Cooper Tire & Rubber Company Q1 2010 Earnings Call Transcript

| About: Cooper Tire (CTB)

Cooper Tire & Rubber Company (NYSE:CTB)

Q1 2010 Earnings Call

May 5, 2010 11:00 am ET

Executives

Curtis Schneekloth - Director of Investor Relation

Roy V. Armes - Chairman, Chief Executive Officer and President

Brad Hughes – Chief Financial Officer

Analysts

Anthony Cristello - BB&T Capital Markets

Rod Lache - Deutsche Bank Securities

Himanshu Patel – JPMorgan

Robbie [Shanker] – Unidentified Analyst

Saul Ludwig – KeyBanc Capital Markets

Derrick Winger – Jefferies & Co.

Operator

Good morning. My name is Debbie and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Cooper Tire first quarter 2010 conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions)

Mr. Curtis Schneekloth, you may begin your conference.

Curtis Schneekloth

Good morning everyone. 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 conversation today you may hear forward-looking statements related to the future finance for results and operations of Cooper Tire & Rubber company. Actual results may differ materially from current management forecast and projections as a result the factors over which the company has no control.

Information on these risk factors and additional information on forward-looking statements are included in the press release in the company’s reports on file with the Securities and Exchange Commission.

With me today are Roy Armes, Chairman, Chief Executive Officer and President and Brad Hughes who serves as Chief Financial Officer.

In association with the press release which was sent out earlier this morning we will provide an overview of the company’s first quarter operations and results. Following the prepared comments we’ll open the call to participants for a question-and-answer session.

The call will begin with Roy providing an overview of the results who will then turn it over to Brad 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

Yes thanks Curtis and good morning to everyone. During the first quarter we had net income of $0.19 per share or $12 million. This includes restructuring charges primarily related to the closure of the Albany Georgia facility of about $8 million and this is a significant improvement over the prior year first quarter loss of $21 million or $0.36 a share which included $14 million of restructuring charges.

We’re seeing a return to healthier levels of demand for replacement tires across the globe from the depressed levels that we experienced in early 2009 and this combined with our successful efforts to position the company for growth have resulted in impressive improvements to the top line.

We’ve also pushed forward in our efforts to improve our cost structure and this will be an ongoing effort as we ingrain the lessons of continuous improvement in the company. And we’re excited about the opportunities and look forward to implementing other organizational improvements that will also strengthen the company.

With that said let me present an overview of the operations. On a consolidated basis sales for the first quarter increased over the prior year first quarter by 32% to $754 million. Driving the top line growth were significant volume increases and favorable exchange rates offset by negative pricing and mix compared to the first quarter of 2009.

Our volume performance was again ahead of the industry in the United States and continues the trend started in the second half of 2009. This is a result of multiple actions taken to better align ourselves with the market demands.

And the new products that we’ve launched continue to be positively accepted by the market and we’re also benefiting from some of the positive industry trends that are occurring as well. This includes the preference that consumers are showing for value products in segments where Cooper has been able to deliver the value that they’re looking for.

Operating profit for the first quarter was $33 million compared to operating losses of $16 million for the same period last year. Excluding restructuring charges our total company operating profit improved by $42 million.

The largest drivers of this change were improved volumes and increased utilization and manufacturing capacity. As demand increased we operated at a level very close to full practical capacity. Favorable price and mix impacts of $17 million dollars did not fully offset increased raw material costs of $41 million during the quarter.

We recently announced a price increase in North America of up to 7.5% effective June 1 in response to the continued increases in raw materials. Our higher products liability cost primarily reflect a $22 million increase in reserves for an adverse verdict in a single case which the company intends to aggressively appeal. These charges are included in the North American operating profits or operating results.

Without this reserve increase the North American segment would have posted $35 million in operating profit or 6.7% of net sales. Our international segment again provided strong results with $23 million in operating profit, an increase of $25 million over the first quarter of 2009. The segment has done an incredible job of improving their competitiveness while supporting significant growth in a variety of regions.

I’m very proud of the efforts and accomplishments of the Cooper team during this period and staying focused on the right priorities executing with a sense of urgency and improving industry conditions all resulted in the progress for our company.

Brad is now going to provide more detail on the individual segments and some of the financial matters as well.

Brad Hughes

Thanks Roy. I’ll start with some detail on our North America tire operations. North American segment sales were $532 million, an increase of 21% compared to the first quarter of 2009. The top line increase was driven by higher volumes on a year-over-year basis.

While the first quarter of 2009 was particularly weak we believe there are healthy market developments to note. Miles driven is typically considered a strong indicator and it has showed continued signs of stabilization. Further supporting strong demand for shipments are the low levels of inventory that currently exist across the industry supply chain. Cooper specifically has also benefited from having products in the strongest growth areas of the market.

Operating profit for North American tire operations of $14 million rose by $17 million when compared with the same period in 2009 excluding restructuring charges which represented $7 million of the improvement. Operating profit was up $10 million from the prior year. In the United States replacement market, our unit shipments of total light vehicle tires increased 19% in the first quarter compared with the same period of 2009. This was almost double the 10% total light vehicle shipments reported by the Rubber Manufacturers Association (RMA) members and significantly higher than the 13% estimated in the light vehicle shipments for the total industry for the quarter.

The momentum in our top line continues to build on the performance improvements that began in the second half of 2009. It is the result of both industry and company-specific improvements. The increases were across almost all product segments and included both the private label and house brands. The increase in volumes improved operating profit by $22 million compared with the prior year.

The net effect of price index compared with raw materials was negative for the quarter. $29 million of higher raw material costs was only partially offset by better price index of $8 million. Raw material costs continued to increase through the quarter, led by natural rubber which appreciated significantly. Our underlying raw material index was up approximately 18% on a year-over-year basis. As a reminder, the Last In First Out or LIFO accounting method which we use in the United States charges the most recent costs against sales affecting profits more quickly compared to other inventory accounting methods.

We continue to improve our plant operations and have met manufacturing improvement in the North America segment this quarter of $10 million on a year-over-year basis. We also benefited from running our plants at higher utilization rates, which contributed $19 million.

As Roy mentioned, our products liability costs were higher as we reserved in full for the amount that we self-insure on a specific products liability case for which we received an adverse verdict. To reiterate, we intend to appeal this case.

Before turning to the international operations, let me express in the form of an operating results walk forward the changes during the quarter for North America. This compares the first quarter of 2010 with the first quarter of 2009. The total increase in North American operating profit was $17 million. Key drivers of this were $22 million from higher volumes, $19 million in lower production curtailments, $10 million from lower manufacturing costs, $8 million in higher price and mix, $7 million in lower restructuring costs, $4 million in lower SG&A and other costs partially offset by $29 million in higher raw material costs, and $24 million in higher products liability costs.

Now, turning to our international operations. The international segment had net sales of $294 million, up a notable 77% from the first quarter of 2009. This was driven primarily by a 102% increase in Asian volumes and a 20% increase in European volumes. The segment also benefited on the top line from favorable currency movements. These were partially offset by the negative impacts of combined price and mix.

The increased sales were led by significantly higher exports, including to the U.S. despite the tariff that was implemented in September 2009. Sales into the domestic Chinese market were also very strong. Operating profit for the international segment was $23 million, an increase of $25 million from last year’s loss of $2 million.

The biggest driver of this was volume. Stronger pricing improved results by $9 million. Improved manufacturing costs, including improved leverage, contributed $6 million to the profit. Raw material costs climbed higher during the quarter, negatively impacting results by $11 million.

As we continue to expand our global presence, we expect our international operations to build on this positive momentum. Results in the future will be impacted by many of the same factors as North America, but we are very pleased with the achievements to date and the direction we are heading. This is the direct result of the hard work the Cooper’s employees have delivered around the globe.

Let me provide you with the key underlying factors in the form of an operating results walk forward for the international operations comparing this year’s first quarter to last year’s first quarter. The total improvement was $25 million, $20 million from increased volumes, $9 million from improved price and mix, $6 million from improved manufacturing and leverage, $1 million from other costs and currency, partially offset by $11 million from higher raw material costs.

The company’s unallocated corporate charges which are not included in either segment were down approximately $7 million from the same quarter in 2009 when we recorded charges related to the Cates retiree benefits case. For more detail on this item, please refer to our filings with the SEC, including this quarter’s Form 10-Q.

I would now like to cover a few other items, starting with income tax accounting. Income tax expense recorded in the first quarter from continuing operations was approximately $8 million and was computed using a forecasted multi-jurisdictional annual effective tax rate. This tax expense also included discrete items during the quarter. More detail on our tax situation is available on our Form 10-Q that will be filed with the SEC.

Our taxes and related accounting continue to be affected by tax holidays in certain jurisdictions, the normal reversal of certain deferred tax assets and the valuation allowance we carry primarily in the U.S. against certain of these deferred tax assets. In 2010, as we generate taxable income, we will continue to benefit from allowable tax holidays and tax credits in addition to using other tax strategies to minimize tax expense and taxes payable as appropriate.

In recording taxes, we are required to estimate an annual effective rate that is applied to quarterly earnings. At this time, we believe that the company’s full-year forecasted effective tax rate will be in the 17% to 27% range, higher than the initially-estimated range of 5% to 15%. This is primarily the result of changes to the assumption for protected taxable income by jurisdiction, including the utilization of various tax attributes and the reversal of timing differences. In projecting this annual effective rate, it is important to realize it is based on forecasted earnings by tax jurisdiction, some of which are still affected by tax holidays or tax credits.

I would also like to note that we have $25 million of anticipated tax refund receivables recorded March 31, 2010. These relate primarily to the 10-year specified liability losses carry-back, including interest. We anticipate correcting these during 2010.

Let’s talk a bit about cash flow. Net cash used by continuing operations in operating activities was $29 million during the first quarter. The use of cash during the quarter was driven primarily by higher inventory balances and larger accounts receivable netted against larger accounts payable balances. These changes are the result of both the normal building of inventory that occurs during the first quarter in anticipation of sales later in the year and the increases in raw material costs during the quarter.

Also during the quarter, we paid $18 million to obtain an additional 14% ownership at Cooper Chengshan Tire as previously disclosed. This increases our ownership in that operation to 65%. On March 19, we filed an 8-K that contained information related to the collection of money for Cooper Standard Automotive. We actually have received the $18 million owed in April. As part of the settlement of this matter, we also were released from certain liabilities. We will record the benefit related to this settlement in the second quarter, and it will be included in discontinued operations.

Turning to the balance sheet, cash and cash equivalents were $338 million at March 31, 2010. This was a $105 million increase over March 31, 2009 and a decrease of $89 million from December 31, 2009. The higher balance compared to the last March 31 is driven primarily by improved operating results in 2010. Accounts receivable of $459 million increased from the December 31, 2009 balance as the effects of increases in raw material costs worked through the pricing. This increase in raw materials, along with higher unit levels of finished goods, drove inventory balances on a LIFO basis up $63 million from year end 2009.

Almost all of the short-term notes payable related to partially owned ventures in the People’s Republic of China, whose operations are included in our consolidated balance sheet. These are typically refinanced as they become due with an ongoing goal of converting a portion to long-term instruments. Refinancing of these balances continues on plan. To remind you, in December of 2009, we repaid $97 million of matured apparent company debt.

Now a few words about our credit facilities. We have two primary parent company credit lines to provide sources of liquidity. The first is a $200 million asset-backed revolving credit facility, which expires in November 2012. We also have an accounts receivable securitization program for up to an additional $125 million dollars that expires in September, 2010.

Both facilities remain undrawn, with approximately $36 million of the line used to back letters of credit. The amount that can be borrowed is subject to the availability of working capital that can be pledged. These two credit facilities do not contain any significant financial covenants until availability is reduced to specified levels. Additionally, we have unsecured annually renewable credit lines in Asia that total $200 million, of which approximately $126 million remains available. These credit lines also do not contain significant financial covenants. All related borrowings are due within one year, and are included in notes payable on the balance sheet.

Capital spending. Cap Ex in the first quarter of 2010 was $15 million. While this amount continues to be low, we expect capital expenditures to be higher through the balance of the year. We currently project capital expenditures for 2010 will range from $115 million to $125 million including initial investments in an ERT system. This will keep spending close to depreciation levels.

Now I’ll turn it back over to Roy.

Roy V. Armes

Yes, thanks Brad. Before taking your questions, let me give you some other thoughts about the quarter and our outlook for 2010.

We remain cautiously optimistic in our outlook. This is, in part, because of the ongoing recovery and demand for replacement tires in most markets around the globe. Led by double digit growth in China, the opportunities for those correctly positioned, we think will continue. Growth, combined with our need to increase inventory levels, allows us to better leverage our manufacturing capacity. And because our outlook for demand and the current capacity restraints we are encountering, we will continue to identify ways to efficiently add capacity.

We already have taken steps to add capacity at our existing plants without significant bricks and mortar. This will allow us, over about a two year period, to add about 10% to 15% capacity to the amount of units we produce compared to 2009. This increase will be achieved by adding days back to production that we curtailed in 2009; modifying work schedules for additional days; and adding incremental capacity from efficiency improvements.

We also continue to increase the amount of tires produced at the joint ventures in both Mexico and China. We are simultaneously working to continue to provide service levels that meet or exceed our customers’ expectations.

Our strategic plan imperatives of improving our global cost structure, profitably increasing the top line, and enhancing organizational capabilities will continue to guide our way. We continue to focus on managing our critical resources; including liquidity, so that we can enhance shareholder value. Through these efforts, our balance sheet has remained a very positive story.

Raw material prices continue to increase in the first quarter, along with underlying commodity prices; and we project that raw material prices will continue to increase and remain elevated in the near future. While we recognize that the volatility of raw material costs can have a significant impact on our results, our outlook remains cautiously optimistic.

With that said, that concludes our prepared remarks and what we would like to open up for question and answers. But thanks to all of you for attending the conference call. Now, operator, can we have a little Q&A session?

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question comes from the line of Anthony Cristello - BB&T Capital Markets.

Anthony Cristello - BB&T Capital Markets

The first question gets to the capacity issue, Roy. When you talk about the ability to find ways to add capacity without brick and mortar expansion, just wondering how much incremental capacity do you think there is available throughout your network, without actually having to go out and build anything new? Is it a 5%, a 10%, a 15% lift? Is there a way you can quantify that?

Roy V. Armes

Yes, if you compare it to 2009 we think we can get another 10 to 15% out of our current footprint. Now, it’s not without no investment; but it’s without brick and mortar. And we would have to invest in some equipment, tooling, and that sort of thing. But we feel like we have floor space or capacity to be able to do that. So, there would be some investment; but we feel over the next couple of years, we could get another 10% to 15% out of our current footprint.

Anthony Cristello - BB&T Capital Markets

Okay. And that probably, by running the facilities at such a high level, do you at some point run the risk of creating a little less efficiency? Or do you think that what you’ve done with Albany, and how with some of the benefits you got that’s not something we should be concerned about?

Roy V. Armes

Actually, we think we can improve efficiency. Our biggest driver and factor that we’re monitoring is making sure we’re managing the complexity that we bring into our operations, and manage that effectively. Because we’ve spent the last couple of years trying to simplify some of these operations, and we’ve done a good job of that and as we start to consolidate from Albany into the other factories… Not start, we’re actually finishing that. We want to make sure that we don’t compound that problem with adding complexity there. So, we think we’re going to be more efficient, not less efficient, as a result.

Anthony Cristello - BB&T Capital Markets

Okay, and maybe a question for Brad. You talked about, on the international segment, noting that sales volume increases were partially offset by negative price mix; however, operating profit was favorably impacted by a favorable price mix of $9 million. Can you maybe just provide a little more clarity in terms of this dynamic; and is this something that we should consider going forward?

Brad Hughes

What you’re seeing there, this isn’t totally unusual, is that you’ve got an effective mix. And you can have occasions where you’ve got on higher price/lower margin tires that are actually affecting that relationship. And while we have had that mix effect in the quarter, I wouldn’t expect it to continue to an extended extent beyond what you’ve seen come through in the first quarter.

Operator

Your next question comes from the line of Rod Lache - Deutsche Bank Securities

Rod Lache - Deutsche Bank Securities

I have a couple questions. It looks like your inventories came down, at least on the balance sheets, and I assume that raw materials were up in your inventories. Can you just give us the sense of the extent to which finished goods or unit inventory declined in the quarter?

Brad Hughes

Actually, Rod, I think in our inventory here, from the end of the year to the first quarter we’ve actually increased our inventory for about a half million units. But, we have also increased some of our raw materials as some of these prices… and some of this is to make sure we have we have the availability of materials, has driven that.

Roy V. Armes

Rod, what you’re looking at is the press release…

Rod Lache - Deutsche Bank Securities

Oh, you know what, you’re press release is in a different format than most. Okay, sorry about that.

Roy V. Armes

You can recall the circumstances last year in the first quarter, which would have impacted that.

Rod Lache - Deutsche Bank Securities

Okay. You’ve talked before about, I believe about a 6% to 8% operating margin and you did 8.3% in the quarter and I was hoping you might be able to talk a little bit about how you see long-term operating margins. Give us a little bit of color of what your next-stage objectives would be.

Brad Hughes

Right now, Rod, we’ve been pushing like mad the last couple years to get to these kind of levels, as you well know. We started out saying that we needed to get to a 4% to 5% level to stabilize things and that we thought that we could get to the higher dingle digits in Asia operations; and we’ve been able to accomplish that.

And, you’re right, we have been really pushing to get to the 6% to 8% range. But beyond that, at this point in time, I think there is so much volatility out there, I’m just reluctant to go out and say “Hey, can we get to an 8% to 10% level.” I mean, we’d all like to aspire to that. But I think the volatility that’s out there right now is what we’ve got to really monitor. But we feel very good about the progress that we’ve made based on our commitments we gave a couple years ago.

Rod Lache - Deutsche Bank Securities

Do you think you can sustain this level of SG&A or were there certain cost items like advertising that would be low in this quarter relative to what you would think normal would be?

Brad Hughes

I think you’ll see on an increase in SG&A, I think advertising will be one of the components of that. recently announced, and we’ve talked about this in the past, that we’re adding resources into our technical group as we continue to build on that capability.

And then, we’ve also talked about our ERT system, which is going to start to take on some additional resources. I don’t think they are significant changes, but I think that you will see an increase compared to what you saw in the first quarter.

Rod Lache - Deutsche Bank Securities

By $5 million to $10 million? Is there any quantification that you can provide?

Brad Hughes

I don’t think that we give a specific comment, but I don’t think it’s going to materially impact your forward looking risk estimate.

Roy V. Armes

Particularly as a percentage of…

Brad Hughes

Yes. As a percentage of revenue specifically.

Rod Lache - Deutsche Bank Securities

Okay. And lastly, appreciate the color on the international business but can you just refresh us on what is the revenue that you’re deriving at this point from domestic Chinese sales and what is the export volume that you’ve got right now from there?

Brad Hughes

We typically don’t share that level of detail. So I think what you’ve got in the release and then what you’ll be able to pick up which is about the same in the 10-Q will be the information that you can use.

Operator

Your next question is from the line of Himanshu Patel – JPMorgan

Himanshu Patel – JP Morgan

I think for a couple of quarters now, your [inaudible] volumes or US volumes are outpacing the industry. Can you just comment on that spread for the balance of the year? Do you expect that to continue?

Brad Hughes

Well, you know, last year Himanshu as we talked, we had some work to do on our value line particularly as it relates to our private label business in the first half and we made some adjustments and started increasing that volume in the second half. Our house brands has continued to do very well against the market.

Our feeling right now with where we have our product positioned, the new products that we have out there, the work that we’re doing with our private label customers as well as what we’re seeing in our improvements and our house brand, we feel that we are going to continue this momentum throughout the year.

Now that’s also going to depend if you look at the volume level on this thing, we’ve had an industry that’s been in double digits in the first quarter and we certainly had not anticipated that in our projection last year. In fact, I think the RMA numbers are in the 1% to 3% range, so an average of 2%. We’ve felt that with what we’re seeing that it could be a little higher than that, but certainly not that double digit range that we’re seeing right now.

Himanshu Patel – JP Morgan

I mean when you say continued momentum does that mean that you believe you can continue to up grow industry for the balance of the year?

Brad Hughes

Yes, yes. We believe we can. I think the magnitude and the volume impact is the thing I was really cautioning against [inaudible] in the industry.

Himanshu Patel – JPMorgan

Okay. Now that we’re six, eight months whatever into the Obama administration tariff, can you comment on what was the sort of full reaction of the indigenous Chinese exporters through those tariffs? What did they actually do? Did they sort of try to fully raise prices to offset those tariffs and do they lose market share, and if they did where is all that Chinese capacity being directed to now or did they not fully raise prices and they’re holding onto share, just took it on the chin on margin? How would you sort of characterize their reaction?

Brad Hughes

Well, originally we raised prices obviously to offset some of the tariff costs and what we were able to see was a lot of the Chinese manufacturers had not raised prices initially. Today in the market it appears like they are raising prices. Now if you look at the import, I think you see the same numbers we do. It has slowed down to about 30% or 40% of imports compared to what it was before the tariffs.

So we are seeing a slow down of the imports coming in, and we are also seeing some pricing increasing out there as a result as well. Now as far as where they’re directing some of that business, I’m not really sure I know specifically. But with the domestic market, I think there’s more going into the domestic market. There’s more being funneled toward Europe, and there’s other parts of the world they’re being funneled to but I don’t know what the exact percentages are there.

Himanshu Patel – JPMorgan

Okay. And then did I hear you say earlier, were you at 100% utilization rates this quarter?

Brad Hughes

Pretty much. It’s probably in that 90% range. I don’t know if you’d ever get to 100% because we’re continuing to add mold levels as we speak to get additional capacity.

Himanshu Patel – JPMorgan

Okay. And then two housekeeping items. Did the 17% to 20% full year tax rate guidance, was that inclusive of the anticipated tax refunds or exclusive of it?

Brad Hughes

Exclusive, and it was actually 17% to 27%.

Himanshu Patel – JPMorgan

17% to 27% for the full year. Okay. So those tax refunds will just be called out as discrete one-time tax benefits?

Brad Hughes

Correct.

Himanshu Patel – JPMorgan

And then could you provide us some commentary on raw materials for Q2 either in terms of percent change, or the index, or however you guys want to characterize it?

Brad Hughes

Certainly, Himanshu. During the first quarter the raw material index that we use was at 181, and we expect that during the second quarter it’ll be in the 200 to 205 range.

Operator

Your next question comes from the line of Robbie [Shanker].

Robbie [Shanker] – Unidentified Analyst

Thank you. Can you just talk a little bit more about the Chinese domestic market and what kind of trends you’re seeing there? How long do you expect this growth to last? Is it something that’s temporary or just something that’s more sustainable?

Brad Hughes

I think that Robbie, if you look at the growth in the car part there, I think that a lot of this can be sustainable because it’s just now getting into the replacement tire market and that OE business or the vehicle production is continuing to grow so car part is growing. We think that the replacement tire part of the business which we’re basically focused on is now just getting started. So we think there is some sustainability in that growth.

Robbie [Shanker] – Unidentified Analyst

So it’s not something that’s more related to the potential over capacity in that market because of the status and for other reasons? And are you seeing any signs of that happening?

Brad Hughes

Not from our viewpoint anyway, no.

Curtis Schneekloth

Robbie, this is Curtis. It’s also important to note that in the Chinese market we also have a sizeable role in the TBR or the truck and bus market so when you speak about Cooper Tire, our position and our products in China are a little different than the positions and products in North America.

Robbie [Shanker] – Unidentified Analyst

And have you ever quantified what the spread is between [Nascar] and TBR in China?

Brad Hughes

We have not done that.

Robbie [Shanker] – Unidentified Analyst

Okay. And you spoke at the end of last quarter about an inventory [inaudible] cost to about $70 million to $100 million in this year, you were up about $16 million in 1Q, do you see the $70 million to $100 going up because of raw materials or do you think you’re already decently positioned \inventory wise?

Brad Hughes

Well, we would like to build inventory further. Frankly as we’ve been selling tires to the end customers, we haven’t been able to build it as quickly as we would like at this point in time. There will be a continued effort to build inventories to ensure that we can service our customers correctly, and I think that the levels that you’re seeing now reflect largely the raw material cost implications today.

Roy V. Armes

We’re still projecting Robbie that we are going to spend that $70 million to $100 million. Obviously if the demand continues like it is and the industry continues like it is, it’ll be difficult for us to reach those kind of numbers. But that’s still our intent.

Robbie [Shanker] – Unidentified Analyst

All right. And finally can you remind us again what kind of potential or restructuring or cost-saving actions you have coming up and what that could be in terms of a tailwind in 2010?

Brad Hughes

Well, we’re still on track with the original estimates of $75 million to $80 million and of that we at the end of the year indicated that $50 million was going to occur in this year and we’re still on track given what happened in the first quarter for that to be achieved.

Operator

Your next question comes from the line of Saul Ludwig – KeyBanc Capitals Market.

Saul Ludwig – KeyBanc Capitals Market

In China with demand surging are you sort of tapped out with capacity at the Cooper Chengshan? And if so, are you doing anything to expand its capacity?

Brad Hughes

Yeah. We’re not totally tapped out, Saul but we are getting close and we are considering right now additional investment in both the TBR and the PCR business there to get additional capacity.

Saul Ludwig – KeyBanc Capitals Market

And is that in your cap spending numbers?

Brad Hughes

Yes.

Saul Ludwig – KeyBanc Capitals Market

Okay. Talk about fill rates. When your customers orders 100 tires, how many are you able to ship, and what he's doing about these unhappy customers who don't get all they want.

Brad Hughes

Well, we've been working directly with our customers, and in some cases making sure that we're allocating, prioritizing, their needs correctly. And while our fill rates are down, we still have some pretty good fill rates compared to the industry overall. So we're working directly with our customers.

They obviously want more tires, and we're trying to fulfill the orders as best we can at this point in time. They work with us pretty well on making sure we've got the right priorities and they're getting not only the right quantity but the right tires. But it has been constrained.

Saul Ludwig – KeyBanc Capital Markets

And when you look at the price hike that you put in in January, and now the additional price hike for June, if raw material costs were to stay where they are today by the second half of the year would your prices neutralize the raw material increases? Or will you continue to have negative price draws for the balance of the year?

Brad Hughes

And so the principle factor that we're looking at with regard to the pricing is where are we versus competition and are we priced correctly for the tires that we're putting into the market? And we feel comfortable with the plan that we've just announced for June that we're going to be there. Obviously, we're also monitoring what's happening with raw materials to make sure that we understand and can react to the implications on margins. I think we're pretty comfortable with where we're at right now.

Saul Ludwig – KeyBanc Capital Markets

Any thought of ever changing to a FIFO, especially since there's a move to eliminate FIFO in the United States? But where's your thinking on changing your accounting to a FIFO potentially?

Brad Hughes

Well, I think at this point that we believe that the economic benefits to Cooper being on LIFO are still sufficient in order that we account for our inventory that way.

Saul Ludwig – KeyBanc Capital Markets

So no change to consider changing that.

Brad Hughes

No, no.

Roy V. Armes

We'll take one more question, thank you.

Operator

(Operator Instructions) Your first question is from Derrick Winger – Jefferies & Co.

Derrick Winger – Jefferies & Co.

Yes, just a clarification on the restructuring charges, that I believe you said that $50 million for the year, $8 million of which were spent in the first quarter. So that leaves $42 million for the year, if you can clarify. And then secondly, the availability on the U.S. revolver and account receivable securitization.

Curtis Schneekloth

Derrick, it's Curtis Schneekloth here. And I think you may have misheard or misinterpreted what was said about the restructuring. We did have $8 million of charges in the first quarter, but the number Brad referred to of $50 million is the benefits we'll be seeing year-over-year during 2010. So it was not related to expenditures at all, it was actually a benefit.

Derrick Winger – Jefferies & Co.

Yes. Just the revolver question and then I believe you said on the restructuring charges though, this was at the end of last year's call, that you were going to have in total $135 million to $145 million, in which $125 million have already been incurred. So that would leave about $20 million left. And you add $8 million to the first quarter, so would that leave the balance of $12 million or so for the balance of the year?

Brad Hughes

Yes, that's about right. And we do anticipate that that will close up over the course of this year. What was the question with regard to revolvers? It was difficult to hear.

Derrick Winger – Jefferies & Co.

What is the availability on the U.S. revolver and account receivable securitization? You said $126 million was available in Asia. What's available in the U.S.?

Brad Hughes

Yes. Well, we haven't drawn any of it. We have $36 million of it allocated to support lines of credit. And then the balance would be available as long as we've got some sufficient working capital to support it. So the only thing that's been utilized against the two U.S. facilities is $36 million of letters of credit.

Derrick Winger – Jefferies & Co.

Is the balance fully available?

Brad Hughes

At this point it would be fully available, yes.

Roy V. Armes

Just in closing here. I just want to make a couple of comments. We had a very strong quarter, and I'm extremely pleased with the performance of the entire Cooper team here, from a profitability standpoint to our balance sheet to our cash position. It's driven by our overall market performance.

In every region we are against an improving industry which has helped, and also our manufacturing operations, the improvements that we've seen there. We continue to quickly effectively make the necessary adjustments required to continuously improve the business and position the company for continued growth.

At the same time, we recognize the volatility that currently exists in the economy and with the raw material costs. These economic factors, they all can impact our business both positively and negatively. So we're cognizant of that, but I think we're making all the right changes in the business to be able to address those.

So with that, I want to thank all of you for your interest and your participation. And just to make a last comment. If there's follow up questions or follow up answers that you need, or some additional detail, you can contact Curtis Schneekloth here and he'd be glad to help you there. Again, thanks a lot and I appreciate your time and attention.

Operator

This concludes today's conference call. You may now disconnect.

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