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)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2010 |
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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
(State of incorporation)
701 Lima Avenue, Findlay, Ohio
(Address of principal executive offices)
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34-4297750
(I.R.S. employer
identification no.)
45840
(Zip Code) |
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)
Common Stock, $1 par value per share
Rights to Purchase Series A Preferred Stock
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(Name of each exchange on which registered)
New York Stock Exchange
New York Stock Exchange |
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 o No þ
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 o No þ
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 þ No o
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 o No o
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. þ
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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þ Large accelerated filer
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o Accelerated filer
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o Non-Accelerated Filer
(Do not check if a small reporting company)
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o 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 o No þ
The aggregate market value of the voting common stock held by non-affiliates of the
registrant at June 30, 2010 was $1,160,884,017.
The number of shares outstanding of the registrants common stock as of January 31,
2011 was 61,717,922.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information from the registrants definitive proxy statement for its 2011 Annual Meeting of
Stockholders is hereby incorporated by reference into Part III, Items 10 14, of this
report.
TABLE OF CONTENTS
COOPER TIRE & RUBBER COMPANY FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
PART I
Item 1. BUSINESS
Cooper Tire & Rubber Company with its affiliates and subsidiaries (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, the Cooper family of companies 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 Tire & Rubber Company was incorporated in the state of Delaware in 1930 as the successor to
a business originally founded in 1914. Based in Findlay, Ohio, Cooper and its family of companies
currently operate 7 manufacturing facilities and 38 distribution centers in 9 countries. As of
December 31, 2010, it employed 12,898 persons worldwide.
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Business Segments
North American Tire Operations Segment
The North American Tire Operations segment manufactures and markets passenger car and light truck
tires, primarily for sale in the United States (U.S.) replacement market. The segment also
distributes tires for racing, medium truck and motorcycles that are manufactured at the Companys
subsidiaries. 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 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 2010 of approximately 13 percent of all light vehicle replacement tire sales in the U.S.
In addition to manufacturing tires in the U.S., 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 U.S. 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
The International Tire Operations segment has affiliated operations in the United Kingdom (U.K.)
and two joint ventures in the Peoples Republic of China (PRC). The U.K. entity manufactures and
markets passenger car, light truck, motorcycle and racing tires and tire retread material for the
global market. The Cooper Chengshan Tire joint venture manufactures and markets radial and bias
medium truck tires as well as passenger and light truck tires for the global market. The Cooper
Kenda Tire joint venture currently manufactures light vehicle tires to be exported to markets
outside of the PRC. Under the current agreement, until May 2012, all of the tires produced by this
joint venture will be exported and sold to the Company and its affiliates around the world. Only a
small percentage of the tires manufactured by the segment 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 certain markets.
Discontinued Operations
The discontinued operations as reported in this Form 10-K include income and expenses related to
Cooper-Standard Automotive, Inc., (CSA, formerly the Automotive segment), which was sold on
December 23, 2004, and to the Oliver Rubber Company (formerly a subsidiary which was part of the
North American Tire Operations segment), which was sold on October 5, 2007.
CSA 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.
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The Company elected to sell CSA 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 2010, the Company experienced higher raw material costs, particularly for natural rubber,
compared to 2009. The pricing volatility of natural rubber and petroleum-based materials
contributes to the difficulty in predicting and managing the costs of raw materials.
The Company has a purchasing office in Singapore to acquire natural rubber 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 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 primarily valued at a Last In First Out (LIFO) basis for the North American entities.
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, 2010, the Company held cash and cash equivalents of $413 million. The Companys
finished goods inventory at December 31, 2010 is higher than in the prior year as a result of
increased units and higher raw material costs. The Companys inventories remain at relatively low
levels on a historical basis when compared to 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 2010, approximately 55 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 $33.5
million, $35.7 million and $39.7 million during 2008, 2009 and 2010, respectively. The Company has
determined the amounts included here as research and development better align with Accounting
Standards Codification (ASC) 730, Research and Development, that includes all costs that can
appropriately be considered in this classification. Previously, a narrow, more restrictive tax
definition was used for this calculation. Amounts for prior years have been presented under the new
definition.
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 two to four 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.
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
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duration as long as they are adequately protected and appropriately used. Certain other tradenames
and trademarks are being amortized over the next seven to eighteen 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 2010 expense and capital expenditures for environmental matters at its
facilities were not material, nor is it expected that expenditures in 2011 for such uses will be
material. The Company was again awarded the right to display the Energy Star logo by the
Environmental Protection Agency in 2010.
Foreign Operations
The Company has a manufacturing facility, a technical center, a distribution center and its
European headquarters office located in the U.K. There are five distribution centers and five
sales offices in Europe. The Company has two joint venture manufacturing facilities, 19
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 one distribution center. 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 U.S., 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 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 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.
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.
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Pricing volatility for raw materials and an inadequate supply of key 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 for any reason, its
operations could be interrupted.
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 can result in significant increases in energy costs increasing 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. If the Company is unable to
obtain adequate sources of energy, its operations could be interrupted.
Further, if the price of gasoline increases significantly for consumers, it can affect driving and
purchasing habits and impact demand for tires.
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, make required
investments to 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 impact could become material on the Companys earnings.
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. If the Company cannot successfully
use new production or equipment methodologies it invests in, it may also not be able to recover
those costs.
The Company is implementing an Enterprise Resource Planning (ERP) system that will require
significant amounts of capital and human resources to deploy. If for any reason this
implementation is not successful, the Company could be required to expense rather than capitalize
related amounts. Throughout implementation of the system there are also risks created to the
Companys ability to successfully and efficiently operate.
The Company conducts its manufacturing, sales and distribution operations on a worldwide basis and
is subject to risks associated with doing business outside the U.S.
The Company has affiliate, subsidiary and joint venture operations worldwide, including in the
U.S., the U.K., Europe, Mexico and the PRC. The Company has two joint venture manufacturing
entities, Cooper Chengshan and Cooper Kenda, in the PRC and has continued to expand operations in
that country. The Company has also recently increased its investment in a tire manufacturing
entity in Mexico that it will begin to consolidate in 2011. 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 tariffs imposed by the U.S. or other governments on
imported tires.
The Companys ability to competitively source tires can be significantly impacted by changes in
tariffs imposed by various governments. Other effects, including impacts on the price of tires,
responsive actions from other governments and the opportunity for other low cost competitors to
establish a presence in markets where the Company participates 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, increases in the health care trend rate and changes in the health care environment.
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 and other postretirement benefit obligations, the
Company could experience changes to its Consolidated Balance Sheet.
The Company is facing risks relating to enactment of healthcare legislation.
The Company is facing risks emanating from the enactment of legislation by the U.S. government
including the Patient Protection and Affordable Care Act and the related Healthcare and Education
Reconciliation Act which are collectively referred to as healthcare legislation. This major
legislation is being enacted over a period of several years and the ultimate cost and the
potentially adverse impact to the Company and its employees cannot be quantified at this time.
Compliance with regulatory initiatives could increase the cost of operating the Companys business.
The Company is subject to federal, state and local laws and regulations. Compliance with those
laws 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.
Clean oil directive number 2005/69/EC in the European Union (EU) was effective January 1, 2010,
and requires all tires manufactured after this date and sold in the EU to use non-aromatic oils.
The Company is in compliance with this directive. Additional countries may legislate similar clean
oil requirements which could increase the cost of manufacturing the Companys products.
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 could occur in the future. A recall
could harm the Companys reputation, operating results and financial position.
The Company is also subject to legislation governing occupational safety and health both in the
U.S. and other countries. The related legislation can change over time making it more expensive
for the Company to produce its products. The Company could also, despite its best efforts to
comply with these laws, be found liable and be subject to additional costs because of this
legislation.
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. and U.K. 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. The labor agreement in Melksham, England expires March
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 disruptions, the Companys business and operating results could suffer.
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If the Company is unable to attract and retain key personnel, its business could be materially
adversely affected.
The Companys business depends on the continued service of key members of its management. The loss
of the services of a significant number of members of its management team could have a material
adverse effect on its business. The Companys future success will also depend on its ability to
attract, retain and develop highly skilled personnel, such as engineering, marketing and senior
management professionals. Competition for these employees is intense and the Company could
experience difficulty from time to time in hiring and retaining the personnel necessary to support
its business. If the Company does not succeed in retaining its current employees and attracting
new high quality employees, its business could be materially adversely affected.
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, may result
in material losses in the future and cause the Company to incur significant litigation defense
costs. Those claims could have a negative effect on the Companys financial position, cash flows
and results of operations.
The Company is largely self insured against these claims.
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 maturing debt payments or working capital needs 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.
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. If the Company is unsuccessful in
implementing the tactics necessary to execute its strategic plan it can also be negatively
impacted.
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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 U.S.
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. The Company cannot provide assurance 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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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.
The realizability of deferred tax assets may affect the Companys profitability and cash flows.
The Company maintains a valuation allowance pursuant to ASC 740, Accounting for Income Taxes, on
its net U.S. deferred tax asset position. The valuation allowance will be maintained as long as it
is more likely than not that some portion of the deferred tax asset may 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 U.S., the
Company has recorded significant deferred tax assets, the largest of which relate to products
liability, pension and other postretirement 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 valuation allowance for the
portion of U.S. deferred tax assets exceeding its U.S. deferred tax liabilities. In addition, the
Company has recorded valuation allowances for deferred tax assets associated with losses in foreign
jurisdictions.
The impact of proposed new accounting standards may have a negative impact on the Companys
financial statements.
The Financial Accounting Standards Board is considering several projects, including revenue
recognition, financial instruments, leasing, and others, which could have an impact on the
Companys financial statements.
- 9 -
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 also
related comments under The Company has a risk due to volatility of the capital and financial
markets.
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 a controlling interest in Cooper Chengshan, beginning January
1, 2009, and continuing through December 31, 2011, the noncontrolling shareholders have the right
to sell and, if exercised, the Company has the obligation to purchase, the remaining 49 percent at
a minimum price of $63 million. In 2009, the Company received notification from one of its
noncontrolling shareholders of its intention to exercise its put option and after receiving
governmental approvals, the Company purchased the 14 percent share for $18 million on March 31,
2010. The remaining shares may be sold to the Company under the put option through December 31,
2011.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
As shown in the following table, at December 31, 2010 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 |
|
|
|
1 |
|
|
|
6 |
|
|
|
19 |
|
|
|
38 |
|
Retail Stores |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Technical centers
and offices |
|
|
6 |
|
|
|
1 |
|
|
|
7 |
|
|
|
5 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
25 |
|
|
|
2 |
|
|
|
14 |
|
|
|
26 |
|
|
|
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.
- 10 -
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, 2010.
On February 2, 2010 in the case of Cates, et al. v. Cooper Tire & Rubber Company, the U.S. 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 provided for 1) a cash payment of $7 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 resulted 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.
As a consequence of the settlement agreement, the Company recorded $7 million of expense during the
first quarter of 2009 relating to the specified cash payments. The estimated present value of the
plan amendment has been reflected 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.
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
|
|
|
58 |
|
|
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
|
|
|
59 |
|
|
Senior Vice President and
Chief
Human Resources Officer
|
|
Senior 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
|
|
|
48 |
|
|
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
|
|
|
69 |
|
|
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
|
|
|
58 |
|
|
Vice President and
President
International Tire Operations
|
|
Vice President since March 2002. |
- 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, 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 |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
21.47 |
|
|
$ |
16.16 |
|
Second Quarter |
|
|
22.40 |
|
|
|
17.26 |
|
Third Quarter |
|
|
23.21 |
|
|
|
16.05 |
|
Fourth Quarter |
|
|
24.99 |
|
|
|
18.72 |
|
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, 2005, 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 |
|
Dec06 |
|
|
Dec07 |
|
|
Dec08 |
|
|
Dec09 |
|
|
Dec10 |
|
|
Cooper Tire & Rubber Company |
|
|
-3.33 |
|
|
|
18.42 |
|
|
|
-60.98 |
|
|
|
241.72 |
|
|
|
20.34 |
|
S&P 500 Index |
|
|
15.79 |
|
|
|
5.49 |
|
|
|
-37.00 |
|
|
|
26.46 |
|
|
|
15.06 |
|
S&P 500 Auto Parts & Equipment |
|
|
12.37 |
|
|
|
27.49 |
|
|
|
-48.66 |
|
|
|
54.68 |
|
|
|
42.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDEXED RETURNS |
|
|
|
Base |
|
|
Years Ending |
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company / Index |
|
Dec05 |
|
|
Dec06 |
|
|
Dec07 |
|
|
Dec08 |
|
|
Dec09 |
|
|
Dec10 |
|
|
Cooper Tire & Rubber Company |
|
|
100 |
|
|
|
96.67 |
|
|
|
114.48 |
|
|
|
44.67 |
|
|
|
152.66 |
|
|
|
183.71 |
|
S&P 500 Index |
|
|
100 |
|
|
|
115.79 |
|
|
|
122.16 |
|
|
|
76.96 |
|
|
|
97.33 |
|
|
|
111.99 |
|
S&P 500 Auto Parts & Equipment |
|
|
100 |
|
|
|
112.37 |
|
|
|
143.26 |
|
|
|
73.55 |
|
|
|
113.76 |
|
|
|
162.43 |
|
- 14 -
|
|
|
The number of holders of record at December 31, 2010 was 2,631. |
|
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
2010 |
|
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, 2010. |
- 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, Inc., (CSA) 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) |
|
|
available to |
|
|
available to |
|
|
|
|
|
|
|
|
|
|
|
from Continuing |
|
|
Cooper Tire & |
|
|
Cooper Tire & Rubber Company |
|
|
|
Net |
|
|
Operating |
|
|
Operations Before |
|
|
Rubber Company |
|
|
common stockholders |
|
|
|
Sales |
|
|
Profit (Loss) |
|
|
Income taxes |
|
|
common stockholders |
|
|
Basic |
|
|
Diluted |
|
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 |
) |
|
|
(229,383 |
) |
|
|
(3.88 |
) |
|
|
(3.88 |
) |
2009 |
|
|
2,778,990 |
|
|
|
156,269 |
|
|
|
115,523 |
|
|
|
93,359 |
|
|
|
1.57 |
|
|
|
1.54 |
|
2010 |
|
|
3,360,984 |
|
|
|
188,374 |
|
|
|
159,826 |
|
|
|
116,331 |
|
|
|
1.90 |
|
|
|
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
|
|
|
|
|
|
|
Net Property, |
|
|
|
Stockholders |
|
|
Shareholders |
|
|
Long-term |
|
|
Total |
|
|
Plant & |
|
|
|
Equity |
|
|
Interests |
|
|
Debt |
|
|
Assets |
|
|
Equipment |
|
2006 |
|
$ |
666,244 |
|
|
$ |
44,956 |
|
|
$ |
513,213 |
|
|
$ |
2,237,136 |
|
|
$ |
971,072 |
|
2007 |
|
|
826,262 |
|
|
|
56,686 |
|
|
|
464,608 |
|
|
|
2,298,490 |
|
|
|
992,215 |
|
2008 |
|
|
318,246 |
|
|
|
62,720 |
|
|
|
325,749 |
|
|
|
2,042,896 |
|
|
|
901,274 |
|
2009 |
|
|
380,524 |
|
|
|
83,528 |
|
|
|
330,971 |
|
|
|
2,100,340 |
|
|
|
850,971 |
|
2010 |
|
|
523,050 |
|
|
|
71,442 |
|
|
|
320,724 |
|
|
|
2,305,537 |
|
|
|
852,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Dividends |
|
|
Common Shares |
|
|
Number of |
|
|
|
Expenditures |
|
|
Depreciation |
|
|
Per Share |
|
|
(000s) |
|
|
Employees |
|
2006 |
|
$ |
186,190 |
|
|
$ |
127,693 |
|
|
$ |
0.42 |
|
|
|
61,338 |
|
|
|
13,361 |
|
2007 |
|
|
140,972 |
|
|
|
131,007 |
|
|
|
0.42 |
|
|
|
61,938 |
|
|
|
13,355 |
|
2008 |
|
|
128,773 |
|
|
|
138,805 |
|
|
|
0.42 |
|
|
|
59,048 |
|
|
|
13,311 |
|
2009 |
|
|
79,333 |
|
|
|
121,483 |
|
|
|
0.42 |
|
|
|
59,439 |
|
|
|
12,568 |
|
2010 |
|
|
119,738 |
|
|
|
121,785 |
|
|
|
0.42 |
|
|
|
61,299 |
|
|
|
12,898 |
|
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 4 Goodwill and Intangibles.
The Companys continuing operations recorded $76,402, $48,718 and $20,649 of restructuring charges
in 2008, 2009 and 2010 respectively, associated with the closures of its Albany, Georgia
manufacturing facility and other initiatives as described in Note 16 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. This
includes volatile raw material costs, which have increased dramatically throughout 2010, increasing
product complexity and pressure from competitors with manufacturing in lower-cost regions.
To address these challenges and position the Company for future success, a Strategic Plan was
developed and serves as the driving force for those strategic imperatives that are initiated. 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 include 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 and 2010.
In recent years, the Company has also expanded 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 provide a lower cost source of tires for existing markets
and have been used to expand the Companys market share in Mexico and the PRC. In 2010, the
Company increased its ownership percentage in the Cooper Chengshan joint venture and contractually
agreed to increase its ownership in its Mexican operations. The increase in ownership of Mexican
operations will be effective in 2011.
The Company continues to develop new products to meet the changing demands in the market, including
improved fuel efficiency and consumer value.
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. 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) |
|
2008 |
|
|
Change |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
2,142.1 |
|
|
|
-6.3 |
% |
|
$ |
2,006.2 |
|
|
|
20.8 |
% |
|
$ |
2,423.8 |
|
International Tire |
|
|
975.0 |
|
|
|
1.9 |
% |
|
|
993.8 |
|
|
|
28.0 |
% |
|
|
1,272.2 |
|
Eliminations |
|
|
(235.3 |
) |
|
|
-6.1 |
% |
|
|
(221.0 |
) |
|
|
51.6 |
% |
|
|
(335.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,881.8 |
|
|
|
-3.6 |
% |
|
$ |
2,779.0 |
|
|
|
20.9 |
% |
|
$ |
3,361.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
(174.1 |
) |
|
|
n/m |
|
|
$ |
111.0 |
|
|
|
17.7 |
% |
|
$ |
130.7 |
|
International Tire |
|
|
(30.1 |
) |
|
|
n/m |
|
|
|
72.8 |
|
|
|
12.8 |
% |
|
|
82.1 |
|
Eliminations |
|
|
(1.3 |
) |
|
|
n/m |
|
|
|
(1.6 |
) |
|
|
-81.3 |
% |
|
|
(0.3 |
) |
Unallocated corporate charges |
|
|
(11.1 |
) |
|
|
133.3 |
% |
|
|
(25.9 |
) |
|
|
-6.9 |
% |
|
|
(24.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
(216.6 |
) |
|
|
n/m |
|
|
|
156.3 |
|
|
|
20.5 |
% |
|
|
188.4 |
|
Interest expense |
|
|
50.5 |
|
|
|
-6.5 |
% |
|
|
47.2 |
|
|
|
-22.5 |
% |
|
|
36.6 |
|
Interest income |
|
|
(12.9 |
) |
|
|
-59.7 |
% |
|
|
(5.2 |
) |
|
|
0.0 |
% |
|
|
(5.2 |
) |
Other net |
|
|
3.6 |
|
|
|
n/m |
|
|
|
(1.2 |
) |
|
|
n/m |
|
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
|
(257.8 |
) |
|
|
n/m |
|
|
|
115.5 |
|
|
|
38.4 |
% |
|
|
159.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(30.3 |
) |
|
|
n/m |
|
|
|
0.2 |
|
|
|
n/m |
|
|
|
20.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(227.5 |
) |
|
|
n/m |
|
|
|
115.3 |
|
|
|
21.2 |
% |
|
|
139.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling shareholders interests |
|
|
8.1 |
|
|
|
n/m |
|
|
|
(31.9 |
) |
|
|
-26.6 |
% |
|
|
(23.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
attributable to Cooper Tire & Rubber Company |
|
$ |
(219.4 |
) |
|
|
n/m |
|
|
$ |
83.4 |
|
|
|
39.4 |
% |
|
$ |
116.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
(3.88 |
) |
|
|
|
|
|
$ |
1.57 |
|
|
|
|
|
|
$ |
1.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
(3.88 |
) |
|
|
|
|
|
$ |
1.54 |
|
|
|
|
|
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 18 -
2010 versus 2009
Consolidated net sales were $582 million higher than 2009. The increase in net sales in 2010
compared to 2009 was primarily the result of favorable pricing and mix ($354 million) and higher
unit volumes ($221 million) in both the North American and International Tire Operations segments.
Also contributing to the increase in net sales in 2010 was favorable foreign exchange rates
recorded in the International Tire Operations segment ($7 million).
The Company recorded operating profit in 2010 of $188 million, an increase of $32 million compared
to 2009. Operating profit increased as a result of favorable pricing and mix ($335 million),
higher unit volumes ($71 million) and manufacturing efficiencies ($24 million) in the North
American and International Tire Operations segments. Additionally, lower production curtailment
costs due to better capacity utilization ($47 million) and reduced restructuring costs ($29
million) in the North American Tire Operations segment contributed favorably to the increased
profits. Other costs, including distribution and currency impacts, were favorable ($14 million).
Partially offsetting these improvements were higher raw material costs in both segments ($463
million) and increased products liability charges ($28 million) recorded in the North American Tire
Operations segment.
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 cost flows in
this segment. This decline in inventory levels resulted in the Company recognizing a $16 million
benefit in operating profit through reduced raw material costs in 2009. In 2010, no benefit was
recognized as inventory levels increased from 2009.
The Company continued to experience significant increases in the costs of certain of its principal
raw materials during 2010 compared with the 2009 levels. 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
increases in the cost of natural rubber and petroleum-based materials were the most significant
drivers of higher raw material costs during 2010, which were up $463 million from 2009. Natural
rubber, in particular, increased during 2010 compared to 2009.
The Company strives to assure raw material supply and to obtain the most favorable pricing
possible. 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 the
Company uses these arrangements to satisfy normal manufacturing demands, the pricing volatility in
these commodities contributes to the difficulty in managing the costs of raw materials.
Products liability expenses totaled $110 million and $82 million in 2010 and 2009,
respectively. The majority of the increase in products liability expense for the year is due to the
Company recording an additional expense of $22 million for its self-insured portion of a jury
verdict in one case during the first quarter of 2010. The Company intends to appeal the case. The
remaining change in the liability primarily results from adjustments to existing reserves based on
a comprehensive review of outstanding claims. Additional information related to the Companys
accounting for products liability costs appears in the Critical Accounting Policies portion of
this Managements Discussion and Analysis.
Selling, general and administrative expenses were $212 million (6.3 percent of net sales) in 2010
compared to $207 million (7.4 percent of net sales) in 2009. The increase in selling, general and
administrative expenses in total was due primarily to higher professional service expense, costs
associated with the Companys ERP implementation and costs associated with maintaining the
Companys closed facility in Albany, Georgia. These increases were partially offset by reduced
incentive-based compensation. The reduced percent to net sales is a result of increased sales in
2010 as the Company effectively controlled its expenses.
During 2010, the Company recorded $21 million in restructuring costs related to the closure of its
Albany, Georgia manufacturing facility and a personnel reduction at its U.K. location. The Company
recorded $49 million in restructuring costs in 2009 related to the Albany, Georgia closure and the
closure of three distribution centers located in Dayton, New Jersey, Moraine, Ohio, and Cedar
Rapids, Iowa.
As noted in the Notes to the Consolidated Financial Statements, the Company recorded a $7 million
charge during the first quarter of 2009 related to the agreement reached in the Cates retiree
medical legal case which is reflected as unallocated corporate charges in 2009.
Interest expense decreased $11 million in 2010 from 2009, primarily due to lower debt levels in
both the parent Company and its subsidiaries. The Company repaid $97 million of its parent company
Senior Notes in December 2009.
Interest income was $5 million in both 2010 and 2009.
- 19 -
For the year ended December 31, 2010, the Company recorded an income tax expense of $20 million on
income from continuing operations before income taxes of $160 million, prior to the deduction of
noncontrolling shareholders interests of $23 million. Worldwide tax expense was favorably
impacted by the decrease in the valuation allowance resulting from changes in U.S. deferred tax
asset and liability balances of $2 million. It was unfavorably impacted by the increase in certain
foreign deferred net tax assets of $4 million. It was favorably impacted by the continuation of
tax holidays for some of the Companys operations in the PRC in the amount of $5 million.
Comparable amounts for 2009 were an income tax expense of $0.2 million on income before taxes from
continuing operations of $116 million.
The Company maintains a valuation allowance on its net U.S. deferred tax asset position. 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. The valuation allowance will be maintained as long as it is more likely than not
that some portion of the deferred tax asset may 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 U.S., the Company has
recorded significant deferred tax assets, the largest of which relate to products liability,
pension and other postretirement 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 $177 million valuation allowance
for the portion of U.S. deferred tax assets exceeding its U.S. deferred tax liabilities. In
addition, the Company has recorded valuation allowances of $7 million for deferred tax assets
associated with the portion of non-U.S. deferred tax assets exceeding the non-U.S. deferred tax
liabilities for a total valuation allowance of $184 million. The pension liability and the
associated deferred tax asset adjustment recorded to equity accounts for $134 million of the total
valuation allowance at December 31, 2010.
In conjunction with the Companys ongoing review of its actual results and anticipated future
earnings, the Company reassesses the possibility of releasing the Valuation Allowance currently in
place on its U.S. deferred tax assets. Based upon this assessment, the release of the Valuation
Allowance will likely occur during 2011. The required accounting for the release will involve
significant tax amounts and it will impact earnings in the quarter in which it is deemed
appropriate to release the reserve.
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 2010.
2009 versus 2008
Consolidated net sales decreased by $103 million in 2009. The decrease in net sales was primarily
a result of lower unit volumes in the North American Tire Operations segment ($99 million),
unfavorable foreign currency impacts in the International Tire Operations segment ($16 million) and
unfavorable pricing and mix in both the North American Tire Operations and International Tire
Operations segments ($74 million). These were partially offset by improved unit volumes in the
International segment ($86 million).
The Company recorded operating profit in 2009 of $156 million compared to an operating loss of $217
million in 2008. The favorable impacts of lower raw material costs ($411 million), improved
manufacturing operations ($54 million), reduced restructuring costs ($28 million) and the
non-recurrence of a write-off in 2008 of goodwill in the International Tire Operations segment ($31
million) all contributed to the profit improvement from 2008 to 2009. Partially offsetting
improved operating profits were unfavorable pricing and mix ($108 million) and lower unit volumes
($7 million). Other costs, including higher incentive-related compensation, were unfavorable ($16
million). 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 $16 million benefit in operating profit through reduced raw material costs.
The Company experienced significant decreases in the costs of certain of its principal raw
materials during 2009 compared with the then 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 million from 2008.
Selling, general and administrative expenses were $207 million (7.4 percent of net sales) in 2009
compared to $185 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.
- 20 -
During 2009, the Company recorded $49 million in restructuring costs related to the closure of its
Albany, Georgia manufacturing facility and the closure of three distribution centers. The Company
recorded $76 million in restructuring costs in 2008 related to the two initiatives described in the
Restructuring section below.
Interest expense decreased $3 million in 2009 from 2008, primarily due to lower debt levels,
principally in the PRC.
Interest income decreased $8 million in 2009 from 2008, primarily as a result of lower interest
rates.
The Company recorded dividend income of $2 million from its investment in Kumho Tire Co., Inc. in
2008. The Company sold this investment in the third quarter of 2008.
Other net increased $6 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 $116 million, prior to the deduction
of noncontrolling shareholders interests of $32 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 million
on a loss before taxes of $258 million.
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.
Restructuring
During 2010, the North American Tire Operations and the International Tire Operations segments
recorded $20 million and $1 million, respectively, of restructuring expense associated with
initiatives announced at various times throughout 2008, 2009 and 2010.
On October 21, 2008, the Company announced it would conduct a capacity study of its U.S.
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 in the
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 was relocated to other manufacturing facilities of the Company. The segment ceased
production at the Albany facility in the third quarter of 2009 and this initiative was
substantially completed as of September 30, 2010.
In the North American Tire Operations segment for 2008, 2009 and 2010, the Company recorded $76
million, $47 million and $20 million, respectively, of net restructuring expense related to the
Albany closure. In 2010, restructuring expense included $13 million used for equipment relocation
and other costs, $5 million for employee related costs and $2 million to write the Albany land and
building down to fair value. In 2009, net restructuring expense included $26 million used for
equipment relocation and other costs, $20 million for employee related costs and $1 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 million, and $5 million of settlement
losses partially offset by curtailment gains related to pension benefits. The Company received $3
million in government grant receipts throughout 2009, partially offsetting gross restructuring
expense.
Since the inception of this initiative in December 2008, the Company has recorded $142 million of
costs related to the closure of the Albany manufacturing facility. This amount includes employee
related costs of $25 million and equipment related and other costs of $117 million, including
impairment losses of $78 million to write the Albany land, building and equipment to 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 $22 million. All of the closures were completed by
the end of 2009, with any remaining severance payments made in 2010.
In the International Tire Operations segment, Cooper Europe implemented a workforce reduction
program during the second quarter of 2010. This initiative impacted 67 employees and was completed
during the third quarter of 2010. The Company recorded $1 million of severance cost related to
this initiative and all severance amounts have been paid.
- 21 -
Cooper Europe also 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 $0.4
million of severance cost related to this initiative and all severance amounts have been paid.
North American Tire Operations Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
|
|
|
(Dollar amounts in millions) |
|
2008 |
|
|
% |
|
|
2009 |
|
|
% |
|
|
2010 |
|
Sales |
|
$ |
2,142.1 |
|
|
|
-6.3 |
% |
|
$ |
2,006.2 |
|
|
|
20.8 |
% |
|
$ |
2,423.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
(174.1 |
) |
|
|
n/m |
|
|
$ |
111.0 |
|
|
|
17.7 |
% |
|
$ |
130.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
-8.1 |
% |
|
13.6 points |
|
|
5.5 |
% |
|
(.1) point |
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States unit shipments changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger tires |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
-4.2 |
% |
|
|
|
|
|
|
9.4 |
% |
|
|
|
|
RMA members |
|
|
|
|
|
|
-3.4 |
% |
|
|
|
|
|
|
5.2 |
% |
|
|
|
|
Total Industry |
|
|
|
|
|
|
-2.2 |
% |
|
|
|
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light truck tires |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
-13.6 |
% |
|
|
|
|
|
|
7.1 |
% |
|
|
|
|
RMA members |
|
|
|
|
|
|
-5.2 |
% |
|
|
|
|
|
|
7.5 |
% |
|
|
|
|
Total Industry |
|
|
|
|
|
|
-6.5 |
% |
|
|
|
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total light vehicle tires |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
-6.0 |
% |
|
|
|
|
|
|
9.0 |
% |
|
|
|
|
RMA members |
|
|
|
|
|
|
-3.6 |
% |
|
|
|
|
|
|
5.5 |
% |
|
|
|
|
Total Industry |
|
|
|
|
|
|
-2.8 |
% |
|
|
|
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment unit sales changes |
|
|
|
|
|
|
-5.2 |
% |
|
|
|
|
|
|
7.4 |
% |
|
|
|
|
Overview
The North American Tire Operations segment manufactures and markets passenger car and light truck
tires, primarily for sale in the U.S. replacement market. The segment also distributes tires for
racing, medium truck and motorcycles that are manufactured at the Companys subsidiaries. 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 OEMs.
2010 versus 2009
Sales of the North American Tire Operations segment increased $418 million, or 20.8 percent from
the sales levels achieved in 2009. The increase in sales was a result of favorable pricing and mix
($259 million) and higher unit volumes ($159 million). In the U.S., the segments unit shipments of
total light vehicle tires increased 9.0 percent in 2010 from 2009. The increase exceeded the 5.5
percent increase in total light vehicle shipments experienced by the members of the Rubber
Manufacturers Association (RMA), and also exceeded the 5.7 percent increase in total light
vehicle shipments experienced for the total industry (which includes an estimate for non-RMA
members). This improvement occurred across nearly all product segments as the Company was able to
significantly increase market share. Miles driven increased 1 percent compared to the prior year
through November 2010 as reported by the U.S. Department of Transportation. From June through
November of 2010, miles driven was reported as a positive every month as compared to 2009.
North American Tire Operations segment operating profit increased $20 million in 2010 compared to
2009. Operating profit increased as a result of favorable pricing and mix ($202 million), reduced
production curtailment costs ($47 million), higher unit volumes ($39 million), lower restructuring
costs ($29 million), improved manufacturing efficiencies ($18 million) and improvement in other
costs, including favorable distribution costs ($6 million). These improvements were partially
offset by higher raw material costs ($293 million) and increased products liability charges ($29
million).
- 22 -
The segments U.S. based operations determine cost flows using the 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 $16 million benefit in operating profit from inventory
valued at historically lower costs. In 2010, no benefit was recognized as inventory levels
increased from 2009.
During 2010, the North American Tire Operations segment experienced rapidly increasing raw material
costs. The segments average raw material index for the full year 2010 increased by 29.6 percent
from the full year 2009.
During 2010, the North American Tire Operations segment recorded restructuring charges of $20
million related to the Companys decision to close its Albany, Georgia manufacturing facility.
During 2009, the North American Tire Operations segment recorded restructuring expense of $48
million related to the previously noted Albany manufacturing facility and the decisions to close
three distribution centers. See the discussion of these initiatives in the Restructuring section.
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 volumes ($99 million)
and unfavorable pricing and mix ($37 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. Pricing and mix was unfavorable 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 U.S., 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 RMA and also exceeded the 2.8 percent decrease in total light
vehicle shipments for the total industry 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 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
increased 0.5 percent during 2009.
Operating profit for the segment increased $285 million in 2009 compared to 2008. The improvement
was due to lower raw material costs ($307 million), improved manufacturing operations ($43 million)
and reduced restructuring charges ($28 million) as the segment continued to reduce manufacturing
overhead and scrap costs through the implementation of Six Sigma and LEAN initiatives. These
improvements were partially offset by unfavorable pricing and mix ($46 million), higher
incentive-related compensation expense ($27 million), lower unit volumes ($17 million) and the
effects of production curtailments during the first half of 2009 required to align production with
demand ($4 million). The significant decrease in raw material costs was a result of lower prices
for raw materials throughout 2009. Raw material costs had reached then record high levels during
the latter part of 2008.
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 $16 million benefit in operating profit from
inventory valued at historically lower costs using the LIFO method.
- 23 -
During 2009, the North American Tire Operations segment recorded restructuring charges of $48
million related to the ongoing initiative to close its Albany, Georgia manufacturing facility, as
well as the decisions to close three distribution centers. During 2008, the North American Tire
Operations segment recorded restructuring charges of $76 million related to the previously noted
Albany manufacturing facility and one of the distribution centers.
International Tire Operations Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
|
|
|
(Dollar amounts in millions) |
|
2008 |
|
|
% |
|
|
2009 |
|
|
% |
|
|
2010 |
|
Sales |
|
$ |
975.0 |
|
|
|
1.9 |
% |
|
$ |
993.8 |
|
|
|
28.0 |
% |
|
$ |
1,272.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
(30.1 |
) |
|
|
n/m |
|
|
$ |
72.8 |
|
|
|
12.8 |
% |
|
$ |
82.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
-3.1 |
% |
|
10.4 points |
|
|
7.3 |
% |
|
(.8) points |
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit sales change |
|
|
|
|
|
|
8.7 |
% |
|
|
|
|
|
|
13.8 |
% |
|
|
|
|
Overview
The International Tire Operations segment has affiliated operations in the U.K. and two joint
ventures in the PRC. The U.K. entity manufactures and markets passenger car, light truck,
motorcycle and racing tires and tire retread material for the global market. The Cooper Chengshan
Tire joint venture manufactures and markets radial and bias medium truck tires as well as passenger
and light truck tires for the global market. The Cooper Kenda Tire joint venture currently
manufactures light vehicle tires to be exported to markets outside of the PRC. Under the current
agreement, until May 2012, all of the tires produced by this joint venture will be exported and
sold to the Company and its affiliates around the world. Only a small percentage of the tires
manufactured by the segment are sold to OEMs.
2010 versus 2009
Sales of the International Tire Operations segment increased $278 million, or 28.0 percent, from
the sales levels achieved in 2009. Contributing to the increase in sales were higher unit volumes
($176 million), primarily from the Companys joint venture operations in Asia, favorable pricing
and mix ($95 million) and favorable foreign exchange rates ($7 million). Despite the increase in
unit volumes, the segment was able to actively reduce production of certain lower margin tires,
including bias products.
The International Tire Operations segment operating profit in 2010 was $82 million, $9 million
higher than in 2009. The increase in operating profit was due to favorable pricing and mix ($132
million), higher unit volumes ($32 million), improved production utilization and manufacturing
costs ($9 million) and favorable currency impacts ($6 million). These increases were partially
offset by higher raw material costs ($169 million).
2009 versus 2008
Sales of the International Tire Operations segment increased $19 million in 2009 from the sales
levels achieved in 2008. The increase in sales was primarily due to higher unit volumes ($87
million) partially offset by unfavorable pricing and mix ($51 million) and the foreign currency
impact of a stronger U.S. dollar in relation to the British pound ($17 million). The increase in
unit volumes 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 $73 million, $103 million higher than in 2008.
Excluding the $31 million write-off of goodwill in 2008, the increase in operating profit was due
to lower raw material costs ($104 million), favorable foreign currency impact ($18 million) and
improved manufacturing operations ($11 million). These impacts were partially offset by
unfavorable pricing and mix ($63 million) and the effects of production curtailments in the
European operations required to align production with demand ($2 million).
- 24 -
Discontinued Operations
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., (CSA) and its Canadian affiliate. In
2009 the governments settled the APA between the governments and the taxpayers. On August 19,
2009, the Company filed an action in the U.S. Bankruptcy Court, District of Delaware, in response
to the Bankruptcy petition filed by Cooper-Standard Holdings Inc. on August 3, 2009. The action
related to the tax refunds owed to the Company pursuant to the September 16, 2004 sale agreement of
CSA for pre-disposition periods ending December 23, 2004. The anticipated cash impact to the
Company of the APA settlement consisted 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 million which was in the fourth quarter of 2009 and recorded through discontinued operations.
On March 17, 2010, the Company entered into a settlement agreement with Cooper Standard Holdings,
Inc., et al. to resolve the subject proceedings. Pursuant to the settlement agreement, CSA paid
the Company approximately $18 million in 2010 and this amount was recorded through discontinued
operations. In addition CSA provided a letter of credit to be issued for the benefit of the Company
in the initial amount of $7 million in connection with the Companys guaranty of a lease for
certain property in Surgoinsville, Tennessee. The letter of credit will be payable to the Company
for amounts that the Company is called upon to pay in connection with the Companys guaranty. The
settlement agreement also provided for mutual releases with only certain limited obligations under
the 2004 sale agreement to remain in force. Based upon the settlement, the Company released
liabilities recorded on its books relating to the disposition of CSA in the amount of $7 million
through Discontinued Operations net of the tax impact.
The following table provides details of the Companys discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Income (loss) related to former
automotive operations, net of tax |
|
$ |
0.3 |
|
|
$ |
(31.4 |
) |
|
$ |
24.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from Oliver Rubber
subsidiary, net of tax |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.1 |
|
|
$ |
(31.7 |
) |
|
$ |
24.1 |
|
|
|
|
|
|
|
|
|
|
|
Outlook for the Company
For 2011, the Company expects that industry demand for tires will vary by region. Demand in
developing markets, including the PRC, should remain robust while mature tire markets are
forecasted to grow in a range approximating normal historical rates of 2 to 3 percent. The Company
intends to manufacture ten percent more tires in 2011 than in 2010 to meet the strong demand for
its products, and to rebuild inventory levels to improve customer service. The increase will occur
across the supply network and should further leverage the manufacturing structure without requiring
significant levels of capital investment which are expected to be between $150 million and $170
million. The Company will also continue to search for alternative tire sources that are a good fit
for its long term strategic direction while providing necessary short term economic benefits.
Elevated raw material costs will be a significant issue for the tire industry in 2011 as it was not
possible for tire manufacturers price increases to keep pace in the short term with the new
historic highs for natural rubber experienced in early 2011. Persistent volatility also makes it
difficult to accurately predict raw material prices. Raw material
costs increased by between 15% and 20% sequentially from the fourth quarter of 2010 to the first quarter of 2011.
The Company expects raw material costs to remain at elevated levels after the first quarter; however, the rate of increase
should begin to slow during the second quarter. The industry has shown an ability to demonstrate pricing discipline, but
these changes in price typically lag the changes in raw material costs. The Company implemented a
price increase in the U.S. effective March 15, 2011, for a weighted average of eight to nine
percent with the amount of increases varying by product. This follows a February 1, 2011 price
increase of 2.5 percent on nearly all light vehicle products. We have also been steadily
increasing prices in other regions where we participate.
The Company expects its effective tax rate for 2011 will most likely be between 20 percent and 30
percent.
The Companys focus in 2011 is on efforts that will further propel the business forward and
position the Company to improve shareholder returns. The tactics employed are guided by its
Strategic Plan which calls for achieving profitable top line growth, improving its global cost
structure and improving organizational capabilities. This focus and prudent management of critical
resources should drive increased
shareholder value. While there remain significant challenges to successfully competing in the tire
industry, the Company is optimistic about opportunities to further improve results.
- 25 -
Liquidity and Capital Resources
Generation and uses of cash Net cash provided by operating activities of continuing operations
was $158 million in 2010. Net income attributable to continuing operations provided $140 million
and other non-cash charges totaled $230 million. Partially offsetting these sources of cash were
changes in working capital accounts which consumed $212 million as accounts receivable have
increased as a result of improved sales; inventory levels decreased during 2009 resulting in a $221
million source of cash while during 2010, the levels increased consuming $149 million of cash; and
accrued liabilities have consumed cash as a result of the timing of the accrual and payment of
incentives during 2010.
Net cash used in investing activities during 2010 reflects capital expenditures of $120 million, an
increase of $40 million from 2009. In 2008, the Company made the final payment related to the
purchase of Cooper Chengshan. During the third quarter of 2008, the Company received $107 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. Also in 2008, the Company acquired an
approximately 38 percent ownership share of a manufacturing operation in Mexico with an investment
of $29 million and increased its investment in 2009 by $1 million. The manufacturing facility is
located in Guadalajara, Mexico and is the second largest tire plant in Mexico.
The Companys capital expenditure commitments at December 31, 2010 are $24 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 2011.
In December 2009, the Company repaid $97 million of its Senior Notes. The Company repurchased $14
million of these notes during 2008. During 2008 the Company repurchased 803,300 shares of its
common stock for $14 million. During 2009 and 2010, the Company repaid $63 million and $33
million, respectively, of debt borrowed in the PRC. Cooper Kenda received capital contributions in
2008 and 2010 from its non-controlling owner for construction of the tire manufacturing facility in
the PRC.
Dividends paid on the Companys common shares in 2010 were $26 million, compared to $25 million in
2009 and 2008. The Company has maintained a quarterly dividend of 10.5 cents per share in each
quarter during the three years ending December 31, 2010. During 2010, stock options were exercised
to acquire 508,044 shares of common stock and the Company recorded $3 million of excess tax
benefits on equity instruments. 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.
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. On August 4, 2010, the
Company amended the accounts receivable facility to extend the maturity to August 2011. No
ownership interests in the purchased trade receivables had been sold to the bank conduit as of
December 31, 2010. The Company had issued standby letters of credit under this facility totaling
$36 million and $38 million at December 31, 2009 and 2010, respectively.
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 U.S. 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, 2009 or December 31, 2010.
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, 2010. 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, 2010, the Company had cash and cash
equivalents totaling $413 million. The Companys additional borrowing capacity, based on eligible
collateral through use of its credit facility with its bank group and its accounts receivable
securitization facility at December 31, 2010, was $218 million. The additional borrowing capacity
on the Asia credit lines totaled $200 million.
- 26 -
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 to meet dividend goals. The long-term debt due within one year and the entire
amount of short-term notes payable outstanding at December 31, 2010 is primarily debt of
consolidated subsidiaries. The Company expects its subsidiaries to refinance or pay these amounts
during 2011.
In connection with its acquisition of Cooper Chengshan, beginning January 1, 2009 and continuing
through December 31, 2011, the noncontrolling shareholders have the right to sell and, if
exercised, the Company has the obligation to purchase, the remaining 49 percent noncontrolling
interest share at a minimum price of $63 million. In 2009, the Company received notification from
a noncontrolling shareholder of its intention to exercise its put option and after receiving
governmental approvals in 2010, the Company purchased the 14 percent share for $18 million. The
remaining noncontrolling shareholder has the right to sell its 35 percent share to the Company at a
minimum price of $45 million. At December 31, 2010, the formula price of $19 million is below the
minimum price; however, the carrying value exceeds the formula price. The carrying value is the
amount shown on the Companys Consolidated Balance Sheets. This put option is not included in the
following table.
The Companys cash requirements relating to contractual obligations at December 31, 2010 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 |
|
$ |
316,128 |
|
|
$ |
5,285 |
|
|
$ |
20,385 |
|
|
$ |
|
|
|
$ |
290,458 |
|
Capital lease obligations and other |
|
|
10,481 |
|
|
|
600 |
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
7,481 |
|
Interest on debt and capital lease obligations |
|
|
274,243 |
|
|
|
24,433 |
|
|
|
46,591 |
|
|
|
46,257 |
|
|
|
156,962 |
|
Operating leases |
|
|
97,053 |
|
|
|
27,688 |
|
|
|
23,916 |
|
|
|
16,775 |
|
|
|
28,674 |
|
Notes payable (b) |
|
|
146,947 |
|
|
|
146,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconditional purchase (a) |
|
|
169,481 |
|
|
|
169,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefits other than pensions (c) |
|
|
275,348 |
|
|
|
17,670 |
|
|
|
36,631 |
|
|
|
37,260 |
|
|
|
183,787 |
|
Other long-term liabilities (d) |
|
|
438,404 |
|
|
|
212 |
|
|
|
53,900 |
|
|
|
41,788 |
|
|
|
342,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
1,728,085 |
|
|
$ |
392,316 |
|
|
$ |
182,623 |
|
|
$ |
143,280 |
|
|
$ |
1,009,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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) |
|
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.
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 U.S. 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.
- 27 -
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 U.S. 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. Accordingly, the claims asserted and
the resolutions of those claims have an enormous amount of variability. The costs have ranged from
zero dollars to $33 million in one case with no average that is meaningful. No specific accrual
is made for individual unasserted claims or for premature claims, asserted claims where the minimum
information needed to evaluate the probability of a liability is not yet known. However, an
accrual for such claims based, in part, on managements expectations for future litigation activity
and the settled
claims history is maintained. Because of the speculative nature of litigation in the U.S., the
Company does not believe a meaningful aggregate range of potential loss for asserted and unasserted
claims can be determined. 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
2009, the Company increased its products liability reserve by $55 million. The addition of another
year of self-insured incidents accounted for $38 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 million. Finally, changes in the
amount of reserves for cases where sufficient information is known to estimate a liability
increased by $14 million.
- 28 -
During 2010, the Company increased its products liability reserve by $85 million. The addition of
another year of self-insured incidents accounted for $40 million of this increase. The Company
revised its estimates of future settlements for unasserted and premature claims. These revisions
increased the reserve by $2 million. Finally, changes in the amount of reserves for cases where
sufficient information is known to estimate a liability increased by $43 million. Of this amount,
$22 million was the result of the Company increasing its self-insured portion of a jury verdict in
one case during the first quarter of 2010. The Company considered the impact of this case when
evaluating the assumptions used in establishing reserve balances and did not adjust its assumptions
based solely on this case.
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 2009, the Company paid $28 million and during 2010, the Company paid $46 million to resolve
cases and claims. The Companys products liability reserve balance at December 31, 2009 totaled
$151 million (current portion of $31 million). At December 31, 2010, the products liability
reserve balance totaled $191 million (current portion of $42 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. At December 31, 2010, substantially all legal fees reimbursements have
been received related to these pre-April 2003 claims.
Products liability costs totaled $81 million, $82 million and $110 million in 2008, 2009 and 2010,
respectively, and include recoveries of legal fees of $6 million, $3 million and $6 million in
2008, 2009 and 2010, 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 asset. If
recovery is questionable, the provision for income tax expense must be increased by recording a
valuation allowance when it is more likely than not that some portion of the deferred tax asset may
not be realized. The Company has maintained a full valuation allowance against its net U.S.
deferred tax asset position at December 31, 2010, 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.
The Company maintains a valuation allowance on its net U.S. deferred tax asset position. 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. The valuation allowance will be maintained as long as it is more likely than not
that some portion of the deferred tax asset may 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 U.S., the Company has
recorded significant deferred tax assets, the largest of which relate to products liability,
pension and other postretirement 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 $177 million valuation allowance
for the portion of U.S. deferred tax assets exceeding its U.S. deferred tax liabilities. In
addition, the Company has recorded valuation allowances of $7 million for deferred tax assets
associated with the portion of non-U.S. deferred tax assets exceeding the non-U.S. deferred tax
liabilities for a total valuation allowance of $184 million. The pension liability and the
associated deferred tax asset adjustment recorded to equity accounts for $134 million of the total
valuation allowance at December 31, 2010.
In conjunction with the Companys ongoing review of its actual results and anticipated future
earnings, the Company reassesses the possibility of releasing the Valuation Allowance currently in
place on its U.S. deferred tax assets. Based upon this assessment, the release of the Valuation
Allowance will likely occur during 2011. The required accounting for the release will involve
significant tax amounts and it will impact earnings in the quarter in which it is deemed
appropriate to release the reserve.
- 29 -
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, totaled
approximately $9 million as of December 31, 2010.
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 Intangibles, 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 U.S. and the U.K. and other postretirement benefit liabilities in the U.S. 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 investment advisors and
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 the Principal Financial Groups Pension Discount Yield Curve. Based upon
this analysis, the Company used a discount rate of 5.35 percent to measure its U.S. pension
liabilities, which is lower than the 5.75 percent used at December 31, 2009. The Company used the
Citigroup Pension Discount Liability Index yield curve rates to measure its other postretirement
benefit liabilities. At December 31, 2010, the Company used a rate of 5.2 percent which is lower
than the 5.75 percent used at December 31, 2009. A similar analysis was completed in the U.K. and
the Company decreased the discount rate used to measure its U.K. pension liabilities to 5.5 percent
at December 31, 2010 from 5.7 percent at December 31, 2009.
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. Effective July 1, 2009, the Company froze the
Spectrum (salaried employees) Plan in the U.S. so this assumption is not applicable to valuing the
pension liability. In the U.K., the Company used 3.4 percent for the estimated future compensation
increase at December 31, 2010 compared to a rate of 3.75 percent at December 31, 2009.
- 30 -
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 current asset allocation for U.S. plans assets is 57 percent in equity
securities and 43 percent in debt securities. The Company is considering the adoption of a
dynamic asset allocation strategy for the frozen Spectrum plan. This dynamic investment
strategy would call for a gradual shifting from equities and intermediate fixed income to a
higher allocation to long duration fixed income as the funding ratio of the plan rises. The
Companys investment policy for U.K. 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 U.S. pension plans assets approximated 11.3 percent in 2010 compared to an
asset gain of approximately 22.6 percent in 2009. The actual return on U.K. pension plan assets
approximated 13.5 percent in 2010 compared to an asset gain of 15.6 percent in 2009. The Companys
estimate for the expected long-term return on its U.S. plan assets was 8.5 percent which was used
to derive 2009 and 2010 pension expense. The expected long-term return on U.K. plan assets used
to derive the 2009 and 2010 pension expense was 7.4 percent and 7.5 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 $444.6
million at December 31, 2010. 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 $34 million in both 2009 and 2010.
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
stockholders 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.
- 31 -
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 $17 million at December 31,
2010 and $19 million at December 31, 2009. 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, 2010 and 2009.
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.
- 32 -
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
(Dollar amounts in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Net sales |
|
$ |
2,881,811 |
|
|
$ |
2,778,990 |
|
|
$ |
3,360,984 |
|
Cost of products sold |
|
|
2,805,638 |
|
|
|
2,359,963 |
|
|
|
2,940,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
76,173 |
|
|
|
419,027 |
|
|
|
420,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
185,064 |
|
|
|
206,990 |
|
|
|
211,678 |
|
Impairment of goodwill and indefinite-lived intangible asset |
|
|
31,340 |
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
76,402 |
|
|
|
48,718 |
|
|
|
20,649 |
|
Settlement of retiree medical case |
|
|
|
|
|
|
7,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
(216,633 |
) |
|
|
156,269 |
|
|
|
188,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
50,525 |
|
|
|
47,211 |
|
|
|
36,647 |
|
Interest income |
|
|
(12,887 |
) |
|
|
(5,193 |
) |
|
|
(5,265 |
) |
Other net |
|
|
3,504 |
|
|
|
(1,272 |
) |
|
|
(2,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(257,775 |
) |
|
|
115,523 |
|
|
|
159,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(30,274 |
) |
|
|
231 |
|
|
|
20,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(227,501 |
) |
|
|
115,292 |
|
|
|
139,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income taxes |
|
|
64 |
|
|
|
(31,653 |
) |
|
|
24,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(227,437 |
) |
|
|
83,639 |
|
|
|
163,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
noncontrolling shareholders interests |
|
|
(8,057 |
) |
|
|
31,872 |
|
|
|
23,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cooper Tire & Rubber Company |
|
$ |
(219,380 |
) |
|
$ |
51,767 |
|
|
$ |
140,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
Cooper Tire & Rubber Company common stockholders |
|
$ |
(3.88 |
) |
|
$ |
1.57 |
|
|
$ |
1.90 |
|
Income (loss) from discontinued operations |
|
|
|
|
|
|
(0.53 |
) |
|
|
0.39 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to Cooper Tire & Rubber Company
common stockholders |
|
$ |
(3.88 |
) |
|
$ |
1.04 |
|
|
$ |
2.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
Cooper Tire & Rubber Company common stockholders |
|
$ |
(3.88 |
) |
|
$ |
1.54 |
|
|
$ |
1.86 |
|
Income (loss) from discontinued operations |
|
|
|
|
|
|
(0.52 |
) |
|
|
0.38 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to Cooper Tire & Rubber Company
common stockholders |
|
$ |
(3.88 |
) |
|
$ |
1.02 |
|
|
$ |
2.24 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements, pages 38 to 66.
- 33 -
CONSOLIDATED BALANCE SHEETS
December 31
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
426,981 |
|
|
$ |
413,359 |
|
Notes receivable |
|
|
42,599 |
|
|
|
69,547 |
|
Accounts receivable, less allowances
of $10,928 in 2009 and $10,811 in 2010 |
|
|
324,424 |
|
|
|
414,149 |
|
Inventories at lower of cost or market: |
|
|
|
|
|
|
|
|
Finished goods |
|
|
188,323 |
|
|
|
240,107 |
|
Work in process |
|
|
22,090 |
|
|
|
26,735 |
|
Raw materials and supplies |
|
|
88,022 |
|
|
|
119,985 |
|
|
|
|
|
|
|
|
|
|
|
298,435 |
|
|
|
386,827 |
|
Other current assets |
|
|
39,392 |
|
|
|
56,357 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,131,831 |
|
|
|
1,340,239 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
Land and land improvements |
|
|
33,321 |
|
|
|
34,355 |
|
Buildings |
|
|
320,021 |
|
|
|
320,997 |
|
Machinery and equipment |
|
|
1,587,306 |
|
|
|
1,636,700 |
|
Molds, cores and rings |
|
|
246,395 |
|
|
|
232,153 |
|
|
|
|
|
|
|
|
|
|
|
2,187,043 |
|
|
|
2,224,205 |
|
Less accumulated depreciation and amortization |
|
|
1,336,072 |
|
|
|
1,371,763 |
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
850,971 |
|
|
|
852,442 |
|
Intangibles, net of accumulated amortization of $23,165
in 2009 and $24,455 in 2010 |
|
|
18,546 |
|
|
|
17,256 |
|
Restricted cash |
|
|
2,219 |
|
|
|
2,274 |
|
Other assets |
|
|
96,773 |
|
|
|
93,326 |
|
|
|
|
|
|
|
|
Total assets (1) |
|
$ |
2,100,340 |
|
|
$ |
2,305,537 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assets of consolidated variable interest entities (VIEs) were $204,995 and $204,535 at
December 31, 2009 and December 31, 2010, respectively. The assets (principally Property, plant and
equipment) of the VIEs can only be used to settle obligations of those VIEs. |
See Notes to Consolidated Financial Statements, pages 38 to 66.
- 34 -
CONSOLIDATED BALANCE SHEETS
December 31
(Dollar amounts in thousands, except par value amounts)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
156,719 |
|
|
$ |
146,947 |
|
Accounts payable |
|
|
300,448 |
|
|
|
384,464 |
|
Accrued liabilities |
|
|
158,643 |
|
|
|
152,364 |
|
Income taxes |
|
|
3,955 |
|
|
|
4,601 |
|
Liabilities related to the sale of automotive operations |
|
|
1,061 |
|
|
|
|
|
Current portion of long-term debt |
|
|
15,515 |
|
|
|
5,885 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
636,341 |
|
|
|
694,261 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
330,971 |
|
|
|
320,724 |
|
Postretirement benefits other than pensions |
|
|
244,905 |
|
|
|
257,657 |
|
Pension benefits |
|
|
272,050 |
|
|
|
258,321 |
|
Other long-term liabilities |
|
|
145,978 |
|
|
|
180,082 |
|
Long-term liabilities related to the sale of automotive operations |
|
|
6,043 |
|
|
|
|
|
Redeemable noncontrolling shareholders interests |
|
|
83,528 |
|
|
|
71,442 |
|
Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $1 par value; 5,000,000 shares
authorized; none issued |
|
|
|
|
|
|
|
|
Common stock, $1 par value; 300,000,000 shares authorized;
87,850,292 shares issued in 2009 and in 2010 |
|
|
87,850 |
|
|
|
87,850 |
|
Capital in excess of par value |
|
|
70,645 |
|
|
|
61,444 |
|
Retained earnings |
|
|
1,133,133 |
|
|
|
1,247,265 |
|
Cumulative other comprehensive loss |
|
|
(470,272 |
) |
|
|
(468,063 |
) |
|
|
|
|
|
|
|
|
|
|
821,356 |
|
|
|
928,496 |
|
Less: common shares in treasury at cost
(27,327,646 in 2009 and 26,205,336 in 2010) |
|
|
(490,548 |
) |
|
|
(467,707 |
) |
|
|
|
|
|
|
|
Total parent stockholders equity |
|
|
330,808 |
|
|
|
460,789 |
|
Noncontrolling shareholders interests in consolidated subsidiaries |
|
|
49,716 |
|
|
|
62,261 |
|
|
|
|
|
|
|
|
Total equity |
|
|
380,524 |
|
|
|
523,050 |
|
|
|
|
|
|
|
|
Total liabilities and equity (1) |
|
$ |
2,100,340 |
|
|
$ |
2,305,537 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Liabilities (principally Notes payable) of consolidated VIEs were $105,806 and $80,414 at
December 31, 2009 and December 31, 2010, respectively, and represent claims against the specific
assets of the VIEs. |
See Notes to Consolidated Financial Statements, pages 38 to 66.
- 35 -
CONSOLIDATED STATEMENTS OF EQUITY
(Dollar amounts in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
|
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
Total |
|
|
Shareholders |
|
|
|
|
|
|
Noncontrolling |
|
|
Common |
|
|
Capital In |
|
|
|
|
|
|
Other |
|
|
Common |
|
|
Parent |
|
|
Interests in |
|
|
|
|
|
|
Shareholders |
|
|
Stock |
|
|
Excess of |
|
|
Retained |
|
|
Comprehensive |
|
|
Shares in |
|
|
Stockholders |
|
|
Consolidated |
|
|
|
|
|
|
Interests |
|
|
$1 Par Value |
|
|
Par Value |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Treasury |
|
|
Equity |
|
|
Subsidiaries |
|
|
Total |
|
Balance at January 1, 2008 |
|
$ |
56,686 |
|
|
$ |
86,323 |
|
|
$ |
40,676 |
|
|
$ |
1,350,527 |
|
|
$ |
(213,414 |
) |
|
$ |
(479,558 |
) |
|
$ |
784,554 |
|
|
$ |
41,708 |
|
|
$ |
826,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
|
(7,584 |
) |
|
|
|
|
|
|
|
|
|
|
(219,380 |
) |
|
|
|
|
|
|
|
|
|
|
(219,380 |
) |
|
|
(473 |
) |
|
|
(219,853 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized postretirement
benefits, net of $1,306
tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234,455 |
) |
|
|
|
|
|
|
(234,455 |
) |
|
|
|
|
|
|
(234,455 |
) |
Currency translation
adjustment |
|
|
3,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,961 |
) |
|
|
|
|
|
|
(23,961 |
) |
|
|
2,932 |
|
|
|
(21,029 |
) |
Change in the fair value of
derivatives and unrealized
gain on marketable securities,
net of $103 tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,403 |
|
|
|
|
|
|
|
7,403 |
|
|
|
|
|
|
|
7,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
(3,905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(470,393 |
) |
|
|
2,459 |
|
|
|
(467,934 |
) |
Transactions between Cooper Tire &
Rubber Company and noncontrolling
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,250 |
|
|
|
4,250 |
|
Accretion of redeemable noncontrolling
shareholders interests |
|
|
9,939 |
|
|
|
|
|
|
|
|
|
|
|
(9,939 |
) |
|
|
|
|
|
|
|
|
|
|
(9,939 |
) |
|
|
|
|
|
|
(9,939 |
) |
Purchase of 803,300 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,853 |
) |
|
|
(13,853 |
) |
|
|
|
|
|
|
(13,853 |
) |
Stock compensation plans, including
tax benefit of $26 |
|
|
|
|
|
|
|
|
|
|
3,088 |
|
|
|
(30 |
) |
|
|
|
|
|
|
1,175 |
|
|
|
4,233 |
|
|
|
|
|
|
|
4,233 |
|
Cash dividends $.42 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,773 |
) |
|
|
|
|
|
|
|
|
|
|
(24,773 |
) |
|
|
|
|
|
|
(24,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
62,720 |
|
|
|
86,323 |
|
|
|
43,764 |
|
|
|
1,096,405 |
|
|
|
(464,427 |
) |
|
|
(492,236 |
) |
|
|
269,829 |
|
|
|
48,417 |
|
|
|
328,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
30,539 |
|
|
|
|
|
|
|
|
|
|
|
51,767 |
|
|
|
|
|
|
|
|
|
|
|
51,767 |
|
|
|
1,333 |
|
|
|
53,100 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized postretirement
benefits, net of $17,337
tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,801 |
) |
|
|
|
|
|
|
(4,801 |
) |
|
|
|
|
|
|
(4,801 |
) |
Currency translation
adjustment |
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,774 |
|
|
|
|
|
|
|
3,774 |
|
|
|
(34 |
) |
|
|
3,740 |
|
Change in the fair value of
derivatives and unrealized
gain on marketable securities,
net of $2,397 tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,818 |
) |
|
|
|
|
|
|
(4,818 |
) |
|
|
|
|
|
|
(4,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
30,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,922 |
|
|
|
1,299 |
|
|
|
47,221 |
|
Accretion of redeemable noncontrolling
shareholders interests |
|
|
(9,939 |
) |
|
|
|
|
|
|
|
|
|
|
9,939 |
|
|
|
|
|
|
|
|
|
|
|
9,939 |
|
|
|
|
|
|
|
9,939 |
|
Issuance of 1,527,778 shares of stock |
|
|
|
|
|
|
1,527 |
|
|
|
20,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000 |
|
|
|
|
|
|
|
22,000 |
|
Stock compensation plans, including
tax benefit of $1,944 |
|
|
|
|
|
|
|
|
|
|
6,408 |
|
|
|
(52 |
) |
|
|
|
|
|
|
1,688 |
|
|
|
8,044 |
|
|
|
|
|
|
|
8,044 |
|
Cash dividends $.42 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,926 |
) |
|
|
|
|
|
|
|
|
|
|
(24,926 |
) |
|
|
|
|
|
|
(24,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
83,528 |
|
|
|
87,850 |
|
|
|
70,645 |
|
|
|
1,133,133 |
|
|
|
(470,272 |
) |
|
|
(490,548 |
) |
|
|
330,808 |
|
|
|
49,716 |
|
|
|
380,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
19,376 |
|
|
|
|
|
|
|
|
|
|
|
140,449 |
|
|
|
|
|
|
|
|
|
|
|
140,449 |
|
|
|
4,062 |
|
|
|
144,511 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized postretirement
benefits, net of $1,488
tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,949 |
) |
|
|
|
|
|
|
(2,949 |
) |
|
|
|
|
|
|
(2,949 |
) |
Currency translation
adjustment |
|
|
(521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,978 |
|
|
|
|
|
|
|
5,978 |
|
|
|
1,733 |
|
|
|
7,711 |
|
Change in the fair value of
derivatives and unrealized
gain on marketable securities,
net of $206 tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(820 |
) |
|
|
|
|
|
|
(820 |
) |
|
|
|
|
|
|
(820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
18,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,658 |
|
|
|
5,795 |
|
|
|
148,453 |
|
Dividends payable to
noncontrolling shareholder |
|
|
(11,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of
noncontrolling shareholder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,750 |
|
|
|
6,750 |
|
Acquisition of noncontrolling
shareholders interests |
|
|
(19,304 |
) |
|
|
|
|
|
|
1,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,384 |
|
|
|
|
|
|
|
1,384 |
|
Stock compensation plans, including
tax benefit of $3,294 |
|
|
|
|
|
|
|
|
|
|
(10,585 |
) |
|
|
(547 |
) |
|
|
|
|
|
|
22,841 |
|
|
|
11,709 |
|
|
|
|
|
|
|
11,709 |
|
Cash dividends $.42 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,770 |
) |
|
|
|
|
|
|
|
|
|
|
(25,770 |
) |
|
|
|
|
|
|
(25,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
71,442 |
|
|
$ |
87,850 |
|
|
$ |
61,444 |
|
|
$ |
1,247,265 |
|
|
$ |
(468,063 |
) |
|
$ |
(467,707 |
) |
|
$ |
460,789 |
|
|
$ |
62,261 |
|
|
$ |
523,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements, pages 38 to 66.
- 36 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(227,437 |
) |
|
$ |
83,639 |
|
|
$ |
163,887 |
|
Adjustments to reconcile net income/(loss) to net cash
provided by (used in) continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss (income) from discontinued operations, net of income taxes |
|
|
(64 |
) |
|
|
31,653 |
|
|
|
(24,118 |
) |
Depreciation |
|
|
138,805 |
|
|
|
121,483 |
|
|
|
121,785 |
|
Amortization |
|
|
3,954 |
|
|
|
2,028 |
|
|
|
1,936 |
|
Deferred income taxes |
|
|
(3,327 |
) |
|
|
(6,950 |
) |
|
|
(1,153 |
) |
Stock based compensation |
|
|
3,924 |
|
|
|
5,419 |
|
|
|
6,845 |
|
Net impact of inventory write-down and change in LIFO reserve |
|
|
92,283 |
|
|
|
(94,790 |
) |
|
|
64,116 |
|
Amortization of unrecognized postretirement benefits |
|
|
12,963 |
|
|
|
32,903 |
|
|
|
32,522 |
|
Loss on sale of assets |
|
|
4,199 |
|
|
|
874 |
|
|
|
2,797 |
|
Debt extinguishment costs |
|
|
593 |
|
|
|
|
|
|
|
|
|
Restructuring asset write-down |
|
|
75,557 |
|
|
|
900 |
|
|
|
1,845 |
|
Impairment of goodwill and indefinite-lived intangible asset |
|
|
31,340 |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities of
continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
20,149 |
|
|
|
(42,544 |
) |
|
|
(113,197 |
) |
Inventories |
|
|
(217,557 |
) |
|
|
221,109 |
|
|
|
(148,785 |
) |
Other current assets |
|
|
(34,600 |
) |
|
|
26,769 |
|
|
|
(13,906 |
) |
Accounts payable |
|
|
(46,906 |
) |
|
|
49,548 |
|
|
|
78,477 |
|
Accrued liabilities |
|
|
(8,518 |
) |
|
|
32,658 |
|
|
|
(11,491 |
) |
Other items |
|
|
(10,350 |
) |
|
|
13,647 |
|
|
|
(3,883 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations |
|
|
(164,992 |
) |
|
|
478,346 |
|
|
|
157,677 |
|
Net cash provided by (used in) discontinued operations |
|
|
(2,225 |
) |
|
|
(33,777 |
) |
|
|
17,014 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(167,217 |
) |
|
|
444,569 |
|
|
|
174,691 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(128,773 |
) |
|
|
(79,333 |
) |
|
|
(119,738 |
) |
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 |
|
|
|
|
|
|
|
|
|
Investment in unconsolidated subsidiary |
|
|
(29,194 |
) |
|
|
(659 |
) |
|
|
|
|
Acquisition of businesses, net of cash acquired |
|
|
(5,956 |
) |
|
|
|
|
|
|
|
|
Proceeds from the sale of assets |
|
|
6,408 |
|
|
|
1,535 |
|
|
|
2,498 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing operations |
|
|
(800 |
) |
|
|
(78,457 |
) |
|
|
(117,240 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt of parent company |
|
|
(14,300 |
) |
|
|
(96,913 |
) |
|
|
|
|
Premium paid on debt repurchases |
|
|
(552 |
) |
|
|
|
|
|
|
|
|
Net borrowings (repayments) on debt
in partially owned subsidiaries |
|
|
108,818 |
|
|
|
(63,111 |
) |
|
|
(32,726 |
) |
Contributions of joint venture partner |
|
|
4,250 |
|
|
|
|
|
|
|
6,750 |
|
Acquisition of noncontrolling shareholder interest |
|
|
|
|
|
|
|
|
|
|
(17,920 |
) |
Purchase of treasury shares |
|
|
(13,853 |
) |
|
|
|
|
|
|
|
|
Payment of dividends to noncontrolling shareholders |
|
|
|
|
|
|
|
|
|
|
(11,637 |
) |
Payment of dividends |
|
|
(24,773 |
) |
|
|
(24,926 |
) |
|
|
(25,770 |
) |
Issuance of common shares and excess
tax benefits on options |
|
|
309 |
|
|
|
2,301 |
|
|
|
10,308 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
59,899 |
|
|
|
(182,649 |
) |
|
|
(70,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash of
continuing operations |
|
|
9,843 |
|
|
|
(4,154 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
Changes in cash and cash equivalents |
|
|
(98,275 |
) |
|
|
179,309 |
|
|
|
(13,622 |
) |
Cash and cash equivalents at beginning of year |
|
|
345,947 |
|
|
|
247,672 |
|
|
|
426,981 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
247,672 |
|
|
$ |
426,981 |
|
|
$ |
413,359 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements, pages 38 to 66.
- 37 -
Notes to Consolidated Financial Statements
(Dollar amounts in thousands except per share amounts)
Note 1 Significant Accounting Policies
Principles of consolidation - The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. Acquired businesses are included in the consolidated
financial statements from the dates of acquisition. All intercompany accounts and transactions
have been eliminated.
The equity method of accounting is followed for investments in 20 percent to 50 percent owned
companies that are not otherwise consolidated based on variable interests. The Companys
investment in the Mexican tire manufacturing facility represents an approximate 38 percent
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 to Cooper Tire & Rubber Company
and its affiliates at a price that provides an acceptable return to the joint venture. 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 determined it has the
power to control the purchasing and marketing of tires for this joint venture. The Company has
determined it is the primary beneficiary of this joint venture due to its ability to control the
primary economic activity.
Since the Company has determined that each of these entities, Cooper Kenda and Cooper de Mexico,
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. Assets
recognized as a result of consolidating these VIEs do not represent additional assets that could
be used to satisfy claims against the Companys general assets. Conversely, liabilities
recognized as a result of consolidating these VIEs do not represent additional claims against the
Companys general assets; rather, they represent claims against the specific assets of the
consolidated VIEs. 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 VIEs at December 31:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
23,998 |
|
|
$ |
16,360 |
|
Accounts receivable |
|
|
9,359 |
|
|
|
8,881 |
|
Inventories |
|
|
16,472 |
|
|
|
26,155 |
|
Prepaid expenses |
|
|
2,688 |
|
|
|
3,112 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
52,517 |
|
|
|
54,508 |
|
Net property, plant and equipment |
|
|
139,705 |
|
|
|
137,502 |
|
Intangibles and other assets |
|
|
12,773 |
|
|
|
12,525 |
|
Total assets |
|
$ |
204,995 |
|
|
$ |
204,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
87,016 |
|
|
$ |
71,985 |
|
Accounts payable |
|
|
7,147 |
|
|
|
8,707 |
|
Accrued liabilities |
|
|
1,118 |
|
|
|
(278 |
) |
Current portion of long-term debt |
|
|
10,525 |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
105,806 |
|
|
|
80,414 |
|
Stockholders equity |
|
|
99,189 |
|
|
|
124,121 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
204,995 |
|
|
$ |
204,535 |
|
|
|
|
|
|
|
|
- 38 -
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
principal and interest by the government; 2) obligations of U.S. government agencies; 3) commercial
paper or other corporate notes of prime quality purchased directly from the issuer or through
recognized money market dealers; 4) time deposits, certificates of deposit or bankers acceptances
of banks rated A- by Standard & 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 $426,981
and $413,359 at December 31, 2009 and December 31, 2010, respectively. The majority of the cash
and cash equivalents were invested in eligible financial instruments in excess of amounts insured
by the Federal Deposit Insurance Corporation and, therefore, subject to credit risk.
Notes receivable The Company has received bank secured notes from certain of its customers in
the PRC to settle trade accounts receivable. These notes generally have maturities of six months
or less.
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.
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 $812 and $1,017 at December 31, 2009 and 2010, respectively. Upon completion and
acceptance of customer-owned molds, reimbursable costs are recorded as accounts receivable. At
December 31, 2009 and 2010, respectively, $243 and $69 were included in Accounts receivable for
customer-owned molds.
- 39 -
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 and dollar amounts in thousands except per share amounts) |
|
2008 |
|
|
2009 |
|
|
2010 |
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
attributable to Cooper Tire & Rubber Company |
|
$ |
(219,444 |
) |
|
$ |
83,420 |
|
|
$ |
116,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable noncontrolling
shareholders interest |
|
|
(9,939 |
) |
|
|
9,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings (loss)
per share income (loss) from continuing
operations available to common stockholders |
|
$ |
(229,383 |
) |
|
$ |
93,359 |
|
|
$ |
116,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share -
weighted average shares outstanding |
|
|
59,048 |
|
|
|
59,439 |
|
|
|
61,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities stock options and
other stock units |
|
|
|
|
|
|
1,242 |
|
|
|
1,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share -
adjusted weighted average share outstanding |
|
|
59,048 |
|
|
|
60,681 |
|
|
|
62,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
available to Cooper Tire & Rubber Company
common stockholders |
|
$ |
(3.88 |
) |
|
$ |
1.57 |
|
|
$ |
1.90 |
|
Income (loss) from discontinued operations,
net of income taxes |
|
|
|
|
|
|
(0.53 |
) |
|
|
0.39 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to Cooper Tire &
Rubber
Company common stockholders |
|
$ |
(3.88 |
) |
|
$ |
1.04 |
|
|
$ |
2.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
available to Cooper Tire & Rubber Company
common stockholders |
|
$ |
(3.88 |
) |
|
$ |
1.54 |
|
|
$ |
1.86 |
|
Income (loss) from discontinued operations,
net of income taxes |
|
|
|
|
|
|
(0.52 |
) |
|
|
0.38 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to Cooper Tire &
Rubber
Company common stockholders |
|
$ |
(3.88 |
) |
|
$ |
1.02 |
|
|
$ |
2.24 |
|
|
|
|
|
|
|
|
|
|
|
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 503,114 in 2009 and 8,000 in 2010. 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 803,300 shares in 2008. No shares were repurchased in 2009 or 2010.
- 40 -
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 operations 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.
The Company is exposed to price risk related to forecasted purchases of certain commodities that
are used as raw materials, principally natural rubber. Accordingly, it uses commodity contracts
with forward pricing. These contracts generally qualify for the normal purchase exception under
guidance for derivative instruments and hedging activities, and therefore are not subject to its
provisions.
Income taxes - Income tax expense 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 $33 million in one case with no average that is meaningful. No specific accrual
is made for individual unasserted claims or for premature claims, asserted claims where the minimum
information needed to evaluate the probability of a liability is not yet known. However, an
accrual for such claims based, in part, on managements expectations for future litigation activity
and the settled claims history is maintained. Because of the speculative nature of litigation in
the U.S., the Company does not believe a meaningful aggregate range of potential loss for asserted
and unasserted claims can be determined. 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.
- 41 -
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. At December 31, 2010, substantially all legal fees reimbursements have been
received related to these pre-April 2003 claims.
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 2008, 2009 and 2010 was $48,102, $43,690 and $48,432,
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Reserve at January 1 |
|
$ |
16,510 |
|
|
$ |
18,244 |
|
|
$ |
23,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
19,816 |
|
|
|
23,134 |
|
|
|
24,791 |
|
Payments |
|
|
(18,082 |
) |
|
|
(17,564 |
) |
|
|
(23,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve at December 31 |
|
$ |
18,244 |
|
|
$ |
23,814 |
|
|
$ |
24,924 |
|
|
|
|
|
|
|
|
|
|
|
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 $33,514, $35,672 and $39,748 during 2008, 2009 and 2010, respectively. The Company
has determined the amounts included here as research and development better align with Accounting
Standards Codification (ASC) 730, Research and Development, that includes all costs that can
appropriately be considered in this classification. Previously, a narrow, more restrictive tax
definition was used for this calculation. Amounts for prior years have been presented under the new
definition.
Accounting pronouncements
Fair value measurements In January 2010, the FASB issued guidance to amend the disclosure
requirements related to recurring and nonrecurring fair value measurements. The guidance requires
disclosure of transfers of assets and liabilities between Level 1 and Level 2
of the fair value measurement hierarchy, including the reasons and the timing of the transfers and
information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation
of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. The
Company adopted this guidance on January 1, 2010. The adoption of this guidance did not have a
material impact on the Companys consolidated financial statements.
- 42 -
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 adopted this
guidance on January 1, 2010. The adoption of this guidance did not have an impact on the Companys
consolidated financial statements but will be considered if the Company elects to utilize its
accounts receivable securitization facility.
Consolidation of Variable Interest Entities - In June 2009, the FASB issued accounting guidance on
the consolidation of 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 adopted this guidance on January 1, 2010. The
adoption of this guidance did not have a material impact on the Companys consolidated financial
statements.
Reclassification On December 23, 2004, the Company sold its automotive business,
Cooper-Standard Automotive, Inc. (CSA), 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. 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 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, 2008, 2009 and 2010 reflect this
segregation as income from continuing operations and income from discontinued operations.
Note 2 Inventories
At December 31, 2009 and 2010, approximately 45 percent and 37 percent, respectively, of the
Companys inventories had been valued under the last-in, first-out (LIFO) method. An increase in
inventory balances in the PRC has caused this percentage to decrease in 2010. The remaining
inventories have been valued under the first-in first-out (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 $127,064 and $191,180 at
December 31, 2009 and 2010, respectively, from current cost which would be reported under the FIFO
method. Inventories in the U.S. which are accounted for under the LIFO method declined in 2009
from 2008. As a result of this inventory decline, cost of products sold for 2009 was reduced
$15,600 in the North American Tire Operations segment.
The Companys International Tire Operations segment 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:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Income tax recoverable |
|
$ |
9,967 |
|
|
$ |
29,957 |
|
Assets held for sale |
|
|
10,000 |
|
|
|
8,155 |
|
Other |
|
|
19,425 |
|
|
|
18,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
39,392 |
|
|
$ |
56,357 |
|
|
|
|
|
|
|
|
The land, building and certain manufacturing equipment located at the Albany, Georgia are now
classified as assets held for sale at estimated fair value less costs to sell determined based on
a signed Real Estate Purchase Agreement. The fair value of these assets, $8,155 at December 31,
2010, is considered a Level 2 valuation. See Note 16 for additional details on the Albany
restructuring.
- 43 -
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 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 quarters of 2009 and 2010, the Company completed its annual intangible assets
impairment tests and no impairment was indicated.
The following table presents intangible assets and accumulated amortization balances as of December
31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2010 |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Definite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and
tradenames |
|
$ |
10,891 |
|
|
$ |
(4,467 |
) |
|
$ |
6,424 |
|
|
$ |
10,891 |
|
|
$ |
(5,060 |
) |
|
$ |
5,831 |
|
Patents and technology |
|
|
15,038 |
|
|
|
(14,606 |
) |
|
|
432 |
|
|
|
15,038 |
|
|
|
(14,764 |
) |
|
|
274 |
|
Other |
|
|
5,965 |
|
|
|
(4,092 |
) |
|
|
1,873 |
|
|
|
5,965 |
|
|
|
(4,631 |
) |
|
|
1,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,894 |
|
|
|
(23,165 |
) |
|
|
8,729 |
|
|
|
31,894 |
|
|
|
(24,455 |
) |
|
|
7,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
9,817 |
|
|
|
|
|
|
|
9,817 |
|
|
|
9,817 |
|
|
|
|
|
|
|
9,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
41,711 |
|
|
$ |
(23,165 |
) |
|
$ |
18,546 |
|
|
$ |
41,711 |
|
|
$ |
(24,455 |
) |
|
$ |
17,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense over the next five years is as follows: 2011 $1,259, 2012 -
$1,237, 2013 $863, 2014 $613 and 2015 $593.
Note 5 Other Assets
Other assets at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Investment in unconsolidated subsidiary |
|
$ |
20,835 |
|
|
$ |
24,398 |
|
Deferred tax assets |
|
|
31,892 |
|
|
|
27,369 |
|
Land use rights |
|
|
11,078 |
|
|
|
10,921 |
|
Tax incentives |
|
|
11,375 |
|
|
|
11,724 |
|
Other |
|
|
21,593 |
|
|
|
18,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
96,773 |
|
|
$ |
93,326 |
|
|
|
|
|
|
|
|
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 in Other net on the statements of operations. During 2009, the Company
invested an additional $659, recorded its share of the loss of the operations of $672 in Other
net on the statements 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. In 2010, the Company recorded its share of the profit of the operations of
$2,456 in Other net on the Consolidated Statements of Operations and recorded a currency gain of
$1,107 included in the Cumulative currency translation adjustment of the Cumulative other
comprehensive loss component of Stockholders equity.
- 44 -
Note 6 Accrued Liabilities
Accrued liabilities at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Payroll and withholdings |
|
$ |
55,087 |
|
|
$ |
45,862 |
|
Products liability |
|
|
30,805 |
|
|
|
41,892 |
|
Warranty |
|
|
18,210 |
|
|
|
19,669 |
|
Other postretirement benefits |
|
|
17,021 |
|
|
|
17,692 |
|
Foreign currency loss on derivative financial
instruments |
|
|
2,080 |
|
|
|
3,977 |
|
Other |
|
|
35,440 |
|
|
|
23,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
158,643 |
|
|
$ |
152,364 |
|
|
|
|
|
|
|
|
Note 7 Income Taxes
Components of income (loss) from continuing operations before income taxes and noncontrolling
shareholders interests are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
United States |
|
$ |
(228,398 |
) |
|
$ |
35,200 |
|
|
$ |
67,579 |
|
Foreign |
|
|
(29,377 |
) |
|
|
80,323 |
|
|
|
92,247 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(257,775 |
) |
|
$ |
115,523 |
|
|
$ |
159,826 |
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income tax for continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(31,368 |
) |
|
$ |
(3,990 |
) |
|
$ |
2,823 |
|
State and local |
|
|
147 |
|
|
|
966 |
|
|
|
3,716 |
|
Foreign |
|
|
4,274 |
|
|
|
10,020 |
|
|
|
10,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,947 |
) |
|
|
6,996 |
|
|
|
17,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(2,005 |
) |
|
|
(770 |
) |
|
|
3,921 |
|
State and local |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
(1,322 |
) |
|
|
(5,995 |
) |
|
|
(1,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,327 |
) |
|
|
(6,765 |
) |
|
|
2,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(30,274 |
) |
|
$ |
231 |
|
|
$ |
20,057 |
|
|
|
|
|
|
|
|
|
|
|
- 45 -
A reconciliation of income tax expense (benefit) for continuing operations to the tax based on
the U.S. statutory rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Income tax provision (benefit)
at 35% |
|
$ |
(90,221 |
) |
|
$ |
40,423 |
|
|
$ |
55,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income tax, net
of federal income tax effect |
|
|
(6,399 |
) |
|
|
628 |
|
|
|
1,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. tax credits |
|
|
(2,415 |
) |
|
|
(1,478 |
) |
|
|
(2,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference in effective tax rates
of international operations |
|
|
13,235 |
|
|
|
(24,078 |
) |
|
|
(22,689 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on tax settlement |
|
|
|
|
|
|
(4,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
54,458 |
|
|
|
(14,139 |
) |
|
|
(9,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net |
|
|
1,068 |
|
|
|
3,114 |
|
|
|
(3,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
(30,274 |
) |
|
$ |
231 |
|
|
$ |
20,057 |
|
Payments, including discontinued operations, for income taxes in 2008, 2009 and 2010, net of
refunds, were $10,351, ($8,405) and $30,186, respectively.
Deferred tax assets and liabilities result from differences in the basis of assets and liabilities
for tax and financial reporting purposes. Significant components of the Companys deferred tax
assets and liabilities at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Postretirement and other employee benefits |
|
$ |
189,269 |
|
|
$ |
183,983 |
|
Products liability |
|
|
45,753 |
|
|
|
61,510 |
|
Net operating loss, capital loss, and tax credits carryforwards |
|
|
47,708 |
|
|
|
37,966 |
|
All other items |
|
|
49,515 |
|
|
|
49,129 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
332,245 |
|
|
|
332,588 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(108,398 |
) |
|
|
(106,716 |
) |
All other items |
|
|
(15,189 |
) |
|
|
(14,591 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(123,587 |
) |
|
|
(121,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,658 |
|
|
|
211,281 |
|
Valuation allowances |
|
|
(176,766 |
) |
|
|
(183,912 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
31,892 |
|
|
$ |
27,369 |
|
|
|
|
|
|
|
|
The net deferred tax assets are included in the consolidated balance sheets in Other assets.
At December 31, 2010, the Company has apportioned state tax losses of $152,559 and foreign tax
losses of $20,797 available for carryforward. The Company also has U.S. federal tax credits of
$1,357 and state tax credits of $4,209 in addition to U.S. capital losses of $53,516 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 2011 through 2029. The
foreign tax losses expire no sooner than 2012. The U.S. capital loss carryforward will expire in
2015.
- 46 -
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 $9,237 as itemized in the tabular roll forward below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Balance at January 1 |
|
$ |
3,777 |
|
|
$ |
7,623 |
|
|
$ |
7,517 |
|
Settlements for tax positions of prior years |
|
|
|
|
|
|
(164 |
) |
|
|
|
|
Additions for tax positions of the current year |
|
|
1,640 |
|
|
|
934 |
|
|
|
1,686 |
|
Additions for tax positions of prior years |
|
|
2,307 |
|
|
|
18 |
|
|
|
62 |
|
Reductions for tax positions of prior years |
|
|
(101 |
) |
|
|
(894 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
7,623 |
|
|
$ |
7,517 |
|
|
$ |
9,237 |
|
|
|
|
|
|
|
|
|
|
|
Of this amount, the effective rate would change upon the recognition of approximately $7,858 of
these unrecognized tax benefits. The Company accrued, through the tax provision, approximately
$419, $451 and $79 of interest expense for 2008, 2009 and 2010 respectively. At December 31, 2010,
the Company has $524 of interest accrued.
U.S. income taxes were not provided on a cumulative total of approximately $211,169 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 U.S. 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 $5,140, ($.08 earnings per share) favorable impact to the Company in 2010. The
holidays terminate after five years and begin to be completed 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., (CSA) and its Canadian affiliate. In
2009 the governments settled the APA between the governments and the taxpayers for periods
2000-2007. On August 19, 2009, the Company filed an action in the United States Bankruptcy Court,
District of Delaware, in response to the Bankruptcy petition filed by Cooper-Standard Holdings Inc.
on August 3, 2009. The action related to the tax refunds owed to the Company pursuant to the
September 16, 2004 sale agreement of CSA for pre-disposition periods ending December 23, 2004. On
March 17, 2010, the Company entered into a settlement agreement with Cooper Standard Holdings,
Inc., et al. to resolve the subject proceedings. The approved settlement agreement was docketed by
the Court on April 15 and became final and non-appealable on April 29, 2010. Pursuant to the
settlement agreement, CSA paid the Company approximately $17,639. In addition CSA provided a
letter of credit to be issued for the benefit of the Company in the initial amount of $7,000 in
connection with the Companys guaranty of a lease for certain property in Surgoinsville, Tennessee.
The letter of credit will be payable to the Company for amounts that the Company is called upon to
pay in connection with the Companys guaranty. The settlement agreement also provides for mutual
releases with only certain limited obligations under the 2004 sale agreement to remain in force.
Based upon the settlement, the Company released liabilities recorded on its books relating to the
disposition of CSA in the amount of $7,400 through Discontinued Operations net of the tax impact.
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 2002.
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. On August 4, 2010, the Company amended the accounts receivable
facility to extend the maturity to August 2011. No ownership interests in the purchased trade
receivables had been sold to the bank conduit as of December 31, 2010. The Company had issued
standby letters of credit under this facility totaling $36,000 and $38,000 at December 31, 2009 and
2010, respectively.
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
- 47 -
Companys U.S. 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, 2009 or December 31, 2010.
In 2010, Industrial Revenue Bonds (IRBs) were issued by the City of Texarkana to finance the
design, equipping, construction and start-up of the expansion of the Texarkana manufacturing
facility. Because the assets related to the expansion provide security for the bonds issued by the
City of Texarkana, the City retains title to the assets. However, the Company has recorded the
property in its Consolidated Statements of Financial Position, along with a capital lease
obligation to repay the proceeds of the IRB because the arrangement is cancelable at any time at
the Companys request. The Company has also purchased the IRBs and therefore is the bondholder as
well as the borrower/lessee of the property purchased with the IRB proceeds. The capital lease
obligation and IRB asset are recorded net in the Consolidated Statements of Financial Position.
At December 31, 2010, the assets and liabilities associated with these City of Texarkana IRBs were
$11,200.
The following table summarizes the long-term debt of the Company at December 31, 2009 and 2010 and,
except for capital leases; the long-term debt is due in an aggregate principal payment on the due
date:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Parent company |
|
|
|
|
|
|
|
|
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 |
|
|
11,081 |
|
|
|
10,481 |
|
|
|
|
|
|
|
|
|
|
|
301,539 |
|
|
|
300,939 |
|
Subsidiaries |
|
|
|
|
|
|
|
|
3.718% to 7.47% unsecured notes due in 2010 |
|
|
14,915 |
|
|
|
|
|
5.13% unsecured notes due in 2011 |
|
|
9,522 |
|
|
|
5,285 |
|
4.86% to 5.13% unsecured notes due in 2012 |
|
|
20,510 |
|
|
|
20,385 |
|
|
|
|
|
|
|
|
|
|
|
44,947 |
|
|
|
25,670 |
|
|
|
|
|
|
|
|
|
|
|
346,486 |
|
|
|
326,609 |
|
Less current maturities |
|
|
15,515 |
|
|
|
5,885 |
|
|
|
|
|
|
|
|
|
|
$ |
330,971 |
|
|
$ |
320,724 |
|
|
|
|
|
|
|
|
Over the next five years, the Company has payments related to the above debt of: 2011 $5,885,
2012 $20,985, 2013 $600, 2014 $600 and 2015 $600. In addition, the Companys partially
owned, consolidated subsidiary operations in the PRC have short-term notes payable of $147 million
due in 2011. The weighted average interest rate of the short-term notes payable at December 31,
2009 and 2010 was 3.68 percent and 3.72 percent, respectively.
Interest paid on debt during 2008, 2009 and 2010 was $51,964, $48,125 and $37,758, respectively.
The amount of interest capitalized was $1,683, $663 and $959 during 2008, 2009 and 2010,
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 trading 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, 2009
and 2010 was $207,600 and $234,600, 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.
- 48 -
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 $(2,136) and $(3,032) as of December 31, 2009 and
2010, 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.
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
December 31, 2010 |
Designated as hedging instruments
|
|
Accrued liabilities
|
|
$ |
2,158 |
|
|
Accrued liabilities
|
|
$ |
3,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments
|
|
Accrued liabilities
|
|
$ |
(78 |
) |
|
Accrued liabilities
|
|
$ |
564 |
|
The following table presents the location and amount of gains and losses on derivative instruments
in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss) |
|
|
|
|
|
|
Amount of (Loss) |
|
|
Reclassified |
|
|
Amount of (Loss) |
|
|
|
Recognized in |
|
|
from Cumulative |
|
|
Recognized in |
|
|
|
Other Comprehensive |
|
|
Other Comprehensive |
|
|
Income |
|
|
|
Income on Derivative |
|
|
Loss into Income |
|
|
on Derivative |
|
|
|
(Effective Portion) |
|
|
(Effective Portion) |
|
|
(Ineffective Portion) |
|
Derivatives in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow |
|
Year |
|
|
Year |
|
|
Year |
|
|
Year |
|
|
Year |
|
|
Year |
|
Hedging |
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
Relationships |
|
Dec. 31, 2009 |
|
|
Dec. 31, 2010 |
|
|
Dec. 31, 2009 |
|
|
Dec. 31, 2010 |
|
|
Dec. 31, 2009 |
|
|
Dec. 31, 2010 |
|
Foreign exchange
contracts |
|
$ |
(7,208 |
) |
|
$ |
(1,795 |
) |
|
$ |
(4,198 |
) |
|
$ |
(692 |
) |
|
$ |
(458 |
) |
|
$ |
(161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
Amount of Gain (Loss) |
|
|
|
Gain (Loss) |
|
|
Recognized in Income on Derivatives |
|
Derivatives not |
|
Recognized |
|
|
Year |
|
|
Year |
|
Designated as |
|
in Income on |
|
|
Ended |
|
|
Ended |
|
Hedging Instruments |
|
Derivatives |
|
|
Dec. 31, 2009 |
|
|
Dec. 31, 2010 |
|
Foreign exchange contracts |
|
Other income (expense) |
|
|
$ |
142 |
|
|
$ |
(758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest swap contracts |
|
Other income (expense) |
|
|
|
1,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,997 |
|
|
$ |
(758 |
) |
|
|
|
|
|
|
|
|
|
|
|
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.
- 49 -
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, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010 |
|
$ |
3,977 |
|
|
|
|
|
|
$ |
3,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
2,080 |
|
|
|
|
|
|
$ |
2,080 |
|
|
|
|
|
The land, building and certain manufacturing equipment located at Albany, Georgia are now
classified as assets held for sale at estimated fair value less costs to sell determined based on
a signed Real Estate Purchase Agreement. The fair value of these assets, $8,155 at December 31,
2010, is considered a Level 2 valuation. See Note 16 for additional details on the Albany
restructuring initiative.
- 50 -
The fair value of the Companys debt is based upon prices of similar instruments in the
marketplace. The carrying amounts and fair values of the Companys financial instruments are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Cash and cash equivalents |
|
$ |
426,981 |
|
|
$ |
426,981 |
|
|
$ |
413,359 |
|
|
$ |
413,359 |
|
Notes receivable |
|
|
42,599 |
|
|
|
42,599 |
|
|
|
69,547 |
|
|
|
69,547 |
|
Notes payable |
|
|
(156,719 |
) |
|
|
(156,719 |
) |
|
|
(146,947 |
) |
|
|
(146,947 |
) |
Current portion of long-term debt |
|
|
(15,515 |
) |
|
|
(15,515 |
) |
|
|
(5,885 |
) |
|
|
(5,885 |
) |
Long-term debt |
|
|
(330,971 |
) |
|
|
(309,371 |
) |
|
|
(320,724 |
) |
|
|
(322,124 |
) |
Derivative financial instruments |
|
|
(2,080 |
) |
|
|
(2,080 |
) |
|
|
(3,977 |
) |
|
|
(3,977 |
) |
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. The plans cover substantially all U.S. domestic employees. There
are also plans that cover a significant number of employees in the U.K. and Germany. 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.
During 2009, the Company froze the pension benefits in its Spectrum (salaried employees) Plan
in the U.S., and in the U.K., it modified its early retirement benefits, both actions
resulting in lower pension liabilities.
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 $0, $9,150
and $12,827 for 2008, 2009 and 2010, 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
stockholders 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.
- 51 -
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
Pension Benefits |
|
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
2009 |
|
|
2010 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation at January 1 |
|
$ |
779,890 |
|
|
$ |
214,641 |
|
|
$ |
994,531 |
|
|
$ |
826,458 |
|
|
$ |
313,659 |
|
|
$ |
1,140,117 |
|
|
$ |
252,679 |
|
|
$ |
261,926 |
|
Service cost employer |
|
|
6,532 |
|
|
|
1,852 |
|
|
|
8,384 |
|
|
|
4,316 |
|
|
|
2,327 |
|
|
|
6,643 |
|
|
|
3,431 |
|
|
|
3,160 |
|
Service cost employee |
|
|
|
|
|
|
2,273 |
|
|
|
2,273 |
|
|
|
|
|
|
|
2,660 |
|
|
|
2,660 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
43,650 |
|
|
|
14,765 |
|
|
|
58,415 |
|
|
|
45,653 |
|
|
|
16,923 |
|
|
|
62,576 |
|
|
|
14,740 |
|
|
|
14,115 |
|
Amendments |
|
|
(20,010 |
) |
|
|
(8,215 |
) |
|
|
(28,225 |
) |
|
|
|
|
|
|
(2,260 |
) |
|
|
(2,260 |
) |
|
|
7,700 |
|
|
|
(8,956 |
) |
Actuarial (gain)/loss |
|
|
84,442 |
|
|
|
73,605 |
|
|
|
158,047 |
|
|
|
53,761 |
|
|
|
12,729 |
|
|
|
66,490 |
|
|
|
(5,790 |
) |
|
|
15,478 |
|
Benefits paid |
|
|
(68,046 |
) |
|
|
(10,580 |
) |
|
|
(78,626 |
) |
|
|
(64,206 |
) |
|
|
(14,426 |
) |
|
|
(78,632 |
) |
|
|
(10,834 |
) |
|
|
(10,375 |
) |
Foreign currency translation effect |
|
|
|
|
|
|
25,317 |
|
|
|
25,317 |
|
|
|
|
|
|
|
(10,994 |
) |
|
|
(10,994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation at December 31 |
|
$ |
826,458 |
|
|
$ |
313,659 |
|
|
$ |
1,140,117 |
|
|
$ |
865,982 |
|
|
$ |
320,618 |
|
|
$ |
1,186,600 |
|
|
$ |
261,926 |
|
|
$ |
275,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plans assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plans assets at January 1 |
|
$ |
553,005 |
|
|
$ |
172,901 |
|
|
$ |
725,906 |
|
|
$ |
654,991 |
|
|
$ |
213,189 |
|
|
$ |
868,180 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on plans assets |
|
|
126,028 |
|
|
|
21,846 |
|
|
|
147,875 |
|
|
|
71,350 |
|
|
|
27,076 |
|
|
|
98,426 |
|
|
|
|
|
|
|
|
|
Employer contribution |
|
|
44,004 |
|
|
|
7,597 |
|
|
|
51,600 |
|
|
|
36,692 |
|
|
|
8,404 |
|
|
|
45,096 |
|
|
|
|
|
|
|
|
|
Employee contribution |
|
|
|
|
|
|
2,273 |
|
|
|
2,273 |
|
|
|
|
|
|
|
2,660 |
|
|
|
2,660 |
|
|
|
|
|
|
|
|
|
Benefits paid |
|
|
(68,046 |
) |
|
|
(10,580 |
) |
|
|
(78,626 |
) |
|
|
(64,206 |
) |
|
|
(14,426 |
) |
|
|
(78,632 |
) |
|
|
|
|
|
|
|
|
Foreign currency translation effect |
|
|
|
|
|
|
19,152 |
|
|
|
19,152 |
|
|
|
|
|
|
|
(7,407 |
) |
|
|
(7,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plans assets at December 31 |
|
$ |
654,991 |
|
|
$ |
213,189 |
|
|
$ |
868,180 |
|
|
$ |
698,827 |
|
|
$ |
229,496 |
|
|
$ |
928,323 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(171,467 |
) |
|
$ |
(100,470 |
) |
|
$ |
(271,937 |
) |
|
$ |
(167,155 |
) |
|
$ |
(91,122 |
) |
|
$ |
(258,277 |
) |
|
$ |
(261,926 |
) |
|
$ |
(275,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
|
|
|
$ |
113 |
|
|
$ |
113 |
|
|
$ |
|
|
|
$ |
44 |
|
|
$ |
44 |
|
|
$ |
|
|
|
$ |
|
|
Accrued liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,021 |
) |
|
|
(17,692 |
) |
Postretirement benefits other than pensions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244,905 |
) |
|
|
(257,657 |
) |
Pension benefits |
|
|
(171,467 |
) |
|
|
(100,583 |
) |
|
|
(272,050 |
) |
|
|
(167,155 |
) |
|
|
(91,166 |
) |
|
|
(258,321 |
) |
|
|
|
|
|
|
|
|
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).
Included in cumulative other comprehensive loss at December 31, 2010 are the following amounts
that have not yet been recognized in net periodic benefit cost: unrecognized prior service
credits of ($13,443) (($10,620) net of tax) and unrecognized actuarial losses of $560,160
($488,682 net of tax). The prior service credit and actuarial loss included in cumulative
other comprehensive loss that are expected to be recognized in net periodic benefit cost
during the fiscal year-ended December 31, 2011 are ($1,400) and $37,200, respectively.
The underfunded status of the pension plans of $258,277 at December 31, 2010 is recognized in
the accompanying consolidated balance sheets as Other assets for those overfunded plans and
Pension benefits for those underfunded plans. The unfunded status of the other postretirement
benefits is recognized as Accrued liabilities for the current portion of $17,692 and as
Postretirement benefits other than pensions for the long-term portion of $257,657.
The accumulated benefit obligation for all defined benefit pension plans was $1,135,328 and
$1,183,474 at December 31, 2009 and 2010, respectively.
- 52 -
Weighted average assumptions used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
All plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.74 |
% |
|
|
5.39 |
% |
|
|
5.75 |
% |
|
|
5.20 |
% |
Rate of compensation increase |
|
|
1.03 |
% |
|
|
0.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.75 |
% |
|
|
5.35 |
% |
|
|
5.75 |
% |
|
|
5.20 |
% |
Rate of compensation increase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.70 |
% |
|
|
5.50 |
% |
|
|
|
|
|
|
|
|
Rate of compensation increase |
|
|
3.74 |
% |
|
|
3.39 |
% |
|
|
|
|
|
|
|
|
At December 31, 2010, the weighted average assumed annual rate of increase in the cost of
medical benefits was 8.6 percent for 2011 trending linearly to 5.0 percent per annum in 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits - Domestic |
|
|
Pension Benefits - International |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
18,498 |
|
|
$ |
6,532 |
|
|
$ |
4,316 |
|
|
$ |
3,377 |
|
|
$ |
1,852 |
|
|
$ |
2,327 |
|
Interest cost |
|
|
46,165 |
|
|
|
43,650 |
|
|
|
45,653 |
|
|
|
17,734 |
|
|
|
14,764 |
|
|
|
16,923 |
|
Expected return on plan assets |
|
|
(61,818 |
) |
|
|
(42,001 |
) |
|
|
(50,457 |
) |
|
|
(19,666 |
) |
|
|
(13,580 |
) |
|
|
(15,249 |
) |
Amortization of prior service cost |
|
|
158 |
|
|
|
(874 |
) |
|
|
|
|
|
|
325 |
|
|
|
(177 |
) |
|
|
(600 |
) |
Amortization of actuarial loss |
|
|
10,243 |
|
|
|
31,737 |
|
|
|
27,741 |
|
|
|
1,350 |
|
|
|
2,524 |
|
|
|
5,924 |
|
Spectrum plan freeze |
|
|
|
|
|
|
(10,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albany curtailment gain |
|
|
|
|
|
|
(5,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial loss (gain) |
|
|
|
|
|
|
9,956 |
|
|
|
4,323 |
|
|
|
|
|
|
|
|
|
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
13,246 |
|
|
$ |
33,647 |
|
|
$ |
31,576 |
|
|
$ |
3,120 |
|
|
$ |
5,383 |
|
|
$ |
8,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post Retirement Benefits |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
4,974 |
|
|
$ |
3,637 |
|
|
$ |
3,160 |
|
Interest cost |
|
|
15,492 |
|
|
|
14,765 |
|
|
|
14,115 |
|
Amortization of prior service cost |
|
|
(308 |
) |
|
|
(307 |
) |
|
|
(542 |
) |
Amortization of actuarial loss |
|
|
1,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
21,354 |
|
|
$ |
18,095 |
|
|
$ |
16,733 |
|
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.
- 53 -
Weighted-average assumptions used to determine net periodic benefit cost for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
All plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.97 |
% |
|
|
6.11 |
% |
|
|
5.74 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Expected return on plan assets |
|
|
8.25 |
% |
|
|
8.22 |
% |
|
|
8.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase |
|
|
3.46 |
% |
|
|
3.32 |
% |
|
|
1.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Expected return on plan assets |
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase |
|
|
3.25 |
% |
|
|
3.25 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.89 |
% |
|
|
6.49 |
% |
|
|
5.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
7.55 |
% |
|
|
7.32 |
% |
|
|
7.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase |
|
|
3.96 |
% |
|
|
3.55 |
% |
|
|
3.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009
and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
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 |
|
$ |
1,137,709 |
|
|
$ |
1,137,709 |
|
|
$ |
1,184,320 |
|
|
$ |
1,184,320 |
|
Accumulated benefit obligation |
|
|
1,132,988 |
|
|
|
1,132,988 |
|
|
|
1,181,208 |
|
|
|
1,181,208 |
|
Fair value of plan assets |
|
|
867,500 |
|
|
|
867,500 |
|
|
|
925,999 |
|
|
|
925,999 |
|
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 |
|
$ |
108 |
|
|
$ |
(94 |
) |
Increase (decrease) in the postretirement benefit obligation |
|
|
3,433 |
|
|
|
(3,091 |
) |
- 54 -
The Companys weighted average asset allocations for its domestic and U.K. pension plans assets at
December 31, 2009 and December 31, 2010 by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
|
U.K. Plan |
|
Asset Category |
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
Equity securities |
|
|
66 |
% |
|
|
57 |
% |
|
|
59 |
% |
|
|
61 |
% |
Debt securities |
|
|
34 |
|
|
|
42 |
|
|
|
35 |
|
|
|
33 |
|
Other investments |
|
|
0 |
|
|
|
0 |
|
|
|
5 |
|
|
|
5 |
|
Cash |
|
|
0 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
In the U.S., the Company is considering the adoption of a dynamic asset allocation strategy
for the frozen Spectrum pension plan. This dynamic investment strategy calls for a gradual
shifting from equities and intermediate fixed income to a higher allocation of long duration
fixed income as the funding ratio of the plan rises. The Companys investment policy for
U.K. plan assets is to maintain an allocation of 60 percent in equity securities and 40
percent in fixed income securities. Rebalancing of 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 $654,991 and $698,827 at December 31, 2009 and
2010, respectively. The fair market value of the U.K. plan assets was $210,669 and $227,173
at December 31, 2009 and 2010, respectively. The fair market value of the German pension plan
assets was $2,519 and $2,324 at December 31, 2009 and 2010, respectively.
The table below classifies the assets of the U.S. and U.K. plans using the Fair Value
Hierarchy described in Note 9 Fair Value of Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Heirarchy |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
United States plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
6,549 |
|
|
$ |
6,549 |
|
|
$ |
|
|
|
$ |
|
|
Equity securities |
|
|
397,682 |
|
|
|
|
|
|
|
397,682 |
|
|
|
|
|
Fixed income securities |
|
|
294,596 |
|
|
|
|
|
|
|
294,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
698,827 |
|
|
$ |
6,549 |
|
|
$ |
692,278 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,854 |
|
|
$ |
2,854 |
|
|
$ |
|
|
|
$ |
|
|
Equity securities |
|
|
138,141 |
|
|
|
|
|
|
|
138,141 |
|
|
|
|
|
Fixed income securities |
|
|
75,364 |
|
|
|
|
|
|
|
75,364 |
|
|
|
|
|
Other investments |
|
|
10,814 |
|
|
|
|
|
|
|
|
|
|
|
10,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
227,173 |
|
|
$ |
2,854 |
|
|
$ |
213,505 |
|
|
$ |
10,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 U.K. 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.
- 55 -
The following table details the activity in this investment for the year ended December 31,
2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Balance at January 1 |
|
$ |
10,007 |
|
|
$ |
9,788 |
|
|
|
|
|
|
|
|
|
|
Contributions |
|
|
|
|
|
|
1,335 |
|
Disbursements |
|
|
(153 |
) |
|
|
(166 |
) |
Change in fair value |
|
|
(1,102 |
) |
|
|
187 |
|
Foreign currency translation effect |
|
|
1,036 |
|
|
|
(330 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
9,788 |
|
|
$ |
10,814 |
|
|
|
|
|
|
|
|
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 2010, the Company contributed $45,096 to its domestic and foreign pension plans, and
during 2011, the Company expects to contribute between $40,000 and $45,000 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 |
|
2011 |
|
$ |
67,000 |
|
|
$ |
18,000 |
|
2012 |
|
|
67,000 |
|
|
|
18,000 |
|
2013 |
|
|
70,000 |
|
|
|
18,000 |
|
2014 |
|
|
70,000 |
|
|
|
19,000 |
|
2015 |
|
|
72,000 |
|
|
|
19,000 |
|
2016 through 2020 |
|
|
382,000 |
|
|
|
97,000 |
|
Note 11 Other Long-term Liabilities
Other long-term liabilities at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Products liability |
|
$ |
120,616 |
|
|
$ |
149,141 |
|
Other |
|
|
25,362 |
|
|
|
30,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
145,978 |
|
|
$ |
180,082 |
|
|
|
|
|
|
|
|
Note 12 Common Stock
There were 13,998 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, 2010. 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.
- 56 -
Note 13 Cumulative Other Comprehensive Loss
The balances of each component of cumulative other comprehensive loss in the accompanying
consolidated statements of
equity are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Cumulative currency translation adjustment |
|
$ |
6,970 |
|
|
$ |
12,948 |
|
Changes in
the fair value of derivatives and unrealized gains/(losses) on marketable securities |
|
|
(2,154 |
) |
|
|
(3,180 |
) |
Tax effect |
|
|
25 |
|
|
|
231 |
|
|
|
|
|
|
|
|
Net |
|
|
(2,129 |
) |
|
|
(2,949 |
) |
|
|
|
|
|
|
|
|
|
Unrecognized postretirement benefit plans |
|
|
(545,771 |
) |
|
|
(546,717 |
) |
Tax effect, net of valuation allowance |
|
|
70,658 |
|
|
|
68,655 |
|
|
|
|
|
|
|
|
Net |
|
|
(475,113 |
) |
|
|
(478,062 |
) |
|
|
|
|
|
|
|
|
|
$ |
(470,272 |
) |
|
$ |
(468,063 |
) |
|
|
|
|
|
|
|
Note 14 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.
The following table discloses the amount of stock based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Based Compensation |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Stock options |
|
$ |
350 |
|
|
$ |
943 |
|
|
$ |
1,414 |
|
Restricted stock units |
|
|
1,796 |
|
|
|
1,667 |
|
|
|
745 |
|
Performance based units |
|
|
1,778 |
|
|
|
2,809 |
|
|
|
4,686 |
|
|
|
|
|
|
|
|
|
|
|
Total stock based compensation |
|
$ |
3,924 |
|
|
$ |
5,419 |
|
|
$ |
6,845 |
|
|
|
|
|
|
|
|
|
|
|
Stock Options
The Companys 1998, 2001, 2006 and 2010 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, 2006 and 2010 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.
- 57 -
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. In March 2010, executives participating in the 2010
2012 Long-Term Incentive Plan were granted 303,120 stock options which will vest one third each
year through March 2013. 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:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Risk-free interest rate |
|
|
2.2 |
% |
|
|
2.8 |
% |
Dividend yield |
|
|
2.7 |
% |
|
|
2.2 |
% |
Expected volatility of the Companys
common stock |
|
|
0.568 |
|
|
|
0.604 |
|
Expected life in years |
|
|
6.0 |
|
|
|
6.0 |
|
The weighted average fair value of options granted in 2009 and 2010 was $2.08 and $9.01,
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 $350, $943 and $1,414 for 2008, 2009 and 2010, respectively, related to
stock options.
Summarized information for the plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Number of |
|
|
Exercise |
|
|
Available |
|
|
|
|
|
Shares |
|
|
Price |
|
|
For Grant |
|
January 1, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
4,787,535 |
|
|
|
Outstanding |
|
|
1,607,477 |
|
|
$ |
18.23 |
|
|
|
|
|
|
|
Exercisable |
|
|
1,390,828 |
|
|
|
18.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(19,192 |
) |
|
|
14.75 |
|
|
|
|
|
|
|
Expired |
|
|
(247,570 |
) |
|
|
19.80 |
|
|
|
|
|
|
|
Cancelled |
|
|
(78,398 |
) |
|
|
19.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
4,738,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
1,262,317 |
|
|
|
17.77 |
|
|
|
|
|
|
|
Exercisable |
|
|
1,135,148 |
|
|
|
18.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,155,000 |
|
|
|
4.82 |
|
|
|
|
|
|
|
Exercised |
|
|
(26,230 |
) |
|
|
13.61 |
|
|
|
|
|
|
|
Expired |
|
|
(145,018 |
) |
|
|
14.19 |
|
|
|
|
|
|
|
Cancelled |
|
|
(179,463 |
) |
|
|
13.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
2,740,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
2,066,606 |
|
|
|
11.23 |
|
|
|
|
|
|
|
Exercisable |
|
|
1,031,175 |
|
|
|
17.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
304,120 |
|
|
|
18.70 |
|
|
|
|
|
|
|
Exercised |
|
|
(581,244 |
) |
|
|
12.07 |
|
|
|
|
|
|
|
Expired |
|
|
(2,798 |
) |
|
|
12.78 |
|
|
|
|
|
|
|
Cancelled |
|
|
(7,500 |
) |
|
|
16.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
4,054,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
1,779,184 |
|
|
|
12.21 |
|
|
|
|
|
|
|
Exercisable |
|
|
823,064 |
|
|
|
15.67 |
|
|
|
|
|
The weighted average remaining contractual life of options outstanding at December 31, 2010 is
6.7 years.
- 58 -
Segregated disclosure of options outstanding at December 31, 2010 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 |
|
|
816,500 |
|
|
|
573,920 |
|
|
|
388,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
exercise price |
|
$ |
4.82 |
|
|
$ |
16.90 |
|
|
$ |
20.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining contractual life |
|
|
8.3 |
|
|
|
6.5 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable |
|
|
164,500 |
|
|
|
269,800 |
|
|
|
388,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
exercise price |
|
$ |
4.82 |
|
|
$ |
14.86 |
|
|
$ |
20.82 |
|
Restricted Stock Units
Under the 1998, 2001, 2006 and 2010 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. No restricted stock units were
granted in 2010. 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
$1,796, $1,667 and $745 of compensation expense for 2008, 2009 and 2010, respectively, related
to restricted stock units. The following table provides details of the restricted stock units
granted by the Company:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Restricted stock units outstanding at beginning of period |
|
|
403,637 |
|
|
|
526,809 |
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted |
|
|
153,509 |
|
|
|
|
|
Accrued dividend equivalents |
|
|
18,384 |
|
|
|
5,577 |
|
Restricted stock units settled |
|
|
(43,884 |
) |
|
|
(285,964 |
) |
Restricted stock units cancelled |
|
|
(4,837 |
) |
|
|
(4,149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding at end of period |
|
|
526,809 |
|
|
|
242,273 |
|
|
|
|
|
|
|
|
Performance Based Units (PBUs)
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 vested in February 2010 and the Company recorded
$1,778, $990 and $132 in compensation expense associated with these units in 2008, 2009 and
2010, 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 and all of these units vested in 2010. The Company
recorded $1,819 and $705 of compensation expense associated with these units in 2009 and 2010,
respectively. During 2010, executives participating in the Companys Long-Term Incentive
Plan earned 244,043 performance based units based on the Companys financial performance in
2010. Of these units, 183,961 vested in 2010 and 60,082 will vest in 2012. The Company
recorded $3,849 of compensation expense associated with these units in 2010. 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.
- 59 -
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 |
|
|
2010-2012 |
|
Performance-based units outstanding at January 1, 2009 |
|
|
290,671 |
|
|
|
|
|
|
|
|
|
Performance-based units earned |
|
|
255,070 |
|
|
|
290,860 |
|
|
|
|
|
Accrued dividend equivalents |
|
|
14,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based units outstanding at December 31, 2009 |
|
|
559,951 |
|
|
|
290,860 |
|
|
|
|
|
Performance-based units earned |
|
|
|
|
|
|
183,961 |
|
|
|
60,082 |
|
Accrued dividend equivalents |
|
|
|
|
|
|
6,037 |
|
|
|
|
|
Performance-based units settled |
|
|
(559,951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based units outstanding at December 31, 2010 |
|
|
|
|
|
|
480,858 |
|
|
|
60,082 |
|
|
|
|
|
|
|
|
|
|
|
The Companys restricted stock units and performance based units are not participating
securities. These units will be converted into shares of Company common stock in accordance with
the distribution date indicated in the agreements. Restricted stock units earn dividend
equivalents from the time of the award until distribution is made in common shares. Performance
based units earn dividend equivalents from the time the units have been earned based upon Company
performance metrics until distribution is made in common shares. Dividend equivalents are only
earned subject to vesting of the underlying restricted stock units or performance based units,
accordingly, such units do not represent participating securities.
The Company recognized $26, $1,944 and $3,294 of excess tax benefits as a financing cash
inflow for the years ended December 31, 2008, 2009 and 2010, respectively.
At December 31, 2010, the Company has $5,299 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 $26,664, $27,713 and $27,863 for 2008, 2009 and 2010, respectively.
Future minimum payments for all non-cancelable operating leases through the end of their terms,
which in aggregate total $97,053, are listed below. Certain of these leases contain provisions for
optional renewal at the end of the lease terms.
|
|
|
|
|
2011 |
|
$ |
27,688 |
|
2012 |
|
|
13,998 |
|
2013 |
|
|
9,918 |
|
2014 |
|
|
8,656 |
|
2015 |
|
|
8,119 |
|
Thereafter |
|
|
28,674 |
|
- 60 -
Note 16 Restructuring
The table below details the Companys restructuring expense for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Albany plant closure |
|
|
|
|
|
|
|
|
|
|
|
|
Asset writedowns |
|
$ |
75,162 |
|
|
$ |
900 |
|
|
$ |
1,845 |
|
Equipment relocation and other costs |
|
|
393 |
|
|
|
25,595 |
|
|
|
12,980 |
|
Employee related costs |
|
|
429 |
|
|
|
20,210 |
|
|
|
4,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,984 |
|
|
|
46,705 |
|
|
|
19,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution centers |
|
|
|
|
|
|
|
|
|
|
|
|
Asset writedowns |
|
|
394 |
|
|
|
|
|
|
|
|
|
Equipment relocation and other costs |
|
|
|
|
|
|
672 |
|
|
|
|
|
Employee related costs |
|
|
24 |
|
|
|
946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418 |
|
|
|
1,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European headcount reduction |
|
|
|
|
|
|
|
|
|
|
|
|
Employee related costs |
|
|
|
|
|
|
395 |
|
|
|
1,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs |
|
$ |
76,402 |
|
|
$ |
48,718 |
|
|
$ |
20,649 |
|
|
|
|
|
|
|
|
|
|
|
Albany manufacturing facility closure
On October 21, 2008, the Company announced it would conduct a capacity study of its U.S.
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. This initiative was
substantially completed at September 30, 2010 at a total cost of $142,265 for restructuring expense
and asset impairment.
Since the inception of this initiative in December 2008, the Company has recorded $25,390 of
employee related costs, $38,968 of equipment related and other costs and $77,907 of impairment
losses to write down the Albany land, building and equipment to fair value.
At December 31, 2009, the accrued severance balance was $848. During 2010, the Company made
severance payments of $753 resulting in an accrued severance balance at December 31, 2010 of $95.
Distribution centers
During 2009, the Company recorded restructuring expenses associated with the closure of three North
American distribution centers. The closure of these distribution centers impacted approximately 70
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. At December 31,
2009, the accrued severance balance was $167 and this amount was paid during 2010.
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.
- 61 -
International Tire Operations segment headcount reduction
The Companys International Tire Operations segment, at its U.K. location, implemented a workforce
reduction program during the second quarter of 2010. This initiative impacted 67 employees with a
total cost of $1,073. This initiative was completed during the third quarter of 2010 and all
employee severance payments have been made.
A similar restructuring program to reduce headcount to align with production volume requirements
was implemented 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.
Note 17 Other Net
The components of Other net in the statements of operations for the years 2008, 2009 and 2010 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Foreign currency losses |
|
$ |
2,966 |
|
|
$ |
886 |
|
|
$ |
780 |
|
Equity in loss (earnings) from joint ventures |
|
|
2,346 |
|
|
|
673 |
|
|
|
(2,456 |
) |
Dividend income from unconsolidated subsidiary |
|
|
(1,943 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
135 |
|
|
|
(2,831 |
) |
|
|
(1,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,504 |
|
|
$ |
(1,272 |
) |
|
$ |
(2,834 |
) |
|
|
|
|
|
|
|
|
|
|
Note 18 Contingent Liabilities
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.
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 $33 million in one case with no average that is meaningful. No
specific accrual is made for individual unasserted claims or for premature claims, asserted claims
where the minimum information needed to evaluate the probability of a liability is not yet known.
However, an accrual for such claims based, in part, on managements expectations for future
litigation activity and the settled claims history is maintained. Because of the speculative
nature of litigation in the U.S., the Company does not believe a meaningful aggregate range of
potential loss for asserted and unasserted claims can be determined. 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
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.
- 62 -
During 2010, the Company increased its products liability reserve by $85,271. The addition of
another year of self-insured incidents accounted for $39,560 of this increase. The Company revised
its estimates of future settlements for unasserted and premature claims. These revisions increased
the reserve by $2,270. Finally, changes in the amount of reserves for cases where sufficient
information is known to estimate a liability increased by $43,441. Of this amount, $21,800 was the
result of the Company increasing its self-insured portion of a jury verdict in one case during the
first quarter of 2010. The Company considered the impact of this case when evaluating the
assumptions used in establishing reserve balances and did not adjust its assumptions based solely
on this case.
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 2009, the Company paid $27,663 and during 2010, the Company paid $45,659 to resolve cases
and claims. The Companys products liability reserve balance at December 31, 2009 totaled $151,421
(current portion of $30,805). At December 31, 2010, the products liability reserve balance totaled
$191,033 (current portion of $41,892).
Products liability costs totaled $81,262, $81,475 and $110,103 in 2008, 2009 and 2010,
respectively, and include recoveries of legal fees of $5,742, $2,486 and $5,629 in 2008, 2009 and
2010, respectively. Policies applicable to claims occurring on April 1, 2003, and thereafter, do
not provide for recovery of legal fees.
Retiree Medical Case
On February 2, 2010 in the case of Cates, et al. v. Cooper Tire & Rubber Company, the U.S. 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 provided for 1) a cash payment of $7 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 resulted 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.
As a consequence of the settlement agreement, the Company recorded $7 million of expense during the
first quarter of 2009 relating to the specified cash payments. The estimated present value of the
plan amendment has been reflected in the accrual for Other Post-employment Benefits with an offset
to the Cumulative other comprehensive loss component of Parent stockholders equity and will be
amortized as a charge to operations over the remaining life expectancy of the affected plan
participants.
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 this acquisition, beginning January 1, 2009 and continuing through December 31,
2011, the noncontrolling shareholders have the right to sell and, if exercised, the Company has the
obligation to purchase, the remaining 49 percent noncontrolling share at a minimum price of $63
million. In 2009, the Company received notification from a noncontrolling shareholder of its
intention to exercise a portion of its put option and in 2010, after receiving governmental
approvals; the Company purchased the 14 percent share for $18 million. The remaining
noncontrolling shareholder has the right to sell its 35 percent share to the Company at a minimum
price of $45 million. At December 31, 2010, the formula price of $19 million is below the minimum
price; however, the carrying value exceeds the formula price.
- 63 -
Employment Contracts
The Company has an employment agreement with Mr. Armes. No other executives have employment
agreements; however, Mr. Hughes offer of employment provides for certain benefits, including six
months of severance pay and pro-rated bonus payments, should there be a material change in his
responsibilities before November 5, 2011. Mr. Hughes and the other Named Executive Officers are
covered by the Cooper Tire & Rubber Company Change in Control Severance Pay Plan.
Unconditional Purchase Orders
Noncancelable purchase order commitments for capital expenditures and raw materials, principally
natural rubber, made in the ordinary course of business were $169,481 at December 31, 2010.
Note 19 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 manufactures and markets passenger car and light truck
tires, primarily for sale in the U.S. replacement market. The segment also distributes tires for
racing, medium truck and motorcycles that are manufactured at the Companys subsidiaries. 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 OEMs.
The International Tire Operations segment has affiliated operations in the U.K. and the PRC. The
U.K. entity manufactures and markets passenger car, light truck, motorcycle and racing tires and
tire retread material for the global market. The Cooper Chengshan Tire joint venture manufactures
and markets radial and bias medium truck tires as well as passenger and light truck tires for the
global market. The Cooper Kenda Tire joint venture currently manufactures light vehicle tires to
be exported to markets outside of the PRC. Under the current agreement, until May 2012, all of the
tires produced by this joint venture will be exported and sold to the Company and its affiliates
around the world. Only a small percentage of the tires manufactured by the segment are sold to
OEMs.
The following customer of the North American Tire Operations segment contributed ten percent or
more of the Companys total consolidated net sales in 2008, 2009 and 2010. Net sales and
percentage of consolidated Company sales for this customer in 2008, 2009 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
Consolidated |
|
Customer |
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
TBC/Treadways |
|
$ |
385,495 |
|
|
|
13 |
% |
|
$ |
331,898 |
|
|
|
12 |
% |
|
$ |
424,051 |
|
|
|
13 |
% |
- 64 -
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
2,142,139 |
|
|
$ |
2,006,183 |
|
|
$ |
2,423,808 |
|
International Tire |
|
|
975,007 |
|
|
|
993,839 |
|
|
|
1,272,224 |
|
Eliminations and other |
|
|
(235,335 |
) |
|
|
(221,032 |
) |
|
|
(335,048 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
2,881,811 |
|
|
|
2,778,990 |
|
|
|
3,360,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
|
(174,065 |
) |
|
|
110,957 |
|
|
|
130,694 |
|
International Tire |
|
|
(30,094 |
) |
|
|
72,753 |
|
|
|
82,081 |
|
Unallocated corporate charges
and eliminations |
|
|
(12,474 |
) |
|
|
(27,441 |
) |
|
|
(24,401 |
) |
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
(216,633 |
) |
|
|
156,269 |
|
|
|
188,374 |
|
Interest income |
|
|
12,887 |
|
|
|
5,193 |
|
|
|
5,265 |
|
Other net |
|
|
(3,504 |
) |
|
|
1,272 |
|
|
|
2,834 |
|
Interest expense |
|
|
(50,525 |
) |
|
|
(47,211 |
) |
|
|
(36,647 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
operations before income taxes |
|
|
(257,775 |
) |
|
|
115,523 |
|
|
|
159,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
|
96,057 |
|
|
|
76,001 |
|
|
|
76,065 |
|
International Tire |
|
|
45,418 |
|
|
|
46,317 |
|
|
|
46,728 |
|
Corporate |
|
|
1,284 |
|
|
|
1,193 |
|
|
|
928 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
142,759 |
|
|
|
123,511 |
|
|
|
123,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
|
977,545 |
|
|
|
857,734 |
|
|
|
982,001 |
|
International Tire |
|
|
740,583 |
|
|
|
770,557 |
|
|
|
823,011 |
|
Corporate and other |
|
|
324,768 |
|
|
|
472,049 |
|
|
|
500,525 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
2,042,896 |
|
|
|
2,100,340 |
|
|
|
2,305,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
|
55,560 |
|
|
|
41,917 |
|
|
|
66,100 |
|
International Tire |
|
|
72,723 |
|
|
|
37,410 |
|
|
|
37,395 |
|
Corporate |
|
|
490 |
|
|
|
6 |
|
|
|
16,243 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
128,773 |
|
|
|
79,333 |
|
|
|
119,738 |
|
- 65 -
Geographic information for revenues, based on country of origin, and long-lived assets follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
2,055,769 |
|
|
$ |
1,933,503 |
|
|
$ |
2,356,908 |
|
Europe |
|
|
303,742 |
|
|
|
257,351 |
|
|
|
276,319 |
|
Asia |
|
|
522,300 |
|
|
|
588,136 |
|
|
|
727,757 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
2,881,811 |
|
|
|
2,778,990 |
|
|
|
3,360,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
506,248 |
|
|
|
459,129 |
|
|
|
460,956 |
|
Europe |
|
|
48,660 |
|
|
|
48,614 |
|
|
|
43,487 |
|
Asia |
|
|
346,366 |
|
|
|
343,228 |
|
|
|
347,999 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
901,274 |
|
|
|
850,971 |
|
|
|
852,442 |
|
Shipments of domestically-produced products to customers outside the U.S. approximated nine percent
of net sales in 2008, ten percent of net sales in 2009 and nine percent of net sales in 2010.
Note 20 Subsequent Events
On January 14, 2011, as a result of a $12,000 capital call, the Company achieved virtually 100%
ownership in its Mexican marketing entity. This entity was previously consolidated in the
Companys financial results. Additional information on this entity is contained in Note 1
Significant Accounting Policies, Principles of Consolidation.
On January 14, 2011, the Company invested approximately $22,000 and acquired an additional 21%
ownership share in a Mexican tire manufacturing entity of which it had previously been an equity
investor. The Companys ownership share is now approximately 58% and because of the increase in
voting rights, the results of the entity will be consolidated from the date of this transaction.
- 66 -
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, 2010 and 2009, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three years in the period ended December 31,
2010. 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, 2010
and 2009, and the consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2010, 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.
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, 2010, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 25, 2011 expressed an unqualified opinion thereon.
|
|
|
/s/ Ernst & Young LLP
Ernst & Young LLP
|
|
|
|
Toledo, Ohio |
|
|
February 25, 2011 |
|
|
- 67 -
|
|
|
SELECTED QUARTERLY DATA
|
|
(Unaudited) |
(Dollar amounts in thousands except per share amounts.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
available to Cooper Tire & Rubber Company
common stockholders |
|
|
(22,013 |
) |
|
|
30,629 |
|
|
|
51,713 |
|
|
|
33,030 |
|
Basic earnings (loss) per share from continuing operations
available to Cooper Tire & Rubber Company
common stockholders |
|
|
(0.37 |
) |
|
|
0.52 |
|
|
|
0.87 |
|
|
|
0.55 |
|
Diluted earnings (loss) per share from continuing operations
available to Cooper Tire & Rubber Company
common stockholders |
|
|
(0.37 |
) |
|
|
0.51 |
|
|
|
0.85 |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
Net sales |
|
$ |
754,443 |
|
|
$ |
803,959 |
|
|
$ |
882,942 |
|
|
$ |
919,640 |
|
Gross profit |
|
|
85,172 |
|
|
|
95,382 |
|
|
|
128,247 |
|
|
|
111,900 |
|
Income from continuing operations
available to Cooper Tire & Rubber Company
common stockholders |
|
|
12,336 |
|
|
|
18,951 |
|
|
|
44,599 |
|
|
|
40,445 |
|
Basic earnings per share from continuing operations
available to Cooper Tire & Rubber Company
common stockholders |
|
|
0.20 |
|
|
|
0.31 |
|
|
|
0.73 |
|
|
|
0.66 |
|
Diluted earnings per share from continuing operations
available to Cooper Tire & Rubber Company
common stockholders |
|
|
0.20 |
|
|
|
0.30 |
|
|
|
0.71 |
|
|
|
0.64 |
|
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
531,717 |
|
|
$ |
574,968 |
|
|
$ |
647,787 |
|
|
$ |
669,336 |
|
International Tire |
|
|
293,557 |
|
|
|
312,156 |
|
|
|
325,200 |
|
|
|
341,311 |
|
Eliminations and other |
|
|
(70,831 |
) |
|
|
(83,165 |
) |
|
|
(90,045 |
) |
|
|
(91,007 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
754,443 |
|
|
$ |
803,959 |
|
|
$ |
882,942 |
|
|
$ |
919,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
13,602 |
|
|
$ |
19,680 |
|
|
$ |
54,971 |
|
|
$ |
42,441 |
|
International Tire |
|
|
22,550 |
|
|
|
20,528 |
|
|
|
20,511 |
|
|
|
18,492 |
|
Eliminations |
|
|
(509 |
) |
|
|
42 |
|
|
|
(1,183 |
) |
|
|
1,400 |
|
Corporate |
|
|
(2,688 |
) |
|
|
(6,568 |
) |
|
|
(7,169 |
) |
|
|
(7,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
32,955 |
|
|
|
33,682 |
|
|
|
67,130 |
|
|
|
54,607 |
|
Interest expense |
|
|
(8,730 |
) |
|
|
(9,149 |
) |
|
|
(9,397 |
) |
|
|
(9,371 |
) |
Interest income |
|
|
1,213 |
|
|
|
771 |
|
|
|
2,166 |
|
|
|
1,115 |
|
Other net |
|
|
237 |
|
|
|
988 |
|
|
|
719 |
|
|
|
890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes |
|
$ |
25,675 |
|
|
$ |
26,292 |
|
|
$ |
60,618 |
|
|
$ |
47,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 68 -
COOPER TIRE & RUBBER COMPANY
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2008, 2009 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Additions |
|
|
|
|
|
|
Balance |
|
|
|
Beginning |
|
|
Charged |
|
|
Business |
|
|
Deductions |
|
|
at End |
|
|
|
of Year |
|
|
To Income |
|
|
Acquisitions |
|
|
(a) |
|
|
of Year |
|
Allowance
for doubtful
accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
10,927,981 |
|
|
$ |
3,236,138 |
|
|
$ |
|
|
|
$ |
3,353,093 |
|
|
$ |
10,811,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
176,766,238 |
|
|
$ |
2,843,723 |
|
|
$ |
4,301,882 |
|
|
$ |
|
|
|
$ |
183,911,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 carry forward and changes in judgment 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
|
|
|
$ |
10,237,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,237,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
10,237,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,237,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Decrease in lower of cost or market reserve as a result of lower
raw material costs and increased sales prices. |
- 69 -
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that information
required to be disclosed in the reports the Company files or submits as defined in Rules 13a-15(e)
of the Securities and Exchange Act of 1934, as amended (Exchange Act) is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission
(SEC) rules and forms, and that such information is accumulated and communicated to the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO) to allow timely decisions regarding
required disclosures.
The Company, under the supervision and with the participation of management, including the CEO and
CFO, evaluated the effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as of December
31, 2010 (Evaluation Date)). Based on its evaluation, its CEO and CFO have concluded that the
Companys disclosure controls and procedures were effective as of the Evaluation Date.
(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
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)
as of December 31, 2010. 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 concluded that the Company maintained effective internal
control over financial reporting as of December 31, 2010, based on criteria in Internal Control
Integrated Framework issued by the COSO, and that the Companys internal control over financial
reporting was effective.
Ernst & Young LLP, the independent registered public accounting firm that has audited the Companys
consolidated financial statements included in this annual report, has issued its report on the
effectiveness of the Companys internal controls over financial reporting as of December 31, 2010.
(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, 2010, based on criteria established in Internal ControlIntegrated 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 companys 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 that 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
- 70 -
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 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, 2010 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,
2010 and 2009, and the related consolidated statements of operations, shareholders equity, and
cash flows for each of the three years in the period ended December 31, 2010 and our report dated
February 25, 2011 expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Ernst & Young LLP
Toledo, Ohio
February 25, 2011
(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 2010 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 2011 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 2011 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 2011 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.
- 71 -
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 2011 Annual Meeting of Stockholders, which will be herein incorporated by
reference.
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 2011 Annual Meeting of Stockholders, which will be herein incorporated by
reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2010 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 |
|
|
2,490,173 |
|
|
$ |
8.73 |
|
|
|
4,054,478 |
|
Equity compensation plans not approved by
stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,490,173 |
|
|
$ |
8.73 |
|
|
|
4,054,478 |
|
|
|
|
|
|
|
|
|
|
|
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 2010.
Information regarding the independence of the Companys directors appears in the Companys
definitive Proxy Statement for its 2011 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 2011 Annual Meeting of Stockholders, which will be herein incorporated by
reference.
- 72 -
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
|
|
|
|
|
|
|
Page(s) |
|
|
|
Reference |
|
1. Consolidated Financial Statements |
|
|
|
|
|
|
|
|
33 |
|
|
|
|
34-35 |
|
|
|
|
36 |
|
|
|
|
37 |
|
|
|
|
38-66 |
|
|
|
|
67 |
|
|
|
|
68 |
|
|
2. Financial Statement Schedule |
|
|
|
|
|
Valuation and qualifying accounts Allowance for doubtful accounts, tax valuation allowance
and lower of cost or market inventory reserve |
|
|
69 |
|
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.
- 73 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
COOPER TIRE & RUBBER COMPANY
|
|
|
/s/ Roy V. Armes
|
|
|
ROY V. ARMES, Chairman of the Board, |
|
|
President and Chief Executive Officer |
|
|
Date: February 25, 2011
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.
|
|
|
|
|
|
|
Signature |
|
|
|
Title |
|
Date |
|
|
/s/ Roy V. Armes
|
|
|
|
Chairman of the Board,
|
|
February 25, 2011 |
|
|
|
|
|
|
|
ROY V. ARMES
|
|
|
|
President,
Chief Executive
Officer and Director
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
/s/ Bradley E. Hughes
|
|
|
|
Vice President and
|
|
February 25, 2011 |
|
|
|
|
|
|
|
BRADLEY E. HUGHES
|
|
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
/s/ Robert W. Huber
|
|
|
|
Director of External Reporting
|
|
February 25, 2011 |
|
|
|
|
|
|
|
ROBERT W. HUBER
|
|
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
LAURIE J. BREININGER*
|
|
|
|
Director
|
|
January 14, 2011 |
|
|
|
|
|
|
|
THOMAS P. CAPO*
|
|
|
|
Director
|
|
January 14, 2011 |
|
|
|
|
|
|
|
STEVEN M. CHAPMAN*
|
|
|
|
Director
|
|
January 14, 2011 |
|
|
|
|
|
|
|
JOHN J. HOLLAND*
|
|
|
|
Director
|
|
January 14, 2011 |
|
|
|
|
|
|
|
JOHN F. MEIER*
|
|
|
|
Director
|
|
January 14, 2011 |
|
|
|
|
|
|
|
JOHN H. SHUEY*
|
|
|
|
Director
|
|
January 14, 2011 |
|
|
|
|
|
|
|
RICHARD L. WAMBOLD*
|
|
|
|
Director
|
|
January 14, 2011 |
|
|
|
|
|
|
|
ROBERT D. WELDING*
|
|
|
|
Director
|
|
January 14, 2011 |
|
|
|
* |
|
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. |
|
|
|
|
|
|
|
*By: |
/s/ James E. Kline
|
|
|
JAMES E. KLINE,
Attorney-in-fact |
|
|
|
|
- 74 -
EXHIBIT INDEX
(3) Certificate of Incorporation and Bylaws
|
(i) |
|
Restated Certificate of Incorporation, as amended and filed with the Secretary of
State of Delaware on May 4, 2010, incorporated herein by reference from Exhibit 3(i) of
the Companys Form 10-Q for the quarter ended March 31, 2010 |
|
|
(ii) |
|
Bylaws, as amended as of May 4, 2010, are incorporated herein by reference from
Exhibit 3(ii) to the Companys Form 10-Q for the quarter ended March 31, 2010 |
|
(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 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 2011 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 Receivables Purchase Agreement, dated as of August 5, 2010,
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 August 9, 2010 |
|
|
(vii) |
|
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 |
|
|
(viii) |
|
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 |
|
|
(ix) |
|
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 |
|
|
(x) |
|
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 |
- 75 -
|
(xi) |
|
First Amendment to Loan and Security Agreement dated as of July 8, 2010, by and
among Cooper Tire & Rubber Company, Max-Trac Tire Co., Inc., Bank of America, N.A,, as
administrative agent (in such capacity, the Administrative Agent) for the Lenders, and
the Lenders party hereto |
|
|
(xii) |
|
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 |
|
|
(xiii) |
|
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 |
|
|
(xiv) |
|
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* |
|
|
(xv) |
|
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* |
|
|
(xvi) |
|
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 10-K for the year ended December 31, 2008* |
|
|
(xvii) |
|
2001 Incentive Compensation Plan is incorporated herein by reference from the Appendix
A to the Companys Proxy Statement dated March 20, 2001* |
|
|
(xviii) |
|
2010 Incentive Compensation Plan is incorporated herein by reference from the
Appendix B to the Companys Proxy Statement dated March 25, 2010* |
|
|
(xix) |
|
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* |
|
|
(xx) |
|
2002 Non-Employee Directors Stock Option Plan is incorporated herein by reference
from Appendix A to the Companys Proxy Statement dated March 27, 2002* |
|
|
(xxi) |
|
2006 Incentive Compensation Plan is incorporated herein by reference from
Appendix A to the Companys Proxy Statement dated March 21, 2006* |
|
|
(xxii) |
|
Change in Control Severance Pay Plan (Amended and Restated as of August 4, 2010) is
incorporated by reference from Exhibit 10.1 of the Companys Form 8-K dated August 6,
2010 |
|
|
(xxiii) |
|
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 |
|
|
(xxiv) |
|
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 |
|
|
(xxv) |
|
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 |
|
|
(xxvi) |
|
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 |
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|
(xxvii) |
|
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 |
|
|
(xxviii) |
|
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 |
|
|
(xxix) |
|
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 |
|
|
(xxx) |
|
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 |
(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. |
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