Forward-Looking Statements

Transcription

1 Third Quarter 2014 Conference Call October 29, 2014

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; 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 Third Quarter Highlights Record Q3 segment operating income of $520 million (a), up 21% Record North America Q3 SOI up 30% to $210 million Europe, Middle East and Africa Q3 SOI up 57% to $181 million Global SOI margin of 11.2% (a) for the quarter, best in more than a decade Adjusted EPS of 87 cents per share (b) Year-to-date segment operating income of $1.4 billion (a), up 17% Company expects 2014 earnings growth near high end of 10-15% range Our strategy continues to deliver strong earnings performance (a) See Segment Operating Income and margin reconciliation in Appendix on page 29. (b) See Adjusted Diluted Earnings Per Share reconciliation in Appendix on pages 25. 3

4 Delivering Results Segment Operating Income (a) 2009 to 2013 $ in millions $1,368 $1,248 $1,580 $917 $ Strategy validated delivering improved operating results (a) See Segment Operating Income reconciliation in Appendix on page 29. 4

5 US Chinese Tire Tariff Speculation & Impact on North America Replacement Volume Q3 Industry Consumer Replacement Sell-In Year-on-year sell-in volume % growth Total US Industry (a) +3% Q3 Goodyear Replacement Volume (d) Q3 Replacement volume down -4% Channels stocking Chinese tires well above market demand (i.e., sell out ) Our strategy not to chase volume with price Affecting economy and mid-tier segments Chinese Imports (b) +25% All Other Tires (c) -4% Industry effect will linger until excess inventory can be sold In a sell-out market that is growing 1-2% (~ miles driven) Chinese tire tariff speculation impacting industry & Goodyear sell-in demand (a) Total US Industry as reported by the Rubber Manufacturers Association, Sept 9, 2014 (b) Chinese tire imports into the US as reported by the US Department of Commerce for July/August with September a Goodyear estimate (c) Mathematical difference between (a) and (b) (d) Goodyear North America Replacement includes Consumer and Commercial for U.S. and Canada 5

6 North America HVA Demand Increasing demand for our premium branded products outpacing supply Constraints limiting our ability to offset negative volume impact of potential tariff in economy & mid-tier segments A tire is not a tire: premium tires more complex to manufacture Actions to address increasing demand for our HVA tires: Current growth capex plan will increase capacity (2014+) Leveraging our global HVA footprint (2015+) Building capacity with announced new Americas plant (2017+) More HVA supply in North America to grow profitably in 2015 and beyond 6

7 Strategy Roadmap Where We Are Executing Plan Innovation Leader Record Earnings Value Creating Improving Volume 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 7

8 Our Destination Segment Operating Income (a) $ in millions $1,368 $1,248 $1, Near high end of % range % SOI growth % SOI growth $917 $ E 2015T 2016T Our strategy gives us confidence in the future Plan to repurchase up to $150 million of our common stock in Q4 (a) See Segment Operating Income reconciliation in Appendix on page 29. 8

9 Financial Update

10 Third Quarter 2014 Income Statement In millions, except EPS Three Months Ended September 30, September 30, Change Units (2)% Net Sales $ 4,657 $ 5,002 (7)% Gross Margin 24.5% 21.1% 3.4 pts SAG $ 653 $ 686 (5)% Segment Operating Income (a) $ 520 $ % Segment Operating Margin (a) 11.2% 8.6% 2.6 pts Goodyear Net Income $ 161 $ 173 Less: Preferred Stock Dividends $ - $ 7 Goodyear Net Income Available to Common Shareholders $ 161 $ 166 Goodyear Net Income Available to Common Shareholders - Per Share of Common Stock Basic $ 0.58 $ 0.67 Diluted $ 0.58 $ 0.62 Cash Dividends Declared Per Common Share $ 0.06 $ 0.05 Adjusted Diluted Earnings Per Share (b) $ 0.87 $ 0.68 (a) See Segment Operating Income and Margin reconciliation in Appendix on page 29. (b) See Adjusted Diluted Earnings Per Share reconciliation in Appendix on pages 25 and

11 Third Quarter 2014 Segment Operating Results $ In millions +$89 +21% $431 ($16) $14 $98 ($112) $135 ($75) ($31) $76 $520 Q Volume Unabsorbed Fixed Cost Raw Materials (a) Price / Mix Cost Savings Inflation (b) Currency Other (c) Q ($2) ($14) OTR more +$60 than explains variance (a) Raw material variance of $98 million excludes raw material cost saving measures of $71 million, which are included in Cost Savings above (b) Estimated impact of inflation (wages, utilities, energy, transportation and other) (c) Includes $23 million benefit from lower incentive compensation, non-recurrence of $20 million in 2013 USW agreement charges, $16 million savings from Amiens plant closure and $14 million of US pension expense savings 11

12 Third Quarter 2014 Balance Sheet $ In millions September 30, June 30, December 31, September 30, Cash and cash equivalents $ 1,744 $ 1,637 $ 2,996 $ 2,500 Accounts receivable 3,021 2,841 2,435 3,254 Inventories 2,924 3,130 2,816 2,944 Accounts payable - trade (2,827) (3,097) (3,097) (3,084) Working capital (a) $ 3,118 $ 2,874 $ 2,154 $ 3,114 Total debt (b) $ 6,855 $ 6,762 $ 6,249 $ 6,542 Net debt (b) $ 5,111 $ 5,125 $ 3,253 $ 4,042 (a) Working capital represents accounts receivable and inventories, less accounts payable trade. (b) See Total Debt and Net Debt reconciliation in Appendix on page

13 Free Cash Flow from Operations $ In millions Three Months Ended September 30, Trailing Twelve Months Ended September 30, 2014 Net Income $ 199 $ 195 $ 649 Depreciation and Amortization Change in Working Capital (362) (284) (50) Pension Expense (a) Other Capital Expenditures (193) (241) (1,068) Free Cash Flow from Operations (non-gaap) (b) $ 87 $ 19 $ 792 (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) See Free Cash Flow from Operations reconciliation in Appendix on page

14 Shareholder Return Program September dividend payment: 20% increase over prior quarter to $0.06 per share Share repurchase program ($450 million ) $30 million Q3; $83 million YTD Plan to purchase up to $150 million in Q4 Continued focus on shareholder returns 14

15 Third Quarter 2014 Segment Results In millions North America Europe, Middle East and Africa Change Change Units (3.8%) Units (1.3%) Net Sales $2,057 $2,186 (5.9%) Net Sales $1,618 $1,752 (7.6%) Operating Income $210 $ % Operating Income $181 $ % Margin 10.2% 7.4% Margin 11.2% 6.6% Latin America Asia Pacific Change Change Units (5.2%) Units % Net Sales $451 $527 (14.4%) Net Sales $531 $537 (1.1%) Operating Income $49 $89 (44.9%) Operating Income $80 $ % Margin 10.9% 16.9% Margin 15.1% 12.3% 15

16 2015 Outlook Preliminary Planning Assumptions Global volume growth of 1-2% Positive Drivers Positive price mix vs. raw materials (~$50-$100 million) Other Factors FX headwind (similar impact as 2014) Venezuela uncertainty Cost savings Operational Excellence Amiens closure / EMEA Farm tire business exit $1.2 billion capex Neutral OTR Potential release of US tax valuation allowance Tax rate if released: 30-35% of global pre-tax income, no US cash taxes for ~5 years Reaffirming 10-15% SOI growth target for 2015; Planning assumptions to be updated in year-end call 16

17 Our Destination Segment Operating Income (a) $ in millions $1,368 $1,248 $1, Near high end of % range % SOI growth % SOI growth $917 $ E 2015T 2016T Our strategy gives us confidence in the future Plan to repurchase up to $150 million of our common stock in Q4 (a) See Segment Operating Income reconciliation in Appendix on page

18 Appendix

19 2014 Key Segment Operating Income Drivers Driver 2014 FY vs 2013 vs. July Outlook Comments Global Volume Flat to +1% Consistent with YTD performance Price/Mix vs. Raw Materials Slightly Negative N/C Assumes neutral Q4 Overhead Absorption ~$50-75 million N/C Trending to mid-point of range Net Cost Savings ~$130-$150 million Cost savings net of inflation offset by incremental investments in advertising and R&D Foreign Exchange ~($100) million Assumes current spot rates Other Tire-Related ~$15 million - Start-up Costs Neutral N/C Amiens Closure ~$50 million Pension Expense Savings (a) ~$90 million N/C Brazil modernization costs offset China start-up benefit $75 million annualized savings, including exit of EMEA Farm tire Pension expense savings net of incremental 401(k) contributions (a) Global pension expense savings. Excludes savings impact related to corporate associates (outside of Segment Operating Income) 19

20 2014 Outlook Other Financial Assumptions 2014 FY Assumption vs. July Outlook Interest Expense $415 - $435 million N/C Financing Fees ~$60 million N/C Income Tax Depreciation & Amortization Global Pension Expense Global Pension Cash Contributions ~20% of international Segment Operating Income ~$725 million N/C ~$150-$175 million N/C ~$1.3 billion in total contributions (a) N/C Working Capital Not a significant source or use N/C Capital Expenditures ~$0.9 billion N/C (a) Cash contributions include $1.2 billion for hourly U.S. pension plan prefunding 20

21 Price/Mix Improvements Price/Mix vs. Raw Materials (a) $ in millions $2,356 $1,822 (c) $942 $712 $207 $689 $549 (b) $1,017 $327 (d) ($115) ($321) ($295) ($985) (e) ($444) (f) Q3 YTD Price/Mix Raw Materials (a) (b) (c) (d) (e) (f) 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 ($444) million includes raw material cost savings measures of $190 million. 21

22 Third Quarter 2014 Liquidity Profile $ In billions Liquidity Profile $3.7 (a) Available Credit Lines $2.0 Cash & Equivalents (b) $1.7 (a) Total liquidity comprised of $1,744 million cash and cash equivalents, as well as $1,982 million of unused availability under various credit agreements. (b) Includes $272 million of cash in Venezuela denominated in bolivares fuertes at 12.0 bolivares fuertes per U.S. dollar at September 30,

23 Third Quarter 2014 Maturity Schedule $ In millions Undrawn Credit Lines $2,000 (b) $2,077 (c) Funded Debt $1,264 $504 (a) $1,858 $900 $700 $353 $ Note: Based on September 30, 2014 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. (a) At September 30, 2014, the total amount outstanding under the European revolving credit facility was $353 million ( 280 million). Letters of credit issued as of this date totaled $4 million ( 3 million). (b) At September 30, 2014, our borrowing base, and therefore our availability, under the U.S. revolving credit facility was $437 million below the facility s stated amount of $2.0 billion. At September 30, 2014, there were no borrowings outstanding under the first lien revolving credit facility. Letters of credit issued totaled $377 million at September 30, (c) At September 30, 2014, the amounts available and utilized under the Pan-European securitization program of $567 million ( 450 million) totaled $ million ( 276 million).

24 2014 Full-Year Industry Outlook October Full-Year 2014 Guidance July Full-Year 2014 Guidance NA EMEA NA EMEA Consumer Replacement +4-5% +3-4% +2-3% +3-4% Consumer OE +4-5% +2-3% +2-3% +0-1% Commercial Replacement +9-10% +1-2% +3-4% +0-2% Commercial OE % -3-4% +2-3% -3-4% 24

25 Third Quarter 2014 Significant Items (After Tax and Minority Interest) $ in millions (except EPS) As Reported Discrete Tax Items Government Investigation in Africa Rationalizations, Asset Write-offs, and Accelerated Depreciation Charges Net Losses on Asset Sales Charges for Labor Claims Related to a Closed Facility in Europe As Adjusted Net Sales $ 4,657 $ - $ - $ - $ - $ - $ 4,657 Cost of Goods Sold 3, ,516 Gross Margin $ 1,141 $ - $ - $ - $ - $ - 1,141 SAG 653 $ - $ - $ - $ - $ Rationalizations (15) Interest Expense Other Expense 66 - (16) - (7) (3) 40 Pre-tax Income $ 299 $ - $ 16 $ 15 $ 7 $ Taxes 100 (47) Minority Interest Goodyear Net Income $ 161 $ 47 $ 16 $ 9 $ 6 $ 3 $ 242 EPS (Diluted) $ 0.58 $ 0.17 $ 0.06 $ 0.03 $ 0.02 $ 0.01 $

26 Third Quarter 2013 Significant Items (After Tax and Minority Interest) $ in millions (except EPS) As Reported Rationalizations, Asset Write-offs, and Accelerated Depreciation Charges Net Gains on Asset Sales As Adjusted Net Sales $ 5,002 $ - $ - $ 5,002 Cost of Goods Sold 3,946 (5) - 3,941 Gross Margin $ 1,056 $ 5 $ - 1,061 SAG 686 $ - $ Rationalizations 21 (21) - - Interest Expense Other Expense Pre-tax Income $ 249 $ 26 $ (3) 272 Taxes 54 4 (1) 57 Minority Interest Goodyear Net Income $ 173 $ 19 $ (2) $ 190 EPS (Diluted) $ 0.62 $ 0.07 $ (0.01) $

27 September 30, 2014 YTD Significant Items (After Tax and Minority Interest) As Reported Net Venezuela Currency Remeasurement Loss Rationalizations, Asset Write-offs, and Acclerated Depreciation Charges Discrete Tax Items Pension Curtailments & Settlements Charges for Labor Claims Related to a Closed Facility in Europe Government Investigation in Africa Net Losses on Asset Sales Settlement of Indirect Tax Claims As Adjusted Net Sales $ 13,782 $ - $ - $ - $ - $ - $ - $ - $ - $ 13,782 Cost of Goods Sold 10,566 - (3) - (38) ,528 Gross Margin $ 3,216 $ - $ 3 $ - $ 38 $ - $ - $ - $ (3) 3,254 SAG 2,018 $ - $ - $ - $ - $ - $ - $ - $ - 2,018 Rationalizations 80 - (80) Interest Expense Other Expense 242 (155) (20) (16) (4) 9 56 Pre-tax Income $ 561 $ 155 $ 83 $ - $ 38 $ 20 $ 16 $ 4 $ (20) 857 Taxes (47) (7) 147 Minority Interest Goodyear Net Income $ 323 $ 130 $ 58 $ 47 $ 36 $ 20 $ 16 $ 4 $ (13) $ 621 EPS (Diluted) $ 1.15 $ 0.47 $ 0.21 $ 0.17 $ 0.13 $ 0.07 $ 0.06 $ 0.01 $ (0.05) $

28 September 30, 2013 YTD Significant Items (After Tax and Minority Interest) As Reported Net Venezuela Currency Remeasurement Loss Rationalizations, Asset Write-offs, and Acclerated Depreciation Charges Charges for Labor Claims Related to a Closed Facility in Europe Net Gains on Asset Sales Discrete Tax Items Insurance Recoveries from Thailand Flood As Adjusted Net Sales $ 14,749 $ - $ - $ - $ - $ - $ - $ 14,749 Cost of Goods Sold 11,732 - (15) ,717 Gross Margin $ 3,017 $ - $ 15 $ - $ - $ - $ - 3,032 SAG 2,022 $ - $ - $ - $ - $ - $ - 2,022 Rationalizations 41 - (41) Interest Expense Other Expense 112 (115) - (6) Pre-tax Income $ 555 $ 115 $ 56 $ 6 $ (6) $ - $ (9) 717 Taxes (1) 5 (2) 168 Minority Interest (1) 32 Goodyear Net Income $ 394 $ 92 $ 42 $ 6 $ (5) $ (6) $ (6) $ 517 EPS (Diluted) $ 1.43 $ 0.33 $ 0.15 $ 0.02 $ (0.02) $ (0.02) $ (0.02) $

29 Reconciliation for Segment Operating Income / Margin $ In millions Three Months Ended September 30, Nine Months Ended September 30, Twelve Months Ended December 31, Total Segment Operating Income $ 520 $ 431 $ 1,353 $ 1,161 $ 1,580 $ 1,248 $ 1,368 $ 917 $ 372 Rationalizations (15) (21) (80) (41) (58) (175) (103) (240) (227) Interest expense (108) (100) (315) (287) (392) (357) (330) (316) (311) Other expense (66) - (242) (112) (97) (139) (73) (186) (40) Asset write-offs & accelerated depreciation - (5) (3) (15) (23) (20) (50) (15) (43) Corporate incentive compensation plans (23) (34) (69) (79) (108) (69) (70) (71) (41) Corporate pension curtailments/settlements - - (33) (15) - - Intercompany profit elimination 5 (5) (4) (5) 4 (1) (5) (14) (13) Retained expenses of divested operations (4) (7) (11) (17) (24) (14) (29) (20) (17) Other (10) (10) (35) (50) (69) (34) (75) (47) (37) Income (Loss) before Income Taxes $ 299 $ 249 $ 561 $ 555 $ 813 $ 440 $ 618 $ 8 $ (357) United States and Foreign Taxes Less: Minority Shareholders Net Income Goodyear Net Income (Loss) $ 161 $ 173 $ 323 $ 394 $ 629 $ 212 $ 343 $ (216) $ (375) Sales $4,657 $5,002 $13,782 $14,749 $19,540 $20,992 $22,767 $18,832 $16,301 Return on Sales 3.5% 3.5% 2.3% 2.7% 3.2% 1.0% 1.5% (1.1)% (2.3)% Total Segment Operating Margin 11.2% 8.6% 9.8% 7.9% 8.1% 5.9% 6.0% 4.9% 2.3% 29

30 Reconciliation for Total Debt and Net Debt $ In millions September 30, June 30, December 31, September 30, Long term debt and capital leases $ 6,719 $ 6,677 $ 6,162 $ 6,366 Notes payable and overdrafts Long term debt and capital leases due within one year Total debt $ 6,855 $ 6,762 $ 6,249 $ 6,542 Less: Cash and cash equivalents 1,744 1,637 2,996 2,500 Net debt $ 5,111 $ 5,125 $ 3,253 $ 4,042 30

31 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 pension-related note in the Notes to Consolidated Financial Statements. Three Months Ended Trailing Twelve Months Ended ($ in millions) Sept. 30, 2014 June 30, 2014 March 31, 2014 Dec. 31, 2013 Sept. 30, 2013 Sept. 30, 2014 Net Income (Loss) $ 199 $ 232 $ (38) $ 256 $ 195 $ 649 Depreciation and Amortization Change in Working Capital (a) (362) (18) (590) 920 (284) (50) Pension Expense (b) Other (c) (93) Capital Expenditures (193) (212) (229) (434) (241) (1,068) Free Cash Flow from Operations (non-gaap) $ 87 $ 314 $ (513) $ 904 $ 19 $ 792 Capital Expenditures ,068 Pension Contributions & Direct Payments (35) (34) (1,223) (90) (79) (1,382) Rationalization Payments (50) (83) (36) (12) (17) (181) Cash Flow from Operating Activities (GAAP) $ 195 $ 409 $ (1,543) $ 1,236 $ 164 $ 297 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, deferred income taxes, net pension curtailments and settlements, net rationalization charges, net (gains) losses on asset sales, net Venezuela currency remeasurement loss, customer prepayments and government grants, insurance proceeds, compensation and benefits less pension expense, other current liabilities, and other assets and liabilities. 31

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