2017 ANNUAL REPORT
Focused on Growth
To our stockholders:
Despite a year that presented challenges to the tire industry and
to Cooper, we were pleased to end 2017 with operating profit
of $272 million, or 9.5 percent of net sales, which is near the
high end of our previously stated mid-term target range of 8
to 10 percent. Cooper ended 2017 with consolidated sales of
$2.85 billion, a 2.4 decrease from 2016. Full year net income
was $95 million or diluted earnings per share of $1.81. This
included charges of $68 million of discrete tax items in the
fourth quarter primarily related to the impact of tax reform in
the United States. We expect tax reform to drive significant
benefits for us in the future, allowing Cooper to accelerate
our future initiatives and invest more in our business. We
continued our strong record of share repurchases and dividend
payments. In 2017, Cooper repurchased 2.5 million shares
of the company’s common stock for $90.9 million and
we recently announced the company’s 184th consecutive
quarterly dividend.
The challenges of 2017 emerged in late 2016, when raw
material prices began to rise sharply, and throughout 2017,
there was significant price volatility. Raw material costs for
Cooper were $163 million higher in 2017 than in 2016.
Cooper ended 2017 with a small decrease in global unit volume
of approximately one-half percent as strong unit volume growth
in Asia nearly offset a decline in U.S. unit volume. In the U.S.
market, there was soft consumer demand for tires industry-
wide throughout the year, which resulted in heavy promotional
and pricing activity among competitors. This, combined with
our decision to exit some non-strategic private brand distributor
business—a process which is largely behind us—led to
a decline in unit volume of 8.6 percent in the U.S. Today,
Cooper’s private brand distributor business is down almost 5
million units compared to 2012 as we have undertaken this
important initiative. While this has resulted in short-term unit
volume reductions, we are in the process of replacing those
units with more strategic, generally higher margin business.
In addition to strong unit volume growth, the Asia team also
did a great job with the integration and ramp up of our GRT
joint venture in China, which produces truck and bus radial
tires. In 2017, GRT was accretive to earnings, one year ahead
of our projections.
We have launched several initiatives to improve unit volume,
including:
• Entering new sales channels including e-commerce,
auto dealerships and others. We’ve made good
progress in recent months on this objective.
Cooper needs to be where consumers are buying
tires today and participating in growing channels.
• Making inroads into the global original equipment
(OE) business beyond the strong presence Cooper
already has with OE vehicle manufacturers in
Asia. We will remain primarily a replacement tire
company, but there are many benefits—including
brand awareness and staying abreast of technology
advancements—that come along with strategic OE
relationships.
• Speeding the cadence of new product
introductions, launching products more often and
making consumers a bigger part of the product
design and testing process so that Cooper brings to
market exciting tires that consumers want to buy.
In addition to the volume opportunity, we are focused on
driving profit margin improvement through efforts underway
to enhance efficiencies and reduce costs, including the
continued balancing of production capacity within our
network, automation in our plants, and making our corporate
structure as efficient and effective as possible. These efforts
will take time to manifest, but we are encouraged by early
progress.
Moving forward, we expect our growth and profit margin
improvement initiatives, combined with positive underlying
macro-conditions in the tire industry, such as miles driven,
vehicle age, low unemployment and others, to positively affect
our business.
Our people are at the center of Cooper’s growth efforts and we
value their hard work and contributions as well as the loyalty
of our customers. We are excited about the future and thank
you, our stockholders, for your support of Cooper.
Bradley E. Hughes
President & Chief Executive Officer
Thomas P. Capo
Chairman
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
For Annual and Transition Reports Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934
(cid:58)(cid:3) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
or
(cid:133)(cid:3) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-04329
COOPER TIRE & RUBBER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
34-4297750
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
701 Lima Avenue, Findlay, Ohio
(Address of Principal Executive Offices)
45840
(Zip Code)
Registrant’s telephone number, including area code: (419) 423-1321
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1 par value per share
(Title of Each Class)
New York Stock Exchange
(Name of Each Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:58) No (cid:133)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:58)
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 (cid:58) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes (cid:58) No (cid:133)
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. (cid:58)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Non-Accelerated Filer
(cid:58)(cid:3)
(cid:133)(cid:3)(Do not check if a smaller reporting company)
Accelerated filer
Smaller Reporting Company
Emerging growth company
(cid:133)(cid:3)
(cid:133)(cid:3)
(cid:133)(cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:58)
The aggregate market value of the voting common stock held by non-affiliates of the registrant at June 30, 2017 was $1,834,716,601.
The number of shares outstanding of the registrant’s common stock as of February 16, 2018 was 50,797,944.
Certain information from the registrant’s definitive proxy statement for its 2018 Annual Meeting of Stockholders will be herein incorporated by
reference into Part III, Items 10 – 14, of this report.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
COOPER TIRE & RUBBER COMPANY – FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
Part I
Item 1 – Business
Item 1A – Risk Factors
Item 1B – Unresolved Staff Comments
Item 2 – Properties
Item 3 – Legal Proceedings
Item 4 – Mine Safety Disclosures
Part II
Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6 – Selected Financial Data
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A – Quantitative and Qualitative Disclosures About Market Risk
Item 8 – Financial Statements and Supplementary Data
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A – Controls and Procedures
Item 9B – Other Information
Part III
Item 10 – Directors and Corporate Governance
Item 11 – Executive Compensation
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13 – Certain Relationships and Related Transactions, and Director Independence
Item 14 – Principal Accountant Fees and Services
Part IV
Item 15 – Exhibits and Financial Statement Schedules
Item 16 – Form 10-K Summary
Signatures
Exhibit Index
Item 1.
BUSINESS
PART I
Page
reference
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Cooper Tire & Rubber Company, with its subsidiaries (“Cooper” or the “Company”), is a leading manufacturer and marketer of
replacement tires. It is the fifth largest tire manufacturer in North America and, according to a recognized trade source, the
Cooper family of companies is the twelfth largest tire company in the world based on sales. Cooper specializes in the design,
manufacture, marketing and sales of passenger car, light truck, medium truck, motorcycle and racing tires.
The Company is organized into four business segments: North America, Latin America, Europe and Asia. Each segment is
managed separately. Additional information on the Company’s segments as reported, including their financial results, total
assets, products, markets and presence in particular geographic areas, appears in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the “Business Segments” note to the consolidated financial statements.
Cooper Tire & Rubber Company was incorporated in the state of Delaware in 1930 as the successor to a business originally
founded in 1914. Based in Findlay, Ohio, Cooper and its family of companies currently operate in 14 countries, including 9
manufacturing facilities and 20 distribution centers. As of December 31, 2017, it employed 9,204 persons worldwide.
-1-
Business Segments
The Company has four segments under Accounting Standards Codification (“ASC”) 280, “Segments”:
•
•
•
•
North America, composed of the Company’s operations in the United States (“U.S.”) and Canada;
Latin America, composed of the Company’s operations in Mexico, Central America and South America;
Europe; and
Asia.
North America and Latin America meet the criteria for aggregation in accordance with ASC 280, as they are similar in their
production and distribution processes and exhibit similar economic characteristics. The aggregated North America and Latin
America segments are presented as “Americas Tire Operations” in the segment disclosure.
Both the Asia and Europe segments have been determined to be individually immaterial, as they do not meet the quantitative
requirements for segment disclosure under ASC 280. In accordance with ASC 280, information about operating segments that
are not reportable shall be combined and disclosed in an all other category separate from other reconciling items. As a result,
these two segments have been combined in the segment operating results discussion. The results of the combined Asia and
Europe segments are presented as “International Tire Operations” in the segment disclosure.
Americas Tire Operations Segment
The Americas Tire Operations segment manufactures and markets passenger car and light truck tires, primarily for sale in the
U.S. replacement market. The segment also has a joint venture manufacturing operation in Mexico, Corporacion de Occidente
SA de CV (“COOCSA”), which supplies passenger car tires to the North American, Mexican, Central American and South
American markets. The segment also distributes tires for racing, medium trucks and motorcycles. The racing and motorcycle
tires are manufactured in the Company’s European Operations segment and by others. The medium truck tires are sourced from
China-based Qingdao Ge Rui Da Rubber Co., Ltd. ("GRT"), a majority-owned joint venture manufacturing facility, and
through an off-take agreement that was entered with Prinx Chengshan (Shandong) Tire Company Ltd. ("PCT"), the Company's
former joint venture. In December 2017, the Company signed an off-take agreement with Sailun Vietnam Co. Ltd. ("Sailun")
as an additional source of medium truck tires. The off-take agreement is effective from January 1, 2018 through December 31,
2020. Major distribution channels and customers include independent tire dealers, wholesale distributors, regional and national
retail tire chains, and large retail chains that sell tires as well as other automotive products. The segment does not currently sell
its products directly to end users, except through three Company-owned retail stores. The segment sells a limited number of
tires to original equipment manufacturers (“OEMs”).
The segment operates in a highly competitive industry, which includes Bridgestone Corporation, Goodyear Tire & Rubber
Company and Groupe Michelin. These competitors are substantially larger than the Company and serve OEMs as well as the
replacement tire market. The segment also faces competition from low-cost producers in Asia, Mexico, South America and
Central Europe. Some of those producers are foreign affiliates of the segment’s competitors in North America. The segment had
a market share in 2017 of approximately 11 percent of all light vehicle replacement tire sales in the U.S. The segment also
participates in the U.S. medium truck tire market. A portion of the products manufactured by the segment are exported
throughout the world.
Success in competing for the sale of replacement tires is dependent upon many factors, the most important of which are price,
quality, performance, line coverage, availability through appropriate distribution channels and relationships with dealers and
retailers. Other factors include warranty, credit terms and other value-added programs. The segment has built close working
relationships through the years with independent dealers. It believes those relationships have enabled it to obtain a competitive
advantage in that channel of the market. As a steadily increasing percentage of replacement tires are sold by large regional and
national tire retailers, the segment has increased its penetration of those distribution channels, while maintaining a focus on its
traditionally strong network of independent dealers.
The segment’s replacement tire business has a broad customer base that includes purchasers of proprietary brand tires that are
marketed and distributed by the Company and private label tires which are manufactured by the Company but marketed and
distributed by the Company’s customers.
Customers generally place orders on a month-to-month basis and the segment adjusts production and inventory to meet those
orders, which results in varying backlogs of orders at different times of the year. Tire sales are subject to a seasonal demand
pattern. This usually results in the sales volumes being strongest in the third and fourth quarters and weaker in the first and
second quarters.
International Tire Operations Segment
The International Tire Operations segment is the combination of the Asia and Europe operating segments. The European
operations include manufacturing operations in the United Kingdom (“U.K.”) and the Republic of Serbia (“Serbia”). The U.K.
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entity manufactures and markets passenger car, light truck, motorcycle and racing tires and tire retread material for domestic
and global markets. The Serbian entity manufactures light vehicle tires primarily for the European markets and for export to the
U.S. The Asian operations are located in the People’s Republic of China (“PRC”). Cooper Kunshan Tire manufactures light
vehicle tires both for the Chinese domestic market and for export to markets outside of the PRC. On December 1, 2016, the
Company acquired 65 percent of GRT, a joint venture manufacturing facility located in the PRC. GRT serves as a global
source of truck and bus radial tire production for the Company. The segment also had another joint venture in the PRC, PCT,
which manufactured and marketed radial and bias medium truck tires, as well as passenger car and light truck tires for domestic
and global markets. The Company sold its ownership interest in this joint venture in November 2014, and the Company began
procuring certain medium truck and passenger car tires under off-take agreements with PCT through mid-2018. The medium
truck tire agreement has been extended and now expires in mid-2019. In December 2017, the Company signed an off-take
agreement with Sailun, effective from January 1, 2018 through December 31, 2020, as an additional source of medium truck
tires. The segment sells a majority of its tires in the replacement market, with a growing portion also sold to OEMs.
The segment has also established sales, marketing, distribution and research and development capabilities to support the
Company’s objectives.
As in the Americas Tire Operations segment, the International Tire Operations segment operates in a highly competitive
industry, which includes Bridgestone Corporation, Goodyear Tire & Rubber Company and Groupe Michelin. These
competitors are substantially larger than the Company and serve OEMs as well as the replacement tire market. The segment
also faces competition from low-cost producers.
Raw Materials
The Company’s principal raw materials include natural rubber, synthetic rubber, carbon black, chemicals and steel
reinforcement components. The Company acquires its raw materials from various sources around the world to assure
continuing supplies for its manufacturing operations and to mitigate the risk of potential supply disruptions.
During 2017, the Company experienced increases in the costs of certain of its principal raw materials in comparison to 2016.
The pricing volatility of natural rubber and certain other raw materials contributes to the difficulty in accurately predicting and
managing these costs.
The Company has a purchasing office in Singapore to acquire natural rubber directly from producers in Southeast Asia. This
purchasing operation enables the Company to work directly with producers to continually improve consistency and quality,
while reducing the costs of materials, transportation and transactions.
The Company’s contractual relationships with its raw material suppliers are generally based on long-term agreements or
purchase order arrangements. For natural rubber and natural gas, procurement is managed through a combination of buying
forward production requirements and utilizing the spot market. For other principal materials, procurement arrangements
include supply agreements that may contain formula-based pricing based on commodity indices, multi-year agreements or spot
purchases. These arrangements only cover quantities needed to satisfy normal manufacturing demands.
Working Capital
The Company’s working capital consists mainly of inventory, accounts receivable and accounts payable. These working capital
accounts are closely managed by the Company. Inventory balances are primarily valued at a last-in, first-out (“LIFO”) basis in
the U.S. and under the first-in, first-out (“FIFO”) basis in the rest of the world. Inventories turn regularly, but balances typically
increase during the first half of the year before declining as a result of increased sales in the second half. The Company’s
inventory levels are generally kept within a targeted range to meet projected demand. The mix of inventory is critical to
inventory turnover and meeting customer demand. Accounts receivable and accounts payable are also affected by this business
cycle, typically requiring the Company to have greater working capital needs during the second and third quarters. The
Company engages in a rigorous credit analysis of its customers and monitors their financial positions. The Company offers
incentives to certain customers to encourage the payment of account balances prior to their scheduled due dates.
At December 31, 2017, the Company held cash and cash equivalents of $372 million.
Research, Development and Product Improvement
The Company directs its research activities toward product development, performance and operating efficiency. The Company
conducts extensive testing of current tire lines, as well as new concepts in tire design, construction and materials. During 2017,
over 96 million miles of tests were performed on indoor test wheels and in monitored road tests. The Company has a tire and
vehicle test track in Texas that assists with the Company’s testing activities. Uniformity equipment is used to physically
monitor manufactured tires for high standards of ride quality. The Company continues to design and develop specialized
-3-
equipment to fit the precise needs of its manufacturing and quality control requirements. Research and development
expenditures were $60 million, $56 million and $52 million during 2017, 2016 and 2015, respectively.
Patents, Intellectual Property and Trademarks
The Company owns or has licenses to use patents and intellectual property covering various aspects in the design and
manufacture of its products and 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.
The Company owns and uses tradenames and trademarks worldwide. While the Company believes such tradenames and
trademarks as a group are of material importance, the trademarks the Company considers most significant to its business are
those using the words “Cooper,” “Mastercraft”, "Roadmaster", "Starfire" and “Avon.” The Company believes all of these
significant trademarks are valid and will have unlimited duration as long as they are adequately protected and appropriately
used. Certain other tradenames and trademarks are being amortized over the next one to three years.
Seasonal Trends
There is year-round demand for passenger car and truck replacement tires, but passenger car replacement tire sales are
generally strongest during the third and fourth quarters of the year. Winter tires are sold principally during the months of May
through November.
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 operations have been recognized with several awards for efforts to improve
energy efficiency.
The Company’s manufacturing facilities, like 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 matters will be imposed in the future. The
Company’s 2017 expense and capital expenditures for environmental matters at its facilities were not material, nor is it
expected that expenditures in 2018 for such matters will be material.
Foreign Operations
The Company has a manufacturing facility, a technical center, a distribution center and its European headquarters office located
in the U.K. The Company has a manufacturing facility, two distribution centers and an office in Serbia. In total, there are seven
distribution centers and four sales offices in Europe. The Company has a manufacturing facility and a joint venture
manufacturing facility, two distribution centers, a technical center, a sales office and an administrative office in the PRC. The
Company also has a purchasing office in Singapore. In Latin America, the Company has a joint venture manufacturing facility,
an administrative office, three sales offices and a distribution center.
Additional information on the Company’s foreign operations can be found in the “Business Segments” note to the consolidated
financial statements.
Available Information
The Company makes available free of charge, on or through its website, its annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or
furnishes it to, the U.S. Securities and Exchange Commission (“SEC”). The Company’s internet address is http://
www.coopertire.com. The Company has adopted charters for each of its Audit, Compensation and Nominating and Governance
Committees, corporate governance guidelines and a code of conduct, which are available on the Company’s website and will be
available to any stockholder who requests them from the Company’s Investor Relations department. The information contained
on or accessible through the Company’s website is not incorporated by reference in this annual report on Form 10-K and should
not be considered a part of this report.
-4-
The names, ages and all positions and offices held by all executive officers of the Company are as follows:
EXECUTIVE OFFICERS OF THE REGISTRANT
Name
John J. Bollman
Age Executive Office Held
60 Senior Vice President and Chief
Human Resources Officer
Bradley E. Hughes
56 President, Chief Executive Officer
and Director
Ginger M. Jones
53 Senior Vice President and Chief
Financial Officer
Stephen Zamansky
47 Senior Vice President, General
Counsel and Secretary
Business Experience
Senior Vice President and Chief Human
Resources Officer since March 2017.
Previously Chief Human Resources
Officer of Sequa Corporation, a global
firm that provides manufacturing
support to gas turbine engine makers,
from 2008 to March 2017; Vice
President of Human Resources, North
America of Whirlpool Corporation, a
global home appliance manufacturing
company, from 2000 to 2008.
President, Chief Executive Officer and
Director since September 2016. Senior
Vice President and Chief Operating
Officer from January 2015 to September
2016. Senior Vice President and
President-International Tire Operations
from July 2014 to January 2015. Senior
Vice President and Chief Financial
Officer from September 2014 to
December 2014. Senior Vice President,
Chief Financial Officer and Treasurer
from July 2014 to September 2014. Vice
President, Chief Financial Officer and
Treasurer from November 2013 to July
2014. Vice President and Chief
Financial Officer from November 2009
to November 2013.
Senior Vice President and Chief
Financial Officer since May 2016. Vice
President and Chief Financial Officer
from December 2014 to May 2016.
Previously Senior Vice President and
Chief Financial Officer of Plexus
Corporation, an electronics
manufacturing services company, from
2011 to May 2014; Vice President and
Chief Finance Officer of Plexus
Corporation from 2007 to 2011.
Senior Vice President, General Counsel
and Secretary since July 2014. Vice
President, General Counsel and
Secretary from April 2011 to July 2014.
Previously Senior Vice President,
General Counsel & Secretary of Trinity
Coal Corporation, a privately held
mining company, from 2008 to March
2011. Trinity was acquired by the Essar
Group in 2010 and commenced
bankruptcy proceedings in March 2013.
-5-
Item 1A. RISK FACTORS
Some of the more significant risk factors related to the Company follow:
Pricing volatility for raw materials or commodities or an inadequate supply of key raw materials could result in increased
costs and may significantly affect the Company’s profitability.
The pricing volatility for natural rubber, petroleum-based materials and other raw materials contributes to the difficulty in
managing the costs of raw materials. Costs for certain raw materials used in the Company’s operations, including natural
rubber, chemicals, carbon black, steel reinforcements and synthetic rubber remain highly volatile. Increasing costs for raw
material supplies will increase the Company’s production costs and affect its margins if the Company is unable to pass the
higher production costs on to its customers in the form of price increases. Even if the Company is able to pass along these
higher costs, its profitability may be adversely affected until it is able to do so. Decreasing costs for raw materials could also
affect margins if the Company is unable to maintain its pricing structure due to the need to offer price reductions to remain
competitive. Further, if the Company is unable to obtain adequate supplies of raw materials in a timely manner for any reason,
its operations could be interrupted or otherwise adversely affected.
The Company is facing heightened risks due to the uncertain business environment.
Current global economic conditions may affect demand for the Company’s products, create volatility in raw material costs and
affect the availability and cost of credit. These conditions also affect the Company’s customers and suppliers as well as the
ultimate consumer.
Deterioration in the global macroeconomic environment or in specific regions could impact the Company and, depending upon
the severity and duration of these factors, the Company’s profitability and liquidity position could be negatively impacted.
The Company’s competitors may also change their actions as a result of changes to the business environment, which could
result in increased price competition and discounts, resulting in lower margins or reduced sales volumes for the business.
In addition, the bankruptcy, restructuring or consolidation of one or more of the Company’s major customers or suppliers could
result in the write-off of accounts receivable, a reduction in purchases of the Company’s products or a supply disruption to its
facilities, which could harm the Company’s results of operations, financial condition and liquidity.
The Company’s results could be impacted by changes in tariffs, trade agreements or other trade restrictions imposed by the
U.S. or other governments on imported tires or raw materials.
The Company’s ability to competitively source and sell tires can be significantly impacted by changes in tariffs, changes or
repeals of trade agreements, including withdrawal from or material modifications to NAFTA or certain other international trade
agreements, or other trade restrictions imposed by various governments. Other effects, including impacts on the price of tires,
responsive actions from governments and the opportunity for competitors to establish a presence in markets where the
Company participates, could also have significant impacts on the Company’s results.
For example, antidumping and countervailing duty investigations into certain passenger car and light truck tires imported from
the PRC into the United States were initiated on July 14, 2014. The determinations announced in both investigations were
affirmative and resulted in the imposition of significant additional duties from each. The countervailing duty determination is
undergoing an Administrative Review with the final results being expected in the first quarter of 2018.
In addition, antidumping and countervailing duty investigations into certain truck and bus tires imported from the PRC into the
U.S. were initiated on January 29, 2016. The preliminary determinations announced in both investigations were affirmative and
resulted in the imposition of significant additional duties from each. On February 22, 2017, the International Trade Commission
("ITC") made a final determination that the U.S. market had not suffered material injury because of imports of truck and bus
tires from China. As a result of this decision, preliminary antidumping and countervailing duties from Chinese truck and bus
tires imported subsequent to the preliminary determination were not collected and any amounts previously paid were refunded.
On April 14, 2017, the United Steelworkers Union filed a civil action challenging the ITC's decision not to impose duties on
truck and bus tires from China imported into the U.S. Currently, the Company sources its truck and bus tires exclusively from
the PRC.
The imposition of additional duties or other trade restrictions in the U.S. or elsewhere on raw materials used by the Company or
on certain tires imported from the PRC or other countries will result in higher costs and potentially lower margins, or in the
case of finished goods, in those tires being diverted to other regions of the world, such as Europe, Latin America or elsewhere
in Asia, which could materially harm the Company’s results of operations, financial condition and liquidity.
-6-
The Company’s industry is highly competitive, and the Company may not be able to compete effectively with lower-cost
producers and larger competitors.
The tire industry is a highly competitive, global industry. Some of the Company’s competitors are larger companies with
greater financial resources. Intense competitive activity in the replacement tire industry has caused, and will continue to cause,
pressures on the Company’s business. As the Company increases its presence in the original equipment market, the demand for
products by the OEM's will be impacted by automotive vehicle production. The Company’s ability to compete successfully
will depend in part on its ability to balance capacity with demand, leverage global purchasing of raw materials, make required
investments to improve productivity, eliminate redundancies and increase production at low-cost, high-quality supply sources.
If the Company is unable to offset continued pressures with improved operating efficiencies, its sales, margins, operating
results and market share would decline and the impact could become material on the Company’s earnings.
The Company is facing supply risks related to certain tires it purchases from PCT.
In 2014, the Company sold its ownership interest in PCT and entered into off-take agreements with PCT to provide the
continuous supply of certain medium truck and passenger car tires for the Company through mid-2018. The medium truck tire
agreement has been extended and now expires in mid-2019. If there are any disruptions in or quality issues with the supply of
Cooper-branded products from PCT, it could have a material negative impact on the Company’s business. The Company is
actively pursuing options to ensure the uninterrupted supply of these tires to meet the demands of the business beyond the
terms of the PCT off-take agreements, including sourcing through GRT and an off-take agreement with Sailun, but there can be
no assurance that the Company will be able to do so in a timely manner. The Company currently sources medium truck tires
from GRT and PCT.
If the Company fails to develop technologies, processes or products needed to support consumer demand or, changes in
consumer behavior, it may lose significant market share or be unable to recover associated costs.
The Company’s ability to sell tires may be significantly impacted if it does not develop or have available technologies,
processes, or products that competitors may be developing and consumers demanding. This includes, but is not limited to,
changes in the design of and materials used to manufacture tires, changes in the types of tires consumers desire, changes in the
vehicles consumers are purchasing and failure to effectively compete in various sales channels, including digital channels and
others in which the Company has been less active in the past.
Technologies or processes may also be developed by competitors that better distribute tires to consumers, which could affect
the Company’s customers and implementation of it's strategic plan.
An increase in consumer preference for car- and ride-sharing services, as opposed to automobile ownership, may result in a
long term reduction in the number of vehicles per capita. Additionally, developing new products and technologies requires
significant investment and capital expenditures, is technologically challenging and requires extensive testing and accurate
anticipation of technological and market trends. If the Company fails to develop new products that are appealing to its
customers, or fails to develop products on time and within budgeted amounts, the Company may be unable to recover its
product development and testing costs. If the Company cannot successfully use new production or equipment methodologies it
invests in, it may also not be able to recover those costs.
Any interruption in the Company’s skilled workforce, or that of its suppliers or customers, including labor disruptions,
could impair its operations and harm its earnings and results of operations.
The Company’s operations depend on maintaining a skilled workforce and any interruption of its workforce due to shortages of
skilled technical, production or professional workers, work disruptions, or other events could interrupt the Company’s
operations and affect its operating results. Further, a significant number of the Company’s employees are currently represented
by unions. If the Company is unable to resolve any labor disputes or if there are work stoppages or other work disruptions at
the Company or any of its suppliers or customers, the Company’s business and operating results could suffer. See also related
comments under “The Company is facing supply risks related to certain tires it purchases from PCT.”
If the Company is unable to attract and retain key personnel, its business could be materially adversely affected.
The Company’s business depends on the continued service of key members of its management. The loss of the services of a
significant number of members of its management team could have a material adverse effect on its business. The Company’s
future success will also depend on its ability to attract, retain and develop highly skilled personnel, such as engineering,
marketing and senior management professionals. Competition for these employees is intense and the Company could
experience difficulty in hiring and retaining the personnel necessary to support its business. If the Company does not succeed in
retaining its current employees and attracting new high-quality employees, its business could be materially adversely affected.
-7-
A disruption in, or failure of, the Company’s information technology systems, including those related to cybersecurity, could
adversely affect the Company’s business operations and financial performance.
The Company relies on the accuracy, capacity and security of its information technology systems across all of its major
business functions, including its research and development, manufacturing, sales, financial and administrative functions. While
the Company maintains some of its critical information technology systems, it is also dependent on third parties to provide
important information technology services relating to, among other things, human resources, electronic communications and
certain finance functions. Additionally, the Company collects and stores sensitive data, including intellectual property,
proprietary business information and the proprietary business information of its customers and suppliers, as well as personally
identifiable information of the Company’s customers and employees, in data centers and on information technology networks.
Despite the security measures that the Company has implemented, including those related to cybersecurity, its systems could be
breached or damaged by computer viruses, natural or man-made incidents or disasters or unauthorized physical or electronic
access. Furthermore, the Company may have little or no oversight with respect to security measures employed by third-party
service providers, which may ultimately prove to be ineffective at countering threats. A system failure, accident or security
breach could result in business disruption, theft of its intellectual property, trade secrets or customer information and
unauthorized access to personnel information. To the extent that any system failure, accident or security breach results in
disruptions to its operations or the theft, loss or disclosure of, or damage to, its data or confidential information, the Company’s
reputation, business, results of operations, cash flows and financial condition could be materially adversely affected. In
addition, the Company may be required to incur significant costs to protect against and, if required, remediate the damage
caused by such disruptions or system failures in the future.
The Company may be adversely affected by legal actions, including product liability claims which, if successful, could have
a negative impact on its financial position, cash flows and results of operations.
The Company’s operations expose it to legal actions, including potential liability for personal injury or death as an alleged
result of the failure of or conditions in the products that it designs, manufactures and sells. Specifically, the Company is a party
to a number of product liability cases in which individuals involved in motor vehicle accidents seek damages resulting from
allegedly defective tires that it manufactured. Product liability claims and lawsuits, including possible class action, may result
in material losses in the future and cause the Company to incur significant litigation defense costs. The Company is largely
self-insured against these claims. These claims could have a negative effect on the Company’s financial position, cash flows
and results of operations.
From time to time, the Company is also subject to litigation or other commercial disputes and other legal proceedings relating
to its business. Due to the inherent uncertainties of any litigation, commercial disputes or other legal proceedings, the Company
cannot accurately predict their ultimate outcome, including the outcome of any related appeals. An unfavorable outcome could
materially adversely impact the Company’s financial condition, cash flows and results of operations.
The Company conducts its manufacturing, sales and distribution operations on a worldwide basis and is subject to risks
associated with doing business outside the U.S.
The Company has affiliate, subsidiary and joint venture operations worldwide, including in the U.S., Europe, Mexico and the
PRC. The Company has a wholly-owned manufacturing entity, Cooper Kunshan Tire, and is the majority owner of GRT, both
in the PRC. The Company also is the majority owner of COOCSA, a manufacturing entity in Mexico, and has established
operations in Serbia and the U.K. PCT, located in the PRC, is currently a supplier of medium truck tires for the Company and
the Company recently entered into an off-take agreement with Sailun, located in Vietnam, for the supply of medium truck tires.
There are a number of risks in doing business abroad, including political and economic uncertainty, social unrest, sudden
changes in laws and regulations, ability to enforce existing or future contracts, shortages of trained labor and the uncertainties
associated with entering into joint ventures or similar arrangements in foreign countries. These risks may impact the
Company’s ability to expand its operations in different regions and otherwise achieve its objectives relating to its foreign
operations, including utilizing these locations as suppliers to other markets. In addition, compliance with multiple and
potentially conflicting foreign laws and regulations, import and export limitations and exchange controls is burdensome and
expensive. For example, the Company could be adversely affected by violations of the Foreign Corrupt Practices Act (“FCPA”)
and similar worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA and similar anti-
bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to
government officials and, in some cases, other persons, for the purpose of obtaining or retaining business. Violations of these
laws and regulations could result in civil and criminal fines, penalties and sanctions against the Company, its officers or its
employees, prohibitions on the conduct of the Company’s business and on its ability to offer products and services in one or
more countries, and could also harm the Company’s reputation, business and results of operations. The Company’s foreign
operations also subject it to the risks of international terrorism and hostilities and to foreign currency risks, including exchange
rate fluctuations and limits on the repatriation of funds. See also related comments under "The Company’s results could be
-8-
impacted by changes in tariffs, trade agreements or other trade restrictions imposed by the U.S. or other governments on
imported tires or raw materials."
The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on
global economic conditions, financial markets or the Company’s business.
In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national
referendum. The terms of the withdrawal are subject to a negotiation period that could last until or beyond March 2019, two
years after the government of the United Kingdom formally initiated the withdrawal process. Nevertheless, the referendum has
created significant uncertainty about the future relationship between the United Kingdom and the European Union, including
with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to
replace or replicate as part of the withdrawal. The referendum has also given rise to calls for the governments of other
European Union member states to consider withdrawal.
These developments, or the perception that any of them could occur, have had and may continue to have a material adverse
effect on global economic conditions and the stability of global financial markets, including volatility in the value of the British
pound sterling and Euro. These developments may also significantly reduce global market liquidity or restrict the ability of key
market participants to operate in certain financial markets. The effects of the United Kingdom’s withdrawal from the European
Union will also depend on terms of new trade agreements between the United Kingdom and other countries, as well as any
other agreements the United Kingdom makes to retain access to European Union markets either during a transitional period or
more permanently. Any of these factors could depress economic activity and restrict the Company’s access to capital, which
could have a material adverse effect on the Company’s business, financial condition and results of operations. These
developments may also have other direct or indirect effects which could have a material adverse effect on the Company’s
business, financial condition and results of operations.
Compliance with legal and regulatory initiatives could increase the cost of operating the Company’s business.
The Company is subject to federal, state, local and foreign laws and regulations. Compliance with those laws now in effect, or
that may be enacted, could require significant capital expenditures, increase the Company’s production costs and affect its
earnings and results of operations. Periodic changes as the result of elections in the U.S. and worldwide make it difficult to
predict the legislative and regulatory changes that may occur.
Several countries have or may implement labeling requirements for tires. This legislation could cause the Company’s products
to be at a disadvantage in the marketplace resulting in a loss of market share or could otherwise impact the Company’s ability
to distribute and sell its tires.
In addition, while the Company believes that its tires are free from design and manufacturing defects and comply with all
applicable regulations and standards, it is possible that a recall of the Company’s tires could occur in the future. A recall could
harm the Company’s reputation, operating results and financial position.
The Company is also subject to legislation governing labor, environmental, privacy and data protection, occupational safety and
health both in the U.S. and other countries. The related legislation can change over time making it more expensive for the
Company to produce its products.
The Company could also, despite its best efforts to comply with these laws and regulations, be found liable and be subject to
additional costs because of these laws and regulations.
The Company may fail to successfully develop or implement information technologies or related systems, resulting in a
significant competitive disadvantage.
Successfully competing in the highly competitive tire industry can be impacted by the successful development of information
technology. If the Company fails to successfully develop or implement information technology systems, it may be at a
disadvantage to its competitors resulting in lost sales and negative impacts on the Company’s earnings.
The Company has implemented an Enterprise Resource Planning system in the United States. The Company is evaluating its
available options for information technology solutions outside of the United States, which will require significant amounts of
capital and human resources to deploy. These requirements may exceed the Company’s projections. If for any reason these
implementations are not successful, the Company could be required to expense rather than capitalize related amounts.
Throughout implementation of the systems, there are also risks created to the Company’s ability to successfully and efficiently
operate.
-9-
The Company’s expenditures for pension and other postretirement obligations could be materially higher than it has
predicted if its underlying assumptions prove to be incorrect.
The Company provides defined benefit and hybrid pension plan coverage to union and non-union U.S. employees and a
contributory defined benefit plan in the U.K. The Company’s pension expense and its required contributions to its pension
plans are directly affected by the value of plan assets, the projected and actual rates of return on plan assets and the actuarial
assumptions the Company uses to measure its defined benefit pension plan obligations, including the discount rate at which
future projected and accumulated pension obligations are discounted to a present value and the inflation rate. The Company
could experience increased pension expense due to a combination of factors, including the decreased investment performance
of its pension plan assets, decreases in the discount rate, changes in its assumptions relating to the expected return on plan
assets, updates to mortality tables and the impact of changes to the Company’s pension strategy. The Company could also
experience increased other postretirement expense due to decreases in the discount rate, increases in the health care trend rate
and changes in the health care environment.
In the event of declines in the market value of the Company’s pension assets or lower discount rates to measure the present
value of pension and other postretirement benefit obligations, the Company could experience changes to its Consolidated
Balance Sheet or significant cash requirements.
The Company has a risk due to volatility of the capital and financial markets.
The Company periodically requires access to the capital and financial markets as a significant source of liquidity for maturing
debt payments or working capital needs that it cannot satisfy by cash on hand or operating cash flows. Substantial volatility in
world capital markets and the banking industry may make it difficult for the Company to access credit markets and to obtain
financing or refinancing, as the case may be, on satisfactory terms or at all. In addition, various additional factors, including a
deterioration of the Company’s credit ratings or its business or financial condition, could further impair its access to the capital
markets and bank financings. Additionally, any inability to access the capital markets or bank financings, including the ability
to refinance existing debt when due, could require the Company to defer critical capital expenditures, reduce or not pay
dividends, reduce spending in areas of strategic importance, sell important assets or, in extreme cases, seek protection from
creditors. See also related comments under “There are risks associated with the Company’s global strategy, which includes
using joint ventures and partially-owned subsidiaries.”
The Company’s operations in the PRC have been financed in part using multiple loans from several lenders to finance working
capital needs. These loans are generally for terms of one year or less. Therefore, debt maturities occur frequently and access to
the capital markets and bank financings is crucial to the Company’s ability to maintain sufficient liquidity to support its
operations in the PRC.
If assumptions used in developing the Company’s strategic plan are inaccurate or the Company is unable to execute its
strategic plan effectively, its profitability and financial position could be negatively impacted.
The Company faces both general industry and company-specific challenges. These include volatile raw material costs,
increasing product complexity and pressure from competitors with greater resources or manufacturing in lower-cost regions. To
address these challenges and position the Company for future success, the Company continues to execute towards strategic
imperatives outlined in its Strategic Plan. The three strategic imperatives are building a sustainable cost competitive position,
driving top-line profitable growth and building organizational capabilities and enablers to support strategic goals.
The Company continually reviews and updates its business plans to achieve these imperatives. If the assumptions used in
developing the Company’s business plans vary significantly from actual conditions, the Company’s sales, margins and
profitability could be harmed. If the Company is unsuccessful in implementing the tactics necessary to execute its business
plans, it may not be able to achieve or sustain future profitability, which could impair its ability to meet debt and other
obligations and could otherwise negatively affect its operating results, financial condition and liquidity.
There are risks associated with the Company’s global strategy, which includes using joint ventures and partially-owned
subsidiaries.
The Company’s strategy includes the use of joint ventures and other partially-owned subsidiaries. These entities operate in
countries outside of the U.S., are generally less well capitalized than the Company and bear risks similar to the risks of the
Company. In addition, there are specific risks applicable to these subsidiaries and these risks, in turn, add potential risks to the
Company. Such risks include greater risk of joint venture partners or other investors failing to meet their obligations under
related stockholders’ agreements; conflicts with joint venture partners; the possibility of a joint venture partner taking valuable
knowledge from the Company; and risk of being denied access to the capital markets, which could lead to resource demands on
the Company in order to maintain or advance its strategy. The Company’s outstanding notes and primary credit facility contain
cross default provisions in the event of certain defaults by the Company under other agreements with third parties. For further
-10-
discussion of access to the capital markets, see also related comments under “The Company has a risk due to volatility of the
capital and financial markets.”
The Company may not be successful in executing and integrating acquisitions into its operations, which could harm its
results of operations and financial condition.
The Company routinely evaluates potential acquisitions, such as the purchase of a majority interest in GRT, and may pursue
additional acquisition opportunities, some of which could be material to its business. The Company cannot provide assurance
whether it will be successful in pursuing and integrating any acquisition opportunities or what the consequences of any
acquisition would be. The Company may encounter various risks in any acquisitions, including:
•
•
•
•
•
the possible inability to integrate an acquired business into its operations;
diversion of management’s attention;
loss of key management personnel;
unanticipated problems or liabilities; and
increased labor and regulatory compliance costs of acquired businesses.
Some or all of those risks could impair the Company’s results of operations and impact its financial condition. The Company
may finance any future acquisitions from internally generated funds, bank borrowings, public offerings or private placements of
equity or debt securities, or a combination of the foregoing. Acquisitions may involve the expenditure of significant funds and
management time.
Acquisitions may also require the Company to increase its borrowings under its bank credit facilities or other debt instruments,
or to seek new sources of liquidity. Increased borrowings would correspondingly increase the Company’s financial leverage,
and could result in lower credit ratings and increased future borrowing costs. These risks could also reduce the Company’s
flexibility to respond to changes in its industry or in general economic conditions.
In addition, the Company’s business plans call for growth. If the Company is unable to identify or execute on appropriate
opportunities for acquisition, investment or growth, its business could be materially adversely affected.
If the price of energy sources increases, the Company’s operating expenses could increase significantly or the demand for
the Company’s products could be affected.
The Company’s manufacturing facilities rely principally on natural gas, as well as electrical power and other energy sources.
High demand and limited availability of natural gas and other energy sources can result in significant increases in energy costs
increasing the Company’s operating expenses and transportation costs. Higher energy costs would increase the Company’s
production costs and adversely affect its margins and results of operations. If the Company is unable to obtain adequate sources
of energy, its operations could be interrupted.
In addition, if the price of gasoline increases significantly for consumers, it can affect driving and purchasing habits and impact
demand for tires.
The Company has and could in the future incur restructuring charges as it continues to execute actions in an effort to
improve future profitability and competitiveness and may not achieve the anticipated savings and benefits from these
actions.
The Company has and may in the future initiate restructuring actions designed to improve future profitability and
competitiveness, and enhance the Company’s flexibility. The Company may not realize anticipated savings or benefits from
future actions in full or in part or within the time periods it expects. The Company is also subject to the risks of labor unrest,
negative publicity and business disruption in connection with these actions. Failure to realize anticipated savings or benefits
from the Company’s actions could have an adverse effect on the business. Such restructuring actions could have a significant
negative impact on the Company’s earnings or cash flows in the short-term.
The realizability of deferred tax assets may affect the Company’s profitability and cash flows.
The Company has significant net deferred tax assets recorded on the balance sheet and determines at each reporting period
whether or not a valuation allowance is necessary based upon the expected realizability of such deferred tax assets. In the U.S.,
the Company has recorded deferred tax assets, the largest of which relate to product liability, pension and other postretirement
benefit obligations, partially offset by deferred tax liabilities, the most significant of which relates to accelerated depreciation.
The Company’s non-U.S. deferred tax assets relate to pension, accrued expenses and net operating losses, and are partially
offset by deferred tax liabilities related to accelerated depreciation. Based upon the Company’s assessment of the realizability
of its net deferred tax assets, the Company maintains a valuation allowance in the U.K., as well as a small valuation allowance
-11-
for the portion of its U.S. deferred tax assets primarily associated with a loss carryforward. In addition, the Company has
recorded valuation allowances for deferred tax assets primarily associated with other non-U.S. net operating losses.
The Company’s assessment of the realizability of deferred tax assets is based in part on certain assumptions regarding future
profitability, and potentially adverse business conditions could have a negative impact on the future realizability of the deferred
tax assets and therefore impact the Company’s future operating results or financial position.
Compliance with and changes in tax laws, including recently enacted tax reform legislation in the United States, could
materially and adversely impact our financial condition, results of operations and cash flows.
We are subject to extensive tax liabilities, including federal and state income taxes and transactional taxes such as excise, sales
and use, payroll, franchise, withholding and property taxes. New tax laws and regulations and changes in existing tax laws and
regulations could result in increased expenditures by us for tax liabilities in the future and could materially and adversely
impact our financial condition, results of operations and cash flows.
Recently enacted tax reform legislation has made substantial changes to U.S. tax law, including a reduction in the corporate tax
rate, a limitation on deductibility of interest expense, a limitation on the use of net operating losses to offset future taxable
income, the allowance of immediate expensing of capital expenditures and deemed repatriation of foreign earnings. We expect
this legislation to have significant effects on us, some of which may be adverse. For example, the reduction in the corporate tax
rate is resulted in a reduction in the value of our existing deferred tax assets, and consequently a charge to our earnings in 2017.
The magnitude of the net impact remains uncertain at this time and is subject to any other regulatory or administrative
developments, including any regulations or other guidance promulgated by the U.S. Internal Revenue Service.
Additionally, the Company’s income tax returns are subject to examination by federal, state and local tax authorities in the U.S.
and tax authorities outside the U.S. Based upon the outcome of tax examinations, judicial proceedings, or expiration of statutes
of limitations, it is possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is
materially different from the current estimate of the tax liabilities. Such factors could have an adverse effect on the Company’s
provision for income taxes and the cash outlays required to satisfy income tax obligations.
The Company is required to comply with environmental laws and regulations that could cause it to incur significant costs.
The Company’s manufacturing facilities are subject to numerous federal, state, local and foreign laws and regulations designed
to protect the environment, including increased government regulations to limit carbon dioxide and other greenhouse gas
emissions as a result of concern over climate change, and the Company expects that additional requirements with respect to
environmental matters will be imposed on it in the future. In addition, the Company has contractual indemnification obligations
for environmental remediation costs and liabilities that may arise relating to certain divested operations. Material future
expenditures may be necessary if compliance standards change, if material unknown conditions that require remediation are
discovered, or if required remediation of known conditions becomes more extensive than expected. If the Company fails to
comply with present and future environmental laws and regulations, it could be subject to future liabilities or the suspension of
production, which could harm its business or results of operations. Environmental laws could also restrict the Company’s
ability to expand its facilities or could require it to acquire costly equipment or to incur other significant expenses in connection
with its manufacturing processes.
The Company has been and may continue to be impacted by currency fluctuations, which may reduce reported results for
the Company’s international operations and otherwise adversely affect the business.
Because the Company conducts transactions in various non-U.S. currencies, including the Euro, Canadian dollar, British pound
sterling, Swiss franc, Swedish kronar, Norwegian krone, Mexican peso, Chinese yuan, Serbian dinar and Brazilian real,
fluctuations in foreign currency exchange rates may impact the Company’s financial condition, results of operations and cash
flows, despite currency hedging actions by the Company. The Company’s operating results are subject to the effects of
fluctuations in the value of these currencies and fluctuations in the related currency exchange rates. As a result, the Company’s
sales have historically been affected by, and may continue to be affected by, these fluctuations. Exchange rate movements
between currencies in which the Company sells its products have been affected by and may continue to result in exchange
losses that could materially affect results. During times of strength of the U.S. dollar, the reported revenues of the Company’s
international operations will be reduced because local currencies will translate into fewer dollars. In addition, a strong U.S.
dollar may increase the competitiveness of competitors based outside of the United States. As a result, continued strengthening
of the U.S. dollar may have a material adverse effect on the Company’s financial condition, results of operations and cash
flows.
The Company may not be able to protect its intellectual property rights adequately.
The Company’s success depends in part upon its ability to use and protect its proprietary technology and other intellectual
property, which generally covers various aspects in the design and manufacture of its products and processes. The Company
-12-
owns and uses tradenames and trademarks worldwide. The Company relies upon a combination of trade secrets, confidentiality
policies, nondisclosure and other contractual arrangements and patent, copyright and trademark laws to protect its intellectual
property rights. The steps the Company takes in this regard may not be adequate to prevent or deter challenges, reverse
engineering or infringement or other violations of its intellectual property, and the Company may not be able to detect
unauthorized use or take appropriate and timely steps to enforce its intellectual property rights.
In addition, the laws of some countries may not protect and enforce the Company’s intellectual property rights to the same
extent as the laws of the U.S. Further, while the Company believes it has rights to use all intellectual property in the Company’s
use, if the Company is found to infringe on the rights of others it could be adversely impacted.
The impact of proposed new accounting standards may have a negative impact on the Company’s financial statements.
The Financial Accounting Standards Board is considering or has issued for future adoption several projects which may result in
the modification of accounting standards affecting the Company, including standards relating to revenue recognition, financial
instruments, leasing and others. Any such changes could have a negative impact on the Company’s financial statements.
The Company is facing risks relating to healthcare legislation.
The Company is facing risks emanating from legislation in the U.S., including the Patient Protection and Affordable Care Act
and the related Healthcare and Education Reconciliation Act, which are collectively referred to as healthcare legislation. The
future of this major legislation and any replacement is now in question and the ultimate cost and the potentially adverse impact
to the Company and its employees cannot be quantified at this time.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
As shown in the following table, at December 31, 2017, the Company maintained 54 manufacturing facilities, distribution
centers, retail stores, technical centers and office facilities worldwide. A majority of the manufacturing facilities are wholly-
owned by the Company. Some manufacturing, distribution and office facilities are leased.
Type of Facility
Manufacturing
Distribution centers
Retail stores
Technical centers and offices
Total
Americas Tire Operations
International Tire Operations
North America
Latin America
Europe
Asia
Total
4
10
3
7
24
1 *
1
—
4
6
2
7
—
7
16
2 *
2
—
4
8
9
20
3
22
54
*
This includes a manufacturing facility that is a joint venture.
The Company believes its properties have been adequately maintained, generally are in good condition and are suitable and
adequate to meet the demands of each segment’s business.
Item 3.
LEGAL PROCEEDINGS
The Company is a defendant in various judicial proceedings arising in the ordinary course of business. A significant portion of
these proceedings are product liability cases in which individuals involved in motor vehicle accidents seek damages resulting
from allegedly defective tires manufactured by the Company. After reviewing all of these proceedings, and taking into account
all relevant factors concerning them, the Company does not believe that any liabilities resulting from these proceedings are
reasonably likely to have a material adverse effect on its liquidity, financial condition or results of operations in excess of
amounts recorded at December 31, 2017. In the future, such costs could have a materially greater impact on the consolidated
results of operations and financial position of the Company than in the past.
-13-
Item 4.
MINE SAFETY DISCLOSURES
None.
-14-
PART II
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
(a)
Market information
Cooper Tire & Rubber Company common stock is traded on the New York Stock Exchange under the symbol CTB. The
following table sets forth, for the periods indicated, the high and low sales prices of the common stock as reported in the
consolidated reporting system for the New York Stock Exchange Composite Transactions:
Year Ended December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
$
$
44.50
44.50
39.40
38.20
40.75
38.12
38.16
40.21
High
34.58
35.00
32.78
31.55
32.58
29.29
29.43
33.50
Low
Five-Year Stockholder Return Comparison
The SEC requires that the Company include in its annual report to stockholders a line graph presentation comparing cumulative
five-year stockholder returns on an indexed basis with the Standard & Poor’s (“S&P”) Stock Index and either a published
industry or line-of-business index or an index of peer companies selected by the Company. In 1993, the Company chose what is
now the S&P 500 Auto Parts & Equipment Index as the most appropriate of the nationally recognized industry standards and
has used that index for its stockholder return comparisons in all of its annual reports since that time.
The following chart assumes three hypothetical $100 investments on December 31, 2012, and shows the cumulative values at
the end of each succeeding year resulting from appreciation or depreciation in the stock market price, assuming dividend
reinvestment.
-15-
Total Return To Shareholders
(Includes reinvestment of dividends)
Company / Index
Cooper Tire & Rubber Company
S&P 500 Index
S&P 500 Auto Parts & Equipment
ANNUAL RETURN PERCENTAGE
Year Ended December 31,
2013
2014
2015
2016
2017
(3.70)
32.39
64.76
46.24
13.69
3.68
10.41
1.38
(5.65)
3.87
11.96
(2.20)
(7.95)
21.83
47.52
Company / Index
Cooper Tire & Rubber Company
S&P 500 Index
S&P 500 Auto Parts & Equipment
Base
Period
2012
100.00
100.00
100.00
$
INDEXED RETURNS
Year Ended December 31,
$
2013
96.31
132.39
164.76
$
2014
140.92
150.51
170.82
$
2015
155.61
152.59
161.17
$
2016
161.61
170.84
157.61
$
2017
148.76
208.14
232.50
-16-
(b)
Holders
The number of holders of record at December 31, 2017 was 1,723.
(c)
Dividends
The Company has paid consecutive quarterly dividends on its common stock since 1973. Future dividends will depend upon
the Company’s earnings, financial condition and other factors. Additional information on the Company’s liquidity and capital
resources can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The
Company’s retained earnings are available for the payment of cash dividends and the purchases of the Company’s shares.
Quarterly dividends per common share for the most recent two years were as follows:
March 31
June 30
September 29
December 29
Total:
2017
$
$
0.105 March 31
0.105
June 30
0.105 September 30
0.105 December 29
0.420
Total:
2016
0.105
0.105
0.105
0.105
0.420
$
$
(d)
Issuer purchases of equity securities
The following table sets forth a summary of the Company’s purchases during the quarter ended December 31, 2017 of equity
securities registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934:
Period(1)
October 1, 2017 through
October 31, 2017
November 1, 2017 through
November 30, 2017
December 1, 2017 through
December 31, 2017
Total
Total Number
of Shares
Purchased
Average
Price
Paid per
Share
Total Number of
Shares Purchased as
Part of Public
Announced Plans
or Programs
Maximum Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs
$
$
$
290,258
103,623
182,361
576,242
37.01
33.16
35.60
$
$
$
290,258
103,623
182,361
576,242
233,195
229,763
223,276
(1)
On February 16, 2017, the Board of Directors increased the amount under and expanded the duration of the
Company's existing share repurchase program (as amended, the "2017 Repurchase Program"). The 2017
Repurchase Program allows the Company to repurchase up to $300,000,000, excluding commissions, of the
Company’s common stock through December 31, 2019. The approximately $95,634,000 remaining
authorization under the Company's existing share repurchase program as of February 16, 2017 is included in
the $300,000,000 maximum amount authorized by the 2017 Repurchase Program. No other changes were
made. The 2017 Repurchase Program does not obligate the Company to acquire any specific number of
shares and can be suspended or discontinued at any time without notice. Under the 2017 Repurchase
Program, shares can be repurchased in privately negotiated and/or open market transactions, including under
plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
-17-
Item 6.
SELECTED FINANCIAL DATA
(Dollar amounts in thousands except per share amounts)
Net sales
Operating profit
Income before income taxes
Net income attributable to Cooper Tire & Rubber
Company
Earnings per share:
Basic
Diluted
Dividends per share
Weighted average shares outstanding (000s):
Basic
Diluted
Property, plant and equipment, net
Total assets
Long-term debt
Total equity
Capital expenditures
Depreciation and amortization
Number of employees
2017
$ 2,854,656
271,724
$
243,925
$
2016
$ 2,924,869
384,387
$
367,093
$
2015
$ 2,972,901
354,480
$
334,028
$
2014 (a)
$ 3,424,809
300,458
$
348,519
$
2013
$ 3,439,233
240,714
$
212,971
$
$
$
$
$
95,400
1.83
1.81
0.42
$
$
$
$
248,381
4.56
4.51
0.42
$
$
$
$
212,766
3.73
3.69
0.42
$
$
$
$
213,578
3.48
3.42
0.42
52,206
52,673
966,747
$
$ 2,607,735
$
295,987
$ 1,185,756
197,186
$
140,228
$
9,204
54,480
55,090
864,227
$
$ 2,619,395
$
297,094
$ 1,130,236
175,437
$
130,257
$
9,149
57,012
57,623
795,198
$
$ 2,436,176
$
296,412
$ 1,017,611
182,544
$
121,408
$
8,027
61,402
62,401
740,203
$
$ 2,488,937
297,937
$
884,261
$
145,041
$
139,166
$
7,823
$
$
$
$
111,013
1.75
1.73
0.42
63,327
64,282
974,269
$
$ 2,737,070
$
319,882
$ 1,157,625
180,448
$
134,751
$
12,256
(a)
The Company sold its ownership interest in Cooper Chengshan (Shandong) Tire Company Ltd. ("CCT") during the
fourth quarter of 2014. Results include a gain on sale of interest in subsidiary of $77,471. Income tax expense on the
gain on sale of interest in subsidiary was $21,767.
-18-
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Business of the Company
The Company specializes in the design, manufacture, marketing and sales of passenger car, light truck, medium truck,
motorcycle and racing tires. The Company’s products are sold globally, primarily in the replacement tire market to
independent tire dealers, wholesale distributors, regional and national retail tire chains and large retail chains that sell tires as
well as other automotive products.
The Company faces both general industry and company-specific challenges. These include volatile raw material costs,
increasing product complexity and pressure from competitors who, in some cases, are larger companies with greater financial
resources. To address these challenges and position the Company for future success, the Company continues to execute
towards strategic imperatives outlined in its Strategic Plan. The three strategic imperatives outlined in the Strategic Plan are
building a sustainable cost competitive position, driving top-line profitable growth and building organizational capabilities and
enablers to support strategic goals.
The Company has operations in what are considered lower-cost countries. This includes the Cooper Kunshan Tire
manufacturing operation in the PRC, a joint venture manufacturing operation in Mexico and a manufacturing facility in
Serbia. Products from these operations provide a lower-cost source of tires for existing markets and have been used to expand
the Company’s market share in Mexico, Eastern Europe and the PRC. Through a variety of other projects, the Company also
has improved the competitiveness of its manufacturing operations in the United States.
On January 4, 2016, the Company announced that it had entered into an agreement to purchase a majority of China-based
GRT. After the transaction closing on December 1, 2016, the Company owns 65 percent of the entity. Based on the Company's
ownership percentage and corresponding control of voting rights, the results of GRT and 100 percent of its assets and
liabilities are consolidated from the date of the transaction. GRT is expected to serve as a global source of truck and bus radial
tire production for the Company.
The following discussion of financial condition and results of operations should be read together with “Selected Financial
Data,” the Company’s consolidated financial statements and the notes to those statements and other financial information
included elsewhere in this report.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) presents
information related to the consolidated results of the operations of the Company, a discussion of past results of the Company’s
segments, future outlook for the Company and information concerning the liquidity, capital resources and critical accounting
policies of the Company. The Company's future results may differ materially from those indicated in the forward-looking
statements, including for the reasons noted in the Risk Factors in Item 1A.
-19-
Consolidated Results of Operations
(Dollar amounts in thousands except per share amounts)
Net Sales
Americas Tire
International Tire
Eliminations
Net sales
Operating profit (loss):
Americas Tire
International Tire
Unallocated corporate charges
Eliminations
Operating profit
Interest expense
Interest income
Gain on sale of interest in subsidiary
Other non-operating (expense) income
Income before income taxes
Provision for income taxes
Net income
Net income attributable to noncontrolling shareholders’
interests
Net income attributable to Cooper Tire & Rubber
Company
Basic earnings per share
Diluted earnings per share
n/m – not meaningful
2017 versus 2016
2017
Change
2016
Change
2015
$2,416,778
618,869
(180,991)
2,854,656
(7.1)% $2,600,323
33.4 %
464,003
(139,457)
(29.8)%
(2.4)% 2,924,869
(3.1)% $2,684,754
451,879
2.7 %
(163,732)
14.8 %
(1.6)% 2,972,901
324,693
9,457
(60,599)
(1,827)
271,724
(32,048)
7,362
—
(3,113)
243,925
147,180
96,745
(26.2)%
57.7 %
0.5 %
46.9 %
(29.3)%
20.5 %
68.2 %
n/m
n/m
(33.6)%
27.1 %
(61.5)%
439,941
5,998
(60,308)
(1,244)
384,387
(26,604)
4,378
—
4,932
367,093
115,799
251,294
4.0 %
n/m
15.2 %
n/m
8.4 %
11.7 %
98.0 %
n/m
n/m
9.9 %
(2.1)%
16.4 %
422,929
(19,133)
(52,342)
3,026
354,480
(23,820)
2,211
—
1,157
334,028
118,224
215,804
1,345
(53.8)%
2,913
(4.1)%
3,038
$
$
$
95,400
1.83
1.81
(61.6)% $ 248,381
4.56
(59.9)% $
4.51
(59.9)% $
16.7 % $ 212,766
3.73
22.3 % $
3.69
22.2 % $
Consolidated net sales for the year ended December 31, 2017 were $2,855 million, a decrease of $70 million from 2016.
Lower unit volumes ($83 million) and unfavorable foreign currency impacts ($12 million) were partially offset by favorable
pricing and mix ($25 million). The favorable pricing and mix was primarily due to net price increases related to higher raw
material costs. The negative impact to net sales from lower unit volume was related to a unit volume decline in Americas Tire
Operations, partially offset by improved unit volume in International Tire Operations due to increased unit volume in Asia.
The Company recorded operating profit of $272 million in 2017, compared to operating profit of $384 million in 2016. The
Company experienced unfavorable raw material costs, net of price and mix, ($125 million) and lower unit volume ($33
million) compared to 2016. The Company also experienced higher manufacturing costs ($38 million) compared to 2016,
primarily in the Americas Tire Operations, due to lower production volumes in North America as a result of the decline in unit
volume year over year. These higher costs were partially offset by lower product liability costs ($39 million), decreased
selling, general and administrative costs ($16 million) and the non-recurrence of a non-cash pension settlement charge ($12
million) that was recorded in 2016. The Company also had a reversal of $22 million related to preliminary truck and bus tire
duties expensed in 2016. The preliminary truck and bus tire duties were reversed in the first quarter of 2017 as a result of the
International Trade Commission's vote nullifying the preliminary duties. Other operating costs increased ($5 million),
including unfavorable currency impact, compared with 2016.
In 2016, in order to reduce the size and potential future volatility of the Company’s domestic defined benefit pension plan
obligations, the Company offered certain plan participants with deferred vested benefits the opportunity to make a one-time
election to receive a lump sum distribution of their benefits. Based on participants that accepted the offer, the Company paid
$23 million of lump-sum distributions from plan assets in the third quarter of 2016, which resulted in a non-cash settlement
charge ($11 million) in the third quarter of 2016 included within unallocated corporate charges. An additional non-cash
-20-
settlement charge ($1 million) was incurred in the fourth quarter of 2016 as a result of normal course settlements. Additional
information related to the Company’s accounting for the pension settlement charges appears in the Notes to the Consolidated
Financial Statements.
During 2017, the Company experienced higher costs for certain of its principal raw materials compared with 2016. The
principal raw materials for the Company include natural rubber, synthetic rubber, carbon black, chemicals and steel
reinforcement components. Approximately 65 percent of the Company’s raw materials are petroleum-based. Substantially all
U.S. inventories have been valued using the LIFO method of inventory costing, which accelerates the impact to cost of goods
sold from changes to raw material prices.
The Company strives to assure raw material and energy supply and to obtain the most favorable pricing possible. For natural
rubber and natural gas, procurement is managed through a combination of buying forward of production requirements and
utilizing the spot market. For other principal materials, procurement arrangements include supply agreements that may contain
formula-based pricing based on commodity indices, multi-year agreements or spot purchase contracts. While the Company
uses these arrangements to satisfy normal manufacturing demands, the pricing volatility in these commodities contributes to
the difficulty in managing the costs of raw materials.
Product liability expense decreased $39 million to $26 million in 2017 as compared to 2016. Based on the Company's review
of its reserves in 2017, coupled with normal activity, including the addition of another year of self-insured incidents,
settlements and changes in the amount of reserves, the Company reduced its accrual in 2017. Additional information related
to the Company’s accounting for product liability costs appears in the Notes to the Consolidated Financial Statements.
Selling, general, and administrative expenses were $245 million in 2017 (8.6 percent of net sales) and $256 million in 2016
(8.7 percent of net sales). The reduction in selling, general and administrative expenses was driven primarily by decreased
incentive compensation, partially offset by an increase in professional fees, the write-off of assets related to the Company's
global ERP system implementation and costs related to a reduction in force in the U.S.
Interest expense increased $5 million compared with 2016. The increase was a result of increased borrowings and higher
interest rates, primarily in Asia. Interest income increased $3 million compared to 2016 as a result of improved higher interest
rates.
Other income decreased $8 million compared with 2016, primarily due to the impact of foreign currency forward contracts.
For the year ended December 31, 2017, the Company recorded an income tax expense of $147 million (effective rate of 60.3
percent) compared with $116 million (effective rate of 31.5 percent) in 2016. On December 22, 2017, the U.S. enacted
comprehensive tax legislation, commonly referred to as the Tax Act, which made broad and complex changes to the tax code.
In particular, the transition to a new territorial tax system resulted in a deemed repatriation tax of $35 million on undistributed
earnings of foreign subsidiaries. The deemed repatriation tax, also known as the "Transition Tax," will be payable over eight
years. In addition, the reduction of the U.S. corporate tax rate from 35 percent to 21 percent resulted in an adjustment to the
company's U.S. deferred tax assets and liabilities to the lower base rate of 21 percent. The impact of the re-measurement of
deferred tax assets and liabilities resulted in a non-cash charge of $20 million to the Company's fourth quarter tax provision.
Both the deemed repatriation tax and the impact of the re-measurement of deferred tax assets and liabilities were recorded as
provisional amounts under guidance prescribed by SAB 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs
Act." Additionally, the fourth quarter tax provision includes the impact of the recording of a non-cash valuation allowance
based upon the expected realization of certain foreign deferred tax assets related to the Company's European operations of $19
million, partially offset by the reversal of an existing non-cash $7 million valuation allowance in Asia. Aside from the 2017
discrete items, the effective tax rate was also negatively impacted by the mix of earnings, with an increased percentage of
earnings in a higher rate tax jurisdiction in 2017.
Net income attributable to noncontrolling shareholders’ interests decreased $2 million compared with 2016.
The effects of inflation did not have a material effect on the results of operations of the Company in 2017.
2016 versus 2015
Consolidated net sales for the year ended December 31, 2016 were $2,925 million, a decrease of $48 million from 2015. The
Company experienced less favorable pricing and mix ($77 million), which was offset by higher unit volume ($78 million)
compared with 2015. The unfavorable pricing and mix was primarily due to net price reductions related to lower raw material
costs. Currency impacts were unfavorable ($49 million) compared with 2015.
The Company recorded operating profit of $384 million in 2016, an increase of $30 million compared with 2015. The
Company experienced favorable raw material costs inclusive of tariffs, including preliminary truck and bus tire duties, net of
price and mix ($48 million) and higher unit volumes ($9 million), partially offset by a pension settlement charge ($12 million)
in 2016. Manufacturing costs increased ($21 million) compared to 2015, primarily as a result of higher costs related to the
-21-
greater complexity of manufacturing more higher value, higher margin tires in the Americas. Product liability charges
decreased ($13 million) compared with 2015. Selling, general and administrative costs decreased ($7 million) and other
operating costs increased ($14 million), including unfavorable currency impacts, compared with 2015.
During the first three quarters of 2016, the Company experienced lower costs for certain of its principal raw materials
compared with 2015. Raw material costs in the fourth quarter of 2016 were flat to the prior year, and began to increase sharply
at the end of 2016.
Product liability expense decreased $13 million to $65 million in 2016 as compared to 2015. The decrease in the expense
compared to the prior year is the result of claim settlements and adjustments to existing reserves based on the Company’s
quarterly comprehensive review of outstanding claims.
Selling, general, and administrative expenses were $256 million in 2016 (8.7 percent of net sales) and $263 million in 2015
(8.8 percent of net sales). The reduction in selling, general and administrative expenses was driven primarily by decreased
incentive compensation.
Interest expense increased $3 million compared with 2015. Interest income increased $2 million compared to 2015.
Other income increased $4 million compared with 2015, primarily due to foreign currency forward contracts.
For the year ended December 31, 2016, the Company recorded an income tax expense of $116 million (effective rate of 31.5
percent) compared with $118 million (effective rate of 35.4 percent) in 2015. The effective tax rate decreased due to a more
favorable mix of foreign earnings in lower rate jurisdictions. Discrete tax amounts for 2016 were unfavorable compared with
the prior year because 2015 included increased research and development credits and higher amounts for the lapse of statutes
related to uncertain tax positions.
Net income attributable to noncontrolling shareholders’ interests was comparable to 2015.
The effects of inflation did not have a material effect on the results of operations of the Company in 2016.
Segment Operating Results
The Company has four segments under ASC 280:
• North America, composed of the Company’s operations in the U.S. and Canada;
• Latin America, composed of the Company’s operations in Mexico, Central America and South America;
• Europe; and
• Asia.
North America and Latin America meet the criteria for aggregation in accordance with ASC 280, as they are similar in their
production and distribution processes and exhibit similar economic characteristics. The aggregated North America and Latin
America segments are presented as “Americas Tire Operations” in the segment disclosure.
Both the Asia and Europe segments have been determined to be individually immaterial, as they do not meet the quantitative
requirements for segment disclosure under ASC 280. In accordance with ASC 280, information about operating segments that
are not reportable shall be combined and disclosed in an all other category separate from other reconciling items. As a result,
these two segments have been combined in the segment operating results discussion. The results of the combined Asia and
Europe segments are presented as “International Tire Operations” in the segment disclosure.
-22-
Americas Tire Operations Segment
(Dollar amounts in thousands)
Sales
Operating profit
Operating margin
Total unit sales change
United States replacement market unit shipment
changes:
Passenger tires
Segment
USTMA members
Total Industry
Light truck tires
Segment
USTMA members
Total Industry
Total light vehicle tires
Segment
USTMA members
Total Industry
2017
$2,416,778
$ 324,693
Change
2016
Change
2015
(7.1)% $2,600,323
(26.2)% $ 439,941
(3.1)% $2,684,754
4.0 % $ 422,929
13.4% (3.5) points
(6.3)%
16.9%
1.1 points
(0.2)%
15.8%
(7.9)%
0.3 %
0.5 %
(16.6)%
(5.2)%
(1.7)%
(10.0)%
(0.4)%
0.2 %
(3.3)%
(2.3)%
1.2 %
(0.2)%
4.2 %
9.4 %
(2.5)%
(1.5)%
2.2 %
The source of this information is the United States Tire Manufactures Association ("USTMA") and internal sources.
Overview
The Americas Tire Operations segment is the aggregation of the Company’s North America and Latin America operating
segments. The Americas Tire Operations segment manufactures and markets passenger car and light truck tires, primarily for
sale in the U.S. replacement market. The segment also has a joint venture manufacturing operation in Mexico, COOCSA,
which supplies passenger car tires to the North American, Mexican, Central American and South American markets. The
segment also distributes tires for racing, medium trucks and motorcycles. The racing and motorcycle tires are manufactured in
the Company’s European Operations segment and by others. The medium truck tires are sourced from GRT and through an
off-take agreement that was entered with PCT, the Company's former joint venture. In December 2017, the Company signed
an off-take agreement with Sailun, effective from January 1, 2018 through December 31, 2020, as an additional source of
medium truck tires. Major distribution channels and customers include independent tire dealers, wholesale distributors,
regional and national retail tire chains, and large retail chains that sell tires as well as other automotive products. The segment
does not currently sell its products directly to end users, except through three Company-owned retail stores. The segment sells
a limited number of tires to OEMs.
2017 versus 2016
Sales
Net sales of the Americas Tire Operations segment decreased from $2,600 million in 2016 to $2,417 million in 2017. The
decrease in sales was a result of decreased unit volume ($185 million), partially offset by favorable pricing and mix ($3
million), primarily due to net price increases related to higher raw material costs. Currency impacts were unfavorable ($1
million). Unit shipments for the segment decreased 6.3 percent in 2017 compared with 2016. In the U.S., the segment’s unit
shipments of total light vehicle tires decreased 10.0 percent in 2017 compared with 2016. This decrease compares with a 0.4
percent decrease in total light vehicle tire shipments experienced by the USTMA, and a 0.2 percent increase in total light
vehicle tire shipments experienced for the total industry, which includes an estimate for non-USTMA members. The segment's
commercial truck tire shipments for the U.S. increased 14.7 percent in 2017 compared with 2016, outperforming both the
industry and the USTMA.
-23-
Operating Profit
Operating profit for the segment decreased $115 million to $325 million in 2017. The segment experienced unfavorable raw
material costs, net of price and mix, ($102 million) and lower unit volumes ($47 million) compared to 2016. The segment
also experienced higher manufacturing costs ($47 million) due to lower production volumes as a result of the decline in unit
volume year over year. These higher costs were partially offset by lower product liability expense ($39 million) and decreased
selling, general, and administrative costs ($25 million), primarily related to reduced incentive compensation compared to
2016. The Company also had a reversal of expense ($22 million) related to preliminary truck and bus tire duties expensed in
2016. The preliminary truck and bus tire duties were reversed in the first quarter of 2017 as a result of the International Trade
Commission's vote nullifying the preliminary duties. Other operating costs increased ($5 million), including unfavorable
currency impact, compared with 2016.
The segment’s internally calculated raw material index of 158.3 for the year ended December 31, 2017 was an increase of 14.0
percent from 2016.
2016 versus 2015
Sales
Net sales of the Americas Tire Operations segment decreased $84 million, or 3.1 percent, from 2015. The decrease in sales
was a result of unfavorable pricing and mix ($57 million), unfavorable exchange rates ($22 million) and decreased unit
volume ($5 million). The unfavorable pricing and mix was primarily due to net price reductions related to lower raw material
costs. Unit shipments for the segment decreased 0.2 percent in 2016 compared with 2015. In the U.S., the segment’s unit
shipments of total light vehicle tires decreased 2.5 percent in 2016 compared with 2015. This decrease compares with a 1.5
percent decrease in total light vehicle tire shipments experienced by the USTMA, and a 2.2 percent increase in total light
vehicle tire shipments experienced for the total industry, which includes an estimate for non-USTMA members. The decline in
U.S. unit volume in 2016, which was driven by reduced private label shipments, was largely offset by increased unit volume in
Latin America.
Operating Profit
Operating profit for the segment increased $17 million to $440 million in 2016. The segment experienced favorable raw
material costs inclusive of tariffs, including preliminary truck and bus tire duties, net of price and mix ($36 million), lower
product liability expense ($13 million) and decreased selling, general, and administrative costs ($1 million) compared to 2015.
These were partially offset by lower unit volume ($3 million). Manufacturing costs increased ($21 million) compared with
2015, including costs related to the greater complexity of manufacturing higher value, higher margin tires in North America.
Other operating costs were unfavorable ($9 million) compared with 2015.
The segment’s internally calculated raw material index of 138.8 for the year ended December 31, 2016 was a decrease of 9.8
percent from 2015.
International Tire Operations Segment
(Dollar amounts in thousands)
Sales
Operating profit (loss)
Operating margin
Total unit sales change
n/m – not meaningful
Overview
2017
$ 618,869
9,457
$
Change
2016
Change
2015
33.4% $ 464,003
5,998
57.7% $
2.7% $ 451,879
n/m $ (19,133)
1.5%
0.2 points
21.6%
1.3%
5.5 points
6.9%
(4.2)%
The International Tire Operations segment is the combination of the Asia and Europe operating segments. The European
operations include manufacturing operations in the U.K. and Serbia. The U.K. entity manufactures and markets passenger car,
light truck, motorcycle and racing tires and tire retread material for domestic and global markets. The Serbian entity
manufactures light vehicle tires primarily for the European markets and for export to the U.S. The Asian operations are located
in the PRC. Cooper Kunshan Tire manufactures light vehicle tires both for the Chinese domestic market and for export to
markets outside of the PRC. On December 1, 2016, the Company acquired 65 percent of China-based GRT, a joint venture
manufacturing facility located in the PRC. GRT serves as a global source of truck and bus radial tire production for the
-24-
Company. The segment also had another joint venture in the PRC, PCT, which manufactured and marketed radial and bias
medium truck tires, as well as passenger car and light truck tires for domestic and global markets. The Company sold its
ownership interest in this joint venture in November 2014, and the Company began procuring certain medium truck and
passenger car tires under off-take agreements with PCT through mid-2018. The medium truck tire agreement has been
extended and now expires in mid-2019. In December 2017, the Company signed an off-take agreement with Sailun, effective
from January 1, 2018 through December 31, 2020, as an additional source of medium truck tires. The segment sells a majority
of its tires in the replacement market, with a growing portion also sold to OEMs.
2017 versus 2016
Sales
Net sales of the International Tire Operations segment increased $155 million, or 33.4 percent, from 2016. The segment
experienced increased unit volumes ($76 million) and favorable price and mix ($89 million), which were partially offset by
unfavorable currency impact ($10 million) compared with 2016. Unit volume was higher in China due to increased sales in the
domestic market for both original equipment and replacement tires, while unit volume in Europe declined slightly compared to
2016. Net segment exports to the U.S. increased compared with 2016.
Operating Profit
Operating profit for the segment increased $3 million to an operating profit of $9 million in 2017. The segment experienced
favorable unit volume ($11 million), decreased manufacturing costs ($8 million) and lower other costs ($4 million). These
items were partially offset by unfavorable raw material costs, net of price and mix, ($20 million) compared to 2016.
2016 versus 2015
Sales
Net sales of the International Tire Operations segment increased $12 million, or 2.7 percent, from 2015. The segment
experienced increased unit volume ($32 million) and favorable price and mix ($7 million), which were partially offset by
unfavorable currency impacts ($27 million) compared with 2015. Unit volume was higher in China due to increased sales in
the domestic market for both original equipment and replacement tires, which offset the decline in exports to the United
States. Unit volume increased in Europe based on higher European market sales, along with an increase of exports to the
United States.
Operating Profit
Operating profit for the segment increased $25 million to an operating profit of $6 million in 2016. The segment experienced
favorable raw material costs, net of price and mix ($23 million), decreased selling, general and administrative expenses ($1
million), and increased unit volumes ($5 million) compared to 2015. Other costs ($4 million), including unfavorable currency
impacts, increased compared with 2015.
Outlook for the Company
In 2018, the Company expects unit volume improvement in both the Americas Tire Operations and International Tire
Operations segments in comparison to 2017.
Operating profit is expected to improve throughout 2018, with full year operating profit expected to be near the low end of the
9 to 11 percent range.
The adoption of Accounting Standards Update ("ASU") 2017-07, "Improving the Presentation of Net Periodic Pension Cost
and Net Periodic Postretirement Benefit Cost," effective January 1, 2018, will result in the reclassification of net periodic
benefit costs, excluding service costs, outside of operating profit to other pension costs. In 2018, the Company expects net
periodic benefit costs classified outside of operating profit to be approximately $28 million.
The Company expects its full year 2018 effective tax rate will be in a range between 23 and 26 percent. The decrease in the
effective tax rate from 2017 is driven by the reduced U.S. tax rate as a result of the Tax Act and the predominance of the
Company's earnings in the U.S. The 23 to 26 percent range does not include the discrete impact of any tax adjustments that
may be recorded during the 2018 measurement period prescribed under Staff Accounting Bulleting 118 as a result of the Tax
Act.
The Company expects capital expenditures for 2018 will be in a range of $215 million to $235 million.
-25-
Liquidity and Capital Resources
Sources and uses of cash in operating activities
Net cash provided by operating activities of continuing operations was $177 million in 2017 compared to $313 million in
2016. Net income provided $97 million and $251 million in 2017 and 2016, respectively. Net income in 2017 included the
benefit of $39 million related to product liability settlements, changes in the amount of reserves for cases where sufficient
information is known to estimate a liability, and changes in assumptions. Other non-cash charges totaled $251 million in 2017
compared to $199 million in 2016. The increase in 2017 was due to the re-measurement of U.S. deferred tax assets as result
of the Tax Act, as well as the recording of a valuation allowance related to the Company's European operations, partially offset
by the reversal of an existing valuation allowance in Asia. Changes in working capital consumed $171 million and $137
million in 2017 and 2016, respectively. The additional consumption in 2017 was the result of several unfavorable cash flow
movements in 2017, including the decline of the Company's long-term product liability accrual.
Net cash provided by operating activities of continuing operations was $313 million in 2016 compared to $304 million in
2015. Net income provided $251 million and $216 million in 2016 and 2015, respectively. Other non-cash charges totaled
$199 million in 2016 compared to $154 million in 2015. The 2015 results included an unfavorable change in the LIFO
reserve based on the cost and volume of inventory on-hand at December 31, 2015 as compared to December 31, 2014 that did
not recur in 2016. Changes in working capital consumed $137 million and $66 million in 2016 and 2015, respectively. The
additional consumption of working capital in 2016 was due primarily to growth in inventory in 2016.
Source and uses of cash in investing activities
Net cash used in investing activities reflect capital expenditures of $197 million, $175 million and $183 million in 2017, 2016
and 2015, respectively.
During the fourth quarter of 2016, the Company invested $6 million to purchase 65 percent of GRT, net of $8 million of cash
acquired.
The Company’s capital expenditure commitments at December 31, 2017 were $90 million and are included in the “Purchase
Obligations” line of the Contractual Obligations table, which appears later in this section.
Sources and uses of cash in financing activities
During 2015, the Company repaid $41 million of short-term debt, including the repayment of $40 million of borrowings on its
domestic credit lines. In 2016, the Company added $10 million of short-term debt at its Asian operations. The Company
repaid $2 million, $1 million and $3 million of maturing long-term debt in 2017, 2016 and 2015, respectively.
The Company repurchased $91 million, $108 million and $109 million of its common stock in 2017, 2016 and 2015,
respectively, as part of the Company’s share repurchase program authorized by the Board of Directors.
Dividends paid on the Company’s common shares were $22 million, $23 million and $24 million in 2017, 2016 and 2015,
respectively. The Company has maintained a quarterly dividend of 10.5 cents per share in each quarter during the three years
ended December 31, 2017. Dividends paid to the noncontrolling shareholder in COOCSA were less than $1 million in each of
2017, 2016 and 2015.
During 2017, stock options were exercised to acquire 210,125 shares of common stock with a cash impact of $4 million.
During 2016, stock options were exercised to acquire 166,434 shares of common stock with a cash impact of $4 million and
excess tax benefits on stock-based compensation of $274 thousand. During 2015, stock options were exercised to acquire
1,025,699 shares of common stock with a cash impact of $20 million and excess tax benefits on stock-based compensation of
$4 million. Employee taxes paid as a result of shares withheld in conjunction with stock compensation activity were $7
million, $3 million and $4 million in 2017, 2016 and 2015, respectively.
Available cash, credit facilities and contractual commitments
At December 31, 2017, the Company had cash and cash equivalents of $372 million.
Domestically, the Company has a revolving credit facility with a consortium of banks that provides up to $400 million based
on available collateral, including a $110 million letter of credit subfacility, and expires in May 2020. On February 15, 2018,
the Company extended the maturity of its revolving credit facility until February 15, 2023.
The Company also has an accounts receivable securitization facility with a borrowing limit of up to $150 million, based on
available collateral, which expires in May 2018. On February 15, 2018, the Company extended the maturity of the accounts
receivable securitization facility until February 12, 2021.
-26-
These credit facilities are undrawn, other than to secure letters of credit, at December 31, 2017. The Company’s additional
borrowing capacity under these facilities, net of amounts used to back letters of credit and based on available collateral at
December 31, 2017, was $528 million.
The Company’s operations in Asia have annual renewable unsecured credit lines that provide up to $64 million of borrowings
and do not contain significant financial covenants. The additional borrowing capacity on the Asian credit lines totaled $24
million at December 31, 2017.
The Company believes that its cash and cash equivalent balances along with available cash from operating cash flows and
credit facilities will be adequate to fund its typical needs, including working capital requirements, projected capital
expenditures, including its portion of capital expenditures in its partially-owned subsidiaries, and dividend and share
repurchase goals. The Company also believes it has access to additional funds from capital markets to fund potential strategic
initiatives. The entire amount of short-term notes payable outstanding at December 31, 2017 is debt of consolidated
subsidiaries. The Company expects its subsidiaries to refinance or pay these amounts within the next twelve months.
The Company’s cash requirements relating to contractual obligations at December 31, 2017 are summarized in the following
table:
(Dollar amounts in thousands)
Contractual Obligations
Long-term debt
Capital lease obligations
and other
Interest on debt and
capital lease obligations
Operating leases
Notes payable (a)
Purchase obligations (b)
Postretirement benefits
other than pensions (c)
Pensions (d)
Income taxes payable (e)
Other obligations (f)
Total contractual cash
obligations
Total
2018
2019
2020
2021
2022
After 2022
$ 290,458
$
— $ 173,578
$
— $
— $
— $
116,880
Payment Due by Period
7,684
1,413
1,208
—
5,063
—
—
111,277
132,744
39,450
364,982
271,726
219,834
33,671
37,310
23,127
26,895
39,450
23,127
24,664
—
9,241
22,218
—
258,198
80,088
26,696
14,838
45,000
2,694
15,626
15,261
45,000
2,694
2,321
15,919
45,000
2,694
1,876
8,994
14,791
—
—
16,225
35,000
2,694
1,473
8,912
10,863
—
—
16,462
35,000
2,694
444
37,876
33,313
—
—
193,021
14,834
20,201
15,570
$1,509,136
$ 427,241
$ 367,941
$ 123,644
$
84,240
$
74,375
$
431,695
(a)
(b)
(c)
(d)
(e)
(f)
Financing obtained from financial institutions in the PRC to support the Company’s operations there.
Purchase commitments for capital expenditures, medium truck tires and raw materials, principally natural rubber,
made in the ordinary course of business.
Represents benefit payments for postretirement benefits other than pension liabilities.
Represents Company contributions to retirement trusts based on current assumptions.
Represents income taxes payable related to the deemed repatriation tax on undistributed earnings of foreign
subsidiaries under the Tax Act.
Includes stock-based liabilities, warranty reserve, deferred compensation, nonqualified benefit plans and other non-
current liabilities.
Credit agency ratings
Standard & Poor’s has rated the Company’s long-term corporate credit and senior unsecured debt at BB with a stable outlook.
Moody’s Investors Service has assigned a Ba3 corporate family rating and a B1 rating to senior unsecured debt with a stable
outlook.
New Accounting Standards
For a discussion of recent accounting pronouncements and their impact on the Company, see the “Significant Accounting
Policies - Accounting Pronouncements” note to the consolidated financial statements.
Critical Accounting Policies
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses the Company’s
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
-27-
the U.S. When more than one accounting principle, or the method of its application, is generally accepted, the Company
selects the principle or method that is appropriate in its specific circumstances. The Company’s accounting policies are more
fully described in the “Significant Accounting Policies” note to the consolidated financial statements. Application of these
accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the
reporting period. Management bases its estimates and judgments on historical experience and on other factors that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes that of its significant accounting policies, the following may
involve a higher degree of judgment or estimation than other accounting policies.
Product liability
The Company is a defendant in various product liability claims brought in numerous jurisdictions in which individuals seek
damages resulting from motor vehicle accidents allegedly caused by defective tires manufactured by the Company. Each of
the product liability claims faced by the Company generally involves different types of tires and circumstances surrounding
the accident such as different applications, vehicles, speeds, road conditions, weather conditions, driver error, tire repair and
maintenance practices, service life conditions, as well as different jurisdictions and different injuries. In addition, in many of
the Company’s product liability lawsuits the plaintiff alleges that his or her harm was caused by one or more co-defendants
who acted independently of the Company. Accordingly, both the claims asserted and the resolutions of those claims have an
enormous amount of variability. The aggregate amount of damages asserted at any point in time is not determinable since
often times when claims are filed, the plaintiffs do not specify the amount of damages. Even when there is an amount alleged,
at times the amount is wildly inflated and has no rational basis.
The fact that the Company is a defendant in product liability lawsuits is not surprising given the current litigation climate,
which is largely confined to the United States. However, the fact that the Company is subject to claims does not indicate that
there is a quality issue with the Company’s tires. The Company sells approximately 30 to 35 million passenger car, light truck,
SUV, radial medium truck and motorcycle tires per year in North America. The Company estimates that approximately
300 million Company-produced tires – made up of thousands of different specifications – are still on the road in North
America. While tire disablements do occur, it is the Company’s and the tire industry’s experience that the vast majority of tire
failures relate to service-related conditions, which are entirely out of the Company’s control – such as failure to maintain
proper tire pressure, improper maintenance, improper repairs, road hazard and excessive speed.
The Company accrues costs for product liability at the time a loss is probable and the amount of loss can be estimated. The
Company believes the probability of loss can be established and the amount of loss can be estimated only after certain
minimum information is available, including verification that Company-produced product were involved in the incident giving
rise to the claim, the condition of the product purported to be involved in the claim, the nature of the incident giving rise to the
claim and the extent of the purported injury or damages. In cases where such information is known, each product liability
claim is evaluated based on its specific facts and circumstances. A judgment is then made to determine the requirement for
establishment or revision of an accrual for any potential liability. Adjustments to estimated reserves are recorded in the period
in which the change in estimate occurs. The liability often cannot be determined with precision until the claim is resolved.
Pursuant to ASU 450 "Contingencies", the Company accrues the minimum liability for each known claim when the estimated
outcome is a range of probable loss and no one amount within that range is more likely than another. The Company uses a
range of losses because an average cost would not be meaningful since the product liability claims faced by the Company are
unique and widely variable, and accordingly, the resolutions of those claims have an enormous amount of variability. The
costs have ranged from zero dollars to $33 million in one case with no “average” that is meaningful. No specific accrual is
made for individual unasserted claims or for premature claims, asserted claims where the minimum information needed to
evaluate the probability of a liability is not yet known. However, an accrual for such claims based, in part, on management’s
expectations for future litigation activity and the settled claims history is maintained. The Company periodically reviews such
estimates and any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs.
Because of the speculative nature of litigation in the U.S., the Company does not believe a meaningful aggregate range of
potential loss for asserted and unasserted claims can be determined. While the Company believes its reserves are reasonably
stated, it is possible an individual claim from time to time may result in an aberration from the norm and could have a material
impact.
The time frame for the payment of a product liability claim is too variable to be meaningful. From the time a claim is filed to
its ultimate disposition depends on the unique nature of the case, how it is resolved - claim dismissed, negotiated settlement,
trial verdict or appeals process - and is highly dependent on jurisdiction, specific facts, the plaintiff’s attorney, the court’s
docket and other factors. Given that some claims may be resolved in weeks and others may take five years or more, it is
impossible to predict with any reasonable reliability the time frame over which the accrued amounts may be paid.
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The Company regularly reviews the probable outcome of outstanding legal proceedings and the availability and limits of the
insurance coverage, and accrues for such legal proceedings at the time a loss is probable and the amount of the loss can be
estimated. As part of its regular review, the Company monitors trends that may affect its ultimate liability and analyzes the
developments and variables likely to affect pending and anticipated claims against the Company and the reserves for such
claims. The Company utilizes claims experience, as well as trends and developments in the litigation climate, in estimating its
required accrual. Based on the Company’s review completed in 2017, coupled with normal activity, including the addition of
another year of self-insured incidents, settlements and changes in the amount of reserves, the Company reduced its accrual
from $177 million at December 31, 2016 to $130 million at December 31, 2017. This change in estimate in 2017 is primarily
the result of recent favorable claims experience and trends.
The addition of another year of self-insured incidents accounted for an increase of $48 million in the Company's product
liability reserve in 2017. Settlements, changes in the amount of reserves for cases where sufficient information is known to
estimate a liability, and changes in assumptions decreased the liability by $39 million.
During 2017 the Company paid $56 million and during 2016, the Company paid $32 million to resolve cases and claims. The
Company’s product liability reserve balance at December 31, 2017 totaled $130 million (the current portion of $45 million is
included in Accrued liabilities and the long-term portion is included in Other long-term liabilities on the Consolidated Balance
Sheets), and the balance at December 31, 2016 totaled $177 million (current portion of $58 million).
The product liability expense reported by the Company includes amortization of insurance premium costs, adjustments to
liability reserves and legal costs incurred in defending claims against the Company. Legal costs are expensed as incurred and
product liability insurance premiums are amortized over coverage periods.
Product liability expense totaled $26 million, $65 million and $79 million in 2017, 2016 and 2015. Product liability expenses
are included in Cost of products sold in the Consolidated Statements of Income.
Income Taxes
The Company is required to make certain estimates and judgments to determine income tax expense for financial statement
purposes. The more critical estimates and judgments include assessing uncertain tax positions and measuring unrecognized tax
benefits, determining whether deferred tax assets will be realized and whether foreign earnings will be indefinitely reinvested.
Changes to these estimates may result in an increase or decrease to tax expense in subsequent periods.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a
multitude of jurisdictions across the Company’s global operations. The Company applies the rules under ASC 740-10 in its
Accounting for Uncertainty in Income Taxes for uncertain tax positions using a “more likely than not” recognition threshold.
Pursuant to these rules, the Company will initially recognize the financial statement effects of a tax position when it is more
likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the
relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will
be based on the Company’s estimate of the ultimate amount to be sustained if audited by the taxing authority. The Company
recognizes tax liabilities in accordance with ASC 740-10 and adjusts these liabilities when judgment changes as a result of the
evaluation of new information not previously available. Based upon the outcome of tax examinations, judicial proceedings, or
expiration of statutes of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits
may result in a payment that is materially different from the current estimate of the tax liabilities. These differences will be
reflected as increases or decreases to income tax expense in the period in which new information is available.
The Company’s liability for unrecognized tax benefits, exclusive of interest, totaled approximately $2 million at December 31,
2017. In accordance with Company policy, certain liabilities relating to 2012 and 2013 were released following the lapse of
statutes for certain state jurisdictions. The unrecognized tax benefits at December 31, 2017 relate to uncertain tax positions in
tax years 2013 through 2017.
The Company must assess the likelihood that it will be able to recover its deferred tax assets. Deferred income taxes arise
from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the
Company’s ability to recover deferred tax assets within the jurisdiction from which they arise, all available positive and
negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-
planning strategies and results of recent operations. In projecting future taxable income, the Company begins with historical
results adjusted for the results of discontinued operations and changes in accounting policies, and incorporates assumptions
including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences and the
implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the
forecasts of future taxable income and are consistent with the plans and estimates the Company uses to manage the underlying
businesses. In evaluating the objective evidence that historical results provide, the Company considers three years of
cumulative operating income (loss).
-29-
The Company continues to maintain a valuation allowance against a portion of its U.S. and non-U.S. deferred tax asset
position at December 31, 2017, as it cannot assure the utilization of these assets before they expire. In the U.S., the Company
has offset a portion of its deferred tax asset relating primarily to a loss carryforward by a valuation allowance of $1 million. In
addition, the Company has recorded valuation allowances of $29 million relating primarily to non-U.S. pension and net
operating loss deferred tax assets for a total valuation allowance of $30 million. In conjunction with the Company’s ongoing
review of its actual results and anticipated future earnings, the Company will continue to reassess the possibility of releasing
all or part of the valuation allowances currently in place when they are deemed to be realizable.
On December 22, 2017, the U.S. enacted comprehensive tax legislation, commonly referred to as the “Tax Act”, which made
broad and complex changes to the tax code. As a result of the transition to a new tax system, the Company recorded
provisional tax amounts under SAB 118 of $35 million for tax on a mandatory, one-time deemed repatriation of undistributed
earnings of foreign subsidiaries (the “Transition Tax”) and of $20 million for the impact of the re-measurement of its U.S.
deferred tax assets and liabilities to the new lower U.S. federal income tax rate of 21 percent.
The Company generally considers the earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside the U.S.
on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. Prior to
enactment of the Tax Act, the Company did not recognize a deferred tax liability related to the U.S. federal and state income
taxes and foreign withholding taxes on unremitted foreign earnings because it overcame the presumption of the repatriation of
those earnings. Upon enactment of the Tax Act, a one-time Transition Tax was recorded as a provisional amount based on
approximately $495 million of unremitted foreign earnings. While the Company has accrued Transition Tax payable on the
deemed repatriation of earnings that were previously indefinitely reinvested, it was unable to determine a reasonable estimate
of the remaining tax liability, if any, under the Tax Act for its remaining outside basis differences or assess how the Tax Act
will impact the Company's existing assertion of indefinite reinvestment.
Impairment of long-lived assets
The Company’s long-lived assets include property, plant and equipment and other assets that are intangible. If an indicator of
impairment exists for certain groups of property, plant and equipment or definite-lived intangible assets, the Company will
compare the forecasted undiscounted cash flows attributable to the assets to their carrying values. If the carrying values exceed
the undiscounted cash flows, the Company then determines the fair values of the assets. If the carrying values of the assets
exceed the fair values of the assets, an impairment charge is recognized for the difference.
The Company assesses the potential impairment of its indefinite-lived assets at least annually or when events or circumstances
indicate impairment may have occurred. The carrying value of these assets is compared to their fair value. If the carrying
values exceed the fair values, an impairment charge equal to that excess is recorded.
The Company cannot predict the occurrence of future impairment-triggering events. Such events may include, but are not
limited to, significant industry or economic trends and strategic decisions made in response to changes in the economic and
competitive conditions impacting the Company’s businesses.
Pension and postretirement benefits
The Company has recorded significant pension liabilities in the U.S. and the U.K. and other postretirement benefit (“OPEB”)
liabilities in the U.S. that are developed from actuarial valuations. The determination of the Company’s pension liabilities
requires key assumptions regarding discount rates used to determine the present value of future benefit payments, expected
returns on plan assets and the rates of future compensation increases. The discount rate is also significant to the development
of OPEB liabilities. The Company determines these assumptions in consultation with its investment advisors and actuaries.
The discount rate reflects the rate used to estimate the value of the Company’s pension and OPEB liabilities for which they
could be settled at the end of the year. When determining the discount rate, the Company discounted the expected pension
disbursements over the next one hundred years using spot rates from a high quality corporate bond yield curve and computed a
single equivalent rate. Based upon this analysis, the Company used a discount rate of 3.50 percent to measure its U.S. pension
liabilities at December 31, 2017, which is lower than the 3.90 percent used at December 31, 2016. Similarly, the Company
discounted the expected disbursements of its OPEB liabilities and, based upon this analysis, the Company used a discount rate
of 3.50 percent to measure its OPEB liabilities at December 31, 2017, which is lower than the 3.95 percent used at
December 31, 2016. A similar analysis was completed in the U.K. and the Company decreased the discount rate used to
measure its U.K. pension liabilities to 2.50 percent at December 31, 2017 from 2.65 percent at December 31, 2016.
The rate of future compensation increases is used to determine the future benefits to be paid for employees, since the amount
of a participant’s pension is partially attributable to the compensation earned during his or her career. The rate reflects the
Company’s expectations over time for salary and wage inflation and the impacts of promotions and incentive compensation,
which is typically tied to profitability. Effective July 1, 2009, the Company froze the Spectrum (salaried employees) Pension
Plan in the U.S., so the future compensation assumption is not applicable to valuing this liability. Effective April 6, 2012, the
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Company amended the Cooper Avon Pension Plan to freeze all future pension benefits, so the future compensation assumption
is not applicable to valuing this liability.
The effects of a hypothetical change in discount rate may be nonlinear and asymmetrical for future years as the change in
discount rate and the corresponding accounting are applied. Holding all other assumptions constant, an increase or decrease of
25 basis points in the December 31, 2017, discount rate assumption would have the following estimated effects on the
December 31, 2017 pension and other post-retirement benefit obligations and 2018 expected pension and other post-retirement
expense:
$ increase (decrease) in thousands
Pension expense
Other post-retirement benefit expense
Pension obligation
Other post-retirement benefit obligation
25 Basis Point
Decrease in
Discount Rate
25 Basis Point
Increase in
Discount Rate
$
$
2,464
(290)
32,357
8,368
(2,362)
270
(30,775)
(7,948)
The assumed long-term rate of return on pension plan assets is applied to the market value of plan assets to derive a reduction
to pension expense that approximates the expected average rate of asset investment return over ten or more years. A decrease
in the expected long-term rate of return will increase pension expense, whereas an increase in the expected long-term rate will
reduce pension expense. Decreases in the level of actual plan assets will serve to increase the amount of pension expense,
whereas increases in the level of actual plan assets will serve to decrease the amount of pension expense. Any shortfall in the
actual return on plan assets from the expected return will increase pension expense in future years due to the amortization of
the shortfall, whereas any excess in the actual return on plan assets from the expected return will reduce pension expense in
future periods due to the amortization of the excess.
The Company’s investment strategy is to manage the plans' asset allocation relative to the liability profile and funded status of
the plans. The Company’s current asset allocation for U.S. plans’ assets is 52 percent in debt securities, 40 percent in equity
securities, 6 percent in other investments and 2 percent in cash. The Company’s current asset allocation for U.K. plan assets is
68 percent in bonds, 18 percent in equity securities, 13 percent in other investments, and 1 percent in cash. Equity security
investments are structured to achieve a balance between growth and value stocks. The Company determines the annual rate of
return on pension assets by first analyzing the composition of its asset portfolio. Historical rates of return are applied to the
portfolio and may be adjusted based on a review by the Company’s investment advisors and actuaries. Industry comparables
and other outside guidance are also considered in the annual selection of the expected rates of return on pension assets.
The actual return on U.S. pension plans’ assets was a gain of approximately 14.22 percent in 2017 compared to an asset gain
of approximately 7.09 percent in 2016. The actual return on U.K. pension plan assets was a gain of approximately 8.28 percent
in 2017 compared to an asset gain of 25.07 percent in 2016. The Company’s estimate for the expected long-term return on its
U.S. plan assets used to derive 2017 and 2016 pension expense was 6.50 percent and 7.00 percent, respectively. The expected
long-term return on U.K. plan assets used to derive the 2017 and 2016 pension expense was 3.30 percent and 4.00 percent,
respectively. Holding all other assumptions constant, an increase or decrease of 25 basis points in our December 31, 2017
expected return on assets assumption would increase or decrease the net periodic benefit cost by $2,319, respectively.
The Company has accumulated net deferred losses resulting from the shortfalls and excesses in actual returns on pension plan
assets from expected returns and, in the measurement of pensions and OPEB liabilities, decreases and increases in the discount
rate and the rate of future compensation increases and differences between actuarial assumptions and actual experience
totaling $488 million at December 31, 2017. These amounts are being amortized in accordance with the corridor amortization
requirements of U.S. GAAP over periods ranging from 8 years to 10 years. Amortization of these net deferred losses was $43
million in 2017 and $44 million in 2016.
The Company has implemented household caps on the amounts of retiree medical benefits it will provide to certain retirees in
the U.S. The caps do not apply to individuals who retired prior to certain specified dates. Costs in excess of these caps will be
paid by plan participants. The Company implemented increased cost sharing in 2004 in the retiree medical coverage provided
to certain eligible current and future retirees. Since then, cost sharing has expanded such that nearly all covered retirees pay a
charge to be enrolled.
In accordance with U.S. GAAP, the Company recognizes the funded status (i.e., the difference between the fair value of plan
assets and the projected benefit obligation) of its pension and OPEB plans and the net unrecognized actuarial losses and
unrecognized prior service costs in the consolidated balance sheets. The unrecognized actuarial losses and unrecognized prior
service costs (components of cumulative other comprehensive loss in the stockholders’ equity section of the balance sheet)
will be subsequently recognized as net periodic benefit cost pursuant to the Company’s historical accounting policy for
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amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net
periodic benefit costs in the same periods will be recognized as a component of other comprehensive income.
Item 7A. QUANTITATIVE AND QUALITATIVE 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 “Fair Value of Financial Instruments” notes to the consolidated financial statements for additional
information.
The Company has estimated its market risk exposures using sensitivity analysis. These analyses measure the potential loss in
future earnings, cash flows or fair values of market sensitive instruments resulting from a hypothetical ten percent change in
interest rates or foreign currency exchange rates.
A decrease in interest rates by ten percent of the actual rates would have adversely affected the fair value of the Company’s
fixed-rate, long-term debt by approximately $6 million and $8 million at December 31, 2017 and December 31, 2016,
respectively. An increase in interest rates by ten percent of the actual rates for the Company’s floating rate long-term debt
obligations would not have been material to the Company’s results of operations and cash flows.
To manage the volatility of currency exchange exposures related to future sales and purchases in foreign currencies, the
Company first nets the exposures to take advantage of natural offsets. Then, for the residual portion, the Company enters into
forward exchange contracts and purchases options with maturities of less than 12 months pursuant to the Company’s policies
and hedging practices. The changes in fair value of these hedging instruments are offset, in part or in whole, by corresponding
changes in the fair value of cash flows of the underlying exposures being hedged. The Company’s unprotected exposures to
earnings and cash flow fluctuations due to changes in foreign currency exchange rates were not significant at December 31,
2017 and 2016.
The Company enters into foreign exchange contracts to manage its exposure to foreign currency denominated receivables and
payables. The impact from a ten percent change in foreign currency exchange rates on the Company’s foreign currency
denominated obligations and related foreign exchange contracts would not have been material to the Company’s results of
operations and cash flows.
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Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands except per share amounts)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expense
Pension settlement charges
Operating profit
Interest expense
Interest income
Other non-operating (expense) income
Income before income taxes
Provision for income taxes
Net income
Net income attributable to noncontrolling shareholders' interests
Net income attributable to Cooper Tire & Rubber Company
Earnings per share:
Basic
Diluted
See Notes to Consolidated Financial Statements, pages 39 to 70.
Year Ended December 31,
2017
2,854,656
2,338,153
516,503
244,779
—
271,724
(32,048)
7,362
(3,113)
243,925
147,180
96,745
1,345
95,400
1.83
1.81
$
$
$
$
$
$
$
$
2016
2,924,869
2,272,519
652,350
255,701
12,262
384,387
(26,604)
4,378
4,932
367,093
115,799
251,294
2,913
248,381
4.56
4.51
$
$
$
$
2015
2,972,901
2,355,451
617,450
262,970
—
354,480
(23,820)
2,211
1,157
334,028
118,224
215,804
3,038
212,766
3.73
3.69
-33-
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands except per share amounts)
Net income
Other comprehensive income (loss):
Cumulative currency translation adjustments
Financial instruments:
Change in the fair value of derivatives and marketable
securities
Income tax benefit on derivative instruments
Financial instruments, net of tax
Postretirement benefit plans:
Amortization of actuarial loss
Amortization of prior service credit
Actuarial gain (loss)
Pension settlement charges
Income tax benefit on postretirement benefit plans
Foreign currency translation effect
Postretirement benefit plans, net of tax
Other comprehensive income (loss)
Comprehensive income
Less comprehensive income (loss) attributable to noncontrolling
shareholders' interests
Comprehensive income attributable to Cooper Tire & Rubber
Company
See Notes to Consolidated Financial Statements, pages 39 to 70.
Year Ended December 31,
2017
2016
2015
$
96,745
$
251,294
$
215,804
38,850
(57,954)
(35,320)
(2,473)
855
(1,618)
42,570
(566)
13,385
—
(14,718)
(7,855)
32,816
70,048
166,793
(2,371)
884
(1,487)
43,624
(566)
(39,689)
12,262
(9,299)
13,152
19,484
(39,957)
211,337
(2,319)
1,011
(1,308)
46,736
(566)
23,597
—
(23,410)
6,879
53,236
16,608
232,412
4,720
(1,660)
(1,189)
$
162,073
$
212,997
$
233,601
-34-
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
Assets
Current assets:
December 31,
2017
2016
Cash and cash equivalents
Notes receivable
Accounts receivable, less allowances of $7,570 at 2017 and $7,290 at 2016
Inventories:
$
$
371,684
13,753
428,060
Finished goods
Work in process
Raw materials and supplies
Total inventories
Other current assets
Total current assets
Property, plant and equipment:
Land and land improvements
Buildings
Machinery and equipment
Molds, cores and rings
Total property, plant and equipment
Less: Accumulated depreciation
Property, plant and equipment, net
Goodwill
Intangibles, net of accumulated amortization of $93,353 at 2017 and $77,321 at
2016
Restricted cash
Deferred income tax assets
Other assets
Total assets
$
See Notes to Consolidated Financial Statements, pages 39 to 70.
365,672
31,000
115,085
511,757
63,063
1,388,317
52,683
311,199
1,890,210
220,528
2,474,620
1,507,873
966,747
54,613
133,256
1,422
58,665
4,715
2,607,735
$
504,423
7,485
409,913
338,887
29,922
101,342
470,151
28,546
1,420,518
47,767
282,960
1,742,449
224,662
2,297,838
1,433,611
864,227
52,705
140,751
1,327
133,879
5,988
2,619,395
-35-
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except par value amounts)
(Continued)
Liabilities and Equity
Current liabilities:
Notes payable
Accounts payable
Accrued liabilities
Income taxes payable
Current portion of long-term debt
Total current liabilities
Long-term debt
Postretirement benefits other than pensions
Pension benefits
Other long-term liabilities
Deferred income tax liabilities
Equity:
Preferred stock, $1 par value; 5,000,000 shares authorized; none issued
Common stock, $1 par value; 300,000,000 shares authorized; 87,850,292
shares issued at 2017 and 2016
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Less: Common shares in treasury at cost (36,908,553 at 2017 and 34,850,512
at 2016)
Total parent stockholders’ equity
Noncontrolling shareholders’ interests in consolidated subsidiaries
Total equity
Total liabilities and equity
See Notes to Consolidated Financial Statements, pages 39 to 70.
December 31,
2017
2016
$
$
39,450
277,060
180,476
6,954
1,413
505,353
295,987
256,888
219,534
144,217
—
87,850
20,740
2,394,372
(478,478)
2,024,484
(897,388)
1,127,096
58,660
1,185,756
2,607,735
$
$
26,286
282,416
183,804
5,887
2,421
500,814
297,094
247,227
285,852
156,924
1,248
87,850
25,876
2,321,424
(545,151)
1,889,999
(813,985)
1,076,014
54,222
1,130,236
2,619,395
-36-
CONSOLIDATED STATEMENTS OF EQUITY
(Dollar amounts in thousands except per share amounts)
Common
Stock $1 Par
Value
Capital in
Excess of
Par
Value
Retained
Earnings
Cumulative
Other
Comprehensive
Income (Loss)
Common
Shares in
Treasury
Total Parent
Stockholders’
Equity
Noncontrolling
Shareholders’
Interests in
Consolidated
Subsidiaries
Total
$
87,850
$
5,742
$
1,867,126
$
(530,602) $
(586,324) $
843,792
$
40,469
$
884,261
87,850
16,306
2,095,923
(509,767)
(711,064)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,010
—
212,766
—
—
20,835
212,766
20,835
—
37,990
—
8,554
1,921
—
(23,880)
248,381
—
—
(35,384)
248,381
(35,384)
—
—
—
—
(40,000)
—
—
(108,821)
(108,821)
24,081
34,556
—
(23,880)
979,248
248,381
(35,384)
212,766
3,038
215,804
20,835
(4,227)
16,608
233,601
(1,189)
232,412
(917)
—
—
—
—
38,363
2,913
(4,573)
(917)
—
(108,821)
34,556
(23,880)
1,017,611
251,294
(39,957)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,570
(52)
—
(22,828)
95,400
—
—
66,673
95,400
66,673
(5,136)
(538)
—
(21,914)
—
—
—
—
—
—
—
—
—
212,997
(1,660)
211,337
—
—
(804)
18,323
(107,999)
(107,999)
5,078
14,596
—
(22,828)
—
—
—
(804)
18,323
(107,999)
14,596
(22,828)
162,073
4,720
166,793
95,400
66,673
—
(90,868)
(90,868)
7,465
1,791
—
(21,914)
54,222
1,345
1,130,236
96,745
3,375
70,048
(282)
—
—
—
(282)
(90,868)
1,791
(21,914)
—
—
—
—
—
—
—
—
—
—
—
—
—
87,850
25,876
2,321,424
(545,151)
(813,985)
1,076,014
$
87,850
$
20,740
$
2,394,372
$
(478,478) $
(897,388) $
1,127,096
$
58,660
$
1,185,756
Balance at
December 31, 2014
Net income
Other comprehensive
income (loss)
Comprehensive income
(loss)
Dividends payable to
noncontrolling shareholder
Accelerated share
repurchase program
Share repurchase program
Stock compensation plans,
including tax benefit of
$4,323
Cash dividends - $0.42 per
share
Balance at
December 31, 2015
Net income
Other comprehensive loss
Comprehensive income
(loss)
Dividends payable to
noncontrolling shareholder
Acquisition of business
Share repurchase program
Stock compensation plans,
including tax benefit of
$274
Cash dividends - $0.42 per
share
Balance at
December 31, 2016
Net income
Other comprehensive
income
Comprehensive income
(loss)
Dividends payable to
noncontrolling shareholder
Share repurchase program
Stock compensation plans
Cash dividends - $0.42 per
share
Balance at
December 31, 2017
See Notes to Consolidated Financial Statements, pages 39 to 70.
-37-
Year Ended December 31,
2017
2016
2015
$
96,745
$
251,294
$
215,804
140,228
61,571
4,009
2,981
42,004
—
(12,239)
(31,820)
(34,848)
(31,217)
(134)
(60,452)
176,828
(197,186)
—
278
(196,908)
(1,507)
(2,421)
—
(90,868)
(7,002)
(282)
(21,914)
4,224
—
(119,770)
7,111
(132,739)
504,423
371,684
$
130,257
(12,350)
13,570
11,990
43,058
12,262
(45,674)
(77,872)
3,831
13,128
(20,541)
(10,210)
312,743
(175,437)
(5,928)
337
(181,028)
10,019
(935)
—
(107,999)
(2,948)
(804)
(22,828)
3,950
274
(121,271)
(11,178)
(734)
505,157
504,423
$
121,408
25,034
14,919
(53,108)
46,170
—
(15,155)
51,864
(931)
(42,068)
25,712
(85,342)
304,307
(182,544)
—
1,651
(180,893)
(41,303)
(3,125)
(2,586)
(108,821)
(3,993)
(917)
(23,880)
19,642
4,323
(160,660)
(9,249)
(46,495)
551,652
505,157
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization
Deferred income taxes
Stock-based compensation
Change in LIFO reserve
Amortization of unrecognized postretirement benefits
Pension settlement charges
Changes in operating assets and liabilities:
Accounts and notes receivable
Inventories
Other current assets
Accounts payable
Accrued liabilities
Other items
Net cash provided by operating activities
Investing activities:
Additions to property, plant and equipment and capitalized software
Acquisition of business, net of cash acquired
Proceeds from the sale of assets
Net cash used in investing activities
Financing activities:
Net (payments on) issuances of short-term debt
Repayments of long-term debt
Payment of financing fees
Repurchase of common stock
Payments of employee taxes withheld from share-based awards
Payment of dividends to noncontrolling shareholders
Payment of dividends
Issuance of common shares related to stock-based compensation
Excess tax benefits on stock-based compensation
Net cash used in financing activities
Effects of exchange rate changes on cash of continuing operations
Changes in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
See Notes to Consolidated Financial Statements, pages 39 to 70.
-38-
Notes to Consolidated Financial Statements
(Dollar amounts in thousands except per share amounts)
Note 1 – Significant Accounting Policies
Principles of consolidation – The consolidated financial statements include the accounts of the Company and its majority-
owned subsidiaries. Acquired businesses are included in the consolidated financial statements from the dates of acquisition. All
intercompany accounts and transactions have been eliminated.
The Company consolidates into its financial statements the accounts of the Company, all wholly-owned subsidiaries, and any
partially-owned subsidiary that the Company has the ability to control. Control generally equates to ownership percentage,
whereby investments that are more than 50-percent owned are consolidated, investments in subsidiaries of 50 percent or less
but greater than 20-percent are accounted for using the equity method, and investments in subsidiaries of 20 percent or less are
accounted for using the cost method. The Company does not consolidate any entity for which it has a variable interest based
solely on power to direct the activities and significant participation in the entity’s expected results that would not otherwise be
consolidated based on control through voting interests. Further, the Company’s joint ventures are businesses established and
maintained in connection with the Company’s operating strategy.
Cash and cash equivalents – The Company considers highly liquid investments with an original maturity of three months or
less to be cash equivalents.
The Company’s objectives related to the investment of cash not required for operations is to preserve capital, meet the
Company’s liquidity needs and earn a return consistent with these guidelines and market conditions. Investments deemed
eligible for the investment of the Company’s cash include: 1) U.S. Treasury securities and general obligations fully guaranteed
with respect to principal and interest by the government; 2) obligations of U.S. government agencies; 3) commercial paper or
other corporate notes of prime quality purchased directly from the issuer or through recognized money market dealers; 4) time
deposits, certificates of deposit or bankers’ acceptances of banks rated “A-” by Standard & Poor’s or “A3” by Moody’s; 5)
collateralized mortgage obligations rated “AAA” by Standard & Poor’s and “Aaa” by Moody’s; 6) tax-exempt and taxable
obligations of state and local governments of prime quality; and 7) mutual funds or outside managed portfolios that invest in
the above investments. The Company had cash and cash equivalents totaling $371,684 and $504,423 at December 31, 2017 and
December 31, 2016, respectively. The majority of the cash and cash equivalents were invested in eligible financial instruments
in excess of amounts insured by the Federal Deposit Insurance Corporation and, therefore, subject to credit risk. Management
believes that the probability of losses related to credit risk on investments classified as cash and cash equivalents is remote.
Notes receivable – The Company has received bank secured notes from certain of its customers in the PRC to settle trade
accounts receivable. These notes generally have maturities of six months or less and are redeemable at the bank of
issuance. The Company evaluates the credit risk of the issuing bank prior to accepting a bank secured note from a
customer. Management believes that the probability of material losses related to credit risk on notes receivable is remote.
Accounts receivable – The Company records trade accounts receivable when revenue is recorded in accordance with its revenue
recognition policy and relieves accounts receivable when payments are received from customers.
Allowance for doubtful accounts – The allowance for doubtful accounts is established through charges to the provision for bad
debts. The Company evaluates the adequacy of the allowance for doubtful accounts throughout the year. The evaluation
includes historical trends in collections and write-offs, management’s judgment of the probability of collecting specific
accounts and management’s evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are
susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is
deemed to be worthless or only recoverable in part, and are written off at that time through a charge against the allowance for
doubtful accounts.
Inventories – In 2017, the Company adopted Accounting Standard Update (ASU) 2015-11, "Inventory-Simplifying the
Measurement of Inventory," which changed how inventory is valued. Inventories are valued at cost, which is not in excess of
the net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. Inventory costs have been determined by the LIFO method for
substantially all U.S. inventories. Costs of other inventories have been determined by the FIFO method. Inventories include
direct material, direct labor, and applicable manufacturing and engineering overhead costs.
-39-
Long-lived assets – Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the
following expected useful lives:
Land improvements
Buildings
Machinery and equipment
Molds, cores and rings
10 to 20 years
10 to 40 years
5 to 14 years
2 to 10 years
The Company capitalizes certain internal and external costs incurred to acquire or develop internal-use software. Capitalized
software costs are amortized over the estimated useful life of the software, which ranges from three years to nine years.
Intangibles with definite lives include trademarks, technology and intellectual property which are amortized over their
remaining useful lives, which range from one to three years. Land use rights are amortized over their remaining useful lives,
which range from 38 years to 45 years. The Company evaluates the recoverability of long-lived assets based on undiscounted
projected cash flows, excluding interest and taxes, when any impairment is indicated. Goodwill and indefinite-lived intangibles
are assessed for potential impairment at least annually or when events or circumstances indicate impairment may have
occurred.
Earnings per common share – Net income per share is computed on the basis of the weighted average number of common
shares outstanding each year. Diluted earnings per share includes the dilutive effect of stock options and other stock units. The
following table sets forth the computation of basic and diluted earnings per share:
(Number of shares and dollar amounts in thousands except per share amounts)
Numerator
2017
2016
2015
Numerator for basic and diluted earnings per share - income from
continuing operations available to common stockholders
$
95,400
$
248,381
$
212,766
Denominator
Denominator for basic earnings per share - weighted average
shares outstanding
Effect of dilutive securities - stock options and other stock units
Denominator for diluted earnings per share - adjusted weighted
average shares outstanding
Earnings per share:
Basic
Diluted
52,206
467
52,673
54,480
610
55,090
$
$
1.83
1.81
$
$
4.56
4.51
$
$
57,012
611
57,623
3.73
3.69
At December 31, 2017, 2016 and 2015 all options to purchase shares of the Company’s common stock were included in the
computation of diluted earnings per share as the options’ exercise prices were less than the average market price of the common
shares.
Derivative financial instruments – Derivative financial instruments are utilized by the Company to reduce foreign currency
exchange 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. The Company offsets fair value amounts recognized on the Consolidated Balance Sheets for derivative
financial instruments executed with the same counter-party.
The Company uses foreign currency forward contracts as hedges of the fair value of certain non-U.S. dollar denominated net
asset and liability positions. Gains and losses resulting from the impact of currency exchange rate movements on these forward
contracts are recognized in the accompanying Consolidated Statements of Income in the period in which the exchange rates
change and offset the foreign currency gains and losses on the underlying exposure being hedged.
Foreign currency forward contracts are also used to hedge variable cash flows associated with forecasted sales and purchases
denominated in currencies that are not the functional currency of certain entities. The forward contracts have maturities of less
than twelve months pursuant to the Company’s policies and hedging practices. These forward contracts meet the criteria for and
have been designated as cash flow hedges. Accordingly, the effective portion of the change in fair value of unrealized gains and
losses on such forward contracts are recorded as a separate component of stockholders’ equity in the accompanying
Consolidated Balance Sheets and reclassified into earnings as the hedged transaction affects earnings.
-40-
The Company assesses hedge effectiveness quarterly. In doing so, the Company monitors the actual and forecasted foreign
currency sales and purchases versus the amounts hedged to identify any hedge ineffectiveness. The Company also performs
regression analysis comparing the change in value of the hedging contracts versus the underlying foreign currency sales and
purchases, which confirms a high correlation and hedge effectiveness. Any hedge ineffectiveness is recorded as an adjustment
in the accompanying Consolidated Statements of Income in the period in which the ineffectiveness occurs.
The Company is exposed to price risk related to forecasted purchases of certain commodities that are used as raw materials,
principally natural rubber. Accordingly, it uses commodity contracts with forward pricing for a portion its production
requirements. These contracts generally qualify for the normal purchase exception under guidance for derivative instruments
and hedging activities, and therefore are not subject to its provisions.
Income taxes – Income tax expense is based on reported earnings or losses before income taxes in accordance with the tax rules
and regulations of the specific legal entities within the various specific taxing jurisdictions where the Company’s income is
earned. Taxable income may differ from earnings before income taxes for financial accounting purposes. To the extent that
differences are due to revenue or expense items reported in one period for tax purposes and in another period for financial
accounting purposes, a provision for deferred income taxes is made using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax
asset may not be realized. Deferred income taxes generally are not recorded on the majority of undistributed earnings of
international subsidiaries based on the Company’s intention that these earnings will continue to be reinvested. Upon enactment
of the Tax Act, the Transition Tax was recorded based on approximately $495 million of unremitted foreign earnings. While the
Company has accrued Transition Tax payable on the deemed repatriation of earnings that were previously indefinitely
reinvested, it was unable to determine a reasonable estimate of the remaining tax liability, if any, under the Tax Act for its
remaining outside basis differences or assess how the Tax Act will impact the Company's existing assertion of indefinite
reinvestment. As such, no change has been made with respect to that assertion for the year ended December 31, 2017.
Product liability – The Company accrues costs for product liability at the time a loss is probable and the amount of loss can be
estimated. The Company believes the probability of loss can be established and the amount of loss can be estimated only after
certain minimum information is available, including verification that Company-produced products were involved in the
incident giving rise to the claim, the condition of the product purported to be involved in the claim, the nature of the incident
giving rise to the claim and the extent of the purported injury or damages. In cases where such information is known, each
product liability claim is evaluated based on its specific facts and circumstances. A judgment is then made to determine the
requirement for establishment or revision of an accrual for any potential liability. Adjustments to estimated reserves are
recorded in the period in which the change in estimate occurs. The liability often cannot be determined with precision until the
claim is resolved.
Pursuant to ASU 450 "Contingencies", the Company accrues the minimum liability for each known claim when the estimated
outcome is a range of probable loss and no one amount within that range is more likely than another. The Company uses a
range of losses because an average cost would not be meaningful since the product liability claims faced by the Company are
unique and widely variable, and accordingly, the resolutions of those claims have an enormous amount of variability. The costs
have ranged from zero dollars to $33 million in one case with no “average” that is meaningful. No specific accrual is made for
individual unasserted claims or for premature claims, asserted claims where the minimum information needed to evaluate the
probability of a liability is not yet known. However, an accrual for such claims based, in part, on management’s expectations
for future litigation activity and the settled claims history is maintained. The Company periodically reviews such estimates and
any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs. Because of the
speculative nature of litigation in the U.S., the Company does not believe a meaningful aggregate range of potential loss for
asserted and unasserted claims can be determined. While the Company believes its reserves are reasonably stated, it is possible
an individual claim from time to time may result in an aberration from the norm and could have a material impact.
The product liability expense reported by the Company includes amortization of insurance premium costs, adjustments to
liability reserves and legal costs incurred in defending claims against the Company. Legal costs are expensed as incurred and
product liability insurance premiums are amortized over coverage periods.
Advertising expense – Expenses incurred for advertising include production and media and are generally expensed when
incurred. Costs associated with dealer-earned cooperative advertising are recorded as a reduction of the revenue component of
Net sales at the time of sale. Advertising expense for 2017, 2016 and 2015 was $52,798, $53,715 and $53,007, respectively.
Stock-based compensation – The Company’s incentive compensation plans allow the Company to grant awards to employees in
the form of stock options, stock awards, restricted stock units, stock appreciation rights, performance stock units, dividend
equivalents and other awards. Compensation related to these awards is determined based on the fair value on the date of grant
and is amortized to expense over the vesting period. If awards can be settled in cash, these awards are recorded as liabilities and
marked to market. See Note 12 – Stock-Based Compensation for additional information.
-41-
Warranties – Warranties are provided on the sale of certain of the Company’s products, and an accrual for estimated future
claims is recorded at the time revenue is recognized. Tire replacement under most of the warranties the Company offers is on a
prorated basis. The Company provides for the estimated cost of product warranties based primarily on historical return rates,
estimates of the eligible tire population and the value of tires to be replaced. The following table summarizes the activity in the
Company’s product warranty liabilities which are recorded in Accrued liabilities and Other long-term liabilities on the
Company’s Consolidated Balance Sheets:
Reserve at beginning of year
Additions
Payments
Reserve at December 31
2017
2016
2015
10,634
10,310
(8,851)
12,093
12,339
8,349
(10,054)
10,634
14,005
9,122
(10,788)
12,339
Use of estimates – The preparation of consolidated financial statements in conformity with U.S. 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 consolidated financial statements. Actual results could differ from those estimates.
Revenue recognition – Revenues are recognized when title to the product passes to customers. Shipping and handling costs are
recorded in cost of products sold. Allowance programs such as volume rebates and cash discounts are recorded at the time of
sale as a reduction to revenue based on anticipated accrual rates for the year.
Research and development – Costs are charged to cost of products sold as incurred and amounted to approximately $59,869,
$55,534 and $51,793 during 2017, 2016 and 2015, respectively.
Related Party Transactions – The Company’s COOCSA joint venture paid $40,279, $33,774 and $26,598 in 2017, 2016 and
2015, respectively, to an employment services company in Mexico owned by members of the joint venture workforce.
COOCSA also recorded sales of $8,209, $6,335 and $6,555 to the noncontrolling shareholder in 2017, 2016 and 2015,
respectively.
Truck and Bus Tire Tariffs – Antidumping and countervailing duty investigations into certain truck and bus tires imported from
the PRC into the United States were initiated on January 29, 2016. The preliminary determinations announced in both
investigations were affirmative and resulted in the imposition of significant additional duties from each. The Company
incurred expense of $22,042 over the final seven months of the year-ended December 31, 2016 related to these additional
duties. On February 22, 2017, the U.S. International Trade Commission determined the U.S. market had not suffered material
injury because of imports of truck and bus tires from China. As a result of this decision, preliminary antidumping and
countervailing duties from Chinese truck and bus tires imported subsequent to the preliminary determination are not to be
collected and any amounts previously paid have been refunded by U.S. Customs and Border Protection. Further, prospective
imports of truck and bus tires from the PRC are not subject to these additional duties. In the first quarter of 2017, the Company
reversed the previously expensed preliminary duties of $22,042 due to the decision by the U.S. International Trade
Commission. This amount was recorded as a reduction of Cost of products sold in the Consolidated Statement of Income for
the year ended December 31, 2017.
North American Distribution Center – On January 22, 2017, a tornado hit the Company’s leased Albany, Georgia distribution
center, causing damage to the Company's assets and disrupting certain operations. Insurance, less applicable deductibles, covers
the repair or replacement of the Company's assets that suffered loss or damage, and the Company is working closely with its
insurance carriers and claims adjusters to ascertain the full amount of insurance proceeds due to the Company as a result of the
damages and the loss the Company suffered. The Company's insurance policies also provide coverage for interruption to its
business, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages
and losses suffered. For the year ended December 31, 2017, the Company incurred direct expenses of $12,569 related to the
disposal of damaged tires, freight to move product to other warehouses, professional fees to secure and maintain the site and for
the rental of additional storage facilities, less proceeds of $7,000 recovered from insurance. These amounts were recorded as a
component of Cost of products sold in the Consolidated Statement of Income for the year ended December 31, 2017. At this
time, the full amount of combined property damage and business interruption costs and recoveries cannot be estimated, and
accordingly, no additional amounts, including amounts for insurance recoveries, have been recorded as of December 31, 2017.
Recent Accounting Pronouncements
Each change to U.S. GAAP is established by the Financial Accounting Standards Board (“FASB”) in the form of an accounting
standards update (“ASU”) to the FASB’s Accounting Standards Codification (“ASC”).
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The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be
either not applicable or are expected to have minimal impact on the Company’s consolidated financial statements.
Accounting Pronouncements – Recently adopted
Stock Compensation
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which
simplifies several aspects of the accounting for employee share-based payment transactions, including accounting for income
taxes, forfeitures, and statutory withholding requirements, as well as classification in the Consolidated Statements of Cash
Flows. Application of the standard is required for the annual and interim periods beginning after December 15, 2016. The
Company adopted the standard in the first quarter of 2017. As a result of the adoption, on a prospective basis, $1,877 of excess
tax benefits from stock-based compensation was recognized as discrete items in the provision for income taxes for the year
ended December 31, 2017. Additionally, the cash flow benefit of the excess tax benefits is included as an operating activity in
the Consolidated Statement of Cash Flows for the year ended December 31, 2017. In accordance with the standard, the prior
year Consolidated Statement of Income and Consolidated Statement of Cash Flows presentation of the Company's excess tax
benefits have not been restated. The new standard also requires that employee taxes paid when an employer withholds shares
for tax-withholding purposes be reported as financing activities in the Consolidated Statements of Cash Flows on a
retrospective basis. Previously, this activity was included in operating activities. The impact of this change in the years ended
2017, 2016 and 2015 was $7,002, $2,948 and $3,993, respectively, reported as Payments of employee taxes withheld from
share-based awards in the Consolidated statement of cash flows. Finally, as permitted by the standard, the Company will
account for forfeitures of share-based payments when they occur.
Inventory
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which is intended to simplify the
subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost or net
realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in, first-
out and the retail inventory method. Application of the standard, which should be applied prospectively, is required for the
annual and interim periods beginning after December 15, 2016. The Company adopted the new standard in the first quarter of
2017. The new standard did not have a material impact on the Company's condensed consolidated financial statements.
Accounting Pronouncements – To be adopted
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which will supersede most current
revenue recognition guidance, including industry-specific guidance. The core principle is that an entity will recognize revenue
to depict the transfer of goods or services to customers in an amount that the entity expects to be entitled to in exchange for
those goods or services. The standard provides a five-step model to determine when and how revenue is recognized. Other
major provisions of the standard include capitalization of certain contract costs, consideration of time value of money in the
transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain
circumstances. The standard also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity’s contracts with customers. In July 2015, the FASB approved the deferral of the
new standard's effective date by one year. The new standard is effective for annual reporting periods beginning after December
15, 2017. In 2016, the FASB issued several amendments to the standard, which provide clarification, additional guidance,
practical expedients, technical corrections and other improvements to ASU 2014-09.
The guidance permits two methods of adoption: the full retrospective method, in which case the standard would be applied to
each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest
period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be
recognized at the date of initial application.
The Company has substantially completed its evaluation of significant contracts and the review of its current accounting
policies and practices to identify potential differences that would result from applying the requirements of the new standard to
the Company’s revenue contracts. The Company has also identified, and is in the process of implementing, appropriate
changes to business processes, systems and controls to support recognition and disclosure under the new standard. In addition,
the Company has drafted its accounting policy for the new standard based on a detailed review of its business and contracts.
While the Company continues to assess all potential impacts of the new standard, the Company expects to adopt the new
revenue standard in the first quarter of 2018 applying the modified retrospective transition method. The Company does not
expect the adoption of the new revenue standard to have a material impact on the amount and timing of revenue recognized in
the Company's consolidated financial statements.
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Leases
In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires balance sheet recognition of lease liabilities and
right-of-use assets for most leases having terms of twelve months or longer. Application of the standard, which should be
applied using a modified retrospective approach, is required for the annual and interim periods beginning after December 15,
2018. Early adoption is permitted. In 2017, the FASB issued multiple amendments to the standard which provided
clarification, additional guidance, practical expedients, and other improvements to ASU 2016-02. The Company is currently
evaluating the impact the new standard, including optional practical expedients, and assessing our existing lease portfolio in
order to assess the impact on its consolidated financial statements.
Goodwill
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment," which simplifies the
subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The standard requires goodwill
impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the
carrying amount of its goodwill. Application of the standard, which should be applied prospectively, is required for the annual
and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the
impact the new standard will have on its consolidated financial statements.
Pensions and Postretirement Benefits Other than Pensions
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost,” which requires changes to the income statement presentation of net periodic benefit cost. The
service cost component of net periodic benefit cost will continue to be classified in the same line item as other compensation
costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit
cost are required to be presented in the income statement separately from the service cost component and outside of operating
profit. In addition, the new standard will allow only the service cost component to be eligible for capitalization, when
applicable. Application of the standard, which should be applied retrospectively for the income statement presentation changes
and prospectively for the capitalization changes, is required for the annual and interim periods beginning after December 15,
2017. As reported in Note 9 - Pensions and Postretirement Benefits Other than Pensions, the 2017, 2016 and 2015 net periodic
benefit costs were $49,386, $64,842 and $58,384, respectively. The service cost component of these amounts in 2017, 2016 and
2015, which will remain as a component of operating profit, were $11,863, $11,771 and $13,559, respectively. Net income will
not change as a result of the adoption of this standard. The Company adopted the standard in the first quarter of 2018.
Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” which
expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and
presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted
improvements to ease the application of current guidance related to the assessment of hedge effectiveness. Adoption of the new
standard is required for the annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The
Company is currently evaluating the impact the new standard will have on its consolidated financial statements.
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Note 2 – GRT Acquisition
On January 4, 2016, the Company announced that it had entered into an agreement to purchase a majority of China-based GRT.
In the first quarter of 2016, the Company made a down payment in the amount of $5,929 for this transaction in accordance with
the purchase agreement. The down payment was fully refundable in the event that the transaction did not close and did not
provide the Company with any power to direct the activities of the existing GRT entity prior to the transaction closing. After the
transaction closed on December 1, 2016, the Company owned 65 percent of GRT. Based on the Company's ownership
percentage and corresponding control of voting rights, the results of GRT and 100 percent of its assets and liabilities are
consolidated from the date of the closing. GRT is expected to serve as a global source of truck and bus radial tire production
for the Company. Passenger car radial tires may also be manufactured at the facility in the future.
The down payment of $5,929, as well as an additional $8,090 at the time of closing, were paid to the non-controlling
shareholder of GRT. In December 2016, the Company contributed an additional $35,842 to GRT to purchase additional shares
issued by GRT, as well as to fund working capital requirements. The Company contributed $14,570 in the first quarter of 2017,
and an additional $22,125 to GRT in the second quarter of 2017 to fund working capital requirements. In total, the Company
has invested $86,556 related to GRT, with $14,019 paid directly to a third party and the remainder invested in GRT.
The GRT acquisition has been accounted for as a purchase transaction. The total consideration has been allocated to the assets
acquired, liabilities assumed and noncontrolling shareholder interest based on their estimated fair values at December 1, 2016.
The excess purchase price over the estimated fair value of the net assets acquired has been allocated to goodwill. Goodwill
consists of anticipated growth opportunities for GRT and is recorded in the Asia Operations segment, which is included in the
International Tire Segment. Goodwill is not deductible for federal income tax purposes.
The following table summarizes the allocations of the fair values of the assets acquired and liabilities assumed, as adjusted. The
originally reported amounts were provisional and were based on the information that was available as of the acquisition date to
estimate the fair value of assets acquired and liabilities assumed on December 1, 2016, translated into U.S. dollars at the
exchange rate on that date. Subsequent to December 1, 2016, the valuation was completed and adjustments were made to the
preliminary allocations of the fair value of the assets acquired and liabilities assumed from the GRT acquisition.
Assets
Cash
Accounts receivable
Notes receivable
Inventory
Other current assets
Property, plant & equipment
Intangible assets
Other long-term assets
Goodwill
Liabilities
Accounts payable
Notes payable
Accrued liabilities
Long-term debt
Other long-term liabilities
Noncontrolling shareholder interest
As Originally
Reported
Adjustments
As Adjusted
$
8,091
$
2,844
3,050
7,983
981
46,712
7,412
289
33,861
(61,570)
(10,122)
(2,866)
(3,383)
(940)
32,342
(18,323)
— $
— $
— $
485
$
— $
829
16
$
$
— $
(611) $
(719) $
— $
— $
— $
— $
—
—
8,091
2,844
3,050
8,468
981
47,541
7,428
289
33,250
(62,289)
(10,122)
(2,866)
(3,383)
(940)
32,342
(18,323)
Cooper Tire & Rubber Company consideration
$
14,019
$
— $
14,019
The Company has determined that the nonrecurring fair value measurements related to each of these assets and liabilities rely
primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlement of liabilities,
as observable inputs are not available and, as such, reside within Level 3 of the fair value hierarchy as defined in Footnote 8.
The Company utilized a third party to assist in the fair value determination of certain components of the preliminary purchase
price allocation, namely property, plant and equipment and the non-controlling shareholder interest. The valuation of property,
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plant and equipment was developed using primarily the cost approach. The fair value of the non-controlling shareholder interest
was determined based upon internal and external inputs considering various relevant market transactions and discounted cash
flow valuation methods, among other factors.
Note 3 – Inventories
Inventory costs are determined using the LIFO method for substantially all U.S. inventories. The current cost of the U.S.
inventories under the FIFO method was $415,640 and $409,034 at December 31, 2017 and 2016, respectively. These FIFO
values have been reduced by approximately $88,094 and $85,113 at December 31, 2017 and 2016, respectively, to arrive at the
LIFO value reported on the Consolidated Balance Sheets. The remaining inventories have been valued under the FIFO method.
All LIFO inventories are stated at the lower of cost or market. All other inventories are stated at the lower of cost or net
realizable value.
Note 4 - Goodwill and Intangibles
Goodwill is recorded in the segment where it was generated by acquisitions. The Company has recorded goodwill in the
amount of $33,250 related to the acquisition of GRT in 2016 and $18,851 related to the acquisition of additional ownership of
COOCSA in 2011. See Note 2 - GRT Acquisition for a discussion of the goodwill recorded during 2016 and 2017. There have
been no other changes to the value of goodwill since 2011. Goodwill prior to 2011 was zero.
Purchased goodwill and indefinite-lived intangible assets are tested annually for impairment unless indicators are present that
would require an earlier test. During the fourth quarter of 2017, the Company completed its annual goodwill and intangible
asset impairment tests and no impairment was indicated.
The following table presents intangible assets and accumulated amortization balances as of December 31, 2017 and 2016:
Definite-lived:
Capitalized software costs
Land use rights
Trademarks and tradenames
Other
Indefinite-lived:
Trademarks
December 31, 2017
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
192,474
12,850
8,800
2,668
216,792
(81,908)
(1,230)
(7,547)
(2,668)
(93,353)
110,566
11,620
1,253
—
123,439
185,539
10,386
8,800
3,530
208,255
(65,719)
(1,642)
(7,094)
(2,866)
(77,321)
119,820
8,744
1,706
664
130,934
9,817
226,609
$
—
(93,353) $
9,817
133,256
$
9,817
218,072
$
—
(77,321) $
9,817
140,751
$
Estimated amortization expense over the next five years is as follows: 2018 - $16,821, 2019 - $16,331, 2020 - $16,151, 2021 -
$15,534 and 2022 - $13,865.
Note 5 - Accrued Liabilities
Accrued liabilities at December 31 were as follows:
Payroll and employee benefits, excluding postemployment benefits
Product liability
Other postretirement benefits
Advertising
Taxes other than income taxes
Warranty
Other
Accrued liabilities
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2017
2016
$
$
59,593
44,700
14,838
17,476
9,770
8,304
25,795
180,476
$
$
67,274
58,054
15,048
14,281
11,414
5,699
12,034
183,804
Note 6 - Income Taxes
Components of income from continuing operations before income taxes and noncontrolling shareholders’ interests were as
follows:
2017
2016
2015
United States
Foreign
Total
$
$
211,225
32,700
243,925
$
$
319,156
47,937
367,093
The provision (benefit) for income tax for continuing operations consisted of the following:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
2017
2016
$
$
69,463
6,304
9,842
85,609
48,866
4,915
7,790
61,571
147,180
$
$
100,714
12,445
14,990
128,149
(6,730)
(763)
(4,857)
(12,350)
115,799
$
$
$
$
314,263
19,765
334,028
2015
67,405
12,837
12,948
93,190
23,466
5,157
(3,589)
25,034
118,224
On December 22, 2017, the U.S. enacted comprehensive tax legislation, commonly referred to as the "Tax Act", which made
broad and complex changes to the tax code. In conjunction with that enactment, the SEC staff issued SAB 118, "Income Tax
Accounting Implications of the Tax Cuts and Jobs Act," which provides guidance on accounting for the impact of the Tax Act
over a measurement period. In accordance with the guidance set forth under SAB 118, the Company recognizes that it has not
yet completed its accounting for certain income tax effects of the Tax Act.
Where the Company has been able to make reasonable estimates of the effects for which its analyses are still being completed,
it has recorded provisional amounts for those effects based on all information available as of December 31, 2017. These
amounts will then be adjusted during the measurement period as the Company finalizes its analyses. Provisional amounts
based on reasonable estimates were recorded for the following elements of the Tax Act as of December 31, 2017:
Remeasurement of deferred tax assets and liabilities: The Tax Act reduces the federal corporate income tax rate from
35% to 21% effective January 1, 2018. The rate change resulted in a reduction to our net deferred tax asset of $20,413
with a corresponding increase to deferred tax expense. The Company is still completing its analysis of the impact of
this change and certain other specific changes related to 100 percent expensing of qualified fixed assets and new
limitations on the deductibility of executive compensation.
Transition Tax on Unrepatriated Foreign Earnings: Upon enactment, the Tax Act also provides for a mandatory, one-
time deemed repatriation of previously untaxed accumulated earnings and profits of the Company's foreign
subsidiaries. The Company has recorded a provisional tax liability, commonly referred to as the "Transition Tax," of
$35,378. The Transition Tax payable, net of foreign tax credit carryforwards of $1,707, will be paid over eight years
in installments of $2,694 each year from 2018 through 2022 and the remaining liability of $20,201 in 2023 - 2025.
Where the Company has not been able to make reasonable estimates of the effects for which its analyses are still being
completed, it has not recorded provisional amounts. Beginning in the first reporting period during the SAB 118 measurement
period in which the Company obtains necessary information and is able to analyze and prepare reasonable estimates, it will
record amounts as needed. Provisional amounts were not recorded for the following elements of the Tax Act as of December
31, 2017:
Indefinite Reinvestment Assertion: Prior to enactment of the Tax Act, the Company did not recognize a deferred tax
liability related to the U.S. federal and state income taxes and foreign withholding taxes on unremitted foreign
earnings because it overcame the presumption of the repatriation of those earnings. Upon enactment of the Tax Act,
the Transition Tax was recorded based on approximately $495 million of unremitted foreign earnings. While the
Company has accrued Transition Tax payable on the deemed repatriation of earnings that were previously indefinitely
reinvested, it was unable to determine a reasonable estimate of the remaining tax liability, if any, under the Tax Act for
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its remaining outside basis differences or assess how the Tax Act will impact the Company's existing assertion of
indefinite reinvestment. As such, no change has been made with respect to that assertion for the year ended December
31, 2017.
Global intangible low-taxed income: The Tax Act subjects a U.S. parent shareholder to current tax on its “global
intangible low-taxed income” (GILTI). For the GILTI provisions of the Tax Act, a provisional estimate could not be
made as the Company has not yet completed its assessment or elected an accounting policy to either recognize
deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when
incurred.
A reconciliation of income tax expense (benefit) for continuing operations to the tax based on the U.S. statutory rate is as
follows:
Income tax provision at 35%
Expiration of capital loss carryforward
Valuation allowance - China
Valuation allowance - U.K.
State and local income tax, net of federal income tax effect
Domestic manufacturing deduction
U.S. tax credits
Tax law or rate change excluding U.S. tax act
U.S. tax act - transition tax
U.S. tax act - remeasurement of deferred taxes
Difference in effective tax rates of international operations
Other - net
Provision for income taxes
2017
2016
2015
$
$
85,375
—
(6,671)
18,915
7,867
(2,940)
(2,474)
—
35,378
20,413
(4,667)
(4,016)
147,180
$
$
128,483
—
(2,441)
—
8,693
(9,870)
(3,013)
794
—
—
(4,900)
(1,947)
115,799
$
$
116,910
18,376
(18,200)
—
12,321
(6,580)
(3,186)
2,383
—
—
(932)
(2,868)
118,224
Payments for income taxes in 2017, 2016 and 2015, net of refunds, were $67,782, $131,001 and $76,206, respectively.
Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial reporting
purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31 were as follows:
Deferred tax assets:
Postretirement and other employee benefits
Product liability
Net operating loss, capital loss, and tax credit carryforwards
All other items
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
All other items
Total deferred tax liabilities
Valuation allowances
Net deferred tax asset
2017
2016
$
$
116,321
32,668
14,174
33,423
196,586
(101,720)
(6,099)
(107,819)
88,767
(30,102)
58,665
$
$
191,099
67,528
15,274
48,718
322,619
(160,075)
(9,685)
(169,760)
152,859
(20,228)
132,631
At December 31, 2017, the Company has gross U.S. federal and foreign tax losses available for carryforward of $6,731 and
$64,972, respectively. The Company has $240 of state tax credits available for carryforward. The state tax attributes will expire
from 2018 through 2027. Valuation allowances have been provided for those items for which, based upon an assessment, it is
more likely than not that some portion may not be realized.
The Company assesses the available positive and negative evidence to estimate if future taxable income will be generated to
realize existing deferred tax assets in their respective jurisdictions. In the United Kingdom, a significant piece of objective
negative evidence evaluated was the cumulative losses that have now been incurred over the three-year period ended December
31, 2017. This significant piece of objective negative evidence limits the ability to consider other subjective evidence such as
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projections for future growth. On the basis of this evaluation, a full valuation allowance was recorded for the year ended
December 31, 2017 which resulted in incremental deferred tax expense of $18,915.
In China, the Company achieved three years of cumulative pretax income through the period ended December 31, 2017 with
Cooper Tire (China) Investment Co., Ltd. Based in part on that achievement, the Company determined that sufficient positive
evidence exists as of December 31, 2017 to conclude that it is more likely than not that additional deferred taxes of $6,671 are
now realizable and therefore released the valuation allowance accordingly.
The Company applies the rules under ASC 740-10 in its Accounting for Uncertainty in Income Taxes for uncertain tax positions
using a “more likely than not” recognition threshold. Pursuant to these rules, the Company will initially recognize the financial
statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a
position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not”
threshold, the measurement of the tax benefit will be based on the Company’s estimate of the largest amount that meets the
more likely than not recognition threshold. The Company’s unrecognized tax benefits, exclusive of interest, totaled
approximately $2,283 at December 31, 2017, as itemized in the tabular roll forward below. The unrecognized tax benefits at
December 31, 2017 relate to uncertain tax positions in tax years 2013 through 2017. Based upon the outcome of tax
examinations, judicial proceedings, or expiration of statutes of limitations, it is reasonably possible that the ultimate resolution
of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax
liabilities.
Balance at December 31, 2014
Settlements for tax positions of prior years
Additions for tax positions of prior years
Reductions for tax positions of prior years
Statute lapses
Balance at December 31, 2015
Settlements for tax positions of prior years
Additions for tax positions of the current year
Additions for tax positions of prior years
Statute lapses
Balance at December 31, 2016
Settlements for tax positions of prior years
Additions for tax positions of the current year
Additions for tax positions of prior years
Statute lapses
Balance at December 31, 2017
Unrecognized
Tax Benefits
8,314
(367)
1,151
(942)
(2,313)
5,843
(518)
714
1,518
(4,360)
3,197
(139)
47
438
(1,260)
2,283
$
$
Of this amount, the effective rate would change upon the recognition of approximately $2,283 of these unrecognized tax
benefits. The Company recorded, through the tax provision, approximately $17 of benefit on interest reduction for 2017, $347
of benefit on interest reduction for 2016, and $63 of interest expense for 2015. At December 31, 2017, the Company has $124
of interest accrued as an ASC 740-10 reserve.
The Company operates in multiple jurisdictions throughout the world. The Company has effectively settled U.S. federal tax
examinations for years before 2014 and state and local examinations for years before 2013, with limited exceptions.
Furthermore, the Company’s non-U.S. subsidiaries are generally no longer subject to income tax examinations in major foreign
taxing jurisdictions for years prior to 2008. The income tax returns of certain of our subsidiaries in various jurisdictions are
currently under examination and it is possible that these examinations will conclude within the next twelve months. However, it
is not possible to estimate net increases or decreases to the Company’s unrecognized tax benefits during the next twelve
months.
Note 7 – Debt
On May 27, 2015, the Company entered into a revolving credit facility with a consortium of banks that provides up to $400,000
based on available collateral, including a $110,000 letter of credit subfacility, and expires in May 2020. The Company may
elect to increase the commitments under the revolving credit facility or incur one or more tranches of term loans in an
aggregate amount of up to $100,000, subject to the satisfaction of certain conditions. The Company may elect to add certain
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foreign subsidiaries as additional borrowers under the Credit Agreement (the “Foreign Subsidiary Borrowers”), subject to the
satisfaction of certain conditions.
All of the indebtedness of the Company and any Foreign Subsidiary Borrowers under the $400,000 revolving credit facility is
guaranteed by certain of the Company’s domestic subsidiaries and secured by substantially all of the assets of the Company and
the domestic guarantors, subject to certain limitations. All of the indebtedness of any Foreign Subsidiary Borrower under the
$400,000 revolving credit facility will be guaranteed by the Company and all wholly-owned foreign subsidiaries of the Foreign
Subsidiary Borrower that reside in the same jurisdiction, subject to certain limitations, and secured by substantially all of the
assets of the Company, the Foreign Subsidiary Borrowers and the guarantors.
Borrowings under the revolving credit facility bear interest at a rate per annum equal to, at the Company’s option, either (i) the
base rate plus the applicable margin or (ii) the relevant adjusted LIBOR for an interest period of one, two, three or six months
(as selected by the Company), or such other period of time approved by the lenders, plus the applicable margin.
The revolving credit facility contains certain customary non-financial covenants. In addition, the revolving credit facility
contains financial covenants that require the Company to maintain a net leverage ratio and interest coverage ratio in accordance
with the limits set forth therein.
On May 27, 2015, the Company amended its accounts receivable securitization facility, reducing the borrowing limit from
$175,000 to $150,000 and extending the maturity until May 2018. Pursuant to the terms of the facility, the Company is
permitted to sell certain of its domestic trade receivables on a continuous basis to its wholly-owned, bankruptcy-remote
subsidiary, Cooper Receivables LLC (“CRLLC”). In turn, CRLLC may sell from time to time an undivided ownership interest
in the purchased trade receivables, without recourse, to a PNC Bank administered, asset-backed commercial paper conduit. The
accounts receivable securitization facility has no significant financial covenants until available credit is less than specified
amounts.
On February 15, 2018, the Company signed amendments to extend the maturity of both the revolving credit facility and the
accounts receivable securitization facility. The revolving credit facility maturity was extended to February 15, 2023, while the
accounts receivable securitization facility was extended until February 12, 2021. There were no material changes to the terms
and conditions of the revolving credit facility or the accounts receivable securitization facility as a result of the respective
amendments.
There were no borrowings under the revolving credit facility or the accounts receivable securitization facility at December 31,
2017 and 2016, respectively. Amounts used to secure letters of credit totaled $17,600 and $21,800 at December 31, 2017 and
2016, respectively. The Company’s additional borrowing capacity, net of amounts used to back letters of credit and based on
eligible collateral through use of its credit facility with its bank group and its accounts receivable securitization facility at
December 31, 2017, was $527,600.
The Company’s consolidated operations in Asia have renewable unsecured credit lines that provide up to $63,600 of
borrowings and do not contain financial covenants. The additional borrowing capacity on the Asian credit lines, based on
eligible collateral and the short-term notes payable, totaled $24,200 at December 31, 2017.
In 2010 and 2017, Industrial Revenue Bonds (IRBs) were issued by the City of Texarkana to finance the design, equipping and
construction of expansions, as well as the on-going operations of the Texarkana manufacturing facility, in return for real estate
and equipment located at the Company’s Texarkana tire manufacturing plant. The assets related to the expansion and on-going
plant operations provide security for the bonds issued by the City of Texarkana. As a result, the City retains title to the assets
and, in turn, provides a 100 percent property tax exemption to the Company. However, the Company has recorded the property
in its Consolidated Balance Sheets, along with a capital lease obligation to repay the proceeds of the IRBs, because the
arrangements are cancelable at any time at the Company’s request. The Company has also purchased the IRBs and therefore is
the bondholder, as well as the borrower/lessee of the property purchased with the IRB proceeds. The capital lease obligations
and IRB assets are recorded net in the Consolidated Balance Sheets. At December 31, 2017 and 2016, the assets and liabilities
associated with these City of Texarkana IRBs were $24,100 and $20,000, respectively.
-50-
The following table summarizes the long-term debt of the Company at December 31, 2017 and 2016. There were no secured
notes outstanding as of December 31, 2017. Except for the capitalized leases and other, the long-term debt is due in an
aggregate principal payment on the due date:
Parent company
8% unsecured notes due December 2019
7.625% unsecured notes due March 2027
Capitalized leases and other
Less: unamortized debt issuance costs
Less: current maturities
Over the next five years, the Company has payments related to the above debt of:
2018
2019
2020
2021
2022 through 2026
2017
2016
$
$
173,578
116,880
7,684
298,142
742
297,400
1,413
295,987
$
$
173,578
116,880
9,883
300,341
826
299,515
2,421
297,094
$
Future Debt
Payments
1,413
174,786
—
5,063
—
In addition, at December 31, 2017 and 2016, the Company had short-term notes payable of $39,450 and $26,286, respectively,
due within twelve months, consisting of funds borrowed by the Company’s operations in the PRC. The weighted average
interest rate of the short-term notes payable at December 31, 2017 and 2016 was 4.46 percent and 4.26 percent, respectively.
Interest paid on debt during 2017, 2016 and 2015 was $34,085, $28,842 and $27,560, respectively. The amount of interest
capitalized was $2,706, $3,016 and $4,473 during 2017, 2016 and 2015, respectively.
Note 8 - Fair Value Measurements
Derivative financial instruments are utilized by the Company to reduce foreign currency exchange 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. The derivative
financial instruments include non-designated and cash flow hedges of foreign currency exposures. The change in values of the
non-designated foreign currency hedges offset the exchange rate fluctuations related to assets and liabilities recorded on the
consolidated balance sheets. The cash flow hedges offset exchange rate fluctuations on the foreign currency-denominated
intercompany loans and forecasted cash flows. The Company presently hedges exposures in the Euro, Canadian dollar, British
pound sterling, Swiss franc, Swedish krona, Norwegian krone, Mexican peso, Chinese yuan and Serbian dinar generally for
transactions expected to occur within the next 12 months. Additionally, the Company utilizes cash flow hedges that hedge
already recognized intercompany loans with maturities of up to four years. The notional amount of these foreign currency
derivative instruments at December 31, 2017 and 2016 was $134,530 and $89,414, respectively. The counterparties to each of
these agreements are major commercial banks.
The Company uses non-designated foreign currency forward contracts to hedge its net foreign currency monetary assets and
liabilities primarily resulting from non-functional currency denominated receivables and payables of certain U.S. and foreign
entities.
Foreign currency forward contracts are also used to hedge variable cash flows associated with forecasted sales and purchases
denominated in currencies that are not the functional currency of certain entities. The forward contracts have maturities of less
than twelve months pursuant to the Company’s policies and hedging practices. These forward contracts meet the criteria for and
have been designated as cash flow hedges. Accordingly, the effective portion of the change in fair value of such forward
contracts (approximately $(2,640) and $1,029 as of December 31, 2017 and 2016, respectively) are recorded as a separate
component of stockholders’ equity in the accompanying consolidated balance sheets and reclassified into earnings as the
hedged transactions occur.
-51-
The Company utilizes cross-currency interest rate swaps to hedge the principal and interest repayment of some intercompany
loans. These contracts have maturities of up to four years and meet the criteria for and have been designated as cash flow
hedges. Spot to spot changes are recorded in income and all other effective changes are recorded as a separate component of
stockholder's equity.
The Company assesses hedge effectiveness prospectively and retrospectively, based on regression of the change in foreign
currency exchange rates. Time value of money is included in effectiveness testing. The Company measures ineffectiveness on a
trade by trade basis, using the hypothetical derivative method. Any hedge ineffectiveness is recorded in the Consolidated
Statements of Income in the period in which the ineffectiveness occurs.
The derivative instruments are subject to master netting arrangements with the counterparties to the contracts. The following
table presents the location and amounts of derivative instrument fair values in the Consolidated Balance Sheets:
Assets/(Liabilities)
Designated as hedging instruments:
Gross amounts recognized
Gross amounts offset
Net amounts
Not designated as hedging instruments:
Gross amounts recognized
Gross amounts offset
Net amounts
Net Amounts Presented:
Accrued current liabilities
Other long-term liabilities
Other current assets
Year Ended December 31,
2017
2016
$
$
$
$
(2,808) $
168
(2,640)
(684)
97
(587)
(1,893) $
(1,334) $
— $
1,029
—
1,029
109
(76)
33
—
—
1,062
The following table presents the location and amount of gains and losses on derivative instruments in the Consolidated
Statements of Income:
Derivatives Designated as Cash Flow Hedges
Amount of (loss) gain recognized in Other comprehensive income
on derivatives (Effective Portion)
Amount of gain (loss) reclassified from Accumulated other
comprehensive loss into Income (Effective Portion)
Amount of loss recognized in income on derivatives (Ineffective
Portion)
Year Ended December 31,
2017
2016
2015
$
(6,092) $
(2,471) $
11,127
3,619
—
100
—
(13,446)
(136)
Derivatives not Designated as Hedging Instruments
Foreign exchange contracts
Location of (Loss
) Gain
Recognized in
Income
on Derivatives
Other non-
operating
(expense)
income
Amount of (Loss) Gain Recognized in Income on Derivatives
Year Ended December 31,
2017
2016
2015
$
(3,464) $
(156) $
174
For foreign exchange hedges of forecasted sales and purchases designated as effective, the Company reclassifies the gain (loss)
from Other comprehensive income into Net sales and the ineffective portion is recorded directly into Other non-operating
income (expense).
The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the
three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the
financial instruments fall within the different levels of the hierarchy, the categorization is based on the lowest level input that is
significant to the fair value measurement of the instrument.
-52-
Financial assets and liabilities recorded on the Consolidated Balance Sheets are categorized based on the inputs to the valuation
techniques as follows:
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in
an active market that the Company has the ability to access.
Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs
that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the
following.
a.
b.
c.
d.
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in non-active markets;
Pricing models whose inputs are observable for substantially the full term of the asset or liability; and
Pricing models whose inputs are derived principally from or corroborated by observable market data through
correlation or other means for substantially the full term of the asset or liability.
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are
both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions
about the assumptions a market participant would use in pricing the asset or liability.
The valuation of foreign currency derivative instruments was determined using widely accepted valuation techniques. This
analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based
inputs, including forward points. The Company incorporated credit valuation adjustments to appropriately reflect both its own
nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the
Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy,
the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as current credit ratings, to evaluate
the likelihood of default by itself and its counterparties. However, as of December 31, 2017 and December 31, 2016, the
Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative
positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As
a result, the Company determined that its derivative valuations in their entirety were to be classified in Level 2 of the fair value
hierarchy.
The valuation of stock-based liabilities was determined using the Company's stock price, and as a result, these liabilities are
classified in the Level 1 of the fair value hierarchy.
The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a
recurring basis as of December 31, 2017 and 2016:
Foreign Exchange Contracts
Stock-based Liabilities
Foreign Exchange Contracts
Stock-based Liabilities
December 31, 2017
Quoted Prices
in Active Markets
for Identical
Assets
Level (1)
Significant
Other
Observable
Inputs
Level (2)
Total
Assets
(Liabilities)
Significant
Unobservable
Inputs
Level (3)
(3,227) $
(16,713) $
— $
(16,713) $
(3,227) $
— $
—
—
December 31, 2016
Quoted Prices
in Active Markets
for Identical
Assets
Level (1)
Significant
Other
Observable
Inputs
Level (2)
Total
Assets
(Liabilities)
Significant
Unobservable
Inputs
Level (3)
$
1,062
(20,336) $
— $
(20,336) $
1,062
$
— $
—
—
$
$
$
$
There were no assets or liabilities classified as Level 3 in 2017 or 2016.
The fair market value of Cash and cash equivalents, Notes receivable, Restricted cash, Notes payable and Current portion of
long-term debt at December 31, 2017 and 2016 are equal to their corresponding carrying values as reported on the
Consolidated Balance Sheets as of December 31, 2017 and 2016, respectively. Each of these classes of assets and liabilities is
classified as Level 1 within the fair value hierarchy.
-53-
The fair market value of Long-term debt is $329,329 and $331,941 at December 31, 2017 and 2016, respectively, and is
classified within Level 1 of the fair value hierarchy. The carrying value of Long-term debt is $295,987 and $297,094 as
reported on the Consolidated Balance Sheets as of December 31, 2017 and 2016, respectively.
Note 9 - Pensions and Postretirement Benefits Other than Pensions
The Company has a number of plans providing pension, retirement or profit-sharing benefits. These plans include defined
benefit and defined contribution plans. The plans cover substantially all U.S. domestic employees. There are also plans that
cover employees in the U.K. and Germany. The Company has an unfunded, nonqualified supplemental retirement benefit plan
in the U.S. 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 and length of service for salaried employees and length
of service for hourly employees. In the U.S., the Company froze the pension benefits in its Spectrum (salaried employees) Plan
in 2009. In 2012, the Company closed the U.S. pension plans for the bargaining units to new participants. Certain grandfathered
participants in the bargaining unit plans continue to accrue pension benefits. Employees of certain of the Company’s foreign
operations in the U.K. and Germany are covered by either contributory or non-contributory trusteed pension plans. In 2012, the
Company froze the benefits in the U.K. pension plan.
Participation in the Company’s defined contribution plans is voluntary. The Company matches plan participants’ contributions
up to various limits. Participants’ contributions are limited based on their compensation and, for certain supplemental
contributions which are not eligible for Company matching, based on their age. Expense for those plans was $13,931, $13,260
and $14,236 for 2017, 2016 and 2015, respectively.
The Company currently provides retiree health care and life insurance benefits to a portion of its U.S. salaried and hourly
employees. U.S. salaried and non-bargained hourly employees hired on or after January 1, 2003 are not eligible for retiree
health care or life insurance coverage. The Company has reserved the right to modify or terminate certain of these salaried
benefits at any time.
The Company has implemented household caps on the amounts of retiree medical benefits it will provide to certain retirees.
The caps do not apply to individuals who retired prior to certain specified dates. Costs in excess of these caps will be paid by
plan participants. The Company implemented increased cost sharing in 2004 in the retiree medical coverage provided to certain
eligible current and future retirees. Since then, cost sharing has expanded such that nearly all covered retirees pay a charge to
be enrolled.
In accordance with U.S. GAAP, the Company recognizes the funded status (i.e., the difference between the fair value of plan
assets and the projected benefit obligation) of its pension and OPEB plans and the net unrecognized actuarial losses and
unrecognized prior service costs in the Consolidated Balance Sheets. The unrecognized actuarial losses and unrecognized prior
service costs (components of Accumulated other comprehensive loss in the Equity section of the balance sheet) will be
subsequently recognized as net periodic pension cost pursuant to the Company’s historical accounting policy for amortizing
such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit
costs in the same periods will be recognized as a component of other comprehensive income.
-54-
The following table reflects changes in the projected obligations and fair market values of assets in all defined benefit pension
and other postretirement benefit plans of the Company:
2017 Pension Benefits
2016 Pension Benefits
Other Postretirement Benefits
Domestic
International
Total
Domestic
International
Total
2017
2016
Change in benefit
obligation:
Projected Benefit
Obligation at
beginning of year
Service cost -
employer
Interest cost
Actuarial (gain)/
loss
Benefits paid
Settlements
Foreign currency
translation effect
Projected Benefit
Obligation at
December 31
Change in plans’
assets:
Fair value of
plans’ assets at
beginning of year
Actual return on
plans’ assets
Employer
contribution
Benefits paid
Settlements
Foreign currency
translation effect
Fair value of plans’
assets at
December 31
Funded status
Amounts recognized
in the balance sheets:
Accrued liabilities
Postretirement
benefits other than
pensions
Pension benefits
$ 1,040,498
$
422,528
$ 1,463,026
$ 1,045,467
$
405,884
$ 1,451,351
$
262,275
$
265,579
9,860
39,251
59,137
(60,113)
—
—
—
11,525
9,860
50,776
9,613
41,595
9
14,097
9,622
55,692
2,003
10,063
2,567
61,704
26,618
81,180
107,798
8,190
(15,959)
(76,072)
(53,405)
(12,846)
(66,251)
(10,805)
—
—
(29,390)
—
(29,390)
40,765
40,765
—
(65,796)
(65,796)
—
—
2,149
10,819
(5,760)
(10,512)
—
—
$ 1,088,633
$
461,426
$ 1,550,059
$ 1,040,498
$
422,528
$ 1,463,026
$
271,726
$
262,275
$
848,341
$
328,533
$ 1,176,874
$
836,514
$
309,916
$ 1,146,430
$
— $
120,620
27,199
147,819
59,310
77,711
137,021
35,498
(60,113)
—
—
13,080
48,578
35,312
10,763
46,075
(15,959)
(76,072)
(53,405)
(12,846)
(66,251)
—
—
(29,390)
—
(29,390)
33,026
33,026
—
(57,011)
(57,011)
—
—
—
—
—
$
$
$
944,346
$
385,879
$ 1,330,225
$
848,341
$
328,533
$ 1,176,874
$
— $
(144,287) $
(75,547) $
(219,834) $
(192,157) $
(93,995) $
(286,152) $
(271,726) $
(262,275)
(300) $
— $
(300) $
(300) $
— $
(300) $
(14,838) $
(15,048)
—
—
—
—
—
—
—
—
—
—
—
—
— $
(256,888) $
(247,227)
$
(143,987) $
(75,547) $
(219,534) $
(191,857) $
(93,995) $
(285,852)
—
—
Included in Accumulated other comprehensive loss at December 31, 2017 are the following amounts that have not yet been
recognized in net periodic benefit cost: unrecognized prior service credits of ($1,038) (($779) net of tax) and unrecognized
actuarial losses of $489,008 ($439,666 net of tax).
Included in Accumulated other comprehensive loss at December 31, 2016 are the following amounts that have not yet been
recognized in net periodic benefit cost: unrecognized prior service credits of ($1,604) (($990) net of tax) and unrecognized
actuarial losses of $534,060 ($472,693 net of tax).
The prior service credit and actuarial loss included in accumulated other comprehensive loss that are expected to be recognized
in net periodic benefit cost during the fiscal year-ended December 31, 2018 are ($541) and $37,258, respectively.
The accumulated benefit obligation for all defined benefit pension plans was $1,546,705 and $1,459,809 at December 31, 2017
and 2016, respectively.
-55-
In 2016, in order to reduce the size and potential future volatility of the Company’s domestic defined benefit pension plan
obligations, the Company commenced an offer to approximately 1,200 former employees with deferred vested pension plan
benefits. These former employees had the opportunity to make a one-time election to receive a lump-sum distribution of their
benefits by the end of the third quarter of 2016. The vested benefit obligation associated with these former employees was
approximately $42,000, equivalent to about four percent of the Company’s benefit obligation for the domestic plans. Cash
payments of $22,701 were made from plan assets in September 2016 to the former employees electing the lump-sum
distribution. These payments represented a reduction of approximately two percent of the Company’s benefit obligation for the
domestic plans.
Due to the size of the lump-sum distribution, in accordance with U.S. GAAP, the Company was required to recognize non-cash
settlement charges for all 2016 settlements. Based on the lump-sum distributions that were paid through the third quarter, the
Company incurred a non-cash settlement charge of $11,462 in the third quarter of 2016. Additionally, based on the lump-sum
distributions that were paid in the fourth quarter, the Company incurred a non-cash settlement charge of $800 in the fourth
quarter. In total, cash payments of $29,390 were made from plan assets as part of settlement activity in 2016.
Weighted average assumptions used to determine benefit obligations at December 31:
All plans
Discount rate
Domestic plans
Discount rate
Foreign plans
Discount rate
Pension Benefits
Other Postretirement Benefits
2017
2016
2017
2016
3.20%
3.54%
3.50%
3.95%
3.50%
3.90%
3.50%
3.95%
2.50%
2.65%
—
—
At December 31, 2017, the weighted average assumed annual rate of increase in the cost of medical benefits was 7.00 percent
for 2017 trending linearly to 4.50 percent per annum in 2025.
Pension Benefits - Domestic
2016
2017
2015
Pension Benefits - International
2016
2017
2015
Components of net periodic benefit
cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Effect of settlements
Net periodic benefit cost
Components of net periodic benefit cost:
Service cost
Interest cost
Amortization of prior service cost
Net periodic benefit cost
$
$
9,860
39,251
(54,058)
37,122
—
32,175
$
$
9,613
41,595
(57,438)
38,490
12,262
44,522
$
$
11,037
40,202
(55,299)
39,514
—
35,454
$
$
— $
11,525
(11,262)
5,448
—
5,711
$
9
14,097
(11,322)
5,134
—
7,918
$
$
9
15,853
(12,421)
7,222
—
10,663
Other Post Retirement Benefits
2017
2016
2015
$
$
2,003
10,063
(566)
11,500
$
$
2,149
10,819
(566)
12,402
$
$
2,513
10,320
(566)
12,267
-56-
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:
All plans
Discount rate
Expected return on plan assets
Domestic plans
Discount rate
Expected return on plan assets
Foreign plans
Discount rate
Expected return on plan assets
Pension Benefits
Other Postretirement Benefits
2017
2016
2015
2017
2016
2015
3.54%
5.57%
3.90%
6.50%
2.65%
3.29%
4.10%
6.16%
4.20%
7.00%
3.84%
3.99%
3.70%
6.12%
3.75%
7.00%
3.59%
3.84%
3.95%
—%
3.95%
—%
—%
—%
4.20%
—%
4.20%
—%
—%
—%
3.80%
—%
3.80%
—%
—%
—%
The following table lists the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the
pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets at December 31,
2017 and 2016:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2017
2016
Projected
benefit
obligation
exceeds plan
assets
1,550,059
1,546,705
1,330,225
Accumulated
benefit
obligation
exceeds plan
assets
1,550,059
1,546,705
1,330,225
$
$
Projected
benefit
obligation
exceeds plan
assets
1,463,026
1,459,809
1,176,874
Accumulated
benefit
obligation
exceeds plan
assets
1,463,026
1,459,809
1,176,874
$
$
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:
Increase (decrease) in total service and interest cost components
Increase (decrease) in the other postretirement benefit obligation
Percentage Point
Increase
Decrease
$
$
50
1,419
(43)
(1,222)
The table below presents the Company’s weighted average asset allocations for its domestic and U.K. pension plans’ assets at
December 31, 2017 and December 31, 2016 by asset category.
Asset Category
Debt securities
Equity securities
Other investments
Cash
Total
U.S. Plans
U.K. Plan
2017
2016
2017
2016
52%
40
6
2
100%
36%
63
0
1
100%
68%
18
13
1
100%
68%
18
14
0
100%
The Company manages the plans' asset allocation relative to the liability profile and funded status of the plans. It is expected
that as the plan’s funded status improves, the portfolio will take less risk as to preserve the funded status of the plan framework.
The plans follow a glide path whereby a target return-seeking allocation is followed based upon a given funded ratio level. The
plans' position with respect to the glide path is monitored, and asset allocation and strategy changes to the plans' portfolio are
made as appropriate. The plans' strategy is also monitored in relation to the capital markets, interest rates, and the regulatory
environment. The assets of the Company’s pension plan in Germany consist of investments in German insurance contracts.
The fair market value of U.S. plan assets was $944,346 and $848,341 at December 31, 2017 and 2016, respectively. The fair
market value of the U.K. plan assets was $383,831 and $326,833 at December 31, 2017 and 2016, respectively. The fair market
value of the German pension plan assets was $2,048 and $1,700 at December 31, 2017 and 2016, respectively.
-57-
The table below classifies the assets of the U.S. and U.K. plans using the Fair Value Hierarchy described in Note 8 – Fair Value
Measurements.
December 31, 2017
United States plans
Cash and cash equivalents
Collective Trust Funds - Equity
Collective Trust Funds - Fixed income
Collective Trust Funds - Real Estate
United Kingdom plan
Cash and cash equivalents
Equity securities
Fixed income securities
Other investments
December 31, 2016
United States plans
Cash and cash equivalents
Equity securities
Fixed income securities
Collective Trust Funds - Equity
Collective Trust Funds - Fixed income
United Kingdom plan
Cash and cash equivalents
Equity securities
Fixed income securities
Other investments
Total
Level 1
Level 2
Level 3
Fair Value Hierarchy
$
$
$
$
$
$
$
$
18,819
381,696
490,955
52,876
944,346
1,578
69,547
261,260
51,446
383,831
8,491
184,690
138,988
347,249
168,923
848,341
1,078
60,185
220,974
44,596
326,833
$
$
$
$
$
$
$
$
$
18,819
—
—
— $
$
18,819
1,578
69,547
261,260
—
332,385
8,491
184,690
138,988
—
—
332,169
1,078
60,185
220,974
—
282,237
$
$
$
$
$
$
381,696
490,955
52,876
925,527
$
$
$
— $
—
—
13,376
13,376
$
— $
—
—
347,249
168,923
516,172
$
— $
—
—
10,800
10,800
$
—
—
—
—
—
—
—
—
38,070
38,070
—
—
—
—
—
—
—
—
—
33,796
33,796
Plan assets are measured at fair value. While the Company believes its valuation methodologies are appropriate and consistent
with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial
instruments could result in a different fair value measurement at the reporting date. The Company’s valuation methodologies
used for the plan assets measured at fair value are as follows:
Cash and cash equivalents – Cash and cash equivalents include cash on deposit and investments in money market mutual funds
that invest mainly in short-term instruments and cash, both of which are valued using a market approach.
Equity securities – Common, preferred, and foreign stocks are valued using a market approach at the closing price on their
principal exchange and are included in Level 1 of the fair value hierarchy.
Fixed income securities – Corporate and foreign bonds are valued using a market approach at the closing price reported on the
active market on which the individual securities are traded and are included in Level 1 of the fair value hierarchy.
Collective trust funds – Collective trust funds are valued at the net asset value of units held at year end and are included in
Level 2 of the fair value hierarchy based on their underlying investment strategy.
Equity Funds – Collective trust funds classified as Equity primarily invest in U.S. and non-U.S. securities in both
small and large capitalization markets.
Fixed Income Funds – Collective trust funds classified as Fixed Income primarily invest in debt securities, U.S.
treasury securities, and fixed income securities.
Real Estate Funds - Collective trust funds classified as Real Estate Funds are invested in global real estate securities.
-58-
The fair market values of the Level 3 assets in the U.K. plan are determined by the fund manager using a discounted cash flow
methodology. The future cash flows expected to be generated by the assets of the funds and made available to investors are
estimated and then discounted back to the valuation date. The discount rate is derived by adding a risk premium to the risk-free
interest rate applicable to the country in which the assets are located.
The following table details the activity in these investments for the years ended December 31, 2016 and 2017:
Balance at December 31, 2014
Transfer into level 3
Disbursements
Change in fair value
Foreign currency translation effect
Balance at December 31, 2015
Transfer into level 3
Disbursements
Change in fair value
Foreign currency translation effect
Balance at December 31, 2016
Transfer into level 3
Disbursements
Change in fair value
Foreign currency translation effect
Balance at December 31, 2017
U.K. Plan
Level 3 Assets
25,812
—
—
2,798
(1,548)
27,062
9,489
—
3,545
(6,300)
33,796
—
—
969
3,305
38,070
$
$
The Company determines the annual expected rates of return on pension assets by first analyzing the composition of its asset
portfolio. Historical rates of return are applied to the portfolio. These computed rates of return are reviewed by the Company’s
investment advisors and actuaries. Industry comparables and other outside guidance are also considered in the annual selection
of the expected rates of return on pension assets.
During 2017, the Company contributed $48,578 to its domestic and foreign pension plans, and during 2018, the Company
expects to contribute between $45,000 and $55,000 to its domestic and foreign pension plans.
The Company estimates its benefit payments for its domestic and foreign pension plans and other postretirement benefit plans
during the next ten years to be as follows:
2018
2019
2020
2021
2022
2022 through 2026
Pension
Benefits
Other
Postretirement
Benefits
$
$
89,433
84,648
86,980
87,027
88,491
446,996
14,838
15,261
15,919
16,225
16,462
82,126
-59-
Note 10 - Other Long-Term Liabilities
Other long-term liabilities at December 31 were as follows:
Product liability
Long-term income taxes payable
Stock-based liabilities
Other
Other long-term liabilities
Note 11 - Common Stock
Share Repurchase Programs
2017
2016
$
$
85,192
29,463
14,365
15,197
144,217
$
$
118,941
—
20,336
17,647
156,924
On August 6, 2014, the Board of Directors authorized the repurchase of up to $200,000 of the Company’s outstanding common
stock pursuant to an accelerated share repurchase program, and the Company entered into a $200,000 accelerated share
repurchase program (the “ASR program”) with J.P. Morgan Chase Bank (the “ASR Counterparty”). The Company paid
$200,000 to the ASR Counterparty in August 2014 and received 5,567,154 shares of its common stock, which represented
approximately 80 percent of the shares expected to be purchased pursuant to the ASR program, based on the closing price on
August 6, 2014. Under the terms of the ASR program, the ASR Counterparty was permitted, in accordance with the applicable
requirements of the federal securities laws, to separately trade in the Company’s shares in connection with the hedging
activities related to the ASR program and as part of other aspects of the ASR Counterparty’s business.
On February 13, 2015, the Company completed the ASR program. Based on the terms of the ASR program, the total number of
shares repurchased under the ASR program was based on the volume-weighted average price of the Company’s common stock,
less a discount, during the repurchase period, which resulted in the Company receiving an additional 784,694 shares of its
common stock from the ASR Counterparty at maturity. As a result, under the ASR program, the Company paid a total of
$200,000 to the ASR Counterparty and received a total of 6,351,848 shares (5,567,154 shares initially received, plus 784,694
shares received at maturity) of its common stock, which represents a volume weighted average price, as adjusted pursuant to
the terms of the ASR program, of $31.49 over the duration of the ASR program.
Subsequent to the completion of the ASR program, the Board of Directors has authorized new share repurchase programs. The
following table summarizes the Company’s Board authorized share repurchase programs and related information for the years
ended December 31, 2017, 2016 and 2015:
Program(1)
2017 Repurchase Program
2016 Repurchase Program
2015 Repurchase Program
Date Authorized by
Board of Directors
February 16, 2017
February 19, 2016
February 20, 2015
Expiration Date
December 31, 2019
December 31, 2017
December 31, 2016
ASR program
August 6, 2014
February 13, 2015
Amount
Authorized
(excluding
commissions)
Amount Spent
as of December
31, 2017
(excluding
commissions)
$
300,000
$
200,000
200,000
200,000
76,724
104,366
126,346
200,000
Status
Active
Superseded(2)
Superseded(3)
Completed
(1) The repurchase programs listed above do not obligate the Company to acquire any specific number of shares and can
be suspended or discontinued at any time without notice. Shares can be repurchased in privately negotiated and/or
open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of
1934, as amended. All repurchases under the programs listed above have been made using cash resources.
(2) The approximately $95,634 remaining authorization under the 2016 Repurchase Program as of February 16, 2017 is
included in the $300,000 maximum amount authorized by the 2017 Repurchase Program.
(3) The approximately $73,654 remaining under the 2015 Repurchase Program as of February 19, 2016 was included in
the $200,000 maximum amount authorized by the 2016 Repurchase Program.
-60-
The following table summarizes the Company’s open market and 10b5-1 plan share repurchase activity and related information
during the years ended December 31, 2017, 2016 and 2015:
2017 share repurchase activity:
2017 Repurchase Program
2016 Repurchase Program
Total share repurchases
2016 share repurchase activity:
2016 Repurchase Program
2015 Repurchase Program
Total share repurchases
2015 share repurchase activity:
2015 Repurchase Program
ASR program
Total share repurchases
Number of Shares
Average Repurchase
Price Per Share
Amount
(including
commissions)
2,136,237
$
383,690
2,519,927
2,630,433
$
497,094
3,127,527
2,751,454
784,694
3,536,148
35.95
36.70
36.06
34.36
35.45
34.53
39.55
$
$
$
$
$
(1)
76,788
14,080
90,868
90,377
17,622
107,999
108,821
(1)
108,821
(1) On February 13, 2015, the Company completed the ASR program. Based on the terms of the ASR program, the total
number of shares repurchased under the ASR program was based on the volume-weighted average price of the
Company’s common stock, less a discount, during the repurchase period, which resulted in the Company receiving an
additional 784,694 shares of its common stock from the ASR Counterparty at maturity. As a result, under the ASR
program, the Company paid a total of $200,000 to the ASR Counterparty and received a total of 6,351,848 shares
(5,567,154 shares initially received, plus 784,694 shares received at maturity) of its common stock, which represents a
volume weighted average price, as adjusted pursuant to the terms of the ASR program, of $31.49 over the duration of
the ASR program.
Since August 2014 through December 31, 2017, the Company has repurchased 14,750,756 shares of the Company’s common
stock at an average cost of $34.42 per share.
Reserved Shares
There were 7,954,701 common shares reserved for grants under compensation plans at December 31, 2017. The Company
eliminated the option for plan participants in the Company’s Spectrum Investment Savings Plan and Pre-Tax Savings plans to
purchase additional shares of the Company’s common stock in March 2014.
Note 12 - Stock-Based Compensation
The Company’s incentive compensation plans allow the Company to grant awards to employees in the form of stock options,
stock awards, restricted stock units, stock appreciation rights, performance stock units, dividend equivalents and other awards.
Compensation related to these awards is determined based on the grant-date fair value and is amortized to expense over the
vesting period. The Company recognizes compensation expense based on the earlier of the vesting date or the date when the
employee becomes eligible to retire without forfeiture of the award. If awards can be settled in cash, these awards are recorded
as liabilities and marked to market.
The following table discloses the amount of stock-based compensation expense:
Stock options
Restricted stock units
Performance stock units
Total stock-based compensation
Stock-Based Compensation
2017
2016
2015
$
$
14
3,302
693
4,009
$
$
506
5,595
7,469
13,570
$
$
3,986
4,879
6,054
14,919
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Stock Options
The 2006, 2010 and 2014 incentive compensation plans provide for granting options to key employees to purchase common
shares at prices not less than market at the date of grant. Options under these plans may have terms of up to ten years becoming
exercisable in whole or in consecutive installments, cumulative or otherwise. The 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.
In February 2012, executives participating in the 2012 – 2014 Long-Term Incentive Plan were granted 589,934 stock options
which vested one-third each year through February 2015. In February 2013, executives participating in the 2013-2015 Long-
Term Incentive Plan were granted 330,639 stock options, which vested one-third each year through February 2016. In February
2014, executives participating in the 2014-2016 Long-Term Incentive Plan were granted 380,064 stock options, which will vest
one-third each year through February 2017. No stock options were granted in 2015, 2016 or 2017 to executives participating in
the Long-Term Incentive Plan. Outstanding options do not contain any performance-based criteria. The Company recognizes
compensation expense based on the earlier of the vesting date or the date when the employee becomes eligible to retire.
Summarized information for the plans follows:
Outstanding at December 31, 2016
Granted
Exercised
Expired
Canceled
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Number of
Shares
Weighted
Average
Exercise
Price (per share)
Aggregate
Intrinsic
Value
(thousands)
$
495,704
—
(210,125)
—
—
285,579
285,579
21.24
—
20.10
—
—
22.08
22.08
$
3,790
3,790
2017
Year ended December 31,
2016
2015
Weighted average grant-date fair value of options granted (per
share)
Aggregate intrinsic value of options exercised (thousands)
Weighted average grant-date fair value of shares vested
(thousands)
$
$
$
— $
— $
4,194
1,400
$
$
2,640
2,633
$
$
—
20,100
4,602
The weighted average remaining contractual life of options outstanding at December 31, 2017 is 4.8 years. All outstanding
stock options are exercisable.
Segregated disclosure of options outstanding at December 31, 2017 was as follows:
Options outstanding
Weighted average exercise price
Remaining contractual life
Options exercisable
Weighted average exercise price
Range of Exercise Prices
Less than or
equal to $15.63
Greater than
$15.63
$
$
47,501
12.86
3.3
47,501
12.44
$
$
238,078
23.72
5.1
238,078
24.00
At December 31, 2017, the Company had fully amortized all expense related to its stock option awards.
Restricted Stock Units
Under the 1998, 2001, and 2014 Incentive Compensation Plans, restricted stock units may be granted to officers and certain
other employees as awards for exceptional performance, as a hiring or retention incentive or as part of the Long-Term Incentive
Plan. The restricted stock units granted in 2015, 2016 and 2017 have vesting periods of three to four years. In February 2015,
employees participating in the 2015-2017 Long-Term Incentive Plan were granted 105,102 restricted stock units which vest
-62-
one-third each year through February 2018. In February 2016, employees participating in the 2016-2018 Long-Term Incentive
Plan were granted 106,287 restricted stock units which vest one-third each year through February 2019. In February 2017,
employees participating in the 2017-2019 Long-Term Incentive Plan were granted 82,563 restricted stock units which vest one-
third each year through February 2020. Compensation expense related to the restricted stock units granted is determined based
on the fair value of the Company’s stock on the date of grant. The Company recognizes compensation expense based on the
earlier of the vesting date or the date when the employee becomes eligible to retire. Employees must remain employed for at
least six months to vest in the restricted stock units, even if retirement eligible.
The following table provides details of the nonvested restricted stock units for 2017:
Nonvested at December 31, 2016
Granted
Vested
Canceled
Accrued dividend equivalents
Nonvested at December 31, 2017
Number of
Restricted Units
Weighted Average
Grant-Date Fair
Value (per share)
240,574
103,207
(157,344)
(8,479)
2,430
180,388
$
$
35.75
38.33
35.76
37.76
36.70
37.14
Year ended December 31,
2017
2016
2015
Weighted average grant-date fair value of restricted shares granted
(per share)
Weighted average grant-date fair value of shares vested (thousands)
$
$
38.33
5,627
$
$
36.02
3,195
$
$
36.35
2,629
The number of vested restricted stock units at December 31, 2017 and 2016 was 2,499 and 93,440, respectively. At
December 31, 2017, the Company has $2,021 of unvested compensation cost related to restricted stock units and this cost will
be recognized as expense over a weighted average period of 24 months.
Performance Stock Units
Compensation related to the performance stock units is determined based on the fair value of the Company’s stock on the date
of grant combined with performance metrics. During 2013, executives participating in the Company’s Long-Term Incentive
Plan earned 33,405 performance stock units based on the Company’s financial performance in 2013. Of these units, 9,821
vested in 2013, 13,373 vested in 2014 and 8,701 vested in 2015. During 2014, executives participating in the Company’s Long-
Term Incentive Plan earned 123,788 performance stock units based on the Company’s financial performance in 2014. Of these
units, 49,248 vested in 2014, 32,074 vested in 2015 and 38,091 vested in 2016. During 2015, executives participating in the
Company’s Long-Term Incentive Plan earned 231,543 performance stock units based on the Company’s financial performance
in 2015. Of these units, 69,912 vested in 2015, 83,371 vested in 2016 and 66,909 vested in 2017. During 2016, executives
participating in the Company’s Long-Term Incentive Plan earned 179,865 performance stock units based on the Company’s
financial performance in 2016. Of these units, 55,570 vested in 2016, 45,435 vested in 2017 and 48,459 will vest in 2018,
respectively. During 2017, executives participating in the Company’s Long-Term Incentive Plan did not earn any performance
stock units based on the Company’s financial performance in 2017. The Company recognizes compensation expense based on
the earlier of the vesting date or the date when the employee becomes eligible to retire.
The following table provides details of the nonvested performance stock units earned under the Company’s Long-Term
Incentive Plan:
Nonvested at December 31, 2016
Earned
Vested
Canceled
Accrued dividend equivalents
Nonvested at December 31, 2017
-63-
Number of
Performance Units
Weighted
Average Grant-
Date Fair Value
(per share)
163,967
—
(114,569)
(2,309)
1,962
49,051
$
$
36.77
—
36.77
36.77
36.77
36.76
The weighted average fair value of performance stock units granted in 2017, 2016 and 2015 was $38.23, $36.76 and $36.62,
respectively.
At December 31, 2017, the Company had $221 of unvested compensation cost related to performance stock units and this cost
will be recognized as expense over a weighted average period of 12 months.
The Company’s nonvested restricted stock units and performance stock units are not participating securities. These units will be
converted into shares of Company common stock in accordance with the distribution date indicated in the agreements.
Restricted stock units earn dividend equivalents from the time of the award until distribution is made in common shares.
Performance stock units earn dividend equivalents from the time the units have been earned based upon Company performance
metrics until distribution is made in common shares. Dividend equivalents are only earned subject to vesting of the underlying
restricted stock units or performance stock units. Accordingly, such units do not represent participating securities.
At December 31, 2017, the company had 2,332,604 shares available for future issuance under equity compensation plans.
The Company recognized $274 and $4,323 of excess tax benefits on stock based compensation transactions as a financing cash
inflow for the years ended December 31, 2016 and 2015, respectively. In 2017, $1,877 of excess tax benefits was recognized
as a discrete item in the provision for income taxes and included as an operating activity in the Consolidated Statement of Cash
Flows as a result of the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” Refer to
the "Recent Accounting Pronouncements" section in Footnote 1 for details regarding the adoption of ASU 2016-09.
-64-
Note 13 - Changes in Accumulated Other Comprehensive Loss by Component
The balances of each component of accumulated other comprehensive loss in the accompanying Consolidated Statements of
Equity were as follows:
Ending balance, December 31, 2015
Other comprehensive (loss) income before
reclassifications
Foreign currency translation effect
Income tax effect
Amount reclassified from accumulated other
comprehensive income (loss)
Cash flow hedges
Amortization of prior service credit
Amortization of actuarial losses
Pension settlement charges
Income tax effect
Other comprehensive (loss) income
Ending balance, December 31, 2016
Other comprehensive (loss) income before
reclassifications
Foreign currency translation effect
Income tax effect
Amount reclassified from accumulated other
comprehensive income (loss)
Cash flow hedges
Amortization of prior service credit
Amortization of actuarial losses
Income tax effect
Other comprehensive (loss) income
Ending balance, December 31, 2017
Cumulative
Translation
Adjustment
Derivative
Instruments
Post-
retirement
Benefits
(22,034)
3,454
(491,187)
(53,381)
—
—
—
—
—
—
—
(53,381)
(75,415)
35,475
—
—
—
—
—
—
35,475
(39,940)
(2,471)
—
941
100
—
—
—
(57)
(1,487)
1,967
(6,092)
—
1,823
3,619
—
—
(968)
(1,618)
349
(39,689)
13,152
10,770
—
(566)
43,624
12,262
(20,069)
19,484
(471,703)
13,385
(7,855)
191
—
(566)
42,570
(14,909)
32,816
(438,887)
Total
(509,767)
(95,541)
13,152
11,711
100
(566)
43,624
12,262
(20,126)
(35,384)
(545,151)
42,768
(7,855)
2,014
3,619
(566)
42,570
(15,877)
66,673
(478,478)
Note 14 - Comprehensive Income Attributable to Noncontrolling Shareholders’ Interests
Net income attributable to noncontrolling shareholders’ interests
Other comprehensive loss:
Currency translation adjustments
Comprehensive income (loss) attributable to noncontrolling
shareholders’ interests
$
$
2017
2016
2015
1,345
$
2,913
$
3,038
3,375
(4,573)
(4,227)
4,720
$
(1,660) $
(1,189)
-65-
Note 15 - Lease Commitments
The Company rents certain distribution and other facilities and equipment under long-term leases expiring at various dates. The
total rental expense for the Company, including these long-term leases and all other rentals, was $53,532, $41,397 and $39,290
for 2017, 2016 and 2015, respectively.
Future minimum payments for all non-cancelable operating leases through the end of their terms, which in aggregate total
$132,744, are listed below. Certain of these leases contain provisions for optional renewal at the end of the lease terms.
2018
2019
2020
2021
2022
Thereafter
Note 16 - Contingent Liabilities
Litigation
Product Liability Litigation
$
26,895
24,664
22,218
14,791
10,863
33,313
The Company is a defendant in various product liability claims brought in numerous jurisdictions in which individuals seek
damages resulting from motor vehicle accidents allegedly caused by defective tires manufactured by the Company. Each of the
product liability claims faced by the Company generally involves different types of tires and circumstances surrounding the
accident such as different applications, vehicles, speeds, road conditions, weather conditions, driver error, tire repair and
maintenance practices, service life conditions, as well as different jurisdictions and different injuries. In addition, in many of
the Company’s product liability lawsuits the plaintiff alleges that his or her harm was caused by one or more co-defendants who
acted independently of the Company. Accordingly, both the claims asserted and the resolutions of those claims have an
enormous amount of variability. The aggregate amount of damages asserted at any point in time is not determinable since often
times when claims are filed, the plaintiffs do not specify the amount of damages. Even when there is an amount alleged, at
times the amount is wildly inflated and has no rational basis.
The fact that the Company is a defendant in product liability lawsuits is not surprising given the current litigation climate,
which is largely confined to the United States. However, the fact that the Company is subject to claims does not indicate that
there is a quality issue with the Company’s tires. The Company sells approximately 30 to 35 million passenger car, light truck,
SUV, radial medium truck and motorcycle tires per year in North America. The Company estimates that approximately 300
million Company-produced tires – made up of thousands of different specifications – are still on the road in North America.
While tire disablements do occur, it is the Company’s and the tire industry’s experience that the vast majority of tire failures
relate to service-related conditions, which are entirely out of the Company’s control – such as failure to maintain proper tire
pressure, improper maintenance, improper repairs, road hazard and excessive speed.
The Company accrues costs for product liability at the time a loss is probable and the amount of loss can be estimated. The
Company believes the probability of loss can be established and the amount of loss can be estimated only after certain
minimum information is available, including verification that Company-produced product were involved in the incident giving
rise to the claim, the condition of the product purported to be involved in the claim, the nature of the incident giving rise to the
claim and the extent of the purported injury or damages. In cases where such information is known, each product liability claim
is evaluated based on its specific facts and circumstances. A judgment is then made to determine the requirement for
establishment or revision of an accrual for any potential liability. Adjustments to estimated reserves are recorded in the period
in which the change in estimate occurs. The liability often cannot be determined with precision until the claim is resolved.
Pursuant to ASU 450 "Contingencies", the Company accrues the minimum liability for each known claim when the estimated
outcome is a range of probable loss and no one amount within that range is more likely than another. The Company uses a
range of losses because an average cost would not be meaningful since the product liability claims faced by the Company are
unique and widely variable, and accordingly, the resolutions of those claims have an enormous amount of variability. The costs
have ranged from zero dollars to $33 million in one case with no “average” that is meaningful. No specific accrual is made for
individual unasserted claims or for premature claims, asserted claims where the minimum information needed to evaluate the
probability of a liability is not yet known. However, an accrual for such claims based, in part, on management’s expectations
for future litigation activity and the settled claims history is maintained. The Company periodically reviews such estimates and
any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs. Because of the
speculative nature of litigation in the U.S., the Company does not believe a meaningful aggregate range of potential loss for
-66-
asserted and unasserted claims can be determined. While the Company believes its reserves are reasonably stated, it is possible
an individual claim from time to time may result in an aberration from the norm and could have a material impact.
The time frame for the payment of a product liability claim is too variable to be meaningful. From the time a claim is filed to its
ultimate disposition depends on the unique nature of the case, how it is resolved - claim dismissed, negotiated settlement, trial
verdict or appeals process - and is highly dependent on jurisdiction, specific facts, the plaintiff’s attorney, the court’s docket and
other factors. Given that some claims may be resolved in weeks and others may take five years or more, it is impossible to
predict with any reasonable reliability the time frame over which the accrued amounts may be paid.
The Company regularly reviews the probable outcome of outstanding legal proceedings and the availability and limits of the
insurance coverage, and accrues for such legal proceedings at the time a loss is probable and the amount of the loss can be
estimated. As part of its regular review, the Company monitors trends that may affect its ultimate liability and analyzes the
developments and variables likely to affect pending and anticipated claims against the Company and the reserves for such
claims. The Company utilizes claims experience, as well as trends and developments in the litigation climate, in estimating its
required accrual. Based on the Company’s review completed in 2017, coupled with normal activity, including the addition of
another year of self-insured incidents, settlements and changes in the amount of reserves, the Company reduced its accrual
from $176,995 at December 31, 2016 to $129,892 at December 31, 2017. This change in estimate in 2017 is primarily the
result of recent favorable claims experience and trends.
The addition of another year of self-insured incidents accounted for an increase of $48,039 in the Company's product liability
reserve in 2017. Settlements, changes in the amount of reserves for cases where sufficient information is known to estimate a
liability, and changes in assumptions decreased the liability by $38,938.
During 2017 the Company paid $55,671 and during 2016, the Company paid $31,697 to resolve cases and claims. The
Company’s product liability reserve balance at December 31, 2017 totaled $129,892 (the current portion of $44,700 is included
in Accrued liabilities and the long-term portion is included in Other long-term liabilities on the Consolidated Balance Sheets),
and the balance at December 31, 2016 totaled $176,995 (current portion of $58,054).
The product liability expense reported by the Company includes amortization of insurance premium costs, adjustments to
liability reserves and legal costs incurred in defending claims against the Company. Legal costs are expensed as incurred and
product liability insurance premiums are amortized over coverage periods.
Product liability expense totaled $25,970, $65,448 and $78,800 in 2017, 2016 and 2015. Product liability expenses are
included in Cost of products sold in the Consolidated Statements of Income.
Other Litigation
In addition to the proceedings described above, the Company is involved in various other legal proceedings arising in the
ordinary course of business. The Company regularly reviews the probable outcome of these proceedings, the expenses expected
to be incurred, the availability and limits of the insurance coverage, and accrues for these proceedings at the time a loss is
probable and the amount of the loss can be estimated. Although the outcome of these pending proceedings cannot be predicted
with certainty and an estimate of any such loss cannot be made, the Company believes that any liabilities that may result from
these proceedings are not reasonably likely to have a material adverse effect on the Company’s liquidity, financial condition or
results of operations.
Employment Contracts and Agreements
No executives have employment agreements as of December 31, 2017. The Executive Officers are covered by the Cooper
Tire & Rubber Company Change in Control Severance Pay Plan.
At December 31, 2017, approximately 40% of the Company’s workforce was represented by collective bargaining units.
Note 17 - Business Segments
The Company has four segments under ASC 280:
• North America, composed of the Company’s operations in the United States and Canada;
• Latin America, composed of the Company’s operations in Mexico, Central America and South America;
• Europe; and
• Asia.
North America and Latin America meet the criteria for aggregation in accordance with ASC 280, as they are similar in their
production and distribution processes and exhibit similar economic characteristics. The aggregated North America and Latin
America segments are presented as “Americas Tire Operations” in the segment disclosure. The Americas Tire Operations
-67-
segment manufactures and markets passenger car and light truck tires, primarily for sale in the U.S. replacement market. The
segment also has a joint venture manufacturing operation in Mexico, COOCSA, which supplies passenger car tires to the North
American, Mexican, Central American and South American markets. The segment also distributes tires for racing, medium
trucks and motorcycles. The racing and motorcycle tires are manufactured in the Company’s European Operations segment and
by others. The medium truck tires are sourced from GRT and through an off-take agreement that was entered with PCT, the
Company's former joint venture. In December 2017, the Company signed an off-take agreement with Sailun, effective from
January 1, 2018 through December 31, 2020, as an additional source of medium truck tires. Major distribution channels and
customers include independent tire dealers, wholesale distributors, regional and national retail tire chains, and large retail
chains that sell tires as well as other automotive products. The segment does not currently sell its products directly to end users,
except through three Company-owned retail stores. The segment sells a limited number of tires to OEMs.
Both the Asia and Europe segments have been determined to be individually immaterial, as they do not meet the quantitative
requirements for segment disclosure under ASC 280. In accordance with ASC 280, information about operating segments that
are not reportable shall be combined and disclosed in an all other category separate from other reconciling items. As a result,
these two segments have been combined in the segment operating results discussion. The results of the combined Asia and
Europe segments are presented as “International Tire Operations”. The European operations include manufacturing operations
in the U.K. and Serbia. The U.K. entity manufactures and markets passenger car, light truck, motorcycle and racing tires and
tire retread material for domestic and global markets. The Serbian entity manufactures light vehicle tires primarily for the
European markets and for export to the U.S. The Asian operations are located in the PRC. Cooper Kunshan Tire manufactures
light vehicle tires both for the Chinese domestic market and for export to markets outside of the PRC. On December 1, 2016,
the Company acquired 65 percent of China-based GRT, a joint venture manufacturing facility located in the PRC. GRT serves
as a global source of truck and bus radial tire production for the Company. The segment also had another joint venture in the
PRC, PCT, which manufactured and marketed radial and bias medium truck tires, as well as passenger car and light truck tires
for domestic and global markets. The Company sold its ownership interest in this joint venture in November 2014, and the
Company began procuring certain medium truck and passenger car tires under off-take agreements with PCT through
mid-2018. The medium truck tire agreement has been extended and now expires in mid-2019. In December 2017, the Company
signed an off-take agreement with Sailun, effective from January 1, 2018 through December 31, 2020, as an additional source
of medium truck tires. The segment sells a majority of its tires in the replacement market, with a growing portion also sold to
OEMs.
The following customer of the Americas Tire Operations segment contributed ten percent or more of the Company’s total
consolidated net sales in 2017, 2016 and 2015. Net sales and percentage of consolidated Company sales for this customer in
2017, 2016 and 2015 were as follows:
Customer
TBC/Treadways
Net Sales
$
304,840
Consolidated
Net Sales
Net Sales
Consolidated
Net Sales
Net Sales
Consolidated
Net Sales
11% $
414,556
14% $
485,257
16%
2017
2016
2015
-68-
The accounting policies of the reportable segments are consistent with those described in the Significant Accounting Policies
note to the consolidated financial statements. Corporate administrative expenses are allocated to segments based principally on
assets, employees and sales. The following table details segment financial information:
Net sales:
Americas Tire
External customers
Intercompany
International Tire
External customers
Intercompany
Eliminations
Consolidated net sales
Operating profit (loss):
Americas Tire
International Tire
Unallocated corporate charges
Eliminations
Consolidated operating profit
Interest expense
Interest income
Other non-operating (expense) income
Income before income taxes
Depreciation and amortization expense
Americas Tire
International Tire
Corporate
Consolidated depreciation and amortization expense
Segment assets
Americas Tire
International Tire
Corporate and other
Consolidated assets
Expenditures for long-lived assets
Americas Tire
International Tire
Corporate
Consolidated expenditures for long-lived assets
2017
2016
2015
$
$
2,376,808
39,970
2,416,778
$
2,549,743
50,580
2,600,323
2,627,619
57,135
2,684,754
477,848
141,021
618,869
(180,991)
2,854,656
324,693
9,457
(60,599)
(1,827)
271,724
(32,048)
7,362
(3,113)
243,925
91,324
33,303
15,601
140,228
1,462,757
690,572
454,406
2,607,735
109,175
89,008
(997)
197,186
375,126
88,877
464,003
(139,457)
2,924,869
439,941
5,998
(60,308)
(1,244)
384,387
(26,604)
4,378
4,932
367,093
85,842
30,470
13,945
130,257
1,438,802
547,178
633,415
2,619,395
112,975
60,359
2,103
175,437
345,282
106,597
451,879
(163,732)
2,972,901
422,929
(19,133)
(52,342)
3,026
354,480
(23,820)
2,211
1,157
334,028
92,377
28,577
454
121,408
1,386,361
414,051
635,764
2,436,176
145,813
33,839
2,892
182,544
-69-
Geographic information for revenues, based on country of origin, and long-lived assets follows:
Net sales
United States
PRC
Rest of world
Consolidated net sales
Long-lived assets
United States
PRC
Rest of world
Consolidated long-lived assets
2017
2016
2015
$
$
2,240,882
263,540
350,234
2,854,656
$
2,423,932
166,289
334,648
2,924,869
568,215
219,289
180,488
967,992
547,599
157,858
158,770
864,227
2,518,089
126,674
328,138
2,972,901
537,173
105,237
152,788
795,198
-70-
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Cooper Tire & Rubber Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cooper Tire & Rubber Company (the Company) as of December
31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of
the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the index
at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 20, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1942.
Toledo, Ohio
February 20, 2018
-71-
SELECTED QUARTERLY DATA
(Dollar amounts in thousands except per share amounts.)
(Unaudited)
Net sales
Gross profit
Net income (loss) attributable to Cooper Tire &
Rubber Company
Earnings (loss) per share:
Basic
Diluted
Net sales:
Americas Tire
International Tire
Eliminations
Consolidated net sales
Operating profit (loss):
Americas Tire
International Tire
Unallocated corporate charges
Eliminations
Consolidated operating profit
Interest expense
Interest income
Other non-operating (expense) income
Income before income taxes
Net income (loss)
Net income (loss) attributable to Cooper Tire &
Rubber Company
2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
643,025
109,918
$
720,753
130,840
$
733,843
164,727
$
757,035
110,994
30,561
45,310
61,687
(42,158)
0.58
0.57
531,360
141,964
(30,299)
643,025
63,193
1,653
(15,824)
(352)
48,670
(7,827)
1,802
(235)
42,410
29,381
30,561
$
$
$
$
$
$
0.86
0.85
615,356
151,370
(45,973)
720,753
83,293
1,274
(9,561)
(174)
74,832
(8,210)
1,755
(255)
68,122
45,824
45,310
$
$
$
$
$
$
1.19
1.18
625,423
163,345
(54,925)
733,843
117,465
591
(15,792)
(887)
101,377
(7,591)
1,776
(978)
94,584
62,660
61,687
$
$
$
$
$
$
(0.82)
(0.82)
644,639
162,189
(49,793)
757,035
60,742
5,938
(19,422)
(414)
46,844
(8,419)
2,029
(1,645)
38,809
(41,120)
(42,158)
$
$
$
$
$
$
$
(a) Basic and diluted earnings (loss) per share are computed independently for each quarter presented. Therefore, the sum
of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.
-72-
Net sales
Gross profit
Net income attributable to Cooper Tire & Rubber
Company
Earnings per share:
Basic
Diluted
Net sales:
Americas Tire
International Tire
Eliminations
Consolidated net sales
Operating profit (loss):
Americas Tire
International Tire
Unallocated corporate charges
Eliminations
Consolidated operating profit
Interest expense
Interest income
Other non-operating income
Income before income taxes
Net income
Net income attributable to Cooper Tire & Rubber
Company
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
649,775
150,429
$
740,294
179,669
$
750,913
152,952
$
783,887
169,300
59,005
70,749
49,303
69,324
1.06
1.05
579,338
103,226
(32,789)
649,775
106,052
(1,772)
(13,019)
(157)
91,104
(6,636)
940
1,462
86,870
58,772
59,005
$
$
$
$
$
$
1.29
1.27
654,721
123,678
(38,105)
740,294
116,093
3,152
(8,730)
(599)
109,916
(6,286)
948
1,427
106,005
71,351
70,749
$
$
$
$
$
$
0.91
0.90
672,641
112,789
(34,517)
750,913
101,522
3,265
(26,442)
(117)
78,228
(6,795)
1,018
1,785
74,236
50,479
49,303
$
$
$
$
$
$
1.30
1.28
693,624
124,310
(34,047)
783,887
116,273
1,353
(12,118)
(370)
105,138
(6,887)
1,471
260
99,982
70,692
69,324
$
$
$
$
$
$
$
(a) Basic and diluted earnings per share are computed independently for each quarter presented. Therefore, the sum of
quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.
-73-
COOPER TIRE & RUBBER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2017, 2016 and 2015
(Dollar amounts in thousands)
Additions
Balance at
Beginning of
Year
Charged to
Income
Charged to
Equity
Acquisition of
business
Deductions
Balance at
End of Year
Year Ended December 31, 2017
Allowance for doubtful
accounts
Tax valuation allowance
Year Ended December 31, 2016
Allowance for doubtful
accounts
Tax valuation allowance
Year Ended December 31, 2015
Allowance for doubtful
accounts
Tax valuation allowance
$
$
$
$
$
$
7,290
20,228
7,533
15,103
8,792
33,303
$
$
$
$
$
$
1,799
20,536
1,693
291
1,178
680
$
$
$
$
$
$
— $
(2,828) $
— $
(1,057) $
1,519
6,777
(a) $
(b) $
7,570
30,102
— $
— $
3
7,484
$
$
1,939
(a) $
7,290
2,650
(b) $
20,228
— $
— $
— $
— $
2,437
(a) $
7,533
18,880
(b) $
15,103
(a) Accounts written off during the year, net of recoveries of accounts previously written off.
(b) Net decrease in tax valuation allowance is primarily a result of net changes in cumulative book/tax timing differences
and changes in judgment about the realizability of deferred tax assets.
-74-
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the
reports the Company files or submits as defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934 (“Exchange
Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that
such information is accumulated and communicated to the Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”) to allow timely decisions regarding required disclosures.
The Company, under the supervision and with the participation of management, including the CEO and CFO, evaluated the
effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 as of December 31, 2017 (“Evaluation Date”)). Based on the Company’s evaluation, the CEO
and CFO have concluded that the Company’s disclosure controls and procedures were effective as of the Evaluation Date.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-
Oxley Act of 2002, management conducted an assessment, including testing, using the criteria in Internal Control – Integrated
Framework (2013 framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
as of December 31, 2017. The Company’s system of internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Based on its assessment, management concluded that the Company maintained effective internal control over financial
reporting as of December 31, 2017, based on criteria in Internal Control – Integrated Framework (2013) issued by the COSO,
and that the Company’s internal control over financial reporting was effective.
Ernst & Young LLP, the independent registered public accounting firm that has audited the Company’s consolidated financial
statements included in this annual report, has issued its report on the effectiveness of the Company’s internal controls over
financial reporting as of December 31, 2017.
(c) Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Cooper Tire & Rubber Company
Opinion on Internal Control over Financial Reporting
We have audited Cooper Tire & Rubber Company’s internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Cooper Tire & Rubber Company (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Cooper Tire & Rubber Company as of December 31, 2017 and 2016, and the related
consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes and financial statement schedule and our report dated February 20, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on
-75-
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Toledo, Ohio
February 20, 2018
(d) Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter
of 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B. OTHER INFORMATION
None.
-76-
Item 10.
DIRECTORS AND CORPORATE GOVERNANCE
PART III
Information concerning the Company’s directors, corporate governance guidelines, Compensation Committee and Nominating
and Governance Committee will appear in the Company’s definitive Proxy Statement for its 2018 Annual Meeting of
Stockholders, which will be herein incorporated by reference.
AUDIT COMMITTEE
Information regarding the Audit Committee, including the identification of the Audit Committee members and the “audit
committee financial experts,” will appear in the Company’s definitive Proxy Statement for its 2018 Annual Meeting of
Stockholders, which will be herein incorporated by reference.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 will appear in the Company’s
definitive Proxy Statement for its 2018 Annual Meeting of Stockholders, which will be herein incorporated by reference.
CODE OF ETHICS
Information regarding the Company’s code of conduct is available on the Company’s website at http://www.coopertire.com. To
access this information, first click on “Investors” and then click on “Governance” on the Company’s website. Then, select the
“Code of Conduct” link listed in the middle of the web page under Governance.
Item 11.
EXECUTIVE COMPENSATION
Information regarding executive and director compensation will appear in the Company’s definitive Proxy Statement for its
2018 Annual Meeting of Stockholders, which will be herein incorporated by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information concerning the security ownership of certain beneficial owners and management of the Company’s voting
securities and equity securities will appear in the Company’s definitive Proxy Statement for its 2018 Annual Meeting of
Stockholders, which will be herein incorporated by reference.
The following table provides information as of December 31, 2017 regarding the Company’s equity compensation plans, all of
which were approved by the Company’s security holders:
Equity Compensation Plan Information
Plan category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
(a)
(b)
285,579
—
285,579
$
$
22.08
—
22.08
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
2,332,604
—
2,332,604
Additional information on equity compensation plans is contained in Note 12 - Stock-Based Compensation to the consolidated
financial statements.
-77-
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
There were no transactions with related persons that would require disclosure during 2017.
Information regarding the independence of the Company’s directors will appear in the Company’s definitive Proxy Statement
for its 2018 Annual Meeting of Stockholders, which will be herein incorporated by reference.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding the fees and services of the Company’s independent auditor will appear in the Company’s definitive
Proxy Statement for its 2018 Annual Meeting of Stockholders, which will be herein incorporated by reference.
-78-
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and
2015
Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Selected Quarterly Data (Unaudited)
2. Financial Statement Schedule
Valuation and qualifying accounts – Allowance for doubtful accounts and tax valuation allowance
Page
reference
33
34
35
37
38
39
71
72
74
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 Consolidated Financial
Statements or the notes thereto.
3. Exhibits
The exhibits listed on the accompanying exhibit index are filed as part of this Annual Report on Form 10-K.
Item 16.
FORM 10-K SUMMARY
Not applicable.
-79-
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.
SIGNATURES
COOPER TIRE & RUBBER COMPANY
/s/ Bradley E. Hughes
BRADLEY E. HUGHES, President,
Chief Executive Officer and Director
Date: February 20, 2018
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
/s/ Bradley E. Hughes
BRADLEY E. HUGHES
President, Chief Executive Officer and Director
(Principal Executive Officer)
February 20, 2018
/s/ Ginger M. Jones
GINGER M. JONES
/s/ Mark A. Young
MARK A. YOUNG
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
February 20, 2018
Director of External Reporting
(Principal Accounting Officer)
February 20, 2018
THOMAS P. CAPO*
Non-Executive Chairman of the Board
February 20, 2018
STEVEN M. CHAPMAN*
SUSAN F. DAVIS*
JOHN J. HOLLAND*
TRACEY I. JOUBERT*
GARY S. MICHEL*
JOHN H. SHUEY*
ROBERT D. WELDING*
Director
Director
Director
Director
Director
Director
Director
February 20, 2018
February 20, 2018
February 20, 2018
February 20, 2018
February 20, 2018
February 20, 2018
February 20, 2018
*
The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to a
Power of Attorney executed on behalf of the above-indicated directors of the registrant and filed herewith as Exhibit 24
on behalf of the registrant.
*By:
/s/ Stephen Zamansky
STEPHEN ZAMANSKY, Attorney-in-fact
-80-
All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by Cooper Tire & Rubber
Company (File Number 001-04329), unless otherwise noted.
EXHIBIT INDEX
(3)
(4)
(10)
(i)
(ii)
(i)
(ii)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
Restated Certificate of Incorporation, as amended and filed with the Secretary of State of Delaware on
May 4, 2010, is incorporated herein by reference from Exhibit 3(i) of the Company’s Form 10-Q for
the quarter ended March 31, 2010
Bylaws, as amended as of May 4, 2010, are incorporated herein by reference from Exhibit 3(ii) to the
Company’s Form 10-Q for the quarter ended March 31, 2010
Prospectus Supplement dated March 21, 1997 for the issuance of $200,000,000 notes is incorporated
herein by reference from Form S-3 – Registration Statement No. 33-44159
Prospectus Supplement dated December 10, 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
Employment Agreement Amended and Restated dated as of December 22, 2008 between Cooper Tire
& Rubber Company and Roy V. Armes is incorporated herein by reference from Exhibit (10)(ii) of the
Company’s 10-K for the year ended December 31, 2008*
Credit Agreement, dated as of May 27, 2015, among the Company, the lenders party thereto, and
JPMorgan Chase Bank, N.A., as administrative agent is incorporated by reference from Exhibit 10.1
of the Company’s Form 8-K dated June 1, 2015
Amendment No. 1 to Credit Agreement, dated as of October 16, 2017, among the Company, the
Lenders and JPMorgan Chase Bank, National Association is incorporated by reference from Exhibit
10 of the Company's Form 10-Q dated October 30, 2017
Amendment No. 2 to Credit Agreement, dated as of February 15, 2018, by and among Cooper Tire &
Rubber Company, the lenders party thereto, and JPMorgan Chase Bank, N.A. is incorporated by
reference from Exhibit 10.1 of the Company's Form 8-K dated February 20, 2018
Amended and Restated Receivables Purchase Agreement, dated as of September 14, 2007, by and
among Cooper Receivables LLC, Cooper Tire & Rubber Company, PNC Bank, National Association
and Market Street Funding LLC is incorporated herein by reference from Exhibit 10.2 of the
Company’s Form 8-K dated September 20, 2007
First Amendment to Purchase and Sale Agreement, dated as of September 14, 2007, by and among
Cooper Receivables LLC, Cooper Tire & Rubber Company, PNC Bank, National Association, and
Market Street Funding LLC is incorporated herein by reference from Exhibit 10.1 of the Company’s
Form 8-K dated September 20, 2007
Second Amendment to Amended and Restated Receivables Purchase Agreement, dated as of August
5, 2010, by and among Cooper Receivables LLC, Cooper Tire & Rubber Company, Market Street
Funding LLC and PNC Bank, National Association is incorporated herein by reference from Exhibit
10.1 of the Company’s Form 8-K dated August 9, 2010
Third Amendment to Amended and Restated Receivables Purchase Agreement, dated June 2, 2011, by
and among Cooper Receivables LLC, Cooper Tire & Rubber Company, Market Street Funding LLC
and PNC Bank, National Association is incorporated herein by reference from Exhibit 10.1 of the
Company’s Form 8-K dated June 8, 2011
Fourth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of July 27,
2011, by and among Cooper Tire & Rubber Company, Cooper Receivables LLC, Market Street
Funding LLC and PNC Bank, National Association is incorporated herein by reference from Exhibit
10.2 of the Company’s Form 8-K dated August 2, 2011
Fifth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of August 10,
2012, by and among Cooper Tire & Rubber Company, Cooper Receivables LLC, Market Street
Funding LLC and PNC Bank, National Association is incorporated herein by reference from Exhibit
10.1 of the Company's Form 8-K dated August 13, 2012
Sixth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of March 12,
2013, among the Company, Cooper Receivables LLC, Market Street Funding LLC and PNC Bank,
National Association
Seventh Amendment to Amended and Restated Receivables Purchase Agreement, dated as of October
24, 2013, among the Company, Cooper Receivables LLC, Market Street Funding LLC and PNC
Bank, National Association
Eighth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of May 27,
2015, among the Company, Cooper Receivables LLC and PNC Bank, National Association, is
incorporated by reference from Exhibit 10.2 of the Company’s Form 8-K dated June 1, 2015
-81-
(xiv)
(xv)
(xvi)
(xvii)
(xviii)
(xix)
(xx)
(xxi)
(xxii)
(xxiii)
(xxiv)
(xxv)
(xxvi)
(xxvii)
(xxviii)
(xxix)
(xxx)
(xxxi)
(xxxii)
Ninth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of February
8, 2017 among the Company, Cooper Receivables LLC and PNC Bank, National Association is
incorporated by reference from Exhibit 10 of the Company's Form 10-Q dated April 27, 2017
Second Amended and Restated Receivables Purchase Agreement, dated February 15, 2018, by and
among Cooper Receivables LLC, Cooper Tire & Rubber Company, and PNC Bank, National
Association is incorporated by reference from Exhibit 10.2 of the Company's Form 8-K dated
February 20, 2018
Amended and Restated Loan and Security Agreement, dated as of July 27, 2011, by and among
Cooper Tire & Rubber Company, Max-Trac Tire Co., Inc., certain financial institutions named therein
(as Lenders), Bank of America, N.A. (as Administrative Agent and Collateral Agent), PNC Bank,
National Association (as Syndication Agent), Banc of America Securities LLC and PNC Capital
Markets LLC (as Joint Book Managers and Joint Lead Arrangers) and JPMorgan Chase Bank, N.A.
(as Documentation Agent) is incorporated herein by reference from Exhibit 10.1 of the Company’s
Form 8-K dated August 2, 2011
Pledge Agreement, dated as of November 9, 2007, by and among Cooper Tire & Rubber Company
and Bank of America, N.A. is incorporated herein by reference from Exhibit 10.2 of the Company’s
Form 8-K dated November 16, 2007
Intercreditor Agreement, dated as of November 9, 2007, by and among Cooper Tire & Rubber
Company; Cooper Receivables LLC; PNC Bank, National Association (as Administrator); and Bank
of America, N.A. (as Administrative Agent and Collateral Agent) is incorporated herein by reference
from Exhibit 10.3 of the Company’s Form 8-K dated November 16, 2007
1998 Non-Employee Directors Compensation Deferral Plan Amended and Restated as of January 1,
2011 is incorporated herein by reference from Exhibit (10)(xix) of the Company’s Form 10-K for the
year ended December 31, 2011*
2001 Incentive Compensation Plan is incorporated herein by reference from the Appendix A to the
Company’s Proxy Statement dated March 20, 2001*
2010 Incentive Compensation Plan is incorporated herein by reference from the Appendix B to the
Company’s Proxy Statement dated March 24, 2010*
2002 Non-Employee Directors Stock Option Plan is incorporated herein by reference from Appendix
A to the Company’s Proxy Statement dated March 22, 2002*
2006 Incentive Compensation Plan is incorporated herein by reference from Appendix A to the
Company’s Proxy Statement dated March 21, 2006*
Change in Control Severance Pay Plan (Amended and Restated as of August 4, 2010) is incorporated
by reference from Exhibit 10.1 of the Company’s Form 8-K dated August 6, 2010*
Written Description of Changes to Independent Director Compensation and Stock Ownership
Guidelines (as approved by the Board of Directors on May 9, 2014) is incorporated herein by
reference from Exhibit (10)(xviii) of the Company’s Form 10-K for the year ended December 31,
2014
Form of Confidentiality and Non-Compete Agreement for the Cooper Tire & Rubber Company
Change in Control Severance Pay Plan is incorporated herein by reference from Exhibit (10)(iv) of
the Company’s Form 10-Q for the quarter ended September 30, 2011*
Form of Indemnification Agreement for Directors and Officers is incorporated herein by reference
from Exhibit 10.1 of the Company’s Form 8-K dated December 20, 2006
Nonqualified Key Employee Deferred Compensation Plan effective as of June 1, 1999 is incorporated
herein by reference from Exhibit (10)(xxx) of the Company’s Form 10-K for the year ended
December 31, 2011*
Form of Participation Agreement for the Nonqualified Key Employee Deferred Compensation Plan
effective as of June 1, 1999 is incorporated herein by reference from Exhibit (10)(xxxi) of the
Company’s Form 10-K for the year ended December 31, 2011*
Form of Participation Agreement for Nonqualified Stock Option Awards Under the 2010 Incentive
Compensation Plan is incorporated herein by reference from Exhibit (10.2) of the Company’s Form
10-Q for the quarter ended March 31, 2013*
Executive Deferred Compensation Plan, Amended and Restated as of January 1, 2013 is incorporated
herein by reference from Exhibit (10.1) of the Company’s Form 10-Q for the quarter ended June 30,
2013*
Form of Participation Agreement for Executive Deferred Compensation Plan, Amended and Restated
as of January 1, 2013 is incorporated herein by reference from Exhibit (10)(xxvii) of the Company’s
Form 10-K for the year ended December 31, 2013*
-82-
(xxxiii)
(xxxiv)
(xxxv)
(xxxvi)
(xxxvii)
Nonqualified Supplementary Benefit Plan, Amended and Restated as of January 1, 2013 is
incorporated herein by reference from Exhibit (10.2) of the Company’s Form 10-Q for the quarter
ended June 30, 2013*
Form of Participation Agreement for Nonqualified Stock Option Awards Under the 2010 Incentive
Compensation Plan is incorporated herein by reference from Exhibit (10.2) of the Company’s Form
10-Q for the quarter ended March 31, 2014*
2014 Incentive Compensation Plan is incorporated herein by reference from Appendix A to the
Company’s Proxy Statement dated April 10, 2014*
Offer Letter executed by Ginger M. Jones on November 25, 2014 is incorporated herein by reference
from Exhibit (10)(xxxiii) of the Company’s Form 10-K for the year ended December 31, 2014*
Form of Participation Agreement for Restricted Stock Unit Awards Under the 2014 Incentive
Compensation Plan is incorporated herein by reference from Exhibit (10)(xxxiv) of the Company’s
Form 10-K for the year ended December 31, 2014*
(xxxviii) Form of Participation Agreement for Performance Stock Unit and Cash Unit Awards Under the 2014
Incentive Compensation Plan, revised January 27, 2016*
(xxxix)
(xl)
Form of Participation Agreement for Restricted Unit Awards Under the 2014 Incentive Compensation
Plan, revised January 27, 2016*
Form of Participation Agreement for Nonqualified Stock Options Awards Performance Under the
2014 Incentive Compensation Plan, revised January 27, 2016*
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification of Chief Executive Officer pursuant to Rule 13a–14(a)/15d–14(a) of the Exchange Act
Certification of Chief Financial Officer pursuant to Rule 13a–14(a)/15d–14(a) of the Exchange Act
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
(21)
(23)
(24)
(31.1)
(31.2)
(32)
(101.INS)
(101.SCH)
(101.DEF)
(101.CAL)
(101.LAB)
(101.PRE)
*
Indicates management contracts or compensatory plans or arrangements.
-83-
COOPER TIRE & RUBBER COMPANY
SUBSIDIARIES & AFFILIATES
As Of December 31, 2017
Exhibit (21)
Cooper Tire & Rubber Company (Parent) (Delaware)
Cooper International Holding Corporation (Delaware)
Cooper International Rubber, Limited (Jamaica) (Inactive)
Cooper Tire & Rubber Company de Mexico S.A. de CV (Mexico) (98.62% - see below for additional 1.38% for a total of
100%)
Cooper Tire & Rubber Company Brazil Ltda. (Brazil)
Corporación de Occidente SA de CV (Mexico) (16.86% – see below for additional 41.57% for a total of 58.43%)
Inversionistas del Bajío SA de CV (Mexico)
Corporación de Occidente SA de CV (Mexico) (41.57% - see above for additional 16.86% for a total of 58.43%)
Cooper Latin America Services, SRL de CV (Mexico)
Cooper de Mexico Servicios Adminstrativos, SRL de CV (Mexico)
Cooper Tire & Rubber Company Columbia S.A.S. (Columbia)
Cooper Receivables LLC (Delaware)
Cooper Tire Holding Company (Ohio)
Cooper Tire & Rubber Company de Mexico S.A. de CV (Mexico) (1.38% - see above for additional 98.62% for a total of
100%)
Qingdao Ge Rui Da Rubber Co., Ltd. (PRC) (5%-see below for additional 60% for a total of 65%)
Cooper Tire International Trading Company (Cayman Islands)
Registered Branch Office (Singapore)
Cooper Tire & Rubber International Trading Limited (Cayman Islands)
Cooper Tire & Rubber Company (Barbados) Ltd. (Barbados)
Cooper Global Holding Co., Ltd. (Barbados) (25% - see below for additional 75% for a total of 100%)
Cooper (Kunshan) Tire Co., Ltd. (PRC)
Cooper Tire (China) Investment Co., Ltd. (PRC)
Cooper Tire Asia-Pacific (Shanghai) Trading Co., Ltd. (PRC)
Qingdao Ge Rui Da Rubber Co., Ltd. (PRC) (60%-see above for additional 5% for a total of 65%)
Cooper Tire & Rubber Foundation (Ohio)
Cooper Tyre & Rubber Company UK Limited (England)
Cooper Tire & Rubber Company Deutschland GmbH (Germany)
Cooper Tire & Rubber Company Slovakia s.r.o. (Slovakia)
Cooper Tire & Rubber Company Espana S.L. (Spain)
Cooper Tire & Rubber Company Europe Limited (England)
Cooper Tire & Rubber Company International Development Limited (England)
Cooper Tire & Rubber Company France Sarl (France)
Cooper Tire & Rubber Company Italia S.r.l. (Italy)
Cooper Tire & Rubber Company Suisse SA (Switzerland)
CTB (Barbados) Investment Co., Ltd. (Barbados)
Cooper Global Holding Co., Ltd. (Barbados) (75% - see above for additional 25% for a total of 100%)
Cooper Tire & Rubber Holding B.V. (The Netherlands)
Cooper Tire & Rubber Company Serbia d.o.o. (Republic of Serbia)
Cooper Tire & Rubber Holding Netherlands 1 B.V. (The Netherlands)
Registered Branch Office (Russia)
Cooper Tire & Rubber Holding Netherlands 2 B.V. (The Netherlands)
CTBX Company (Ohio)
Registered Branch Office (Chile)
CTTG Inc. (Ohio)
Master Assurance & Indemnity Ltd. (Bermuda)
Cooper Tire & Rubber Company Canada Ltd. (Canada)
Max-Trac Tire Co., Inc. (Ohio)
Mickey Thompson Performance Racing Inc. (Ohio)
MHPP Inc. (Ohio) (Inactive)
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements of Cooper Tire & Rubber
Company:
Exhibit (23)
Forms S-8:
No. 2-58577
No. 33-35071
No. 33-47981
No. 333-83311
No. 333-83589
No. 333-84815
No. 333-84813
No. 333-84811
Thrift and Profit Sharing Plan
Texarkana Pre-Tax Savings Plan
Pre-Tax Savings Plan at the Findlay Plant
Pre-Tax Savings Plan (Clarksdale)
1998 Non-Employee Directors Compensation Deferral Plan
Thrift & Profit Sharing Plan
Texarkana Pre-Tax Savings Plan
Pre-Tax Savings Plan at the Findlay Plant
No. 333-103007
2001 Incentive Compensation Plan
No. 333-113315
Pre-Tax Savings Plan (Clarksdale)
Pre-Tax Savings Plan at the Findlay Plant
Texarkana Pre-Tax Savings Plan
No. 333-138811
Pre-Tax Savings Plan (Findlay)
Pre-Tax Savings Plan (Texarkana)
No. 333-142136
2006 Incentive Compensation Plan
No. 333-157778
Spectrum Investment Plan
Pre-Tax Savings Plan (Findlay)
Pre-Tax Savings Plan (Texarkana)
No. 333-167231
2010 Incentive Compensation Plan
No. 333-196809
2014 Incentive Compensation Plan
of our reports dated February 20, 2018, with respect to the consolidated financial statements and schedule of Cooper Tire
& Rubber Company and the effectiveness of internal control over financial reporting of Cooper Tire & Rubber Company
included in this Annual Report (Form 10-K) of Cooper Tire & Rubber Company for the year ended December 31, 2017.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Toledo, Ohio
February 20, 2018
POWER OF ATTORNEY
FOR EXECUTION OF ANNUAL REPORT ON FORM 10-K FOR
FISCAL YEAR ENDED DECEMBER 31, 2017
Exhibit (24)
KNOW ALL BY THESE PRESENTS, that each of the undersigned hereby constitutes and appoints Stephen Zamansky as a
true and lawful attorney-in-fact of the undersigned for the purpose of executing for and on behalf of all of the undersigned
members of the Board of Directors of Cooper Tire & Rubber Company, the Company’s Annual Report on Form 10-K for the
fiscal year of the Company ended December 31, 2017.
The undersigned hereby grants such attorney-in-fact full power and authority to do and perform all and every act and thing
whatsoever requisite, necessary and proper to be done in the exercise of any of the rights and powers herein granted, as fully to
all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or
revocation, hereby ratifying and confirming all that such attorney-in-fact shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
This Power of Attorney shall remain in full force and effect until the filing by the Company of the Annual Report on Form 10-
K for fiscal year 2017 with the Securities and Exchange Commission, unless earlier revoked by the undersigned in a signed
writing delivered to the foregoing attorney-in-fact.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 20th day of February,
2018.
/s/ Thomas P. Capo
Thomas P. Capo
/s/ Susan F. Davis
Susan F. Davis
/s/ Bradley E. Hughes
Bradley E. Hughes
/s/ Gary S. Michel
Gary S. Michel
/s/ Robert D. Welding
Robert D. Welding
/s/ Steven M. Chapman
Steven M. Chapman
/s/ John J. Holland
John J. Holland
/s/ Tracey I. Joubert
Tracey I. Joubert
/s/ John H. Shuey
John H. Shuey
Exhibit (31.1)
I, Bradley E. Hughes, certify that:
CERTIFICATIONS
1.
I have reviewed this Annual Report on Form 10-K of Cooper Tire & Rubber Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 20, 2018
/s/ Bradley E. Hughes
Bradley E. Hughes, President,
Chief Executive Officer and Director
Exhibit (31.2)
I, Ginger M. Jones, certify that:
CERTIFICATIONS
1.
I have reviewed this Annual Report on Form 10-K of Cooper Tire & Rubber Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 20, 2018
/s/ Ginger M. Jones
Ginger M. Jones, Senior Vice President and
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit (32)
In connection with the Annual Report of Cooper Tire & Rubber Company (the “Company”) on Form 10-K for the period ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the
undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-
Oxley Act of 2002, that, to such officer’s knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods expressed in the Report.
Date: February 20, 2018
/s/ Bradley E. Hughes
Name:
Title:
Bradley E. Hughes
Chief Executive Officer
/s/ Ginger M. Jones
Name:
Title:
Ginger M. Jones
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or
as a separate disclosure document.
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STOCKHOLDER INFORMATION
Executive Offices
Cooper Tire & Rubber Company
701 Lima Avenue
Findlay, OH 45840
419-423-1321
For Information
Tire products
Investor Relations
Website
Annual Meeting
800-854-6288
419-424-4165
www.coopertire.com
The 2018 Annual Meeting of Stockholders of Cooper
Tire & Rubber Company will be held at The Westin
Detroit Metropolitan Airport, McNamara Terminal,
2501 Worldgateway Place, Detroit, Michigan
48242, Friday, May 4, 2018 at 10:00 a.m. Eastern
Daylight Time. All stockholders are cordially invited
to attend. Proxy material is sent or made available
to stockholders.
Transfer Agent & Registrar
Computershare Inc.
PO Box 30170
College Station, TX 77842-3170
888-294-8217 (toll free)
24 hours automated or Mon. - Fri.
8:30 a.m. to 5:30 p.m. (Central Time)
www.computershare.com/investor
https://www-us.computershare.com/investor/contact
Stockholders requiring a change of name, address
or ownership of shares, as well as information about
stockholder records, lost or stolen certificates,
dividend checks, dividend direct deposit and dividend
reinvestment should contact our transfer agent by
mail, by telephone or through its web site.
Filing Certifications
The Company has filed the certification required by
Section 302 of the Sarbanes-Oxley Act of 2002 as
an exhibit to its Form 10-K for the fiscal year ending
December 31, 2017, filed with the Securities and
Exchange Commission. On May 16, 2017, the
Company filed with the New York Stock Exchange its
Annual CEO Certification.
Direct Investment Plan
Computershare
Investor Services 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 Computershare Investor Services
at 888-294-8217.
Board of Directors
Executive Officers
Bradley E. Hughes
President & Chief Executive Officer
John J. Bollman
Senior Vice President and
Chief Human Resources Officer
Ginger M. Jones
Senior Vice President and
Chief Financial Officer
Stephen Zamansky
Senior Vice President,
General Counsel and Secretary
Other Corporate Officers
Gerald C. Bialek
Vice President and Treasurer
James P. Keller
Senior Vice President
Philip F. Kortokrax
Senior Vice President
Jack J. McCracken
Assistant General Counsel
and Assistant Secretary
Thomas P. Capo 1, 2
Non-Executive Chairman of the Board,
Former Chairman of the Board
Dollar Thrifty Automotive Group, Inc.
Steven M. Chapman 3
Group Vice President, China and Russia
Cummins, Inc.
Susan F. Davis 3
Former Executive Vice President,
Asia-Pacific Region
Johnson Controls
John J. Holland 2
President
Greentree Advisors LLC
Bradley E. Hughes
President & Chief Executive Officer
Cooper Tire & Rubber Company
Tracey I. Joubert
Chief Financial Officer
Molson Coors Brewing Company
Gary S. Michel 2
President and Chief Executive Officer
Home & Building Technologies
Strategic Business Group
Honeywell International Inc.
John H. Shuey 1, 2
Former Chairman of the Board,
President and Chief Executive Officer
Amcast Industrial Corporation
Robert D. Welding 1, 3
Former Non-Executive Chairman
Public Safety Equipment (Int’l) Limited
1 Member of the Nominating and
Governance Committee
2 Member of the Audit Committee
3 Member of the Compensation Committee
COOPER TIRE & RUBBER COMPANY
701 Lima Avenue, Findlay, Ohio 45840
www.coopertire.com