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The Goodyear Tire & Rubber Company Reports Operating Results (10-Q)

October 28, 2010 | About:
10qk

10qk

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The Goodyear Tire & Rubber Company (GT) filed Quarterly Report for the period ended 2010-09-30.

The Goodyear Tire & Rubber Company has a market cap of $2.82 billion; its shares were traded at around $11.61 with a P/E ratio of 13.2 and P/S ratio of 0.2. GT is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, Eric Mindich of Eton Park Capital Management, L.P., Arnold Schneider of Schneider Capital Management, Bruce Kovner of Caxton Associates, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, John Buckingham of Al Frank Asset Management, Inc., George Soros of Soros Fund Management LLC, Charles Brandes of Brandes Investment, Jim Simons of Renaissance Technologies LLC, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Cost of goods sold (CGS) in the third quarter of 2010 was $4,120 million, increasing $597 million, or 16.9%, from $3,523 million in the third quarter of 2009. CGS increased due to higher raw material costs of $381 million, higher tire volume of $161 million, higher costs in other tire-related businesses of $130 million, primarily in North American Tire, and product mix-related manufacturing cost increases of $51 million. CGS benefited from favorable foreign currency translation of $59 million, primarily in EMEA, lower conversion costs of $55 million, and savings from rationalization plans of approximately $16 million. Conversion costs included lower under-absorbed fixed overhead costs of approximately $75 million due to higher production volume and lower pension expenses of $25 million. The third quarter of 2010 also included asset write-offs and accelerated depreciation of $4 million ($3 million after-tax or $0.01 per share), compared to $18 million ($14 million after-tax or $0.06 per share) in the 2009 period. The third quarter of 2010 also included additional expenses of $4 million ($4 million after-tax or $0.02 per share) due to a supplier disruption. The third quarter of 2009 included expense of $5 million ($5 million after-tax or $0.02 per share) related to our labor contract with the USW. CGS was 83.0% of sales in the third quarter of 2010, compared to 80.3% in the third quarter of 2009.

Other Expense in the third quarter of 2010 was $62 million, increasing $58 million from $4 million in the third quarter of 2009. Financing fees in the third quarter of 2010 were $63 million which included $56 million ($56 million after-tax or $0.23 per share) related to the redemption of $973 million of long term debt, of which $50 million was a cash premium paid on the redemption and $6 million was financing fees which were written off. Net gains on asset sales were $2 million in the third quarter of 2010 compared to net gains on asset sales of $7 million ($6 million after-tax or $0.03 per share) in the 2009 period. Net gains in the third quarter of 2009 were due primarily to the sale of property in Luxembourg. Foreign currency exchange net gains (losses) were a $5 million loss in the third quarter of 2010

CGS in the first nine months of 2010 was $11,262 million, increasing $1,167 million, or 11.6%, from $10,095 million in the first nine months of 2009. CGS increased due to higher tire volume of $756 million, higher costs in other tire-related businesses of $383 million, primarily in North American Tire, higher raw material costs of $152 million, and foreign currency translation of $108 million, primarily in Asia Pacific Tire. CGS benefited from decreased conversion costs of $198 million and savings from rationalization plans of approximately $80 million. Conversion costs included lower under-absorbed fixed overhead costs of approximately $213 million due to higher production volume. The first nine months of 2010 also included asset write-offs and accelerated depreciation of $13 million ($10 million after-tax or $0.04 per share), compared to $40 million ($35 million after-tax or $0.15 per share) in the 2009 period. CGS was 81.8% of sales in the first nine months of 2010, compared to 85.1% in the first nine months of 2009.

Operating income in the third quarter of 2010 was $5 million compared to $2 million in the third quarter of 2009. The quarter benefited from lower conversion costs of $35 million, higher tire sales volume of $11 million, and lower transportation costs of $7 million. Raw material costs increased $148 million, which were partially offset by improved price and product mix of $96 million. The decrease in conversion costs was driven by lower under-absorbed fixed overhead costs of approximately $31 million due to higher production volume. Though lower pension expense of $25 million and lower expense of $5 million ($5 million after-tax or $0.02 per share) related to our USW contract decreased conversion costs, that favorable impact was offset by increased profit sharing benefit costs associated with the USW contract, general inflation, and costs associated with ramping up production levels in our tire plants. Conversion costs and SAG expenses also included savings from rationalization plans of $12 million and $1 million, respectively.

Operating income in the first nine months of 2010 was $7 million, improving $285 million from a loss of $278 million in the first nine months of 2009. Price and product mix improved $146 million, which more than offset raw material price increases of $15 million. Operating income also benefited from lower conversion costs of $97 million, increased operating income in our other tire-related businesses of $32 million, primarily related to sales of chemical products, higher tire volume of $31 million, and lower transportation costs of $17 million. The decrease in conversion costs was driven by lower under-absorbed fixed overhead costs of approximately $81 million due to higher production volume, and lower pension expense of $7 million. Increased general and product liability expense of $17 million negatively impacted the first nine months of 2010. Conversion costs and SAG expenses also included savings from rationalization plans of $53 million and $5 million, respectively.

Operating income in the third quarter of 2010 was $77 million, decreasing $29 million from $106 million in the third quarter of 2009. Operating income decreased due primarily to higher raw material costs of $154 million, which were partially offset by improved price and product mix of $60 million, and increased SAG expenses of $11 million due primarily to increased wages and benefits of $10 million. These increases were partially offset by lower conversion costs of $50 million and higher tire volume of $29 million. Conversion costs included lower under-absorbed fixed overhead costs of approximately $32 million due to higher production volume. Conversion costs and SAG expenses also included savings from rationalization plans of $1 million and $3 million, respectively. Operating income also included the impact of a strike in South Africa of $3 million ($3 million after-tax or $0.01 per share) in the third quarter of 2010.

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