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 September 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 October 30, 1998: 75,791,458
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)
September 30,
1998 December 31,
(Unaudited) 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 22,822 $ 52,910
Accounts receivable, less allowances
of $5,887 ($4,791 in 1997) 337,682 292,416
Inventories at lower of cost (last-in,
first-out) or market:
Finished goods 140,094 130,339
Work in process 21,816 22,650
Raw materials and supplies 29,168 38,695
--------- ---------
191,078 191,684
Prepaid expenses and deferred income taxes 21,396 17,602
--------- ---------
Total current assets 572,978 554,612
Property, plant and equipment - net 874,905 860,448
Intangibles and other assets 87,321 80,896
--------- ---------
$1,535,204 $1,495,956
LIABILITIES AND STOCKHOLDERS' EQUITY ========= =========
Current liabilities:
Notes payable $ 12,201 $ 10,820
Accounts payable 99,502 100,135
Accrued liabilities 104,975 82,446
Income taxes 83 6,477
Current portion of debt 279 453
--------- ---------
Total current liabilities 217,040 200,331
Long-term debt 205,209 205,525
Postretirement benefits other than pensions 150,499 144,566
Other long-term liabilities 38,521 38,351
Deferred income taxes 77,250 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; 83,779,658 shares issued
(83,760,308 in 1997) 83,780 83,760
Capital in excess of par value 3,283 3,101
Retained earnings 915,855 849,270
Cumulative currency translation adjustment 3,721 2,448
Minimum pension liability (4,753) (4,753)
--------- ---------
1,001,886 933,826
Less: 7,986,900 common shares in
treasury at cost (5,000,000 in 1997) (155,201) (100,251)
--------- ---------
Total stockholders' equity 846,685 833,575
--------- ---------
$1,535,204 $1,495,956
<FN> ========= =========
See accompanying notes.
2
COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(Dollar amounts in thousands; per-share amounts in dollars)
1998 1997
-------- --------
Revenues:
Net sales $480,616 $480,572
Other income 522 394
------- -------
481,138 480,966
Costs and expenses:
Cost of products sold 400,670 400,477
Selling, general and administrative 30,631 26,971
Interest 3,745 4,624
------- -------
435,046 432,072
------- -------
Income before income taxes 46,092 48,894
Provision for income taxes 16,063 17,770
------- -------
Net income 30,029 31,124
Other comprehensive income:
Currency translation adjustment 1,946 (1,308)
------- -------
Comprehensive income $ 31,975 $ 29,816
======= =======
Basic and diluted earnings per share $.39 $.40
=== ===
Weighted average number of
shares outstanding (000's) 77,103 78,833
====== ======
Dividends per share $.095 $.085
==== ====
<FN>
See accompanying notes.
3
COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(Dollar amounts in thousands; per-share amounts in dollars)
1998 1997
-------- --------
Revenues:
Net sales $1,379,914 $1,324,097
Other income 1,771 852
--------- ---------
1,381,685 1,324,949
Costs and expenses:
Cost of products sold 1,142,607 1,095,998
Selling, general and administrative 87,595 78,055
Interest 11,358 11,276
--------- ---------
1,241,560 1,185,329
--------- ---------
Income before income taxes 140,125 139,620
Provision for income taxes 51,235 51,840
--------- ---------
Net income 88,890 87,780
Other comprehensive income:
Currency translation adjustment 1,273 272
--------- ---------
Comprehensive income $ 90,163 $ 88,052
========= =========
Basic and diluted earnings per share $1.14 $1.11
==== ====
Weighted average number of
shares outstanding (000's) 78,267 79,336
====== ======
Dividends per share $0.285 $0.255
===== =====
<FN>
See accompanying notes.
4
COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(Dollar amounts in thousands)
1998 1997
-------- --------
Operating activities:
Net income $ 88,890 $ 87,780
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 75,120 68,470
Deferred income taxes 698 4,368
Changes in operating assets
and liabilities:
Accounts receivable (43,972) (39,828)
Inventories and prepaid expenses (2,637) (19,148)
Accounts payable and
accrued liabilities 21,631 14,886
Postretirement benefits
other than pensions 5,258 5,482
Other (10,018) (14,118)
------- -------
Net cash provided by
operating activities 134,970 107,892
Investing activities:
Property, plant and equipment (88,756) (72,529)
Acquisition of business, net
of cash acquired - (94,593)
Other 312 (291)
------- -------
Net cash used in investing
activities (88,444) (167,413)
Financing activities:
Issuance of debt 27,746 360,000
Payment on debt (27,171) (231,776)
Purchase of treasury shares (54,950) (54,117)
Payment of dividends (22,304) (20,140)
Issuance of common shares 202 829
------- -------
Net cash provided by (used in)
financing activities (76,477) 54,796
Effects of exchange rate changes on cash
and cash equivalents (137) 357
------- -------
Changes in cash and cash equivalents (30,088) (4,368)
Cash and cash equivalents at
beginning of year 52,910 19,459
------- -------
Cash and cash equivalents at
end of period $ 22,822 $ 15,091
======= =======
Cash payments for interest $ 16,472 $ 11,143
======= =======
Cash payments for income taxes $ 57,179 $ 46,378
======= =======
<FN>
See accompanying notes.
5
COOPER TIRE & RUBBER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements at September 30, 1998 and for the
three-month and nine-month periods ended September 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 nine-month periods ended
September 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 for the third quarter of 1998 were comparable to the third quarter
of 1997 and were 4.2% higher for the first nine 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
nine-month increase. Other income was higher in both the third quarter and
nine 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, for both the quarter and
nine-month periods was comparable to 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 higher for both the three-
month and nine-month periods compared to one year ago. As a percent of net
sales, selling, general and administrative expenses were 6.4% and 5.6% for the
1998 and 1997 quarters and 6.4% and 5.9% for the nine months of 1998 and 1997,
respectively. The quarter and nine-month increases reflect higher advertising
costs.
Interest expense for the quarter period reflects a reduction in debt levels
from the 1997 comparable period.
Income before income taxes for the quarter decreased 5.7% from one year ago
and was comparable for the year-to-date. Both the quarter and nine-month
periods benefited from reductions in raw material costs and richer product mix
which were 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.
For the nine months, the effective tax rate of 36.6% was lower than the 37.1%
in 1997 due to foreign tax planning resulting in lower U.S. taxes. The
effective tax rate for the quarter of 34.9% was lower than the 36.3% one year
ago due to the nine-month impact of this benefit.
Working capital of $356 million is up slightly since year-end and up $10
million from September 30, 1997. The current ratio of 2.6 is comparable to
September 30, 1997 but is down from the 2.8 at December 31, 1997. Long-term
debt, as a percent of total capitalization, decreased to 19.5% at the end of
the quarter compared to 21.8% one year ago. This decrease reflects both the
retirement of debt in October 1997 and the repurchase of 3 million shares of
the Company's common stock during the third quarter of 1998. The financial
position of the Company at September 30, 1998 continues to be excellent.
In March 1997, the Company completed the repurchase of 5 million shares of its
stock authorized by the Board of Directors in July 1996. In May 1997, the
Board of Directors authorized the repurchase of up to an additional 5 million
shares of the Company's common stock. The Company acquired 3 million shares
during the third quarter under that authorization and is evaluating repurchase
of the additional 2 million shares remaining.
The cash flows generated by operating activities of $135 million during the
first nine months of 1998 are higher than the $108 million for the nine-month
period one year ago due primarily to changes in inventories. Investments in
property, plant and equipment of $89 million are up $16 million from last
year's levels. In 1997, investing activities reflect the acquisition of
Cooper-Avon. Financing activities in 1997 reflect the issuance of $200
million of long-term public debt and the repayment of commercial paper debt.
7
Funds used for stock repurchases approximated $55 million in both 1998 and
1997. 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. The Year
2000 issue is the result of computer programs being written in the past using
two digits rather than four to define the applicable year. Computer equipment
and systems that have date-sensitive chips or code may not be able to
correctly recognize a two-digit year in dates beyond December 31, 1999. The
potential failure of systems and equipment around the world due to this logic
on January 1, 2000 is possible.
The Company's 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 these plans,
with more than 80% of its originally non-compliant systems and equipment now
compliant, and expects remaining modifications to be completed and tested by
September 1999. The Company will continue to monitor the need for contingency
planning in the event it determines the remaining systems and equipment cannot
be modified as expected.
The financial impact of making the required changes is comprised primarily of
internal costs and estimated to be less than $3 million. These internal costs
and other non-capital costs incurred to upgrade and replace systems have been
expensed as incurred since 1997.
The Company is communicating with its significant suppliers and customers to
ensure they have appropriate plans to resolve Year 2000 issues where failure
of their systems could adversely affect the Company's operations. Contingency
plans are being developed to address potential failures by these third
parties. Certain electronic communication systems of the Company's trading
partners have been tested and are compliant and the Company believes minimal
risk exists for their failure on January 1, 2000.
The "most likely worst case scenario" for Year 2000 issues is the failure of
the systems and equipment of other parties throughout the world which could
result in the unavailability of global communications, financial resources,
transportation, critical raw materials, energy, sales and other vital
commercial systems. The Company's ability to maintain its operations on
domestic and international levels could be disrupted by these failures until
corrected. In the event the Company is unable to modify its remaining non-
compliant systems and equipment, based upon currently available information,
management believes no material adverse impact on its operations would result.
The Company does not anticipate adoption of the "euro" by the members of the
European Union will have a material impact on the results of its operations,
financial position or liquidity.
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 6(a). Exhibits.
(27) Financial Data Schedule
(99) Press release dated November 11, 1998 regarding retirement
of executive vice president and chief financial officer
J. Alec Reinhardt
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
(99) Press release dated November 11, 1998 regarding retirement of
executive vice president and chief financial officer J. Alec Reinhardt
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)
November 13, 1998
- -----------------
(Date)
11
Part II
Exhibit (99)
<LOGO> COOPER TIRE & RUBBER COMPANY NEWS RELEASE
Public Relations Findlay, Ohio 45840 Phone: (419) 423-1321
- ------------------------------------------------------------------------------
COMPANY CONTACT: Patricia J. Brown FOR IMMEDIATE RELEASE
(419) 424-4370 NOVEMBER 11, 1998
COOPER ANNOUNCES RETIREMENT OF EXECUTIVE VICE PRESIDENT
-------------------------------------------------------
AND CHIEF FINANCIAL OFFICER J. ALEC REINHARDT
---------------------------------------------
FINDLAY, OHIO, November 11, 1998-COOPER TIRE & RUBBER COMPANY (NYSE:CTB) today
announced that J. Alec Reinhardt, executive vice president, chief financial
officer and director, has indicated his intention to take early retirement
effective in February, 1999. Patrick W. Rooney, chairman and chief executive
officer, said the company is reviewing internal and external candidates and
expects to fill the position in time to effect a smooth transition of duties.
Rooney commented, "Alec Reinhardt has been a key leader at Cooper for more
than two decades. He has done an outstanding job and has made a valuable
contribution throughout his career with the company. Even though we have
accepted his retirement request, we are sorry to see him leave. We wish him
well as he begins a new stage in life, but will certainly miss his knowledge,
leadership and guidance."
Reinhardt, 56, joined the company in 1976 serving as general counsel through
1983 and as chief financial officer and a director since 1983. In addition,
he was elected executive vice president of the company in 1991. In that
capacity his responsibilities have included oversight of the Cooper engineered
products operations and the treasury, accounting, personnel, purchasing and
information systems functions. Reinhardt, who is the longest serving current
member of Cooper's board of directors stated that he takes immense pride in
having participated in the seven-fold growth of Cooper during his tenure and
the company's rise to national and international prominence.
Reinhardt is a graduate of the University of Cincinnati with a B.S.E.E. degree
and has earned M.B.A. and J.D. degrees from the Ohio State University. He is
a trustee of the Blanchard Valley Health Association and a director of the
Fifth Third Bank of Northwestern Ohio, N.A.
Founded in 1914, Cooper Tire & Rubber Company is a leading manufacturer of
tires and engineered rubber products. For more information on the company,
visit the company's web site at www.coopertire.com.
12