Cooper Tire & Rubber Company
Q4 2014 Earnings Call Transcript

Published: 23 Feb 2015

[Operator:]

Welcome to Cooper Tire & Rubber Company fourth quarter 2014 results conference call. At this time all participants are in a listen-only mode. Later, we’ll conduct a question and answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Christine Hanneman.

[Christine Hanneman:]

This is Christine Hanneman, Director of Investor Relations and I am here with Roy Armes, our Chairman, CEO, and President; Brad Hughes, our Chief Operating Officer; and Ginger Jones, our CFO. During our conversation today you may hear forward-looking statements related to future financial results and business operations of Cooper Tire & Rubber Company. Actual results may differ materially from current management forecasts and projections. Such differences may be the result of factors over which the company has limited or no control. Information on these risk factors and additional information on forward-looking statements are included in the earnings release we issued earlier this morning and in the company’s reports on file with the SEC. In association with our earnings release we will provide an overview of the company’s fourth quarter and 2014 operations and results. Our earnings release includes a link to a set of slides that summarizes information included in the news release and in the 10K that will be filed with the SEC later today. These slides are intended to help investors and analyst quickly obtain information. They will not be used as a focus of today’s call. Following our prepared remarks we will open the call to participants for a question and answer session. We will begin this morning with Roy providing an overview, Ginger will then provide a detailed review of our results, we’ll wrap up with Roy providing commentary on our outlook and then we will take your questions. With that, I will turn the call over to Roy Armes.

[Roy V. Armes:]

You may recall that Ginger Jones joined Cooper as CFO in December coming from Plexus Corporation a $2.4 billion global electronics manufacturer. She’ll lead the financial discussion on today’s call. I’d like to begin by thanking all the Cooper employees for their hard work this past year. We started 2014 with some uncertainty after a very challenging 2013. I’m proud of the way our organization refused to let the past define our future. We moved forward and performed well throughout the year. In fact, our full year operating profit of $300 million was the second best in the history of our company and we just started our 101st year. That’s quite an accomplishment. Our fourth quarter was highlighted by continued strong performance in the Americas sector which posted 8% volume growth and an operating margin close to 10%. The higher Americas volume along with lower raw material costs drove fourth quarter operating profit to $54 million or 6.5% of sales. Excluding the gains on the sale of the 65% interest in CCT, our former Chinese joint venture, fourth quarter earnings per share were $0.45. Fourth quarter sales declined 5% largely because the reduction in unit volume from the absence of CCT for part of the quarter. As we discuss the fourth quarter results keep in mind in 2013 we had production disruptions at CCT, some shipping inefficiencies related to the implementation of our new ERP system and additional costs associated with the now terminated merger agreement. As I just mentioned in November 2014 we sold our ownership of CCT. As a result, our year-over-year comparisons are not representative of a business under normal conditions. Now, let me take a minute to review the sale of CCT. We received $262 million net of taxes and including dividends, and as you can see in our financials, we reported a gain net of tax of approximately $56 million. We have off-take rights with CCT for supply through mid-2018 and we continue to source our TBR tires that we bring into the US from them. All has gone well with that sourcing to date. We anticipate that will continue to be the case. The off-take agreement provides us with a secure source of supply while also allowing us to develop alternative sources. Our wholly owned facility in China, CKT, continues to produce cost competitive passenger car tires for both the domestic market and for export. As I’ve stated before, China and Asia continues to be an important part of our long term growth strategy and we’re actively looking for additional sources of supply to establish a larger presence there. This new supply could take a variety of forms, such as an agreement with another supplier, making an acquisition or joint venture, adding capacity to our CKT plant, buying a facility and running it ourselves, or just building a new plant. We have the financial capacity to take any of those paths or a combination of them. We will also be assessing the situation with more complete knowledge of the tariff structure, which I’ll cover in a few minutes. While the Chinese economy has slowed a bit, the tire market there continues to grow well. It is the largest truck and bus radial tire market in the world and is expected to become the world’s largest overall tire market in the next few years. We’ve proven we can be successful there and are focused on establishing a more sizeable presence in both the replacement and OE markets. Now moving on, another key strategic area for us is strengthening our technology and our technological capabilities and we have made great strides in that regard, and as a reminder, in 2014 we relocated our Asia tech center to a new larger facility in Kunshan, China and we’re getting ready to unveil the new Global Technical Center in Ohio. This new center demonstrates our commitment to the development of new products that deliver improved performance. In 2014 the number of new products launched was among the highest in Cooper’s history. In the US we introduced the CS5 Touring tire which has been well received by the industry and customers and in fact, this tire recently earned one of the world’s most prestigious design awards, a 2014 Good Design Award from the Chicago Athenaeum

[Ginger M. Jones:]

Before I begin talking about the results let me briefly discuss what impacted 2013’s fourth quarter so that everyone has an understanding of the comparisons. In June 2013, workers at CCT went on strike because of concerns about a then proposed merger with Apollo Tires. Over the second half of 2013 there were multiple manufacturing disruptions at CCT which negatively impacted our sales. In January of 2014, we came to an agreement with our joint venture partner and the union and the plant resumed normal production. Production recovered well and that recovery contributed to the year-over-year unit volume increase we posted in 2014. Part of the agreement included a process for establishing a sole owner of the joint venture and our partner elected to buy our interest. That deal was closed in November 2014. I will discuss the impact of these actions in more detail as we go through the results. I’ll now move to the total company. 2014 was a positive year for Cooper with operating profits up from 2013 and strong cash generation. Earnings per share for 2014 were $3.42 which included a gain of $56 million net of tax from the sale of CCT. Excluding the gain, full year EPS was $2.53. Full year sales were $3.42 billion compared with $3.44 billion in 2013. Total company unit volume increased 6% driven by strong growth in the Americas segment. As Roy noted, our operating profit was $300 million or 8.8% of sales compared with $241 million or 7% of sales in 2013. Moving onto the fourth quarter, EPS for the fourth quarter was $1.39 including the gain. Excluding the gain, EPS for the fourth quarter was $0.45 compared with $0.31 in 2013. Operating profit was $54 million or 6.5% of net sales compared with $47 million or 5.5% of net sales in 2013. Fourth quarter results were impacted by the absence of CCT for part of the quarter reducing operating profit by approximately $6 million and diluted EPS by approximately $0.07. In addition, we had $6 million in higher SG&A expense reflecting increases in the accrual for stock based liabilities due to the large increase in our share prices, as well as other incentive related expenses. This also reduced diluted EPS by approximately $0.07. Fourth quarter operating profit compared with the 2013 fourth quarter was also impacted by the following factors. These are favorable factors, $35 million from lower raw material costs, $12 million from higher unit volume including the recovery of $6 million of reduced volume from the 2013 labor issues at CCT and $6 million from lower product liability costs. These favorable items were partially offset by $31 million of unfavorable price and mix partially reflecting pricing declines in response to lower raw material costs, $4 million of unfavorable manufacturing costs largely due to the previously announced reconfiguring of our manufacturing plan to increase production of higher value higher margin products. The profit walk for the full company can be seen on Page 8 of the Supplemental Slides on our website. Moving to the Americas operations, I’ll start with the Americas which had a very strong quarter. Segment sales for the fourth quarter were $689 million, a 10% increase compared with 2013. Unit shipments rose 8%. Total light vehicle tire shipments for the US were up 4% during the fourth quarter compared with an estimated increase of 2% for the industry and an increase of 3% recorded by RMA members. Much of this increase was a result of very strong performance in light truck tires. While our shipments were up and ahead of the industry in RMA, they were negatively impacted by the pre buying which we previously have discussed, as customers had stock piled inventory of imported tires ahead of the initial tariff determinations. Commercial truck tire sales of the Roadmaster brand rose significantly in the fourth quarter compared with 2013 when we had no supply. We reintroduced the Roadmaster brand in the second quarter of 2014 and have regained a position with almost all of our top 30 customers. We are pleased with that progress and look forward to continued gains. In the fourth quarter Cooper shipments of these tires were up significantly from a very low number in the fourth quarter of 2013 because of supply issues. Total industry shipments within the commercial truck tire segment as reported by the RMA, were up 13%. Moving onto profitability, fourth quarter operating profit in the Americas rose to $66 million or 9.5% of net sales compared with $35 million or 5.5% of sales in 2013. The major drives of the increase were lower raw material costs and increased volume. You can see the full profit walk for the Americas on Slide Nine of our Supplemental Slide Deck. As we previously discussed, in response to accelerated demand for higher value higher margin tires, the Americas segment is in the process of reconfiguring its manufacturing plants to increase production of these products. It is expected to take until mid-2015 to better align production mix to demand. Until that is achieved certain plants in North America could run below optimal capacity. Not only does this impact manufacturing cost efficiency, it impacted our ability to meet true demand for our tires. Our raw materials index was 185 which was 11% lower than the same period in 2013 and down 5% sequentially. First quarter 2015 raw material costs are forecasted to post a sizeable decline from the fourth quarter 2014. The longer term raw material outlook is for costs to generally trend slightly higher through 2015 with periods of volatility. As a reminder, in the US we use the LIPO accounting method, charging the most recent costs against sales which in turn, impacts profits more quickly than other inventory accounting methods. Now turning to our international operations. Net sales in the international segment were $191 million down from 2013 primarily because of the sale of CCT. While European unit volume was about equal to the prior year, demand for winter tires was negatively impacted by mild weather. We also continue to see weakness in Russia and Eastern Europe driven by the political environment. Throughout Europe the economies are soft. Volume in our Asian operations decreased significantly primarily as a result of the sale of CCT. In addition, volume at CKT was down because of fewer shipments to the US and the UK partially offset by decreased domestic shipments. International segment operating profit for the fourth quarter was $2 million or 1.1% of net sales compared to $22 million or 7.7% of net sales in 2013. The results were impacted by $17 million from lower raw materials costs which was more than offset by $27 million from lower price and mix, $6 million of reduced operating profit due to the absence of CCT for a portion of the fourth quarter and $2 million of lower volumes. I’d now like to cover a few other items starting with the income taxes. Our income tax expense in the fourth quarter was $37 million which includes $22 million related to the gain on the sale of CCT and is based on annual earnings and tax rates for various tax jurisdictions. The effective tax rate excluding the impact of the gain on the sale of CCT was 33.1% for the quarter and 33.2% for the full year. We expect our 2015 effective will be in the range of 30% to 35%. More detail on our taxes is available in our Form 10K that will be filed with the SEC later today. Total selling, general, and administrative costs were $67 million or 8.1% of net sales in the quarter. This compares with $64 million or 7.4% of net sales in 2013. SG&A in 2014 was impacted by higher mark-to-market costs of stock based liabilities and higher incentive related expenses and was partially offset by the non-recurrence of merger related costs. Turning to cash flows and the balance sheet, cash and cash equivalents of $552 million at December 31, 2014 compared to $398 million at December 31, 2013. Cash provided by operating activities was $319 million in 2014. In August of 2014, we implemented an accelerated share repurchase program. We recently completed that program buying approximately 6.4 million shares at an average cost of $31.49 per share. Our diluted average shares outstanding for the fourth quarter decreased to 59.2 million while our full year diluted average shares outstanding were 62.4 million. In the third quarter of 2014 we used $50 million of cash to fund some of the repurchase and we also drew down $150 million on our credit facility to partially fund the ASR. In the fourth quarter we repaid $110 million of those borrowings. Accounts receivable were $368 million increased from the December 31, 2013 balance of $360 million. The increase in accounts receivable is the result of higher fourth quarter 2014 sales excluding CCT and a customer mix that has longer payment terms. These increases were partially offset by the absence of accounts receivables related to CCT at December 31, 2014. Capital expenditures in the fourth quarter were $33 million bringing cap ex for the full year to $145 million. This was lower than our estimated range of $175 million to $185 million due to receipt of some government grants as well as lower spending in Asia as we evaluate our options in light of the sale of our interests in CCT. Turning to our capital allocation policy, we continue to operate within our internal guidelines for the prudent deployment of capital. Our existing cash, cash flows, and potential leverage are more than sufficient to support our priorities which we define as

[Roy V. Armes:]

In summary, despite the relative weakness in our international operations in the fourth quarter, we had a very good year in 2014 particularly in our Americas business. In 2015 we expect the tire markets to continue to grow modestly in North America. For our Americas segment in the early part of 2015 is likely to be impacted negatively by the pre buying which we saw ahead of the tariff announcements, but we expect to continue to perform well for the full year. Specifically, for the first quarter of 2015 we expect unit volumes to be in line with the industry but possibly lower than the RMA, and for the full year, as we get beyond the pre buy and the conversion to higher value capacity in the US, we expect to outperform the industry and the RMA. In Asia, industry growth is projected to be in the high single digits and we’re looking for opportunities to invest in Asia to expand our business after the sale of CCT. Until we do that, we’ll see the impact of higher cost structure on our operating profit there. Western Europe and the Western Europe markets have softened and we expect continue volatility in Russia and Eastern Europe. Overall, while we expect the global tire market will remain highly competitive in 2015, we expect to exceed industry unit volume and growth rates in our largest markets for the full year excluding CCT. In line with our strategic plan, house brands will be a key contributor to this growth. Our focus on cost control will continue company wide and these programs have been successful and continue to make us even more competitive. For the full year, we expect operating margin to be consistent with our strategic plan goal of 8% to 10%. Raw material costs continue to be favorable and we’re expecting further declines in the first quarter and we’re monitoring the situation along with the tariff implementation impact on the industry. Our goal is to maintain our margin but we also recognize we need to be competitive. The company will be investing in the business and expects capital expenditures for 2015 to be in the range of $205 million to $215 million. While these expenditures are higher than depreciation and amortization and higher than in recent years, the investments are appropriate considering the strength of the balance sheet and strategic goals to enhance the capability of global assets and resources. Most of the increase will be in the Americas to support automation and mix shift. We also plan to spend more on [molds] in support of our new product introductions in 2015 and additional [molds] to support successful product launches from 2014. The company’s record of achievement gives us confidence that we can successful compete in a volatile economy and industry and the company’s focus in 2015 will continue to be guided by its strategic plan which calls for achieving profitable top line growth, investing or improving its global cost structure, and improving organizational capabilities. With that, I’d like to move onto your questions. Operator, this finishes our prepared remarks, let’s take the first question please.

[Operator:]

[Operator Instructions] Your first question comes from Robert Higginbotham from SunTrust.

[Robert Higginbotham:]

My main question has to do with raw materials. I think, versus most people’s expectations, your gross raw materials savings for the quarter were substantially below what most people were looking for particularly when you look at it sequentially, meaning you saved a lot less money in 4Q versus the third quarter so I’m just wondering what was the driver of that sequential decline in savings? Is there some difference in efficiency gains versus prior quarters that maybe didn’t show up? How should we think about what was impacting that number?

[Bradley E. Hughes:]

I don’t know that there’s anything that was significantly different from an operating perspective. There were a number of anomalies in the prior year that Ginger outlined and some of that could have flowed through to the way the material cost declines were reported. But we are seeing lower material costs in the market and we’re expecting those to continue to come down in the first quarter where we anticipate that there will be a significant decline compared with both the prior year and the fourth quarter with regard to raw material costs.

[Robert Higginbotham:]

One of your main competitors, Goodyear to be specific, has indicated they expect their mix of raw materials or commodity based raw materials to fall by about 18% this year. Is there any reason why your mix would be any different, meaning any reason you would not see similar type savings?

[Bradley E. Hughes:]

Again, I wouldn’t be able to comment on Goodyear but we are expecting there to be significant declines. We’re buying similar commodities in the same market so that part shouldn’t be different. The only thing that could possibly be different, depending on what happens over the course of the year, is our LIFO accounting method in the US which as prices are coming down, should benefit us a bit more quickly than anyone that would be on an average or a FIFO basis.

[Robert Higginbotham:]

One quick follow up, your international net price mix versus raw mat was actually negative, how much of that was driven by a soft winter tires in Europe, meaning to the extent that seasonally the mix changes, should that get more favorable going forward?

[Bradley E. Hughes:]

The price mix versus raw material for the international segment was actually influenced more by the Asia business and what was going on at CCT in the passenger car market which is at this point no longer part of what we’re looking at, so it would have been a relatively small contribution from Europe to that overall equation.

[Roy V. Armes:]

But we were seeing some price decreases there as a result of raw materials in Asia and we’re still monitoring that. As you know, we’ve said before, they change pricing almost on a monthly basis there and as this raw material changes we’re seeing those changes in that market as well.

[Operator:]

Your next question comes from Chris Van Horn from FBR Capital Markets.

[Chris Van Horn:]

Can you just kind of give us some additional commentary around the house brand penetration and just kind of what you’re seeing in the marketplace and if you can give any kind of percentage of increase you saw in penetration over the year that would be great?

[Roy V. Armes:]

We won’t get into too much specifics on that one. I think what I would tell you is that our house brands have performed very well in all the markets not just here. Our house brands are performing well in Europe, we continue to penetrate in Asia with the growth there and so we feel really good about our house brands and the products that we’ve been introducing under our house brand name. Again, we’re still expecting to outperform the markets this year in all of our key markets.

[Bradley E. Hughes:]

I would just add that the house brands continue to be the focus for us and as we outlined in our investor day presentation, we’re still tracking towards the increase in the house brand penetration of our overall business consistent with what we outlined in that presentation.

[Roy V. Armes:]

Within that house brand we’re also seeing a better mix to higher value products so it’s a combination of all of those that are really helping us. We have less exposure in the lower end and private label sector.

[Chris Van Horn:]

Then just one more follow up, on the new products that you guys talked about rolling out in 2014, could you give us a sense is there any specific product or end market that you’re seeing higher take rates with or is it kind of just broad based higher demand? Again, any additional color on the new product roll out would be great.

[Roy V. Armes:]

You mean overall or specifically North America?

[Chris Van Horn:]

More overall, but more specifically if you could just identify was commercial truck or bus, what was kind of the key new product or series of new products for you over the past year.

[Roy V. Armes:]

We had several that come out in both the passenger car tires and light truck tires, and our light truck tires are one that’s really been performing much better than the industry, so that’s been a real good product introduction for us. If you look at the new products that we’ve introduced though over the last couple of years, it accounts for about 20% to 30% of our revenues, so we continue to target that range with our introductions and we’ll probably see the same thing this year. Not only just new products introduced, but it is also again, higher value products and higher margin products.

[Operator:]

Your next question comes from David Tamberrino from Goldman Sachs.

[David Tamberrino:]

I want to just focus in on the international segment. It was a little surprisingly weak without the CCT operations, just kind of thinking about this going forward what are some of the immediate things that you can kind of do and actions to raise the operating margin and what’s a good way to think about it and the progression as we go through 2015?

[Bradley E. Hughes:]

I think there are a couple of things. In Europe, we’re looking to see improvement in our business over there as we introduce – it’s a big year for new product introductions in Europe this year. Many of those are going go to be manufactured in our Serbian facility which we believe is going to position them very well within the marketplace over there. While it’s overall a relatively weak environment, we’re expecting that our performance should be relatively strong in Europe so we look for some improvement in that market. In Asia, we’ll continue to build on the products that we’re building at our CKT facility outside of Shanghai, our 100% owned facility, and looking to grow the domestic penetration out of that plant over the course of this year. We’ve emphasized in the past the growth in the OE market and we believe that we’ll be making strides in that this year and along with that we will be looking for opportunities to replace the business that we had at CCT whether it’s in a series of steps or a step, we’re going to be looking to build back that presence in China to support our TBR business globally including in the US and also to rebuild our presence in China specifically.

[David Tamberrino:]

The point I’d like to get at is the 1% operating margin in the segment. I mean, is that expected to persist with only 7% operating margin in North America for the quarter, I understand there will be a benefit from raw materials heading into the first half of this year and then volumes in the back half, at least in North America, but I’m just trying to get to how overall the company can be in that 8% to 10% range for the full year 2015 with international in the 1% operating income operating margin.

[Roy V. Armes:]

Clearly, we’re looking at the performance of our North American business, that’s really driving a big piece of this while at the same time or in parallel we’re doing some things in China to rebuild that business so that’s what really drives our confidence and the fact that our house brands are performing well in Europe and the opportunities that we have there and the expansion of our business into a bigger part of Latin America.

[David Tamberrino:]

Maybe just one last one, in terms of the pre buy, I mean, you have much better color than we probably do talking to different distributors but how many months do you think of overhang are you still looking at as a headwind for your passenger tire units? They’re only up 1% versus I guess the RMA 3%, but do you expect it to be first half negative impact on passenger tires or is it maybe the next three months January, February, March which is only first quarter impact?

[Roy V. Armes:]

We’re expecting that this will play out in the first half. In fact, I think in some cases we’re starting to see it play out right now as these tariffs get in place. It’s hard to predict this disruption in the market that these tariffs and things have really caused, but our anticipation is, it’s probably in the first half of this year.

[Operator:]

Your next question comes from Ryan Brinkman – JP Morgan.

[Ryan Brinkman:]

I’m curious if you could break out the profitability of the international segment in 4Q between the two months of CCT and the three months of non CCT operations? I think international was a little softer than what some investors had forecast so it would be helpful for them to know if the shortfall was related more to CCT in which case it would not really matter going forward, or if on the other hand the softer results were more attributable to the continuing operations which would also be helpful to know?

[Bradley E. Hughes:]

We don’t provide that level of detail. Ginger commented on the $6 million operating profit impact of not having CCT for the last month of the quarter and then at this point that’s where we’re going to need to stop. We indicated both in December and in this call that for CCT they were having a relatively weaker performance in the fourth quarter last year with the business that is no longer contributing to Cooper, but beyond that we’re not prepared to provide more detail.

[Ryan Brinkman:]

On the raw mat index, in the past you’ve given us an actual number to compare the previous quarter to. So, the quarter that just finished was 185 so I know you say you expect a sizeable decline, a sequential decline, but given all the volatility in prices recently, can you give us an actual number? I didn’t hear that number for 1Q ’15.

[Ginger M. Jones:]

We have that number here let me just get to it.

[Bradley E. Hughes:]

We’re projecting that it’s going to be 160. That’s the Cooper specific raw material index.

[Ryan Brinkman:]

Can you talk about the pricing environment in North America at least directionally? How should we think about this consilience of upward pressure on tire prices from Chinese tire [indiscernible] and downward pressure from lower raw material prices? Do you see these factors roughly offsetting each other? Is one force more powerful than the other? How do you see the cadence of tire prices maybe progressing at these forces battle each other?

[Roy V. Armes:]

I’ll start out and then let Brad finish up on it. If you look at the factors that are playing out here, one you’ve got the countervailing duties and the anti-dumping duties and we’ve already seen some upward pricing or increased pricing as the result of the countervailing duties. But the anti-dumping, I think there’s still some watching of what’s going to happen there and see what’s going to happen not only within the competition that we’re dealing with today but there could be some new entrants of competitors throughout Southeast Asia that’s now going to play into this equation. While there’s been some price increase we think there’s still going to be pressure on upward pricing as the demand gets out there and the pre buy blows through. We’re basically monitoring very close to make sure that we’re staying competitive yet doing what’s required to satisfy our customers and to meet our profit targets.

[Bradley E. Hughes:]

I don’t have a whole lot to add to that. I think that you’re right Ryan, you’re going to have some conflicting pressures in the marketplace, some upward some downward and if you looked at the material cost environment independently I think the market will continue to allow some of that to move through to customers. I do think though that there will be a partial offset to that because of the tariffs as we move into the second half of the year. I think it’s going to be generally in line with the typical competitive environment related to raw materials, however, with the potential partial offset related to the tariffs that are now in place.

[Ryan Brinkman:]

Last question, you talked about the options that are available for you growing in China after the conclusion of CCT, I guess my question is, is there anything that can be read, I imagine the answer is no, into your strategy by the buy back announcement today? I would imagine if you’re going to do an acquisition it would involve a lot of cash outflow all at once up front whereas, if it were a greenfield it would be more ratably over time funded by your free cash flow, or would you be willing to lever to still do an acquisition even if you’re expending cash for repurchase?

[Ginger M. Jones:]

I think the message to take away from that is that we have leverage available on the balance sheet and along with our existing cash and the cash flow we’re going to generate we feel like we can do both. We can do another sizeable share repurchase and have enough dry powder to do an acquisition of the size that we think is sufficient.

[Operator:]

[Operator Instructions] Your next question comes from Bret D. Jordan – BB&T Capital Markets.

[Bret D. Jordan:]

A quick question, sort of around your R&D strategy and you talk about a fair amount of new products contribution and then certainly some new R&D facilities, do you see your longer term spend strategy changing? I guess you’re talking about more OE contribution in the Chinese market, do you think that spend goes up over time?

[Roy V. Armes:]

In absolute dollars it will probably go up. I mean, it’s going up as we speak today, but we think with our growth strategy that we’re still going to be around that 1.2% range and we think that’s very manageable.

[Bret D. Jordan:]

Then as we look at the North American production disruptions, I’m sort of trying to get a feeling for what inning we are at, you talked about it impacting the first half, could you give us any more granularity of what its impact was in the fourth quarter and sort of lay out some of the projects that are underway that we can see the end to in the second half?

[Bradley E. Hughes:]

The way that we had described it previously is that the transformation to the higher value add production that was happening in the fourth quarter continued into the first half of this year so it will be an impact as we move through the first half of the year, but we should be pretty much through it on that timeline. There’s been no change to what we described previously where we think we’ll be in a better position to produce what the market’s demanding with regard to higher value tires as we move through the first half of this year and that is where we’ll catch up.

[Bret D. Jordan:]

Then one final question, on the Chinese OE, could you give us any color of who your partner is there? Is it Great Wall that you’re doing that business with or are you in with other Chinese manufacturers?

[Bradley E. Hughes:]

We have multiple customers in China right now.

[Roy V. Armes:]

We normally don’t discuss that specifically, but we do have multiple customers there, OE customers.

[Operator:]

Your next question comes from Brett Hoselton – Keybanc Capital Markets.

[Brett Hoselton:]

First, with regards to your commercial tire business, the CCT business and so forth, how do we think about volume levels today relative to volume levels pre CCT strike? Is there another leg up or do you think you’ve kind of recovered most of what you’re going to recover following the dissolution with CCT?

[Roy V. Armes:]

I would say that probably the best way to describe that is we’re still coming back to the net business. We’ve got some very good customers, we’ve got 90% of that business back, we still continue to grow that business, there’s still more opportunities out there. I would say that this year we are expecting to get back to the pre CCT days with our commercial truck tire business and I think we still have plenty of opportunity to grow not just in North America but we’re looking at other parts of the world as well.

[Brett Hoselton:]

Then as you consider replacing the CCT capacity longer term, you’ve obviously laid out a number of different options, do you have any favorites at this time? Secondly, how should we think about timing with regards as to when you might be able to provide the investors with a sense to which direction you think you might go?

[Roy V. Armes:]

I’ll answer the last one first. I think what I said before was we need to have our strategy worked out this year. I would tell you that we’re looking at a multi legged strategy here where it’s a combination of off take and an acquisition, or building a new facility, or getting another joint venture, we’ve got all those working. I think the good thing here is we’ve been very pleased at the interest that is out there wanting to do business with us and setting up long term relations. I think that’s been very helpful and encouraging. Right now, we’re working through kind of multiple legged strategy. It’s going to take some time to get through that but I am hopeful that we’ll be able to communicate something during this year.

[Brett Hoselton:]

Then finally, giving the resolution that CCT issued at this point in time, or at least your business arrangement with the entity, how should we think about your willingness to be acquired? You’re still a potentially attractive acquisition target for certain tire companies globally and so forth. Are you open to overtures at this point in time or would you say, “Look, we are basically going to go it alone at this point in time. We’ve been down this road and we prefer to just focus on our knitting at this point.”?

[Roy V. Armes:]

I would just start off saying we’re not for sale and we’re not talking with anybody, or we’re not going to speculate on any kind of things that are going on related to whether somebody is interested in us or no. We’re just not for sale. On the other hand, I’ve said in the past that everything is on the table here if it creates the kind of value that we think is deserving of our shareholders. I think that’s all we can really say at this point in time. Also, we’re a publically traded company and you know how all that works, and once again our interest and our focus today is really working our strategy. We’ve been successful in doing that before and we think we can be very successful in doing that now and continue to create value. That’s what we’re focused on and I think that’s what we’re going to continue to be focused on going forward. Let me just close by thanking everybody for being on the call and again, that we are very focused on implementing our growth strategy across the world and reaching our strategic plan targets of operating profit at 8% to 10% range and I’m really pleased with the progress we’ve made so far. Particularly, if you look at this being the second best year in our company’s history with an operating profit of $300 million. You have a fourth quarter and a year-to-date earnings per share that is up 45% to 46% excluding the gain on the sale of CCT. Our past three years have been the best in the company’s history even with the challenges or despite the challenges that we’ve been facing over the last couple of years. I think that’s proving once again that the resilience of our business model is very good and we continue to have confidence in that business model, and we expect to continue our strong performance in line with our strategic plan. I think we’re showing that by indicating and now announcing another $200 million share repurchase program that we’re going to be executing over the next couple of years. Our confidence not only in the business but in the people at Cooper Tire & Rubber Company I think says a lot about our execution capabilities and our strategic direction. With that, thank you very much again, for attending the calla and thanks for supporting Cooper.

[Operator:]

Ladies and gentlemen thank you for participating in today’s conference. This concludes our program, you may all disconnect. Have a wonderful day.