UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________to________
Commission File Number 1-4329
COOPER TIRE & RUBBER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 34-4297750
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Lima and Western Avenues, Findlay, Ohio 45840
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 423-1321
Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange on
(Title of each class) which registered)
Common Stock, $1 par per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
State the aggregate market value of the voting stock held by non-
affiliates of the registrant (computed by reference to the closing price
on the Composite Tape for securities listed on the New York Stock
Exchange as of March 9, 1998). $1,855,838,060
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
(Class) (Outstanding at March 9, 1998)
Common Stock, $1 par per share 78,762,358
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K into which the document is incorporated:
Proxy statement dated March 24, 1998 - Part III
EXHIBIT INDEX appears on pages 16 and 17
1
<PAGE>
Part I
Item 1. BUSINESS
Acquisition of Tire Operations of Avon Rubber p.l.c.
On March 14, 1997, the Company, through a wholly-owned United Kingdom
subsidiary, acquired the tire operations of Avon Rubber p.l.c. (Avon) of
the United Kingdom. This purchase includes the land and manufacturing
facility in Melksham, England; the shares of Avon Tyres Limited, renamed
Cooper-Avon Tyres Limited (Cooper-Avon), and the shares of tire
distribution companies in France, Germany and Switzerland; and other
minor assets. In a separate transaction the Company acquired from Avon
various trademarks and technology. The acquisitions, totaling $96.5
million, have been accounted for as a purchase. The Company's
consolidated financial results and financial position subsequent to the
date of acquisitions reflect Cooper-Avon operations. Had these
acquisitions occurred as of the beginning of 1996, the pro forma results
of operations giving effect to the acquisitions would not be materially
different from the net sales, net income and earnings per share
presented in the statements of income.
Products and Sales
The primary business of Cooper Tire & Rubber Company ("Cooper" or
"Company") is the conversion of natural and synthetic rubbers into a
variety of carbon black reinforced rubber products. The Company
manufactures and markets the following products for the transportation
industry: automobile, truck and motorcycle tires; inner tubes;
vibration control systems; automotive sealing; and hose and hose
assemblies. Additional information on the Company's products appears in
Exhibit (13) of this Annual Report on Form 10-K.
The Company markets its products domestically and internationally
through well-established channels of distribution. Among its customers
are automotive manufacturing companies, independent tire dealers and
wholesale distributors and large retail chains.
Tires are sold in the replacement market through independent dealers
and distributors. This channel of marketing accounted for approximately
71 percent of all replacement passenger tires sold in the United States
in 1997. During 1996 and 1995 this share approximated 69.5 and 68.5
percent, respectively. Cooper has an efficient distribution system to
serve its markets for replacement passenger and truck tires.
Cooper engineers and manufactures rubber parts for automotive vehicle
manufacturers. The Company's engineering and marketing personnel work
closely with these customers to assist in the design and development of
rubber products to meet their changing requirements.
Additional information on the Company's marketing and distribution
appears in Exhibit (13) of this Annual Report on Form 10-K.
North American vehicle manufacturers experienced a 3.4% increase in
total production of light vehicles in 1997. The Company's sales of
engineered rubber products are generally linked to light vehicle
production. Cooper's improved sales in this market reflected the
Company's success in the procurement of larger contracts and development
of new products. The Company is an authorized supplier to virtually
every automobile manufacturer in the United States and Canada.
Current market data indicates an increasing demand for replacement
tires and engineered rubber products. Essentially, there are no
economical or practical substitutes for tires or certain rubber
automotive parts. Based on current data, the Company expects moderate
(continued)
2
<PAGE>
growth in the market for replacement tires and in the use of rubber
components by automobile manufacturers. Additional information on the
Company's outlook for the industry appears in Exhibit (13) of this
Annual Report on Form 10-K.
During recent years Cooper has distributed products to Canada and
countries in Latin America, Western Europe, the Middle East, Asia,
Africa and Oceania. The global market for rubber products is expanding
as the standard of living in other countries increases and motor vehicle
usage grows.
During 1997 Cooper's ten largest customers accounted for
approximately 55 percent of total sales. Sales to one major customer
approximated 12, 17 and 14 percent of net sales in 1997, 1996 and 1995.
The amount of backlog of orders for the Company's products at any given
time is usually small in relation to annual sales and is, therefore, of
little value in forecasting sales or earnings for the current or
succeeding years.
The Company successfully operates in a competitive industry. A
number of its competitors are larger than the Company. The Company's
sales of automobile and truck tires in 1997 represented approximately 13
percent of all domestic, original equipment and replacement tire sales.
On the basis of North American tire manufacturing capacity the Company
believes it ranks fourth among sixteen generally recognized producers of
new tires. According to a recognized trade source the Company ranked
ninth in worldwide tire sales based on 1996 estimated sales volumes.
Sales of the Company's tire products are affected by factors which
include price, quality, availability, technology, warranty, credit terms
and overall customer service.
Raw Materials
The primary raw materials used by the Company include synthetic and
natural rubbers, polyester and nylon fabrics, steel tire cord and carbon
black, which the Company acquires from multiple sources to provide
greater assurance of continuing supplies for its manufacturing
operations. The Company did not experience any significant raw material
shortages in 1997, nor have any shortages been experienced in the
opening months of 1998.
The Company has a purchasing office in Singapore to acquire natural
rubber and various raw materials direct from producers in the Far East.
This purchasing operation enables the Company to work directly with
producers to improve the consistency of quality and to reduce the costs
of materials, delivery and transactions. In addition, control over
packaging methods enhances the Company's goal to use recyclable
materials in the packaging of these raw materials.
The Company's contractual relationships with its raw material
suppliers are generally based on purchase order arrangements. Certain
materials are purchased pursuant to supply contracts which incorporate
normal purchase order terms and establish minimum purchase amounts.
Cooper has not experienced serious fuel shortages and none are
foreseen in the near future. The Findlay, Ohio plant uses natural gas
with fuel oil and coal as standby energy sources. All other Company
plants use natural gas with fuel oil as a standby energy source.
(continued)
3
<PAGE>
Research, Development and Product Improvement
Cooper generally directs its research activities toward product
development, improvements in quality, and operating efficiency. A
significant portion of basic research for the rubber industry is
performed by raw material suppliers. The Company participates in such
research with its suppliers. Cooper has approximately 261 full-time
employees engaged in research and development programs. Research and
development expenditures amounted to approximately $21,700,000 in 1997,
$19,700,000 in 1996, and $16,000,000 in 1995.
The Company is a leader in the application of computer technology to
the development of new tire products and engineered automotive products.
The use of computer-aided design (CAD) and sophisticated modeling
programs reduce Cooper's product development costs and the time necessary
to bring new products to market. The Company also forms strategic
alliances with universities, research firms and high-tech manufacturers
to collaborate on new product development, particularly in engineered
automotive products. The ability to offer complete component design
services and full vehicle analysis to automotive customers increases the
Company's value as a partner in product design and development.
The Company continues to actively develop new passenger and truck
tires. Cooper conducts extensive testing of current tire lines, as well
as new concepts in tire design and construction. During 1997
approximately 48 million miles of tests were performed on indoor test
wheels and in monitored road tests. Uniformity equipment is used to
physically check every radial passenger tire produced for high standards
of quality. The Company continues to design and develop specialized
equipment to fit the precise needs of its manufacturing and quality
control requirements.
In 1997 plans were finalized for the Company to construct a tire
testing facility in southern Texas. By the end of 1998, this 1,000-acre
site near San Antonio will contain a one-mile road course, a 2-1/2 mile
oval course and a vehicle dynamics wet testing area. Cooper's speed-to-
market with new products will be greatly enhanced with this control of
future tire testing projects.
Additional information on the Company's research, development and
product improvement programs appears in Exhibit (13) of this Annual
Report on Form 10-K.
Environmental Matters
Cooper recognizes the importance of compliance in environmental
matters and has an organization structure to supervise environmental
activities, planning and programs. The Company also participates in
activities concerning general industry environmental matters.
Cooper's manufacturing facilities, in common with those of industry
generally, are subject to numerous laws and regulations designed to
protect the environment. In general, the Company has not experienced
difficulty in complying with these requirements and believes they have
not had a material adverse effect on its financial condition or the
results of its operations. The Company expects that additional
requirements with respect to environmental control facilities and waste
disposal will be imposed in the future.
The Company has been named in environmental matters asserting
potential joint and several liability for past and future cleanup, state
and Federal claims, site remediation, and attorney fees. The Company
has determined that it has no material liability for these matters. The
Company's 1997 expense and capital expenditures for environmental
control at its facilities were not material, nor is it estimated that
expenditures in 1998 for such uses will be material.
(continued) 4
<PAGE>
Seasonal Trends
There is a year-round demand for passenger and truck replacement
tires, but passenger replacement tire sales are generally strongest
during the second and third quarters of the year. Winter tires are sold
principally during the months of August through November. Engineered
rubber product sales to automotive customers are lowest during the
months prior to model changeover.
Employee Relations
As of December 31, 1997, the Company employed 10,456 persons world-
wide, of whom 5,241 were salaried employees. Union contracts covering
domestic hourly employees include, among other things: wages, hours,
grievance procedures, checkoff, seniority and working conditions. The
United Steelworkers of America (AFL-CIO/CLC) represents production and
maintenance employees at each of the following domestic Company plants:
Auburn, Indiana
Bowling Green, Ohio (Sealing products)
Bowling Green, Ohio (Hose products)
Clarksdale, Mississippi
El Dorado, Arkansas
Findlay, Ohio
Texarkana, Arkansas
Over-the-road domestic truck drivers are affiliated with the
International Brotherhood of Teamsters. Employees at the Piedras
Negras, Mexico plant are affiliated with Sindicato Autonomo de
Trabajadores Rio Grande SerVaas. Process employees at the Melksham,
England plant are affiliated with either the Transport and General
Workers Union or the Amalgamated Engineering and Electrical Union.
The Association of Clerical, Technical, and Supervisory Staff Union
represents certain salaried employees.
Domestically all labor contracts are for a three-year term. In
Mexico the labor contract is for two years with wages negotiated
annually. In England the labor contracts have no set term with
negotiations conducted annually. Cooper considers its labor relations
to be favorable.
Substantially all domestic employees are covered by hospital and
surgical, group life, and accident and sickness benefit plans.
Employees in England and Mexico are covered by their national health
care plans. The Company has various trusteed retirement income plans
which cover most domestic and United Kingdom employees and retirees.
Substantially all domestic retirees are covered by hospital and surgical
and group life benefit plans. See "Notes to Consolidated Financial
Statements" on pages 32 through 36 of this Annual Report on Form 10-K
for additional information as to pension costs and funding and
postretirement benefits.
5
<PAGE>
Item 2. PROPERTIES
The Company owns its headquarters facility which is adjacent to its
Findlay, Ohio tire manufacturing plant. Properties used for the
manufacture and distribution of the Company's products consist of the
following:
<TABLE>
<CAPTION>
Location Use Title
- ----------------------- ------------------------ -----
NORTH AMERICA
<S> <C> <C>
3300 Sylvester Road Tire plant and regional Leased
Albany, GA 31703 distribution center
725 West Eleventh St. Engineered products plant Owned
Auburn, IN 46706
1175 North Main St. Engineered products plant Owned
Bowling Green, OH 43402
400 Van Camp Rd. Engineered products plant Owned
Bowling Green, OH 43402
2205 Dr. Martin Luther King Blvd. Inner tube plant Owned
Clarksdale, MS 38614
166 Cooper Drive Engineered products plant Owned
El Dorado, AR 71730
701 Lima Ave., Findlay, OH 45840 Tire plant Owned
2025 Production Drive Metal fabrication and Owned
Findlay, OH 45840 assembly plant
250 Oak Grove Drive Engineered products plant Owned
Mt. Sterling, KY 40353
3500 E. Washington Rd. Tire plant and regional Owned
Texarkana, AR 71854 distribution center
1689 South Green St. Tire plant and regional Owned/
Tupelo, MS 38801 distribution center Leased
6340 Artesia Blvd. Regional distribution Owned
Buena Park, CA 90620 center
1300 Lunt Avenue Regional distribution Owned
Elk Grove Village, IL 60007 center
4200-D Industry Drive Regional distribution Leased
Fife, WA 98424 center
1625 Lake Cascades Parkway Regional distribution Owned
Findlay, OH 45840 center
1026 North Century Ave. Regional distribution Leased
Kansas City, MO 64120 center
3601 Dryden Road Regional distribution Owned
Moraine, OH 45439 center
Terminal Road & Industrial Drive Regional distribution Owned
New Brunswick, NJ 08901 center
</TABLE>
(continued)
6
<PAGE>
LATIN AMERICA
Victoria Norte 2707 Engineered Products plant Owned
Piedras Negras, Mexico, C.P. 20610
EUROPE
4 Rue Jacques De Vaucanson Regional distribution Leased
Zac DeMercieres II center
60200 Compiegne, France
Hagackerstrasse 12 Regional distribution Owned/
8953 Dietikon, Switzerland center Leased
Bath Road Tire plant and regional Owned
Melksham, Wiltshire SN12 8AA distribution center
England
Dortmunder Strasse 15 Regional distribution Leased
57234 Wilnsdorf, Germany center
The Company believes its properties have been adequately maintained
and generally are in good condition.
Cooper's tire plants are operating at rated capacity levels. The
Tupelo, Mississippi and Albany, Georgia plants operate on a 24-hour day,
seven-day production schedule. The other plants are operating 24 hours
per day, at least five days per week.
The Company's capacity to manufacture a full range of radial
passenger, light truck and medium truck tires using advanced technology
continues to be incrementally expanded.
Additional information concerning the Company's facilities appears in
Exhibit (13) of this Annual Report on Form 10-K. Information related to
leased properties appears on page 37.
Item 3. LEGAL PROCEEDINGS
Cooper is a defendant in many unrelated actions in Federal and state
courts throughout the United States. In a number of such cases the
plaintiffs allege violations of state and Federal laws, breach of
contract and product liability and assert damages of many thousands of
dollars. The Company self-insures product liability losses up to
$2,250,000 per occurrence with an annual aggregate of $6,000,000. In
addition, Cooper carries Excess Liability Insurance which provides
protection with respect to product liability losses in excess of the
self-insured amounts. While the outcome of litigation cannot be
predicted with any certainty, the Company believes the pending claims
and lawsuits against it should not have a material adverse effect on the
financial condition of the Company or the results of its operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last
quarter of the fiscal year ended December 31, 1997.
7
<PAGE>
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Cooper Tire & Rubber Company common stock is traded on the New York
Stock Exchange under the symbol CTB. Information concerning the
Company's common stock and related security holder matters (including
dividends) is presented on pages 9, 21, 25, 28 through 31 and 39 of this
Annual Report on Form 10-K.
<TABLE>
Item 6. SELECTED FINANCIAL DATA
<CAPTION>
(All dollar amounts in thousands except per share figures)
Income
Before
Net Gross Operating Income Income Net
Sales Margin Margin Taxes(a) Taxes Income(a) Income
--------- ------ --------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $1,813,005 $314,573 $209,041 $194,792 $72,381 $122,411 $122,411
1996 1,619,345 252,796 172,922 172,092 64,208 107,884 107,884
1995 1,493,622 250,727 176,931 180,070 67,250 112,820 112,820
1994 1,403,243 277,265 208,517 208,119 79,600 128,519 128,519
1993 1,193,648 228,295 166,013 164,250 62,040 102,210 102,210
1992 1,174,728 229,332 170,646 169,841 61,670 108,171 43,211
1991 1,001,071 180,432 128,495 124,465 45,030 79,435 79,435
1990 895,896 155,892 108,715 104,874 38,410 66,464 66,464
1989 866,805 139,482 94,188 92,624 34,380 58,244 58,244
1988 748,032 106,419 66,575 64,912 23,850 41,062 41,062
1987 665,775 93,877 56,031 53,090 22,410 30,680 30,680
<CAPTION>
Net
Stock- Property, Capital Long-
holders' Total Working Plant & Expend- Deprecia- term
Equity Assets Capital Equipment itures tion Debt
------ ------ ------- --------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $833,575 $1,495,956 $354,281 $860,448 $107,523 $94,464 $205,525
1996 786,612 1,273,009 256,130 792,419 193,696 76,820 69,489
1995 748,799 1,143,701 272,216 678,876 194,894 63,313 28,574
1994 662,077 1,039,731 303,103 549,601 78,449 55,603 33,614
1993 550,186 889,584 204,857 527,949 117,249 46,352 38,729
1992 471,474 796,858 175,154 460,373 110,157 38,077 48,075
1991 439,648 670,572 144,285 388,557 85,954 31,969 53,512
1990 369,003 616,458 167,291 334,794 100,141 27,615 91,027
1989 310,064 519,893 150,285 262,445 73,182 23,393 65,727
1988 257,756 442,582 143,101 212,923 70,621 19,873 67,790
1987 221,566 413,306 154,283 162,447 41,507 18,436 70,059
<CAPTION>
Long-term
Return On Return On Debt to
Beginning Beginning Current Pretax Effective Return On Capital-
Equity(a) Assets(a) Ratio Margin(a) Tax Rate(a) Sales(a) ization
--------- --------- ------- -------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 15.6% 9.6% 2.8 10.7% 37.2% 6.8% 19.8%
1996 14.4 9.4 2.4 10.6 37.3 6.7 8.1
1995 17.0 10.9 2.7 12.1 37.3 7.6 3.7
1994 23.4 14.4 3.0 14.8 38.2 9.2 4.8
1993 21.7 12.8 2.6 13.8 37.8 8.6 6.6
1992 24.6 16.1 2.3 14.5 36.3 9.2 9.3
1991 21.5 12.9 2.2 12.4 36.2 7.9 10.9
1990 21.4 12.8 2.7 11.7 36.6 7.4 19.8
1989 22.6 13.2 2.5 10.7 37.1 6.7 17.5
1988 18.5 9.9 2.7 8.7 36.7 5.5 20.8
1987 15.7 8.3 2.6 8.0 42.2 4.6 24.0
(continued) 8
<PAGE>
<CAPTION>
Common Common
Earnings Equity Dividends Shares Shares
Per Share Per Per Average Year End
Basic Diluted Share(c) Share(c) (000)(c) (000)(c)
------- ------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997 $1.55 $1.55 $10.58 $.35 79,128 78,760
1996 1.30 1.30 9.67 .31 83,214 81,367
1995 1.35 1.35 8.95 .27 83,646 83,662
1994 1.54 1.53 7.92 .23 83,623 83,634
1993 1.22 1.22 6.58 .20 83,550 83,582
1992 .52(b) .52(b) 5.65 .17 83,357 83,511
1991 .96 .95 5.30 .13 82,738 82,962
1990 .81 .80 4.47 .11 82,391 82,519
1989 .71 .70 3.77 .09 82,077 82,259
1988 .50 .50 3.15 .07 81,583 81,821
1987 .38 .38 2.72 .06 81,258 81,383
<CAPTION>
Number Price/
of Stock Price(c) Earnings
Stock- Number of Wages & Total Research & ------------ Average
holders Employees Benefits Taxes(d) Development High Low Ratio(a)
------- --------- -------- ------- ----------- ---- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 5,281 10,456 $517,716 $121,189 $21,700 $28.44 $18.00 15.0
1996 5,991 8,932 440,393 102,097 19,700 27.25 18.00 17.4
1995 6,721 8,284 411,694 101,884 16,000 29.63 22.25 19.2
1994 7,623 7,815 382,002 111,504 14,700 29.50 21.63 16.6
1993 8,096 7,607 346,062 91,479 15,100 39.63 20.00 24.4
1992 6,142 7,207 329,396 46,432 13,700 35.63 22.00 22.2
1991 4,492 6,545 266,683 67,933 14,000 26.25 7.88 17.8
1990 4,459 6,225 256,076 59,802 10,800 10.50 6.19 10.3
1989 3,871 6,041 233,881 54,020 10,300 9.75 5.63 10.8
1988 3,627 6,031 217,480 41,743 11,200 6.81 3.53 10.3
1987 3,516 5,720 189,209 39,056 10,300 4.97 2.78 10.3
<FN>
(a) Prior to cumulative effect of changes in accounting in 1992 for
postretirement benefits other than pensions and income taxes.
(b) Basic and diluted earnings per share prior to the cumulative effect
of changes in accounting were $1.30 and $1.29, respectively.
(c) Share data reflects stock splits in 1992, 1990 and 1988.
(d) Excluding Federal excise taxes.
</TABLE>
9
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
The financial position of the Company continues to be excellent. Strong
operating cash flows provided funds for investment in productivity,
expansion, product quality and technology development and contributed to
growing financial strength. The financial statements of the Company
include amounts for the operations of Avon Tyres Limited, renamed
Cooper-Avon Tyres Limited, of Melksham, England (Cooper-Avon) acquired
late in the first quarter of 1997.
Working capital amounted to $354 million at year-end 1997 compared
with $256 million one year earlier. A current ratio of 2.8 indicates a
strong liquidity position and is up from the year-end 1996 current ratio
of 2.4.
Accounts receivable increased to $292 million from $267 million at
year-end 1996, reflecting the acquisition of Cooper-Avon offset by
decreases in domestic receivable amounts resulting from the timing of
receipts. Collection experience continues to be excellent and adequate
allowances have been made for possible collection losses.
Total inventories at $192 million were up from $142 million at year-
end 1996. Finished goods inventories contributed $43 million of the
increase resulting from the acquisition and inventory builds required
during negotiations of labor contracts which took place late in the
year. Work in process inventories were $9 million higher and raw
materials and supplies inventories were $2 million lower than 1996.
Investments in property, plant and equipment were $108 million in
1997 and are lower than the $194 million invested in 1996. The
Company's capital expenditure commitments approximated $23 million at
December 31, 1997. Capital expenditures in 1998 are anticipated to be
higher than in 1997 but below 1996 levels. Funding for these
expenditures will be available from operating cash flows with additional
funding available, if needed, under the Company's existing commercial
paper program, credit agreement and other informal lines of credit.
Depreciation was $94 million in 1997, a 23 percent increase from $77
million in 1996, reflecting the significant capital expenditures in
recent years.
Intangibles and other assets are up $44 million reflecting the value
of certain trademarks and technology acquired with the purchase of
Cooper-Avon, as well as amounts related to pension accounting.
Long-term debt at $206 million increased $136 million from year-end
1996 reflecting the March 1997 issuance of $200 million of 7-5/8 percent
notes under the Company's Shelf Registration Statement, the retirement
of the 9 percent senior notes and the payment of scheduled debt
maturities. The new notes were issued to finance stock repurchases and
the acquisition of Cooper-Avon. Long-term debt, as a percent of total
capitalization, increased to 19.8 percent at December 31, 1997 from 8.1
percent one year earlier.
Noncurrent deferred income taxes increased to $74 million at December
31, 1997 from $53 million one year earlier, primarily reflecting the
excess of tax depreciation over book depreciation.
The Company has been named in environmental matters asserting
potential joint and several liability for past and future cleanup, state
and Federal claims, site remediation, and attorney fees. The Company
has determined that it has no material liability for these matters. In
addition, the Company is a defendant in unrelated product liability
actions in Federal and state courts throughout the United States in
which plaintiffs assert monetary damages. From time to time, the
Company is involved in litigation which may result in adverse judgements
and/or cash settlements. While the outcome of litigation cannot be
predicted with certainty, the Company believes the pending claims and
lawsuits against it should not have a material adverse effect on its
financial condition or the results of its operations.
(continued)
10
<PAGE>
Stockholders' equity increased $47 million during 1997 reaching $834
million at year-end. The retention of earnings (net income less
dividends paid) added $95 million to stockholders' equity, but was
partially offset by $54 million relating to the repurchase of 2.7
million shares of the Company's stock. The adjustment to the minimum
pension liability, recognition of the impact of cumulative foreign
currency translation and exercise of stock options also contributed to
the increase. Stockholders' equity per share was $10.58 at year-end
1997, an increase of 9 percent over $9.67 per share at year-end 1996.
Results of Operations
Customer demand for the Company's engineered rubber products was
excellent. New and larger contracts with our customers continued to be
achieved. Shipments of the Company's tires outpaced those of the
industry and also benefited from inclusion of Cooper-Avon's operations
during the last three quarters of the year. Net sales increased 12
percent in 1997 to a record of $1.8 billion. This followed an 8 percent
increase in sales in 1996 which resulted primarily from growth in
customer demand. These improvements were achieved in an environment of
intense competitive pressure.
Gross margins, as a percent of net sales, were 17.3 percent in 1997
compared to 15.6 percent in 1996 and 16.8 percent in 1995. During 1997,
capacity utilization was maintained at high levels and technology
improvements yielded greater efficiencies. However, decreases in raw
material costs continued to be offset by price concessions. Cooper-Avon
operations did not contribute to gross margin improvement in 1997. In
1996, intense pricing pressure in the replacement tire industry
contributed to gross margin erosion from 1995. Raw material costs
moderated in 1996, following two years of significant increases, and
offset some of the price concessions.
Increases in 1997 selling, general and administrative expenses were
attributable to the inclusion of Cooper-Avon and expanded advertising
programs. As a percent of net sales, these expenses were 5.8 percent in
1997 compared to 4.9 percent in 1996. Selling, general and
administrative expenses in 1996 were higher than in 1995. However, as a
percent of net sales, these expenses were lower than the 5 percent
incurred in 1995.
Interest expense in 1997 was higher than in 1996 reflecting increased
borrowings and lower amounts of capitalized interest. The increase in
interest expense in 1996 from 1995 resulted from increased borrowing
partially offset by capitalized interest.
The effective income tax rate of 37.2 percent in 1997 is comparable
to 37.3 percent in 1996 and 1995.
The operations of Cooper-Avon contributed to net sales in 1997 but
did not contribute to the Company's increase in income. Since the
acquisition in March 1997, operations have been negatively impacted by
the combined strength of the British pound and the lower than expected
shipments in the Western European replacement tire market.
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share," during the fourth quarter of 1997.
The Standard replaces the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Amounts
presented in all years reflect the requirements of the new Standard.
Earnings per share in 1997 were favorably impacted by the Company's
repurchase of 5 million shares of its common stock since September 1996.
In June, 1997 the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
which require the disclosure of total comprehensive income and change
the method for determining and reporting business segment information.
(continued)
11
<PAGE>
The Company's components of comprehensive income have historically been
for the impact of pension accounting and foreign currency. The FASB's
approach to determine business segments will cause the Company to report
certain financial information at segment levels. These Standards are
required to be adopted in 1998.
The Company has developed and initiated its plans to address the
possible exposures related to the impact of the Year 2000 on its systems
and computer equipment. Key financial information and operational
systems have been assessed and detailed plans have been implemented to
address modifications required by December 31, 1999. The Company
expects these modifications to be completed and tested by that time.
The financial impact of making the required changes will be comprised of
internal costs, excluding the costs required to upgrade and replace
systems and equipment in the normal course of business, and is not
expected to be material to the Company's consolidated financial position
or results of operations. The Company has also initiated communications
with its significant suppliers to ensure they have appropriate plans to
resolve Year 2000 issues where failure of their systems could adversely
affect the Company's operations.
FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements involving uncertainty
and risk. It is possible the Company's future financial performance may
differ from expectations due to a variety of factors including but not
limited to: changes in economic conditions in the world, increased
competitive activity, technology advancements, fluctuations in raw
material and energy prices, changes in foreign exchange rates, and other
unanticipated events and conditions.
It is not possible to foresee or identify all such factors. Any
forward-looking statements in this report are based on certain
assumptions and analysis made by the Company in light of its experience
and perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the
circumstances. Prospective investors are cautioned that any such
statements are not a guarantee of future performance and actual results
or developments may differ materially from those projected. The Company
makes no commitment to update any forward-looking statement included
herein, or to disclose any facts, events or circumstances that may
affect the accuracy of any forward-looking statement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated statements of financial position at December 31, 1997 and
1996 and consolidated statements of income, cash flows, and
stockholders' equity for each of the three years in the period ended
December 31, 1997, the independent auditor's report thereon, and the
Company's unaudited quarterly financial data for the two-year period
ended December 31, 1997 are presented on pages 19 through 38 of this
Annual Report on Form 10-K and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE>
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors appears on pages 2
through 6 and 30 of the Company's Proxy Statement dated March 24, 1998
and is incorporated herein by reference. The names, ages, and all
positions and offices held by all executive officers of the Company, as
of the same date, are as follows:
<TABLE>
<CAPTION>
Name Age Executive Office Held Business Experience
- --------------------- --- --------------------- ---------------------
<S> <C> <C> <C>
Patrick W. Rooney 62 Chairman of the Board, Principal Executive
President, Chief Officer and Chairman
Executive Officer of the Board since
and Director 1994. President
since 1991.
Principal Operating
Officer from 1991 to
1994. Director since
1990. Vice President
from 1987 to 1991.
President of Tire
Operations from 1990
to 1994; previously
Vice President-Sales
from 1984 to 1987.
Vice President of
Cooper Brand Sales,
Tire Operations from
1969 to 1984.
J. Alec Reinhardt 56 Executive Vice Principal Financial
President and Director Officer and Director
since 1983. Executive
Vice President since
1991. Vice President
from 1982 to 1991.
Secretary from 1977 to
1986. General Counsel
from 1976 to 1983.
John Fahl 61 Vice President and Vice President since
Director 1978. President of
Tire Operations since
1994. Director since
1992. Corporate
Director of Purchasing
from 1966 to 1978.
William C. Hattendorf 63 Vice President and Vice President since
Treasurer 1994. Treasurer
since 1982. Assistant
Treasurer and Assistant
Secretary from 1977 to
1982. Corporate Tax
and Insurance Manager
from 1972 to 1977.
Keith L. Jolliff 55 Vice President Vice President since
1995. Previously
Director of Corporate
Purchasing from 1994
to 1995. Manager of
(continued) 13
<PAGE>
Corporate Purchasing
from 1973 to 1994.
Assistant Purchasing
Agent and Buyer from
1966 to 1973.
William S. Klein 60 Vice President Vice President since
1984. Vice President-
Tire Operations since
1975.
Roderick F. Millhof 58 Vice President Vice President and
President of Engineered
Products Operations
since January 15, 1998;
formerly Vice President
Sales/Marketing of
Engineered Products
Operations since 1988.
Richard D. Teeple 55 Vice President and Vice President since
General Counsel 1990. General Counsel
since 1983. Assistant
General Counsel from
1979 to 1983. Associate
Counsel from 1977 to 1979.
Stan C. Kaiman 59 Secretary Secretary since 1986.
Eileen B. White 47 Corporate Controller Principal Accounting
Officer and Corporate
Controller since 1997.
Previously Assistant
Corporate Controller
from 1994 to 1997.
Manager of Financial
Research and Compliance
from 1986 to 1994.
Stephen O. Schroeder 47 Assistant Treasurer Assistant Treasurer
since 1994. Previously
Manager, Cash and
Employee Funds since
1984.
</TABLE>
Each such officer shall hold such office until a successor is
selected and qualified.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation appears on pages 6
through 12 and 21 through 27 of the Company's Proxy Statement dated
March 24, 1998 and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the security ownership of certain beneficial
owners and management of the Company's voting securities and equity
securities appears on pages 28 through 30 of the Company's Proxy
Statement dated March 24, 1998 and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
14
<PAGE>
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index to
financial statements and financial statement schedules are filed
as part of this Annual Report on Form 10-K.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying
index to financial statements and financial statement schedules
is filed as part of this Annual Report on Form 10-K.
3. Exhibits
The exhibits listed on the accompanying index to exhibits are
filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
fiscal year ended December 31, 1997.
15
<PAGE>
INDEX TO FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
Page(s)
FINANCIAL STATEMENTS: Reference
---------
Consolidated Statements of Income for the years
ended December 31, 1997, 1996 and 1995 19
Consolidated Balance Sheets at December 31, 1997 and 1996 20-21
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995 22-23
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 24
Notes to Consolidated Financial Statements 25-37
Report of Independent Auditors 38
SUPPLEMENTARY INFORMATION:
Quarterly Financial Data (Unaudited) 39
FINANCIAL STATEMENT SCHEDULE:
II. Valuation and qualifying accounts 40
EXHIBITS:
(3) Certificate of Incorporation and Bylaws
(i) Certificate of Incorporation, as restated and filed with
the Secretary of State of Delaware on May 17, 1993, is
incorporated herein by reference from Exhibit 3(i) of the
Company's Form 10-Q for the quarter ended June 30, 1993
(ii) Bylaws, as amended May 5, 1987, are incorporated herein
by reference from Exhibit 19 of the Company's Form 10-Q
for the quarter ended June 30, 1987
(4) Rights agreement dated as of May 27, 1988 between the Company and
KeyCorp Shareholder Services, Inc., as Rights Agent, is incorporated
herein by reference from Exhibit 1 to the Company's Form 8-A
dated June 3, 1988.
(10) Description of management contracts, compensatory plans, contracts,
or arrangements is incorporated herein by reference from pages 6
through 12, 25 and 26 of the Company's Proxy Statement dated
March 24, 1998.
The following related documents are incorporated by reference:
a) 1981 Incentive Stock Option Plan - Form S-8
Registration Statement No. 2-77400, Exhibit 15(a)
b) 1986 Incentive Stock Option Plan - Form S-8
Registration Statement No. 33-5483, Exhibit 4(a)
c) Thrift and Profit Sharing Plan - Form S-8
Registration Statement No. 2-58577, Post-Effective
Amendment No. 6, Exhibit 4
d) 1991 Stock Option Plan for Non-Employee Directors -
Form S-8 Registration Statement No. 33-47980 and
Appendix to the Company's Proxy Statement dated
March 26, 1991
e) 1996 Stock Option Plan - Form S-8 Registration Statement
No. 333-09619 and Appendix to the Company's Proxy
Statement dated March 26, 1996
(continued)
16
<PAGE>
(12) Computation of Ratio of Earnings to Fixed Charges 41
(13) Annual report to security holders, Form 10-Q or quarterly
report to security holders 42-48
(23) Consent of Independent Auditors 49
(24) Powers of Attorney 50-52
(27) Financial Data Schedule
(99) Undertakings of the Company 53-55
All other schedules have been omitted since the required
information is not present or not present in amounts sufficient to
require submission of the schedules, or because the information required
is included in the financial statements or the notes thereto.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COOPER TIRE & RUBBER COMPANY
/s/ Stan C. Kaiman
--------------------------------
STAN C. KAIMAN, Attorney-in-fact
Date: March 20, 1998
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
PATRICK W. ROONEY* Chairman of the Board, March 20, 1998
President, Chief Executive
Officer and Director
(Principal Executive Officer)
J. ALEC REINHARDT* Executive Vice President and March 20, 1998
Director (Principal Financial
Officer)
JOHN FAHL* Vice President and Director March 20, 1998
EILEEN B. WHITE* Corporate Controller March 20, 1998
(Principal Accounting Officer)
ARTHUR H. ARONSON* Director March 20, 1998
EDSEL D. DUNFORD* Director March 20, 1998
DEBORAH M. FRETZ* Director March 20, 1998
DENNIS J. GORMLEY* Director March 20, 1998
JOHN F. MEIER* Director March 20, 1998
JOHN H. SHUEY* Director March 20, 1998
*By/s/ Stan C. Kaiman
--------------------------------
STAN C. KAIMAN, Attorney-in-fact
18
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31
(Dollar amounts in thousands; per-share amounts in dollars)
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Net sales $1,813,005 $1,619,345 $1,493,622
Other income 1,406 824 3,836
--------- --------- ---------
1,814,411 1,620,169 1,497,458
Costs and expenses:
Cost of products sold 1,498,432 1,366,549 1,242,895
Selling, general
and administrative 105,532 79,874 73,796
Interest 15,655 1,654 697
--------- --------- ---------
1,619,619 1,448,077 1,317,388
--------- --------- ---------
Income before income taxes 194,792 172,092 180,070
Provision for income taxes 72,381 64,208 67,250
--------- --------- ---------
Net income $ 122,411 $ 107,884 $ 112,820
========= ========= =========
Basic and diluted
earnings per share $1.55 $1.30 $1.35
==== ==== ====
<FN>
See Notes to Consolidated Financial Statements, pages 25 to 37.
</TABLE>
19
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands; per-share amounts in dollars)
<CAPTION>
December 31
----------------------------
ASSETS 1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 52,910 $ 19,459
Accounts receivable, less
allowances of $4,791 in
1997 and $3,700 in 1996 292,416 267,149
Inventories:
Finished goods 130,339 87,105
Work in process 22,650 13,419
Raw materials and supplies 38,695 41,094
--------- ---------
191,684 141,618
Prepaid expenses and
deferred income taxes 17,602 15,399
--------- ---------
Total current assets 554,612 443,625
Property, plant and equipment:
Land and land improvements 28,765 23,641
Buildings 272,308 265,118
Machinery and equipment 1,013,354 882,774
Molds, cores and rings 84,660 69,316
--------- ---------
1,399,087 1,240,849
Less accumulated depreciation
and amortization 538,639 448,430
--------- ---------
Net property, plant
and equipment 860,448 792,419
Intangibles and other assets 80,896 36,965
--------- ---------
$1,495,956 $1,273,009
========= =========
(continued)
20
<PAGE>
<CAPTION>
December 31
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
---------- ----------
<S> <C> <C>
Current liabilities:
Notes payable $ 10,820 $ 32,000
Accounts payable 100,135 81,571
Accrued liabilities 82,446 65,727
Income taxes 6,477 3,116
Current portion of debt 453 5,081
--------- ---------
Total current liabilities 200,331 187,495
Long-term debt 205,525 69,489
Postretirement benefits other
than pensions 144,566 139,070
Other long-term liabilities 38,351 37,575
Deferred income taxes 73,608 52,768
Stockholders' equity:
Preferred stock, $1 per share par value;
5,000,000 shares authorized;
none issued - -
Common stock, $1 per share par value;
300,000,000 shares authorized; 83,760,308
shares issued (83,672,372 in 1996) 83,760 83,672
Capital in excess of par value 3,101 2,027
Retained earnings 849,270 754,481
Cumulative currency
translation adjustment 2,448 -
Minimum pension liability (4,753) (7,434)
--------- ---------
933,826 832,746
Less: 5,000,000 common shares
in treasury at cost
(2,305,500 in 1996) (100,251) (46,134)
--------- ---------
Total stockholders' equity 833,575 786,612
--------- ---------
$1,495,956 $1,273,009
========= =========
<FN>
See Notes to Consolidated Financial Statements, pages 25 to 37.
</TABLE>
21
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar amounts in thousands; per-share amounts in dollars)
<CAPTION>
Cumulative
Currency
Common Capital Transla- Minimum Common
Stock In Excess tion Pension Shares
$1 Par of Par Retained Adjust- Lia- in
Value Value Earnings ment bility Treasury Total
------ ------ -------- -------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1995 $83,634 $1,656 $582,137 $ - $(5,350) $ - $662,077
Net income 112,820 112,820
Exercise of
stock options 28 275 303
Cash dividends -
$.27 per share (22,584) (22,584)
Minimum pension
liability
adjustment,
net of
income taxes (3,817) (3,817)
------ ----- ------- ----- ------ ------ -------
Balance at
December 31,
1995 83,662 1,931 672,373 - (9,167) - 748,799
Net income 107,884 107,884
Purchase of
treasury shares (46,134) (46,134)
Exercise of
stock options 10 96 106
Cash dividends -
$.31 per share (25,776) (25,776)
Minimum pension
liability
adjustment,
net of
income taxes 1,733 1,733
------ ----- ------- ----- ------ ------ -------
Balance at
December 31,
1996 83,672 2,027 754,481 - (7,434) (46,134) 786,612
(continued)
22
<PAGE>
Net income 122,411 122,411
Purchase of
treasury shares (54,117) (54,117)
Exercise of
stock options 88 1,074 1,162
Cash dividends -
$.35 per share (27,622) (27,622)
Cumulative
currency
translation
adjustment 2,448 2,448
Minimum pension
liability
adjustment,
net of
income taxes 2,681 2,681
------ ----- ------- ----- ------ ------- -------
Balance at
December 31,
1997 $83,760 $3,101 $849,270 $2,448 $(4,753) $(100,251) $833,575
====== ===== ======= ===== ====== ======== =======
<FN>
</TABLE>
See Notes to Consolidated Financial Statements, pages 25 to 37.
23
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(Dollar amounts in thousands)
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income $122,411 $107,884 $112,820
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 94,464 76,820 63,313
Deferred income taxes 13,501 14,096 9,356
Changes in operating assets
and liabilities:
Accounts receivable 16,783 (10,100) (35,812)
Inventories and
prepaid expenses (21,796) (6,669) (20,159)
Accounts payable and
accrued liabilities (3,973) 4,799 2,052
Postretirement benefits
other than pensions 6,796 7,207 6,315
Other (17,769) (5,830) 3,051
------- ------- -------
Net cash provided by
operating activities 210,417 188,207 140,936
Investing activities:
Property, plant and equipment (107,523) (193,696) (194,894)
Acquisition of business,
net of cash acquired (96,531) - -
Other 711 604 1,258
------- ------- -------
Net cash used in
investing activities (203,343) (193,092) (193,636)
Financing activities:
Issuance of debt 386,000 162,000 -
Payment on debt (280,292) (89,039) (5,117)
Purchase of treasury shares (54,117) (46,134) -
Payment of dividends (27,622) (25,776) (22,584)
Issuance of common shares 1,162 106 303
------- ------- -------
Net cash provided by (used in)
financing activities 25,131 1,157 (27,398)
Effects of exchange
rate changes on cash 1,246 - -
-------- -------- --------
Changes in cash and
cash equivalents 33,451 (3,728) (80,098)
Cash and cash equivalents
at beginning of year 19,459 23,187 103,285
-------- -------- --------
Cash and cash equivalents
at end of year $ 52,910 $ 19,459 $ 23,187
======== ======== ========
<FN>
See Notes to Consolidated Financial Statements, pages 25 to 37.
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands; per-share amounts in dollars)
SIGNIFICANT ACCOUNTING POLICIES
The Company employs accounting policies that are based on generally
accepted accounting principles. The preparation of financial statements
in conformity with these principles requires management to make
estimates and assumptions that affect reported amounts of (1) revenues
and expenses during the reporting period, and (2) assets and
liabilities, as well as disclosure of contingent assets and liabilities,
at the date of the financial statements. Actual results could differ
from those estimates.
The following summary of significant accounting policies is presented
for assistance in the evaluation and interpretation of the financial
statements and supplementary data.
Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-
owned. All material intercompany accounts and transactions have been
eliminated.
Cash and cash equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The carrying amount reported in the balance sheets for
cash and cash equivalents approximates its fair value.
Inventories - Inventories are valued at cost, which is not in excess
of market. Inventory costs have been determined by the last-in, first-
out (LIFO) method for substantially all domestic inventories. Costs of
other inventories have been determined principally by the first-in,
first-out (FIFO) method.
Property, plant and equipment - Assets are recorded at cost and
depreciated or amortized using the straight-line method over their
expected useful lives. For income tax purposes accelerated depreciation
methods and shorter lives are used.
Intangibles - Intangibles include trademarks, technology and
intellectual property acquired from Avon Rubber p.l.c. These assets are
being amortized over their useful lives which range from 15 years to 40
years.
Stock options - The Company accounts for employee stock options in
accordance with Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees." Additional disclosures
required under Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," are included in the
Stock Options note.
Revenue recognition - Revenues are recognized when goods are shipped
to customers in accordance with their purchase orders.
Warranties - Estimated costs for product warranties are charged to
income at the time of sale.
Research and development - Costs are charged to expense as incurred
and amounted to approximately $21,700, $19,700 and $16,000 in 1997, 1996
and 1995, respectively.
Earnings per share - During the fourth quarter of 1997 the Company
adopted SFAS No. 128, "Earnings per Share." The Standard replaces the
calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Amounts presented in all years reflect
the requirements of the new Standard.
(continued) 25
<PAGE>
Accounting pronouncements - In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which require the disclosure of total
comprehensive income and change the method for determining and reporting
business segment information. The Company's components of comprehensive
income have historically been for the impact of pension accounting and
foreign currency. The FASB's approach to determine business segments
will cause the Company to report certain financial information at
segment levels. These Standards are required to be adopted for fiscal
years beginning in 1998.
BUSINESS
The Company, a specialist in the rubber industry, manufactures and
markets automobile, truck and motorcycle tires; inner tubes; vibration
control systems; automotive sealing; hose and assemblies. Product
shipments to original equipment vehicle manufacturers historically have
approximated 15 to 20 percent of net sales.
The Company manufactures products in North America and the United
Kingdom for the transportation industry. Shipments of domestically-
produced products to customers outside the United States approximated
eight, nine and eight percent of net sales in 1997, 1996 and 1995,
respectively. Sales to one major customer approximated 12, 17 and 14
percent of net sales in 1997, 1996, and 1995, respectively.
ACQUISITION
On March 14, 1997 the Company, through a wholly-owned United Kingdom
subsidiary, acquired the tire operations of Avon Rubber p.l.c. (Avon) of
the United Kingdom. This purchase includes the land and manufacturing
facility in Melksham, England; the shares of Avon Tyres Limited and
shares of tire distribution companies in France, Germany and
Switzerland; and other minor assets. In a separate transaction the
Company acquired from Avon various trademarks and technology. The
acquisitions have been accounted for as a purchase with allocations,
subject to adjustment, as follows:
Working capital $37,861
Property, plant and equipment 54,288
Intangibles and other assets 28,710
Debt (13,867)
Other liabilities (10,461)
------
$96,531
======
The Company's consolidated financial results and financial position
subsequent to the date of the acquisition reflect Avon operations. Had
these acquisitions occurred as of the beginning of 1996, the pro forma
results of operations giving effect to the acquisitions would not be
materially different from the net sales, net income and earnings per
share presented in the statements of income.
INVENTORIES
Under the LIFO method, inventories have been reduced by approximately
$60,627 and $73,925 at December 31, 1997 and 1996, respectively, from
current cost which would be reported under the first-in, first-out
method. Approximately 85 percent and 99 percent of the Company's
inventories have been valued under the LIFO method at December 31, 1997
and 1996, respectively.
(continued)
26
<PAGE>
DEBT
Short-term debt at December 31, 1997 consisted of bank line borrowings
primarily in European currencies at a weighted average interest rate of
5.6 percent. At December 31, 1996 short-term debt consisted of
commercial paper borrowings and notes payable at a weighted average
interest rate of 5.6 percent.
<TABLE>
The Company's long-term debt at December 31 consisted of the following:
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
7-5/8% notes due 2027 $200,000 $ -
Commercial paper notes with a
weighted average interest rate of 5.6% - 46,000
9% senior notes due 2001 - 22,727
Capitalized leases and other 5,978 5,843
------- ------
205,978 74,570
Less current maturities 453 5,081
------- ------
$205,525 $69,489
======= ======
</TABLE>
The Company has an agreement with four banks authorizing borrowings
up to $150,000 on a long-term basis through October 31, 2002 and
$100,000 on a short-term basis, with interest at varying rates. The
credit facility provides for borrowings in foreign currencies and
supports the issuance of commercial paper. The proceeds may be used for
general corporate purposes. A commitment fee is payable quarterly and
is based on the daily unused portion of the amount authorized. The
agreement requires the maintenance of certain debt and fixed charge
coverage ratios. The Company has other informal lines of credit
available to meet domestic borrowing needs.
In March 1997 the Company issued $200,000 of 7-5/8 percent notes under
a Registration Statement with the Securities and Exchange Commission.
The notes, due March 15, 2027, provide for semiannual interest payments
on March 15 and September 15 with principal due in full at maturity.
Proceeds from the issuance were used for the repurchase of 5,000,000
shares of the Company's common stock and the acquisition of Avon Tyres
Limited. Based on the borrowing rates available to the Company for
instruments with similar terms and maturity at December 31, 1997, the
fair value of the 7-5/8 percent notes was $223,417.
On October 2, 1997 the Company retired the 9 percent senior notes due
in 2001.
Interest paid on debt during 1997, 1996 and 1995 was $12,983, $6,217
and $3,515, respectively. The amount of interest capitalized was
$1,628, $4,315 and $2,694 during 1997, 1996 and 1995, respectively.
The required principal payments for long-term debt during the next
five years are as follows: 1998 - $453; 1999 - $224; 2000 - $182; 2001
- - none; 2002 - none.
ACCRUED LIABILITIES
<TABLE>
Accrued liabilities at December 31, were as follows:
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Payroll $40,311 $32,299
Other 42,135 33,428
------ ------
$82,446 $65,727
====== ======
</TABLE>
(continued) 27
<PAGE>
COMMON STOCK
There were 9,629,932 common shares reserved for the exercise of stock
options and contributions to the Company's Thrift and Profit Sharing and
Pre-Tax Savings plans at December 31, 1997.
PREFERRED STOCK PURCHASE RIGHT
Each stockholder is entitled to the right to purchase 1/100th of a
newly-issued share of Series A preferred stock of the Company at an
exercise price of $16.88. The rights will be exercisable only if a
person or group acquires beneficial ownership of 20 percent or more of
the Company's outstanding common stock, or commences a tender or
exchange offer which upon consummation would result in such person or
group beneficially owning 30 percent or more of the Company's
outstanding common stock.
If any person becomes the beneficial owner of 25 percent or more of
the Company's outstanding common stock, or if a holder of 20 percent or
more of the Company's common stock engages in certain self-dealing
transactions or a merger transaction in which the Company is the
surviving corporation and its common stock remains outstanding, then
each right not owned by such person or certain related parties will
entitle its holder to purchase a number of shares of the Company's
Series A preferred stock having a market value equal to twice the then
current exercise price of the right. In addition, if the Company is
involved in a merger or other business combination transaction with
another person after which the Company's common stock does not remain
outstanding, or if the Company sells 50 percent or more of its assets or
earning power to another person, each right will entitle its holder to
purchase a number of shares of common stock of such other person having
a market value equal to twice the then current exercise price of the
right.
The Company will generally be entitled to redeem the rights at one
cent per right, or as adjusted to reflect stock splits or similar
transactions, at any time until the tenth day following public
announcement that a person or group has acquired 20 percent or more of
the Company's common stock.
STOCK OPTIONS
The Company has elected to follow APB No. 25, "Accounting for Stock
Issued to Employees," in accounting for employee stock options. Under
APB No. 25 no compensation expense is recognized because the exercise
price of the Company's employee stock options equals the market price of
the underlying stock at the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation," is effective
for awards granted by the Company during fiscal years beginning after
December 15, 1994. The Standard requires, if APB No. 25 is followed,
disclosure of pro forma information regarding net income and earnings
per share determined as if the Company accounted for its employee stock
options under the fair value method. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 6.1% 6.6% 6.2%
Dividend yield 1.0% 1.0% 1.0%
Expected volatility of the
Company's common stock .197 .206 .203
Expected life 6.2 years 5.4 years 5.3 years
</TABLE>
(continued) 28
<PAGE>
The weighted-average fair value of options granted in 1997, 1996 and
1995 was $7.52, $5.58 and $6.98, respectively. For purposes of pro
forma disclosures, the estimated fair value of options is amortized to
expense over the options' vesting period. During 1995, only grants
awarded during the year are amortized. During 1996, amortization
attributable to grants awarded in both 1995 and 1996 impacts pro forma
results. During 1997, amortization attributable to grants awarded in
1997, 1996 and 1995 impacts pro forma results. The Company's reported
and pro forma information follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Net income: Reported $122,411 $107,884 $112,820
Pro forma 121,603 107,363 112,653
Basic and diluted
earnings per share:
Reported $1.55 $1.30 $1.35
Pro forma 1.54 1.29 1.35
</TABLE>
The Company's 1981, 1986 and 1996 incentive stock option plans
provide for granting options to key employees to purchase common shares
at prices not less than market at the date of grant. Options under
these plans may have terms of up to ten years becoming exercisable in
whole or in consecutive installments, cumulative or otherwise. The 1981
and 1986 plans were amended in 1988 to allow the granting of
nonqualified stock options. Nonqualified stock options are not intended
to qualify for the tax treatment applicable to incentive stock options
under provisions of the Internal Revenue Code. The options granted
under these plans which were outstanding at December 31, 1997 have a
term of ten years and become exercisable 50 percent after the first year
and 100 percent after the second year.
(continued)
29
<PAGE>
STOCK OPTIONS (continued)
The Company's 1991 nonqualified stock option plan provides for
granting options to directors, who are not current or former employees
of the Company, to purchase common shares at prices not less than market
at the date of grant. Options granted under this plan have a term of
ten years and are exercisable in full beginning one year after the date
of grant.
<TABLE>
Summarized information for the plans follows:
<CAPTION>
Weighted
Average
Number of Exercise Price Range
Shares Price Per Share
--------- -------- -----------
<S> <C> <C> <C>
January 1, 1995
Outstanding 475,232 $18.15 $5.09 - $34.69
Exercisable 355,522 15.93
Granted under 1986 plan 103,800 24.13 24.13
Granted under 1991 plan 3,153 24.25 24.25
Exercised (27,900) 10.87 5.09 - 25.00
Cancelled (13,110) 24.90 24.13 - 25.00
------
December 31, 1995
Outstanding 541,175 19.54 5.09 - 34.69
Exercisable 397,822 17.85
Granted under 1991 plan 1,703 24.31 24.31
Granted under 1996 plan 140,900 18.50 18.50
Exercised (10,400) 10.23 5.09 - 15.19
Cancelled (27,786) 19.57 5.09 - 34.69
------
December 31, 1996
Outstanding 645,592 19.47 5.09 - 34.69
Exercisable 454,439 19.24
Granted under 1991 plan 1,955 22.69 22.69
Granted under 1996 plan 229,000 24.50 24.50
Exercised (87,936) 13.20 5.09 - 25.00
Cancelled (32,264) 22.87 15.19 - 34.69
------
December 31, 1997
Outstanding 756,347 21.59 5.09 - 34.69
Exercisable 460,992 20.58
</TABLE>
The weighted average remaining contractual life of options
outstanding at December 31, 1997 is 7.1 years.
(continued)
30
<PAGE>
Stock Options (continued)
SFAS No. 123 also requires segregated disclosure of options
outstanding if a significant range of exercise prices exists. This
information, at December 31, 1997, is as follows:
<TABLE>
<CAPTION>
Range of Exercise Prices
------------------------------
Less Equal to or
than $24 greater than $24
-------- ----------------
<S> <C> <C>
Options outstanding 248,555 507,792
Weighted average
exercise price $15.53 $24.56
Remaining contractual life 5.9 7.7
Options exercisable 182,100 278,892
Weighted average
exercise price $14.40 $24.61
</TABLE>
<TABLE>
The status of options exercisable and available for grant for each
plan is as follows:
<CAPTION>
1981 1986 1991 1996
Plan Plan Plan Plan
---- ---- ---- ----
<S> <C> <C> <C> <C>
December 31, 1995
Exercisable 22,424 367,012 8,386
Available for grant - 1,146,300 88,225
December 31, 1996
Exercisable 22,424 425,712 6,303 -
Available for grant - - 90,758 3,060,600
December 31, 1997
Exercisable 6,800 384,650 5,492 64,050
Available for grant - - 90,317 2,841,500
</TABLE
EARNINGS PER SHARE
Basic earnings per share is based upon the weighted average number of
shares outstanding which were 79,127,577 in 1997, 83,213,960 in 1996 and
83,645,864 in 1995. Diluted earnings per share includes the dilutive
effect of employee stock options. The impact of employee stock options
in the computation of diluted earnings per share did not result in
amounts different from basic earnings per share.
31
<PAGE>
PENSIONS
The Company has defined benefit plans covering substantially all
employees. The domestic salary plan provides pension benefits based on
an employee's years of service and average earnings for the five highest
calendar years during the ten years immediately preceding retirement.
The domestic hourly plans provide benefits of stated amounts for each
year of service. The Company's general funding policy is to contribute
amounts deductible for Federal income tax purposes.
Employees in the United Kingdom are covered by a contributory,
defined benefit pension plan. Benefits are based on an employee's years
of service and last three years of earnings. Employees may make
contributions to the plan to increase their benefit. The Company's
funding requirement is determined by statute.
</TABLE>
<TABLE>
Pension expense for 1997, 1996 and 1995 included the following
components:
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $16,668 $13,811 $ 9,833
Interest cost 32,716 24,707 20,374
Actual return on plan assets (70,573) (44,559) (54,268)
Net amortization and deferral 37,356 24,144 38,966
------ ------ ------
Net periodic pension cost $16,167 $18,103 $14,905
====== ====== ======
</TABLE>
Net periodic pension cost in 1997 includes $2,018 attributable to
nine months of operations for the United Kingdom plan. The increases in
service and interest costs in 1996 result from changes in certain
demographic actuarial assumptions made at December 31, 1995.
(continued)
32
<PAGE>
PENSIONS (continued)
<TABLE>
The plans' assets consist of cash, cash equivalents and marketable
securities. The funded status of the Company's domestic and United
Kingdom plans at December 31, 1997 and 1996 was as follows:
<CAPTION>
December 31, 1997
-----------------------------
Plans for Which
---------------
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
------------- -------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $263,848 $124,817
======= =======
Accumulated benefit obligation $267,971 $128,361
======= =======
Projected benefit obligation $382,367 $129,938
Plans' assets at fair value 405,668 109,032
------- -------
Projected benefit obligation less
than (in excess of) plan assets 23,301 (20,906)
Unrecognized transition amount 3,753 1,970
Unrecognized prior service cost 309 10,356
Unrecognized net loss 4,180 8,412
Adjustment for minimum liability - (19,910)
------- -------
Pension asset (liability)
recognized in the Balance Sheet $ 31,543 $(20,078)
======= =======
(continued)
33
<PAGE>
<CAPTION>
December 31, 1996
-----------------------------
Plans for Which
---------------
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
------------- -------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $147,256 $120,221
======= =======
Accumulated benefit obligation $150,416 $123,905
======= =======
Projected benefit obligation $218,512 $124,911
Plans' assets at fair value 225,077 95,195
------- -------
Projected benefit obligation less
than (in excess of) plan assets 6,565 (29,716)
Unrecognized transition amount 4,485 2,326
Unrecognized prior service cost 93 9,818
Unrecognized net loss 12,736 12,753
Adjustment for minimum liability - (24,709)
------- -------
Pension asset (liability)
recognized in the Balance Sheet $ 23,879 $(29,528)
======= =======
</TABLE>
For domestic plans, the assumed rate of increase in future compensation
levels was 5.5 percent and the assumed discount rate used in determining
the actuarial present value of the projected benefit obligation was 7.5
percent at December 31, 1997 and 1996. The expected long-term rate of
return on the plans' assets was 10 percent in 1997, 1996 and 1995.
For the United Kingdom plan, the assumed discount rate used was 7.5
percent, the assumed rate of increase in future compensation levels was
5.5 percent and the expected long-term rate of return on the plans'
assets was 8.5 percent at December 31, 1997.
The information presented above includes an unfunded, nonqualified
supplemental executive retirement plan covering certain employees whose
participation in the qualified plan is limited by provisions of the
Internal Revenue Code.
The Company sponsors several defined contribution plans for its
domestic employees. Substantially all domestic employees are eligible
to participate upon attaining minimum continuous service requirements.
Participation is voluntary and participants' contributions are based on
their compensation. The Company matches certain plan participants'
contributions up to various limits. Company contributions are based on
the lesser of (a) participants' contributions up to a specified percent
of each participant's compensation, less any forfeitures, or (b) an
amount equal to 15 percent of the Company's pre-tax earnings in excess
of ten percent of stockholders' equity at the beginning of the year.
Expense for these plans was $9,334, $8,331, and $8,489 for 1997, 1996
and 1995, respectively.
34
<PAGE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company currently provides certain health care and life insurance
benefits for its active and retired domestic employees. If the Company
does not terminate such benefits, or modify coverage or eligibility
requirements, substantially all of the Company's domestic employees may
become eligible for these benefits upon retirement if they meet certain age
and service requirements. The Company has reserved the right to modify or
terminate such benefits at any time, subject to applicable terms and
conditions contained in union agreements for non-salary participants. In
recent years benefit changes have been implemented throughout the Company.
<TABLE>
The Company continues to fund these benefit costs as claims are
incurred. Postretirement benefits expense for 1997, 1996 and 1995
included the following components:
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 3,465 $ 3,254 $ 2,607
Interest cost 11,468 10,674 9,810
Amortization - - (333)
------ ------ ------
$14,933 $13,928 $12,084
====== ====== ======
</TABLE>
<TABLE>
The status of the Company's plans at December 31, 1997 and 1996 was
as follows:
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated postretirement
benefits obligation (APBO):
Retirees $ 80,812 $ 78,378
Fully eligible active
plan participants 25,074 26,413
Other active plan participants 47,251 39,143
------- -------
153,137 143,934
Deferred gain 429 2,836
------- -------
Postretirement benefits liability $153,566 $146,770
======= =======
</TABLE>
<TABLE>
These amounts are included in the accompanying balance sheet captions:
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued liabilities $ 9,000 $ 7,700
Postretirement benefits
other than pensions 144,566 139,070
------- -------
$153,566 $146,770
======= =======
</TABLE>
The discount rate used in determining the APBO was 8 percent in 1997
and 1996. At December 31, 1997, the assumed average annual rate of
increase in the cost of health care benefits (health care cost trend
rate) was 8.5 percent for 1998 declining by 1/2 percent per year through
2004 when the ultimate rate of 5.5 percent is attained. This trend rate
assumption has a significant effect on the amounts reported above. A 1
(continued)
35
<PAGE>
percent increase in the health care cost trend rate would increase the
APBO by $3,658 and the net periodic expense by $405 for the year.
The Company has a Voluntary Employees' Beneficiary Trust and Welfare
Benefits Plan (VEBA) to fund health benefits for eligible active and
retired domestic employees. The pre-funded amount was $13,400 in 1997
and $11,400 in 1996.
INCOME TAXES
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal and foreign $52,570 $44,250 $51,141
State and local 6,310 5,862 6,753
------ ------ ------
58,880 50,112 57,894
Deferred:
Federal and foreign 11,738 12,096 8,062
State and local 1,763 2,000 1,294
------ ------ ------
13,501 14,096 9,356
------ ------ ------
$72,381 $64,208 $67,250
====== ====== ======
</TABLE>
<TABLE>
The effective income tax rate differs from the statutory Federal tax
rate as follows:
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net
of Federal income tax benefit 2.7 3.0 2.9
Other (0.5) (0.7) (0.6)
---- ---- ----
Effective income tax rate 37.2% 37.3% 37.3%
==== ==== ====
</TABLE>
Payments for income taxes in 1997, 1996 and 1995 were $55,610,
$57,884 and $53,110, respectively.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $107,424 $ 87,327
Other 35,434 28,647
------- -------
Total deferred tax liabilities 142,858 115,974
(continued)
36
<PAGE>
INCOME TAXES (continued)
Deferred tax assets:
Postretirement benefits
other than pensions 53,957 50,661
Other 26,833 24,175
------- -------
Total deferred tax assets 80,790 74,836
------- -------
Net deferred tax liabilities $ 62,068 $ 41,138
======= =======
</TABLE>
<TABLE>
These amounts are included in the accompanying balance sheet captions:
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prepaid expenses and deferred income taxes $11,540 $11,630
Deferred income taxes 73,608 52,768
------ ------
Net deferred tax liabilities $62,068 $41,138
====== ======
</TABLE>
LEASE COMMITMENTS
The Company rents certain manufacturing facilities and equipment under
long-term leases expiring at various dates. Rental expense for
operating leases was $11,079 for 1997, $7,242 for 1996 and $6,696 for
1995.
Future minimum payments for all noncancelable operating leases during
the next five years are as follows: 1998 - $5,069; 1999 - $3,722; 2000
- - $2,485; 2001 - $1,867; 2002 - $1,350.
37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Cooper Tire & Rubber Company
We have audited the accompanying consolidated balance sheets of Cooper
Tire & Rubber Company as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the
index at item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Cooper Tire & Rubber Company at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Toledo, Ohio
February 10, 1998
38
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA
(UNAUDITED)
(All dollar amounts in thousands except per share figures)
<CAPTION>
Stock Price
Net Gross Net Earnings Dividend -----------
Sales Margin Income Per Share Per Share High Low
----- ------ ------ --------- --------- ---- ---
1997
- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fourth $488,908 $86,474 $34,631 $.44 $.095 $28 7/16 $20 13/16
Third 480,572 80,095 31,124 .40 .085 27 21 13/16
Second 463,993 84,385 31,506 .40 .085 23 1/2 18
First 379,532 63,619 25,150 .31 .085 21 5/8 18 1/4
</TABLE>
<TABLE>
<CAPTION>
1996
- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fourth $416,277 $71,704 $32,700 $.40 $.085 $21 7/8 $18 3/4
Third 423,172 64,095 26,913 .32 .075 22 3/8 18
Second 398,858 60,292 25,162 .30 .075 26 5/8 21 7/8
First 381,038 56,705 23,109 .28 .075 27 1/4 22 3/4
</TABLE>
Earnings per share amounts are basic and diluted as computed under
the requirements of Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
39
<PAGE>
<TABLE>
COOPER TIRE & RUBBER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
Additions
Balance at ---------------------- Balance
Beginning Charged Business Deductions at End
of Year To Income Acquisition (a) of Year
--------- --------- ----------- ---------- -------
Allowance for
doubtful
accounts:
<S> <C> <C> <C> <C> <C>
1997 $3,700,000 $ 853,559 $1,835,000 $1,597,559 $4,791,000
========= ========= ========= ========= =========
1996 $3,600,000 $1,050,960 - $ 950,960 $3,700,000
========= ========= ========= ========= =========
1995 $3,600,000 $ 375,705 - $ 375,705 $3,600,000
========= ========= ========= ========= =========
<FN>
(a) Accounts charged off during the year, net of recoveries of accounts
previously charged off.
</TABLE>
40
<PAGE>
Exhibit (12)
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<CAPTION>
Years Ended December 31
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated income
before income taxes $194,792 $172,092 $180,070 $208,119 $164,250
Add:
Interest and
amortization of
debt expense 15,655 1,654 697 2,680 2,351
Interest portion of
rental expense 3,693 2,414 2,232 2,078 1,787
------- ------- ------- ------- -------
Income as adjusted $214,140 $176,160 $182,999 $212,877 $168,388
======= ======= ======= ======= =======
Fixed charges:
Interest and
amortization of
debt expense $15,655 $ 1,654 $ 697 $ 2,680 $ 2,351
Capitalized interest 1,628 4,315 2,694 1,170 2,297
Interest portion of
rental expense 3,693 2,414 2,232 2,078 1,787
------- ------- ------- ------- -------
Total fixed charges $20,976 $ 8,383 $ 5,623 $ 5,928 $ 6,435
======= ======= ======= ======= =======
Ratio of earnings to
fixed charges 10.2 21.0 32.5 35.9 26.2
==== ==== ==== ==== ====
</TABLE>
41
<PAGE>
Exhibit (13)
OPERATIONS REVIEW AND PRODUCT OVERVIEW
OPERATIONS REVIEW
Tire Products
INDUSTRY OVERVIEW
The Company shipped a record number of tires in 1997, continuing to
outpace the overall industry in replacement tire shipments.
In the U.S. replacement market, tire shipments increased 2.9 percent,
rising almost 6.3 million units from the 1996 total of 214.4 million
units. Cooper's increase in unit sales contributed a substantial share
of the industry increase. The strong overall U. S. economy was a
significant factor in allowing the tire industry to record a better than
average increase for the year.
By product category, industry replacement passenger tire shipments
increased 2.4 percent; light truck replacement tire shipments posted an
increase of 5.2 percent; and medium truck tire shipments recorded a
strong increase of 6.5 percent. Inner tube shipments continued to
decline resulting in a 3.1 percent decrease from 1996 totals.
According to a trade publication, capacity in the industry increased
by almost two percent from 1996 to 1997 and contributed to the intense
competitive environment in the retail tire market.
Consumer preference for larger wheel diameters continued in 1997 with
32 percent of the performance tire sales being 16-inches or greater,
compared to just 23 percent during 1996. Performance tires overall
continued their steady increase as a percent of total replacement tire
market--showing an even greater increase in the original equipment
market.
The expertise and customer service provided by independent dealers
continues to benefit today's tire consumer. According to a leading
industry magazine, Modern Tire Dealer, independent tire dealers as a
distribution channel, represented 71 percent of all passenger tires sold
in 1997. With the Company distributing its Cooper, Mastercraft,
Starfire and Roadmaster house brand tires primarily through independent
tire dealers, this growing trend has a positive implication for the
Company's domestic sales growth. The newly-acquired Avon brand also is
sold primarily through the independent dealer channel both in the U.S.
and abroad.
PRODUCTS
With the acquisition of Avon Tyres Limited, Cooper's assortment of
products grew to include several new categories including motorcycle
tires, racing tires and remould materials. During the year, several new
product lines were introduced and additional sizes were made available
for one of the most popular broadline offerings.
The new Cooper CXMT 320 was added during 1997 to fit a niche for
local delivery and trailer service applications. With low profile
sizing and a premium 16/32-inch tread depth, this commercial-size, all-
steel radial tire rounds out the overall offering from Cooper in the
medium truck tire category.
Promoted as the "ultimate sports/touring tire," the Avon Azaro radial
front/rear motorcycle tire was introduced featuring Cooper-Avon's
patented variable belt density (VBD). The tire provides outstanding
mileage, consistent cornering and good handling even as the tire wears.
Cooper-Avon Tyres Limited is the world's fifth largest motorcycle tire
manufacturer.
The popular Cooper Lifeliner Classic II passenger tire line was
expanded to include eight new 75 series sizes including an extra load
size for full-size vans and pickup trucks.
In early 1998 Cooper introduced a new light truck radial, the Cooper
SRM II Radial LT with special sizes available for the international
market. This replacement for the popular rib light truck line should
prove to be a good seller worldwide.
(continued)
42
<PAGE>
FACILITIES
Cooper has an ongoing commitment to modernization at all its
manufacturing facilities. In fact, during the past 10 years, more than
$1 billion has been spent in capital improvement projects. Increasing
production capacity, implementing the latest technology to upgrade
product quality and lowering production costs are at the heart of
Cooper's improvement projects.
When Cooper acquired the Melksham, England, manufacturing operation
in early 1997, a needs assessment of the facility began immediately in
order to maximize the investment. During the year an aggressive plan
was put into place for additional equipment as well as upgrades to
existing equipment in order to increase output. Through the diligent
efforts of the talented Melksham and Findlay teams, the initial phase of
the modernization will be completed in early 1998 and should benefit
Cooper's long-term European sales plans.
In the United States, all four tire plants were involved in a program
designed to improve tire uniformity. The "Operational Excellence"
process improvement program uses a statistical-based approach to ensure
predictability of each manufacturing process. This program helps
tremendously in eliminating process variations and ultimately helps all
products achieve a consistent uniformity that meets or exceeds customer
expectations.
All of Cooper's tire plants in the U.S. this year will be linked with
a computerized maintenance system which helps keep equipment running at
maximum efficiency. Cooper uses a systematic approach to facility
improvement, generally selecting a lead plant to install any new process
or equipment, then perfecting the process before it is transferred to
the remaining plants. The new computerized maintenance system is an
example of this successful approach.
Late in 1997 two projects were announced which will significantly
strengthen Cooper's testing, research and engineering efforts for
decades to come. In December construction began on an expansion to the
research and engineering facility located in Findlay. The 73,500-
square-foot addition will provide an optimum environment for creativity
and collaboration using fiber optic technology to enhance communication
from initial design to final production of the tire.
Also in 1997 plans were finalized for the Company to construct a tire
testing facility in southern Texas. By the end of 1998, this 1,000-acre
site near San Antonio will contain a one-mile road course, a 2 1/2 mile
oval course and a vehicle dynamics wet testing area. Cooper's speed-to-
market with new products will be greatly enhanced with this control of
future tire testing projects.
A new graphic arts facility in Findlay will be completed in 1998.
This 12,000-square-foot structure will consolidate the production and
distribution of the Company's printed materials. The new facility will
save Cooper considerable time and expense in the production of printed
forms, advertising materials and other promotional materials necessary
to help market all Cooper products.
TECHNOLOGY
Over the years Cooper engineers and technicians have continually
monitored advancements in computer technology to help keep products at
the highest quality level and to maximize efficiency. New product
development is critical in maintaining a competitive edge in the tire
marketplace. Cooper's entire product development program is computer-
driven in order to reduce time for the development process and provide
the best quality in the designs.
The Company's CAD process allows engineers to create tire designs and
predict the performance of that specific design - on screen - before any
further development takes place. Through a rapid prototyping system,
Cooper can provide its private-brand customers with a three dimensional,
plastic model of the tire for quick evaluation regarding appearance
issues. Linked with the new mold design facility in Findlay, the CAD
(continued)
43
<PAGE>
system can quickly produce mold drawings and, ultimately, a prototype
tire in days when just several years ago, it took weeks and months to
provide the first sample tire for a new product line.
Cooper's entire technology process is fast-moving and cutting-edge
and employees are proud of their efforts in providing new quality
products to customers around the world.
MARKETING
National awareness increased dramatically for Cooper in 1997 with the
addition of Arnold Palmer as the company spokesman and the significant
increase in advertising media expenditures for the year. Between March
and September, the Palmer-Cooper association was highlighted on cable
stations nationally by rotating two memorable 30-second commercials on
popular cable TV programs. Cooper's associate sponsorship of the
network televised PGA event, the Bay Hill Invitational, also contributed
to the increase in recognition for the Cooper brand.
Cooper dealers were provided a wide assortment of Arnold Palmer
materials to promote the association in their local markets including
television and radio commercials, in-store display materials, billboard
paper and even a counter card which promoted the use of the PSA
(prostate specific antigen) test and its benefits in providing early
warning for prostate cancer. In early 1997 Arnold Palmer underwent
surgery for prostate cancer and attributes the PSA as an important
element in helping him detect the disease early.
In mid-year, Cooper announced the renaming of the Melksham operation
to Cooper-Avon Tyres Limited. Reflecting Cooper-Avon's image as a
premium performance tire manufacturer, a distinctive red and blue logo
was introduced. Subsidiaries in France, Germany and Switzerland became
known as Cooper-Avon Pneumatiques SARL, Cooper-Avon Reifen (Deutschland)
Gmbh and Cooper-Avon Suisse SA, respectively. Avon Technical Services
is now Cooper-Avon International Development Limited.
Cooper was honored by private-brand customer Sears and received high
marks from its independent dealers during the year. In March 1997
Cooper was presented with the Sears Partners in Progress Award from a
pool of more than 10,000 vendors vying for the recognition. Cooper also
received the Source Award as the top supplier in the automotive division
and the Chairman's Award for innovation.
Later in the year, Cooper and Mastercraft brands were ranked at the
top of a national survey of tire dealers conducted by the industry
magazine Tire Review. Of the 47 brands mentioned by dealers,
Mastercraft ranked first and Cooper second. Of the "major" brands,
dealers ranked Cooper at the top.
Cooper continues to be a respected manufacturer in the tire industry
with the unmatched ability to provide excellence in customer service,
top quality products and competitive pricing.
GLOSSARY OF TERMS
REMOULD MATERIALS - Rubber materials produced for the retreading or
remoulding of tires. Cooper-Avon is the largest supplier of these
rubber materials in the United Kingdom.
VARIABLE BELT DENSITY (VBD) - The process in building motorcycle tires
by which a continuous belt of aramid fibers is wound onto the tire with
the plies applied closer together in the center of the tire and further
apart at the shoulder. Exclusive to Cooper-Avon's motorcycle tire
production, this process enhances the wear and stability of the tire.
(continued)
44
<PAGE>
LOW PROFILE SIZING - In simplest terms, a tire having short sidewalls
and wide tread. On a low profile truck tire, the sidewall height is 80
percent or less of the tire width.
CAD - Computer-aided design software used by Cooper's mold and product
design groups to design tire molds in three-dimensional models.
ENGINEERED PRODUCTS
INDUSTRY OVERVIEW
During 1997 North American light vehicle production increased 3.4
percent over the previous year. Passenger car sales continued to
decline while light truck sales increased moderately. As in past years,
the Company continues to experience high demand for its engineered
products.
Automotive industry analysts are predicting a slight downturn for
1998 in total North American vehicle production while Cooper anticipates
continued growth for products produced by the Company. Sales of Cooper
original equipment engineered rubber products per vehicle produced have
steadily increased in the past decades as OEM manufacturers continue to
recognize and take advantage of Cooper's expertise in the engineered
products field.
PRODUCTS AND TECHNOLOGY
The Company continues to strengthen its position as a partner with the
automakers in vehicle design and system problem solving. Original
equipment manufacturers are increasingly more dependent on Cooper to be
integrally involved in the up-front design work on components for
vehicles of the future. The ongoing investments in improvements for
equipment and technology make the Company well-prepared for this
challenge.
Benchmarking studies increased during 1997 in automotive product
lines. Cooper assessed a variety of world-class vehicles in customer-
designated categories to determine key performance characteristics such
as ride evaluation, pressure mapping, noise measurement and physical
properties evaluation. These efforts have allowed Cooper to provide
valuable performance data to customers which will result in better
products for consumers.
Research and development continues in active noise and vibration
control products with outstanding prototype performance models
demonstrated to potential customers this past year. Production tooling
using injection molding also began for a new spring design for a Tier-
One supplier to heavy truck manufacturers.
The initial version of Computer Controlled Adjustable Mounts (CCAM)
was completed in 1997. This advanced technology allows the ride
characteristics of mounts to be changed--through computer adjustment--
without removing the mount from the vehicle, resulting in a much quicker
development cycle. In an effort to significantly reduce cost and weight
for vehicles, engineering is nearing completion for extruded aluminum
roll restrictors to replace cast-iron designs.
Development was completed on a unique hydraulic cradle mount design
which allows varying damping effects in fore and aft directions versus
lateral directions as well as a heavy-duty hydrobushing for large sports
utility vehicles. The Company also completed development and began
production tooling for multiple vibration control parts for the GMT800
pickup truck program.
At the design center near Detroit, a new modeling system was
installed to produce solid models directly from CAD data. This
innovative system allows Cooper engineers to evaluate design concepts
before creating a production tool sample, a savings in both time and
money.
(continued)
45
<PAGE>
FACILITIES
Cooper is committed to continuous improvement and growth to meet the
worldwide demand for its products. Completion is expected in 1998 of a
76,000-square-foot engineering technical center in Auburn. This new
facility will help provide an even higher level of engineering
excellence for customers and the entire engineered products operation.
The Bowling Green sealing plant was expanded during 1997 to include
an additional 30,000 square feet of warehouse and manufacturing space.
This expansion allows for increased production for new business
contracts in the sealing product lines.
At the El Dorado vibration control manufacturing facility, a new,
precision, high-output banbury rubber mixer was installed this past year
along with additional equipment to meet increased business activities.
The Mount Sterling and Piedras Negras facilities received QS-9000
certifications in 1997. All six of Cooper's engineered products
manufacturing locations now have achieved this status and continue to
regularly pass all QS-9000 audits.
MARKETING
Today's automotive manufacturers require suppliers to quickly provide
parts everywhere vehicles are being manufactured. Cooper's first
involvement in this world-car manufacturing concept was the Ford CDN 27
(Contour, Mystique and Mondeo) which was designed in Europe, tested in
Michigan and Germany and built in Missouri, Mexico, England and Belgium.
In order to be competitive in this "follow-me" sourcing environment,
Cooper employees must work side-by-side with customer engineers and
other suppliers from around the world to develop parts to fit the
manufacturer's requirements. Cooper is actively seeking opportunities
for technical agreements and joint-ventures with other companies to
strengthen its position in this global process.
Cooper engineered products appeared on every one of the top ten best
selling vehicles in the United States again in 1997. The Company
currently manufactures more than 1,800 types of parts which are sold
directly to the automotive manufacturers or other Tier-One suppliers.
As technology moves toward modularity--more assemblies of products
rather than single product lines--Cooper is in a position to modify
production to take advantage of this trend.
The Company's Auburn plant was recognized with several quality awards
in 1997 including the Gold Pentastar from Chrysler and the Certified
Supplier Award from Eaton Yale Suspension Division. Mount Sterling
received the Q1 award from Ford Motor Company as well as the Gold
Pentastar from Chrysler. Piedras Negras also received the Gold
Pentastar from Chrysler.
The Company is determined to stay competitive in today's automotive
market with a commitment to investments in technology, facilities and
people for greater business opportunities in the future. By producing
high-quality products through innovative technology, it is the goal of
Cooper to continue to grow as a world-class manufacturer of engineered
products.
GLOSSARY OF TERMS
BENCHMARKING - Used to evaluate products or processes from various
sources in order to determine what the state of the art is, or to
compare a product to others available in the marketplace.
DAMPING - A material's ability to absorb energy to reduce vibration.
TIER-ONE - Manufacturers who supply parts or components directly to
vehicle manufacturers. Companies at the Tier-Two level provide parts or
materials to Tier-One suppliers.
QS-9000 - Rating program for automotive suppliers that certifies all
quality procedures are fully documented and strictly followed.
(continued)
46
<PAGE>
1997 TOP TEN SELLING VEHICLES
Cooper has supplied parts for every vehicle on the 1997 top ten selling
vehicles list as either a Tier-One or Tier-Two supplier.
1. FORD F-SERIES PICKUP 6. FORD TAURUS
2. CHEVROLET C/K PICKUP 7. DODGE RAM PICKUP
3. TOYOTA CAMRY 8. HONDA CIVIC
4. HONDA ACCORD 9. CHEVROLET CAVALIER
5. FORD EXPLORER 10. FORD RANGER
Through a new program called Cooper Development Strategy (CDS),
Cooper's engineered products operation has enhanced its management of the
product development process. CDS helps Cooper engineers track the design,
development, validation and manufacturing of Cooper's products while
working to exceed customer expectations. Through CDS, everyone on the
Cooper team is able to understand how his or her actions affect the
overall product development cycle and what can be done to improve upon it.
In early 1997 the engineered products sales, engineering and design
force was consolidated into one major facility in Farmington Hills,
Michigan, a suburb of Detroit. The 35,000-square-foot facility houses
the body seal, hose and vibration control products sales groups as well
as an expanded engineering and design center for body sealing and hose.
The facility enables the Company to provide more services to all of its
engineered products customers.
PRODUCT OVERVIEW
TIRE PRODUCTS
Cooper sells replacement tires and tubes to consumers through a network
of independent dealers, large wholesale distributors, mass merchandisers
and large retail chains.
Radial passenger lines incorporate modern designs, competitive UTQG
ratings and performance characteristics which meet the demands of
today's driver.
Light trucks and SUVs accounted for five of the top ten best selling
vehicles in 1997. Cooper's line-up meets the demand for style,
durability and performance in this growing market.
In the medium truck tire line, Cooper offers state-of-the-art radials
along with conventional bias ply designs to meet the needs of tractor-
trailer rigs, buses, and other commercial vehicles.
Cooper supplies inner tubes in both radial and bias constructions for
passenger, light truck, medium truck and special applications.
Avon brand motorcycle tires are produced for sport and touring bikes and
are highly respected worldwide by riders for their quality and
performance.
ENGINEERED PRODUCTS
The Company supplies engineered rubber products to virtually every
automobile manufacturer in the United States and Canada, either directly
or through other Tier-One suppliers.
Vibration control systems help minimize vehicle vibrations. Cooper
produces mounts, bushings, isolators and torsional springs to help
reduce vehicle noise and increase passenger comfort.
47
<PAGE>
Automotive sealing products help seal the vehicle from outside elements.
Cooper manufactures rubber seals around vehicle doors, trunk and hood
and window channels.
Hoses and assemblies are required to transport fluids, fuels and gases.
Cooper's products include hoses in a variety of shapes, sizes,
diameters, lengths, rubber compounds and constructions.
48
<PAGE>
Exhibit (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements of Cooper Tire & Rubber Company listed below, and in the
Prospectus related to the Form S-3, of our report dated February 10,
1998 with respect to the consolidated financial statements and schedule
of Cooper Tire & Rubber Company included in this Annual Report (Form 10-
K) for the year ended December 31, 1997:
Form S-3 No. 33-44159 $200,000,000 aggregate principal amount of
the Company's Debt Securities
Form S-8 No. 2-58577 Thrift and Profit Sharing Plan
No. 2-77400 1981 Incentive Stock Option Plan
No. 33-5483 1986 Incentive Stock Option Plan
No. 33-35071 Texarkana Pre-Tax Savings Plan
No. 33-47979 Pre-Tax Savings Plan at the Auburn Plant
No. 33-47980 1991 Stock Option Plan for Non-Employee
Directors
No. 33-47981 Pre-Tax Savings Plan at the Findlay Plant
No. 33-47982 Pre-Tax Savings Plan at the El Dorado Plant
No. 33-52499 Pre-Tax Savings Plan (Bowling Green - Hose)
No. 33-52505 Pre-Tax Savings Plan (Bowling Green - Sealing)
No. 333-09619 1996 Stock Option Plan
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Toledo, Ohio
March 20, 1998
49
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in the capacities
indicated, do hereby constitute and appoint Patrick W. Rooney, or J.
Alec Reinhardt, or John Fahl, or Stan C. Kaiman as their attorney with
full power of substitution and resubstitution for and in their name,
place and stead, to sign and file with the Securities and Exchange
Commission an Annual Report on Form 10-K, as amended, together with any
and all amendments and exhibits thereto and any and all applications,
instruments or documents to be filed with the Securities and Exchange
Commission pertaining to the filing of such report, with full power and
authority to do and perform any and all acts and things whatsoever
requisite and necessary to be done in the premises, hereby ratifying and
approving the acts of said attorney or any such substitute.
Executed at Findlay, Ohio this 10th day of February, 1998.
/s/ Arthur H. Aronson /s/ Edsel D. Dunford
- --------------------------- ---------------------------
Arthur H. Aronson, Director Edsel D. Dunford, Director
/s/ John Fahl /s/ Deborah M. Fretz
- --------------------------- ---------------------------
John Fahl, Director Deborah M. Fretz, Director
/s/ Dennis J. Gormley /s/ Stan C. Kaiman
- --------------------------- ---------------------------
Dennis J. Gormley, Director Stan C. Kaiman, Secretary
/s/ John F. Meier, Director /s/ J. Alec Reinhardt
- --------------------------- -----------------------------
John F. Meier, Director J. Alec Reinhardt, Executive
Vice President, Principal
Financial Officer, and Director
/s/ Patrick W. Rooney /s/ John H. Shuey
- ---------------------------- ------------------------------
Patrick W. Rooney, Chairman of John H. Shuey, Director
the Board, President,
Principal Executive Officer,
and Director
/s/ Eileen B. White
- -----------------------------
Eileen B. White, Principal
Accounting Officer and
Corporate Controller
(continued)
50
<PAGE>
STATE OF OHIO )
)ss.
COUNTY OF HANCOCK)
On this 10th day of February, 1998, before me, a Notary Public in and
for the State and County aforesaid, personally appeared Arthur H.
Aronson, Edsel D. Dunford, John Fahl, Deborah M. Fretz, Dennis J.
Gormley, Stan C. Kaiman, John F. Meier, J. Alec Reinhardt, Patrick W.
Rooney, John H. Shuey, and Eileen B. White, known to me to be the
persons whose names are subscribed in the within instrument and who
acknowledged to me that they executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ Phyllis C. Hall
--------------------------------------
Phyllis C. Hall, Notary Public
State of Ohio
My commission expires October 6, 2000
(SEAL)
51
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby, for
and on behalf of Cooper Tire & Rubber Company in accordance with the
certain resolution of the Board of Directors adopted February 10, 1998,
constitute and appoint Patrick W. Rooney, or J. Alec Reinhardt, or John
Fahl, or Stan C. Kaiman, as its attorney with full power of substitution
and resubstitution for and in its name, place and stead, to sign and
file with the Securities and Exchange Commission an Annual Report on
Form 10-K pursuant to the Securities Act of 1934, as amended, together
with any and all amendments and exhibits thereto, and all applications,
instruments or documents to be filed with the Securities and Exchange
Commission pertaining to the filing of such report, with full power and
authority to do and perform any and all acts and things whatsoever
requisite and necessary to be done in the premises, hereby ratifying and
approving the acts of said attorney or any such substitute.
Executed at Findlay, Ohio this 10th day of February, 1998.
ATTEST: COOPER TIRE & RUBBER COMPANY
/s/ Stan C. Kaiman /s/ Patrick W. Rooney
- ------------------------- -----------------------------
Stan C. Kaiman Patrick W. Rooney
Secretary Chairman of the Board,
President, and Chief
Executive Officer
STATE OF OHIO )
)ss.
COUNTY OF HANCOCK)
On this 10th day of February, 1998, before me, a Notary Public in
and for the State and County aforesaid, personally appeared Patrick W.
Rooney and Stan C. Kaiman, known to me to be the persons whose names are
subscribed in the foregoing instrument and acknowledged to me that they
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ Phyllis C. Hall
----------------------------------
Phyllis C. Hall, Notary Public
State of Ohio
My commission expires October 6, 2000
(SEAL)
52
<PAGE>
Exhibit (99)
COOPER TIRE & RUBBER COMPANY
UNDERTAKINGS OF THE COMPANY
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
1. Undertakings.
------------
a. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
i. To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
iii. To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
do not apply if the registration statement is on Form S-3 or
Form S-8 and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration
statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
b. The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
f. Employee plans on Form S-8.
1. The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each employee
to whom the prospectus is sent or given, a copy of the
registrant's annual report to stockholders for its last
fiscal year, unless such employee otherwise has received a
copy of such report, in which case the registrant shall
state in the prospectus that it will promptly furnish,
without charge, a copy of such report on written request of
the employee. If the last fiscal year of the registrant has
ended within 120 days prior to the use of the prospectus,
the annual report of the registrant for the preceding fiscal
year may be so delivered, but within such 120 day period the
(continued) 53
<PAGE>
annual report for the last fiscal year will be furnished to
each such employee.
2. The undersigned registrant hereby undertakes to transmit or
cause to be transmitted to all employees participating in
the plan who do not otherwise receive such material as
stockholders of the registrant, at the time and in the
manner such material is sent to its stockholders, copies of
all reports, proxy statements and other communications
distributed to its stockholders generally.
3. Where interests in a plan are registered herewith, the
undersigned registrant and plan hereby undertake to transmit
or cause to be transmitted promptly, without charge, to any
participant in the plan who makes a written request, a copy
of the then latest annual report of the plan filed pursuant
to section 15(d) of the Securities Exchange Act of 1934
(Form 11-K). If such report is filed separately on Form 11-
K, such form shall be delivered upon written request. If
such report is filed as a part of the registrant's annual
report on Form 10-K, that entire report (excluding exhibits)
shall be delivered upon written request. If such report is
filed as a part of the registrant's annual report to
stockholders delivered pursuant to paragraph (1) or (2) of
this undertaking, additional delivery shall not be required.
h. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
2. Indemnification of Directors and Officers.
-----------------------------------------
Article VII of the Bylaws of the registrant and Section 145 of the
Delaware Code provide for indemnification. Article VII, in which
registrant is referred to as "Corporation", provides as follows:
Section 1. Right to Indemnification.
--------- ------------------------
Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he,
or a person of whom he is the legal representative, is or was a
director or officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee
or agent of another corporation or a partnership, joint venture,
trust or other enterprise, including service with respect to
employee benefit plans maintained or sponsored by the
Corporation, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee
or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by
the Delaware General Corporation Law, as the same exists or may
(continued) 54
<PAGE>
hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said Law
permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys'
fees, judgments, fines, excise taxes pursuant to the Employee
Retirement Income Security Act of 1974 or penalties and amounts
paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding
(or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of
Directors. The right to indemnification conferred in this
Article shall be a contract right and shall include the right to
be paid by the Corporation the expenses incurred in defending
any such proceeding in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer in
advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or
on behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Article
or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of
the Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
Section 2. Non-Exclusivity of Rights.
--------- -------------------------
The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of
any other right which any person may have or hereafter acquire
under any statute, the Restated Certificate of Incorporation,
these Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 3. Insurance.
--------- ---------
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.
The registrant also maintains policies insuring the liability of the
registrant to its directors and officers under the terms and
provisions of the Bylaws of the registrant and insuring its
directors and officers against liability incurred in their
capacities as such directors and officers.
55
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,377
<SECURITIES> 30,533
<RECEIVABLES> 297,207
<ALLOWANCES> 4,791
<INVENTORY> 191,684
<CURRENT-ASSETS> 554,612
<PP&E> 1,399,087
<DEPRECIATION> 538,639
<TOTAL-ASSETS> 1,495,956
<CURRENT-LIABILITIES> 200,331
<BONDS> 205,525
0
0
<COMMON> 78,760
<OTHER-SE> 754,815
<TOTAL-LIABILITY-AND-EQUITY> 1,495,956
<SALES> 1,813,005
<TOTAL-REVENUES> 1,814,411
<CGS> 1,498,432
<TOTAL-COSTS> 1,498,432
<OTHER-EXPENSES> 104,678
<LOSS-PROVISION> 854
<INTEREST-EXPENSE> 15,655
<INCOME-PRETAX> 194,792
<INCOME-TAX> 72,381
<INCOME-CONTINUING> 122,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,411
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
