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Cooper Tire & Rubber Company. June 11, 2008 Copell Financial Conference Call. Safe Harbor Statement.

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Cooper Tire & Rubber Company

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Cooper tire rubber company l.jpg

Cooper Tire & Rubber Company

June 11, 2008

Copell Financial Conference Call


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Safe Harbor Statement

This presentation contains strategic goals and other forward-looking statements related to future financial results and business operations for Cooper Tire & Rubber Company. Actual results may differ materially from the goals and from current management forecasts and projections as a result of factors over which the Company has no control. Information on these risk factors and additional information on forward-looking statements are included in the Company’s reports on file with the Securities and Exchange Commission and are set forth in the printed copies of this presentation on the last slide.

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Contents

  • Company Background

  • 2007 Highlights

  • Q1 2008 Summary

  • Strategic Plan Summary

  • Capital Allocation Process

  • Questions and Answers

3


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Global Footprint

4


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Private Brands

House Brands

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Company Background

  • 4th largest tire manufacturer in North America

  • 9th largest globally

  • 2007 revenue of $2.9 billion

  • Strategic focus on light vehicle replacement tires in North America (no OE)

  • Small OE contracts in China and Europe

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2007 Highlights

  • Record Sales $ 2.9 Billion

    • 13.9 % increase over 2006

  • Operating Profit $ 134 Million

    • $ 132 million improvement over 2006 before restructuring and impairment

  • Net Income $ 120 Million

    • $ 198 million improvement over 2006

  • Repurchased

    • $ 81 million of Debt

    • $ 46 million of Cooper’s Shares

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2007 Highlights

  • Successes

    • Delivered $100 million of cost savings and profit improvement initiatives

    • Converted Texarkana

    • Launched the CS4 line

    • Sold Oliver operations

    • Signed Mexico Joint Venture agreement

    • Ramped up Cooper Kenda Tire (China)

    • Developed Strategic Plan

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2008 Q1 Summary

  • Net sales for the quarter increased to $679 million.

  • International Operations reported record sales for the first quarter of $232 million, up 27 percent.

  • Operating profit of $9.6 million.

  • International Operations operating profit of $6.9 million.

  • Share repurchases of $13.9 million or 803,300 shares.

9


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Global Supply and Demand

Base = Q1, 2001

Supply / Demand appears balanced in the future

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Source: LMC World Tire Forecast Service, 2007


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Cost Breakdown

Input

% of CoGS

  • Labor20-30%

  • Other15-30%

  • Raw Materials50-55%

    Raw Material Breakdown% of RM

    • Natural Rubber20-25%

    • Synthetic Rubbers25-30%

    • Carbon Black10-15%

    • Reinforcing Fabrics10-15%

    • Steel10-15%

    • Other Raw Materials10-15%

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Raw Material Cost History

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Two Dimensions Necessary to Win

High

Winners at

value end

of market

Clear winners

Operational

Effectiveness

  • Scale

  • Access to low-cost/high-quality supply

  • Cost effective operations

Clear losers

Long term losers?

product / brand

advantage

disappears

Low

Low

High

  • Winning product portfolio

  • Brand strength

  • Market positions/distribution profile

  • Premium customer service

Product and service differentiation

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Cooper’s Strengths

  • Global Footprint

  • Product and Brand Portfolio

  • Replacement Market Focus

  • Distribution Network

  • Significant U.S. Market Share

  • Customer Relationships and Focus

  • Customer Service and Support

  • Speed to Market

  • Financial Resources

  • Manufacturing and Market Knowledge

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We will build on strengths and…

Value Creation Levers

Next Level Targets

Strategic Plan Value Creation Levers

Profitability

7 – 8 %

Operating Profit

as % of Net Sales

  • Global Cost Structure

  • Sourcing and LCC Manufacturing

  • 35 – 45% of manufacturing in LCC

  • Manufacturing Cost Reductions

  • 10 - 15% of addressable cost base

GOAL

Shareholder

Value Creation

  • Targeted Profitable Growth

  • NA > 6% CAGR

  • International > 17% CAGR

Growth

6 – 7% CAGR

Organizational Development

Tools, People & Structure, Culture

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Strategic Plan Execution

Establishment of Project Management Office (PMO)

Workstreams Defined

Project charters developed to support plan targets

Monitor Metrics and Milestones

Address barriers, resource needs as they develop

Insure execution to plan

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Sourcing and LCC Manufacturing

Objectives

  • 35 – 45 % of Manufacturing in LCC

  • Meet Demand

  • Lower Global Cost Structure

  • Reduce Complexity

    Programs to achieve

    • Cooper Kenda Tire (China)

    • Cooper Chengshan Tire (China)

    • Mexico

    • Other

Opportunities are global in nature.

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Cooper Capacity High and Low Cost

High Cost 82%

Albany

Findlay

Melksham

Texarkana

Tupelo

Low Cost 18%

Off-take

Kenda - China

Occidente - Mexico

Joint Venture

CCT - China

CKT - China

LCC

HCC

Cost gap has narrowed, but there is still a 10 – 15% advantage to manufacturing in a LCC and shipping to a HCC

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Cooper Chinese Joint Ventures

Cooper Kenda Tire (CKT)

  • Greenfield JV, Production started in Q1, 2007

  • 100% of tires sold to Cooper and exported for first 5 years

  • 2008 – 2.5 million, 2010 – 6 million

    Cooper Chengshan Tire (CCT)

  • 51% share purchased in February, 2006

  • Focused on TBR

  • 2 Expansions underway

  • 50% export, 50% domestic

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Manufacturing Cost Reductions

Objectives

  • 10 – 15 % reduction in addressable cost base

  • Continue with high quality manufacturing

    Programs to achieve

    • Process Efficiency Improvements

    • Complexity Reduction and Management

    • Automation

    • Distribution

Opportunities are global in nature.

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Manufacturing Cost ReductionPrograms and Benefits

Programs

Drive two major benefits

Process efficiency

improvements

  • Apply Six Sigma and Lean methodology

Cost savings

  • Savings primarily through direct labor and scrap reduction

Complexity

  • Reduce product complexity

  • Reduce process complexity

  • Increase capacity to handle complexity

Capacity increases

Automation

  • Replace manual processes

  • Increase in capacity due to reduction in “non-scheduled” or “non-productive” time

Distribution

  • Optimize labor costs

  • Reduce energy and utilities spending

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Manufacturing Cost Reduction Steps

2008

2009

2010

  • Black Belt Deployment

  • Phase out low-volume, highly complex products

  • Single source

  • Cured tire handling

  • NA - Leveraging

  • Europe - 3PL

  • Asia - Consolidation

    • 12%

  • Black Belt Deployment

  • Optimize sourcing

  • Optimize batch sizes

  • Green tire handling

  • Material handling

  • NA Warehouse consolidation

  • 28%

  • Six Sigma Projects

  • Continue product moves to optimize sourcing

  • Tire building semi-automation

  • Ongoing Process Improvements

  • 60%

Process Efficiency

Improvements

Complexity

Automation

Distribution

% of Total Savings

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Targeted Profitable Growth

Objectives

  • Total Company = 6 to 7% CAGR

  • Global Net Sales = $3.6 billion

    Programs to achieve

    • North America - Channel Alignment

    • Asia - Grow TBR and PCR

    • Europe – Focused on strengths in specific products and markets

Opportunities are global in nature.

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NA Strategy by Channel

RegionalRetailers

Independents

Wholesale

National Retailers

  • Fill rates

  • Margins

  • Degree of exclusivity

  • Margin

  • Product positioning

  • Logistics excellence

  • Margin

  • Fill Rates

  • Logistics excellence

  • Portfolio

  • Fill rates

  • Inventory mgmt

Purchase Drivers and Needs

  • Grow in all Channels, Growth not equal in all channels

  • Continue Support of Independent Dealers

  • Align organization and strategy to each channels needs

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Asia Growth - Summary

Truck and Bus Radial (TBR)

  • Focus TBR on Tier 2 and 3 Products

  • Continue to develop retail sales

  • Focused growth in fleet sales

    Passenger Car Radial (PCR)

  • Build in areas with greatest car parks (east coast)

  • Shift production used for export sales to domestic

  • Elevate the brand

  • Continue to develop retail sales

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China Growth Timeline

Market Share

2015

2007

2010

PCR

5 %

< 1 %

2 %

TBR

10 %

6 %

8 %

26


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European Benefits

  • Global leader in technology adoption

  • Image for participation

  • Second largest vehicle market in the world

  • Helps diversify market and supply base

  • Strategic Option = Focused Growth

27


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Each European Market is Reviewed

High

Place selected bets

Invest for long-term share position

  • High growth market

Template

Segment

Optimize for profit with minimal resources

Manage for volume and profit

Market attractiveness

  • Low growth market

Low

Low

High

Cooper starting position

  • Weak market share

  • Better market share

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Supporting the Strategic Plan

Value Creation Levers

Sourcing and LCC Manufacturing

Manufacturing Cost Reductions

Targeted Profitable Growth

Enabler

Tools

  • IT

  • Business Processes

  • Performance Mgmt

People &

Structure

  • Talent Management

  • Succession Planning

  • Org Structure

  • Change Management

  • The Cooper Way

  • Greater Communication

Culture

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Key Performance Metrics

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Capital Allocation Priorities

- Determines priorities to fund

- Consider alternate net present values

  • Operations including minimum pension funding, maintenance capex levels, and seasonal working capital requirements.

  • Dividends

  • Strategic Investments (Profitable Growth, Cost reductions, additional Pension funding)

  • Optimize WACC, long term capital structure; and improve credit ratings.

  • Opportunistic capital structure changes

  • Additional shareholder friendly activities

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Guidelines

  • Target Inventory Turnover = 8x

  • Net debt to capital ratio in the range of 35 – 40%.

  • CAPEX

    • Mature Markets - at or below depreciation, except where there are quick payback/high return opportunities

    • Developing Markets – Strategic investments will be made above depreciation

    • At least 30% of CAPEX needs to result in cost improvements

    • Project payback < two years and pretax ROIC > 20%

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Guidelines Cont’d.

Liquidity should be sufficient to weather a downturn in demand.

Use of Excess Cash

  • Analysis of “best use and greatest returns performed”

    • Investments for growth

    • Investments for cost reductions

    • Debt pay down

    • Share repurchase

    • Special dividends

      Mergers and Acquisitions

    • No specific plans at the current time

    • All opportunities are analyzed for organizational impact and returns to shareholders.

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Uses of Cash

Excludes cash generated from operations.

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Current Trends

North American Industry Shipments

Down 4% through April

Raw Materials

Current Cooper outlook Q2, 2008 + 20% on year over year basis.

35


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Questions and Answers

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Additional Safe Harbor Info

It is possible that actual results may differ materially from those projections or expectations due to a variety of factors, including but not limited to: • changes in economic and business conditions in the world, especially the continuation of the global tensions and risks of further terrorist incidents that currently exist; • increased competitive activity, including the inability to obtain and maintain price increases to offset higher production or material costs;• the failure to achieve expected sales levels;• consolidation among the Company's competitors and customers;• technology advancements;• fluctuations in raw material and energy prices, including those of steel, crude petroleum and natural gas and the unavailability of such raw materials or energy sources;• changes in interest and foreign exchange rates;• increases in pension expense resulting from investment performance of the Company’s pension plan assets and changes in discount rate, salary increase rate, and expected return on plan assets assumptions;• government regulatory initiatives, including the proposed and final regulations under the TREAD Act;• changes in the Company’s customer relationships, including loss of particular business for competitive or other reasons;• the impact of labor problems, including a strike brought against the Company or against one or more of its large customers;• litigation brought against the Company;• an adverse change in the Company’s credit ratings, which could increase its borrowing costs and/or hamper its access to the credit markets;• the inability of the Company to execute its cost reduction/Asian strategies;• the failure of the Company’s suppliers to timely deliver products in accordance with contract specifications;• the impact of reductions in the insurance program covering the principal risks to the Company, and other unanticipated events and conditions; • the failure of the Company to achieve the full cost reduction and profit improvement targets; and • the inability or failure to implement the Company’s strategic plan.

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