The Goodyear Tire & Rubber Company (GT) filed Quarterly Report for the period ended 2009-09-30.
Goodyear is one of the world's largest tire companies. The company manufactures tires engineered rubber products and chemicals in facilities in numerous countries. It has marketing operations in almost every country around the world. (Company Press Release) The Goodyear Tire & Rubber Company has a market cap of $4.05 billion; its shares were traded at around $16.74 with and P/S ratio of 0.2. The Goodyear Tire & Rubber Company had an annual average earning growth of 23.3% over the past 5 years.
Highlight of Business Operations:
Cost of goods sold (“CGS”) in the third quarter of 2009 was $3,523 million, a decrease of $793 million, or 18.4%, compared to $4,316 million in the third quarter of 2008. CGS as a percentage of sales decreased to 80.3% in the third quarter of 2009, compared to 83.4% in the 2008 period. CGS in the third quarter of 2009 decreased due to lower costs in other tire-related businesses of $241 million, primarily in North American Tire’s cost of chemical products, lower tire volume of $212 million, primarily in North American Tire and EMEA, lower raw material costs of $207 million, foreign currency translation of $125 million, primarily in EMEA, and product mix-related manufacturing cost decreases of $59 million. CGS also benefited from savings from rationalization plans of approximately $30 million. Partially offsetting these decreases were increased conversion costs of $113 million. The higher conversion costs were caused primarily by under-absorbed fixed overhead costs of approximately $107 million due to lower production volume. Pension expense increased in North America due to lower 2008 returns on plan assets and higher amortization of net losses, which more than offset savings resulting from the implementation of the Voluntary Employees’ Beneficiary Association (“VEBA”). The third quarter of 2009 included asset write-offs and accelerated depreciation of $18 million ($14 million after-tax and minority or $0.06 per share), compared to $13 million ($13 million after-tax and minority or $0.05 per share) in the 2008 period and 2009 expenses of $5 million ($5 million after-tax and minority or $0.02 per share) related to our new labor contract with the USW. The third quarter of 2008 also included a VEBA-related charge of $11 million ($13 million after-tax and minority or $0.05 per share) and charges related to Hurricanes Ike and Gustav of $7 million ($7 million after-tax and minority or $0.03 per share).
rationalization plans of approximately $57 million. Partially offsetting these decreases were increased conversion costs of $597 million and higher raw material costs of $243 million. The higher conversion costs were caused primarily by under-absorbed fixed overhead costs of approximately $514 million due to lower production volume. The first nine months of 2009 included asset write-offs and accelerated depreciation of $40 million ($35 million after-tax and minority or $0.15 per share), compared to $17 million ($17 million after-tax and minority or $0.07 per share) in the 2008 period and 2009 expenses of $5 million ($5 million after-tax and minority or $0.02 per share) related to our new labor contract with the USW. CGS as a percentage of sales increased to 85.1% in the first nine months of 2009, compared to 81.2% in the 2008 period.
Rationalizations included net charges of $207 million ($165 million after-tax and minority or $0.68 per share) in the first nine months of 2009 compared to net charges of $134 million ($128 million after-tax and minority or $0.53 per share) in the first nine months of 2008. New charges of $221 million represent $188 million for plans initiated in 2009 and $33 million for plans initiated in 2008 and prior years. North American Tire initiated manufacturing headcount reductions at several facilities, including Union City, Tennessee; Danville, Virginia and Topeka, Kansas, to meet lower production demand. Additional salaried headcount reductions were initiated at our corporate offices in Akron, Ohio, in North American Tire and throughout EMEA. We also initiated the discontinuation of consumer tire production at one of our facilities in Amiens, France. Finally, Latin American Tire initiated manufacturing headcount reductions at each of its two facilities in Brazil. Upon completion of the 2009 plans, we estimate that annual operating costs will be reduced by approximately $250 million ($210 million CGS and $40 million SAG). The savings realized in the first nine months of 2009 totaled approximately $87 million ($57 million CGS and $30 million SAG).
Other (Income) and Expense was $66 million of expense in the first nine months of 2009, compared to $24 million of income in the first nine months of 2008. Net losses on asset sales were $33 million ($32 million after-tax and minority or $0.13 per share) in the first nine months of 2009, compared to net gains on asset sales of $41 million ($37 million after-tax and minority or $0.15 per share) in the first nine months of 2008, primarily related to the sale of certain properties in Akron, Ohio, Luxembourg and Australia in 2009 and in England, Germany, Morocco, Argentina and New Zealand in 2008. Interest income decreased by $49 million primarily due to lower average cash balances and interest rates in 2009 compared to the prior year. Financing fees decreased by $42 million due primarily to $43 million ($43 million after-tax and minority or $0.18 per share) of charges in 2008 related to the redemption of $650 million of senior secured notes due 2011, of which $33 million related to cash premiums paid on the redemption and $10 million related to the write-off of deferred financing fees and unamortized discount. We liquidated our subsidiary in Guatemala in 2009 and recognized a loss of $18 million ($18 million after-tax and minority or $0.08 per share) primarily due to the recognition of accumulated foreign currency translation losses.
For the first nine months of 2009 we recorded tax expense of $3 million on a loss before income taxes of $496 million. For the first nine months of 2008, we recorded tax expense of $217 million on income before income taxes of $535 million. Our income tax expense or benefit is allocated among operations and items charged or credited directly to shareholders’ equity. Pursuant to this allocation requirement, for the nine months ended September 30, 2009, a $36 million ($0.15 per share) non-cash tax benefit has been allocated to the loss from our U.S. operations, with offsetting tax expense allocated to items, primarily attributable to employee benefits, charged directly to shareholders’ equity. Income tax expense for the first nine months of 2009 also was impacted favorably by $21 million ($22 million net of minority or $0.09 per share) primarily related to a second quarter benefit resulting from the settlement of our 1997 through 2003 Competent Authority claim between the United States and Canada. Included in tax expense for the first nine months of 2008 was a net tax charge for discrete items of $10 million ($6 million net of minority or $0.02 per share), related primarily to return-related adjustments for our German operations.
Operating income (loss) decreased $315 million in the first nine months of 2009 from the 2008 period. The 2009 period was unfavorably impacted by lower operating income in chemical and other tire-related businesses of $83 million and decreased volume of $76 million. Also unfavorably impacting operating income were higher conversion costs of $223 million. The higher conversion costs were caused primarily by under-absorbed fixed overhead costs of $257 million, due to lower production volume, and increased pension expense, due to lower 2008 returns on plan assets and higher amortization of net losses. Increased pension expense of $85 million more than offset savings resulting from the implementation of the VEBA of $66 million. Partially offsetting these negative factors were price and product mix improvements of $86 million, which more than offset higher raw material costs of $66 million, lower SAG expenses of $22 million driven by rationalization savings and lower warehousing expense, and lower transportation costs of $16 million. Conversion costs and SAG expenses included savings from rationalization plans of $40 million.
GT is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, Ronald Muhlenkamp of Muhlenkamp Fund, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Charles Brandes of Brandes Investment.
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