Forward-Looking Statements

Transcription

1 Fourth Quarter 2014 Conference Call February 17, 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 Highlights Record full-year segment operating income of $1.7 billion (a) Full-year free cash flow from operations of $1.0 billion (b) North America sets earnings records for fourth quarter, full year Completed $150 million in share repurchases in fourth quarter Company releases $2.2 billion U.S. tax valuation allowance, no change to cash taxes Company reaffirms 2015 earnings growth target of 10%-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 34 3

4 North America Kelly Edge Branded Branded line Line meeting Meeting customer Customer Needs needs 4

5 North America E-Commerce Buy Online. Install Locally. Making the Tire-Buying Process Easier 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 Financial Update

8 Fourth Quarter 2014 Income Statement In millions, except EPS Three Months Ended December 31, December 31, Change Units (3)% Net Sales $ 4,356 $ 4,791 (9)% Gross Margin 23.3% 23.0% 0.3 pts SAG $ 702 $ 736 (5)% Segment Operating Income (a) $ 359 $ 419 (14)% Segment Operating Margin (a) 8.2% 8.7% (0.5) pts Goodyear Net Income $ 2,129 $ 235 Less: Preferred Stock Dividends $ - $ 7 Goodyear Net Income Available to Common Shareholders $ 2,129 $ 228 Goodyear Net Income Available to Common Shareholders - Per Share of Common Stock Basic $ 7.82 $ 0.92 Diluted $ 7.68 $ 0.84 Cash Dividends Declared Per Common Share $ 0.06 $ - Adjusted Diluted Earnings Per Share (b) $ 0.59 $ 0.74 (a) See Segment Operating Income and Margin reconciliation in Appendix on page 31. (b) See Adjusted Diluted Earnings Per Share reconciliation in Appendix on pages 26 and 28. 8

9 Fourth Quarter 2014 Segment Operating Results $ in millions ($60) $419 ($29) ($24) $30 ($81) $105 ($77) Includes Amiens plant closure and N. American pension expense savings ($17) $33 $359 Q Volume Unabsorbed Fixed Cost Raw Materials (a) Price / Mix Cost Savings Inflation (b) Currency Other (c) Q ($53) ($51) +$28 Primarily weaker European winter tire sales (a) Raw material variance of $30 million excludes raw material cost saving measures of $79 million, which are included in Cost Savings (b) Estimated impact of inflation (wages, utilities, energy, transportation and other) (c) Includes $18 million savings from Amiens plant closure, $17 million benefit from other-tire related businesses, and $15 million from North American pension expense savings, partially offset by $22 million in incremental advertising, marketing, and R&D charges 9

10 Fourth Quarter 2014 Balance Sheet $ in millions December 31, September 30, December 31, Cash and cash equivalents $ 2,161 $ 1,744 $ 2,996 Accounts receivable 2,126 3,021 2,435 Inventories 2,671 2,924 2,816 Accounts payable - trade (2,878) (2,827) (3,097) Working capital (a) $ 1,919 $ 3,118 $ 2,154 Total debt (b) $ 6,394 $ 6,855 $ 6,249 Net debt (b) $ 4,233 $ 5,111 $ 3,253 Memo: Net Global Pension Liability $ 714 $ 1,855 Adjusted Debt / EBITDAP (c) 2.96x 3.42x (a) Working capital represents accounts receivable and inventories, less accounts payable trade. (b) See Total Debt and Net Debt reconciliation in Appendix on page 32. (c) See EBITDAP, Adjusted Debt, and Leverage Ratio Reconciliations in Appendix on page

11 Free Cash Flow from Operations $ in millions Year Ended December 31, Net Income $ 2,521 $ 675 Depreciation and Amortization Change in Working Capital (1) 415 Pension Expense (a) Provision for Deferred Income Taxes (1,970) (34) Other Capital Expenditures (923) (1,168) Free Cash Flow from Operations (non-gaap) (b) $ 981 $ 1,004 (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

12 Fourth Quarter 2014 Segment Results in millions North America Europe, Middle East and Africa Change Change Units (1.1%) Units (11.8%) Net Sales $2,105 $2,131 (1.2%) Net Sales $1,306 $1,631 (19.9%) Operating Income $229 $ % Operating Income $30 $101 (70.3%) Margin 10.9% 9.3% Margin 2.3% 6.2% Latin America Asia Pacific Change Change Units % Units % Net Sales $434 $492 (11.8%) Net Sales $511 $537 (4.8%) Operating Income $20 $52 (61.5%) Operating Income $80 $ % Margin 4.6% 10.6% Margin 15.7% 12.5% 12

13 2015 Key Segment Operating Income Drivers Driver 2015 FY vs 2014 Comments Global Volume +1-2% Price/Mix vs. Raw Materials Overhead Absorption Cost Savings vs. Inflation Foreign Exchange Amiens Closure Venezuela ~$200 million Neutral ~$160 million Similar to 2014 ~($180) million ~$20 million ~($50) million Assumes growth in North America, Latin America, and Asia Pacific; slower growth North America H1 vs. H2 Raw material costs down 10%; benefit reflects partial offsets from raw material indexed contracts and FX; See Appendix pages for detail on raw materials Q4/14 production cuts of ~1 million units impact Q1/15 SOI Based on current spot rates; see Appendix page 22 for currency details Carry-over of $75 million annualized savings previously disclosed Assume zero earnings due to deteriorating macro environment, significant uncertainty regarding USD availability and FX rates 13

14 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 14

15 Capital Allocation Plan Update Current Plan (May 2014) Update (Feb. 2015) Growth CapEx Shareholder Return Program ~ $1.5B $0.6 - $0.9B* ~ $1.15B $0.6 - $1.25B* $350 Million Reallocated Within the Capital Plan Restructurings ~ $0.6B ~ $0.6B Debt Repayment / Pension Funding $0.8 $ $0.9B $3.8B $0.8 $ $0.9B $3.8B is a balanced Capital Allocation Plan * $0.65B approved by Board of Directors; increases dependent on Company performance including the achievement of financial targets 15

16 Appendix

17 Full Year 2014 Tire Unit & Sales Summary in millions 2014 Sales = $18,138 Unit/Sales Mix % Change Consumer Units (0.0%) Sales $10,510 $10,946 (4.0%) Commercial Units (0.6%) Sales $3,849 $4,113 (6.4%) 17

18 Full Year 2014 Segment Operating Results $ in millions +$132 $1,580 ($23) $58 $284 ($376) $454 ($296) ($77) $108 $1,712 FY 2013 Volume Unabsorbed Fixed Cost Raw Materials (a) Price / Mix Cost Savings Inflation (b) Currency Other (c) FY $35 +$158 ($92) Primarily OTR (a) Raw material variance of $284 million excludes raw material cost saving measures of $269 million, which are included in Cost Savings (b) Estimated impact of inflation (wages, utilities, energy, transportation and other) (c) Includes $55 million savings from Amiens plant closure and $57 million from North American pension expense savings, partially offset by other items 18

19 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) ($376) ($985) (e) ($553) (f) 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 ($553) million includes raw material cost savings measures of $269 million. 19

20 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 FY Estimate * * * *Petrochemical-based * Based on current commodity spot rates, we expect raw material costs to be down ~10% for the full year 20

21 Raw Materials: Modeling Assumptions $ in billions 2014 Total COGS $13.9 Tire Business: 85% of Total Company COGS Tire Business COGS ~$11.8 Non-Tire COGS ~$2.1 Raw Materials: 50% of Tire Business COGS Tire Raw Materials COGS ~$5.9 Tire Other (a) COGS ~$5.9 Commodities (b) : 75% of Tire Business Raw Materials Commodity COGS ~$4.4 Non- Commodity COGS ~$1.5 Raw Materials Purchased in USD: 66% of Commodities USD-Based ~$2.9 Non-USD ~$1.5 USD-Based ~$1.0 Non-USD ~$0.5 Commodity Price Change (c) : ($0.515) ~(18%) ($0.265) ~(18%) $0 $0 FX Transaction (d) : +$0.13 $0 +$0.05 $0 Total Impact (e) : ($0.385) ($0.265) +$0.05 $0 Total Impact: ($0.6) = (10%) Notes: % Splits noted above on COGS are general rules-of-thumb for modeling purposes based on 2014 actuals (a) Non-raw material costs include conversion cost, R&D, transportation, etc (b) Commodity feedstocks; excludes other supplier processing costs, transportation, supplier margins, etc. (c) Commodity price changes based on current plan assumptions (d) FX transaction only relates to USD-based purchases outside of the US; see Page 22 for 2015 spot assumptions (e) Excludes impact of volume and cost savings Impact on SOI as a result of 2015 vs changes in raw material costs due to changes in commodity prices and FX 21

22 Foreign Exchange: Modeling Assumptions $ in millions, except exchange rates 2015 Sensitivity Modeling Rules of Thumb SOI Impact for Every 1 US Cent Change Translation (a) Transaction (b) Euro $4.4 $2.4 Brazilian Real $0.5 $1.2 Canadian Dollar $1.9 $ SOI Currency Impact 2015 Spot Assumption Translation (a) Transaction (b) Euro Brazilian Real Canadian Dollar All Other Currencies (e.g., Polish Zloty, Indian Rupee, Australian Dollar) ~$(85) ~$(45) ~$(25) ~$(60) ~$(30) ~$(40) ~$(40) ~$(35) ~$(180) ~$(180) Note: (a) Impact included in Foreign Exchange as part of 2015 Key SOI Drivers. See Page 13. (b) Impact included in Raw Materials as part of 2015 Key SOI Drivers and before offsetting action (e.g., hedging). See Page

23 Fourth Quarter 2014 Liquidity Profile $ in billions Liquidity Profile $4.5 (a) Available Credit Lines Cash & Equivalents (b) (a) Total liquidity comprised of $2,161 million cash and cash equivalents, as well as $2,317 million of unused availability under various credit agreements. (b) Includes $289 million of cash in Venezuela denominated in bolivares fuertes at 12.0 bolivares fuertes per U.S. dollar at December 31, On February 3, 2015, we repaid $200 million of the borrowings due under the U.S. second lien term loan. 23

24 Fourth Quarter 2014 Maturity Schedule $ in millions $2,000 (b) $118 (c) Undrawn Credit Lines Funded Debt (d) $1,842 $1,265 $485 (a) $900 $700 $ Note: Based on December 31, 2014 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. (a) At December 31, 2014 there were no borrowings or letters of credit under the European revolving credit facility. (b) At December 31, 2014, our borrowing base, and therefore our availability, under the U.S. revolving credit facility was $485 million below the facility's stated amount of $2.0 billion. Also, $377 million in letters of credit were issued under this facility. (c) At December 31, 2014, the amounts available and utilized under the Pan-European securitization program of $461 million ( 380 million) totaled $343 million ( 283 million). (d) On February 3, 2015, we repaid $200 million of the borrowings due under the $1.2 billion U.S. second lien term loan facility. 24

25 2015 Full-Year Industry Outlook Driven by expected decline in Chinese imports NA EMEA Consumer Replacement (2)-(3)% ~Flat Consumer OE +1-2% +1-2% Commercial Replacement +0-1% +0-1% Commercial OE Flat-(1)% ~Flat 25

26 Fourth Quarter 2014 Significant Items (After Tax and Minority Interest) $ in millions (except EPS) As Reported Net Venezuela Currency Losses Rationalizations, Asset Write-offs, and Accelerated Depreciation Charges Net Gains on Asset Sales Net Income and Other Discrete Tax Benefits As Adjusted Net Sales $ 4,356 $ - $ - $ - $ - $ 4,356 Cost of Goods Sold 3,340 - (4) - (14) 3,322 Gross Margin $ 1,016 $ - $ 4 $ - $ 14 1,034 SAG 702 $ - $ - $ - $ Rationalizations 15 - (15) Interest Expense (2) 111 Other Expense 60 (45) Pre-tax Income $ 126 $ 45 $ 19 $ (7) $ Taxes (2,002) - 2-2, Minority Interest (1) Goodyear Net Income $ 2,129 $ 45 $ 12 $ (7) $ (2,013) $ 166 EPS (Diluted) $ 7.68 $ 0.16 $ 0.04 $ (0.03) $ (7.26) $

27 Full Year 2014 Significant Items (After Tax and Minority Interest) $ in millions (except EPS) As Reported Net Venezuela Currency Losses Rationalizations, Asset Write-offs, and Acclerated Depreciation Charges Pension Curtailments & Settlements Charges for Labor Claims Related to a Closed Facility in Greece Government Investigation in Africa Net Gains on Asset Sales Net Income and Other Discrete Tax Benefits As Adjusted Net Sales $ 18,138 $ - $ - $ - $ - $ - $ - $ - $ 18,138 Cost of Goods Sold 13,906 - (7) (38) (11) 13,850 Gross Margin $ 4,232 $ - $ 7 $ 38 $ - $ - $ - $ 11 4,288 SAG 2,720 $ - $ - $ - $ - $ - $ - $ - 2,720 Rationalizations 95 - (95) Interest Expense Other Expense 302 (200) - - (22) (16) Pre-tax Income $ 687 $ 200 $ 102 $ 38 $ 22 $ 16 $ (3) $ (5) 1,057 Taxes (1,834) , Minority Interest Goodyear Net Income $ 2,452 $ 175 $ 71 $ 36 $ 22 $ 16 $ (4) $ (1,978) $ 790 EPS (Diluted) $ 8.78 $ 0.63 $ 0.25 $ 0.13 $ 0.08 $ 0.06 $ (0.01) $ (7.09) $

28 Fourth Quarter 2013 Significant Items (After Tax and Minority Interest) $ in millions (except EPS) As Reported Rationalizations, Asset Write-offs, and Accelerated Depreciation Charges Net Income and Other Discrete Tax Benefits Net Gains on Asset Sales As Adjusted Net Sales $ 4,791 $ - $ (5) $ - $ 4,786 Cost of Goods Sold 3,690 (8) - - 3,682 Gross Margin $ 1,101 $ 8 $ (5) $ - 1,104 SAG 736 $ - $ Rationalizations 17 (17) Interest Expense (1) Other Expense (15) (2) Pre-tax Income $ 258 $ 25 $ (15) $ (2) 266 Taxes Minority Interest 21 5 (7) - 19 Goodyear Net Income $ 235 $ 17 $ (41) (2) $ 209 EPS (Diluted) $ 0.84 $ 0.06 $ (0.15) $ (0.01) $

29 Full Year 2013 Significant Items (After Tax and Minority Interest) $ in millions (except EPS) As Reported Net Venezuela Currency Losses Rationalizations, Asset Write-offs, and Acclerated Depreciation Charges Charges for Labor Claims Related to a Closed Facility in Greece Net Gains on Asset Sales Insurance Recoveries from Thailand Flood Net Income and Other Discrete Tax Benefits As Adjusted Net Sales $ 19,540 $ - $ - $ - $ - $ - $ (5) $ 19,535 Cost of Goods Sold 15,422 - (23) ,399 Gross Margin $ 4,118 $ - $ 23 $ - $ - $ - $ (5) 4,136 SAG 2,758 $ - $ - $ - $ - $ - $ - 2,758 Rationalizations 58 - (58) Interest Expense (1) 391 Other Expense 97 (115) - (6) Pre-tax Income $ 813 $ 115 $ 81 $ 6 $ (8) $ (9) $ (15) 983 Taxes (1) (2) Minority Interest (1) (7) 51 Goodyear Net Income $ 629 $ 92 $ 58 $ 6 $ (7) $ (6) $ (47) $ 725 EPS (Diluted) $ 2.28 $ 0.33 $ 0.21 $ 0.02 $ (0.02) $ (0.02) $ (0.17) $

30 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,

31 Reconciliation for Segment Operating Income / Margin $ in millions Three Months Ended December 31, Twelve Months Ended December 31, Total Segment Operating Income $ 359 $ 419 $ 1,712 $ 1,580 Rationalizations (15) (17) (95) (58) Interest expense (113) (105) (428) (392) Other income (expense) (60) 15 (302) (97) Asset write-offs and accelerated depreciation (4) (8) (7) (23) Corporate incentive compensation plans (28) (29) (97) (108) Corporate pension curtailments/settlements - - (33) - Intercompany profit elimination Retained expenses of divested operations (5) (7) (16) (24) Other (16) (19) (51) (69) Income before Income Taxes $ 126 $ 258 $ 687 $ 813 United States and Foreign Tax (Benefit) Expense (2,002) 2 (1,834) 138 Less: Minority Shareholders Net Income (Loss) (1) Goodyear Net Income $ 2,129 $ 235 $ 2,452 $ 629 Sales $4,356 $4,791 $18,138 $19,540 Return on Sales 48.9% 4.9% 13.5% 3.2% Total Segment Operating Margin 8.2% 8.7% 9.4% 8.1% 31

32 Reconciliation for Total Debt and Net Debt $ in millions December 31, September 30, December 31, Long-Term Debt and Capital Leases $ 6,216 $ 6,719 $ 6,162 Notes Payable and Overdrafts Long-Term Debt and Capital Leases Due Within One Year Total Debt $ 6,394 $ 6,855 $ 6,249 Less: Cash and Cash Equivalents 2,161 1,744 2,996 Net debt $ 4,233 $ 5,111 $ 3,253 32

33 EBITDAP, Adjusted Debt & Leverage Ratio Reconciliations $ in millions Year Ended December 31, Net Income $2,521 $675 Interest Expense Income Tax (Benefit) Expense (1,834) 138 Depreciation and Amortization Pension Expense (a) Other (b) EBITDAP, as adjusted $2,402 $2,367 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 Total Debt $6,394 $6,249 Global Unfunded Pension Obligations $714 $1,855 Adjusted Debt $7,108 $8,104 Adjusted Debt/EBITDAP 2.96x 3.42x (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. 33

34 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. Year Ended ($ in millions) Dec. 31, 2014 Dec. 31, 2013 Net Income $ 2,521 $ 675 Depreciation and Amortization Change in Working Capital (a) (1) 415 Pension Expense (b) Provision for Deferred Income Taxes (1,970) (34) Other (c) Capital Expenditures (923) (1,168) Free Cash Flow from Operations (non-gaap) $ 981 $ 1,004 Capital Expenditures 923 1,168 Pension Contributions and Direct Payments (1,338) (1,162) Rationalization Payments (226) (72) Cash Flow from Operating Activities (GAAP) $ 340 $ 938 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, customer prepayments and government grants, insurance proceeds, compensation and benefits less pension expense, other current liabilities, and other assets and liabilities. 34

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