Presentation - Cooper Tires

Deutsche Bank
Leveraged Finance Conference
October 1, 2014
Safe Harbor
This presentation contains what the Company believes are forward-looking statements
related to future financial results and business operations for Cooper Tire & Rubber
Company. Actual results may differ materially from current management forecasts and
projections as a result of factors over which the Company may have limited or no control.
Information on certain of these risk factors and additional information on forward-looking
statements are included in the Company’s reports on file with the Securities and
Exchange Commission and set forth at the end of this presentation.
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Americas Tire Operations Business Overview
• 4th largest manufacturer
in North America1
• Three tire manufacturing
facilities (Findlay, Tupelo
and Texarkana)
• ~4,900 employees
Cooper
Discoverer AT3
Cooper CS5
Ultra Touring
• Established in 2007
• One manufacturing
facility near
Guadalajara with our
JV partner
• ~1,100 total
employees including
JV partner
Cooper
Classic
• Max-Trac Tire Co., Inc.
dba Mickey Thompson
Performance Tires &
Wheels; wholly-owned
Cooper subsidiary
• Acquired in 2003
• Premium brand,
performance positioning
• ~65 employees
Deegan 38
1. Based on production capacity. Source: Tire Business 2013 Global Tire Report
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North America 2013 Unit Sales Breakdown
Replacement Focus
Diversified Product Mix
Principally Branded
Replacement Market
99%
Passenger
1%
OE Market
74%
20%
Light
Truck
House
brands
69%
31%
Private
label
1% TBR
3% Winter
2% Specialty
Cooper increasing exposure to the fastest growing and most
attractive segments with a strong portfolio of house brands
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Winning Formula for North America Tire Operations
Diversify and grow in the most attractive segments
to be our customers' best service/value supplier
Vision
1
2
Mix and margin
enhancement
Continue product launch
successes
Strategic
Focus
Areas
Focus on growth of the
Cooper brand
Convert capacity to grow
more premium units
Grow in underpenetrated
channels
Become an
established OE
supplier
Grow OE segment
3
Grow in
Commercial
Vehicles
4
Leverage
footprint to grow
in Latin America
Recover and grow
Roadmaster share
Expand Mexico
manufacturing
No more than 10% of
business
Grow in OE segment
Enter car dealer
replacement channel
Enter fleet replacement
channel
Continue success in
Mexico and Central
America
Further advance
Cooper technology
Leverage footprint to
grow in the rest of Latin
America
Deemphasize wholesale
private-label business
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1 Mix & margin enhancement
We Have Been Successfully Shifting Our Mix Toward
Premium Segments…
Cooper PCR / SUV mix
Several Drivers of Premium Mix Shift
• Increasing pace of branded new product
development with focus on premium
segments
% of Cooper volume
Premium segments
(Winter, UHP, H, V,
and SUV)
• Accelerating capacity conversion to
support premium unit growth
• Growing our branded PCR and SUV share
in underpenetrated channels
T & below
2009
2011
2013
Next level
(by 2017)
• Continuing Mickey Thompson growth in the
specialty segment
• Raising brand awareness through targeted
advertising spend
Operating profits for “premium segments" 5 to 15 times
higher than T & below rated tires
1. Winter, UHP, V-rated, H-rated and SUV
Source: Cooper internal data
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2
Become an established OE supplier
Cooper Becoming an Established OE Supplier in North
America
OE Growing Twice as Fast as
Replacement Market1 in North America2
Million units
500
2.6%
CAGR
'13-17
368
333
23%
OE
4%
We Have a Strong Rationale for
Entering the OE Business Now
 OE is a faster-growing segment and
market conditions for OE profitability
have improved
 We have the right technology and
products
21%
 OE generates pull for replacement market,
increases penetration in car dealership
channels
250
79%
77%
Replacement
2%
 Also enhances brand awareness
Ultimately, it compels us to always get better!
0
2013
2017E
We expect OE to be no more than 10% of our business
while maintaining focus on the replacement segment
1. Includes PCR and LT. 2. United States, Canada, and Mexico.
Source: LMC Automotive
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3
Grow in Commercial Vehicles
We Are Increasing Our TBR Market Share in North
America...
Our Focus on Recuperating
Roadmaster Share in 2014...
TBR unit sales
...While Growing in Fleet and OE
Significant growth opportunity for
Cooper, and currently building inhouse expertise and capabilities:
• National Accounts Program
• 24/7 Fleet Emergency Service
• Fleet Engineer team
-46%
+33% CAGR
2008
2010
2012
2013
Supply issue due to labor disruptions at CCT resolved
Success in fleets also a pull-through
in OE segment
Increased investments in sales and
marketing
Began delivering Roadmaster products in Q1 2014
Winning back positions with key customers
Our TBR margins ~2–3 times higher than PCR/LT margins
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4
Leverage footprint to grow in Latin America
...And Growing in Mexico, Brazil and Latin America by
Leveraging Mexico LCC Manufacturing
Leveraging Strong Asset in Mexico…
...To Grow in Latin America
Low cost, near-sourced manufacturing facility
• Lower labor and distribution cost
• Faster response to market demand changes
Reduced duties for major Latin American
markets
Opportunity to raise capacity by 50% to
accelerate LT and PCR production
Colombia
Mexico
2017F
(Millions)
Population
128
Replacement
tire demand1
27
2017F
(Millions)
Population
48
Replacement
tire demand1
7
Brazil
Chile
Cooper tire
manufacturing
facility near
Guadalajara
2017F
(Millions)
Population
18
Replacement
tire demand1
5
2017F
(Millions)
Population
206
Replacement
tire demand1
47
We are targeting 4–5 million units in Latin America by 2020
1. Annual replacement unit demand for PCR, LT and TBR
Source: LMC Automotive
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International Tire Operations Business Overview
Cooper Tire Asia
Cooper Tire Europe
~5,800 employees
~1,400 employees
Established operations in 2006
Acquired operations in 1997
Two manufacturing facilities in China:
Rongcheng (CCT) and Kunshan (CKT)
Two manufacturing facilities in Europe:
Melksham (U.K.) and Krusevac (Serbia)
Asia Technical Center opened in 2008,
moved to new facility in 2014
European Technical Center opened in 2007
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International Segment 2013 Unit Sales Breakdown
Replacement Focus
Product Diversification
Replacement Market
TBR
26%
85%
Passenger
15%
OE Market
Principally Branded
44%
13%
7% 8%
2%
Light Truck
House
brands
92%
8%
Private
label
Winter
Motorcycle UHP
Improving product and channel mix
with strong house brands
Source: Cooper internal data
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Winning Formula for International Tire Operations
Achieve profitable, sustainable growth in our International segment to
account for 50% of total company sales
Vision
1
2
PCR / TBR
growth in China
Strategic
Focus
Areas
Increase pace of new
product launches to
meet customer needs
Grow in long distance
and city bus, as well
as long-haul truck
Improve PCR/TBR
distribution channels
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Penetrate
China OE market
Expand our OE
position in China
Generate consumer
pull via increased
brand recognition
Profitable
growth in
Western Europe
Clarify and strengthen
product offering to
customers
Improve Cooper brand
awareness and growth
Grow profitably in key
markets (U.K.,
Germany)
4
Leverage our
sourcing for growth
in Eastern Europe
Improve service
through local sourcing
Improve manufacturing
cost competitiveness
Grow in high potential
Eastern European
countries and Russia
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1 PCR/TBR growth in China
We Quickened the Pace of New Product Introductions to
Meet Customer Needs in PCR and TBR
In Recent Years, We Launched More
New Products Than Ever Before
Unique R&D center:
local design and
faster time to
market
Cooper Now Positioned to Address
Customer Needs in PCR/TBR
Unique footprint
with two
manufacturing
facilities
Cooper WeatherMaster Ice 100
Strong PCR offering
across major segments
• 4x4/SUV
• UHP
• Winter
• Low rolling
resistance
Total PCR SKUs
+81%
New product focus on
driving meaningful
position in long-haul
truck & bus segments
+72%
2008
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2013
Near-term
target
Dean D280
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2 Penetrate China OE market
OE Presence is Vital to Win in China
In China, OE Accounts for ~40%
of total PCR and LT demand
Million units
OE segment for PCR and LT make up ~40% of
market demand in China and growing rapidly
at ~11% per year
500
12%
250
Growth in OE is Vital to Win in China
375
40%
11%
Consumers have a strong sense of brand in
China and OE fittings drive consumer pull for
replacement tires
• High preference for OE brand in first and
second replacements
60%
13%
OE presence also important to raise brand
awareness and consideration
235
43%
57%
0
2013
OE
2017E
Replacement
Note: Figures include demand for PCR and Light Truck
Source: LMC Automotive
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3
Profitable growth in Western Europe
We Are Focused on Growing our Solid Position in the U.K.
and Capturing Profitable Growth in Germany
United Kingdom
Total replacement
demand (M units)
60
1%
40
33
35
2013
2017F
20
0
• Cooper one of the top 5 players
with well established brands and
distribution footprint
• Melksham production facility to
serve local demand
• Profitable niche and premium
strategy (e.g. UHP, motorcycle,
racing tires)
Germany
Total replacement
demand (M units)
100
3%
58
64
2013
2017F
50
0
United
Kingdom
Germany
• Largest market in Europe
• Increased market share in 2013
with strong growth in W,Y,Z rated
PCR and SUV segments
• Leveraging new product
successes to grow Cooper brand
awareness
Note: Figures include demand for PCR, light truck and TBR
Source: LMC Automotive
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4 Leverage our sourcing for growth in Eastern Europe
Plans to Expand Presence in High Potential Countries in
Eastern Europe
Eastern Europe (including Russia)
Total demand (units)
200
150
6%
163
129
100
Russia
Estonia
50
Latvia
0
Lithuania
2013
Belarus
Poland
Ukraine
Czech
Rep. Slovakia
Hungary Romania
Serbia
Bulgaria
2017F
• Fastest growing markets in Europe
• Leverage manufacturing presence in Serbia
– LCC cost advantage
– Duty free into both EU & Russia
• Plans to increase sales force and resources
in Eastern Europe
Note: Figures include OE and replacement demand for PCR, light truck and TBR
Source: LMC Automotive
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Financial Update
2014 Off to a Great Start with Strong Results
2Q Net sales Rose 1 Percent
From Strong Unit Growth
Net sales ($M)
...And Operating Margin
Increased 12 Percent
2Q '14 – 2Q '13 volume growth (%)
1%
1,000
10
889
Operating margin
15
9
884
800
8
+12%
10
600
6
400
4
200
2
0
0
2Q ‘14
8.6
7.8
5
5
0
2Q ‘13
2Q ‘14
North
America
2Q ‘13
International
Source: Cooper quarterly financial reports
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We Have a Strong Balance Sheet That Gives us Financial
Flexibility
...With Ample Financing Flexibility
Healthy Balance Sheet...
Cash and cash equivalents ($M)
+15%
600
400
346
$200M
398
Asset backed revolving
credit facility
200
Parent
company
0
Q4 ’07
$175M
Q4 ’13
Accounts receivable
securitization program
Debt/Enterprise value1
40
38
-22
16
20
Asia
subsidiary
0
2008
$348M
Unsecured annually renewable
credit lines
2013
1. Debt is short-term debt, current portion of long-term debt and long-term debt
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We Carefully Consider How to Best Allocate Capital to High
Shareholder Return Opportunities
Different Alternatives for
Using Excess Cash
In the Last Five Years,
We Efficiently Deployed Capital
Fund maintenance projects
Pursue high ROIC projects
• E.g. U.S. plant automation, product mix change
Expand capacity to support growth
• Within current plant footprint ...
• ... or beyond, e.g., Serbia
Maintain strong balance sheet including
pension funding
Return capital to shareholders:
• Regular dividends (set based on ability to
maintain through recessions)
• Buybacks or special dividend
ROIC1
ROIC weighted average
in last five years = 16%
30
20
10
16
8
16
22
11
14
0
-10
-14
-20
2007 2008 2009 2010 2011 2012 2013
1. Return on Invested Capital, including non-controlling equity
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CCT Ownership Key to Decisions About Capital Deployment
Independent
valuation firm
determined the fair
market value of the
joint venture
Cooper Buys CCT
Cooper Sells CCT
• Well-built asset with a great track
record
• Cooper maintains supply via offtake
rights for at least three years
• Likely to continue to look at other
growth opportunities, e.g. M&A
• Several options available, e.g.
brown and greenfield
Must be resolved before we can determine long-term
capital deployment plans
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We Have Set Bold Aspirations for the Future
Long-term
(end of decade)
$5-6B
net sales
10+%
operating
margin
8-10%
operating margin on a
consistent basis
Cooper today
$3.4B
net sales
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7%
operating
margin
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Risks
It is possible that actual results may differ materially from projections or expectations due to a variety of factors, including but not limited to:
•
volatility in raw material and energy prices, including those of rubber, steel, petroleum based products and natural gas and the unavailability of such raw materials or energy sources;
•
the failure of the Company’s suppliers to timely deliver products in accordance with contract specifications;
•
changes in economic and business conditions in the world;
•
failure to implement information technologies or related systems, including failure by the Company to successfully implement an ERP system;
•
increased competitive activity including actions by larger competitors or lower-cost producers;
•
the failure to achieve expected sales levels;
•
changes in the Company’s customer relationships, including loss of particular business for competitive or other reasons;
•
the ultimate outcome of litigation brought against the Company, including stockholders lawsuits relating to the Apollo merger as well as products liability claims, in each case which
could result in commitment of significant resources and time to defend and possible material damages against the Company or other unfavorable outcomes;
•
changes to tariffs or the imposition of new tariffs or trade restrictions;
•
changes in pension expense and/or funding resulting from investment performance of the Company’s pension plan assets and changes in discount rate, salary increase rate, and
expected return on plan assets assumptions, or changes to related accounting regulations;
•
government regulatory and legislative initiatives including environmental and healthcare matters;
•
volatility in the capital and financial markets or changes to the credit markets and/or access to those markets;
•
changes in interest or foreign exchange rates;
•
an adverse change in the Company’s credit ratings, which could increase borrowing costs and/or hamper access to the credit markets;
•
the risks associated with doing business outside of the United States;
•
the failure to develop technologies, processes or products needed to support consumer demand;
•
technology advancements; the inability to recover the costs to develop and test new products or processes;
•
the impact of labor problems, including labor disruptions at the Company, its joint ventures, including CCT, or at one or more of its large customers or suppliers;
•
failure to attract or retain key personnel;
•
consolidation among the Company’s competitors or customers;
•
inaccurate assumptions used in developing the Company’s strategic plan or operating plans or the inability or failure to successfully implement such plans;
•
failure to successfully integrate acquisitions into operations or their related financings may impact liquidity and capital resources;
•
the ability to sustain operations at CCT, including obtaining financial and other operational data of CCT;
•
changes in the Company’s relationship with its joint-venture partners, or changes in the ownership structure of its joint ventures, including changes resulting from the previously
announced agreement between the Company and the CCT joint-venture partner;
•
the inability to obtain and maintain price increases to offset higher production or material costs;
•
inability to adequately protect the Company’s intellectual property rights;
•
inability to use deferred tax assets; and
•
the ultimate outcome of legal actions brought by the Company against wholly-owned subsidiaries of Apollo Tyres Ltd.
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Available Information
You can find Cooper Tire on the web at coopertire.com. Our company webcasts earnings calls and
presentations from certain events that we participate in or host on the investor relations portion of our
website (http://coopertire.com/investors.aspx). In addition, we also make available a variety of other
information for investors on the site. Our goal is to maintain the investor relations portion of the
website as a portal through which investors can easily find or navigate to pertinent information about
Cooper Tire, including:
• Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports, as soon as reasonably practicable after we electronically file that material
or furnish it to the Securities and Exchange Commission (“SEC”);
• Information on our business strategies, financial results and selected key performance indicators;
• Announcements of our participation at investor conferences and other events;
• Press releases on quarterly earnings, product and service announcements and legal developments;
• Corporate governance information; and,
• Other news and announcements that we may post from time to time that investors may find relevant.
The content of our website is not intended to be incorporated by reference into this presentation or in
any report or document we file with or furnish to the SEC, and any references to our website are
intended to be inactive textual references only.
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