The Goodyear Tire & Rubber Company · NASDAQ:GT
The Goodyear Tire & Rubber — Q4 2012 Earnings Presentation
40 slides from The Goodyear Tire & Rubber's earnings presentation, Feb 12, 2013
Slide 1: Fourth Quarter 2012 Conference Call
Fourth Quarter 2012 Conference Call February 12, 2013
Slide 2: Forward-Looking Statements
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 o
Slide 3: 2012 Highlights
2012 Highlights • Second consecutive year with segment operating income > $1.2 billion (only 3 times in history) • Record results in North America – $514 million segment operating income – Exceeded 2013 target of $450 million a year early – Now exceeding cost of capital with SOI margin > 5% • Record
Slide 4: NAT Performance Provides Strong Evidence of Success
NAT Performance Provides Strong Evidence of Success $ In millions North America Segment Operating Income $514 $450 $276 $18 $(305) 2009 2010 2011 2012 2013 Target NAT exceeded its 2013 SOI target one year ahead of plan 4
Slide 5: Successful NAT Business Transformation
Successful NAT Business Transformation Operational Market-back Target Profitable Excellence Innovation Excellence Market Segments • Reduced high-cost • Best products in • Profitable choices footprint the industry – Branded vs. • Reduced benefits cost • Strong cadence private label through VEBA/plan
Slide 6: EMEA Situation Assessment
EMEA Situation Assessment • Industry volumes remain very weak – Mild weather early in winter season • De-stocking in channels continuing – Manufacturer sales < sell-out to consumers • Goodyear working to improve service levels and supply chain flexibility • Actions needed to match weak economic envi
Slide 7: EMEA Tire Labeling Results
EMEA Tire Labeling Results % Summer HP Market Potential Rated B/A(b) EU Summer Replacement Market(a) or Better Goodyear Dunlop 60% 40% Competitor 1 Competitor 2 Competitor 3 Summer HP Market Rest of Summer Replacement Market Competitor 4 (c) 0% 10% 20% 30% 40% 50% 60% 70% Analysis of latest announce
Slide 8: U.S. Legacy Actions
U.S. Legacy Actions Retiree Medical Created VEBA for USW retirees (2008) Capped salaried plan (2008) Pension Froze US salaried plan (2007) USW plan closed to new entrants (2007) Pre-fund frozen plans Have taken actions to address legacy costs, but significant work remains 8
Slide 9: Full-Year Trend
Full-Year Trend In millions Tire Unit Volume Segment Operating Income (a) $1,600 $1,400-$1,500 210 $1,368 201.7 $1,400 200 $1,230 $1,248 $1,200 190 184.5 180.8 180.6 $1,000 $917 180 $804 $800 170 167.0 164.0 $600 160 $400 $372 150 $200 140 $0 2007 2008 2009 2010 2011 2012 2013E 2007 2008 2009 2010 2
Slide 10: Financial Update
Financial Update
Slide 11: Income Statement
Fourth Quarter 2012 Income Statement In millions Fourth Quarter 2012 2011 Change Units 40.0 43.2 (7.4)% Net Sales $5,045 $5,683 (11.2)% Gross Margin 18.7% 15.3% SAG $707 $724 (2.3)% Segment Operating Income(a) $272 $196 38.8% Segment Operating Margin(a) 5.4% 3.4% 2.0 pts Goodyear Net Income $7 $25 L
Slide 12: Segment Operating Results
Fourth Quarter 2012 Segment Operating Results $ In millions 1. Raw material variance of $191 million excludes raw material cost saving measures of $60 million, which is included in Cost Savings above 2. Estimated impact of inflation (wages, utilities, energy, transportation and other) 3. Increase in
Slide 13: Balance Sheet
Fourth Quarter 2012 Balance Sheet $ In millions ($ in millions) December 31, September 30, December 31, 2012 2012 2011 Cash and cash equivalents $ 2,281 $ 2,257 $ 2,772 Accounts receivable 2,563 3,555 2,849 Inventories 3,250 3,596 3,856 Accounts payable - trade (3,223) (3,146) (3,668) Working capita
Slide 14: Cash Flow
Cash Flow $ In millions Year Year Ended Ended Dec. 31, Dec. 31, 2012 2011 Net Income $ 237 $ 417 Depreciation and Amortization 687 715 Working Capital 457 (650) Pension Expense 307 266 Other 140 461 Capital Expenditures (1,127) (1,043) Free Cash Flow from Operations (non-GAAP)* $ 701 $ 166 Memo: Pen
Slide 15: Segment Results
Fourth Quarter 2012 Segment Results In millions North American Tire Europe, Middle East and Africa Tire 2012 2011 Change 2012 2011 Change Units 15.8 16.6 (5.2%) Units 14.2 16.9 (15.2%) Net Sales $2,314 $2,584 (10.5%) Net Sales $1,602 $1,912 (16.2%) Operating Income $116 $21 452.4% Operating Income $
Slide 16: Pension Challenge – Summary
Pension Challenge – Summary • Continuing strategy to eliminate defined benefit pension plans – No new entrants to U.S. plans – No added service for salaried workforce • Have made contributions of nearly $1.4 billion to U.S. plans over last 5 years • Contributions more than offset by discount rate re
Slide 17: U.S. Pension Plans
U.S. Pension Plans $ In billions U.S. Pension Plan Funded Status $0.0 ($0.5) ($1.0) ~ 85% of the ($1.5) change due to lower ($2.0) discount rate ($2.5) ($3.0) 2007 2008 2009 2010 2011 2012 Lower Discount Rates Impacting Funded Status…Actions Will Reduce Exposure Going Forward 17
Slide 18: U.S. Pension Plans Unfunded Position Year Ended 2011 vs 2012
U.S. Pension Plans Unfunded Position Year Ended 2011 vs 2012 $ In billions ($0.5) - ($1.0) ($1.5) $0.5 ($0.3) ($2.0) ($0.6) $0.2 ($2.5) ($2.5) ($2.7) Asset Beginning Returns Net Cash Discount Ending Mortality Balance of Interest Contributions Rate Assumption Balance ($3.0) Dec 31, 2011 Rate Cost Cha
Slide 19: U.S. Pension Plans Unfunded Status - 12/31/2012
U.S. Pension Plans Unfunded Status - 12/31/2012 $ In billions $1.0 $1.7 Frozen U.S. Plans Other U.S. Plans Lower Discount Rates Impacting Funded Status…Actions Will Reduce Exposure Going Forward 19
Slide 20: Pension Strategy
Pension Strategy Strategy Implications ─ Limit growth in pension ─ Improve operating cash liabilities flow ─ Pre-fund the plans once ─ Reduce volatility – frozen earnings, cash, balance ─ Financed via debt sheet capital markets ─ Neutral to overall leverage ─ Shift asset allocation to ─ Lock in attr
Slide 21: Pension Asset Allocation
Pension Asset Allocation • Value of pension liabilities impacted by interest rates Liability increases when rates decrease; decreases when rates rise • Changing asset allocation to fixed income will match liability when fully funded Interest Rate Movement Assets Liabilities Increase Decrease XXX P
Slide 22: U.S. Pension Liability Sensitivity Analysis (2013)
U.S. Pension Liability Sensitivity Analysis (2013) $ In millions Interest Rate Movement (1) Interest Rate Interest Rate Increase Decrease Favorable / (Unfavorable) + 100 bps + 50 bps (50) bps (100) bps Liability 812 406 (406) (812) Hedge (182) (37) 215 449 Net Liability Impact 630 369 (191) (363) In
Slide 23: 2013 Full-Year Industry Outlook
2013 Full-Year Industry Outlook NAT EMEA Consumer Replacement Flat to +2% Flat to +2% Consumer OE ~ +5% ~ (5)% Commercial Replacement ~ Flat ~ +5% Commercial OE ~ Flat Flat to +5% 23
Slide 24: 2013 Key Segment Operating Income Drivers
2013 Key Segment Operating Income Drivers Driver Q1 Full Year Comments Global Up low single- • Slow recovery in developed ~ (5) - (7)% Volume digits consumer replacement business Price/Mix vs. $150 - $175 • Lower raw material costs Positive Raw Materials million • ~6 million unit production cut in Q
Slide 25: 2013 Outlook Financial Assumptions
2013 Outlook Financial Assumptions Assumption Comments Interest Expense $365 - $390 million 25% - 30% of International Income Tax Segment Operating Income $275 - $325 million expense Global Pension ~$300 million scheduled contributions Working Capital Use of ~$0 - $100 million Capital Expenditures $
Slide 26: Investing in the Business
Investing in the Business $ In millions 2013 SOI Target $1,400-$1,500 Corporate Other ~ (150) EBIT ~ 1,250-1,350 Depreciation ~ 700 EBITDA ~1,950-2,050 Pension Expense ~ 300 2013 EBITDAP ~ $2,250-$2,350 Balance Sheet /Profit Growth Drivers Interest Expense ~$375 Pension Funding to Reduce Unfunded ~
Slide 27: Appendix
Appendix
Slide 28: Tire Unit & Sales Summary
Fourth Quarter 2012 Tire Unit & Sales Summary In millions 2012 Q4 Sales = $5,045 Q4 Unit/Sales Mix 2012 2011 % Change Consumer Units 36.5 39.1 (6.7%) Commercial Consumer Sales $2,808 $3,009 (6.7%) 20% 56% Other 12% Commercial Retail Units 3.1 3.6 (14.2%) 7% Sales $1,027 $1,148 (10.5%) Chemical 5% 28
Slide 29: Tire Unit & Sales Summary
Full Year 2012 Tire Unit & Sales Summary In millions 2012 Sales = $20,992 2012 Unit/Sales Mix 2012 2011 % Change Consumer Units 149.2 163.6 (8.8%) Consumer Commercial 54% 20% Sales $11,429 $12,065 (5.3%) Other 13% Commercial Retail 7% Units 12.8 14.8 (13.6%) Sales $4,202 $4,588 (8.4%) Chemical 6% 29
Slide 30: Price/Mix Improvements
Price/Mix Improvements Price/Mix vs. Raw Materials(a) $ in millions $2,356 (b) $1,822 $942 $1,017 $712 $689 (c) $639 $549 $576 $195 $207 ($115) 2007 2008 2009 2010 2011 2012 Price/Mix Raw Materials (a) Reflects impact on Segment Operating Income. Raw Materials include the impact of raw material cost
Slide 31: Liquidity Profile
Fourth Quarter 2012 Liquidity Profile Liquidity Profile $ In billions $5.4(a) Pan European $0.2 Securitization(b) Available Credit Lines (c) $2.9 Cash & Equivalents(d) $2.3 $1 billion required for operations December 31, 2012 (a) Total liquidity comprised of $2,281 million cash and cash equivalents,
Slide 32: Maturity Schedule
Fourth Quarter 2012 Maturity Schedule $ In millions Note: Based on December 31, 2012 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. Details on all other actual outstanding debt as of December 31, 2012 in Appendix on page 39. (a) At December 31, 2
Slide 33: Pension Update
Pension Update $ In millions Total Global Cash Flow Impact (1) (2) Global Unfunded Obligations(1) $4,000 $684 $3,522 $700 $2,748 $3,097 $600 $3,000 $2,715 $2,549 $500 $430 $364 $405 $400 $2,000 $294 $275-$325 $300 $200 $1,000 $100 $0 $0 2008 2009 2010 2011 2012 2013E 2008 2009 2010 2011 2012 Domesti
Slide 34: Fourth Quarter Significant Items
Fourth Quarter Significant Items (after tax and minority interest) 2012 (See next page) • 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 millio
Slide 35: Fourth Quarter Significant Items
Fourth Quarter Significant Items (after taxes and minority interest) $ In millions, except EPS Fourth Quarter 2012 Significant Items Rationalizations, Labor Claim Loss Resulting Insurance Recoveries Asset Write-offs & Discrete Tax Charges - Gains from Asset from S. Africa Related to Flooding in Acce
Slide 36: Reconciliation for Segment Operating Income / Margin
Reconciliation for Segment Operating Income / Margin $ In millions Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 2010 2009 2008 2007 Total Segment Operating Income $ 272 $ 196 $ 1,248 $ 1,368 $ 917 $ 372 $ 804 $ 1,230 Rationalizations (108) (23) (175) (103) (24
Slide 37: Reconciliation for Total Debt and Net Debt
Reconciliation for Total Debt and Net Debt $ In millions December 31, September 30, December 31, 2012 2012 2011 Long term debt and capital leases $ 4,888 $ 5,708 $ 4,789 Notes payable and overdrafts 102 163 256 Long term debt and capital leases due within one year 96 110 156 Total debt $ 5,086 $ 5,9
Slide 38: Reconciliation for Free Cash Flow from Operations
Reconciliation for Free Cash Flow from Operations The amounts below are calculated from the Consolidated Statements of Cash Flows except for pension expense, which is the net periodic pension cost as reported in the pension-related note in the Notes to Consolidated Financial Statements. Year Ended D
Slide 39: Fourth Quarter 2012 Debt
Fourth Quarter 2012 Debt $ In millions December 31, September 30, June 30, March 31, 2012 2012 2012 2012 Notes Payable: Notes Payable and Overdrafts $ 102 $ 163 $ 168 $ 291 Long-Term Debt: Notes: 6.75% Euro Notes due 2019 $ 330 $ 322 $ 317 $ 334 8.25% due 2020 994 994 994 994 8.75% due 2020 266 265
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