CORRESP 1 filename1.htm corresp
(COOPERTIRES LOGO)
             
ROBERT W. HUBER
         419.424.4169  
DIRECTOR OF EXTERNAL REPORTING
            
August 4, 2010
United States Securities and Exchange Commission
100F Street, NE
Washington, DC 20549-4631
Attention: Dale Welcome
Re: Information request of August 3, 2010
Mr. Welcome:
Cooper Tire & Rubber Company is providing the information you requested on August 3, 2010 in the attached filing.
Sincerely,
/s/ Robert W. Huber
Robert W. Huber
Director of External Reporting
Attachment

 

CONSOLIDATED STATEMENTS OF EQUITY — RESTATED
(Dollar amounts in thousands except per share amounts)
                                                                 
    Total Equity  
                                                            Noncontrolling  
    Redeemable                             Cumulative             Total     Shareholders’  
    Noncontrolling     Common     Capital In             Other     Common     Parent     Interests in  
    Shareholders’     Stock     Excess of     Retained     Comprehensive     Shares in     Stockholders’     Consolidated  
    Interests     $1 Par Value     Par Value     Earnings     Income (Loss)     Treasury     Equity     Subsidiaries  
Balance at January 1, 2007
   $ 44,956     $ 86,323     $ 38,144     $ 1,256,971     $ (284,509 )   $ (458,995 )   $ 637,934     $ 28,310  
Net income
     8,358                       119,570                       119,570       402  
Other comprehensive income:
                                                                
Unrecognized postretirement benefits, net of $6,629 tax effect
                                     68,462               68,462          
Currency translation adjustment
     3,372                               8,067               8,067       2,408  
Change in the fair value of derivatives and unrealized gain on marketable securities, net of $1,835 tax effect
                                     (5,434 )             (5,434 )        
 
                                                
Comprehensive income
     11,730                                               190,665       2,810  
Transactions between Cooper Tire & Rubber Company and noncontrolling shareholders
                                                             10,588  
Purchase of 2,991,900 treasury shares
                                             (45,882 )     (45,882 )        
Stock compensation plans, including tax benefit of $2,915
                     2,532       (13 )             25,319       27,838          
Cash dividends — $.42 per share
                             (26,001 )                     (26,001 )        
 
                                                
 
                                                                
Balance at December 31, 2007
     56,686       86,323       40,676       1,350,527       (213,414 )     (479,558 )     784,554       41,708  
 
                                                                
Net (loss)
     (7,584 )                     (219,380 )                     (219,380 )     (473 )
Other comprehensive income (loss):
                                                                
Unrecognized postretirement benefits, net of $1,306 tax effect
                                     (234,455 )             (234,455 )        
Currency translation adjustment
     3,679                               (23,961 )             (23,961 )     2,932  
Change in the fair value of derivatives and unrealized gain on marketable securities, net of $103 tax effect
                                     7,403               7,403          
 
                                                
Comprehensive income (loss)
     (3,905 )                                             (470,393 )     2,459  
Transactions between Cooper Tire & Rubber Company and noncontrolling shareholders
                                                             4,250  
Accretion of redeemable noncontrolling shareholders’ interests
     9,939                       (9,939 )                     (9,939 )        
Purchase of 803,300 treasury shares
                                             (13,853 )     (13,853 )        
Stock compensation plans, including tax benefit of $26
                     3,088       (30 )             1,175       4,233          
Cash dividends — $.42 per share
                             (24,773 )                     (24,773 )        
 
                                                
 
                                                                
Balance at December 31, 2008
     62,720       86,323       43,764       1,096,405       (464,427 )     (492,236 )     269,829       48,417  
 
                                                                
Net income
     30,539                       51,767                       51,767       1,333  
Other comprehensive income (loss):
                                                                
Unrecognized postretirement benefits, net of $17,337 tax effect
                                     (4,801 )             (4,801 )        
Currency translation adjustment
     208                               3,774               3,774       (34 )
Change in the fair value of derivatives and unrealized gain on marketable securities, net of $2,397 tax effect
                                     (4,818 )             (4,818 )        
 
                                                
Comprehensive income
     30,747                                               45,922       1,299  
Accretion of redeemable noncontrolling shareholders’ interests
     (9,939 )                     9,939                       9,939          
Issuance of 1,527,778 shares of stock
             1,527       20,473                               22,000          
Stock compensation plans, including tax benefit of $1,944
                     6,408       (52 )             1,688       8,044          
Cash dividends — $ .42 per share
                             (24,926 )                     (24,926 )        
 
                                                
Balance at December 31, 2009
   $ 83,528     $ 87,850     $ 70,645     $ 1,133,133     $ (470,272 )   $ (490,548 )   $ 330,808     $ 49,716  
 
                                                
See Notes to Consolidated Financial Statements, pages 39 to 69.
     
[August 4, 2010 SEC Correspondence]   Page 2

 

Note 1A — Restatement
This amendment to the Company’s Annual Report on Form 10-K filed on March 2, 2010 (“Form 10-K”) was filed to reflect restatements of the Company’s Consolidated Balance Sheets at December 31, 2008 and December 31, 2009, and its Consolidated Statements of Operations and Equity for the fiscal years ended December 31, 2007, 2008 and 2009, and the related notes thereto, as a result of a review of the Company’s accounting for its noncontrolling shareholders’ interests.
The restatement relates, in part, to the Company’s classification of the noncontrolling shareholders’ interests in Cooper Chengshan. Historically, the Company classified the Cooper Chengshan noncontrolling shareholders’ interests as permanent equity. After consideration of the applicable financial accounting guidance and evaluation of the related agreements, classification of the noncontrolling interest as redeemable noncontrolling shareholders’ interest within mezzanine equity was deemed appropriate. Further, the restatement reflects the reclassification of a portion of the currency translation adjustment recorded in the Company’s comprehensive income (loss) which should have been allocated to comprehensive income attributable to noncontrolling shareholders’ interests in consolidated subsidiaries.
The tables below present the impact of the restatement on the Company’s net income (loss) available to common stockholders, earnings (loss) per share, selected components of the Consolidated Balance Sheets and Consolidated Statements of Equity and the Company’s Other comprehensive income (loss):
(Number of shares and dollar amounts in thousands except per share amounts)
                                                 
    2007     2008     2009  
    As Originally             As Originally             As Originally        
    Reported     Restated     Reported     Restated     Reported     Restated  
Numerator
                                                
Income (loss) from continuing operations attributable to Cooper Tire & Rubber Company
  $ 91,435     $ 91,435     $ (219,444 )   $ (219,444 )   $ 83,420     $ 83,420  
 
                                                
Accretion of redeemable noncontrolling shareholders’ interest
     —       —       —       (9,939 )     —       9,939  
 
                                    
 
                                                
Numerator for basic and diluted earnings (loss) per share — income (loss) from continuing operations available to common stockholders
   $ 91,435     $ 91,435     $ (219,444 )   $ (229,383 )   $ 83,420     $ 93,359  
 
                                    
 
                                                
Denominator
                                                
Denominator for basic earnings (loss) per share — weighted average shares outstanding
     61,938       61,938       59,048       59,048       59,439       59,439  
 
                                                
Effect of dilutive securities — stock options and other stock units
     774       774       —       —       1,242       1,242  
 
                                    
 
                                                
Denominator for diluted earnings per share — adjusted weighted average share outstanding
     62,712       62,712       59,048       59,048       60,681       60,681  
 
                                    
 
                                                
Basic earnings (loss) per share:
                                                
Income (loss) from continuing operations available to Cooper Tire & Rubber Company common stockholders
   $ 1.48     $ 1.48     $ (3.72 )   $ (3.88 )   $ 1.40     $ 1.57  
Income (loss) from discontinued operations, net of income taxes
     0.03       0.03       —       —       (0.53 )     (0.53 )
Gain on sale of discontinued operations
     0.43       0.43       —       —       —       —  
 
                                    
Net income (loss) available to Cooper Tire & Rubber Company common stockholders
   $ 1.93 *   $ 1.93 *   $ (3.72 )   $ (3.88 )   $ 0.87     $ 1.04  
 
                                    
 
                                                
Diluted earnings (loss) per share:
                                                
Income (loss) from continuing operations available to Cooper Tire & Rubber Company common stockholders
   $ 1.46     $ 1.46     $ (3.72 )   $ (3.88 )   $ 1.37     $ 1.54  
Income (loss) from discontinued operations, net of income taxes
     0.03       0.03       —       —       (0.52 )     (0.52 )
Gain on sale of discontinued operations
     0.42       0.42       —       —       —       —  
 
                                    
Net income (loss) available to Cooper Tire & Rubber Company common stockholders
   $ 1.91     $ 1.91     $ (3.72 )   $ (3.88 )   $ 0.85     $ 1.02  
 
                                    
 
*    Amounts do not add due to rounding
     
[August 4, 2010 SEC Correspondence]   Page 3

 

                                                                 
    As of January 1, 2007     As of December 31, 2007     As of December 31, 2008     As of December 31, 2009  
    As Originally             As Originally             As Originally             As Originally        
    Reported     Restated     Reported     Restated     Reported     Restated     Reported     Restated  
Redeemable noncontrolling shareholders’ interest
   $ —     $ 44,956     $ —     $ 56,686     $ —     $ 62,720     $ —     $ 83,528  
Retained Earnings
     1,256,971       1,256,971       1,350,527       1,350,527       1,106,344       1,096,405       1,133,133       1,133,133  
Cumulative other comprehensive loss
     (282,552 )     (284,509 )     (205,677 )     (213,414 )     (450,079 )     (464,427 )     (455,750 )     (470,272 )
Total parent stockholders’ equity
     639,891       637,934       792,291       784,554       294,116       269,829       345,330       330,808  
Noncontrolling shareholders’ interests in consolidated subsidiaries
     71,309       28,310       90,657       41,708       86,850       48,417       118,722       49,716  
Total stockholders’ equity
     711,200       666,244       882,948       826,262       380,966       318,246       464,052       380,524  
                                                 
    2007     2008     2009  
    As Originally             As Originally             As Originally        
    Reported     Restated     Reported     Restated     Reported     Restated  
Net income (loss) attributable to Cooper Tire & Rubber Company
   $ 119,570     $ 119,570     $ (219,380 )   $ (219,380 )   $ 51,767     $ 51,767  
Other comprehensive income (loss):
                                                
Currency translation adjustments
     13,847       8,067       (17,350 )     (23,961 )     3,948       3,774  
Unrealized net gains (losses) on derivative instruments and marketable securities, net of tax
     (5,434 )     (5,434 )     7,403       7,403       (4,818 )     (4,818 )
Unrecognized postretirement benefit plans, net of tax
     68,462       68,462       (234,455 )     (234,455 )     (4,801 )     (4,801 )
 
                                    
Comprehensive income (loss)
 attributable to Cooper Tire & Rubber Company
     196,445       190,665       (463,782 )     (470,393 )     46,096       45,922  
Net income (loss) attributable to noncontrolling shareholders’ interests
     8,760       8,760       (8,057 )     (8,057 )     31,872       31,872  
Other comprehensive income (loss):
                                                
Currency translation adjustments
     —       5,780       —       6,611       —       174  
 
                                    
Comprehensive income (loss)
 attributable to noncontrolling shareholders’ interests
     8,760       14,540       (8,057 )     (1,446 )     31,872       32,046  
 
                                    
 
                                                
Total comprehensive income (loss)
   $ 205,205     $ 205,205     $ (471,839 )   $ (471,839 )   $ 77,968     $ 77,968  
 
                                    
In connection with the investment in Cooper Chengshan, beginning January 1, 2009 and continuing through December 31, 2011, the noncontrolling shareholders have the option, which is embedded in the noncontrolling interest, to require the Company to purchase the remaining 49 percent noncontrolling share at the greater of a minimum price of $62,700 or a formula price that varies based on operating results of the entity. The combination of a noncontrolling interest and a put option resulted in a redeemable noncontrolling shareholder interest. The put option is not separated from the shares as an embedded derivative because the underlying shares are not readily convertible into cash.
The noncontrolling interest is redeemable at other than fair value as the put value is determined based on a specified formula as described above. The Company records the noncontrolling shareholders’ interests in Cooper Chengshan at the greater of 1) the initial carrying amount, increased or decreased for the noncontrolling shareholders’ share of net income or loss and its share of other comprehensive income or loss and dividends (“carrying amount”) or 2) the value of the put option which is determined based on the greater of the minimum amount or the formula derived amount (“redemption value”). Prior to exercisability of the put option on January 1, 2009, the noncontrolling shareholders’ interest has been recorded at the greater of 1) the carrying value or 2) the cumulative amount required to accrete the initial carrying amount to the redemption value using the effective interest method which resulted in accretion of $9,939 in 2008 and the reversal of accretion ($9,939) in 2009. Such accretion amounts are recorded as increases (decreases) to redeemable noncontrolling shareholders’ interests with offsets to retained earnings. According to authoritative accounting guidance, the redeemable noncontrolling shareholders’ interest is classified outside of permanent equity, in mezzanine equity, on the Company’s Consolidated Balance Sheets.
According to authoritative accounting guidance for redeemable noncontrolling shareholders’ interests, to the extent the noncontrolling shareholders have a contractual right to receive an amount upon exercise of a put option that is other than fair value, and such amount is greater than carrying value, then the noncontrolling shareholder has, in substance, received a dividend distribution that is different than other common stockholders. Therefore accretion adjustments to the carrying value of noncontrolling shareholders’ interests to reflect the put option also should be reflected in the computation of earnings per share available to the Company’s common stockholders.
     
[August 4, 2010 SEC Correspondence]   Page 4

 

 

2.   Net income (loss) per share is computed on the basis of the weighted average number of common shares outstanding each year. Diluted earnings (loss) per share from continuing operations includes the dilutive effect of stock options and other stock units. The following table sets forth the computation of basic and diluted earnings (loss) per share:
                 
    Three months ended March 31,  
    Restated        
    2009     2010  
Numerator
                
Income (loss) from continuing operations attributable to Cooper Tire & Rubber Company
   $ (20,903 )   $ 12,336  
 
                
Accretion of redeemable noncontrolling shareholders’ interest
     (1,110 )     —  
 
            
 
                
Numerator for basic and diluted earnings (loss) per share — income (loss) from continuing operations available to common stockholders
   $ (22,013 )   $ 12,336  
 
            
 
                
Denominator
                
Denominator for basic earnings (loss) per share — weighted average shares outstanding
     58,941       60,614  
 
            
 
                
Effect of dilutive securities — stock options and other stock units
     —       1,680  
 
            
 
                
Denominator for diluted earnings per share — adjusted weighted average share outstanding
     58,941       62,294  
 
            
 
                
Basic earnings (loss) per share:
                
Income (loss) from continuing operations available to Cooper Tire & Rubber Company common stockholders
   $ (0.37 )   $ 0.20  
Loss from discontinued operations, net of income taxes
     (0.01 )     (0.01 )
 
            
Net income (loss) available to Cooper Tire & Rubber Company common stockholders
   $ (0.38 )   $ 0.19  
 
            
 
                
Diluted earnings (loss) per share:
                
Income (loss) from continuing operations available to Cooper Tire & Rubber Company common stockholders
   $ (0.37 )   $ 0.20  
Loss from discontinued operations, net of income taxes
     (0.01 )     (0.01 )
 
            
Net income (loss) available to Cooper Tire & Rubber Company common stockholders
   $ (0.38 )   $ 0.19  
 
            
3.   Derivative financial instruments are utilized by the Company to reduce foreign currency exchange risks. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into financial instruments for trading or speculative purposes. The derivative financial instruments include fair value and cash flow hedges of foreign currency exposures. The change in values of the fair value foreign currency hedges offset exchange rate fluctuations on the foreign currency-denominated intercompany loans and obligations. The Company presently hedges exposures in the Euro, Canadian dollar, British pound sterling, Swiss franc, Swedish krona, Norwegian krone, Mexican peso and Chinese yuan generally for transactions expected to occur within the next 12 months. The notional amount of these foreign currency derivative instruments at December 31, 2009 and March 31, 2010 was $207,600 and $187,400, respectively. The counterparties to each of these agreements are major commercial banks.
     
[August 4, 2010 SEC Correspondence]   Page 5

 

 

8.   The following table reconciles the beginning and end of the period equity accounts attributable to Cooper Tire & Rubber Company and to the noncontrolling shareholder interests:
                                 
            Noncontrolling                
    Total     Shareholders’             Redeemable  
    Parent     Interests in     Total     Noncontrolling  
    Stockholders’     Consolidated     Stockholders’     Shareholders’  
    Equity     Subsidiaries     Equity     Interests  
Balance at December 31, 2009 (1)
   $ 330,808     $ 49,716     $ 380,524     $ 83,528  
 
                                
Net income
     11,576       685       12,261       4,911  
Other comprehensive income (1)
     13,456       (195 )     13,261       (2,457 )
Dividends payable to noncontrolling shareholders
     —       —       —       (11,637 )
Contribution of noncontrolling shareholder
     —       5,250       5,250       —  
Acquisition of noncontrolling shareholder interest
     1,384       —       1,384       (19,304 )
Stock compensation plans, including tax charge of $392
     (2,175 )     —       (2,175 )     —  
Cash dividends — $.105 per share
     (6,416 )     —       (6,416 )     —  
 
                        
 
                                
Balance at March 31, 2010 (1)
   $ 348,633     $ 55,456     $ 404,089     $ 55,041  
 
                        
 
(1)   Amounts have been restated, see Footnote 1 for additional information.
The following table provides the details of the Company’s comprehensive income (loss). Comprehensive income includes net income and components of other comprehensive income, such as foreign currency translation adjustments, unrealized gains or losses on certain marketable securities and derivative instruments and unrecognized postretirement benefits plans.
The Company’s comprehensive income (loss) is as follows:
                 
    Three months ended March 31  
    2009     2010  
Net income (loss) attributable to Cooper Tire & Rubber Company
   $ (21,267 )   $ 11,576  
Other comprehensive income (loss):
                
Currency translation adjustments (1)
     (3,083 )     (4,572 )
Unrealized net gains on derivative instruments and marketable securities, net of tax effect
     3,367       1,362  
Unrecognized postretirement benefit plans, net of tax effect
     354       16,666  
 
            
Comprehensive income (loss) attributable to Cooper Tire & Rubber Company (1)
     (20,629 )     25,032  
Net income (loss) attributable to noncontrolling shareholders’ interests
     (2,020 )     5,596  
Other comprehensive income (loss):
                
Currency translation adjustments (1)
     101       (2,652 )
 
            
Comprehensive income (loss) attributable to noncontrolling shareholders’ interests (1)
     (1,919 )     2,944  
 
            
 
                
Total comprehensive income (loss)
   $ (22,548 )   $ 27,976  
 
            
 
(1)   Amounts have been restated, see Footnote 1 for additional information.
     
[August 4, 2010 SEC Correspondence]   Page 6

 

                                                 
    Redeemable                    
    Noncontrolling   Retained           Noncontrolling   Cooper Chengshan
    Interest   Earnings   OCI   Interest   Income   Currency
December 31, 2008
     62,720       1,096,405       (464,427 )     48,417                  
Net income
             (21,267 )             (2,020 )                
OCI
                     739                          
Dividends
             (6,235 )                                
Intercompany transactions
                                                
Currency translation
                     (101 )     101                  
Cooper Chengshan
     (1,110 )                     1,110       (1,110 )     —  
CCT purchase price amort
                                                
Accretion
     1,110       (1,110 )                                
 
                                                
March 31, 2009
     62,720       1,067,793       (463,789 )     47,608                  
 
                                                
Net income
             (12,960 )             6,638                  
OCI
                     7,123                          
Dividends
             (6,191 )                                
Intercompany transactions
                                                
Currency translation
                     287       (287 )                
Cooper Chengshan
     6,504                       (6,504 )     6,517       (13 )
Accretion
     (6,504 )     6,504                                  
 
                                                
June 30, 2009
     62,720       1,055,146       (456,379 )     47,455                  
 
                                                
Net income
             46,831               10,664                  
OCI
                     12,966                          
Dividends
             (6,192 )                                
Intercompany transactions
                                                
Currency translation
                     (418 )     418                  
Cooper Chengshan
     10,056                       (10,056 )     9,883       173  
Accretion
     (4,545 )     4,545                                  
 
                                                
September 30, 2009
     68,231       1,100,330       (443,831 )     48,481                  
 
                                                
Net income
             39,163               16,590                  
OCI
                     (26,499 )                        
Dividends
             (6,360 )                                
Intercompany transactions
                             —                  
Currency translation
                     58       (58 )                
Cooper Chengshan
     15,297                       (15,297 )     15,249       48  
Accretion
             —                                  
 
                                                
December 31, 2009
     83,528       1,133,133       (470,272 )     49,716       30,539       208  
 
                                                
Chengshan purchase
     —       51,767       (5,671 )                        
CCT purchase price amort
     —       (24,978 )     (174 )                        
Chengshan income
     30,539                                          
Minority interest schedule
     30,539                                          
 
                                                
Currency
     208                                          
 
                                                
 
     30,747                                          
     
[August 4, 2010 SEC Correspondence]   Page 7

 

 

                         
    Accreted   Formulaic   Carrying
    Value   Value   Value
Original purchase price
   $ 37,647                  
 
December 31, 2006
   $ 44,612       n/a     $ 44,986  
 
December 31, 2007
   $ 52,965       n/a     $ 56,686  
 
December 31, 2008
   $ 62,720     $ 21,130     $ 62,720  
 
December 31, 2009
   $ 62,720     $ 63,584     $ 83,528  
The accreted values represent the amounts required using the effective interest method.
The put option was not exercisable until January 1, 2009 so the formulaic value could only first be computed at December 31, 2008 using the prior three years net income
The carrying value at December 31, 2008 includes the accretion adjustment of $9,939.
     
[August 4, 2010 SEC Correspondence]   Page 8