Cooper Tire & Rubber Company Reports Third Quarter Loss
FINDLAY, Ohio, Nov. 8, 2005 -- Cooper Tire & Rubber Company today reported a net loss of $1 million or 2 cents per share from continuing operations for the quarter ended September 30, 2005 as lower unit sales volume, higher raw material costs, and higher reported interest expense weighed on the Company's results and more than offset the positive impact of tire price increases and improved product mix. The results also include $1 million in debt extinguishment costs.
Total sales for the quarter increased by 1 percent to $558 million compared to $551 million in the same period last year. The increase in sales was driven by higher selling prices and improved product mix, which combined to offset lower tire unit sales.
For the first nine months of the year, Cooper's continuing operations generated net sales of $1.6 billion and a net loss of $9 million, compared to net sales of $1.5 billion and net income of $24 million in the first nine months of 2004. The results in the first nine months of 2005 included the net impact of $10 million ($7 million net of tax) in debt extinguishment costs and $24 million ($16 million net of tax) in costs related to the strike in the Company's Texarkana, AR tire plant that occurred in March and April. The loss from continuing operations was partially offset by $6 million net of tax from the gain on the sale of discontinued operations.
North American Tire Operations
The Company's North American tire operations reported sales of $509 million in the quarter, up 2 percent compared to $499 million in the third quarter of 2004. This increase was driven by improved price and mix and was partially offset by lower overall unit volumes.
Industry demand for replacement tires in the quarter was soft. Rubber Manufacturers Association (RMA) member companies reported shipments of light vehicle replacement tires decreased by just under 1 percent compared to the third quarter of 2004. Cooper's shipments of light vehicle tires were down by 7 percent. The most notable declines were in the economy and broadline passenger tire categories. However, the Company significantly outperformed the industry in the light truck tire category where shipments from RMA member companies declined slightly and Cooper's shipments increased by 9 percent. Cooper also gained market share in the high performance market segment during the quarter.
Third quarter operating profit for the North American Tire operations was $17 million, compared to $27 million in the same period last year. The decline was largely the result of lower unit sales volumes, which can be partially attributed to a loss of broadline market share, and higher raw material costs. These were partially offset by price increases and improved product mix. The North American Tire unit also benefited from a $6 million legal settlement in a dispute with a supplier and $3 million in recoveries of previously expensed product liability and litigation expense during the quarter.
International Tire Operations
The Company's International Tire operations reported sales of $68 million in the quarter, up 2 percent compared to $66 million in the third quarter of 2004. This increase was driven by higher unit sales volumes and improving product mix.
The International unit generated an operating loss of less than $1 million in the third quarter compared to an operating profit of $3 million in the third quarter of 2004. The decline was largely the result of higher raw material prices, less favorable pricing and expenses related to the startup of the Company's Asian operations. All of these combined to more than offset the contributions of higher unit volume in Europe and improved product mix.
Commenting on the quarter's results, Cooper's chairman, president and chief executive officer Thomas A. Dattilo said, "Our sales were softer than we anticipated throughout the quarter and lagged the markets in July and August. We saw improvement and gained market share in September, but it was not enough to overcome the slow start in the quarter. We made good progress in restoring production levels in our plants. Production on an equivalent unit basis was up for the quarter overall and more so in September. Our order fill rates and the availability of critical, high-demand products continued to improve and these will be key factors as we work hard to regain business, particularly with our independent dealers, going forward."
Outlook
"We are excited about the growth potential in Asia as we complete and begin to leverage our acquisition of a majority interest in Cooper Chengshan Passenger Tire Company and in Cooper Chengshan Truck Tire Company in China," Dattilo continued. "They have grown significantly over the past 2 years and will report nearly $500 million in annualized sales to start. We expect growth in the Chinese automotive and tire industry to keep pace with or exceed the overall economic growth rate in China.
"We are cautiously optimistic about our opportunities to increase sales in North America in the fourth quarter. However, we still face challenges in our broadline sales and uncertainty remains in the tire industry specifically and in the broader economy in North America and key regions around the world. Raw material prices and energy costs are still headed higher. In addition, it is very difficult at this point to accurately assess the current and future strength of global tire markets, particularly in North America, where the impact of higher gasoline prices, declining consumer confidence and the lingering impact of hurricanes in Florida, Mississippi, Louisiana and Texas cannot yet be measured.
"We reduced the production schedules in our plants starting in early October due to raw material supply constraints following hurricane Rita. Raw material supplies now appear to be stabilized. However, our inventory of certain products remains high. As a result, we will continue to operate our North American plants on reduced production schedules. This will negatively impact our fourth quarter operating profit and obscure the progress we are achieving in production process changes and manufacturing efficiency. So our outlook is that our operating environment will remain challenging in the fourth quarter but we expect to see improvement as well as increasing productivity and manufacturing efficiency in the first quarter of 2006."
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 Nine Months Ended
September 30 September 30
2004 2005 2004 2005
Net sales $551,446 $557,795 $1,540,642 $1,582,782
Cost of products sold 489,305 502,369 1,361,318 1,440,764
Gross profit 62,141 55,426 179,324 142,018
Selling, general and
administrative 39,247 41,631 125,622 121,929
Adjustment to class action
warranty (11,273) (277) (11,273) (277)
Restructuring charges 8,432 - 9,111 -
Operating profit 25,735 14,072 55,864 20,366
Interest expense 6,580 13,629 20,959 42,193
Debt extinguishment cost - 1,244 - 9,685
Interest income (317) (3,857) (1,046) (13,991)
Other - net 323 1,285 735 (252)
Income (loss) before taxes 19,149 1,771 35,216 (17,269)
Provision (credit) for taxes 5,974 2,846 10,987 (8,732)
Income (loss) from continuing
operations 13,175 (1075) 24,229 (8,537)
Income (loss) from
discontinued operations,
net of income taxes (3,305) 235 43,919 6,032
Net income $9,870 ($840) $68,148 ($2,505)
Basic earnings per share
Income (loss) from
continuing operations $0.18 ($0.02) $0.33 ($0.13)
Income (loss) from
discontinued operations ($0.05) $0.00 $0.59 $0.09
Net income $0.13 ($0.01)* $0.92 ($0.04)
Diluted earnings per share
Income (loss) from
continuing operations $0.17 ($0.02) $0.32 ($0.13)
Income (loss) from
discontinued operations ($0.04) $0.00 $0.58 $0.09
Net income $0.13 ($0.01)* $0.90 ($0.04)
Weighted average shares
outstanding
Basic 74,928 61,292 74,471 64,440
Diluted 75,935 61,292 75,475 64,440
Depreciation $27,791 $26,695 $81,584 $79,046
Amortization of intangibles $783 $752 $2,350 $2,237
Capital expenditures $38,671 $38,894 $96,289 $128,012
Segment information
Net sales
North American Tire $499,374 $509,415 $1,383,665 $1,433,092
International Tire 65,985 67,520 194,403 203,150
Eliminations (13,913) (19,140) (37,426) (53,460)
Segment profit (loss)
North American Tire $26,807 $16,937 $61,788 $26,668
International Tire 2,802 (590) 9,498 176
Unallocated corporate
charges and eliminations (3,874) (2,275) (15,422) (6,478)
CONSOLIDATED BALANCE SHEETS
September 30
2004 2005
Assets
Current assets:
Cash and cash equivalents $24,932 $404,962
Short-term investments - 41,810
Accounts receivable 340,683 382,732
Inventories 238,230 343,669
Prepaid expenses, deferred income
taxes and other 53,303 53,856
Assets of discontinued operations
and held for sale 1,414,058 575
Total current assets 2,071,206 1,227,604
Property, plant and equipment 696,464 775,227
Goodwill 45,224 48,172
Restricted cash 1,614 12,540
Intangibles and other assets 142,347 345,248
$2,956,855 $2,408,791
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $161 $189
Trade payables and accrued liabilities 342,085 323,693
Income taxes (88) 1,159
Liabilities related to the sale of
automotive operations - 3,528
Liabilities of discontinued operations 371,571 -
Total current liabilities 713,729 328,569
Long-term debt 775,592 673,619
Postretirement benefits other than pensions 154,195 179,392
Other long-term liabilities 202,783 202,079
Long-term liabilities related to the
sale of automotive operations - 22,248
Deferred income taxes 15,969 42,334
Stockholders' equity 1,094,587 960,550
$2,956,855 $2,408,791
* Amounts do not add to due rounding
These interim statements are subject to year-end adjustments