Cooper Tire & Rubber Co. Q4 2008 Earnings Call Transcript

| About: Cooper Tire (CTB)

Cooper Tire & Rubber Co. (NYSE:CTB)

Q4 2008 Earnings Call

February 26, 2009 11:00 am ET

Executives

Curtis Schneekloth - Director of Investor Relations

Roy V. Armes – President and Chief Executive Officer

Philip G. Weaver - Chief Financial Officer

Analysts

Monica Keeney – Morgan Stanley

Kirk Ludtke – CRT Capital Holdings

Rod Lache - Deutsche Bank

Saul Ludwig - Keybanc Capital Markets

Gabriel Sirda – [unspecified firm]

Operator

At this time I would like to welcome everyone to the Cooper Tire fourth quarter 2008 results conference call. (Operator Instructions) Mr. Schneekloth, you may begin your conference.

Curtis Schneekloth

Thank you for joining our call today. My name is Curtis Schneekloth and I serve as the company’s Director of Investor Relations.

To begin with I would like to remind you that during our conversations today you may hear forward-looking statements related to future financial results and business operations for Cooper Tire & Rubber Co. Actual results may differ materially from current management forecasts and projections as a result of factors over which the company has no control. Information on these risks factors and additional information on forward-looking statements are included in the press release and in the company’s reports on file with the Securities and Exchange Commission.

With me today are Roy Armes, Chairman, Chief Executive Officer, and President, and Phil Weaver, who serves as Chief Financial Officer. In association with the press release which was sent out earlier this morning we’ll provide an overview of the company’s fourth quarter and full year operations and results. Following our prepared comments we will open the call to participants for a question and answer session.

Today’s call will begin with Roy providing an overview of our results. He will then turn it over to Phil for a discussion on some of the details by segment and comments on other matters. Roy will then summarize and provide comments on our outlook.

Now let me turn the call over to Roy Armes.

Roy V. Armes

Good morning to all. It probably goes without saying that 2008 was a year of extreme volatility for not only the tire industry but certainly for Cooper as well. There were extremely large and unusual fluctuations in the prices of raw materials coupled with decrease in demand for the second of the last three years that hasn’t been seen before in the replacement tire market. The fourth quarter continued with these trends and despite these conditions we’ve been successful in moving along the path that we outlined in our strategic plan earlier last year.

As a reminder, the plan includes establishing a sustainable and cost-competitive supply of tires, profitably growing our business and enhancing our organizational capabilities. Liquidity is also a focus for us while the credit markets are turbulent and market conditions adverse, and all of these impacted our bottom line and offset some of the good improvements we are making within the operations.

So during the fourth quarter we had a loss of $2.43 a share, or $143.0 million. This includes restructuring charges related to the closure of the Albany, Georgia, facility of around $76.0 million, the write-off of goodwill in our international segment of $31.0 million, and a $10.0 million charge related to applying the lower of cost or market principal to certain of our inventories.

We also had a tax benefit of $28.0 million from the quarter. Net of those items, our loss was $54.0 million, or $0.92 per share, for the quarter. The full year loss was $219.0 million. We acknowledge that the macroeconomic factors have played a significant role in these results but we clearly understand that we need to continue making improvements in our business model, even during these brutal economic times.

With these factors in mind, we are proactively managing the business to best protect liquidity in the short term and enhance long-term shareholder value by repositioning the company for future success. And we continue to balance the need to conserve resources with the need to invest in opportunities that will make Cooper a stronger company.

We ended the year with $248.0 million in cash and did not draw down on our available parent company credit lines. Despite the negative results we have begun to see some of the benefits from the actions taken earlier, since we first communicated the strategic plan a year ago. Our results remain pressured but we see the potential for a stronger company in the near future. We have also adapted our plan to the current business environment but continue to believe it’s the right direction for our company.

In December we announced plans to close our manufacturing facility in Albany, Georgia. The restructuring charges were estimated to be between $150.0 million and $175.0 million, of which 50% to 60% would be non-cash. The equipment write-down charge of $76.0 million was taken during the fourth quarter as well.

We are now estimating that the total charges will be somewhat lower, somewhere in the range of $120.0 million to $145.0 million and we continue to believe the annual savings of the closure will be approximately $75.0 million to $80.0 million, primarily due to better fixed cost structure and the operating leverage at our remaining facilities compared to not closing a plant. In essence, better optimizing the three remaining facilities versus sub-optimizing the four U.S. plants.

With that said, let me present an overview of the operations. Globally, demand for replacement tires dropped considerably during the quarter which placed significant pressure on our volumes. On a consolidated basis sales for the fourth quarter decreased over the prior year fourth quarter by 17% to $636.0 million and the full year net sales declined by l.7% to $2.88 billion. Pricing and mix were a positive during the quarter and we curtailed production to address the weakening demand.

Operating losses for the fourth quarter were $164.0 million compared to operating profits of $43.0 million for the same period last year. And for the full year, operating losses were $217.0 million compared to operating profits of $134.0 million last year. The largest driver of this change was the dramatic rise in raw material costs, which increased $96.0 million and for the full year the impact was $340.0 million compared to 2007. In this case, we couldn’t raise prices fast enough to offset the cost increases that we were incurring. The benefits of lower spot prices in the commodity market will begin to more evident in our first quarter results.

Also impacting the quarter were the items I mentioned at the beginning, including restructuring charges and the goodwill impairment.

The North American segment faced a continued escalation in raw material costs as oil, rubber, and steel prices rose during the quarter. The U.S. replacement tire market continued to be extremely soft and the RMA industry tire shipments in the U.S. for light vehicles declined by 17% in the quarter on a year-over-year basis.

The full year RMA decline was 9% and the RMA estimated that total industry shipments, which will include non-member companies, declined about 6% for the year.

The North American segment was able to partially offset some of these issues with an improved price and mix and our continued expansion in Mexico and Canada.

During the quarter we curtailed production to align inventory with demand. These curtailments cost approximately $20.0 million during the quarter, primarily in the form of unabsorbed fixed overhead. On a positive note, investments in automation, lean, Six Sigma and other projects continued to show improvement on the bottom line as we improved underlying manufacturing operations in spite of higher utility costs. Gross of the increased utility costs, operations improvements were approximately $8.0 million during the quarter when compared to 2007.

The highlight for us during the quarter was the certification of our four U.S. plants as ISO compliant. This was an excellent achievement by our employees and another indicator of the improvements we are making.

We continued ramping up the facility in Mexico during the quarter and at the end of the year they were manufacturing around 2.0 million tires per year on a run rate basis and will continue to increase those production levels in 2009 for sales into Mexico and shipments to the U.S. market.

Our international segment was affected by the slowdowns of the Asian and European economies as well. Prices remained favorable but volumes suffered in the process. This segment also curtailed production to address inventory levels and align with projected demand. The international segment was able to increase full-year unit sales by about 7% and net sales by about 11%. This segment also faced increasing raw material costs during the quarter, including $31.0 million of goodwill impairment and a $10.0 million charge related to recording a lower of cost or market adjustment. The operating loss for the quarter was around $50.0 million. For the full year, excluding those charges, the segment lost $10.0 million at the operating profit level.

Our balance sheet and liquidity levels continued to be a positive. At the end of the year we had cash and cash equivalents of $248.0 million and we have not had to draw on our available credit lines, which remain a source of liquidity for us as well.

So now I would like to turn it over to Phil and he’s going to provide you with more detail on the individual segments and other related financial matters.

Philip G. Weaver

I would like to start with our North American tire operations where sales were $511.0 million. This was a decrease of 13% compared to the fourth quarter of 2007. This decrease was a result of lower unit volumes partially offset by improved pricing and mix. Decreased volumes for the segment in the United States were partially offset by increased volumes in Mexico and Canada.

Operating losses for our North American tire operations were $109.0 million in the quarter and $174.0 million year-to-date. The year-to-date includes $41.0 million of costs related to production curtailments and $76.0 million of restructuring charges, most of which were non-cash. This compares to an operating profit of $119.0 million in 2007.

The net sales change during the quarter was a result of improved pricing and mix of about $50.0 million offset by lower unit volumes which impacted it to the tune of $136.0 million. The improved mix was primarily the result of increased sales volumes of the Cooper brand, which continues to perform well in the marketplace. The segment also increased sales of winter tires in shipments to Canada and Mexico.

The product segments with the largest declines were broadline and light truck and declines were particularly acute in the private brand distributor channel.

In the United States our shipments of total light vehicle tires decreased 26% in the fourth quarter compared to the fourth quarter of 2007. This exceeded the 17% decrease in total light vehicle shipments reported by the Rubber Manufacturers’ Association and also exceeded the 14% decrease in total light vehicle shipments for the total industry for the quarter.

The total industry estimate includes an estimate of imports by non-RMA member companies. The industry decrease in light vehicle tire units was due to the deteriorating macroeconomic conditions in the United States.

These included higher fuel prices earlier in the year and recession concerns, of course, later in the year. Miles driven decreased throughout the year. All of this caused reductions in replacement tire purchases. Sales to both private brand distributors and to wholesale channel customers decreased as competition increased in these price-sensitive channels.

On an operating results basis price and mix improvements contributed positively during the quarter, adding $49.0 million to operating profit compared to the same period in 2007. This was not enough to offset the unfavorable raw material impact during the quarter of about $79.0 million. The underlying raw materials index was up about 35% on a year-over-year basis and was down slightly from the third quarter of 2008.

These continued high prices coupled with the use of the last-in-first-out, or LIFO, cost flow assumptions for inventory accounting in North America have contributed to decreased earnings. The LIFO accounting method charges the most recent cost against sales and in periods of rising raw material costs, results in lower profits compared to other inventory methods.

This segment implemented price increases in February 2008 of up to 5%. In July we had another price increase of up to 8%. And October 1 we implemented a third increase of up to 10% in an effort to recoup these rising costs.

Mix improvement during the quarter also added a slight benefit. The deteriorating market conditions led to negative volume impact during the quarter of $33.0 million. In the fourth quarter of 2007 we had benefited by about $8.0 million from the declining LIFO inventory layers. There was no such similar benefit in 2008.

We continued to improve our underlying plant operations through successful implementation of automation, lean, and Six Sigma, and complexity reduction. The manufacturing improvement in the quarter, net of increased utility costs, was about $6.0 million on a year-over-year basis. And this amount if exclusive of the $20.0 million or so in unabsorbed overhead costs relating to curtailing operations during the quarter.

Products liability costs during the quarter were slightly higher than last year’s quarter. Year-to-date product liability costs were $11.0 million higher than last year.

Before turning to our international operations, let me express these changes during the quarter in the form of an operating results walk forward. This compares the fourth quarter of 2008 with the fourth quarter of 2007.

The total decrease in North American operating profit was $154.0 million. The drivers of this were a $49.0 million improvement in price and mix and a $6.0 million favorable net manufacturing performance, less $33.0 million from lower volumes, $79.0 million due to higher raw material costs, $20.0 million related to the production curtailments, and $75.0 million in restructuring charges, which were almost entirely non-cash.

Now, turning to the international operations. Sales decreased $176.0 million, or down 23%, compared to last year’s fourth quarter. This was a result of decreased volumes offset by higher pricing for the segment. Sales in Asia were down 22% for the quarter, driven primarily by the weakness of demand in the United States, which affected the units exported from our Cooper Kenda joint venture in China. Both the export and domestic sales at Cooper Chengshan were also affected by the global recession. Europe’s sales were down about 24%.

Operating loss for the international segment was $50.0 million, or a decline of $54.0 million from last year’s operating profit of $4.0 million during the quarter. Year-to-date the segment had an operating loss of $30.0 million compared to $29.0 million of operating profit during 2007.

This segment has been impacted by many of the same factors as North America, including primarily the raw material increases and lower demand.

The segment was additionally impacted by $31.0 million of charges relating to the impairment of goodwill. During the quarter there was also a charge of $10.0 million relating to the write-down of inventory due to the application of lower cost or market principals following the rapid decline in commodity prices.

Excluding these charges the segment would have posted an operating loss of $9.0 million in a time when they were incurring expenses relating to penetrating the Asian market and ramping up the facilities there.

Our Chinese joint ventures continue to perform well but have been affected by weak demand. These include both the markets that they export to and the domestic Chinese market.

Earlier in the year the Chinese market was forecasted to recover after the August slowdowns caused by the Olympics. This rebound did not occur and left the domestic Chinese market growing at a much slower rate than originally forecasted. While there is still growth in China, that rate is slower than initial projections.

We continue to adopt our production and plans, including capital expenditures related to growth, to this new reality. When the domestic or export markets begin to regain momentum, we will be well positioned.

Our facility in Europe is dealing with higher utility costs but has been successful in implementing projects to offset a portion of these costs. Their volume decline was caused by the general market decline and we believe they’ve done an excellent job defending the position in Europe.

Operating profit in the international segment was a decrease of $54.0 million during the quarter from the year ago. Let me provide you with the key underlying factors in the form of an operating profit walk forward from 2007’s fourth quarter to 2008’s fourth quarter.

First, there was improvement of $17.0 million due to price and mix, offset by $10.0 million due to lower volumes, about $17.0 million in higher raw material costs, $5.0 million of higher manufacturing costs including some shutdowns there, $10.0 million to align inventory to lower of cost or market, and of course, the goodwill that we’ve mentioned of $31.0 million during the quarter. The drivers for most of these changes were discussed earlier in the call.

Now I would like to cover a few other items, starting with our income tax accounting. The income tax benefit recorded in the fourth quarter from continuing operations was $28.0 million and results primarily from lost carry-backs in the U.S. These, together with returns of deposits made earlier in 2008 will result in cash refunds of about $43.0 million during 2009.

Now a few words on cash flows. Net cash used by continuing operations in operating activities was $165.0 million during 2008. This compares with net cash provided by continuing operations of $361.0 million during 2007. The change in cash flow was driven primarily by changes in profitability, inventory levels, and accounts receivable balances.

Inventory consumed cash of $218.0 million during 2008. Raw materials were at elevated levels at year end and accounted for about $57.0 million of that increase. The higher raw material balances were due in part to efforts to avoid shortages in commodities where we were experiencing tight supplies during the third and the early part of the fourth quarter.

As demand slowed in the fourth quarter we did not cycle through the raw materials as quickly as we had anticipated. As raw material prices fall, and/or stay at lower levels, we will liquidate these excess quantities. We expect to benefit from this both in terms of profitability and cash flows in 2009.

Finished goods inventories were intentionally built during the year as we had extremely low levels at the end of 2007. Our units are now close to the level we believe is appropriate and manageable for our order/fill rate expectations.

The benefits from the lower cost of materials are still cycling through and could be significant in 2009.

The change in the LIFO reserve during the fourth quarter of 2008, which reflects the movement of cost levels for just our North American inventories, was a decrease of $16.0 million. With regard to the cash flow statement we are showing the LIFO reserve change on the face of the cash flow statement as a non-cash add back to net income to enable us to better reflect the cash consumed by inventory as compared to the net presentation that we have used in the past.

The offset of course, is that the cash consumed by the inventory build is higher and we believe this will assist you in understanding the potential for cash flow generation in 2009 due to lower inventory quantities, particularly of raw materials, and of course, also due to the expected lower costs.

Now a few comments on the balance sheet. As you saw, our cash balance was $248.0 million at December 31, 2008. Receivables are down to the slower sales and strong collections near year end. Inventory, which is reported on the balance sheet net of a $222.0 million LIFO reserve, includes a purposeful addition of finished goods quantities compared to 2007, higher raw material quantities that I just described, and higher material prices.

Net property and equipment is down about 9% as capital spending was constrained to amounts less than depreciation and due to the $76.0 million write down of assets related to the upcoming planned closure of our Albany facility.

Other long-term assets include the investment in our manufacturing company in Mexico, which is not consolidated due to our minority ownership position.

All short-term notes payable relate entirely to the partially-owned ventures in China, whose operations are included in our consolidated balance sheet. These will be refinanced during 2009 with the goal of converting a portion of them to long-term instruments. And approximately 20% of those have already been refinanced.

The current portion of long-term debt includes $97.0 million of parent-company debt due in December and about $51.0 million of term loans maturing in these partially-owned subsidiaries in China.

Our defined benefit plans, which in the U.S. were entirely fully-funded at the end of last year, even globally were nearly fully-funded on a project benefit-obligation-measurement basis at the end of 2007. During 2008, given the market turmoil, the value of the related pension trust declined significantly. Accounting rules require that the change in pension funding, or literally, the unrecognized cost, be reflected on the balance sheet as an increase in liabilities with a corresponding offset to shareholders equity through other comprehensive income.

During 2008, unrecognized pension and other post-retirement costs increased by $250.0 million net of tax, with a corresponding increase in the cumulative other comprehensive loss offset to shareholders equity.

Although we have remaining $40.0 million of authorization for share repurchases and $104.0 million on debt repurchases, we have suspended these repurchases to protect our liquidity during this banking crisis.

Now a few words on the credit facilities. We have, at the parent-company level, two primary credit facilities that provide our source of liquidity. The first is a $200.0 million asset-backed revolving credit facility which expires in November of 2012. We also have an accounts receivable securitization program for up to an additional $125.0 million that expires in the latter part of 2010. Both facilities remain undrawn with approximately $30.0 million of the lines used to back currently outstanding letters of credit.

The amount that can be borrowed under these lines is subject to the available working capital that can be pledged. These two facilities do not contain any significant financial covenants until availability is reduced to specified levels. And as we mentioned earlier, we have not drawn on either of these facilities since they were put in place.

A little bit now more on pension expense accounting and funding. Our typical contributions to the U.S. pension plans exceed the minimum ERISA requirements in order to take advantage of tax benefits and maintain prudent funding, and that’s been our past practice. Contributions to domestic and foreign plans in 2008 were just about $40.0 million.

The value of investments in the company’s pension trust have decreased during this current or recent market turmoil. This will increase our consolidated pension expense from ongoing operations from about $16.0 million in 2008 to somewhere between $55.0 million and $60 million in 2009. Funding related to ongoing operations will be considerably less due to our past practice of funding more than the amounts expenses.

Pension expense related to the plant closure is estimated to be around $15.0 million to $20.0 million and is included in the restructuring charges.

Related cash outlays are yet to be determined but our current estimates are between $45.0 million and $50.0 million in total globally for these annual contributions and the plant closure. We intend to pay only the minimum amounts required during this recession period.

Capex in the fourth quarter of 2008 was $28.0 million. We were successful in keeping the full year capital expenditures to $129.0 million. This is below the previous estimate we provided to you as we continue to be conservative and cautious in the use of our capital while the economic and capital markets outlook remain uncertain. We currently plan to continue this cautious approach towards capital expenditures in 2009.

These levels will probably keep our capital expenditures at our below depreciation levels and we currently believe that our capital expenditures for 2009 will range between $120.0 million and $150.0 million.

But by way of reminder, our two Chinese manufacturing investments are consolidated but not 100% owned. Capital expenditures at Copper Chengshan and the Kenda joint venture are funded from three sources, that being cash from operations, increasing debt, and contributions from owners.

This has an impact on the amount of funding that Cooper is required to provide on capital expenditures, which we do report the consolidated totals, but we don’t wholly own these operations.

On a related note, and in connection with our acquisition of Cooper Chengshan, beginning January 1, 2009, and continuing through December 31, 2011, our partner has the right to put to us the remaining 49% ownership share at a minimum price of $63.0 million.

Now before I turn it back over to Roy, I want to just summarize a few items regarding our liquidity.

As we mentioned earlier, we have $248.0 million of cash at December 31, 2008, undrawn credit lines which total up to $325.0 million, subject to the limitations of collateral but relatively covenant-free, and these together total $573.0 million. Our inventory balances at December 31, 2008, consisted of higher raw material quantities than normally required and we expect to liquidate this excess during 2009. Tax refunds of $43.0 million will be received in 2009, as I covered earlier. Capex will be held at or below depreciation and we are tightly monitoring all expenditures during the year.

In December 2009 we have a parent-company debt payment of $97.0 million that becomes due. We will also have additional cash outlays in 2009 for the closure of our Albany facility and the related pension funding requirements that I mentioned. We believe that the lowest level of sort of operating cash we need is roughly $50.0 million, so given that and barring any significant unforeseen changes, we believe that we have sufficient liquidity to implement our plans during 2009.

Now I will turn it back over to our Chairman.

Roy V. Armes

Before taking your questions, let me just give you some thoughts about 2008. You know, a year ago in February we held a meeting where our newly developed strategic plan was communicated. We were coming off a very strong 2007 and were optimistic about the opportunities that we had before us in 2008. Since then we have encountered floods, earthquakes, hurricanes, the melt-down of the credit markets, oil prices that started the year around $75 a barrel and spiked at mid-year around $150 a barrel, and then ended the year at around $45 a barrel. The Iraq and Afghanistan wars continued throughout the year and we have entered into what some have termed a global recession.

All of these have impacted our 2008 results and some of these will continue to impact us going through 2009. What these events are covering up is the focus that we had and the progress that we’ve made towards the imperatives in our strategic plan that are addressing not just the long-term business needs but also has helped us in addressing the short-term needs. And this progress, for us, just leaves us excited and optimistic about 2009 while trying to be realistic about the economic environment that we are dealing with.

Our existing operations have been able to lower production costs. This will continue to improve in 2009 as we move from having excess capacity of four plants in the U.S. to align capacity at three plants following the closure of our Albany, Georgia, facility.

Our investments in facilities in lower-cost countries continue to position us for improved operating costs, greater geographic flexibility, and the ability to penetrate markets outside the U.S.

To enhance our capabilities and enablers, we have continued to shift the culture at Cooper to a continuous improvement mindset and to that extent we have trained both the black and green belts, as well as made internal changes to the organization structure to quickly improve our operations and make it sustainable.

Addressing top-line growth will be an increased focus in 2009. To address the top line, though, in the past, we launched new premium products that position us very well for growth in that segment of the market and in 2009 we are going to launch products aimed at that value segment of the market. And as our competitiveness improves, we think our chances to grow our top line certainly increases as a result of all these changes.

We are also very close to positioning our products in channels of the market where historically we have been under-represented in some of those channels. Market improvements would certainly be helpful in getting our bottom line back to a healthy position but we’re not waiting for that to happen, and believe each of the steps we are taking should improve our ability to generate profits.

Times have been difficult recently but we strongly believe that we are headed in the right direction, focused on the right actions, and have the strength, the skills, and ability to implement what it will take for use to deliver better results and capitalize on future opportunities.

We are also fortunate to be in a position of flexibility with the deployment of our capital should economic circumstances require additional adjustments. As was mentioned earlier, we still have cash and untapped credit lines. We will tightly monitor spending and capital expenditures during this period and we have suspended the repurchase of shares and debt, limited expenses where possible, and are investing only in the items that are critical to Cooper’s success.

For 2009 we expect industry volumes in North America to be down compared to 2008, in the first half of the year. And in the second half of 2009 we believe it’s possible that the market will begin to rebound. China has recently experienced double-digit growth in replacement tires and we don’t think that’s likely to occur in 2009 but we believe the growth in the mid- to high-single-digit range is possible. And at the same time, European markets are likely to experience declines as well in 2009.

Raw material costs were extremely volatile in 2008 and in 2009 we expect costs to be less volatile and it’s likely that as companies begin to buy raw materials again, we should see these prices strengthen later in the year. We believe raw material costs during the first quarter will be comparable to the first quarter of 2008 and may even be down slightly as we exit the quarter. Our cash flows should benefit as these raw materials work their way through our inventory.

We remain committed to our strategic direction that was communicated in February of 2008 and as mentioned earlier, the path to achieving the goals is that that plan has certainly been rockier than we initially had anticipated and we’ve already had to make very difficult decisions to continue our progress.

The actions we have taken, and are taking, will continue to move us along this path. At the end of 2009 there are several factors that would help Cooper to look different than in 2008 and these are due to both items that we implemented in 2008 but didn’t receive benefits of those actions and actions will take in 2009.

Those actions include improved fixed cost structure as we move from four plants to three plants in the U.S., further benefits of automation and complexity reduction in lowering our manufacturing costs, and improved momentum in the market due to new products and customers, increased units from our joint ventures, the government incentives we negotiated here as a result of going from four the three plants in the U.S. and renegotiating our labor contracts.

We are cautious in our expectations of future profitability because of the uncontrollable factors which impact this industry, such as the consumer confidence, gasoline prices, raw material cost volatility, the intense competition, and currency fluctuation, to name a few.

Additionally, we expect there to be continued pressure on the industry as demand for tires in the short term is affected by global economic conditions and the plans we implement will address those conditions as we reposition the company to emerge from the current recession as a much strong competitor.

So with that, I would like to thank everybody for attending the conference call and that concludes the prepared remarks and what we would like to do now is open it up for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Monica Keeney – Morgan Stanley.

Monica Keeney – Morgan Stanley

You had described the credit facilities. I was wondering if you could give us what the availability was, unless you did and I just missed it.

Philip G. Weaver

We did not go through that. These are seasonal and they are working capital lines, sized to meet the maximum requirements. So at the end of December, of course, as our working capital liquidates and we generally have strong cash collections in the fourth quarter, they go down. So I would say that at the end of December it was somewhere in the range of $240.0 million, roughly, but they are designed to hit the big working capital that occurs primarily in the late second quarter and early third.

Monica Keeney – Morgan Stanley

So that $240.0 million would be comparable to the $254.0 million from last quarter?

Philip G. Weaver

Yes.

Monica Keeney – Morgan Stanley

And is your point that they’re fluctuating throughout the quarter? Is that what you’re saying, also?

Philip G. Weaver

The amount of collateral available changes as we have a seasonal business in North America where inventory is built in generally the first half of the year and then depletes in the second half.

Monica Keeney – Morgan Stanley

And then in terms of the dividend, are there any plans with regards to that?

Roy V. Armes

We just announced paying the dividend for this past quarter and our Board looks at this every quarter and considers the various options and we are going to continue to look at that quarter-to-quarter.

Monica Keeney – Morgan Stanley

But for right now no plans to discontinue it?

Roy V. Armes

Other than this past quarter, we haven’t discussed it any further with the Board.

Monica Keeney – Morgan Stanley

In terms of the put option that you mentioned, you put the value at $63.0 million. Is that a low likelihood that that would be exercised, in your opinion?

Roy V. Armes

Our partners at Chengshan? We have reason to believe at this point in time that our partners, certainly not in the short term, are planning to exercise that put.

Monica Keeney – Morgan Stanley

And how long is that good through?

Philip G. Weaver

December 2011. I think it’s a three-year window.

Monica Keeney – Morgan Stanley

So do you define short term as sort of 2009?

Roy V. Armes

We’re not expecting it this year.

Monica Keeney – Morgan Stanley

In terms of when I think about Q1 working capital, I mean, Q1 cash flow just seasonally should be worse than Q4, is that how we should be thinking about it?

Philip G. Weaver

Well, there will be a combination of things but the raw material prices are falling and we think we will take some quantities out of raw material so we’re really not giving a public forecast on that. But those are a couple of things you should consider when you do your estimates.

Operator

Your next question comes from Kirk Ludtke – CRT Capital Holdings.

Kirk Ludtke – CRT Capital Holdings

I wanted to follow up on the cash flow questions. You mentioned that you have got some other current maturities, other than the 7.75% I guess there is another $50.0 million of debt at the JVs that’s coming due as is reported as a current liability.

Philip G. Weaver

Of long term that’s shown as due this year, yes. If that’s what you’re referring to.

Kirk Ludtke – CRT Capital Holdings

Yes. So could you walk us through the likelihood that that can’t be rolled over and if it can’t be rolled over how that would be shared by the partners?

Philip G. Weaver

Well, we have every reason to believe that it will be rolled over. Obviously we don’t know what additional turmoil might occur in the markets but we have been successful in already refinancing part of their total debt that comes due in 2009. I think our last estimate was they have refinanced about 20% of it already. So we anticipate and expect them to refinance it. And in some cases extend it out to longer term periods.

Curtis Schneekloth

I think it’s important for people to note that this isn’t all coming due at one point in time. It’s a multitude of notes that are rolled over.

Kirk Ludtke – CRT Capital Holdings

With respect to the restructuring costs, and I know that the restructuring and the closure of the plant at Albany, part of the restructuring costs are included in your pension funding estimate. How much in addition to the pension funding will you need to spend in cash restructuring in 2009?

Philip G. Weaver

Well, I think what Roy had said was we believe that the total charges will be somewhere between $120.0 million to $145.0 million and of that I would say about, well, most of the non-cash charges have already been taken in fourth quarter of 2008. That was $76.0 million. So the majority of the charges in 2009 will be cash. And those will be somewhere in the range of $60.0 million to $70.0 million and that includes accounting charges for the pension at that plant.

Kirk Ludtke – CRT Capital Holdings

I’m trying to get to a cash number for this. So what would you think in total, and I guess Albany is the biggest chunk, but I guess you’ve got other initiatives going in. How much do you think you will spend on cash restructuring in 2009?

Philip G. Weaver

Somewhere in the range of maybe $60.0 million to $70.0 million.

Kirk Ludtke – CRT Capital Holdings

And that’s in addition to, I think the pension funding number was . . .

Philip G. Weaver

No, that includes that. That’s included in there.

Kirk Ludtke – CRT Capital Holdings

Well, the pension funding I thought was $45.0 million to $50.0 million.

Philip G. Weaver

Okay, but the piece that relates to the restructuring is included in restructuring and the $45.0 million to $50.0 million, now that we are talking separately of the amount for pension funding, includes the amount that is in restructuring.

Curtis Schneekloth

You’ve got it in both of your numbers.

Kirk Ludtke – CRT Capital Holdings

So if I used $60.0 million to $70.0 million for cash restructuring, I would be okay?

Philip G. Weaver

Yes.

Kirk Ludtke – CRT Capital Holdings

And is there also in addition to that some level of pension funding that needs to be done?

Philip G. Weaver

Yes, for the normal ongoing minimum requirements.

Kirk Ludtke – CRT Capital Holdings

What do you think those would be?

Philip G. Weaver

As I said, the total pension funding estimates that we put together are somewhere in the range of $45.0 million to $50.0 million. That includes somewhere in the $15.0 million to $20.0 million for the plant closure. So if you just subtract $15.0 million to $20.0 million, you will have the piece that doesn’t relate to the plant closure.

Kirk Ludtke – CRT Capital Holdings

Okay, so about $30.0 million of pension funding aside from the plant closure?

Philip G. Weaver

Yes.

Curtis Schneekloth

If you have more questions on that, please feel free to call me directly.

Kirk Ludtke – CRT Capital Holdings

Obviously working capital looks like it could be a huge source of cash. Net working capital, it looks like it was up $150.0 million year-over-year.

Philip G. Weaver

It was up considerably. And we do expect that particularly inventory will be a source of cash.

Kirk Ludtke – CRT Capital Holdings

Is there any reason why it wouldn’t be a $150.0 million source of cash?

Philip G. Weaver

In this environment we can’t predict the raw material cost levels that accurately. And also, by the way, during 2008, don’t forget we added some quantities of finished goods, particularly in North America because we had really way too low of an inventory coming out of 2007.

Kirk Ludtke – CRT Capital Holdings

Maybe the 2007 balance needs to be adjusted upwards by $50.0 million?

Philip G. Weaver

Something in that range. I’ll say $50.0 million to $70.0 million maybe.

Kirk Ludtke – CRT Capital Holdings

I guess the way I’m asking what I’m asking is has there been any change in trade support or anything like that that we should be thinking about when we forecast how much cash is going to come out of your working capital.

Philip G. Weaver

When you say of trade support I want to make sure how you are using that term.

Kirk Ludtke – CRT Capital Holdings

Are your suppliers extending the same kind of terms to you now that they did?

Roy V. Armes

Yes. Nothing has changed there.

Kirk Ludtke – CRT Capital Holdings

How do you think about, now that material costs have come down so fast, how do you look at pricing in the industry? Do you feel like tire manufacturers are starting to reduce price and pass some of those material cost savings on to their customers? How are you doing in the marketplace price-wise?

Roy V. Armes

I think there is still a lot of good discipline in pricing in the industry as a whole. I think you are seeing some movement from some of the imports, from some of the lower-cost or emerging markets, that are struggling economically, you will see some pricing dropping there, that they are taking to the market. But in general, I think the pricing discipline is still there.

I think what we have to watch going into the second and third quarters, how these raw material costs pan out such that as we would expect over time that there would be some deterioration in pricing based on the raw material costs but there is still pretty good discipline out there.

Operator

Your next question comes from Rod Lache - Deutsche Bank.

Rod Lache - Deutsche Bank

Can you actually give us the cash from operations in the fourth quarter?

Philip G. Weaver

I didn’t but it was pretty much flat.

Rod Lache - Deutsche Bank

So you had $28.0 million of capex to subtract from that. What was the reimbursement from the partners then, in the quarter? So if you look at sort of net cash flow.

Philip G. Weaver

I think it was relatively small. I will say zero for this purpose but once you get, we can compare numbers.

Rod Lache - Deutsche Bank

So you had a $20.0 million something burn in the quarter. Could you tell us what the raw material index looks like in the first quarter on a year-over-year basis and if you looked at that index now, how does that compare against the average that you incurred in 2008?

Curtis Schneekloth

Let me walk back through what the index has been and give you an idea of what we’re thinking about for the first quarter of 2009 for a number. In 2008 first quarter the number was 174, Q2 195, Q3 232, Q4 222. In the first quarter 2009 we think it will be at or below that first quarter of 2008 number. So somewhere around that 174 number. It’s looking more and more like it will be below that number by a little bit.

Rod Lache - Deutsche Bank

So 170ish.

Roy V. Armes

I think that would be right.

Rod Lache - Deutsche Bank

Are you saying that because you were long a lot of inventory you are still, I guess you have worked through that already. You are on LIFO so this is basically what should be flowing through your P&L?

Roy V. Armes

Let me help calibrate that and then Curtis can give you more specifics. But the inventory we had, remember last year, we were struggling not getting enough material so we went out and bought ahead to make sure we wouldn’t run out of material. And you buy it at a higher price and we’re still working through that. And then in the fourth quarter the volume is dropping off, we’re not burning through that as fast as we thought we would at this point in time, so we’re still working off of some of that higher cost raw material inventory.

But we’re expecting going into the second quarter that we will be through that and we will have some of the lower-cost materials.

Rod Lache - Deutsche Bank

So like a year ago, you had LIFO gains, you might have a little bit of a LIFO charge as you go through some LIFO layers but then beyond that it would be normalized as you go into Q2?

Curtis Schneekloth

One option for looking at that, similar to what you described, you can think about it on a LIFO basis, we’ll be around that 175 number in the first quarter and we will have a little bit of negative expense yet as we burn through the old stuff, but it will be kind of a one-time in the quarter.

Rod Lache - Deutsche Bank

Can you comment on just the timing of these savings from the Albany closure? Are there sort of intermediate-term expenses, from a ramp down and overhead absorption or should we be expecting some positive impact later on this year from that, as we look at the results?

Philip G. Weaver

We will see positive impact later in the year. We will have a big chunk of that shut down by mid-year, but you’re right, there are transition costs and others that are really not eligible for restructuring. We don’t think these will be huge amounts but there will be some that will continue at decreasing levels right up until the end of the year. And we would hope to have it completely closed either in December or January at the latest.

Roy V. Armes

For that reason, we are moving ahead a lot faster than we originally thought on this and that’s why we should be able to see some of the benefits of this toward the end of the year.

Rod Lache - Deutsche Bank

On your comment earlier about the new product introductions being more the value part of the market, are you sort of signaling that you’re starting to expect a little bit of a mix shift, sort of to the lower end of the market at this point? You had some pretty tremendous positive mix over the past couple of year. Is that something that you now would expect to start reversing?

Curtis Schneekloth

I would say that the products we’re launching in that value segment are to continue to defend our area of that segment. It’s not that we’re going to go out and capture a lot of new. It’s that we want to get back to where we were historically.

We are also going to continue with those premium product launches to continue keeping the Cooper brand going strong.

Roy V. Armes

Some of our volume mix this year was really in that higher volume segment and so we did get a good mix shift as a result of some of that but we also know that that’s a sweet spot for us that we need to get back into and make sure that we’re supporting that volume segment a little more aggressively.

Rod Lache - Deutsche Bank

There was a release about the discontinuation of some marketing relationship that you had with Kenda. I’m wondering is that something that would be material to your results?

Roy V. Armes

I don’t think at this point in time it would be. Our agreement with them on the front end was to market their products in this market for a period of time. And we have agreed, they want to do their own marketing here and we have got alternatives that we are working with. That should not have a significant impact on our business.

Operator

Your next question comes from Saul Ludwig - Keybanc Capital Markets.

Saul Ludwig - Keybanc Capital Markets

Cooper has for the last four, five, six quarters kind of undershot the industry in terms of your volume versus the industry and you’ve commented that part of it has to do with your mix, your light truck tires, part of it is encroachment on your turf by low-cost imports.

While this has gone on these other competitors have got their space in the distributors’ store, so to speak. How do you expect to arrest this market-share deterioration? Even if you come out with these new products, you know it’s a lot easier to lose market share than it is to gain it. Could you talk about what you’re doing and when you would expect Cooper to at least be able to parallel the market?

Roy V. Armes

I think there are a couple of things there. I think your assessment and insights are right on. Over this period of time the biggest loss that we’ve had in terms of the volume has been in the private label segment. And it’s been flooded with a lot of Asian imports that’s come in at very, very low prices. What we have done over the last several months, it’s been about six or eight months now, is to develop a product to really target that segment more than what using the products that we’ve had in the past. And we’re right not in the process of introducing that into the market, so we feel very good about that. And the response that we’ve gotten from our customers has been very good.

The other piece of this is we have been able to secure more new customers as a result of some of the things we’re doing as well. We needed to get our business model in a much more competitive position and we feel very good about the progress that we’ve made and the progress going forward.

I think a combination of all of those is what’s going to help us gain back some of our position.

Saul Ludwig - Keybanc Capital Markets

Well, in your own planning do you think that this will materialize and be visible, but you give us each quarter your volume versus the industry. Do you think you might continue to erode share in the first half of the year? What’s your thinking? I realize it’s tough and whatever you say may not come to pass and I don’t take it as a forecast but where’s your head on this one?

Roy V. Armes

We are anticipating right now, with what we have going on and the consumer programs and promotions that we have, the new products that we have, the new customers are coming on line, that we should see this deterioration of volume slowing in the second quarter and solidifying more into the second half.

Saul Ludwig - Keybanc Capital Markets

Phil, you commented about costs of developing in Asia. I think they’ve been around for a while. What was the level of them and were they higher or lower than last year?

Philip G. Weaver

I think we’ve said they’re generally been in that $4.0 million to $6.0 million range or so.

Saul Ludwig - Keybanc Capital Markets

Per quarter?

Philip G. Weaver

Yes. And I would say that while I don’t have the exact number in front of me, they’ve been roughly at that same level. Obviously we had a very fast ramp up schedule, we were beating our ramp up schedule, and then the volumes really tailed off in China right in the last six weeks of the year. So I would say it’s still probably in that range.

Saul Ludwig - Keybanc Capital Markets

When you think about your outlook for 2009 and you’ve got right off the bat a $0.50 a share headwind from pension, how do you overcome that? And with the low volume and all the other Asian and China slowdowns and Europe slowdowns, is there any way you get into the black?

Roy V. Armes

I don’t know what business wouldn’t like to think that they’re going to be profitable in every year, but in this kind of environment we cannot predict, and in some cases month to month and quarter to quarter. But you are right, we are starting off with headwind. We are continuing to look for ways to streamline our business and our operations to offset some of these headwinds. Now can we offset all of it? A lot of it depends, if we have a year like we did in 2008 we probably won’t be able to offset all of it. We are anticipating that there will be a little bit of recovery into the second half of this year but we’re not expecting the slope of this line to be very steep.

So we are pinching pennies, we’re hunkered down. We’re conserving cash in almost every corner of the business and we’re going to continue to focus on cash throughout the year.

Saul Ludwig - Keybanc Capital Markets

On working capital, do you think cash generation could exceed $100.0 million? I realize it’s tough to pinpoint but do you think that’s the right planet to be on?

Philip G. Weaver

We have avoided that forecasting for all the reasons that Roy mentioned and I guess I would prefer to do that, but you all have your models and I think we have tried to explain the anomalies in our balance sheet and what caused them. The only one we’ve not touched on is that coming out of the late third quarter and into the fourth, as we bought these raw materials and then obviously put a squelch on our purchases, it means that we paid for some of those in the fourth quarter so we don’t have that normal cycle of inventory versus payables. I think we’ve covered everything else but that one.

By that I mean that by the end of the year our payables relative to inventory should be higher than they were at the end of 2008.

Saul Ludwig - Keybanc Capital Markets

The unobserved overhead that you had in the fourth quarter, based on your production scheduling that I would guess you have got pretty well nailed down, for the first quarter anyway, would there be continued unobserved overhead at that $20.0 million rate in the first quarter?

Philip G. Weaver

We’ll have some in the first quarter. It could be roughly at that rate or depending on how things continue here, we’ve got another month to go, or five weeks to go. It could be higher than that. We just have to make our final decisions based on what happens in the market.

Saul Ludwig - Keybanc Capital Markets

So you say $20.0+ million would be a good way of putting it.

Roy V. Armes

If you look at January and you saw what the industry numbers were, it was significantly down. And I think that’s got everybody concerned, about how they’re going to balance the inventory with the demand, and usually that’s through production curtailments.

Curtis Schneekloth

One other quick point on those production curtailments, the $20.0 million number is related to North America.

Saul Ludwig - Keybanc Capital Markets

And pre-tax equals after tax basically because of the lack of profitability?

Philip G. Weaver

Except for these special refunds, there are some unique one available to us that I didn’t get into on this call, that beyond the normal two-year carrybacks, certain items we can carry back ten years. Including product liability. So I would say, no, we’re still in that mode in 2009 and we should be able to carry certain of these specially identified costs back and so that should be in the range of between $20.0 million and $30.0 million I am guessing, for those items.

Saul Ludwig - Keybanc Capital Markets

In 2009?

Philip G. Weaver

Yes.

Saul Ludwig - Keybanc Capital Markets

So we should look at that as a special gain, so to speak? Special income, you know, the way you carve out your special items.

Philip G. Weaver

If you chose to do that. But if we had a normal carryback that wouldn’t be special. Just a smaller carryback than we normally would have.

Operator

Your final question comes from Gabriel Sirda – [unspecified firm].

Gabriel Sirda – [unspecified firm]

With your [inaudible] to maturity in the bonds, the ‘09s, do you expect to draw down on your revolver or perhaps use the cash?

Philip G. Weaver

We will do whatever is required and I guess I would rather not be forecasting cash here, but we will do one or the other and believe that we can handle that maturity in December when it comes due.

Gabriel Sirda – [unspecified firm]

And what do you think your cash taxes will be for next year?

Philip G. Weaver

I think in the U.S. there won’t be any, given the restructuring charge, of course. And elsewhere, we have tax holidays in China so really that should be relatively small. And then it depends on our profitability in Europe but not sort of consistent with our profitability level just given our situation in the U.S.

Roy V. Armes

Before we close, I would like to just summarize a few points that we’ve discussed through here. You know, 2008 was undeniably a difficult year in the tire business and a lot of businesses, with the raw material volatility that was there, the soft demand, our industry declining two out of three years, which has been unprecedented. Credit crisis, consumers continuing to delay and postpone, specifically tire purchases. And we really believe that there’s still some pent up demand out there that we could see over the next 12 to 24 months.

And while we are trying to manage this business in this environment, I think we’ve been able to move forward with some of the imperatives that we outlined in our strategic plan earlier this year and have been able to balance the needs of the business for not just today but also the same needs that we’re going to have going forward and longer term for the business, whether it’s network capacity or rationalization of our capacity. All of these have been difficult decisions. The labor negotiations that’s going to make us more competitive.

Our new product launches, which counted for about 30% of our revenues, the investments we’re making in strategic initiatives like our black-belt program, the automation, and our Mexico joint venture, increasing our production in low country countries, and really managing our cash to avoid any kind of draw-down on our credit lines.

I think all of these are things that we’re doing to try to manage the business a lot more aggressively. And we will continue to be faced with some of these headwinds but still feel that by the end of the year we’re going to look a lot different as a company than what we look like today, with a better line to capacity, more new products coming out to market, expansion of some of the key sales channels that we have and the continuous improvement we have in manufacturing. I think all of these are going to reposition the company as we emerge out of this economic crisis, and we will emerge as a strong company.

And I just want to leave you with the thought that the commitment and focus of Cooper’s employees is really around driving, they will drive, but currently are driving a lot of these actions to happen. And our optimism, very honestly, has been somewhat damped in this economic environment but our confidence in what we can do is still very high. And I think that is what I would like to leave you with.

We really appreciate the time today and if you have some further questions or more detail that you want to get into, certainly feel free to give Curtis a call.

Operator

This concludes today’s conference call.

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