Cooper Tire & Rubber Company Reports Second Quarter
Results
FINDLAY, Ohio, Aug. 2, 2005; Cooper Tire & Rubber
Company today reported a net loss of $7 million or 11 cents per
share for the second quarter and a net loss of $2 million or 3 cents per share
for the six month period ended June 30, 2005. The Company's operations and
results for the second quarter and the first half of the year were negatively
impacted by the work stoppage in its Texarkana, Ark. production facility which
began in March and continued into April. The work stoppage, which was
resolved with the ratification of a 5-year contract on April 10, 2005, had the
effect of reducing net income by $9 million or 15 cents per share in the
second quarter and $14 million or 22 cents per share in the first half of the
year.
During the quarter the Company repurchased $84 million of its publicly
traded debt with maturity in 2009 through a public tender offer. The
Company's results reflect the $8 million in debt extinguishment costs incurred
with the debt retirement. The results also reflect an income tax benefit of
$11 million. Taxes for the quarter were calculated, as accounting rules
require, utilizing anticipated effective tax rates forecasted for the full
year.
Net sales for the Company increased to $511 million in the quarter
compared to $509 million in the second quarter of 2004. For the first
six months of the year, the Company had net sales of $1 billion, or a
4 percent increase compared to $989 million in the first half of 2004.
Commenting on the quarterly results, Cooper chairman, president and chief
executive officer Thomas A. Dattilo said, "We have worked hard to overcome
some very difficult operating conditions during the quarter and the first half
of the year. We made good progress once the strike was behind us and that
progress was clearly evident in June, but it was not enough to offset the
broad impact on sales and disruption of our manufacturing operations in the
first two months of the quarter."
North American Tire Operations
Net sales for Cooper's North American tire operations in the second
quarter were $460 million, up 1 percent compared to the second quarter of
2004. The increase in sales was the result of significant improvements in
price and mix, but these were almost completely offset by lower unit sales.
The lower unit volume was partly the result of weaker than expected market
demand for the industry overall and more particularly in the light truck
replacement tire market segment. Industry shipments of replacement tires for
passenger vehicles from Rubber Manufacturers' Association (RMA) member
companies increased just over 2 percent in the quarter while light truck
replacement tire shipments decreased by more than 3 percent. In addition, the
Company's continuing reduction of broadline sales to less profitable
distribution channels, as well as sales lost due to the production disruption
in Texarkana and the resulting imbalance in tire inventory contributed to the
lower overall unit sales.
Operating profit for North American tire operations was $2 million in the
second quarter compared to $22 million in the second quarter of 2004. The
lower operating profit was the result of lower overall sales volume, the
impact of the strike in Texarkana and higher raw material costs. These were
only partially offset by improved price and mix.
For the first six months of the year, North American tire operations sales
were $924 million, up 5 percent compared to $884 million in sales during the
first half of 2004. Operating profit for North American tire operations was
$10 million in the first half compared to $35 million recorded in the same
period a year ago.
Year-to-date, the Company's tire unit volumes in North America are down
5 percent while industry volumes are up approximately 2 percent.
International Tire Operations
Net sales for Cooper's international tire operations were $70 million in
the second quarter of 2005, an increase of more than 11 percent compared to
the $63 million in sales achieved in the second quarter of last year. The
increase was driven by a 4 percent increase in unit sales, the positive impact
of improved product price and mix, as well as favorable foreign currency
exchange rates.
Operating profit for Cooper's international tire operations was $2 million
for the quarter compared to $4 million in the second quarter of last year.
Expenses as a result of the startup of the Company's operations in Asia and
higher raw material costs were the most significant factors in the lower
profit margin. These were partially offset by the higher overall unit sales
volume in the Company's European operations.
For the first six months of 2005, net sales for Cooper's international
tire operations were $136 million, an increase of 6 percent over the first
half of 2004. Operating profit was $1 million in the first half of 2005
compared to $7 million in the same period a year ago.
Outlook
Providing some insight into the Company's outlook for the second half of
the year, Mr. Dattilo commented, "After a tough start to the year, our mission
is to finish the year strong. We know what we have to do and I believe that
we will. We have made progress in our manufacturing operations and processes.
We are getting better at managing higher levels of production complexity
related to the SKU proliferation in the marketplace and all the new tires we
now offer. We are making progress in rationalizing our customer mix and we
will continue to concentrate on our core independent dealer distribution.
More importantly, we are seeing solid improvements in our order fill rates and
our customer service levels that will help us generate stronger sales in the
future.
"Increasing raw material costs will continue to be a major challenge for
our company and our industry through at least the end of 2005. Natural rubber
prices jumped significantly in the latter part of the second quarter and we
see them remaining fairly steady for the next quarter. Stubbornly high oil
prices and strong demand are driving most other materials higher as well,
which is a direct contrast to the modest improvement we had anticipated. The
higher cost of raw materials, compared to the same period last year, could
impact our operating profit by as much as $35 to $40 million in the third
quarter alone. As we have done in the past several quarters, we will need to
offset these higher costs through our lean savings initiatives, improving our
efficiency and through additional tire price increases if available.
"We will likely experience some lingering impact from the Texarkana strike
in the rest of the year in the form of imbalanced inventory and lost sales of
our premium light truck and sport truck products. But the new, more efficient
equipment we have been installing and our plant expansions overall will put us
in a better position to supply our customers with the products they need, when
they need them. So we expect our sales in the third and fourth quarters
should improve over last year.
"Considering all these factors and our internal plans, we remain confident
that our results will show continuing improvement in the second half of the
year. We expect modest operating margin improvement to about 4 percent in the
third quarter and overall earnings in the range of 10 to 14 cents, which
includes an impact of approximately 8 cents per share in the third quarter
from the Texarkana strike and an estimated negative impact of
4 cents per share as a result of the unusual tax rate," Dattilo concluded.
Board of Directors Actions
The Company also announced today that its audit committee has completed
its review of Cooper Tire's stockholder rights plan (Three-Year Independent
Director Evaluation). Cooper Tire's Audit Committee determined, after
considering a number of factors, that the rights plan continues to be in the
best interests of Cooper Tire & Rubber Company and its stockholders and should
be maintained in its current form; July 20, 2005, the Board of Directors of
Cooper Tire & Rubber Company adopted the Audit Committee's recommendation.
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 is a global company that specializes in the
design, manufacture and sales of passenger car, light truck, medium truck
tires and subsidiaries that specialize in motorcycle and racing tires, as well
as tread rubber and related equipment for the retread industry. With
headquarters in Findlay, Ohio, Cooper Tire has 39 manufacturing, sales,
distribution, technical and design facilities within its family of companies
located around the world. For more information, visit Cooper Tire'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 Six Months Ended
June 30 June 30
2004 2005 2004 2005
Net sales $509,186 $510,930 $989,196 $1,024,987
Cost of products sold 444,479 473,020 872,013 938,395
Gross profit 64,707 37,910 117,183 86,592
Selling, general and
administrative 43,403 37,497 86,375 80,298
Restructuring charges 679 - 679 -
Operating profit 20,625 413 30,129 6,294
Interest expense 7,832 14,349 14,379 28,564
Debt extinguishment costs - 8,441 - 8,441
Interest income (307) (4,520) (729) (10,134)
Other income - net 206 (308) 412 (1,537)
Income (loss) before taxes 12,894 (17,549) 16,067 (19,040)
Provision (credit) for taxes 4,023 (11,131) 5,013 (11,578)
Income (loss) from
continuing operations 8,871 (6,418) 11,054 (7,462)
Income (loss) from
discontinued operations,
net of income taxes 25,108 (463) 47,224 5,797
Net Income $33,979 ($6,881) $58,278 ($1,665)
Basic earnings per share
Income (loss) from
continuing operations $0.12 ($0.10) $0.15 ($0.11)
Income (loss) from
discontinued operations $0.34 ($0.01) $0.64 $0.09
Net Income $0.46 ($0.11) $0.79 ($0.03)*
Diluted earnings per share
Income (loss) from
continuing operations $0.12 ($0.10) $0.15 ($0.11)
Income (loss) from
discontinued operations $0.33 ($0.01) $0.62 $0.09
Net Income $0.45 ($0.11) $0.77 ($0.03)*
Weighted average shares
outstanding
Basic 74,432 62,250 74,241 66,039
Diluted 75,444 62,250 75,243 66,039
Depreciation $27,193 $26,704 $53,793 $52,351
Amortization of intangibles $776 $753 $1,567 $1,485
Capital expenditures $32,790 $53,921 $57,618 $89,118
Segment information
Net sales
North American Tire $456,344 $459,807 $884,291 $923,677
International Tire 63,129 70,141 128,418 135,630
Eliminations (10,287) (19,018) (23,513) (34,320)
Segment profit
North American Tire $21,898 $2,264 $34,981 $9,731
International Tire 3,661 1,602 6,696 766
Unallocated corporate
charges and eliminations (4,934) (3,453) (11,548) (4,203)
CONSOLIDATED BALANCE SHEETS
June 30
2004 2005
Assets
Current assets:
Cash and cash equivalents $10,748 $444,747
Short-term investments - 42,065
Accounts receivable 346,970 367,563
Inventories 242,741 329,931
Prepaid expenses, deferred
income taxes and other 50,948 59,011
Assets of discontinued
operations and held for sale 1,331,946 649
Total current assets 1,983,353 1,243,966
Property, plant and equipment 705,534 765,290
Goodwill 45,225 48,172
Restricted cash 1,766 13,362
Intangibles and other assets 190,850 343,192
$2,926,728 $2,413,982
Liabilities and
Stockholders' Equity
Current liabilities:
Notes payable $18,338 $98
Trade payables and accrued
liabilities 307,390 310,410
Income taxes - 1,266
Liabilities related to the sale
of automotive operations - 2,855
Liabilities of discontinued
operations 363,509 68
Total current liabilities 689,237 314,697
Long-term debt 769,985 685,620
Postretirement benefits
other than pensions 153,348 175,879
Other long-term liabilities 205,877 200,813
Long-term liabilities related to
the sale of automotive operations - 22,214
Deferred income taxes 30,620 44,227
Stockholders' equity 1,077,661 970,532
$2,926,728 $2,413,982
* Amounts do not add due to rounding
These interim statements are subject to year-end adjustments
