-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EE9nsa4ANjKF5S6TG9jzEXcO90Z0ziTBtG62pX5adsLsA12RNNJXpmRt9dRlBvC4 EHWkPr3Bt+DQf8LApztDBQ== 0000024491-97-000009.txt : 19970318 0000024491-97-000009.hdr.sgml : 19970318 ACCESSION NUMBER: 0000024491-97-000009 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970317 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COOPER TIRE & RUBBER CO CENTRAL INDEX KEY: 0000024491 STANDARD INDUSTRIAL CLASSIFICATION: TIRES AND INNER TUBES [3011] IRS NUMBER: 344297750 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-04329 FILM NUMBER: 97557553 BUSINESS ADDRESS: STREET 1: LIMA & WESTERN AVENUES CITY: FINDLAY STATE: OH ZIP: 45840 BUSINESS PHONE: 4194231321 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1996 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________to________ Commission File Number 1-4329 COOPER TIRE & RUBBER COMPANY (Exact name of registrant as specified in its charter) DELAWARE 34-4297750 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Lima and Western Avenues, Findlay, Ohio 45840 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (419) 423-1321 Securities registered pursuant to Section 12(b) of the Act: (Name of each exchange on (Title of each class) which registered) Common Stock, $1 par per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 (X) No ( ) 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. (X) State the aggregate market value of the voting stock held by non-affiliates of the registrant (computed by reference to the closing price on the Composite Tape for securities listed on the New York Stock Exchange as of March 10, 1997). $1,585,095,440 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. (Class) (Outstanding at March 10, 1997) Common Stock, $1 par per share 79,254,772 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated: Proxy statement dated March 17, 1997 - Part III EXHIBIT INDEX appears on pages 16 and 17 1 Part I Item 1. BUSINESS Acquisition of Tire Operations of Avon Rubber p.l.c. On March 14, 1997, the Company, through a wholly-owned United Kingdom subsidiary, acquired the tire operations of Avon Rubber p.l.c. (Avon) of the United Kingdom. This purchase includes the land and manufacturing facility in Melksham, England; the shares of Avon Tyres Limited and the shares of tire distribution companies in France, Germany and Switzerland; and other minor assets. In a separate transaction the Company acquired from Avon various trademarks and technology. The total purchase price for the land, manufacturing facility, shares, trademarks and technology was approximately $110 million. The Company intends to finance debt associated with the Avon acquisition on a long-term basis through sale of debt securities using its existing Shelf Registration with the Securities and Exchange Commission. The Avon tire operations had sales of $169 million and after tax income of $6.5 million for their fiscal year ended September 28, 1996. Products and Sales The primary business of Cooper Tire & Rubber Company ("Cooper" or "Company") is the conversion of natural and synthetic rubbers into a variety of carbon black reinforced rubber products. The Company manufactures and markets the following products for the transportation industry: automobile and truck tires, inner tubes, vibration control products, hose and hose assemblies and automotive sealing systems. Additional information on the Company's products appears on pages 39, 40, 44, 46, and 47 of this Annual Report on Form 10-K. The Company markets its products nationally and internationally through well-established channels of distribution. Among its customers are automotive manufacturing companies, independent tire dealers and wholesale distributors and large retail chains. Tires are sold in the replacement market through independent dealers and distributors. This channel of marketing accounted for approximately 69.5 percent of all replacement passenger tires sold in the United States in 1996. During 1995 and 1994 this share approximated 69 and 68 percent, respectively. Cooper has an efficient distribution system to serve its markets for replacement passenger and truck tires. Cooper engineers and manufactures rubber parts for automotive vehicle manufacturers. The Company's engineering and marketing personnel work closely with these customers to assist in the design and development of rubber products to meet their changing requirements. Additional information on the Company's marketing and distribution appears on pages 41, 42, 45, 46 and 47 of this Annual Report on Form 10-K. North American vehicle manufacturers experienced a 1.6% increase in total production of light vehicles in 1996. The Company's sales of engineered rubber products are generally linked to light vehicle production. Cooper's improved sales in this market reflected the Company's success in the procurement of larger contracts and development of new products. The Company is an authorized supplier to all domestically owned automotive vehicle manufacturers and substantially all the foreign-owned and joint-venture vehicle manufacturers in the United States. Current market data indicates an increasing demand for replacement tires and engineered rubber products. Essentially, there are no (continued) 2 economical or practical substitutes for tires or certain rubber automotive parts. Based on current data, the Company expects moderate growth in the market for replacement tires and in the use of rubber components by automobile manufacturers. Additional information on the Company's outlook for the industry appears on pages 39 and 43 of this Annual Report on Form 10-K. During recent years Cooper has exported to Canada and countries in Latin America, Western Europe, the Middle East, Asia, Africa and Oceania. The international market for rubber products is expanding as the standard of living in other countries increases and motor vehicle usage grows. Net sales from international operations accounted for approximately nine, eight and seven percent of Cooper's sales in 1996, 1995, and 1994, respectively. During 1996 Cooper's ten largest customers accounted for approximately 58 percent of total sales. Sales to one major customer approximated 17, 14 and 13 percent of net sales in 1996, 1995 and 1994. The amount of backlog of orders for the Company's products at any given time is usually small in relation to annual sales and is, therefore, of little value in forecasting sales or earnings for the current or succeeding years. The Company successfully operates in a competitive industry. A number of its competitors are larger than the Company. The Company's sales of automobile and truck tires in 1996 represented approximately 12 percent of all domestic, original equipment and replacement tire sales. On the basis of North American tire manufacturing capacity the Company believes it ranks fourth among sixteen generally recognized producers of new tires. According to a recognized trade source the Company ranked ninth in worldwide tire sales based on 1995 estimated sales volumes. Sales of the Company's tire products are affected by factors which include price, quality, availability, technology, warranty, credit terms and overall customer service. Raw Materials The primary raw materials used by the Company include synthetic and natural rubbers, polyester and nylon fabrics, steel tire cord and carbon black, which the Company acquires from multiple sources to provide greater assurance of continuing supplies for its manufacturing operations. The Company did not experience any significant raw material shortages in 1996, nor have any shortages been experienced in the opening months of 1997. The Company has a purchasing office in Singapore to acquire natural rubber and various raw materials direct from producers in the Far East. This purchasing operation enables the Company to work directly with producers to improve the consistency of quality and to reduce the costs of materials, delivery and transactions. In addition, control over packaging methods enhances the Company's goal to use recyclable materials in the packaging of these raw materials. The Company's contractual relationships with its raw material suppliers are generally based on purchase order arrangements. Certain materials are purchased pursuant to supply contracts which incorporate normal purchase order terms and establish minimum purchase amounts. Cooper has not experienced serious fuel shortages and none are foreseen in the near future. The Findlay, Ohio plant uses natural gas with fuel oil and coal as standby energy sources. All other Company plants use natural gas with fuel oil as a standby energy source. (continued) 3 Research, Development and Product Improvement Cooper generally directs its research activities toward product development, improvements in quality, and operating efficiency. A significant portion of basic research for the rubber industry is performed by raw material suppliers. The Company participates in such research with its suppliers. Cooper has approximately 223 full-time employees engaged in research and development programs. Research and development expenditures amounted to approximately $19,700,000 in 1996, $16,000,000 in 1995, and $14,700,000 in 1994. The Company is a leader in the application of computer technology to the development of new tire products and engineered automotive products. The use of computer-aided design (CAD) and sophisticated modeling programs reduce Cooper's product development costs and the time necessary to bring new products to market. The Company also forms strategic alliances with universities, research firms and high-tech manufacturers to collaborate on new product development, particularly in engineered automotive products. The ability to offer complete component design services and full vehicle analysis to automotive customers increases the Company's value as a partner in product design and development. During 1996 the new manufacturing facility for tire molds in Findlay, Ohio began production. This facility, using state-of-the-art technology, will assure the Company's ability to service its customers' expanding needs for new products in a timely manner. Because of the use of advanced technology, only a few highly specialized people are employed in this normally labor-intensive process. The Company continues to actively develop new passenger and truck tires. Cooper conducts extensive testing of current tire lines, as well as new concepts in tire design and construction. During 1996 approximately 78 million miles of tests were performed on indoor test wheels and in monitored road tests. Uniformity equipment is used to physically check every radial passenger tire produced for high standards of quality. The Company continues to design and develop specialized equipment to fit the precise needs of its manufacturing and quality control requirements. Additional information on the Company's research, development and product improvement programs appears on pages 41 and 44 of this Annual Report on Form 10-K. Environmental Matters Cooper recognizes the importance of compliance in environmental matters and has an organization structure to supervise environmental activities, planning and programs. The Company also participates in activities concerning general industry environmental matters. Cooper's manufacturing facilities, in common with those of 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 that additional requirements with respect to environmental control facilities and waste disposal will be imposed in the future. (continued) 4 The Company has been named in environmental matters asserting potential joint and several liability for past and future cleanup, state and Federal claims, site remediation, and attorney fees. The Company has determined that it has no material liability for these matters. The Company's 1996 expense and capital expenditures for environmental control at its facilities were not material, nor is it estimated that expenditures in 1997 for such uses will be material. Seasonal Trends There is a year-round demand for passenger and truck replacement tires, but passenger replacement tire sales are generally strongest during the second and third quarters of the year. Winter tires are sold principally during the months of August through November. Engineered rubber product sales to automotive customers are lowest during the months prior to model changeover. Employee Relations As of December 31, 1996, the Company employed 8,932 persons, of whom 4,570 were salaried employees. Union contracts covering 4,362 employees include, among other things: wages, hours, grievance procedures, checkoff, seniority and working conditions. Union contracts with the United Steelworkers of America (AFL-CIO/CLC) for all production and maintenance employees at each of the following Company plants continue in effect until the indicated contract expiration date: Auburn, Indiana - December 6, 1997 Bowling Green, Ohio (Sealing products) - October 31, 1997 Bowling Green, Ohio (Hose products) - April 30, 1998 Clarksdale, Mississippi - July 28, 1999 El Dorado, Arkansas - April 27, 2000 Findlay, Ohio - October 31, 1997 Texarkana, Arkansas, - March 5, 1999 Over-the-road truck drivers are affiliated with the International Brotherhood of Teamsters with their contract in effect until February 13, 2001. Employees at the Piedras Negras, Mexico plant are affiliated with Sindicato Autonomo de Trabajadores Rio Grande SerVaas with their contract in effect until January 31, 1998. All labor agreements will be extended for yearly periods unless notice of termination or change is given by either party at least 60 days prior to the expiration of any yearly period. During the last three years there have been no work stoppages. Cooper considers its labor relations to be favorable. Substantially all employees are covered by hospital and surgical, group life, and accident and sickness benefit plans. The Company has various trusteed non-contributory retirement income plans which cover most employees and retirees. Substantially all retirees are covered by hospital and surgical and group life benefit plans. See "Notes to Consolidated Financial Statements" on pages 29 through 33 of this Annual Report on Form 10-K for additional information as to pension costs and funding and postretirement benefits. 5 Item 2. PROPERTIES The Company owns its headquarters facility which is adjacent to its Findlay, Ohio tire manufacturing plant. Properties are located in various sections of the United States for use in the ordinary course of business. Such properties at December 31, 1996 consisted of the following:
Location Use Title - ----------------------- ------------------------ ----- 3300 Sylvester Road Tire plant and regional Leased Albany, GA 31705-9100 distribution center 725 West Eleventh St. Engineered products plant Owned Auburn, IN 46706-2089 1175 North Main St. Engineered products plant Owned Bowling Green, OH 43402-1310 400 Van Camp Rd. Engineered products plant Owned Bowling Green, OH 43402 2205 Dr. Martin Luther King Blvd. Inner tube plant Owned Clarksdale, MS 38614-0130 166 Cooper Drive Engineered products plant Owned El Dorado, AR 71730-6611 701 Lima Ave., Findlay, OH 45840-1237 Tire plant Owned 2025 Production Drive Metal fabrication and Owned Findlay, OH 45840 assembly plant 250 Oak Grove Drive Engineered products plant Owned Mt. Sterling, KY 40353 3500 E. Washington Rd. Tire plant and regional Owned Texarkana, AR 71854-5895 distribution center 1689 South Green St. Tire plant and regional Owned/ Tupelo, MS 38801-6553 distribution center Leased 6340 Artesia Blvd. Regional distribution Owned Buena Park, CA 90620-1069 center 1300 Lunt Avenue Regional distribution Owned Elk Grove Village, IL 60007-5667 center 4200-D Industry Drive Regional distribution Leased Fife, WA 98424-1855 center 1625 Lake Cascades Parkway Regional distribution Owned Findlay, OH 45840-1237 center 1026 North Century Ave. Regional distribution Leased Kansas City, MO 64120-1903 center 3601 Dryden Road Regional distribution Owned Moraine, OH 45439-1411 center Terminal Road & Industrial Drive Regional distribution Owned New Brunswick, NJ 08901-7082 center
(continued) 6 The Company also owns a manufacturing facility located in Mexico which produces engineered rubber parts. The Company believes its properties have been adequately maintained and generally are in good condition. Cooper's tire plants are operating at rated capacity levels. The Tupelo, Mississippi and Albany, Georgia plants operate on a 24-hour day, seven-day production schedule. The other plants are operating 24 hours per day, at least five days per week. The Company's capacity to manufacture a full range of radial passenger, light truck and medium truck tires using the most advanced technology continues to be incrementally expanded. The new Mt. Sterling, Kentucky plant commenced production of engineered rubber products during the second quarter of 1996. Additional information concerning the Company's facilities appears on pages 40, 41, 44, and 45 of this Annual Report on Form 10-K. Information related to leased properties appears on page 34. Item 3. LEGAL PROCEEDINGS Cooper is a defendant in many unrelated actions in Federal and state courts throughout the United States. In a number of such cases the plaintiffs allege violations of state and Federal laws, breach of contract and product liability and assert damages of many thousands of dollars. The Company self-insures product liability losses up to $2,250,000 per occurrence with an annual aggregate of $6,000,000. In addition, Cooper carries Excess Liability Insurance which provides protection with respect to product liability losses in excess of the self-insured amounts. While the outcome of litigation cannot be predicted with any certainty, in the opinion of counsel for the Company, the pending claims and lawsuits against the Company should not have a material adverse effect on the financial condition of the Company or the results of its operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the last quarter of the fiscal year ended December 31, 1996. 7 Part II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Cooper Tire & Rubber Company common stock is traded on the New York Stock Exchange under the symbol CTB. Information concerning the Company's common stock and related security holder matters (including dividends) is presented on pages 9, 21, 25 through 29, 34 and 36 of this Annual Report on Form 10-K. Item 6. SELECTED FINANCIAL DATA
(All dollar amounts in thousands except per share figures) Income Before Net Gross Operating Income Income Net Sales Margin Margin Taxes+ Taxes Income+ Income --------- ------ --------- ------- ------ ------- ------ 1996 $1,619,345 $252,796 $172,922 $172,092 $64,208 $107,884 $107,884 1995 1,493,622 250,727 176,931 180,070 67,250 112,820 112,820 1994 1,403,243 277,265 208,517 208,119 79,600 128,519 128,519 1993 1,193,648 228,295 166,013 164,250 62,040 102,210 102,210 1992 1,174,728 229,332 170,646 169,841 61,670 108,171 43,211 1991 1,001,071 180,432 128,495 124,465 45,030 79,435 79,435 1990 895,896 155,892 108,715 104,874 38,410 66,464 66,464 1989 866,805 139,482 94,188 92,624 34,380 58,244 58,244 1988 748,032 106,419 66,575 64,912 23,850 41,062 41,062 1987 665,775 93,877 56,031 53,090 22,410 30,680 30,680 1986 577,517 81,515 46,432 43,138 20,120 23,018 23,018 Net Deprecia- Stock- Property, Capital tion & Long- holders' Total Working Plant & Expend- Amorti- term Equity Assets Capital Equipment itures zation Debt ------ ------ ------- --------- ------ ------- ---- 1996 $786,612 $1,273,009 $256,130 $792,419 $193,696 $76,820 $69,489 1995 748,799 1,143,701 272,216 678,876 194,894 63,313 28,574 1994 662,077 1,039,731 303,103 549,601 78,449 55,603 33,614 1993 550,186 889,584 204,857 527,949 117,249 46,352 38,729 1992 471,474 796,858 175,154 460,373 110,157 38,077 48,075 1991 439,648 670,572 144,285 388,557 85,954 31,969 53,512 1990 369,003 616,458 167,291 334,794 100,141 27,615 91,027 1989 310,064 519,893 150,285 262,445 73,182 23,393 65,727 1988 257,756 442,582 143,101 212,923 70,621 19,873 67,790 1987 221,566 413,306 154,283 162,447 41,507 18,436 70,059 1986 195,151 367,715 153,538 139,721 26,548 16,666 76,795 (continued) 8 Long-term Return On Return On Debt to Beginning Beginning Current Pretax Effective Return On Capital- Equity+ Assets+ Ratio Margin+ Tax Rate+ Sales+ ization --------- --------- ------- ------- --------- --------- ------- 1996 14.4% 9.4% 2.4 10.6% 37.3% 6.7% 8.1% 1995 17.0 10.9 2.7 12.1 37.3 7.6 3.7 1994 23.4 14.4 3.0 14.8 38.2 9.2 4.8 1993 21.7 12.8 2.6 13.8 37.8 8.6 6.6 1992 24.6 16.1 2.3 14.5 36.3 9.2 9.3 1991 21.5 12.9 2.2 12.4 36.2 7.9 10.9 1990 21.4 12.8 2.7 11.7 36.6 7.4 19.8 1989 22.6 13.2 2.5 10.7 37.1 6.7 17.5 1988 18.5 9.9 2.7 8.7 36.7 5.5 20.8 1987 15.7 8.3 2.6 8.0 42.2 4.6 24.0 1986 13.1 7.8 3.1 7.5 46.6 4.0 28.2 Net Common Common Income Income Equity Dividends Shares Shares Per Per Per Per Average Year End Share*+ Share* Share* Share* (000)* (000)* ------- ------ ------ ------- ------- ------- 1996 $1.30 $1.30 $9.67 $.31 83,214 81,367 1995 1.35 1.35 8.95 .27 83,646 83,662 1994 1.54 1.54 7.92 .23 83,623 83,634 1993 1.22 1.22 6.58 .20 83,550 83,582 1992 1.30 .52 5.65 .17 83,357 83,511 1991 .96 .96 5.30 .13 82,738 82,962 1990 .81 .81 4.47 .11 82,391 82,519 1989 .71 .71 3.77 .09 82,077 82,259 1988 .50 .50 3.15 .07 81,583 81,821 1987 .38 .38 2.72 .06 81,258 81,383 1986 .28 .28 2.40 .05 80,864 81,152 Number Price/ of Stock Price* Earnings Stock- Number of Wages & Total Research & ------------ Average holders Employees Benefits Taxes# Development High Low Ratio+ ------- --------- -------- ------ ----------- ---- --- ------ 1996 5,991 8,932 $440,393 $102,097 $19,700 $27.25 $18.00 17.4 1995 6,721 8,284 411,694 101,884 16,000 29.63 22.25 19.2 1994 7,623 7,815 382,002 111,504 14,700 29.50 21.63 16.6 1993 8,096 7,607 346,062 91,479 15,100 39.63 20.00 24.4 1992 6,142 7,207 329,396 46,432 13,700 35.63 22.00 22.2 1991 4,492 6,545 266,683 67,933 14,000 26.25 7.88 17.8 1990 4,459 6,225 256,076 59,802 10,800 10.50 6.19 10.3 1989 3,871 6,041 233,881 54,020 10,300 9.75 5.63 10.8 1988 3,627 6,031 217,480 41,743 11,200 6.81 3.53 10.3 1987 3,516 5,720 189,209 39,056 10,300 4.97 2.78 10.3 1986 3,138 5,398 165,458 34,801 8,900 3.60 2.16 10.1 + Prior to cumulative effect of changes in accounting in 1992 for postretirement benefits other than pensions and income taxes. * Share data reflects stock splits in 1992, 1990 and 1988. # Excluding Federal excise taxes.
9 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition The financial position of the Company continues to be excellent. Strong operating cash flows provided funds for investment in capacity expansion and technological advances and contributed to growing financial strength. Working capital amounted to $256 million at year-end 1996 compared with $272 million one year earlier. A current ratio of 2.4 indicates a strong liquidity position, although down slightly from the year-end 1995 current ratio of 2.7. Accounts receivable increased to $267 million from $257 million at year-end 1995, reflecting strong fourth quarter sales. Collection experience continues to be excellent and adequate allowances have been made for possible collection losses. Total inventories at $142 million were up from $138 million at year-end 1995. Finished goods and work-in-process inventories were down slightly from one year ago. Raw materials and supplies inventories were $4 million higher than last year due to increased levels of raw material purchases. Prepaid expenses and deferred income taxes at December 31, 1996 include $12 million in deferred tax assets which are considered fully realizable within one year. Investments made in property, plant and equipment were $194 million in 1996 and are comparable to the record $195 million in 1995. These additions reflect improved manufacturing technology and expansion projects begun in 1995 as well as similar projects during 1996. The Company's capital expenditure commitments approximated $21 million at December 31, 1996. Capital expenditures in 1997 are anticipated to be lower than in 1996 and 1995. Funding for these expenditures will be available from operating cash flows with additional funding available, if needed, under the Company's existing commercial paper program, credit agreement, and/or Shelf Registration. Depreciation and amortization was $77 million in 1996, a 21 percent increase from $63 million in 1995, resulting from the significant capital expenditures in recent years. Current liabilities of $187 million were $29 million higher than the $158 million at year-end 1995 reflecting increases in commercial paper borrowings and notes payable. Long-term debt increased $41 million from year-end 1995 to $69 million reflecting $46 million in borrowings incurred to finance stock repurchases offset by scheduled debt payments. Long-term debt, as a percent of total capitalization, increased to 8.1 percent at December 31, 1996 from 3.7 percent one year earlier. The Company has a Registration Statement with the Securities and Exchange Commission covering the proposed sale of debt securities in an aggregate amount of up to $200 million. The net proceeds received by the Company from any sale of the debt securities would be available for general corporate purposes. The Company currently provides certain health care and life insurance benefits for its active and retired employees. If the Company does not terminate such benefits, or modify coverage or eligibility requirements, substantially all of the Company's United States employees may become eligible for these benefits upon retirement. The Company uses the accrual method of accounting for such benefits. These benefit costs are funded as claims are incurred. Noncurrent deferred income taxes increased to $53 million at December 31, 1996 from $37 million one year earlier, primarily reflecting the excess of tax depreciation over book depreciation. (continued) 10 The Company has been named in environmental matters asserting potential joint and several liability for past and future cleanup, state and Federal claims, site remediation, and attorney fees. The Company has determined that it has no material liability for these matters. In addition, the Company is a defendant in unrelated product liability actions in Federal and state courts throughout the United States in which plaintiffs assert monetary damages. While the outcome of litigation cannot be predicted with certainty, in the opinion of counsel for the Company the pending claims and lawsuits against the Company should not have a material adverse effect on its financial condition or results of operations. Stockholders' equity increased $38 million after the reduction of $46 million for the repurchase of Company stock during the year reaching $787 million at year end. Earnings retentions for 1996 (net income less dividends paid) added $82 million to stockholders' equity and an adjustment to the minimum pension liability added another $2 million. Stockholders' equity per share was $9.67 at year-end 1996, an increase of 8 percent over $8.95 per share at year-end 1995. Results of Operations Customer demand was very strong for the Company's tires and was excellent for the Company's engineered rubber products. New and larger contracts with our customers continued to be achieved. Capacity utilization was maintained at high levels. Net sales increased over 8 percent in 1996 to a record of $1.6 billion. This followed a 6 percent increase in sales in 1995 which resulted primarily from growth in customer demand. Sales margins were lower in 1996 than in 1995 and were lower in 1995 than in 1994. Intense pricing pressure in the replacement tire industry contributed to margin erosion in both 1996 and 1995. Raw material costs moderated in 1996, following two years of significant increases, and offset some of this impact. These costs, which contributed significantly to the decrease in margins in 1995 from 1994, are expected to continue to moderate during the first half of 1997. The effects of inflation on sales and operations were not material during 1996 and 1995. Increases in 1996 and 1995 selling, general and administrative expenses were attributable to increased sales activity levels. As a percent of net sales, these expenses were unchanged. Interest expense in 1996 is higher than in 1995 reflecting increased borrowings partially offset by capitalized interest. The decrease in interest expense in 1995 from 1994 resulted from higher amounts of capitalized interest. Effective income tax rates in 1996 were comparable to 1995 and were lower in 1995 than in 1994 due to reductions in the effective state and local income tax rate. Subsequent Event On February 18, 1997, the Company, through a wholly-owned United Kingdom subsidiary, signed an agreement to acquire the tire operations of Avon Rubber p.l.c. (Avon) of the United Kingdom pending approval of Avon's shareholders in March of 1997. This purchase includes the land and manufacturing facility in Melksham, England; the shares of Avon Tyres Limited and the shares of tire distribution companies in France, Germany and Switzerland; and other minor assets. In a separate transaction the Company is acquiring from Avon various trademarks and technology. The total purchase price for the land, manufacturing facility, shares, trademarks and technology will be approximately $110 million. The Company intends to finance debt associated with the Avon acquisition on a long-term basis through sale of debt securities using its existing Shelf Registration with the Securities and Exchange Commission. The Avon tire operations had sales of $169 million and after tax income of $6.5 million for their fiscal year ended September 28, 1996. 11 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated statements of financial position at December 31, 1996 and 1995 and consolidated statements of income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 1996, the independent auditor's report thereon, and the Company's unaudited quarterly financial data for the two-year period ended December 31, 1996 are presented on pages 19 through 36 of this Annual Report on Form 10-K and are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 Part III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the Company's directors appears on pages 2 through 6 and 19 of the Company's Proxy Statement dated March 17, 1997 and is incorporated herein by reference. The names, ages, and all positions and offices held by all executive officers of the Company, as of the same date, are as follows:
Name Age Executive Office Held Business Experience - --------------------- --- --------------------- --------------------- Patrick W. Rooney 61 Chairman of the Board, Principal Executive President, Chief Officer and Chairman Executive Officer and of the Board since Director 1994. President since 1991. Principal Operating Officer from 1991 to 1994. Director since 1990. Vice President from 1987 to 1991. President of Tire Operations from 1990 to 1994; previously Vice President-Sales from 1984 to 1987. Vice President of Cooper Brand Sales, Tire Operations from 1969 to 1984. J. Alec Reinhardt 55 Executive Vice Principal Financial President and Director Officer and Director since 1983. Executive Vice President since 1991. Vice President from 1982 to 1991. Secretary from 1977 to 1986. General Counsel from 1976 to 1983. John Fahl 60 Vice President and Vice President since Director 1978. President of Tire Operations since 1994. Director since 1992. Corporate Director of Purchasing from 1966 to 1978. Julien A. Faisant 64 Vice President Vice President since 1985. Principal Accounting Officer and Corporate Controller from 1975 to 1997. (continued) 13 Robert C. Gasser 60 Vice President Vice President since 1987. President of Engineered Products Operations, formerly Industrial Products, since 1987; Vice President-Sales of Industrial Products from 1983 to 1987. William C. Hattendorf 62 Vice President and Vice President since Treasurer 1994. Treasurer since 1982. Assistant Treasurer and Assistant Secretary from 1977 to 1982. Corporate Tax and Insurance Manager from 1972 to 1977. Keith L. Jolliff 54 Vice President Vice President since 1995. Previously Director of Corporate Purchasing from 1994 to 1995. Manager of Corporate Purchasing from 1973 to 1994. Assistant Purchasing Agent and Buyer from 1966 to 1973. William S. Klein 59 Vice President Vice President since 1984. Vice President-Tire Operations since 1975. Richard D. Teeple 54 Vice President and Vice President since General Counsel 1990. General Counsel since 1983. Assistant General Counsel from 1979 to 1983. Associate Counsel from 1977 to 1979. Stan C. Kaiman 58 Secretary Secretary since 1986. Eileen B. White 46 Corporate Controller Principal Accounting Officer and Corporate Controller since February 11, 1997. Previously Assistant Corporate Controller from 1994 to 1997. Manager of Financial Research and Compliance from 1986 to 1994. Stephen O. Schroeder 46 Assistant Treasurer Assistant Treasurer since 1994. Previously Manager, Cash and Employee Funds since 1984.
Each such officer shall hold such office until a successor is selected and qualified. 14 Item 11. EXECUTIVE COMPENSATION Information regarding executive compensation appears on pages 6 through 15 of the Company's Proxy Statement dated March 17, 1997 and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning the security ownership of certain beneficial owners and management of the Company's voting securities and equity securities appears on pages 17 through 19 of the Company's Proxy Statement dated March 17, 1997 and is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. Part IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed in the accompanying index to financial statements and financial statement schedules are filed as part of this Annual Report on Form 10-K. 2. Financial Statement Schedules The financial statement schedule listed in the accompanying index to financial statements and financial statement schedules is filed as part of this Annual Report on Form 10-K. 3. Exhibits The exhibits listed on the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the fiscal year ended December 31, 1996. 15 INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS Page(s) FINANCIAL STATEMENTS: Reference --------- Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 19 Consolidated Balance Sheets at December 31, 1996 and 1995 20-21 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 22 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 23 Notes to Consolidated Financial Statements 24-34 Report of Independent Auditors 35 SUPPLEMENTARY INFORMATION: Quarterly Financial Data (Unaudited) 36 FINANCIAL STATEMENT SCHEDULES: II. Valuation and qualifying accounts 37 EXHIBITS: (3) Certificate of Incorporation and Bylaws (i) Certificate of Incorporation, as restated and filed with the Secretary of State of Delaware on May 17, 1993, is incorporated herein by reference from Exhibit 3(i) of the Company's Form 10-Q for the quarter ended June 30, 1993 (ii) Bylaws, as amended May 5, 1987, are incorporated herein by reference from Exhibit 19 of the Company's Form 10-Q for the quarter ended June 30, 1987 (4) Rights agreement dated as of May 27, 1988 between the Company and KeyCorp Shareholder Services, Inc., as Rights Agent, is incorporated herein by reference from Exhibit 1 to the Company's Form 8-A dated June 3, 1988. (10) The following related documents are incorporated by reference: a) 1981 Incentive Stock Option Plan - Form S-8 Registration Statement No. 2-77400, Exhibit 15(a) b) 1986 Incentive Stock Option Plan - Form S-8 Registration Statement No. 33-5483, Exhibit 4(a) c) Thrift and Profit Sharing Plan - Form S-8 Registration Statement No. 2-58577, Post-Effective Amendment No. 6, Exhibit 4 d) Employment Agreements - Form 10-K for fiscal year ended December 31, 1987, Exhibit 10 e) 1991 Stock Option Plan for Non-Employee Directors - Form S-8 Registration Statement No. 33-47980 and Appendix to the Company's Proxy Statement dated March 26, 1991 f) 1996 Stock Option Plan - Form S-8 Registration Statement No. 333-09619 and Appendix to the Company's Proxy Statement dated March 26, 1996 (continued) 16 (12) Computation of Ratio of Earnings to Fixed Charges 38 (13) Annual report to security holders, Form 10-Q or quarterly report to security holders 39-47 (23) Consent of Independent Auditors 48 (24) Powers of Attorney 49-52 (27) Financial Data Schedule (99) Undertakings of the Company 53-55 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 financial statements or the notes thereto. 17 SIGNATURES 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. COOPER TIRE & RUBBER COMPANY /s/ Stan C. Kaiman -------------------------------- STAN C. KAIMAN, Attorney-in-fact Date: March 17, 1997 -------------- 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 --------- ----- ---- PATRICK W. ROONEY* Chairman of the Board, March 17, 1997 President, Chief Executive Officer and Director (Principal Executive Officer) J. ALEC REINHARDT* Executive Vice President and March 17, 1997 Director (Principal Financial Officer) JOHN FAHL* Vice President and Director March 17, 1997 EILEEN B. WHITE* Corporate Controller March 17, 1997 (Principal Accounting Officer) ARTHUR H. ARONSON* Director March 17, 1997 DELMONT A. DAVIS* Director March 17, 1997 EDSEL D. DUNFORD* Director March 17, 1997 DEBORAH M. FRETZ* Director March 17, 1997 DENNIS J. GORMLEY* Director March 17, 1997 ALLAN H. MELTZER* Director March 17, 1997 JOHN H. SHUEY* Director March 17, 1997 *By/s/ Stan C. Kaiman -------------------------------- STAN C. KAIMAN, Attorney-in-fact 18 CONSOLIDATED STATEMENTS OF INCOME Years ended December 31 (Dollar amounts in thousands; per-share amounts in dollars)
1996 1995 1994 ---------- ---------- ---------- Revenues: Net sales $1,619,345 $1,493,622 $1,403,243 Other income 824 3,836 2,282 --------- --------- --------- 1,620,169 1,497,458 1,405,525 Costs and expenses: Cost of products sold 1,366,549 1,242,895 1,125,978 Selling, general and administrative 79,874 73,796 68,748 Interest 1,654 697 2,680 --------- --------- --------- 1,448,077 1,317,388 1,197,406 --------- --------- --------- Income before income taxes 172,092 180,070 208,119 Provision for income taxes 64,208 67,250 79,600 --------- --------- --------- Net income $ 107,884 $ 112,820 $ 128,519 ========= ========= ========= Net income per share $1.30 $1.35 $1.54 ==== ==== ==== See Notes to Consolidated Financial Statements, pages 24 to 34.
19 CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands; per-share amounts in dollars)
December 31 -------------------------- ASSETS 1996 1995 ---------- ---------- Current assets: Cash and cash equivalents $ 19,459 $ 23,187 Accounts receivable, less allowances of $3,700 in 1996 and $3,600 in 1995 267,149 257,049 Inventories: Finished goods 87,105 88,470 Work in process 13,419 13,154 Raw materials and supplies 41,094 36,340 --------- --------- 141,618 137,964 Prepaid expenses and deferred income taxes 15,399 12,384 --------- --------- Total current assets 443,625 430,584 Property, plant and equipment: Land and land improvements 23,641 23,038 Buildings 265,118 228,877 Machinery and equipment 882,774 765,192 Molds, cores and rings 69,316 50,626 --------- --------- 1,240,849 1,067,733 Less accumulated depreciation and amortization 448,430 388,857 --------- --------- Net property, plant and equipment 792,419 678,876 Other assets 36,965 34,241 --------- --------- $1,273,009 $1,143,701 ========= ========= (continued) 20 December 31 ------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ---------- ---------- Current liabilities: Notes payable $ 32,000 $ - Accounts payable 81,571 78,823 Accrued liabilities 65,727 63,676 Income taxes 3,116 10,834 Current portion of debt 5,081 5,035 --------- --------- Total current liabilities 187,495 158,368 Long-term debt 69,489 28,574 Postretirement benefits other than pensions 139,070 132,963 Other long-term liabilities 37,575 38,341 Deferred income taxes 52,768 36,656 Commitments - - Stockholders' equity: Preferred stock, $1 par value; 5,000,000 shares authorized; none issued - - Common stock, $1 par value; 300,000,000 shares authorized; 83,672,372 shares issued (83,661,972 in 1995) 83,672 83,662 Capital in excess of par value 2,027 1,931 Retained earnings 754,481 672,373 Minimum pension liability (7,434) (9,167) --------- --------- 832,746 748,799 Less: 2,305,500 common shares in treasury at cost (46,134) - --------- --------- Total stockholders' equity 786,612 748,799 --------- --------- $1,273,009 $1,143,701 ========= ========= See Notes to Consolidated Financial Statements, pages 24 to 34.
21 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollar amounts in thousands; per-share amounts in dollars)
Common Capital Common Stock In Excess Minimum Shares $1 Par of Par Retained Pension in Value Value Earnings Liability Treasury Total ------ ------- -------- --------- -------- ----- Balance at January 1, 1994 $83,582 $1,215 $472,852 $(7,463) $ - $550,186 Net income 128,519 128,519 Exercise of stock options 52 441 493 Cash dividends - $.23 per share (19,234) (19,234) Minimum pension liability adjustment, net of income taxes 2,113 2,113 ------ ----- ------- ------ ------- ------- Balance at December 31, 1994 83,634 1,656 582,137 (5,350) - 662,077 Net income 112,820 112,820 Exercise of stock options 28 275 303 Cash dividends - $.27 per share (22,584) (22,584) Minimum pension liability adjustment, net of income taxes (3,817) (3,817) ------ ----- ------- ------ ------- ------- Balance at December 31, 1995 83,662 1,931 672,373 (9,167) - 748,799 Net income 107,884 107,884 Purchase of treasury shares (46,134) (46,134) Exercise of stock options 10 96 106 Cash dividends - $.31 per share (25,776) (25,776) Minimum pension liability adjustment, net of income taxes 1,733 1,733 ------ ----- ------- ------ ------- ------- Balance at December 31, 1996 $83,672 $2,027 $754,481 $(7,434) $(46,134) $786,612 ====== ===== ======= ====== ======= ======= See Notes to Consolidated Financial Statements, pages 24 to 34.
22 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (Dollar amounts in thousands, per share amounts in dollars)
1996 1995 1994 ---------- ---------- ---------- Operating activities: Net income $107,884 $112,820 $128,519 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 76,820 63,313 55,603 Deferred income taxes 14,096 9,356 8,983 Changes in operating assets and liabilities: Accounts receivable (10,100) (35,812) (39,034) Inventories and prepaid expenses (6,669) (20,159) (6,174) Accounts payable and accrued liabilities 4,799 2,052 24,698 Postretirement benefits other than pensions 7,207 6,315 8,170 Other (5,830) 3,051 (828) ------- ------- ------- Net cash provided by operating activities 188,207 140,936 179,937 Investing activities: Property, plant and equipment (193,696) (194,894) (78,449) Other 604 1,258 88 ------- ------- ------- Net cash used in investing activities (193,092) (193,636) (78,361) Financing activities: Issuance of debt 162,000 - 13,000 Payment on debt (89,039) (5,117) (18,349) Purchase of treasury shares (46,134) - - Payment of dividends (25,776) (22,584) (19,234) Issuance of common shares 106 303 493 ------- ------- ------- Net cash provided by (used in) financing activities 1,157 (27,398) (24,090) ------- ------- ------- Changes in cash and cash equivalents (3,728) (80,098) 77,486 Cash and cash equivalents at beginning of year 23,187 103,285 25,799 ------- ------- ------- Cash and cash equivalents at end of year $ 19,459 $ 23,187 $103,285 ======= ======= ======= See Notes to Consolidated Financial Statements, pages 24 to 34.
23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands; per-share amounts in dollars) SIGNIFICANT ACCOUNTING POLICIES The Company employs accounting policies that are based on generally accepted accounting principles. The preparation of financial statements in conformity with these 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 financial statements. Actual results could differ from those estimates. The following summary of significant accounting policies is presented for assistance in the evaluation and interpretation of the financial statements and supplementary data. Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All material intercompany accounts and transactions have been eliminated. Cash and cash equivalents - The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amount reported in the balance sheets for cash and cash equivalents approximates its fair value. Inventories - Substantially all inventories are valued at cost, using the last-in, first-out (LIFO) cost method, which is not in excess of market. Property, plant and equipment - Assets are recorded at cost and depreciated or amortized using the straight-line method over their expected useful lives. For income tax purposes accelerated depreciation methods and shorter lives are used. Stock options - The Company accounts for employee stock options in accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Accordingly, additional disclosures required under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," are included in the Stock Options note. Revenue recognition - Revenues are recognized when goods are shipped to customers in accordance with their purchase orders. Warranties - Estimated costs for product warranties are charged to income at the time of sale. Research and development - Costs are charged to expense as incurred and amounted to approximately $19,700, $16,000, and $14,700 in 1996, 1995 and 1994, respectively. BUSINESS The Company, a specialist in the rubber industry, manufactures and markets automobile and truck tires, inner tubes, vibration control products, hoses and hose assemblies, and automotive sealing systems. Product shipments to original equipment vehicle manufacturers historically have approximated 15 to 20 percent of net sales. (continued) 24 The Company manufactures products for the transportation industry. Shipments to customers outside of the United States approximated nine, eight and seven percent of net sales in 1996, 1995 and 1994, respectively. Sales to one major customer approximated 17, 14 and 13 percent of net sales in 1996, 1995 and 1994, respectively. INVENTORIES Under the LIFO method, inventories have been reduced by approximately $73,925 and $76,309 at December 31, 1996 and 1995, respectively, from current cost which would be reported under the first-in, first-out method. DEBT Short-term debt consists of commercial paper borrowings and notes payable at a weighted average interest rate of 5.6%. The Company's long-term debt at December 31 consisted of the following:
1996 1995 ---- ---- Commercial paper notes with a weighted average interest rate of 5.6% $46,000 $ - 9% senior notes due 2001 22,727 27,273 Capitalized lease due 2021 at variable rates (4.6% in 1996; 5.8% in 1995) 5,130 5,133 8-7/8% Mortgage note due 1998 713 1,203 ------ ------ 74,570 33,609 Less current maturities 5,081 5,035 ------ ------ $69,489 $28,574 ====== ======
The Company has an agreement with four banks authorizing borrowings up to $150,000 on a long-term basis through October 31, 2001 and $100,000 on a short term basis, with interest at varying rates. The credit facility supports the issuance of commercial paper. The proceeds may be used for general corporate purposes. A commitment fee is payable quarterly and is based on the daily unused portion of the amount authorized. The $46 million of commercial paper notes which were issued for the repurchase of the Company's common stock are due within one year. The Company intends to refinance them on a long-term basis and has the ability to do so through its existing credit agreement, although other facilities may be used for this purpose. The 9% senior notes, due October 1, 2001, provide for semiannual interest payments on April 1 and October 1 and annual principal payments of $4,545 on October 1 through the year 2000. Based on the borrowing rates available to the Company for instruments with similar terms and maturity at December 31, 1996 and 1995 the fair value of the senior notes was $24,110 and $29,733, respectively. The most restrictive covenants under the loan agreements require the maintenance of $65,000 in working capital and restrict the payment of dividends. The amount of retained earnings not restricted was $578,410 at December 31, 1996. (continued) 25 The Company has a Registration Statement with the Securities and Exchange Commission covering the proposed sale of its debt securities in an aggregate amount of up to $200,000. The Company may sell the securities to or through underwriters, and may also sell the securities directly to other purchasers or through agents or dealers. The net proceeds received by the Company from any sale of the debt securities would be available for general corporate purposes. Interest paid on debt during 1996, 1995 and 1994 was $6,217, $3,515 and $3,911, respectively. The amount of interest capitalized was $4,315, $2,694 and $1,170 during 1996, 1995 and 1994, respectively. The required principal payments for long-term debt during the next five years are as follows: 1997 - $5,081; 1998 - $4,723; 1999 - $4,545; 2000 - $4,545; 2001 - $4,545. ACCRUED LIABILITIES Accrued liabilities at December 31, were as follows:
1996 1995 ---- ---- Payroll $32,299 $29,422 Other 33,428 34,254 ------ ------ $65,727 $63,676 ====== ======
PREFERRED STOCK PURCHASE RIGHT Each stockholder is entitled to the right to purchase 1/100th of a newly-issued share of Series A preferred stock of the Company at an exercise price of $16.88. The rights will be exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the Company's outstanding common stock, or commences a tender or exchange offer which upon consummation would result in such person or group beneficially owning 30 percent or more of the Company's outstanding common stock. If any person becomes the beneficial owner of 25 percent or more of the Company's outstanding common stock, or if a holder of 20 percent or more of the Company's common stock engages in certain self-dealing transactions or a merger transaction in which the Company is the surviving corporation and its common stock remains outstanding, then each right not owned by such person or certain related parties will entitle its holder to purchase a number of shares of the Company's Series A preferred stock having a market value equal to twice the then current exercise price of the right. In addition, if the Company is involved in a merger or other business combination transaction with another person after which the Company's common stock does not remain outstanding, or if the Company sells 50 percent or more of its assets or earning power to another person, each right will entitle its holder to purchase a number of shares of common stock of such other person having a market value equal to twice the then current exercise price of the right. The Company will generally be entitled to redeem the rights at one cent per right, or as adjusted to reflect stock splits or similar transactions, at any time until the tenth day following public announcement that a person or group has acquired 20 percent or more of the Company's common stock. (continued) 26 COMMON STOCK There were 9,738,718 common shares reserved for the exercise of stock options and contributions to the Company's Thrift and Profit Sharing and Pre-Tax Savings plans at December 31, 1996. STOCK OPTIONS The Company has elected to follow APB No. 25, "Accounting for Stock Issued to Employees," in accounting for employee stock options. The alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25 no compensation expense is recognized because the exercise price of the Company's employee stock options equals the market price of the underlying stock at the date of grant. In the opinion of management, the existing fair value models do not provide a reliable measure of the value of employee stock options. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. The Company's employee stock options have characteristics significantly different from those of traded options. In addition, option valuation models require highly subjective assumptions including the expected stock price volatility. Changes in these assumptions can materially affect the fair value estimate. SFAS No. 123 is effective for awards granted by the Company during fiscal years beginning after December 15, 1994. The Standard requires, if APB No. 25 is followed, disclosure of pro forma information regarding net income and earnings per share determined as if the Company accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
1996 1995 ---- ---- Risk-free interest rate 6.6% 6.2% Dividend yield 1.0% 1.0% Expected volatility of the Company's common stock .206 .203 Expected life 5.4 years 5.3 years
The weighted-average fair value of options granted in 1996 and 1995 was $5.58 and $6.98, respectively. For purposes of pro forma disclosures, the estimated fair value of options is amortized to expense over the option's vesting period. During 1995, only grants awarded during the year are amortized. During 1996, amortization attributable to grants awarded in both 1995 and 1996 impacts pro forma results. The Company's reported and pro forma information follows:
1996 1995 ---- ---- Net income: Reported $107,884 $112,820 Pro forma 107,363 112,653 Earnings per share: Reported $1.30 $1.35 Pro forma 1.29 1.35
(continued) 27 The Company's 1981, 1986 and 1996 incentive stock option 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 1981 and 1986 plans were amended in 1988 to allow the granting of nonqualified stock options. Nonqualified stock options are not intended to qualify for the tax treatment applicable to incentive stock options under provisions of the Internal Revenue Code. The options granted under these plans which were outstanding at December 31, 1996 have a term of ten years and become exercisable 50 percent after the first year and 100 percent after the second year. The Company's 1991 nonqualified stock option plan provides for granting options to directors, who are not current or former employees of the Company, to purchase common shares at prices not less than market at the date of grant. Options granted under this plan have a term of ten years and are exercisable in full beginning one year after the date of grant. Summarized information for the plans follows:
Weighted Average Number of Exercise Price Range Shares Price Per Share --------- --------- ----------- January 1, 1994 Outstanding 454,769 $16.10 $5.09 - $34.69 Granted under 1986 plan 75,000 24.50 24.50 Granted under 1991 plan 2,910 26.44 26.44 Exercised (52,304) 9.43 5.09 - 15.19 Cancelled ( 5,143) 23.65 12.16 - 34.69 ------- December 31, 1994 Outstanding 475,232 18.15 5.09 - 34.69 Exercisable 355,522 15.93 Granted under 1986 plan 103,800 24.13 24.13 Granted under 1991 plan 3,153 24.25 24.25 Exercised (27,900) 10.87 5.09 - 25.00 Cancelled (13,110) 24.90 24.13 - 25.00 ------- December 31, 1995 Outstanding 541,175 19.54 5.09 - 34.69 Exercisable 397,822 17.85 Granted under 1991 plan 1,703 24.31 24.31 Granted under 1996 plan 140,900 18.50 18.50 Exercised (10,400) 10.23 5.09 - 15.19 Cancelled (27,786) 19.57 5.09 - 34.69 ------- December 31, 1996 Outstanding 645,592 19.47 5.09 - 34.69 Exercisable 454,439 19.24
The weighted average remaining contractual life of options outstanding at December 31, 1996 is 6.7 years. SFAS No. 123 also requires segregated disclosure of options outstanding if a significant range of exercise prices exists. This information is presented below: (continued) 28
December 31, 1996 1995 1994 ---- ---- ---- Options with an exercise price of less than $20: Options outstanding 327,046 205,846 233,446 Weighted average exercise price $14.45 $11.19 $11.13 Remaining contractual life 6.2 4.6 5.6 Options exercisable 187,646 205,846 233,446 Weighted average exercise price $11.44 $11.19 $11.13 Options with an exercise price equal to or greater than $20: Options outstanding 318,546 335,329 241,786 Weighted average exercise price $24.63 $24.67 $24.92 Remaining contractual life 7.2 8.2 8.5 Options exercisable 266,793 191,976 122,076 Weighted average exercise price $24.73 $25.00 $25.11
The status of options exercisable and available for grant for each plan is as follows:
1981 1986 1991 1996 Plan Plan Plan Plan ---- ---- ---- ---- December 31, 1994 Exercisable 24,024 326,022 5,476 Available for grant none 1,236,990 91,378 December 31, 1995 Exercisable 22,424 367,012 8,386 Available for grant none 1,146,300 88,225 December 31, 1996 Exercisable 22,424 425,712 6,303 none Available for grant none none 90,758 3,060,600
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company currently provides certain health care and life insurance benefits for its active and retired employees. If the Company does not terminate such benefits, or modify coverage or eligibility requirements, substantially all of the Company's United States employees may become eligible for these benefits upon retirement if they meet certain age and service requirements. The Company has reserved the right to modify or terminate such benefits at any time. In recent years benefit changes have been implemented throughout the Company. (continued) 29 The Company continues to fund these benefit costs as claims are incurred. Postretirement benefits expense for 1996, 1995 and 1994 included the following components:
1996 1995 1994 ------- ------- ------- Service cost $ 3,254 $ 2,607 $ 3,022 Interest cost 10,674 9,810 10,803 Amortization - (333) 261 ------ ------ ------ $13,928 $12,084 $14,086 ====== ====== ======
The status of the Company's plans at December 31, 1996 and 1995 was as follows:
1996 1995 -------- -------- Accumulated postretirement benefits obligation (APBO): Retirees $ 78,378 $ 71,077 Fully eligible active plan participants 26,413 25,131 Other active plan participants 39,143 37,314 ------- ------- 143,934 133,522 Deferred gain 2,836 6,041 ------- ------- Postretirement benefits liability $146,770 $139,563 ======= =======
These amounts are included in the accompanying balance sheet captions:
1996 1995 ---- ---- Accrued liabilities $ 7,700 $ 6,600 Postretirement benefits other than pensions 139,070 132,963 ------- ------- $146,770 $139,563 ======= =======
The discount rate used in determining the APBO was 8.0 percent in 1996 and 1995. At December 31, 1996, the assumed average annual rate of increase in the cost of health care benefits (health care cost trend rate) was 9.0 percent for 1997 declining by 1/2 percent per year through 2004 when the ultimate rate of 5.5 percent is attained. This trend rate assumption has a significant effect on the amounts reported above. A 1.0 percent increase in the health care cost trend rate would increase the APBO by $5,057 and the net periodic expense by $441 for the year. The Company has a Voluntary Employees' Beneficiary Trust and Welfare Benefits Plan (VEBA) to fund health benefits for eligible active and retired employees. The pre-funded amount was $11,400 in 1996 and $11,000 in 1995. (continued) 30 PENSIONS The Company has defined benefit plans covering substantially all employees. The salary plan provides pension benefits based on an employee's years of service and average earnings for the five highest calendar years during the ten years immediately preceding retirement. The hourly plans provide benefits of stated amounts for each year of service. The Company's general funding policy is to contribute amounts deductible for Federal income tax purposes. Pension expense for 1996, 1995 and 1994 included the following components:
1996 1995 1994 ------ ------ ------ Service cost $13,811 $ 9,833 $ 9,769 Interest cost 24,707 20,374 17,485 Actual return on plan assets (44,559) (54,268) 1,565 Net amortization and deferral 24,144 38,966 (17,201) ------ ------ ------ Net periodic pension cost $18,103 $14,905 $11,618 ====== ====== ======
The increases in service and interest costs in 1996 result from changes in certain demographic actuarial assumptions made at December 31, 1995. The plans' assets consist of cash, cash equivalents and marketable securities. The funded status of the Company's plans at December 31, 1996 and 1995 was as follows:
December 31, 1996 ----------------------------- Plans for Which --------------- Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets ------------- ------------- Actuarial present value of benefit obligations: Vested benefit obligation $147,256 $120,221 ======= ======= Accumulated benefit obligation $150,416 $123,905 ======= ======= Projected benefit obligation $218,512 $124,911 Plans' assets at fair value 225,077 95,195 ------- ------- Projected benefit obligation less than (in excess of) plan assets 6,565 (29,716) Unrecognized transition amount 4,485 2,326 Unrecognized prior service cost 93 9,818 (continued) 31 Unrecognized net loss 12,736 12,753 Adjustment for minimum liability - (24,709) ------- ------ Pension asset (liability) recognized in the Balance Sheet $ 23,879 $(29,528) ======= ======= December 31, 1995 ----------------------------- Plans for Which --------------- Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets ------------- ------------- Actuarial present value of benefit obligations: Vested benefit obligation $131,996 $108,028 ======= ======= Accumulated benefit obligation $135,171 $111,320 ======= ======= Projected benefit obligation $203,446 $112,845 Plans' assets at fair value 187,831 82,144 ------- ------- Projected benefit obligation in excess of plan assets (15,615) (30,701) Unrecognized transition amount 5,175 2,723 Unrecognized prior service cost - 8,014 Unrecognized net loss 33,093 15,895 Adjustment for minimum liability - (26,117) ------- ------ Pension asset (liability) recognized in the Balance Sheet $ 22,653 $(30,186) ======= =======
The assumed rate of increase in future compensation levels was 5.5 percent and the assumed discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5 percent at December 31, 1996 and 1995. The expected long-term rate of return on the plans' assets was 10 percent in 1996, 1995 and 1994. The information presented above includes an unfunded, nonqualified supplemental executive retirement plan covering certain employees whose participation in the qualified plan is limited by provisions of the Internal Revenue Code. The Company sponsors several defined contribution plans for its employees. Substantially all employees are eligible to participate upon attaining minimum continuous service requirements. Participation is voluntary and participants' contributions are based on their compensation. The Company matches certain plan participants' 32 contributions up to various limits. Company contributions are based on the lesser of (a) participants' contributions up to a specified percent of each participant's compensation, less any forfeitures, or (b) an amount equal to 15 percent of the Company's pre-tax earnings in excess of ten percent of stockholders' equity at the beginning of the year. Expense for these plans was $8,331, $8,489 and $7,723 for 1996, 1995 and 1994, respectively. INCOME TAXES The provision for income taxes consists of the following:
1996 1995 1994 ------- ------- ------- Current: Federal $44,250 $51,141 $60,819 State and local 5,862 6,753 9,798 ------ ------ ------ 50,112 57,894 70,617 Deferred: Federal 12,096 8,062 7,677 State and local 2,000 1,294 1,306 ------ ------ ------ 14,096 9,356 8,983 ------ ------ ------ $64,208 $67,250 $79,600 ====== ====== ======
The effective income tax rate differs from the statutory Federal tax rate as follows:
1996 1995 1994 ----- ----- ----- Statutory Federal tax rate 35.0% 35.0% 35.0% State and local income taxes, net of Federal income tax benefit 3.0 2.9 3.5 Other (0.7) (0.6) (0.3) ---- ---- ---- Effective income tax rate 37.3% 37.3% 38.2% ==== ==== ====
Payments for income taxes in 1996, 1995 and 1994 were $57,884, $53,110 and $70,634, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1996 and 1995 are as follows: (continued) 33
1996 1995 ------- ------- Deferred tax liabilities: Property, plant and equipment $ 87,327 $75,238 Other 28,647 23,945 ------- ------ Total deferred tax liabilities 115,974 99,183 Deferred tax assets: Postretirement benefits other than pensions 50,661 48,163 Other 24,175 25,025 ------- ------ Total deferred tax assets 74,836 73,188 ------- ------ Net deferred tax liabilities $ 41,138 $25,995 ======= ======
These amounts are included in the accompanying balance sheet captions:
1996 1995 ------- ------- Prepaid expenses and deferred income taxes $11,630 $10,661 Deferred income taxes 52,768 36,656 ------ ------ Net deferred tax liabilities $41,138 $25,995 ====== ======
LEASE COMMITMENTS The Company rents certain manufacturing facilities and equipment under long-term leases expiring at various dates. Rental expense for operating leases was $7,242 for 1996, $6,696 for 1995 and $6,235 for 1994. Future minimum payments for all noncancelable operating leases during the next five years are as follows: 1997 - $2,596; 1998 - $2,127; 1999 - $1,580; 2000 - $856; 2001 - $564. EARNINGS PER SHARE Net income per share is based upon the weighted average number of shares outstanding which were 83,213,960 in 1996, 83,645,864 in 1995 and 83,623,234 in 1994. The effect of common stock equivalents is not significant for any period presented. SUBSEQUENT EVENT On February 18, 1997, the Company, through a wholly-owned United Kingdom subsidiary, signed an agreement to acquire the tire operations of Avon Rubber p.l.c. (Avon) of the United Kingdom pending approval of Avon's shareholders in March of 1997. This purchase includes the land and manufacturing facility in Melksham, England; the shares of Avon Tyres Limited and the shares of tire distribution companies in France, Germany and Switzerland; and other minor assets. In a separate transaction the Company is acquiring from Avon various trademarks and technology. The total purchase price for the land, manufacturing facility, shares, trademarks and technology will be approximately $110 million. The Company intends to finance debt associated with the Avon acquisition on a long-term basis through sale of debt securities using its existing Shelf Registration with the Securities and Exchange Commission. The Avon tire operations had sales of $169 million and after tax income of $6.5 million for their fiscal year ended September 28, 1996. 34 REPORT OF INDEPENDENT AUDITORS The Board of Directors Cooper Tire & Rubber Company We have audited the accompanying consolidated balance sheets of Cooper Tire & Rubber Company as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cooper Tire & Rubber Company at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP --------------------- ERNST & YOUNG LLP Toledo, Ohio February 11, 1997, except for the Subsequent Event, as to which the date is February 18, 1997 35 QUARTERLY FINANCIAL DATA (UNAUDITED) (All dollar amounts in thousands except per share figures)
QUARTER ------------------------------------------ 1996 FOURTH THIRD SECOND FIRST - ---- ------ ----- ------ ----- Net Sales $416,277 $423,172 $398,858 $381,038 Gross Margin $ 71,704 $ 64,095 $ 60,292 $ 56,705 Net Income $ 32,700 $ 26,913 $ 25,162 $ 23,109 Net Income Per Share $.40 $.32 $.30 $.28 Dividend Per Share $.085 $.075 $.075 $.075 Stock Price: High $21 7/8 $22 3/8 $26 5/8 $27 1/4 Low $18 3/4 $18 $21 7/8 $22 3/4
[CAPTION] QUARTER ------------------------------------------ 1995 FOURTH THIRD SECOND FIRST - ---- ------ ----- ------ ----- [S] [C] [C] [C] [C] Net Sales $381,899 $375,004 $371,366 $365,353 Gross Margin $ 70,224 $ 61,505 $ 57,576 $ 61,422 Net Income $ 33,894 $ 27,048 $ 24,661 $ 27,217 Net Income Per Share $.41 $.32 $.29 $.33 Dividend Per Share $.075 $.075 $.060 $.060 Stock Price: High $25 3/4 $27 3/8 $29 1/8 $29 5/8 Low $22 1/4 $23 5/8 $22 7/8 $23 3/8 36 COOPER TIRE & RUBBER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1996, 1995 and 1994
Balance at Additions Balance Beginning Charged Deductions at End of Year To Income (a) of Year --------- --------- --------- ------- Allowance for doubtful accounts: 1996 $3,600,000 $1,050,960 $ 950,960 $3,700,000 ========= ========= ========= ========= 1995 $3,600,000 $ 375,705 $ 375,705 $3,600,000 ========= ========= ========= ========= 1994 $3,100,000 $1,089,074 $ 589,074 $3,600,000 ========= ========= ========= ========= (a) Accounts charged off during the year, net of recoveries of accounts previously charged off.
37 Exhibit (12) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (000's)
Years Ended December 31 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Consolidated income before income taxes $172,092 $180,070 $208,119 $164,250 $169,841 Add: Interest and amortization of debt expense 1,654 697 2,680 2,351 2,081 Interest portion of rental expense 2,414 2,232 2,078 1,787 1,919 ------- ------- ------- ------- ------- Income as adjusted $176,160 $182,999 $212,877 $168,388 $173,841 ======= ======= ======= ======= ======= Fixed charges: Interest and amortization of debt expense $ 1,654 $ 697 $ 2,680 $ 2,351 $ 2,081 Capitalized interest 4,315 2,694 1,170 2,297 2,907 Interest portion of rental expense 2,414 2,232 2,078 1,787 1,919 ------- ------- ------- ------- ------ Total fixed charges $ 8,383 $ 5,623 $ 5,928 $ 6,435 $ 6,907 ======= ======= ======= ======= ====== Ratio of earnings to fixed charges 21.0 32.5 35.9 26.2 25.2 ==== ==== ==== ==== ==== Consolidated income before income taxes in 1992 is before the cumulative effect of changes in accounting for postretirement benefits other than pensions.
38 Exhibit (13) OPERATIONS REVIEW AND PRODUCT OVERVIEW OPERATIONS REVIEW Tire Products INDUSTRY OVERVIEW Cooper's total tire shipments in 1996 posted a gain over the previous year, maintaining a consistent growth pattern and exceeding the pace recorded by the overall industry. Industry replacement tire shipments increased 5.1 percent, rising more than 10 million units from the 1995 total of 204 million. This outcome is attributed to the increase in light vehicle registrations, the aging of the vehicles currently on the road and the increase in miles traveled per vehicle. By product category, industry replacement passenger shipments increased 5.1 percent; light truck replacement tire shipments posted an increase of 8.1 percent; and medium truck tire shipments decreased by 1.1 percent. Tube sales continued their decline resulting in a 3.6 percent decrease from 1995 totals. Consumer purchases of low profile passenger radials continued to rise in 1996, improving market share from 53 percent in 1995 to 57.4 percent in 1996. Cooper introduced several new low profile sizes in 1996, matching the increasing demand for this growing market. Independent tire dealers continued to rise in popularity among consumers who purchased tires last year. According to Modern Tire Dealer, a leading industry magazine, 69.5 percent of replacement passenger tires reached the U.S. consumer in 1996 through independent tire dealers. With a substantial share of Cooper's tire sales moving through independent tire dealers, the Company's ongoing commitment to this segment of the market remains intact. PRODUCTS In 1996 Cooper kept pace with the industry's focus on meeting the demands of today's performance-oriented driver by expanding size offerings and adding six new passenger tire lines. Cooper's latest entry into the snow tire market, the Weather-Master XGR Radial, met the growing consumer demand for traction tires. Based on a specially engineered studless design developed for the Japanese market, the Weather-Master XGR has a unique tread compound containing a special particle additive that helps increase traction by forming additional gripping edges. Cooper also upgraded its Cobra Radial G/T and Cobra Radial GTH performance tire lines. Updates to the Cobra G/T include a new long-wearing tread design that carries a 50,000-mile limited treadwear warranty; a T-speed rating on all 60, 65 and 70 series sizes to match popular original equipment (O.E.) applications; and a new, stylized sidewall option that offers a traditional performance white letter style on one side while the reverse side sports a unique Cobra-inspired, black-letter look for a more subtle effect. Called the most technologically advanced Cooper performance tire to date, the new H-rated Cobra GTH radial line scored exceptionally well when tested against some of the industry's finest performance radials. With new symmetric and asymmetric designs and a 45,000 mile limited treadwear protection warranty, the GTH offers car enthusiasts excellent handling and cornering in all seasons. Beginning in early 1997 Cooper has extended the Cobra line to provide a new level of tire performance capability. Both the new Cobra ZHP and the Cobra Radial GTZ are among the industry's first Z-speed rated tires to qualify for the new AA UTQG rating for traction. (ontinued) 39 Among other characteristics, the Cobra ZHP has a unique directional block element tread, specially formulated compounding and a special bead filler that stiffens the lower sidewall for excellent handling on tough cornering situations. The Cobra Radial GTZ combines deep channel tread elements with a high void ratio to provide excellent wet and dry handling capability in all weather conditions. The newest addition to the Cooper line is the T-rated Sportmaster GLT, which is metric sized to meet the requirements of most popular import cars. Combined with excellent wet and dry traction, the tire's tread compound is specifically formulated to provide a balance of all season traction, good handling and long wear. The Sportmaster GLT carries a 40,000 mile limited treadwear protection warranty. In order to meet the competitive demands of the tire industry, Cooper added an associate brand line in early 1997. Developed as "value-based brands," the existing Starfire line has been updated and is now available to Cooper dealers while the all-new Roadmaster line is available to Mastercraft dealers. The new associate brand lines will help Cooper's proprietary brands gain additional market share in areas where strong brand penetration has prevented further growth. By monitoring original equipment trends and responding to consumer feed-back, Cooper is contin-ually upgrading and expanding tire lines to meet current consumer demand. FACILITIES The Findlay and Tupelo plants both achieved production milestones in late 1996. In October the 50 millionth radial tire produced at the Findlay plant rolled off the line. Radial production began at the plant in 1974 responding to increasing demand and decreasing popularity of bias tires. Today, radial passenger and light truck tires comprise about 90 percent of the total production in Findlay, which is the only Cooper plant still producing bias truck tires. In November the Tupelo plant marked the production of its 100 millionth radial tire. Radial passenger tires are the only product manufactured at Cooper's Tupelo location. Throughout the year, expansion efforts continued at the tire facilities to meet production and customer service demands. In early 1996, warehousing began in the 200,000-square-foot addition to the distribution center located at the Tupelo plant. Completed in December 1995, the expansion increased the Tupelo warehouse space by 50 percent. In Albany a 300,000-square-foot expansion of warehouse and production areas reached completion in 1996. The plant expansion allowed for increased passenger and radial medium truck production and will accommodate future growth while the added space at the warehouse enabled dock doors to be added and increased storage capacity. Consolidation of tube production and distribution at the Clarksdale facility was completed at the end of 1996. The consolidation is a continuation of changes initiated in 1995, which included the renovation and modernization of the facility and a 48,000-square-foot expansion of manufacturing and warehousing space. The streamlining of tube production and distribution in Clarksdale allows for continued expansion of Cooper's engineered products manufacturing capacity in the Piedras Negras facility. Three of the four tire plants are now equipped with a new computerized maintenance and production system. This high-tech system links maintenance, production, purchasing, accounting and engineering to help achieve a proactive approach to maintaining production equipment. The system helps the maintenance and production departments schedule maintenance for equipment while ensuring the resources--technicians, parts and equipment--necessary to accomplish the task are available. The Findlay plant came "on-line" in early 1995 and both the Albany and (continued) 40 Texarkana plants began using the system in late 1996. The Tupelo plant is planning for the system installation in late 1997. Production efforts also were enhanced in 1996 with the addition of an automated finishing system at the Texarkana plant. The new procedure transfers the tires between each of the finishing processes, sorting the tires by size and sidewall style as they progress along the conveyor. A scanner is located at various points above the conveyor to read each tire's bar code and sort the tire into the appropriate trimming, buffing, uniformity, balancing and labeling areas. Texarkana is the third of Cooper's tire plants to install the new system, which enhances the sorting process and moves the tires more efficiently throughout the finishing departments. By mid-1996 Cooper began producing tire molds at its multi-million dollar manufacturing facility located in Findlay. The new high-tech operation will continue to help Cooper fulfill part of its strategic plan to ensure a competitive edge in the marketplace today and well into the 21st century. TECHNOLOGY As with many global markets today, using advanced computer technology is an integral part of production in the tire industry. During 1996 Cooper's development engineers continued to employ technological advancements with the goal of further decreasing cost, improving quality and enhancing driving comfort and overall satisfaction for consumers. A new process, applying a nylon overwrap, was specially designed for the Company's Z-speed rated and low aspect ratio H-rated tires. The process eliminates full width splices while enhancing the tire's durability and uniformity. Positioned between the belt and the tread, the overwrap enables the tire to maintain integrity when traveling at higher speeds. Cooper's new Cobra GTH was the first product developed using a fully-integrated design system. Using the three-dimensional computer design software, Findlay engineers generated the tire's design and created the engineering specifications and drawings for the line. The tire's mold was developed from this data base and then manufactured at Cooper's new mold operations facility. In response to a growing consumer demand for driving comfort and value, Cooper continues to access technological advancements to enhance durability and reduce noise generated when a tire comes in contact with the road. A new tire durability model and tire noise model are being used in the research of potential lines. Last year, results from the models were applied in the development of the Cobra Radial GTZ. Designed with the ultimate in driving comfort in mind, the tire features a variable pitch sequence to help keep noise levels at a minimum. MARKETING During recent years Cooper has received recognition from a variety of sources for quality, customer service and overall operations and 1996 was no exception. Acknowledging Cooper as a "customer-focused organization," Unisys honored the Company in June with a 1995 CUSTOMERIZE Award for Excellence. For the past four years Unisys has presented the award to customers that consistently use creative applications of information technology to better serve their customers. As the only recipient based in the United States, Cooper was one of four companies selected for the award from the Unisys worldwide base of more than 50,000 clients. In its Annual Tire Brands Survey, the industry magazine Tire Review identified Cooper and Mastercraft as two of the most well-liked brands by tire dealers. Out of the 47 tire brands mentioned during the random survey of dealers, Mastercraft was named as one of the top five overall suppliers while Cooper was named at the top of the "major" brands (continued) 41 category. Both Cooper and Mastercraft fared well in the individual categories, which included on-time delivery, product availability, tire line coverage, product quality and purchasing terms. Considered to be a "premier listing," Cooper was named among the 1,000 largest companies in the world by Industry Week magazine. In its May issue, the magazine reported Cooper ranked 852 in the global listing. In early 1997, a leading consumer product testing organization reported its findings from a test conducted on standard all-season tires. Out of the ten tires analyzed, Cooper's Lifeliner Classic II ranked among the top five in overall performance, finishing ahead of many well-known and respected competitors. The final results were based on individual tests that included braking, cornering, hydroplaning, ride comfort and noise. Awareness for Cooper also hit a peak in mid-1996 with the Company's most successful product launch--the new Cobra GTH line. For the first time, Cooper published test results against comparable competitors' tires--illustrating the Cobra's strong performance. In addition, by incorporating a photo of a coiled king cobra as the background for the graphics on printed materials, the live snake's unique coloring and texture provided an extraordinary visual image and generated exceptional interest for the advertising campaign. The graphics, along with a specially designed Cobra logo, were used for full-page ads in trade magazines, along with a generous assortment of promotional materials for in-store use. The graphics also are being incorporated into new advertising materials promoting the Cobra GTZ and ZHP, introduced early in 1997. Year-long advertising campaigns included a variety of printed materials in trade publications and the continuation of cable television spots featuring computer-animated logos. Also in 1996, Paul Harvey continued to inform listeners of Cooper's quality on his popular syndicated radio program that airs during morning, noon and evening news segments. For the seventh consecutive year, the icon of radio airwaves has represented the Company well by enlightening listeners with his highly respected opinion of Cooper. Beginning in 1997, golfing legend Arnold Palmer will serve as the new spokesman for Cooper Tire. Palmer, who is known world-wide as a "down to earth" individual, is well respected for his integrity, perseverance and dedication. Those same qualities can be said to describe Cooper's reputation in the tire industry. Using Palmer as a spokesman, Cooper expects to create a unique synergy to help build a new level of national awareness for the Cooper brand. Cooper has expanded the 1997 advertising program significantly to include television spots on popular cable channels. In addition to the increased media schedule, Cooper will also serve as an associate sponsor of the Bay Hill Invitational Golf Tournament in Orlando, Florida. The annual PGA tournament, held in March, includes Cooper television spots on NBC during prime weekend coverage. Last year the tournament generated an attendance of more than 150,000. With Palmer's recognition value outside the sporting community along with the increase in the popularity of golf, Cooper will be positioned to create an unprecedented level of consumer awareness in the coming years. GLOSSARY OF TERMS ASYMMETRIC/SYMMETRIC - Terms used to describe a tread design on a tire. Dividing a tire down the center circumferentially, a symmetric design is consistent on both sides while the asymmetric is different. LOW PROFILE TIRES - Based on industry standards, tires having an aspect ratio of less than 75 are considered to be low profile. (continued) 42 OVERWRAP - A component in the tire made up of nylon cord placed around the circumference of the tire. Used on some H and all Z-rated tires, an overwrap is used to restrain the growth of the steel belt due to centrifugal force resulting from high-speed operation. SERIES (aspect ratio) - The percentage relationship between a tire's section height and its section width. (On a 70 series tire, the section height is 70 percent of the width.) Visually, the tires with low aspect ratios have shorter sidewalls and wider treads than tires with high aspect ratios. SPEED RATINGS - The speed-rating system used today originated in Europe in an effort to define the performance levels of tires. The standardized speeds for passenger and light truck tires are: Speed Speed Speed Speed Symbol Category Symbol Category ------------------------ ------------------------- N 140 km/h (87 mph) U 200 km/h (124 mph) P 150 km/h (93 mph) H 210 km/h (130 mph) Q 160 km/h (99 mph) V 240 km/h (150 mph) R 170 km/h (106 mph) W 270 km/h (169 mph) S 180 km/h (112 mph) Y 300 km/h (188 mph) T 190 km/h (118 mph) ZR above 240 km/h (150 mph) UNIFORM TIRE QUALITY GRADING (UTQG) - A system required by the National Highway Transportation Safety Administration to help consumers compare tire features and benefits. VARIABLE PITCH SEQUENCE - Made up of three to five different lengths of tread "blocks" on a tire. By arranging the elements in specific sequence, tonality of the tire can be reduced, minimizing the perception of noise generated when the tire makes contact with the road. Engineered Products INDUSTRY OVERVIEW 1996 was a strong year for the Company in engineered rubber products sales despite industry vehicle production increasing just slightly over 1995. Total North American light vehicle production was up slightly in 1996 after a decline in 1995. Passenger car production fell for the third straight year, while truck production was at an all-time high. Industry analysts predict a flat demand in total North American production for 1997, however Cooper's market presence is strong and continues to grow on a yearly basis. During the past decade, the company's sales of original equipment engineered rubber products--per new vehicle produced--has grown steadily. For the third consecutive year, every vehicle on the nation's top 10 best selling vehicle list was equipped with some Cooper-produced engineered rubber parts. The Company continues to be a leading supplier of molded and extruded rubber products to original equipment manufacturers. (continued) 43 PRODUCTS AND TECHNOLOGY Cooper has a well-earned reputation among light vehicle manufacturers as a world-class supplier of engineered parts, including vibration control products, body sealing components and reinforced hoses. In today's competitive environment, many light vehicle manufacturers are placing more responsibility on Cooper for the research and development of components. Through strong supplier/customer relationships, the Company's design teams work with their counterparts in the automotive manufacturing industry to explore methods that will enhance quality and lower production costs. The body seal group was active in 1996 with major new product launches for Chrysler and General Motors. These new products included traditional door and glass seals as well as a new plastic veneer door opening weather strip. New equipment was installed to meet these new customer requirements. To meet new federal standards required for fuel delivery systems in vehicles, a hose consisting of a special plastic veneer liner, with fabric-reinforcement and rubber, was designed and manufactured in limited quantities by Cooper. The new barrier hose provides for a fuel delivery system that has an extremely low level of gasoline permeation. This evolutionary product continues to be refined. A state-of-the-art engine mount line in the Auburn plant began producing two new hydromounts in 1996. This contract with Ford, as well as another development contract for hydromounts, resulted from business agreements with European-based companies. FACILITIES Increased demand for the Company's engineered rubber products required the expansion of several Cooper facilities. Ground was broken in November for an engineering technical center in Auburn. The 48,000-square-foot facility is scheduled for completion later in 1997. Located just north of the manufacturing facility, the technical center will allow the Company to expand its testing, research and development capabilities as well as provide additional office space and improved communication for the engineering, purchasing and inquiry departments. The newest addition to the engineered products operations, a 178,000-square-foot manufacturing facility in Mt. Sterling, began producing extruded rubber hose and hose assemblies in July. The new facility was constructed to meet significant business opportunities within the North American original equipment light vehicle market. Ground was broken in December for a 30,000-square-foot expansion to the Bowling Green seal plant to support additional finishing department activities. Also at the Bowling Green seal plant, a newly completed laboratory offers improved resources for research and development as well as product durability tests. These tests include analyses of door closing capability, window tests and the determination of sound transmission levels. Testing can be conducted on entire vehicle bodies or individual sections such as body side panels. A water test booth is used for checking water leaks either in localized areas such as around a window or for the entire vehicle. Installation of a third rubber mixer was accomplished in the Auburn plant during 1996. The mixer provides significant productivity improvement in addition to quality improvements. In an effort to better serve the needs of original equipment customers located in Detroit, the sales, engineering and design force--previously housed in two office locations--were consolidated into one major facility in Farmington Hills, Michigan. This 35,000-square-foot facility houses the body seal, hose and vibration control products sales groups as well as an expanded engineering and design center for body sealing and hose. (continued) 44 Construction was completed on the 42,000-square-foot warehouse expansion at the El Dorado plant. This expansion was operational in the second quarter of 1996. The addition allows for a layout reorganization for improved work flow. Production capabilities changed at the Piedras Negras facility. As a result of combining inner tube production and distribution into the Clarksdale plant, the Piedras Negras capacity is now dedicated solely to manufacturing engineered products. The Auburn, Bowling Green and El Dorado facilities were certified for the QS9000 International Quality System Standards during 1996. The QS9000 certification is an assurance to Cooper's customers that business and quality procedures are fully documented and strictly followed. The Mt. Sterling and Piedras Negras plants are expected to be certified by May 1997. MARKETING The Company's experience in the design and manufacturing of elastomer-based components is recognized worldwide. Cooper is continually developing innovative new products, manufacturing processes and systems to help maintain the Company's strong competitive edge in the light vehicle manufacturing industry. During 1996 Cooper began producing the complete body sealing packages, which include all dynamic seals for sheet metal and moveable glass, for new Dodge Dakota truck and General Motors' new van, which is marketed under the Silhouette, Trans Sport and Venture names in North America and the Sintra in Europe. Cooper also will manufacture multiple parts on the new 1998 Dodge Durango Sport Utility vehicle. These parts will include mounts, bumpers, bushings, door and window seals and vent hoses. The Durango is scheduled to be released in autumn 1997. Also new for 1997, the Oldsmobile Intrigue will contain Cooper door seals as well as hoses. Cooper cradle mounts and hoses can be found on the sporty Plymouth Prowler. Among the awards and honors presented to the engineered products operations in 1996 were Nissan's Quality Master and Zero Defects awards for outstanding manufacturing performance by Cooper's Auburn facility. In addition, the Auburn, Bowling Green hose and Piedras Negras plants received the Gold Pentastar customer quality award from Chrysler. The Bowling Green hose plant was presented with the Suppliers Quality Assurance Award from AutoAlliance. Over the years, Cooper has made sizeable investments in equipment, facilities and technology to remain a competitive supplier to the light vehicle manufacturing industry. Through these monetary investments and the investments of time, energy and vision by all Cooper team members, the Company will continue to boldly lead as a Tier-One supplier to the automotive industry. 1996 TOP TEN SELLING VEHICLES 1. FORD F-SERIES PICKUP 6. HONDA ACCORD 2. CHEVROLET C/K PICKUP 7. TOYOTA CAMRY 3. FORD EXPLORER 8. DODGE CARAVAN 4. FORD TAURUS 9. FORD RANGER 5. DODGE RAM PICKUP 10. HONDA CIVIC Cooper engineered rubber products can be found on all of the top ten selling vehicles in the United States. 45 GLOSSARY OF TERMS HYDROMOUNT - A fluid filled engine mount which can be made to react to different vibration frequencies. This compares to a conventional mount which is designed for one specific frequency. LIGHT VEHICLES - Includes passenger cars, pickup trucks and sports utility vehicles, with gross vehicle weight of 8,000 pounds or less. THERMOPLASTIC MATERIAL - An elastomer capable of being softened by increasing the temperature and hardened by decreasing the temperature. TIER-ONE SUPPLIER - A manufacturer supplying parts directly to an automotive OEM manufacturer. PERMEATION - The ability of a gas or liquid to pass through the pores or interstices of an object. PRODUCT OVERVIEW TIRE PRODUCTS / The Company sells replacement tires and tubes to consumers through a network of independent dealers, large wholesale distributors, mass merchandisers and large retail chains. PASSENGER Cooper's passenger radial tires include touring, high performance, traction and value designs in 15 line offerings. With important characteristics such as all-season and winter traction capability, the tires are available in competitive speed ratings and meet most of the needs of today's drivers. LIGHT TRUCK Designed for trucks, vans and sport utility vehicles for recreational or commercial use, Cooper's light truck tires are available in 12 different lines. Offered in radial or conventional bias constructions, the tires have all-season, rib and traction designs with sporty white letters or black sidewall selections. MEDIUM TRUCK Cooper's medium truck tires fit vehicles such as tractor-trailer rigs, buses and other commercial trucks. Available in 8 lines, the tires include conventional bias ply or all-steel radial constructions; all-wheel, drive wheel and trailer applications; and rib and traction designs. INNER TUBES Available in radial and bias constructions, Cooper's inner tube applications include passenger, light truck and medium truck vehicles. Sizes are available for special application use such as farm tractors and implements, road graders and industrial vehicles. (continued) 46 ENGINEERED PRODUCTS / Cooper supplies engineered rubber products to virtually every automobile manufacturer in the United States and Canada, either directly or through other Tier-One suppliers. VIBRATION CONTROL These important products are used throughout a vehicle to minimize various vibrations. By helping to minimize vibration, riding comfort is increased and vehicle noise is reduced. Cooper's product lines include mounts, bushings, isolators and torsional springs. SEALING SYSTEMS Rubber seals around vehicle doors, trunk and hood protect interiors from outside elements. Window channels allow glass panels to slide open and shut easily while still providing a tight weather seal. HOSE PRODUCTS Vehicle hoses are used primarily to transport fluids, fuels and gases. Cooper manufactures hoses in many different shapes, sizes, diameters, lengths, rubber compounds and constructions to meet vehicle configurations. 47 Exhibit (23) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements of Cooper Tire & Rubber Company listed below, and in the Prospectus related to the Form S-3, of our report dated February 11, 1997, except for the Subsequent Event, as to which the date is February 18, 1997, with respect to the consolidated financial statements and schedule of Cooper Tire & Rubber Company included in the Annual Report (Form 10-K) for the year ended December 31, 1996: Form S-3 No. 33-44159 $200,000,000 aggregate principal amount of the Company's Debt Securities Form S-8 No. 2-58577 Thrift and Profit Sharing Plan No. 2-77400 1981 Incentive Stock Option Plan No. 33-5483 1986 Incentive Stock Option Plan No. 33-35071 Texarkana Pre-Tax Savings Plan No. 33-47979 Pre-Tax Savings Plan at the Auburn Plant No. 33-47980 1991 Stock Option Plan for Non-Employee Directors No. 33-47981 Pre-Tax Savings Plan at the Findlay Plant No. 33-47982 Pre-Tax Savings Plan at the El Dorado Plant No. 33-52499 Pre-Tax Savings Plan (Bowling Green - Hose) No. 33-52505 Pre-Tax Savings Plan (Bowling Green - Sealing) No. 333-09619 1996 Stock Option Plan /s/ Ernst & Young LLP --------------------- ERNST & YOUNG LLP Toledo, Ohio March 17, 1997 48 Exhibit (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in the capacities indicated, do hereby constitute and appoint Patrick W. Rooney, or J. Alec Reinhardt, or John Fahl, or Stan C. Kaiman as their attorney with full power of substitution and resubstitution for and in their name, place and stead, to sign and file with the Securities and Exchange Commission an Annual Report on Form 10-K, as amended, together with any and all amendments and exhibits thereto and any and all applications, instruments or documents to be filed with the Securities and Exchange Commission pertaining to the filing of such report, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of said attorney or any such substitute. Executed at Findlay, Ohio this 11th day of February, 1997. /s/ Arthur H. Aronson /s/ Delmont A. Davis --------------------------- --------------------------- Arthur H. Aronson, Director Delmont A. Davis, Director /s/ Edsel D. Dunford /s/ John Fahl --------------------------- --------------------------- Edsel D. Dunford, Director John Fahl, Director /s/ Julien A. Faisant /s/ Deborah M. Fretz --------------------------- --------------------------- Julien A. Faisant, Vice Deborah M. Fretz, Director President and Controller, Principal Accounting Officer /s/ Dennis J. Gormley /s/ Stan C. Kaiman --------------------------- --------------------------- Dennis J. Gormley, Director Stan C. Kaiman, Secretary /s/ Allan H. Meltzer /s/ J. Alec Reinhardt --------------------------- ----------------------------- Allan H. Meltzer, Director J. Alec Reinhardt, Executive Vice President, Principal Financial Officer, and Director /s/ Patrick W. Rooney /s/ John H. Shuey ---------------------------- ------------------------------ Patrick W. Rooney, Chairman of John H. Shuey, Director the Board, President, Principal Executive Officer, and Director (continued) 49 STATE OF OHIO ) )ss. COUNTY OF HANCOCK) On this 11th day of February, 1997, before me, a Notary Public in and for the State and County aforesaid, personally appeared Arthur H. Aronson, Delmont A. Davis, Edsel D. Dunford, John Fahl, Julien A. Faisant, Deborah M. Fretz, Dennis J. Gormley, Stan C. Kaiman, Allan H. Meltzer, J. Alec Reinhardt, Patrick W. Rooney, and John H. Shuey, known to me to be the persons whose names are subscribed in the within instrument and who acknowledged to me that they executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/ Julie A. Grismore -------------------------------------- Julie A. Grismore, Notary Public State of Ohio My commission expires January 16, 2001 (SEAL) 50 Exhibit (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby, for and on behalf of Cooper Tire & Rubber Company in accordance with the certain resolution of the Board of Directors adopted February 11, 1997, constitute and appoint Patrick W. Rooney, or J. Alec Reinhardt, or John Fahl, or Stan C. Kaiman, as its attorney with full power of substitution and resubstitution for and in its name, place and stead, to sign and file with the Securities and Exchange Commission an Annual Report on Form 10-K pursuant to the Securities Act of 1934, as amended, together with any and all amendments and exhibits thereto, and all applications, instruments or documents to be filed with the Securities and Exchange Commission pertaining to the filing of such report, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of said attorney or any such substitute. Executed at Findlay, Ohio this 11th day of February, 1997. ATTEST: COOPER TIRE & RUBBER COMPANY /s/ Stan C. Kaiman /s/ Patrick W. Rooney ------------------------- ----------------------------- Stan C. Kaiman Patrick W. Rooney Secretary Chairman of the Board, President, and Chief Executive Officer STATE OF OHIO ) )ss. COUNTY OF HANCOCK) On this 11th day of February, 1997, before me, a Notary Public in and for the State and County aforesaid, personally appeared Patrick W. Rooney and Stan C. Kaiman, known to me to be the persons whose names are subscribed in the foregoing instrument and acknowledged to me that they executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/ Julie A. Grismore ---------------------------------- Julie A. Grismore, Notary Public State of Ohio My commission expires January 16, 2001 (SEAL) 51 Exhibit (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in the capacity indicated, does hereby constitute and appoint Patrick W. Rooney, or J. Alec Reinhardt, or John Fahl, or Stan C. Kaiman as her attorney with full power of substitution and resubstitution for and in her name, place and stead, to sign and file with the Securities and Exchange Commission an Annual Report on Form 10-K, as amended, together with any and all amendments and exhibits thereto and any and all applications, instruments or documents to be filed with the Securities and Exchange Commission pertaining to the filing of such report, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of said attorney or any such substitute. Executed at Findlay, Ohio this 26th day of February, 1997. /s/ Eileen B. White ----------------------------- Eileen B. White Principal Accounting Officer and Corporate Controller STATE OF OHIO ) )ss. COUNTY OF HANCOCK) On this 26th day of February, 1997, before me, a Notary Public in and for the State and County aforesaid, personally appeared Eileen B. White, known to me to be the person whose name is subscribed in the within instrument and acknowledged to me that she executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. ---------------------------------- Phyllis C. Hall Notary Public, State of Ohio My commission expires October 6, 2000 (SEAL) 52 Exhibit (99) COOPER TIRE & RUBBER COMPANY UNDERTAKINGS OF THE COMPANY FOR FISCAL YEAR ENDED DECEMBER 31, 1996 1. Undertakings. ------------ a. The undersigned registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. 2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. b. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. f. Employee plans on Form S-8. 1. The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each employee to whom the prospectus is sent or given, a copy of the registrant's annual report to stockholders for its last fiscal year, unless such employee otherwise has received a copy of such report, in which case the registrant shall state in the prospectus that it will promptly furnish, without charge, a copy of such report on written request of the employee. If the last fiscal year of the registrant has (continued) 53 ended within 120 days prior to the use of the prospectus, the annual report of the registrant for the preceding fiscal year may be so delivered, but within such 120 day period the annual report for the last fiscal year will be furnished to each such employee. 2. The undersigned registrant hereby undertakes to transmit or cause to be transmitted to all employees participating in the plan who do not otherwise receive such material as stockholders of the registrant, at the time and in the manner such material is sent to its stockholders, copies of all reports, proxy statements and other communications distributed to its stockholders generally. 3. Where interests in a plan are registered herewith, the undersigned registrant and plan hereby undertake to transmit or cause to be transmitted promptly, without charge, to any participant in the plan who makes a written request, a copy of the then latest annual report of the plan filed pursuant to section 15(d) of the Securities Exchange Act of 1934 (Form 11-K). If such report is filed separately on Form 11- K, such form shall be delivered upon written request. If such report is filed as a part of the registrant's annual report on Form 10-K, that entire report (excluding exhibits) shall be delivered upon written request. If such report is filed as a part of the registrant's annual report to stockholders delivered pursuant to paragraph (1) or (2) of this undertaking, additional delivery shall not be required. h. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 2. Indemnification of Directors and Officers. ----------------------------------------- Article VII of the Bylaws of the registrant and Section 145 of the Delaware Code provide for indemnification. Article VII, in which registrant is referred to as "Corporation", provides as follows: Section 1. Right to Indemnification. --------- ------------------------ Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the (continued) 54 Corporation, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes pursuant to the Employee Retirement Income Security Act of 1974 or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 2. Non-Exclusivity of Rights. --------- ------------------------- The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Restated Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Section 3. Insurance. --------- --------- The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. The registrant also maintains policies insuring the liability of the registrant to its directors and officers under the terms and provisions of the Bylaws of the registrant and insuring its directors and officers against liability incurred in their capacities as such directors and officers. 55 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S BALANCE SHEET AND STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 19,459 0 270,849 3,700 141,618 443,625 1,240,849 448,430 1,273,009 187,495 69,489 0 0 81,367 705,245 1,273,009 1,619,345 1,620,169 1,366,549 1,366,549 79,774 100 1,654 172,092 64,208 107,884 0 0 0 107,884 1.30 1.30
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