Cooper Tire & Rubber Company (CTB)

CTB 
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Cooper Tire & Rubber Company (CTB)

Q4 2011 Earnings Call

February 27, 2012 11:00 a.m. ET

Executives

Curtis Schneekloth – Director, IR

Roy Armes – Chairman, President and CEO

Bradley Hughes – VP and CFO

Analysts

Ravi Shanker – Morgan Stanley

Pat Nolan - Deutsche Bank Securities

Brett Hoselton – KeyBanc Capital Markets

Saul Ludwig – NorthCoast Research

Amy Carroll - JP Morgan

Elizabeth Lane – Bank of America/Merrill Lynch

Presentation

Operator

Good morning. My name is Tanya, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cooper Tire Fourth Quarter 2011 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

I will now hand the floor to Curtis Schneekloth, director of investor relations. Thank you. The floor is yours.

Curtis Schneekloth

Good morning everyone. Thanks for joining the call today. My name is Curtis Schneekloth, and I serve as the company’s Director of Investor Relations. To begin with, I would like to remind you that during our conversation today, you may hear forward-looking statements related to the future financial results and business operations of Cooper Tire & Rubber Company.

Actual results may differ materially from current management forecasts and projections. Such difference may be a result of factors over which the company has limited or no control. Information on these risk factors and additional information on forward-looking statements are included in the press release, and in the company’s reports on file with the Securities and Exchange Commission.

With me today are Roy Armes, Chairman, Chief Executive Officer and President; and Brad Hughes, who serves as our Chief Financial Officer. In association with the press release which was sent out earlier this morning, we will provide an overview of the company’s quarterly operations and results. The press release contains a link to a set of slides that are a summary of information, included in the press release and the information that will be in the 10-K on file.

These slides are intended to help investors and analysts quickly obtain information. They will not be used as a focus of today’s call. Following our prepared comments, we’ll open the call to participants for a question-and-answer session.

Today’s call begins with Roy providing the overview of our results. He then turns it over to Brad for a discussion on some of the details by segment and comments on a few other matters. And then Roy will summarize and provide comments on our outlook.

Now let me turn the call over to Roy Armes.

Roy Armes

Yeah, thanks Curtis and good morning to everyone. I am pleased today to report that during the fourth quarter, we were able to demonstrate continued progress towards our goals even as we faced several challenges. This resulted in our tenth consecutive quarter of profitability, our second quarter of over $1 billion in sales and continued recognition of the excellent performance and value of our products by independent parties.

Before I provide an overview of the specific results for the quarter, I want to make a comment regarding our labor situation. We’re happy to have reached an agreement with United Steelworkers Local 752L in Texarkana, Arkansas in January. This agreement will improve our long-term competitiveness at that plant, which is crucial to our success. We also have reached agreements with the Teamsters, which is our truck drivers in Findlay and the United Steelworkers at our Clarksdale, Mississippi facility.

We have also reached a tentative agreement with United Steelworkers 207L at our Findlay plant. Ratification of this agreement will be voted on today, and during the lock-out, we are prioritizing the supply of tires to our customers and shifting to production as necessary to ensure the supply and availability. We’re not going to comment on the specifics of the tentative agreement but Brad will have more information on the potential impacts of the situation later in the call. Should the labor situation persist beyond the first quarter, we will implement additional measures to further reduce premium costs.

During the fourth quarter, we had net income attributable to Cooper Tire & Rubber Company of $209 million or $3.33 a share, including the impacts of the release of most of the valuation allowance against our U.S. deferred tax assets. This compares with the prior year fourth quarter net income of $40 million, or $0.64 per share.

As we anticipated and previously communicated, during the fourth quarter, we were able to release most of our valuation allowance against U.S. deferred tax assets which had a positive one-time non-cash impact on net income of $167 million, or $2.66 per share. Also, due to this release, the company’s tax expense for the quarter benefitted from $10 million, or $0.16 a share relating to the reversal of tax expense recorded in previous quarters because the company had a U.S. valuation allowance at that time.

Consolidated net sales were up 14% from the fourth quarter of 2010, primarily driven by higher prices while volumes were about flat for the total company. Net sales were over $1 billion for the second consecutive quarter, and unit volumes were up 4% for the North American segment and down 11.4% for the international segment. Our volume growth in the United States was strong relative to industry shipments which were down 3.4% in the quarter, and demand for new products continues to be a driver of our strong performance.

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