-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IsY2lWqyPe/7Or7Oy7BvLjBIc9UIUfz5PNW1d+7bOe1bw7UUQ4kM7E2tNsRUohIf D5FbtiXxwWb9P5QUetOqDw== 0000950152-97-007305.txt : 19971022 0000950152-97-007305.hdr.sgml : 19971022 ACCESSION NUMBER: 0000950152-97-007305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971021 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOODYEAR TIRE & RUBBER CO /OH/ CENTRAL INDEX KEY: 0000042582 STANDARD INDUSTRIAL CLASSIFICATION: TIRES AND INNER TUBES [3011] IRS NUMBER: 340253240 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01927 FILM NUMBER: 97698814 BUSINESS ADDRESS: STREET 1: 1144 E MARKET ST CITY: AKRON STATE: OH ZIP: 44316 BUSINESS PHONE: 2167962121 MAIL ADDRESS: STREET 1: 1144 E MARKET ST CITY: AKRON STATE: OH ZIP: 44316 10-Q 1 THE GOODYEAR TIRE & RUBBER COMPANY FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER: 1-1927 THE GOODYEAR TIRE & RUBBER COMPANY (Exact Name of Registrant as Specified in Its Charter) OHIO 34-0253240 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1144 EAST MARKET STREET, AKRON, OHIO 44316-0001 (Address of Principal Executive Offices) (Zip Code) (330) 796-2121 (Registrant's Telephone Number, Including Area Code) ----------------------------------- Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- ----------------------------------- Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Number of Shares of Common Stock, Without Par Value, Outstanding at September 30, 1997: 156,386,304 ================================================================================ 2 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Unaudited
(In millions, except per share) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 --------- --------- --------- --------- NET SALES $ 3,322.2 $ 3,267.7 $ 9,870.9 $ 9,842.7 Cost of Goods Sold 2,544.8 2,508.8 7,538.6 7,524.3 Selling, Administrative and General Expense 466.3 461.4 1,396.6 1,395.8 Interest Expense 28.4 33.2 91.9 100.6 Other (Income) Expense 7.3 0.1 18.2 21.0 Foreign Currency Exchange (10.1) (0.7) (16.3) 5.9 Minority Interest in Net Income of Subsidiaries 11.9 10.9 35.1 34.1 --------- --------- --------- --------- Income before Income Taxes 273.6 254.0 806.8 761.0 United States and Foreign Taxes on Income 79.5 83.8 250.1 251.1 --------- --------- --------- --------- NET INCOME $ 194.1 $ 170.2 556.7 509.9 ========= ========= Retained Earnings at Beginning of Period 2,603.0 2,661.0 CASH DIVIDENDS (131.3) (116.1) --------- --------- Retained Earnings at End of Period $ 3,028.4 $ 3,054.8 ========= ========= PER SHARE OF COMMON STOCK: NET INCOME $ 1.25 $ 1.09 $ 3.57 $ 3.29 ========= ========= ========= ========= CASH DIVIDENDS $ 0.28 $ 0.25 $ 0.84 $ 0.75 ========= ========= ========= ========= Average Shares Outstanding 156.2 155.3 156.1 154.8
The accompanying notes are an integral part of this financial statement. -1- 3 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Unaudited
(Dollars in millions) SEPTEMBER 30, DECEMBER 31, 1997 1996 ASSETS: ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 226.7 $ 238.5 Accounts and notes receivable, less allowance (1997-$53.2, 1996-$58.1) 1,998.9 1,706.0 Inventories: Raw materials 294.9 288.4 Work in process 86.3 77.2 Finished product 1,433.5 1,408.6 --------- --------- 1,814.7 1,774.2 Prepaid expenses and other current assets 321.1 306.3 --------- --------- TOTAL CURRENT ASSETS 4,361.4 4,025.0 Investments in Affiliates, at equity 124.6 140.3 Long Term Accounts and Notes Receivable 199.0 216.2 Deferred Charges 1,186.6 1,059.4 Other Assets 168.6 163.0 Properties and Plants, less accumulated depreciation (1997-$5,051.8, 1996-$4,935.8) 4,011.0 4,067.9 --------- --------- TOTAL ASSETS $10,051.2 $ 9,671.8 ========= ========= LIABILITIES: CURRENT LIABILITIES: Accounts payable - trade $ 1,068.2 $ 1,096.7 Compensation and benefits 811.8 742.5 Other current liabilities 279.9 300.4 United States and foreign taxes 435.5 382.1 Notes payable to banks 510.0 218.1 Long term debt due within one year 19.8 26.4 --------- --------- TOTAL CURRENT LIABILITIES 3,125.2 2,766.2 Compensation and Benefits 1,956.3 1,988.1 Long Term Debt 927.4 1,132.2 Other Long Term Liabilities 233.6 264.9 Minority Equity in Subsidiaries 268.0 241.3 --------- --------- TOTAL LIABILITIES 6,510.5 6,392.7 SHAREHOLDERS' EQUITY: Preferred Stock, no par value: Authorized 50,000,000 shares, unissued - - Common Stock, no par value: Authorized 300,000,000 shares Outstanding shares 156,386,304 (156,049,974 in 1996) after deducting 39,292,364 treasury shares (39,628,694 in 1996) 156.4 156.1 Capital Surplus 1,054.2 1,059.4 Retained Earnings 3,028.4 2,603.0 Foreign Currency Translation and Other Adjustments (698.3) (539.4) --------- --------- TOTAL SHAREHOLDERS' EQUITY 3,540.7 3,279.1 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,051.2 $ 9,671.8 ========= =========
The accompanying notes are an integral part of this financial statement. -2- 4 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited
(In millions) NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: ------ ------ NET INCOME $556.7 $509.9 Adjustments to reconcile net income to cash flows from operating activities: Depreciation 350.9 341.2 Accounts and notes receivable (322.9) (362.0) Inventories (51.9) (121.3) Accounts payable-trade (49.2) (159.0) Other assets and liabilities 50.4 103.2 ------ ------ Total adjustments (22.7) (197.9) ------ ------ TOTAL CASH FLOWS FROM OPERATING ACTIVITIES 534.0 312.0 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (377.6) (405.4) Asset sales 37.6 32.9 Asset acquisitions (108.6) (92.1) Other transactions 7.3 (24.4) ------ ------ TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (441.3) (489.0) CASH FLOWS FROM FINANCING ACTIVITIES: Short term debt incurred 369.4 476.9 Short term debt paid (106.2) (141.3) Long term debt incurred 10.4 8.9 Long term debt paid (216.5) (33.2) Common stock issued 73.6 64.5 Common stock purchased (78.4) - Dividends paid (131.3) (116.1) ------ ------ TOTAL CASH FLOWS FROM FINANCING ACTIVITIES (79.0) 259.7 Effect of Exchange Rate Changes on Cash and Cash Equivalents (25.5) (26.7) ------ ------ Net Change in Cash and Cash Equivalents (11.8) 56.0 Cash and Cash Equivalents at Beginning of the Period 238.5 268.3 ------ ------ Cash and Cash Equivalents at End of the Period $226.7 $324.3 ====== ======
The accompanying notes are an integral part of this financial statement. -3- 5 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NON-CONSOLIDATED OPERATIONS - SOUTH PACIFIC TYRE - ------------------------------------------------ In addition to its consolidated operations in the Asia region, the Company also owns a 50% interest in South Pacific Tyres Ltd (SPT), a partnership with Pacific Dunlop Ltd of Australia. SPT is the largest tire manufacturer, marketer and exporter in Australia and New Zealand. The Company is required to use the equity method to account for its interest in the results of operations and financial position of SPT. The following table presents sales and operating income of the Company's consolidated Asian operations and 100% of the operations of SPT:
(In millions) THREE MONTHS ENDED SEPT. 30 NINE MONTHS ENDED SEPT. 30 --------------------------- -------------------------- Asia Asia Segment SPT Total Segment SPT Total ------- --- ----- ------- --- ----- NET SALES: 1997 $201.6 $180.3 $381.9 $610.3 $568.1 $1,178.4 1996 211.3 197.6 408.9 629.5 600.5 1,230.0 OPERATING PROFIT: 1997 $ 21.6 $ 12.7 $ 34.3 $ 71.9 $ 47.8 $ 119.7 1996 23.0 15.5 38.5 74.2 54.5 128.7
SUPPLEMENTAL INFORMATION ABOUT NONCASH INVESTING ACTIVITIES - ----------------------------------------------------------- In the first quarter of 1997 the Company acquired a 60% equity interest in a South African tire and industrial rubber products business, and assumed $29 million of debt under the terms of the purchase agreement. In the first quarter of 1996, the Company increased its ownership of a Polish tire manufacturer from 32.7% to 50.8% by purchasing original issue shares of this tire manufacturer. This investment, which had been accounted for using the equity method, is now accounted for as a consolidated subsidiary. Information in the Consolidated Statement of Cash Flows is presented net of the effects of these transactions. PER SHARE OF COMMON STOCK - ------------------------- Per share amounts have been computed based on the average number of common shares outstanding. ADJUSTMENTS - ----------- All adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of these unaudited interim periods have been included. RECLASSIFICATION - ---------------- Certain items previously reported in specific financial statement captions have been reclassified to conform with the 1997 presentation. -4- 6 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES SEGMENT INFORMATION Unaudited
(In millions) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 -------- -------- -------- -------- INDUSTRY SEGMENTS - ----------------- Sales to Unaffiliated Customers: Tires $2,616.9 $2,541.8 $7,729.3 $7,631.8 Related products and services 232.4 254.9 701.2 767.7 -------- -------- -------- -------- Total Tires 2,849.3 2,796.7 8,430.5 8,399.5 General Products 449.4 440.3 1,366.8 1,346.3 Oil Transportation 23.5 30.7 73.6 96.9 -------- -------- -------- -------- NET SALES $3,322.2 $3,267.7 $9,870.9 $9,842.7 ======== ======== ======== ======== Income: Tires $ 264.0 $ 248.7 $ 796.0 $ 749.5 General Products 54.7 49.6 159.5 142.6 Oil Transportation 14.8 15.3 46.2 50.7 -------- -------- -------- -------- OPERATING INCOME 333.5 313.6 1,001.7 942.8 Exclusions from operating income (59.9) (59.6) (194.9) (181.8) -------- -------- -------- -------- Income before Income Taxes $ 273.6 $ 254.0 $ 806.8 $ 761.0 ======== ======== ======== ======== GEOGRAPHIC SEGMENTS - ------------------- Sales to Unaffiliated Customers: United States $1,797.6 $1,783.0 $5,230.2 $5,301.8 Europe 750.5 727.5 2,320.3 2,257.5 Latin America 403.2 378.9 1,188.2 1,150.7 Asia 201.6 211.3 610.3 629.5 Canada 169.3 167.0 521.9 503.2 -------- -------- -------- -------- NET SALES $3,322.2 $3,267.7 $9,870.9 $9,842.7 ======== ======== ======== ======== Income: United States $ 169.5 $ 136.4 $ 450.3 $ 396.7 Europe 62.4 88.1 233.7 254.8 Latin America 65.4 60.6 205.5 199.0 Asia 21.6 23.0 71.9 74.2 Canada 14.6 5.5 40.3 18.1 -------- -------- -------- -------- OPERATING INCOME $ 333.5 $ 313.6 $1,001.7 $ 942.8 ======== ======== ======== ========
-5- 7 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- CONSOLIDATED - ------------ Sales in the third quarter of 1997 were $3.32 billion, increasing 1.7% from $3.27 billion in the 1996 quarter. Net income in the quarter was $194.1 million ($1.25 per share), increasing 14.0% from net income of $170.2 million ($1.09 per share) in 1996. In the nine months, sales of $9.87 billion increased slightly from $9.84 billion in 1996. Net income of $556.7 million ($3.57 per share) increased 9.2% from net income of $509.9 million ($3.29 per share) in the 1996 period. Worldwide tire unit sales in the third quarter and nine months rose 7.4% and 4.4%, respectively, from 1996's levels, increasing in both the original equipment and replacement markets. In addition, unit sales of other automotive and industrial rubber products were higher in both periods. Revenues reflected continued worldwide competitive pricing pressures, which are expected to continue indefinitely, and the adverse effect of currency translations on international results. Results in the 1997 nine months were also adversely affected by an 18 day strike against the Company by the United Steel Workers of America, A.F.L.-C.I.O.-C.L.C. (USWA) at 10 U.S. tire and engineered products manufacturing facilities, and by other strikes against various U.S. original equipment manufacturers. The following table presents cost of goods sold (CGS) and selling, general and administrative expense (SAG) as a percent of sales:
Third Quarter Nine Months 1997 1996 1997 1996 ---- ---- ---- ---- CGS 76.6% 76.8% 76.4% 76.4% SAG 14.0 14.1 14.1 14.2
Cost of goods sold was favorably impacted in both 1997 periods by lower raw material costs, the effects of ongoing cost containment measures and improved productivity. Costs were adversely affected in the 1997 nine months by increased depreciation expense and the effects of the previously mentioned strikes. Selling, administrative and general expense decreased as a percent to sales in both 1997 periods, due primarily to the effects of ongoing cost containment measures. -6- 8 Interest expense decreased in both 1997 periods due primarily to lower average debt levels. Other (income) and expense in the third quarter of 1997 was adversely affected by lower interest income on time deposits. Foreign currency exchange expense was lower in both the third quarter and nine months due primarily to gains realized on the Company's net currency exposures. Net income in both 1997 periods also benefited from a lower estimated annual effective tax rate compared to 1996, resulting primarily from lower U.S. taxes on foreign source income. SEGMENT INFORMATION - ------------------- Segment operating income in the third quarter of 1997 was $333.5 million, increasing 6.4% from $313.6 million in the 1996 quarter. Segment operating margin rose to 10.0% of sales from 9.6% in the 1996 period. In the nine months, segment operating income was $1,001.7 million, increasing 6.3% from $942.8 million in the 1996 period. Segment operating margin rose to 10.1% of sales from 9.6% in the 1996 nine months. INDUSTRY SEGMENTS - -----------------
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---- ---- ---- ---- Segment Contribution to Consolidated Sales: Tires 85.8% 85.6% 85.4% 85.3% General Products 13.5 13.5 13.8 13.7 Oil Transportation .7 .9 .8 1.0 Segment Operating Margin: Tires 9.3% 8.9% 9.4% 8.9% General Products 12.2 11.3 11.7 10.6 Oil Transportation 63.0 49.8 62.8 52.3 Consolidated 10.0 9.6 10.1 9.6
-7- 9 TIRES - ----- Sales in the third quarter of 1997 of $2.85 billion increased 1.9% from $2.80 billion in the 1996 period. In the nine months, sales of $8.43 billion increased slightly from $8.40 billion in 1996. Unit sales in the quarter and nine months increased in both the original equipment and replacement markets in North America and all international regions. Revenues in both periods were adversely affected by worldwide competitive pricing pressures and the adverse effects of currency translation on international results. Additionally, sales in the 1997 nine months reflected reduced demand in the U.S. resulting from strikes against certain vehicle production facilities. The following table presents changes in Company tire unit sales compared to the 1996 period:
Third Quarter Nine Months ------------- ----------- U.S. 3.4% 1.2% International 11.7 7.9 Worldwide 7.4 4.4
Tire segment operating income in the third quarter of 1997 was $264.0 million, increasing 6.2% from $248.7 million in the 1996 period. In the nine months, operating income of $796.0 million increased 6.2% from $749.5 million in 1996. Operating income in both the quarter and nine months reflected lower raw material costs and the effects of ongoing cost containment measures, but was adversely affected in the nine months by increased costs and lower revenues resulting from the previously mentioned strikes. Operating income in the 1996 quarter and nine months was reduced by charges totaling $10.7 million and $43.2 million, respectively, related to rationalizations and other provisions and costs related to improvements in manufacturing efficiencies. GENERAL PRODUCTS - ---------------- Sales in the third quarter of 1997 were $449.4 million, increasing 2.1% from $440.3 million in the 1996 period. In the nine months, sales of $1.37 billion increased 1.5% from $1.35 billion in 1996. Sales increased in the quarter and nine months in engineered products on higher unit volume of automotive and industrial rubber products. Sales in chemical products decreased in both periods due to competitive pricing conditions and reduced volume. -8- 10 Operating income in the third quarter was $54.7 million, increasing 10.2% from $49.6 million in the 1996 period. In the nine months, operating income of $159.5 million increased 11.8% from $142.6 million in 1996. Operating income increased in the quarter and nine months in engineered products due to increased unit sales and improved productivity. Chemical operating income increased in both periods due primarily to lower manufacturing costs and a more favorable product mix. Operating income in the 1996 nine months was reduced by charges totaling $5.2 million related to rationalizations and other provisions. OIL TRANSPORTATION - ------------------ Sales in the third quarter of 1997 were $23.5 million, decreasing 23.4% from $30.7 million in the 1996 period. In the nine months, sales were $73.6 million, decreasing 24.1% from $96.9 million in 1996. Operating income in the third quarter was $14.8 million, decreasing 2.7% from $15.3 million in the 1996 period. In the nine months, operating income was $46.2 million, decreasing 8.8% from $50.7 million in 1996. Sales and operating income decreased in the quarter and nine months due primarily to lower throughput and reduced spreads in purchasing, selling and exchanging activities. Margins increased due to lower depreciation expense resulting from the writedown of the All American Pipeline System and related assets in the fourth quarter of 1996. -9- 11 GEOGRAPHIC SEGMENTS - -------------------
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---- ---- ---- ---- Segment Contribution to Consolidated Sales: United States 54.1% 54.6% 53.0% 53.9% Europe 22.6 22.3 23.5 22.9 Latin America 12.1 11.6 12.0 11.7 Asia 6.1 6.5 6.2 6.4 Canada 5.1 5.0 5.3 5.1 Segment Operating Margin: United States 9.4% 7.7% 8.6% 7.5% Europe 8.3 12.1 10.1 11.3 Latin America 16.2 16.0 17.3 17.3 Asia 10.7 10.9 11.8 11.8 Canada 8.6 3.3 7.7 3.6 Consolidated 10.0 9.6 10.1 9.6
In the United States, sales in the third quarter of 1997 were $1.80 billion, increasing slightly from $1.78 billion in the 1996 period. In the nine months, sales of $5.23 billion decreased 1.3% from $5.30 billion in 1996. Unit sales of tires and engineered products in the U.S. were higher in both the quarter and the nine months. Revenues were adversely affected in both periods by competitive pricing pressures, reduced volume in chemical products and lower revenues in oil transportation operations. In addition, results in the nine months reflected the effects of the previously mentioned strike against the Company and strikes against certain vehicle production facilities. U.S. operating income in the third quarter of 1997 was $169.5 million, increasing 24.3% from $136.4 million in the 1996 period. In the nine months, operating income of $450.3 million increased 13.5% from $396.7 million in 1996. Operating income in the quarter and nine months increased due primarily to lower raw material costs, lower SAG and the effects of cost containment measures. Operating income in the third quarter and nine months of 1996 was reduced by charges totaling $6.8 million and $19.4 million, respectively, related to rationalizations and other provisions. -10- 12 In Europe, sales in the third quarter of 1997 were $750.5 million, increasing 3.2% from $727.5 million in the 1996 period. In the nine months, sales of $2.32 billion increased 2.8% from $2.26 billion in 1996. Third quarter operating income in Europe was $62.4 million, decreasing 29.1% from $88.1 million in the 1996 period. In the nine months, operating income of $233.7 million decreased 8.3% from $254.8 million in 1996. Operating income in the nine months of 1996 was reduced by a $15.0 million charge related to rationalizations and other provisions. Tire unit sales in Europe increased in the third quarter and nine months in both the original equipment and replacement markets. In addition, results benefited in both periods by the acquisition of a majority interest in tire and engineered products manufacturing and distribution operations in South Africa. Sales and operating income were adversely affected by currency translation and competitive pricing pressures. In Latin America, sales in the third quarter of 1997 were $403.2 million, increasing 6.4% from $378.9 million in the 1996 period. In the nine months, sales of $1.19 billion increased 3.3% from $1.15 billion in 1996. Third quarter operating income in Latin America was $65.4 million, increasing 8.1% from $60.6 million in the 1996 period. In the nine months, operating income of $205.5 million increased 3.3% from $199.0 million in 1996. Operating income in the 1996 quarter and nine months was reduced by charges totaling $2.1 million and $12.2 million, respectively, related to rationalizations and other provisions and improvements in manufacturing efficiencies. Tire unit sales in Latin America increased in the third quarter and nine months in both the original equipment and replacement markets. Revenues rose in both periods on increased sales volume of tires and engineered products, and operating income benefited from lower raw material costs and the effects of ongoing cost containment measures. In Asia, sales in the third quarter of 1997 were $201.6 million, decreasing 4.6% from $211.3 million in the 1996 period. In the nine months, sales of $610.3 million decreased 3.1% from $629.5 million in 1996. Third quarter operating income in Asia was $21.6 million, decreasing 5.9% from $23.0 million in the 1996 period. In the nine months, operating income of $71.9 million decreased 3.1% from $74.2 million in 1996. Operating income in the 1996 quarter and nine months was reduced by charges totaling $1.8 million related to rationalizations and other provisions. -11- 13 Sales and operating income in Asia decreased in both the third quarter and nine months due primarily to the strengthening of the U.S. dollar versus Asian currencies, competitive pricing and lower results in natural rubber operations. Tire unit sales increased in the third quarter and nine months in both the original equipment and replacement markets. Operating income in the Asian tire business was favorably impacted by lower raw material costs and the effects of ongoing cost containment measures. Sales and operating income of the Asia segment reflect the results of the Company's majority-owned tire business and other operations in the region, principally the engineered products and natural rubber businesses. In addition, the Company owns a 50% interest in South Pacific Tyres Ltd (SPT), the largest tire manufacturer, marketer and exporter in Australia and New Zealand. Results of operations of SPT are not reported in segment results, and are reflected in the Company's consolidated statement of income using the equity method. The following table presents the sales and operating income of the Company's Asian segment together with 100% of the sales and operating income of SPT:
(In millions) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---- ------ ------ ------ Net Sales: Asia Segment $201.6 $211.3 $ 610.3 $ 629.5 SPT 180.3 197.6 568.1 600.5 ----- ----- ------- ------- Total $381.9 $408.9 $1,178.4 $1,230.0 Operating Income: Asia Segment $ 21.6 $ 23.0 $ 71.9 $ 74.2 SPT 12.7 15.5 47.8 54.5 ---- ---- ------ ----- Total $ 34.3 $ 38.5 $ 119.7 $ 128.7
In Canada, sales in the third quarter of 1997 were $169.3 million, increasing 1.5% from $167.0 million in the 1996 period. In the nine months, sales of $521.9 million increased 3.7% from $503.2 million in 1996. Third quarter operating income in Canada was $14.6 million, compared to $5.5 million in the 1996 period. In the nine months, operating income of $40.3 million increased from $18.1 million in 1996. Sales and operating income in Canada increased in both periods due primarily to higher unit sales of original equipment tires and engineered products and lower raw material costs and selling, administrative and general expenses. -12- 14 LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Net cash provided by operating activities was $534.0 million during the first nine months of 1997, as reported on the Consolidated Statement of Cash Flows. Working capital requirements during the period increased for accounts receivable and inventories, yet remained significantly lower than requirements during the 1996 period. Net cash used in investing activities was $441.3 million during the first nine months of 1997. Capital expenditures were $377.6 million, primarily for plant modernizations and expansions and new tire molds, and are expected to total $675 million in 1997.
Three Months Ended Nine Months Ended September 30, September 30, (In millions) 1997 1996 1997 1996 ---- ---- ---- ---- Capital Expenditures $146.9 $137.5 $377.6 $405.4 Depreciation 113.5 115.2 350.9 341.2
Other investing activities included the Company's first quarter acquisition of a majority ownership interest in tire and engineered products manufacturing and distribution operations in South Africa, in addition to the third quarter acquisition of additional retreading operations in the United States and sale of the Jackson, Ohio automotive trim plant. Net cash used in financing activities was $79.0 million during the first nine months of 1997. Cash was used for the third quarter redemption of all $118.4 million of the Company's 10.26% promissory notes due 1999.
(Dollars in millions) 9/30/97 12/31/96 9/30/96 -------- --------- ---------- Consolidated Debt $1,457.2 $1,376.7 $1,840.7 Debt/Debt+Equity 29.2% 29.6% 33.2%
No shares of Common Stock of the Company were repurchased during the third quarter under the Company's $600 million three-year repurchase program. At September 30, 1997, 1,478,200 shares have been repurchased under the February 1997 plan at an average cost of $53.06. The Company actively manages its fixed and floating rate debt mix, within defined limitations, using refinancings and unleveraged interest rate swaps. The Company enters into fixed and floating interest rate swaps to alter its exposure to the impact of changing interest rates. At September 30, 1997 the interest rate on 53% of the Company's debt was fixed by either the nature of the obligation or through the interest rate swaps. Floating rate contracts with notional principal amounts totaling $110 million were sold in the third quarter of 1997, in connection with the previously mentioned -13- 15 redemption of the 10.26% promissory notes. Interest rate swaps in place and related weighted average interest rates follow:
(Dollars in millions) Fixed Rate Floating Rate Contracts Contracts --------- --------- September 30, 1997: - Notional principal amount $150.0 - - Pay fixed rate 7.16% - - Receive variable LIBOR 5.83 - - Average years to maturity 2.4 - - Fair value: (unfavorable) $ (0.5) - - Carrying amount: (liability) (0.1) - Third quarter - Rate paid 7.16% 5.75% - Rate received 5.85 6.24 Nine months - Rate paid 7.55 5.63 - Rate received 5.70 6.24
In order to reduce the impact of changes in foreign exchange rates on consolidated results of operations and future foreign currency denominated cash flows, the Company was a party to various foreign currency forward exchange contracts at September 30, 1997. These contracts reduce exposure to currency movements affecting existing foreign currency denominated assets, liabilities and firm commitments. The contract maturities match the maturities of the currency positions. The future value of these contracts and the related currency positions are subject to offsetting market risk resulting from foreign currency exchange rate volatility. Substantial short term and long term credit sources are available to the Company globally under normal commercial practices. At September 30, 1997 the Company had short term uncommitted credit arrangements totaling $1.5 billion, of which $750 million were unused. The Company also had available long term credit arrangements at September 30, 1997 totaling $1.9 billion, of which $1.2 billion were unused. Funds generated by operations, together with funds available under existing credit arrangements, are expected to be sufficient to meet currently anticipated funding requirements. -14- 16 FORWARD-LOOKING INFORMATION - SAFE HARBOR STATEMENT --------------------------------------------------- Certain information set forth herein (other than historical data and information) may constitute forward-looking statements regarding events and trends which may affect the Company's future operating results and financial position. The words "estimate," "expect," "intend" and "project," as well as other words or expressions of similar meaning, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report. Such statements are based on current expectations, are inherently uncertain, are subject to risks and should be viewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors, including: changes in economic conditions in the various markets served by the Company's operations; increased competitive activity; fluctuations in raw material and energy prices; changes in the monetary policies of various countries where the Company has significant operations; and other unanticipated events and conditions. It is not possible to foresee or identify all such factors. The Company makes no commitment to update any forward-looking statement, or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward-looking statement. -15- 17 PART II. OTHER INFORMATION -------------------------- ITEM 1. LEGAL PROCEEDINGS. - ------- ------------------ Reference is made to the Annual Report of The Goodyear Tire & Rubber Company (the "Company") on Form 10-K for the year ended December 31, 1996 (the "Annual Report"), wherein at Item 3, pages 13, 14, 15, and 16, the Company reported certain legal proceedings. Reference is also made to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (the "First Quarter Report") and to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (the "Second Quarter Report"). In the First Quarter Report, at Item 1 of Part II, page 13, the Company reported certain developments regarding the legal proceedings described at paragraph (A) of Item 3 of the Annual Report. In the Second Quarter Report, at Item 1 of Part II, page 16, the Company reported certain developments regarding the legal proceedings described at paragraph (C) of Item 3 of the Annual Report. The Company reports the following developments in respect of the legal proceedings described at paragraphs (C) and (D) of Item 3 of the Annual Report: (1) As reported at paragraph (C) of Item 3 of the Annual Report, as supplemented at Item 1 of Part II of the Second Quarter Report, in September of 1990, a civil action, EASTMAN KODAK COMPANY, ET AL. V. GOODYEAR, ET AL. (No. CIV-2-90-221), was filed by Eastman Kodak Company, now Eastman Chemical Company as the successor in interest ("Eastman"), in the United States District Court for the Eastern District of Tennessee, Northeastern Division, whereunder Eastman alleged infringement of a patent, which expired in December of 1994, in respect of certain processes used in the manufacture of polyester resin on ten production lines at the Pt. Pleasant, West Virginia polyester resin plant owned and operated by the Company until December 18, 1992, when it was sold to Shell Oil Company. The Company counterclaimed against Eastman alleging, among other things, tort claims and antitrust law violations, which were dismissed by the trial court. The trial court also ruled that the processes used in eight of the plant's production lines did not infringe the patent. The jury rendered a verdict of non-willful infringement in respect of two of the plant's production lines and a judgment of $12,000,000, plus prejudgment and postjudgment interest thereon (approximately $8,500,000) and court costs, was entered against the Company. The Company and Eastman appealed to the Court of Appeals, Federal Circuit, which affirmed the decisions of the trial court on May 26, 1997, except that the Company's tort claim was reinstated. On June 3, 1997, the Company petitioned the Court of Appeals for Rehearing In Banc, which appeal was denied on July 2, 1997. On September 19, 1997, the litigation was concluded pursuant to a Satisfaction of Judgment whereunder Goodyear paid $20 million to Eastman and filed a Stipulation of Dismissal of the Company's tort claim. Prior to the Company's payment to Eastman, the manufacturer of certain of the equipment used at the plant paid $17.655 million to the Company in satisfaction of its contractual obligation to indemnify the Company against liability for patent infringement. The Company also received an additional $234,952 from another contractual indemnitor. (2) As reported at paragraph (D) of Item 3 of the Annual Report, in December of 1993, certain civil actions filed against the Company and numerous other defendants in Judicial District Court, -16- 18 Galveston, Texas, by 72 individual plaintiffs were consolidated into a single action styled WHALEN, ET AL. V. AES, INC, ET AL.; Case No. 93-CV-0211. The plaintiffs alleged that, among other things, the Company and several other named defendants caused personal injuries and property damage by depositing allegedly hazardous wastes at the McGinnis Waste Disposal Site. The plaintiffs' sought an aggregate of $2 billion in actual damages and $13 billion in punitive damages. In prior years, certain plaintiffs withdrew or were dismissed and 30 plaintiffs entered into a settlement with the Company and other defendants at an aggregate cost to the Company of approximately $5,600. In August of 1997, the remaining 24 plaintiffs entered into a settlement agreement with the Company and the other defendants whereunder the Company paid a total of $10,585 to the plaintiffs, thereby concluding this litigation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------- --------------------------------- (a) EXHIBITS. See the Index of Exhibits at page E-1, which is by specific reference incorporated into and made a part of this Quarterly Report on Form 10-Q. (b) REPORTS ON FORM 8-K. No Current Report on Form 8-K was filed by The Goodyear Tire & Rubber Company during the quarter ended September 30, 1997. S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GOODYEAR TIRE & RUBBER COMPANY (Registrant) Date: October 21, 1997 By /s/ John W Richardson ------------------------------------- John W Richardson, Vice President (Signing on behalf of Registrant as a duly authorized officer of Registrant and signing as the Principal Accounting Officer of Registrant.) -17- 19 THE GOODYEAR TIRE & RUBBER COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 INDEX OF EXHIBITS (1)
EXHIBIT EXHIBIT ------- ------- TABLE ITEM NO. * Description of Exhibit NUMBER PAGE -------------------- ------------------------------------- ------ ---- 3 ARTICLES OF INCORPORATION AND BY-LAWS -------------------------------------- (a) Certificate of Amended Articles of Incorporation of Registrant, dated December 20, 1954, and Certificate of Amendment to Amended Articles of Incorporation of Registrant, dated April 6, 1993, and Certificate of Amendment to Amended Articles of Incorporation of Registrant dated June 4, 1996, three documents comprising Registrant's Articles of Incorporation as amended (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). (b) Code of Regulations of The Goodyear Tire & Rubber Company, adopted November 22, 1955, as amended April 5, 1965, April 7, 1980, April 6, 1981 and April 13, 1987 (incorporated by reference, filed as Exhibit 4.1(B) to Registrant's Registration Statement on Form S-3, File No. 333-1995). 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES ---------------------------------------------------- (a) Conformed copy of Rights Agreement, dated as of June 4, 1996, between Registrant and First Chicago Trust Company of New York, rights Agent (incorporated by reference, filed as Exhibit 1 to Registrant's Registration Statement on Form 8-A dated June 11, 1996 and as Exhibit 4(a) to Registrant's Current Report on Form 8-K dated June 4, 1996).
- ---------- *Pursuant to Item 601 of Regulation S-K. E-1 20
EXHIBIT EXHIBIT ------- ------- TABLE ITEM NO. * Description of Exhibit NUMBER PAGE -------------------- ------------------------------------- ------ ---- (b) Specimen nondenominational Certificate for shares of the Common Stock, Without Par Value, of Registrant; First Chicago Trust Company of New York as transfer agent and registrar (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-1927). (c) Conformed copy of Revolving Credit Facility Agreement, dated as of July 15, 1994, among Registrant, the Lenders named therein and Chemical Bank, as Agent (incorporated by reference, filed as Exhibit A to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, File No. 1-1927). (d) Conformed copy of Replacement and Restatement Agreement, dated as of July 15, 1996, among Registrant, the Lenders named therein and The Chase Manhattan Bank (formerly Chemical Bank), as Agent (incorporated by reference, filed as Exhibit 4.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File 1-1927). (f) Conformed copy of First Amendment to Replacement and Restatement Agreement, dated as of March 31, 1997, among Registrant, the Lenders named therein and The Chase Manhattan Bank (formerly Chemical Bank), as Agent (incorporated by reference, filed as Exhibit 4.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File 1-1927).
- ---------- *Pursuant to Item 601 of Regulation S-K. E-2 21
EXHIBIT EXHIBIT ------- ------- TABLE ITEM NO. * Description of Exhibit NUMBER PAGE -------------------- ------------------------------------- ------ ---- 4 No instrument defining the rights of holders of long-term debt which relates to securities having an aggregate principal amount in excess of 10% of the consolidated assets of Registrant and its subsidiaries was entered into during the quarter ended September 30, 1997. In accordance with paragraph (iii) to Part 4 of Item 601 of Regulation S-K, agreements and instruments defining the rights of holders of long term debt entered into during the quarter ended September 30, 1997 which relate to securities having an aggregate principal amount less than 10% of the consolidated assets of Registrant and its Subsidiaries are not filed herewith. The Registrant hereby agrees to furnish a copy of any such agreements or instruments to the Securities and Exchange Commission upon request. 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS ---------------------------------------------------- Statement setting forth the computation of Per Share 11 X-11-1 Earnings. 12 STATEMENT RE COMPUTATION OF RATIOS ---------------------------------------------------- Statement setting forth the computation of Ratio of 12 X-12-1 Earnings to Fixed Charges. 27 FINANCIAL DATA SCHEDULE ---------------------------------------------------- 27 X-27-1 Financial Data Schedule.
- ---------- *Pursuant to Item 601 of Regulation S-K. E-3 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Set forth below are computations, on a primary basis and on a fully diluted basis in accordance with subparagraph (b) (11) of Item 601 of Regulation S-K of the Securities and Exchange Commission, of earnings per share of the Common Stock, without par value, of Registrant.
(In millions, except per share) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 --------- --------- --------- --------- PRIMARY: Net Income $ 194.1 $ 170.2 $ 556.7 $ 509.9 Adjusted average number of shares outstanding 158.3 156.7 158.0 156.6 PRIMARY EARNINGS PER SHARE $ 1.23 $ 1.09 $ 3.52 $ 3.26 FULLY DILUTED: Net Income $ 194.1 $ 170.2 $ 556.7 $ 509.9 Adjusted average number of shares outstanding 158.5 156.7 158.5 156.6 FULLY DILUTED EARNINGS PER SHARE $ 1.22 $ 1.09 $ 3.51 $ 3.26
The foregoing computations do not reflect any significant potentially dilutive effect Registrant's Preferred Stock Purchase Rights Plan could have in the event such Rights become exercisable and any shares of either Series B Preferred Stock or the Common Stock of Registrant are issued upon the exercise of, or in exchange for, such Rights. Reference is made to Note 19, captioned "Preferred Stock Purchase Rights Plan", in the Notes to Financial Statements set forth in Item 8 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 at page 50. x - 11 - 1 EX-12 3 EXHIBIT 12 1 EXHIBIT 12 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS) 9 MONTHS ENDED 9/30/97 1996 1995 1994 1993 1992 ------- ---- ---- ---- ---- ---- EARNINGS - -------- INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES $ 806.8 $ 122.3 $ 925.8 $ 865.7 $ 784.9 $ 629.9 ADD: AMORTIZATION OF PREVIOUSLY CAPITALIZED INTEREST $ 8.2 $ 11.6 $ 11.7 $ 10.2 $ 10.1 $ 9.6 MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARIES WITH FIXED CHARGES 36.2 45.9 30.1 16.9 19.0 14.2 PROPORTIONATE SHARE OF FIXED CHARGES OF INVESTEES ACCOUNTED FOR BY THE EQUITY METHOD 6.9 6.2 6.3 5.0 4.7 6.9 PROPORTIONATE SHARE OF NET LOSS OF INVESTEES ACCOUNTED FOR BY THE EQUITY METHOD 0.9 2.7 0.5 0.2 0.3 2.2 ---------------------------------------------------------------------- TOTAL ADDITIONS $ 52.2 $ 66.4 $ 48.6 $ 32.3 $ 34.1 $ 32.9 DEDUCT: CAPITALIZED INTEREST $ 5.0 $ 5.4 $ 5.1 $ 5.7 $ 5.0 $ 4.0 MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARIES 2.5 4.4 3.3 0.3 0.3 1.8 UNDISTRIBUTED PROPORTIONATE SHARE OF NET INCOME OF INVESTEES ACCOUNTED FOR BY THE EQUITY METHOD - - 0.2 7.2 4.0 0.9 ---------------------------------------------------------------------- TOTAL DEDUCTIONS $ 7.5 $ 9.8 $ 8.6 $ 13.2 $ 9.3 $ 6.7 TOTAL EARNINGS $ 851.5 $ 178.9 $ 965.8 $ 884.8 $ 809.7 $ 656.1 ====================================================================== FIXED CHARGES - ------------- INTEREST EXPENSE $ 91.9 $ 128.6 $ 135.0 $ 129.4 $ 162.4 $ 232.9 CAPITALIZED INTEREST 5.0 5.4 5.1 5.7 5.0 4.0 AMORTIZATION OF DEBT DISCOUNT, PREMIUM OR EXPENSE 0.1 0.3 0.4 0.7 0.4 1.0 INTEREST PORTION OF RENTAL EXPENSE 52.2 69.5 77.0 83.0 83.7 87.6 PROPORTIONATE SHARE OF FIXED CHARGES OF INVESTEES ACCOUNTED FOR BY THE EQUITY METHOD 6.9 6.2 6.4 5.0 4.7 6.9 ---------------------------------------------------------------------- TOTAL FIXED CHARGES $ 156.1 $ 210.0 $ 223.9 $ 223.8 $ 256.2 $ 332.4 ====================================================================== TOTAL EARNINGS BEFORE FIXED CHARGES $ 1,007.6 $ 388.9 $ 1,189.7 $ 1,108.6 $ 1,065.9 $ 988.5 ====================================================================== RATIO OF EARNINGS TO FIXED CHARGES 6.45 1.85 5.31 4.95 4.16 2.97
SUPPLEMENTAL INFORMATION - INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES IN 1996 WAS REDUCED BY A CHARGE OF $755.6 MILLION RELATED TO THE WRITEDOWN OF THE ALL AMERICAN PIPELINE SYSTEM AND RELATED ASSETS. EXCLUDING THIS CHARGE, THE RATIO OF EARNINGS TO FIXED CHARGES FOR 1996 WOULD HAVE BEEN 5.45. x- 12 - 1 EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION ABSTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS AND THE CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 227 0 1,999 53 1,815 4,361 9,063 5,052 10,051 3,125 927 156 0 0 3,385 10,051 9,871 9,871 7,539 7,539 0 0 92 807 250 557 0 0 0 557 3.57 0
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