J.P. Morgan Auto Conference

Transcription

1 J.P. Morgan Auto Conference August 11, 2015

2 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 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 implement successfully our strategic initiatives; actions and initiatives taken by both current and potential competitors; foreign currency translation and transaction risks; increases in the prices paid for raw materials and energy; a labor strike, work stoppage or other similar event; 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; 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 Company Overview Goodyear tires are sold in two distinct tire markets... (% of 2014 Units of 162 million) available in a diverse selection of products... (% of 2014 Revenue of ~$18.1 billion)...and stretch around the world (% of 2014 Revenue of ~$18.1 billion) Replacement Market 70% OE Market 30% Consumer 58% Commercial 21% Other 10% North America 45% Europe, Middle East & Africa 34% OE ~20% of 2014 Revenue Chemical 3% Retail 8% Includes: OTR, Farm, Race & Aviation Asia Pacific 11% Latin America 10% Goodyear Is a Tire Industry Leader with Powerful Brands, a Broad Product Offering and Global Distribution. 3

4 Goodyear Then And Now $ In billions Segment Operating Income $1.6 $1.7 $1.4 $1.2 $0.9 (a) $1.8 North America Turnaround Segment Operating Income $0.3B loss in 2009 ~$0 $0.3 $0.5 $0.7 $0.8 $ TTM (b) TTM (b) Progress on Global Unfunded Pension $3.1 $3.5 $1.9 Fully funded, froze, and derisked U.S. plans $0.7 (d) ~$0.7 (d) Strong Free Cash Flow $1.0 $0.7 $0.4 $1.0 $1.1 $ E TTM (b) Past performance provides strong foundation for the future (a) See Segment Operating Income reconciliation in Appendix on page 31 (b) Trailing twelve months as of June 30, 2015 (c) See Free Cash Flow from Operations reconciliation in Appendix on page 33 (d) Primarily non-us plans 4

5 2015 First Half Highlights First half segment operating income of $947 million (a) Free cash flow from operations of $1.1 billion (b) over last 12 months North America sets earnings records for quarter and first half Completed $50 million in share repurchases, bringing total amount to $283 million of the current $450 million authorization Company reaffirms 2015 earnings growth target of 10% to 15% above 2014 results (a) See Segment Operating Income reconciliation in Appendix on page 31 (b) See Free Cash Flow from Operations reconciliation in Appendix on page 33 5

6 Strategy Roadmap Where We Are Executing Plan Innovation Leader Record Earnings Value Creating Investing for Growth US Pension Fully Funded Key Strategies 1. North America: Grow Profitably 2. Asia: Win in China / Grow Asia 3. EMEA / LA: Return to Historical Profit Industry MegaTrends Key How To s Market-Back Innovation Excellence Sales & Marketing Excellence Operational Excellence Enabling Investments Top Talent / Top Teams Our Destination - Creating Sustainable Value Top Line / Bottom Line Growth First with Customers Innovation Leaders Leader in Targeted Segments Competitively Advantaged Profitable thru Economic Cycle Cash Flow Positive Investment Grade 6

7 Advantaged Value Proposition What does it take? Sales & Marketing Excellence Operational Excellence Iconic brand Industry leading products Pervasive distribution Strong customer relations Consumer-centric focus Market-Back Innovation AND Right Tire Right Time Right Place Right Cost Enabling Investments Goodyear delivering results through an integrated approach 7

8 HVA Tire Technology A Tire Is Not a Tire LVA Tire (Low-Value-Added) Dual Tread Zones with TredLock Technology HVA Tire (High-Value-Added) Silica Tread There is no industry standard definition of HVA. For Goodyear Consumer HVA tires incorporate one or more of the following features: Rim diameter 17 or greater Reduced sidewall height Speed-rated H or higher Segmented mold Carbon Fiber Dual Reinforced Sidewalls Advanced tread compounds Extra load constructions Commercial HVA tires have specific performance characteristics (e.g., Fuel Max, DuraSeal) and are retreadable HVA tires are more complex to manufacture than LVA tires Converting LVA to HVA capacity may not be a one-for-one conversion in tire units Additional Components For Handling Industry migration to high-value-added tires advantages Goodyear given manufacturing know-how, product innovation, and industry-leading products 8

9 New Americas Consumer Tire Plant terms: Millions of Tires - Replacment & OE - North and Latin America Americas Consumer Tire Industry 53% 58% 62% 65% HVA as % of entire industry 68% 70% 72% Growth Total = +52M (~10M/year, ~2%/year) HVA = +90M (~18M/year, ~6%/year) (a) 74% Low Value Added (LVA) High Value Added (HVA) Goodyear building previously announced tire plant in San Luis Potosi, Mexico Central location effectively supports strong and growing demand for HVA tires across both North and Latin America Annual capacity at ~6 million tires; first production planned for mid-2017 Total Capex to be $500 to $550 million during , and funded within existing capital allocation plan High return project with IRR of 18%, and generating $100 million of free cash flow per year once fully operational Goodyear building world-class factory to meet growing demand for high-value-added Consumer tires across the Americas (a) Source: LMC International and Goodyear internal analysis 9

10 Second Quarter Financial Performance 10

11 Second Quarter 2015 Income Statement In millions, except EPS Three Months Ended June 30, June 30, Change Units % Net Sales ($401) due to $ 4,172 $ 4,656 (10)% Gross Margin stronger US $ 27.4% 24.1% 3.3 pts SAG $ 648 $ 698 (7)% Segment Operating Income (a) $ 556 $ % Segment Operating Margin (a) 13.3% 9.9% 3.4 pts Goodyear Net Income $ 192 $ 213 Goodyear Net Income Per Share Basic $ 0.71 $ 0.77 Diluted $ 0.70 $ 0.76 Cash Dividends Declared Per Common Share $ 0.06 $ 0.05 Adjusted Diluted Earnings Per Share (b) $ 0.84 $ % versus prior year US Tax Adjusted Diluted Earnings Per Share (b) $ 1.13 $ 0.80 (a) See Segment Operating Income and Margin reconciliation in Appendix on page 31. (b) See Adjusted Diluted Earnings Per Share and US Tax Adjusted Diluted Earnings Per Share reconciliations in Appendix on pages 29 and

12 Second Quarter 2015 Segment Operating Results ($ in millions) $96 +21% $101 ($71) $108 ($7) ($35) ($8) $556 $460 $3 $5 Price/Mix Cost Savings Inflation (2) Currency Other (3) Volume Unabsorbed Fixed Cost Raw Materials (1) Q $8 $101 $30 Q ~50% of the Net Price/Mix vs. Raws was from Venezuela Excluding Venezuela, Net Cost Savings would have almost doubled 1. Raw material variance of $108 million excludes raw material cost saving measures of $56 million, which are included in Cost Savings above. 2. Estimated impact of inflation (wages, utilities, energy, transportation and other). 3. Includes $5 million savings related to the Amiens plant closure and exit of the farm tire business in EMEA more than offset by other items. 12

13 Second Quarter 2015 Balance Sheet $ In millions June 30, March 31, December 31, June 30, Cash and cash equivalents $ 1,638 $ 1,613 $ 2,161 $ 1,637 Accounts receivable 2,476 2,523 2,126 2,841 Inventories 2,545 2,538 2,671 3,130 Accounts payable - trade (2,602) (2,612) (2,878) (3,097) Working capital (a) $ 2,419 $ 2,449 $ 1,919 $ 2,874 Total debt (b) $ 6,103 $ 6,226 $ 6,394 $ 6,762 Net debt (b) $ 4,465 $ 4,613 $ 4,233 $ 5,125 $660 lower versus prior year due to strong cash flow performance (a) Working capital represents accounts receivable and inventories, less accounts payable trade. (b) See Total Debt and Net Debt reconciliation in Appendix on page

14 Free Cash Flow from Operations $ In millions Three Months Ended Trailing Twelve Months Ended June 30, 2015 June 30, 2014 June 30, 2015 Net Income $ 208 $ 232 $ 2,771 Depreciation and Amortization Change in Working Capital 92 (18) 130 Pension Expense Provision for Deferred Income Taxes (a) (1,798) Gain on Recognition of Deferred Royalty Income (b) - - (155) Capital Expenditures (244) (212) (930) Other Free Cash Flow from Operations (non-gaap) (c) $ 377 $ 314 $ 1,143 (a) The increase in Provision for Deferred Income Taxes is primarily due to the accrual of US tax expense as a result of the reversal of the valuation allowance on our US deferred tax assets in the fourth quarter (b) Gain on Recognition of Deferred Royalty Income is due to a one-time pre-tax gain of $155 million on the recognition of deferred income resulting from the termination of a licensing agreement associated with the sale of our former Engineered Products business. (c) See Free Cash Flow from Operations reconciliation in Appendix on page

15 Balance Sheet Management Leverage Targets 4.3x 3.9x Adjusted Debt / EBITDAP (a) 4.1x 3.4x 3.0x ~ x T Leverage consistent with commitment to achieving investment grade metrics Reduces cost of capital Improves global access to credit Greater ability to move debt overseas Ability to reduce cash balances Committed to achieving investment grade balance sheet by the end of 2016 a) Total debt plus global pension liability, divided by net income before interest expense, income tax expense, depreciation and amortization expense, net periodic pension cost, rationalization charges and other (income) and expense Note: See reconciliations in Appendix on page 34 15

16 Capital Allocation Plan Updated (Feb. 2015) Growth CapEx Shareholder Return Program ~ $1.15B $0.6 - $1.25B* $350 Million Reallocated Within the Capital Plan to Increase Shareholder Return Program Basket Restructurings ~ $0.6B Debt Repayment / Pension Funding $0.8 $ $0.9B $3.8B Executing on the Capital Allocation Plan * $0.65B approved by Board of Directors; increases dependent on Company performance including the achievement of financial targets 16

17 Key Takeaways Goodyear is a different company today after the turnaround of our North American business and funding/freezing of US pension plans Goodyear is advantaged in a competitive industry; our results give us confidence in our destination Targeting continued earnings growth of 10% to 15% per year in , with strong free cash flow generation Balanced capital allocation plan demonstrates commitment to reaching investment grade, continuing to grow the business, and returning capital to shareholders 17

18 Q & A 18

19 APPENDIX 19

20 2015 Key Segment Operating Income Drivers Driver April Outlook 2015 FY vs 2014 Current Outlook Comments Global Volume +1-2% +1-2% No change Price/Mix vs. Raw Materials ~$200 million ~$330 million Only change related to Venezuela Overhead Absorption Neutral Neutral No change Cost Savings vs. Inflation ~$160 million ~$70 million Only change related to Venezuela Foreign Exchange ~($200) million ~($200) million Based on current spot rates Amiens Closure ~$20 million ~$20 million No change Venezuela ~($30) million Included above Venezuela now included in drivers listed above Outlook for underlying business remains unchanged; outlook revisions related to Venezuela 20

21 2015 Outlook Other Financial Assumptions 2015 FY Assumption Interest Expense Financing Fees Income Tax Depreciation & Amortization Global Pension Expense Global Pension Cash Contributions Working Capital Capital Expenditures $415 - $440 million ~$80 million Expense: ~30% of global pre-tax operating income Cash: ~15% of global pre-tax operating income ~$725 million $125 - $175 million $50 - $75 million Not a significant source or use ~$1.1 billion Memo 2016: $1.2-$1.3 billion 21

22 China Business China has been primary growth driver of Asia Pacific business over last few years Pulandian - World class facility with premium / HVA capability Capacity ~11 million consumer units; ~0.5 million commercial units; some exports Replacement industry still developing; OE sales units slightly above 50% of China total Goodyear mix similar for China (unlike our global average of OE at ~30%) Given recent increased economic uncertainty, now cautious on industry growth in 2H 15 (~flat) 22

23 Price/Mix vs. Raw Materials (a) $ in millions $2,356 $1,822 (c) $689 $549 (b) $1,017 $327 (d) ($321) ($376) ($553) (f) ($36) ($268) (g) ($985) (e) Q2 YTD Price/Mix Raw Materials (a) (b) (c) (d) (e) (f) (g) Reflects impact on Segment Operating Income. Raw materials include the impact of raw material cost savings measures. Raw material variance of $549 million includes raw material cost savings measures of $136 million. Raw material variance of $1,822 million includes raw material cost savings measures of $177 million. Raw material variance of $327 million includes raw material cost savings measures of $249 million. Raw material variance of ($985) million includes raw material cost savings measures of $228 million. Raw material variance of ($553) million includes raw material cost savings measures of $269 million. Raw material variance of ($268) million includes raw material cost savings measures of $114 million. 23

24 Second Quarter 2015 Liquidity Profile $ In billions Liquidity Profile $4.0 (a) Available Credit Lines $2.4 Cash & Equivalents (b) $1.6 June 30, 2015 (a) Total liquidity comprised of $1,638 million of cash and cash equivalents, as well as $2,389 million of unused availability under various credit agreements. (b) Includes $304 million of cash in Venezuela denominated in bolivares fuertes at 12.8 bolivares fuertes per U.S. dollar at June 30,

25 Second Quarter 2015 Maturity Schedule $ In millions $2,000 (a) Undrawn Credit Lines Funded Debt $150 (b) $616 (c) $1,552 $1,266 $900 $700 $ Note: Based on June 30, 2015 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. (a) At June 30, 2015, our borrowing base, and therefore our availability, under the US revolving credit facility was $581 million below the facility s stated amount of $2.0 billion. At June 30, 2015, there were no borrowings outstanding under the first lien revolving credit facility. Letters of credit issued totaled $373 million at June 30, (b) At June 30, 2015, the amounts available and utilized under the Pan-European securitization program of $426 million ( 380 million) totaled $276 million ( 246 million). (c) On May 12, 2015, we amended and restated our 400 million European revolving credit facility due 2016 to increase available commitments to 550 million and extend the maturity to At June 30, 2015, there were no borrowings outstanding under the European revolving credit facility and no letters of credit issued. 25

26 2015 Full-Year Industry Outlook July Full-Year 2015 Guidance April Full-Year 2015 Guidance NA EMEA NA EMEA Consumer Replacement ~Flat ~Flat (2)-(3)% ~Flat Consumer OE ~2% ~2% +1-2% +1-2% Commercial Replacement +5-6% +0-1% +2-3% +0-1% Commercial OE +3-4% +3-4% +3-4% +1-2% 26

27 Raw Materials Raw materials ~50% of tire business cost of goods sold Tires ~85% of total cost of goods sold ~25% of raw materials cost not affected by commodity prices Around two-thirds of raw materials are influenced by oil prices P&L impact lags spot rates by 1-2 quarters depending on commodity Approximately two-thirds of raw materials are purchased in USD Largest foreign currency transactional exposures are from Euro, Real and Canadian dollar Customer agreements indexed to raw materials: OE customers (~20% of sales) Certain large Commercial fleets OTR customers Goodyear Global Raw Material Usage 2014 Full Year * * * *Petrochemical-based * Based on current commodity spot rates, we expect raw material costs to be down ~7% for the full year 27

28 Pension Update $ in millions a) Includes cash funding for direct benefit payments for only b) Excludes one-time charges and benefits from pension settlements and curtailments c) 2015E E are based on assumptions as of December 31,

29 Second Quarter 2015 Significant Items (After Tax and Minority Interest) $ and shares in millions (except EPS) As Reported Rationalizations, Asset Write-offs, and Accelerated Depreciation Charges Discrete Tax Benefits Transaction Costs and Net Gains on Asset Sales As Adjusted Tax Expense in excess of US Cash Tax Payments US Tax Adjusted Diluted Earnings Per Share (a) Net Sales $ 4,172 $ - $ - $ - $ 4,172 $ - $ 4,172 Cost of Goods Sold 3, ,027-3,027 Gross Margin 1, ,145-1,145 SAG (3) Rationalizations 46 (46) Interest Expense Other Expense Pre-tax Income Taxes (3) (1) 120 (79) 41 Minority Interest Goodyear Net Income $ 192 $ 32 $ 2 $ 3 $ 229 $ 79 $ 308 EPS $ 0.70 $ 0.12 $ 0.01 $ 0.01 $ 0.84 $ 0.29 $ 1.13 (a) US Tax Adjusted Diluted Earnings per Share excludes the effect of non-cash US tax expense as a result of the reversal of the valuation allowance on our US deferred tax assets in the fourth quarter The company does not expect to pay significant cash income taxes in the US for about five years. The company believes the presentation of this non-gaap measure is important as it facilitates a consistent comparison of net income and earnings per share versus the prior year. 29

30 Second Quarter 2014 Significant Items (After Tax and Minority Interest) $ and shares in millions (except EPS) As Reported Rationalizations, Asset Write-offs, and Accelerated Depreciation Charges Charges for Labor Claims Related to a Closed Facility in Greece Net Gains on Asset Sales Settlement of Indirect Tax Claims As Adjusted Tax Expense in excess of US Cash Tax Payments US Tax Adjusted Diluted Earnings Per Share Net Sales $ 4,656 $ - $ - $ - $ - $ 4,656 $ - $ 4,656 Cost of Goods Sold 3,532 (2) ,533-3,533 Gross Margin 1, (3) 1,123-1,123 SAG Rationalizations 24 (24) Interest Expense Other (Income) Expense 8 - (10) Pre-tax Income (Loss) (5) (20) Taxes (1) (7) Minority Interest Goodyear Net Income $ 213 $ 19 $ 10 $ (4) $ (13) $ 225 $ - $ 225 EPS $ 0.76 $ 0.07 $ 0.04 $ (0.02) $ (0.05) $ 0.80 $ - $

31 Reconciliation for Segment Operating Income / Margin $ In millions Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, December 31, Total Segment Operating Income $ 556 $ 460 $ 947 $ 1,826 $ 1,712 $ 1,580 $ 1,248 $ 1,368 $ 917 Rationalizations (46) (24) (62) (92) (95) (58) (175) (103) (240) Interest expense (106) (102) (209) (430) (428) (392) (357) (330) (316) Other income (expense) (17) (8) 111 (15) (302) (97) (139) (73) (186) Asset write-offs and accelerated depreciation - (2) (2) (6) (7) (23) (20) (50) (15) Corporate incentive compensation plans (22) (19) (35) (86) (97) (108) (69) (70) (71) Corporate pension curtailments/settlements (33) - 1 (15) - Intercompany profit elimination (15) 4 (21) (8) 4 4 (1) (5) (14) Retained expenses of divested operations (2) (3) (4) (13) (16) (24) (14) (29) (20) Other (20) (14) (38) (64) (51) (69) (34) (75) (47) Income before Income Taxes $ 328 $ 292 $ 687 $ 1,112 $ 687 $ 813 $ 440 $ 618 $ 8 United States and Foreign Tax Expense (Benefit) (1,659) (1,834) Less: Minority Shareholders Net Income Goodyear Net Income (Loss) $ 192 $ 213 $ 416 $ 2,706 $ 2,452 $ 629 $ 212 $ 343 $ (216) Sales $4,172 $4,656 $8,196 $17,209 $18,138 $19,540 $20,992 $22,767 $18,832 Return on Sales 4.6% 4.6% 5.1% 15.7% 13.5% 3.2% 1.0% 1.5% (1.1)% Total Segment Operating Margin 13.3% 9.9% 11.6% 10.6% 9.4% 8.1% 5.9% 6.0% 4.9% 31

32 Reconciliation for Total Debt and Net Debt $ In millions June 30, March 31, December 31, June 30, Long-Term Debt and Capital Leases $ 5,746 $ 5,965 $ 6,216 $ 6,677 Notes Payable and Overdrafts Long-Term Debt and Capital Leases Due Within One Year Total Debt $ 6,103 $ 6,226 $ 6,394 $ 6,762 Less: Cash and Cash Equivalents 1,638 1,613 2,161 1,637 Net debt $ 4,465 $ 4,613 $ 4,233 $ 5,125 32

33 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 as reported in the pensionrelated note in the Notes to Consolidated Financial Statements. Three Months Ended June 30, June 30, Twelve Months Ended December 31, Net Income $ 208 $ 232 $ 2,771 $ 2,521 $ 675 $ 237 $ 417 $ (164) Depreciation and Amortization Change in Working Capital (a) 92 (18) 130 (1) (650) 52 Pension Expense (b) Provision for Deferred Income Taxes (1,798) (1,970) (34) 16 (55) 6 Gain on Recognition of Deferred Royalty Income - - (155) Capital Expenditures (244) (212) (930) (923) (1,168) (1,127) (1,043) (944) Other (c) Free Cash Flow from Operations (non-gaap) $ 377 $ 314 $ 1,143 $ 981 $ 1,004 $ 701 $ 166 $ 442 Capital Expenditures ,168 1,127 1, Pension Contributions and Direct Payments (25) (34) (132) (1,338) (1,162) (684) (294) (405) Rationalization Payments (60) (83) (193) (226) (72) (106) (142) (57) Cash Flow from Operating Activities (GAAP) $ 536 $ 409 $ 1,748 $ 340 $ 938 $ 1,038 $ 773 $ 924 Rationalization Payments $ (72) $ (106) a) Working capital represents total changes in accounts receivable, inventories and accounts payable trade. b) Pension expense is the net periodic pension cost before curtailments, settlements and termination benefits as reported in the pension-related note in the Notes to Consolidated Financial Statements. c) Other includes amortization and write-off of debt issuance costs, net pension curtailments and settlements, net rationalization charges, net (gains) losses on asset sales, net Venezuela currency loss, compensation and benefits less pension expense, other current liabilities, and other assets and liabilities. 33

34 EBITDAP, Adjusted Debt & Leverage Ratio Reconciliations $ in millions Year Ended December 31, Net Income (Loss) $2,521 $675 $237 $417 ($164) Interest Expense Income Tax (Benefit) Expense (1,834) Depreciation and Amortization Pension Expense (a) Other (b) EBITDAP, as adjusted $2,402 $2,367 $2,105 $2,105 $1,702 December 31, Notes Payable and Overdrafts Long-Term Debt and Capital Leases Due Within One Year Long-Term Debt and Capital Leases 6,216 6,162 4,888 4,789 4,319 Total Debt $6,394 $6,249 $5,086 $5,201 $4,745 Global Unfunded Pension Obligations $714 $1,855 $3,522 $3,097 $2,549 Adjusted Debt $7,108 $8,104 $8,608 $8,298 $7,294 Adjusted Debt/EBITDAP 2.96x 3.42x 4.09x 3.94x 4.29x (a) Pension expense is the net periodic pension cost before curtailments, settlements and termination benefits as reported in the pension-related note in the Notes to Consolidated Financial Statements. (b) Other includes rationalization charges and other (income) expense. 34

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