KeyBanc Industrial, Automotive & Transportation Conference May 29, 2014

Transcription

1 KeyBanc Industrial, Automotive & Transportation Conference May 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 Agenda Highlights Executing our strategy ahead of schedule enables us to Build for the future New plant to capture growth in the Americas More than double the size of our shareholder return program 20% increase in the dividend Increase in share repurchase to $450 million Advance path to investment grade credit rating 3

4 Goodyear Today $ In billions, except per share data or unless noted Record Segment Operating Income $1.6 $1.4 $1.2 $0.9 (a) Strong Free Cash Flow $1.0 $0.7 $0.4 $0.2 (b) Progress on Global Unfunded Pension $ $ $ Fully funded, froze, and derisked U.S. plans ~$0.7 (c) 2014E Active Shareholder Return Program $0.20/year dividend Reinstated 2013 First since 2002 $100M share repurchase program $23M executed in Q1 Transitioning from Turnaround to Growth (a) See Segment Operating Income reconciliation in Appendix on page 30 (b) See Free Cash Flow from Operations reconciliation in Appendix on page 31 (c) Projected for December 31, 2014 using 2013 year-end assumptions 4

5 Highlights from Q1 Earnings Call Record Q1 Segment Operating Income of $373 million (a), up 24% o Record Q1 North America earnings of $156 million, up 23% o Europe, Middle East and Africa earnings of $110 million, up $79 million (4 th consecutive quarter of solid recovery) Company reaffirmed financial targets o Annual 10-15% SOI growth per year through 2016 o Annual positive free cash flow from operations o Adjusted Debt to EBITDAP ratio (b) of 2.5x by the end of 2016 Q1 was excellent start to the year Company reaffirmed financial targets (a) See Segment Operating Income reconciliation in Appendix on page 30 (b) 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 5

6 Reaffirming Balanced Growth Plan $ In millions $1,580 Part Growth Sales margin and overhead absorption on sales growth (3-5 million units/year = 2-3%/year) Part Cost Structural cost savings (focus in EMEA) Cost savings > inflation Balanced plan to grow SOI at 10% to 15% per year based on growth and cost savings 6

7 Capital Allocation Plan from September 2013 Investor Day Plan announced in September 2013 results in $3.6-$3.8B of cash available for deployment to enhance shareholder value 7

8 Strong Free Cash Flow Enabled Pension Funding $ In billions Free Cash Flow (a) Cash Balance $1.0 $3.0 U.S. Hourly Unfunded Pension ~$1.1 $0.7 $ Strong Free Cash Flow Generated Significant Cash Balance 2013 $0 2014E (b) Fully Funded U.S. Hourly Pension Plans Strong cash flow enabled prefunding of U.S. hourly pension with 2013 cash (a) See Free Cash Flow from Operations reconciliation in Appendix on page 31 (b) Projected for December 31, 2014 using 2013 year-end assumptions 8

9 Capital Allocation Plan Driving Value What s Changed? Original Plan (Sept 2013) Revised Plan (May 2014) Mid-Point CHANGE Growth CapEx Shareholder Return Program Restructurings $1.1B available to reallocate among other Capital Allocation baskets Debt Repayment / Pension Funding $1.4 - $1.7B -$1.1B $3.6 - $3.8B $3.6 - $3.8B N/C Cash Available for Deployment unchanged at $3.6-$3.8B; Reduced future pension obligations gives ability to reallocate $1.1B 9

10 Capital Allocation Plan Driving Value What s Changed? Original Plan (Sept 2013) Revised Plan (May 2014) Mid-Point CHANGE Growth CapEx $1.1 - $1.3B ~ $1.5B +$0.3B Shareholder Return Program Restructurings Of the $1.1B, reallocating +$0.3B for additional Growth CapEx Debt Repayment / Pension Funding $1.4 - $1.7B -$1.1B $3.6 - $3.8B $3.6 - $3.8B N/C Investing to support growth in 2017 and beyond 10

11 Global Industry - Consumer Passenger & Light Truck Tires Outlook* We continue to view the Consumer Industry as a growth market Average demand expected to increase ~45 million tires per year * Unchanged from September 2013 investor meeting (a) CAGR Compound Annual Growth Rate (b) Estimates based on LMC Automotive forecast and internal Goodyear analysis 11

12 Americas Consumer (a) Tire Demand 1 Industry Growth Rate Millions of Tires: 2019 vs 2013 NA LA OE Repl +71 million (b) tires by 2019 Growing at ~2.5% / year 2 Goodyear Share NA LA >90% of growth is HVA OE Repl Assumes current share 3 Goodyear Growth NA LA OE Repl +12 million tires by million unit industry growth in Americas translates into increased demand for Goodyear Consumer HVA tires of ~12 million by 2019 a) Cars and Light Trucks; OE and Replacement b) Source: LMC Automotive Forecast 12

13 Americas Consumer (a) Tire Supply Growth CapEx Existing Plants ~$350M 6M tires New HVA Capacity New Plant ~$500M 6M tires Total ~$850M ~55% of Growth Capex Allocation 12M tires In the Americas for our Consumer business Very constrained on HVA supply without these investments With the investments, we can achieve 2-3% growth through 2016 and continue to grow beyond 2016 a) Cars and Light Trucks; OE and Replacement 13

14 Winning in the Americas What does it take? Advantaged Value Proposition Iconic brand Operational Excellence Right Tire Industry leading products Pervasive distribution Strong customer relations Consumer-centric focus Market-Back Approach AND Right Time Right Place Right Cost Sufficient HVA Capacity For winners, not an OR it is an AND Goodyear delivers both in an integrated manner 14

15 A Tire is Not A Tire: HVA High Value Added Tire High Value Tire Construction Complex tire with one or more of: Rim diameter 17 or greater 45 press or greater Low profile Speed-rated H or higher Segmented molds Advanced tread compounds Extra load construction Spiral overlay Examples of recent new Goodyear HVA tires NA Assurance All Season NA Wrangler All Terrain with Kevlar LA Eagle Sport LA Wrangler SUV 15

16 New Americas Tire Factory Goodyear announcing its intent to build a new tire plant to support long-term growth HVA Consumer Replacement market segments and premium Consumer OEM fitments North American and Latin American businesses Site selection is underway First tire production would be in the 1 st half of 2017 Plant to be one of the world s most technologically advanced plants Initial capacity of 6 million Consumer HVA tires per year; expandable over time Required CapEx would be up to $500 million through 2016 for this phase of the project Of which, $200 million will be self-funded within our original Growth CapEx Plan Outlook for total 2014 CapEx remains unchanged at $ billion Supports long term profitable growth in North America and Latin America Associated plant startup costs will not change our target to grow total company Segment Operating Income by 10-15% per year through 2016 Exciting new world-class asset to support future growth 16

17 Americas Consumer (a) Value Creation Growth CapEx = ~ $850 million ( ) + 12 million increased HVA consumer tire sales (6 million units by 2016 from base growth CapEx) (6 million units by 2019 from new plant) + $15/tire sales margin (Current average margin + mix-up higher depreciation = ~current average) = ~20% IRR +$180M per year of SOI Our Growth Capex will enable growth and create value in Americas Expecting ~20% IRR as is typical of our Growth CapEx a) Cars and Light Trucks; OE and Replacement 17

18 Growth CapEx Investment Heavy investment in new China plant and Europe tire labeling ~$1.3 billion EMEA & Asia ~ 70% Americas NA & LA ~ 30% Primarily investment in HVA capacity & tire labeling capabilities ~$1.5 billion EMEA & Asia ~ 45% Includes new plant for the Americas ~$500 million Americas NA & LA ~ 55% Continue to invest for growth... shifting focus to meet business needs Targeting ~20% IRR 18

19 Growth Capex Driving Future Value $ In billions 2013 Record %/yr Maintain momentum $1.6 Segment Operating Income (a) Enable Future Growth ~$0.10 ~$0.30 ~$0.40 Growth CapEx ~$0.45 ~$0.45 Growth CapEx ~$1.5 Segment Operating Income trajectory enabled by Growth Capex (a) See Segment Operating Income reconciliation in Appendix on page 30 19

20 Capital Allocation Plan Driving Value What s Changed? Original Plan (Sept 2013) Revised Plan (May 2014) Mid-Point CHANGE Growth CapEx $1.1 - $1.3B ~ $1.5B +$0.3B Shareholder Return Program $0.3 - $0.4B $0.6 - $0.9B* +$0.4B Restructurings Reallocating +$0.4B for an increased shareholder return program Debt Repayment / Pension Funding $1.4 - $1.7B -$1.1B $3.6 - $3.8B $3.6 - $3.8B We are more than doubling the size of our current shareholder return program * $0.65B approved by Board of Directors; increases dependent on Company performance including the achievement of financial targets N/C 20

21 Shareholder Return Program Regular Dividend ~$70 million per year Share Repurchase $450 million 20% increase in quarterly dividend on common shares from $0.05 per share to $0.06 per share Effective for September dividend Increase in approved share repurchase program from $100 million to $450 million during Will offset dilution of new shares issued under equity compensation programs and return additional cash to shareholders Opportunity to increase dividend and share repurchase over time depending on company performance Increase in approved shareholder return program demonstrates strong commitment to shareholders and confidence in strategy 21

22 Capital Allocation Plan Driving Value What s Changed? Original Plan (Sept 2013) Revised Plan (May 2014) Mid-Point CHANGE Growth CapEx $1.1 - $1.3B ~ $1.5B +$0.3B Shareholder Return Program $0.3 - $0.4B $0.6 - $0.9B* +$0.4B Restructurings $0.5 - $0.7B ~ $0.6B N/C Debt Repayment / Pension Funding $1.4 - $1.7B -$1.1B $3.6 - $3.8B $3.6 - $3.8B N/C No change in restructuring plans * $0.65B approved by Board of Directors; increases dependent on Company performance including the achievement of financial targets 22

23 Capital Allocation Plan Driving Value What s Changed? Original Plan (Sept 2013) Revised Plan (May 2014) Mid-Point CHANGE Growth CapEx $1.1 - $1.3B ~ $1.5B +$0.3B Shareholder Return Program $0.3 - $0.4B $0.6 - $0.9B* +$0.4B Restructurings Reallocating +$0.4B to debt reduction, $0.5 - $0.7B further strengthening ~ $0.6B Goodyear s leverage N/C metrics resulting in net change of -$0.7B in this basket Debt Repayment / Pension Funding $1.4 - $1.7B $0.8 - $0.9B -$0.7B $3.6 - $3.8B $3.6 - $3.8B N/C Advance our path to reach investment-grade credit rating * $0.65B approved by Board of Directors; increases dependent on Company performance including the achievement of financial targets 23

24 Balance Sheet Management Leverage Targets 4.3x Adjusted Debt / EBITDAP (a) 3.9x 4.1x 3.4x 2.4x-2.5x 2.0x-2.1x E 2016E 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 over next three years 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 32 24

25 Capital Allocation Plan Driving Value What s Changed? Original Plan (Sept 2013) Revised Plan (May 2014) Mid-Point CHANGE Growth CapEx $1.1 - $1.3B ~ $1.5B +$0.3B Shareholder Return Program $0.3 - $0.4B $0.6 - $0.9B* +$0.4B Restructurings Debt Repayment / Pension Funding $0.5 - $0.7B $1.4 - $1.7B ~ $0.6B $0.8 - $(1.1)B Pension $ 0.4 B Debt $(0.7)B Net $0.9B N/C -$0.7B $3.6 - $3.8B $3.6 - $3.8B N/C is a balanced Capital Allocation Plan * $0.65B approved by Board of Directors; increases dependent on Company performance including the achievement of financial targets 25

26 Capital Allocation Profile -- Potential Evolution Debt Repayment / Pension Funding 100% 100% 100% Restructuring Growth CapEx Shareholder Return Actual Current Plan Future Direction* Capital Allocation Plan will likely shift even more to shareholder return programs over time* * Dependent on Company performance including the achievement of financial targets 26

27 Summary Excellent time to be in the tire business, especially for competitively advantaged companies like Goodyear Our strategy is working, we are increasing enterprise value with a balanced plan of growth and cost savings Our revised Capital Allocation Plan creates long-term shareholder value Building for the future New plant to capture growth in the Americas More than doubling the size of our shareholder return program 20% increase in the dividend Increase in share repurchase to $450 million Advancing path to investment grade credit rating 27

28 Appendix

29 Use of Historical and Forward-Looking Non-GAAP Financial Measures This presentation contains our historical total segment operating income and free cash flow from operations for certain periods, our targeted total segment operating income growth rate for , our historical ratio of Adjusted Debt to EBITDAP for certain periods, and our targeted ratios of Adjusted Debt to EBITDAP for 2015 and Total segment operating income, free cash flow from operations, and the ratio of Adjusted Debt to EBITDAP are important financial measures for the company but are not financial measures defined by U.S. GAAP, and should not be construed as an alternative to corresponding financial measures presented in accordance with U.S. GAAP. Total segment operating income is the sum of the individual strategic business units segment operating income as determined in accordance with U.S. GAAP. The most directly comparable GAAP financial measure is Income before Income Taxes. 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. Free Cash Flow from Operations is the company s Cash Flow from Operations as determined in accordance with U.S. GAAP before pension contributions and direct payments and rationalization payments, less capital expenditures. Management believes that Free Cash Flow from Operations is useful because it represents the cash generating capability of the company s ongoing operations, after taking into consideration capital expenditures necessary to maintain its business and pursue growth opportunities. Adjusted Debt is the sum of our total debt and our global pension liability, each as determined in accordance with U.S. GAAP, and EBITDAP, as adjusted, represents net income (the most directly comparable GAAP financial measure) before interest expense, income tax expense, depreciation and amortization expense, net periodic pension cost, rationalization charges and other (income) and expense. We present the ratio of Adjusted Debt to EBITDAP because we believe it is widely used by investors as a means of evaluating a company s leverage. It should be noted that companies may calculate the components of this ratio differently; as a result, the ratio of Adjusted Debt to EBITDAP as presented herein may not be comparable to similarly-titled measures reported by other companies. We are unable to present a quantitative reconciliation of our forward-looking non-gaap financial measures to the most directly comparable GAAP financial measures, because management cannot reliably predict all of the necessary components of those GAAP financial measures without unreasonable effort. These components could be significant to the calculation of those GAAP financial measures in the future. 29

30 Reconciliation for Segment Operating Income / Margin $ In millions Three Months Ended March 31, Twelve Months Ended December 31, Total Segment Operating Income $ 373 $ 1,580 $ 1,248 $ 1,368 $ 917 $ 372 Rationalizations (41) (58) (175) (103) (240) (227) Interest expense (105) (392) (357) (330) (316) (311) Other (expense) (168) (97) (139) (73) (186) (40) Asset write-offs & accelerated depreciation (1) (23) (20) (50) (15) (43) Corporate incentive compensation plans (27) (108) (69) (70) (71) (41) Corporate pension curtailments/settlements (33) - 1 (15) - - Intercompany profit elimination (13) 4 (1) (5) (14) (13) Retained expenses of divested operations (4) (24) (14) (29) (20) (17) Other (11) (69) (34) (75) (47) (37) Income before Income Taxes $ (30) $ 813 $ 440 $ 618 $ 8 $ (357) United States and Foreign Taxes Less: Minority Shareholders Net Income (Loss) Goodyear Net Income (Loss) $ (51) $ 629 $ 212 $ 343 $ (216) $ (375) Sales $4,469 $19,540 $20,992 $22,767 $18,832 $16,301 Return on Sales (1.1)% 3.2% 1.0% 1.5% (1.1)% (2.3)% Total Segment Operating Margin 8.3% 8.1% 5.9% 6.0% 4.9% 2.3% 30

31 Reconciliation for Free Cash Flow From Operations $ In millions 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. Year Ended December 31, ($ in millions) Net Income (Loss) $ 675 $ 237 $ 417 $ (164) Depreciation and Amortization Change in Working Capital (a) (650) 52 Pension Expense (b) Other (c) Capital Expenditures (1,168) (1,127) (1,043) (944) Free Cash Flow from Operations (non-gaap) $ 1,004 $ 701 $ 166 $ 442 Capital Expenditures 1,168 1,127 1, Pension Contributions & Direct Payments (1,162) (684) (294) (405) Rationalization Payments (72) (106) (142) (57) Cash Flow from Operating Activities (GAAP) $ 938 $ 1,038 $ 773 $ 924 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 remeasurement loss, customer prepayments and government grants, insurance proceeds, compensation and benefits less pension expense, other current liabilities, and other assets and liabilities. 31

32 EBITDAP, Adjusted Debt & Leverage Ratio Reconciliations $ In millions Year Ended December 31, Net Income (Loss) $675 $237 $417 ($164) Interest Expense Income Tax Expense Depreciation and Amortization Net Periodic Pension Cost (a) Other (b) EBITDAP, as adjusted $2,367 $2,105 $2,105 $1, Notes Payable and Overdrafts Long Term Debt / Capital Leases due Within a Year Long Term Debt and Capital Leases 6,162 4,888 4,789 4,319 Total Debt $6,249 $5,086 $5,201 $4,745 Unfunded Pension Liability $1,855 $3,522 $3,097 $2,549 Adjusted Debt $8,104 $8,608 $8,298 $7,294 Adjusted Debt/EBITDAP 3.42x 4.09x 3.94x 4.29x a) Net periodic pension cost excludes curtailments/settlements and termination benefits. b) Other includes rationalization charges and other (income) and expense. 32

33