Cooper Tire & Rubber Annual Report 2003

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FY2003 Annual Report · Cooper Tire & Rubber

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Cooper Tire & Rubber Company

2003 Annual Report

ACCELERATING
ACCELERATING

COOPER
COOPER

OUR PRODUCTS

AUTOMOTIVE GROUP:
Sealing systems, Fluid systems
NVH control systems

TIRE GROUP:
Automobile, truck,
motorcycle and racing tires
Inner tubes
Tread rubber and retreading equipment

OUR CUSTOMERS

AUTOMOTIVE GROUP:
Vehicle manufacturers
Aviation industry
Independent distributors
Retailers (aftermarket sales)
Heavy truck & marine
Large tier integrators

TIRE GROUP:
Independent tire dealers
Mass merchandisers
Retail chains
Retreaders
Wholesale distributors

Cooper Tire & Rubber Company (NYSE: CTB) is a leading manufacturer of
replacement tires and original equipment automotive systems and components.
Based in Findlay, Ohio, Cooper currently operates 52 manufacturing facilities in 13
countries. Cooper Tire is the fourth largest tire manufacturer in North America.
Cooper-Standard Automotive is the world leader in design and manufacture of
automotive sealing products and ranks among the top designers and producers of
noise, vibration and harshness (NVH) control products and fluid handling systems
for the automotive industry.

Cooper’s strategy for increasing the value of our shareholders’ investment consists
of focusing on core businesses in which we have significant expertise and sustainable
competitive advantage. These businesses include replacement tires, automotive
sealing and fluid handling systems, and NVH products. In support of that strategy
Cooper entered into the ultra-high performance tire market and racing circuits in
the United States last year. Additionally, we advanced our Asian strategy with activities
in China and Korea. Our sustainable competitive advantages include industry leading
customer service, technology that works for the customer and low cost manufacturing.

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 for
operations executives.

A c•cel•er •ate

(1) increase speed; (2) cause something to occur sooner than expected; (3) cause something to
develop or progress more quickly; or (4) reduce the time required for something to occur.

To the Stockholders:

An exciting transformation is taking hold at Cooper Tire & Rubber

Company as we grow our business and seize opportunities around

the globe. We are accelerating the implementation of our strategies
so that we can continue to outpace our competition and our

industries.

The dynamics of today’s global economy
require companies to be more nimble, flexible, efficient
and Lean than ever before. Cooper people are making
our company just that. While this is not new, it has
accelerated. We are more innovative in satisfying the
needs of our customers. We are utilizing more
advanced technology. We better share best practices
throughout our organization, and we move more
managers across functional, divisional and geo-
graphical lines than ever before.

As a result, we are constantly announcing new
products, new relationships and new markets into which

we can sell our products.

In 2003, we greatly expanded our product line in high
performance tires and for the first time introduced ultra-high
performance products, to critical acclaim. Utilizing the Cooper
Zeon name as our flagship, by the end of the year we had
already captured about five percent of the high performance
replacement tire market in North America. Our goal is to get
15 percent of that market within four years.

Also in 2003, we acquired Mickey Thompson. This
acquisition builds on the strength of our light truck tire products
and helps us penetrate additional high performance markets and
rapidly growing specialty markets, building brand recognition
and emphasizing our commitment to the performance arena.

To even further associate the Cooper brand with high

performance, in 2003 we entered into an agreement to sponsor
and supply racing tires on three North American open wheel
racing series beginning in 2004. The Cooper Tire Championship
Series in the United States builds upon our already successful
racing programs and sponsorships of F-3000 racing in Europe.

On the automotive side of our business, we launched the

largest platform in the history of our company – the new Ford
F150 – during 2003. We have 61 separate parts on this plat-

form including products from each Cooper-Standard division.This is a major
project in 11 of our North American plants. As Ford Motor Company contin-
ues to ramp up production in 2004, our sales on this platform will increase
significantly and it will become our #1 vehicle in terms of sales.

This wasn’t the only launch in the automotive group in 2003. In
fact, we introduced 150 new programs. Our customers demand that our
product launches are seamless. And, they were. We won great acclaim from
our customers for the quality of our launch process.

In our tire group we continue to strengthen and grow our business
with customers that are growing their businesses, including customers such
as TBC, Treadways, Les Schwab and Discount Tire. Combining this growth
with our market share gains in the Cooper brand encourages us to
expect a robust year in 2004. To keep pace with this strong demand, we
announced that we will be increasing production capacity in all of our U.S.
tire facilities in 2004.

In 2003 we significantly advanced our tire strategy in Asia. We

announced that we had entered into a relationship with Hangzhou Zhongce
Rubber Company in China to supply Cooper with radial medium truck tires.
We reached an agreement with Kenda Rubber Industrial Co., Ltd. to establish
a Chinese joint venture operation which will include the construction of a plant
– starting in mid-2004 - to produce radial passenger and light truck tires in
China. And, we continue to announce tire outsourcing agreements in Asia.

We also moved forward in our Asian strategy for the automotive
group in 2003 when we increased our ownership position to 90 percent in
Cooper-Standard Automotive Korea.This will help us source more business
with Korean automotive manufacturers around the world and also serve as
a base of operations for future expansion into the region for all Cooper-
Standard Automotive products. We expect to continue to implement this
strategy in 2004. In fact, we will be supplying product in China to global and
local automotive manufacturers in 2004. Our growth in Asia for both tire
and automotive operations is a very important part of our strategy that you
will see more of in 2004.

During 2003 we continued to combine operations with an
emphasis on moving production to lower cost facilities and lower cost
countries. Additionally, we continued to use Lean concepts to eliminate
waste and sell our products with fewer people. This will continue in 2004.
Our Lean initiatives in 2003 saved the company $115 million.

At the same time we were positioning the company for future

performance, we achieved an all-time sales record for our company,
surpassing the previous record established in 2000. While the first half of
the year was difficult, the second half rebounded. In the third and fourth

quarters, we reached all-time sales records in both our
tire and automotive groups.

We made further progress toward many of our
financial goals. At the end of the year, our debt-to-capital-
ization ratio was 46 percent compared to 48 percent a
year ago. We reduced our finished goods inventory by $23
million, increased payables by $43 million and generated
cash of $235 million.

We are positioned to take advantage of many
opportunities in the years ahead. We are optimistic that
the economy and our industries will experience growth.
And we plan to outpace our industries again.

In our automotive systems and components busi-
ness, we are seeing the benefit of all the new business we
have launched. Plus, we believe light vehicle builds will
increase slightly this year as the economy continues its
comeback.
In the longer term, we believe there is a lot of
upside to build rates as the population continues to grow.

On the tire side, the market in the second half

of 2003 was very strong and our industry trade group,
the Rubber Manufacturers Association (RMA), expects
2004 to get back into the normal historical pattern of
about three percent annual growth. During the second
half of 2003 our shipments of light vehicle tires outpaced
shipments by RMA members by 65 percent and we
expect to continue that pace and gain market share
throughout 2004 and beyond.

While an improving economy and solid build
rates benefit us greatly, we do have challenges in the
form of pricing pressures from our automotive customers
and raw material costs that continue to be high. As a
result, we do expect a good environment for tire prices to
increase in 2004.

At Cooper we know that people and companies

can never remain the same. We are a living, breathing,
changing organization that is moving faster than ever

before. We are excited about our Company’s future and
hope that you share our enthusiasm. On behalf of the
entire organization, thank you for your continued support
and your investment in Cooper Tire & Rubber Company.

Thomas A. Dattilo

Chairman, President and CEO

Financial Highlights

(Dollar amounts in thousands except per share amounts)

2001

2002

2003

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,154,702

202,781 (a)
117,442 (b)
79,087 (b)
1.09 (b)
1.09 (b)
.42
55.1%

$3,329,957
248,396
177,197
111,845
1.53
1.51
.42
49.2%

$3,514,399
177,130
114,110
73,836
1.00
1.00
.42
46%

(a) 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).

(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),

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).

The new 2004 Ford F-150 has
been named truck of the year by
Motor Trend magazine.

Products Accelerating New Products Accelerating New Products Accel

Automotive
In the automotive business launching a new

platform can be a challenging event at a
manufacturing facility. During 2003, our facilities
aggressively – and successfully - launched more than
150 programs.

The new business we started during the last year added
more than $140 million in sales for the year, greatly
strengthening our performance. Additional sales from

An inside look at the
Porsche Carrera GT.

new business in the coming quarters will be signifi-
cant as these new models ramp up to full production.

well as products for General Motors, Peugeot, Audi,
Mercedes and Nissan/Renault models.

Eleven of our North American facilities were involved
in launching 61 separate parts for Ford’s new F-150.
The new 2004 model, named truck of the year by
Motor Trend magazine, contains all three of our auto-
motive components. It is the largest platform in the
history of our company.

One of the most prestigious vehicles in the world, the
Porsche Carrera GT, is equipped with a full-range of
our fluid systems. Known as one of the fastest cars in
Europe, the Carrera can easily reach a speed above

300 km/h.To help the vehicle reach these speeds
and deliver maximum performance, Cooper
developed 32 components for brake,
fuel, clutch, power-steering and

transmission oil cooler systems for
the 2004 model.

Other significant launches included
the Ford GT performance car as

Looking ahead, we are experiencing major growth
with our brake and fuel product lines in North
America and plan to introduce our global roofline
manufacturing capabilities – the hydraulic systems
that maneuver hard-top convertibles – this year.

In addition to traditional elastomers, we offer products
that use thermoplastic elastomers in our sealing
division.This technology provides a light weight, cost
effective alternative to rubber in some applications.
Our plastic-supported glass run capabilities, which we
will soon introduce in the North American market,
will be used on the Peugeot 107 which is scheduled
to launch in May 2004 in Europe.This product offers
our customer enhanced styling options to provide
different color packages. We promote this product to
our customers as a method for them to differentiate
their products and add value to their customers at a
competitive price.

Cooper's trendy tire stand
earned a bronze Design of
the Times award.The
P-O-P Times, a leading
news publication
featuring articles on
the latest trends and
technologies related
to in-store merchan-
dising, highlighted the Zeon
tire stand describing it as
having a "techy look that
emphasizes the technology
of the tires."

celerating New Products Accelerating New Products Accelerating New

Tire
In the spring of 2003 Cooper

boldly entered into the ultra-
high performance arena – with
an exciting family of products under
the Zeon name. As the market for
H-,V- and Z-rated tires intensifies,
Cooper is moving full speed ahead
launching new lines and sizes at a
rapid-fire pace.

While Cooper is continuing in our
traditional markets, we are re-tooling
our tire plants so that we can increase
our share in the performance and
specialty tire markets, as they hold
great potential for growth and prof-
itability. We know that a successful
expansion in these areas is important
to our future and our teams are
working hard to do just that.

Our launch of the Cooper Zeon
ultra-high performance passenger and
light truck tires during 2003 generated
a lot of interest and excitement
among our customers. By the end of

the year we had captured almost five
percent of the market in North
America. Our goal is to achieve up to
15 percent of that market within four
years and we are well on track to
achieve, and possibly exceed, that
goal.This will improve our product
mix overall and create new business
opportunities for us with both new
and existing customers.

With the new Zeon tire products
and an expanded Discoverer line, we
entered the sport truck market last
year as well.This increasingly popular
segment requires large diameter tires,
in excess of 20-inches, for modern
SUVs, crossover models and as plus
size fitments for some luxury passenger
vehicles.

Our acquisition of Max Trac Tire
Company, Inc., better known as
Mickey Thompson Performance Tire
& Wheels, last year propelled Cooper
into the performance, racing and

off-road markets. Mickey ThompsonTM
and Dick CepekTM are two well-known
brand names among U.S. motorsport
enthusiasts who own and race street
rods, drag racers, modified pickup
trucks and off-road
race vehicles.

Cooper has been a supplier to Mickey
Thompson for a number of years,
providing specialty and off-road tires
under the two brand names. Combining
our resources affords us even more
opportunities around the world.

ooper Brand Elevating The Cooper Brand Elevating The Cooper Brand

- the Formula Ford ZETEC series, the Formula SCCA
and the SCCA Sports Racer series.Together we call
them the Cooper Tire Championship Series which
serves as yet another way of associating the Cooper
name with high performance. Our entry into American
racing builds upon our already successful Avon Tyre
racing programs and sponsorships of Formula 3 and
Formula 3000 in the UK and throughout Europe.

This sounds like a lot, and it is! We will be investing
more than we have in the past, but we are still doing
this the Cooper way, Lean and frugal, and getting the
maximum punch and value for each advertising

impression. We will continue
to spend far less than our
competitors but, as
usual, we believe
we will get

much more.

campaign targets a broad demographic with the
intent of gaining loyal customers much earlier
and keeping them much longer.Through this
comprehensive marketing approach, we intend to
be considered one of the top replacement tires in
North America.

Johnny Unser, a third generation member of one
of America’s most famous racing families, is a
valuable asset as we continue to raise awareness
of the high technology incorporated into the
Cooper brand. As our performance advisor for
ultra-high performance and racing
product lines, Unser provides
valuable insight into the design and
manufacture of tires purchased
by consumers who value
both performance and
appearance.Today’s drivers
expect control, handling,
performance as well as
style, speed and energy in
their tires. Johnny’s expertise
will help us meet those
expectations.

Beginning in 2004 Cooper
will sponsor and supply
racing tires on three U.S.
open wheel racing series

The steady growth in Cooper’s share

of the passenger, light truck and high
performance markets is the result of

a carefully executed plan. We have a history of
outpacing the industry, but more recently we have
taken our tire business to a new level by acceler-
ating our strategy to elevate the Cooper brand.

The strategy incorporates our new products and a
comprehensive program for advertising and
promotion that targets a broad range of consumers.
Our national consumer campaign highlights the
slogan Confidence. Performance. Mileage. Don’t give up
a thing, evoking images of quality and performance
while still promoting the importance of value. Our
promotional programs in collegiate athletics, racing

and specialty and niche
markets places the

Cooper brand name
in premium venues
to further
complement

our strengths
in broadline,
SUV and
light truck
markets.
Our new

d Escalating our Asian Strategy Escalating our Asian Strategy Escalatin

China and other Asian

countries are currently
the most rapidly

emerging markets in the world. As
the economies in these countries
strengthen during the next 10
years we need to be there to
produce tires for their cars and
automotive products for the cars
being built there.

During 2003, we announced new
ventures with Asian strategic
partners in both the automotive
and tire groups.

We advanced our sealing systems
position in Asia when we increased
our ownership to 90 percent of
Cooper-Standard Automotive Korea.
This elevation gives Cooper a signifi-
cant presence in Korea through a
well-established company, and will
assist the expansion of sealing systems
operations in the growing Asian
automotive market.

In addition, our NVH systems division
will provide expertise in design and
development of hydromount programs
for Hyundai and Kia through a recently
signed joint technical assistance
agreement with DaeKyung.The NVH
and fluid systems divisions continue
to develop opportunities and ventures
in Asia and will soon have production
capabilities in the region.

emerging markets with

increased opportunities

We enhanced our already successful
relationship with Kenda Rubber
Industrial Co., with a joint venture
agreement that includes the con-
struction of a plant to produce
radial passenger and light truck tires
in China. We expect construction to
begin toward the middle of 2004
and actual production to begin in
late 2005. Also, we entered into a
relationship with Hangzhou Zhongce
Rubber Company in China to supply
Cooper with radial medium truck
tires. And we continue to announce
tire outsourcing agreements in Asia.

tions Innovating Solutions Innovating Solutions Innovating Solutions

Astrong focus for Cooper people during 2003 was to exceedingly challenge

the status quo.This route includes both developing new technology as
well as utilizing existing technology differently.

Our automotive group has earned respect for innovation and problem solving.This
competitive advantage diffuses the concept of applying the “commodity” label to
our products.

The NVH systems team currently is expanding the use of two Cooper-unique
technologies. Using a test vehicle supplied by a customer, engineers are developing
solutions using hydromount and active technology to counteract the noisy and
rough ride that results from displacement on demand technology, which is intended
to improve gas mileage. In addition, our active noise control technology - which
has been used in the aircraft, heavy truck and automobile industries for more
than a decade - may now provide the locomotive industry with noise control in
the cab environment to help reduce the potential for hearing loss often
experienced by conductors.

Designed specifically to
achieve the Euro4 and Euro5
emissions targets, Cooper’s
exhaust gas recirculation
bypass cooler is now being
used in various diesel engines
within the largest Volkswagen
platforms in Europe.The bypass
cooler provides improved efficiency and
enhances the emissions systems to meet
environmental requirements.

Traditionally the tire group has been fairly quiet about our technology, but we’ve
begun to tell the world about our expertise in the performance area. From concept
through production, the latest technology is being applied to maximize product quality
and enhance operating efficiencies.

Our virtual tire technology helps us to stay on the cutting edge of market
demands. Customized to Cooper specifications, this computer-aided design
program is tightly integrated with our product development process and
was highly instrumental in the launch of the new ultra-high performance and
specialty light truck lines last year. Using proprietary Cooper technology, our
engineers are able to more efficiently develop a completely new product
design resulting in a manufactured tire meeting, and even exceeding, our
customers’ expectations.

Within the manufacturing environment, our new specialty light truck tires
were cured utilizing high pressure nitrogen cure technology, enhancing both
the tire’s performance and the efficiency of the process.

Our manufacturing facilities continue to invest in the latest technology
in tire building machines coupled with Lean cellular manufacturing
concepts.This combination provides us with an operation
that has a smaller footprint, results in less work in
process and requires fewer people than traditional
tire manufacturing processes.

We are committed to meeting market demands and
being Lean with the highest technology available that
works for the customer.

Exceeding Customer’s Expectations Exceeding Customer’s Expectations

The customer is king is more than

just a slogan at Cooper. As a global
company, we are focused on

customers and markets and are dedicated to
total customer satisfaction, understanding of
customer needs and exceeding their
expectations. Cooper people are expected
to know and understand their customers and
earn their business every day.

In the tire group we continue to strengthen
and grow our business with independent
dealers that are growing their businesses and
also with customers such as TBC,Treadways,
Les Schwab and Discount Tire. At the same
time we are cultivating a new generation of
Cooper tire buyers in the emerging tuner
market, which consists of younger drivers
who spend their time, and money, on
customizing their vehicles.

Our customer strategy is already proving
successful. As light vehicle
replacement tire
shipments picked

up during the second half of 2003,
Cooper shipments outpaced RMA member
shipments by 65 percent when compared to
the prior year.

In the automotive group, we work to provide
systems and components to our customers
that differentiate their products in the
market and add value to their consumers at
a competitive price.

Last year we teamed up with the Lord
Corporation to develop a more economical
and improved function engine mount system
using Cooper-designed hydromounts and a
patented Lord dampening device designed
to improve driver comfort for various models
of General Motors’ new mid-size cars.
Vehicle launches begin with 2004 models
and ramp up through 2006 models.

Our development efforts are only
matched by our manufacturing
excellence. At the Mt. Sterling,

Kentucky, fluid systems

facility, for example, during
the past 18 months we
have produced 1.6
million parts containing
more than 20 million
components with no
rejections by the
customer! Now that’s
customer service!

Customer Recognition

The f luid systems facility in Adelaide, Australia received a special
recognition award from Ford for the launch of the new 'Barra'
model Falcon range.

Ten Cooper automotive manufacturing facilities received the
prestigious DaimlerChrysler Gold Awards for quality and delivery
during 2002.The facilities are:

Sealing Systems
_______________

Fluid Systems
_______________

NVH Control
Systems
_____________

Surgoinsville,Tenn.
Fairview, Mich.

Auburn, Ind.
Mitchell, Ontario

Spartanburg, SC
Griffin, Ga.
Bowling Green, Ohio
Gaylord, Mich.
Georgetown, Ontario
Stratford, Ontario

Cooper Tire & Rubber Company was recognized as one of
The Most Successful UK Engineering Companies for 2003. Cooper
ranked 19 out of 50 companies listed in the September/October
2003 issue of The Engineer magazine.

The Chennai, India, fluid systems facility received Ford Motor
Company’s Gold World Excellence Award in April, recognizing
the facility as one of its top suppliers in the world during 2002.

The Avon racing program was awarded the John Nicol Trophy by
the British Racing & Sports Car Club (BRSCC).

The fluid systems facility in Torreon, Mexico, received the 2002
Quality Master Award from Nissan.

The NVH control systems facility in Auburn, Ind., received the
GM Service Parts Operations 100 percent on-time delivery
certificate of recognition.

talic
BoldI
ns
GillSa

Cooper People Engaging Cooper People Engaging Cooper People Engaging

Cooper’s Philosophy & Beliefs provides

a “Constitution” that defines how we
run our business.This document out-
lines the characteristics of a company that will
change on its own – naturally, through its

own processes.
The most important part of the
document focuses on trusting and
empowering Cooper people to use
their creativity, innovation and free
thought. Inherently then we will
reject mediocrity while accepting
only the best.These concepts keep
us fresh – keep us new – keep us
changing. Our people understand
these ideas more and more as we pre-
pare, train, educate and then promote them
across functional, divisional and group lines.
We have pockets of brilliance in every
plant, in every administrative office, and
these operations drive Lean across the
company. Lean has created a common
purpose for our workforce and provided
our people with tools to meet the challenges
of today’s marketplace head-on. During
2003, Cooper people generated $115 million
in Lean savings.

We recognize the importance of a broad base of
experience for our people. We believe for managers
to be promoted they should move across product,
discipline, organizational and regional lines. In addition
to providing the company with leaders who have
extensive knowledge and experience, this approach
also facilitates the sharing of best practices across
the organization. We move managers across
functional, divisional and geographical lines more
than ever before.

We also encourage our people to be active within
their communities – which includes being informed
voters. At Cooper we remind our people of the
importance of being good citizens by voting and
being active participants in the electoral process.
Last year we launched a portion of the corporate
website to provide Cooper people, and the public
at-large, information and tools to make it easier to
understand the election issues, learn more about
their candidates and then cast an informed vote.
The site includes voter registration information,
tools to locate and contact elected officials and
candidate guides and voting records.

During 2003 we set the pace to maximize our
structure, talent and resources to achieve even
greater returns for our shareholders.