Cooper Tire & Rubber
Annual Report 2002

Plain-text annual report

D e l i v e r i n g o n o u r p r o m i s e s COOPER TIRE & RUBBER COMPANY 2002 Annual Report A Letter to Our Shareholders Delivering on our promises During the past year, we continued our pattern of growth and progress despite some serious economic and market challenges. An added obstacle during the past year was the declining confidence in corporate America. Unfortunately, the actions of a few have cascaded into an overall concern with business ethics. At Cooper, however, we have main- tained an unwavering focus on our plans and strategies so that we can continue to deliver on our promises to our shareholders, our customers and our people. We selected the theme Delivering on our promises for the 2002 annual report because we believe it accurately portrays what we have accomplished during the past few years. It also accurately describes the type of company that we have always been – straightforward and focused on generating shareholder value. In 1999, we initiated a strategic transformation of our company. As we announced and implemented those plans, we made several related commitments and promises to our people, our customers and our shareholders. 2002 was a year in which we delivered on many of those promises and made solid progress on the rest. At the time of our acquisitions of Standard Products and Siebe Automotive, we stated publicly that it would take three years to fully integrate the businesses and achieve normalized operating levels. As I said, we have made a lot of promises to our shareholders, to our employees and to the public since then. We have developed and implemented some very aggressive but achievable plans to drive shareholder value. Promises: • Expand Automotive Group Globally • Grow Market Share • Outperform our Industries • Restructuring Savings of $30 million • Pay down 2002 debt with cash • Automotive Operating Margins of 10% Pre-Tax Return On Invested Capital (ROIC) of 20% The acquisitions in late 1999 and early 2000, primarily in our automotive group, enabled us to deliver on the promise we would expand the automotive group globally. In North America, our automotive component sales were up about 7.2 percent while light vehicle production was up about 5.3 percent. Sales in our international operations were up 7.8 percent. The tire group unit sales in North America were up more than 4 percent even though market shipments were down 2.6 percent. We exceeded our goal of $30 million in annual savings from our restructuring efforts. We paid off the $225 million portion of acquisition- related debt with cash when it came due in December. We said that our goal was to return our automotive operating margins to near their historical levels but on four times greater sales volume. We achieved that target during the second quarter, and averaged within two percentage points of that goal for the year 2002. Financial Highlights (Dollar amounts in thousands except per-share amounts) 2000 2001 2002 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . Dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt to capitalization ratio . . . . . . . . . . . . . . . . . . . . . . . . $3,472,372 $3,154,702 325,734 (a) 233,409 (a) 148,661 (a) 2.02 (a) 2.02 (a) .42 55.9% 202,781 (b) 117,442 (c) 79,087 (c) 1.09 (c) 1.09 (c) .42 55.1% $3,329,957 248,396 177,197 111,845 1.53 1.51 .42 49.2% (a) Prior to restructuring charges of $38,699 ($24,274 after tax, $.33 per share), losses at closed and sold facilities of $19,001 ($12,100 after tax, $.17 per share), and amortization of goodwill of $15,553 ($.21 per share). (b) Prior to class action costs of $72,194 ($44,977 after tax, $.62 per share), restructuring charges of $8,648 ($5,387 after tax, $.07 per share), and amortization of goodwill of $15,705 ($.22 per share). (c) Prior to class action costs of $72,194 ($44,977 after tax, $.62 per share), restructuring charges of $8,648 ($5,387 after tax, $.07 per share), gains on sales of non-manufacturing assets of $8,263 ($5,148 after tax, $.07 per share), and amortization of goodwill of $15,705 ($.22 per share). CE Tom Dattilo with three of the company’s Lean champions Gustavo Vasconcellos, Mary Coughlin and Mike Foster And finally, we have a goal of 20 percent pre-tax ROIC. We are not there yet, but we are confident that we will get that checked off in the not-too-distant future. Additionally, with our plans and execution, we have been able to beat our peers and the S&P 500 during the past three years. We are very happy about that. In short, we have told you what we were going to do, and we have done it. We are staying focused on our plans and continue to drive for leaner operations, taking costs out wherever possible and being as efficient as we can be. The results of our lean efforts were key this year. We generated nearly $100 million in lean savings through the implemen- tation of literally thousands of lean initiatives throughout our operations. The tire group continues to manage its assets and provide the same great service and products to our customers. Even though we reduced inventory by more than 1.2 million units last year, our order fill rates were at or near our 95 percent goal. While we continue to receive top industry honors in customer service from our dealer network, we also received national recognition from consumers this year. The J.D. Power and Associates 2002 Replacement Tire Customer Satisfaction Study SM ranked Cooper the highest light truck replacement tire in a tie.This type of well-earned recognition will be a part of our success in the future and indicates some of the sustainable strengths that we have been developing in tire technology. Providing top-notch launches for our automotive customers had an escalated importance this year as we had 59 new launches.The Cooper integrated launch team approach that we have implemented in all our facilities has quickly improved the success rate of our new product launches and that shows up in our operating margins.This approach also will benefit us going into 2003 as we have approximately 30 launches in the coming year. One of the most significant highlights of the year occurred in the second quarter when we announced earnings of 52 cents per share, which was an all-time company record. And, for the second consecutive year, the average closing price of our stock increased. 2002 2001 2000 $18.55 13.83 11.65 So this is what Cooper looked like at the end of 2002 – a Fortune 500 company with global presence, great accomplishments and great opportunity. Even though things are improving significantly for Cooper, I certainly think that we will continue to see challenging conditions in both our businesses at some point in the remainder of 2003. There is still a lot of uncertainty out there and we are in tough industries. We recognize that. Still, we have solid plans in place to continue to make our company successful and to perform better than our industries overall. On the tire side, we will again see our sales growing faster than the industry. There are signs that the industry overall will pick up as the year goes on and we think we will be even stronger than the industry. On the automotive side of our business, production schedules may be slightly lighter in 2003 but our new business will allow our sales to out-pace the industry yet again. These continue to be exciting times at Cooper Tire & Rubber Company. We are primed to be among the winners in an increasingly competitive environment. On behalf of the 23,000 Cooper people, thank you for your continued support. Thomas A. Dattilo Chairman, President and CEO 1 Three-Year Shareholder Returns150(cid:13)100(cid:13)50(cid:13)0Dec. '99Dec. '00Cooper Tire & Rubber Company(cid:13)S&P 500 Index(cid:13)S&P 500 Auto Parts & EquipmentDec. '01Dec. '02Cooper people are dedicated to total customer satisfaction, understanding customers’ needs and exceeding their expectations. Phil Caris, Fran Brennan, Kurt Thomas and Lyle Campbell keep their focus on customers. The J.D. Power and Associates 2002 Replacement Tire Customer Satisfaction Study SM named Cooper the highest light truck replacement tire in a tie. Promise: provide replacement tire customers with 95 percent fill rates Promise: strive for flawless launches We have implemented the integrated launch team While the tire group continued its focus on approach which has been a key to Cooper’s managing assets and reduced the number of tires success in our automotive business for years. in inventory by 1.2 million units in 2002, the The launch process is always the most costly promise was met to provide a 95 percent order period in the production process and if it is handled fill rate to customers. Promise: earn customers’ business every day through new products In 2002 we made good progress on our Ultra High Performance (UHP) tire initiative. We are on target to launch a new line of UHP tires during the spring of 2003.This strategic and important introduction will associate Cooper’s name with performance tires – a growing and profitable market and one in which we should be able to compete very well. UHP is the fastest growing segment of the tire industry. Our strategy will offer H,V and Z speed rated tires in sizes with larger rim diameters that are in growing demand. Each UHP tire sale will bring us higher margins and a stronger market penetration. effectively, as Cooper has done in the past, it can greatly improve the profit margins on any given product or platform. • Cooper-Standard Automotive’s Torreon, Mexico, operations received the Quality Master 2002 award from Nissan • Griffin, Ga., and Adelaide, South Australia, facilities received Q1 certifications from Ford • Auburn, Ind., facility received the GM Service Parts Operations 100 percent on-time delivery certificate of recognition • Cooper’s Information Technology was listed among CMP Media LLC’s InformationWeek 500 • Adelaide, South Australia, facility awarded ‘A’ rating by the Toyota Motor Company • El Dorado,Ark., earned the Certificate of Achievement for Quality and Delivery from NUMMI • Cooper Tire received an appreciation award from Del-Nat Tire for Cooper’s outstanding contributions to Del-Nat 2 Cooper will increase the value of shareholders’ investments by growing the company, controlling assets, increasing cash flow and ROIC. Susan Kill (standing), Jia Chen, Jonathan Fisk, Kimberly Ziegler, Buo Chen, Jolene Minich and Barry Maxwell know superior financial performance can only result from a company-wide team effort. Promise: be a transparent company We have always been a straightforward company doing business and earning money the old fashioned way. We make high quality products that satisfy our customers. We sell these products and deliver top-quality service. And, we book the resulting revenue when the goods are shipped and recognize expenses when they are incurred. Promise: reduce debt The first portion of acquisition-related debt was $225 million and was due in December. Our strong cash generation during the year allowed us to pay off that portion without refinancing, as promised. Our remaining long-term debt is spread relatively evenly over the next 24 years, with a small portion due in 2006 and larger portions due in 2009, 2019 and 2027. The debt is structured with a good mix of fixed versus floating rates and current weighted interest rates of about 7 percent. Interest rate swaps and the lower debt balances have enabled us to reduce interest costs by $15 million. Debt to total capital at year end was 49.2 percent. Promise: achieve annual restructuring savings of $30 million of $30 million. Not only did we deliver on that promise, but we exceeded it. Total restructuring savings in 2002 were $38 million. Promise: achieve four times automotive sales with 10 percent margins Our automotive operating margins have steadily increased from one percent in 2000, to three percent in 2001 to eight percent this year. Our goal is to achieve a 10 percent operating margin in our automotive group on four times the sales we had before the acquisitions. For the second quarter we achieved that goal. Promise: grow market share and outpace the industry We continued to outpace both industries in which we compete during the entire year. Light vehicle tire shipments for the industry declined 2.6 percent among RMA member companies, while at the same time our shipments increased by more than 4 percent. We also increased our market share from 16 percent to 17 percent. Our automotive sales growth of 7.2 percent outpaced the industry’s light vehicle production growth of 5.3 percent. As new automotive business continues to come on line, we are seeing our revenue grow faster When we announced our restructuring plan in the than the vehicle build rates. third quarter of 2000, we promised annual savings 3 Empowering people is key to many of Cooper’s initiatives. Cooper is committed to enlist participation, provide development opportunities and regularly evaluate performance. Bruce Schubert and Jerry Yoder (standing) use unique training to better develop Lean thinkers. Participating in Cooper’s customized Lean simulation are Jennifer Crager, Klaus Rode and Adrian Lowrance. Promise: develop a Lean culture throughout the organization A Lean focus has to be part of our business every day in order to remain competitive. Through the Promise: provide a strategic focus for both Cooper people and the company in the development of careers and the evaluation of performance years, we have made low-cost operations a priority Promoting from within is a key element of our and it has become a true advantage for us. Currently we have hundreds of Lean teams working together to take the “waste” out of our operations both in the plants and the offices. Our people know that it takes the efforts of everyone to truly be a Lean organization and that we all must concentrate on Lean every day. To assist our people to be their best every day, we have a Lean champion in every plant. And both operating groups work together to learn best Lean practices from each other. Through the efforts of the Cooper team, we saved $100 million through Lean initiatives across the organization in 2002. Philosophy & Beliefs. To do so, we must hire the right people at the baseline of the company and develop them into experienced, globally thinking managers. To help accomplish this, we have developed a performance management and career development system which was implemented during the first quarter of 2003. Performance Management at Cooper is a system that will help all Cooper people who want to improve their performance to their highest level. Cooper people will be able to identify their long-term career objectives, conduct a gap analysis to determine areas for improvement and put together individual development plans to address areas on which they choose to focus. Additionally, the system will assist senior leaders in improving the succession planning process.This process then cascades to all levels of the organization, ensuring the right person is in place for the right position at the right time. 4 Directory EXECUTIVE OFFICES TRANSFER AGENT & REGISTRAR Cooper Tire & Rubber Company 701 Lima Avenue Findlay, Ohio 45840 (419) 423-1321 FOR INFORMATION Tire products – (800) 854-6288 Automotive products – (248) 596-5900 Common stock and dividends – (419) 424-4323 Investor relations – (419) 427-4768 Web sites – www.coopertire.com www.cooperstandard.com ANNUAL MEETING Fifth Third Bank Corporate Trust Services 38 Fountain Square Plaza Mail Drop #10AT66 Cincinnati, Ohio 45202 (800) 837-2755 or (513) 579-5320, Mon. - Fri, 8 a.m. to 5 p.m. Eastern time http://investordirect.53.com Shareholders requiring a change of name, address or ownership of stock, as well as information about shareholder records, lost or stolen certificates, dividend checks, dividend direct deposit, and dividend reinvestment should contact our stock transfer agent by mail, telephone or website. Direct Investment Plan – Fifth Third Bank serves as Administrator for a direct investment plan for the purchase, sale and/or dividend reinvestment of Cooper Tire & Rubber Company common stock. For information, call: (800) 837-2755. The annual meeting of stockholders will be held at 10 a.m.,Tuesday, May 6, 2003, at Urbanski’s, 1500 Manor Hill Road, Findlay, Ohio. All stockholders are cordially invited to attend. Proxy material is sent to stockholders together with this report. BOARD OF DIRECTORS Arthur H. Aronson2 Former Executive Vice President, Allegheny Teledyne Incorporated John F. Fiedler 2 Chairman of the Board, Borg Warner Inc. Thomas A. Dattilo Chairman, President and Chief Executive Officer of the Company Dennis J. Gormley 2 Former Chairman of the Board and Chief Executive Officer, Federal-Mogul Corporation John F. Meier 1,3 Chairman and Chief Executive Officer Libbey Inc. Byron O. Pond3 President and Chief Executive Officer, Amcast Industrial Corporation 1 Member of the Nominating and Governance Committee 2 Member of the Audit Committee 3 Member of the Compensation Committee 61 Edsel D. Dunford1,3 Former President and Chief Operating Officer, TRW Inc. John J. Holland2 Chairman and Chief Executive Officer Butler Manufacturing Company John H. Shuey 1,2 Former Chairman, President and Chief Executive Officer, Amcast Industrial Corporation Who We Are Cooper Tire & Rubber Company (NYSE: CTB) we have significant expertise and sustainable is a leading manufacturer of replacement tires competitive advantage. These businesses are: and original equipment automotive components. North American replacement tires; global Based in Findlay, Ohio, Cooper currently operates automotive sealing and fluid handling systems; 52 manufacturing facilities in 13 countries. and North American NVH products. Our sustain- Cooper Tire is the fourth largest tire manufacturer able competitive advantages include industry in North America and one of only two remaining leading customer service, technology and U.S.-owned tire companies. Cooper-Standard manufacturing efficiency. Automotive is the world leader in design and manufacture of automotive sealing products and ranks among the top producers of noise, vibration and harshness (NVH) control products and fluid handling systems for the automotive industry. Management focus is on maximizing return on invested capital (ROIC) and growth of EPS. Management’s variable compensation plan is based on ROIC achievement for corporate executives and return on assets managed (ROAM) achievement Cooper’s strategy for increasing shareholder value for operations executives. consists of focusing on core businesses in which A Sampling of Our Products encapsulated glass sealing system hydraulic engine mount NVH control system Cooper Zeon 2XS ultra-high performance tire fuel, brake and vapor system fluid handling system 62 Our Focus, Our Customers AUTOMOTIVE GROUP: Vehicle manufacturers Tier I automotive suppliers Aftermarket retailers Heavy truck, and engine, manufacturers TIRE GROUP: Independent tire dealers Mass merchandisers Retail chains Retreaders Wholesale distributors door seal sealing system hydraulic engine mount NVH control system heating and cooling system fluid handling system Discoverer H/T light truck tire valves and coolers fluid handling system door seals glass runs sealing system 63 Discoverer CSD 444 radial medium truck tire Executive Officers Thomas A. Dattilo Chairman, President and Chief Executive Officer James E. Kline Vice President Harold C. Miller Vice President D. Richard Stephens Vice President Mark F. Armstrong Vice President James S. McElya Vice President Roderick F. Millhof Vice President Richard D.Teeple Vice President, General Counsel and Corporate Secretary Philip G. Weaver Vice President and Chief Financial Officer Eileen B. White Corporate Controller Other Corporate Officers Larry J. Beard Vice President Larry J. Enders Vice President Paul C. Gilbert Vice President Edward A. Hasler Vice President James H. Geers Vice President Donald P. Ingols Vice President Richard N. Jacobson Asst. Corporate Secretary/ Asst. General Counsel James P. Keller Vice President Gregory E. Meyers Asst. General Counsel James W. Pifer Vice President Charles F. Nagy Assistant Treasurer Stephen O. Schroeder Treasurer Worldwide Facilities NORTH AMERICA United States El Dorado, Arkansas, NVH control systems Texarkana, Arkansas, tires Albany, Georgia, tires Athens, Georgia, tread rubber Griffin, Georgia, sealing Auburn, Indiana, NVH control systems headquarters Auburn, Indiana, NVH control systems Auburn, Indiana, technical center Bremen, Indiana, sealing (joint venture) New Haven, Indiana, sealing (joint venture) Topeka, Indiana, sealing (joint venture) Mt. Sterling, Kentucky, fluid systems Auburn Hills, Michigan, fluid systems headquarters Auburn Hills, Michigan, technical center Dearborn, Michigan, technical center Fairview, Michigan, fluid systems Gaylord, Michigan, sealing Novi, Michigan, automotive operations and N.A. sealing headquarters Clarksdale, Mississippi, tubes Tupelo, Mississippi, tires Asheboro, North Carolina, tread rubber Goldsboro, North Carolina, sealing Salisbury, North Carolina, tread rubber Bowling Green, Ohio, fluid systems Bowling Green, Ohio, sealing Cleveland, Ohio, plastics Findlay, Ohio, corporate and tire operations headquarters Findlay, Ohio (2), technical centers Findlay, Ohio, tires Spartanburg, South Carolina, plastics Surgoinsville,Tennessee, fluid systems San Antonio,Texas, technical center Canada Georgetown, Ontario, sealing Mitchell, Ontario, NVH control systems Mitchell, Ontario, technical center Sault Ste. Marie, Ontario, fluid systems Stratford, Ontario (3), sealing Stratford, Ontario, technical center Mexico Aguascalientes, Mexico, sealing (joint venture) Piedras Negras, Mexico, sealing Torreon, Mexico (2), fluid systems SOUTH AMERICA Brazil Camasari, Brazil, fluid systems Varginha, Brazil, sealing AUSTRALIA Adelaide, South Australia, fluid systems ASIA Republic of Korea Chung-Ju, Korea, sealing (joint venture) Kim Hae, Korea, sealing (joint venture) Seo-Cheon, Korea, sealing (joint venture) India Chennai, India, fluid systems EUROPE Czech Republic Zdar, Czech Republic, fluid systems France Baclair, France, sealing Bezons, France, technical center Lillebonne, France, sealing Vitre, France, sealing Germany Grünberg, Germany, fluid systems Schelklingen, Germany, fluid systems Poland Bielsko-Biala, Poland, sealing Spain Getafé, Spain, fluid systems United Kingdom Banbury, U.K., Cooper-Standard international headquarters Huntingdon, U.K., technical center Maesteg, U.K., sealing Melksham, U.K., tires Plymouth, U.K., fluid systems Plymouth, U.K., sealing This report has been produced in its entirety on recycled paper. 64 Make a promise to yourself and your family. Be tire smart Check your tire pressure. An under-inflated tire can have a big impact in terms of safety and reliability. Mind your tread. When inspecting your tires look for uneven tread wear, shallow tread, damaged areas, slow leaks and valve caps. Take turns. Your owner’s manual will tell you how often to rotate your tires, but generally, it should be done every 6,000 to 8,000 miles. w w w . c o o p e r t i r e . c o m 

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