EX-99.1 2 l21680aexv99w1.htm EX-99.1 EX-99.1
 

Exhibit 99.1
         
(GOODYEAR LETTERHEAD)
 
News Release
Corporate Headquarters: 1144 East Market Street, Akron, Ohio 44316-0001
  Media Website:   www.GoodyearNewsRoom.com
 
 
 

     
MEDIA CONTACT:
  Tricia Ingraham
 
  330-796-8517
ANALYST CONTACT:
  Greg Dooley
 
  330-796-6704
 
FOR IMMEDIATE RELEASE


Goodyear Sets Sales Record in Second Quarter, First Half
•   Sales reach $5.1 billion in quarter, $10 billion for first half
 
•   Four tire business units set sales records
 
•   Segment operating income of $267 million, net income $2 million
     AKRON, Ohio, August 4, 2006 — The Goodyear Tire & Rubber Company today reported second quarter sales of $5.1 billion, a record for any quarter and an increase of 3 percent compared to the 2005 period. Excluding the impact of businesses divested in 2005, sales increased 5 percent compared to the prior-year quarter.
     The sales growth reflects improved pricing and product mix driven by demand for the company’s branded tires in the consumer replacement markets, and the favorable impact of currency translation. Revenue per tire increased 7 percent compared to the second quarter of 2005.
     Four of the company’s six businesses achieved higher segment operating income compared to the second quarter of 2005, with three setting records. Total segment operating income was $267 million, compared to $316 million in the 2005 period. Divestitures in 2005 reduced second quarter 2006 segment operating income by $14 million.
     Second quarter net income was $2 million (1 cent per share), which included $63 million (36 cents per share) in after-tax rationalization and accelerated depreciation costs primarily related to plant closings. Second quarter 2005 net income was $69 million (34 cents per share). All per share amounts are diluted. See the table at the end of this release for a list of significant items that impacted the second quarters of 2006 and 2005.
     The 2006 quarter was also impacted by higher raw material costs of $210 million, an increase of 16 percent compared to the 2005 quarter, and weak tire industry demand, particularly in North America.
     Tire unit volume in the second quarter of 2006 was 54 million units, compared to 56.4 million units in the 2005 period, reflecting primarily weakness in the North American consumer replacement market.

 

 

     “Results remained strong in four of our businesses, and while we are making good progress in reducing our global cost structure against our previously announced plan of $750 million to $1 billion by 2008, we know more needs to be done,” said Robert J. Keegan, Goodyear chairman and chief executive officer. “We have raised the bar to more than $1 billion and will continue to intensify our initiatives to reduce our costs.”
     Keegan continued: “Our strategy to focus on high-value-added products and key market segments resulted in market share gains for our Goodyear and Dunlop brands during the quarter. However, we were not able to offset the impact of weakness in the lower-value segments of the North American consumer replacement tire market.”
     In the second quarter, Goodyear closed a tire plant in the United Kingdom, announced the proposed closure of a tire plant in New Zealand and took cost reduction actions in Europe and North America. The company reduced selling, administrative and general expenses by 7 percent compared to the second quarter of 2005.
     Keegan said the company’s plans announced during the second quarter to exit segments of the private label tire business in North America and expand its network of commercial truck service centers at Pilot Travel Center locations represent positive business model changes for Goodyear in North America.
Business Segments
     Total segment operating income for the second quarter was $267 million compared to $316 million in the 2005 period. Sales improved in all five of the company’s tire businesses compared to the year-ago quarter, while the Asia Pacific, Latin American and Eastern Europe, Middle East and Africa tire businesses achieved records in segment operating income. Divestitures in 2005 reduced current-period segment operating income by $14 million.
     See the note at the end of this release for further explanation and a reconciliation table.
                                 
North American Tire   Second Quarter     Six Months  
(in millions)   2006     2005     2006     2005  
Tire Units
     23.3       25.3       46.9       50.6  
Sales
   $ 2,340     $ 2,296     $ 4,579     $ 4,434  
Segment Operating Income
     6       55       49       66  
Segment Operating Margin
     0.3 %     2.4 %     1.1 %     1.5 %
     North American Tire sales reached a second quarter record, up 2 percent compared to the 2005 period. The increase was driven by improved pricing and product mix, and higher sales in chemical and other tire related businesses, offset by decreased volume in the lower-value segment of the consumer replacement market.

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     Second quarter segment operating income decreased compared to the 2005 period due to lower volume, including costs related to reduced production, and increases in energy and labor costs. In addition, price and product mix improvements of $91 million were not enough to offset raw material cost increases of approximately $98 million. The business also benefited from lower SAG costs.
     Divestitures in 2005 reduced second quarter 2006 sales by approximately $72 million, unfavorably impacted segment operating income by $14 million, and reduced volume by 300,000 units.
                                 
European Union Tire   Second Quarter     Six Months  
(in millions)   2006     2005     2006     2005  
Tire Units
     15.7       15.9       31.3       31.9  
Sales
   $ 1,250     $ 1,178     $ 2,384     $ 2,376  
Segment Operating Income
     58       85       130       192  
Segment Operating Margin
     4.6 %     7.2 %     5.5 %     8.1 %
     European Union Tire sales were a record for any quarter and increased 6 percent over the 2005 period as a result of improved price and product mix and a favorable impact from currency translation of approximately $28 million. Share gains in the consumer replacement market were offset by lower volume in the consumer original equipment market.
     Segment operating income decreased 32 percent versus a very strong 2005 quarter due to higher raw material costs of approximately $48 million; an approximately $20 million increase in manufacturing costs related to higher energy costs and lower production levels; and lower unit volume; offset somewhat by price improvements and reduced SAG expense.
                                 
Eastern Europe, Middle            
East and Africa Tire   Second Quarter     Six Months  
(in millions)   2006     2005     2006     2005  
Tire Units
     5.0       4.7       9.7       9.5  
Sales
   $ 384     $ 342     $ 723     $ 682  
Segment Operating Income
     59       49       102       96  
Segment Operating Margin
     15.4 %     14.3 %     14.1 %     14.1 %
     Eastern Europe, Middle East and Africa Tire sales were a second quarter record and up 12 percent compared to the 2005 period. The increase resulted from improved volume, pricing to offset raw material cost increases, and product mix related to growth in high performance, winter and premium branded tires. The impact of currency translation was favorable, estimated at $3 million.

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     Segment operating income improved 20 percent, reaching a second-quarter record due to improved pricing and product mix and higher volume. Higher raw material costs of approximately $14 million had a negative impact on income, as did higher manufacturing costs.
                                 
Latin American Tire   Second Quarter     Six Months  
(in millions)   2006     2005     2006     2005  
Tire Units
     5.0       5.4       10.4       10.4  
Sales
   $ 387     $ 381     $ 783     $ 729  
Segment Operating Income
     83       77       185       164  
Segment Operating Margin
     21.4 %     20.2 %     23.6 %     22.5 %
     Latin American Tire sales increased 2 percent from the second quarter of 2005 due to the favorable impact of currency translation, estimated at $15 million, partially offset by lower volume.
     Segment operating income was a second quarter record, and an 8 percent increase from 2005 due to improved pricing and product mix, and approximately $11 million in favorable currency translation. Higher raw material costs of approximately $19 million and lower volume, partially offset by cost reductions, had a negative impact on segment operating income.
                                 
Asia Pacific Tire   Second Quarter     Six Months  
(in millions)   2006     2005     2006     2005  
Tire Units
     5.0       5.1       9.7       9.9  
Sales
   $ 377     $ 368     $ 730     $ 709  
Segment Operating Income
     28       20       50       39  
Segment Operating Margin
     7.4 %     5.4 %     6.8 %     5.5 %
     Asia Pacific Tire sales were a record for any quarter and 2 percent higher than the 2005 period due primarily to favorable price and product mix, and strong growth in China and India.
     Segment operating income increased 40 percent in the 2006 quarter, reaching a record for any quarter primarily due to improved pricing and product mix of $27 million, which more than offset raw material cost increases of approximately $21 million. The business also benefited from lower manufacturing costs during the quarter.
                                 
Engineered Products   Second Quarter     Six Months  
(in millions)   2006     2005     2006     2005  
Sales
   $ 404     $ 427     $ 799     $ 829  
Segment Operating Income
     33       30       62       51  
Segment Operating Margin
     8.2 %     7.0 %     7.8 %     6.2 %
     Engineered Products’ sales in the second quarter of 2006 decreased 5 percent compared to the 2005 period as a result of lower volume due to anticipated declines in military sales. This was partially offset by stronger sales in the industrial hose and conveyor belt businesses as well as price and product mix improvements. Currency translation had a favorable impact of approximately $6 million in the 2006 quarter.

4

 

     Segment operating income increased 10 percent due primarily to improved pricing. The business also reduced its SAG costs during the quarter. Higher raw material costs of approximately $11 million had a negative effect on segment operating income.
Year-to-Date Results
     Sales for the first six months of 2006 were a record $10 billion, an increase of 2 percent from $9.8 billion in the 2005 period. Excluding the $151 million impact of businesses divested in 2005, first half sales increased 4 percent compared to the prior-year period.
     Tire unit volume was 108 million, a decrease of 4 percent compared to 112.3 million units a year ago. The 2005 figure included approximately 600,000 units from divested businesses.
     Net income for the first six months of 2006 was $76 million (40 cents per share) compared to $137 million (69 cents per share) during the year-ago period. Divestitures in 2005 reduced first-half 2006 segment operating income by $25 million.
     Total segment operating income was $578 million in the first half of 2006, a decrease of 5 percent from $608 million in the first six months of 2005.
     First-half 2006 raw material costs increased approximately $389 million, or 15 percent, compared to the year-ago period.
Conference Call
     Goodyear will hold an investor conference call at 9 a.m. EDT today. Prior to the commencement of the call, the company will post the financial and other statistical information that will be presented on its investor relations Web site: investor.goodyear.com.
     Participating in the conference call with Keegan will be Richard J. Kramer, executive vice president and chief financial officer, and Darren R. Wells, senior vice president, business development and treasurer.
     Shareholders, members of the media and other interested persons may access the conference call on the Web site or via telephone by calling (706) 634-5954 before 8:55 a.m. A taped replay of the conference call will be available at 3 p.m. today by calling (706) 634-4556. The call replay will also remain available on the Web site.

5

 

     Goodyear is one of the world’s largest tire companies. The company manufactures tires, engineered rubber products and chemicals in more than 100 facilities in 29 countries around the world. Goodyear employs about 80,000 people worldwide.
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. Actual results may differ materially from those indicated by such forward-looking statements. There are a variety of factors, many of which are beyond the company’s control, which affect its operations, performance, business strategy and results and could cause its actual results and experience to differ materially from the expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to, actions and initiatives taken by both current and potential competitors, increases in the prices paid for raw materials and energy, the company’s ability to realize anticipated savings and operational benefits from its cost reduction initiatives, potential adverse consequences of litigation involving the company, pension plan funding obligations, the company’s collective bargaining negotiations with the United Steelworkers as well as the effects of more general factors such as changes in general market or economic conditions or in legislation, regulation or public policy. Additional factors are discussed in the company’s filings with the Securities and Exchange Commission, including the company’s annual reports 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)

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The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statement of Income (Loss)
                                 
    (unaudited)  
(In millions, except per share)   Second Quarter     Six Months  
    Ended June 30     Ended June 30  
    2006     2005     2006     2005  
 
                                
Net Sales
   $ 5,142     $ 4,992     $ 9,998     $ 9,759  
Cost of Goods Sold
     4,250       3,945       8,149       7,764  
Selling, Administrative and General Expense
     693       746       1,371       1,432  
Rationalizations
     34       (5 )     75       (13 )
Interest Expense
     104       101       207       203  
Other (Income) and Expense
     (4 )     18       (32 )     30  
Minority Interest in Net Income of Subsidiaries
     11       33       23       54  
         
Income before Income Taxes
     54       154       205       289  
United States and Foreign Taxes on Income
     52       85       129       152  
         
Net Income
   $ 2     $ 69     $ 76     $ 137  
         
 
                                
Net Income Per Share of Common Stock — Basic
   $ 0.01     $ 0.39     $ 0.43     $ 0.78  
         
 
                                
Average Shares Outstanding
     177       176       177       176  
 
                                
Net Income Per Share of Common Stock — Diluted
   $ 0.01     $ 0.34     $ 0.40     $ 0.69  
         
 
                                
Average Shares Outstanding
     177       208       206       208  
(more)

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The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheets
                 
    (unaudited)  
(In millions)   June 30     Dec. 31  
    2006     2005  
 
                
Assets
                
 
                
Current Assets:
                
Cash and Cash Equivalents
   $ 1,564     $ 2,162  
Restricted Cash
     224       241  
Accounts and Notes Receivable, less allowance — $115 ($130 in 2005)
     3,466       3,158  
Inventories
     3,355       2,862  
Prepaid Expenses and Other Current Assets
     272       245  
     
Total Current Assets
     8,881       8,668  
 
                
Goodwill
     680       637  
Intangible Assets
     166       159  
Deferred Income Taxes
     104       102  
Deferred Pension Costs and Other Assets
     858       860  
Properties and Plants, less Accumulated Depreciation — $8,089 ($7,729 in 2005)
     5,232       5,179  
     
Total Assets
   $ 15,921     $ 15,605  
     
 
                
Liabilities
                
Current Liabilities:
                
Accounts Payable — Trade
   $ 2,065     $ 1,939  
Compensation and Benefits
     1,756       1,773  
Other Current Liabilities
     694       671  
United States and Foreign Taxes
     403       393  
Notes Payable and Overdrafts
     225       217  
Long Term Debt and Capital Leases due within One Year
     560       448  
     
Total Current Liabilities
     5,703       5,441  
Long Term Debt and Capital Leases
     4,522       4,742  
Compensation and Benefits
     3,936       3,828  
Deferred and Other Noncurrent Income Taxes
     312       304  
Other Long Term Liabilities
     395       426  
Minority Equity in Subsidiaries
     831       791  
     
Total Liabilities
     15,669       15,532  
 
                
Commitments and Contingent Liabilities
                
 
                
Shareholders’ Equity
                
Preferred Stock, no par value:
                
Authorized 50 shares, unissued
     —       —  
Common Stock, no par value:
                
Authorized 450 shares (300 in 2005), Outstanding Shares — 177 (177 in 2005) after Deducting 19 Treasury Shares (19 in 2005)
     177       177  
Capital Surplus
     1,412       1,398  
Retained Earnings
     1,374       1,298  
Accumulated Other Comprehensive Loss
     (2,741 )     (2,800 )
     
Total Shareholders’ Equity
     222       73  
     
Total Liabilities and Shareholders’ Equity
   $ 15,921     $ 15,605  
     
(more)

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Non-GAAP Financial Measures
     This earnings release presents total segment operating income and net debt, each of which are important financial measures for the company but are not financial measures defined by GAAP.
     Total segment operating income is the sum of the individual strategic business unit’s segment operating income as determined in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.” 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. See the table below for the reconciliation of total segment operating income.
     Net debt is total debt (the sum of long term debt and capital leases, notes payable and overdrafts, and long-term debt and capital leases due within one year) minus cash and cash equivalents. Management believes net debt is an important measure of liquidity, which it uses as a tool to assess the company’s capital structure and measure its ability to meet its future debt obligations. Cash and cash equivalents are subtracted from the GAAP measure because they could be used to reduce our debt obligations. See the table below for the reconciliation of net debt.
Total Segment Operating Income Reconciliation Table
                                 
    (unaudited)  
(In millions)   Second Quarter     Six Months  
    Ended June 30     Ended June 30  
    2006     2005     2006     2005  
 
                                
Total Segment Operating Income
   $ 267     $ 316     $ 578     $ 608  
Rationalizations and Asset Sales
     (34 )     5       (73 )     26  
Accelerated depreciation charges
     (45 )     —       (47 )     (1 )
Interest Expense
     (104 )     (101 )     (207 )     (203 )
Foreign Currency Exchange
     3       (5 )     2       (11 )
Minority Interest in Net Income of Subsidiaries
     (11 )     (33 )     (23 )     (54 )
Financing Fees and Financial Instruments
     (10 )     (63 )     (20 )     (89 )
General and Product Liability — Discontinued Products
     (4 )     8       (9 )     (4 )
Recovery for Insurance Fire Loss Deductibles
     —       12       —       14  
Latin American legal matter
     —       —       15       —  
Environmental Insurance Settlement
     —       19       —       20  
Interest Income
     16       13       36       27  
Intercompany Profit Elimination
     (9 )     4       (22 )     (5 )
Other
     (15 )     (21 )     (25 )     (39 )
         
Income before Income Taxes
     54       154       205       289  
United States and Foreign Taxes on Income
     (52 )     (85 )     (129 )     (152 )
         
Net Income
   $ 2     $ 69     $ 76     $ 137  
         
Net Debt Reconciliation Table
                         
(In millions)   (unaudited)  
    June 30     March 31     Dec. 31  
    2006     2006     2005  
Long Term Debt and Capital Leases
     4,522       4,466       4,742  
Notes Payable and Overdrafts
     225       224       217  
Long Term Debt and Capital Leases Due Within One Year
     560       568       448  
 
                  
Total debt
     5,307       5,258       5,407  
Less: Cash and Cash Equivalents
   $ 1,564     $ 1,589     $ 2,162  
 
                  
Net Debt
   $ 3,743     $ 3,669     $ 3,245  
 
                  
Change in Net Debt compared to Dec 31, 2005
   $ 498                  
 
                      
Change in Net Debt compared to March 31, 2006
   $ 74                  
 
                      

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Second Quarter Significant Items (after tax)
2006
•   Accelerated depreciation charges, $33 million (19 cents per share)
 
•   Rationalization charges, $30 million (17 cents per share)
2005
•   Financing fees expense of $47 million (23 cents per share)
 
•   Expense related to prior periods, $8 million (4 cents per share)
 
•   Payment related to settlement of prior-years tax liabilities, $7 million (3 cents per share)
 
•   Favorable environmental insurance settlement, $19 million (9 cents per share)
 
•   Gain for general and product liability — discontinued products, $8 million (4 cents per share)
 
•   Fire loss recoveries, gain of $6 million (2 cents per share)
 
•   Net rationalization reversals, gain of $5 million (2 cents per share)

10