Goodyear Reports Higher Fourth Quarter, Full-Year Results - Record fourth quarter segment operating income of $419 million, up 54%

- Record full-year segment operating income of $1.6 billion, up 27%

- North America sets earnings records for fourth quarter, full year

- Free cash flow from operations of $1 billion for 2013, up 43%

- Company achieves milestone, fully funds hourly U.S. pension plans

- Company reaffirms 2014-2016 financial targets

AKRON, Ohio, Feb. 13, 2014 /PRNewswire/ -- The Goodyear Tire & Rubber Company (NASDAQ: GT) today reported results for the fourth quarter and full-year of 2013.

(Logo: http://photos.prnewswire.com/prnh/20050204/GTLOGO )

"Our outstanding fourth quarter and full-year earnings confirm that our strategy is working and demonstrate Goodyear's ability to deliver sustainable earnings growth and strong free cash flow," said Richard J. Kramer, chairman and chief executive officer. "Our North America business achieved record earnings in all four quarters of 2013."

Subsequent to the year-end, and consistent with its previously announced pension strategy, Goodyear has taken steps to fully fund its hourly U.S. pension plans with $1.15 billion of available cash balances and has begun the process to freeze and de-risk the plans.

"Our 2013 performance has given us the confidence to fully fund our hourly U.S. pension plans," Kramer said. "This is a major milestone in our history and will provide greater transparency to our underlying tire business while improving earnings and cash flow. Moving past these legacy obligations is a new beginning for our company."

Goodyear's fourth quarter 2013 sales were $4.8 billion, down 5 percent from the year ago quarter. Fourth quarter 2013 sales reflect $64 million in higher tire unit volumes; $178 million in lower sales in other tire related businesses, most notably third party chemical sales in North America; $36 million in lower price/mix, principally due to lower raw material costs; and $102 million in unfavorable foreign currency translation. Tire unit volumes totaled 40.7 million, up 2 percent from the fourth quarter of 2012. 

"As industry volumes recover, we continue to see mixed growth rates globally, but there is strong growth in the high-value-added segments we are targeting," Kramer said. "We remain disciplined in our approach, seeking growth where our brands and value proposition enhance our profitability."

The company reported record segment operating income of $419 million in the fourth quarter of 2013. This was up 54 percent from the 2012 quarter, reflecting favorable price/mix net of raw materials of $98 million (excluding raw material cost savings), lower unabsorbed overhead of $55 million due to higher production levels and $11 million in higher tire unit volumes, partially offset by $32 million in higher SAG expenses and $24 million in unfavorable foreign currency translation. See the note at the end of this release for further explanation and a segment operating income reconciliation table.

Goodyear's fourth quarter 2013 net income available to common shareholders was $228 million (84 cents per share), a fourth quarter record and up from breakeven in the 2012 quarter. All per share amounts are diluted.

The 2013 fourth quarter included total charges of $17 million (6 cents per share) due to rationalizations, asset write-offs and accelerated depreciation; and gains of $41 million (15 cents per share) due to income and other discrete tax benefits and $2 million (1 cent per share) from asset sales. All amounts are after taxes and minority interest.

The 2012 fourth quarter included total charges of $85 million (34 cents per share) due to rationalizations, asset write-offs and accelerated depreciation, primarily related to the announced closure of the Amiens North factory in France; $9 million (4 cents per share) due to discrete tax charges; $6 million (2 cents per share) resulting from a strike in South Africa; and $5 million
(2 cents per share) due to charges relating to labor claims with respect to a previously closed facility in Europe; and gains of $6 million (2 cents per share) in insurance recoveries related to flooding in Thailand and $2 million (1 cent per share) from asset sales. All amounts are after taxes and minority interest.

See the table at the end of this release for a list of significant items impacting the 2013 and 2012 quarters.

Full-Year Results

Goodyear's 2013 annual sales were $19.5 billion, down 7 percent from 2012. Sales reflect $665 million in lower sales in other tire-related businesses, most notably third party chemical sales in North America; $354 million in unfavorable foreign currency translation; $166 million in lower tire unit volumes; and $206 million in lower price/mix. Tire unit volumes totaled 162.3 million, down 1 percent from 2012.

The company's segment operating income of $1.6 billion was up 27 percent from 2012. Compared to the prior year, 2013 segment operating income reflects favorable price/mix net of raw materials of $436 million (excluding raw material cost savings), which more than offset $52 million in higher unabsorbed overhead costs, $63 million in unfavorable foreign currency translation and $24 million in lower tire volume.

Goodyear's 2013 net income available to common shareholders of $600 million ($2.28 per share) is up from $183 million (74 cents per share) in 2012. All per share amounts are diluted.

The company generated more than $1 billion of free cash flow from operations, resulting from higher net income and a $415 million benefit from working capital. See the note at the end of this release for further explanation and a free cash flow from operations reconciliation table.

Business Segment Results

North America


Fourth Quarter


Twelve Months


(in millions)

2013


2012


2013

2012


Tire Units

16.3


15.8


61.7

62.6


Sales

$ 2,131


$ 2,314


$   8,684

$ 9,666


Segment Operating Income  

199


116


691

514


Segment Operating Margin

9.3%


5.0%


8.0%

5.3%


North America's fourth quarter sales decreased 8 percent from 2012 to $2.1 billion. Sales reflect a $170 million decline in sales in other tire-related businesses, most notably third-party chemical sales, and lower price/mix. These were partially offset by the impact of a 3 percent increase in tire unit volumes. Original equipment unit volume was up 7 percent. Replacement tire shipments were up 1 percent. 

Fourth quarter segment operating income of $199 million was up 72 percent from the prior year, and a fourth quarter record. Segment operating income was positively impacted by favorable price/mix net of raw materials of $45 million, lower conversion costs of $31 million and increased tire volume of $8 million.

Europe, Middle East and Africa


Fourth Quarter


Twelve Months


(in millions)

2013


2012


2013

2012


Tire Units

14.4


14.2


60.8

62.7


Sales

$ 1,631


$ 1,602


$   6,567

$ 6,884


Segment Operating Income  

101


38


298

252


Segment Operating Margin

6.2%


2.4%


4.5%

3.7%


Europe, Middle East and Africa's fourth quarter sales increased 2 percent from 2012. Sales reflect a 1 percent increase in tire unit volume and favorable foreign currency translation of $27 million, which was partially offset by lower price/mix. Original equipment unit volume was up 4 percent. Replacement tire shipments were flat. 

Fourth quarter 2013 segment operating income of $101 million was $63 million above the prior year. Favorable price/mix net of raw materials of $40 million, lower conversion costs of $27 million, higher tire unit volumes of $4 million and $3 million in favorable foreign currency translation positively impacted segment operating income.

The company has ceased production at its Amiens North plant in France, which produced consumer and farm tires. The facility will close during the first quarter of 2014. The timing of the company's exit from the Europe, Middle East and Africa farm tire business will be determined later in the year. These actions will result in about $75 million of annual profit improvement, with approximately $40 million expected in 2014.

Latin America


Fourth Quarter


Twelve Months


(in millions)

2013


2012


2013

2012


Tire Units

4.4


4.8


17.9

18.1


Sales

$   492


$     541


$ 2,063

$2,085


Segment Operating Income

52


61


283

223


Segment Operating Margin

10.6%


11.3%


13.7%

10.7%


Latin America's fourth quarter sales decreased $49 million from the prior year to $492 million. Sales reflect $83 million in unfavorable foreign currency translation. Improved price/mix more than offset an 8 percent decrease in tire unit volume. Original equipment unit volume was down 16 percent, primarily due to reduced vehicle production in Brazil. Replacement tire shipments were down 4 percent, primarily in Venezuela. 

Fourth quarter segment operating income of $52 million was down $9 million from 2012. Segment operating income was positively impacted by price/mix improvements of $48 million and lower raw material costs of $12 million. These were more than offset by $28 million in higher SAG expenses, primarily due to marketing activities in support of new product launches and the impact of inflation on wages and other costs; higher conversion costs of $22 million due to the impact of inflation on wages and other costs; $12 million in unfavorable currency translation; and $10 million in lower tire unit volume.

Asia Pacific


Fourth Quarter


Twelve Months


(in millions)

2013


2012


2013

2012


Tire Units

5.6


5.2


21.9

20.6


Sales

$   537


$   588


$   2,226

$ 2,357


Segment Operating Income

67


57


308

259


Segment Operating Margin

12.5%


9.7%


13.8%

11.0%


Asia Pacific's fourth quarter sales decreased 9 percent from 2012 to $537 million. Sales reflect an 8 percent increase in tire unit volume, which was more than offset by reduced price/mix, $39 million in unfavorable foreign currency translation and $7 million in lower sales in other tire-related businesses. Original equipment unit volume was up 6 percent. Replacement tire shipments were up 9 percent.

Fourth quarter segment operating income of $67 million was up 18 percent from 2012. Segment operating income was positively impacted by favorable price/mix net of raw materials of $12 million, lower factory start-up costs of $14 million and $9 million in higher tire unit volumes, which more than offset $14 million in unfavorable foreign currency translation and $4 million in higher SAG expenses.

Outlook

The company reaffirmed its 2014-2016 financial targets, which include:
- Annual segment operating income growth of between 10 percent and 15 percent,
- Annual positive free cash flow from operations and,
- An adjusted debt to EBITDAP ratio of 2.5x.

Additionally, the company continues to expect about a 2 percent to 3 percent increase in unit volumes for 2014 over 2013.

Common Stock Dividend

The company paid a quarterly dividend of 5 cents per share of common stock on December 1, 2013. On January 13, 2014, the Board of Directors also declared a dividend of 5 cents per share payable March 3, 2014, to shareholders of record on January 31, 2014.

Conference Call

Goodyear will hold an investor conference call at 9 a.m. today. Approximately 45 minutes prior to the commencement of the call, the company will post the financial and other related information that will be presented on its investor relations Web site: http://investor.goodyear.com.

Participating in the conference call will be Richard J. Kramer, chairman and chief executive officer, and Laura K. Thompson, executive vice president and chief financial officer.  

Investors, members of the media and other interested persons can access the conference call on the Web site or via telephone by calling either (800) 895-1085 or (785) 424-1055 before 8:55 a.m. and providing the Conference ID "Goodyear." A taped replay will be available by calling (800) 753-4606 or (402) 220-2103. The replay will also remain available on the Web site.

Goodyear is one of the world's largest tire companies. It employs about 69,000 people and manufactures its products in 52 facilities in 22 countries around the world.  Its two Innovation Centers in Akron, Ohio and Colmar-Berg, Luxembourg strive to develop state-of-the-art products and services that set the technology and performance standard for the industry. For more information about Goodyear and its products, go to www.goodyear.com/corporate.  GT-FN

Certain information contained in this press release may constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. There are a variety of factors, many of which are beyond our control, that affect our operations, performance, business strategy and results and could cause our actual results and experience to differ materially from the assumptions, expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to: our ability to implement successfully strategic initiatives; actions and initiatives taken by both current and potential competitors; increases in the prices paid for raw materials and energy; a labor strike, work stoppage or other similar event; deteriorating economic conditions or an inability to access capital markets; work stoppages, financial difficulties or supply disruptions at our suppliers or customers; the adequacy of our capital expenditures; our failure to comply with a material covenant in our debt obligations; potential adverse consequences of litigation involving the company; as well as the effects of more general factors such as changes in general market, economic or political conditions or in legislation, regulation or public policy. Additional factors are discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

(financial statements follow)


                                                                                               

The Goodyear Tire & Rubber Company and Subsidiaries

Consolidated Statements of Operations



 (Unaudited)




Three Months

Ended


Year

Ended


December 31,


December 31,

(In millions, except per share amounts)

2013

2012


2013

2012







NET SALES

$  4,791

$  5,045


$ 19,540

$ 20,992







Cost of Goods Sold

3,690

4,100


15,422

17,163

Selling, Administrative and General Expense

736

707


2,758

2,718

Rationalizations

17

108


58

175

Interest Expense

105

87


392

357

Other (Income) Expense

(15)

11


97

139







Income before Income Taxes

258

32


813

440

United States and Foreign Taxes

2

39


138

203







Net Income (Loss)

256

(7)


675

237

Less: Minority Shareholders' Net Income (Loss)

21

(14)


46

25







Goodyear Net Income

235

7


629

212

Less: Preferred  Stock Dividends

7

7


29

29

Goodyear Net Income Available to
   Common Shareholders

 

$     228

 

$        --


 

$      600

 

$      183







Goodyear Net Income Available to
   Common Shareholders - Per Share of
   Common Stock












   Basic

$     0.92

$        --


$       2.44

$     0.75







   Weighted Average Shares Outstanding

247

245


246

245







   Diluted

$     0.84

$         --


$       2.28

$      0.74







   Weighted Average Shares Outstanding

280

247


277

247

   Cash Dividends Declared Per Common Share

$         --

--


$       0.05

--

 


The Goodyear Tire & Rubber Company and Subsidiaries

Consolidated Balance Sheets


(In millions, except share data)

December 31,

December 31,


2013

2012

Assets:



Current Assets:



  Cash and Cash Equivalents

$     2,996

$     2,281

  Accounts Receivable, less Allowance - $99 ($99 in 2012)

2,435

2,563

  Inventories:



     Raw Materials

592

743

     Work in Process

164

169

     Finished Products

2,060

2,338


2,816

3,250

  Prepaid Expenses and Other Current Assets

397

404

     Total Current Assets

8,644

8,498

Goodwill

668

664

Intangible Assets

138

140

Deferred Income Taxes

157

186

Other Assets

600

529

Property, Plant and Equipment

  less Accumulated Depreciation - $9,158 ($8,991 in 2012)

7,320

6,956

    Total Assets

$   17,527

$   16,973




Liabilities:



Current Liabilities:



  Accounts Payable-Trade

$     3,097

$     3,223

  Compensation and Benefits

758

719

  Other Current Liabilities

1,083

1,182

  Notes Payable and Overdrafts

14

102

  Long Term Debt and Capital Leases due Within One Year

73

96

    Total Current Liabilities

5,025

5,322

Long Term Debt and Capital Leases

6,162

4,888

Compensation and Benefits

2,673

4,340

Deferred and Other Noncurrent Income Taxes

256

264

Other Long Term Liabilities

966

1,000

    Total Liabilities

15,082

15,814




Commitments and Contingent Liabilities



Minority Shareholders' Equity

577

534




Shareholders' Equity:



Goodyear Shareholders' Equity:



Preferred Stock, no par value:



Authorized, 50 million shares, Outstanding shares – 10 million (10 million in 2012),

liquidation preference $50 per share

500

500

Common Stock, no par value:



Authorized, 450 million shares, Outstanding shares – 248 million (245 million in 2012)

after deducting 3 million treasury shares (6 million in 2012)

248

245

Capital Surplus

2,847

2,815

Retained Earnings

1,958

1,370

Accumulated Other Comprehensive Loss

(3,947)

(4,560)

   Goodyear Shareholders' Equity

1,606

370

Minority Shareholders' Equity – Nonredeemable

262

255

   Total Shareholders' Equity

1,868

625

   Total Liabilities and Shareholders' Equity

$   17,527

$   16,973




 

The Goodyear Tire & Rubber Company and Subsidiaries

Consolidated Statements of Cash Flows


(In millions)

Year Ended


December 31,


2013

2012

Cash Flows from Operating Activities:



Net Income

$      675

$ 237

  Adjustments to reconcile net income to cash flows from operating activities:



     Depreciation and amortization

722

687

     Amortization and write-off of debt issuance costs

18

67

     Net rationalization charges

58

175

     Rationalization payments

(72)

(106)

     Net gains on asset sales

(8)

(25)

     Pension contributions and direct payments

(1,162)

(684)

     Venezuela currency devaluation

115

--

     Customer prepayments and government grants

44

131

     Insurance proceeds

17

50

  Changes in operating assets and liabilities, net of asset acquisitions and dispositions:



     Accounts receivable

79

291

     Inventories

366

619

     Accounts payable - trade

(30)

(453)

     Compensation and benefits

243

260

     Other current liabilities

(28)

(24)

     Other assets and liabilities

(99)

(187)

     Total Cash Flows from Operating Activities

938

1,038

Cash Flows from Investing Activities:



  Capital expenditures

(1,168)

(1,127)

  Asset dispositions

25

16

  Government grants received

9

2

  Decrease in restricted cash

14

11

  Short term securities acquired

(105)

(57)

  Short term securities redeemed

89

28

  Other transactions

--

4

     Total Cash Flows from Investing Activities

(1,136)

(1,123)

Cash Flows from Financing Activities:



  Short term debt and overdrafts incurred

31

77

  Short term debt and overdrafts paid

(120)

(156)

  Long term debt incurred

1,913

3,531

  Long term debt paid

(681)

(3,717)

  Common stock issued

22

3

  Common stock dividends paid

(12)

--

  Preferred stock dividends paid

(29)

(29)

  Transactions with minority interests in subsidiaries

(26)

(71)

  Debt related costs and other transactions

(16)

(64)

     Total Cash Flows from Financing Activities

1,082

(426)

Effect of exchange rate changes on cash and cash equivalents

(169)

20

Net Change in Cash and Cash Equivalents

715

(491)

Cash and Cash Equivalents at Beginning of the Period

2,281

2,772

Cash and Cash Equivalents at End of the Period

$   2,996

$     2,281

 

Non-GAAP Financial Measures

This earnings release presents total segment operating income and free cash flow from operations, on a historical basis, which are important financial measures for the company but are not financial measures defined by U.S. GAAP, and should not be construed as an alternative to corresponding financial measures presented in accordance with U.S. GAAP.

Total segment operating income is the sum of the individual strategic business units' (SBUs) segment operating income as determined in accordance with U.S. GAAP.  Management believes that total segment operating income is useful because it represents the aggregate value of income created by the company's SBUs and excludes items not directly related to the SBUs for performance evaluation purposes. 

Free cash flow from operations is the company's cash flow from operations as determined in accordance with U.S. GAAP before pension contributions and direct payments and rationalization payments, less capital expenditures.  Management believes that free cash flow from operations is useful because it represents the cash generating capability of the company's ongoing operations, after taking into consideration capital expenditures necessary to maintain its business and pursue growth opportunities.

This earnings release also contains our targeted total segment operating income growth rate for 2014-2016 and our targeted ratio of Adjusted Debt to EBITDAP for 2016. Forward-looking total segment operating income and the ratio of Adjusted Debt to EBITDAP are important financial measures for the company but are not financial measures defined by U.S. GAAP, and should not be construed as an alternative to corresponding financial measures presented in accordance with U.S. GAAP.

Adjusted Debt is the sum of our total debt and our global pension liability, each as determined in accordance with U.S. GAAP, and EBITDAP, as adjusted, represents net income (the most directly comparable GAAP financial measure) before interest expense, income tax expense, depreciation and amortization expense, net periodic pension cost, rationalization charges and other (income) and expense. We refer to the ratio of Adjusted Debt to EBITDAP because we believe it is widely used by investors as a means of evaluating a company's leverage. It should be noted that companies may calculate the components of this ratio differently; as a result, the ratio of Adjusted Debt to EBITDAP as presented herein may not be comparable to similarly-titled measures reported by other companies.

We are unable to present a quantitative reconciliation of our forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures, because management cannot reliably predict all of the necessary components of those GAAP financial measures without unreasonable effort. These components could be significant to the calculation of those GAAP financial measures in the future.

See the tables below for reconciliations of historical total segment operating income and free cash flow from operations to the most directly comparable GAAP measures. 

Total Segment Operating Income Reconciliation Table


Three Months

Ended

Twelve Months

Ended


December 31,

December 31,




(In millions)

2013

2012

2013

2012

Segment Operating Income  

$419

$272

$1,580

$1,248

  Rationalizations

17

108

58

175

  Interest expense

105

87

392

357

  Other (income) expense

(15)

11

97

139

  Asset write-offs and accelerated depreciation

8

1

23

20

  Corporate incentive compensation plans

29

22

108

69

  Corporate pension curtailments/settlements

--

12

--

1

  Intercompany profit elimination

(9)

(1)

(4)

(1)

  Retained expenses of divested operations

(7)

2

24

14

  Other

19

(2)

69

34

Income before Income Taxes

$258

$32

$813

$440

 

Free Cash Flow from Operations Reconciliation Table


Year Ended

  Year Ended

(in millions)

Dec. 31, 2013

Dec. 31, 2012

Net Income

$675

$237

   Depreciation and Amortization

722

687

   Working Capital (1)

415

457

   Pension Expense (2)

285

307

   Other (3)

75

140

   Capital Expenditures

(1,168)

(1,127)

Free Cash Flow from Operations (non-GAAP)

1,004

701

   Capital Expenditures

1,168

1,127

   Pension Contributions and Direct Payments

(1,162)

(684)

   Rationalization Payments

(72)

(106)

Cash Flow from Operating Activities (GAAP)

$938

$1,038

 

Amounts are calculated from the consolidated Statements of Cash Flows except for pension expense, which is as reported in the Notes to Consolidated Financial Statements. 


(1) Working Capital represents total changes in accounts receivable, inventories and accounts payable – trade.

(2) Pension expense is the net periodic cost (before curtailments, settlements and termination benefits) as reported in the pension-related note in the Notes to Consolidated Financial Statements.

(3) Other includes amortization and write-off of debt issuance costs, net rationalization charges, net losses (gains) on asset sales, Venezuela currency devaluation, customer prepayments and government grants, insurance proceeds, compensation and benefits less pension expense, other current liabilities, and other assets and liabilities.

 

Fourth Quarter Significant Items (after tax and minority interest)

2013

  • Rationalizations, asset write-offs and accelerated depreciation, $17 million (6 cents per share)
  • Income and other discrete tax benefits, $41 million (15 cents per share)
  • Gains from asset sales, $2 million (1 cent per share)

2012

  • Rationalizations, asset write-offs and accelerated depreciation, $85 million (34 cents per share)
  • Discrete tax charges, $9 million (4 cents per share)
  • Loss resulting from a strike in South Africa, $6 million (2 cents per share)
  • Charges relating to labor claims with respect to a previously closed facility in Europe, $5 million
    (2 cents per share)
  • Insurance recoveries related to flooding in Thailand, $6 million (2 cents per share)
  • Gains from asset sales, $2 million (1 cent per share)

 

SOURCE The Goodyear Tire & Rubber Company



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