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

October 26, 2012 | About:

10qk

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The Goodyear Tire & Rubber Company (GT) filed Quarterly Report for the period ended 2012-09-30.

Goodyear Tire & Rubber Co has a market cap of $3.03 billion; its shares were traded at around $11.18 with a P/E ratio of 7.5 and P/S ratio of 0.1.

Highlight of Business Operations:

Cost of goods sold (“CGS”) in the third quarter of 2012 was $4,315 million, decreasing $658 million, or 13.2%, from $4,973 million in the third quarter of 2011. CGS decreased due to lower tire volume of $478 million, favorable foreign currency translation of $208 million, and lower costs in other tire-related businesses of $130 million. These decreases were partially offset by increased conversion costs of $138 million. Conversion costs included higher under-absorbed fixed overhead costs of approximately $89 million due to lower production volume at existing plants, primarily in EMEA and North American Tire, net of cost savings of approximately $20 million from the closure of Union City; incremental start-up expenses for our new manufacturing facility in Pulandian, China of $3 million; and inflationary cost increases. CGS in the third quarter of 2012 included $9 million ($6 million after-tax or $0.02 per share) in settlement charges related to a U.K. pension plan. The third quarter of 2012 also included accelerated depreciation of $13 million ($10 million after-tax or $0.04 per share), primarily related to the closure of our Dalian, China manufacturing facility in the third quarter of 2012, compared to $12 million ($12 million after-tax or $0.04 per share) in the 2011 period, primarily related to the closure of Union City. CGS was 82.0% of sales in the third quarter of 2012 and 2011.

CGS in the first nine months of 2012 was $13,063 million, decreasing $943 million, or 6.7%, from $14,006 million in the first nine months of 2011. CGS decreased due to lower tire volume of $1,081 million, favorable foreign currency translation of $549 million, and lower costs in other tire-related businesses of $252 million. This was partially offset by higher raw material costs of $578 million, increased conversion costs of $295 million, and product mix-related manufacturing cost increases of $200 million. The higher conversion costs were caused primarily by higher under-absorbed fixed overhead costs of approximately $113 million due to lower production volume, primarily in EMEA, net of cost savings of approximately $60 million from the closure of Union City; incremental start-up expenses for our new manufacturing facility in Pulandian, China of $15 million; and inflationary cost increases. CGS in the first nine months of 2012 included $3 million ($3 million after-tax or $0.01 per share) in charges related to repairs for 2011 tornado damage at our manufacturing facility in Fayetteville, North Carolina and $9 million ($6 million after-tax or $0.02 per share) in settlement charges related to a U.K. pension plan. The first nine months of 2012 also included accelerated depreciation of $19 million ($15 million after-tax or $0.05 per share), primarily related to the closure of our Dalian, China manufacturing facility in the third quarter of 2012, compared to $46 million ($45 million after-tax or $0.17 per share) in the 2011 period, primarily related to the closure of Union City. CGS was 82% of sales in the first nine months of 2012 and 2011.

Other (Income) Expense in the first nine months of 2012 was $128 million, increasing $80 million from $48 million in the first nine months of 2011. In the first nine months of 2012, financing fees included a charge of $24 million ($24 million after-tax or $0.09 per share), primarily related to the amendment and restatement of our U.S. second lien term loan facility in the second quarter. Also included was a first quarter charge of $86 million ($86 million after-tax or $0.31 per share) related to the redemption of $650 million in aggregate principal amount of our outstanding 10.5% senior notes due 2016, of which $59 million related to cash premiums paid on the redemption and $27 million related to the write-off of deferred financing fees and unamortized discount. In the first nine months of 2011, we recorded $53 million ($53 million after-tax or $0.20 per share) in financing fees related to the redemption of $350 million in aggregate principal amount of our outstanding 10.5% senior notes due 2016, of which $37 million was a cash premium paid on the redemption and $16 million related to the write-off of deferred financing fees and unamortized discount. Net gains on asset sales were $22 million ($18 million after-tax or $0.06 per share) in the first nine months of 2012 compared to $24 million ($16 million after-tax or $0.06 per share) in the 2011 period. Net gains on asset sales in 2012 included third quarter gains on the sale of property in North American Tire, second quarter gains on the sale of a minority interest in a retail business in EMEA and the sale of certain assets related to our bias truck tire business in Latin American Tire, and a first quarter gain on the sale of property in North American Tire. Net gains in the first nine months of 2011 related primarily to the sale of land in Asia Pacific Tire, the sale of the farm tire business in Latin American Tire and the recognition of a deferred gain from the sale of property in North American Tire. Also included in Other (Income) Expense in the second quarter of 2012 was a charge of $20 million ($20 million after-tax or $0.07 per share) related to labor claims in EMEA.

Operating income in the first nine months of 2012 was $162 million, decreasing $21 million, or 11.5%, from $183 million in the first nine months of 2011. Operating income decreased due primarily to higher conversion costs of $44 million, lower tire volume of $38 million, higher SAG expenses of $16 million, decreased profits in other tire-related businesses of $7 million, and unfavorable foreign currency translation of $6 million. These decreases were partially offset by improved price and product mix of $136 million which more than offset increased raw material costs of $62 million and higher profits on intersegment sales of $13 million. The higher conversion costs were primarily driven by higher under-absorbed fixed overhead of $14 million on lower volume and wage inflation. The increase in SAG expenses is due primarily to increased wages of $11 million and warehousing expense of $9 million.

Goodyear Venezuela s sales were 2.0% and 1.7% of our net sales for the three months ended September 30, 2012 and 2011, respectively, and were 1.7% and 1.5% of our net sales for the nine months ended September 30, 2012 and 2011, respectively. Goodyear Venezuela s cost of goods sold were 1.7% and 1.4% of our cost of goods sold for the three months ended September 30, 2012 and 2011, respectively, and were 1.4% and 1.2% of our cost of goods sold for the nine months ended September 30, 2012 and 2011, respectively. Goodyear Venezuela s sales are bolivar fuerte denominated and cost of goods sold are approximately 56% bolivar fuerte denominated and approximately 44% U.S. dollar denominated. A further 10% decrease in the bolivar fuerte against the U.S. dollar would decrease Goodyear Venezuela s sales and cost of goods sold by approximately $36 million and approximately $14 million, respectively, on an annual basis, before any potential offsetting actions.

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