fourth quarter 2011 conference call - goodyear corporate · – macroeconomic challenges to 3% to...
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Fourth Quarter 2011 Conference Call February 14, 2012
Forward-Looking Statements
Certain information contained in this presentation constitutes 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.
2
3
Path to Segment Operating Income Target
$917
$1,600
NAT
$450
Int’l
$1,150
Int’l
$899
2010 2013 Target
($ in millions)
NAT
$276
Int’l
$1,092
2011
2011 Marks Strong Progress Toward 2013 Target
$1,368
4
Fourth Quarter Summary
+ - • Price/mix > raw material cost
increase
• Branded share performance
• Cash flow performance
• Volume softness across all regions
• European “green” winter
• Q4 cost savings < inflation • Union City closure transition
inefficiencies • Continued issues at Amiens,
France facilities • USW profit sharing
• North American third party chemical income impacted by declining commodity prices
• Thailand flood impact
• China start-up costs
2011 Strategy Execution
5
Creating Sustainable Value First with Customers Innovation Leader Leader in Targeted Segments
Key How To’s 2011 Progress
Target Profitable Segments • Strong price/mix realization • Consumer response to new product launches • Branded share improvement
Operational Excellence • Increased HVA capability • Reduced high-cost footprint (Union City closure) • Improving service levels
Enabling Investments
• Produced first tires in Pulandian, China facility…continue production ramp-up
• Continued ramp-up of Chile expansion • Launched 63” OTR tire production
Cash is King • Multi-year improvement in working capital % to
sales • Enhanced liquidity and debt maturity profile
Strategy Roadmap
6
Starting Line (2010)
Our Destination (2013+)
NAT Profitable Investing to Grow Balance Sheet Improving
Executing Plan Innovation Leader Profit Recovery
Creating Sustainable Value First with Customers Innovation Leader Leader in Targeted Segments
Competitively Advantaged Profitable thru Economic Cycle Cash Flow Positive Investment Grade
Industry MegaTrends
Key Strategies
1. North America: Profitability 2. Asia: Winning in China 3. EMEA/LAT: Continued
Success
Key How To’s
1. Target Profitable Segments 2. Operational Excellence 3. Enabling Investments 4. Cash is King
Fourth Quarter 2011 Income Statement
a) Segment Operating Income and Margin reconciliation in Appendix on page 28. 7
Total Company(In millions, except Margin and EPS)
Fourth Quarter2011 2010 Change
Units 43.2 45.3 (4.6)%
Net Sales $5,683 $5,072 12.0%
Gross Margin 15.3% 17.4% (2.1) pts
SAG $724 $715 1.3%
Segment Operating Income(a) $196 $224 (12.5)%
Segment Operating Margin(a) 3.4% 4.4% (1.0) pts
Goodyear Net Income (Loss) $25 ($177)
Less: Preferred Stock Dividends 7 -
Goodyear Net Income (Loss) Available to Common Shareholders
$18 ($177)
Goodyear Net Income (Loss) Available to Common Shareholders Per Share of Common Stock - Diluted
$0.07 ($0.73)
Fourth Quarter 2011 Segment Operating Results
8
1. Reduction in NAT pension expense. 2. Raw material variance of $631 million excludes raw material cost saving measures of $48 million, which is included in Cost Savings above. 3. Estimated impact of inflation (wages, utilities, energy, transportation and other). 4. Primarily Thailand flood impact, Pulandian start-up costs, and impact related to LAT farm tire sale
Q4 2011
($ in millions)
a) Working capital represents accounts receivable and inventories, less accounts payable – trade. b) Total Debt and Net Debt reconciliation in Appendix on page 29.
9
Fourth Quarter 2011 Balance Sheet
($ in millions)
December 31, September 30,2011
Cash and cash equivalents 2,772$ 2,126$ 2,005$
Accounts receivable 2,849 4,008 2,736
Inventories 3,856 4,037 2,977Accounts payable - trade (3,668) (3,371) (3,107)
Working capital(a) 3,037$ 4,674$ 2,606$
Total debt(b) 5,201$ 6,083$ 4,745$
Net debt(b) 2,429$ 3,957$ 2,740$
2011December 31,
2010
2012 2013 2014 2015 2016 2017 2018 > 2019
Fourth Quarter 2011 Maturity Schedule
($ in millions)
Note: Based on balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. Detail on all outstanding debt as of December 31, 2011 in Appendix on page 30. (a) At December 31, 2011, $407 million of letters of credit were issued under the U.S. revolving credit facility. (b) At December 31, 2011, $393 million of $584 million (€303 million of €450 million) accounts receivable facility was available and funded. (c) At December 31, 2011, $8 million of letters of credit were issued under the European revolving credit facility. (d) $631 million outstanding on our 10.5% notes. (e) $324 million Eurobond due in 2019, $1,258 million due in 2020 and $149 million due in 2028.
$537
$1,200
$1,731(e)
$1,500(a)
$1,150(c)
$631(d)
2019 & Beyond
$584(b)
Undrawn Credit Lines Funded Debt
10
$393
Fourth Quarter 2011 Segment Results
11
North American Tire
Asia Pacific Tire
(In millions)
Europe, Middle East and Africa Tire
Latin American Tire
2011 2010 Change 2011 2010 Change
Units 16.6 16.9 (1.8%) Units 16.9 17.7 (4.8%)
Net Sales $2,584 $2,201 17.4% Net Sales $1,912 $1,727 10.7%
Operating Income $21 $11 90.9% Operating Income $88 $60 46.7%
Margin 0.8% 0.5% Margin 4.6% 3.5%
2011 2010 Change 2011 2010 Change
Units 4.8 5.2 (7.7%) Units 4.9 5.5 (10.1%)
Net Sales $596 $582 2.4% Net Sales $591 $562 5.2%
Operating Income $48 $93 (48.4%) Operating Income $39 $60 (35.0%)
Margin 8.1% 16.0% Margin 6.6% 10.7%
2012 Full Year Industry Outlook
Consumer Replacement
Consumer OE
Commercial Replacement
Commercial OE
Full Year 2012 Guidance
12
NAT: Flat to (2)%
EMEA: Flat to (2)%
NAT: Flat to +3%
EMEA: (5)% to (9)%
NAT: +2% to +6%
EMEA: (3)% to (8)%
NAT: +10% to +15%
EMEA: (20)% to (25)%
2012 Key Segment Operating Income Drivers
13
Fourth Quarter 2011 Segment Operating Income [slightly below/similar to] 2010 Level
Global Tire Unit Volume ~ Flat Raw Materials Unabsorbed Overhead (net) + $40 - $60 mm benefit Cost Savings v. Inflation Foreign Exchange ~ $(40) – $(60) mm China Facility Start Up Costs ~ $(40) – $(60) mm v. 2011 Note: All referenced USD figures relate to year-over-year impact on Segment Operating Income
• 2012 raw material cost increase of ~5% (assumes spot prices remain at recent levels)
• Q1 increase of ~$500 mm year-over-year
• $80 mm Union City benefit • Lower production levels elsewhere
• On track to achieve $1 B savings plan by year-end (~$250 mm in 2012)
• General inflation expected to be ~$300 mm
• Stronger USD (assuming rates remain at recent levels) • Euro & Brazilian Real most significant impact
• Facility expansion on track • Investment key enabler to win in China
• Lower EMEA industry demand • Modestly positive industry demand in other regions
2012 Outlook Financial Assumptions
14
Interest Expense
Income tax
Global Pension
Working Capital
Capital Expenditures
Depreciation & Amortization
• $360 - $385 million
• 25% of International Segment Operating Income
• $275 - $325 million Expense • $550 - $600 million Cash Contribution
• Neither source nor use
• $1.1 - $1.3 billion
• $700 - $725 million
15
Achieving $1.6 Billion Segment Operating Income in 2013
• NAT ~5% SOI margin
• Global industry growth resumes
– Goodyear volume growth of 3% to 5% in 2013
• Price/mix supported by innovation
• Tire labeling highlights performance leaders – increasing differentiation
• Recovery of unabsorbed fixed costs
• Deliver on high-return investments
• Make required pension contributions
Key Drivers Risk Factors
• Economic environment – Macroeconomic challenges to 3% to
5% growth in 2013 • Achieve price/mix ≥ raw material cost
increases – Timing of cost increases – Availability of select materials
• Higher wages and general inflation – Further cost savings may be
required • Pension
– 2012 portfolio returns – Discount rate
Execution Required, Risks Need to be Managed
Appendix
Fourth Quarter 2011 Tire Unit & Sales Summary
17
Consumer 53%
2011 Q4 Sales = $5,683
Commercial 20%
Retail 8%
Other 12%
Chemical 7%
(in millions)
2011 2010 % Change
Consumer
Units 39.1 41.1 (4.8%)
Sales $3,009 $2,756 9.2%
Commercial
Units 3.6 3.7 (2.0%)
Sales $1,148 $964 19.1%
Q4 Unit/Sales Mix
Full Year 2011 Tire Unit & Sales Summary
18
Consumer 53%
2011 Sales = $22,767
Commercial 20%
Retail 8%
Other 12%
Chemical 7%
(in millions)
2011 2010 % Change
Consumer
Units 163.6 164.4 (0.5%)
Sales $12,065 $10,343 16.6%
Commercial
Units 14.8 14.0 5.5%
Sales $4,588 $3,501 31.0%
2011 Unit/Sales Mix
$746 $639
$942
$207
$689
$2,356
$829
$195
$712
($115)
$549
$1,822
2006 2007 2008 2009 2010 2011
Price/Mix Raw Materials
(b)
Price/Mix Improvements
(a) Reflects impact on Segment Operating Income. Raw Materials include the impact of raw material cost savings measures. (b) Raw material variance of $549 million includes raw material cost savings measures of $136 million. (c) Raw material variance of $1,822 million includes raw material cost savings measures of $177 million.
Price/Mix vs. Raw Materials(a) ($ in millions)
19
(c)
Eliminating Unabsorbed Fixed Costs ($ in millions)
20
$863
Recession Impact
2007 2008
$373
2009 2010
$470
Market Recovery and Footprint Actions
$0
$585
2011
$195
$115
$748 $115
Unabsorbed Fixed Cost Recovery(a)
2012E 2013+
$115 million previously reported fixed cost savings in North America, Europe
and Latin America
(a) Represents year-over-year reduction in unabsorbed fixed cost.
Total benefit:
$470 million $40 to $60
$215 to
$235
Union City benefit net of
production cuts
Legacy Costs and Interest Expense
21
(a) 2012E reflects only estimated contributions to global pension plans, and does not include estimates for direct benefit payments which were for 2008-2011 (’08 at $56 million, ’09 at $59 million, ’10 at $44 million and ’11 at $61 million).
(b) Expense is actuarially based and excludes one-time charges. There is approximately a one quarter lag until changes in pension expense are realized in COGS in the Statement of Operations.
(c) Net of participant contributions. (d) Reflects settlement of liability related to VEBA funding. Benefit payments do not include $1 billion contribution to VEBA.
($ in millions)2008 2009 2010 2011 2012E
Global pension contributions and direct payments(a) $364 $430 $405 $294 $550 - $600
Pension expense (global)(b) $181 $387 $300 $266 $275 - $325
Postretirement benefit payments(c) $169(d) $64 $62 $59 $50 - $60
Postretirement benefit expense(b) $78(d) $4 $9 $9 $10 - $15
Interest Expense $320 $311 $316 $330 $360 - $385
2011 Cash Flow
22 a) Includes amortization and write-off of debt issuance costs. b) Working capital represents total changes in accounts receivable, inventories and accounts payable – trade.
($ in millions)Full Year Ended
December 31, December 31,
Net Income $417 ($164)
Depreciation and amortization(a) 749 679
Working capital(b) (650) 52
Pension contributions and direct payments (294) (405)
Venezuela currency devaluation - 134 Other (including compensation and benefits) 551 628
Total Cash Flows from Operating Activities $773 $924
Memo: Capital Expenditures $1,043 $944Effect of exchange rates on cash and cash equivalents ($98) ($161)Asset Dispositions $76 $70
20102011
$2.8
$2.5
$0.2
December 31, 2011
Fourth Quarter 2011 Liquidity Profile
23
$5.5(a)
Cash & Equivalents(d)
$1 billion required for operations
Available Credit Lines (c)
Liquidity Profile
(a) Total liquidity comprised of $2,772 million cash and cash equivalents, $2,544 million of unused availability under various credit agreements, and the additional $191 million committed under the Pan-European securitization program.
(b) Committed Pan-European securitization program of $584 million (€450 million) subject to available receivables. As of December 31, 2011, $393 million (€303 million) available and fully utilized.
(c) Includes $188 million of financing related to relocation and expansion of manufacturing facility in China. (d) Includes $291 million of cash in Venezuela denominated in bolivares fuertes.
($ in billions)
Pan European Securitization(b)
Pension Update
24
• Discount Rate: Liability: $170 million per 25 bps 2012 Expense: $6 million per 25 bps
• Return: No effect on liability 0.7% actual 2011 return results in approximately $45
million increase to 2012 U.S. pension expense
U.S. Sensitivity (1) Global Pension Expense (1) (3)
$181
$387
$300$266
$300$250
$0
$100
$200
$300
$400
2008 2009 2010 2011 2012E 2013E
$ in
milli
ons
Domestic International
(1) At current assumptions (2) Includes cash funding for direct benefit payments for 2008 - 2011 only (3) At 12/31/11 assumptions for expense and unfunded obligations. Excludes one-time charges
Global Unfunded Obligations (1) (3)
$2,748 $2,715 $2,549$3,097
$2,600$2,000
$0$500
$1,000$1,500$2,000$2,500$3,000$3,500
2008 2009 2010 2011 2012E 2013E
$ in
mill
ions
Domestic International
Total Global Cash Flow Impact (1) (2)
$364$430 $405
$294
$575 $575
$0$100$200$300$400$500$600
2008 2009 2010 2011 2012E 2013E
$ in
mill
ions
Domestic International
Low Discount Rates Increase 2011 Unfunded Obligations / Significant 2012-2013 Contributions Expected to Improve Funded Status
U.S. DR 6.50% 5.75% 5.20% 4.52% 4.52% 4.52%
Fourth Quarter Significant Items (after tax and minority interest)
25
2011 (See next page)
• Rationalizations, asset write-offs and accelerated depreciation, $24 million (10 cents per share)
• Loss related to business disruptions and costs resulting from the flooding in Thailand, $16 million (7 cents per share)
• Net loss on asset sales, $8 million (3 cents per share) • Net discrete tax benefits primarily due to release of valuation allowances on foreign
operations, $60 million (24 cents per share)
2010
• Rationalizations, asset write-offs and accelerated depreciation, $213 million (87 cents per share)
• Loss related to the elimination of the subsidized essential goods exchange rate in Venezuela, $20 million (8 cents per share)
• Charge related to a claim regarding the use of value-added tax credits in prior periods, $18 million (7 cents per share)
• Net gains on asset sales, primarily in Asia, $31 million (13 cents per share)
• Net tax benefits primarily due to tax law changes in the U.S. and other countries, $22 million (9 cents per share)
Fourth Quarter Significant Items (after taxes and minority interest)
26
($ in millions, except EPS)
Reported
Net Sales 5,683$ - 15 - - Cost of Goods Sold 4,815 (4) 3 - - Gross Margin 868 4 12 - -
15.3%
SAG 724 - - - - Interest Expense 89 - - - - Rationalizations 23 (23) - - - Other Expense 25 - (9) (8) - Pre-tax Income 7 27 21 8 - Taxes (19) 3 3 - 58 Minority Interest 1 0 2 - 2 Reported Net Income 25$ 24 16 8 (60) Preferred Dividends 7 - - -
Net Income Available to Common Shareholders 18$ 24 16 8 (60)
EPS 0.07$ 0.10$ 0.07$ 0.03$ (0.24)$
Fourth Quarter 2011
Significant Items
Rationalizations, Asset Write-offs &
Accelerated Depreciation
Business Disruptions and Costs Due to
Flooding in Thailand Asset Sales Tax Items
Mandatory Convertible Preferred Stock Common Share Impact Upon Conversion
27
* Assumes 245 million common shares outstanding as of 12/31/11 ** Appreciation from Goodyear common share price of $14.57 on date of issuance of Mandatory Convertible Preferred Stock
Common Share Price
Conversion Rate
Common Shares Issuable upon
Conversion % Dilution *
Common Share Price
Appreciation**
$14.57 3.4317 34,317,000 14.1% 0%and below
$15.00 3.3333 33,333,333 13.7% 3%
$16.00 3.1250 31,250,000 12.8% 10%
$17.00 2.9412 29,411,765 12.1% 17%
$18.00 2.7778 27,777,778 11.4% 24%
$18.21 2.7454 27,454,000 11.3% 25% and above
28
Reconciliation for Segment Operating Income / Margin
($ in millions)
2011 2010Total Segment Operating Income 196$ 224$
Rationalizations (23) (224) Interest expense (89) (75) Other expense (income) (25) (13) Asset write-offs and accelerated depreciation (4) (2) Corporate incentive compensation plans (27) (26) Intercompany profit elimination 13 (9) Retained expenses of divested operations (8) (3) Other (26) (17)
Income (Loss) before Income Taxes 7$ (145)$ United States and Foreign Taxes (19) 21 Less: Minority Shareholders Net Income 1 11 Goodyear Net Income (Loss) 25$ (177)$
Sales $5,683 $5,072Return on Sales 0.4% -3.5%Total Segment Operating Margin 3.4% 4.4%
Three Months EndedDecember 31,
Reconciliation for Total Debt and Net Debt
29
($ in millions)
Long term debt and capital leases 4,789$ 5,559$ 4,319$
Notes payable and overdrafts 256 312 238
Long term debt and capital leases due within one year 156 212 188
Total debt 5,201$ 6,083$ 4,745$
Less: Cash and cash equivalents 2,772 2,126 2,005
Net debt 2,429$ 3,957$ 2,740$
Change in Net Debt vs Prior Period (1,528)$
September 30,20112011
December 31,2010
December 31,
Fourth Quarter 2011 Debt
30
($ in millions) September 30,2011
Notes Payable:Notes Payable and Overdrafts 256$ 312$ 261$ 245$ 238$
Long-Term Debt:Notes:10.5% due 2016 631 630$ 629$ 967$ 966$ 6.75% Euro Notes due 2019 324 336 362 - - 8.25% due 2020 994 994 994 994 993 8.75% due 2020 264 264 264 263 263 7% due 2028 149 149 149 149 149
Credit Facilities: $1.5 billion first lien revolving credit facility due 2013 - 200 - - - $1.2 billion second lien term loan facility due 2014 1200 1,200 1,200 1,200 1,200 €400 million revolving credit facility due 2016 - 524 138 291 - Pan-European accounts receivable facility due 2015 393 537 463 418 319 Chinese credit facilities 389 370 329 261 153 Other domestic and international debt 570 538 496 477 446
4,914$ 5,742$ 5,024$ 5,020$ 4,489$ Capital lease obligations 31 29 19 19 18
4,945$ 5,771$ 5,043$ 5,039$ 4,507$
Total Debt 5,201$ 6,083$ 5,304$ 5,284$ 4,745$
December 31,2011
June 30,2011
December 31,2010
March 31,2011