JP Morgan Auto Conference 2012

J.P. Morgan
g
Auto Conference 2012
Brad Hughes - CFO
August 14, 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
Q3 2012 results are scheduled to be released on November 1, 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 fil
file
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 are
intended to be inactive textual references only.
3
Agenda
g
Recent News
Company Background
Industry
Raw Materials
Q2 2012 results & other items
Q
Balance Sheet and Investments
Strategic Plan Execution
Risks
4
Recent news
Jan 2012 – Finalized purchase of tire plant assets in Kruševac,
Serbia
Jan/Feb 2012 – United Steelworkers Local 752L ratify 4 year labor
contract and Local 207L ratify 5 year labor contract
Jul 2012 – Awarded $6.9 million grant from USDA to develop
guayule technology for commercialization in the tire industry
J l 2012 – Serbia
Jul
S bi operation
i awarded
d d ISO 9001:2008
9001 2008 quality
li
standard certification
Aug 2012 – Declared 162nd consecutive quarterly dividend
Aug 2012 - AR Securitization credit facility extended to June 2015
5
A leader in the tire industryy
2011 Sales by Segment
North America
30%
70%
5%
5%
Sales by Product*
20%
50%
20%
6
International
Passenger
Light Truck
Commercial Truck
Winter
Specialty
*based on an approximation of recent years net sales,
primarily in the replacement market
9th largest global tire manufacturer
and 4th largest in the U.S.
2011 revenue of $3.9 billion
13% market share in the U.S. light
vehicle replacement tire market
Limited O.E.
O E presence
Rapidly growing international
segment
2011 unit sales ≈47 million tires
With a global
network and presence
g
p
Note: Operations in Rongcheng City, China, and Guadalajara, Mexico are not wholly owned.
Assets from the operation in Kruševac, Serbia were acquired in early 2012.
7
A flexible and cost effective manufacturingg network
Findlay,
y OH ((mfg,
g R&D, Corp
p HQ))
Texarkana, AR (mfg)
Tupelo, MS (mfg)
Pearsall, TX (test track)
Occidente, Guadalajara, Mexico (mfg)
Stow, OH (Mickey Thomson HQ)
Clarksdale, MS (rubber mixing)
Cooper Chengshan Tire (CCT),
Rongcheng
g
g City,
y, China ((mfg)
g)
Cooper Kunshan Tire (CKT),
Kunshan, China (mfg)
Asia Technical Center (ATC) and HQ,
Sh h i China
Shanghai,
Chi (R&D),
(R&D) Asia
A i HQ
Melksham, England (mfg, R&D,
European HQ)
Cooper Tire Serbia (mfg)
Kruševac, Serbia (mfg)
p
g alternatives are used to maximize cost effectiveness using
g high
g
Cooper's
sourcing
quality, near source operations.
Note: Operations in Rongcheng City, China, and Guadalajara, Mexico are not wholly owned.
8
A strong, diverse brand portfolio…
House Brands
Private Brand Distributors and National Retailers
9
A historically resilient industry in the U.S.
Millions 300
of tires
Light
g vehicle replacement
p
tire industryy shipments
p
Passenger
250
208
200
29
217
31
226
34
In four decades only once has there been a
period of two consecutive years of decline
Light Truck
233
225
228
31
34
34
222
34
235
36
238
36
230
34
238
223
34
29
230
223
220
29
28
201
194
192
2010
29
201
2011
29
194
2012
28
192
218
29
28
150
199
191
191
194
199
196
204
179
192
202
186
1997
Light Truck 29
Passenger
179
1998
31
186
1999
34
192
2000
34
199
2001
31
191
2002
34
191
2003
34
194
2004
36
199
2005
36
202
2006
34
196
2007
34
204
100
194
190
2008
29
194
2009
28
190
50
0
10
2012 is based on RMA estimates released August 2012
A Company
p y that can g
grow
4.5
4.0
3.5
3.0
2.5
2.0
1.5
10
1.0
0.5
0.0
North
America
International
Eliminations
Total
11
Total
Net Sales, USD Billions
North America
International
2004
2005
2006
2007
2008
2009
2010
2011
1.7
03
0.3
(0.1)
2.0
1.8
00.33
(0.1)
2.0
2.0
00.77
(0.1)
2.6
2.2
00.99
(0.2)
2.9
2.1
11.00
(0.2)
2.9
2.0
10
1.0
(0.2)
2.8
2.4
11.33
(0.3)
3.4
2.9
11.66
(0.5)
3.9
amounts may not add due to rounding
Diversifying
y gp
profits
Total
200
North America
International
Operating Profit, USD millions
150
100
50
0
-50
-100
-150
2007
12
2008
2009
2010
2011
Successful 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
13
Brand Embedment
Significant product launches including commercial tires are occurring around the globe.
Exciting Products
Tire shipments can be impacted by economic factors
Passenger
Percentage change in United States Shipments
Q2 2012 vs Q2 2011
YTD June 2012 vs YTD June 2011
Total
RMA
Total
RMA
Industry Members Cooper
Industry
Members
Cooper
0.0%
0.1%
15.2%
-2.6%
-3.9%
3.8%
Light Truck
0.2%
-2.3%
18.7%
-6.5%
-8.4%
6.2%
Total Light
Vehicle
0 1%
0.1%
-0.2%
0 2%
15 9%
15.9%
-3.1%
3 1%
-4.5%
4 5%
4 3%
4.3%
Medium Truck
-7.7%
-14.3%
4.5%
-8.4%
-15.4%
9.4%
Broadline and value tires continue to be the most impacted by the economic and value tires continue to be the most impacted by the economic
environment. Cooper recognizing Q2 growth in Broadline, Light Truck, UHP and TBR
July 2012 total industry shipments increased 3.8% for replacement light vehicle and RMA members increased 7.0%.
14 Data Source: RMA and Cooper Tire
421 Tariff Impact
p
Additional tariff of 25% applied to Light vehicle tires imported into U.S.
from China ((currentlyy set to expire
p in September
p
2012))
Since 2009 companies have increased imports from countries other than
China
The cost differential of Chinese sourced tires have diminished due to
hi h landed
higher
l d d costs
t (labor
(l b cost,t ffreight,
i ht utilities
tiliti andd currency iinflation
fl ti iin
China)
Cooper is well positioned to deal with the tariff expiration
Enhanced competiveness at U.S. plants
Supply from Mexico
Flexibility in China operations
15
15
Tires are a complex
p product
p
Input
Raw Materials
Labor
Other
Raw Material Breakdown
Natural Rubber
Synthetic Rubbers
Carbon Black
Reinforcing Fabrics
Steel
Other Raw Materials
16
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
material in Q2, 2012 was approximately 67% of CoGS for the total Company.
% of CoGS
50-55%
20-30%
15-30%
% of RM
20-25%
25-30%
10-15%
10-15%
10
15%
10-15%
10-15%
Raw material cost volatility is a challenge
300
250
200
150
100
50
0
Q3, 2012 is an estimate
17
Cooper's Raw Material Index
Q2, 2012 = 262
Q2 2012
Related information including an operating profit walk from the prior year
is available at Coopertire.com under the Investor Relations page.
(millions USD, except EPS)
Net Sales by Segment
North American Tire
International Tire
Eliminations
Total Company
Operating Profit by Segment
North American Tire
International Tire
Eliminations
Corporate
Total Company
Q2 2012
$
$
$
$
Q2 2011
771
419
(131)
1,058
OP %
65 8.4%
43 10.3%
(3)
(10)
95 9.0%
$
$
$
$
663
396
(140)
919
OP %
4 0.6%
23 5.9%
(1)
(2)
24 2.6%
Change from
Prior Year
16 2%
16.2%
5.8%
-6.6%
15.2%
$
$
61
20
(2)
(8)
71
Earnings Per Share (diluted) from
continuing operations attributable to
common stockholders
$
0.82
$
0.18
$
0.64
Cash and Cash Equivalents
q
$
241
$
138
$
103
amounts are unaudited and may not add due to
rounding
18
6 Months Ended June 30, 2012
(millions USD, except EPS)
Net Sales by Segment
North American Tire
International Tire
Eliminations
p y
Total Company
Operating Profit by Segment
North American Tire
International Tire
Eliminations
Corporate
Total Company
6 Months Ended June
30 2012
30,
$
$
1,468
823
(249)
2,043
,
6 Months Ended June 30,
2011
$
$
$
OP %
88 6.0%
76 9.2%
(4)
(17)
143 7.0%
$
Earnings
E
i
P
Per Sh
Share (dil
(diluted)
t d) from
f
continuing operations available to
common stockholders
$
1.17
$
Cash and
Cas
a d Cash
Cas Equivalents
qu a e ts
$
241
$
$
amounts are unaudited and may not add due to
19rounding
$
1,307
759
(246)
1,821
,
OP %
25 1.9%
43 5.7%
(3)
(9)
56 3.1%
Change from
Prior Year
12.3%
8.4%
1.2%
12.2%
%
$
$
63
33
(1)
(7)
87
0.43
$
0.74
138
38
$
103
03
Other Items
Products liability charges for the full year of 2012 expected to be higher following the long
term trend of expenses and costs associated with an active trial docket.
Pension funding and expense in 2012 should be in the range of $40 million to $50 million.
UK pension plan frozen effective April 6, 2012 curtailment ggain of approximatelyy $7
million in Q2 2012.
Effective tax rates for the full year 2012 in the range of 29% to 34%.
Capital expenditures in 2012 in the range of $180 million to $210 million.
20
20
A solid balance sheet and available liquidity
q
y
millions USD
Cash & cash equivalents
Parent Company Credit Lines
6/30/2012
$241
$275 to $375
$516 to $616
Liquidity Items for Consideration
Capital expenditures between $180 and $210 million in 2012
Depreciation approximately $130 million in 2012
Lowest level of cash needed = $75 million
Additional $249 million of credit available in China
Parent Company
8% unsecured notes due December 2019
7.625% unsecured notes due March 2027
Capitalized leases and other
6/30/2012
12/31/2011
$
$
Subsidiaries
Total debt
Less current maturities
$
21
174
117
9
300
44
344
7
337
$
174
117
10
301
50
351
21
330
Corporate Debt Ratings:
Moody's B1, Stable
S&P BB-, Stable
Investment decisions focus on creating shareholder value
Funding Considerations
Sustaining basic operations
Dividends
Strategic investments
Profitable growth
C t reductions
Cost
d ti
Additional pension funding
Optimize WACC, long-term capital structure,
and credit rating
Opportunistic capital structure changes
Other shareholder-friendly actions
Cash & Cash
Equivalents (millions
USD) at 12/31
2005
$280
2006
$222
2007
$508
2008
$248
2009
$427
2010
$413
2011
$234
Analysis includes a review of returns and the anticipated future business environment.
Priorities can change based on those expectations.
22
22
We have delivered on our long
g term strategy
gy



23
More details on Cooper's Strategic Plan are
available at Coopertire.com.
Reinforcing our opportunity to grow and
generate value…
• Continued investment in our business in China,
China Mexico
Mexico,
Eastern & Central Europe
• Investing in high quality well recognized products such
as Cooper
p Zeon RS3 & Discoverer A/T3
• Continued trend of 162 consecutive quarterly dividends
• Total shareholder return of 36% from 2008 thru 2011 (top
quartile of the S&P)
24
24
Q
Questions?
i ?
25
25
Risks
It is possible that actual results may differ materially from projections or expectations due to a variety of factors, including
It
is possible that actual results may differ materially from projections or expectations due to a variety of factors, including but not limited to:
but not limited to:
•
the failure to achieve expected sales levels;
•
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;
•
the inability to obtain and maintain price increases to offset higher production or material costs;
•
the failure of the Company’s suppliers to timely deliver products in accordance with contract specifications;
•
changes in economic and business conditions in the world;
g
;
•
changes in interest or foreign exchange rates;
•
increased competitive activity including actions by larger competitors or lower‐cost producers;
•
consolidation among the Company's competitors or customers;
•
changes in the Company’s customer relationships, including loss of particular business for competitive or other reasons;
•
litigation brought against the Company, including products liability claims, which could result in material damages against the Company, as well as potential increases in legal fees due to a more active trial docket;
•
volatility in the capital and financial markets or changes to the credit markets and/or access to those markets;
•
an adverse change in the Company’s credit ratings, which could increase its borrowing costs and/or hamper its access to the credit markets;
•
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;
•
the impact of labor problems, including labor disruptions at the Company or at one or more of its large customers or suppliers;
•
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;
•
government regulatory and legislative initiatives including environmental and healthcare matters;
•
failure to implement information technologies or related systems, including failure to successfully implement an ERP system ;
•
the failure to develop technologies, processes or products needed to support consumer demand;
•
technology advancements;
•
the risks associated with doing business outside of the United States;
•
failure to attract or retain key personnel;
•
inaccurate assumptions used in developing the Company’s strategic plan or operating plans or the inability or failure to successfully implement such plans;
•
failure to successfully integrate acquisitions into operations or their related financings may impact liquidity and capital resources; •
changes in the Company’s relationship with joint‐venture partners;
•
the inability to recover the costs to develop and test new products or processes;
•
inability to adequately protect the Company’s intellectual property rights;
•
and inability to use deferred tax assets.
26
26