1,037,000 |
|
|
|
500,356 |
|
|
|
502,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
exercise price |
|
$ |
4.82 |
|
|
$ |
14.67 |
|
|
$ |
20.66 |
|
Remaining contractual life |
|
|
8.9 |
|
|
|
4.1 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable |
|
|
59,000 |
|
|
|
450,117 |
|
|
|
502,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
exercise price |
|
$ |
4.82 |
|
|
$ |
14.70 |
|
|
$ |
20.66 |
|
Restricted Stock Units
Under the 1998, 2001 and 2006 Incentive Compensation Plans, restricted stock units may
be granted to officers and other key employees. Compensation related to the restricted
stock units is determined based on the fair value of the Companys stock on the date of
grant and is amortized to expense over the vesting period. The restricted stock units
granted in 2008 and 2009 have vesting periods ranging from one to four years. The
Company recognizes compensation expense based on the earlier of the vesting date or the
date when the employee becomes eligible to retire. The Company recorded $2,008, $1,796
and $1,667 of compensation expense for 2007, 2008 and 2009, respectively, related to
restricted stock units. The following table provides details of the restricted stock
units granted by the Company:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
Restricted stock units outstanding at beginning of period |
|
|
401,681 |
|
|
|
403,637 |
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted |
|
|
22,500 |
|
|
|
153,509 |
|
Accrued dividend equivalents |
|
|
19,700 |
|
|
|
18,384 |
|
Restricted stock units settled |
|
|
(35,405 |
) |
|
|
(43,884 |
) |
Restricted stock units cancelled |
|
|
(4,839 |
) |
|
|
(4,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding at end of period |
|
|
403,637 |
|
|
|
526,809 |
|
|
|
|
|
|
|
|
Performance Based Units
Compensation related to the
performance based units is determined based on the fair value of
the Companys stock on the date of grant combined
with performance metrics and is amortized to expense over the vesting period.
During 2007, executives participating in the Companys Long-Term Incentive Plan earned
283,254 performance based units based on the Companys financial performance in 2007.
These units will vest in February 2010 and the Company recorded $1,348, $1,778 and $990
in compensation expense associated with these units in 2007, 2008 and 2009,
respectively. No PBUs were earned in 2008. During 2009, executives participating in the
Companys Long-Term Incentive Plan earned 545,930 performance based units based on the
Companys financial performance in 2009. Of these units, 255,070 will vest in 2010 and
290,860 will vest in 2011. The Company recorded $1,819 of compensation expense
associated with these units in 2009. Similar to restricted stock units, the Company
recognizes compensation expense based on the earlier of the vesting date or the date
when the employee becomes eligible to retire.
- 62 -
The following table provides details of the performance based units earned under the
Companys Long-Term Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive Plan Years |
|
|
|
2007 - 2009 |
|
|
2008 - 2010 |
|
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
Performance based units |
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of period |
|
|
283,254 |
|
|
|
290,671 |
|
|
|
- |
|
Units earned |
|
|
- |
|
|
|
255,070 |
|
|
|
290,860 |
|
Accrued dividend equivalents |
|
|
14,143 |
|
|
|
14,210 |
|
|
|
- |
|
Units cancelled |
|
|
(6,726 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Performance based units |
|
|
|
|
|
|
- |
|
|
|
- |
|
At end of period |
|
|
290,671 |
|
|
|
559,951 |
|
|
|
290,860 |
|
|
|
|
|
|
|
|
|
|
|
The Company recognized $2,915, $26 and $1,944 of excess tax benefits as a financing cash
inflow for the years ended December 31, 2007, 2008 and 2009, respectively.
At December 31, 2009, the Company has $5,276 of unvested compensation cost related to
stock options, restricted stock units and performance based units. This cost will be
recognized as expense over a weighted average period of 27 months.
Note 15
Lease Commitments
The Company rents certain distribution facilities and equipment under long-term leases
expiring at various dates. The total rental expense for the Company, including these
long-term leases and all other rentals, was $27,560, $26,664 and $27,713 for 2007, 2008 and
2009, respectively.
Future minimum payments for all non-cancelable operating leases through the end of their
terms, which in aggregate total $86,136, are listed below. Certain of these leases contain
provisions for optional renewal at the end of the lease terms.
|
|
|
|
|
2010 |
|
$ |
15,522 |
|
2011 |
|
|
20,887 |
|
2012 |
|
|
8,185 |
|
2013 |
|
|
6,852 |
|
2014 |
|
|
5,370 |
|
Thereafter |
|
|
29,320 |
|
Note 16
- Restructuring
During 2009, the North American Tire Operations and the International Tire Operations
segments recorded $48,323 and $395, respectively, of restructuring expense associated with
initiatives announced at various times throughout 2008 and 2009.
On October 21, 2008, the Company announced it would conduct a capacity study of its United
States manufacturing facilities. The study was an evolution of the Strategic Plan as
outlined by the Company in February 2008. All of the Companys U.S. manufacturing facilities
were included for review and were analyzed based on a combination of factors, including long
term financial benefits, labor relations and productivity.
At the conclusion of the capacity study, on December 17, 2008, the North American Tire
Operations segment announced its plans to close its tire manufacturing facility in Albany,
Georgia. This closure resulted in a workforce reduction of approximately 1,330 people.
Certain equipment in the facility has been relocated to other manufacturing facilities of the
Company. The segment has targeted the third quarter of 2010 as the completion date for this
plant closure.
- 63 -
The cost of this initiative is estimated to range from between $135,000 and $145,000. This
amount consists of personnel related costs of between $28,000 and $30,000; and equipment
related and other costs are estimated to be between $107,000 and $115,000, including asset
write downs of between $76,000 and $79,000. The above estimates of personnel related costs
for this initiative include pension curtailment and settlement costs.
Since the inception of this initiative in December 2008, the Company has recorded $122,689 of
costs related to this initiative. This amount includes employee related costs of $20,639 and
equipment related and other costs of $102,050, including impairment losses of $76,062, to
write down the Albany land, building and equipment to fair value.
In the North American Tire Operations segment for 2009, the Company recorded $46,705 of net
restructuring expense related to the Albany closure, with $28,362 used for equipment
relocation and other costs, $20,210 for employee related costs and $900 to write the Albany
land, building and equipment down to fair value. Included in employee related costs are
severance and other employee related costs of $15,414 and $4,796 of settlement losses
partially offset by curtailment gains related to pension benefits. The Company received
$2,767 in government grant receipts throughout 2009, partially offsetting gross restructuring
expense.
At December 31, 2008, the accrued severance balance was $429. During 2009, the Company
recorded severance costs of $12,887 and made severance payments of $12,468 resulting in an
accrued severance balance at December 31, 2009 of $848. The severance charges recorded
represent the Companys best estimate of future amounts to be paid and approximate fair
value.
During 2009, the Company also recorded restructuring expenses associated with the closure of
three North American distribution centers. The closure of these distribution centers
impacted approximately 73 people and had a total cost of $1,618. Personnel related costs
totaled $946 and equipment related costs totaled $672. All of the closures had been
completed by the end of 2009 and severance payments totaled $779, leaving an accrual balance
of $167 at December 31, 2009. The severance charges recorded represent the Companys best
estimate of future amounts to be paid and approximate fair value.
In the International Tire Operations segment, Cooper Europe initiated a restructuring program
to reduce headcount to align with production volume requirements during the second quarter of
2009. This initiative resulted in the elimination of 45 positions and was completed early in
the third quarter. The Company recorded $395 of severance cost related to this initiative
and all severance amounts have been paid.
During 2008, the Company incurred restructuring expenses related to the closure of its
Albany, Georgia manufacturing facility and the closure of a distribution center in Dayton,
New Jersey.
In connection with the Albany initiative, the Company recorded $429 of personnel related
costs all of which was accrued at December 31, 2008. The Company also recorded an impairment
loss of $75,162 to write down the Albany land, building and equipment to fair value. The
fair value of the land and buildings was determined using a sales comparison approach using
recent market data and comparing values to the Albany, Georgia location. The fair value of
the machinery and equipment which will not be transferred to other Company locations was
determined using the market value approach. The Company also recorded $393 in other
restructuring costs related to the Albany facility.
In December 2008, the Company also announced the planned closure of its Dayton, New Jersey
distribution center. The cost of this initiative was $418 related to asset write-downs taken
in the fourth quarter of $394 and severance costs accrued and not yet paid of $24. This
initiative was completed during the first quarter 2009 and impacted nine people.
During 2007, the North American Tire Operations and the International Tire Operations
segments recorded $3,327 and $188, respectively, of restructuring expense associated with
initiatives announced and begun during 2006.
- 64 -
Note 17
- Other Net
The components of Other net in the statement of operations for the years 2007, 2008 and
2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Foreign currency (gains)/losses |
|
$ |
(3,890 |
) |
|
$ |
2,966 |
|
|
$ |
886 |
|
Equity in earnings from joint ventures |
|
|
(1,725 |
) |
|
|
2,346 |
|
|
|
673 |
|
Loss (gain) on sale of assets |
|
|
(7,230 |
) |
|
|
948 |
|
|
|
141 |
|
Other |
|
|
168 |
|
|
|
(1,406 |
) |
|
|
(2,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(12,677 |
) |
|
$ |
4,854 |
|
|
$ |
(1,272 |
) |
|
|
|
|
|
|
|
|
|
|
Note 18
- Contingent Liabilities
Indemnities Related to the Sale of Cooper-Standard Automotive
The sale of the Companys automotive segment included contract provisions which provide for
indemnification of the buyer by the Company for all income tax liabilities related to periods
prior to closing and for various additional items outlined in the agreement. Indemnity
payments would be reflected as expenses of discontinued operations. The recorded gain on the
sale includes reductions for estimates of the expected tax liabilities and the other
potential indemnity items to the extent they are deemed to be probable and estimable at
December 31, 2009. For indemnity commitments where the Company believes future payments are
probable, it also believes the expected outcomes can be estimated with reasonable accuracy.
Accordingly, for such amounts, a liability has been recorded with a corresponding decrease in
the gain on the sale. Other indemnity provisions will be monitored for possible future
payments not presently contemplated. The Company will reevaluate the probability and amounts
of indemnity payments being required quarterly and adjustments, if any, to the initial
estimates will be reflected as income or loss from discontinued operations in the periods
when revised estimates are determined.
Guarantees
Certain operating leases related to property and equipment used in the operations of
Cooper-Standard Automotive were guaranteed by the Company. These guarantees require the
Company, in the event Cooper-Standard Automotive fails to honor its commitments, to satisfy
the terms of the lease agreements. As part of the sale of the automotive segment, the
Company is seeking releases of those guarantees, but to date has been unable to secure
releases from certain lessors. The most significant of those leases is for a U. S.
manufacturing facility with a remaining term of seven years and total remaining payments of
approximately $8,200. Other leases cover two facilities in the United Kingdom. These leases
have remaining terms of four years and remaining payments of approximately $2,600. The
Company does not believe it is presently probable that it will be called upon to make these
payments. Accordingly, no accrual for these guarantees has been recorded. If information
becomes known to the Company at a later date which indicates its performance under these
guarantees is probable, accruals for the obligations will be required.
Litigation
The Company is a defendant in various products liability claims brought in numerous
jurisdictions in which individuals seek damages resulting from automobile accidents allegedly
caused by defective tires manufactured by the Company. Each of the products liability claims
faced by the Company generally involve different types of tires, models and lines, different
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 Companys products 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.
- 65 -
Pursuant to applicable accounting rules, the Company accrues the minimum liability for
each known claim when the estimated outcome is a range of possible loss and no one amount
within that range is more likely than another. The Company uses a range of settlements
because an average settlement cost would not be meaningful since the products liability
claims faced by the Company are unique and widely variable. The cases involve different
types of tires, models and lines, different 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 Companys products
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, the claims asserted and
the resolutions of those claims have an enormous amount of variability. The costs have
ranged from zero dollars to $12 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 managements expectations
for future litigation activity and the settled claims history is maintained. Because of the
speculative nature of litigation in the United States, the Company does not believe a
meaningful aggregate range of potential loss for asserted and unasserted claims can be
determined. The Companys experience has demonstrated that its estimates have been
reasonably accurate and, on average, cases are settled at amounts close to the reserves
established. However, it is possible an individual claim from time to time may result in an
aberration from the norm and could have a material impact.
On February 2, 2010 in the case of Cates, et al v. Cooper Tire & Rubber Company, the United
States District Court for the Northern District of Ohio entered an order approving the
settlement agreement negotiated by the parties in April 2009, in its entirety, as being fair,
reasonable and adequate and dismissed, with prejudice, the case and a related lawsuit,
Johnson, et al v. Cooper Tire & Rubber Company. The settlement agreement provides for 1) a
cash payment of $7.05 million to the Plaintiffs for reimbursement of costs; and 2)
modification to the Companys approach and costs of providing future health care to specified
current retiree groups which will result in an amendment to the Companys retiree medical
plan.
A group of the Companys union retirees and surviving spouses filed the Cates lawsuit on
behalf of a purported class claiming that the Company was not entitled to impose any
contribution requirement for the cost of their health care coverage pursuant to a series of
letter agreements entered into by the Company and the United Steelworkers and that Plaintiffs
were promised lifetime benefits, at no cost, after retirement. As a result of settlement
discussions, the related Johnson case was filed with the Court on behalf of a different,
smaller group of hourly union-represented retirees.
The Company is making plans to implement the settlement agreement. As a consequence of the
settlement agreement, the Company recorded $7.05 million of expense during the first quarter
relating to the specified payments. The estimated present value of costs related to the plan
amendment is expected to be approximately $7.7 million which has been reflected as an
increase in the accrual for Other Post-employment Benefits with an offset to the Accumulated
Other Comprehensive Income component of Shareholders Equity and will be amortized as a
charge to operations over the remaining life expectancy of the affected plan participants
beginning with the effective date of the changes.
Cooper Chengshan Acquisition
Effective February 4, 2006, the Company acquired a 51 percent ownership position in Cooper
Chengshan (Shandong) Passenger Tire Company Ltd. and Cooper Chengshan (Shandong) Tire
Company, Ltd. (Cooper Chengshan). The new companies, which were formed upon governmental
approval of the transaction, together were known as Shandong Chengshan Tire Company, Ltd.
(Chengshan) of Shandong, PRC. The two companies were formed by transferring specified
assets and obligations to newly formed entities and the Company acquired a 51 percent
interest in each thereafter.
In connection with the investment in Cooper Chengshan, beginning January 1, 2009 and
continuing through December 31, 2011, the minority interest partner has the right to sell,
and, if exercised, the Company has the obligation to purchase, the remaining 49 percent
minority interest share at a minimum price of $62,700. The Company has been notified by its
noncontrolling shareholder that it has exercised its put option and after governmental
approval, the Company will purchase the 14 percent share for $17,920.
- 66 -
Employment Contracts
The Company has an employment arrangement with one key executive employee and has change in
control severance agreements covering 17 additional key executives. These arrangements
provide for continuity of management and provide for payments of multiples of annual salary,
potential tax gross-up amounts, certain incentives and continuation of benefits upon the
occurrence of specified events in a manner that is believed to be consistent with comparable
companies.
Unconditional Purchase Orders
Noncancelable purchase order commitments for capital expenditures and raw materials,
principally natural rubber, made in the ordinary course of business were $83,578 at December
31, 2009.
Note 21
- Business Segments
The Company has two reportable segments North American Tire Operations
and
International Tire Operations. The Companys reportable segments are each managed
separately.
The North American Tire Operations segment produces passenger and light truck tires, which
are sold nationally and internationally in the replacement tire market to independent tire
dealers, wholesale distributors, regional and national retail tire chains and large retail
chains that sell tires as well as other automotive products.
The International Tire Operations segment currently manufactures and markets passenger car,
light and medium truck and motorcycle tires for the replacement market, as well as racing
tires and materials for the tire retread industry, in Europe and the United Kingdom. The
segment manufactures and markets passenger car, bias and radial light and medium truck tires
and off-the-road tires in the PRC.
The following customers of the North American Tire Operations segment contributed ten percent
or more of the Companys total consolidated net sales in 2007, 2008 and 2009. Net sales and
percentage of consolidated Company sales for these customers in 2007, 2008 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
Consolidated |
|
Customer |
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
TBC/Treadways |
|
$ |
415,713 |
|
|
|
14 |
% |
|
$ |
385,495 |
|
|
|
13 |
% |
|
$ |
331,898 |
|
|
|
12 |
% |
- 67 -
The accounting policies of the reportable segments are consistent with those described in the
Significant Accounting Policies note to the consolidated financial statements. Corporate
administrative expenses are allocated to segments based principally on assets, employees and
sales. The following table details segment financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
2,209,822 |
|
|
$ |
2,142,139 |
|
|
$ |
2,006,183 |
|
International Tire |
|
|
881,297 |
|
|
|
975,007 |
|
|
|
993,839 |
|
Eliminations and other |
|
|
(158,544 |
) |
|
|
(235,335 |
) |
|
|
(221,032 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
2,932,575 |
|
|
|
2,881,811 |
|
|
|
2,778,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
|
119,440 |
|
|
|
(174,065 |
) |
|
|
110,957 |
|
International Tire |
|
|
28,902 |
|
|
|
(30,094 |
) |
|
|
72,753 |
|
Unallocated corporate charges |
|
|
|
|
|
|
|
|
|
|
|
|
and eliminations |
|
|
(13,950 |
) |
|
|
(12,474 |
) |
|
|
(27,441 |
) |
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
134,392 |
|
|
|
(216,633 |
) |
|
|
156,269 |
|
Interest income |
|
|
18,004 |
|
|
|
12,887 |
|
|
|
5,193 |
|
Dividend from unconsolidated
subsidiary |
|
|
2,007 |
|
|
|
1,943 |
|
|
|
- |
|
Debt extinguishment costs |
|
|
(2,558 |
) |
|
|
(593 |
) |
|
|
- |
|
Other net |
|
|
12,677 |
|
|
|
(4,854 |
) |
|
|
1,272 |
|
Interest expense |
|
|
(48,492 |
) |
|
|
(50,525 |
) |
|
|
(47,211 |
) |
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes |
|
|
116,030 |
|
|
|
(257,775 |
) |
|
|
115,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
|
97,746 |
|
|
|
96,057 |
|
|
|
76,001 |
|
International Tire |
|
|
37,264 |
|
|
|
45,418 |
|
|
|
46,317 |
|
Corporate |
|
|
1,922 |
|
|
|
1,284 |
|
|
|
1,193 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
136,932 |
|
|
|
142,759 |
|
|
|
123,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
|
1,021,132 |
|
|
|
977,545 |
|
|
|
857,734 |
|
International Tire |
|
|
736,568 |
|
|
|
740,583 |
|
|
|
770,557 |
|
Corporate and other |
|
|
540,790 |
|
|
|
324,768 |
|
|
|
472,049 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
2,298,490 |
|
|
|
2,042,896 |
|
|
|
2,100,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
|
63,466 |
|
|
|
55,560 |
|
|
|
41,917 |
|
International Tire |
|
|
76,755 |
|
|
|
72,723 |
|
|
|
37,410 |
|
Corporate |
|
|
751 |
|
|
|
490 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
140,972 |
|
|
|
128,773 |
|
|
|
79,333 |
|
- 68 -
Geographic information for revenues, based on country of origin, and long-lived assets
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
2,124,586 |
|
|
$ |
2,055,769 |
|
|
$ |
1,933,503 |
|
Europe |
|
|
318,732 |
|
|
|
303,742 |
|
|
|
257,351 |
|
Asia |
|
|
489,257 |
|
|
|
522,300 |
|
|
|
588,136 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
2,932,575 |
|
|
|
2,881,811 |
|
|
|
2,778,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
630,055 |
|
|
|
506,248 |
|
|
|
459,129 |
|
Europe |
|
|
70,756 |
|
|
|
48,660 |
|
|
|
48,614 |
|
Asia |
|
|
291,404 |
|
|
|
346,366 |
|
|
|
343,228 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
992,215 |
|
|
|
901,274 |
|
|
|
850,971 |
|
Shipments of domestically-produced products to customers outside the U. S. approximated seven
percent of net sales in 2007, nine percent of net sales in 2008 and ten percent of net sales
in 2009.
- 69 -
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Cooper Tire & Rubber Company
We have audited the accompanying consolidated balance sheets of Cooper Tire & Rubber Company (the
Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three years in the period ended December 31,
2009. Our audits also included the financial statement schedule listed in the index at Item 15(a)
(2). These financial statements and schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Cooper Tire & Rubber Company at December 31, 2009
and 2008, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the accompanying financial
statements have been retrospectively adjusted for the adoption of Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 810, Consolidation, (formerly FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Cooper Tire & Rubber Companys internal control over financial reporting as
of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March
2, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Ernst & Young LLP
Toledo, Ohio
March 2, 2010
- 70 -
|
|
|
SELECTED QUARTERLY DATA
|
|
(Unaudited) |
(Dollar amounts in thousands except per share amounts.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Net sales |
|
$ |
679,321 |
|
|
$ |
772,907 |
|
|
$ |
793,751 |
|
|
$ |
635,832 |
|
Gross profit |
|
|
56,238 |
|
|
|
29,829 |
|
|
|
(137 |
) |
|
|
(9,757 |
) |
Income (loss) from continuing operations
attributable to Cooper Tire & Rubber Company |
|
|
1,342 |
|
|
|
(22,100 |
) |
|
|
(55,248 |
) |
|
|
(143,438 |
) |
Basic earnings (loss) per share from continuing operations
attributable to Cooper Tire & Rubber Company |
|
|
0.03 |
|
|
|
(0.38 |
) |
|
|
(0.94 |
) |
|
|
(2.43 |
) |
Diluted earnings (loss) per share from continuing operations
attributable to Cooper Tire & Rubber Company |
|
|
0.03 |
|
|
|
(0.38 |
) |
|
|
(0.94 |
) |
|
|
(2.43 |
) |
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
497,672 |
|
|
$ |
547,513 |
|
|
$ |
586,188 |
|
|
$ |
510,766 |
|
International Tire |
|
|
231,780 |
|
|
|
282,966 |
|
|
|
284,684 |
|
|
|
175,577 |
|
Eliminations and other |
|
|
(50,131 |
) |
|
|
(57,572 |
) |
|
|
(77,121 |
) |
|
|
(50,511 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
679,321 |
|
|
$ |
772,907 |
|
|
$ |
793,751 |
|
|
$ |
635,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
8,144 |
|
|
$ |
(21,906 |
) |
|
$ |
(51,165 |
) |
|
$ |
(109,138 |
) |
International Tire |
|
|
6,909 |
|
|
|
5,944 |
|
|
|
7,231 |
|
|
|
(50,179 |
) |
Eliminations |
|
|
(1,269 |
) |
|
|
987 |
|
|
|
396 |
|
|
|
(1,443 |
) |
Corporate |
|
|
(4,230 |
) |
|
|
(442 |
) |
|
|
(3,477 |
) |
|
|
(2,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
9,554 |
|
|
|
(15,417 |
) |
|
|
(47,015 |
) |
|
|
(163,755 |
) |
Interest expense |
|
|
(11,478 |
) |
|
|
(12,742 |
) |
|
|
(12,821 |
) |
|
|
(13,484 |
) |
Debt extinguishment costs |
|
|
(583 |
) |
|
|
- |
|
|
|
(10 |
) |
|
|
- |
|
Interest income |
|
|
3,723 |
|
|
|
3,669 |
|
|
|
3,902 |
|
|
|
1,593 |
|
Dividend from unconsolidated subsidiary |
|
|
1,943 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other net |
|
|
1,317 |
|
|
|
2,201 |
|
|
|
(1,244 |
) |
|
|
(7,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
$ |
4,476 |
|
|
$ |
(22,289 |
) |
|
$ |
(57,188 |
) |
|
$ |
(182,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Net sales |
|
$ |
571,408 |
|
|
$ |
631,729 |
|
|
$ |
802,794 |
|
|
$ |
773,059 |
|
Gross profit |
|
|
50,269 |
|
|
|
100,460 |
|
|
|
140,517 |
|
|
|
127,781 |
|
Income (loss) from continuing operations
attributable to Cooper Tire & Rubber Company |
|
|
(22,923 |
) |
|
|
30,763 |
|
|
|
57,832 |
|
|
|
49,620 |
|
Basic earnings (loss) per share from continuing operations
attributable to Cooper Tire & Rubber Company |
|
|
(0.35 |
) |
|
|
0.41 |
|
|
|
0.79 |
|
|
|
0.55 |
|
Diluted earnings (loss) per share from continuing operations
attributable to Cooper Tire & Rubber Company |
|
|
(0.35 |
) |
|
|
0.40 |
|
|
|
0.77 |
|
|
|
0.53 |
|
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
439,317 |
|
|
$ |
427,333 |
|
|
$ |
573,886 |
|
|
$ |
565,647 |
|
International Tire |
|
|
166,212 |
|
|
|
257,182 |
|
|
|
296,841 |
|
|
|
273,604 |
|
Eliminations and other |
|
|
(34,121 |
) |
|
|
(52,786 |
) |
|
|
(67,933 |
) |
|
|
(66,192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
571,408 |
|
|
$ |
631,729 |
|
|
$ |
802,794 |
|
|
$ |
773,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
(3,620 |
) |
|
$ |
27,951 |
|
|
$ |
47,618 |
|
|
$ |
39,008 |
|
International Tire |
|
|
(2,821 |
) |
|
|
19,204 |
|
|
|
29,902 |
|
|
|
26,468 |
|
Eliminations |
|
|
(274 |
) |
|
|
(786 |
) |
|
|
(520 |
) |
|
|
(59 |
) |
Corporate |
|
|
(9,524 |
) |
|
|
(4,896 |
) |
|
|
(6,312 |
) |
|
|
(5,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
(16,239 |
) |
|
|
41,473 |
|
|
|
70,688 |
|
|
|
60,347 |
|
Interest expense |
|
|
(12,655 |
) |
|
|
(12,097 |
) |
|
|
(11,440 |
) |
|
|
(11,019 |
) |
Interest income |
|
|
1,375 |
|
|
|
1,105 |
|
|
|
2,259 |
|
|
|
454 |
|
Other net |
|
|
823 |
|
|
|
1,249 |
|
|
|
(1,047 |
) |
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
$ |
(26,696 |
) |
|
$ |
31,730 |
|
|
$ |
60,460 |
|
|
$ |
50,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2008, the Company recorded an impairment charge of $31,340 related
to the write off of goodwill in the International Tire Operations segment and also recorded
restructuring charges of $76,402 related to the planned closure of the Albany, Georgia
manufacturing facility and Dayton, New Jersey distribution center.
- 71 -
COOPER TIRE & RUBBER COMPANY
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2007, 2008 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Additions |
|
|
|
|
|
|
Balance |
|
|
|
Beginning |
|
|
Charged |
|
|
Business |
|
|
Deductions |
|
|
at End |
|
|
|
of Year |
|
|
To Income |
|
|
Acquisitions |
|
|
(a) |
|
|
of Year |
|
|
Allowance
for doubtful
accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
8,837,656 |
|
|
$ |
1,579,369 |
|
|
$ |
- |
|
|
$ |
1,785,792 |
|
|
$ |
8,631,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
8,631,233 |
|
|
$ |
2,449,691 |
|
|
$ |
- |
|
|
$ |
401,050 |
|
|
$ |
10,679,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
10,679,874 |
|
|
$ |
1,990,692 |
|
|
$ |
- |
|
|
$ |
1,742,585 |
|
|
$ |
10,927,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Accounts charged off during the year, net of recoveries of accounts previously
charged off. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Additions |
|
|
|
|
|
|
Balance |
|
|
|
Beginning |
|
|
Charged |
|
|
Charged |
|
|
Deductions |
|
|
at End |
|
|
|
of Year |
|
|
To Income |
|
|
To Equity |
|
|
(a) |
|
|
of Year |
|
|
Tax
valuation
allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
128,640,174 |
|
|
$ |
811,940 |
|
|
$ |
- |
|
|
$ |
42,085,397 |
|
|
$ |
87,366,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
87,366,717 |
|
|
$ |
62,903,924 |
|
|
$ |
84,413,313 |
|
|
$ |
3,413,944 |
|
|
$ |
231,270,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
231,270,010 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
54,503,772 |
|
|
$ |
176,766,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net decrease in tax valuation allowance is primarily a result of
net changes in cumulative book/tax timing differences, the write-off of capital
loss carryforward and changes in judgement about the realizability of deferred tax assets, plus the impact of the
change in the postretirement benefits component of Cumulative other
comprehensive loss. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Additions |
|
|
|
|
|
|
Balance |
|
|
|
Beginning |
|
|
Charged |
|
|
Charged |
|
|
Deductions |
|
|
at End |
|
|
|
of Year |
|
|
To Income |
|
|
To Equity |
|
|
(a) |
|
|
of Year |
|
|
Lower of cost
or market
inventory reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
- |
|
|
$ |
10,237,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
10,237,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
10,237,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
10,237,000 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Decrease in lower of cost or market reserve as a result of lower
raw material costs and increased sales prices. |
- 72 -
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the Companys management, with the
participation of the Chief Executive Officer and Chief Financial Officer of the Company, have
evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the
effectiveness of the Companys disclosure controls and procedures, including its internal controls
and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer have concluded that, as of the end of such period, the Companys disclosure controls and
procedures were effective in identifying the information required to be disclosed in the Companys
periodic reports filed with the SEC, including this Annual Report on Form 10-K, and ensuring that
such information is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.
(b) Managements Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. In order to evaluate the effectiveness of internal control over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, management has
conducted an assessment, including testing, using the criteria in Internal Control Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Companys system of internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on its assessment, management has concluded that the Company maintained effective internal
control over financial reporting as of December 31, 2009, based on criteria in Internal Control
Integrated Framework issued by the COSO, and that the Companys internal control over financial
reporting is effective. Ernst & Young LLP, the independent registered public accounting firm that
has audited the Companys consolidated financial statements included in this annual report and has
issued its report on the effectiveness of the Companys internal controls over financial reporting
as of December 31, 2009.
(c) Report of the Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Cooper Tire & Rubber Company
We have audited Cooper Tire & Rubber Companys internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Cooper Tire & Rubber Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Managements Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk a material
weakness exists, testing and evaluating the
design and operating effectiveness of internal control, based on the
assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in
- 73 -
accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our
opinion, Cooper Tire & Rubber Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Cooper Tire & Rubber Company as of
December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders
equity and cash flows for each of the three years in the period ended December 31, 2009 and our
report dated March 2, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Ernst & Young LLP
Toledo, Ohio
March 2, 2010
(d) Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal control over financial reporting that occurred
during the fourth quarter of 2009 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS AND CORPORATE GOVERNANCE
Information concerning the Companys directors, corporate governance guidelines, Compensation
Committee and Nominating and Governance Committee appears in the Companys definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders, which will be herein incorporated by
reference.
AUDIT COMMITTEE
Information regarding the Audit Committee, including the identification of the Audit Committee
members and the audit committee financial expert, appears in the Companys definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders, which will be herein incorporated by
reference.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, appears in the Companys
definitive Proxy Statement for its 2010 Annual Meeting
of Stockholders, which will be herein incorporated by reference.
CODE OF ETHICS
Information regarding the Companys code of business ethics and conduct is available on the
Companys website at http://www.coopertire.com. To access this information, first click on
Investors and then click on Corporate Governance of the Companys website. Then, select the
Code of Business Ethics and Conduct link listed in the middle of the web page under Corporate
Governance.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive and director compensation, Compensation Committee Interlocks and
Insider Participation, and the Compensation Committee Report appears in the Companys definitive
Proxy Statement for its 2010 Annual Meeting of Stockholders, which will be herein incorporated by
reference.
- 74 -
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information concerning the security ownership of certain beneficial owners and management of the
Companys voting securities and equity securities appears in the Companys definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders, which will be herein incorporated by
reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2009 regarding the Companys equity
compensation plans, all of which have been approved by the Companys security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
|
|
|
|
|
|
|
|
|
for |
|
|
|
Number of securities |
|
|
|
|
|
|
future issuance under |
|
|
|
to be issued upon |
|
|
Weighted-average |
|
|
equity compensation |
|
|
|
exercise of outstanding |
|
|
exercise price of |
|
|
plans (excluding |
|
|
|
options, warrants and |
|
|
outstanding options, |
|
|
securities reflected |
|
|
|
rights |
|
|
warrants and rights |
|
|
in column (a)) |
|
Plan category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
Equity compensation plans approved by stockholders |
|
|
2,848,060 |
|
|
|
$7.98 |
|
|
|
2,710,965 |
|
Equity compensation plans not approved by
stockholders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,848,060 |
|
|
|
$7.98 |
|
|
|
2,710,965 |
|
|
|
|
|
|
|
|
|
|
|
Additional information on equity compensation plans is contained in the Stock-Based
Compensation note to the consolidated financial statements.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
There were no transactions with related persons during 2009.
Information regarding the independence of the Companys directors appears in the Companys
definitive Proxy Statement for its 2010 Annual Meeting of Stockholders, which will be herein
incorporated by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding the Companys independent auditor appears in the Companys definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders, which will be herein incorporated by
reference.
- 75 -
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
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Page(s) |
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Reference |
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34 |
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35-36 |
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37 |
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38 |
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39-69 |
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70 |
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71 |
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2. Financial Statement Schedule |
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72 |
|
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.
- 76 -
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.
|
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COOPER TIRE & RUBBER COMPANY
|
|
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/s/ Roy V. Armes
|
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ROY V. ARMES, Chairman of the Board, |
|
|
President and Chief Executive Officer |
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Date: March 2, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
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Signature |
|
Title |
|
Date |
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|
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/s/ Roy V. Armes
ROY V. ARMES |
|
Chairman of the Board,
President, Chief Executive
Officer and Director
(Principal Executive Officer)
|
|
March 2, 2010 |
/s/ Bradley E. Hughes
BRADLEY E. HUGHES |
|
Vice President and Chief
Financial Officer
(Principal Financial Officer)
|
|
March 2, 2010 |
/s/ Robert W. Huber
ROBERT W. HUBER |
|
Director of External Reporting
(Principal Accounting Officer)
|
|
March 2, 2010 |
LAURIE J. BREININGER* |
|
Director
|
|
January 15, 2010 |
THOMAS P. CAPO* |
|
Director
|
|
January 15, 2010 |
STEVEN M. CHAPMAN* |
|
Director
|
|
January 15, 2010 |
JOHN J. HOLLAND* |
|
Director
|
|
January 15, 2010 |
JOHN F. MEIER* |
|
Director
|
|
January 15, 2010 |
JOHN H. SHUEY* |
|
Director
|
|
January 15, 2010 |
RICHARD L. WAMBOLD* |
|
Director
|
|
January 15, 2010 |
ROBERT D. WELDING* |
|
Director
|
|
January 15, 2010 |
* |
|
The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form
10-K pursuant to a Power of Attorney executed on behalf of the above-indicated directors of
the registrant and filed herewith as Exhibit 24 on behalf of the registrant. |
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*By:
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/s/ James E. Kline |
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JAMES E. KLINE, Attorney-in-fact |
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- 77 -
EXHIBIT INDEX
(3) Certificate of Incorporation and Bylaws
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(i)
|
|
Certificate of Incorporation, as restated and filed with the Secretary of State
of Delaware on May 17, 1993, is incorporated herein by reference from Exhibit 3(i) of
the Companys Form 10-Q for the quarter ended June 30, 1993 |
|
|
|
|
Certificate of Correction of Restated Certificate of Incorporation, as filed with the
Secretary of State of Delaware on November 24, 1998, is incorporated by reference from
Exhibit 3(i) of the Companys Form 10-K for the year ended December 31, 1998 |
|
|
(ii)
|
|
Bylaws, as amended as of February 28, 2007, are incorporated herein by reference
from Exhibit 3.1 to the Companys Form 8-K dated February 28, 2007 |
(4)
|
|
(i)
|
|
Prospectus Supplement dated March 20, 1997 for the issuance of $200,000,000 notes is
incorporated herein by reference from Form S-3 Registration Statement No. 33-44159 |
|
|
(ii)
|
|
Prospectus Supplement dated December 8, 1999 for the issuance of an aggregate
$800,000,000 notes is incorporated herein by reference from Form S-3 Registration
Statement No. 333-89149 |
(10)
|
|
(i)
|
|
Employment Agreement Amended and Restated dated as of December 22, 2008 between Cooper
Tire & Rubber Company and Roy V. Armes is incorporated herein
by reference from Exhibit 10(i) of
the Companys Form 10-K for the year ended
December 31, 2008* |
|
|
(ii)
|
|
Description of management contracts, compensatory plans, contracts, or
arrangements will be herein incorporated by reference from the Companys definitive
Proxy Statement for its 2010 Annual Meeting of Stockholders* |
|
|
(iii)
|
|
Purchase and Sale Agreement dated as of August 30, 2006, by and among Cooper
Tire & Rubber Company, Oliver Rubber Company and Cooper Receivables LLC is incorporated
herein by reference from Exhibit (10)(1) of the Companys Form 8-K dated August 30, 2006 |
|
|
(iv)
|
|
Receivables Purchase Agreement dated as of August 30, 2006, by and among Cooper
Receivables LLC, Cooper Tire & Rubber Company, PNC Bank, National Association, and the
various purchaser groups from time to time party thereto is incorporated herein by
reference from Exhibit (10)(2) of the Companys Form 8-K dated August 30, 2006 |
|
|
(v)
|
|
First Amendment to Receivables Purchase Agreement, dated as of November 30, 2006,
by and among Cooper Receivables LLC, Cooper Tire & Rubber Company and PNC Bank, National
Association is incorporated herein by reference from Exhibit (10)(1) of the Companys
Form 8-K dated November 30, 2006 |
|
|
(vi)
|
|
Second Amendment to Receivable Purchase Agreement, dated as of March 9, 2007, by
and among Cooper Receivables LLC, Cooper Tire & Rubber Company, Market Street Funding
LLC and PNC Bank, National Association is incorporated herein by reference from Exhibit
(10)(1) of the Companys Form 8-K dated March 9, 2007 |
|
|
(vii)
|
|
First Amendment to Purchase and Sale Agreement, dated as of September 14, 2007,
by and among Cooper Receivables LLC, Cooper Tire & Rubber Company, PNC Bank, National
Association, and Market Street Funding LLC is incorporated herein by reference from
Exhibit (10)(1) of the Companys Form 8-K dated September 14, 2007 |
|
|
(viii)
|
|
Amended and Restated Receivables Purchase Agreement, dated as of September 14, 2007,
by and among Cooper Receivables LLC, Cooper Tire & Rubber Company, PNC Bank, National
Association and Market Street Funding LLC is incorporated herein by reference from
Exhibit (10)(2) of the Companys Form 8-K dated September 14, 2007 |
|
|
(ix)
|
|
Loan and Security Agreement dated as of November 9, 2007, by and among Cooper
Tire & Rubber Company, Max-Trac Tire Co., Inc., Bank of America, N.A. (as Administrative
Agent and Collateral Agent); PNC Bank, National Association (as Syndication Agent);
Banc of America Securities LLC and PNC Capital Markets LLC (as Joint Book Managers and
Joint Lead Arrangers); National City Business Credit, Inc. and JP Morgan Chase Bank,
N.A. (as Co-Documentation Agents); and Bank of America, N.A.; PNC Bank, National
Association; National City Business Credit, Inc.; Keybank National Association; Fifth
Third Bank; and JP Morgan Chase Bank, N.A. (as Lenders) is incorporated herein by
reference from Exhibit (10)(1) of the Companys Form 8-K dated November 9, 2007 |
|
|
(x)
|
|
Pledge Agreement, dated as of November 9, 2007, by and among Cooper Tire & Rubber
Company and Bank of America, N.A. is incorporated herein by reference from Exhibit
(10)(2) of the Companys Form 8-K dated November 9, 2007 |
- 78 -
|
|
|
|
|
|
|
(xi)
|
|
Intercreditor Agreement, dated as of November 9, 2007, by and among Cooper Tire &
Rubber Company; Cooper Receivables LLC; PNC Bank, National Association (as
Administrator); and Bank of America, N.A. (as Administrative Agent and Collateral Agent)
is incorporated herein by reference from Exhibit (10)(3) of the Companys Form 8-K dated
November 9, 2007 |
|
|
(xii)
|
|
1991 Stock Option Plan for Non-Employee Directors is incorporated herein by
reference from the Appendix to the Companys Proxy Statement dated March 26, 1991* |
|
|
(xiii)
|
|
1998 Incentive Compensation Plan and 1998 Employee Stock Option Plan are incorporated
herein by reference from the Appendix to the Companys Proxy Statement dated March 24,
1998* |
|
|
(xiv)
|
|
Amended and Restated 1998 Non-Employee Directors Compensation Deferral Plan
dated as of May 7, 2008 is incorporated herein by reference from
Exhibit 10(xvi) of
the Companys Form 10-K for the year ended
December 31, 2008* |
|
|
(xv)
|
|
2001 Incentive Compensation Plan is incorporated herein by reference from the
Appendix A to the Companys Proxy Statement dated March 20, 2001* |
|
|
(xvi)
|
|
Executive Deferred Compensation Plan is incorporated herein by reference from
Exhibit (10)(iv) of the Companys Form 10-Q for the quarter ended September 30, 2001* |
|
|
(xvii)
|
|
2002 Non-Employee Directors Stock Option Plan is incorporated herein by reference from
Appendix A to the Companys Proxy Statement dated March 27, 2002* |
|
|
(xviii)
|
|
2006 Incentive Compensation Plan is incorporated herein by reference from Appendix A
to the Companys Proxy Statement dated March 21, 2006* |
|
|
(xix)
|
|
Stock Purchase Agreement dated as of September 16, 2004 by and among Cooper Tire
& Rubber Company, Cooper Tyre & Rubber Company UK Limited and CSA Acquisition Corp. is
incorporated herein by reference from Exhibit (10) of the Companys Form 10-Q for the
quarter ended September 30, 2004 |
|
|
(xx)
|
|
First Amendment to Stock Purchase Agreement dated as of December 3, 2004 by and
among Cooper Tire & Rubber Company, Cooper Tyre & Rubber Company UK Limited and CSA
Acquisition Corp. is herein incorporated by reference from Exhibit (xxvi) of the
Companys Form 10-K for the year ended December 31, 2004 |
|
|
(xxi)
|
|
Sino-Foreign Equity Joint Venture Contract for Cooper Chengshan (Shandong)
Passenger Tire Company Ltd. by and among Shandong Chengshan Tire Company Limited by
Shares and Cooper Tire Investment Holding (Barbados) Ltd. and Joy Thrive Investments
Limited is incorporated herein by reference from Exhibit (xxvii) of the Companys Form
10-K for the year ended December 31, 2005 |
|
|
(xxii)
|
|
Asset Purchase Agreement by and among Shandong Chengshan Tire Company Limited by
Shares and Cooper Chengshan (Shandong) Passenger Tire Company Ltd. and Chengshan Group
Limited is incorporated herein by reference from Exhibit (xxviii) of the Companys Form
10-K for the year ended December 31, 2005 |
|
|
(xxiii)
|
|
Sino-Foreign Equity Joint Venture Contract for Cooper Chengshan (Shandong) Tire
Company Ltd. by and among Shandong Chengshan Tire Company Limited by Shares and Cooper
Tire Investment Holding (Barbados) Ltd. and Joy Thrive Investments Limited is
incorporated herein by reference from Exhibit (xxix) of the Companys Form 10-K for the
year ended December 31, 2005 |
|
|
(xxiv)
|
|
Asset Purchase Agreement by and among Shandong Chengshan Tire Company Limited by
Shares and Cooper Chengshan (Shandong) Tire Company Limited and Chengshan Group Company
Limited is incorporated herein by reference from Exhibit (xxx) of the Companys Form
10-K for the year ended December 31, 2005 |
|
|
(xxv)
(xxvi)
|
|
Share Purchase Agreement by and among Chengshan Group Company Limited and CTB
(Barbados) Investment Co. Ltd. is incorporated herein by reference from Exhibit (xxxii)
of the Companys Form 10-K for the year ended December 31, 2005
Supplementary Agreement by and among Shandong Chengshan Tire Company Limited by
Shares, Cooper Tire Investment Holding (Barbados) Ltd., Joy Thrive Investments Limited,
Chengshan Group Company Limited and CTB (Barbados) Investment Co., Ltd. Is incorporated
herein by reference from Exhibit (xxxviii) of the Companys
Form 10-K for the year ended December 31, 2006 |
- 79 -
|
|
|
|
|
(13)
|
|
|
|
Annual report to security holders |
(21)
|
|
|
|
Subsidiaries of the Registrant |
(23)
|
|
|
|
Consent of Independent Registered Public Accounting Firm |
(24)
|
|
|
|
Power of Attorney |
(31.1)
|
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a14(a)/15d14(a) of the
Exchange Act |
(31.2)
|
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a14(a)/15d14(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 |
* |
|
Indicates management contracts or compensatory plans or arrangements. |
- 80 -