Cooper Tire & Rubber Company Reports Fourth Quarter Results
Fourth Quarter Highlights
* Net sales increased 6 percent to a new all-time record
* Sales from North American Tire Operations increased 7 percent
* Unit sales of SUV and Light Truck Tires increased 8 percent
* Unit sales of HP/UHP tires increased 37 percent
FINDLAY, Ohio, March 1 -- Cooper Tire & Rubber Company today reported a 6 percent year-over-year increase in net sales and a new all-time quarterly record for the Company's tire operations. Total net sales for the Company's continuing operations increased to $572 million in the quarter ended December 31, 2005 compared to $541 million in the same period of 2004. The increase was driven primarily by higher average prices and improved product mix in the Company's North American Tire operations.
The Company's continuing operations generated operating profit of $6 million and a net loss of $6 million in the fourth quarter of 2005 compared to operating profit of $7 million and net income of $3 million in the same period a year ago. On a per share basis, this equates to a net loss of 11 cents in the fourth quarter of 2005 compared to net earnings of 4 cents in the fourth quarter of 2004.
In addition to higher raw material costs and improved pricing and mix, operating profit for the quarter included a $12 million positive impact from a settlement in a dispute with certain suppliers and the negative impact of $8 million from reduced operating levels in the Company's North American plants, $6 million in scrap charges stemming from voluntary recalls of a limited number of tires in two specific product lines, $3 million in asset write-downs and $2 million in severance costs.
Results for the quarter also included the positive impact of a $6 million gain on the Company's repurchase of publicly traded debt and the negative impact of $9 million in taxes imposed on earnings repatriated to the United States from the Company's foreign operations at favorable rates.
Net results for the quarter, including discontinued operations, were a loss of $7 million compared to net income of $133 million in the fourth quarter of 2004. The prior year's results included $18 million in net income from discontinued operations and a gain of $112 million from the sale of the Company's automotive operations.
For the full year 2005, Cooper's continuing operations generated net sales of $2.2 billion, a 4 percent increase compared to net sales of $2.1 billion in 2004. The Company's continuing operations incurred a loss of $15 million in 2005, compared to income of $27 million in 2004. Sales increased as a result of higher prices and improved mix throughout the year. Operating profit declined due largely to higher raw material prices, lower overall unit volumes, and plant inefficiencies. The plant inefficiencies were driven by ongoing plant and product transitions which were largely completed during the year, the strike in the Texarkana, AR facility in the first and second quarters and reduced production levels in all four North American plants in the fourth quarter. These were only partially offset by improved product price and mix. Including income from and the gain on the sale of discontinued operations, the Company generated a net loss of $9 million or 15 cents per share in 2005 compared to total net income of $201 million or $2.68 per share in 2004.
North American Tire Operations
The Company's North American tire operations reported sales of $525 million in the quarter, up 7 percent compared to $491 million in the fourth quarter of 2004. This increase was driven by improved pricing and product mix. Cooper's shipments of premium SUV and light truck tires continued to outpace the industry during the fourth quarter, increasing by more than 8 percent and Cooper's shipments of high performance and ultra-high performance tires increased by more than 37 percent. Overall tire unit shipments were flat, however, as a result of lower shipments in the broadline economy tire category.
Fourth quarter operating profit for the North American Tire operations was $9 million, compared to $14 million in the same period last year. The decline was largely the result of higher raw material costs, the inefficiency and unabsorbed overhead resulting from reduced operating levels in North American plants, and the scrap related to voluntary product recalls. These were partially offset by improved price and mix and a positive settlement in a dispute with certain material suppliers.
For the full year, the Company's North American Tire Operations reported sales of $2.0 billion, up 4 percent compared to $1.9 billion in 2004. The increase was primarily the result of higher prices and improved product mix, partially offset by lower tire unit shipments and reduced shipments of tread rubber and custom mix rubber products.
Full year operating profit for the North American Tire Operations was $36 million in 2005 compared to $76 million in 2004. The decline was primarily the result of higher raw material costs, lower total unit shipments, and operating inefficiencies related to the strike in the Company's Texarkana, AR production facility in the first and second quarters and the reduced operating levels in all four North American production facilities in the fourth quarter. These were partially offset by overall improvements in price and product mix.
International Tire Operations
The Company's International Operations reported sales of $61 million in the fourth quarter of 2005 compared to $63 million in the fourth quarter of 2004. The decline in total sales was almost entirely the result of unfavorable changes in foreign exchange rates.
The international unit generated an operating loss of $4 million in the quarter compared to break-even results in the fourth quarter of 2004. The decline in operating profit was the result of higher raw material costs in European operations and higher general and administrative expenses related to the start up of operations in Asia.
For the full year, the Company's International Operations reported sales of $264 million and an operating loss of $4 million in 2005. This compares with sales of $257 million and operating profit of $9 million in 2004. Sales were up as a result of improved price and mix, partially offset by currency exchange rates. Operating profit for the International Tire Operations declined due to higher raw material costs, increased administrative expense in Asia, and increased plant inefficiencies and scrap in the Company's Melksham, UK facility, related to the ramp up of new ultra-high performance and racing products.
Commenting on the quarter's results, Cooper's chairman, president and chief executive officer Thomas A. Dattilo said, "There were many items, both positive and negative, that obscured our actual results and make it difficult to immediately recognize the improvements and progress we have achieved in our operations. The reduced production schedules we implemented during the fourth quarter enabled us to reduce our overall inventory and rebalance it with an increased focus on products that are in greatest demand. Investments in our plants and the transitions to new and more efficient equipment throughout the year have increased our capacity to produce ultra-high performance and larger rim diameter tires by approximately 75 percent. We have already seen improvements in our sales mix as a result and ongoing trends in production efficiency and scrap rates are improving significantly."
Outlook
"Raw material prices will continue to present challenge and uncertainty in the tire industry in 2006. Stubbornly high oil prices and recent spikes in natural rubber prices will certainly have an impact on the first and second quarters of the year. In spite of this headwind, we remain optimistic about our opportunities for the year overall," Dattilo continued. "The preliminary RMA forecast for the North American light vehicle replacement tire market in 2006 is for growth of around 2 percent. Based on certain customer agreements and the enthusiasm and support from our dealers overall, our internal forecasts are for growth above that in our North American operations. And we started the year well by outpacing the market in January. In addition, our acquisition of Cooper Chengshan (Shandong) Tire Company in China will add approximately $500 million in profitable sales annually."
"As all of our efforts from the past 18 - 24 months come together, we expect to see continued improvements in manufacturing efficiency, improvements in product and customer mix, improving order fill rates, increasing market share in all of our key markets and particularly within key product lines, increased low-cost product sourcing and profitable international operations. We expect each of these areas to contribute to improved results in 2006," Dattilo concluded.
Company Description
Cooper Tire & Rubber Company is a global company that specializes in the design, manufacture, marketing 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 40 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: www.coopertire.com
(Statements of income and balance sheets follow ... )
Cooper Tire & Rubber Company
Consolidated Statements of Income
(Dollar amounts in thousands except per share amounts)
Quarter Ended Year Ended
December 31 December 31
2004 2005 2004 2005
Net sales $540,967 $572,403 $2,081,609 $2,155,185
Cost of products sold 487,298 527,071 1,848,616 1,967,835
Gross profit 53,669 45,332 232,993 187,350
Selling, general and
administrative 46,067 39,263 171,689 161,192
Adjustment to class
action warranty - - (11,273) (277)
Restructuring charges 242 - 9,353 -
Operating profit 7,360 6,069 63,224 26,435
Interest expense 6,610 13,036 27,569 54,511
Debt extinguishment
(gain) loss - (6,175) - 4,228
Interest income (1,022) (4,550) (2,068) (18,541)
Other - net 1,982 826 2,717 588
Income (loss) before
taxes (210) 2,932 35,006 (14,351)
Provision (credit) for
taxes (3,427) 9,436 7,560 704
Income (loss) from
continuing operations
before minority
interests 3,217 (6,504) 27,446 (15,055)
Minority interests - 8 - 22
Income (loss) from
continuing operations 3,217 (6,496) 27,446 (15,033)
Income (loss) from
discontinued operations,
net of income taxes 17,559 61,478
Gain (loss) on sale of
discontinued operations,
net of income taxes 112,448 (355) 112,448 5,677
Net income $133,224 ($6,851) $201,372 ($9,356)
Basic earnings per share
Income (loss) from
continuing
operations $0.04 ($0.11) $0.37 ($0.24)
Income (loss) from
discontinued
operations $0.24 $0.00 $0.83 $0.00
Gain (loss) on sale
of discontinued
operations $1.53 ($0.01) $1.52 $0.09
Net income $1.82 * ($0.11)* $2.71 * ($0.15)
Diluted earnings per share
Income (loss) from
continuing
operations $0.04 ($0.11) $0.37 ($0.24)
Income (loss) from
discontinued
operations $0.24 $0.00 $0.82 $0.00
Gain (loss) on sale
of discontinued
operations $1.51 ($0.01) $1.50 $0.09
Net income $1.79 ($0.11)* $2.68 * ($0.15)
Weighted average shares
outstanding
Basic 73,398 61,317 74,201 63,653
Diluted 74,319 61,600 75,185 64,198
Depreciation $28,221 $29,294 $109,805 $108,340
Amortization $1,134 $3,359 $4,792 $7,327
Capital expenditures $63,019 $44,140 $159,308 $172,152
Segment information
Net sales
North American Tire $491,242 $524,574 $1,874,905 $1,957,666
International Tire 62,817 61,301 257,220 264,451
Eliminations (13,090) (13,472) (50,516) (66,932)
Segment profit (loss)
North American Tire $14,164 $9,151 $75,952 $35,819
International Tire (79) (3,819) 9,420 (3,643)
Unallocated
corporate charges
and eliminations (6,726) 737 (22,148) (5,741)
CONSOLIDATED BALANCE SHEETS
December 31
2004 2005
Assets
Current assets:
Cash and cash equivalents $881,728 $280,712
Short-term investments 46,064 -
Accounts receivable 340,897 338,793
Accounts receivable from sale of
automotive operations 48,770 -
Inventories 248,782 306,046
Prepaid expenses, deferred income
taxes and other 65,425 42,850
Assets of discontinued operations
and held for sale 10,813 400
Total current assets 1,642,479 968,801
Property, plant and equipment 729,420 786,225
Goodwill 48,172 48,172
Restricted cash 12,484 12,382
Intangibles and other assets 235,529 336,606
$2,668,084 $2,152,186
Liabilities and
Stockholders' Equity
Current liabilities:
Notes payable $459 $79
Trade payables and accrued
liabilities 290,258 257,444
Income taxes 1,320 15,390
Liabilities related to the sale of
automotive operations 19,201 4,684
Liabilities of discontinued
operations 727 -
Total current liabilities 311,965 277,597
Long-term debt 773,704 491,618
Postretirement benefits other
than pensions 169,484 181,997
Other long-term liabilities 178,282 225,850
Long-term liabilities related to
the sale of automotive operations 23,116 14,407
Deferred income taxes 41,000 21,941
Stockholders' equity 1,170,533 938,776
$2,668,084 $2,152,186
* Amounts do not add to due rounding