Deutsche Bank Global Auto Industry y Conference - Brad Hughes, CFO January 10, 2012
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Deutsche Bank Global Auto Industryy
Conference
Brad Hughes, CFO
January 10, 2012
1
Safe Harbor Statement
This presentation contains strategic goals and other
forward looking statements related to future financial results
forward-looking
and business operations for Cooper Tire & Rubber Company.
Actual results may differ materially from the goals and from
current management forecasts and projections as a result of
factors over which the Company may have limited or no
control. Information on certain of these risk factors and
additional information on forward-looking statements are
included in the Company’s reports on file with the Securities
and Exchange Commission and are set forth at the end of this
presentation.
presentation
FY 2011 results are scheduled to be released on Feb. 27, 2012
See Coopertire.com for details.
2
Available Information
Our internet address is http://www.coopertire.com. We webcast our earnings calls and certain events
we participate in or host on the investor relations portion of our website,
http://coopertire.com/investors.aspx. We also make available on our website free of charge a variety
of information for investors.
investors Our goal is to maintain the investor relations portion of the website as a
portal through which investors can easily find or navigate to pertinent information about us,
including:
• our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
any amendments
d t to
t those
th reports,
t as soon as reasonably bl practicable
ti bl after
ft we electronically
l t i ll filfile
that material with or furnish it to the Securities and Exchange Commission (“SEC”);
• information on our business strategies, financial results and selected key performance indicators;
• announcements of our p participation
p at investor conferences and other events;;
• press releases on quarterly earnings, product and service announcements and legal
developments;
• corporate governance information; and
• other
th news and d announcements t that
th t we may postt ffrom ti
time to
t time
ti that
th t investors
i t might
i ht find
fi d
useful or interesting.
The content of our website is not intended to be incorporated by reference into this presentation or in
any report or document we file with or furnish to the SEC, and any references to our website is
intended to be inactive textual references only.
3
Agenda
g
Recent News
Company Background
Q3 2011 Summary
Raw Materials
Strategic Plan and Current Tactics
Balance Sheet and Investments
Changing Industry Factors
Other Items
Risks
4
Recent news
July and September 2011 - Cooper Zeon RS3™ UHP tire and Cooper
Discoverer A/T3™ tire recognized by a prominent consumer testing
organization as best available on the market
July 2011 - S&P upgraded CTB's corporate family outlook to positive
from stable
August 2011 - Cooper recognized by Sears with a Partner in Progress
Award
November 2011 - United Steelworkers Local 207L (USW) locked out of
the Findlay plant
December 2011 – Implemented a price increase in the U.S. of up to 5%
with in-line adjustments effective Dec. 1, 2011
December 2011 - Agreement signed to acquire the assets of an existing
tire plant in Kruševac, Serbia
5
A leader in the tire industryy
2010 Sales by Segment 9th largest global tire manufacturer
and 4th largest in the U.S.
30% North America
2010 revenue of $3.4 billion
70% International
13% market share in the U.S. light
vehicle replacement tire market
5% 2010 Sales
S l byb P
Product*
d t* Limited O.E.
O E presence
5% Passenger Rapidly growing international
20% Light Truck segment
50% Commercial Truck
Winter
2010 unit sales ≈47 million tires
20% Specialty
6 *based on net sales, primarily in the replacement market
With a g
global network and p
presence
Note: Operations in Rongcheng City, China, and Guadalajara, Mexico are not wholly owned.
Assets from the operation in Kruševac, Serbia should be acquired in early 2012.
7
A flexible and cost effective manufacturingg network
Cooper Chengshan Tire (CCT),
Findlay,
y OH ((mfg,
g R&D, Corp
p HQ)) Rongcheng
g g City,
y, China ((mfg)
g)
Texarkana, AR (mfg) Cooper Kunshan Tire (CKT),
Tupelo, MS (mfg) Kunshan, China (mfg)
Pearsall, TX (test track) Asia Technical Center (ATC) and HQ,
Sh h i China
Shanghai, Chi (R&D)
Occidente, Guadalajara, Mexico (mfg)
Melksham, England (mfg, R&D,
Stow, OH (Mickey Thomson HQ)
European HQ)
Clarksdale, MS (rubber mixing)
Cooper Tire Serbia (mfg)
Kruševac, Serbia*
p
Cooper's g alternatives are used to maximize cost effectiveness using
sourcing g high
g
quality, near source operations.
Note: Operations in Rongcheng City, China, and Guadalajara, Mexico are not wholly owned.
*Deal for assets should close in early 2012 subject to conditions of offer.
8A strong, diverse brand portfolio…
House Brands
Private Brand Distributors and National Retailers
9A historically resilient industry in the U.S.
Light
g vehicle replacement
p tire industryy shipments
p
Millions 300
of tires
Passenger Light Truck In four decades only once has there been a
period of two consecutive years of decline
250
233 235 238 238
226 225 228 230 230 226
222 223 225
217 218
208 36 36 34
34 34 29 29
34 31 34 34 29 29
200 31 28
29
150
100 199 199 202 196 204 201 196 197
186 192 191 191 194 194 190
179
50
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Light Truck 29 31 34 34 31 34 34 36 36 34 34 29 28 29 29 29
Passenger 179 186 192 199 191 191 194 199 202 196 204 194 190 201 196 197
10 2011 and 2012 are based on RMA estimates released December 2, 2011A Company
p y that can g
grow
USD Billions Total North America International
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2004 2005 2006 2007 2008 2009 2010
North America 1.7 1.8 2.0 2.2 2.1 2.0 2.4
International 0.3 0.3 0.7 0.9 1.0 1.0 1.3
Eliminations (0 1)
(0.1) (0 1)
(0.1) (0 1)
(0.1) (0 2)
(0.2) (0 2)
(0.2) (0 2)
(0.2) (0 3)
(0.3)
Total 2.0 2.0 2.6 2.9 2.9 2.8 3.4
11Tire shipments can be impacted by economic factors
Percentage change in United States Shipments
Q3 2011 vs Q3 2010 YTD Sept. 2011 vs YTD Sept. 2010
Total RMA Total RMA
Industry Members Cooper Industry Members Cooper
Passenger 0.2% -1.9% -1.0% -1.2% -1.1% -3.1%
Light Truck 0.1% -3.2% 11.9% 4.7% 4.8% 10.2%
Total Light
g Vehicle 0.2% -2.1% 1.1% -0.5% -0.4% -0.9%
Medium Truck 1.9% -1.7% 52.3% 9.1% 5.1% 58.6%
Third quarter shipments were strongest in the UHP and light truck product lines
lines,
while broadline and value tires continued to be the most impacted by the economic
environment.
November shipments were down .9% for replacement light vehicle for the total
industry, and down 1.9% year to date.
12 Data Source: RMA and Cooper TireQ3 2011
Related information including an operating profit walk from the prior year
are available at Coopertire.com under Investor Relations
(millions USD, except EPS)
Change from
Net Sales by Segment Q3 2011 Q3 2010 Prior Year
North American Tire $ 765 $ 648 18.0%
International Tire 422 325 29.7%
Eliminations (133) (90) 47.7%
Total Company $ 1,054 $ 883 19.3%
Operating
p g Profit byy Segment
g OP % OP %
North American Tire $ 17 2.3% $ 55 8.5% $ (38)
International Tire 30 7.2% 21 6.3% 10
Eliminations 0 (1) 2
Corporate (1) (7) 6
Total Company $ 47 4.5%
4 5% $ 67 7.6%
7 6% $ (20)
Earnings Per Share (diluted) from
continuing operations attributable to
common stockholders $ 0.27* $ 0.71 $ (0.44)
Cash and Cash Equivalents $ 91 $ 347 $ (256)
amounts are unaudited and may not add due to rounding
*includes 14 cents of additional tax expense because of the timing of credits
and deductions. These items are expected to be largely offset with the
anticipated fourth quarter release of the majority of the U.S. valuation
13 allowance.9 Months Ended September 30, 2011
(millions USD, except EPS)
9 Months Ended 9 Months Ended
September 30, September 30, Change from
Net Sales by Segment 2011 2010 Prior Year
North American Tire $ 2,079 $ 1,754 18.5%
International Tire 1,181 931 26.9%
Eliminations (379) (244) 55.2%
Total Company $ 2,882 $ 2,441 18.0%
Operating Profit by Segment OP % OP %
North American Tire $ 43 2.0% $ 88 5.0% $ (46)
International Tire 74 6.3% 64 6.8% 10
Eliminations (2) (2) (1)
Corporate (10) (16) 6
Total Company $ 104 3.6% $ 134 5.5% $ (30)
Earnings Per Share (diluted) from
continuing operations available to
common stockholders $ 0.71 $ 1.21 $ (0.50)
Cash and Cash Equivalents $ 91 $ 347 $ (256)
amounts are unaudited and may
y not add due to rounding
g
14Tires are a complex
p product
p
Input % of CoGS
Raw Materials 50-55%
Labor 20-30%
Other 15-30%
Raw Material Breakdown % of RM
Natural Rubber 20-25%
Synthetic Rubbers 25-30%
Carbon Black 10-15%
Reinforcing Fabrics 10-15%
10 15%
Steel 10-15%
Other Raw Materials 10-15%
Note: These costs are historical estimates of typical costs and are based on
production in what would traditionally be considered a high cost country. Raw
15 material in Q3,2011 was approximately 65% of CoGS for the total Company.Raw material cost volatility is a challenge
Cooper's Raw Material Index Q3 2011 = 276
300
250
200
150
100
50
0
Q4, 2011 is an estimate based on a sequential decrease of < 5%.
16A long-term
g strategy
gy g
guides current tactics
Focus Areas
• Profitable sales growth
g
• grow international sales to 50% of sales
• focus on house and premium products
• Next level cost competiveness
• High performing team & culture • Product availability and supply
• ERP deployment readiness
• Brand refresh
More details on Cooper's
Cooper s Strategic Plan are
available at Coopertire.com
17Successful new product launches support growth
Cooper Zeon RS3™ UHP tire and the
Cooper Discoverer AT3 ™ recognized by a
prominent consumer testing organization
as best
b t available
il bl on th
the market.
k t
Media Recognition Brand Embedment Exciting Products
Significant product launches including
18 commercial tires are occurring around the globe.A solid balance sheet and available liquidity
q y
millions USD 9/30/2011
Cash & cash equivalents $91
Parent Company Credit Lines $275 to $375
$366 tto $466
Liquidity Items for Consideration
Capital expenditures between $140 and $160 million in 2011
Depreciation approximately $130 million in 2011
Lowest level of cash needed = $75 million
Additional $231 million of credit available in China
Long Term Debt 9/30/2011 12/31/2010 Corporate Debt Ratings:
Parent Company
8% unsecured notes due Deceomber 2019 $ 174 $ 174 Moody's B1, Stable
7.625% unsecured notes due March 2027 117 117 S&P BB-, Positive
Capitalized leases and other 10 11
301 301
Subsidiaries 56 26
Total debt 357 327
Less current maturities 27 6
$ 330 $ 321
19Investment decisions focus on creating shareholder value
Funding Considerations
Sustaining basic operations Cash & Cash
Dividends Equivalents (millions
Strategic investments USD) at 12/31
Profitable growth 2005 $280
C t reductions
Cost d ti 2006 $222
Additional pension funding 2007 $508
Optimize WACC, long-term capital structure, 2008 $248
and credit rating 2009 $427
Opportunistic capital structure changes 2010 $413
Other shareholder-friendly actions
Analysis includes a review of returns and the anticipated future business environment.
Priorities can change based on those expectations.
Cash at September 30, 2011, was $91 million.
20
20Preparing 421 Tariff
p g for a changing Impact
g g industryy
• Additional Tire Labeling tariff of 30% on Chinese tires will reduce
421 Tariff
to 25%
Cooper in Sep,
supports 2011it and 0% at Sep.
to the extent 2012.
Additional tariff of 30% on Chinese tires
will enhance consumers
consumers' reduced
d d tto 25% in i September
S t b 2011 andd will ill
Companies
• understanding have
of tires in a increased imports be 0% infrom
Septembercountries
2012.
reasonable
other than manner. China. Companies have increased imports from
countries other than China.
Regulations are still being Cooper
p is well-positioned
p to deal with either
refined,
fi
• Cooper
C d i
implementation
l t ti b
begins
i
iis wellll positioned i
in
iti d to
t d deall with ith either
scenario (tariff ith scenario
continuing or expiring). i
2012 in Europe. Enhanced competiveness at U.S.
(tariff continuing
Cooper continues to be engaged
or expiring). plants
Supply from Mexico
and will use our g
strengths
– Enhanced competiveness at U.S.to U SFlexibility
plants at Cooper Kunshan Tire (can
benefit as the regulations are sell into China starting in 2012)
finalized.
– Supply from Mexico
– Flexibility atRolling Cooper Kunshan
Resistance Tire
and Fuel Efficiency
Cooper launched a "green tire" the GFE, in 2009.
Investments in related technology will continue.
Future products will include this technology to
drive value for the consumer
consumer.
21
21Other Items
Cooper expects to release the majority of the valuation allowance on U.S. taxes in Q4
2011. (At September 30, 2011, the valuation allowance was $171 million)
Products
P d t liability
li bilit charges
h ffor th
the ffullll year off 2011 should
h ld ffollow
ll th
the ttrendd off expense
consistent with recent trends after adjusting for the Toe case and for higher legal fees, as
we do not expect any insurance recoveries for fees going forward. For more information
on Products Liability please refer to our 10-K 10 K and other filings.
filings
Pension costs are similar in 2011 to 2010. Funding levels similar to 2010 at $40 million.
Effective tax rates for the full year 2011 were projected as of the Q3 2011 earnings
release to be in the 20% to 30% range for 2011.
22
22Q
Questions?
i ?
23
23Risks
It is possible that actual results may differ materially from those projections or expectations due to a variety of factors, including but not limited to:
• changes in economic and business conditions in the world;
• the failure to achieve expected sales levels;
• the impact of labor problems, including a work stoppage at the Company or at one or more of its large customers or suppliers;
• volatility in raw material and energy prices, including those of rubber, steel, petroleum based products and natural gas and the unavailability of such raw
materials or energy sources;
• consolidation among the Company's competitors or customers;
• technology advancements;
• the failure of the Company’s suppliers to timely deliver products in accordance with contract specifications;
• changes in interest or foreign exchange rates;
• changes in the Company’s customer relationships, including loss of particular business for competitive or other reasons;
• the impact of reductions in the insurance program covering the principal risks to the Company, and other unanticipated events and conditions;
• the inability to obtain and maintain price increases to offset higher production or material costs;
• increased competitive activity including actions by larger competitors or lower-cost producers;
• the inability to recover the costs to develop and test new products or processes;
• the risks associated with doingg business outside of the United States;;
• changes in pension expense and/or funding resulting from investment performance of the Company’s pension plan assets and changes in discount rate,
salary increase rate, and expected return on plan assets assumptions, or changes to related accounting regulations;
• government regulatory initiatives;
• litigation brought against the Company including products liability;
• an adverse change g in the Company’s
p y credit ratings,g , which could increase its borrowingg costs and/or hamper
p its access to the credit markets;;
• changes to the credit markets and/or access to those markets;
• inaccurate assumptions used in developing the Company’s strategic plan or operating plans or the inability or failure to successfully implement such
plans;
• inability to adequately protect the Company’s intellectual property rights;
• failure to successfullyy integrate
g acquisitions
q into operations
p or their related financings
g mayy impact
p liquidity
q y and capital
p resources;;
• inability to use deferred tax assets;
• changes to tariffs on certain tires imported into the United States from the People's Republic of China or the imposition of new tariffs or trade restrictions;
• and changes in the Company’s relationship with joint-venture partners.
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