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, 1998
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 8, 1999). $1,516,705,360
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 8, 1999)
Common Stock, $1 par per share 75,835,268
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 23, 1999 - Part III
EXHIBIT INDEX appears on pages 18 and 19
1
<PAGE>
Part I
Item 1. BUSINESS
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 manages
its business as two operating segments. Tire Operations manufactures
and markets automobile, truck and motorcycle tires and inner tubes.
Engineered Products Operations produces and markets vibration control
systems, automotive sealing and hose and hose assemblies. Additional
information on the Company's operating segments and products appears in
the Business Segments note to the Financial Statements on pages 37
through 39 and in Exhibit (13) of this Annual Report of Form 10-K.
Tire Operations sells its products in the replacement tire market
domestically and internationally to independent dealers, wholesale
distributors and large retail chains. Independent dealers and
distributors accounted for approximately 71.5 percent of all replacement
passenger tires sold in the United States in 1998. During 1997 and 1996
this share approximated 71 and 69.5 percent, respectively. Cooper has
an efficient distribution system to serve its markets for replacement
passenger and truck tires.
In January 1999 the Company completed the acquisition of Dean Tire of
Louisville, Kentucky. Dean had been a private brand supplier of a full
line of passenger, light truck and medium radial truck tires to
independent dealers in North America for 75 years. The Company had been
the sole supplier to Dean since 1966.
On February 11, 1999 the Company announced formation of a strategic
alliance with the Pirelli Group of Milan, Italy (Pirelli). This new
joint venture, based on contractual arrangements only with no joint
share holding, will combine the best resources of both companies to
improve their competitiveness in the North and South American
replacement tire markets. The Company will act as Pirelli's agent to
manage the sales and distribution of all Pirelli passenger and light
truck tires in the U.S.A., Canada and Mexico replacement markets,
capitalizing on its dealer relationships and manufacturing efficiency
and Pirelli's brand awareness, technological capability and expertise in
the performance tire arena. Future plans include an agreement for
Pirelli to market and distribute Cooper brand tires in South America.
Engineered Products Operations 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 1% decrease in
total production of light vehicles in 1998. The Company's sales of
engineered rubber products are generally linked to light vehicle
production. Growth in customer demand for the Company's engineered
rubber products was excellent in 1998 and 1997 as new contracts
continued to be won for new platforms and the Company's share of
business increased on many of the top-selling vehicles in the U.S.
market. The Company is an authorized supplier to virtually every
automobile manufacturer in the United States and Canada.
(continued)
2
<PAGE>
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
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 1998 Cooper's ten largest customers accounted for
approximately 53 percent of total sales. Tire Operations' revenues
derived from one customer, Sears, Roebuck and Co., approximated 12 and
17 percent of consolidated net sales in 1997 and 1996. 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 1998 represented approximately 12
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
eighth in worldwide tire sales based on 1997 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 1998, nor have any shortages been experienced in the
opening months of 1999.
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 304 full-time
employees engaged in research and development programs. Research and
development expenditures amounted to approximately $29,200,000 in 1998,
$21,700,000 in 1997, and $19,700,000 in 1996.
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 and sophisticated modeling programs
reduce Cooper's product development costs and the time necessary to bring
new products to market. The Company recently signed a product and
technology agreement with the MacNeal-Schwendler Corporation to create an
advanced tire design and modeling system. 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 1998
approximately 58 million miles of tests were performed on indoor test
wheels and in monitored road tests. Ground was broken mid-year for a new
tire and vehicle test track in southern Texas. Located on a 900-acre
site near San Antonio, the Tire & Vehicle Test Center will contain a
one-mile road course, a two-mile ride evaluation course and a 14-acre
vehicle dynamics area for wet testing. The new track will provide
additional flexibility and capability for the development of new
products and enhance the company's speed-to-market. Uniformity
equipment is used to physically monitor radial passenger, light truck
and medium truck tires 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.
Additional information on the Company's research, development and
product improvement programs appears in Exhibit (13) of this Annual
Report on Form 10-K.
Patents, Intellectual Property and Trademarks
The Company owns and/or has licenses to use patents and intellectual
property covering various aspects in the design and manufacture of its
products and in processes and equipment for the manufacture of its
products. While the Company believes these assets as a group are of
material importance, it doesn't consider any one asset or group of these
assets to be of such importance that the loss or expiration thereof
would materially affect its business considered as a whole or the
business of either of its segments.
The Company owns and uses trademarks worldwide. While the Company
believes such trademarks as a group are of importance, the only
trademarks the Company considers material to its business are those
using the words "Cooper", "Mastercraft" and "Avon". The Company
believes all of its significant trademarks are valid and will have
unlimited duration as long as they are adequately protected and
appropriately used.
4
<PAGE>
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 the 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 1998 expense and capital expenditures for environmental
control at its facilities were not material, nor is it estimated that
expenditures in 1999 for such uses will be material.
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, 1998, the Company employed 10,766 persons world-
wide, of whom 5,518 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.
(continued)
5
<PAGE>
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 Financial Statements" on
pages 27 through 39 of this Annual Report on Form 10-K for additional
information as to pension costs and funding and postretirement benefits.
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 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
231 Docks Corner Road Regional distribution Leased
Dayton, NJ 08810 center
1300 Lunt Avenue Regional distribution Owned
Elk Grove Village, IL 60007 center
(continued)
6
<PAGE>
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
LATIN AMERICA
Victoria Norte 2707 Engineered Products plant Owned
Piedras Negras, Mexico, C.P. 26010
EUROPE
11 Rue du Four St. Jacques Regional distribution Leased
60200 Compiegne, France center
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
</TABLE>
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 its
financial condition, results of its operations, or cash flows.
7
<PAGE>
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, 1998.
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, 23, 27, 29 through 32 and 41 of this
Annual Report on Form 10-K.
<TABLE>
Item 6. SELECTED FINANCIAL DATA
<CAPTION>
(Dollar amounts in thousands except per-share amounts)
Income
Before Earnings
Net Gross Operating Income Income Net Per Share
Sales Profit Profit Taxes Taxes Income Basic Diluted
--------- ------ --------- ------- ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $1,876,125 $330,636 $209,806 $198,217 $71,250 $126,967 $1.64 $1.64
1997 1,813,005 314,573 209,041 194,792 72,381 122,411 1.55 1.55
1996 1,619,345 252,796 172,922 172,092 64,208 107,884 1.30 1.30
1995 1,493,622 250,727 176,931 180,070 67,250 112,820 1.35 1.35
1994 1,403,243 277,265 208,517 208,119 79,600 128,519 1.54 1.53
1993 1,193,648 228,295 166,013 164,250 62,040 102,210 1.22 1.22
<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>
1998 $867,936 $1,541,275 $376,485 $885,282 $131,533 $101,899 $205,285
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
<CAPTION>
Return on
Beginning Return On Return On
Invested Beginning Beginning Current Pretax Effective Return On
Capital(a) Equity Assets Ratio Margin Tax Rate Sales
---------- --------- --------- ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 20.5% 15.2% 8.5% 3.0 10.6% 35.9% 6.8%
1997 24.6 15.6 9.6 2.8 10.7 37.2 6.8
1996 22.4 14.4 9.4 2.4 10.6 37.3 6.7
1995 26.0 17.0 10.9 2.7 12.1 37.3 7.6
1994 35.8 23.4 14.4 3.0 14.8 38.2 9.2
1993 32.1 21.7 12.8 2.6 13.8 37.8 8.6
(continued)
8
<PAGE>
<CAPTION>
Common Common
Long-term Equity Dividends Shares Shares
Debt to Per Per Average Year End
Capitalization Share Share (000) (000)
-------------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
1998 19.1% $11.45 $.39 77,598 75,791
1997 19.8 10.58 .35 79,128 78,760
1996 8.1 9.67 .31 83,214 81,367
1995 3.7 8.95 .27 83,646 83,662
1994 4.8 7.92 .23 83,623 83,634
1993 6.6 6.58 .20 83,550 83,582
<CAPTION>
Number Price/
of Stock Price Earnings
Stock- Number of Research & ------------- Average
holders Employees Development High Low Ratio
------- --------- ----------- ---- --- -------
<S> <C> <C> <C> <C> <C> <C>
1998 4,809 10,766 $29,200 $26.25 $15.44 12.7
1997 5,281 10,456 21,700 28.44 18.00 15.0
1996 5,991 8,932 19,700 27.25 18.00 17.4
1995 6,721 8,284 16,000 29.63 22.25 19.2
1994 7,623 7,815 14,700 29.50 21.63 16.6
1993 8,096 7,607 15,100 39.63 20.00 24.4
<FN>
(a) Earnings before interest and income taxes divided by long-term debt
plus stockholders' equity.
</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 contributed to growing financial strength and
provided funds for investment in productivity, product quality,
technology development and expansion.
Working capital increased to $376 million at year-end 1998 compared
from $354 million one year earlier. A current ratio of 3.0 to one
indicates a very strong liquidity position and is up from the year-end
1997 current ratio of 2.8 to one.
Total inventories at $186 million were down from $192 million at
year-end 1997. Finished goods inventories reflect an increase in tire
inventories required to support new customers, offset by a reduction in
engineered products inventories. The engineered products inventory at
the end of 1997 reflected increases required by certain customers during
negotiations of labor contracts which took place late in the year.
Investments in property, plant and equipment were $132 million in
1998, $108 million in 1997, and $194 million in 1996. The acquisition
of Avon Tyres Limited, renamed Cooper-Avon Tyres Limited (Cooper-Avon),
of Melksham, England was completed in March 1997 for $97 million.
Capital expenditures in 1999 are anticipated to exceed the level of 1998
due to increased investments in capacity, technology and information
systems. The Company's capital expenditure commitments approximated $22
million at December 31, 1998. 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 informal lines of credit.
Intangibles and other assets increased $6 million due to amounts
related to pension accounting.
Long-term debt at $205 million is comparable to the 1997 level. The
Company issued $200 million of 7 5/8 percent notes in March 1997 for the
acquisition of Cooper-Avon and the repurchase of its common stock. In
October 1997 the Company retired the 9 percent senior notes due in 2001.
Long-term debt, as a percent of total capitalization, is 19.1 percent at
December 31, 1998 compared to 19.8 percent one year earlier. The
Company has an agreement with four banks authorizing borrowings up to
$150 million on a long-term basis through October 31, 2002 and $100
million on a short-term basis, with interest at varying rates. The
credit facility provides for borrowings in foreign currencies and
supports issuance of commercial paper. The proceeds may be used for
general corporate purposes.
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. 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, results of operations, or
cash flows.
Stockholders' equity grew to $868 million at year end, reflecting a
net increase of $34 million from December 31, 1997. During 1998 the
retention of earnings, after payment of dividends, added $97 million to
stockholders' equity. The impact of cumulative foreign currency
translation and the exercise of stock options also contributed to the
increase. Stockholders' equity was reduced by $55 million during the
year for the repurchase of nearly 3 million shares of the Company's
common stock, and by $8 million for adjustment of the minimum pension
(continued)
10
<PAGE>
liability primarily resulting from the change in the discount rate
assumption from 7.5 percent to 7 percent. Stockholders' equity per
share was $11.45 at year-end 1998, an increase of 8 percent over $10.58
per share at year-end 1997.
Results of Operations
Net sales increased 3.5 percent in 1998 to a record $1.9 billion. This
followed a 12 percent increase in sales in 1997 from 1996 due, in part,
to the inclusion of Cooper-Avon's operations during the last three
quarters of 1997.
Tire operations' sales of $1.4 billion in 1998 were slightly ahead of
1997. Sales in 1997 increased more than 10 percent from $1.3 billion in
1996 reflecting strong demand and the acquisition of Cooper-Avon in
March. Shipments of the Company's tires increased at a greater rate
than the industry in 1997 and were strong in 1998 despite the loss of
units due to the sale of a large retail customer in late 1997 and the
restructuring of a mass merchandiser customer's business.
Engineered products operations' sales reached almost $432 million in
1998, a 16.8 percent increase over 1997. This followed an 18.9 percent
sales increase in 1997 from 1996. Growth in customer demand for the
Company's engineered rubber products was excellent in 1998 and 1997 as
new contracts continued to be won for new platforms and the Company's
share of business increased on many of the top-selling vehicles in the
U.S. market.
These achievements were accomplished in an environment of continued
discounting in the tire replacement market and annual price concessions
to automotive manufacturers and Tier I suppliers.
Gross profit, as a percent of net sales, was 17.6 percent in 1998
compared to 17.3 percent in 1997 and 15.6 percent in 1996. During 1998,
decreases in raw material costs and improvements in product mix were
partially offset by price discounting and concessions. The Company
anticipates no significant changes in raw material costs during 1999.
In 1997, capacity utilization was maintained at high levels and
technology improvements yielded greater efficiencies compared to 1996.
However, decreases in raw material costs during 1997 were offset by
price discounting and concessions. In 1996, intense pricing pressure in
the replacement tire industry and historically high cost levels for raw
materials contributed to lower gross margins.
Increases in 1998 selling, general and administrative expenses from
1997 levels were attributable to expanded advertising programs and the
inclusion of a full year of operations for Cooper-Avon. As a percent of
net sales, these expenses were 6.4 percent in 1998, 5.8 percent in 1997
and 4.9 percent in 1996. Selling, general and administrative expenses
in 1997 were higher than 1996 levels reflecting the inclusion of nine
months of Cooper-Avon's operations and increased advertising expense.
Interest expense in 1998 was lower than in 1997 due to the retirement
of the 9 percent notes in October 1997. The increase in interest
expense in 1997 from 1996 reflects increased borrowings and lower
amounts of capitalized interest.
Segment profit, defined as income before income taxes and other non-
operating items, was $194.6 million in 1998, $193.4 million in 1997 and
$171.3 million in 1996. Corporate interest and administrative costs are
allocated to the operations of each segment. For the engineered
products operations, segment profit of $51.8 million increased 19.3% in
1998 from 1997, and at $43.4 million in 1997 increased 40.1 percent from
1996. The segment profit for tire operations in 1998 of $142.8 million
declined 4.8 percent from 1997, and at $150 million in 1997 increased
6.9 percent from 1996.
The effective income tax rate of 35.9 percent in 1998 is lower than
the 37.2 percent in 1997 and the 37.3 percent in 1996 as a result of
foreign tax initiatives.
(continued)
11
<PAGE>
Net income increased 3.7 percent to a record $127 million in 1998
from $122 million in 1997. This improvement followed a 13.5 percent net
income increase in 1997 from 1996. Basic and diluted earnings per share
were $1.64 in 1998, $1.55 in 1997 and $1.30 in 1996. Earnings per share
in 1998 and 1997 were favorably impacted by the Company's repurchase of
8 million shares of its common stock since September 1996.
Cooper-Avon contributed to net sales but did not contribute to the
Company's income in 1998 and 1997. 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. In 1998, additional costs were
incurred to achieve efficiencies and funds were invested for the
modernization of facilities. The Company will continue to review
opportunities to achieve additional efficiencies in Cooper-Avon's
operations.
Agreement with Pirelli
On February 11, 1999 the Company announced formation of a strategic
alliance with the Pirelli Group of Milan, Italy (Pirelli). This new
joint venture, based on contractual arrangements only with no joint
share holding, will combine the best resources of both companies to
improve their competitiveness in the North and South American
replacement tire markets. The Company will act as Pirelli's agent to
manage the sales and distribution of all Pirelli passenger and light
truck tires in the U.S.A., Canada and Mexico replacement markets,
capitalizing on its dealer relationships and manufacturing efficiency
and Pirelli's brand awareness, technological capability, and expertise
in the performance tire arena. The Company will also assist Pirelli to
reduce manufacturing costs in its Hanford, California tire plant.
Capital investments for improvements at the plant will be borne by
Pirelli who will continue to fund accounts receivable and inventory of
Pirelli products. Future plans include an agreement for Pirelli to
market and distribute Cooper brand tires in South America.
The Company anticipates an increase in sales of its tires as the
combined marketing program enables complete coverage of products and
customer channels, new relationships are developed with Pirelli
customers, and the distribution of Cooper brand tires increases in the
South American market. In addition, cost and quality benefits are
anticipated as technology may be shared and jointly developed and global
purchasing synergies are achieved.
Acquisition of Dean Tire & Rubber Company
In January 1999 the Company completed the acquisition of Dean Tire of
Louisville, Kentucky. Dean had been a private brand supplier of a full
line of passenger, light truck and medium radial truck tires to
independent dealers in North America for 75 years. This purchase brings
an additional house brand to the Company's tire operations, enhancing
product offerings in upper Tier II and Tier III segments of the
replacement market. The Company had been the sole supplier to Dean
since 1966. The expenditure for this acquisition is not material to the
Company's financial position or results of operations.
New Accounting Standards
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income," during the first quarter of
1998 requiring the disclosure of total comprehensive income in the
financial statements. In 1998 the Company also adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which changed the method for determining and reporting certain financial
information at segment levels. In 1998 the Company also adopted SFAS
(continued)
12
<PAGE>
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," restating prior year disclosures to conform to the Standard's
required presentation.
In June 1998 Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
This Statement will become effective for fiscal years beginning after
June 15, 1999, with earlier adoption permitted. The Company is
currently evaluating the effect of the provisions of this Statement on
its accounting and reporting policies, but does not anticipate that
adoption of this Statement will have a material adverse effect on the
Company's consolidated financial position or results of operations. The
Company does not have derivative instruments at December 31, 1998.
During 1998 the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This Statement is
effective for fiscal years beginning after December 15, 1998, with
initial application as of the beginning of the fiscal year it is
adopted. The Company's current policy is to capitalize the cost of
obtaining externally developed and purchased software and to expense the
cost of internally developed software. The Company has not yet
determined the impact of adopting this Statement, but does not believe
its effect will be material to the Company's consolidated financial
position or results of operations.
Year 2000
The Company has developed and initiated plans to address the possible
exposures related to the impact of the Year 2000 on its systems and
computer equipment, including those involved in its manufacturing
operations. The Year 2000 issue is the result of computer programs
being written in the past using two digits rather than four to define
the applicable year. Computer equipment and systems that have date-
sensitive chips or codes may not be able to correctly recognize a two-
digit year in dates beyond December 31, 1999. There is potential for
failure of systems and equipment around the world due to this logic on
January 1, 2000.
The Company's 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 is on schedule
with these plans, with more than 85 percent of its originally non-
compliant systems and equipment now compliant, and expects remaining
modifications to be completed and tested by July 1999. The Company will
continue to refine its contingency plans in the event the remaining
systems and equipment cannot be modified as expected. In the event the
Company is unable to modify its remaining non-compliant systems and
equipment, based upon currently available information, management
believes no material adverse impact on its operations would result.
The Company initiated its planning for Year 2000 in 1995, commenced
identification of exposures in 1996, and began remediation of its
systems in 1997. Other information systems' projects were not
significantly delayed as a result of the allocation of resources to Year
2000 remediation.
The financial impact of making the required changes is comprised
primarily of internal costs and estimated to be less than $3 million.
Internal costs and other non-capital costs incurred to upgrade and
replace systems have been expensed as incurred since 1997. Capital
expenditures required for Year 2000 remediation in 1998 and 1997 were
not significant and are not anticipated to be significant in 1999.
These expenditures include amounts for upgrades of manufacturing control
systems, more powerful personal computers able to handle upgrades to
application software, and information systems' technical infrastructure
for the transfer of data between computers.
The Company continues to communicate with its significant suppliers
and customers to ensure they have appropriate plans to resolve Year 2000
issues where failure of their systems could adversely affect the
(continued)
13
<PAGE>
Company's operations. Contingency plans have been developed to address
potential failures by these third parties. Certain electronic
communication systems of the Company's trading partners have been tested
and are compliant and the Company believes minimal risk exists for their
failure on January 1, 2000.
The "most likely worst case scenario" for Year 2000 issues is the
failure of the systems and equipment of other parties throughout the
world which could result in the unavailability of global communications,
financial resources, transportation, critical raw materials, energy and
other vital commercial systems. The Company's ability to maintain its
operations on domestic and international levels could be disrupted by
these failures until corrected.
The Euro
Certain member states of the European Union adopted a common currency on
January 1, 1999 known as the Euro. The many requirements for adoption
of the new currency include the single-document invoicing of customers
in both the Euro and their domestic currency during a three-year
transition period. After 2001 businesses must conduct all transactions
in the Euro and convert their financial records and reports to be Euro-
based. Certain of the Company's information systems have been converted
for compliance with the requirements of this new currency at minimal
cost. The Company does not anticipate adoption of the Euro will have a
material impact on the results of its operations, financial position or
liquidity.
Market Risk Disclosures
The Company is exposed to changes in interest rates from its fixed-rate
long-term debt notes. Under its current policies, the Company does not
use interest rate derivative instruments to manage exposure to interest
rate changes. A ten percent decrease in interest rates would adversely
affect the fair value of long-term debt by approximately $20 million at
December 31, 1998. The Company's exposure to changes in interest rates
from its short-term notes payable issuances is not significant as such
notes, which are not material to its financial position at December 31,
1998, are issued at current market rates.
The Company's foreign operations are not material and, therefore,
exposures to earnings and cash flow fluctuations due to changes in
foreign currency exchange rates are not significant. The Company does
not have foreign currency derivative instruments at December 31, 1998.
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, consolidation among its competitors and customers,
technology advancements, fluctuations in raw material and energy prices,
changes in interest and 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.
(continued)
14
<PAGE>
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates from its fixed-rate
long-term debt notes. Under its current policies, the Company does not
use interest rate derivative instruments to manage exposure to interest
rate changes. A ten percent decrease in interest rates would adversely
affect the fair value of long-term debt by approximately $20 million at
December 31, 1998. The Company's exposure to changes in interest rates
from its short-term notes payable issuances is not significant as such
notes, which are not material to its financial position at December 31,
1998, are issued at current market rates.
The Company's foreign operations are not material and, therefore,
exposures to earnings and cash flow fluctuations due to changes in
foreign currency exchange rates are not significant. The Company does
not have foreign currency derivative instruments at December 31, 1998.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated statements of financial position at December 31, 1998 and
1997 and consolidated statements of income, cash flows, and
stockholders' equity for each of the three years in the period ended
December 31, 1998, the independent auditor's report thereon, and the
Company's unaudited quarterly financial data for the two-year period
ended December 31, 1998 are presented on pages 21 through 40 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.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors appears on pages 2
through 5 and 23 of the Company's Proxy Statement dated March 23, 1999
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 63 Chairman of the Board, Principal Executive
Chief Executive Officer and Chairman
Officer and Director of the Board since
1994. President
from 1991 to 1998.
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.
(continued)
15
<PAGE>
Thomas A. Dattilo 47 President and President and Chief
Chief Operating Operating Officer
Officer since January 4, 1999.
Formerly with Dana
Corporation since
1977, having served
as President, Sealing
Products since 1998
and in senior
management positions
at Dana Corporation
subsidiaries since
1985.
John Fahl 62 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.
Philip G. Weaver 46 Vice President and Vice President and
Chief Financial Chief Financial
Officer Officer since January
4, 1999. Tire
Operations Vice
President since 1994
and Tire Operations
Controller since
1990.
William C. Hattendorf 64 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 56 Vice President Vice President since
1995. Previously
Director of Corporate
Purchasing from 1994
to 1995. Manager of
Corporate Purchasing
from 1973 to 1994.
Assistant Purchasing
Agent and Buyer from
1966 to 1973.
William S. Klein 61 Vice President Vice President since
1984. Vice President-
Tire Operations since
1975.
Roderick F. Millhof 59 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.
(continued)
16
<PAGE>
Richard D. Teeple 56 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 60 Secretary Secretary since 1986.
Eileen B. White 48 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 48 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 5
through 10 and 15 through 19 of the Company's Proxy Statement dated
March 23, 1999 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 22 through 24 of the Company's Proxy
Statement dated March 23, 1999 and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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 schedule
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.
(continued)
17
<PAGE>
(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, 1998.
INDEX TO FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
Page(s)
FINANCIAL STATEMENTS: Reference
---------
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996 21
Consolidated Balance Sheets at December 31, 1998 and 1997 22-23
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996 24-25
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 26
Notes to Financial Statements 27-39
Report of Independent Auditors 40
SUPPLEMENTARY INFORMATION:
Quarterly Financial Data (Unaudited) 41
FINANCIAL STATEMENT SCHEDULE:
II. Valuation and qualifying accounts 42
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
Certificate of Correction of Restated Certificate of 43-49
Incorporation as filed with the Secretary of State of
Delaware on November 24, 1998.
(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) Amended and Restated Rights Agreement, dated May 11, 1998, between
the Company and The Fifth Third Bank as Rights Agent is
incorporated herein by reference from Exhibit 4 to the Company's
Form 8-K dated May 15, 1998.
(10) Description of management contracts, compensatory plans, contracts,
or arrangements is incorporated herein by reference from pages 5
through 10 and 19 of the Company's Proxy Statement dated
March 23, 1999.
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
(continued)
18
<PAGE>
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
(12) Computation of Ratio of Earnings to Fixed Charges 50
(13) Annual report to security holders, Form 10-Q or quarterly
report to security holders 51-57
(23) Consent of Independent Auditors 58
(24) Powers of Attorney 59-61
(27) Financial Data Schedule
(99) Undertakings of the Company 62-64
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.
19
<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 19, 1999
--------------
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 19, 1999
Chief Executive Officer
and Director
(Principal Executive Officer)
THOMAS A. DATTILO* President, Chief Operating March 19, 1999
Officer and Director
JOHN FAHL* Vice President and Director March 19, 1999
PHILIP G. WEAVER* Vice President and Chief March 19, 1999
Financial Officer
(Principal Financial Officer)
EILEEN B. WHITE* Corporate Controller March 19, 1999
(Principal Accounting Officer)
ARTHUR H. ARONSON* Director March 19, 1999
EDSEL D. DUNFORD* Director March 19, 1999
DEBORAH M. FRETZ* Director March 19, 1999
DENNIS J. GORMLEY* Director March 19, 1999
JOHN F. MEIER* Director March 19, 1999
BYRON O. POND* Director March 19, 1999
JOHN H. SHUEY* Director March 19, 1999
*By/s/ Stan C. Kaiman
--------------------------------
STAN C. KAIMAN, Attorney-in-fact
20
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31
(Dollar amounts in thousands except per-share amounts)
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Net sales $1,876,125 $1,813,005 $1,619,345
Other income 3,635 1,406 824
--------- --------- ---------
1,879,760 1,814,411 1,620,169
Costs and expenses:
Cost of products sold 1,545,489 1,498,432 1,366,549
Selling, general
and administrative 120,830 105,532 79,874
Interest 15,224 15,655 1,654
--------- --------- ---------
1,681,543 1,619,619 1,448,077
--------- --------- ---------
Income before income taxes 198,217 194,792 172,092
Provision for income taxes 71,250 72,381 64,208
--------- --------- ---------
Net income $ 126,967 $ 122,411 $ 107,884
========= ========= =========
Basic and diluted
earnings per share $1.64 $1.55 $1.30
==== ==== ====
<FN>
See Notes to Financial Statements, pages 27 to 39.
</TABLE>
21
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per-share amounts)
<CAPTION>
December 31
----------------------------
ASSETS 1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 41,966 $ 52,910
Accounts receivable, less
allowances of $4,806 in
1998 and $4,791 in 1997 319,685 292,416
Inventories:
Finished goods 132,696 130,339
Work in process 20,368 22,650
Raw materials and supplies 33,322 38,695
--------- ---------
186,386 191,684
Prepaid expenses and
deferred income taxes 21,436 17,602
--------- ---------
Total current assets 569,473 554,612
Property, plant and equipment:
Land and land improvements 28,338 28,765
Buildings 297,449 272,308
Machinery and equipment 1,080,951 1,013,354
Molds, cores and rings 102,247 84,660
--------- ---------
1,508,985 1,399,087
Less accumulated depreciation
and amortization 623,703 538,639
--------- ---------
Net property, plant
and equipment 885,282 860,448
Intangibles and other assets 86,520 80,896
--------- ---------
$1,541,275 $1,495,956
========= =========
22
<PAGE>
<CAPTION>
December 31
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
---------- ----------
<S> <C> <C>
Current liabilities:
Notes payable $ 8,129 $ 10,820
Accounts payable 94,502 100,135
Accrued liabilities 87,274 82,446
Income taxes 2,834 6,477
Current portion of debt 249 453
--------- ---------
Total current liabilities 192,988 200,331
Long-term debt 205,285 205,525
Postretirement benefits other
than pensions 151,520 144,566
Other long-term liabilities 48,741 38,351
Deferred income taxes 74,805 73,608
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; 83,781,058
shares issued (83,760,308 in 1997) 83,781 83,760
Capital in excess of par value 3,296 3,101
Retained earnings 945,975 849,270
Cumulative other comprehensive income (9,867) (2,305)
--------- ---------
1,023,185 933,826
Less: 7,989,600 common shares
in treasury at cost
(5,000,000 in 1997) (155,249) (100,251)
--------- ---------
Total stockholders' equity 867,936 833,575
--------- ---------
$1,541,275 $1,495,956
========= =========
<FN>
See Notes to Financial Statements, pages 27 to 39.
</TABLE>
23
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar amounts in thousands except per-share amounts)
<CAPTION>
Common Capital Cumulative Common
Stock In Excess Other Shares
$1 Par of Par Retained Comprehensive in
Value Value Earnings Income (Loss) Treasury Total
------ ------ -------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1996 $83,662 $1,931 $672,373 $(9,167) $ - $748,799
Net income 107,884 107,884
Other
comprehensive
income:
Minimum pension
liability
adjustment,net
of $1,102 tax
effect 1,733 1,733
Comprehensive -------
income 109,617
Purchase of
treasury shares (46,134) (46,134)
Exercise of
stock options 10 96 106
Cash dividends -
$.31 per share (25,776) (25,776)
------ ----- ------- ------ ------ -------
Balance at
December 31,
1996 83,672 2,027 754,481 (7,434) (46,134) 786,612
Net income 122,411 122,411
Other
comprehensive
income:
Minimum pension
liability
adjustment,net
of $1,717 tax
effect 2,681 2,681
Cumulative
currency
translation
adjustment 2,448 2,448
Comprehensive -------
income 127,540
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)
------ ----- ------- ------ ------- -------
(continued)
24
<PAGE>
Balance at
December 31,
1997 83,760 3,101 849,270 (2,305) (100,251) 833,575
Net income 126,967 126,967
Other
comprehensive
income:
Minimum pension
liability
adjustment,net
of $4,729 tax
effect (7,595) (7,595)
Cumulative
currency
translation
adjustment 33 33
Comprehensive -------
income 119,405
Purchase of
treasury shares (54,998) (54,998)
Exercise of
stock options 21 195 216
Cash dividends -
$.39 per share (30,262) (30,262)
------ ----- ------- ------ ------- -------
Balance at
December 31,
1998 $83,781 $3,296 $945,975 $(9,867) $(155,249) $867,936
====== ===== ======= ====== ======== =======
<FN>
</TABLE>
See Notes to Financial Statements, pages 27 to 39.
25
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(Dollar amounts in thousands)
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income $126,967 $122,411 $107,884
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 101,899 94,464 76,820
Deferred income taxes 5,202 13,501 14,096
Changes in operating assets
and liabilities:
Accounts receivable (27,379) 16,783 (10,100)
Inventories and
prepaid expenses 1,544 (21,796) (6,669)
Accounts payable and
accrued liabilities (744) (3,973) 4,799
Other liabilities (2,377) (10,973) 1,377
------- ------- -------
Net cash provided by
operating activities 205,112 210,417 188,207
Investing activities:
Property, plant and equipment (131,533) (107,523) (193,696)
Acquisition of business,
net of cash acquired - (96,531) -
Other 3,569 711 604
------- ------- -------
Net cash used in
investing activities (127,964) (203,343) (193,092)
Financing activities:
Issuance of debt 27,836 386,000 162,000
Payment on debt (30,604) (280,292) (89,039)
Purchase of treasury shares (54,998) (54,117) (46,134)
Payment of dividends (30,262) (27,622) (25,776)
Issuance of common shares 216 1,162 106
------- ------- -------
Net cash provided by (used in)
financing activities (87,812) 25,131 1,157
Effects of exchange
rate changes on cash (280) 1,246 -
-------- -------- --------
Changes in cash and
cash equivalents (10,944) 33,451 (3,728)
Cash and cash equivalents
at beginning of year 52,910 19,459 23,187
-------- -------- --------
Cash and cash equivalents
at end of year $ 41,966 $ 52,910 $ 19,459
======== ======== ========
<FN>
See Notes to Financial Statements, pages 27 to 39.
</TABLE>
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands except per-share amounts)
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 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 which are amortized over their useful lives which
range from 15 years to 40 years.
Advertising expense - Expenses incurred for advertising include
production and media and are generally expensed when incurred. Dealer-
earned cooperative advertising expense is recorded when earned.
Advertising expense for 1998, 1997 and 1996 was $27,754, $22,375 and
$15,207, respectively.
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
operations at the time of sale.
Research and development - Costs are charged to expense as incurred
and amounted to approximately $29,200, $21,700 and $19,700 in 1998, 1997
and 1996, respectively.
(continued)
27
<PAGE>
Accounting pronouncements - During the first quarter of 1998 the
Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
requiring the disclosure of total comprehensive income in the financial
statements. In 1998 the Company also adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which changed
the method for determining and reporting certain financial information
at segment levels. In 1998 the Company also adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits," restating prior year disclosures to conform to the Standard's
required presentation.
In June 1998 the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
This Statement will become effective for fiscal years beginning after
June 15, 1999, with earlier adoption permitted. The Company is
currently evaluating the effect of the provisions of this Statement on
its accounting and reporting policies, but does not anticipate adoption
of this Statement will have a material adverse effect on the Company's
consolidated financial position or results of operations. The Company
does not have derivative instruments at December 31, 1998.
During 1998 the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This Statement is
effective for fiscal years beginning after December 15, 1998, with
initial application as of the beginning of the fiscal year it is
adopted. The Company's current policy is to capitalize the cost of
obtaining externally developed and purchased software and to expense the
cost of internally developed software. The Company has not yet
determined the impact of adopting this Statement, but does not believe
its effect will be material to the Company's consolidated financial
position or results of operations.
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. Additional
information pertaining to the Company's product lines is contained in
the Business Segments note.
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
seven, eight, and nine percent of net sales in 1998, 1997 and 1996,
respectively. Shipments of all Company products to customers outside
the United States approximated 15, 14 and 8 percent in 1998, 1997 and
1996, respectively.
INVENTORIES
Under the LIFO method, inventories have been reduced by approximately
$47,897 and $60,627 at December 31, 1998 and 1997, respectively, from
current cost which would be reported under the first-in, first-out
method. Approximately 85 percent of the Company's inventories have been
valued under the LIFO method at December 31, 1998 and 1997,
respectively.
DEBT
At December 31, 1998 and 1997, short-term debt consisted of bank line
borrowings primarily in European currencies at weighted average interest
rates of 4.4 and 5.6 percent, respectively.
(continued)
28
<PAGE>
<TABLE>
The Company's long-term debt at December 31 consisted of the following:
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
7-5/8% notes due 2027 $200,000 $200,000
Capitalized leases and other 5,285 5,978
------- -------
205,285 205,978
Less current maturities 249 453
------- -------
$205,036 $205,525
======= =======
</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.
The notes, due March 15, 2027, provide for semiannual interest
payments on March 15 and September 15 with principal due in full at
maturity. Based on the borrowing rates available to the Company for
instruments with similar terms and maturity at December 31, 1998 and
1997, the fair value of the 7-5/8 percent notes was $238,720 and
$223,417, respectively.
Interest paid on debt during 1998, 1997 and 1996 was $16,718, $12,983
and $6,217, respectively. The amount of interest capitalized was
$1,694, $1,628 and $4,315 during 1998, 1997 and 1996, respectively.
ACCRUED LIABILITIES
<TABLE>
Accrued liabilities at December 31, were as follows:
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Payroll $33,382 $40,311
Real and personal property taxes 10,701 9,678
Other 43,191 32,457
------ ------
$87,274 $82,446
====== ======
</TABLE>
COMMON STOCK
There were 12,133,232 common shares reserved for grants under
compensation plans and contributions to the Company's Thrift and Profit
Sharing and Pre-Tax Savings plans at December 31, 1998.
Earnings Per Share
Basic earnings per share is based upon the weighted average number of
shares outstanding which were 77,597,873 in 1998, 79,127,577 in 1997 and
83,213,960 in 1996. 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.
(continued) 29
<PAGE>
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, for each
common share owned, at an exercise price of $135. The rights will be
exercisable only if a person or group (i) acquires beneficial ownership
of 15 percent or more of the Company's outstanding common stock
(Acquiring Person), or (ii) subject to extension of the date by the
Board of Directors of the Company, commences a tender or exchange offer
which upon consummation would result in such person or group
beneficially owning 15 percent or more of the Company's outstanding
common stock (ten days following the date of announcement of (i) above,
the Stock Acquisition Date).
If any person becomes an Acquiring Person, or if an Acquiring Person
engages in certain self-dealing transactions or a merger transaction in
which the Company is the surviving corporation and its common stock
remains outstanding, or an event occurs which results in such Acquiring
Person's ownership interest being increased by more than one percent,
then each right not owned by such person Acquiring Person or certain
related parties will entitle its holder to purchase a number of shares
of the Company's Series A preferred stock (or in certain circumstances,
Company common stock cash, property, or other securities of the Company)
having a value equal to twice the then current exercise price of the
right. In addition, if, following the Stock Acquisition Date, the
Company (i) is acquired in a merger or other business combination and
the Company is not the surviving corporation, (ii) is involved in a
merger or other business combination transaction with another person
after which all or part of the Company's common stock is converted or
exchanged for securities, cash or property of any other person, or (iii)
sells 50 percent or more of its assets or earning power to another
person, each right (except rights that have been voided as described
above) will entitle its holder to purchase a number of shares of common
stock of the ultimate parent of the Acquiring Person having a 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, subject to adjustment in certain events, payable in cash
or shares of the Company's common stock at any time until the tenth
business day following the Stock Acquisition Date.
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 5.5% 6.1% 6.6%
Dividend yield 1.3% 1.0% 1.0%
(continued)
30
<PAGE>
Expected volatility of the
Company's common stock .251 .197 .206
Expected life 5.0 years 6.2 years 5.4 years
</TABLE>
The weighted-average fair value of options granted in 1998, 1997 and
1996 was $5.84, $7.52 and $5.58, respectively. For purposes of pro
forma disclosures, the estimated fair value of options is amortized to
expense over the options' vesting period. The Company's reported and
pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net income: Reported $126,967 $122,411 $107,884
Pro forma 125,142 121,603 107,363
Basic and diluted
earnings per share:
Reported $1.64 $1.55 $1.30
Pro forma 1.61 1.54 1.29
</TABLE>
The Company's 1998 incentive compensation plan allows the Company to
grant awards to key employees in the form of stock options, stock
awards, restricted stock units, stock appreciation rights, performance
units, dividend equivalents and other awards. The 1981, 1986 and 1996
incentive stock option plans and the 1998 incentive compensation plan
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
plans allow the granting of nonqualified stock options which 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 the plans which were outstanding at December 31, 1998 have
a term of ten years and become exercisable 50 percent after the first
year and 100 percent after the second year.
The 1998 employee stock option plan allowed the Company to make a
nonqualified option grant to substantially all of its employees to
purchase common shares at a price 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 three years after the date of grant.
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 Available
Shares Price For Grant
--------- -------- -----------
<S> <C> <C> <C>
January 1, 1996
Outstanding 541,175 $19.54
Exercisable 397,822 17.85
(continued)
31
<PAGE>
Granted 142,603 18.57
Exercised (10,400) 10.23
Cancelled (27,786) 19.57
------
December 31, 1996 3,151,358
Outstanding 645,592 19.47
Exercisable 454,439 19.24
Granted 230,955 24.48
Exercised (87,936) 13.20
Cancelled (32,264) 22.87
------
December 31, 1997 2,931,817
Outstanding 756,347 21.59
Exercisable 460,992 20.58
Granted 1,326,487 20.57
Exercised (20,750) 10.44
Cancelled (38,150) 23.41
------
December 31, 1998 3,931,530
Outstanding 2,059,934 20.99
Exercisable 589,697 21.33
</TABLE>
The weighted average remaining contractual life of options
outstanding at December 31, 1998 is 8.4 years.
SFAS No. 123 also requires segregated disclosure of options
outstanding if a significant range of exercise prices exists. This
information, at December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Range of Exercise Prices
------------------------------
Less Equal to or
than $20 greater than $20
-------- ----------------
<S> <C> <C>
Options outstanding 219,950 1,839,984
Weighted average
exercise price $15.91 $21.60
Remaining contractual life 5.2 8.8
Options exercisable 219,950 369,747
Weighted average
exercise price $15.91 $24.55
</TABLE>
Pensions and Postretirement Benefits Other than 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 U.S. 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.
(continued) 32
<PAGE>
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 $10,891, $9,334 and $8,331 for 1998, 1997
and 1996, respectively.
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.
The information presented below includes an unfunded, nonqualified
supplemental retirement plan covering certain employees whose
participation in the qualified plan is limited by provisions of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation
at January 1 $ 512,305 $ 343,423 $ 153,137 $ 143,934
Acquisition - 105,316 - -
Service cost - employer 21,892 16,668 3,682 3,465
Service cost - participants 2,425 1,690 - -
Interest cost 38,681 32,716 12,227 11,468
Loss due to change in
assumptions 21,032 - 9,908 -
Other actuarial losses 14,303 18,872 13,178 1,772
Amendments 3,763 4,217 22 635
Benefits paid (23,386) (15,777) (9,137) (8,137)
Foreign currency exchange
rate loss 421 5,180 - -
------ ------ ----- -----
Benefit obligation at
December 31 $ 591,436 $ 512,305 $ 183,017 $ 153,137
======== ======== ======== ========
Change in plans' assets:
Fair value of plans'
assets at January 1 $ 514,700 $ 320,272 $ - $ -
Acquisition - 105,316 - -
Actual return on
plans' assets 53,827 70,952 - -
Employer contributions 24,457 27,021 - -
Participant contributions 2,425 1,690 - -
Benefits paid (23,386) (15,777) - -
(continued)
33
<PAGE>
Foreign currency exchange
rate gain 357 5,226 - -
------ ------ ----- -----
Fair value of plans'
assets at December 31 $ 572,380 $ 514,700 $ - $ -
======== ======== ======== ========
Funded status of the plans $ (19,056) $ 2,395 $(183,017) $(153,137)
Unrecognized actuarial
loss/(gain) 43,255 12,592 22,022 (1,064)
Unrecognized prior service
cost 10,045 10,665 445 635
Unrecognized net transition
obligation 4,636 5,723 - -
Adjustment for minimum
liability (30,566) (19,910) - -
------ ------ ----- -----
Net amount recognized $ 8,314 $ 11,465 $(160,550) $(153,566)
======== ======== ======== ========
Amounts recognized in the balance sheets:
Prepaid expenses and
deferred income taxes $ 937 $ 959 $ - $ -
Intangibles and other
assets 45,267 36,933 - -
Accrued liabilities - (125) (9,030) (9,000)
Postretirement benefits
other than pensions - - (151,520) (144,566)
Other long-term liabilities (37,890) (26,302) - -
------ ------ ----- -----
Net amount recognized $ 8,314 $ 11,465 $(160,550) $(153,566)
======== ======== ======== ========
<CAPTION>
Assumptions as of December 31: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate 7.0% 7.5% 7.5% 8.0%
Expected return on
plan assets - Domestic 10.0 10.0 - -
Expected return on
plan assets - United Kingdom 8.5 8.5 - -
Rate of compensation
increase - Domestic 5.0 5.5 - -
Rate of compensation
increase - United Kingdom 5.5 5.5 - -
</TABLE>
At December 31, 1998 the assumed annual rate of increase in the cost
of health care benefits (health care cost trend rate) was 8.0% for 1999,
declining by 1/2 percent per year through 2004 when the ultimate rate of
5.5% is attained.
(continued)
34
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------ -----------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of net
periodic benefit cost:
Service cost $21,892 $16,668 $13,811 $ 3,682 $ 3,465 $ 3,254
Interest cost 38,681 32,716 24,707 12,227 11,468 10,674
Expected return on
plan assets (49,453) (39,623) (27,115) - - -
Amortization of
transition
obligation 1,087 1,088 1,088 - - -
Amortization of prior
service cost 4,383 3,463 3,235 212 - -
Recognized actuarial
loss (gain) 1,951 1,855 2,377 - - -
------ ------ ------ ------ ------ ------
Net periodic benefit
cost $18,541 $16,167 $18,103 $16,121 $14,933 $13,928
====== ====== ====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $165,173, $162,135 and
$144,144, respectively, as of December 31, 1998 and $129,938, $128,361
and $109,032, respectively, at December 31, 1997.
Assumed health care cost trend rates for Other Postretirement
Benefits have a significant effect on the amounts reported. A one-
percentage-point change in assumed health care cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
1-Percentage-Point
----------------------
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total service and interest $ 293 $ (255)
cost components
Effect on the postretirement benefit (4,073) 3,550
obligation
</TABLE>
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 $12,805 in 1998
and $13,400 in 1997.
INCOME TAXES
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal and foreign $58,920 $52,570 $44,250
State and local 7,128 6,310 5,862
------ ------ ------
66,048 58,880 50,112
(continued)
35
<PAGE>
Deferred:
Federal and foreign 4,654 11,738 12,096
State and local 548 1,763 2,000
------ ------ ------
5,202 13,501 14,096
------ ------ ------
$71,250 $72,381 $64,208
====== ====== ======
</TABLE>
<TABLE>
The effective income tax rate differs from the statutory Federal tax
rate as follows:
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net
of U.S. Federal income tax benefit 2.5 2.7 3.0
Other (1.6) (0.5) (0.7)
---- ---- ----
Effective income tax rate 35.9% 37.2% 37.3%
==== ==== ====
</TABLE>
Payments for income taxes in 1998, 1997 and 1996 were $69,653,
$55,610 and $57,884, 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 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $116,597 $107,424
Other 38,059 35,434
------- -------
Total deferred tax liabilities 154,656 142,858
Deferred tax assets:
Postretirement benefits
other than pensions 56,575 53,957
Other 35,540 26,833
------- -------
Total deferred tax assets 92,115 80,790
------- -------
Net deferred tax liabilities $ 62,541 $ 62,068
======= =======
</TABLE>
<TABLE>
These amounts are included in the accompanying balance sheet captions:
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Prepaid expenses and deferred income taxes $12,264 $11,540
Deferred income taxes 74,805 73,608
------ ------
Net deferred tax liabilities $62,541 $62,068
====== ======
</TABLE>
36
<PAGE>
LEASE COMMITMENTS
The Company rents certain manufacturing facilities and equipment under
long-term leases expiring at various dates. Rental expense for
operating leases was $14,547 for 1998, $11,079 for 1997 and $7,242 for
1996.
Future minimum payments for all noncancelable operating leases during
the next five years are as follows: 1999 - $5,945; 2000 - $4,787; 2001
- - $3,752; 2002 - $3,157; 2003 - $2,576.
Other Comprehensive Income (Loss)
The cumulative balances of each component of other comprehensive income
(loss) in the accompanying statements of stockholders' equity are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cumulative currency $ 2,481 $ 2,448 $ -
translation adjustment
Minimum pension
liability, net of
tax effect (12,348) (4,753) (7,434)
------ ----- -----
$( 9,867) $(2,305) $(7,434)
====== ===== =====
</TABLE>
Business Segments
Cooper Tire & Rubber Company manages its business as two operating
segments, distinguished by product line and customers, as defined under
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information."
The operating segments of the Company are identified as Tire
Operations and Engineered Products Operations. Tire Operations produce
automobile, truck and motorcycle tires and inner tubes which are sold
nationally and internationally in the replacement tire market to
independent dealers, wholesale distributors and large retail chains.
Engineered Products Operations produce vibration control systems,
automotive sealing, and hose and hose assemblies for automotive
manufacturers located primarily in North America. Tire Operations
revenues derived from one customer approximated $224 million or 12
percent of consolidated net sales in 1997 and $268 million or 12 percent
of consolidated net sales in 1996.
The accounting policies of the segments are consistent with those
described in the Summary of Significant Accounting Policies note to the
financial statements. Corporate administrative expenses are allocated
to segments based principally on assets, employees and sales. Interest
expense is allocated based on segment assets.
(continued)
37
<PAGE>
<TABLE>
<CAPTION>
Engineered
Tire Products Consolidated
1998 Operations Operations Totals
---------- ---------- ----------
<S> <C> <C> <C>
FINANCIAL
Revenues from external customers $1,444,334 $ 431,791 $1,876,125
Depreciation and amortization
expense 89,239 12,660 101,899
Interest expense 12,788 2,436 15,224
Segment profit 142,800 51,782 194,582
Other 3,635
---------
Income before income taxes 198,217
Segment assets 1,211,819 238,467 1,450,286
Cash and cash equivalents 41,966
Intangibles and other assets 49,023
---------
Total assets 1,541,275
Expenditures for long-lived assets 95,526 36,007 131,533
GEOGRAPHIC
Revenues
United States 1,228,980 365,372 1,594,352
Foreign 215,354 66,419 281,773
--------- --------- ---------
1,444,334 431,791 1,876,125
Long-lived assets
United States 662,709 137,385 800,094
Foreign 71,796 13,392 85,188
734,505 150,777 885,282
1997
FINANCIAL
Revenues from external customers 1,443,293 369,712 1,813,005
Depreciation and amortization
expense 83,589 10,875 94,464
Interest expense 13,463 2,192 15,655
Segment profit 149,970 43,416 193,386
Other 1,406
---------
Income before income taxes 194,792
Segment assets 1,179,744 222,902 1,402,646
Cash and cash equivalents 52,910
Intangibles and other assets 40,400
---------
Total assets 1,495,956
Expenditures for long-lived assets 79,956 27,567 107,523
GEOGRAPHIC
Revenues
United States 1,249,621 308,990 1,558,611
Foreign 193,672 60,722 254,394
--------- --------- ---------
1,443,293 369,712 1,813,005
(continued)
38
<PAGE>
Long-lived assets
United States 671,883 122,883 794,766
Foreign 61,120 4,562 65,682
--------- --------- ---------
733,003 127,445 860,448
1996
FINANCIAL
Revenues from external customers 1,308,465 310,880 1,619,345
Depreciation and amortization
expense 68,162 8,658 76,820
Interest expense 1,439 215 1,654
Segment profit 140,276 30,992 171,268
Other 824
---------
Income before income taxes 172,092
Segment assets 1,062,362 166,739 1,229,101
Cash and cash equivalents 19,459
Intangibles and other assets 24,449
---------
Total assets 1,273,009
Expenditures for long-lived assets 153,781 39,915 193,696
GEOGRAPHIC
Revenues
United States 1,230,061 254,882 1,484,943
Foreign 78,404 55,998 134,402
--------- --------- ---------
1,308,465 310,880 1,619,345
Long-lived assets
United States 681,388 107,977 789,365
Foreign 3,054 - 3,054
--------- --------- ---------
684,442 107,977 792,419
</TABLE>
39
<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, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, 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 9, 1999
40
<PAGE>
<TABLE>
SELECTED QUARTERLY DATA (UNAUDITED)
(Dollar amounts in thousands except per-share amounts)
<CAPTION>
1998
-------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $437,558 $461,740 $480,616 $496,211
Gross profit 74,088 83,273 79,946 93,329
Net income 26,525 32,336 30,029 38,077
Basic and diluted earnings
per share .34 .41 .39 .50
Dividend per share .095 .095 .095 .105
Stock price - high 26 1/4 24 13/16 22 1/8 21 7/16
low 22 5/8 20 5/8 15 3/4 15 7/16
Revenues from external customers:
Tire Operations $330,326 $347,544 $389,237 $377,228
Engineered Products Operations 107,232 114,196 91,379 118,983
------- ------- ------- -------
Net sales $437,558 $461,740 $480,616 $496,211
======= ======= ======= =======
Segment Profit:
Tire Operations $29,797 $33,156 $39,492 $40,355
Engineered Products Operations 11,931 17,901 6,078 15,872
------ ------ ------ ------
41,728 51,057 45,570 56,227
Other 578 671 521 1,865
------ ------ ------ ------
Income before income taxes $42,306 $51,728 $46,091 $58,092
====== ====== ====== ======
</TABLE>
<TABLE>
1997
-------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $379,532 $463,993 $480,572 $488,908
Gross profit 63,619 84,385 80,095 86,474
Net income 25,150 31,506 31,124 34,361
Basic and diluted earnings
per share .31 .40 .40 .44
Dividend per share .085 .085 .085 .095
Stock price - high 21 5/8 23 1/2 27 28 7/16
low 18 1/4 18 21 13/16 20 13/16
</TABLE>
The common stock of the Company (CTB) is traded on the New York Stock
Exchange.
41
<PAGE>
<TABLE>
COOPER TIRE & RUBBER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997 and 1996
<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>
1998 $4,791,000 $2,029,181 $ - $2,014,181 $4,806,000
========= ========= ========= ========= =========
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
========= ========= ========= ========= =========
<FN>
(a) Accounts charged off during the year, net of recoveries of accounts
previously charged off.
</TABLE>
42
<PAGE>
Exhibit (3(i))
CERTIFICATE OF CORRECTION
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
COOPER TIRE & RUBBER COMPANY
Cooper Tire & Rubber Company, a Delaware corporation (the
"Corporation"), pursuant to Section 103(f) of the General Corporation
Law of the State of Delaware, certifies:
FIRST: That the Restated certificate of Incorporation which was
filed with the Secretary of State of the State of Delaware on May 17,
1993, is an accurate record of the corporate action referred to therein.
SECOND: That said Restated Certificate of Incorporation was
inaccurate in that it inadvertently failed to set forth the rights,
powers and preferences of the Corporation's Series A Preferred Stock
Article Fourth.
THIRD: Article FOURTH is hereby corrected by renumbering existing
paragraphs 3 and 4 as paragraphs 4 and 5, respectively, and by inserting
a new paragraph 3 to read as follows:
3. The Series A Preferred Stock shall have the powers,
preferences and relative, participating, optional or
other special rights and qualifications, limitations
and restrictions thereof as set forth in Exhibit A hereto.
IN WITNESS WHEREOF, Cooper Tire & Rubber Company has caused this
Certification of Correction to be executed by its duly authorized
officer this 24th day of November, 1998.
/s/ Stan C. Kaiman
------------------------
Stan C. Kaiman
Corporate Secretary
43
<PAGE>
SERIES A PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Preferred Stock" and the number of shares
constituting such series shall be 300,000.
Section 2. Dividends and Distributions. (A) Subject to the prior
and superior rights of the holders of any shares of any other series of
Preferred Stock or any other shares of preferred stock of the
Corporation ranking prior and superior to the shares of Series A
Preferred Stock with respect to dividends, each holder of one one-
hundredth (1/100) of a share (a "Unit") of Series A Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for that purpose, (i) quarterly
dividends payable in cash on the last business day of March, June and
September and on the last business day of December preceeding December
25th in each year (each such date being a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of such Unit of Series A Preferred Stock, in an
amount per Unit (rounded to the nearest cent) equal to the greater of
(a) $.34 or (b) subject to the provision for adjustment hereinafter set
forth, the aggregate per share amount of all cash dividends declared on
shares of the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of a Unit of Series A Preferred
Stock, and (ii) subject to the provision for adjustment hereinafter set
forth, quarterly distributions (payable in kind) on each Quarterly
Dividend Payment Date in an amount per Unit equal to the aggregate per
share amount of all non-cash dividends or other distributions (other
than a dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock, by reclassification or
otherwise) declared on shares of Common Stock since the immediately
preceding Quarterly Dividend Payment Date, or with respect to the first
Quarterly Dividend Payment Date, since the first issuance of a Unit of
Series A Preferred Stock. In the event that the Corporation shall at
any time after June 6, 1988 (the "Rights Declaration Date") (i) declare
any dividend on outstanding shares of Common Stock payable in shares of
Common Stock (ii) subdivide outstanding shares of Common Stock or (iii)
combine outstanding shares of Common Stock into a smaller number of
shares, then in each such case the amount to which the holder of a Unit
of Series A Preferred Stock was entitled immediately prior to such event
pursuant to the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which shall be the number of
shares of Common Stock that are outstanding immediately after such event
and the denominator of which shall be the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
Units of Series A Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares
of Common Stock (other than a dividend payable in shares of Common
Stock); provided, however, that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $.34 per Unit
on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issuance of such Unit of Series
A Preferred Stock, unless the date of issuance of such Unit is prior to
the record date for the first Quarterly Dividend Payment Date, in which
case, dividends on such Unit shall begin to accrue from the date of
issuance of such Unit, or unless the date of issuance is a Quarterly
(continued)
44
<PAGE>
Dividend Payment Date or is a date after the record date for the
determination of holders of Units of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on
Units of Series A Preferred Stock in an amount less than the aggregate
amount of all such dividends at the time accrued and payable on such
Units shall be allocated pro rata on a unit-by-unit basis among all
Units of Series A Preferred Stock at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of
Units of Series A Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no
more than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of Units of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series A Preferred Stock shall entitle the holder thereof
to one vote on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on outstanding
shares of Common Stock payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock or (iii) combine the outstanding
shares of Common Stock into a smaller number of shares, then in each
such case the number of votes per Unit to which holders of Units of
Series A Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator
of which shall be the number of shares of Common Stock outstanding
immediately after such event and the denominator of which shall be the
number of shares of Common Stock that were outstanding immediately prior
to such event.
(B) Except as otherwise provided herein or by law, the holders of
Units of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Units of Series A Preferred
Stock shall be in arrears in an amount equal to six quarterly dividends
thereon, then during the period ( a "default period") from the
occurrence of such event until such time as all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all Units of Series A Preferred
Stock then outstanding shall have been declared and paid or set apart
for payment, all holders of Units of Series A Preferred Stock, voting
separately as a class, shall have the right to elect two Directors.
(ii) During any default period, such voting rights of the
holders of Units of Series A Preferred Stock may be exercised initially
at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at
annual meetings of stockholders, provided that neither such voting
rights nor any right of the holders of Units of Series A Preferred Stock
to increase, in certain cases, the authorized number of Directors may be
exercised at any meeting unless one-third of the outstanding Units of
Preferred Stock shall be present at such meeting in person or by proxy.
The absence of a quorum of the holders of Common Stock shall not affect
the exercise by the holders of Units of Series A Preferred Stock of such
rights. At any meeting at which the holders of Units of Series A
Preferred Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting separately as
(continued)
45
<PAGE>
a class, to elect Directors to fill up to two vacancies in the Board of
Directors, if any such vacancies may then exist, or, if such right is
exercised at an annual meeting, to elect two Directors. If the number
which may be so elected at any special meeting does not amount to the
required number, the holders of the Series A Preferred Stock shall have
the right to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number. After
the holders of Units of Series A Preferred Stock shall have exercised
their right to elect Directors during any default period, the number of
Directors shall not be increased or decreased except as approved by a
vote of the holders of Units of Series A Preferred Stock as herein
provided or pursuant to the rights of any equity securities ranking
senior to the Series A Preferred Stock.
(iii) Unless the holders of Series A Preferred Stock shall,
during an existing default period, have previously exercised their right
to elect Directors, the Board of Directors may order, or any stockholder
or stockholders owning in the aggregate not less than 25% of the total
number of Units of Series A Preferred Stock outstanding may request, the
calling of a special meeting of the holders of Units of Series A
Preferred Stock, which meting shall thereupon be called by the Secretary
of the Corporation. Notice of such meeting and of any annual meeting at
which holders of Units of Series A Preferred Stock are entitled to vote
pursuant to this paragraph (C)(iii) shall be given to each holder of
record of Units of Series A Preferred Stock by mailing a copy of such
notice to him at his last address as the same appears on the books of
the Corporation. Such meeting shall be called for a time not earlier
than 20 days and not later than 60 days after such order or request or
in default of the calling of such meting within 60 days after such order
or request, such meeting may be called on similar notice by any
stockholder of stockholders owning in the aggregate not less than 25% of
the total number of outstanding Units of Series A Preferred Stock.
Notwithstanding the provisions of this paragraph (C)(iii), no such
special meeting shall be called during the 60 days immediately preceding
the date fixed for the next annual meeting of the stockholders.
(iv) During any default period, the holders of shares of Common
Stock and Units of Series A Preferred Stock, and other classes or series
of stock of the Corporation, if applicable, shall continue to be
entitled to elect all the Directors until the holders of Units of Series
A Preferred Stock shall have exercised their right to elect two
Directors voting as a separate class, after the exercise of which right
(x) the Directors so elected by the holders of Units of Series A
Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may (except as
provided in paragraph (C)(ii) of this Section 3) be filled by vote of a
majority of the remaining Directors theretofore elected by the holders
of the class of capital stock which elected the Director whose office
shall have become vacant. References in this paragraph (C) to Directors
elected by the holders of a particular class of capital stock shall
include Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Units of Series A Preferred Stock as a
separate class to elect Directors shall cease, (y) the term of any
Directors elected by the holders of Units of Series A Preferred Stock as
a separate class shall terminate, and (z) the number of Directors shall
be such number as may be provided for in the Certificate of by-laws
irrespective of any increase made pursuant to the provisions of
paragraph (C)(ii) of this Section 3 (such number being subject, however,
to change thereafter in any manner provided by law or in the Certificate
or by-laws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
(continued) 46
<PAGE>
(vi) The provisions of this paragraph (C) shall govern the
election of Directors by holders of Units of Preferred Stock during any
default period notwithstanding any provisions of the Certificate to the
contrary, including, without limitation, the provisions of Article
FOURTH of the Certificate.
(D) Except as set forth herein, holders of Units of Series A
Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote
with holders of Shares of Common Stock as set forth herein) for taking
any corporation action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends
or other dividends or distributions payable on Units of Series A
Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding Units of Series A Preferred Stock shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of junior stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of parity stock, except dividends paid
ratably on Units of Series A Preferred Stock and shares of all such
parity stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of such Units and all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any junior stock;
(iv) purchase or otherwise acquire for consideration any Units
of Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any Units of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such Units shall, upon their cancellation, become
authorized but unissued Units of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares
of junior stock unless the holders of Units of Series A Preferred Stock
shall have received, subject to adjustment as hereinafter provided in
paragraph (B), the greater of either (a) $.01 per Unit plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether
or not earned or declared, to the date of such payment, or (b) the
amount equal to the aggregate per share amount to be distributed to
(continued)
47
<PAGE>
holders of shares of Common Stock, or (ii) to the holders of shares of
parity stock, unless simultaneously therewith distributions are made
ratably on Units of Series A Preferred Stock and all other shares of
such parity stock in proportion to the total amounts to which the
holders of Units of Series A Preferred Stock are entitled under clause
(i)(a) of this sentence and to which the holders of shares of such
parity stock are entitled, in each case upon such liquidation,
dissolution or winding up.
(B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of
Common Stock payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock, or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, then in each such case
the aggregate amount to which holders of Units of Series A Preferred
Stock were entitled immediately prior to such event pursuant to clause
(i)(b) of paragraph (A) of this Section 6 shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be
the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which shall be the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
converted into other stock or securities, cash and/or any other
property, then in any such case Units of Series A Preferred Stock shall
at the same time be similarly exchanged for or converted into an amount
per Unit (subject to the provision for adjustment hereinafter set forth)
equal to the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is converted or exchanged. In the
event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of
Common Stock, or (iii) combine outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the
immediately preceding sentence with respect to the exchange or
conversion of Units of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be
the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which shall be the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. Redemption. The Units of Series A Preferred Stock shall
not be redeemable.
Section 9. Ranking. The Units of Series A Preferred Stock shall
rank junior to all other series of the Preferred Stock and to any other
class of preferred stock that hereafter may be issued by the Corporation
as to the payment of dividends and the distribution of assets, unless
the terms of any such series or class shall provide otherwise.
Section 10. Amendment. The Certificate, including, without
limitation, this resolution, shall not hereafter be amended, either
directly or indirectly, or through merger or consolidation with another
corporation, in any manner that would alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding Units of Series A Preferred Stock,
voting separately as a class.
48
<PAGE>
Section 11. Fractional Shares. The Series A Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions
shall entitle the holder, in proportion to such holder's fractional
shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of
Series A Preferred Stock.
Section 12. Certain Definitions. As used herein with respect to the
Series A Preferred Stock, the following terms shall have the following
meanings:
(A) The term "Common Stock" shall mean the class of stock
designated as the common stock, par value $1.00 per share, of the
Corporation at the date hereof or any other class of stock resulting
from successive changes or reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 4, shall mean
the Common Stock and any other class or series of capital stock of the
Corporation hereafter authorized or issued over which the Series A
Preferred Stock has preference or priority as to the payment of
dividends and (ii) as used in Section 6, shall mean the Common Stock and
any other class or series of capital stock of the Corporation over which
the Series A Preferred Stock has preference or priority in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
(C) The term "parity stock" (i) as used in Section 4, shall mean
any class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series A Preferred Stock as to
dividends and (ii) as used in Section 6, shall mean any class or series
of capital stock ranking pari passu with the Preferred Stock in the
distribution of assets or any liquidation, dissolution or winding up.
49
<PAGE>
Exhibit (12)
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<CAPTION>
Years Ended December 31
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated income
before income taxes $198,217 $194,792 $172,092 $180,070 $208,119
Add:
Interest and
amortization of
debt expense 15,224 15,655 1,654 697 2,680
Interest portion of
rental expense 4,849 3,693 2,414 2,232 2,078
------- ------- ------- ------- -------
Income as adjusted $218,290 $214,140 $176,160 $182,999 $212,877
======= ======= ======= ======= =======
Fixed charges:
Interest and
amortization of
debt expense $15,224 $15,655 $ 1,654 $ 697 $ 2,680
Capitalized interest 1,694 1,628 4,315 2,694 1,170
Interest portion of
rental expense 4,849 3,693 2,414 2,232 2,078
------- ------- ------- ------- -------
Total fixed charges $21,767 $20,976 $ 8,383 $ 5,623 $ 5,928
======= ======= ======= ======= =======
Ratio of earnings to
fixed charges 10.0 10.2 21.0 32.5 35.9
==== ==== ==== ==== ====
</TABLE>
50
<PAGE>
Exhibit (13)
OPERATIONS REVIEW AND PRODUCT OVERVIEW
OPERATIONS REVIEW
Tire Products
As Cooper approaches 85 years of tire production, it now stands as the
world's eighth largest tire manufacturer. With more than 10,000
employees around the globe, the company continues to make an impact in
replacement market sales for passenger, light truck, medium truck and
motorcycle tires.
New private brand business and a strong performance by proprietary
brands during 1998 helped the tire operation overcome significant
business losses due to restructuring within the customer base. It was a
remarkable achievement by the tire group to nearly replace the unit loss
with new business including increases by the Cooper
and Mastercraft brands.
During 1998, Cooper experienced a number of achievements, including:
- - Signing long-term supply agreements for private-label tires with
Hercules Tire & Rubber Company, Findlay; Del-Nat Tire Corporation,
Memphis, Tennessee; and Parrish Tire Company, Winston Salem, North
Carolina.
- - For the second consecutive year, earning the Sears' Partners in
Progress Award from a pool of more than 10,000 vendors vying for the
recognition as an outstanding supplier. Cooper also received the Sears
Canada Partners In Progress Award in 1998.
- - Being selected as one of InformationWeek Magazine's 500 most
innovative users of information technology. InformationWeek showcases
the 500 largest and the most innovative users of information technology.
While these outstanding achievements were taking place, Cooper was
looking toward the future as it launched its Cooper 21 strategic plan to
position itself as a global industry leader and product innovator as it
moves into the 21st century. To meet its goals, Cooper derived the
following strategic imperatives for the tire division:
Strategic Imperative
Low Cost Supplier
Active cost reduction continues to be one of the strategic thrusts of
the Company and this strong emphasis will continue. The processing cost
reduction goal for 1999 represents a significant increase from the 1998
achievement. This effort not only applies to manufacturing but also
includes all aspects of the value-added chain including logistics,
marketing and administration.
The process improvement program Operational Excellence continues to be a
driving force throughout the Company's tire division in achieving cost
savings and product improvement. Focusing on the customer and utilizing
work teams, the system identifies critical business areas and helps to
ensure predictability in manufacturing facilities. Identifying
variation as "the enemy," equipment is standardized as is the
performance of various specific functions resulting in consistency
throughout the operation and ensuring the manufacturing of a uniform
product for ultimate customer satisfaction.
(continued)
51
<PAGE>
Seven-day production weeks have been introduced at the Melksham,
England, facility. This move is crucial in helping Melksham meet a
growing demand for new products. Cost-reduction projects are under way
to further reduce labor costs while increasing production capability.
The installation of new equipment and the redesigning of the tire
factory continues at a rapid pace to improve output of premium tires
such as the ZZ1, which is designed for luxury high-performance cars and
already has had a tremendous reception in Europe.
Strategic Imperative
Strengthen Position in North America
Expanding Cooper's presence in the North American market is being
achieved by maintaining close contact with independent tire dealers,
which is still by far the largest segment of the market, and providing
for their needs. In addition, the Company continues to broaden its range
of brands and price points covered.
To enhance its brand offering throughout North America, the Company
acquired the Dean Tire & Rubber Company in January 1999, giving Cooper a
seventh proprietary brand. For 32 years, Cooper served as the sole
supplier to Dean with private-brand passenger, light truck and medium
truck tires.
A multi-brand approach has been developed to maximize sales for the
seven proprietary brands: Cooper, Avon, Mastercraft, Starfire,
Roadmaster, Dean and Dominator. These brands effectively cover Tier II
and Tier III segments of the market. Analysis is taking place in each
region of the country for potential growth by offering different
combinations of these house brand lines to dealers in various
distribution channels. Market development funds have been designated to
help drive sales in metropolitan areas where Cooper brand penetration
can be improved.
The establishment of a new retail division within the house brands group
will allow Cooper to penetrate the fast-growing regional retailer
segment of the market. A number of the nation's top retailers have been
targeted with a goal to align the Company with one key retailer in each
geographic region. Cooper can market a "package" to retailers looking
for an upscale, high margin, performance line along with one of the Tier
III value brands.
During 1998, four new Cooper and three new Avon tire lines were
launched:
- - The newest addition to the Cobra line-the Cobra XST-highlights
Pentamax performance technology.
- - With a modern five-rib tread design, the SRM II light truck tire
helps deliver excellent directional control for great handling and
dependable highway driving.
- - The Lifeliner STE is a top-of-the-line touring radial.
- - The Sportmaster GLE, known as the "Cooper tire built in Europe for
European drivers," is the first Cooper brand tire built at the Melksham
facility.
- - The Avon ZZ1 combines motorsport technology with luxury-ride comfort.
- - Primarily designed for road use, the Avon Ranger-H meets the needs of
high-performance 4x4 vehicle drivers worldwide.
- - The specially formulated compound of the Avon CR65 offers optimum
performance in cold and wintery conditions.
As an additional value-added service for dealers, Cooper launched The
Tire Card by Cooper in mid-1998. This private label credit card-offered
only through participating dealers-allows consumers to stretch their
payments over three, six and 12 months depending on the size of their
purchases. In addition, the card offers free emergency roadside
assistance.
(continued)
52
<PAGE>
Reaching millions of viewers worldwide, Cooper will serve as the
Presenting Sponsor of the Bay Hill Invitational for the first time in
1999. An associate sponsor of the event for the past two years, Cooper
is now the only U.S. tire company with a major golf tournament
sponsorship. Tournament coverage of the Bay Hill Invitational in the
U.S. is provided by the NBC and USA networks and is also telecast to
overseas audiences because of its strong international field.
A new multi-million dollar national advertising campaign was launched
during the first quarter of 1998 using a series of television, radio,
and consumer and trade print ads developed under the theme The World is
Your Course. Drive On. and featuring Arnold Palmer. The ads reflect a
stylish and sophisticated approach, decidedly different from traditional
tire advertising to improve awareness for the Cooper brand.
Enhancing the Company's ability to provide quick response and cost-
effective marketing support materials for products, a new graphic arts
center was completed during the year. This new facility consolidates
the production and distribution operation for most printed materials and
offers excellent service to customers as well as various business
operations of the Company.
Strategic Imperative
Expand Global Sales
The European, South American and Asian markets have significant growth
potential for Cooper. In Europe, the Avon and Cooper marketing programs
have been well received. The new alliance with Pirelli will assist
Cooper in better penetrating the South American market while potential
partners, already established in the Asian markets, are being
considered.
As the Cooper operation in Melksham continues to improve, the selling
culture is changing to a volume orientation which will help increase
profitability. Key retailers in Europe have been targeted and an active
campaign is in place to gain their interest in the Avon and Cooper
brands. The Roadmaster brand is also being actively marketed in Europe
and the United Kingdom.
Key markets outside of Europe have been identified and targeted for
growth as the Company incorporates a multi-national, multi-sourced,
multi-branded approach to world markets. Support programs and new
products are being developed to help the Company achieve the global
growth projected in the Cooper 21 plan.
Strategic Imperative
Tire Quality
Always known for outstanding quality, Cooper believes it is imperative
to continually improve product performance. The Company's investments
in technology and ultimately, product improvement, will enable Cooper to
continue its tradition of excellence in meeting customers' expectations.
As a part of the Operational Excellence program, design specifications
continue to be enhanced and a list of uniformity "best practices" has
been developed as a resource for each plant. In addition to cost
savings, the process improvement program empowers employees to enhance
quality at each level of production.
(continued)
53
<PAGE>
During 1998, Cooper constructed its new, state-of-the-art technical
center for tire operations, adjacent to the existing research and
engineering facility in Findlay. The 73,500-square-foot, two-story
facility now houses all tire development personnel as well as the
expanded materials and tire testing laboratories. Completed in November
1998, the modern, attractive facility provides an optimum environment
for creativity and collaboration and uses state-of-the-art computer
technology.
Ground was broken mid-year for a new tire and vehicle test track in
southern Texas. Located on a 900-acre site near San Antonio, the Tire &
Vehicle Test Center will contain a one-mile road course, a two-mile ride
evaluation course and a 14-acre vehicle dynamics area for wet testing.
The new track will provide additional flexibility and capability for the
development of new products and enhance the Company's speed-to-market.
Strategic Imperative
Maintain Leadership in Customer Service
As an industry leader in customer service, Cooper realizes that
friendly, resourceful staffers need the latest in technology to continue
leadership in customer service. To assist with the processing of
increasingly complex orders and the need for rapid and accurate customer
communication, the Encore order entry system continued to improve
service during 1998. Using the latest in computer technology, the
Encore system promises to be a key part of Cooper's plan to exceed
customer service expectations.
It was determined Cooper customers' definition of excellent delivery is
consistency. Also, customers who buy multiple brands will require all
products be shipped from one location and on one truck for maximum
efficiency and service. Two studies were initiated to address these
important issues.
Phase I of an extensive benchmarking study of Cooper's distribution
system has been completed and current capabilities are being evaluated
in areas of inventory deployment and warehouse and transportation
efficiency. Phase II of this logistics study will develop a
distribution network model to help identify needs in other regions of
the country.
A new 270,000-square-foot distribution center was opened in New Jersey
along the turnpike. Enhancing Cooper's ability to service customers
with next-day tire delivery, the facility utilizes the latest
warehousing technology.
Strategic Imperative
Develop Skills to Compete in the 21st Century
As the Company looks forward to the next millennium, education programs
are focused on improving employee skills in the areas of technology,
information systems, management and international business. Several new
programs addressing these needs are in development for 1999 with many
already under way.
Engineered Products
Cooper began manufacturing components for the automotive and appliance
industries in 1938. Over the years the operation's product lines have
grown to include active and passive vibration control systems,
automotive sealing systems, hose and hose assemblies. Cooper Engineered
Products, as the operation was renamed in 1991, now includes six
manufacturing facilities and three design centers in North America to
serve the needs of automotive manufacturers.
(continued)
54
<PAGE>
In 1998, Cooper achieved the following:
- - Ranked first in the Ford North American Benchmarking Survey of engine
mount suppliers.
- - Auburn, Bowling Green and El Dorado facilities received awards for
cost, delivery and quality from New United Motor Manufacturing Inc.
(NUMMI).
- - Reached a three-year contract with the Bowling Green hose plant
employee union.
- - Completed the engineering technical center in Auburn.
- - El Dorado plant received the Rubber Manufacturers Association (RMA)
Safety Improvement Award for the second consecutive year.
The long-range goals of the engineered products operation are to
continue to grow current business with existing automotive
manufacturers, to develop new business opportunities globally and to
enter new product categories through the implementation of the following
key strategic imperatives:
Strategic Imperative
Vision and Strategy
Cooper 21 represents a new way of doing business at engineered products.
It is a process more than a project and involves all employees. The
strategic planning process that became even more focused with Cooper 21
has been formalized and is being communicated throughout the division.
Also, with the creation of the strategy and business development
department, focused efforts are being applied to the management and
implementation of a multitude of strategic initiatives.
The strategic direction for engineered products falls into two general
categories: activities that strengthen the business and activities that
strengthen the organization. A number of specific strategies are
covered by each of these broad categories and one or more task forces
have been established for each.
Strategic Imperative
Expand Globally
It is Cooper's goal to be a premier global supplier of its engineered
product lines to North American and European-based automotive
manufacturers through expansion in Europe and Latin America. Cooper
will accomplish this by expanding manufacturing capabilities globally
and by providing products and services that meet or exceed customers'
requirements and expectations for quality, reliability, delivery and
technological innovation at the lowest competitive price.
In mid-year, Cooper began a significant expansion at the Piedras Negras
facility to provide capacity for service to customers in Mexico.
Initial production includes three new lines for extruded rubber seals
and will allow additional capacity to meet increasing demand for
vibration control products. This investment supports the Company's
strategy to establish production capability in regions where automotive
manufacturers are present.
Again this year, Cooper had components on the top five best-selling
vehicles in the U.S. market. New vibration control business launched in
1998 included the GMC Silverado pickup truck which had a strong impact
on sales in the fourth quarter. The Company produces numerous
components for the new Grand Cherokee platform which began production in
(continued)
55
<PAGE>
July and will produce hydromounts and hydrobushings for the new Saturn
sedan. Hose business also expanded with the launch of the Ford
F250/F350 truck. One of the Company's major platforms in automotive
sealing, the Dodge Ram pickup, was the fifth best-selling vehicle in the
United States during 1998.
The heavy truck market is an area of increasing opportunity for the
division. In 1998, Cooper secured new parts contracts with Hendrickson,
a suspension system supplier for heavy trucks. The division is
currently manufacturing bolster springs and center beam bushings used on
dual-axle dump trucks and cement trucks.
Strategic Imperative
Financially Responsible Operations
The engineered products operations met its 1998 internal cost reduction
goal for direct factory costs and raised the goal even higher for 1999.
Cooper is aggressively seeking to drive costs down through utilization
of lean manufacturing, Kaizen programs, cost-reduction teams and cost-
effective designs. These initatives improve productivity, efficiency
and quality without significant capital investment.
A new, state-of-the-art mixing facility was completed at the El Dorado
plant in 1998. This investment provides increased capacity to meet
growing production needs and efficiencies to reduce costs. The
computerized controls of this new facility enable the Company to improve
the quality of mixed stocks to meet and exceed the increasing quality
requirements of customers.
In 1998, a new reel-to-reel hose processing system was implemented at
the Mt. Sterling plant. As anticipated, lower defective rates, reduced
labor and improvements in overall line efficiencies were achieved using
this system.
Cooper secured additional business last year for assembling hoses,
bending metal tubes and attaching a variety of clips, clamps and
components, shifting space requirements from forming to finishing
and assembly.
Benchmarking and continuous review of best practices are a part of the
Cooper culture. To improve operations, the Company initiated several
new benchmarking projects in the plants. The first involves reducing
variation on pre-formed extrusions. The second focuses on minimizing
cure shrinkage on standard and capped-end hoses. Cooper implemented a
program to work with suppliers to accelerate prototype development in
order to help reduce cycle times. A formal review of parts received
from suppliers was initiated with a goal to achieve quality ratings of
zero defective parts per million.
Strategic Imperative
Innovative Organization
The 76,350-square-foot engineering technical center in Auburn was
completed in the summer of 1998. The new facility allowed the expansion
of testing, research and development capabilities for rubber compounds
and vibration control systems as well as additional space and improved
communication for the engineering, purchasing and inquiry departments.
The second floor will be finished in 1999 to provide additional space.
The testing and material lab area of this new facility has increased the
Company's ability to perform vehicle system and subsystem testing. New
equipment includes a vehicle dynamometer, additional vehicle lift
capacity and centralized computer-controlled servohydraulic fatigue
testing systems. There is also an expanded tool and testing area. The
computer-aided design area has been expanded in all customer
applications as well as in finite element analysis and system modeling.
(continued)
56
<PAGE>
Cooper is currently developing an electronic noise and vibration
intelligence system called ENVIsys for use in automotive and light
aircraft applications. This innovative and cost-effective system
attenuates random and repetitive noise and vibrations in a vehicle
through a series of electronic devices including sensors, speakers and
actuators. ENVIsys has the ability to respond before noise and
vibration reach the passengers in a vehicle and it remains stable during
all operating conditions. The Company is optimistic about the new
business this system may bring.
The operation continued development of an online system to improve
communication, training and information processing. Known as COBRA
(Cooper Online Business Resource Application), this interactive system
allows authors from departments across the division to actively design
and establish intranet sites for access to divisional applications,
information and resources.
Strategic Imperative
Motivated Workforce
Continuing to aggressively pursue important human resource issues, a
task force is evaluating the establishment of a formal career
development program, improvements to the recruiting process and a formal
recognition and reward program. This initiative will emphasize employee
involvement as well as education, accomplishments, patents and cost
savings.
57
<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 9,
1999, 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, 1998:
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 19, 1999
58
<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 Thomas
A. Dattilo, 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 9th day of February, 1999.
/s/ Arthur H. Aronson /s/ Thomas A. Dattilo
- --------------------------- -----------------------------
Arthur H. Aronson, Director Thomas A. Dattilo, President,
Principal Operating Officer,
and Director
/s/ Edsel D. Dunford /s/ John Fahl
- --------------------------- ---------------------------
Edsel D. Dunford, Director John Fahl, Director
/s/ Deborah M. Fretz /s/ Dennis J. Gormley
- --------------------------- ---------------------------
Deborah M. Fretz, Director Dennis J. Gormley, Director
/s/ Stan C. Kaiman /s/ John F. Meier
- --------------------------- ---------------------------
Stan C. Kaiman, Secretary John F. Meier, Director
/s/ Byron O. Pond /s/ Patrick W. Rooney
- --------------------------- ------------------------------
Byron O. Pond, Director Patrick W. Rooney, Chairman of
the Board, Principal Executive
Officer, and Director
/s/ John H. Shuey /s/ Philip G. Weaver
- -------------------------- --------------------------------
John H. Shuey, Director Philip G. Weaver, Vice President
and Principal Financial Officer
/s/ Eileen B. White
- -----------------------------
Eileen B. White, Principal
Accounting Officer and
Corporate Controller
(continued)
59
<PAGE>
STATE OF OHIO )
)ss.
COUNTY OF HANCOCK)
On this 9th day of February, 1999, before me, a Notary Public in and for
the State and County aforesaid, personally appeared Arthur H. Aronson,
Thomas A. Dattilo, Edsel D. Dunford, John Fahl, Deborah M. Fretz, Dennis
J. Gormley, Stan C. Kaiman, John F. Meier, Byron O. Pond, Patrick W.
Rooney, John H. Shuey, Philip G. Weaver, 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)
60
<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 9, 1999,
constitute and appoint Patrick W. Rooney, or Thomas A. Dattilo, 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 9th day of February, 1999.
ATTEST: COOPER TIRE & RUBBER COMPANY
/s/ Stan C. Kaiman /s/ Patrick W. Rooney
- ------------------------- -----------------------------
Stan C. Kaiman Patrick W. Rooney
Secretary Chairman of the Board
and Chief Executive Officer
STATE OF OHIO )
)ss.
COUNTY OF HANCOCK)
On this 9th day of February, 1999, 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)
61
<PAGE>
Exhibit (99)
COOPER TIRE & RUBBER COMPANY
UNDERTAKINGS OF THE COMPANY
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
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) 62
<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) 63
<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.
64
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 29,418
<SECURITIES> 12,548
<RECEIVABLES> 324,491
<ALLOWANCES> 4,806
<INVENTORY> 186,386
<CURRENT-ASSETS> 569,473
<PP&E> 1,508,985
<DEPRECIATION> 623,703
<TOTAL-ASSETS> 1,541,275
<CURRENT-LIABILITIES> 192,988
<BONDS> 205,285
0
0
<COMMON> 75,791
<OTHER-SE> 792,145
<TOTAL-LIABILITY-AND-EQUITY> 1,541,275
<SALES> 1,876,125
<TOTAL-REVENUES> 1,879,760
<CGS> 1,545,489
<TOTAL-COSTS> 1,545,489
<OTHER-EXPENSES> 118,801
<LOSS-PROVISION> 2,029
<INTEREST-EXPENSE> 15,224
<INCOME-PRETAX> 198,217
<INCOME-TAX> 71,250
<INCOME-CONTINUING> 126,967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,967
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
</TABLE>
