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, 1999
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 6, 2000). $753,367,361
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 6, 2000)
Common Stock, $1 par per share 75,810,552
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 21, 2000 - Part III
EXHIBIT INDEX appears on pages 24 through 26
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Part I
Item 1. BUSINESS
1999 Events
Cooper Tire & Rubber Company ("Cooper" or the "Company") was
incorporated in the State of Delaware in 1930. The Company's business
is developing, manufacturing and marketing products for the
transportation industry. The Company's products are primarily rubber-
based.
Pursuant to a corporate strategy developed over recent years, the
Company has completed two major acquisitions since the beginning of 1999
that have almost doubled the size of the Company and have greatly
expanded its automotive supply business. The first of the two
acquisitions, the purchase of The Standard Products Company
("Standard"), was completed in October 1999. Standard is one of the
world's largest suppliers of automotive body sealing products to
automotive original equipment manufacturers. It is also a significant
producer of exterior plastic trim products, vibration control systems
and through its subsidiaries, Holm Industries, Inc. ("Holm") and Oliver
Rubber Company ("Oliver"), is a leading supplier of appliance sealing
products and materials, equipment, and services for the retreading
industry. Standard's 1999 sales approximated $1.1 billion. Additional
information on the acquisition of Standard appears in the Acquisition
note to the Financial Statements on pages 36 and 37 and in Exhibit (13)
of this Annual Report on Form 10-K.
The second major acquisition completed by the Company was of Siebe
Automotive ("Siebe"), the automotive fluid handling division of Invensys
plc. The Company announced that it had reached an agreement to acquire
Siebe on November 22, 1999, and the acquisition was completed on January
28, 2000. Siebe's annual sales approximate $400 million, of which
nearly 50 percent are made outside the U.S. Siebe manufactures
automotive fluid handling systems, components, modules and sub-systems
for sale to the world's automotive original equipment manufacturers and
large Tier 1 suppliers. The purchase includes 16 operating locations
extending across North and South America, Europe and Australia.
In February 1999, the Company formed a strategic alliance with
Pirelli Tyres of Milan, Italy ("Pirelli"). This new venture, which
involves contractual arrangements but no joint equity holding, combines
the best resources of both companies to improve their competitiveness in
the North and South American replacement tire markets, by providing the
Company with the opportunity to offer a Tier I and an upper Tier I to
its independent dealers. This arrangement provides revenue to Cooper
primarily through commissions on sales of Pirelli tires by Cooper
dealers.
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
brought an additional house brand to the Company's tire operations,
enhancing product offerings in upper Tier II and Tier III segments of
the replacement tire market. The Company had been the sole supplier to
Dean since 1966. The Dean Tire and Pirelli transactions enhanced the
Company's ability to offer a broader range of replacement tires to its
dealers.
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Special Charge
Prior to its acquisition by the Company, Standard recorded an accrual
for employee separation and other exit costs relating to a plan for the
reorganization and closing of manufacturing facilities in Europe. The
Company has evaluated this plan and determined that an additional
accrual of $5 million is required. The Company also estimates that
additional future costs related to the closings totaling $10.1 million
will be recorded as normal operating expenses as they are incurred.
These additional charges consist primarily of employee relocation
expenses, additional wages paid as a result of the closing process, and
equipment start-up costs associated with the realignment of
manufacturing operations among the Company's remaining facilities. The
additional costs will be included in cost of products sold on the
Consolidated Statements of Income.
Plastics Division - Strategic Options
On February 8, 2000 the Company announced that it is exploring
strategic options for its plastics division, which consists of the
automotive exterior plastic trim and Holm Industries businesses,
acquired in the Standard transaction. Cooper has retained the
investment banking firm of W.Y. Campbell & Company, Detroit, Michigan to
assist in assessing these units and developing options for further
consideration.
The automotive plastics business unit manufactures exterior trim
products for automotive vehicle manufacturers. Holm manufactures seals
and gaskets primarily for consumer appliance and construction
applications. Holm also includes the OEM Miller business unit, which
manufactures corrugated hose and tube products for consumer appliance
and, to a lesser extent, automotive manufacturers. Sales of the
plastics division were approximately $215 million in 1999. The
Company's 1999 results include sales by the plastics division of
approximately $35 million.
Business Segments
The Company manages its business as two reportable segments - Tire
and Automotive. They are managed separately because they offer
different products requiring different marketing and distribution
strategies. Additional information on the Company's operating segments,
their products, and presence in particular geographic areas, appears in
the Business Segments note to the Financial Statements on pages 47
through 49 and in Exhibit (13) of this Annual Report on Form 10-K. What
follows is a detailed description of the business of each segment.
Tire Operations
The Tire segment consists of North American Operations, Cooper-Avon
Tyres Limited ("Cooper-Avon"), which is based in the United Kingdom, and
Oliver Rubber Company. The North American Operations and Cooper-Avon
businesses 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, which resell them to the general public. The Company
also receives commissions on sales of Pirelli tires to its independent
dealers. Independent dealers and distributors accounted for
approximately 72 percent of all replacement passenger tires sold in the
United States in 1999. During 1998 and 1997, this share approximated
71.5 and 71 percent, respectively.
The Oliver Rubber Company unit of the segment manufactures and
markets precure and moldcure tread rubber, bonding gum, cement, repair
materials and equipment for the tire retreading industry. Precure tread
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rubber differs from moldcure tread rubber in that it is shipped to
retreaders fully cured and with a specially designed tread imprinted.
The retreader bonds the precure tread to a tire casing using a
combination of bonding material, heat and pressure to complete the
retreading process. Moldcure tread rubber is applied by a retread dealer
to the tire casing. A pressure mold is then used to cure the rubber and
imprint the tread design. Oliver also custom mixes rubber compounds for
selected customers throughout the United States.
Oliver primarily serves the trucking industry in North America,
through a licensed dealer network for precure retreading and through
independent dealers who sell retreaded tires using the moldcure
processes.
The economic outlook for the businesses of the Tire segment is
generally favorable. Current market data indicates moderately
increasing demand for replacement tires and retread materials through
2000. Additional information on the Company's outlook for the industry
appears in Exhibit (13) of the Annual Report on Form 10-K.
The Tire segment operates in a highly competitive industry, which
includes a number of competitors larger than the Company. The Company's
sales of automobile and truck tires in 1999 represented approximately 16
percent of all domestic replacement tire sales. On the basis of North
American tire manufacturing capacity, the Company believes it ranks
fourth in size among sixteen generally recognized producers of new
tires. According to a recognized trade source, the Company ranked
eighth in worldwide tire sales based on 1998 estimated sales volumes.
The tread rubber industry has more than ten suppliers, of which three
are significant. Oliver's competitors include the retreading businesses
of other major tire manufacturers. Management believes Oliver is
currently one of the largest suppliers of moldcure and precure rubber in
North America.
Sales of the Company's tire products are affected by factors which
include price, quality, availability, technology, warranty, credit terms
and overall customer service. Competition in the retreading industry is
based upon the price and quality of the products and services supplied.
In addition to its sales in the United States, the Company, either
through its domestic operations or through Cooper-Avon, which is based
in Melksham, England, distributes tires to customers in Canada, the
United Kingdom and countries in Latin America, Europe, Asia, Africa, the
Middle East and Oceania.
Both the replacement tire and retreading businesses of the segment
have broad customer bases, but certain retail chains such as Sears
Roebuck are especially important to the segment's replacement tire
business. In 1997, 12.7 percent of sales were to Sears. That number
was less than ten percent in 1998 and 1999. Overall, a balanced mix of
proprietary brand and private brand customers helps to protect the
Company's tire operations from the adverse effects that could result
from the loss of a major customer.
Automotive Operations
The Automotive segment consists of the Global Sealing Division, the
Noise, Vibration and Harshness (NVH) Control Systems Division, the
Plastics Division, and as of January 2000, the Fluid Systems Division
which includes the Company's automotive hose business, as well as the
business of Siebe Automotive. The businesses of this segment supply
rubber, plastics and other products to the automotive original equipment
industry.
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Rubber products supplied to the automotive manufacturing industry by
the Global Sealing Division include flocked rubber and steel
weatherstrip assemblies to seal vehicle windows; flocked rubber window
channel assemblies and rubber window gaskets; and vehicle body and door
dynamic sealing systems. These products form the sealing system of
automotive vehicles, preventing water leakage and inhibiting wind noise
from entering the vehicle. Attractiveness of design is an important
feature of the sealing system. An increasing number of the Company's
parts are sold to OEMs as complete sealing systems. This is a departure
from former practices, in which more suppliers furnished individual
parts, and not complete systems. Through the NVH Control Systems
Division, the Company also supplies molded rubber engine mounts and body
cushions, which comprise a vehicle's vibration control system. Products
made by the Company's Fluid Handling Systems division include hose and
hose assemblies, fluid handling automotive components, modules and
subsystems.
Products made by the Company's Plastics Division for the automotive
industry include metallized, multicolored and embossed exterior and
interior vinyl trim, painted vinyl trim and flocked vinyl and steel
weatherstrip assemblies. The plastic exterior products serve as
protective barriers preventing damage to the vehicle's sheet metal and
can be an integral part of the vehicle's overall styling and appearance.
The Plastics division of the Automotive segment also includes Holm
Industries, Inc., which manufacturers a variety of custom-designed
extruded plastic (primarily polyvinyl chloride (PVC) compounds) gaskets
and seals sold as original equipment to manufacturers of residential and
commercial refrigerators, dishwashers and air conditioners. These
products are custom designed to enhance energy control and, in the case
of dishwashers, to prevent water leakage. Holm also produces extruded
plastic parts for the residential exterior door and window industries
and, through its OEM/Miller division, corrugated tubing for the
appliance and automotive industries.
Except for Brazil, where continued high interest rates and a weak
currency resulted in sluggish automobile sales in 1999, the economic
climate in the various geographic areas in which the Automotive segment
does business is generally favorable. North American light vehicle
production increased by approximately 10 percent in 1999. European
production also increased. The Company's sales of its automotive
products are generally linked to light vehicle production, and are more
specifically linked to sales of the particular vehicle models for which
the Company provides content. Growth in customer demand for the
Company's automotive products was excellent in 1999 and 1998 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 world.
Consolidation among automotive original equipment manufacturers (the
"OEMs") continued in 1999 and further consolidation is likely for the
years 2000 and beyond. This will create very large global customers
which are likely to require their customers to supply them on a global
basis. Management believes its acquisitions have given it the size and
geographic breadth to meet those customer demands. This consolidation
will, however, further increase the leverage of the automobile companies
over their customers, which may mean that the downward price pressure on
the Company's products which has been experienced in recent years will
continue.
Since most of the Company's automotive products are sold as original
equipment, sales of such products are directly affected by the annual
car production of OEMs. The Company does not have a backlog of orders
at any point in time. Instead, original equipment sales are generally
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based upon purchase orders issued annually by automobile manufacturers
for each part which the Company produces. The purchase orders are for
all or a percentage of the customers' estimated requirements and are
binding, subject to annual car production levels. As the year evolves,
customers issue releases under those purchase orders, specifying
quantities of the parts which the assembly plants require. The
Company's sales and product development personnel work directly with the
engineering and styling departments of the automotive OEMs in the
engineering and development of its various products. The Company
maintains sales offices in strategic locations to provide support and
service to its customers. Additional information regarding the
Company's outlook for the industry appears in Exhibit (13) of the Annual
Report on Form 10-K.
Each product line in the Automotive segment operates in a highly
competitive environment. The product lines compete with numerous major
competitors in North America, Europe and South America. There are at
least three major competitors in each of the markets served by the
Company. A number of smaller competitors also exist. Some of these
competitors compete in only one product line or in one geographic region
while others may compete in more than one product line or geographic
region. The Company is a leading manufacturer of rubber window and door
body sealing products, exterior plastic trim and vibration control
components for the automotive original equipment industries, and
believes it has strengthened itself in this regard with the acquisitions
made in 1999. Maintaining a strong competitive position is critical at
a time when the Company's automotive customers are reducing their supply
bases to exclude suppliers who cannot meet their increasingly rigorous
requirements.
Although each automotive customer may emphasize a different component
as its primary criteria, the automotive supply industry has historically
competed in three areas in providing customer service: quality, cost
and time. Time in this sense relates to on-time delivery, time to bring
new products to market and manufacturing cycle time. The Company also
believes engineering and design capabilities now play a greater role in
the competitive process. Management believes the Company's commitment
to continued investment in its engineering and design capability is
crucial to achieving future business. Management also believes the
ability to supply its customers globally is an increasingly important
competitive criterion and that its acquisitions of Standard and Siebe
have greatly enhanced its ability to meet its customers' global
requirements.
The Automotive segment is highly dependent on the success of its OEM
customers, and on three in particular, Ford Motor Company,
DaimlerChrysler AG and General Motors Corporation. The loss of one or
more of these customers would have a material adverse effect on the
financial results of the Company. As the industry continues to
consolidate, the segment may become even more dependent on each of its
customers. As the Company expands its global position, however, it
spreads the risk over additional regions and the automobile
manufacturers in those regions, such as Fiat in South America and
Europe, and Renault in Europe. Through its joint venture with Nishikawa
Rubber Company of Japan, the Company also has business with major
Japanese automobile producers such as Nissan and Honda.
Holm's products are sold primarily to appliance manufacturers and
Tier I automotive suppliers, through either a direct sales force or
sales agents. Management believes that Holm is the largest supplier of
extruded plastic gaskets and seals to the North American refrigeration
and freezer market.
Additional information on the Company's marketing and distribution
appears in Exhibit (13) of this Annual Report on Form 10-K.
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Raw Materials
The primary raw materials used by the Company include synthetic and
natural rubbers and rubber chemicals, polyester and nylon fabrics, steel
tire cord, wire carriers and metals, carbon black and adhesives, which
the Company acquires from multiple sources to provide greater assurance
of continuing supplies for its manufacturing operations. Because of the
similarity of raw materials used in the processes of both the Tire and
Automotive segments, the Company's purchasing efforts for the two
segments are substantially centralized, which has resulted in
efficiencies and reduced administrative costs.
The Company did not experience any significant raw material shortages
in 1999, nor have any shortages been experienced in the opening months
of 2000. The Company is, however, experiencing upward price pressure
for raw materials derived from petroleum such as carbon black, synthetic
rubber and processing oils. Transportation costs are also expected to
increase in 2000. A continuation of high crude oil prices could
negatively affect the margins of the Company's businesses if selling
prices cannot be raised sufficiently to offset them.
The Company has a purchasing office in Singapore to acquire natural
rubber and various raw materials directly 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 of using 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.
The Company has not experienced serious fuel shortages and none are
foreseen in the near future.
Working Capital
The Company maintains a strong working capital position. Inventories
turn regularly and accounts receivable are well managed. The Company
engages in a rigorous credit analysis of its independent tire dealers
and monitors their financial positions. The Company does not generally
experience difficulties in collecting its account receivables in the
Automotive segment because most of its customers are large, well-
capitalized automobile manufacturers. The Company expects adequate
liquidity will be provided by cash flows from operations and its credit
facilities, which will allow it to fund debt service obligations,
capital expenditures, dividends on its common shares and working capital
requirements.
Research, Development and Product Improvement
The Company 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. The Automotive segment's engineering and
marketing personnel work closely with their customers to assist in the
design and development of products to meet their changing requirements.
Product development and design are important to the success of the
Automotive segment and are one way in which the Company believes it
differentiates itself from its competitors. Additionally, the Company
forms strategic alliances with research firms and high-tech
manufacturers to collaborate on new product development.
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The Company considers itself a leader in the application of computer
technology to the development of new tire and automotive products. The
use of computer-aided design and sophisticated modeling programs reduce
the Company's product development costs and the time necessary to bring
new products to market. 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 recently signed a product and technology agreement with
the MacNeal-Schwendler Corporation to create an advanced tire design and
modeling system. The Company continues to actively develop new
passenger and truck tires. The Company conducts extensive testing of
current tire lines, as well as new concepts in tire design and
construction. During 1999, approximately 27 million miles of tests were
performed on indoor test wheels and in monitored road tests. 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.
Construction of a new tire and vehicle test track in southern Texas
was completed during 1999. Located on a 900-acre site near San Antonio,
the Tire & Vehicle Test Center contains a one-mile road course, a two-
mile ride evaluation course and a 14-acre vehicle dynamics area for wet
testing. The new track provides additional flexibility and capability
for the development of new products and enhance the company's speed-to-
market.
Research and development expenditures amounted to approximately
$21,700,000 in 1997, $29,200,000 in 1998, and $39,900,000 in 1999.
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 does not 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", "Cooper-Standard", "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.
The Company has license and technology sharing agreements with
Nishikawa Rubber Company for sales, marketing and engineering services
on certain products sold by the Company. Under those agreements, the
Company pays for services provided by Nishikawa and a royalty to
Nishikawa on certain products for which Nishikawa provides design or
development services.
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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. Sales to
automotive customers are lowest during the months prior to model
changeovers and during assembly plant shutdowns. These typically result
in slower volume during July, August and December.
Environmental Matters
The Company recognizes the importance of compliance in environmental
matters and has an organizational structure to supervise environmental
activities, planning and programs. The Company also participates in
activities concerning general industry environmental matters.
The Company'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 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 it is unlikely it will have any material liability for
these matters. The Company's 1999 expense and capital expenditures for
environmental control at its facilities were not material, nor is it
estimated expenditures in 2000 for such uses will be material.
Employee Relations
As of December 31, 1999, the Company employed 21,586 persons
worldwide of whom 8,354 were salaried employees. Approximately 43
percent of the Company's employees were represented by labor unions as
of December 31, 1999. The Company considers its labor relations to be
favorable.
Foreign Operations
Prior to the acquisition of Standard and Siebe, the Company's foreign
operations consisted of Cooper-Avon Tyres Limited, based in Melksham,
England and a plant in Piedras Negras, Mexico. Cooper-Avon, which was
acquired in 1997, manufactures and sells tires primarily for the
replacement tire industry in the United Kingdom. A small percentage of
its production is exported, primarily to Western Europe. The Company's
plant in Piedras Negras was acquired in 1986 and manufactures NVH
control systems and sealing components for automobile assembly plants
throughout North America.
The acquisitions of Standard and Siebe have added significant
additional foreign operations to the Company. Standard produces
vibration control components at a facility in Mitchell, Ontario, Canada,
and has body sealing plants in Canada, Mexico, Brazil, the United
Kingdom, France and Poland. Standard also has minority equity interests
in and licensing arrangements with firms in Japan, Korea, India, Mexico
and other countries throughout the world. Sales by Standard's foreign
operations exceeded $400 million in 1999.
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Siebe also has an extensive foreign presence. Three quarters of its
sales come from operations outside the United States. Almost one third
of those foreign sales are made from Mexico. The remainder derive
primarily from operations in Germany, United Kingdom, Australia, Spain,
the Czech Republic, Canada and Brazil.
The experience of the Company has been that its foreign operations in
Canada and Western Europe do not present materially different risks or
problems from those encountered in its United States markets, although
the cost and complexity of rationalizing Standard's operations in France
is far greater than would be the case in the United States.
The Company expects the risks of conducting business in the
Brazilian, Mexican, Polish and Czech automotive original equipment
markets will be greater than in the U.S., Canadian and Western European
automotive markets. The Company must deal with several different
issues, including but not limited to, more stringent governmental
regulation, currency volatility, potential high interest and inflation
rates, political instability and the general economic instability
associated with emerging markets.
Additional geographic financial information for the Company appears
in the Business Segments note to the Financial Statements on pages 47
through 49 and in Exhibit (13) of this Annual Report on Form 10-K.
Item 2. PROPERTIES
The Company owns its headquarters facility which is adjacent to its
Findlay, Ohio tire manufacturing facility.
The Company operates the following properties for the Tire segment:
<TABLE>
<CAPTION>
Location Use Title
- ----------------------- ------------------------------ -----
NORTH AMERICA
<S> <C> <C>
Albany, GA Manufacturing Facility &
Distribution Center Leased
Asheboro, NC Manufacturing Facility Leased
Asheboro, NC Manufacturing Facility Owned
Athens, GA Manufacturing Facility Owned
Athens, GA Offices Leased
Buena Park, CA Distribution Center Owned
Charlotte, NC Distribution Center Leased
Clarksdale, MS Manufacturing Facility Owned
Dallas, TX Manufacturing Facility Owned
Dayton, NJ Distribution Center Leased
Elk Grove Village, IL Distribution Center Owned
Export, PA Manufacturing Facility Leased
Fife, WA Distribution Center Leased
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Findlay, OH Manufacturing Facility &
Distribution Center Owned
Findlay, OH Metal Fabrication & Assembly
Plant Owned
Kansas City, MO Distribution Center Leased
Moraine, OH Distribution Center Owned
Oakland, CA Manufacturing Facility Owned
Paris, TX Manufacturing Facility Leased
Paris, TX Manufacturing Facility Owned
Salisbury, NC Manufacturing Facility, Offices,
& Distribution Center Owned
Salt Lake City, UT Distribution Center Owned
San Antonio, TX Test Track Owned
Texarkana, AR Manufacturing Facility &
Distribution Center Owned
Tupelo, MS Manufacturing Facility & Owned/
Distribution Center Leased
Wadsworth, OH Manufacturing Facility Owned
EUROPE
Compiegne, France Distribution Center Leased
Dietikon, Switzerland Distribution Center Owned/
Leased
Melksham, England Manufacturing Facility &
Distribution Center Owned
Wilnsdorf, Germany Distribution Center Leased
The Company operates the following properties for the Automotive
segment:
NORTH AMERICA
Aguascalientes, Mexico Manufacturing Facility Owned
Auburn Hills, MI Offices Leased
Auburn, IN Manufacturing Facility Owned
Aurora, OH Manufacturing Facility Owned
Bowling Green, OH Manufacturing Facility Owned
Bowling Green, OH Manufacturing Facility Owned
Charlotte, NC Distribution Center Leased
Cleveland, OH Manufacturing Facility Owned
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Dearborn, MI Offices Leased
Dearborn. MI Offices & Distribution Center Owned
El Dorado, AR Manufacturing Facility Owned
Gaylord, MI Manufacturing Facility Owned
Georgetown, Ontario,
Canada Manufacturing Facility Owned
Goldsboro, NC Manufacturing Facility Owned
Goldsboro, NC Distribution Center Owned
Griffin, GA Manufacturing Facility Owned
Hartselle, AL Manufacturing Facility Leased
Kittanning, PA Manufacturing Facility Owned
Mitchell, Ontario,
Canada Manufacturing Facility Owned
Mt. Sterling, KY Manufacturing Facility Owned
New Ulm, MN Manufacturing Facility Leased
New Ulm, MN Manufacturing Facility Owned
Piedras Negras, Mexico Manufacturing Facility Owned
Rocky Mount, NC Manufacturing Facility Owned
Scottsburg, IN Manufacturing Facility Leased
Scottsburg, IN Manufacturing Facility Owned
Spartanburg, SC Manufacturing Facility Owned
St. Charles, IL Manufacturing Facility Leased
Stratford, Ontario,
Canada Manufacturing Facility Leased
Stratford, Ontario,
Canada Manufacturing Facility Owned
Tijuana, Mexico Manufacturing Facility Leased
Winnsboro, SC Manufacturing Facility Owned
SOUTH AMERICA
Itaquaquccetuba, Brazil(1) Manufacturing Facility Owned
Varginha, Brazil Manufacturing Facility Owned
ASIA
Bombay, India Manufacturing Facility Leased
Ranjangaon, India Manufacturing Facility Owned
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EUROPE
Baclair, France Manufacturing Facility Leased
Bezons, France Manufacturing Facility Owned
Bielsko-Biala, Poland Manufacturing Facility Owned
Huntingdon, England(1) Manufacturing Facility Owned
Huntingdon, England Offices and Mixing Facility Owned
Lillebonne, France Manufacturing Facility Owned
Maesteg, Wales Manufacturing Facility Owned
Plymouth, England Manufacturing Facility Leased
Vitre, France Manufacturing Facility Leased
<FN>
(1) Land and buildings held for sale.
</TABLE>
The Company believes its properties have been adequately maintained,
generally are in good condition and are suitable and adequate for the
business of the Company as presently conducted.
The Company believes capacity is presently adequate to meet the
demands of each segment's business.
Additional information concerning the Company's facilities appears in
Exhibit (13) of this Annual Report on Form 10-K.
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.
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, 1999.
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 14, 15, 30, 34, 35, 39 through 42 and
51 of this Annual Report on Form 10-K.
13
<PAGE>
<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>
1994 $1,403,243 $277,265 $208,517 $208,119 $79,600 $128,519 $1.54 $1.53
1995 1,493,622 250,727 176,931 180,070 67,250 112,820 1.35 1.35
1996 1,619,345 252,796 172,922 172,092 64,208 107,884 1.30 1.30
1997 1,813,005 314,210 208,678 194,792 72,381 122,411 1.55 1.55
1998 1,876,125 330,365 209,535 198,217 71,250 126,967 1.64 1.64
1999 2,196,343 385,819 239,080 215,497 80,023 135,474 1.79 1.79
<CAPTION>
Net
Stock- Property, Capital
holders' Total Working Plant & Expend- Deprecia- Long-term
Equity Assets Capital Equipment itures tion Debt
------ ------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 $662,077 $1,039,731 $303,103 $ 549,601 $ 78,449 $ 55,603 $ 33,614
1995 748,799 1,143,701 272,216 678,876 194,894 63,313 28,574
1996 786,612 1,273,009 256,130 792,419 193,696 76,820 69,489
1997 833,575 1,495,956 354,281 860,448 107,523 94,464 205,525
1998 867,936 1,541,275 376,485 885,282 131,533 101,899 205,285
1999 975,634 2,757,645 549,563 1,227,069 149,817 120,977 1,046,463
<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>
1994 35.5% 23.4% 14.4% 3.0 14.8% 38.2% 9.2%
1995 25.8 17.0 10.9 2.7 12.1 37.3 7.6
1996 22.2 14.4 9.4 2.4 10.6 37.3 6.7
1997 24.4 15.6 9.6 2.8 10.7 37.2 6.8
1998 20.5 15.2 8.5 3.0 10.6 35.9 6.8
1999 22.4 15.6 8.8 2.4 9.8 37.1 6.2
<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>
1994 4.8% $ 7.92 $.23 83,623 83,634
1995 3.7 8.95 .27 83,646 83,662
1996 8.1 9.67 .31 83,214 81,367
1997 19.8 10.58 .35 79,128 78,760
1998 19.1 11.45 .39 77,598 75,791
1999 51.8 12.87 .42 75,837 75,810
<continued>
14
<PAGE>
<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>
1994 7,623 7,815 $14,700 $29.50 $21.63 16.6
1995 6,721 8,284 16,000 29.63 22.25 19.2
1996 5,991 8,932 19,700 27.25 18.00 17.4
1997 5,281 10,456 21,700 28.44 18.00 15.0
1998 4,809 10,766 29,200 26.25 15.44 12.7
1999 4,801 21,586 39,900 25.00 13.25 10.7
<FN>
(a) Earnings before interest and income taxes divided by long-term debt
plus stockholders' equity.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Consolidated net sales in 1999 reached a record-setting level of $2.2
billion, an increase of $320 million or 17.1 percent from 1998 levels.
Included in 1999 results are two months of sales of The Standard
Products Company ("Standard") which was acquired by the Company on
October 27, 1999. The acquisition added $188 million to the Company's
total sales for the year. The sales increase in 1999 followed a 3.5
percent increase in the Company's sales in 1998 from 1997.
Net income was a record $135 million in 1999, 6.7 percent higher than
the $127 million generated in 1998. Standard's operations and the
impacts of additional interest and goodwill amortization related to the
acquisition resulted in a reduction of net income in 1999 of $3.8
million, equivalent to five cents per share. Net income in 1998
increased by 3.7 percent over 1997's results. Basic and diluted
earnings per share were $1.79 in 1999, $1.64 in 1998 and $1.55 in 1997.
Selling, general and administrative expenses were 6.6 percent of net
sales in 1999, compared to 6.4 percent in 1998 and 5.8 percent in 1997.
Continued expenditures for advertising programs as well as higher
general and administrative costs associated with Standard's operations
contributed to the increases.
The effects of inflation did not have a material effect on the
results of operations of the Company in 1999, 1998 and 1997.
Business Segments
The Company has two reportable segments - Tire and Automotive. The
Company's reportable segments are each managed separately because they
offer different products requiring different marketing and distribution
strategies.
The Tire segment produces 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, and supplies equipment and materials to the
retreading industry. The Tire segment consists of North American
Operations, Cooper-Avon Tyres Limited and Oliver Rubber Company.
The Automotive segment produces sealing systems, hose and hose
assemblies, active and passive vibration control systems, and exterior
trim products primarily for the global automotive original equipment
<continued>
15
<PAGE>
manufacturers. The automotive segment consists of the Global Sealing
Division, the Noise, Vibration and Harshness (NVH) Control Systems
Division, and the Plastics Division. The Fluid Systems Division was
established in January 2000 with the acquisition of Siebe Automotive.
Tire Segment
Sales
Sales for the Tire segment, at $1.6 billion in 1999, increased $113
million or 7.8 percent from 1998. Included in these results are two
months of the sales of Oliver Rubber Company, which was acquired as part
of the Company's acquisition of Standard. Oliver Rubber's sales totaled
$27 million. Increased sales to certain retailers and continued growth
in Cooper's proprietary brands contributed to the improvements each
year, as did increasing demand for light truck tires. Growth in the
Company's tire shipments continued to outpace the industry in 1999 but
was limited by capacity constraints. The Company is investing in
ncremental expansions at its tire facilities to increase capacity and
anticipates the conversion of its Texarkana, Arkansas tire plant's
continuous operations will be completed during the second quarter.
Sales in 1998 at $1.4 billion were up slightly from 1997. Shipments
were strong in 1998, but a significant overall improvement in sales was
adversely impacted by a 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.
Operating Profit
Operating profit increased 13.6 percent from $155 million in 1998 to
$176 million in 1999. Operating margins were 11.3 percent in 1999, an
improvement from 10.7 percent in 1998. Increased volume, favorable raw
material costs and cost savings measures were the reasons for these
improvements. Transition costs associated with the conversion of the
Texarkana plant to continuous operations, increases in selling, general
and administrative expenses and the lower margins of the Oliver Rubber
business partially offset their impact.
Operating profit in 1998 was down 4.8 percent from 1997. Operating
margins decreased from 11.3 percent in 1997 to 10.7 percent in 1998.
During 1998, continued price discounting and higher advertising costs
exceeded the favorable impacts of lower raw material costs and product
mix.
Automotive Segment
Sales
Automotive sales increased 49 percent from $432 million in 1998 to $644
million in 1999. Two months of sales from Standard's automotive
businesses, totaling $165 million, were included in 1999's sales. Other
growth resulted from new contracts for NVH control systems on the very
successful GM Silverado/Sierra pickup and sport utility vehicle, the new
Saturn LS sedan and the Ford Focus.
Sales in 1998 were up 16.8 percent over 1997 levels due in large part
to sales increases of the vehicles on which the Company provides
products.
Operating Profit
Operating profit in 1999 was $63 million, an increase of 15.5 percent
over 1998. Operating margins, however, declined from 12.6 percent in
1998 to 9.7 percent in 1999. This decline reflects the acquisition of
Standard, price reductions demanded by customers, product mix and the
<continued>
16
<PAGE>
favorable impact in 1998 of a $1.9 million recovery of previously
expensed costs related to a dispute with a former owner of a plant site.
Manufacturing efficiencies offset some of the adverse impact of price
reductions.
Margins in Standard's operations were adversely affected by
production difficulties experienced at one of Standard's automotive
plastic trim facilities. The Company is working to address these
difficulties which resulted from the launch of certain new platforms.
Operating losses at this facility are expected to continue at least
through the second quarter of 2000. On February 8, 2000 the Company
announced that it is exploring strategic options for its Plastics
Division, which includes the affected facility.
Margins were also adversely affected by ongoing costs associated with
the Company's efforts to close one of its manufacturing facilities in
France, and by continued low volume in Brazil where economic
difficulties have depressed the level of automotive production.
Operating profit in 1998 was $54 million, 19.0 percent higher than in
1997. The operating margin of 12.6 percent in 1998 improved from 12.3
percent in 1997. These improvements are primarily due to the receipt of
the $1.9 million settlement and the effect of a favorable product mix.
Other
Interest expense was $24 million in 1999 compared to $15 million in
1998, reflecting the higher debt levels incurred with the acquisition of
Standard. Interest expense in 1998 was comparable to 1997.
Other income decreased from $4 million in 1998 to less than $1
million in 1999. A gain resulting from the sale of a warehouse in 1998
is primarily responsible for the change. Other differences result from
fluctuations in foreign currency gains and losses.
The effective income tax rate of 37.1 percent in 1999 is higher than
the 35.9 percent in 1998 and is comparable to 37.2 percent in 1997. The
lower 1998 rate resulted from foreign tax benefits.
The Company has recorded a valuation allowance to reflect the
estimated potential tax benefits which may not be realized principally
due to the inability of certain of its foreign subsidiaries to utilize
available net operating loss carryforwards of approximately $28 million.
Net operating loss carryforwards expire in years 2000 through 2014.
Liquidity and Capital Resources
Net cash provided by operating activities, at $211 million in 1999, is
$6 million higher than in 1998. Net income, adjusted for non-cash
charges, increased $27 million. Related cash generated was, however,
offset by the payment of certain accruals related to the acquisition.
Net cash used in investing activities during 1999 reflects the
acquisition of Standard for $594 million. Capital expenditures in 1999
were $150 million, an increase of $18 million over the prior year. The
Company continues to invest in new technology and strategic growth
initiatives and anticipates capital expenditures in 2000 to approximate
$220 million. The increased spending level reflects the Company's
acquisitions of Standard and Siebe Automotive ("Siebe"), the automotive
fluid handling division of Invensys plc, as well as continued
investments in technology, incremental production capacity increases,
and cost reduction efforts. The Company's capital expenditure
commitments at December 31, 1999 approximated $20 million.
<continued>
17
<PAGE>
Financing activities in 1999 provided cash of $560 million. Long-
term debt reached $1 billion at December 31, 1999, reflecting the
issuance of $800 million of notes in a public debt offering in December
to refinance the commercial paper issued in connection with the
acquisition of Standard. Additionally, the Company retired $195 million
of Standard's debt on the acquisition date. During 1998 and 1997, the
Company purchased $55 million and $54 million, respectively, of its
common shares. Dividends paid on the Company's common shares were $32
million, $30 million and $28 million in 1999, 1998 and 1997,
respectively.
The Company established a $1.2 billion universal shelf registration
in November 1999, of which $400 million remains available at December
31, 1999. Securities that may be issued under this shelf registration
statement include debt securities, preferred stock, fractional interests
in preferred stock represented by depositary shares, common stock, and
warrants to purchase debt securities, common stock or preferred stock.
On September 1, 1999, the Company entered into a $350 million credit
agreement with a group of six banks. The agreement provides up to $150
million in credit facilities until August 31, 2004 and $200 million in
credit facilities until August 31, 2000, with provisions for extending
the agreements beyond these dates upon approval of the bank group. The
credit facility supports issuance of commercial paper. On October 15,
1999 the Company entered into a second $350 million credit agreement
with a group of five banks with a maturity of July 10, 2000. The loans
bear interest at euro interest rates or the agent bank's base rate. At
December 31, 1999 there were no borrowings under these arrangements.
The Company issued commercial paper of $244.5 million for the
acquisition of Siebe in 2000.
The Company expects adequate liquidity will be provided by cash flows
from operations and its credit facilities to fund debt service
obligations, capital expenditures, dividends on its common shares and
working capital requirements.
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
does not believe any liability it may have for these matters will be
material. 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.
New Accounting Standards
In June 1998 the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The FASB has since issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133." This pronouncement amended SFAS No. 133 to
defer its effective date to years beginning after June 15, 2000. 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 effect on the
Company's consolidated financial position or results of operations.
In September 1999, the Emerging Issues Task Force reached a consensus
on Issue 99-5, "Accounting for Pre-Production Costs Related to Long-Term
Supply Arrangements." This issue addresses the accounting treatment for
<continued>
18
<PAGE>
pre-production costs incurred by original equipment manufacturers (OEM)
suppliers to perform certain services related to the design and
development of the parts they will supply the OEM as well as the design
and development costs to build molds, dies and other tools that will be
used in producing the parts. The Company does not anticipate adoption
of this consensus will have a material effect on its consolidated
financial position or results of operations.
Year 2000
In past years, the Company has discussed its concerns regarding the Year
2000 computer systems issue. In July 1999 the Company completed its
remediation efforts and testing of systems. As a result of its planning
and preparedness initiatives, the Company experienced no significant
disruptions in its critical information technology systems or its
infrastructure and believes those systems successfully responded to the
Year 2000 date change. The financial impact of making the required
changes was comprised primarily of internal costs invested since 1995
and is estimated to have been less than $3 million.
The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the
products and services supplied to it by third parties. The Company will
continue to monitor its critical computer applications and those of its
significant suppliers and customers throughout the year 2000 to ensure
any latent Year 2000 matters that may arise, and which could adversely
affect the Company's operations, are addressed promptly.
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 that adoption of the euro will
have a material impact on the results of its operations, financial
position or liquidity.
Additional Information
The Company's challenge for the upcoming year is to continue growth in
its sales and earnings, while successfully integrating the operations of
Standard and Siebe. At the time of the acquisition of Standard, the
Company identified $24 million in synergies it expected to realize. The
majority of those were anticipated to be realized by the end of 2002.
Through the integration efforts completed thus far, the Company has
obtained synergies at a faster rate than expectations set at the time of
the acquisition. The Company's level of profitability for the year
depends in part on its ability to meet its synergy target.
While the Company has set financial objectives for the year 2000,
certain factors including the following could impact the ability to
achieve them. Production difficulties associated with the launch of
certain new business in the Company's Plastics Division have caused
operating losses at the affected facility and are expected to continue
at least through the second quarter of 2000. Failure to rectify those
problems in the time frame anticipated by the Company would result in
additional charges. Similarly, the Company has announced plans to close
certain of its manufacturing facilities in Europe. Complication or
delays in doing so, whether resulting from difficulties in obtaining
<continued>
19
<PAGE>
necessary employee or governmental approvals, or otherwise, could also
affect the Company's operating results.
Raw material costs are anticipated to increase during 2000,
particularly in materials derived from petroleum such as carbon black,
synthetic rubber and processing oils. Further, transportation costs are
expected to increase in 2000. These increases could negatively affect
the margins of the Company's businesses if prices cannot be raised
sufficiently to offset them.
Forward-Looking Statements
This report contains "forward-looking statements," as that term is
defined under the Private Securities Litigation Reform Act of 1995,
regarding expectations for future financial performance, which involve
uncertainty and risk. It is possible that the Company's future
financial performance may differ from expectations due to a variety of
factors including, but not limited to: changes in economic and business
conditions in the world, increased competitive activity, achieving sales
levels to fulfill revenue expectations, consolidation among the
Company's competitors and customers, technology advancements, unexpected
costs and charges, fluctuations in raw material and energy prices,
changes in interest and foreign exchange rates, regulatory and other
approvals, the cyclical nature of the automotive industry, loss of a
major customer, risks associated with integrating the operations of The
Standard Products Company and Siebe Automotive, and the failure to
achieve synergies or savings anticipated in both acquisitions, 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 analyses 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.
Further information covering issues that could materially affect
financial performance is contained in the Company's periodic filings
with the U. S. Securities and Exchange Commission.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to fluctuations in interest rates and currency
exchange rates from its financial instruments. The Company actively
monitors its exposure to risk from changes in foreign currency exchange
rates and interest rates. Derivative financial instruments are used to
reduce the impact of these risks. See the Significant Accounting
Policies - Derivative Financial Instruments and Financial Instruments
notes to the financial statements for additional information.
The Company has estimated its market risk exposures using sensitivity
analyses. These analyses measure the potential loss in future earnings,
cash flows or fair values of market risk sensitive instruments resulting
from a hypothetical ten percent change in interest rates or foreign
currency exchange rates.
<continued>
20
<PAGE>
A ten percent decrease in interest rates would adversely affect the
fair value of the Company's fixed-rate long-term debt by approximately
$60 million at December 31, 1999 and approximately $20 million at
December 31, 1998. A ten percent increase in the interest rates for the
Company's floating rate long-term debt obligation would not be material
to the Company's results of operations and cash flows.
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, 1999 and 1998,
are issued at current market rates.
At December 31, 1999 the Company has derivative financial instruments
that hedge foreign currency denominated intercompany loans. The Company
had no derivative financial instruments at December 31, 1998. Gains or
losses on the derivative financial instruments are offset by changes in
the values of the foreign currency denominated loans. The Company's
unprotected exposures to earnings and cash flow fluctuations due to
changes in foreign currency exchange rates are not significant at
December 31, 1999 and 1998.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated statements of financial position at December 31, 1998 and
1999 and consolidated statements of income, cash flows, and
stockholders' equity for each of the three years in the period ended
December 31, 1999, the independent auditor's report thereon, and the
Company's unaudited quarterly financial data for the two-year period
ended December 31, 1999 are presented on pages 28 through 52 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 6, 22 and 23 of the Company's Proxy Statement dated March 21,
2000 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 64 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-Tire
<continued>
21
<PAGE>
Sales from 1984 to
1987. Vice President
of Cooper Brand
Sales, Tire
Operations from 1969
to 1984.
Thomas A. Dattilo 48 President and President and Chief
Chief Operating Operating Officer
Officer and since January 1999.
Director Director since
February 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 63 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 47 Vice President and Vice President and
Chief Financial Chief Financial
Officer Officer since January
1999. Tire
Operations Vice
President since 1994
and Tire Operations
Controller since
1990.
William S. Klein 62 Vice President Vice President since
1984. Senior Vice
President Global
Manufacturing and
Technology Development
since 1999. Vice
President-Tire
Operations from 1975
to 1999.
Roderick F. Millhof 60 Vice President Vice President since
1998. President of
the Global Sealing
Division since 1999.
President of
Engineered Products
Operations from 1998
to 1999; formerly
Vice President
Sales/Marketing of
Engineered Products
Operations since
1988.
<continued>
22
<PAGE>
Richard D. Teeple 57 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.
Eileen B. White 49 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.
Paul C. Gilbert 41 Vice President Vice President since
February 2000.
President NVH Control
Systems Division
since 1999. Vice
President of
Operations of
Engineered Products
from 1998 to 1999.
Engineered Products
Vice President from
1996 to 1999 and
Division Controller
from 1993 to 1996.
James S. McElya 52 Vice President Vice President since
February 2000.
President of Global
Fluid Systems
Division since
January 2000.
Previously, President
of Siebe Automotive
Worldwide since 1996.
Formerly with Handy
and Harman, where he
served as President
of Handy and Harman
Automotive, Corporate
Vice President and
Officer of Handy and
Harman, and in other
Senior management
positions since 1974.
Ted M. McQuade 45 Vice President Vice President since
February 2000.
President of the
Plastics Division
since October 1999.
Previously with The
Standard Products
Company, where he
held the positions of
Executive Vice
President, Program
Management since
1998, and Executive
<continued>
23
<PAGE>
Vice President-North
American Automotive
Operations from 1995
to 1998. Previously
with General Electric
from 1980 to 1995.
</TABLE>
Each such officer shall hold such office until a successor is
selected and qualified.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation appears on pages 6
through 11 and 13 through 18 of the Company's Proxy Statement dated
March 21, 2000 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 21 through 23 of the Company's Proxy
Statement dated March 21, 2000 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.
(b) Reports on Form 8-K
A Form 8-K was filed November 5, 1999 related to the Company's
completion of the acquisition of The Standard Products Company on
October 27, 1999.
A Form 8-K was filed November 23, 1999 related to the agreement to
acquire the automotive fluid handling division of Invensys plc.
INDEX TO FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
Page(s)
FINANCIAL STATEMENTS: Reference
---------
Consolidated Statements of Income for the years
ended December 31, 1997, 1998 and 1999 28
Consolidated Balance Sheets at December 31, 1998 and 1999 29-30
<continued>
24
<PAGE>
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999 31-32
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1998 and 1999 33
Notes to Financial Statements 34-49
Report of Independent Auditors 50
SUPPLEMENTARY INFORMATION:
Quarterly Financial Data (Unaudited) 51-52
FINANCIAL STATEMENT SCHEDULE:
II. Valuation and qualifying accounts 53
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
Incorporation as filed with the Secretary of State of Delaware on
November 24, 1998 is incorporated by reference from Exhibit 3(i)
of the Company's Form 10-K for the year ended December 31, 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) (i) Prospectus Supplement dated March 20, 1997 for the issuance of
$200,000,000 notes is incorporated herein by reference from
Form S-3 - Registration Statement No. 33-44159
(ii) 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
(iii) Prospectus Supplement dated December 8, 1999 for the issuance
of an aggregate $800,000,000 notes is incorporated herein by
reference from Form S-3 - Registration Statement No. 333-89149
(10)(i) Description of management contracts, compensatory plans,
contracts, or arrangements is incorporated herein by reference
from pages 6 through 11 and 18 of the Company's Proxy Statement
dated March 21, 2000
(ii) Employment Agreement dated as of January 1, 1999 between Cooper
Tire & Rubber Company and Thomas A. Dattilo is incorporated
herein by reference from Exhibit (10) of the Company's Form 10-Q
for the quarter ended March 31, 1999
(iii) First Amended and Restated Employment Agreement dated as of
January 1, 1999 between Cooper Tire & Rubber Company and Patrick
W. Rooney is incorporated herein by reference from Exhibit
(10)(i) of the Company's Form 10-Q for the quarter ended June 30,
1999
(iv) First Amended and Restated Employment Agreement dated as of
January 1, 1999 between Cooper Tire & Rubber Company and John
Fahl is incorporated herein by reference from Exhibit (10)(ii) of
the Company's Form 10-Q for the quarter ended June 30, 1999
<continued>
25
<PAGE>
(v) Employment Agreement dated as of February 8, 2000 54-63
between Cooper Tire & Rubber Company and
Roderick F. Millhof
The following related documents are incorporated by reference:
a) 1981 Incentive Stock Option Plan - Form S-8
Registration Statement No. 2-77400, Exhibit 15(a)
b) 1986 Incentive Stock Option Plan - Form S-8
Registration Statement No. 33-5483, Exhibit 4(a)
c) Thrift and Profit Sharing Plan - Form S-8
Registration Statement No. 2-58577, Post-Effective
Amendment No. 6, Exhibit 4
d) 1991 Stock Option Plan for Non-Employee Directors -
Form S-8 Registration Statement No. 33-47980 and
Appendix to the Company's Proxy Statement dated
March 26, 1991
e) 1996 Stock Option Plan - Form S-8 Registration Statement
No. 333-09619 and Appendix to the Company's Proxy
Statement dated March 26, 1996
f) 1998 Employee Stock Option Plan and 1998 Incentive Compensation
Plan - Form S-8 Registration Statement No. 333-83309 and
Appendix to the Company's Proxy Statement dated March 24, 1998
g) 1998 Non-Employee Directors Compensation Deferral Plan - Form
S-8 Registration Statement No. 333-83589 and Appendix to the
Company's Proxy Statement dated March 24, 1998
(12) Computation of Ratio of Earnings to Fixed Charges 64
(13) Annual report to security holders, Form 10-Q or quarterly
report to security holders 65-71
(21) Subsidiaries of the Registrant 72
(23) Consent of Independent Auditors 73-74
(24) Powers of Attorney 75-77
(27) Financial Data Schedule
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.
26
<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 17, 2000
--------------
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 17, 2000
Chief Executive Officer
and Director
(Principal Executive Officer)
THOMAS A. DATTILO* President, Chief Operating March 17, 2000
Officer and Director
JOHN FAHL* Vice President and Director March 17, 2000
PHILIP G. WEAVER* Vice President and Chief March 17, 2000
Financial Officer
(Principal Financial Officer)
EILEEN B. WHITE* Corporate Controller March 17, 2000
(Principal Accounting Officer)
ARTHUR H. ARONSON* Director March 17, 2000
EDSEL D. DUNFORD* Director March 17, 2000
DEBORAH M. FRETZ* Director March 17, 2000
DENNIS J. GORMLEY* Director March 17, 2000
JOHN F. MEIER* Director March 17, 2000
BYRON O. POND* Director March 17, 2000
RONALD L. ROUDEBUSH* Director March 17, 2000
JOHN H. SHUEY* Director March 17, 2000
*By/s/ Stan C. Kaiman
--------------------------------
STAN C. KAIMAN, Attorney-in-fact
27
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31
(Dollar amounts in thousands except per-share amounts)
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $1,813,005 $1,876,125 $2,196,343
Cost of products sold 1,498,795 1,545,760 1,810,524
--------- --------- ---------
Gross profit 314,210 330,365 385,819
Amortization of goodwill - - 2,550
Selling, general and administrative 105,532 120,830 144,189
--------- --------- ---------
Operating profit 208,678 209,535 239,080
Interest expense 15,655 15,224 24,445
Other - net (1,769) (3,906) (862)
--------- --------- ---------
Income before income taxes 194,792 198,217 215,497
Provision for income taxes 72,381 71,250 80,023
--------- --------- ---------
Net income $ 122,411 $ 126,967 $ 135,474
========= ========= =========
Basic and diluted earnings
per share $1.55 $1.64 $1.79
==== ==== ====
<FN>
See Notes to Financial Statements, pages 34 to 49.
</TABLE>
28
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per-share amounts)
<CAPTION>
December 31
----------------------------
ASSETS 1998 1999
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 41,966 $ 71,127
Accounts receivable, less
allowances of $4,806 in
1998 and $9,319 in 1999 319,685 545,155
Inventories:
Finished goods 132,696 168,290
Work in process 20,368 25,185
Raw materials and supplies 33,322 80,488
--------- ---------
186,386 273,963
Prepaid expenses and
deferred income taxes 21,436 55,183
--------- ---------
Total current assets 569,473 945,428
Property, plant and equipment:
Land and land improvements 28,338 46,492
Buildings 297,449 378,327
Machinery and equipment 1,080,951 1,414,654
Molds, cores and rings 102,247 122,270
--------- ---------
1,508,985 1,961,743
Less accumulated depreciation
and amortization 623,703 734,674
--------- ---------
Net property, plant
and equipment 885,282 1,227,069
Goodwill, net of accumulated
amortization of $2,550 - 433,312
Intangibles and other assets 86,520 151,836
--------- ---------
$1,541,275 $2,757,645
========= =========
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
December 31
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999
---------- ----------
<S> <C> <C>
Current liabilities:
Notes payable $ 8,129 $ 13,148
Accounts payable 94,502 175,686
Accrued liabilities 87,274 188,038
Income taxes 2,834 5,100
Current portion of long-term debt 249 13,893
--------- ---------
Total current liabilities 192,988 395,865
Long-term debt 205,285 1,046,463
Postretirement benefits other
than pensions 151,520 181,267
Other long-term liabilities 48,741 61,409
Deferred income taxes 74,805 97,007
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
in 1998) 83,799,352 shares issued 83,781 83,799
Capital in excess of par value 3,296 3,538
Retained earnings 945,975 1,049,599
Cumulative other comprehensive income (9,867) (6,053)
--------- ---------
1,023,185 1,130,883
Less: 7,989,600 common shares
in treasury at cost (155,249) (155,249)
--------- ---------)
Total stockholders' equity 867,936 975,634
--------- ---------
$1,541,275 $2,757,645
========= =========
<FN>
See Notes to Financial Statements, pages 34 to 49.
</TABLE>
30
<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, 1997 $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)
Stock
compensation plans 88 1,074 1,162
Cash dividends -
$.35 per share (27,622) (27,622)
------ ----- --------- ------ ------- -------
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)
Stock
compensation plans 21 195 216
Cash dividends -
$.39 per share (30,262) (30,262)
------ ----- --------- ------ ------- -------
<continued>
31
<PAGE>
Balance at
December 31,
1998 $83,781 $3,296 $ 945,975 $(9,867) $(155,249) $867,936
Net income 135,474 135,474
Other
comprehensive
income:
Minimum pension
liability
adjustment,net
of $3,494 tax
effect 5,502 5,502
Cumulative
currency
translation
adjustment (1,688) (1,688)
Comprehensive -------
income 139,288
Stock
compensation plans 18 242 260
Cash dividends -
$.42 per share (31,850) (31,850)
------ ----- --------- ------ ------- -------
Balance at
December 31,
1999 $83,799 $3,538 $1,049,599 $(6,053) $(155,249) $975,634
====== ===== ========= ====== ======== =======
<FN>
See Notes to Financial Statements, pages 34 to 49.
</TABLE>
32
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(Dollar amounts in thousands)
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income $122,411 $126,967 $135,474
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 94,464 101,899 120,977
Amortization of goodwill and
intangibles 1,031 1,298 4,600
Deferred income taxes 13,501 5,202 1,095
Changes in operating assets
and liabilities:
Accounts receivable 16,783 (27,379) 6,526
Inventories and
prepaid expenses (21,796) 1,544 (15,920)
Accounts payable and
accrued liabilities (3,973) (744) (36,842)
Other liabilities (12,004) (3,675) (4,835)
------- ------- -------
Net cash provided by
operating activities 210,417 205,112 211,075
Investing activities:
Property, plant and equipment (107,523) (131,533) (149,817)
Acquisition of business,
net of cash acquired (96,531) - (594,139)
Other 711 3,569 187
------- ------- -------
Net cash used in
investing activities (203,343) (127,964) (743,769)
Financing activities:
Issuance of debt 386,000 27,836 832,846
Payment on debt (280,292) (30,604) (241,336)
Purchase of treasury shares (54,117) (54,998) -
Payment of dividends (27,622) (30,262) (31,850)
Issuance of common shares 1,162 216 260
------- ------- -------
Net cash provided by (used in)
financing activities 25,131 (87,812) 559,920
Effects of exchange
rate changes on cash 1,246 (280) 1,935
-------- -------- --------
Changes in cash and
cash equivalents 33,451 (10,944) 29,161
Cash and cash equivalents
at beginning of year 19,459 52,910 41,966
-------- -------- --------
Cash and cash equivalents
at end of year $ 52,910 $ 41,966 $ 71,127
======== ======== ========
<FN>
See Notes to Financial Statements, pages 34 to 49.
</TABLE>
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands except per-share amounts)
SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. Newly
acquired businesses are included in the consolidated financial
statements from the dates of acquisition. All material intercompany
accounts and transactions have been eliminated. Certain amounts for
prior years have been reclassified to conform to 1999 presentations.
The equity method of accounting is followed for investments in 20
percent to 50 percent owned companies. The cost method is followed in
those situations where the Company's ownership is less than 20 percent
and the Company does not have the ability to exercise significant
influence over the affiliate.
The Company's investment in Nishikawa Standard Company (NISCO), a 50
percent owned joint venture in the United States, is accounted for under
the equity method. The Company's investment in NISCO at December 31,
1999 was $19,224 and is included in other assets in the accompanying
Consolidated Balance Sheet.
Cash and cash equivalents - The Company considers highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
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 or accelerated methods
over the following expected useful lives:
Buildings and improvements 15 to 50 years
Machinery and equipment 5 to 14 years
Furniture and fixtures 5 to 10 years
Molds, cores and rings 4 to 10 years
Goodwill and intangibles - Goodwill, which represents the excess of
purchase price over the fair value of net assets acquired, is amortized
over 30 years. Intangibles include trademarks, technology and
intellectual property which are amortized over their useful lives which
range from 15 years to 40 years. The Company evaluates the
recoverability of long-lived assets based on undiscounted projected cash
flows when factors indicate that an impairment may exist.
Earnings per common share - Net income per share is computed on the
basis of the weighted average number of common shares outstanding each
year, plus common stock equivalents related to dilutive stock options
and other dilutive stock units. The number of shares used in the
computation of per share data was 79,127,577 in 1997, 77,597,873 in 1998
and 75,837,168 in 1999. Diluted earnings per share includes the
dilutive effect of stock options and other stock units. The impact of
stock options and other stock units in the computation of diluted
earnings per share did not result in amounts different from basic
earnings per share.
Derivative financial instruments - Derivative financial instruments
are utilized by the Company to reduce foreign currency exchange and
<continued>
34
<PAGE>
interest rate risks. The Company has established policies and
procedures for risk assessment and the approval, reporting and
monitoring of derivative financial instrument activities. The Company
does not enter into financial instruments for trading or speculative
purposes.
Gains and losses on derivative financial instruments used to hedge
the currency fluctuations on transactions denominated in foreign
currencies and the offsetting losses and gains on hedged transactions
are recorded in other in the Consolidated Statements of Income.
Gains and losses on derivative financial instruments used to hedge a
portion of the Company's investment in foreign subsidiaries and the
offsetting losses and gains on the portion of the investment being
hedged are recorded in cumulative other comprehensive income in the
Consolidated Statements of Stockholders' Equity.
Gains and losses on derivative financial instruments used to hedge
interest rate risks are recorded in other on the Consolidated Statements
of Income.
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 1997, 1998 and 1999 was $22,375, $27,754 and
$31,748, respectively.
Stock-based compensation - The Company accounts for employee stock
option plans in accordance with Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees." Additional
disclosures required under SFAS No. 123, "Accounting for Stock-Based
Compensation," are included in the Stock-Based Compensation note.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting 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.
Revenue recognition - Revenues are recognized when goods are shipped
to customers.
Research and development - Costs are charged to expense as incurred
and amounted to approximately $21,700, $29,200 and $39,900 in 1997, 1998
and 1999, respectively.
Accounting pronouncements - In June 1998 the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The FASB has since issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." This
pronouncement amended SFAS No. 133 to defer its effective date to years
beginning after June 15, 2000. 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 effect on the Company's consolidated financial
position or results of operations.
In September 1999, the Emerging Issues Task Force reached a consensus
on Issue 99-5, "Accounting for Pre-Production Costs Related to Long-Term
Supply Arrangements." This issue addresses the accounting treatment for
pre-production costs incurred by original equipment manufacturers (OEM)
<continued>
35
<PAGE>
suppliers to perform certain services related to the design and
development of the parts they will supply the OEM as well as the design
and development costs to build molds, dies and other tools that will be
used in producing the parts. The Company does not anticipate adoption
of this consensus will have a material effect on its consolidated
financial position or results of operations.
Acquisition
On October 27, 1999, the Company acquired The Standard Products Company
("Standard") for consideration (including direct costs of the
acquisition) of approximately $594,139. In addition, the Company
retired approximately $195,000 of Standard's debt and assumed
approximately $75,000 of Standard's debt. With the completion of this
transaction, Standard became a wholly-owned subsidiary of the Company.
The acquisition was initially financed through short-term commercial
paper and credit agreement borrowings. On December 13, 1999, the
Company issued $800,000 of debt and used the proceeds to repay the
short-term borrowings (see Debt footnote).
Standard is a leading supplier of sealing, plastic trim and vibration
control systems for the worldwide automotive original equipment
industry. In addition, Standard's Holm Industries Inc. is the largest
supplier of seals for home and commercial refrigerators in North America
and Oliver Rubber Company is a leading manufacturer of tread rubber and
equipment for the retread industry.
The Standard acquisition is being accounted for as a purchase
transaction. The total purchase price has preliminarily been allocated
to the tangible and identifiable intangible assets and liabilities based
on estimates of their respective fair values. Final allocations will be
made when fixed asset and identifiable intangible asset valuations have
been completed. The excess purchase price over the estimated fair value
of the net assets acquired is allocated to goodwill. Goodwill is being
amortized on a straight-line basis over 30 years. The operating results
of Standard have been included in the consolidated financial statements
of the Company since the date of acquisition.
Prior to the acquisition, Standard recorded an accrual for employee
separation and other exit costs relating to a plan for the
reorganization and closing of manufacturing facilities in Europe. The
Company has evaluated this plan and determined that an additional
accrual of $5,000 is required. The closing of these facilities will
have minimal effect on the total production capacity of the Company. It
will, however, provide a better geographical match of capacity with the
needs of customers. The Company expects to complete the plan in 2000.
The plan estimates a workforce reduction of approximately 460 people,
of whom 134 have been removed from the workforce as of December 31,
1999. In certain European countries separation payments are prescribed
by statute. In addition, government approval is required for other
separation-related activities, such as outplacement and job training.
The present accrual is subject to adjustment based upon changes
resulting from these factors. The following summarizes activity in the
accrual account:
<TABLE>
<CAPTION>
Beginning Cash Remaining
Accrual Payments Accrual
--------- -------- ---------
<S> <C> <C> <C>
Employee separation costs $15,000 $ 900 $14,100
Other exit costs 2,900 100 2,800
------ ----- ------
Total $17,900 $1,000 $16,900
====== ===== ======
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
The purchase price and the preliminary allocation are as follows:
<S> <C>
Net working capital acquired, exclusive of debt $124,323
Property, plant and equipment 321,879
Other non-current assets 55,814
Goodwill 437,739
-------
939,755
Debt and other liabilities (345,616)
-------
Aggregate purchase price $594,139
=======
</TABLE>
The following unaudited pro forma consolidated results of operations
are presented as if the acquisition of Standard had occurred on January
1, 1998 and 1999, respectively. Adjustments are included to give effect
to amortization of goodwill, interest expense on acquisition debt (see
Debt footnote) and certain other adjustments, together with related
income tax effects.
<TABLE>
<CAPTION>
Year ended December 31, 1998
----------------------------
As Pro Forma
Reported As Adjusted
---------- -----------
<S> <C> <C>
Net sales $1,876,125 $2,956,770
Net earnings $126,967 $118,981
Earnings per share $1.64 $1.53
<CAPTION>
Year ended December 31, 1999
----------------------------
As Pro Forma
Reported As Adjusted
---------- -----------
<S> <C> <C>
Net sales $2,196,343 $3,120,329
Net earnings $135,474 $105,338
Earnings per share $1.79 $1.39
</TABLE>
The pro forma net earnings and earnings per share for the year ended
December 31, 1999 include a special charge recorded by Standard prior to
the acquisition in the amount of $15,300 net of taxes ($.20 per share).
The unaudited pro forma information is not necessarily indicative of
the results of operations that would have occurred had the purchase been
made at the beginning of the periods presented or the future results of
the combined operations.
Inventories
Under the LIFO method, inventories have been reduced by approximately
$47,897 and $44,783 at December 31, 1998 and 1999, respectively, from
current cost which would be reported under the first-in, first-out
method. Approximately 85 percent and 76 percent of the Company's
inventories have been valued under the LIFO method at December 31, 1998
and 1999, respectively.
37
<PAGE>
Debt
On September 1, 1999 the Company entered into a $350,000 credit
agreement with a group of six banks. The agreement provides up to
$150,000 in credit facilities until August 31, 2004 and $200,000 in
credit facilities until August 31, 2000 with provisions for extending
the agreements beyond these dates upon approval of the bank group. The
credit facility supports issuance of commercial paper. The loans may be
denominated in either U.S. Dollars or certain other currencies based
upon euro interest rates or the agent bank's base rate. Borrowings
under the agreement bear a margin linked to the Company's long-term
credit ratings from Moody's and Standard & Poor's. There are no
compensating balances required and the facility fees are not material.
On October 15, 1999 the Company entered into a second $350,000 credit
agreement with a group of five banks with a maturity of July 10, 2000.
The loans bear interest at euro interest rates or the agent bank's base
rate.
The Company established a $1,200,000 universal shelf registration on
November 15, 1999 of which $400,000 remains available at December 31,
1999. Securities that may be issued under this shelf registration
statement include debt securities, preferred stock, fractional interests
in preferred stock represented by depositary shares, common stock, and
warrants to purchase debt securities, common stock or preferred stock.
On December 13, 1999 the Company completed the public debt offerings
of (1) $225,000 aggregate principal amount of 7.25 percent Notes due
December 16, 2002; (2) $350,000 aggregate principal amount of 7.75
percent Notes due December 15, 2009; and (3) $225,000 aggregate
principal amount of 8 percent Notes due December 15, 2019. The Company
repaid $608,000 of commercial paper borrowings and $150,000 of Revolving
Credit borrowings with the proceeds received.
The 6.55 percent notes are placed directly with three insurance
companies and are unsecured. Principal payments of $12,500 are required
each December through 2003.
<TABLE>
The following table summarizes the long-term debt of the Company at
December 31, 1998 and 1999:
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
7.25% notes due 2002 $ - $ 225,000
7.75% notes due 2009 - 350,000
8% notes due 2019 - 225,000
7.625% notes due 2027 200,000 200,000
6.55% notes due 2003 - 50,000
Capitalized leases and other 5,534 10,356
------- ---------
205,534 1,060,356
Less current maturities 249 13,893
------- ---------
$205,285 $1,046,463
======= =========
</TABLE>
<continued>
38
<PAGE>
<TABLE>
<CAPTION>
The maturities of long-term debt through 2004 are as follows:
<S> <C>
2000 $ 13,893
2001 13,188
2002 238,077
2003 12,968
2004 378
</TABLE>
The Company's debt agreements require the Company to maintain, among
other things, certain financial ratios. Retained earnings of $261,980
at December 31, 1999 are available for the payment of cash dividends and
purchase of the Company's common shares, after giving effect to
amendments to the credit agreements and the issuances of commercial
paper subsequent to year-end (see Subsequent Event note).
The weighted average interest rate of notes payable at December 31,
1999 and 1998 was 5.1 percent and 4.4 percent, respectively.
The Company and its subsidiaries also have, from various banking
sources, approximately $68,000 of unused short-term lines of credit at
rates of interest approximating euro-based interest rates.
Interest paid on debt during 1997, 1998 and 1999 was $12,983,
$16,718, and $24,140, respectively. The amount of interest capitalized
was $1,628, $1,694, and $1,491 during 1997, 1998 and 1999, respectively.
Fair Value of Financial Instruments
The carrying amounts and fair values of the Company's financial
instruments as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Cash and cash
equivalents $ 41,966 $ 41,966 $ 71,127 $ 71,127
Notes payable (8,129) (8,129) (13,148) (13,148)
Long-term debt (205,285) (244,005) (1,046,463) (1,027,843)
Derivative financial
instruments - - 493 404
</TABLE>
The derivative financial instruments hedge foreign currency
denominated intercompany loans. Exchange rate fluctuations on the
foreign denominated intercompany loans are offset by the change in
values of the derivative financial instruments. The notional amount of
these derivative contracts at December 31, 1999 is $11,301. The
counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
Common Stock
There were 20,193,724 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, 1999.
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
<continued>
39
<PAGE>
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 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-Based Compensation
Stock Options
SFAS No. 123, "Accounting for Stock-Based Compensation" requires, if APB
No. 25 is followed, disclosure of pro forma information regarding net
income and earnings per share determined as if the Company accounted for
its employee stock options under the fair value method. The fair value
for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 6.1% 5.5% 5.6%
Dividend yield 1.0% 1.3% 1.5%
Expected volatility of the Company's
common stock .197 .251 .238
Expected life in years 6.2 5.0 6.3
</TABLE>
The weighted-average fair value of options granted in 1997, 1998 and
1999 was $7.52, $5.84, and $6.64, 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:
<continued>
40
<PAGE>
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income:
Reported $122,411 $126,967 $135,474
Pro forma 121,603 125,142 132,322
Basic earnings per share:
Reported $1.55 $1.64 $1.79
Pro forma 1.54 1.61 1.75
Diluted earnings per share:
Reported $1.55 $1.64 $1.79
Pro forma 1.54 1.61 1.74
</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, 1999 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, 1997
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
<continued>
41
<PAGE>
Granted 1,362,487 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
Granted 590,653 22.46
Exercised (18,294) 14.22
Cancelled (140,692) 21.82
December 31, 1999 3,435,977
Outstanding 2,491,601 21.34
Exercisable 792,098 21.61
</TABLE>
The weighted average remaining contractual life of options
outstanding at December 31, 1999 is 7.9 years.
Segregated disclosure of options outstanding at December 31, 1999 is
as follows:
<TABLE>
<CAPTION>
Range of Exercise Prices
----------------------------------
Less Equal to or
than $15.50 greater than $15.50
----------- -------------------
<S> <C> <C>
Options outstanding 89,100 2,402,501
Weighted average
exercise price $12.98 $21.65
Remaining contractual life 1.2 8.2
Options exercisable 89,100 702,998
Weighted average
exercise price $12.98 $22.70
</TABLE>
Restricted Stock Units
Under the 1998 Incentive Compensation Plan, restricted stock units may
be granted to officers and other key employees. Deferred compensation
related to the restricted stock units is determined based on the fair
value of the Company's stock on the date of grant and is amortized to
expense over the vesting period.
In 1999 the Company granted 49,210 restricted stock units with a
weighted average fair value of $16.50 per unit and vesting periods of
one to two years. The grants provide for accrual of dividend
equivalents. At December 31, 1999, 49,550 restricted stock units were
outstanding.
Pensions and Postretirement Benefits Other than Pensions
The Company and its consolidated subsidiaries have a number of plans
providing pension, retirement or profit-sharing benefits for
substantially all employees. These plans include defined benefit,
defined contribution and multi-employer plans. The Company has an
unfunded, nonqualified supplemental retirement plan covering certain
employees whose participation in the qualified plan is limited by
provisions of the Internal Revenue Code. For defined benefit plans,
benefits are generally based on compensation for salaried employees and
length of service for hourly
<continued>
42
<PAGE>
employees. The Company's general funding policy is to contribute
amounts deductible for U.S. federal income tax purposes or amounts as
required by local statute.
Participation in the Company's defined contribution plans is
voluntary and participants' contributions are limited based on their
compensation. The Company matches certain plan participants'
contributions up to various limits. Expense for these plans was $9,334,
$10,891 and $12,829 for 1997, 1998 and 1999, respectively.
The Company currently provides certain retiree health care and life
insurance benefits covering substantially all domestic salary and hourly
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 following tables disclose information related to the Company's
defined benefit plans and other postretirement benefits:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation
at January 1 $ 512,305 $ 591,436 $ 153,137 $ 183,017
Acquisition - 106,720 - 28,344
Service cost - employer 21,892 24,872 3,682 4,782
Service cost - participants 2,425 2,423 - -
Interest cost 38,681 43,668 12,227 14,104
Actuarial (loss) gain 35,335 (10,408) 23,086 16,979
Amendments 3,763 9,233 22 770
Benefits paid (23,386) (25,832) (9,137) (12,320)
Foreign currency exchange
rate (loss) gain 421 (5,333) - -
------- ------- ------- -------
Benefit obligation at
December 31 $ 591,436 $ 736,779 $ 183,017 $ 235,676
======== ======== ======== ========
Change in plans' assets:
Fair value of plans'
assets at January 1 $ 514,700 $ 572,380 $ - $ -
Acquisition - 100,590 - -
Actual return on
plans' assets 53,827 50,374 - -
Employer contributions 24,457 23,968 - -
Participant contributions 2,425 2,423 - -
Benefits paid (23,386) (25,832) - -
Foreign currency exchange
rate (loss) gain 357 (4,532) - -
-------- -------- -------- --------
Fair value of plans'
assets at December 31 $ 572,380 $ 719,371 $ - $ -
======== ======== ======== ========
Funded status of the plans $ (19,056) $ (17,408) $(183,017) $(235,676)
Unrecognized actuarial
loss/(gain) 43,255 37,731 22,022 38,741
<continued>
43
<PAGE>
Unrecognized prior service
cost 10,045 12,998 445 819
Unrecognized net transition
obligation 4,636 3,549 - -
Adjustment for minimum
liability (30,566) (15,007) - -
-------- -------- -------- --------
Net amount recognized $ 8,314 $ 21,863 $(160,550) $(196,116)
======== ======== ======== ========
Amounts recognized in the balance sheets:
Prepaid expenses and
deferred income taxes $ (6,794)$ (8,898) $ - $ -
Intangibles and other
assets 34,781 47,253 - -
Accrued liabilities - (1,396) (9,030) (14,789)
Postretirement benefits
other than pensions - - (151,520) (181,327)
Other long-term liabilities (7,325) (8,310) - -
Accumulated other
comprehensive income (12,348) (6,786) - -
-------- -------- -------- --------
Net amount recognized $ 8,314 $ 21,863 $(160,550) $(196,116)
======== ======== ======== ========
<CAPTION>
Assumptions as of December 31: 1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate 7.0% 7.5% 7.5% 7.5%
Expected return on
plan assets - (weighted average) 9.4 9.6 - -
Rate of compensation
increase - (weighted average) 5.1 5.3 - -
</TABLE>
At December 31, 1999 the weighted average assumed annual rate of
increase in the cost of health care benefits (health care cost trend
rate) was 7.6 percent for 2000, gradually declining to 5.5 percent in
2005 and to remain at that level thereafter.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------ -----------------------
1997 1998 1999 1997 1998 1999
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of net
periodic benefit cost:
Service cost $16,668 $21,892 $24,872 $ 3,465 $ 3,682 $ 4,782
Interest cost 32,716 38,681 43,668 11,468 12,227 14,104
Expected return on
plan assets (39,623) (49,453) (56,251) - - -
Amortization of
transition
obligation 1,088 1,087 1,088 - - -
Amortization of prior
service cost 3,463 4,383 5,357 - 212 396
Recognized actuarial
loss (gain) 1,855 1,951 3,410 - - 244
------ ------ ------ ------ ------ ------
Net periodic benefit
cost $16,167 $18,541 $22,144 $14,933 $16,121 $19,526
====== ====== ====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for the pension plans with accumulated
<continued>
44
<PAGE>
benefit obligations in excess of plan assets were $165,173, $162,135 and
$144,114, respectively, at December 31, 1998 and $87,656, $85,989 and
$69,233, respectively, as of December 31, 1999.
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>
One
Percentage Point
----------------------
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total service and interest
cost components $ 327 $ (285)
Effect on the postretirement benefit
obligation (5,656) 4,952
</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 $14,323 in 1999.
Income Taxes
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $53,946 $60,650 $68,678
State and local 6,310 7,128 8,171
Foreign (1,376) (1,730) 2,938
------ ------ ------
58,880 66,048 79,787
Deferred:
Federal 11,738 4,654 (1,082)
State and local 1,763 548 1,287
Foreign - - 31
------ ------ ------
13,501 5,202 236
------ ------ ------
$72,381 $71,250 $80,023
====== ====== ======
</TABLE>
<TABLE>
A reconciliation of income tax expense to the U.S. statutory rate is
as follows:
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State and local income tax 2.7 2.5 2.8
Other (0.5) (1.6) (0.7)
---- ---- ----
Effective income tax rate 37.2% 35.9% 37.1%
==== ==== ====
</TABLE>
<continued>
<PAGE> 45
Payments for income taxes in 1997, 1998 and 1999 were $55,610,
$69,653 and $77,961, respectively.
Deferred tax assets (liabilities) result from differences in the
basis of assets and liabilities for tax and financial statement
purposes. Significant components of the Company's deferred tax assets
and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Employee benefits $ 73,910 $ 87,648
Net operating loss and tax
credit carryforwards - 18,341
All other items 12,631 23,309
--------- --------
Total deferred tax assets $ 86,541 $ 129,298
Deferred tax liabilities:
Excess depreciation and
amortization $(108,289) $(125,113)
Employee benefits (20,833) (22,961)
All other items (19,960) (39,911)
-------- --------
Total deferred tax liabilities (149,082) (187,985)
-------- --------
$ (62,541) $ (58,687)
Valuation allowance - (18,341)
--------- --------
Net deferred tax liabilities $ 62,541 $ 77,028
</TABLE>
Deferred tax assets, net of the valuation allowance, are included in
prepaid expenses and deferred taxes and in other assets in the
accompanying Consolidated Balance Sheets.
The Company has not provided deferred U. S. income taxes on
approximately $160,000 of undistributed earnings of international
affiliates which have been reinvested indefinitely. It is not
practicable to determine the amount of additional U.S. income taxes that
could be payable upon remittance of these earnings since taxes payable
would be reduced by foreign tax credits based upon income tax laws and
circumstances at the time of distribution.
The Company has recorded a valuation allowance to reflect the
estimated potential tax benefits which may not be realized principally
due to the inability of certain of its foreign subsidiaries to utilize
available net operating loss carryforwards of approximately $28,400.
The Company's net operating loss carryforwards expire in years 2000
through 2014.
Commitments and Contingent Liabilities
The Company and its consolidated subsidiaries are subject to various
claims and legal proceedings covering a wide range of matters that arise
in the ordinary course of business. Management and its legal counsel
periodically review the probable outcome of pending claims and
proceedings, the costs and expenses reasonably expected to be incurred,
the availability and limits of the Company's insurance coverage, and the
Company's accruals for uninsured liabilities. While the ultimate legal
and financial liability in respect to the claims and proceedings cannot
be estimated with certainty, management believes, based on its reviews
<continued>
46
<PAGE>
and experience to date, that any liability which may ultimately be
incurred will not have a material effect on the Company's consolidated
financial statements.
Other Comprehensive Loss
The cumulative balances of each component of other comprehensive loss in
the accompanying statements of stockholders' equity are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cumulative currency
translation adjustment $ 2,448 $ 2,481 $ 793
Minimum pension
liability, net of
tax effect (4,753) (12,348) (6,846)
------ ------- ------
$(2,305) $ (9,867) $(6,053)
====== ======= ======
</TABLE>
Business Segments
The Company has two reportable segments - Tire and Automotive. The
Company's reportable segments are each managed separately because they
offer different products requiring different marketing and distribution
strategies.
The Tire segment produces 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 and supplies equipment and materials to the
tread rubber industry. The Tire segment consists of North American
Operations, Cooper-Avon Tyres and Oliver Rubber Company.
The Automotive segment produces sealing systems, hose and hose
assemblies, active and passive vibration control systems and exterior
trim products primarily for the global automotive original equipment
manufacturers. The automotive segment consists of the Global Sealing
Division, the Noise, Vibration and Harshness (NVH) Control Systems
Division, and the Plastics Division.
Separate financial results are available for each of the operating
groups within Tire and Automotive and are regularly reviewed by the
Chief Operating Officer for purposes of assessing performance and
allocating resources. The Global Sealing Division and the NVH Control
Systems Division have been aggregated into the Automotive reportable
segment and the tire related operating divisions have been aggregated
into the Tire reportable segment, because the divisions exhibit similar
economic characteristics, have similar production processes, offer
similar products to the same customer base, and distribute their
products in essentially the same manner. The Plastics Division has been
aggregated with the Automotive Segment because it does not meet
quantitative thresholds for separate reporting and shares a majority of
the aggregation criteria with the Automotive Segment.
The Fluid Systems Division, established in January 2000 (see
Subsequent Event note), will also be aggregated with the Automotive
Segment.
Tire revenues derived from one customer approximated $224,000 or 12
percent of consolidated net sales in 1997.
<continued>
47
<PAGE>
The accounting policies of the reportable segments are consistent
with those described in the Significant Accounting Policies note to the
financial statements. Corporate administrative expenses are allocated
to segments based principally on assets, employees and sales. In 1999
the Company redefined its measurement of segment profit to exclude
interest expense and foreign currency gains/losses. Segment information
for 1998 and 1997 has been restated to reflect the change in
measurement. The following table presents financial information:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
FINANCIAL
Revenues
Tire $1,443,293 $1,444,334 $1,557,110
Automotive 369,712 431,791 643,642
Eliminations and Other - - (4,409)
--------- --------- ---------
Consolidated 1,813,005 1,876,125 2,196,343
Segment profit
Tire 163,070 155,242 176,389
Automotive 45,608 54,293 62,691
--------- --------- ---------
Operating profit 208,678 209,535 239,080
Other 1,769 3,906 862
Interest expense (15,655) (15,224) (24,445)
--------- --------- ---------
Income before income taxes 194,792 198,217 215,497
Depreciation and amortization
expense
Tire 84,620 90,537 100,120
Automotive 10,875 12,660 25,457
--------- --------- ---------
Consolidated 95,495 103,197 125,577
Segment assets
Tire 1,179,744 1,211,819 1,391,340
Automotive 222,902 238,467 1,235,966
Corporate and other 93,310 90,989 130,339
--------- --------- ---------
Consolidated 1,495,956 1,541,275 2,757,645
Expenditures for long-lived assets
Tire 79,956 95,526 111,384
Automotive 27,567 36,007 38,433
--------- --------- ---------
Consolidated 107,523 131,533 149,817
Geographic information for revenues, based on country of origin, and
long-lived assets follows:
1997 1998 1999
---------- ---------- ----------
GEOGRAPHIC
Revenues
North America 1,697,513 1,718,925 1,995,197
Europe 115,492 157,200 199,397
Other - - 1,749
--------- --------- ---------
Consolidated 1,813,005 1,876,125 2,196,343
<continued>
48
<PAGE>
Long-lived assets
United States 794,766 800,094 952,063
England 61,092 71,774 122,474
Other 4,590 13,414 152,532
--------- --------- ---------
Consolidated 860,448 885,282 1,227,069
</TABLE>
Sales from the U. S. amounted to $1,558,611, $1,594,352 and
$1,930,436 in 1997, 1998 and 1999, respectively. Shipments of
domestically-produced products to customers outside the U. S.
approximated eight, seven, and eight percent of net sales in 1997, 1998
and 1999 respectively.
Accrued Liabilities
<TABLE>
Accrued liabilities at December 31 were as follows:
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Payroll $33,382 $ 55,882
Real and personal property taxes 10,701 16,460
Other 43,191 115,696
------ -------
$87,274 $188,038
====== =======
</TABLE>
Subsequent Event
The Company completed its acquisition of Siebe Automotive ("Siebe"), the
automotive fluid handling division of Invensys plc, on January 28, 2000
for a price of $244,500. Siebe's annual sales approximate $400,000.
Siebe is headquartered in Southfield, Michigan and manufactures
automotive fluid handling systems, components, modules and sub-systems
for sale to the world's automotive original equipment manufacturers and
large Tier 1 suppliers. The purchase includes the operating assets of
Siebe Automotive, with 16 operating locations extending across North and
South America, Europe and Australia.
The Company financed the acquisition by issuing commercial paper.
49
<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 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 1999, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
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 8, 2000
50
<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 73,748 83,403 79,771 93,443
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 $330,326 $347,544 $389,237 $377,227
Automotive 107,232 114,196 91,379 118,984
------- ------- ------- -------
Net sales $437,558 $461,740 $480,616 $496,211
======= ======= ======= =======
Segment Profit:
Tire $32,690 $36,499 $42,260 $43,793
Automotive 12,547 18,451 6,880 16,415
------ ------ ------ ------
45,237 54,950 49,140 60,208
Other (2,931) (3,222) (3,049) (2,116)
------ ------ ------ ------
Income before income taxes $42,306 $51,728 $46,091 $58,092
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1999
-------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $467,887 $495,352 $531,883 $701,221
Gross profit 85,394 97,336 91,537 111,552
Net income 31,391 37,956 34,600 31,527
Basic and diluted earnings
per share .41 .50 .46 .42
Dividend per share .105 .105 .105 .105
Stock price - high 22 1/8 25 24 7/16 18 1/2
low 18 5/16 18 1/4 16 1/8 13 1/4
Revenues from external customers:
Tire $352,062 $368,410 $424,310 $412,328
Automotive 115,825 126,942 107,573 293,302
Eliminations - - - (4,409)
------- ------- ------- -------
Net sales $467,887 $495,352 $531,883 $701,221
======= ======= ======= =======
Segment Profit:
Tire $37,197 $46,124 $47,960 $45,108
Automotive 16,105 17,418 9,419 19,749
------ ------ ------ ------
53,302 63,542 57,379 64,857
<continued>
51
<PAGE>
Other (3,678) (3,945) (3,510) (12,450)
------ ------ ------ ------
Income before income taxes $49,624 $59,597 $53,869 $52,407
====== ====== ====== ======
</TABLE>
The common stock of the Company (CTB) is traded on the New York Stock
Exchange.
52
<PAGE>
<TABLE>
COOPER TIRE & RUBBER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1998 and 1999
<CAPTION>
Additions
Balance at ---------------------- Balance
Beginning Charged Business Deductions at End
of Year To Income Acquisition (a) of Year
--------- --------- ----------- ---------- -------
Allowance for
doubtful
accounts:
<S> <C> <C> <C> <C> <C>
1997 $3,700,000 $ 853,559 $1,835,000 $1,597,559 $4,791,000
========= ========= ========= ========= =========
1998 $4,791,000 $2,029,181 $ - $2,014,181 $4,806,000
========= ========= ========= ========= =========
1999 $4,806,000 $1,526,904 $3,784,000 $ 797,904 $9,319,000
========= ========= ========= ========= =========
<FN>
(a) Accounts charged off during the year, net of recoveries of accounts
previously charged off.
</TABLE>
53
<PAGE>
Exhibit (10)(v)
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of February 8, 2000, between COOPER TIRE &
RUBBER COMPANY, a Delaware corporation with its principal offices
located at 701 Lima Avenue, Findlay, Ohio, (the "Company"), and Roderick
F. Millhof, 8918 Connemarro Ct., Fort Wayne, Indiana 46835
("Executive").
WITNESSETH:
WHEREAS, the Executive has been employed by the Company in the
capacity of Vice President and President, Global Sealing Division,
Cooper-Standard Automotive, commencing on the date hereof;
WHEREAS, the Company desires to retain the services of the
Executive in the future; and
WHEREAS, the Executive desires to serve in the capacity of Vice
President and President, Global Sealing Division, Cooper-Standard
Automotive, pursuant to the terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment and Duties.
(a) General. The Company hereby employs Executive and
Executive agrees upon the terms and conditions herein set forth to serve
as President, Global Sealing Division of the Company, and in such
capacity, shall perform such duties as may be delineated in the by-laws
of the Company, and such other duties, commensurate with Executive's
title and position of Vice President and President, Global Sealing
Division, Cooper-Standard Automotive, as may be assigned to Executive
from time to time by the Board of Directors of the Company (the "Board")
or such officer of the Company as may be designated by the Board. If
elected, Executive will serve as a member of the Board or on committees
of the Board.
(b) Exclusive Services. Throughout the Period (as defined in
paragraph 2 below), Executive shall, except as may from time to time be
otherwise agreed in writing by the Company and during reasonable
vacations and unless prevented by ill health, devote his full-time and
undivided attention during normal business hours to the business and
affairs of the Company consistent with his senior executive position,
shall in all respects conform to and comply with the lawful and
reasonable directions and instructions given to him by the Board or such
officer of the Company as may be designated by the Board, and shall use
his best efforts to promote and serve the interests of the Company.
(c) Restrictions on Other Employment. Throughout the Period
and provided that such activities do not contravene the provisions of
subparagraph 1(b) hereof or paragraph 5 hereof:
(i) Executive may engage in charitable and community
affairs;
(ii) Executive may perform inconsequential services
without specific compensation therefor in connection with the management
of personal investments; and,
<continued>
54
<PAGE>
(iii) Executive may, directly or indirectly, render
services to any other person or organization (including service as a
member of the Board of Directors of any other unaffiliated company), for
which he receives compensation, that is not in competition with the
Company, subject in each case to the approval of the Board. Executive
may retain all fees he receives for such services, and the Company shall
not reduce his compensation by the amount of such fees. For purposes of
this subparagraph 1(c)(iii) competition shall have the same meaning as
intended for the purposes of paragraph 5.
2. Term of Employment. Subject to the provisions of paragraph 4.
hereof, the Company shall retain Executive and Executive shall serve in
the employ of the Company for a period (the "Period") commencing on the
date hereof and continuing in effect through December 31, 2003;
provided, however, that commencing on January 1, 2001, and each January
1 thereafter until the year in which Executive's 62nd birthday occurs,
the Period shall automatically be extended for one additional year
unless, no later than September 30 of the preceding year, the Company or
Executive shall have given notice to the other that it does not wish to
extend this Agreement.
3. Compensation and Other Benefits. Subject to the provisions of
this Agreement, the Company shall pay and provide the following
compensation and other benefits to Executive during the Period as
compensation for services rendered hereunder:
(a) Base Salary. The Company shall pay to Executive an annual
base salary, as defined in the Company's Top Management Compensation
Plan adopted by the Board on April 28, 1973 (the "Compensation Plan"),
at the rate of $320,000 per annum, payable biweekly. The Company shall
be entitled to deduct or withhold all taxes and charges which the
Company may be required to deduct or withhold therefrom. The base
salary will be reviewed not less than annually by the Board or by the
Audit and Compensation Committee of the Board and may be increased, but
not decreased.
(b) Employee Benefit Plans. At all times during the Period,
Executive shall be provided the opportunity to participate in such
pension and welfare plans, programs and arrangements (the "Plans") as
are generally made available to executives of the Company. Unless
otherwise required by law, the Plans, when considered as a whole, will
provide for benefits to Executive no less favorable than those currently
provided.
(c) Incentive Compensation. The Company shall pay to
Executive annual incentive compensation under the system established by
the Compensation Plan.
4. Termination of Employment.
(a) Termination for Cause; Resignation Without Good Reason.
(i) If, prior to the expiration of the Period,
Executive's employment is terminated by the Company for Cause, as
defined in subparaqraph 4(a)(ii), or if Executive resigns from his
employment hereunder without Good Reason, as defined in subparagraph
4(b)(vii) hereof, Executive shall not be eligible to receive base salary
under subparagraph 3(a) or to participate in any Plans under
subparagraph 3(b) with respect to future periods after the date of such
termination or resignation except for the right to receive vested
benefits under any Plan in accordance with the terms of such Plan.
However, Executive shall be eligible to receive a pro rata portion of
any incentive compensation for the Company's fiscal year during which
the date of termination or resignation occurs, but not for any later
years.
<continued>
55
<PAGE>
(ii) Termination for "Cause" shall mean termination of
Executive's employment with the Company by the Board because of:
(A) any act or omission constituting a material
breach by Executive of any of his significant obligations or agreements
under this Agreement or the continued failure or refusal of Executive to
adequately perform the duties reasonably required hereunder which is
materially injurious to the financial condition or business reputation
of, or is otherwise materially injurious to, the Company or any
affiliate thereof, after notification by the Board of such breach,
failure or refusal and failure of Executive to correct such breach,
failure or refusal within thirty (30) days of such notification (other
than by reason of the incapacity of Executive due to physical or mental
illness), or
(B) the commission by and conviction of Executive
of a felony, or the perpetration by and criminal conviction of or civil
verdict finding Executive committed a dishonest act or common law fraud
against the Company or any affiliate thereof (for the avoidance of
doubt, conviction and civil verdict, in each case, shall mean when no
further appeals may be taken by Executive from such conviction or civil
verdict and such conviction or civil verdict becomes final and binding
upon Executive with no further right of appeal), or
(C) any other willful act or omission which is
materially injurious to the financial condition or business reputation
of, or is otherwise materially injurious to, the Company or any
affiliate thereof, and failure of Executive to correct such act or
omission after notification by the Board of any such act or omission.
Any notification to be given by the Board in accordance with clause (A)
or (C) of the preceding sentence shall specifically identify the breach,
failure, refusal, act or omission to which the notification relates and,
in the case of clauses (A) and (C), shall describe the injury to the
Company, and such notification must be given within twelve (12) months
of the Board becoming aware, or within twelve (12) months of when the
Board should have reasonably become aware of the breach, failure,
refusal, act, or omission identified in the notification.
Notwithstanding paragraph 8, failure to notify Executive within any such
twelve (12) month period shall be deemed to be a waiver by the Board of
any such breach, failure, refusal, act or omission by Executive and any
such breach, failure, refusal, act or omission by Executive shall not
then be determined to be a breach of this Agreement.
For the avoidance of doubt and for the purpose of determining Cause
pursuant to this subparagraph 4(a)(ii), the exercise of business
judgment by Executive shall not be determined to be Cause under this
subparagraph 4(a)(ii), even if such business judgment materially injures
the financial condition or business reputation of, or is otherwise
materially injurious to the Company or any affiliate thereof, unless
such business judgment by Executive was not made in good faith, or
constitutes wilful or wanton misconduct, or was an intentional violation
of state or federal law.
(iii) The date of termination of employment by the
Company under this subparagraph 4(a) shall be the date specified in a
written notice of termination (which date shall be no earlier than the
date of furnishing such notice), or if no such date is specified
therein, the date of receipt by Executive of such written notice of
termination. The date of resignation under this subparagraph 4(a) shall
be two weeks after receipt by the Company of written notice of
resignation.
(b) Termination Without Cause; Resignation for Good Reason.
<continued>
56
<PAGE>
(i) Subject to the provisions of subparagraph 4(b)(iii)
and subparagraph 4(b)(vi), if, prior to the expiration of the Period,
Executive's employment is terminated by the Company without Cause or if
Executive resigns from his employment hereunder for Good Reason as
defined in subparagraph 4(b)(vii) hereof, Executive shall be entitled to
receive as "Severance Benefits" biweekly payments at the rate of his
average compensation for the remainder of the Period. As used in this
subparagraph, "average compensation" means Executive's average annual
compensation, including any incentive compensation, during
the five (5) years prior to the year in which such termination or such
resignation occurs.
(ii) If Severance Benefits become payable to Executive
under subparagraph 4(b)(i),the Company shall, in addition to paying
Severance Benefits, pay or provide to Executive the payments and
benefits described below:
(A) The Company shall pay to Executive all legal
fees and expenses incurred by him as a result of or in connection with
his termination or resignation (including all such fees and expenses, if
any, incurred in contesting or disputing any termination or in seeking
to obtain or enforce any right or benefit provided by this Agreement).
(B) For the remainder of the Period after such
termination or such resignation, the Company shall arrange to provide
Executive with life, accident and health insurance benefits
substantially similar to those to which he was entitled immediately
prior to the termination or resignation. Benefits otherwise receivable
by Executive pursuant to this subparagraph 4(b)(ii)(B) shall be reduced
to the extent comparable benefits are actually received by Executive
during the remainder of the Period following his termination or
resignation, and any such benefits actually received by Executive shall
be reported to the Company.
(C) In addition to the pension benefits to which
Executive is entitled under the Company's Salaried Employees' Retirement
Plan and the Company's Nonqualified Supplementary Benefit Plan or any
successor plans thereto which provide comparable benefits (the
"Retirement Plans"), the Company shall pay Executive in one sum in cash
within thirty (30) days following the date of termination or
resignation, a lump sum equal to the actuarial equivalent of the excess
of (1) the retirement pension (determined as a straight life annuity
commencing at age sixty-five (65)) which he would have accrued under the
terms of the Retirement Plans (without regard to any amendment to such
Retirement Plans or other pension benefit program described in
subparagraph 4(b)(vii)(C) hereof), determined as if Executive were fully
vested thereunder and had accumulated (after the date of termination or
resignation) twenty-four (24) additional months (or, if greater, the
number of months remaining in the Period) of service credit thereunder
at his highest annual rate of compensation during the twelve (12) months
immediately preceding the date of termination or resignation (but in no
event shall Executive be deemed to have accumulated additional months of
service credit after his sixty-fifth (65th) birthday), over (2) the
retirement pension (determined as a straight life annuity commencing at
age sixty-five (65)) which Executive had then accrued pursuant to the
provisions of the Retirement Plans. For purposes of this subsection,
"actuarial equivalent" shall be determined using the same methods and
assumptions utilized under the Retirement Plans.
(D) Within thirty (30) days after termination of
Executive's employment described in subparagraph 4(b)(i) above, the
Company shall pay to Executive in cash an amount equal to the aggregate
of the difference between the exercise price of each stock option
granted to Executive prior to the date of such termination, and the fair
<continued>
57
<PAGE>
market value of the Company's stock subject to the related option,
determined as of the date of such termination. Such cash payment shall
be deemed to be in lieu of and in substitution for any right Executive
may have to exercise such stock option or a related stock appreciation
right under the terms of the relevant stock option plan describing such
rights, and Executive agrees to surrender all stock options and related
stock appreciation rights being cashed out hereunder prior to receiving
the cash payment described above.
(iii) If, following a termination of employment without
Cause or resignation for Good Reason, Executive breaches the provisions
of paragraph 5 hereof, Executive shall not be eligible, as of the date
of such breach, for the payment of Severance Benefits as provided in
subparagraph 4(b)(i) and all obligations and agreements of the Company
to pay such Severance Benefits shall thereupon cease.
(iv) The date of termination of employment by the
Company under this subparagraph 4(b) shall be the date specified in a
written notice of termination to Executive (which date shall be no
earlier than the date of furnishing such notice) or, if no such date is
specified therein, the date on which such notice is given to Executive.
The date of resignation by Executive under this subparagraph 4(b) shall
be two (2) weeks after the receipt by the Company of written notice of
resignation.
(v) Severance Benefits shall be paid in equal
installments commencing within thirty (30) days following the date of
the termination or resignation under subparagraph 4(b).
(vi) In the event that the Severance Benefits would not
be deductible in whole or in part in the calculation of Federal income
tax owed by the Company or any of its affiliates or any other person or
entity making such payment or providing such benefit by reason of
Section 280G of the Internal Revenue Code of 1986, as amended, (the
"Code"), the Severance Benefits shall be reduced until no portion of the
Severance Benefits is not deductible by reason of Section 280G of the
Code; provided, however, that the foregoing reduction shall be made only
if and to the extent that such reduction would result in an increase in
the aggregate payment and benefits to be provided to Executive,
determined on an after-tax basis (taking into account the excise tax
imposed pursuant to Section 4999 of the Code, or any successor provision
thereto, any tax imposed by any comparable provision of state law, and
any applicable federal, state and local income or other taxes).
(vii) Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, without Executive's express, prior written consent,
any of the following:
(A) a material breach by the Company of paragraph
1 or paragraph 3 of this Agreement, including but not limited to, the
assignment to Executive of any duties inconsistent with his status as
Vice President and President, Global Sealing Division, Cooper-Standard
Automotive, or his removal from such position, or a substantial
alteration in the nature or status of his responsibilities from those
described herein, except, in each case, in connection with a promotion
of Executive, and the failure of the Company to remedy such breach
within thirty (30) days after receipt of written notice of such breach
from Executive;
(B) the relocation of the office of the Company
where Executive is employed to a location other than Dearborn, Michigan,
except for required travel on the Company's business to an extent
reasonably required to perform his duties hereunder;
<continued>
58
<PAGE>
(C) except as required by law, the failure by the
Company to continue to provide Executive with benefits at least as
favorable as those provided to him under the Plans, the taking of any
action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive Executive of any material fringe
benefits enjoyed by him or the failure by the Company to provide
Executive with the number of paid vacation days to which he is entitled
on the basis of years of service with the Company in accordance with the
Company's normal vacation policy in effect at the date of this
Agreement; or
(D) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree to perform
this Agreement, as contemplated in paragraph 6 hereof or, if the
business of the Company for which Executive's services are principally
performed is sold, the purchaser of such business shall fail to agree to
assume this Agreement or to provide Executive with the same or a
comparable position, duties, benefits, and base salary and incentive
compensation as provided in paragraph 3 of this Agreement.
(E) Voluntary termination by Executive for any
reason, or without reason, during a period of three hundred sixty-five
(365) days from the date a change of control of the Company has
occurred. "Change of control", as used herein, shall mean when any
person (as a person is defined in Section 13d-3 of the Securities
Exchange Act of 1934, as amended,) through or as a result of a merger,
consolidation or other business combination, tender or exchange offer,
open market purchases, privately negotiated purchases, or otherwise, has
become the beneficial owner (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or indirectly
without the express approval of the Board, of at least 50% of the
capital stock of the Company entitled to vote for the election of
directors of the Company.
(c) Termination by Death. If Executive dies prior to the
expiration of the Period, his beneficiary or estate shall be entitled to
receive (i) for a period of 90 days beginning on the date of Executive's
death a biweekly amount equal to the biweekly amount paid to Executive
by the Company for the payroll, period immediately prior to his death,
and (ii) any pro rata portion of Executive's incentive compensation for
the fiscal year in which Executive's death occurs.
(d) Termination by Disability. If, prior to the expiration of
the Period, Executive becomes Disabled (as defined below), the Company
or Executive shall be entitled to terminate his employment, and
Executive shall be entitled to all available benefits under the Plans,
including any pro rata portion of Executive's incentive compensation for
the fiscal year in which Executive's disability occurs.
Executive shall be deemed "Disabled" for purposes of this Agreement
when, and only when, he has been totally disabled by bodily injury or
disease so as to prevent him from being physically able to perform the
job duties as required under this Agreement, and such total disability
shall have continued for five (5) consecutive months, and, in the
opinion of a qualified physician selected by the Company, such
disability will presumably be permanent and continuous during the
remainder of Executive's life.
(e) Termination by Retirement. If, prior to the expiration of
the Period, Executive voluntarily elects to retire under the Company's
Salaried Employees' Retirement Plan, Executive's employment will be
terminated as of the date of such retirement.
<continued>
59
<PAGE>
(f) Mitigation. Nothing in this Agreement shall be construed
to require Executive to mitigate his damages upon termination of
employment without Cause or resignation for Good Reason.
5. Secrecy and Noncompetition.
(a) No Competing Employment. For so long as Executive is
employed by the Company and continuing for two (2) years after the
termination of such employment for any reason other than pursuant to
subparagraph 4(b)(i) or (vii) hereof (such period being referred to
hereinafter as the "Restricted Period"), Executive shall not, unless he
receives the prior written consent of the Board, directly or indirectly,
whether as owner, consultant, employee, partner, venturer, agent,
through stock ownership (except ownership of less than one percent
(1.0%) of the number of shares outstanding of any securities which are
publicly traded), investment of capital, lending of money or property,
rendering of services, or otherwise, compete with any of the businesses
engaged in by the Company or any subsidiary, affiliate or predecessor of
the Company ("Affiliate") at the time of the termination of Executive's
employment hereunder (such businesses are herein after referred to as
the "Business"), or assist, become interested in or be connected with
any Corporation, firm, partnership, joint venture, sole proprietorship
or other entity which so competes with the Business. The restrictions
imposed by this subparagraph shall not apply to any geographic area in
which neither the Company nor any Affiliate is engaged in the Business.
(b) No Interference. During the Restricted Period, Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business
organization or entity (other than the Company), intentionally solicit,
endeavor to entice away from the Company or any Affiliate or otherwise
interfere with the relationship of the Company or any Affiliate with,
any person who is employed by or associated with the Company or any
Affiliate (including, but not limited to, any independent sales
representatives or organizations) or any person or entity who is, or was
within the then most recent 12-month period, a customer or client of the
Company or any Affiliate.
(c) Secrecy. Executive recognizes that the services to be
performed by him hereunder are special, unique and extraordinary in
that, by reason of his employment hereunder and his past employment with
the Company, he may acquire or has acquired confidential information and
trade secrets concerning the operation of the Company or any Affiliate,
the use or disclosure of which could cause the Company substantial loss
and damages which could not be readily calculated and for which no
remedy at law would be adequate. Accordingly, Executive covenants and
agrees with the Company that he will not at any time, except in
performance of Executive's obligations to the Company hereunder or with
the prior written consent of the Board, directly or indirectly, disclose
any secret or confidential information that he may learn or has learned
by reason of his association with the Company or any Affiliate, or use
any such information to the detriment of the Company or any Affiliate.
The term "confidential information", includes, without limitation,
information not previously disclosed to the public or to the trade by
the Company's management with respect to the Company's or any
Affiliate's products, manufacturing processes, facilities and methods,
research and development, trade secrets, know-how and other intellectual
property, systems, procedures, manuals, confidential reports, product
price lists, customer lists, marketing plans or strategies, financial
information (including the revenues, costs or profits associated with
the Company's or any Affiliate's products), business plans, prospects or
opportunities. Executive understands and agrees that the rights and
obligations set forth in this subparagraph 5(c) are perpetual and, in
any case, shall extend beyond the Restricted Period and Executive's
employment hereunder.
<continued>
60
<PAGE>
(d) Exclusive Property. Executive confirms that all
confidential information is and shall remain the exclusive property of
the Company. All business records, papers and documents kept or made by
Executive relating to the business of the Company shall be and remain
the property of the Company. Upon the termination of his employment
with the Company or upon the request of the Company at anytime,
Executive shall promptly deliver to the Company, and shall not, without
the consent of the Board (which consent shall not be unreasonably
withheld), retain copies of, any written materials not previously made
available to the public, records and documents made by Executive or
coming into his possession concerning the business or affairs of the
Company excluding records relating exclusively to the terms and
conditions of his employment relationship with the Company. Executive
understands and agrees that the rights and obligations set forth in this
subparagraph 5(d) are perpetual and, in any case, shall extend beyond
the restricted Period and Executive's employment hereunder.
(e) Stock Ownership. Other than as specified in subparagraph
1(c) or 5(a) hereof, nothing in this Agreement shall prohibit Executive
from acquiring or holding any issue of stock or securities of any
company or other business entity.
(f) Injunctive Relief. Without intending to limit the
remedies available to the Company, executive acknowledges that a breach
of any of the covenants contained in this paragraph 5 may result in
material irreparable injury to the Company for which there is no
adequate remedy at law, that it will not be possible to measure damages
for such injuries precisely and that, in the event of such a breach or
threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction
restraining Executive from engaging in activities prohibited by this
paragraph 5 or such other relief as may be required to specifically
enforce any of the covenants in this paragraph 5.
(g) Extension of Restricted Period. In addition to the
remedies the Company may seek and obtain pursuant to subparagraph (f) of
this paragraph 5, the Restricted Period shall be extended by any and all
periods during which Executive shall be found by a court possessing
personal jurisdiction over him to have been in violation of the
covenants contained in this paragraph 5.
6. Successors; Assignability.
(a) By Executive. Neither this Agreement nor any right, duty,
obligation or interest hereunder shall be assignable or delegable by
Executive without the Company's prior written consent; provided,
however, that nothing in this paragraph shall preclude Executive from
designating any of his beneficiaries to receive any benefits payable
hereunder upon his death, or the executors, administrators, or other
legalrepresentatives, from assigning any rights hereunder to the person
or persons entitled thereto.
(b) By the Company. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure
of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement
and shall entitle Executive to compensation from the Company in the same
amount and on the same terms as Executive would be entitled to hereunder
if Executive had terminated his employment for Good Reason, except that
for purposes of implementing the foregoing, the date on which any such
<continued>
61
<PAGE>
succession becomes effective shall be deemed the Date of Termination or
if earlier the date of resignation specified in subparagraph 4(b)(iv).
As used in this Agreement, "Company," shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
7. Severability. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within
which judicial review (if permitted) of such determination may be
perfected, that any term or provision hereof is invalid or
unenforceable, (a) the remaining terms and provisions hereof shall be
unimpaired and (b) the invalid or unenforceable term or provision shall
be replaced by a term or provision that is mutually agreeable to the
parties hereto and is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or
provision.
8. Amendment; Waiver. This Agreement may not be modified, amended
or waived in any manner except by an instrument in writing signed by
both parties hereto. The waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any other provision of this Agreement, or of
any subsequent breach by such party of a provision of this Agreement.
9. Governing Law. All matters affecting this Agreement, including
the validity thereof, are to be governed by, interpreted and construed
in accordance with the laws of the State of Ohio.
10. Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified mail, return
receipt requested. If addressed to Executive, the notice shall be
delivered or mailed to Executive at the address specified under
Executive's signature hereto or such other address as Executive shall
give notice in writing in accordance herewith. If addressed to the
Company, the notice shall be delivered or mailed to the Company at its
executive offices to the attention of the Board. A notice shall be
deemed given, if by personal delivery, on the date of such delivery or,
if by certified mail, on the date shown on the applicable return
receipt.
11. Previous Agreements. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement; provided, however, that this Agreement shall not supersede or
in any way limit the rights, duties or obligations of the Employee or
the Company under the Plans.
12. Counterparts. This Agreement may be executed by either of the
parties hereto in counterpart, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and
the same instrument.
13. Headings. The headings of paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the Company has caused the Agreement to be
signed by its officers pursuant to the authority of its Board, and
Executive has executed this Agreement, as of the day and year first
written above.
<continued>
62
<PAGE>
COOPER TIRE & RUBBER COMPANY
/S/ Patrick W. Rooney
- --------------------------------
Title: Chairman of the Board and
Chief Executive Officer
/S/ John Fahl
- --------------------------------
Title: Vice President
Roderick F. Millhof, Executive
/S/ Roderick F. Millhof
- --------------------------------
8918 Connemarro Ct.
Fort Wayne, Indiana 46835
63
<PAGE>
Exhibit (12)
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<CAPTION>
Years Ended December 31
--------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated income
before income taxes $180,070 $172,092 $194,792 $198,217 $215,497
Add:
Interest and
amortization of
debt expense 697 1,654 15,655 15,224 24,445
Interest portion of
rental expense 2,232 2,414 3,693 4,849 5,449
------- ------- ------- ------- -------
Income as adjusted $182,999 $176,160 $214,140 $218,290 $245,391
======= ======= ======= ======= =======
Fixed charges:
Interest and
amortization of
debt expense $ 697 $ 1,654 $15,655 $15,224 $24,445
Capitalized interest 2,694 4,315 1,628 1,694 1,491
Interest portion of
rental expense 2,232 2,414 3,693 4,849 5,449
------- ------- ------- ------- -------
Total fixed charges $ 5,623 $ 8,383 $20,976 $21,767 $31,385
======= ======= ======= ======= =======
Ratio of earnings to
fixed charges 32.5 21.0 10.2 10.0 7.8
==== ==== ==== ==== ====
</TABLE>
64
<PAGE>
Exhibit (13)
OPERATIONS REVIEW AND PRODUCT OVERVIEW
OPERATIONS REVIEW
CORPORATE OVERVIEW
Who We Are
For the past two years we have been communicating our corporate
strategic plan, known as Cooper 21. While specific goals may be
modified over time, our purpose stays the same: to earn money for
shareholders and increase the value of their investment. Our strategic
intent is to:
- - Strengthen our position in North America
- - Become a premier global supplier
- - Meet or exceed customers' expectations
- - Be a low cost manufacturer
- - Maintain a high level of trust
- - Enhance stockholder value
A commitment to these goals permeates the entire organization, even as
the number of people at Cooper more than doubled in 1999. Although the
Cooper team now speaks eight native languages, we are unified in the
understanding of our responsibilities to our customers and our
shareholders. As a team we know we must:
- - Increase shareholder value
- - Grow the company
- - Control costs, improve margins
- - Provide freedom to learn and develop
- - Plan effectively
- - Encourage creativity
- - Delight our customers
- - Buy from the best suppliers
- - Communicate regularly and effectively
- - Be good citizens
- - Meet financial targets
These principles have evolved from the simple creed established by our
namesake, I.J. Cooper: good merchandise, fair play and a square deal.
We are not abandoning these concepts, rather we are using them as the
foundation for our future success. We pledge to our stockholders that
we will continue to explore new opportunities, continue to improve our
operations and manage our business so we all benefit as we proceed
through the next century. Recent acquisitions have adjusted our business
to an almost 50-50 balance between the automotive and tire groups.
How We Are Doing
Setting goals is one thing, achieving them is another. In 1999, the
Cooper team made significant strides in meeting many of the goals we set
for ourselves in the Cooper 21 strategic plan.
Some of these achievements made headlines:
- - Cooper Finalizes Dean Tire Purchase
- - Cooper Tire and Pirelli Tyres Form Strategic Alliance
- - Cooper Tire & Rubber Company Completes Acquisition of The Standard
Products Company
- - Cooper Tire & Rubber Company to Acquire Siebe Automotive
<continued>
65
<PAGE>
Other significant accomplishments include:
- - moving toward integrating Cooper and The Standard Products Company.
Initial activities included a formal restructuring of the company into
two groups - Cooper-Standard Automotive and Cooper Tire - and
announcing the leadership within each group. Integration efforts and
identification of best practices continue throughout the ranks of both
companies.
- - earning the ranking as one of the world's top 10 most respected
engineering companies by the Financial Times, the world's business
newspaper, in its December 1999 issue.
- - earning the Forbes ranking of fourth on its Platinum List of consumer
durables companies in America. The ranking was a part of the
magazine's Platinum 400 which appeared in the January 10, 2000 issue.
- - earning a second place ranking among the rubber and plastics
industries in Fortune's list of America's Most Admired Companies,
which appeared in the February 21, 2000 issue. Cooper moved up one
place over last year.
- - creating the Fluid Systems Division within Cooper-Standard Automotive
to accommodate the acquisition of Siebe Automotive in January 2000.
This group combines the Siebe organization with Cooper's existing hose
and hose assembly operations. Integration activities related to this
acquisition will continue throughout the year.
While publicity is great, we recognize that being successful requires
strong "behind the scenes" activities to provide the substance for the
headlines. We realize that smart management, hard work and team
commitment will enable us to successfully integrate our organization
into a model company.
Where We Are Going
The Cooper 21 strategic plan was designed to direct Cooper through the
early years of the new century. The Cooper team is keenly aware of the
specific actions it needs to take to ensure the company's growth and
success. As we start the next century we will strive to meet the
following goals:
The Cooper culture will be fully implemented globally
- - 40 hours per year education and training
- - Continuous operating improvement through Kaizen, Operational
Excellence and Six Sigma
- - People development through cross-fertilization
- - Teamwork across the organization
- - The customer is king
Cooper will be the best supplier to its customers in the markets served
- - >95 percent fill rate to replacement markets and on time, every time
to O.E.M.
- - Benchmark for best practices
- - Modularize for customer value
- - Earn their business every day through total satisfaction and new
products
Cooper will be a leading supplier in its core businesses and key regions
- - Cooper will provide valued products regionally and export to serve the
customer
- - Cooper will have critical mass in its chosen markets
- - Cooper people will be experienced globally
<continued>
66
<PAGE>
Cooper will concentrate on increasing the value of its shareholders'
investment through meeting financial targets
- - Sales growth >10 percent C.A.G.R. - 7 percent organic, 3 percent
acquisition
- - Return on invested capital >20 percent pre-tax
- - EBITDA per share - continuous improvement
- - Earnings per share - continuous improvement
YEAR IN REVIEW
TIRE OPERATIONS
While Cooper Tire experienced significant change through acquisitions
and alliances in 1999, we maintained our momentum and continued to
exceed sales expectations and increase market share.
The tire group began the year with the acquisition of Dean Tire, a
wholesale distributor operation, and entered into a strategic alliance
with Pirelli - providing key "pieces" for the company's multi-brand
strategy of tire sales in the replacement market.
During the fourth quarter, efforts turned to strategically integrating
Oliver Rubber, the tread rubber business that came with the acquisition
of The Standard Products Company. As the new year began, efforts on
both fronts continued, with synergies being enhanced and benefits being
realized.
In 1999, Cooper Tire achieved the following:
- - received the Sears Canada Partners In Progress Award for the second
consecutive year.
- - Cooper-Avon won an award from the Institute of Transport Management
(ITM) for excellence in fleet sales for the second year in a row.
During 1999, two new Cooper tires and an Avon motorcycle tire were
introduced and launched worldwide. In addition, three new tires under
the Avon brand were launched in the U.S. and three were launched in
Europe.
Our multiple brand strategy provides products to dealers in all tiers
and price levels, thus eliminating their need for multiple suppliers.
Cooper's unique program offers dealers the convenience of combining
purchasing volumes with a minimum of requirements. Our stable of seven
proprietary brand lines in conjunction with our Pirelli alliance assures
that Cooper customers will have a competitive brand at every tier level.
We give our dealer competitive freedom by providing top quality brand
lines with the freedom to market, without strings, restrictions or
quotas.
Cooper continued with its aggressive national advertising campaign
featuring Arnold Palmer in 1999. Under the theme Drive On, extensive
print and broadcast advertising was placed on national cable networks
including ESPN, CNN and TNT and in consumer print publications including
Hot Rod and Sports Afield.
For the second year Cooper Tire will serve as the presenting sponsor of
the Bay Hill Invitational golf tournament, March 16-19, 2000. During
the tournament in 1999, more than 6.8 million households were reached
through coverage on national networks. Because of its strong
international field, the tournament is also telecast to overseas
audiences.
<continued>
67
<PAGE>
After an extensive search conducted during 1999, a new advertising
agency for the tire group was selected. Fahlgren of Dublin, Ohio, was
chosen primarily because of its insight into the automotive aftermarket,
its dynamic creative team and a disciplined approach to its client
relationship. Also, the agency's international capabilities will be an
asset as we expand our brand activity around the world.
Although Cooper is generally recognized for leadership in customer
service and for our outstanding relationship with dealers, our success
in new product development ranks high as well.
In late 1999, we announced our strategic initiative for speed-to-market
which we are calling CP6. This acronym refers to our goal of providing
new products to our customers from the concept stage to production in 6
months or less. Currently, the industry standard for designing, testing
and manufacturing a new tire is 18 to 24 months. Through virtual
engineering, automated mold design and our new test center in Pearsall,
Texas, we are making significant progress toward CP6. We are already
beginning to realize our reduced production cycle capabilities. Two
lines introduced in 1999 - the Discoverer A/T and Discoverer H/T -
averaged only 12 months from concept to production.
In the tire group, we are into our third successful year of Operational
Excellence, a structured "six sigma" approach for continuous
improvement. By reducing process variation, we can reduce costs,
enhance quality and maximize efficiency. More than 200 employees have
been trained to use statistical tools and innovative thinking to enhance
day-to-day operations. One key benefit to this approach is the ability
to "transfer excellence" between manufacturing facilities. Last year
the Findlay plant had success with a gum calender project that reduced
the variation in material gauge and on statistical-based centering
resulting in faster changeovers. This single project yielded the tire
group an annual savings of more than $1.3 million. While short-term
benefits include project savings and product improvements, we believe
just as important are the long-term benefits achieved through education,
teamwork and a focus on continuous improvement.
Oliver Retreading
The similar cultures between Cooper and Oliver will help us expand the
company's presence in the commercial truck tire arena - encompassing
both the retread and the radial medium truck tire markets.
Our synergies include:
- - both companies are known for quality products and strong support of
the independent tire dealer
- - Cooper's technical expertise and mold-making capabilities, along with
those at Oliver, will enhance the company's speed-to-market for the
retreading applications
- - Oliver's long-term involvement in the commercial truck tire industry,
with its capabilities for conducting field product evaluations and
marketing directly to end users, will benefit the expansion in the
radial medium truck tire market
Oliver Rubber is among the leading providers of retread materials and
services in North America. Oliver produces retread materials and
process systems, custom rubber processing and equipment and molds.
Primary customers include Oliver's distribution dealer network, trucking
fleets, Off-the-Road and other retreaders and original equipment
manufacturers of rubber products.
Oliver will continue to be headquartered in Athens, Georgia, and be a
part of the commercial tire operation which is being led in Findlay.
<continued>
68
<PAGE>
YEAR IN REVIEW
AUTOMOTIVE OPERATIONS
1999 was a year of tremendous change and growth for Cooper's automotive
group. With the acquisition of The Standard Products Company in October
and Siebe Automotive, which was completed in January 2000, we have
assembled a dynamic new team operating under the name Cooper-Standard
Automotive. Now globally based with 60 manufacturing locations in 13
countries, and 12 engineering, research and development centers, we are
ready to serve the needs of our customers around the world with cutting
edge technology and innovative products:
- - Sealing Systems
- - Fluid Systems
- - Noise, Vibration and Harshness (NVH) Control Systems
- - Plastics
Cooper-Standard Automotive also continues to maintain a number of joint
venture, equity investment and open-exchange technology agreements.
These include Nishikawa Rubber Company, Ltd. of Japan in the United
States (NISCO) and Mexico (Standard Products de Mexico) and with Jin
Young Chemical Company of Korea (Jin Young Standard Inc.). In 1999,
Cooper-Standard Automotive earned the following awards and
certifications:
- - six plants received DaimlerChrysler Gold Pentastar Awards
- - the Mitchell, Ontario, plant was named General Motors' supplier of the
year for engine and chassis mounts
- - the Auburn, Indiana, NVH control systems plant received the 1999
Indiana Governor's Award for Excellence in Recycling
- - the Bowling Green, Ohio, sealing systems plant received the Rubber
Manufacturers Association safety and health improvement award
- - QS-9000 certification was obtained by the new Aguascalientes, Mexico,
plant - all Cooper-Standard Automotive locations in North America and
England are now QS-9000 certified
NVH control systems will provide all of the engine mounts for the GM
Silverado/Sierra pickup and sport utility vehicle, one of the highest
volume platforms in the industry.
Innovative Cooper-Standard hydromounts are featured on the new Saturn
sedan platform, the first neutral torque axis system Cooper-Standard has
manufactured for General Motors. This system achieves superior noise
and vibration control characteristics, excellent durability, and a wide
range of tuning flexibility.
In the last year, Cooper-Standard secured contracts for bolster springs
with Hendrickson, a suspension system supplier for heavy trucks.
Bolster springs are less expensive and more durable alternatives to the
air springs commonly used on heavy trucks. Cooper also manufactures
center beam bushings for Hendrickson trailer and truck suspensions.
Other new business platforms for Cooper-Standard include many popular
vehicles such as:
- - Chevy Impala - Chevy S-10
- - Chevy Monte Carlo - GMC Sonoma
- - Dodge Dakota Quad Cab - Isuzu Hombre
- - Ford Explorer
The implementation of a Six Sigma strategy is a key to sustained
business growth and is a competitive tool for industry leaders. The
concept of Six Sigma is to virtually eliminate rejected parts.
<continued>
69
<PAGE>
This business process allows Cooper-Standard Automotive to improve our
bottom line by designing and monitoring everyday business activities in
ways that minimize waste and resources while increasing customer
satisfaction. This strategy is a means to realize the philosophy and
values associated with our key initiatives. It provides unity and a
common language for continued growth and improved performance. Cooper-
Standard Automotive continues to benefit from our Six Sigma strategy now
in its third full year of implementation. This strategy has nearly
offset the impact of productivity and economic price adjustments
experienced during this same time period. An achievement of zero
rejections of Cooper-Standard components was made with the launches of
the new Chevy Impala and Monte Carlo equipped with Cooper-Standard body
sealing systems and the Dodge Dakota Quad Cab truck.
A new plant located in Bielsko Biala in southern Poland was opened in
1999. The plant, which employs more than 120 people, began by supplying
Fiat Palio and in January 2000 began production for the GM/Suzuki Sub-S
platform. The Polish car market continues to experience rapid growth
and is currently the sixth largest market for cars in Europe.
The manufacturing and marketing of plastics products was a new arena for
Cooper in 1999, brought on as a result of the Standard Products
acquisition. Cooper-Standard now offers a wide range of both commercial
and automotive plastic trim. Holm Industries and OEM/Miller are long-
time innovators of commercial applications using specialty
thermoplastics, magnetic extrusions and corrugated tubing for a large
variety of appliance sealing and hose systems. We also produce a
variety of thermoplastic extrusion and injection molding technologies
used for vehicle exterior trim that both seal and decorate.
Cooper-Standard Automotive recently began manufacturing an innovative
barrier hose product. This type of hose combines conventional rubber
materials with a thin fluoroplastic barrier layer to reduce evaporative
emissions and to meet increasing governmental regulations. We are
currently able to provide three-layer and five-layer constructions -
both of which can be supplied with or without yarn reinforcement.
In 1999, a 220,000-square-foot expansion of the CooperMex facility was
completed for the production of sealing systems for the new Pontiac
Aztec and a future Buick SUV. The new facility includes a dual
durometer and flock line as well as finishing operations.
At the Auburn plant, an "Adopt-a-Job" program to reduce scrap and
machine downtime was initiated. The first eight jobs selected and
assigned to engineers for corrective action have resulted in scrap
reduction of 50 percent. Other lean manufacturing activities are
occurring throughout the organization to help improve performance and
reduce waste.
GLOBABL SEALING
The Global Sealing Division, the largest division in Cooper-Standard
Automotive, develops, designs, validates and manufactures sealing
products and systems for automotive manufacturers around the world. The
combination of Cooper and Standard Products has resulted in an expanded
presence in 11 countries, which provides our customers with design and
manufacturing support for world car platforms. Through our global reach
and strategic alliances we are a leading global supplier of sealing
systems in the top vehicle producing countries which include the United
States, Germany, France, Canada, United Kingdom, Italy, Brazil and
Mexico.
<continued>
70
<PAGE>
The blending of Cooper and Standard Products into Cooper-Standard
Automotive offers our global sealing customers several advantages and
synergies, including:
- - strengthened technological capabilities
- - best practices shared between engineering and manufacturing
- - global customer relationships and support
- - experienced management team and strong international organization
Through joint ventures and open-exchange technology agreements with
Nishikawa Rubber Company of Japan and Jin Young Chemical of Korea, we
can offer customers even more resources for product diversity around the
globe. NISCO, our North American joint venture with Nishikawa, includes
three locations in Indiana. We currently have three joint venture
facilities with Jin Young Standard located in Incheon, Chung-Ju and
Secheon, Korea.
The goal of the Global Sealing Division is to provide products and
services that meet or exceed customers' requirements and expectations of
quality, reliability, delivery and technological innovation at the
lowest competitive price.
71
<PAGE>
Exhibit (21)
COOPER TIRE & RUBBER COMPANY
SUBSIDIARIES
AS OF DECEMBER 31, 1999
Cooper Tire & Rubber Company (Parent) (Delaware)
Alga Investments Company (Georgia)
Cooper International Holding Corporation (Delaware)
Cooper International Rubber, Limited (Jamaica)
Cooper Tire International Trading Company (Cayman Islands)
Coopermex, S.A. de C.V. (Mexico)
North American Rubber, Incoporated (Texas)
Rio Grande Servaas S.A. de C.V. (Mexico-Maquiladora)
Sterling Investments Company (Delaware)
Cooper Tyre & Rubber Company UK Limited (England & Wales)
Cooper-Avon Pneumatiques Sarl (France)
Cooper-Avon Reifen (Deutschland) GmbH (Germany)
Cooper-Avon (Suisse) SA (Switzerland)
Cooper-Avon Tyres Limited (England & Wales)
Avon IEC Limited (England & Wales)
Cooper-Avon International Development Limited
(England & Wales)
The Standard Products Company (Ohio)
Standard Products (Canada) Limited (Canada)
Standard Products Industriel S.A. (France)
Technistan GIE (Partnership) (France)
Oliver Rubber Company (California)
Admiral Retread Equipment Inc. (Ohio)
Admiral Remco Inc. (Ohio)
Admiral Heintz, Inc. (Ohio)
Standard Products Limited (U.K.)
Standard Products Mould & Tool Co. Limited (U.K.)
NISCO Holding Co. (Delaware)
Nishikawa Standard Co. (Partnership) (Delaware)
Westborn Service Center Inc. (Michigan)
Union Trucking Co. (Inactive) (Michigan)
The Standard Products Funding Corp. (Delaware)
Standard Products International Inc. (Inactive) (Delaware)
Stantech Inc. (Delaware)
Standard Products Co. Charitable Foundation (Ohio)
Holm Industries Inc. (Indiana)
Magnetos Flexibles de Mexico S.A. de C.V. (Mexico)
Perfiles Especiales de Plastico S.A. de C.V. (Mexico)
Holm KK Extrusions Pvt. Ltd. (India)
Holm Industries S.A. de C.V. (Mexico-Maquiladora)
Plasticos G.H. de Mexico, S.A. de C.V. (Mexico)
Standard Products Brasil Industria e Comercio Ltda. (Brazil)
Standard Products de Mexico S.A. de C.V. (Mexico)
Jin Young Standard (S. Korea)
Standard Products Polska Spzo. o. (Poland)
SPB Comercio e Participacoes Ltda. (Brazil Holding Co.)
Itatiaia Standard Industrial Ltda. (Brazil)
Standard Products Foreign Sales Corporation Ltd. (Barbados)
72
<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 Forms S-3, of our report dated February 8,
2000, 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, 1999:
Form S-3 No. 33-44159 $200,000,000 aggregate principal amount of
the Company's Debt Securities
No. 333-89149 Registration of securities not to exceed an
initial public offering price of
$1,200,000,000
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
No. 333-83311 Pre-Tax Savings Plan (Clarksdale)
No. 333-83309 1998 Employee Stock Option Plan
1998 Incentive Compensation Plan
No. 333-83589 1998 Non-Employee Directors Compensation
Deferral Plan
No. 333-84815 Thrift & Profit Sharing Plan
No. 333-84813 Texarkana Pre-Tax Savings Plan
No. 333-84793 Pre-Tax Savings Plan at the Auburn Plant
No. 333-84811 Pre-Tax Savings Plan at the Findlay Plant
No. 333-84807 Pre-Tax Savings Plan at the El Dorado Plant
No. 333-84803 Pre-Tax Savings Plan (Bowling Green - Hose)
No. 333-84805 Pre-Tax Savings Plan (Bowling Green - Sealing)
<continued>
73
<PAGE>
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Toledo, Ohio
March 17, 2000
74
<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 8th day of February, 2000.
/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/ Ronald L. Roudebush /s/ John H. Shuey
- ----------------------------- ------------------------------
Ronald L. Roudebush, Director John H. Shuey, Director
/s/ Philip G. Weaver /s/ Eileen B. White
- -------------------------------- ------------------------------
Philip G. Weaver, Vice President Eileen B. White, Principal
and Principal Financial Officer Accounting Officer and
Corporate Controller
(continued)
75
<PAGE>
STATE OF OHIO )
)ss.
COUNTY OF HANCOCK)
On this 8th day of February, 2000, 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, Ronald L. Roudebush, 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/ Kathy A. Morrison
-------------------------------------
Kathy A. Morrison, Notary Public
State of Ohio
My commission expires October 6, 2002
(SEAL)
76
<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 8, 2000,
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 8th day of February, 2000.
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 8th day of February, 2000, 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/ Kathy A. Morrison
----------------------------------
Kathy A. Morrison, Notary Public
State of Ohio
My commission expires October 6, 2002
(SEAL)
77
<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
31,1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 31,070
<SECURITIES> 40,057
<RECEIVABLES> 554,474
<ALLOWANCES> 9,319
<INVENTORY> 273,963
<CURRENT-ASSETS> 945,428
<PP&E> 1,961,743
<DEPRECIATION> 734,674
<TOTAL-ASSETS> 2,757,645
<CURRENT-LIABILITIES> 395,865
<BONDS> 1,046,463
0
0
<COMMON> 75,810
<OTHER-SE> 899,824
<TOTAL-LIABILITY-AND-EQUITY> 2,757,645
<SALES> 2,196,343
<TOTAL-REVENUES> 2,196,343
<CGS> 1,810,524
<TOTAL-COSTS> 1,810,524
<OTHER-EXPENSES> 144,350
<LOSS-PROVISION> 1,527
<INTEREST-EXPENSE> 24,445
<INCOME-PRETAX> 215,497
<INCOME-TAX> 80,023
<INCOME-CONTINUING> 135,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,474
<EPS-BASIC> 1.79
<EPS-DILUTED> 1.79
</TABLE>
