Company Quick10K Filing
Quick10K
Cooper Tire & Rubber
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$29.21 50 $1,460
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
10-Q 2013-09-30 Quarter: 2013-09-30
8-K 2019-06-28 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-03 Shareholder Vote
8-K 2019-03-31 Earnings, Other Events, Exhibits
8-K 2019-02-19 Earnings, Other Events, Exhibits
8-K 2019-02-06 Other Events, Exhibits
8-K 2019-01-30 Other Events, Exhibits
8-K 2019-01-18 Other Events, Exhibits
8-K 2018-12-12 Enter Agreement, Other Events, Exhibits
8-K 2018-11-15 Officers, Regulation FD, Exhibits
8-K 2018-10-26 Earnings, Officers, Other Events, Exhibits
8-K 2018-10-10 Other Events, Exhibits
8-K 2018-08-06 Earnings, Other Events, Exhibits
8-K 2018-05-04 Shareholder Vote
8-K 2018-04-09 Officers, Regulation FD, Exhibits
BPR Brookfield Property REIT 14,690
MAIN Main Street Capital 2,450
AVNS Avanos Medical 2,090
SEMG SemGroup 950
PVBC Provident Bancorp 221
FUV Arcimoto 57
ICON Iconix Brand Group 14
GAHC Global Arena Holding 0
MYHI Mountain High Acquisitions 0
HAHA Haha Generation 0
CTB 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation and Consolidation
Note 2. Restructuring
Note 3. Revenue From Contracts with Customers
Note 4. Inventories
Note 5. Income Taxes
Note 6. Debt
Note 7. Fair Value Measurements
Note 8. Pensions and Postretirement Benefits Other Than Pensions
Note 9. Lease Commitments
Note 10. Stockholders' Equity
Note 11. Changes in Accumulated Other Comprehensive Income (Loss) By Component
Note 12. Comprehensive Income (Loss) Attributable To Noncontrolling Shareholders' Interests
Note 13. Contingent Liabilities
Note 14. Business Segments
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Issuer Purchases of Equity Securities
Item 6. Exhibits
EX-31.1 a2019033110qexhibit311.htm
EX-31.2 a2019033110qexhibit312.htm
EX-32 a2019033110qexhibit32.htm

Cooper Tire & Rubber Earnings 2019-03-31

CTB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_______________________________________________ 
FORM 10-Q
_______________________________________________ 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 1-4329
_______________________________________________ 
 COOPER TIRE & RUBBER COMPANY
(Exact name of registrant as specified in its charter)
_______________________________________________ 
DELAWARE
 
34-4297750
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification no.)
701 Lima Avenue, Findlay, Ohio 45840
(Address of principal executive offices)
(Zip code)
(419) 423-1321
(Registrant’s telephone number, including area code)
_______________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
x
Accelerated filer
¨

Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨

 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No x
Number of shares of common stock of registrant outstanding as of Apr 26, 2019: 50,150,350



Part I.
FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
 
 
 
 
 
COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollar amounts in thousands except per share amounts)
 
 
 
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Net sales
 
$
619,163

 
$
601,496

Cost of products sold
 
530,904

 
517,011

Gross profit
 
88,259

 
84,485

Selling, general and administrative expense
 
56,855

 
58,031

Restructuring expense
 
4,973

 

Operating profit
 
26,431

 
26,454

Interest expense
 
(8,314
)
 
(7,691
)
Interest income
 
3,380

 
2,315

Other pension and postretirement benefit expense
 
(9,362
)
 
(6,986
)
Other non-operating income (expense)
 
1,380

 
(1,658
)
Income before income taxes
 
13,515

 
12,434

Provision for income taxes
 
6,337

 
3,451

Net income
 
7,178

 
8,983

Net income attributable to noncontrolling shareholders' interests
 
199

 
698

Net income attributable to Cooper Tire & Rubber Company
 
$
6,979

 
$
8,285

 
 
 
 
 
Earnings per share:
 
 
 
 
Basic
 
$
0.14

 
$
0.16

Diluted
 
$
0.14

 
$
0.16

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.




 
 
 
 
 
COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(Dollar amounts in thousands except per share amounts)
 
 
 
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Net income
 
$
7,178

 
$
8,983

Other comprehensive income (loss):
 
 
 
 
Cumulative currency translation adjustments
 
9,307

 
24,870

Financial instruments:
 
 
 
 
Change in the fair value of derivatives
 
(1,121
)
 
2,139

Income tax benefit (provision) on derivative instruments
 
333

 
(588
)
Financial instruments, net of tax
 
(788
)
 
1,551

Postretirement benefit plans:
 
 
 
 
Amortization of actuarial loss
 
9,233

 
9,345

Amortization of prior service credit
 
(102
)
 
(135
)
Income tax provision on postretirement benefit plans
 
(2,041
)
 
(2,210
)
Foreign currency translation effect
 
(1,460
)
 
(2,900
)
Postretirement benefit plans, net of tax
 
5,630

 
4,100

Other comprehensive income
 
14,149

 
30,521

Comprehensive income
 
21,327

 
39,504

Less comprehensive income attributable to noncontrolling shareholders' interests
 
1,178

 
4,643

Comprehensive income attributable to Cooper Tire & Rubber Company
 
$
20,149

 
$
34,861

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

-3-


 
 
 
 
 
COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)
 
 
 
 
 
 
 
March 31, 2019 (Unaudited)
 
December 31, 2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
212,331

 
$
356,254

Notes receivable
 
12,514

 
5,737

Accounts receivable, less allowances of $6,154 at 2019 and $5,836 at 2018
 
540,813

 
546,905

Inventories:
 
 
 
 
Finished goods
 
411,643

 
338,133

Work in process
 
30,708

 
27,265

Raw materials and supplies
 
121,385

 
114,582

Total inventories
 
563,736

 
479,980

Other current assets
 
54,829

 
67,856

Total current assets
 
1,384,223

 
1,456,732

Property, plant and equipment:
 
 
 
 
Land and land improvements
 
52,466

 
52,668

Buildings
 
318,664

 
314,555

Machinery and equipment
 
2,016,275

 
1,981,857

Molds, cores and rings
 
247,859

 
238,911

Total property, plant and equipment
 
2,635,264

 
2,587,991

Less: Accumulated depreciation
 
1,624,549

 
1,586,070

Property, plant and equipment, net
 
1,010,715

 
1,001,921

Operating lease right-of-use assets, net of accumulated amortization of $7,032
 
97,646

 

Goodwill
 
18,851

 
18,851

Intangibles, net of accumulated amortization of $111,520 at 2019 and $106,871 at 2018
 
117,433

 
120,321

Deferred income tax assets
 
26,923

 
28,146

Other assets
 
21,377

 
8,234

Total assets
 
$
2,677,168

 
$
2,634,205

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


-4-


 
 
 
 
 
COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)
 
 
 
 
 
(Continued)
 
March 31, 2019 (Unaudited)
 
December 31, 2018
LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Notes payable
 
$
20,074

 
$
15,288

Accounts payable
 
268,780

 
286,671

Accrued liabilities
 
248,029

 
282,650

Income taxes payable
 
4,993

 
975

Current portion of long-term debt and finance leases
 
173,974

 
174,760

Total current liabilities
 
715,850

 
760,344

Long-term debt and finance leases
 
121,305

 
121,284

Noncurrent operating leases
 
72,730

 

Postretirement benefits other than pensions
 
235,974

 
236,454

Pension benefits
 
144,908

 
147,950

Other long-term liabilities
 
138,183

 
135,730

Equity:
 
 
 
 
Preferred stock, $1 par value; 5,000,000 shares authorized; none issued
 


 


Common stock, $1 par value; 300,000,000 shares authorized; 87,850,292 shares issued at 2019 and 2018
 
87,850

 
87,850

Capital in excess of par value
 
19,545

 
21,124

Retained earnings
 
2,451,367

 
2,449,714

Accumulated other comprehensive loss
 
(448,419
)
 
(461,589
)
Parent stockholders' equity before treasury stock
 
2,110,343

 
2,097,099

Less: Common shares in treasury at cost (37,699,947 at 2019 and 37,776,659 at 2018)
 
(923,703
)
 
(925,056
)
Total parent stockholders' equity
 
1,186,640

 
1,172,043

Noncontrolling shareholders' interests in consolidated subsidiaries
 
61,578

 
60,400

Total equity
 
1,248,218

 
1,232,443

Total liabilities and equity
 
$
2,677,168

 
$
2,634,205

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


-5-


 
 
 
 
 
COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands except per share amounts)
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Operating activities:
 
 
 
 
Net income
 
$
7,178

 
$
8,983

Adjustments to reconcile net income to net cash from operations:
 
 
 
 
Depreciation and amortization
 
37,298

 
36,424

Stock-based compensation
 
869

 
1,280

Change in LIFO inventory reserve
 
(168
)
 
(9,900
)
Amortization of unrecognized postretirement benefits
 
9,131

 
9,210

Changes in operating assets and liabilities:
 
 
 
 
Accounts and notes receivable
 
2,278

 
(14,955
)
Inventories
 
(81,354
)
 
(81,156
)
Other current assets
 
(2,170
)
 
(5,532
)
Accounts payable
 
2,740

 
13,063

Accrued liabilities
 
(63,228
)
 
(34,778
)
Other items
 
(8,986
)
 
58

Net cash used in operating activities
 
(96,412
)
 
(77,303
)
Investing activities:
 
 
 
 
Additions to property, plant and equipment and capitalized software
 
(59,867
)
 
(59,722
)
Proceeds from the sale of assets
 
38

 
133

Net cash used in investing activities
 
(59,829
)
 
(59,589
)
Financing activities:
 
 
 
 
Net issuances of (payments on) short-term debt
 
6,608

 
(5,356
)
Repayments of long-term debt and finance lease obligations
 
(797
)
 
(809
)
Payment of financing fees
 

 
(1,230
)
Repurchase of common stock
 

 
(15,565
)
Payments of employee taxes withheld from share-based awards
 
(1,158
)
 
(1,891
)
Payment of dividends to Cooper Tire & Rubber Company stockholders
 
(5,262
)
 
(5,334
)
Excess tax benefits on stock-based compensation
 

 
270

Net cash used in financing activities
 
(609
)
 
(29,915
)
Effects of exchange rate changes on cash
 
(1,058
)
 
1,399

Net change in cash, cash equivalents and restricted cash
 
(157,908
)
 
(165,408
)
Cash, cash equivalents and restricted cash at beginning of year
 
378,246

 
392,306

Cash, cash equivalents and restricted cash at end of year
 
$
220,338

 
$
226,898

 
 
 
 
 
Unrestricted Cash and cash equivalents
 
$
212,331

 
$
213,091

Restricted cash included in Other current assets
 
6,410

 
11,683

Restricted cash included in Other assets
 
1,597

 
2,124

Total cash, cash equivalents and restricted cash
 
$
220,338

 
$
226,898

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


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COOPER TIRE & RUBBER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)

Note 1.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
There is a year-round demand for passenger car and truck replacement tires, but passenger car replacement tire sales are generally strongest during the third and fourth quarters of the year. Winter tires are sold principally during the months of June through November. Operating results for the three month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019.
The Company consolidates into its financial statements the accounts of the Company, all wholly-owned subsidiaries, and any partially-owned subsidiary that the Company has the ability to control. Control generally equates to ownership percentage, whereby investments that are more than 50 percent owned are consolidated, investments in affiliates of 50 percent or less but greater than 20 percent are accounted for using the equity method, and investments in affiliates of 20 percent or less are accounted for using the cost method. The Company does not consolidate any entity for which it has a variable interest based solely on power to direct the activities and significant participation in the entity’s expected results that would not otherwise be consolidated based on control through voting interests. Further, the Company’s joint ventures are businesses established and maintained in connection with the Company’s operating strategy. All intercompany transactions and balances have been eliminated.
On December 12, 2018, Cooper Tire & Rubber Company Vietnam Holding, LLC ("Cooper Vietnam"), a wholly owned subsidiary of the Company, and Sailun (Vietnam) Co., Ltd. ("Sailun Vietnam") entered into an equity joint venture contract to establish a joint venture in Vietnam which will produce and sell truck and bus radial ("TBR") tires. The Company’s investment in the joint venture will represent a 35 percent ownership interest and is accounted for under the equity method. Total investment in the facility and equipment in the joint venture is expected to be in the range of $190 to $210 million USD, funded through capital contributions and debt, with Cooper being responsible for its pro rata share. Construction of the facility is expected to begin in 2019, with tire production commencing in the first half of 2020.
The capacity created by the planned Vietnam joint venture will decrease expected production requirements for Cooper's China-based Qingdao Ge Rui Da Rubber Co., Ltd. ("GRT") joint venture. The Company included the expected impact of the new Vietnam joint venture on projected future cash flows in performing its annual goodwill impairment assessment on GRT in the fourth quarter of 2018. Based on the assessment performed, the goodwill balance was deemed to be fully impaired and resulted in a non-cash fourth quarter 2018 impairment charge of $33,827.

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Earnings per common shareNet income per share is computed on the basis of the weighted average number of common shares outstanding each year. Diluted earnings per share includes the dilutive effect of stock options and other stock units. The following table sets forth the computation of basic and diluted earnings per share:
(Number of shares and dollar amounts in thousands except per share amounts)
 
Three Months Ended March 31,
 
 
2019
 
2018
Numerator
 
 
 
 
Numerator for basic and diluted earnings per share - income from continuing operations available to common stockholders
 
$
6,979

 
$
8,285

Denominator
 
 
 
 
Denominator for basic earnings per share - weighted average shares outstanding
 
50,100

 
50,838

Effect of dilutive securities - stock options and other stock units
 
278

 
341

Denominator for diluted earnings per share - adjusted weighted average shares outstanding
 
$
50,378

 
$
51,179

Earnings per share:
 
 
 
 
Basic
 
$
0.14

 
$
0.16

Diluted
 
$
0.14

 
$
0.16


At March 31, 2019 and 2018, all options to purchase shares of the Company’s common stock were included in the computation of diluted earnings per share as the options’ exercise prices were less than the average market price of the common shares.
Warranties – Warranties are provided on the sale of certain of the Company’s products and an accrual for estimated future claims is recorded at the time revenue is recognized. Tire replacement under most of the warranties the Company offers is on a prorated basis. The Company provides for the estimated cost of product warranties based primarily on historical return rates, estimates of the eligible tire population and the value of tires to be replaced. The following table summarizes the activity in the Company’s product warranty liabilities which are recorded in Accrued liabilities and Other long-term liabilities on the Company’s Condensed Consolidated Balance Sheets:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Reserve at beginning of year
 
$
12,431

 
$
12,093

Additions
 
2,606

 
3,844

Payments
 
(3,198
)
 
(2,743
)
Reserve at period end
 
$
11,839

 
$
13,194



Truck and Bus Tire Tariffs – Antidumping and countervailing duty investigations into certain TBR tires imported from the PRC into the United States ("U.S.") were initiated on January 29, 2016. The preliminary determinations announced in both investigations were affirmative and resulted in the imposition of significant additional duties from each. On February 22, 2017, the U.S. International Trade Commission ("ITC") made a final determination that the U.S. market had not suffered material injury because of imports of TBR tires from China. As a result of this decision, preliminary antidumping and countervailing duties from Chinese TBR tires imported subsequent to the preliminary determination were not collected and any amounts previously paid were refunded by U.S. Customs and Border Protection. On April 14, 2017, the United Steelworkers Union filed a civil action challenging the ITC's decision not to impose duties on TBR tires from China imported into the U.S. and that case is still pending. On November 1, 2018, the Court of International Trade (“CIT”) remanded the case back to the ITC for reconsideration.  On January 30, 2019, the ITC reversed its earlier decision and made an affirmative determination of material injury. On February 15, 2019, the determination was published in the Federal Register and countervailing duties of 42.16 percent were imposed on the Company's TBR tire imports into the U.S. from China. The ITC’s re-determination, along with comments from the parties regarding the re-determination, are due to be filed with the CIT by May 31, 2019. The CIT will then make a final determination. Since the publication of the determination in the Federal Register, the Company incurred duties of $10,048 for the quarter ended March 31, 2019. This amount was recorded as a component of Cost of products sold in the Condensed Consolidated Statements of Income.
North American Distribution Center – On January 22, 2017, a tornado hit the Company’s leased Albany, Georgia distribution center, causing damage to the Company's assets and disrupting certain operations. Insurance, less applicable deductibles, covered the repair or replacement of the Company's assets that suffered loss or damage, and the Company worked closely with its insurance carriers and claims adjusters to ascertain the full amount of insurance proceeds due to the Company as a result of the damages and the loss the Company suffered. The Company's insurance policies also provided coverage for interruption to

-8-


its business, including lost profits, and reimbursement for other expenses and costs that were incurred relating to the damages and losses suffered. For the year ended December 31, 2017, the Company incurred direct expenses of $12,583, less proceeds of $7,000 recovered from insurance. For the year ended December 31, 2018, the Company recorded insurance recoveries of $7,300, less direct costs of $1,569. In the first quarter of 2018, the Company recorded insurance recoveries of $3,809, while incurring direct costs of $870. These amounts were recorded as a component of Cost of products sold in the Condensed Consolidated Statements of Income for the respective periods. The Company's insurance claim related to the tornado was closed in the year ended December 31, 2018, with no further direct expenses or insurance recoveries anticipated.
Recent Accounting Pronouncements
Each change to U.S. GAAP is established by the Financial Accounting Standards Board (“FASB”) in the form of an accounting standards update (“ASU”) to the FASB’s Accounting Standards Codification (“ASC”).
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s condensed consolidated financial statements.
Accounting Pronouncements – Recently adopted

SEC Disclosure Regulation Simplifications
During the fourth quarter of 2018, the SEC published Final Rule Release No. 33-10532, "Disclosure Update and Simplification." This standard, effective for quarterly and annual reports submitted after November 5, 2018, streamlines disclosure requirements by removing certain redundant topics. For the Company, the most notable simplification implemented in 2019 is the expansion of the shareholders' equity reconciliation to display quarter-to-quarter details.

Leases
In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires balance sheet recognition of lease liabilities and right-of-use assets for most leases having terms of twelve months or longer. The Company adopted the standard on the required effective date of January 1, 2019 using the transition option, “Comparatives Under 840 Option,” established by ASU 2018-11, Leases (Topic 842), Targeted Improvements (ASU 2018-11). The FASB issued multiple amendments to the standard which provided clarification, additional guidance, practical expedients and other improvements to ASU 2016-02. The new guidance requires recognition of lease assets and liabilities for operating leases with terms of more than 12 months, in addition to those currently recorded, on the Company's Condensed Consolidated Balance Sheets. See Note 9 for additional details.
Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The Company adopted this standard effective January 1, 2019. The adoption of this standard did not materially impact the Company's condensed consolidated financial statements.

Additionally, in October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815)." The Federal Reserve and Alternative Reference Rates Committee expressed the importance of including the Overnight Index Swap (OIS) rate based on Secured Overnight Financing Rate (SOFR) as a benchmark rate for hedge accounting purposes in facilitating broader use of the underlying SOFR rate in the marketplace to facilitate the move away from LIBOR. This update, effective on January 1, 2019, provides the option to use the OIS rate based on SOFR as a benchmark for hedge accounting. The Company does not currently hold any SOFR-based instruments, but will continue to evaluate its use as the markets transition away from LIBOR.
Accounting Pronouncements – To be adopted

Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)," which removes, modifies and adds various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. For example, disclosures around transfers between fair value hierarchy levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs determining level 3 fair value measurements will be added. This standard is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact the new standard will have on its condensed consolidated financial statements.


-9-


Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, "Compensation  – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20)," which removes, modifies and adds various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. For example, disclosures around the effect of a one-percentage-point change in assumed health care costs will be removed and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period will be added. This standard is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. These amendments must be applied on a retrospective basis for all periods presented. The Company is currently evaluating the impact the new standard will have on its condensed consolidated financial statements.

Internal-Use Software
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)," which aligns the requirements for capitalizing implementation costs incurred in a service contract hosting arrangement with those of developing or obtaining internal-use software. This standard is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact the new standard will have on its condensed consolidated financial statements.
Related Parties
In October 2018, the FASB issued ASU 2018-17 "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for VIEs." When determining if fees paid to decision makers and service providers are variable interests, entities must now also consider indirect interests of those decision makers and service providers held through related parties under common control. This standard is effective January 1, 2020, with early adoption permitted. The Company is currently evaluating the impact the new standard will have on its condensed consolidated financial statements.
Note 2.
Restructuring
During the first quarter of 2019, the Company recorded restructuring expense associated with the planned cessation of light vehicle tire production at its Melksham, England facility, which is included in the International Segment. This initiative, which was committed to on January 17, 2019 by Cooper Tire Europe, a wholly owned subsidiary of the Company, is expected to result in charges to 2019 pre-tax earnings of approximately $8 to $11 million, of which 5 to 10 percent are expected to be non-cash charges. An estimated 300 roles will be eliminated at the site. Cooper Tire Europe will obtain light vehicle tires to meet customer needs from other production sites within the Company’s global production network. Approximately 400 roles will remain in Melksham to support the functions that continue there, including motorsports and motorcycle tire production, the materials business, Cooper Tire Europe headquarters, sales and marketing, and the Europe Technical Center.
The Company recorded restructuring expense of $4,973 for the quarter ended March 31, 2019, including $4,163 of employee severance costs and $810 of asset write-downs and other costs. At March 31, 2019, the Company's accrued restructuring balance is $4,163, related entirely to employee severance costs.
Note 3.
Revenue from Contracts with Customers
Accounting policy
On January 1, 2018, the Company adopted the new U.S. GAAP revenue standard using the modified retrospective transition method applied to contracts which were not completed as of January 1, 2018. The new revenue standard requires revenue to be recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services.
In accordance with the new revenue standard, revenue is measured based on the consideration specified in a contract with a customer, and excludes any sales incentives or rebates. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. This occurs with shipment or delivery, depending on the terms of the underlying contract. The transaction price will include estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. At the time of sale, the Company estimates provisions for different forms of variable consideration (discounts and rebates) based on historical experience, current conditions and contractual obligations, as applicable. Payment terms with customers vary by region and customer, but are generally 30-90 days. The Company does not have significant financing components or significant payment terms. Incidental items that are immaterial in the context of the contract are expensed as incurred.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

-10-


Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and not as a separate performance obligation. Therefore, such items are accrued upon recognition of revenue.
Nature of goods and services
The following is a description of principal activities, separated by reportable segments, from which the Company generates its revenue. See Note 14 - Business Segments for additional details on the Company's reportable segments.
The Company’s reportable segments have the following revenue characteristics:
Americas Tire Operations - The Americas Tire Operations segment manufactures and markets passenger car and light truck tires. The segment also markets and distributes wheels and racing, motorcycle and TBR tires.
International Tire Operations - The International Tire Operations segment manufactures and markets passenger car, light truck, motorcycle, racing, and TBR tires and tire retread material for global markets.
Disaggregation of revenue
In the following tables, revenue is disaggregated by major market channel for the three months ended March 31, 2019 and 2018, respectively:
 
Three Months Ended March 31, 2019
 
Americas
 
International
 
Eliminations
 
Total
Light vehicle(1)
$
454,014

 
$
105,320

 
$
(19,322
)
 
$
540,012

Truck and bus radial
50,086

 
23,696

 
(20,236
)
 
53,546

Other(2)
10,836

 
14,769

 

 
25,605

Net sales
$
514,936

 
$
143,785

 
$
(39,558
)
 
$
619,163


 
Three Months Ended March 31, 2018
 
Americas
 
International
 
Eliminations
 
Total
Light vehicle(1)
$
433,384

 
$
121,341

 
$
(24,950
)
 
$
529,775

Truck and bus radial
41,461

 
26,589

 
(20,190
)
 
47,860

Other(2)
10,547

 
13,314

 

 
23,861

Net sales
$
485,392

 
$
161,244

 
$
(45,140
)
 
$
601,496


(1) 
Light vehicle includes passenger car and light truck tires
(2) 
Other includes motorcycle and racing tires, wheels, tire retread material, and other items
Contract balances
Contract liabilities relate to customer payments received in advance of shipment. As the Company does not generally have rights to consideration for work completed but not billed at the reporting date, the Company does not have any contract assets. Accounts receivable are not considered contract assets under the new revenue standard as contract assets are conditioned upon the Company's future satisfaction of a performance obligation. Accounts receivable, in contrast, are unconditional rights to consideration.
Significant changes in the contract liabilities balance during the three months ended March 31, 2019 are as follows:
 
Contract Liabilities
Contract liabilities at beginning of year
$
947

Increases to deferred revenue for cash received in advance from customers
2,929

Decreases due to recognition of deferred revenue
(2,579
)
Contract liabilities at March 31, 2019
$
1,297




-11-


Transaction price allocated to remaining performance obligations
For the three months ended March 31, 2019 and 2018, respectively, revenue recognized from performance obligations related to prior periods was not material.
Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, is not material.
The Company applies the practical expedient in ASC 606 "Revenue from Contracts with Customers" and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
Note 4.
Inventories
Inventory costs are determined using the last-in, first-out ("LIFO") method for substantially all U.S. inventories. The current cost of the U.S. inventories under the FIFO method was $452,832 and $380,990 at March 31, 2019 and December 31, 2018, respectively. These FIFO values have been reduced by approximately $84,900 and $85,068 at March 31, 2019 and December 31, 2018, respectively, to arrive at the LIFO value reported on the Condensed Consolidated Balance Sheets. The remaining inventories have been valued under the FIFO method. All LIFO inventories are valued at the lower of cost or market. All other inventories are stated at the lower of cost or net realizable value.

Note 5.
Income Taxes
For the three month period ended March 31, 2019, the Company recorded a provision for income taxes of $6,337 (effective tax rate of 46.9 percent) compared to $3,451 (effective tax rate of 27.8 percent) for the same period in 2018. The 2019 three month period provision for income taxes is calculated using a forecasted multi-jurisdictional annual effective tax rate to determine a blended annual effective tax rate. The effective tax rate for the three month period ended March 31, 2019 differs from the U.S. federal statutory rate of 21 percent primarily due to net discrete tax expense of $2,417 recorded during the quarter, the projected mix of earnings in international jurisdictions with differing tax rates, and jurisdictions where valuation allowances are recorded. The discrete tax items primarily consist of additional 2017 transition tax and unrecognized tax benefits accrued of $1,655 and $670, respectively, as a result of final U.S. federal tax guidance issued during the quarter pertaining to the one-time mandatory deemed repatriation under the 2017 Tax Act.
The Company continues to maintain valuation allowances pursuant to ASC 740, “Accounting for Income Taxes,” against portions of its U.S. and non-U.S. deferred tax assets at March 31, 2019 as it cannot assure the future realization of the associated tax benefits prior to their reversal or expiration. In the U.S., the Company has offset a portion of its deferred tax asset relating primarily to a loss carryforward by a valuation allowance of $1,402. In addition, the Company has recorded valuation allowances of $23,735 relating to non-U.S. net operating losses and other deferred tax assets for a total valuation allowance of $25,137. In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company will continue to reassess the possibility of releasing all or part of the valuation allowances currently in place when the associated deferred tax assets are deemed to be realizable.

The Company maintains an ASC 740-10, “Accounting for Uncertainty in Income Taxes,” liability for unrecognized tax benefits related to permanent differences. At March 31, 2019, the Company’s liability, exclusive of penalty and interest, totals approximately $7,103. The Company accrued an additional net $870 for unrecognized tax benefits and an immaterial amount of interest expense during the three month period ended March 31, 2019. Based upon the outcome of tax examinations, judicial proceedings, or expiration of statutes of limitations, it is possible that the ultimate resolution of the Company's unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities.
The Company operates in multiple jurisdictions throughout the world. The Company has effectively settled U.S. federal tax examinations for tax years before 2015 and state and local examinations for tax years before 2013, with limited exceptions. Furthermore, the Company’s non-U.S. subsidiaries are generally no longer subject to income tax examinations in major foreign taxing jurisdictions for tax years prior to 2015. Certain of the Company's state income tax returns in various jurisdictions are currently under examination and it is possible that these examinations will conclude within the next twelve months. However, it is not possible to estimate net increases or decreases in the Company’s unrecognized tax benefits during the next twelve months.

-12-


Note 6.
Debt
On February 15, 2018, the Company amended its revolving credit facility with a consortium of banks that provides up to $400,000 based on available collateral, including a $110,000 letter of credit subfacility, and expires in February 2023. The Company may elect to increase the commitments under the revolving credit facility or incur one or more tranches of term loans in an aggregate amount of up to $100,000, subject to the satisfaction of certain conditions. The Company may elect to add certain foreign subsidiaries as additional borrowers under the Credit Agreement (the “Foreign Subsidiary Borrowers”), subject to the satisfaction of certain conditions.
On February 15, 2018, the Company amended its accounts receivable securitization facility that provides up to $150,000 based on available collateral and expires in February 2021. Pursuant to the terms of the facility, the Company is permitted to sell certain of its domestic trade receivables on a continuous basis to its wholly-owned, bankruptcy-remote subsidiary, Cooper Receivables LLC (“CRLLC”). In turn, CRLLC may sell from time to time an undivided ownership interest in the purchased trade receivables, without recourse, to a PNC Bank administered, asset-backed commercial paper conduit. The accounts receivable securitization facility has no significant financial covenants until available credit is less than specified amounts.
The Company had no borrowings under the revolving credit facility or the accounts receivable securitization facility at March 31, 2019 or December 31, 2018. Amounts used to secure letters of credit totaled $16,800 and $16,800 at March 31, 2019 and December 31, 2018, respectively. The Company’s additional borrowing capacity, net of borrowings and amounts used to back letters of credit, and based on eligible collateral through use of its credit facility with its bank group and its accounts receivable securitization facility at March 31, 2019, was $509,700.
The Company’s consolidated operations in Asia have renewable unsecured credit lines that provide up to $65,900 of borrowings and do not contain financial covenants. The additional borrowing capacity on the Asian credit lines, based on eligible collateral and the short-term notes payable, totaled $45,800 at March 31, 2019.
The following table summarizes the long-term debt and finance leases of the Company at March 31, 2019 and December 31, 2018. Except for the finance leases and other, the remaining long-term debt is due in an aggregate principal payment on the due date:
 
 
March 31, 2019
 
December 31, 2018
Parent company
 
 
 
 
8% unsecured notes due December 2019
 
$
173,578

 
$
173,578

7.625% unsecured notes due March 2027
 
116,880

 
116,880

Finance leases and other
 
5,459

 
6,245

 
 
295,917

 
296,703

Less: unamortized debt issuance costs
 
638

 
659

 
 
295,279

 
296,044

Less: current maturities
 
173,974

 
174,760

 
 
$
121,305

 
$
121,284


In addition, at March 31, 2019 and December 31, 2018, the Company had short-term notes payable of $20,074 and $15,288, respectively, due within twelve months, consisting of funds borrowed by the Company’s operations in the PRC. The weighted average interest rate of the short-term notes payable at March 31, 2019 and December 31, 2018 was 4.81 percent and 4.82 percent, respectively.
Note 7.
Fair Value Measurements
Derivative financial instruments are utilized by the Company to reduce foreign currency exchange risks. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into financial instruments for trading or speculative purposes. The derivative financial instruments include non-designated and cash flow hedges of foreign currency exposures. The change in values of the non-designated foreign currency hedges offset the exchange rate fluctuations related to assets and liabilities recorded on the condensed consolidated balance sheets. The cash flow hedges offset exchange rate fluctuations on the foreign currency-denominated intercompany loans and forecasted cash flows. The Company presently hedges exposures in various currencies generally for transactions expected to occur within the next 12 months. Additionally, the Company utilizes cash flow hedges that hedge already recognized intercompany loans with maturities of up to three years. The notional amount of these foreign currency derivative instruments at March 31, 2019 and December 31, 2018 was $157,076 and $129,542, respectively. The counterparties to each of these agreements are major commercial banks.

-13-


The Company uses non-designated foreign currency forward contracts to hedge its net foreign currency monetary assets and liabilities primarily resulting from non-functional currency denominated receivables and payables of certain U.S. and foreign entities.
Foreign currency forward contracts are also used to hedge variable cash flows associated with forecasted sales and purchases denominated in currencies that are not the functional currency of certain entities. The forward contracts have maturities of less than twelve months pursuant to the Company’s policies and hedging practices. These forward contracts meet the criteria for and have been designated as cash flow hedges. Accordingly, the effective portion of the change in fair value of such forward contracts ($(931) and $713 as of March 31, 2019 and December 31, 2018, respectively) are recorded as a separate component of stockholders’ equity in the accompanying Condensed Consolidated Balance Sheets and reclassified into earnings as the hedged transactions occur.
The Company utilizes cross-currency interest rate swaps to hedge the principal and interest repayment of some intercompany loans. These contracts have maturities of up to three years and meet the criteria for and have been designated as cash flow hedges. Spot to spot changes are recorded in income and all other effective changes are recorded as a separate component of stockholders' equity.
The Company assesses hedge effectiveness prospectively and retrospectively, based on regression of the change in foreign currency exchange rates. Time value of money is included in effectiveness testing.
The derivative instruments are subject to master netting arrangements with the counterparties to the contracts. The following table presents the location and amounts of derivative instrument fair values in the Condensed Consolidated Balance Sheets:
Assets/(liabilities)
 
March 31, 2019
 
December 31, 2018
Designated as hedging instruments:
 
 
 
 
     Gross amounts recognized
 
$
(1,906
)
 
$
(1,524
)
     Gross amounts offset
 
975

 
2,237

     Net amounts
 
(931
)
 
713

Not designated as hedging instruments:
 
 
 
 
     Gross amounts recognized
 
(267
)
 
(544
)
     Gross amounts offset
 
189

 
201

     Net amounts
 
(78
)
 
(343
)
Net amounts presented:
 
 
 
 
     Other current assets
 
$
683

 
$
1,750

     Other long-term liabilities
 
$
(1,692
)
 
$
(1,380
)

The following table presents the location and amount of gains and losses on derivative instruments in the Condensed Consolidated Statements of Income
 
 
Three Months Ended March 31,
Derivatives Designated as Cash Flow Hedges
 
2019
 
2018
Amount of (Loss)/Gain Recognized in Other Comprehensive Income on Derivatives
 
$
(1,183
)
 
$
646

Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
 
$
(62
)
 
$
(1,493
)
Derivatives not Designated as Hedging Instruments
 
Location of Loss Recognized in Income on Derivatives
 
Amount of Loss Recognized in Income on Derivatives for the
 
 
Three Months Ended March 31,
2019
 
2018
Foreign exchange contracts
 
Other non-operating expense
 
$
(1,006
)
 
$
(2,281
)

For foreign exchange hedges of forecasted sales and purchases designated as effective, the Company reclassifies the gain (loss) from Other comprehensive (loss) income into Net sales.
The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within the different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

-14-


Financial assets and liabilities recorded on the Condensed Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.
Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following.
a.Quoted prices for similar assets or liabilities in active markets;
b.Quoted prices for identical or similar assets or liabilities in non-active markets;
c.Pricing models whose inputs are observable for substantially the full term of the asset or liability; and
d.
Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The valuation of foreign currency derivative instruments was determined using widely accepted valuation techniques. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including forward points. The Company incorporated credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as current credit ratings, to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2019 and December 31, 2018, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety were to be classified in Level 2 of the fair value hierarchy.
The valuation of stock-based liabilities was determined using the Company's stock price, and as a result, these liabilities are classified in Level 1 of the fair value hierarchy.
The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
 
Total
Assets
(Liabilities)
 
Quoted Prices
in Active Markets
for Identical
Assets
Level (1)
 
Significant
Other
Observable
Inputs
Level (2)
 
Significant
Unobservable
Inputs
Level (3)
Foreign Currency Derivative
 
$
1,009

 
$

 
$
1,009

 
$

Stock-based Liabilities
 
(13,877
)
 
(13,877
)
 

 

 
 
 
December 31, 2018
 
 
 
Total
Assets
(Liabilities)
 
Quoted Prices
in Active Markets
for Identical
Assets
Level (1)
 
Significant
Other
Observable
Inputs
Level (2)
 
Significant
Unobservable
Inputs
Level (3)
 
 
 
Foreign Currency Derivative
 
$
370

 
$

 
$
370

 
$

 
Stock-based Liabilities
 
(14,644
)
 
(14,644
)
 

 


The fair market value of Cash and cash equivalents, Notes receivable, Restricted cash included in Other current assets, Restricted cash included in Other assets, Notes payable and Current portion of long-term debt and finance leases at March 31, 2019 and December 31, 2018 are equal to their corresponding carrying values as reported on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018, respectively.  Each of these classes of assets and liabilities is classified within Level 1 of the fair value hierarchy.
The fair market value of Long-term debt and finance leases is $133,343 and $137,343 at March 31, 2019 and December 31, 2018, respectively, and is classified within Level 1 of the fair value hierarchy.  The carrying value of Long-term debt is

-15-


$121,305 and $121,284 as reported on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018, respectively.
Note 8.
Pensions and Postretirement Benefits Other than Pensions
The following tables disclose the amount of net periodic benefit costs for the three months ended March 31, 2019 and 2018, respectively, for the Company’s defined benefit plans and other postretirement benefits:
 
 
Pension Benefits - Domestic
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Components of net periodic benefit cost:
 
 
 
 
Service cost
 
$
2,244

 
$
2,580

Interest cost
 
9,875

 
9,210

Expected return on plan assets
 
(11,990
)
 
(13,498
)
Amortization of actuarial loss
 
8,284

 
8,235

Net periodic benefit cost
 
$
8,413

 
$
6,527


 
 
Pension Benefits - International
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Components of net periodic benefit cost:
 
 
 
 
Service cost
 
$

 
$

Interest cost
 
2,821

 
2,906

Expected return on plan assets
 
(2,947
)
 
(3,155
)
Amortization of actuarial loss
 
949

 
1,110

Net periodic benefit cost
 
$
823

 
$
861

 
 
Other Post Retirement Benefits
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Components of net periodic benefit cost:
 
 
 
 
Service cost
 
$
393

 
$
487

Interest cost
 
2,472

 
2,313

Amortization of prior service cost
 
(102
)
 
(135
)
Net periodic benefit cost
 
$
2,763

 
$
2,665





-16-


Note 9.
Lease Commitments
We lease certain warehouses, distribution centers, office space, material handling equipment, office equipment, cars and information technology hardware. The Company determines if an arrangement is a lease or contains an embedded lease at contract inception.
Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more. The exercise of lease renewal options is at our sole discretion. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Certain of our lease agreements include rental payments based on the use of the leased property over contractual levels. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company has lease agreements with lease and non-lease components, which are accounted for separately. Although separation of lease and non-lease components is required, certain practical expedients are available to entities. Entities electing the practical expedient would account for each lease component and the related non-lease component together as a single component. For certain building leases, including the lease of distribution center and office buildings, the Company accounts for the lease and non-lease components as a single lease component. For all other asset types, the Company accounts for lease and non-lease components separately.
For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For finance leases, the right-of-use asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term. In those cases, the right-of-use asset is amortized over the useful life of the underlying asset. Amortization of the right-of-use asset is recognized and presented separately from interest expense on the lease liability.
Right-of-use assets for operating and finance leases are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, "Property, Plant,and Equipment - Overall", to determine whether a right-of-use asset is impaired, and if so, the amount of the impairment loss to recognize. No impairments losses have been recognized to date.

-17-


The following table presents the location and amount of lease assets and liabilities in the Condensed Consolidated Balance Sheet:
Assets
 
Location
 
March 31, 2019
Operating lease assets
 
Operating lease right-of-use assets
 
$
97,646

Finance lease assets
 
Property, plant and equipment
 
3,272

Total leased assets
 
 
 
$
100,918

Liabilities
 
Location
 
 
Current:
 
 
 
 
Operating
 
Accrued liabilities
 
$
28,142

Finance
 
Current portion of long-term debt and finance leases
 
396

Noncurrent:
 
 
 
 
Operating
 
Noncurrent operating leases
 
72,730

Finance
 
Long-term debt and finance leases
 
5,063

Total lease liabilities
 
 
 
$
106,331


The following table presents the location and amount of lease expense in the Condensed Consolidated Income Statement:
Lease cost
 
Location
 
Three Months Ended March 31, 2019
Operating lease cost (a)
 
Cost of Sales
 
$
9,235

Operating lease cost
 
Selling General & Administrative Expenses
 
1,382

Total operating lease cost
 
 
 
10,617

 
 
 
 
 
Amortization of finance lease assets
 
Cost of sales
 
$
55

Interest on finance lease liabilities
 
Interest expense
 
2

Total finance lease cost
 
 
 
57

Net lease cost
 
 
 
$
10,674

(a) - Includes short-term lease costs of $1,886 and variable lease costs of $836.
The following table presents the future maturities of the Company's lease obligations:
 
 
March 31, 2019
 
 
Operating 
Leases
 
Finance
Leases
 
Total
2019
 
$
24,395

 
$
396

 
$
24,791

2020
 
30,426

 

 
30,426

2021
 
17,422

 
5,063

 
22,485

2022
 
13,232

 

 
13,232

2023
 
9,153

 

 
9,153

After 2024
 
24,006

 

 
24,006

Total lease payments
 
118,634

 
5,459

 
124,093

Less: Interest
 
17,762

 

 
17,762

Present value of lease liabilities
 
$
100,872

 
$
5,459

 
$
106,331



-18-


The following table presents the weighted-average lease term and discount rates of the Company's lease obligations:
Weighted-average remaining lease term (years)
 
March 31, 2019
Operating leases
 
5.18

Finance leases
 
0.42

Weighted-average discount rate
 
 
Operating leases
 
5.13
%
Finance leases
 
1.31
%

The following table presents the cash flow amounts related to lease liabilities included in the Company's Condensed Consolidated Statement of Cash Flows
 
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
(8,082
)
Operating cash flows from finance leases
 
55

Financing cash flows from finance leases
 
(197
)
Leased assets obtained in exchange for new finance lease liabilities
 

Leased assets obtained in exchange for new operating lease liabilities
 
36


Note 10.
Stockholders’ Equity
The following tables provide a quarterly reconciliation of the equity accounts attributable to Cooper Tire & Rubber Company and to the noncontrolling shareholders' interests for the year to date as of March 31, 2019 and 2018:
 
Total Equity
 
Total Parent Stockholders’ Equity
 
Noncontrolling Shareholders’ Interests in Consolidated Subsidiary
 
Total Stockholders’ Equity
Balance at December 31, 2018
$
1,172,043

 
$
60,400

 
$
1,232,443

Net income
6,979

 
199

 
7,178

Other comprehensive income
13,170

 
979

 
14,149

Stock compensation plans
(290
)
 

 
(290
)
Cash dividends - 0.105 per share
(5,262
)
 

 
(5,262
)
Balance at March 31, 2019
$
1,186,640

 
$
61,578

 
$
1,248,218

 
Total Equity
 
Total Parent Stockholders’ Equity
 
Noncontrolling Shareholders’ Interests in Consolidated Subsidiary
 
Total Stockholders’ Equity
Balance at December 31, 2017
$
1,127,096

 
$
58,660

 
$
1,185,756

Net income
8,285

 
698

 
8,983

Other comprehensive income
26,576

 
3,945

 
30,521

Share repurchase program
(15,565
)
 

 
(15,565
)
Stock compensation plans
(335
)
 

 
(335
)
Cash dividends - 0.105 per share
(5,334
)
 

 
(5,334
)
Balance at March 31, 2018
$
1,140,723

 
$
63,303

 
$
1,204,026



-19-


Note 11.
Changes in Accumulated Other Comprehensive Income (Loss) by Component
The balances of each component of accumulated other comprehensive income (loss) in the accompanying Consolidated Statements of Equity were as follows:
 
Cumulative Translation Adjustment
 
Derivative Instruments
 
Post- retirement Benefits
 
Total
Ending Balance, December 31, 2018
$
(62,133
)
 
$
2,150

 
$
(401,606
)
 
$
(461,589
)
Other comprehensive income (loss) before reclassifications
8,328

 
(1,183
)
 

 
7,145

Foreign currency translation effect

 

 
(1,460
)
 
(1,460
)
Income tax effect

 
245

 

 
245

Amount reclassified from accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
Cash flow hedges

 
62

 

 
62

Amortization of prior service credit

 

 
(102
)
 
(102
)
Amortization of actuarial losses

 

 
9,233

 
9,233

Income tax effect

 
88

 
(2,041
)
 
(1,953
)
Other comprehensive income (loss)
8,328

 
(788
)
 
5,630

 
13,170

Ending Balance, March 31, 2019
$
(53,805
)
 
$
1,362

 
$
(395,976
)
 
$
(448,419
)
 
Cumulative Translation Adjustment
 
Derivative Instruments
 
Post- retirement Benefits
 
Total
Ending Balance, December 31, 2017
$
(39,940
)
 
$
349

 
$
(438,887
)
 
$
(478,478
)
Other comprehensive income before reclassifications
20,925

 
646

 

 
21,571

Foreign currency translation effect

 

 
(2,900
)
 
(2,900
)
Income tax effect

 
(416
)
 

 
(416
)
Amount reclassified from accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
Cash flow hedges

 
1,493

 

 
1,493

Amortization of prior service credit

 

 
(135
)
 
(135
)
Amortization of actuarial losses

 

 
9,345

 
9,345

Income tax effect

 
(172
)
 
(2,210
)
 
(2,382
)
Other comprehensive income
20,925

 
1,551

 
4,100

 
26,576

Ending Balance, March 31, 2018
$
(19,015
)
 
$
1,900

 
$
(434,787
)
 
$
(451,902
)

Note 12.
Comprehensive Income (Loss) Attributable to Noncontrolling Shareholders’ Interests
The following table provides the details of the comprehensive income (loss) attributable to noncontrolling shareholders' interests:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Net income attributable to noncontrolling shareholders’ interests
 
$
199