Cooper Tire & Rubber Company Reports Third Quarter Results, Record Sales
Third Quarter Highlights
* Net sales increased 6 percent to a new all-time record
* Sales from North American Tire Operations increased 5 percent
* Sales from International Tire Operations increased 21 percent
* Automotive Group and tube operation designated as discontinued operations
* Reactivation of share repurchase program announced; tender offer contemplated
FINDLAY, Ohio, Oct. 21 -- Cooper Tire & Rubber Company today reported a 6 percent year-over-year increase in net sales, achieving a new all-time record for the Company's tire operations. Total net sales for the Company's continuing operations increased to $551 million in the quarter ended September 30, 2004 compared to $519 million in the same period last year. The Company has designated its Automotive Group as discontinued operations based on the agreement to sell that unit as announced during the quarter. The Company has also designated its Clarksdale, MS tube operations as discontinued following its September 8, 2004 announcement that it will cease production and exit the inner tube business. The Company's financial statements have been restated to reflect these designations and to highlight continuing operations.
Income from continuing operations in the quarter was $13 million (17 cents per share) compared to $15 million (20 cents per share) in the third quarter of 2003. Including a net loss of $3 million (4 cents per share) from discontinued operations, total net income for the third quarter of 2004 was $10 million (13 cents per share). Net income for the third quarter of 2004 includes the negative impact of 20 cents per share in restructuring charges and the positive impact of 10 cents per share in adjustments for lower warranty liabilities. Excluding these items, income was $17 million (23 cents per share).
For the first nine months of the year, Cooper's continuing operations generated net sales of $1.5 billion, a 15 percent increase compared to net sales of $1.3 billion in the first nine months of 2003. Income from continuing operations in the first nine months of 2004 increased to $24 million, compared to $17 million in the first nine months of 2003. Including income from discontinued operations, total net income was $68 million in the first nine months of 2004 compared to $46 million in the first nine months of 2003. Results for the first nine months included the negative impact of 29 cents per share in restructuring charges and the positive impact of 10 cents per share in adjustments for lower warranty liabilities. Excluding these items, income was $82 million ($1.09 per share).
North American Tire Operations
The Company's North American Tire operations reported sales of $499 million in the quarter, up 5 percent compared to $478 million in the third quarter of 2003. This increase was driven by improving price and mix and was partially offset by lower overall unit volumes.
Industry demand for replacement tires in the quarter was soft. Cooper's shipments were also down compared to the unusually strong third quarter of 2003. The most notable declines were in the economy and broadline passenger tire categories. However, the Company gained market share during the quarter in the winter, high performance and light truck tire categories.
Third quarter operating profit for the North American Tire operations was $27 million, compared to $31 million in the same period last year. Excluding the positive net impact of restructuring charges and class action warranty adjustments, in the amount of $2 million and $4 million respectively, operating profit would have been $25 million in the third quarter of 2004 compared to $27 million in the same period a year ago. The decline was largely the result of lower unit volumes, higher raw material costs and production complexity, partially offset by improved price and mix.
The Company remained capacity constrained during the quarter and continued implementation of capacity expansion projects in all four North American tire plants. Current expansion projects are now largely complete in Findlay and Tupelo and should result in improved volume and production efficiency moving forward. Current projects in Texarkana will continue through the end of 2004 while the expansion initiatives in Albany will continue through the end of 2005.
During the quarter, the Company conducted a regular review of its reserves for tire product warranties. Reserves have been established for both regular tire warranty liability and the enhanced product warranty related to the settlement of class action suits during 2001. This review resulted in a determination that the Company had excess reserves and an adjustment of $11 million was made, reducing total warranty accruals by that same amount.
International Tire Operations
The Company's International Tire operations reported sales of $66 million in the quarter, up 21 percent compared to $55 million in the third quarter of 2003. This increase was driven by higher volumes, improving prices and favorable currency exchange rates.
Third quarter operating profit for the International Tire operations was $3 million, up 6 percent compared to the same period last year. The improvement was the result of higher volume, improved pricing and favorable exchange rates, partially offset by higher raw material costs and increased administrative costs related to the establishment of operations in Asia.
Commenting on the quarter's results, Cooper's Chairman, President and Chief Executive Officer Thomas A. Dattilo said, "This was another exciting quarter at Cooper Tire & Rubber Company. The announcement of our agreement to sell Cooper-Standard was an important step forward in our strategy to dedicate ourselves to the tire business. In addition, our plant expansions, product introductions and Asian initiatives will serve us well as we continue our history of growth and customer satisfaction. While tire industry conditions are less favorable than we had anticipated with softer replacement tire demand and higher raw material prices, we were able to achieve another all-time record in tire sales and increase market share in some of our key product lines."
Outlook
"We are optimistic about our opportunities in the fourth quarter and into 2005," Dattilo continued. "Raw materials are still headed higher and will make industry conditions challenging but we can offset some of this impact as we begin to benefit from our capacity expansions in North America and also from increasing sourcing from China.
"As we close on the sale of Cooper-Standard Automotive, and we anticipate this will occur within the fourth quarter, we will deploy the proceeds to expand and recapitalize our tire business. As we have said, this means buying back stock and debt as well as making significant investments in the global tire arena. Additionally, we are dedicated to productivity and efficiency improvements in our existing plants and securing business with new customers. Our future is bright," Dattilo concluded.
The Company said it expects fourth quarter 2004 earnings per share from continuing operations to be in the range of 8 to 12 cents which compares to 11 cents earnings per share from continuing operations in the fourth quarter of 2003. This forecast was developed on the same basis reflected in the third quarter results from continuing operations.
The Company also announced today that it intends to reactivate a share repurchase program previously authorized by the Board of Directors in May 2000. The repurchase program originally authorized the repurchase of up to 10 million common shares. As of September 30, 2004, approximately 1.3 million shares have been repurchased pursuant to the program and 8.7 million shares remain authorized. Also, the Company may consider a self-tender for shares in the future.
Cooper's management team will discuss the financial and operating results for the quarter in a conference call today at 11:00 a.m. Eastern time. Interested parties may access the audio portion of that conference call on the investor relations page of the Company's web site at http://www.coopertireandrubber.com/ .
Company Description
Cooper Tire & Rubber Company, headquartered in Findlay, Ohio, specializes in the manufacture and marketing of products for the global automotive industry. Products include automotive, motorcycle and truck tires, inner tubes, tread rubber and equipment, as well as sealing, trim, NVH control systems and fluid handling systems. Cooper has more than 20,000 employees and 52 manufacturing facilities in 13 countries. For more information, visit the Company's web site at: http://www.coopertireandrubber.com/ .
Cooper Tire & Rubber Company
Consolidated Statements of Income
(Dollar amounts in thousands except per share amounts)
Quarter Ended Nine Months Ended
September 30 September 30
2003 2004 2003 2004
Net sales $519,171 $551,446 $1,336,115 $1,540,642
Cost of products sold 457,863 489,305 1,183,480 1,361,318
Gross profit 61,308 62,141 152,635 179,324
Selling, general and
administrative 36,151 39,247 106,855 125,622
Adjustment for class
action warranty (3,900) (11,273) (3,900) (11,273)
Restructuring charges 45 8,432 2,190 9,111
Operating profit 29,012 25,735 47,490 55,864
Interest expense 7,001 6,580 22,419 20,959
Other - net (318) 6 (976) (311)
Income before taxes 22,329 19,149 26,047 35,216
Provision for taxes 7,659 5,974 8,934 10,987
Income from continuing
operations 14,670 13,175 17,113 24,229
Income from discontinued
operations, net of
income taxes 3,086 (3,305) 28,548 43,919
Net Income $17,756 $9,870 $45,661 $68,148
Basic earnings per
share
Income from
continuing
operations $0.20 $0.17 $0.23 $0.33
Income from
discontinued
operations $0.04 ($0.04) $0.39 $0.59
Net Income $0.24 $0.13 $0.62 $0.92
Diluted earnings per
share
Income from
continuing
operations $0.20 $0.17 $0.23 $0.32
Income from
discontinued
operations $0.04 ($0.04) $0.39 $0.58
Net Income $0.24 $0.13 $0.62 $0.90
Weighted average
shares outstanding
Basic 73,723 74,928 73,629 74,471
Diluted 74,293 75,935 74,010 75,475
Depreciation $27,614 $27,830 $81,166 $81,584
Amortization of
intangibles $791 $783 $2,256 $2,350
Capital expenditures $20,535 $38,671 $67,606 $96,288
Segment information
Net Sales
North American
Tire $477,819 $499,374 $1,211,165 $1,383,665
International Tire 54,759 65,985 158,917 194,403
Eliminations (13,407) (13,913) (33,967) (37,426)
Segment profit
North American
Tire 31,041 26,807 53,136 61,788
International Tire 2,650 2,802 10,122 9,498
Unallocated
corporate charges
and eliminations (4,679) (3,874) (15,768) (15,422)
CONSOLIDATED BALANCE SHEETS
September 30
2003 2004
Assets
Current assets:
Cash and cash equivalents $16,574 $24,932
Accounts receivable 366,640 340,683
Inventories 200,388 238,230
Prepaid expenses, deferred income
taxes and other 46,828 48,694
Assets of discontinued operations 1,378,868 1,412,938
Total current assets 2,009,298 2,065,477
Property, plant and equipment 692,717 702,193
Goodwill 45,224 45,224
Intangibles and other assets 124,152 143,961
$2,871,391 $2,956,855
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $14,789 $161
Trade payables and accrued
liabilities 287,730 344,485
Income taxes - 1,026
Current portion of debt 12,495 -
Liabilities of discontinued
operations 320,404 369,789
Total current liabilities 635,418 715,461
Long-term debt 867,973 775,592
Postretirement benefits other than
pensions 149,430 154,195
Other long-term liabilities 198,150 202,783
Deferred income taxes 14,704 10,705
Stockholders' equity 1,005,716 1,098,119
$2,871,391 $2,956,855
These interim statements are subject to year-end adjustments.
Cooper Tire & Rubber Company
Notes to Condensed Financial Statements -- September 30, 2004
1) Basis of Presentation
On September 17, 2004 the Company announced the signing of a
definitive agreement to sell its automotive business, Cooper-Standard
Automotive. Also in September, the Tire Group announced its intent to
cease its inner tube business and is currently in discussions with
potential buyers for this business. These operations are considered
to be discontinued operations as defined under Financial Accounting
Standard ("FAS") No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" and require specific accounting and reporting
for this quarter which differs from the approach used to report the
Company's results in prior quarters. It also requires restatement of
comparable prior periods to conform to the required presentation.
The Company's financial statements included in this release reflect
the accounting and disclosure requirements of this standard which
mandate the segregation of operating results for the current year and
comparable prior year periods and the balance sheet related to the
operations to be sold from those related to ongoing operations.
Accordingly, the consolidated statements of income for the three and
nine-month periods ended September 30, 2003 and 2004 reflect this
segregation as income from continuing operations and income from
discontinued operations and the consolidated balance sheet at
September 30, 2004 and 2003 display the segregation of the total
assets of the operations to be sold as an aggregated current asset and
the related total liabilities as an aggregated current liability.
In addition to the segregation of operating financial results, assets,
and liabilities, Emerging Issues Task Force ("EITF") No. 87-24,
"Allocation of Interest to Discontinued Operations" mandates the
reallocation of general corporate overhead, previously allocated to
discontinued operations, to continuing operations and permits the
allocation of interest to discontinued operations in accordance with
specific guidelines. Corporate overheads which previously would have
been allocated to the Automotive segment of $3.2 million for the
quarter ($3.1 million in the quarter ending September 30, 2003) and
$9.7 million for the nine-month period ($9.7 million for 2003) are
charged against continuing operations in the accompanying income
statement. The Company intends to reduce its general and
administrative costs in the future to reflect the new organization
required following the divestiture of the automotive group. The
Company has selected to use the permitted allocation method for
interest expense which is based on the ratio of net assets to be sold
or discontinued to the sum of total net assets of the consolidated
Company plus consolidated debt. Under this method $7.8 million and
$23.7 million of interest has been attributed to discontinued
operations in the three-month and nine-month periods ended September
30, 2003 and 2004, respectively. The actual amount of debt to be
liquidated by application of the proceeds has not yet been determined
and may differ from the amount used in the allocation process. The
Company has previously reported that proceeds from the dispositions
will be used for debt reduction, investment in the Company's tire
operations, the repurchase of shares or a combination thereof and such
amounts will not be determined until an assessment is made of its
investment prospects and market conditions when the proceeds are
available.
2) Segment Reporting
The Company has evaluated the determination of its reporting segments
as a result of changes in its organizational reporting structure and
the classification of Cooper-Standard Automotive ("the Automotive
segment") to discontinued operations during the third quarter of 2004
in accordance with FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company has determined it
has two reportable segments for continuing operations - North American
Tire Group and International Tire Group.