Goodyear Reports Solid Third Quarter Results - North American Tire operating income of $130 million, up 67% over last year

- Global revenue per tire up 5% over last year

- Free cash flow from operations was positive for third quarter

- Cost savings ahead of 3-year plan; implementing additional actions

- North American Tire 2012 earnings now expected to exceed 2013 target

- Continues to target $1.6 billion in segment operating income, positive cash flow in 2013

AKRON, Ohio, Oct. 26, 2012 /PRNewswire/ -- The Goodyear Tire & Rubber (NYSE: GT) Company today reported results for the third quarter of 2012.

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

"We achieved solid segment operating income in the third quarter, driven by our performance in North America," said Richard J. Kramer, chairman and chief executive officer.  "While we were impacted by the macroeconomic challenges we face in Europe, we continue to see the benefits of our actions to sustain profit margins in a weak volume environment," he added.

Kramer said that with the company's third quarter performance, it has essentially achieved its target of $1 billion in cost savings ahead of plan.  Goodyear will take additional cost reduction actions because of ongoing economic uncertainty and expects to exceed its three-year cost savings goal.

"The structural improvements we made in our North American business are producing results that now put it on track to not only meet, but exceed, its 2013 operating income target a year early," Kramer said.

"Our 2012 results demonstrate strong progress toward delivering profit throughout the economic cycle and generating sustainable value for shareholders," he said. 

"We continue to target $1.6 billion of segment operating income and positive cash flow in 2013," he added.

Goodyear's third quarter 2012 sales were $5.3 billion, down 13 percent from last year's record-setting total, reflecting $592 million in lower tire unit volumes and $258 million in unfavorable foreign currency translation, as well as lower sales in other tire related businesses, most notably third party chemical sales in North America.  Tire unit volumes totaled 41.8 million, down 12 percent from 2011, primarily reflecting weaker volumes in Europe. 

Sales benefitted from price/mix improvements, which drove revenue per tire up 5 percent over the 2011 quarter, excluding the impact of foreign currency translation. 

The company reported segment operating income of $348 million in the third quarter of 2012. This was down $115 million from the year-ago quarter, reflecting $114 million in lower tire volume and associated unabsorbed overhead costs of $89 million, offset partially by improved price/mix of $159 million, which more than offset $47 million in raw material cost increases (before the benefit of cost savings actions).

Goodyear's third quarter 2012 net income available to common shareholders was $110 million (41 cents per share), down from $161 million (60 cents per share) in the 2011 quarter. All per share amounts are diluted.

The 2012 third quarter included total charges of $32 million (12 cents per share) due to rationalizations, asset write-offs and accelerated depreciation; $6 million (2 cents per share) due to pension settlements in the United Kingdom; and $3 million (1 cent per share) due to discrete tax charges; and gains of $5 million (2 cents per share) from asset sales; and $4 million (1 cent per share) in insurance recoveries related to flooding in Thailand.  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 2012 and 2011 quarters.

The company's free cash flow from operations totaled a positive $105 million for the third quarter of 2012.  See the note at the end of this release for further explanation and a free cash flow from operations reconciliation table.

Business Segment Results

See the note at the end of this release for further explanation and a segment operating income reconciliation table.

North American Tire


Third Quarter


Nine Months

(in millions)

2012


2011


2012

2011


Tire Units

15.6


16.6


46.8

49.4


Sales

$ 2,404


$ 2,557


$   7,352

$ 7,275


Segment Operating Income  

130


78


398

255


Segment Operating Margin

5.4%


3.1%


5.4%

3.5%


North American Tire's third quarter sales decreased 6 percent from last year to $2.4 billion.  Sales reflect a 6 percent decrease in tire unit volume as well as lower pricing for chemical products.  Improved price/mix was a partial offset.  Replacement tire shipments were down 10 percent.  Original equipment unit volume increased 8 percent.  Third quarter revenue per tire increased 4 percent in 2012 compared to 2011, excluding the impact of foreign currency translation.

Third quarter segment operating income of $130 million was up 67 percent from the prior year.  Segment operating income was positively impacted by improved price/mix of $87 million and $21 million of lower raw material costs.  Segment operating income also benefited from approximately $20 million in savings related to the closure of a tire plant in Tennessee, while lower volume and lower chemical products income were offsets.   

Europe, Middle East and Africa Tire


Third Quarter


Nine Months

(in millions)

2012


2011


2012

2011


Tire Units

16.3


20.7


48.5

57.4


Sales

$ 1,748


$ 2,226


$   5,282

$ 6,128


Segment Operating Income  

105


260


214

539


Segment Operating Margin

6.0%


11.7%


4.1%

8.8%


Europe, Middle East and Africa Tire's third quarter sales decreased 21 percent from last year to $1.7 billion.  Sales reflect a 22 percent decrease in tire unit volume and unfavorable foreign currency translation of $171 million.  Improved price/mix was a partial offset.  Replacement tire shipments were down 24 percent, largely due to economic weakness across the region, reduced winter tire demand resulting from warm weather conditions and aggressive competitor actions.  Original equipment unit volume was down 12 percent.  Third quarter revenue per tire increased 9 percent in 2012 compared to 2011, excluding the impact of foreign currency translation.

Third quarter segment operating income of $105 million was down $155 million from a year ago.  Segment operating income was negatively impacted by $92 million due to lower unit volume, $78 million in higher manufacturing costs primarily resulting from production cuts and $8 million in unfavorable foreign currency translation.  Improved price/mix of $31 million more than offset $7 million of higher raw material costs. 

Latin American Tire


Third Quarter


Nine Months

(in millions)

2012


2011


2012

2011


Tire Units

4.7


5.1


13.3

15.0


Sales

$   520


$     651


$ 1,544

$ 1,876


Segment Operating Income

49


62


162

183


Segment Operating Margin

9.4%


9.5%


10.5%

9.8%


Latin American Tire's third quarter sales decreased 20 percent from last year to $520 million.  Sales reflect a 7 percent decrease in tire unit volume and unfavorable foreign currency translation of $60 million.  Improved price/mix was a partial offset.  Replacement tire shipments were down 12 percent.  Original equipment unit volume was flat.  

Third quarter segment operating income of $49 million was down $13 million from a year ago.  Price/mix improvements of $39 million were more than offset by lower tire volumes, higher raw material costs, unfavorable foreign currency translation and the impact of inflation on wages and other costs.

Asia Pacific Tire


Third Quarter


Nine Months

(in millions)

2012


2011


2012

2011


Tire Units

5.2


5.3


15.4

15.6


Sales

$   592


$   628


$   1,769

$ 1,805


Segment Operating Income

64


63


202

195


Segment Operating Margin

10.8%


10.0%


11.4%

10.8%


Asia Pacific Tire's third quarter sales decreased 6 percent from last year to $592 million.  Sales were negatively impacted by $20 million due to unfavorable foreign currency translation and 2 percent lower tire unit volume.  Replacement tire shipments were down 4 percent.  Original equipment unit volume was flat.  Third quarter revenue per tire was flat in 2012 compared to 2011, excluding the impact of foreign currency translation.  

Third quarter segment operating income of $64 million was 2 percent higher than last year.  Segment operating income reflects improved price/mix of $2 million and $12 million of lower raw material costs.  Segment operating income was negatively impacted by an incremental $3 million in costs related to the start up of a new factory in China as well as the impact of inflation on wages and other costs and unfavorable foreign currency translation. 

During the quarter, the company ceased operations at its plant in Dalian, China, which was replaced by the new, larger facility in nearby Pulandian.

Year-to-Date Results

Goodyear's sales for the first nine months of 2012 were $16 billion, down 7 percent from $17 billion a year ago.  Sales reflect strong price/mix performance, which drove revenue per tire up 10 percent year-over-year, excluding the impact of foreign currency translation.  Unfavorable unit volume and foreign currency translation reduced sales by $1.3 billion and $681 million, respectively. 

The company's year-to-date segment operating income of $976 million was down $196 million from last year.  Compared to the prior year, the decline in year-to-date segment operating income primarily reflects lower tire volumes and higher manufacturing costs primarily resulting from lower production.  

Compared to the first nine months of 2011, the 2012 period also benefitted from $997 million in improved price/mix, which more than offset $578 million in higher raw material costs.  Raw material costs reflect $189 million in actions taken to reduce their impact.

Goodyear's year-to-date net income available to common shareholders of $183 million (73 cents per share) compares to $303 million ($1.19 per share) in 2011's first nine months. All per share amounts are diluted.

Outlook

Goodyear expects that its fourth quarter 2012 tire unit volume will be 3 percent to 5 percent below the 2011 period.

For the full year of 2012 in North America, Goodyear expects the consumer replacement market to be down between 2 percent and 3 percent, consumer original equipment up between 8 percent and 10 percent, commercial replacement to be down between 6 percent and 8 percent and commercial original equipment up between 6 percent and 8 percent.

For the full year in Europe, Middle East & Africa, the consumer replacement industry is expected to be down between 8 percent and 10 percent, consumer original equipment down between 6 percent and 8 percent, commercial replacement down between 6 percent and 8 percent and commercial original equipment down between 5 percent and 7 percent.

Goodyear anticipates its raw material costs for the fourth quarter of 2012 will be down about 10 percent from the prior year.  For the full year of 2012, Goodyear continues to expect its raw material costs will increase approximately 7 percent compared with 2011.

Conference Call

Goodyear will hold an investor conference call at 8:30 a.m. today.  Approximately 45 minutes prior to 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 Darren R. Wells, 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 (706) 645-4847 or (706) 758-3307 before 8:25 a.m.  A taped replay will be available by calling (404) 537-3406, Conference ID 40209438.  The replay will also remain available on the Web site.

Goodyear is one of the world's largest tire companies.  It employs about 71,000 people and manufactures its products in 53 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.

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 realize anticipated savings and operational benefits from our cost reduction initiatives or to implement successfully other strategic initiatives; increases in the prices paid for raw materials and energy; pension plan funding obligations; actions and initiatives taken by both current and potential competitors; 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; a labor strike, work stoppage or other similar event; 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 Income Statements (unaudited)





Three Months

Ended

Nine Months

Ended


September 30,

September 30,

(In millions, except per share amounts)

2012

2011

2012

2011






NET SALES

$    5,264

$    6,062

$15,947

$17,084






Cost of Goods Sold

4,315

4,973

13,063

14,006

Selling, Administrative and General Expense

652

677

2,011

2,098

Rationalizations

26

25

67

80

Interest Expense

86

86

270

241

Other (Income) Expense

(1)

(4)

128

48






Income before Income Taxes

186

305

408

611

United States and Foreign Taxes

53

94

164

220






Net Income

133

211

244

391

     Less:  Minority Shareholders' Net Income

16

43

39

73






Goodyear Net Income

117

168

205

318

Less:  Preferred  Stock Dividends

7

7

22

15

Goodyear Net Income Available to
   Common Shareholders

 

$   110

 

$   161

 

$   183

 

$   303






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










   Basic

$      0.45

$      0.66

$       0.75

$     1.25






   Weighted Average Shares Outstanding

245

244

245

244






   Diluted

$      0.41

$      0.60

$       0.73

$      1.19






   Weighted Average Shares Outstanding

281

281

281

268






 

The Goodyear Tire & Rubber Company and Subsidiaries

Consolidated Balance Sheets (unaudited)




(In millions, except share data)

September 30,

December 31,


2012

2011

Assets:



Current Assets:



  Cash and Cash Equivalents

$     2,257

$     2,772

  Accounts Receivable, less Allowance - $100 ($97 in 2011)

3,555

2,849

  Inventories:



     Raw Materials

807

937

     Work in Process

188

186

     Finished Products

2,601

2,733


3,596

3,856

  Prepaid Expenses and Other Current Assets

397

335

     Total Current Assets

9,805

9,812

Goodwill

655

654

Intangible Assets

154

157

Deferred Income Taxes

145

145

Other Assets

522

486

Property, Plant and Equipment

  less Accumulated Depreciation - $8,881 ($8,629 in 2011)

6,658

6,375

    Total Assets

$   17,939

$   17,629




Liabilities:



Current Liabilities:



  Accounts Payable-Trade

$     3,146

$     3,668

  Compensation and Benefits

776

799

  Other Current Liabilities

1,193

1,050

  Notes Payable and Overdrafts

163

256

  Long Term Debt and Capital Leases due Within One Year

110

156

    Total Current Liabilities

5,388

5,929

Long Term Debt and Capital Leases

5,708

4,789

Compensation and Benefits

3,454

4,002

Deferred and Other Noncurrent Income Taxes

263

244

Other Long Term Liabilities

1,000

1,041

    Total Liabilities

15,813

16,005




Commitments and Contingent Liabilities



Minority Shareholders' Equity

618

607




Shareholders' Equity:



Goodyear Shareholders' Equity:



Preferred Stock, no par value:



Authorized, 50 million shares, Outstanding shares – 10 million (10 million in 2011),

liquidation preference $50 per share

500

500

Common Stock, no par value:



Authorized, 450 million shares, Outstanding shares – 245 million (245 million in 2011) after deducting 6 million treasury shares (6 million in 2011)

245

245

Capital Surplus

2,817

2,808

Retained Earnings

1,370

1,187

Accumulated Other Comprehensive Loss

(3,702)

(3,991)

   Goodyear Shareholders' Equity

1,230

749

Minority Shareholders' Equity – Nonredeemable

278

268

   Total Shareholders' Equity

1,508

1,017

   Total Liabilities and Shareholders' Equity

$   17,939

$   17,629




 

The Goodyear Tire & Rubber Company and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)



(In millions)

Nine Months Ended

September 30,


2012

2011

Cash Flows from Operating Activities:



Net Income

$      244

$ 391

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



     Depreciation and amortization

513

547

     Amortization and write-off of debt issuance costs

64

29

     Net rationalization charges

67

80

     Net gains on asset sales

(22)

(24)

     Pension contributions and direct payments

(490)

(221)

     Rationalization payments

(66)

(80)

     Customer prepayments and government grants

94

34

     Insurance Proceeds

39

--

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



     Accounts receivable

(729)

(1,419)

     Inventories

257

(1,154)

     Accounts payable - trade

(432)

435

     Compensation and benefits

169

299

     Other current liabilities

70

90

     Other assets and liabilities

(107)

21

     Total Cash Flows from Operating Activities

(329)

(972)

Cash Flows from Investing Activities:



  Capital expenditures

(788)

(806)

  Asset dispositions

14

68

  Government grants received

2

55

  Increase in restricted cash

(17)

(32)

  Other transactions

(11)

--

     Total Cash Flows from Investing Activities

(800)

(715)

Cash Flows from Financing Activities:



  Short term debt and overdrafts incurred

74

190

  Short term debt and overdrafts paid

(89)

(93)

  Long term debt incurred

3,042

3,003

  Long term debt paid

(2,322)

(1,674)

  Proceeds from issuance of preferred stock

--

484

  Preferred stock dividends

(22)

(7)

  Common stock issued

1

7

  Transactions with minority interests in subsidiaries

(23)

(15)

  Debt related costs and other transactions

(63)

(20)

     Total Cash Flows from Financing Activities

598

1,875

Effect of exchange rate changes on cash and cash equivalents

16

(67)

Net Change in Cash and Cash Equivalents

(515)

121

Cash and Cash Equivalents at Beginning of the Period

2,772

2,005

Cash and Cash Equivalents at End of the Period

$  2,257

$     2,126

Non-GAAP Financial Measures

This earnings release presents total segment operating income and free cash flow from operations, which are important financial measures for the company but are not financial measures defined by U.S. GAAP.

Total segment operating income is the sum of the individual strategic business units' 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 expenditures necessary to maintain its business and pursue growth opportunities.

See the tables below for reconciliations of total segment operating income and free cash flow from operations.

Total Segment Operating Income Reconciliation Table





Three Months Ended

Nine Months Ended

September 30,

September 30,




(In millions)

2012

2011

2012

2011

Segment Operating Income  

$348

$463

$976

$1,172

  Rationalizations

(26)

(25)

(67)

(80)

  Interest expense

(86)

(86)

(270)

(241)

  Other income (expense)

1

4

(128)

(48)

  Asset write-offs and accelerated depreciation

(13)

(12)

(19)

(46)

  Corporate incentive compensation plans

(25)

(8)

(47)

(43)

  Corporate pension curtailments/settlements

--

(4)

--

(15)

  Intercompany profit elimination

12

(7)

11

(18)

  Retained expenses of divested operations

(3)

(9)

(12)

(24)

  Other

(22)

(11)

(36)

(46)

Income before Income Taxes

$186

$305

$408

$611

 

Free Cash Flow from Operations Reconciliation Table



Trailing


Three Months Ended



Twelve Months

(in millions)


Sept. 30, 2012

June 30, 2012

March 31, 2012

Dec. 31, 2011

Sept. 30, 2012

Net Income


133

103

8

26


270

   Depreciation and Amortization


176

167

170

168


681

   Working Capital (1)

(136)

(1)

(767)

1,488


584

   Pension Expense


77

74

78

66


295

   Other (2)


153

90

(98)

132


277

   Capital Expenditures


(298)

(214)

(276)

(237)


(1,025)

Free Cash Flow from Operations (non-GAAP)

105

219

(885)

1,643


1,082

   Capital Expenditures


298

214

276

237


1,025

   Pension Contributions and Direct Payments

(263)

(113)

(114)

(73)


(563)

   Rationalization Payments


(18)

(17)

(31)

(62)


(128)

Cash Flow from Operating Activities (GAAP)

122

303

(754)

1,745


1,416











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

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

(2) Other includes amortization and write-off of debt issuance costs, net rationalization charges, net loss (gains) on asset sales, customer prepayments and government grants, insurance proceeds, compensation and benefits less the pension expense reported in the pension-related note in the Notes to Consolidated Financial Statements, other current liabilities, and other assets and liabilities.

Third Quarter Significant Items (after tax and minority interest)

2012

  • Rationalizations, asset write-offs and accelerated depreciation, $32 million (12 cents per share)
  • Pension settlements in the United Kingdom, $6 million (2 cents per share)
  • Discrete tax charges, $3 million (1 cent per share)
  • Gains from asset sales, $5 million (2 cents per share)
  • Insurance recoveries related to flooding in Thailand, $4 million (1 cent per share)

2011

  • Rationalizations, asset write-offs and accelerated depreciation, $35 million (13 cents per share)
  • Discrete tax charges, $4 million (1 cent per share)
  • Gains from asset sales, $5 million (2 cents per share)

SOURCE The Goodyear Tire & Rubber Company



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