UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 1-4329
COOPER TIRE & RUBBER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 34-4297750
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Lima and Western Avenues, Findlay, Ohio 45840
(Address of principal executive offices)
(Zip code)
(419) 423-1321
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Number of shares of common stock of registrant outstanding
at July 31, 1998: 77,442,158
1
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands; per-share amounts in dollars)
June 30,
1998 December 31,
(Unaudited) 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 37,434 $ 52,910
Accounts receivable, less allowances
of $5,503 ($4,791 in 1997) 318,042 292,416
Inventories at lower of cost (last-in,
first-out) or market:
Finished goods 159,529 130,339
Work in process 20,666 22,650
Raw materials and supplies 29,059 38,695
--------- ---------
209,254 191,684
Prepaid expenses and deferred income taxes 20,426 17,602
--------- ---------
Total current assets 585,156 554,612
Property, plant and equipment - net 868,961 860,448
Intangibles and other assets 82,428 80,896
--------- ---------
$1,536,545 $1,495,956
LIABILITIES AND STOCKHOLDERS' EQUITY ========= =========
Current liabilities:
Notes payable $ 11,080 $ 10,820
Accounts payable 84,762 100,135
Accrued liabilities 95,008 82,446
Income taxes 367 6,477
Current portion of debt 272 453
--------- ---------
Total current liabilities 191,489 200,331
Long-term debt 205,282 205,525
Postretirement benefits other than pensions 148,726 144,566
Other long-term liabilities 38,418 38,351
Deferred income taxes 75,643 73,608
Stockholders' equity:
Preferred stock, $1 par value; 5,000,000 shares
authorized; none issued - -
Common stock, $1 par value; 300,000,000 shares
authorized; 83,777,808 shares issued
(83,760,308 in 1997) 83,778 83,760
Capital in excess of par value 3,272 3,101
Retained earnings 893,166 849,270
Cumulative currency translation adjustment 1,775 2,448
Minimum pension liability (4,753) (4,753)
--------- ---------
977,238 933,826
Less: 5,000,000 common shares in
treasury at cost (100,251) (100,251)
--------- ---------
Total stockholders' equity 876,987 833,575
--------- ---------
$1,536,545 $1,495,956
<FN> ========= =========
See accompanying notes.
2
COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(Dollar amounts in thousands; per-share amounts in dollars)
1998 1997
-------- --------
Revenues:
Net sales $461,740 $463,993
Other income 671 204
------- -------
462,411 464,197
Costs and expenses:
Cost of products sold 378,467 379,608
Selling, general and administrative 28,452 29,272
Interest 3,764 4,961
------- -------
410,683 413,841
------- -------
Income before income taxes 51,728 50,356
Provision for income taxes 19,392 18,850
------- -------
Net income 32,336 31,506
Other comprehensive income:
Currency translation adjustment (889) 1,580
------- -------
Comprehensive income $ 31,447 $ 33,086
======= =======
Basic and diluted earnings per share $.41 $.40
=== ===
Weighted average number of
shares outstanding (000's) 78,850 78,792
====== ======
Dividends per share $.095 $.085
==== ====
<FN>
See accompanying notes.
3
COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(Dollar amounts in thousands; per-share amounts in dollars)
1998 1997
-------- --------
Revenues:
Net sales $899,298 $843,525
Other income 1,249 458
------- -------
900,547 843,983
Costs and expenses:
Cost of products sold 741,937 695,521
Selling, general and administrative 56,964 51,084
Interest 7,613 6,652
------- -------
806,514 753,257
------- -------
Income before income taxes 94,033 90,726
Provision for income taxes 35,172 34,070
------- -------
Net income 58,861 56,656
Other comprehensive income:
Currency translation adjustment (673) 1,580
------- -------
Comprehensive income $ 58,188 $ 58,236
======= =======
Basic and diluted earnings per share $.75 $.71
=== ===
Weighted average number of
shares outstanding (000's) 78,849 79,587
====== ======
Dividends per share $.19 $.17
==== ====
<FN>
See accompanying notes.
4
COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(Dollar amounts in thousands)
1998 1997
-------- --------
Operating activities:
Net income $ 58,861 $ 56,656
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 49,466 44,532
Deferred income taxes 973 4,823
Changes in operating assets
and liabilities:
Accounts receivable (26,301) (44,515)
Inventories and prepaid expenses (20,490) (33,612)
Accounts payable and
accrued liabilities (2,659) 6,190
Postretirement benefits
other than pensions 3,735 3,583
Other (6,263) (11,835)
------- -------
Net cash provided by
operating activities 57,322 25,822
Investing activities:
Property, plant and equipment (58,207) (49,927)
Acquisition of business, net
of cash acquired - (94,593)
Other 27 10
------- -------
Net cash used in investing
activities (58,180) (144,510)
Financing activities:
Issuance of debt 2,783 360,000
Payment on debt (2,327) (174,124)
Purchase of treasury shares - (54,117)
Payment of dividends (14,965) (13,457)
Issuance of common shares 189 573
------- -------
Net cash provided by (used in)
financing activities (14,320) 118,875
Effects of exchange rate changes on cash
and cash equivalents (298) 384
------- -------
Changes in cash and cash equivalents (15,476) 571
Cash and cash equivalents at
beginning of year 52,910 19,459
------- -------
Cash and cash equivalents at
end of period $ 37,434 $ 20,030
======= =======
Cash payments for interest $ 8,540 $ 3,328
======= =======
Cash payments for income taxes $ 40,552 $ 32,251
======= =======
<FN>
See accompanying notes.
5
COOPER TIRE & RUBBER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements at June 30, 1998 and for the
three-month and six-month periods ended June 30, 1998 and 1997 are
unaudited and include all adjustments, consisting only of normal recurring
accruals, which the Company considers necessary for a fair presentation of
financial position and operating results. The unaudited consolidated
financial statements have been prepared in accordance with Article 10 of
Regulation S-X and, therefore, do not contain all information and
footnotes normally contained in annual financial statements; accordingly,
they should be read in conjunction with the Financial Statements and notes
thereto appearing in the Annual Report on Form 10-K of the Company for the
year ended December 31, 1997.
2. The results of operations for the three-month and six-month periods ended
June 30, 1998 are not necessarily indicative of those to be expected for
the year ending December 31, 1998.
3. During the first quarter of 1998 the Company adopted Statement of
Financial Standards (SFAS) No. 130, "Reporting Comprehensive Income."
The Standard requires disclosure of total comprehensive income in the
financial statements. The Company's components of comprehensive income
have historically been for the impact of pension accounting and foreign
currency.
4. In June, 1997 the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which changed the method for determining and reporting
business segment information. The FASB's approach to determine business
segments will cause the Company to report certain financial information at
segment levels. This Standard is required to be adopted for year-end
reporting in 1998, with interim reporting commencing in 1999.
The FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," in February, 1998. This Standard is
effective in 1998 and requires disclosure of additional information
currently available to the Company.
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Net sales were down slightly for the second quarter of 1998 when compared to
the second quarter of 1997, but were 6.6% higher for the first six months of
1998 when compared to the corresponding 1997 period. The Company's
acquisition of Avon Tyres Limited of Melksham, England, now known as Cooper-
Avon Tyres Limited (Cooper-Avon), was completed late in the first quarter of
1997 and contributed to the six-month increase. Other income was higher in
both the second quarter and six months of 1998 as compared to the
corresponding 1997 periods due to higher amounts of interest income.
Cost of products sold, as a percent of net sales, was higher for the quarter
and unchanged for the six-month period as compared with the corresponding
periods in 1997. Decreases in raw material costs and improvements in product
mix continued to be offset by price concessions in the domestic and European
tire replacement markets.
Selling, general and administrative expenses were lower for the three-month
period and were higher for the six-month period compared to one year ago. As
a percent of net sales, selling, general and administrative expenses were 6.2%
and 6.3% for the 1998 and 1997 quarters and 6.3% and 6.1% for the six months
of 1998 and 1997, respectively. The year-to-date increase reflects higher
advertising costs and the inclusion of Cooper-Avon expenses.
Interest expense for the quarter and the six-month periods reflect differences
in borrowing levels from the 1997 comparable periods.
Income before income taxes for the quarter increased 2.7% from one year ago
and 3.7% for the year-to-date. The 1998 quarter was adversely impacted by the
sales reduction. Both the quarter and six-month periods benefited from
reductions in raw material costs and richer product mix which were partially
offset by the continuation of intense price competition. Cooper-Avon
operations during the quarter and year-to-date periods showed improvement due
to cost-savings initiatives.
Working capital of $394 million is up $39 million since year-end and up $68
million from June 30, 1997. The current ratio of 3.1 is up from 2.2 at June
30, 1997 and is up from the 2.8 at December 31, 1997. Long-term debt, as a
percent of total capitalization, decreased to 19% at the end of the quarter
compared to 22.3% one year ago. The financial position of the Company at June
30, 1998 continues to be excellent.
The cash flows generated by operating activities of $57 million during the
first six months of 1998 are higher than the $26 million for the six-month
period one year ago due primarily to changes in accounts receivable and
inventories. Investments in property, plant and equipment of $58 million are
up $8 million from last year's levels. In 1997, investing activities reflect
the acquisition of Cooper-Avon and financing activities reflect the issuance
of $200 million of long-term public debt and the repurchase of the Company's
common stock. The Company expects that available cash and existing lines of
credit will be sufficient to meet normal operating requirements over the near
term.
The Company has developed and initiated its plans to address the possible
exposures related to the impact of the Year 2000 on its systems and computer
equipment, including those involved in its manufacturing operations. Key
financial information and operational systems have been assessed and detailed
plans have been implemented to address modifications required by December 31,
1999. The Company is on schedule with its plans and expects these
modifications to be completed and tested by that time. The financial impact
of making the required changes will be comprised of internal costs, excluding
the costs incurred to upgrade and replace systems and equipment in the normal
7
course of business, and is not expected to be material to the Company's
consolidated financial position or results of operations. The Company has
also initiated communications with its significant suppliers to ensure they
have appropriate plans to resolve Year 2000 issues where failure of their
systems could adversely affect the Company's operations.
Certain information set forth herein may constitute forward-looking statements
regarding events and trends which may affect the Company's future operating
results and financial position. Actual results may differ materially as a
result of factors over which the Company has no control. These risk factors
and additional information are included in the Company's reports on file with
the Securities and Exchange Commission.
8
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Stockholders was held on May 5, 1998.
(b) All of the nominees for directors, as listed below under (c) and on
page 2 of the Company's Proxy Statement dated March 24, 1998, were
elected. The following directors have terms of office which continued
after the meeting.
Edsel D. Dunford John F. Meier
John Fahl Patrick W. Rooney
Deborah M. Fretz John H. Shuey
Dennis J. Gormley
(c) A description of each matter voted upon at that meeting is contained on
pages 1 and 2 and pages 11 through 19 of the Company's Proxy Statement
dated March 24, 1998, which pages are incorporated herein by reference.
The number of votes cast by common stock holders with respect to each
matter is as follows:
Election of directors
Term Affirmative Withheld Broker
Expiration Votes Votes Abstentions Non-votes
---------- ----------- -------- ----------- ---------
Arthur H. Aronson 2001 70,297,042 1,046,015 0 0
Byron O. Pond 2001 70,410,378 932,679 0 0
J. Alec Reinhardt 2001 70,435,957 907,100 0 0
Affirmative Negative Broker
Votes Votes Abstentions Non-Votes
----------- ---------- ----------- ----------
Proposal to approve
and adopt the 1998
Incentive Compensation
Plan 60,597,566 4,643,153 356,840 5,745,498
Proposal to approve
and adopt the 1998
Employee Stock Option
Plan 63,541,984 1,684,461 371,114 5,745,498
Proposal to approve and
adopt the 1998 Non-Employee
Directors Compensation
Deferral Plan 62,610,593 2,437,463 549,504 5,745,497
Stockholder proposal 29,417,663 34,755,894 1,050,943 6,118,557
Item 6(a). Exhibits.
(27) Financial Data Schedule
Item 6(b). Reports on Form 8-K.
No Form 8-K has been filed.
9
INDEX TO EXHIBITS
DESCRIPTION
Part II. Item 6(a).
(27) Financial Data Schedule
10
SIGNATURES
Pursuant to the requirements 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/ J. Alec Reinhardt
---------------------
J. Alec Reinhardt
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
/S/ E. B. White
-----------------
E. B. White
Corporate Controller
(Principal Accounting Officer)
August 12, 1998
- ---------------
(Date)
11