The Goodyear Tire & Rubber Company 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2007
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact name of Registrant as specified in its charter)
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Ohio
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34-0253240 |
(State or Other Jurisdiction of
|
|
(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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|
1144 East Market Street, Akron, Ohio
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44316-0001 |
(Address of Principal Executive Offices)
|
|
(Zip Code) |
(330) 796-2121
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the Registrants classes of common stock, as
of the latest practicable date.
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Number of Shares of Common Stock, |
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|
Without Par Value, Outstanding at June 30, 2007: |
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210,557,458 |
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
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|
|
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|
|
|
|
|
|
|
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Three Months Ended |
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Six Months Ended |
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|
June 30, |
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|
June 30, |
|
(In millions, except per share amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
NET SALES |
|
$ |
4,921 |
|
|
$ |
4,738 |
|
|
$ |
9,420 |
|
|
$ |
9,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
|
3,967 |
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|
|
3,952 |
|
|
|
7,708 |
|
|
|
7,560 |
|
Selling, Administrative and General Expense |
|
|
692 |
|
|
|
630 |
|
|
|
1,355 |
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|
|
1,245 |
|
Rationalizations (Note 2) |
|
|
7 |
|
|
|
35 |
|
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|
22 |
|
|
|
73 |
|
Interest Expense |
|
|
120 |
|
|
|
103 |
|
|
|
245 |
|
|
|
205 |
|
Other (Income) and Expense (Note 3) |
|
|
39 |
|
|
|
(7 |
) |
|
|
19 |
|
|
|
(34 |
) |
Minority Interest in Net Income of Subsidiaries |
|
|
16 |
|
|
|
11 |
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38 |
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23 |
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|
|
|
|
|
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|
|
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|
|
|
|
|
|
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|
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|
Income from Continuing Operations before Income Taxes |
|
|
80 |
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|
14 |
|
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|
33 |
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|
128 |
|
United States and Foreign Taxes |
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|
51 |
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|
47 |
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|
114 |
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|
115 |
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|
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|
Income (Loss) from Continuing Operations |
|
|
29 |
|
|
|
(33 |
) |
|
|
(81 |
) |
|
|
13 |
|
|
|
|
|
|
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|
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|
|
|
|
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|
Discontinued Operations (Note 11) |
|
|
27 |
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|
35 |
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|
(37 |
) |
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|
63 |
|
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|
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|
NET INCOME (LOSS) |
|
$ |
56 |
|
|
$ |
2 |
|
|
$ |
(118 |
) |
|
$ |
76 |
|
|
|
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|
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|
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Income (Loss) Per Share Basic |
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|
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|
|
|
|
|
|
|
|
|
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|
Income (Loss) from Continuing Operations |
|
$ |
0.15 |
|
|
$ |
(0.19 |
) |
|
$ |
(0.43 |
) |
|
$ |
0.07 |
|
Discontinued Operations |
|
|
0.13 |
|
|
|
0.20 |
|
|
|
(0.20 |
) |
|
|
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic |
|
$ |
0.28 |
|
|
$ |
0.01 |
|
|
$ |
(0.63 |
) |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Weighted Average Shares Outstanding (Note 4) |
|
|
196 |
|
|
|
177 |
|
|
|
188 |
|
|
|
177 |
|
|
|
|
|
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|
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|
Income (Loss) Per Share Diluted |
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|
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|
|
|
|
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|
Income (Loss) from Continuing Operations |
|
$ |
0.14 |
|
|
$ |
(0.19 |
) |
|
$ |
(0.43 |
) |
|
$ |
0.07 |
|
Discontinued Operations |
|
|
0.12 |
|
|
|
0.20 |
|
|
|
(0.20 |
) |
|
|
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Diluted |
|
$ |
0.26 |
|
|
$ |
0.01 |
|
|
$ |
(0.63 |
) |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted Average Shares Outstanding (Note 4) |
|
|
231 |
|
|
|
177 |
|
|
|
188 |
|
|
|
177 |
|
The accompanying notes are an integral part of these consolidated financial statements.
-1-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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|
June 30, |
|
|
December 31, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
Assets: |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
2,328 |
|
|
$ |
3,862 |
|
Restricted Cash |
|
|
191 |
|
|
|
214 |
|
Accounts and Notes Receivable, less Allowance $96 ($98 in 2006) |
|
|
3,372 |
|
|
|
2,800 |
|
Inventories: |
|
|
|
|
|
|
|
|
Raw Materials |
|
|
550 |
|
|
|
663 |
|
Work in Process |
|
|
146 |
|
|
|
135 |
|
Finished Products |
|
|
2,241 |
|
|
|
1,803 |
|
|
|
|
|
|
|
|
|
|
|
2,937 |
|
|
|
2,601 |
|
|
|
|
|
|
|
|
|
|
Prepaid Expenses and Other Current Assets |
|
|
299 |
|
|
|
289 |
|
Current Assets of Discontinued Operations (Note 11) |
|
|
446 |
|
|
|
413 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
9,573 |
|
|
|
10,179 |
|
Goodwill |
|
|
674 |
|
|
|
662 |
|
Intangible Assets |
|
|
164 |
|
|
|
166 |
|
Deferred Income Tax |
|
|
144 |
|
|
|
150 |
|
Other Assets and Deferred Pension Costs |
|
|
457 |
|
|
|
453 |
|
Long Term Assets of Discontinued Operations (Note 11) |
|
|
375 |
|
|
|
352 |
|
Properties and Plants,
less Accumulated Depreciation $8,037 ($7,673 in 2006) |
|
|
5,117 |
|
|
|
5,067 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
16,504 |
|
|
$ |
17,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts Payable-Trade |
|
$ |
2,131 |
|
|
$ |
1,945 |
|
Compensation and Benefits |
|
|
926 |
|
|
|
883 |
|
Other Current Liabilities |
|
|
730 |
|
|
|
811 |
|
Current Liabilities of Discontinued Operations (Note 11) |
|
|
163 |
|
|
|
157 |
|
United States and Foreign Taxes |
|
|
208 |
|
|
|
222 |
|
Notes Payable and Overdrafts (Note 5) |
|
|
233 |
|
|
|
243 |
|
Long Term Debt and Capital Leases due within one year (Note 5) |
|
|
182 |
|
|
|
405 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
4,573 |
|
|
|
4,666 |
|
Long Term Debt and Capital Leases (Note 5) |
|
|
5,038 |
|
|
|
6,562 |
|
Compensation and Benefits (Note 7) |
|
|
4,275 |
|
|
|
4,935 |
|
Long Term Liabilities of Discontinued Operations (Note 11) |
|
|
48 |
|
|
|
47 |
|
Deferred and Other Noncurrent Income Taxes |
|
|
283 |
|
|
|
320 |
|
Other Long Term Liabilities |
|
|
373 |
|
|
|
380 |
|
Minority Equity in Subsidiaries |
|
|
944 |
|
|
|
877 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
15,534 |
|
|
|
17,787 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingent Liabilities (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity (Deficit): |
|
|
|
|
|
|
|
|
Preferred Stock, no par value: |
|
|
|
|
|
|
|
|
Authorized, 50 shares, unissued |
|
|
|
|
|
|
|
|
Common Stock, no par value: |
|
|
|
|
|
|
|
|
Authorized, 450 shares, Outstanding shares 211 (178 in 2006)
after deducting 11 treasury shares (18 in 2006) |
|
|
211 |
|
|
|
178 |
|
Capital Surplus (Note 12) |
|
|
2,334 |
|
|
|
1,427 |
|
Retained Earnings |
|
|
882 |
|
|
|
968 |
|
Accumulated Other Comprehensive Loss (Note 7) |
|
|
(2,457 |
) |
|
|
(3,331 |
) |
|
|
|
|
|
|
|
Total Shareholders Equity (Deficit) |
|
|
970 |
|
|
|
(758 |
) |
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity (Deficit) |
|
$ |
16,504 |
|
|
$ |
17,029 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-2-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net Income (Loss) |
|
$ |
56 |
|
|
$ |
2 |
|
|
$ |
(118 |
) |
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
|
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|
|
|
|
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|
|
|
|
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|
Defined benefit plans: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit from plan amendment during period |
|
|
|
|
|
|
|
|
|
|
533 |
|
|
|
|
|
Amortization of prior service cost and unrecognized
gains and
losses included in net periodic benefit cost |
|
|
41 |
|
|
|
|
|
|
|
97 |
|
|
|
|
|
Less: Taxes |
|
|
(6 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
|
|
Minority interest |
|
|
(3 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
Increase in net actuarial losses |
|
|
(12 |
) |
|
|
|
|
|
|
(12 |
) |
|
|
|
|
Less: Minority interest |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immediate recognition of prior service cost and
unrecognized gains and losses due to curtailment |
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain |
|
|
102 |
|
|
|
31 |
|
|
|
146 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred derivative loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in
(loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax on derivative reclassification adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gain (loss) |
|
|
4 |
|
|
|
(8 |
) |
|
|
(3 |
) |
|
|
(11 |
) |
Less: Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
185 |
|
|
$ |
24 |
|
|
$ |
756 |
|
|
$ |
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-3-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income |
|
$ |
(118 |
) |
|
$ |
76 |
|
Less: Discontinued operations |
|
|
(37 |
) |
|
|
63 |
|
|
|
|
|
|
|
|
(Loss) Income from Continuing Operations |
|
|
(81 |
) |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile (loss) income from continuing operations to cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
300 |
|
|
|
335 |
|
Amortization and write-off of debt issuance costs |
|
|
33 |
|
|
|
9 |
|
Deferred tax provision |
|
|
(4 |
) |
|
|
(14 |
) |
Net rationalization charges (Note 2) |
|
|
22 |
|
|
|
73 |
|
Net gains on asset sales (Note 3) |
|
|
(19 |
) |
|
|
(2 |
) |
Fire loss expense |
|
|
12 |
|
|
|
|
|
Minority interest and equity earnings |
|
|
38 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
Pension contributions |
|
|
(245 |
) |
|
|
(199 |
) |
Rationalization payments |
|
|
(44 |
) |
|
|
(29 |
) |
Insurance recoveries |
|
|
|
|
|
|
43 |
|
Changes in operating assets and liabilities,
net of asset acquisitions and dispositions: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
(505 |
) |
|
|
(269 |
) |
Inventories |
|
|
(271 |
) |
|
|
(415 |
) |
Accounts payable trade |
|
|
134 |
|
|
|
98 |
|
Compensation and benefits |
|
|
200 |
|
|
|
191 |
|
Other current liabilities |
|
|
(29 |
) |
|
|
(24 |
) |
Other long term liabilities |
|
|
(5 |
) |
|
|
(42 |
) |
Other assets and liabilities |
|
|
(49 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
TOTAL OPERATING CASH FLOWS FROM CONTINUING OPERATIONS |
|
|
(513 |
) |
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
5 |
|
|
|
55 |
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
(508 |
) |
|
|
(203 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(227 |
) |
|
|
(257 |
) |
Asset dispositions |
|
|
33 |
|
|
|
4 |
|
Asset acquisitions |
|
|
|
|
|
|
(41 |
) |
Decrease in restricted cash |
|
|
23 |
|
|
|
17 |
|
|
|
|
|
|
|
|
TOTAL INVESTING CASH FLOWS FROM CONTINUING OPERATIONS |
|
|
(171 |
) |
|
|
(277 |
) |
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
(25 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
(196 |
) |
|
|
(289 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt and overdrafts incurred |
|
|
39 |
|
|
|
36 |
|
Short term debt and overdrafts paid |
|
|
(57 |
) |
|
|
(64 |
) |
Long term debt incurred |
|
|
374 |
|
|
|
46 |
|
Long term debt paid |
|
|
(2,141 |
) |
|
|
(160 |
) |
Debt issuance costs |
|
|
(17 |
) |
|
|
|
|
Common stock issued |
|
|
940 |
|
|
|
|
|
Dividends
paid to minority shareholders |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
TOTAL FINANCING CASH FLOWS FROM CONTINUING OPERATIONS |
|
|
(871 |
) |
|
|
(142 |
) |
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
(12 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
(883 |
) |
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
Net Change in Cash of Discontinued Operations |
|
|
32 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
21 |
|
|
|
36 |
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(1,534 |
) |
|
|
(604 |
) |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of the Period |
|
|
3,862 |
|
|
|
2,138 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of the Period |
|
$ |
2,328 |
|
|
$ |
1,534 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-4-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by The Goodyear
Tire & Rubber Company (Goodyear, we, us or our) in accordance with the Securities and
Exchange Commission rules and regulations and in the opinion of management contain all adjustments
(including normal recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for the periods presented. The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. These interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and related notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2006, as retrospectively
adjusted to reflect the treatment of the Engineered Products business as a discontinued operation
by our Current Report on Form 8-K filed May 3, 2007 (collectively, the 2006 Form 10-K).
Operating results for the three and six month periods ended June 30, 2007 are not necessarily
indicative of the results expected in subsequent quarters or for the year ending December 31, 2007.
As discussed in Note 11, the results of operations, financial position and cash flows of our
Engineered Products business, previously a reportable operating segment, have been reported as
discontinued operations for all periods presented. Unless otherwise indicated, all disclosures in
the notes to the unaudited interim consolidated financial statements relate to our continuing
operations.
Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS No. 155)
in February 2006. SFAS No. 155 amends SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities, and SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities and addresses the application of SFAS No. 133 to beneficial
interests in securitized financial assets. SFAS No. 155 establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are freestanding derivatives
or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation.
Additionally, SFAS No. 155 permits fair value measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 is
effective for fiscal years beginning after September 15, 2006. We adopted SFAS No. 155 on January
1, 2007. The adoption of SFAS No. 155 did not have a significant impact on our results of
operations or financial position.
The FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets an amendment of
FASB Statement No. 140 (SFAS No. 156) in March 2006. SFAS No. 156 requires a company to
recognize a servicing asset or servicing liability each time it undertakes an obligation to service
a financial asset. A company will recognize a servicing asset or servicing liability initially at
fair value. A company will then be permitted to choose to subsequently recognize servicing assets
and liabilities using the amortization method or fair value measurement method. SFAS No. 156 is
effective for fiscal years beginning after September 15, 2006. We adopted SFAS No. 156 on January
1, 2007. The adoption of SFAS No. 156 did not have a significant impact on our results of
operations or financial position.
On July 13, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes-an Interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies
what criteria must be met prior to recognition of the financial statement benefit of a position
taken in a tax return. FIN No. 48 requires companies to include additional qualitative and
quantitative disclosures within their financial statements. The disclosures include potential tax
benefits from positions taken for tax return purposes that have not been recognized for financial
reporting purposes and a tabular presentation of significant changes during each annual period.
The disclosures also include a discussion of the nature of uncertainties, factors which could cause
a change, and an estimated range of reasonably possible changes in tax uncertainties. FIN No. 48
requires a company to recognize a financial statement benefit for a position taken for tax return
purposes when it is more-likely-than-not that the position will be sustained. We adopted FIN No.
48 on January 1, 2007. The
-5-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
adoption resulted in an increase in the opening balance of retained earnings and a decrease in
goodwill as of January 1, 2007 of $32 million and $5 million, respectively, for tax benefits not
previously recognized under historical practice.
On September 15, 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No.
157). SFAS No. 157 addresses how a company should measure fair value when it is required to use a
fair value measure for recognition and disclosure purposes under generally accepted accounting
principles. SFAS No. 157 will require the fair value of an asset or liability to be based on a
market based measure which will reflect the credit risk of the company. SFAS No. 157 will also
require expanded disclosure requirements which will include the methods and assumptions used to
measure fair value and the effect of fair value measures on earnings. SFAS No. 157 will be applied
prospectively and will be effective for fiscal years beginning after November 15, 2007 and to
interim periods within those fiscal years. We are currently assessing the impact SFAS No. 157 will
have on our consolidated financial statements.
The FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement No. 115 (SFAS No. 159) in February 2007.
SFAS No. 159 permits a company to choose to measure many financial instruments and other items at
fair value that are not currently required to be measured at fair value. The objective is to
improve financial reporting by providing a company with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. A company shall report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each subsequent reporting
date. SFAS No. 159 will be effective for fiscal years that begin after November 15, 2007. We are
currently assessing the impact SFAS No. 159 will have on our consolidated financial statements.
Reclassification
Certain items previously reported in specific financial statement captions have been reclassified
to conform to the current presentation.
NOTE 2. COSTS ASSOCIATED WITH RATIONALIZATION PROGRAMS
To maintain global competitiveness, we have implemented rationalization actions over the past
several years for the purpose of reducing excess and high-cost manufacturing capacity and to reduce
associate headcount. In the second quarter of 2007, no new rationalization actions were approved.
The following table shows the reconciliation of our liability between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associate- |
|
|
Other Than |
|
|
|
|
(In millions) |
|
related Costs |
|
|
Associate-related Costs |
|
|
Total |
|
Balance at December 31, 2006 |
|
$ |
77 |
|
|
$ |
20 |
|
|
$ |
97 |
|
First quarter charges |
|
|
9 |
|
|
|
8 |
|
|
|
17 |
|
Incurred |
|
|
(14 |
) |
|
|
(14 |
) |
|
|
(28 |
) |
Reversed to the statement of operations |
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007 |
|
$ |
70 |
|
|
$ |
14 |
|
|
$ |
84 |
|
Second quarter charges |
|
|
3 |
|
|
|
8 |
|
|
|
11 |
|
Incurred |
|
|
(15 |
) |
|
|
(7 |
) |
|
|
(22 |
) |
Reversed to the statement of operations |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
$ |
55 |
|
|
$ |
14 |
|
|
$ |
69 |
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of 2007, $7 million ($7 million after-tax or $0.03 per share) of net
charges were recorded. New charges of $11 million for plans initiated in 2006 were recorded and
include $3 million of associate severance costs and $8 million primarily for other exit costs and
non-cancelable lease costs. The second quarter of 2007 includes the reversal of $4 million of
reserves for rationalization actions no longer needed for their originally-intended purposes.
-6-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the first six months of 2007, $22 million ($21 million after-tax or $0.11 per share) of
net charges were recorded. New charges of $28 million were comprised of $5 million for plans
initiated in 2007 and $23 million for plans initiated in 2006. New charges of $5 million for the
2007 plans related to associate severance costs. The $23 million of new charges for 2006 plans
consist of $7 million of associate-related costs and $16 million primarily for other exit costs and
non-cancelable lease costs. The first six months of 2007 includes the reversal of $6 million of
reserves for actions no longer needed for their originally-intended purposes. Approximately 140
associates will be released under programs initiated in 2007, most of whom will be released within
the next 9 months.
The accrual balance of $69 million at June 30, 2007 includes approximately $9 million related
to long-term non-cancelable lease costs and approximately $60 million of associate and other costs
that are expected to be substantially utilized within the next twelve months.
In addition to the liabilities discussed
above, we will be retaining restructuring liabilities
related to our Engineered Products business. At June 30, 2007,
$5 million of restructuring liabilities are recorded in Other
current liabilities.
Accelerated depreciation charges of $8 million and $25 million were recorded as Cost of goods
sold in the three and six months ended June 30, 2007,
respectively, primarily for fixed assets to be taken
out of service in connection with our plan to close the Tyler, Texas tire manufacturing facility
and a plan to discontinue tire production at our Valleyfield, Quebec facility. During the three
and six months ended June 30, 2006, $45 million in accelerated depreciation charges were recorded
in Cost of goods sold for fixed assets taken out of service in connection with the closure of the
Washington, United Kingdom facility. Charges of $2 million of accelerated depreciation in Selling,
administrative and general expense were recorded during the six months ended June 30, 2006.
During the second quarter of 2006, $35 million ($30 million after-tax or $0.17 per share) of
net charges were recorded. New charges of $36 million were comprised of $34 million for plans
initiated in 2006 and $2 million for plans initiated in the fourth quarter of 2005. The $34
million of charges for plans initiated in 2006 include $30 million of associate severance costs and
$4 million primarily for non-cancelable lease costs. The second quarter includes the reversal of
$1 million of reserves for rationalization actions no longer needed for their originally-intended
purposes.
For
the first six months of 2006, $73 million ($58 million after-tax or $0.33 per share) of
net charges were recorded. New charges of $75 million were
comprised of $72 million for plans
initiated in 2006 and $3 million for plans initiated in 2005 for
associate-related costs. The $72
million of new charges for 2006 plans consist of $66 million of associate-related costs and $6
million primarily for non-cancelable lease costs. The first six months of 2006 includes the
reversal of $2 million of reserves for actions no longer needed for their originally-intended
purposes. Approximately 5,065 associates will be released under programs initiated in 2006, of
which 3,530 were released by June 30, 2007.
-7-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. OTHER (INCOME) AND EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Asset sales |
|
$ |
(10 |
) |
|
$ |
|
|
|
$ |
(19 |
) |
|
$ |
(2 |
) |
Interest income |
|
|
(26 |
) |
|
|
(15 |
) |
|
|
(56 |
) |
|
|
(35 |
) |
Financing fees |
|
|
56 |
|
|
|
10 |
|
|
|
67 |
|
|
|
20 |
|
Fire loss expense |
|
|
5 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
Foreign currency exchange |
|
|
12 |
|
|
|
(4 |
) |
|
|
14 |
|
|
|
(3 |
) |
General & product liability
discontinued products
(Note 8) |
|
|
4 |
|
|
|
4 |
|
|
|
8 |
|
|
|
9 |
|
Equity in earnings of affiliates |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(7 |
) |
Latin American legal matter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
Miscellaneous |
|
|
(1 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
39 |
|
|
$ |
(7 |
) |
|
$ |
19 |
|
|
$ |
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) and expense was $39 million of expense in the 2007 second quarter, a decrease of $46
million, compared to $7 million of income in the 2006 second quarter. Higher 2007 financing fees
of $46 million included $33 million related to the redemption of $315 million of long term debt, of
which $28 million was a cash premium paid on the redemption and $5 million was deferred financing
fee write-offs. Also included in the $46 million of higher financing fees was approximately $14
million of debt issuance costs written-off in connection with our refinancing activities in April
2007. The second quarter of 2007 also includes a $12 million loss on foreign currency exchange as
a result of the weakening of the U.S. dollar versus the Chilean peso,
Colombian peso, and Brazilian
real. These were partially offset by higher interest income in 2007 of $11 million on higher cash
deposits, and gains on asset sales of $10 million, which included an $8 million gain on the sale of
property and equipment in North American Tire.
Other
(income) and expense was $19 million of expense for the
first six months of 2007, a decrease
of $53 million, compared to $34 million of income for the
first six months of 2006. Higher 2007
financing fees included $33 million related to the redemption of $315 million of long term debt, of
which $28 million was a cash premium paid on the redemption and $5 million was deferred financing
fee write-offs. Also included in the $47 million of higher financing fees were $14 million
primarily of debt issuance costs written-off in connection with our refinancing activities in April
2007. The decrease was also a result of a charge of $12 million related to a fire in our Thailand
facility. Also included in 2007 was a $14 million loss on foreign currency exchange as a result of
the weakening of the U.S. dollar versus the Colombian peso, Chilean peso, and the Brazilian real.
The 2006 period includes a $15 million gain resulting from a favorable settlement of a legal matter
in Latin American Tire. The increase in expense was partially offset by gains on asset sales of
$17 million in 2007 related to sales of property primarily in North American Tire and Asia Pacific Tire and
higher interest income of $21 million on higher cash deposits.
NOTE 4. PER SHARE OF COMMON STOCK
Basic earnings per share are computed based on the average number of common shares outstanding.
There are contingent conversion features included in our $350 million 4% Convertible Senior
Notes due 2034 (the Notes), issued on July 2, 2004. Since the applicable stock price condition
was met, the Notes became convertible in the first, second and third quarters of 2007, except for
the first 11 trading days of each quarter. In addition, if the applicable conditions are met, the
Notes may be convertible in any future fiscal quarter. If all of the Notes outstanding are
surrendered for conversion, the aggregate number of additional shares of common stock issued would
be approximately 29 million.
-8-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the number of incremental weighted average shares used in
computing diluted per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Average shares outstanding basic |
|
|
196 |
|
|
|
177 |
|
|
|
188 |
|
|
|
177 |
|
4% Convertible Senior Notes due 2034 |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options and other dilutive securities |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding diluted |
|
|
231 |
|
|
|
177 |
|
|
|
188 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our average shares outstanding increased due to our public equity offering of 26,136,363 common
shares on May 22, 2007. Refer to Note 12 for further information on the equity offering.
Weighted average shares outstanding diluted for the six months ended June 30, 2007 and three
and six months ended June 30, 2006, excluded approximately 29 million contingently issuable shares
as their inclusion would have been anti-dilutive due to insufficient
earnings. Also, approximately 11 million equivalent shares
for the six months ended June 30, 2007 and 8 million equivalent shares for the three and six months
ended June 30, 2006 related to options with exercise prices less than the average market price of
our common shares (i.e., in-the-money options) were excluded as their inclusion would have been
anti-dilutive.
Additionally, weighted average shares outstanding diluted excluded approximately 5 million
and 7 million equivalent shares for the three and six months ended June 30, 2007, respectively, and
excluded approximately 19 million equivalent shares for the three and six months ended June 30,
2006, related to options with exercise prices greater than the average market price of our common
shares (i.e. underwater options).
The following table presents the
computation of adjusted income (loss) from continuing
operations and adjusted income (loss) used in computing income (loss) from continuing operations
per share diluted and Net income (loss) per share diluted, respectively. The computation of
adjusted income (loss) from continuing operations assumes that after-tax interest costs incurred on
the Notes would have been avoided had the Notes been converted as of April 1 for the three months
ended June 30, 2007. Adjusted income (loss) for the six
months ended June 30, 2007 and the three and six months ended June 30, 2006 do not include the
after-tax interest costs as the Notes were anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Income (Loss) from continuing operations |
|
$ |
29 |
|
|
$ |
(33 |
) |
|
$ |
(81 |
) |
|
$ |
13 |
|
After-tax impact of 4% Convertible Senior Notes
due 2034 |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Income (Loss) from continuing operations |
|
|
33 |
|
|
|
(33 |
) |
|
|
(81 |
) |
|
|
13 |
|
Discontinued Operations |
|
|
27 |
|
|
|
35 |
|
|
|
(37 |
) |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
Income (Loss) |
|
$ |
60 |
|
|
$ |
2 |
|
|
$ |
(118 |
) |
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-9-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. FINANCING ARRANGEMENTS
At June 30, 2007, we had total credit arrangements totaling $7,907 million, of which $2,000 million
were unused, compared to $8,196 million and $533 million, respectively, at December 31, 2006.
Notes Payable and Overdrafts, Long Term Debt and Capital Leases due Within One Year and Short
Term Financing Arrangements
At June 30, 2007, we had short term committed and uncommitted credit arrangements totaling $546
million, of which $313 million was unused, compared to $479 million and $236 million, respectively,
at December 31, 2006. These arrangements are available primarily to certain of our international
subsidiaries through various banks at quoted market interest rates.
The following table presents amounts due within one year:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
Notes payable and overdrafts |
|
$ |
233 |
|
|
$ |
243 |
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
6.57 |
% |
|
|
5.60 |
% |
Long term debt and capital leases due within one year: |
|
|
|
|
|
|
|
|
8 1/2% due 2007 |
|
$ |
|
|
|
$ |
300 |
|
6 3/8% due 2008 |
|
|
100 |
|
|
|
|
|
U.S. Revolving credit facility |
|
|
|
|
|
|
37 |
|
Other (including capital leases) |
|
|
82 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
$ |
182 |
|
|
$ |
405 |
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
7.39 |
% |
|
|
8.34 |
% |
Total obligations due within one year |
|
$ |
415 |
|
|
$ |
648 |
|
|
|
|
|
|
|
|
Long Term Debt and Capital Leases and Financing Arrangements
At June 30, 2007, we had long term credit arrangements totaling $7,361 million, of which $1,687
million were unused, compared to $7,717 million and $297 million, respectively, at December 31,
2006.
-10-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents long term debt and capital leases, net of unamortized discounts,
and interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
(In millions) |
|
2007 |
|
|
Rate |
|
|
2006 |
|
|
Rate |
|
Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 1/2% due 2007 |
|
$ |
|
|
|
|
|
|
|
$ |
300 |
|
|
|
8 1/2 |
% |
6 3/8% due 2008 |
|
|
100 |
|
|
|
6 3/8 |
% |
|
|
100 |
|
|
|
6 3/8 |
% |
Floating
rate notes due 2009 |
|
|
496 |
|
|
|
9.14 |
% |
|
|
495 |
|
|
|
9.14 |
% |
7 6/7% due 2011 |
|
|
650 |
|
|
|
7 6/7 |
% |
|
|
650 |
|
|
|
7 6/7 |
% |
8.625% due 2011 |
|
|
325 |
|
|
|
8.625 |
% |
|
|
500 |
|
|
|
8.625 |
% |
Floating rate notes due 2011 |
|
|
200 |
|
|
|
13.62 |
% |
|
|
200 |
|
|
|
13.70 |
% |
11% due 2011 |
|
|
449 |
|
|
|
11 |
% |
|
|
448 |
|
|
|
11 |
% |
9% due 2015 |
|
|
260 |
|
|
|
9 |
% |
|
|
400 |
|
|
|
9 |
% |
7% due 2028 |
|
|
149 |
|
|
|
7 |
% |
|
|
149 |
|
|
|
7 |
% |
4% Convertible Senior Notes due 2034 |
|
|
350 |
|
|
|
4 |
% |
|
|
350 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank term loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155 million senior secured European term loan due 2010 |
|
|
|
|
|
|
|
|
|
|
202 |
|
|
|
5.91 |
% |
$300 million third lien secured term loan due 2011 |
|
|
300 |
|
|
|
8.82 |
% |
|
|
300 |
|
|
|
8.89 |
% |
$1.2 billion second lien term loan facility due 2014 |
|
|
1,200 |
|
|
|
6.85 |
% |
|
|
1,200 |
|
|
|
8.14 |
% |
Pan-European accounts receivable facility due 2009 |
|
|
372 |
|
|
|
5.28 |
% |
|
|
362 |
|
|
|
5.05 |
% |
German revolving credit facility due 2012 |
|
|
68 |
|
|
|
6.13 |
% |
|
|
204 |
|
|
|
6.42 |
% |
U.S. Revolving credit facility |
|
|
|
|
|
|
|
|
|
|
873 |
|
|
|
7.60 |
% |
Other domestic and international debt |
|
|
246 |
|
|
|
8.45 |
% |
|
|
177 |
|
|
|
7.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,165 |
|
|
|
|
|
|
|
6,910 |
|
|
|
|
|
Capital lease obligations |
|
|
55 |
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,220 |
|
|
|
|
|
|
|
6,967 |
|
|
|
|
|
Less portion due within one year |
|
|
(182 |
) |
|
|
|
|
|
|
(405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,038 |
|
|
|
|
|
|
$ |
6,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information about long term fixed rate debt, including capital leases,
at June 30, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
(In millions) |
|
2007 |
|
2006 |
Carrying amount liability |
|
$ |
2,410 |
|
|
$ |
2,998 |
|
Fair value liability |
|
|
3,152 |
|
|
|
3,353 |
|
The fair value was estimated using quoted market prices or discounted future cash flows. The fair
value exceeded the carrying amount at June 30, 2007 and December 31, 2006 due primarily to lower
market interest rates. The fair value of our variable rate debt approximated its carrying amount
at June 30, 2007 and December 31, 2006.
April 20, 2007 Refinancing
On April 20, 2007, we refinanced three of our credit facilities. Significant changes to the
amended and restated agreements include:
|
|
|
With respect to our $1.5 billion first lien revolving credit facility, an extension of
its maturity until 2013, a reduction of the applicable interest rate by between 50 and 75
basis points (depending on availability of undrawn amounts) and a more flexible covenant
package. |
-11-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
With respect to our $1.2 billion second lien term loan facility, an extension of its
maturity until 2014, a reduction of the applicable interest rate by 100 basis points (further reduced by 25 basis points
as of May 31, 2007 when our credit ratings were upgraded to BB- and Ba3) and a
more flexible covenant package. |
|
|
|
|
With respect to our 505 million senior secured European credit facilities, the
conversion of the existing 155 million term loan to a revolving facility, an extension of
the facilities maturity until 2012, a reduction of the applicable interest rate by 75
basis points (as compared to the existing European revolving facility) and 37.5 basis
points (as compared to the existing European term loan) and a more flexible covenant
package. |
The aggregate amount of fees we paid in connection with the refinancing was approximately $19
million.
June 29, 2007 Debt Redemption
On June 29, 2007, we exercised our right to redeem $175 million of our $500 million 8.625% senior
notes due 2011 and $140 million of our $400 million 9.00% senior notes due in 2015. A prepayment
premium of $28 million was paid in connection with the redemption.
$1.5 Billion Amended and Restated First Lien Revolving Credit Facility due 2013
The amended and restated first lien revolving credit facility is available in the form of loans or
letters of credit, with letter of credit availability limited to $800 million. Subject to the
consent of the lenders whose commitments are to be increased, we may request that the facility be
increased by up to $250 million. Our obligations under the facility are guaranteed by most of our
wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our
subsidiaries obligations under the related guarantees are secured by first priority security
interests in collateral that includes, subject to certain exceptions:
|
|
|
U.S. and Canadian accounts receivable and inventory; |
|
|
|
|
certain of our U.S. manufacturing facilities; |
|
|
|
|
equity interests in our U.S. subsidiaries and up to 65% of the equity interests in our
foreign subsidiaries, excluding Goodyear Dunlop Tires Europe B.V. (GDTE) and its
subsidiaries; and |
|
|
|
|
substantially all other tangible and intangible assets, including equipment, contract
rights and intellectual property. |
Availability under the facility is subject to a borrowing base, which is based on eligible
accounts receivable and inventory, with reserves that are subject to adjustment from time to time
by the administrative agent and the majority lenders at their discretion (not to be exercised
unreasonably). Adjustments are based on the results of periodic collateral and borrowing base
evaluations and appraisals. If at any time the amount of outstanding borrowings and letters of
credit under the facility exceeds the borrowing base, we are required to prepay borrowings and/or
cash collateralize letters of credit sufficient to eliminate the excess.
The facility, which matures on April 30, 2013, contains certain covenants that, among other
things, limit our ability to incur additional debt or issue redeemable preferred stock, make
certain restricted payments or investments, incur liens, sell assets (excluding the sale of our
Engineered Products business and properties located in Akron, Ohio), incur restrictions on the
ability of our subsidiaries to pay dividends to us, enter into affiliate transactions, engage in
sale and leaseback transactions, and consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets. These covenants are subject to significant exceptions and
qualifications. In addition, in the event that the availability under the facility plus the
aggregate amount of our Available Cash is less than $150 million, we will not be permitted to allow
our ratio of EBITDA to Consolidated Interest Expense to be less than 2.0 to 1.0 for any period of
four consecutive fiscal quarters. Available Cash, EBITDA and Consolidated Interest Expense
have the meanings given them in the facility.
The facility has customary representations and warranties including, as a condition to
borrowing, material adverse change representations in our financial condition since December 31,
2006.
-12-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the 270-day period following the refinancing date and, thereafter, if the availability
under the facility is greater than or equal to $400 million, amounts drawn under the facility will
bear interest either (i) at a rate of 125 basis points over LIBOR or (ii) 25 basis points over an
alternative base rate (the higher of the prime rate or the federal funds rate plus 50 basis
points), and undrawn amounts under the facility will be subject to an annual commitment fee of 37.5
basis points. After the 270-day period following the refinancing date, if the availability under
the facility is less than $400 million, then amounts drawn under the facility will bear interest
either (i) at a rate of 150 basis points over LIBOR or (ii) 50 basis points over an alternative
base rate, and undrawn amounts under the facility will be subject to an annual commitment fee of 25
basis points.
At June 30, 2007, there were no borrowings under the revolving credit facility and $505
million of letters of credit were issued under the revolving credit facility. At December 31,
2006, we had $873 million outstanding under the revolving credit facility and $6 million of letters of credit
issued under the revolving credit facility. At December 31, 2006 there were no borrowings and $500
million of letters of credit issued under the deposit-funded facility. The $500 million of letters
of credit that were outstanding prior to the refinancing have been transferred to the revolving
credit facility.
505 Million Amended and Restated Senior Secured European Revolving Credit Facilities due
2012
These amended and restated facilities consist of a 350 million European revolving credit facility
and a 155 million German revolving credit facility. Up to 50 million in letters of credit are
available for issuance under the European revolving credit facility. Goodyear and its domestic
subsidiaries that secure our U.S. facilities provide unsecured guarantees to support the European
revolving credit facilities. GDTE and certain of its subsidiaries in the United Kingdom,
Luxembourg, France and Germany also provide guarantees. GDTEs obligations under the facilities and
the obligations of its subsidiaries under the related guarantees are secured by first priority
security interests in collateral that includes, subject to certain exceptions:
|
|
|
the capital stock of the principal subsidiaries of GDTE; and |
|
|
|
|
substantially all of the tangible and intangible assets of GDTE and its subsidiaries in
the United Kingdom, Luxembourg, France and Germany, including certain accounts receivable,
inventory, real property, equipment, contract rights and cash and cash accounts, but
excluding certain accounts receivable and cash accounts in subsidiaries that are or may
become parties to securitization programs. |
The facilities, which mature on April 30, 2012, contain covenants similar to those in our
first lien credit facility, with additional limitations applicable to GDTE and its subsidiaries.
In addition, we are not permitted to allow GDTEs ratio of Consolidated Net J.V. Indebtedness
(which is determined net of cash and cash equivalents in excess of $100 million) to Consolidated
European J.V. EBITDA to be greater than 3.0 to 1.0 at the end of any fiscal quarter. Consolidated
Net J.V. Indebtedness and Consolidated European J.V. EBITDA have the meanings given them in the
facilities.
The facilities have customary representations and warranties including, as a condition to
borrowing, material adverse change representations in our financial condition since December 31,
2006.
Under the revolving credit facilities, we pay an annual commitment fee of 62.5 basis points
on the undrawn portion of the commitments and loans bear interest at LIBOR plus 200 basis points
for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 200 basis points for
loans denominated in euros.
As of June 30, 2007 and December 31, 2006, there were $4 million of letters of credit issued
and no borrowings under the European revolving credit facility. As of June 30, 2007 and December
31, 2006, $68 million and $204 million, respectively, was drawn under the German revolving credit
facility. The $202 million in term loans that were outstanding
at December 31, 2006 have been transferred to the European
revolving credit facility.
$1.2 Billion Amended and Restated Second Lien Term Loan Facility due 2014
The $1.2 billion in aggregate amount of term loans that were outstanding under this facility prior
to the refinancing continue to be outstanding under the facility as amended and restated. Subject
to the consent of the lenders making additional term loans, we may borrow incremental term loans
under the facility in an amount up to $300 million. Our obligations under this facility are
guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second
priority security interests in the same collateral securing our first lien credit facility. The
second lien term loan facility, which matures on April 30, 2014, contains covenants similar to
those in our first lien credit facility but is not subject to the financial
-13-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
covenant contained in that facility. However, if our ratio of Secured Indebtedness to EBITDA for
any period of four consecutive fiscal quarters is greater than 3.0 to 1.0, before we may use cash
proceeds from certain asset sales to repay any junior lien, senior unsecured or subordinated
indebtedness, we must first offer to prepay borrowings under the second lien term loan facility.
Secured Indebtedness and EBITDA have the meanings given them in the facility.
Loans under this facility bear interest, at our option, at LIBOR plus 150 basis points or an
alternative base rate plus 50 basis points. If our corporate ratings by Moodys and Standard &
Poors were to decline to B1 or less and B+ or less, respectively (or our outlook at our current
rating level was negative), then loans under this facility will bear interest, at our option, at
LIBOR plus 175 basis points or an alternative base rate plus 75 basis points. As of June 30, 2007
and December 31, 2006, this facility was fully drawn.
Covenant
Compliance
As of June 30, 2007, we were in compliance with the material covenants
imposed by our principal credit facilities.
Debt Maturities
Significant updates to our debt maturities as disclosed in our 2006 Form 10-K are provided below
and reflect the new maturity dates on our credit facilities as discussed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ending December 31, 2006, |
|
(In millions) |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
Domestic |
|
$ |
349 |
|
|
$ |
106 |
|
|
$ |
501 |
|
|
$ |
6 |
|
|
$ |
2,105 |
|
International |
|
|
56 |
|
|
|
27 |
|
|
|
415 |
|
|
|
7 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
405 |
|
|
$ |
133 |
|
|
$ |
916 |
|
|
$ |
13 |
|
|
$ |
2,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6. STOCK COMPENSATION PLANS
Our Board of Directors granted 1.7 million stock options and 1.2 million performance share units
during the first quarter of 2007 under our 2005 Performance Plan. The weighted average exercise
price per share and weighted average fair value per share of these stock options was $24.71 and
$11.54, respectively. We estimated the fair values using the following assumptions in our
Black-Scholes model:
Expected term: 6.25 years
Interest rate: 4.61%
Volatility: 39.2%
Dividend yield: Nil
Additionally, we also granted 0.4 million reload options during the first six months of 2007.
We recognized stock-based compensation expense of $21 million ($20 million after-tax) and $36
million ($33 million after-tax) during the three and six months ended June 30, 2007, respectively.
As of June 30, 2007, unearned compensation cost related to the unvested portion of all stock-based
awards was approximately $93 million and is expected to be recognized over the remaining vesting
period of the respective grants, through June 30, 2011. During the three and six months ended June
30, 2006 we recognized stock-based compensation expense of $4 million ($4 million after-tax) and
$10 million ($9 million after-tax), respectively.
NOTE 7. PENSION, SAVINGS AND OTHER POSTRETIREMENT BENEFIT PLANS
We provide substantially all employees with pension or savings benefits and substantially all
domestic employees and employees at certain non-U.S. subsidiaries with health care and life
insurance benefits upon retirement.
On March 23, 2007, we announced an agreement to sell our Engineered Products business, which
resulted in the recognition of curtailment and termination charges for both pensions and other
postretirement benefit plans during the first quarter of 2007 of $72 million. Under the terms of
the Purchase and Sale Agreement for Engineered Products, we will retain our obligations for pension
and other postretirement benefits under our U.S. plans for Engineered Products existing retirees
and employees eligible to retire as of the date of the closing of the sale. Obligations for
benefits under certain non-U.S. plans
-14-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
will not be retained. A portion of U.S. net periodic cost for active employees of Engineered
Products, and net periodic cost for certain non-U.S. plans have been included in Discontinued
Operations.
On February 28, 2007, we announced that we will freeze our U.S. salaried pension plans
effective December 31, 2008 and will implement improvements to our defined contribution savings
plan effective January 1, 2009. As a result of these actions, we recognized a curtailment charge
of $64 million during the first quarter of 2007. On February 28, 2007, we also announced changes
to our U.S. salaried other postretirement benefit plans effective January 1, 2008, including
increasing the amounts that salaried retirees contribute toward the cost of their medical benefits,
redesigning retiree medical benefit plans to minimize cost impact on premiums, and discontinuing
company-paid life insurance for retirees. As a result of these actions, we were required to
remeasure the benefit obligations of the affected plans, which resulted in the reduction of our
U.S. pension obligation by $87 million and our obligation for other postretirement benefits by $529
million. The discount rate used to measure the benefit obligations of our U.S. salaried pension
plans at February 28, 2007 and December 31, 2006 was 5.75%. The discount rate used to measure the
benefit obligations of our U.S. salaried other postretirement benefit plans at February 28, 2007
was 5.50% compared to 5.75% at December 31, 2006.
Significant changes from our December 31, 2006 disclosures as a result of the changes
described above include:
|
|
|
Decrease in Accumulated Other Comprehensive Loss of $131 million related to
our U.S. pension plans. |
|
|
|
|
Decrease in Accumulated Other Comprehensive Loss of $535 million related to
our other postretirement benefits. |
|
|
|
|
Estimated prior service cost and net actuarial loss that will be amortized
from Accumulated Other Comprehensive Loss into benefit cost in 2007 are $39
million and $52 million, respectively, for our U.S. pension plans and $4 million
and $73 million, respectively, for our non-U.S. plans, compared to our previous
estimate of $56 million and $59 million, respectively, for our U.S. pension plans
and $4 million and $75 million, respectively, for our non-U.S. plans at December
31, 2006. |
|
|
|
|
Estimated prior service cost and net actuarial loss for other postretirement
benefit plans that will be amortized from Accumulated Other Comprehensive Loss
into other postretirement benefit cost in 2007 are a benefit of $8 million and
expense of $12 million, respectively, compared to our previous estimate of $37
million and $10 million of expense, respectively, at December 31, 2006. |
|
|
|
|
The weighted average amortization period as disclosed for employees covered by
our U.S. plans is approximately 20 years compared to our previous estimate of 13
years at December 31, 2006, as the U.S. salaried workforce in now considered
inactive for pension amortization purposes. |
|
|
|
|
Estimated future benefit payments, net of retiree contributions, for other
postretirement plans are revised as shown below: |
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
Without Medicare |
|
Medicare Part D |
(In millions) |
|
Part D Subsidy |
|
Subsidy Receipts |
2007 |
|
$ |
252 |
|
|
$ |
(21 |
) |
2008 |
|
|
211 |
|
|
|
(19 |
) |
2009 |
|
|
205 |
|
|
|
(21 |
) |
2010 |
|
|
200 |
|
|
|
(23 |
) |
2011 |
|
|
194 |
|
|
|
(24 |
) |
2012-2016 |
|
|
861 |
|
|
|
(136 |
) |
Effective March 1, 2006, all active participants in the Brazil pension plan were converted to a
defined contribution savings plan, resulting in the recognition of a curtailment gain. Further,
the announcement of the planned closure of our Tyler, Texas facility and of tire production at our
Valleyfield, Quebec facility resulted in the recognition of curtailment and termination charges for
both pensions and other postretirement benefit plans during the third and fourth quarters of 2006,
respectively.
-15-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pension cost follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
U.S. |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Service cost benefits earned during the period |
|
$ |
21 |
|
|
$ |
23 |
|
|
$ |
44 |
|
|
$ |
47 |
|
Interest cost on projected benefit obligation |
|
|
78 |
|
|
|
75 |
|
|
|
155 |
|
|
|
150 |
|
Expected return on plan assets |
|
|
(86 |
) |
|
|
(74 |
) |
|
|
(172 |
) |
|
|
(147 |
) |
Amortization of: prior service cost |
|
|
9 |
|
|
|
15 |
|
|
|
22 |
|
|
|
30 |
|
net losses |
|
|
14 |
|
|
|
25 |
|
|
|
29 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
|
36 |
|
|
|
64 |
|
|
|
78 |
|
|
|
129 |
|
Curtailments/settlements |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension cost |
|
$ |
36 |
|
|
$ |
64 |
|
|
$ |
142 |
|
|
$ |
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. |
|
|
Non-U.S. |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Service cost benefits earned during the period |
|
$ |
12 |
|
|
$ |
14 |
|
|
$ |
21 |
|
|
$ |
28 |
|
Interest cost on projected benefit obligation |
|
|
38 |
|
|
|
33 |
|
|
|
74 |
|
|
|
65 |
|
Expected return on plan assets |
|
|
(33 |
) |
|
|
(28 |
) |
|
|
(64 |
) |
|
|
(56 |
) |
Amortization of: prior service cost |
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
net losses |
|
|
19 |
|
|
|
18 |
|
|
|
38 |
|
|
|
34 |
|
transition amount |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
|
36 |
|
|
|
38 |
|
|
|
70 |
|
|
|
73 |
|
Curtailments/settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension cost |
|
$ |
36 |
|
|
$ |
38 |
|
|
$ |
70 |
|
|
$ |
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to contribute approximately $675 million to $725 million to our funded U.S. and non-U.S.
pension plans in 2007. Our previous estimate, as reported in our Consolidated Financial Statements
for the year ended December 31, 2006 was $700 million to $750 million. For the three and six
months ended June 30, 2007, we contributed $41 million and $87 million, respectively, to our
non-U.S. plans and for the three months ended June 30, 2007, we contributed $158 million to our
domestic plans.
Substantially all employees in the U.S. and employees of certain non-U.S. locations are
eligible to participate in a defined contribution savings plan. The expenses recognized for our
contributions to these plans for the three months ended June 30, 2007 and 2006 were $7 million and
$6 million, respectively, and $15 million and $13 million for the six months ended June 30, 2007
and 2006, respectively.
The Medicare Prescription Drug Improvement and Modernization Act provides plan sponsors a
federal subsidy for certain qualifying prescription drug benefits covered under the sponsors
postretirement health care plans. Our postretirement benefit costs are presented net of this
subsidy.
-16-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Postretirement benefit cost follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Service cost benefits earned during the period |
|
$ |
4 |
|
|
$ |
5 |
|
|
$ |
9 |
|
|
$ |
10 |
|
Interest cost on projected benefit obligation |
|
|
26 |
|
|
|
35 |
|
|
|
57 |
|
|
|
71 |
|
Amortization
of: prior service cost |
|
|
(4 |
) |
|
|
11 |
|
|
|
1 |
|
|
|
22 |
|
net losses |
|
|
3 |
|
|
|
3 |
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit cost |
|
$ |
29 |
|
|
$ |
54 |
|
|
$ |
73 |
|
|
$ |
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES
At June 30, 2007, we had binding commitments for raw materials and investments in land, buildings
and equipment of approximately $1,357 million, and off-balance-sheet financial guarantees written
and other commitments totaling $22 million.
Environmental Matters
We have recorded liabilities totaling $48 million and $43 million for anticipated costs related to
various environmental matters, primarily the remediation of numerous waste disposal sites and
certain properties sold by us, at June 30, 2007 and December 31, 2006, respectively. Of these
amounts, $11 million and $9 million was included in Other current liabilities at June 30, 2007 and
December 31, 2006, respectively. The costs include legal and consulting fees, site studies, the
design and implementation of remediation plans, post-remediation monitoring and related activities
and will be paid over several years. The amount of our ultimate liability in respect of these
matters may be affected by several uncertainties, primarily the ultimate cost of required
remediation and the extent to which other responsible parties contribute.
Workers Compensation
We have recorded liabilities, on a discounted basis, totaling $272 million and $269 million for
anticipated costs related to workers compensation at June 30, 2007 and December 31, 2006,
respectively. Of these amounts, $95 million and $106 million were included in Current Liabilities
as part of Compensation and benefits at June 30, 2007 and December 31, 2006, respectively. The
costs include an estimate of expected settlements on pending claims, defense costs and a provision
for claims incurred but not reported. These estimates are based on our assessment of potential
liability using an analysis of available information with respect to pending claims, historical
experience, and current cost trends. The amount of our ultimate liability in respect of these
matters may differ from these estimates.
General and Product Liability and Other Litigation
We have recorded liabilities totaling $457 million and $476 million for potential product liability
and other tort claims, including related legal fees expected to be incurred, presently asserted
against us, at June 30, 2007 and December 31, 2006, respectively. Of these amounts, $257 million
and $260 million were included in Other current liabilities at June 30, 2007 and December 31, 2006,
respectively. The amounts recorded were estimated on the basis of an assessment of potential
liability using an analysis of available information with respect to pending claims, historical
experience and, where available, recent and current trends. We have recorded insurance receivables
for potential product liability and other tort claims of $67 million and $66 million at June 30,
2007 and December 31, 2006, respectively. Of these amounts, $8 million and $9 million was included
in Current Assets as part of Accounts and notes receivable at June 30, 2007 and December 31, 2006,
respectively. We have restricted cash of $167 million and $193 million at June 30, 2007 and
December 31, 2006, respectively, to fund certain of these liabilities. During the first quarter of
2007, $20 million of restricted cash became unrestricted.
Asbestos. We are a defendant in numerous lawsuits alleging various asbestos-related personal
injuries purported to result from alleged exposure to certain asbestos products manufactured by us
or present in certain of our facilities. Typically, these lawsuits have been brought against
multiple defendants in state and Federal courts. To date, we have disposed of
-17-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
approximately 47,900 claims by defending and obtaining the dismissal thereof or by entering into a
settlement. The sum of our accrued asbestos-related liability and gross payments to date,
including legal costs, totaled approximately $281 million through June 30, 2007 and $272 million
through December 31, 2006.
A summary of approximate asbestos claims activity in recent years follows. Because claims are
often filed and disposed of by dismissal or settlement in large numbers, the amount and timing of
settlements and the number of open claims during a particular period can fluctuate significantly
from period to period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Year Ended December 31, |
|
(Dollars in millions) |
|
June 30, 2007 |
|
|
2006 |
|
|
2005 |
|
Pending claims, beginning of period |
|
|
124,000 |
|
|
|
125,500 |
|
|
|
127,300 |
|
New claims filed |
|
|
1,300 |
|
|
|
3,900 |
|
|
|
6,200 |
|
Claims settled/dismissed |
|
|
(7,800 |
) |
|
|
(5,400 |
) |
|
|
(8,000 |
) |
|
|
|
|
|
|
|
|
|
|
Pending claims, end of period |
|
|
117,500 |
|
|
|
124,000 |
|
|
|
125,500 |
|
|
|
|
|
|
|
|
|
|
|
Payments (1) |
|
$ |
9 |
|
|
$ |
19 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amount spent by us and our insurers on asbestos litigation defense and claim resolution. |
We engaged an independent asbestos valuation firm, Bates White, LLC (Bates), to review our
existing reserves for pending claims, provide a reasonable estimate of the liability associated
with unasserted asbestos claims, and determine our receivables from probable insurance recoveries.
We had recorded liabilities for both asserted and unasserted claims, inclusive of defense
costs, totaling $124 million and $125 million at June 30, 2007 and at December 31, 2006,
respectively. The portion of the liability associated with unasserted asbestos claims was $73
million and $63 million at June 30, 2007 and December 31, 2006, respectively. Our liability with
respect to asserted claims and related defense costs was $51 million at June 30, 2007 and $62
million at December 31, 2006. At June 30, 2007 and December 31, 2006, we estimate that it is
reasonably possible that our gross liabilities could exceed our recorded reserve by up to $20
million and $25 million, respectively, approximately 50% of which would be recoverable by our
accessible policy limits.
Based upon a model employed by Bates, as of June 30, 2007 and as of December 31, 2006, (i) we
had recorded a receivable related to asbestos claims of $67 million and $66 million, respectively,
and (ii) we expect that approximately 50% of asbestos claim related losses would be recoverable up
to our accessible policy limits through the period covered by the estimated liability. The
receivable recorded consists of an amount we expect to collect under coverage-in-place agreements
with certain primary carriers as well as an amount we believe is probable of recovery from certain
of our excess coverage insurance carriers. Of this amount, $8 million and $9 million was included
in Current Assets as part of Accounts and notes receivable at June 30, 2007 and December 31, 2006,
respectively.
We believe that at June 30, 2007, we had at least $180 million in aggregate limits of excess
level policies potentially applicable to indemnity payments for asbestos products claims, in
addition to limits of available primary insurance policies. Some of these excess policies provide
for payment of defense costs in addition to indemnity limits. A portion of the availability of the
excess level policies is included in the $67 million insurance receivable recorded at June 30,
2007. We also had approximately $19 million in aggregate limits for products claims, as well as
coverage for premise claims on a per occurrence basis and defense costs available with our primary
insurance carriers through coverage-in-place agreements at June 30, 2007.
Heatway (Entran II). We have entered into a court approved amended settlement agreement that
addresses claims against us involving a rubber hose product, Entran II. We had recorded liabilities
related to Entran II claims totaling $207 million at June 30, 2007 and $217 million at December 31,
2006. As of June 30, 2007 and December 31, 2006, we had approximately $167 million and $173
million, respectively, in restricted cash to fund these liabilities, which includes the cash
contributions we made to the settlement fund totaling $115 million through 2006. We will make
additional cash contributions to the settlement fund of $15 million and $20 million in 2007 and
2008, respectively. In addition, we previously contributed approximately $174 million received from
insurance contributions to the settlement fund. We expect that except for
-18-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
liabilities associated with actions in which we have received adverse judgments and sites that have
opted-out of the amended settlement, our liability with respect to Entran II matters has been
addressed by the amended settlement.
Other Actions. We are currently a party to various claims and legal proceedings in addition to
those noted above. If management believes that a loss arising from these matters is probable and
can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability
when the loss is estimated using a range, and no point within the range is more probable than
another. As additional information becomes available, any potential liability related to these
matters is assessed and the estimates are revised, if necessary. Based on currently available
information, management believes that the ultimate outcome of these matters, individually and in
the aggregate, will not have a material adverse effect on our financial position or overall trends
in results of operations. However, litigation is subject to inherent uncertainties, and
unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an
injunction prohibiting us from selling one or more products. If an unfavorable ruling were to
occur, there exists the possibility of a material adverse impact on the financial position and
results of operations of the period in which the ruling occurs, or future periods.
Tax Matters
The calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations. We recognize tax benefits to the extent that it is more likely than not
that our positions will be sustained when challenged by the taxing authorities. We derecognize tax
benefits when based on new information we determine that it is no longer more likely than not that
our position will be sustained. To the extent we prevail in matters for which liabilities have been
established, or determine we need to derecognize tax benefits recorded in prior periods, or that we
are required to pay amounts in excess of our liabilities, our effective tax rate in a given period
could be materially affected. An unfavorable tax settlement would require use of our cash and
result in an increase in our effective tax rate in the year of resolution. A favorable tax
settlement would be recognized as a reduction in our effective tax rate in the year of resolution.
Union Matters
On December 28, 2006, members of the United Steelworkers (USW) ratified the terms of a new master
labor agreement ending a strike by the USW that began on October 5, 2006. The new agreement covers
approximately 12,200 workers at 12 tire and Engineered Products plants in the United States. In
connection with the master labor agreement, we also entered into a memorandum of understanding with
the USW regarding the establishment of an independent Voluntary Employees Beneficiary Association
(VEBA) intended to provide healthcare benefits for current and future USW retirees. The
establishment of the VEBA is conditioned upon U.S. District Court approval of a settlement of a
declaratory judgment action that was filed on July 3, 2007 by the USW pursuant to the memorandum of
understanding. We have committed to contribute $1 billion to the VEBA. We plan to make our
contributions to the VEBA in cash following the District Courts approval of the settlement. In
the event that the VEBA is not approved by the District Court (or if the approval of the District
Court is subsequently reversed), the master labor agreement may be terminated by either us or the
USW, and negotiations may be reopened on the entirety of the master labor agreement.
Guarantees
We are a party to various agreements under which we have undertaken obligations resulting from the
issuance of certain guarantees. Guarantees have been issued on behalf of certain of our affiliates
and customers. Normally there is no separate premium received by us as consideration for the
issuance of guarantees. Our performance under these guarantees would normally be triggered by the
occurrence of one or more events as provided in the specific agreements. Collateral and recourse
provisions available to us under these agreements were not significant. Refer to Note 18,
Commitments and Contingent Liabilities Guarantees in our 2006 Form 10-K for further discussions.
-19-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. BUSINESS SEGMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
2,276 |
|
|
$ |
2,340 |
|
|
$ |
4,293 |
|
|
$ |
4,579 |
|
European Union Tire |
|
|
1,323 |
|
|
|
1,250 |
|
|
|
2,597 |
|
|
|
2,384 |
|
Eastern Europe, Middle East and Africa Tire |
|
|
436 |
|
|
|
384 |
|
|
|
850 |
|
|
|
723 |
|
Latin American Tire |
|
|
458 |
|
|
|
387 |
|
|
|
868 |
|
|
|
784 |
|
Asia Pacific Tire |
|
|
428 |
|
|
|
377 |
|
|
|
812 |
|
|
|
730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
4,921 |
|
|
$ |
4,738 |
|
|
$ |
9,420 |
|
|
$ |
9,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
53 |
|
|
$ |
6 |
|
|
$ |
33 |
|
|
$ |
49 |
|
European Union Tire |
|
|
62 |
|
|
|
58 |
|
|
|
137 |
|
|
|
130 |
|
Eastern Europe, Middle East and Africa Tire |
|
|
63 |
|
|
|
59 |
|
|
|
127 |
|
|
|
102 |
|
Latin American Tire |
|
|
90 |
|
|
|
83 |
|
|
|
168 |
|
|
|
185 |
|
Asia Pacific Tire |
|
|
41 |
|
|
|
28 |
|
|
|
70 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Operating Income |
|
|
309 |
|
|
|
234 |
|
|
|
535 |
|
|
|
516 |
|
Rationalizations and asset sales |
|
|
3 |
|
|
|
(35 |
) |
|
|
(3 |
) |
|
|
(71 |
) |
Accelerated depreciation |
|
|
(8 |
) |
|
|
(45 |
) |
|
|
(25 |
) |
|
|
(47 |
) |
Interest expense |
|
|
(120 |
) |
|
|
(103 |
) |
|
|
(245 |
) |
|
|
(205 |
) |
Foreign currency exchange |
|
|
(12 |
) |
|
|
4 |
|
|
|
(14 |
) |
|
|
3 |
|
Minority interest in net income of subsidiaries |
|
|
(16 |
) |
|
|
(11 |
) |
|
|
(38 |
) |
|
|
(23 |
) |
Financing fees |
|
|
(56 |
) |
|
|
(10 |
) |
|
|
(67 |
) |
|
|
(20 |
) |
General and product liability discontinued
products |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(8 |
) |
|
|
(9 |
) |
Corporate incentive compensation
plans |
|
|
(26 |
) |
|
|
(16 |
) |
|
|
(42 |
) |
|
|
(28 |
) |
Interest income |
|
|
26 |
|
|
|
15 |
|
|
|
56 |
|
|
|
35 |
|
Intercompany profit elimination |
|
|
5 |
|
|
|
(9 |
) |
|
|
(12 |
) |
|
|
(22 |
) |
Curtailment |
|
|
|
|
|
|
|
|
|
|
(64 |
) |
|
|
|
|
Retained net expenses of discontinued operations |
|
|
(7 |
) |
|
|
(9 |
) |
|
|
(11 |
) |
|
|
(20 |
) |
Latin American legal matter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Fire loss expense |
|
|
(5 |
) |
|
|
|
|
|
|
(12 |
) |
|
|
|
|
Other |
|
|
(9 |
) |
|
|
3 |
|
|
|
(17 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
before Income Taxes |
|
$ |
80 |
|
|
$ |
14 |
|
|
$ |
33 |
|
|
$ |
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-20-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Rationalizations and Asset Sales, reported as Other (income) and expense on the Consolidated
Statement of Operations, were not charged to the strategic business units (SBUs) for performance
evaluation purposes, but were attributable to the SBUs as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Rationalizations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
4 |
|
|
$ |
2 |
|
|
$ |
10 |
|
|
$ |
2 |
|
European Union Tire |
|
|
1 |
|
|
|
13 |
|
|
|
3 |
|
|
|
39 |
|
Eastern Europe, Middle East and
Africa Tire |
|
|
1 |
|
|
|
3 |
|
|
|
4 |
|
|
|
9 |
|
Latin American Tire |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
Asia Pacific Tire |
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Rationalizations |
|
|
6 |
|
|
|
35 |
|
|
|
19 |
|
|
|
74 |
|
Corporate |
|
|
1 |
|
|
|
|
|
|
|
3 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7 |
|
|
$ |
35 |
|
|
$ |
22 |
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Sales (gain) / loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire |
|
$ |
(8 |
) |
|
$ |
1 |
|
|
$ |
(8 |
) |
|
$ |
|
|
European Union Tire |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Latin American Tire |
|
|
(1 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
Asia Pacific Tire |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segment Asset Sales (gain) / loss |
|
|
(10 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
(2 |
) |
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10 |
) |
|
$ |
|
|
|
$ |
(19 |
) |
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10. INCOME TAXES
For the second quarter of 2007, we recorded tax expense of $51 million on income from continuing
operations before income taxes and minority interest in net income of subsidiaries of $96 million.
Included in tax expense for the second quarter of 2007 was a tax
benefit of $11 million ($0.05 per share) related to prior periods. The
out-of-period adjustment related to our correction of the inflation
adjustment on equity of our subsidiary in Colombia as a permanent tax
benefit rather than as a temporary tax benefit dating back as far as
1992, with no individual year being significantly affected. The
difference between our effective tax rate and the U.S. statutory rate was primarily attributable to
continuing to maintain a full valuation allowance against our net Federal and state deferred tax
assets. For the second quarter of 2006, we recorded tax expense of $47 million on income from
continuing operations before income taxes and minority interest in net income of subsidiaries of
$25 million. Included in tax expense for the second quarter of 2006 was a net tax benefit of $5
million, which is related to tax law changes that were enacted in the second quarter.
Our losses in certain foreign locations in recent periods represented sufficient negative
evidence to require us to maintain a full valuation allowance against our net deferred tax assets
in these foreign locations. However, if our income projections for future periods are realized, it
is reasonably possible that earnings in these locations could provide sufficient positive evidence
to require release of all, or a portion, of these valuation allowances as early as the second half
of 2007 resulting in one-time tax benefits of up to $60 million ($50 million, net of minority
interests in net income of subsidiaries).
The Company adopted FIN No. 48 on January 1, 2007, which requires financial statement benefits
to be recognized for positions taken for tax return purposes when it is more-likely-than-not that
the position will be sustained. For additional information regarding FIN No. 48 refer to Recently
Issued Accounting Standards in Note 1.
The adoption of FIN No. 48 resulted in a one-time increase to the opening balance of retained
earnings and a decrease in goodwill as of January 1, 2007 of $32 million and $5 million,
respectively, for tax benefits not previously recognized under historical practice.
-21-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of January 1, 2007, the Company had unrecognized tax benefits of $161 million that if
recognized, $143 million would have a favorable impact on our effective tax rate. The Company
elected to continue to report interest and penalties as income taxes and has accrued interest as of
January 1, 2007 of $10 million. We paid an audit assessment in the first quarter of 2007, which
reduced the unrecognized tax benefits by $16 million and accrued interest by $5 million. If not
favorably settled, $40 million of the remaining unrecognized tax benefits would require the use of
our cash. In the second quarter of 2007, we reclassified $9 million of unrecognized tax benefits
and $3 million of accrued interest to a current account as it is anticipated to be paid within the
next 12 months.
Generally years beginning after 2002 are still open to examination by foreign taxing
authorities including several major taxing jurisdictions. In Germany we are still open to
examination from 1998 onward. In the United States, we are still open to examination from 2004
forward.
We are involved in a United States / Canada Competent Authority resolution process that deals
with transactions between our operations in these countries from 1997 through 2003. This proceeding
should be concluded within the next two years.
It is expected that the amount of unrecognized tax benefits will change in the next 12 months;
however we do not expect that change to have a significant impact on our results of operations or
the financial position of the Company.
NOTE 11. DISCONTINUED OPERATIONS
On March 23, 2007, we entered into an agreement to sell substantially all of the business
activities and operations of our Engineered Products Business Segment (Engineered Products) to
EPD Inc. (EPD), a company controlled by Carlyle Partners IV, L.P., an affiliate of the Carlyle
Group. The purchase price is approximately $1.5 billion in cash, subject to post closing
adjustments. The closing of the transaction is subject to the receipt of governmental approvals
and other customary closing conditions. In addition, the closing of the transaction is subject to
EPDs completion of a labor agreement with the USW.
As part of the transaction, we entered into a trademark licensing agreement with EPD, for a
period of 12 years, to use the Goodyear brand and certain other trademarks in connection with the
Engineered Products business.
Engineered Products operates 32 manufacturing facilities in 12 countries and has approximately
6,500 associates. Engineered Products manufactures and markets engineered rubber products for
industrial, military, consumer and transportation original equipment end-users. Its product
portfolio includes hoses, conveyor belts, power transmission products, rubber track, molded
products and airsprings.
We expect to record a gain on the sale, the amount of which will not be determined until after
the closing of the transaction. As a result of entering into the agreement, we determined that the
Engineered Products business should be classified as held-for-sale and, in addition, determined
that the operations of the Engineered Products business should be disclosed as discontinued
operations. Accordingly, the accompanying financial information has been restated where required.
Depreciation of Engineered Products properties and plants has been suspended effective March 24,
2007.
The following table presents the components of Discontinued Operations reported on the
Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net Sales |
|
$ |
398 |
|
|
$ |
404 |
|
|
$ |
781 |
|
|
$ |
798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations |
|
$ |
31 |
|
|
$ |
40 |
|
|
$ |
(29 |
) |
|
$ |
77 |
|
United States and foreign taxes |
|
|
4 |
|
|
|
5 |
|
|
|
8 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
$ |
27 |
|
|
$ |
35 |
|
|
$ |
(37 |
) |
|
$ |
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-22-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the major classes of assets and liabilities of discontinued operations
reported on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
Cash |
|
$ |
8 |
|
|
$ |
37 |
|
Accounts and notes receivable |
|
|
220 |
|
|
|
173 |
|
Inventories |
|
|
204 |
|
|
|
188 |
|
Other |
|
|
14 |
|
|
|
15 |
|
|
|
|
|
|
|
|
Current assets of discontinued operations |
|
$ |
446 |
|
|
$ |
413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties and plants |
|
$ |
318 |
|
|
$ |
310 |
|
Other |
|
|
57 |
|
|
|
42 |
|
|
|
|
|
|
|
|
Long term assets of discontinued operations |
|
$ |
375 |
|
|
$ |
352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable trade |
|
$ |
106 |
|
|
$ |
92 |
|
Compensation and benefits |
|
|
34 |
|
|
|
22 |
|
Other |
|
|
23 |
|
|
|
43 |
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations |
|
$ |
163 |
|
|
$ |
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
$ |
29 |
|
|
$ |
30 |
|
Other |
|
|
19 |
|
|
|
17 |
|
|
|
|
|
|
|
|
Long term liabilities of discontinued operations |
|
$ |
48 |
|
|
$ |
47 |
|
|
|
|
|
|
|
|
NOTE 12. EQUITY OFFERING
On May 22, 2007, we completed a public equity offering of 26,136,363 common shares, which included
the exercise of the over-allotment option of 3,409,091 common shares, at a price of $33.00 per
share, raising $862 million before offering costs. We paid $28 million in underwriting discounts
and commissions and approximately $1 million in offering expenses.
On June 29, 2007, we used a portion of the $833 million net proceeds from the equity offering
to exercise our rights to redeem $175 million of our $500 million 8.625% senior notes due 2011 and
$140 million of our $400 million 9.00% senior notes due in 2015. A prepayment premium of $28
million was paid in connection with the redemption. The balance of the equity offering proceeds is
expected to be used for general corporate purposes.
-23-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13. CONSOLIDATING FINANCIAL INFORMATION
Certain of our subsidiaries have guaranteed Goodyears obligations under the $650 million
outstanding principal amount of Senior Secured Notes due 2011(consisting of $450 million
outstanding principal amount of 11% Senior Secured Notes and $200 million outstanding principal
amount of Senior Secured Floating Rate Notes), the $260 million outstanding principal amount of 9%
Senior Notes due 2015 and the $825 million outstanding principal amount of Senior Notes (consisting
of $325 million outstanding principal amount of 8.625% Senior Notes due 2011 and $500 million
outstanding principal amount of Senior Floating Rate Notes due 2009) (collectively, the Notes).
The following presents the condensed consolidating financial information separately for:
|
(i) |
|
The Goodyear Tire & Rubber Company (the Parent Company), the issuer of the
guaranteed obligations; |
|
|
(ii) |
|
Guarantor subsidiaries, on a combined basis, as specified in the respective
indentures related to Goodyears obligations under the Notes; |
|
|
(iii) |
|
Non-guarantor subsidiaries, on a combined basis; |
|
|
(iv) |
|
Consolidating entries and eliminations representing adjustments to (a)
eliminate intercompany transactions between or among the Parent Company, the guarantor
subsidiaries and the non-guarantor subsidiaries, (b) eliminate the investments in our
subsidiaries, and (c) record consolidating entries; and |
|
|
(v) |
|
The Goodyear Tire & Rubber Company and Subsidiaries on a consolidated basis. |
Each guarantor subsidiary is 100% owned by the Parent Company at the date of each balance
sheet presented. The Notes are fully and unconditionally guaranteed on a joint and several basis
by each guarantor subsidiary. Each entity in the consolidating financial information follows the
same accounting policies as described in the consolidated financial statements, except for using
the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated
upon consolidation.
Certain non-guarantor subsidiaries of the Parent Company are restricted from remitting funds
to it by means of dividends, advances or loans, primarily due to restrictions in credit facility
agreements entered into by those subsidiaries.
-24-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Balance Sheet |
|
|
|
June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Entries and |
|
|
|
|
(In millions) |
|
Company |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
1,521 |
|
|
$ |
41 |
|
|
$ |
766 |
|
|
$ |
|
|
|
$ |
2,328 |
|
Restricted Cash |
|
|
178 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
191 |
|
Accounts and Notes Receivable |
|
|
852 |
|
|
|
217 |
|
|
|
2,303 |
|
|
|
|
|
|
|
3,372 |
|
Accounts and Notes Receivables from Affiliates |
|
|
|
|
|
|
744 |
|
|
|
122 |
|
|
|
(866 |
) |
|
|
|
|
Inventories |
|
|
1,203 |
|
|
|
321 |
|
|
|
1,476 |
|
|
|
(63 |
) |
|
|
2,937 |
|
Prepaid Expenses and Other Current Assets |
|
|
134 |
|
|
|
5 |
|
|
|
158 |
|
|
|
2 |
|
|
|
299 |
|
Current Assets of Discontinued Operations |
|
|
348 |
|
|
|
42 |
|
|
|
180 |
|
|
|
(124 |
) |
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
4,236 |
|
|
|
1,370 |
|
|
|
5,018 |
|
|
|
(1,051 |
) |
|
|
9,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
24 |
|
|
|
463 |
|
|
|
187 |
|
|
|
674 |
|
Intangible Assets |
|
|
110 |
|
|
|
25 |
|
|
|
53 |
|
|
|
(24 |
) |
|
|
164 |
|
Deferred Income Tax |
|
|
|
|
|
|
1 |
|
|
|
143 |
|
|
|
|
|
|
|
144 |
|
Other Assets and Deferred Pension Costs |
|
|
246 |
|
|
|
39 |
|
|
|
172 |
|
|
|
|
|
|
|
457 |
|
Long Term Assets of Discontinued Operations |
|
|
213 |
|
|
|
79 |
|
|
|
130 |
|
|
|
(47 |
) |
|
|
375 |
|
Investments in Subsidiaries |
|
|
4,462 |
|
|
|
584 |
|
|
|
3,316 |
|
|
|
(8,362 |
) |
|
|
|
|
Properties and Plants |
|
|
1,820 |
|
|
|
217 |
|
|
|
3,045 |
|
|
|
35 |
|
|
|
5,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
11,087 |
|
|
$ |
2,339 |
|
|
$ |
12,340 |
|
|
$ |
(9,262 |
) |
|
$ |
16,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable-Trade |
|
$ |
552 |
|
|
$ |
70 |
|
|
$ |
1,509 |
|
|
$ |
|
|
|
$ |
2,131 |
|
Accounts Payable to Affiliates |
|
|
866 |
|
|
|
|
|
|
|
|
|
|
|
(866 |
) |
|
|
|
|
Compensation and Benefits |
|
|
576 |
|
|
|
34 |
|
|
|
316 |
|
|
|
|
|
|
|
926 |
|
Other Current Liabilities |
|
|
521 |
|
|
|
19 |
|
|
|
190 |
|
|
|
|
|
|
|
730 |
|
Current Liabilities of Discontinued Operations |
|
|
78 |
|
|
|
138 |
|
|
|
66 |
|
|
|
(119 |
) |
|
|
163 |
|
United States and Foreign Taxes |
|
|
59 |
|
|
|
10 |
|
|
|
144 |
|
|
|
(5 |
) |
|
|
208 |
|
Notes Payable and Overdrafts |
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
233 |
|
Long Term Debt and Capital Leases due within one
year |
|
|
102 |
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
2,754 |
|
|
|
271 |
|
|
|
2,538 |
|
|
|
(990 |
) |
|
|
4,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Debt and Capital Leases |
|
|
4,396 |
|
|
|
1 |
|
|
|
641 |
|
|
|
|
|
|
|
5,038 |
|
Compensation and Benefits |
|
|
2,627 |
|
|
|
306 |
|
|
|
1,342 |
|
|
|
|
|
|
|
4,275 |
|
Long Term Liabilities of Discontinued Operations |
|
|
7 |
|
|
|
27 |
|
|
|
14 |
|
|
|
|
|
|
|
48 |
|
Deferred and Other Noncurrent Income Taxes |
|
|
71 |
|
|
|
8 |
|
|
|
195 |
|
|
|
9 |
|
|
|
283 |
|
Other Long Term Liabilities |
|
|
262 |
|
|
|
11 |
|
|
|
100 |
|
|
|
|
|
|
|
373 |
|
Minority Equity in Subsidiaries |
|
|
|
|
|
|
|
|
|
|
732 |
|
|
|
212 |
|
|
|
944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
10,117 |
|
|
|
624 |
|
|
|
5,562 |
|
|
|
(769 |
) |
|
|
15,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingent Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
211 |
|
|
|
658 |
|
|
|
4,624 |
|
|
|
(5,282 |
) |
|
|
211 |
|
Capital Surplus |
|
|
2,334 |
|
|
|
11 |
|
|
|
889 |
|
|
|
(900 |
) |
|
|
2,334 |
|
Retained Earnings |
|
|
882 |
|
|
|
1,499 |
|
|
|
2,482 |
|
|
|
(3,981 |
) |
|
|
882 |
|
Accumulated Other Comprehensive Income (Loss) |
|
|
(2,457 |
) |
|
|
(453 |
) |
|
|
(1,217 |
) |
|
|
1,670 |
|
|
|
(2,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
970 |
|
|
|
1,715 |
|
|
|
6,778 |
|
|
|
(8,493 |
) |
|
|
970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
11,087 |
|
|
$ |
2,339 |
|
|
$ |
12,340 |
|
|
$ |
(9,262 |
) |
|
$ |
16,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-25-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Balance Sheet |
|
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Entries and |
|
|
|
|
(In millions) |
|
Company |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
2,626 |
|
|
$ |
37 |
|
|
$ |
1,199 |
|
|
$ |
|
|
|
$ |
3,862 |
|
Restricted Cash |
|
|
202 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
214 |
|
Accounts and Notes Receivable |
|
|
693 |
|
|
|
198 |
|
|
|
1,909 |
|
|
|
|
|
|
|
2,800 |
|
Accounts and Notes Receivable from Affiliates |
|
|
|
|
|
|
858 |
|
|
|
242 |
|
|
|
(1,100 |
) |
|
|
|
|
Inventories |
|
|
1,031 |
|
|
|
269 |
|
|
|
1,345 |
|
|
|
(44 |
) |
|
|
2,601 |
|
Prepaid Expenses and Other Current Assets |
|
|
142 |
|
|
|
6 |
|
|
|
129 |
|
|
|
12 |
|
|
|
289 |
|
Current Assets of Discontinued Operations |
|
|
305 |
|
|
|
33 |
|
|
|
184 |
|
|
|
(109 |
) |
|
|
413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
4,999 |
|
|
|
1,401 |
|
|
|
5,020 |
|
|
|
(1,241 |
) |
|
|
10,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
24 |
|
|
|
452 |
|
|
|
186 |
|
|
|
662 |
|
Intangible Assets |
|
|
111 |
|
|
|
28 |
|
|
|
55 |
|
|
|
(28 |
) |
|
|
166 |
|
Deferred Income Tax |
|
|
|
|
|
|
1 |
|
|
|
149 |
|
|
|
|
|
|
|
150 |
|
Other Assets and Deferred Pension Costs |
|
|
255 |
|
|
|
24 |
|
|
|
174 |
|
|
|
|
|
|
|
453 |
|
Long Term Assets of Discontinued Operations |
|
|
196 |
|
|
|
58 |
|
|
|
118 |
|
|
|
(20 |
) |
|
|
352 |
|
Investments in Subsidiaries |
|
|
4,286 |
|
|
|
539 |
|
|
|
3,166 |
|
|
|
(7,991 |
) |
|
|
|
|
Properties and Plants |
|
|
1,860 |
|
|
|
228 |
|
|
|
2,958 |
|
|
|
21 |
|
|
|
5,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
11,707 |
|
|
$ |
2,303 |
|
|
$ |
12,092 |
|
|
$ |
(9,073 |
) |
|
$ |
17,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable-Trade |
|
$ |
436 |
|
|
$ |
72 |
|
|
$ |
1,437 |
|
|
$ |
|
|
|
$ |
1,945 |
|
Accounts Payable to Affiliates |
|
|
1,100 |
|
|
|
|
|
|
|
|
|
|
|
(1,100 |
) |
|
|
|
|
Compensation and Benefits |
|
|
585 |
|
|
|
42 |
|
|
|
256 |
|
|
|
|
|
|
|
883 |
|
Other Current Liabilities |
|
|
562 |
|
|
|
15 |
|
|
|
234 |
|
|
|
|
|
|
|
811 |
|
Current Liabilities of Discontinued Operations |
|
|
74 |
|
|
|
127 |
|
|
|
62 |
|
|
|
(106 |
) |
|
|
157 |
|
United States and Foreign Taxes |
|
|
59 |
|
|
|
18 |
|
|
|
145 |
|
|
|
|
|
|
|
222 |
|
Notes Payable and Overdrafts |
|
|
|
|
|
|
|
|
|
|
243 |
|
|
|
|
|
|
|
243 |
|
Long Term Debt and Capital Leases due within one
year |
|
|
339 |
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
3,155 |
|
|
|
274 |
|
|
|
2,443 |
|
|
|
(1,206 |
) |
|
|
4,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Debt and Capital Leases |
|
|
5,647 |
|
|
|
1 |
|
|
|
914 |
|
|
|
|
|
|
|
6,562 |
|
Compensation and Benefits |
|
|
3,301 |
|
|
|
297 |
|
|
|
1,337 |
|
|
|
|
|
|
|
4,935 |
|
Long Term Liabilities of Discontinued Operations |
|
|
6 |
|
|
|
22 |
|
|
|
19 |
|
|
|
|
|
|
|
47 |
|
Deferred and Other Noncurrent Income Taxes |
|
|
69 |
|
|
|
5 |
|
|
|
238 |
|
|
|
8 |
|
|
|
320 |
|
Other Long Term Liabilities |
|
|
287 |
|
|
|
5 |
|
|
|
88 |
|
|
|
|
|
|
|
380 |
|
Minority Equity in Subsidiaries |
|
|
|
|
|
|
|
|
|
|
671 |
|
|
|
206 |
|
|
|
877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
12,465 |
|
|
|
604 |
|
|
|
5,710 |
|
|
|
(992 |
) |
|
|
17,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingent Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity (Deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
178 |
|
|
|
632 |
|
|
|
4,471 |
|
|
|
(5,103 |
) |
|
|
178 |
|
Capital Surplus |
|
|
1,427 |
|
|
|
5 |
|
|
|
869 |
|
|
|
(874 |
) |
|
|
1,427 |
|
Retained Earnings |
|
|
968 |
|
|
|
1,499 |
|
|
|
2,385 |
|
|
|
(3,884 |
) |
|
|
968 |
|
Accumulated Other Comprehensive Income (Loss) |
|
|
(3,331 |
) |
|
|
(437 |
) |
|
|
(1,343 |
) |
|
|
1,780 |
|
|
|
(3,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity (Deficit) |
|
|
(758 |
) |
|
|
1,699 |
|
|
|
6,382 |
|
|
|
(8,081 |
) |
|
|
(758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity (Deficit) |
|
$ |
11,707 |
|
|
$ |
2,303 |
|
|
$ |
12,092 |
|
|
$ |
(9,073 |
) |
|
$ |
17,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-26-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Statements of Income |
|
|
|
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Entries and |
|
|
|
|
(In millions) |
|
Company |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
NET SALES |
|
$ |
2,008 |
|
|
$ |
477 |
|
|
$ |
4,667 |
|
|
$ |
(2,231 |
) |
|
$ |
4,921 |
|
|
Cost of Goods Sold |
|
|
1,775 |
|
|
|
424 |
|
|
|
4,059 |
|
|
|
(2,291 |
) |
|
|
3,967 |
|
Selling, Administrative and General
Expense |
|
|
254 |
|
|
|
45 |
|
|
|
394 |
|
|
|
(1 |
) |
|
|
692 |
|
Rationalizations |
|
|
(1 |
) |
|
|
7 |
|
|
|
1 |
|
|
|
|
|
|
|
7 |
|
Interest Expense |
|
|
110 |
|
|
|
13 |
|
|
|
69 |
|
|
|
(72 |
) |
|
|
120 |
|
Other (Income) and Expense |
|
|
(23 |
) |
|
|
(11 |
) |
|
|
(36 |
) |
|
|
109 |
|
|
|
39 |
|
Minority Interest in Net Income of
Subsidiaries |
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before Income Taxes and
Equity in Earnings of Subsidiaries |
|
|
(107 |
) |
|
|
(1 |
) |
|
|
164 |
|
|
|
24 |
|
|
|
80 |
|
United States and Foreign Taxes |
|
|
(2 |
) |
|
|
3 |
|
|
|
49 |
|
|
|
1 |
|
|
|
51 |
|
Equity in Earnings of Subsidiaries |
|
|
134 |
|
|
|
4 |
|
|
|
|
|
|
|
(138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from Continuing Operations |
|
|
29 |
|
|
|
|
|
|
|
115 |
|
|
|
(115 |
) |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
27 |
|
|
|
3 |
|
|
|
15 |
|
|
|
(18 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
56 |
|
|
$ |
3 |
|
|
$ |
130 |
|
|
$ |
(133 |
) |
|
$ |
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Entries and |
|
|
|
|
(In millions) |
|
Company |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
NET SALES |
|
$ |
2,054 |
|
|
$ |
497 |
|
|
$ |
4,358 |
|
|
$ |
(2,171 |
) |
|
$ |
4,738 |
|
|
Cost of Goods Sold |
|
|
1,884 |
|
|
|
442 |
|
|
|
3,837 |
|
|
|
(2,211 |
) |
|
|
3,952 |
|
Selling, Administrative and General
Expense |
|
|
238 |
|
|
|
47 |
|
|
|
345 |
|
|
|
|
|
|
|
630 |
|
Rationalizations |
|
|
1 |
|
|
|
1 |
|
|
|
33 |
|
|
|
|
|
|
|
35 |
|
Interest Expense |
|
|
96 |
|
|
|
10 |
|
|
|
47 |
|
|
|
(50 |
) |
|
|
103 |
|
Other (Income) and Expense |
|
|
(56 |
) |
|
|
(3 |
) |
|
|
(35 |
) |
|
|
87 |
|
|
|
(7 |
) |
Minority Interest in Net Income of
Subsidiaries |
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before Income Taxes and Equity
in Earnings of Subsidiaries |
|
|
(109 |
) |
|
|
|
|
|
|
120 |
|
|
|
3 |
|
|
|
14 |
|
United States and Foreign Taxes |
|
|
14 |
|
|
|
(8 |
) |
|
|
43 |
|
|
|
(2 |
) |
|
|
47 |
|
Equity in Earnings of Subsidiaries |
|
|
90 |
|
|
|
(4 |
) |
|
|
|
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from Continuing Operations |
|
|
(33 |
) |
|
|
4 |
|
|
|
77 |
|
|
|
(81 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
35 |
|
|
|
4 |
|
|
|
19 |
|
|
|
(23 |
) |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
2 |
|
|
$ |
8 |
|
|
$ |
96 |
|
|
$ |
(104 |
) |
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-27-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Statements of Income |
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Entries and |
|
|
|
|
(In millions) |
|
Company |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
NET SALES |
|
$ |
3,894 |
|
|
$ |
939 |
|
|
$ |
9,000 |
|
|
$ |
(4,413 |
) |
|
$ |
9,420 |
|
|
Cost of Goods Sold |
|
|
3,508 |
|
|
|
854 |
|
|
|
7,842 |
|
|
|
(4,496 |
) |
|
|
7,708 |
|
Selling, Administrative and General
Expense |
|
|
532 |
|
|
|
88 |
|
|
|
734 |
|
|
|
1 |
|
|
|
1,355 |
|
Rationalizations |
|
|
2 |
|
|
|
12 |
|
|
|
8 |
|
|
|
|
|
|
|
22 |
|
Interest Expense |
|
|
229 |
|
|
|
22 |
|
|
|
131 |
|
|
|
(137 |
) |
|
|
245 |
|
Other (Income) and Expense |
|
|
(107 |
) |
|
|
(14 |
) |
|
|
(89 |
) |
|
|
229 |
|
|
|
19 |
|
Minority Interest in Net Income of
Subsidiaries |
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes and Equity
in Earnings of Subsidiaries |
|
|
(270 |
) |
|
|
(23 |
) |
|
|
336 |
|
|
|
(10 |
) |
|
|
33 |
|
United States and Foreign Taxes |
|
|
7 |
|
|
|
6 |
|
|
|
103 |
|
|
|
(2 |
) |
|
|
114 |
|
Equity in Earnings of Subsidiaries |
|
|
196 |
|
|
|
13 |
|
|
|
|
|
|
|
(209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from Continuing Operations |
|
|
(81 |
) |
|
|
(16 |
) |
|
|
233 |
|
|
|
(217 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
(37 |
) |
|
|
3 |
|
|
|
24 |
|
|
|
(27 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(118 |
) |
|
$ |
(13 |
) |
|
$ |
257 |
|
|
$ |
(244 |
) |
|
$ |
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Entries and |
|
|
|
|
(In millions) |
|
Company |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
NET SALES |
|
$ |
4,069 |
|
|
$ |
970 |
|
|
$ |
8,343 |
|
|
$ |
(4,182 |
) |
|
$ |
9,200 |
|
|
Cost of Goods Sold |
|
|
3,674 |
|
|
|
854 |
|
|
|
7,270 |
|
|
|
(4,238 |
) |
|
|
7,560 |
|
Selling, Administrative and
General Expense |
|
|
477 |
|
|
|
90 |
|
|
|
678 |
|
|
|
|
|
|
|
1,245 |
|
Rationalizations |
|
|
1 |
|
|
|
1 |
|
|
|
71 |
|
|
|
|
|
|
|
73 |
|
Interest Expense |
|
|
190 |
|
|
|
19 |
|
|
|
89 |
|
|
|
(93 |
) |
|
|
205 |
|
Other (Income) and Expense |
|
|
(115 |
) |
|
|
(3 |
) |
|
|
(92 |
) |
|
|
176 |
|
|
|
(34 |
) |
Minority Interest in Net Income
of Subsidiaries |
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before Income Taxes and
Equity in Earnings of
Subsidiaries |
|
|
(158 |
) |
|
|
9 |
|
|
|
304 |
|
|
|
(27 |
) |
|
|
128 |
|
United States and Foreign Taxes |
|
|
16 |
|
|
|
(5 |
) |
|
|
108 |
|
|
|
(4 |
) |
|
|
115 |
|
Equity in Earnings of Subsidiaries |
|
|
187 |
|
|
|
2 |
|
|
|
|
|
|
|
(189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
13 |
|
|
|
16 |
|
|
|
196 |
|
|
|
(212 |
) |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
63 |
|
|
|
9 |
|
|
|
31 |
|
|
|
(40 |
) |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
76 |
|
|
$ |
25 |
|
|
$ |
227 |
|
|
$ |
(252 |
) |
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-28-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows |
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Entries and |
|
|
|
|
(In millions) |
|
Company |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cash Flows from Continuing
Operations |
|
$ |
(453 |
) |
|
$ |
(7 |
) |
|
$ |
232 |
|
|
$ |
(285 |
) |
|
$ |
(513 |
) |
Discontinued Operations |
|
|
7 |
|
|
|
10 |
|
|
|
9 |
|
|
|
(21 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cash Flows from Operating Activities |
|
|
(446 |
) |
|
|
3 |
|
|
|
241 |
|
|
|
(306 |
) |
|
|
(508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(90 |
) |
|
|
(5 |
) |
|
|
(132 |
) |
|
|
|
|
|
|
(227 |
) |
Asset dispositions |
|
|
|
|
|
|
9 |
|
|
|
24 |
|
|
|
|
|
|
|
33 |
|
Decrease (increase) in restricted cash |
|
|
24 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
23 |
|
Other transactions |
|
|
(6 |
) |
|
|
6 |
|
|
|
(150 |
) |
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investing Cash Flows from Continuing
Operations |
|
|
(72 |
) |
|
|
10 |
|
|
|
(259 |
) |
|
|
150 |
|
|
|
(171 |
) |
Discontinued Operations |
|
|
(24 |
) |
|
|
(20 |
) |
|
|
(4 |
) |
|
|
23 |
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Flows from Investing Activities |
|
|
(96 |
) |
|
|
(10 |
) |
|
|
(263 |
) |
|
|
173 |
|
|
|
(196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt and overdrafts incurred |
|
|
6 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
39 |
|
Short term debt and overdrafts paid |
|
|
|
|
|
|
(5 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
(57 |
) |
Long term debt incurred |
|
|
249 |
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
374 |
|
Long term debt paid |
|
|
(1,738 |
) |
|
|
|
|
|
|
(403 |
) |
|
|
|
|
|
|
(2,141 |
) |
Common stock issued |
|
|
940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
940 |
|
Dividends paid |
|
|
|
|
|
|
|
|
|
|
(315 |
) |
|
|
306 |
|
|
|
(9 |
) |
Debt issuance costs |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
Other transactions |
|
|
|
|
|
|
12 |
|
|
|
161 |
|
|
|
(173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing Cash Flows from Continuing
Operations |
|
|
(560 |
) |
|
|
7 |
|
|
|
(451 |
) |
|
|
133 |
|
|
|
(871 |
) |
Discontinued Operations |
|
|
(3 |
) |
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Flows from Financing Activities |
|
|
(563 |
) |
|
|
7 |
|
|
|
(460 |
) |
|
|
133 |
|
|
|
(883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash of Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
4 |
|
|
|
17 |
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(1,105 |
) |
|
|
4 |
|
|
|
(433 |
) |
|
|
|
|
|
|
(1,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of the Period |
|
|
2,626 |
|
|
|
37 |
|
|
|
1,199 |
|
|
|
|
|
|
|
3,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of the Period |
|
$ |
1,521 |
|
|
$ |
41 |
|
|
$ |
766 |
|
|
$ |
|
|
|
$ |
2,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-29-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows |
|
|
|
Six Months Ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Entries and |
|
|
|
|
(In millions) |
|
Company |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cash Flows from Continuing
Operations |
|
$ |
(162 |
) |
|
$ |
(28 |
) |
|
$ |
(15 |
) |
|
$ |
(53 |
) |
|
$ |
(258 |
) |
Discontinued Operations |
|
|
57 |
|
|
|
15 |
|
|
|
22 |
|
|
|
(39 |
) |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cash Flows from Operating Activities |
|
|
(105 |
) |
|
|
(13 |
) |
|
|
7 |
|
|
|
(92 |
) |
|
|
(203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(106 |
) |
|
|
(5 |
) |
|
|
(146 |
) |
|
|
|
|
|
|
(257 |
) |
Asset dispositions |
|
|
1 |
|
|
|
|
|
|
|
5 |
|
|
|
(2 |
) |
|
|
4 |
|
Asset acquisitions |
|
|
(39 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
3 |
|
|
|
(41 |
) |
Decrease in restricted cash |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Other transactions |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investing Cash Flows from Continuing
Operations |
|
|
(127 |
) |
|
|
(5 |
) |
|
|
(145 |
) |
|
|
|
|
|
|
(277 |
) |
Discontinued Operations |
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(8 |
) |
|
|
3 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Flows from Investing Activities |
|
|
(133 |
) |
|
|
(6 |
) |
|
|
(153 |
) |
|
|
3 |
|
|
|
(289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt and overdrafts incurred |
|
|
|
|
|
|
1 |
|
|
|
35 |
|
|
|
|
|
|
|
36 |
|
Short term debt and overdrafts paid |
|
|
(37 |
) |
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
(64 |
) |
Long term debt incurred |
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
46 |
|
Long term debt paid |
|
|
(83 |
) |
|
|
|
|
|
|
(77 |
) |
|
|
|
|
|
|
(160 |
) |
Common stock issued |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
Dividends paid |
|
|
|
|
|
|
|
|
|
|
(95 |
) |
|
|
95 |
|
|
|
|
|
Other transactions |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing Cash Flows from Continuing
Operations |
|
|
(116 |
) |
|
|
1 |
|
|
|
(116 |
) |
|
|
89 |
|
|
|
(142 |
) |
Discontinued Operations |
|
|
(3 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Flows from Financing Activities |
|
|
(119 |
) |
|
|
1 |
|
|
|
(115 |
) |
|
|
89 |
|
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash of Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
1 |
|
|
|
35 |
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(357 |
) |
|
|
(17 |
) |
|
|
(230 |
) |
|
|
|
|
|
|
(604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of the Period |
|
|
1,065 |
|
|
|
35 |
|
|
|
1,038 |
|
|
|
|
|
|
|
2,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of the Period |
|
$ |
708 |
|
|
$ |
18 |
|
|
$ |
808 |
|
|
$ |
|
|
|
$ |
1,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-30-
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(All per share amounts are diluted)
OVERVIEW
The Goodyear Tire & Rubber Company is one of the worlds leading manufacturers of tires and rubber
products with one of the most recognizable brand names in the world and operations in most regions
of the world. We have a broad global footprint with 96 manufacturing facilities in 28 countries,
including the United States. We operate our business through five operating segments representing
our regional tire businesses: North American Tire; European Union Tire; Eastern Europe, Middle East
and Africa Tire (Eastern Europe Tire); Latin American Tire; and Asia Pacific Tire. As a result
of entering into an agreement to sell substantially all of our Engineered Products business, we now
report the results of that segment as discontinued operations.
In the second quarter of 2007 we recorded net income of $56 million compared to net income of
$2 million in the comparable period of 2006. Income from continuing operations in the second
quarter of 2007 was $29 million compared to a loss from continuing operations of $33 million in
the second quarter of 2006. The improvement was driven by an increase in segment operating income of $75 million or
32%, to $309 million in the second quarter of 2007 from
$234 million in the second quarter of 2006, due in large part to the increase in North American Tires results, which reflected a
richer mix of business. See Results of Operations Segment Information for additional
information. The impact of the United Steelworkers (USW) strike was less than originally anticipated in the second
quarter primarily due to North American Tires ability to ramp up production faster than expected
and emphasizing production of higher margin replacement tires due to weakness in the consumer OE
market. Net sales in the second quarter of 2007 increased $183 million, or 4%, to $4,921 million
from $4,738 million in the second quarter of 2006.
Raw material costs continued to rise in the second quarter of 2007 and were approximately $55
million, or 4%, higher than the comparable period of 2006. Despite this increase, all of our
businesses, except for Latin American Tire, offset higher raw material costs with price and mix
improvements. In addition, we expect raw material costs in 2007 to be up between 4% and 6%
compared to 2006, which is unchanged from our previous forecast.
In
the first six months of 2007, we recorded a net loss of $118 million compared to net income
of $76 million in the comparable period of 2006. Loss from continuing operations in the first six
months of 2007 was $81 million compared to income from continuing operations of $13 million in the
first six months of 2006. Net sales in the first six months of 2007 increased $220 million, or 2%,
to $9,420 million from $9,200 million in the first six months of 2006.
During the second quarter of 2007, we continued to execute the final stage of our capital
structure improvement plan that we began in 2003. On April 20, 2007, we completed a refinancing of three of
our primary credit facilities, which extended maturities, reduced applicable interest rates and
provides us with a more flexible covenant package. As a result of the refinancing, we expect to
achieve annualized interest expense savings of between $15 million to $20 million. Also on May 22,
2007, we completed a public equity offering of 26,136,363 common shares, which included the
exercise of the over-allotment option of 3,409,091 common shares, at a price of $33.00 per share,
raising $862 million before offering costs. We used a portion of the $833 million net proceeds
from the equity offering to exercise our rights to redeem $175 million of our $500 million 8.625%
senior notes due 2011 and $140 million of our $400 million 9.00% senior notes due in 2015.
We also continue to work toward the closing of the sale of our Engineered Products business
announced in the first quarter of 2007 to an affiliate of the Carlyle
Group. We expect this transaction to close in the third quarter once
an agreement is reached between Carlyle and the
USW.
In addition, as described in our 2006 Form 10-K, as part of our new master labor agreement
with the USW, we entered into a memorandum of understanding with the USW regarding the
establishment of an independent Voluntary Employees Beneficiary Association (VEBA) intended to
provide healthcare benefits for current and future USW retirees. On July 3, 2007, the USW and
several retirees filed a required class action lawsuit regarding the establishment of the VEBA in
the U.S. District Court for the Northern District of Ohio. While the establishment of the VEBA has
taken longer than we originally expected and reduced much of the favorable earnings impact we
anticipated in 2007, it does not change our view of the benefits in 2008 and beyond.
-31-
Finally, we have made some updates to our 2007 industry volume estimates for North America and
Europe. Our estimates are as follows: in North America, we estimate consumer OE volume will be
down approximately 3% and commercial OE volume will be down as much
as 30% reflecting a spike in
demand in 2006 in advance of the effective date of regulations regarding new commercial vehicle
emission standards. North American consumer replacement volume is expected to be up approximately
1% to 2%, while volume for commercial replacement is expected to be
down 4%. In Europe, consumer OE
volume is expected to be flat and commercial OE volume is expected to
be up 20%. We
expect consumer replacement volume to be down 1% to 2% and commercial replacement volume to be up
2% to 3%.
RESULTS OF OPERATIONS
CONSOLIDATED
Three Months Ended June 30, 2007 and 2006
Net sales in the second quarter of 2007 were $4,921 million, increasing $183 million or 4% from
$4,738 million in the 2006 second quarter. We recorded income from continuing operations of $29
million, or $0.14 per share in the second quarter of 2007 compared to a loss from continuing
operations of $33 million or $0.19 per share, in the second quarter of 2006. Net income of $56
million, or $0.26 per share, was recorded in the 2007 second quarter compared to $2 million, or
$0.01 per share, in the second quarter of 2006.
Net sales in the second quarter of 2007 were favorably impacted by price and product mix of
approximately $207 million, mainly in North American Tire and
European Union Tire, foreign currency
translation of approximately $155 million primarily in European Union Tire, and approximately $22
million in other tire related businesses, primarily related to North American Tire and Eastern
Europe Tire. These were offset by decreased volume of approximately $200 million, mostly in North
American Tire, primarily due to the June 2006 decision to exit the wholesale private label
business, partially offset by increased share of our higher value branded products.
Worldwide tire unit sales in the second quarter of 2007 were 50.8 million units, a decrease of
3.2 million units, or 5.9% compared to the 2006 period. The change was driven by a decrease of 2.3
million units, or 6.2%, in replacement units, primarily in North American Tire and European Union
Tire. North American Tire consumer replacement volume decreased 1.5 million units, or 10.2% and
European Union Tire consumer replacement volume decreased 0.8 million units or 7.7%. OE units
decreased 0.8 million units or 5.2% primarily in North American Tire and Eastern Europe Tire,
partially offset by an increase in Latin American Tire.
Cost of goods sold (CGS) in the second quarter of 2007 was $3,967 million, an increase of $15
million compared to $3,952 million in the second quarter of 2006. As a percentage of sales, CGS
was 81% compared to 83% in the 2006 period. CGS in the second quarter of 2007 increased due to
foreign currency translation of approximately $112 million, higher raw material costs of
approximately $55 million, product mix-related cost increases of approximately $49 million, mostly
related to European Union Tire and Eastern Europe Tire, approximately $25 million of increased
costs related to other tire related businesses and approximately $30 million of higher conversion
costs, primarily in Eastern Europe Tire and Latin American Tire. Reducing CGS was lower volume, of
approximately $193 million, primarily in North American Tire, and lower accelerated depreciation in
2007 of approximately $37 million. Rationalization plans also created additional savings of
approximately $11 million in 2007.
Selling, administrative and general expense (SAG) was $692 million in the second quarter of
2007, compared to $630 million in 2006, an increase of $62 million or 10%. The increase was driven
primarily by foreign currency translation of approximately $22 million, higher advertising of
approximately $9 million and approximately $17 million of increased stock compensation expense due
to an increase in our stock price. Also increasing SAG was approximately $7 million of higher
general and product liability costs. SAG as a percentage of sales was
14% in the second quarter of 2007, compared to 13% in the 2006 period.
Other (income) and expense was $39 million of expense in the 2007 second quarter, a decrease
of $46 million, compared to $7 million of income in the 2006 second quarter. Higher 2007 financing
fees of $46 million included $33
-32-
million related to the redemption of $315 million of long term debt, of which $28 million was
a cash premium paid on the redemption and $5 million was deferred financing fee write-offs. Also
included in the $46 million of higher financing fees was approximately $14 million of debt issuance
costs written-off in connection with our refinancing activities in April 2007. The second quarter
of 2007 also includes a $12 million loss on foreign currency exchange as a result of the weakening
of the U.S. dollar versus the Chilean peso, Colombian peso, and Brazilian real. These were
partially offset by higher interest income in 2007 of $11 million on higher cash deposits, and
gains on asset sales of $10 million which included an $8 million gain on the sale of property and
equipment in North American Tire.
Minority interest in net income of subsidiaries for the three months ended June 30, 2007 is
$16 million, an increase of $5 million or 45%. The increase
is primarily related to increased earnings in GDTE.
For the second quarter of 2007, we recorded tax expense of $51 million on income from
continuing operations before income taxes and minority interest in net income of subsidiaries of
$96 million. Included in tax expense for the second quarter of 2007 was a tax benefit of $11
million ($0.05 per share) related to prior periods. The out-of-period adjustment
related to our correction of the inflation adjustment on equity of
our subsidiary in Colombia as a permanent tax benefit rather than as
a temporary tax benefit dating back as far as 1992, with no
individual year being significantly affected. The difference between our effective tax rate and the U.S. statutory rate was primarily
attributable to continuing to maintain a full valuation allowance against our net Federal and state
deferred tax assets. For the second quarter of 2006, we recorded tax expense of $47 million on
income from continuing operations before income taxes and minority interest in net income of
subsidiaries of $25 million. Included in tax expense for the second quarter of 2006 was a net tax
benefit of $5 million, which is related to tax law changes that were enacted in the second quarter.
Our losses in certain foreign locations in recent periods represented sufficient negative
evidence to require us to maintain a full valuation allowance against our net deferred tax assets
in these foreign locations. However, if our income projections for future periods are realized, it
is reasonably possible that earnings in these locations could provide sufficient positive evidence
to require release of all, or a portion, of these valuation allowances as early as the second half
of 2007 resulting in one-time tax benefits of up to $60 million ($50 million, net of minority
interests in net income of subsidiaries).
Rationalization Activity
During the second quarter of 2007, $7 million of net charges were recorded. New charges of $11
million for plans initiated in 2006 were recorded and include $3 million of associate severance
costs and $8 million primarily for other exit costs and non-cancelable lease costs. The second
quarter of 2007 includes the reversal of $4 million of reserves for rationalization actions no
longer needed for their originally-intended purposes.
The accrual balance of $69 million at June 30, 2007 includes approximately $9 million related
to long-term non-cancelable lease costs and approximately $60 million of associate and other costs
that are expected to be substantially utilized within the next twelve months.
During the second quarter of 2006, $35 million of net charges were recorded. New charges of
$36 million were comprised of $34 million for plans initiated in 2006 and $2 million for plans
initiated in the fourth quarter of 2005. The $34 million of charges for plans initiated in 2006
include $30 million of associate severance costs and $4 million primarily for non-cancelable lease
costs. The second quarter includes the reversal of $1 million of reserves for rationalization
actions no longer needed for their originally-intended purposes.
Upon completion of the 2007 plans, we estimate that annual operating costs will be reduced by
approximately $11 million (approximately $9 million SAG and approximately $2 million CGS).
For
further information, refer to Note 2, Costs Associated with Rationalization Programs.
-33-
Discontinued Operations
Discontinued operations had net income of $27 million, or $0.12 per share, in the second quarter of
2007, compared to net income of $35 million or $0.20 per share in 2006.
Six Months Ended June 30, 2007 and 2006
Net sales in the first six months of 2007 were $9,420 million, increasing $220 million or 2% from
$9,200 million in the first six months of 2006. We recorded a loss from continuing operations of
$81 million, or $0.43 per share in the first six months of 2007 compared to income from continuing
operations of $13 million, or $0.07 per share in the first six months of 2006. Net loss of $118
million, or $0.63 per share, was recorded in the first six months of 2007 compared to net income of
$76 million, or $0.43 per share, in the first six months of 2006.
Net sales in the first six months of 2007 were favorably impacted by price and product mix of
approximately $431 million and by approximately $290 million in foreign currency translation.
These were offset by decreased volume of approximately $512 million, primarily in North American
Tire, due to our June 2006 decision to exit the wholesale private label business, partially offset
by increased share of our higher value branded products.
Worldwide tire unit sales in the first six months of 2007 were 100.0 million units, a decrease
of 8.0 million units, or 7.4% compared to the 2006 period. The change was driven by a decrease of
6.2 million units, or 8.2%, in replacement units, primarily in North American Tire and European
Union Tire. North American Tire consumer replacement volume decreased 4.4 million units, or 15.0%
and European Union Tire consumer replacement volume decreased 1.8 million units or 8.3%. The
decrease in replacement was partially offset by an increase in Eastern Europe Tire of 0.6 million
or 7.6%. OE units decreased by 1.8 million units or 5.5% primarily in North American Tire,
partially offset by increases in European Union and Latin American Tire.
Cost of goods sold (CGS) in the first six months of 2007 was $7,708 million, an increase of
$148 million, or 2% compared to $7,560 million in the first six months of 2006. CGS as a percentage
of sales was 82% in the first six months of 2007 and 2006. CGS in the first six months of
2007 increased due to higher foreign currency translation of approximately $216 million, higher raw
material costs of approximately $171 million, product mix-related cost increases of approximately
$130 million, mostly related to North American Tire and European Union Tire, and approximately $29
million of increased costs related to other tire related businesses. Also unfavorably impacting CGS
was approximately $48 million of higher conversion costs mainly
in Eastern Europe Tire and Latin American Tire. Also increasing CGS was a curtailment charge of approximately $27 million
related to the benefit plan changes announced in the first quarter of 2007. Reducing CGS were
lower volume, primarily in North American Tire, of approximately
$477 million, lower accelerated
depreciation of approximately $20 million, and savings from
rationalization plans of approximately $16 million. Included in
2006 was a pension plan curtailment gain of approximately $15 million and approximately $36 million
related to favorable settlements with certain raw material suppliers.
Selling, administrative and general expense (SAG) was $1,355 million in the first six months
of 2007, compared to $1,245 million in 2006, an increase of $110 million or 9%. The increase was
driven primarily by approximately $37 million related to a curtailment charge for the benefit plan
changes announced in the first quarter of 2007, unfavorable foreign currency translation of
approximately $39 million, and higher advertising of approximately $10 million. Also unfavorably
impacting SAG was stock compensation expense of approximately $26 million due to an increase in our
stock price. These were partially offset by savings from rationalization plans of approximately
$5 million. SAG as a percentage of sales was 14% in the first six months of 2007 and 2006.
Other
(income) and expense was $19 million of expense for the
first six months of 2007, a decrease
of $53 million, compared to $34 million of income for the
first six months of 2006. Higher 2007
financing fees included $33 million related to the redemption of $315 million of long term debt, of
which $28 million was a cash premium paid on the redemption and $5 million was deferred financing
fee write-offs. Also included in the $47 million of higher financing fees were $14 million
primarily of debt issuance costs written-off in connection with our refinancing activities in April
2007. The decrease was also a result of a charge of $12 million related to a fire in our Thailand
facility. Also included in 2007 was a $14 million loss on
-34-
foreign currency exchange as a result of the weakening of the U.S. dollar versus the
Colombian peso, Chilean peso, and the Brazilian real. The 2006 period includes a $15 million gain
resulting from a favorable settlement of a legal matter in Latin American Tire. The increase in
expense was partially offset by gains on asset sales of $17 million in 2007 related to sales of
property primarily in North American Tire and Asia Pacific Tire and higher interest income of $21 million on
higher cash deposits.
Minority interest in net income of subsidiaries for the six months ended June 30, 2007 is $38
million, an increase of $15 million or 65%. The increase is
primarily related to increased earnings in GDTE.
For the first six months of 2007, we recorded tax expense of $114 million on income from
continuing operations before income taxes and minority interest in net income of subsidiaries of
$71 million. Included in tax expense for the first six months of 2007 was a tax benefit of $11
million ($0.05 per share) related to prior periods. The
out-of-period adjustment related to our correction of the inflation
adjustment on equity of our subsidiary in Colombia as a permanent tax
benefit rather than as a temporary tax benefit dating back as far as
1992, with no individual year being significantly affected. The
difference between our effective tax rate and the U.S. statutory rate was primarily attributable to
continuing to maintain a full valuation allowance against our net Federal and state deferred tax
assets. For the first six months of 2006, we recorded tax expense of $115 million on income from
continuing operations before income taxes and minority interest in net income of subsidiaries of
$151 million. Included in tax expense for the first six months was a net tax benefit of $7 million,
which is primarily related to tax law changes that were enacted in the second quarter.
Rationalization Activity
For the first six months of 2007, $22 million of net charges were recorded. New charges of $28
million were comprised of $5 million for plans initiated in 2007 and $23 million for plans
initiated in 2006. New charges of $5 million for the 2007 plans related to associate severance
costs. The $23 million of new charges for 2006 plans consist of $7 million of associate-related
costs and $16 million primarily for other exit costs and non-cancelable lease costs. The first six
months of 2007 includes the reversal of $6 million of reserves for actions no longer needed for
their originally-intended purposes. Approximately 140 associates will be released under programs
initiated in 2007, most of whom will be released within the next 9 months.
For
the first six months of 2006, $73 million of net charges were recorded. New charges of
$75 million were comprised of $72 million for plans initiated in 2006 and $3 million for plans
initiated in 2005 for associate-related costs. The $72 million of new charges for 2006 plans
consist of $66 million of associate-related costs and $6 million primarily for non-cancelable lease
costs. The first six months of 2006 includes the reversal of $2 million of reserves for actions no
longer needed for their originally-intended purposes.
For further information, refer to Note 2, Costs Associated with Rationalization Programs.
Discontinued Operations
Discontinued operations had a net loss of $37 million, or $0.20 per share, in the first six months
of 2007, compared to net income of $63 million or $0.36 per share in 2006.
SEGMENT INFORMATION
Segment information reflects our strategic business units (SBUs), which are organized to meet
customer requirements and global competition. The tire businesses are segmented on a regional
basis.
Results of operations are measured based on net sales to unaffiliated customers and segment
operating income. Segment operating income is computed as follows: Net Sales less CGS (excluding
certain accelerated depreciation charges and asset impairment charges) and SAG (including certain
allocated corporate administrative expenses).
Total segment operating income was $309 million in the second quarter of 2007, increasing from
$234 million in the second quarter of 2006. Total segment operating margin (total segment
operating income divided by segment sales) in the second quarter of 2007 was 6.3%, compared to 4.9%
in the second quarter of 2006.
-35-
In the first six months of 2007, total segment operating income was $535 million, increasing
from $516 million in the first six months of 2006. Total segment operating margin (total segment
operating income divided by segment sales) in the first six months of 2007 was 5.7%, compared to
5.6% in the first six months of 2006.
Management believes that total segment operating income is useful because it represents the
aggregate value of income created by our SBUs and excludes items not directly related to the SBUs
for performance evaluation purposes. Total segment operating income is the sum of the individual
SBUs segment operating income. Refer to Note 9, Business Segments, for further information and
for a reconciliation of total segment operating income to Income from continuing operations before
income taxes.
North American Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
(In millions) |
|
2007 |
|
2006 |
|
Change |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Change |
Tire Units |
|
|
20.8 |
|
|
|
23.3 |
|
|
|
(2.5 |
) |
|
|
(10.7 |
)% |
|
|
40.1 |
|
|
|
46.9 |
|
|
|
(6.8 |
) |
|
|
(14.7 |
)% |
Net Sales |
|
$ |
2,276 |
|
|
$ |
2,340 |
|
|
$ |
(64 |
) |
|
|
(3 |
)% |
|
$ |
4,293 |
|
|
$ |
4,579 |
|
|
$ |
(286 |
) |
|
|
(6 |
)% |
Segment Operating
Income |
|
|
53 |
|
|
|
6 |
|
|
|
47 |
|
|
|
783 |
% |
|
|
33 |
|
|
|
49 |
|
|
|
(16 |
) |
|
|
(33 |
)% |
Segment Operating
Margin |
|
|
2.3 |
% |
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
0.8 |
% |
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 and 2006
North American Tire unit sales in the 2007 second quarter decreased 2.5 million units or 10.7% from
the 2006 period. The decrease was related to a decline in replacement volume of 1.5 million units
or 9.8%, primarily in consumer replacement units due to our June 2006 decision to exit the
wholesale private label business, partially offset by increased volume of our higher value branded
products. OE volume also decreased 1.0 million units or 12.3%, due to a decrease in consumer and
commercial businesses related to reduced vehicle production.
Net sales decreased $64 million or 3% in the second quarter of 2007 from the 2006 period due
primarily to unfavorable volume of approximately $164 million. This was partially offset by
favorable price and product mix of approximately $80 million and
increased sales in chemical and other tire
related businesses of approximately $17 million.
Operating income increased $47 million in the second quarter of 2007 from the 2006 period. The
2007 period was impacted by favorable price and product mix of approximately $69 million.
Partially offsetting these improvements were increased raw material costs of approximately $25
million.
Operating income in the second quarter of 2007 did not include approximately $7 million of
accelerated deprecation charges primarily related to the closure of the Tyler, Texas facility, net
rationalization charges of $4 million and gains on asset sales of $8 million. Operating income in
2006 did not include second quarter net rationalization charges of $2 million and losses on asset
sales of $1 million.
Six Months Ended June 30, 2007 and 2006
North American Tire unit sales in the first half of 2007 decreased 6.8 million units or 14.7% from
the 2006 period. The decrease was primarily related to a decline in replacement volume of 4.6
million units or 14.9%, primarily in consumer replacement units mainly due to our June 2006 decision
to exit the wholesale private label business, partially offset by increased volume of our higher
value branded products. OE volume also decreased 2.2 million units or 14.3% in our consumer and
commercial businesses related to reduced vehicle production.
Net sales decreased $286 million or 6% in the first six months of 2007 from the 2006 period
due primarily to decreased volume of approximately $442 million. This was offset in part by
favorable price and product mix of approximately $160 million.
-36-
Operating income decreased $16 million or 33% in the first six months of 2007 from the 2006
period. The 2007 period was unfavorably impacted by increased raw material costs of approximately
$92 million and decreased volume of approximately $21 million. These costs were offset in part by
favorable price and product mix of approximately $106 million,
and lower SAG expenses of approximately $12
million. Included in 2006 is approximately $21 million of favorable settlements with certain raw
material suppliers. Also, the above 2007 amounts include the impact of approximately $34 million
of costs as a result of the USW strike.
Operating income for the first six months of 2007 did not include approximately $24 million of
accelerated depreciation charges primarily related to the closure of the Tyler, Texas and
Valleyfield, Quebec facilities, net rationalization charges of $10 million and gains on asset sales
of $8 million. Operating income for the first six months of 2006 did not include net
rationalization charges of $2 million.
European Union Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
(In millions) |
|
2007 |
|
2006 |
|
Change |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Change |
Tire Units |
|
|
15.0 |
|
|
|
15.7 |
|
|
|
(0.7 |
) |
|
|
(4.6 |
)% |
|
|
29.9 |
|
|
|
31.3 |
|
|
|
(1.4 |
) |
|
|
(4.5 |
)% |
Net Sales |
|
$ |
1,323 |
|
|
$ |
1,250 |
|
|
$ |
73 |
|
|
|
6 |
% |
|
$ |
2,597 |
|
|
$ |
2,384 |
|
|
$ |
213 |
|
|
|
9 |
% |
Segment Operating Income |
|
|
62 |
|
|
|
58 |
|
|
|
4 |
|
|
|
7 |
% |
|
|
137 |
|
|
|
130 |
|
|
|
7 |
|
|
|
5 |
% |
Segment Operating Margin |
|
|
4.7 |
% |
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
5.3 |
% |
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 and 2006
European Union Tire segment unit sales
in the 2007 second quarter decreased 0.7 million units or
4.6% from the 2006 period. Replacement volume decreased 0.8 million units or 7.4%, mainly in
consumer replacement which was primarily market and strategy driven,
while OE volume
increased 0.1 million units or 2.3%.
Net sales in the second quarter of 2007 increased $73 million or 6% compared to the second
quarter of 2006. Favorably impacting the 2007 period was improved foreign currency translation of
approximately $80 million and improved price and product mix of approximately $56 million. Lower
sales volume of approximately $53 million, and lower sales in
the other tire related businesses of
approximately $9 million unfavorably impacted the period.
For the second quarter of 2007, operating income increased $4 million or 7% compared to 2006
due to improved price and mix of approximately $34 million and favorable conversion costs of
approximately $5 million. Offsetting these were higher SAG expenses of approximately $17 million,
due in part to higher advertising, compensation costs and increased
bad debt expense, approximately $11 million of decreased
volume and higher raw material costs of approximately $6 million.
Operating income in the second quarter of 2007 did not include net rationalization charges of
$1 million and net gains on asset sales of $1 million. Operating income in the second
quarter of 2006 did not include net rationalization charges of $13 million and gains on asset sales
of $1 million. Also, in the second quarter of 2006, operating income did not include approximately
$45 million of accelerated depreciation related to the closure of the Washington, United Kingdom
facility.
Six Months Ended June 30, 2007 and 2006
European Union Tire segment unit sales in the first six months of 2007 decreased 1.4 million units
or 4.5% from the 2006 period. Replacement volume decreased 1.8 million units or 7.9%, mainly in
consumer replacement which was primarily market and strategy driven, while OE volume increased 0.4
million units or 3.9%.
Net sales in the first six months of 2007 increased $213 million or 9% compared to the second
quarter of 2007. Favorably impacting the 2007 period was foreign currency translation of
approximately $192 million, and improved price
-37-
and product mix of approximately $129 million. Lower volume of approximately $93 million and lower
sales in the other tire related businesses of approximately $14 million unfavorably impacted net
sales.
For the first six months of 2007, operating income increased $7 million or 5% compared to 2006
due to improvement in price and mix of approximately $78 million, favorable foreign currency
translation of approximately $9 million and lower conversion costs of approximately $8 million.
These were offset in part by higher raw material costs of approximately $37 million, lower volume
of approximately $22 million, higher SAG expenses of approximately $10 million in part due to
higher compensation costs and increased bad debt expenses. Also unfavorably impacting results was
lower operating income from other tire related businesses of approximately $10 million and
approximately $3 million of higher research and development expenses. Included in 2006 was
approximately $6 million of favorable settlements with certain raw material suppliers.
Operating income in the first six months of 2007 did not include net rationalization charges
of $3 million and net gains on asset sales of $2 million. Operating income in the first six months
of 2006 did not include approximately $45 million of accelerated
depreciation charges related to the
closure of the Washington, United Kingdom facility, net rationalization charges of $39 million and
net gains on asset sales of $2 million.
Eastern Europe, Middle East and Africa Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
(In millions) |
|
2007 |
|
2006 |
|
Change |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Change |
Tire Units |
|
|
4.8 |
|
|
|
5.0 |
|
|
|
(0.2 |
) |
|
|
(5.0 |
)% |
|
|
10.0 |
|
|
|
9.7 |
|
|
|
0.3 |
|
|
|
3.4 |
% |
Net Sales |
|
$ |
436 |
|
|
$ |
384 |
|
|
$ |
52 |
|
|
|
14 |
% |
|
$ |
850 |
|
|
$ |
723 |
|
|
$ |
127 |
|
|
|
18 |
% |
Segment Operating Income |
|
|
63 |
|
|
|
59 |
|
|
|
4 |
|
|
|
7 |
% |
|
|
127 |
|
|
|
102 |
|
|
|
25 |
|
|
|
25 |
% |
Segment Operating Margin |
|
|
14.4 |
% |
|
|
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
14.9 |
% |
|
|
14.1 |
% |
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 and 2006
Eastern Europe Tire unit sales in the 2007 second quarter decreased 0.2 million units or 5.0% from
the 2006 comparable period. Replacement unit sales remained relatively consistent as compared to
the same period a year ago, however, OE unit sales decreased 0.2 million units or 20.3%.
Net sales increased $52 million or 14% in the 2007 second quarter compared to 2006. Favorably
impacting the quarter was approximately $40 million of improved
price and product mix, favorable foreign
currency translation of approximately $14 million and higher
sales in the other tire related businesses of
approximately $13 million. These were partially offset by lower volume of approximately $15
million.
Operating income in the 2007 second quarter increased $4 million or 7% from the second quarter
2006. Operating income for the 2006 period was favorably impacted by price and product mix of
approximately $27 million. This was offset by higher conversion costs of approximately $15
million, lower volume of approximately $3 million, higher SAG of approximately $3 million and
higher raw material costs of approximately $2 million.
Operating income did not include second quarter net rationalization charges of $1 million
and $3 million in 2007 and 2006, respectively.
Six Months Ended June 30, 2007 and 2006
Eastern
Europe Tire unit sales in the 2007 first half of the year increased 0.3 million units or
3.4% from the 2007 comparable period. Replacement unit sales increased 0.6 million units or 7.6%
primarily due to market growth in Eastern Europe, with an offset in OE unit sales of 0.3 million or
14.0%.
Net sales increased $127 million or 18% in the first six months of 2007 compared to 2006.
Favorably impacting the first six months was approximately
$76 million of improved price and product mix,
improved sales in other tire related businesses of
-38-
approximately $26 million, and approximately $19 million of improved volume. Foreign currency
translation of approximately $6 million also favorably impacted net sales.
Operating income in the first six months of 2007 increased $25 million or 25% from the first
six months of 2006. Operating income for the 2007 period was favorably impacted by price and
product mix of approximately $51 million, improvements in
operating income of the other tire related businesses
of approximately $7 million, and increased volume of approximately $4 million. Unfavorably
impacting operating income was higher conversion costs of approximately $24 million, increased raw
material costs of approximately $7 million and higher SAG expenses of approximately $6 million.
Operating income in the first six months did not include net rationalization charges of $4
million and $9 million in 2007 and 2006, respectively.
Latin American Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
(In millions) |
|
2007 |
|
2006 |
|
Change |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Change |
Tire Units |
|
|
5.4 |
|
|
|
5.0 |
|
|
|
0.4 |
|
|
|
8.9 |
% |
|
|
10.7 |
|
|
|
10.4 |
|
|
|
0.3 |
|
|
|
3.8 |
% |
Net Sales |
|
$ |
458 |
|
|
$ |
387 |
|
|
$ |
71 |
|
|
|
18 |
% |
|
$ |
868 |
|
|
$ |
784 |
|
|
$ |
84 |
|
|
|
11 |
% |
Segment Operating Income |
|
|
90 |
|
|
|
83 |
|
|
|
7 |
|
|
|
8 |
% |
|
|
168 |
|
|
|
185 |
|
|
|
(17 |
) |
|
|
(9 |
)% |
Segment Operating Margin |
|
|
19.7 |
% |
|
|
21.4 |
% |
|
|
|
|
|
|
|
|
|
|
19.4 |
% |
|
|
23.6 |
% |
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 and 2006
Latin American Tire unit sales in the 2007 second quarter increased 0.4 million units or 8.9% from
the 2006 period. OE volume increased 0.2 million units or 16.3% and replacement units increased
0.2 million units or 5.5%, due to improving market conditions.
Net sales in the 2007 second quarter increased $71 million or 18% from the 2006 period. Net
sales increased in 2007 due to the improved volume of approximately $42 million, favorable impact
of foreign currency translation, mainly in Brazil, of approximately $23 million and favorable price
and product mix of approximately $7 million.
Operating income in the second quarter of 2007 increased $7 million or 8% from the same period
in 2006. Operating income was favorably impacted by foreign currency translation of approximately
$17 million, improved volume of approximately $11 million
and favorable price and product mix of $6
million. Negatively impacting operating income was increased raw material costs of approximately
$18 million and higher conversion costs of approximately $11 million.
Operating income did not include second quarter gains on asset sales of $1 million in 2007.
Six Months Ended June 30, 2007 and 2006
Latin American Tire unit sales in the first six months of 2007 increased 0.3 million units or 3.8%
from the 2006 period. OE volume increased 0.4 million units or 13.9% due to improving market
conditions, offset by a decline in replacement units of 0.1 million units or 0.6%.
Net sales in the first half of 2007 increased $84 million or 11% from the 2006 period. Net
sales increased in 2006 due to the favorable impact of foreign currency translation, mainly in Brazil, of
approximately $35 million, increased volume of approximately
$28 million, and favorable price and product
mix of approximately $21 million.
Operating income in the first half of 2007 decreased $17 million or 9% from the same period in
2006. Operating income was unfavorably impacted by higher raw material costs of approximately $28
million, higher conversion costs of approximately $21 million, and approximately $17 million due to
a pension plan curtailment gain in 2006. Favorably impacting operating income was foreign currency
translation of approximately $24 million, price and product mix of approximately $20 million and higher
volume of approximately $8 million.
-39-
Operating
income in the first six months of 2007 did not include net rationalization charges of $2
million and gains on asset
sales of $2 million.
Asia Pacific Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
(In millions) |
|
2007 |
|
2006 |
|
Change |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Change |
Tire Units |
|
|
4.8 |
|
|
|
5.0 |
|
|
|
(0.2 |
) |
|
|
(3.4 |
)% |
|
|
9.3 |
|
|
|
9.7 |
|
|
|
(0.4 |
) |
|
|
(4.1 |
)% |
Net Sales |
|
$ |
428 |
|
|
$ |
377 |
|
|
$ |
51 |
|
|
|
14 |
% |
|
$ |
812 |
|
|
$ |
730 |
|
|
$ |
82 |
|
|
|
11 |
% |
Segment Operating Income |
|
|
41 |
|
|
|
28 |
|
|
|
13 |
|
|
|
46 |
% |
|
|
70 |
|
|
|
50 |
|
|
|
20 |
|
|
|
40 |
% |
Segment Operating Margin |
|
|
9.6 |
% |
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
8.6 |
% |
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 and 2006
Asia Pacific Tire unit sales in the 2007 second quarter decreased 0.2 million units or 3.4% from
the 2006 period. Replacement unit sales decreased 0.1 million units or 3.5% and OE volume
decreased 0.1 million units or 3.2%, reflecting supply
constraints as a result of the fire in Thailand.
Net sales in the 2007 second quarter increased $51 million or 14% compared to the 2006 period
due to favorable foreign currency translation of approximately $37 million, mainly in New Zealand
and Australia, and price and product mix of approximately
$24 million. These were partially offset
by decreased volume of approximately $10 million.
Operating income in the second quarter of 2007 increased $13 million or 46% compared to the
2006 period due to improved price and product mix of approximately $19 million and $2 million of
favorable foreign currency translation. Unfavorably impacting operating income was approximately
$4 million of increased raw material costs, and approximately
$2 million due to lower volume.
Despite
reducing unit volume, the fire in Thailand did not affect adversely
segment operating income for the quarter. Costs related to the plant
were largely covered by insurance while the lost volume was mostly
low-margin OE business.
Operating income did not include second quarter net rationalization charges of $17 million in
2006.
Six Months Ended June 30, 2007 and 2006
Asia Pacific Tire unit sales in the first six months of 2007 decreased 0.4 million units or 4.1%
from the 2006 period. Replacement unit sales decreased 0.3 million units or 4.8% and OE volume
decreased 0.1 million units or 2.7%.
Net sales in the first six months of 2007 increased $82 million or 11% compared to the 2006
period due to favorable foreign currency translation of approximately $57 million and favorable
price and product mix of approximately $45 million, which were partially offset by decreased volume
of approximately $24 million.
Operating income in the first six months of 2007 increased $20 million or 40% compared to the
2006 period due to improved price and product mix of approximately $40 million and approximately $3
million of favorable foreign currency translation. Unfavorably impacting operating income was
approximately $9 million of increased raw material costs, increased freight of approximately $3
million, and lower volume of approximately $4 million. Operating income was also unfavorably
impacted by higher SAG expenses of approximately $3 million and a decrease in our other tire
related businesses of approximately $2 million. Operating income
in 2006 also included approximately $2 million
in favorable settlements with certain raw material suppliers.
Operating income in the first six months of 2007 did not include gains on asset sales of $7
million. Also, operating income in the first six months of 2006 did not include net
rationalization charges of $24 million.
-40-
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2007, we had $2,328 million
in cash and cash equivalents as well as $2,000 million of
unused availability under our various credit arrangements, compared to $3,862 million and $533
million at December 31, 2006, respectively. Cash and cash
equivalents decreased primarily due to $2,141
million of repayments on our long term borrowings including our U.S. revolving credit facility,
our 8 1/2% senior note
due 2007 and our debt redemption in the second quarter of 2007,
offset in part by our public equity
offering which raised $833 million. Cash and cash equivalents do not include
restricted cash. Restricted cash primarily consists of Goodyear contributions made related to the
settlement of the Entran II litigation and proceeds received pursuant to insurance settlements. In
addition, we will, from time to time, maintain balances on deposit at various financial
institutions as collateral for borrowings incurred by various subsidiaries, as well as cash
deposited in support of trade agreements and performance bonds. At June 30, 2007, cash balances
totaling $191 million were subject to such restrictions, compared to $214 million at December 31,
2006. During the first quarter of 2007, $20 million of restricted cash became unrestricted.
OPERATING ACTIVITIES
Net cash
used in operating activities from continuing operations was $513 million in the first six
months of 2007, compared to cash used in operating activities of $258 million in the comparable
prior year period. The decrease in operating cash flows was driven by
lower operating results of $94 million, higher pension
contributions of $46 million, and lower insurance recoveries of $43 million.
INVESTING ACTIVITIES
Net cash used in investing activities
from continuing operations was $171 million during the first
six months of 2007, compared to net cash used of $277 million from the first six
months of 2006. The change in
investing activities was primarily due to lower capital expenditures of $30 million
and higher proceeds from asset dispositions of $29 million. In 2006 we also acquired the remaining
outstanding shares of South Pacific Tyres Ltd for $41 million.
FINANCING ACTIVITIES
Net cash
used in financing activities from continuing operations was $871 million in the first six
months of 2007, compared to net cash used of $142 million for the same period in
2006. Cash outflows included payments of $873 million of repayment on our borrowings on our
U.S. revolving credit facility, the $300 million repayment of our
8 1/2% senior note due 2007, the
$315 million debt redemption, and approximately
$360 million of repayment of the German revolving
credit facility due in 2010, offset in part by net proceeds from the equity offering and options exercised
resulting in $940 million.
Credit Sources
In aggregate, we had credit arrangements
of $7,907 million available at June 30, 2007, of which
$2,000 million were unused, compared to $8,196 million
available at December 31, 2006, of which
$533 million were unused.
April 20, 2007 Refinancing
On April 20, 2007, we refinanced
three of our credit facilities. Significant changes to the
amended and restated agreements include:
|
|
|
With respect to our $1.5 billion first lien revolving credit facility, an extension of
its maturity until 2013, a reduction of the applicable interest rate by between 50 and 75
basis points (depending on availability of undrawn amounts) and a more flexible covenant
package. |
|
|
|
|
With respect to our $1.2 billion second lien term loan facility, an extension of its
maturity until 2014, a reduction of the applicable interest rate by 100 basis points (further
reduced by 25 basis points as of May 31, 2007 when our credit
ratings were upgraded to BB- and Ba3)
and a more flexible covenant package. |
-41-
|
|
|
With respect to our 505 million senior secured European credit facilities, the
conversion of the existing 155 million term loan to a revolving facility, an
extension of the facilities maturity until 2012, a reduction of the applicable interest
rate by 75 basis points (as compared to the existing European revolving facility) and
37.5 basis points (as compared to the existing European term loan) and a more flexible
covenant package. |
The aggregate amount of fees we paid
in connection with the refinancing was approximately $19
million.
Refer to
Note 5, Financing Arrangements for additional information regarding the amended and
restated facilities.
June 29, 2007 Debt Redemption
On June 29, 2007, we exercised our
right to redeem $175 million of our $500 million 8.625% senior
notes due 2011 and $140 million of our $400 million 9.00% senior notes due in 2015.
$1.5 Billion Amended and Restated
First Lien Revolving Credit Facility due 2013
Our $1.5 billion first lien revolving
credit facility is available in the form of loans or letters
of credit, with letters of credit availability limited to $800 million. Our obligations under the
facility is guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations
under the facility and our subsidiaries obligations under the related guarantees are secured by
first priority security interests in a variety of collateral.
At June 30,
2007, there were no borrowings under the revolving credit facility and $505
million of letters of credit were issued under the revolving credit facility. At December 31,
2006, we had $873 million outstanding under the revolving credit facility and $6 million of letters of credit
issued under the revolving credit facility. At December 31, 2006 there were no borrowings and $500
million of letters of credit issued under the deposit-funded facility. The $500 million of letters
of credit that were outstanding prior to the refinancing have been transferred to the revolving
credit facility.
505 Million Amended and Restated
Senior Secured European Revolving Credit Facilities due 2012
These amended and restated facilities consist
of a 350 million European revolving credit
facility and a 155 million German revolving credit facility. The 153 million in aggregate
amount of term loans that were outstanding prior to the refinancing have been transferred to the
European revolving credit facility. Up to 50 million in letters of credit are available for
issuance under the European revolving credit facility. Goodyear and its domestic subsidiaries that
secure our U.S. facilities provide unsecured guarantees to support the European revolving credit
facilities. Goodyear Dunlop Tires Europe B.V. (GDTE) and certain of its subsidiaries in the
United Kingdom, Luxembourg, France and Germany also provide guarantees. GDTEs obligations under
the facilities and the obligations of subsidiary guarantors under the related guarantees are
secured by a variety of collateral.
As of
June 30, 2007 and December 31, 2006, there were $4 million of letters of credit issued
and no borrowings under the European revolving credit facility. As of June 30, 2007 and
December 31, 2006, $68 million and $204
million, respectively, was drawn under the German revolving credit
facility. The $202 million in term loans that were outstanding
at December 31, 2006 have been transferred to the European
revolving credit facility.
$300 Million Third Lien Secured Term Loan Facility due 2011
Our obligations under this facility are
guaranteed by most of our wholly-owned U.S. and Canadian
subsidiaries and are secured by third priority security interests in the same collateral securing
the $1.5 billion first lien credit facility (however, the facility is not secured by any of the
manufacturing facilities that secure the first and second lien facilities). As of June 30, 2007
and December 31, 2006, this facility was fully drawn.
$1.2 Billion Amended and Restated
Second Lien Term Loan Facility due 2014
Our obligations under this facility are
guaranteed by most of our wholly-owned U.S. and Canadian
subsidiaries and are secured by second priority security interests in the same collateral securing
the $1.5 billion first lien credit facility. At June 30, 2007 and December 31, 2006, this
facility was fully drawn.
Covenant Compliance
As of June 30, 2007, we were in compliance
with the material covenants imposed by our principal credit facilities.
-42-
EBITDA (Per our Amended and Restated Credit Facilities)
Our amended and restated credit facilities state that we may only incur additional debt or make
restricted payments that are not otherwise expressly permitted if, after giving effect to the debt
incurrence or the restricted payment, our ratio of EBITDA (as defined in those facilities)
(Covenant EBITDA) to Consolidated Interest Expense (as defined in those facilities) for the prior
four fiscal quarters would exceed 2.0 to 1.0. Certain of our senior note indentures have
substantially similar limitations on incurring debt and making restricted payments. In addition, if
the amount of availability under our first lien revolving credit facility plus our Available Cash
(as defined in that facility) is less than $150 million, we may not permit our ratio of Covenant
EBITDA to Consolidated Interest Expense to be less than 2.0 to 1.0 for any period of four
consecutive fiscal quarters.
Covenant EBITDA is a non-GAAP financial measure that is presented not as a measure of
operating results but rather as a measure of these limitations imposed under our credit facilities.
Covenant EBITDA should not be construed as an alternative to either (i) income from operations or
(ii) cash flows from operating activities. As a limitation on our ability to incur debt in
accordance with our credit facilities could affect our liquidity, we believe that the presentation
of Covenant EBITDA provides investors with important information.
The following table presents a calculation of EBITDA and the calculation of Covenant EBITDA in
accordance with the definitions in our amended and restated credit facilities for the three and six
month periods ended June 30, 2007 and 2006. Other companies may calculate similarly titled
measures differently than we do. Certain line items are presented as defined in the credit
facilities and do not reflect amounts as presented in our Consolidated Statement of Operations.
Those line items also include discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(In millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net (Loss) Income |
|
$ |
56 |
|
|
$ |
2 |
|
|
$ |
(118 |
) |
|
$ |
76 |
|
Consolidated Interest Expense |
|
|
120 |
|
|
|
104 |
|
|
|
247 |
|
|
|
207 |
|
United States and Foreign Taxes |
|
|
55 |
|
|
|
52 |
|
|
|
122 |
|
|
|
129 |
|
Depreciation and Amortization Expense |
|
|
146 |
|
|
|
195 |
|
|
|
309 |
|
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
377 |
|
|
|
353 |
|
|
|
560 |
|
|
|
765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facilities Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Adjustments to Net (Loss) Income (1) |
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
Minority Interest in Net Income of Subsidiaries |
|
|
16 |
|
|
|
11 |
|
|
|
38 |
|
|
|
23 |
|
Other Non-Cash Items |
|
|
31 |
|
|
|
(4 |
) |
|
|
33 |
|
|
|
(3 |
) |
Capitalized Interest and Other Interest Related Expense |
|
|
5 |
|
|
|
4 |
|
|
|
10 |
|
|
|
9 |
|
Rationalization Charges |
|
|
10 |
|
|
|
34 |
|
|
|
34 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant EBITDA |
|
$ |
439 |
|
|
$ |
398 |
|
|
$ |
716 |
|
|
$ |
869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes estimated strike related losses of approximately $34 million for North American
Tire and approximately $6 million for Engineered Products in 2007. |
Credit Ratings
Our credit ratings as of the date of this filing are presented below:
|
|
|
|
|
|
|
|
|
S&P |
|
Moodys |
|
$650 Million Senior Secured Notes due 2011 |
|
B+ |
|
Ba3 |
$500 Million Senior Unsecured Notes due 2009 and
$500 Million Senior Unsecured Notes due 2011 |
|
B |
|
Ba3 |
$400 Million Senior Unsecured Notes, due 2015 |
|
B |
|
Ba3 |
All other Senior Unsecured Notes |
|
B |
|
|
B2 |
|
Corporate Rating (implied) |
|
BB- |
|
Ba3 |
Outlook |
|
Positive |
|
Positive |
-43-
Although we do not request ratings from Fitch,
the rating agency rates our secured debt facilities
(ranging from BB+ to B- depending on facility) and our unsecured debt (B-).
Voluntary
Employees Beneficiary Association (VEBA)
On
December 28, 2006, the USW ratified the terms of a new master labor agreement ending a strike by the USW.
In connection with the master labor agreement, we entered into a memorandum of
understanding with the USW regarding the establishment of a VEBA intended to provide
healthcare benefits for current and future USW retirees. The establishment
of the VEBA is conditioned upon receiving U.S. District Court approval of a
settlement of a declaratory judgment action. On July 3, 2007, the USW and
several retirees filed a required class action lawsuit regarding the establishment
of the VEBA in the U.S. District Court for the Northern District of Ohio. We have
committed to contribute to the VEBA $1 billion, which will consist of at least $700
million in cash and an additional $300 million in cash or shares of our common stock
at our option. We plan to make our contributions to the VEBA in cash following the U.S.
District Courts approval of the settlement. In addition, we expect to remove our liability
for USW retiree healthcare benefits from our balance sheet when this settlement has received
final judicial approval (including exhaustion of all appeals, if
any) and we have made our contribution to the VEBA. We expect to use
cash on hand and generated from operating activities, unused availability under our various
credit agreements and/or proceeds from the pending sale of our Engineered Products
business to fund the VEBA. We do not expect our VEBA funding commitment or our inability
to immediately remove our liability for USW retiree healthcare benefits from our balance
sheet to have a significant impact on our liquidity or cash position. Furthermore, we do
not expect our plan to fund the VEBA entirely in cash to have a significant impact on our
operations or liquidity.
Asset
Dispositions
The restrictions on asset sales imposed by
our material indebtedness have not affected our strategy of divesting non-core businesses, and those divestitures
have not affected our ability to comply with those restrictions.
Potential Future Financings
In addition to our previous financing
activities, we may undertake additional financing actions
which could include restructuring bank debt or a capital markets transaction, possibly including
the issuance of additional debt or equity. Given the challenges that we face and the uncertainties
of the market conditions, access to the capital markets cannot be assured.
Future
liquidity requirements also may make it necessary for us to incur additional debt.
However, a substantial portion of our assets is already subject to liens securing our indebtedness.
As a result, we are limited in our ability to pledge our remaining assets as security for
additional secured indebtedness. In addition, no assurance can be given as to our ability to raise
additional unsecured debt.
Recently Issued Accounting Standards
The FASB issued SFAS No. 155, Accounting
for Certain Hybrid Financial Instruments (SFAS No.
155) in February 2006. SFAS No. 155 amends SFAS No. 133 Accounting for Derivative Instruments
and Hedging Activities, and SFAS No. 140 Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities and addresses the application of SFAS No. 133 to
beneficial interests in securitized financial assets. SFAS No. 155 establishes a requirement to
evaluate interests in securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded derivative requiring
bifurcation. Additionally, SFAS No. 155 permits fair value measurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No.
155 is effective for fiscal years beginning after September 15, 2006. We adopted SFAS No. 155 on
January 1, 2007. The adoption of SFAS No. 155 did not have a significant impact on our results of
operations or financial position.
The FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets an amendment of
FASB Statement No. 140 (SFAS No. 156) in March 2006. SFAS No. 156 requires a company to
recognize a servicing asset or servicing liability each time it undertakes an obligation to service
a financial asset. A company will recognize a servicing asset or servicing liability initially at
fair value. A company will then be permitted to choose to subsequently recognize servicing assets
and liabilities using the amortization method or fair value measurement method. SFAS No. 156 is
effective for fiscal years beginning after September 15, 2006. We adopted SFAS No. 156 on January
1, 2007. The adoption of SFAS No. 156 did not have a significant impact on our results of
operations or financial position.
On July 13, 2006, the
FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes-an Interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies
what criteria must be met prior to recognition of the financial statement benefit of a position
taken in a tax return. FIN No. 48 requires companies to include additional qualitative and
quantitative disclosures within their financial statements. The disclosures include potential tax
benefits from positions taken for tax return purposes that have not been recognized for financial
reporting purposes and a tabular presentation of significant changes during each annual period.
The disclosures also include a discussion of the nature of uncertainties, factors which could cause
a change, and an estimated range of reasonably possible changes in tax uncertainties. FIN No. 48
requires a company to recognize a financial statement benefit for a position taken for tax return
purposes when it is more-likely-than-not that the position will be sustained. We adopted FIN No.
48 on January 1, 2007. The adoption resulted in an increase in the opening balance of retained
earnings and a decrease in goodwill as of January 1, 2007 of $32 million and $5 million,
respectively, for tax benefits not previously recognized under historical practice.
On September 15,
2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No.
157). SFAS No. 157 addresses how a company should measure fair value when it is required to use a
fair value measure for recognition and disclosure purposes under generally accepted accounting
principles. SFAS No. 157 will require the fair value of an asset or liability to be based on a
market based measure which will reflect the credit risk of the company. SFAS No. 157 will also
require expanded disclosure requirements which will include the methods and assumptions used to
measure fair value and the effect of fair value measures on earnings. SFAS No. 157 will be applied
prospectively and will be effective for fiscal years
-44-
beginning after November 15, 2007 and to interim periods within those fiscal years. We are
currently assessing the impact SFAS No. 157 will have on our consolidated financial statements.
The FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement No. 115 (SFAS No. 159) in February 2007.
SFAS No. 159 permits a company to choose to measure many financial instruments and other items at
fair value that are not currently required to be measured at fair value. The objective is to
improve financial reporting by providing a company with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. A company shall report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each subsequent reporting
date. SFAS No. 159 will be effective for fiscal years that begin after November 15, 2007. We are
currently assessing the impact SFAS No. 159 will have on our consolidated financial statements.
COMMITMENTS AND CONTINGENT LIABILITIES
Contractual Obligations
Significant updates to our contractual obligations and commitments to make future payments as
disclosed in our 2006 Form 10-K have been provided below. Items not included below can be found in
the Commitments and Contractual Obligations Table in the 2006 Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period as of December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After |
(In millions) |
|
Total |
|
1st Year |
|
2nd Year |
|
3rd Year |
|
4th Year |
|
5th Year |
|
5 Years |
Notes Payable and Long Term Debt (1) |
|
$ |
7,153 |
|
|
$ |
641 |
|
|
$ |
125 |
|
|
$ |
908 |
|
|
$ |
5 |
|
|
$ |
2,101 |
|
|
$ |
3,373 |
|
Interest Payments (2) |
|
|
2,744 |
|
|
|
445 |
|
|
|
428 |
|
|
|
420 |
|
|
|
362 |
|
|
|
253 |
|
|
|
836 |
|
Pension Benefits (3) |
|
|
1,425 |
|
|
|
700 |
|
|
|
375 |
|
|
|
150 |
|
|
|
125 |
|
|
|
75 |
|
|
|
|
|
Other Post Retirement Benefits (4) |
|
|
1,679 |
|
|
|
231 |
|
|
|
192 |
|
|
|
184 |
|
|
|
177 |
|
|
|
170 |
|
|
|
725 |
|
|
|
|
(1) |
|
Notes payable and long term debt payments reflect our maturities as amended on April 20, 2007. Refer to Note 5, Financing Arrangements for a discussion of the amendments and redemption. |
|
(2) |
|
These amounts represent future interest payments related to our existing debt obligations
based on fixed and variable interest rates specified in the associated debt agreements, as
amended on April 20, 2007. Payments related to variable debt are based on the six-month LIBOR
rate at December 31, 2006 plus the specified margin in the associated debt agreements for each
period presented. |
|
(3) |
|
2007 contributions have been revised to reflect updated funding estimates. Other years and
significant assumptions
related to pensions remain unchanged from footnote 5 of the Commitments and Contingent
Liabilities table in the 2006
Form 10-K. |
|
(4) |
|
The payments presented above are expected payments for the next 10 years. The payments for
other postretirement benefits reflect the estimated benefit payments of the plans using the
provisions currently in effect. Under the relevant summary plan descriptions or plan
documents we have the right to modify or terminate the plans. The obligation related to other
postretirement benefits is actuarially determined on an annual basis. The estimated payments
have been reduced to reflect the provisions of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 and U.S. salaried plan changes as noted in Note 7, Pension, Savings
and Other Postretirement Benefit Plans. These amounts will be reduced significantly provided
the proposed settlement with the USW regarding retiree healthcare becomes effective. |
In addition, the following contingent contractual obligation, the amount of which cannot
be estimated, is not included in the table above:
|
|
|
|
|
The terms and conditions of our global alliance with Sumitomo, as set forth in the Umbrella Agreement between Sumitomo and us, provide for certain
minority exit rights available to Sumitomo commencing in 2009. In addition, the occurrence of certain other events enumerated in the Umbrella Agreement,
including certain bankruptcy events or changes in our control, could trigger a right of Sumitomo to require us to purchase their interests in the global alliance immediately.
Sumitomos exit rights, in the unlikely event of the occurrence of a triggering event and the subsequent exercise of Sumitomos exit rights, could require us to make a substantial payment to
acquire Sumitomos interests in the global alliance. The Umbrella Agreement provides that the payment amount would be based on the fair value of Sumitomos 25% minority shareholders interest in each
of Goodyear Dunlop Tires Europe B.V. and Goodyear Dunlop Tires North America, Ltd. and the book value of net assets of the Japanese joint ventures. The payment amount would be determined through a negotiation
process where, if no mutually agreed amount was determined, a binding arbitration process would determine that amount. |
-45-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Commodity
Price Risk
The
raw materials costs to which our operations are principally exposed
include the cost of natural rubber, synthetic rubber, carbon black,
fabrics, steel cord and other petrochemical-based commodities.
Approximately two-thirds of our raw materials are oil-based
derivatives, whose costs may be affected by fluctuations in the price
of oil. We currently do not hedge commodity prices. We do, however,
use various strategies to partially offset cost increases for raw
materials, including centralizing purchases of raw materials through
our global procurement organization in an effort to leverage our
purchasing power and expanding our capabilities to substitute
lower-cost raw materials.
Interest Rate Risk
We continuously monitor our fixed and floating rate debt mix. Within defined limitations, we
manage the mix using refinancing and unleveraged interest rate swaps. We will enter into fixed and
floating interest rate swaps to alter our exposure to the impact of changing interest rates on our
consolidated results of operations and future cash outflows for interest. Fixed rate swaps are
used to reduce our risk of increased interest costs during periods of rising interest rates, and
are normally designated as cash flow hedges. Floating rate swaps are used to convert the fixed
rates of long-term borrowings into short-term variable rates, and are normally designated as fair
value hedges. Interest rate swap contracts are used to separate interest rate risk management from
debt funding decisions. At June 30, 2007, 56% of our debt from continuing operations was at
variable interest rates averaging 7.78% compared to 58% at an average rate of 7.85% at December 31,
2006. We also have from time to time entered into interest rate lock contracts to hedge the
risk-free component of anticipated debt issuances. As a result of credit ratings actions and other
related events, our access to these instruments may be limited.
The following table presents information at June 30:
Interest Rate Swap Contracts
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2007 |
|
2006 |
Floating Rate Contracts: |
|
|
|
|
|
|
|
|
Notional principal amount |
|
$ |
|
|
|
$ |
200 |
|
Pay variable LIBOR |
|
|
|
% |
|
|
7.01 |
% |
Receive fixed rate |
|
|
|
% |
|
|
6.63 |
% |
|
Average years to maturity |
|
|
|
|
|
|
0.4 |
|
Fair value asset (liability) |
|
$ |
|
|
|
$ |
|
|
Pro forma fair value asset (liability) |
|
|
|
|
|
|
(1 |
) |
The pro forma fair value assumes a 10% increase in variable market interest rates at June 30, 2007
and 2006, respectively, and reflects the estimated fair value of contracts outstanding at that date
under that assumption.
Weighted average interest rate swap contract information follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
(Dollars in millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Floating Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional principal amount |
|
$ |
|
|
|
$ |
200 |
|
|
$ |
|
|
|
$ |
200 |
|
Pay variable LIBOR |
|
|
|
% |
|
|
6.51 |
% |
|
|
|
% |
|
|
6.39 |
% |
Receive fixed rate |
|
|
|
% |
|
|
6.63 |
% |
|
|
|
% |
|
|
6.63 |
% |
The following table presents fixed rate debt information at June 30:
(In millions)
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
2007 |
|
2006 |
Carrying amount liability |
|
$ |
2,410 |
|
|
$ |
2,731 |
|
Fair value liability |
|
|
3,152 |
|
|
|
2,717 |
|
Pro forma fair value liability |
|
|
3,216 |
|
|
|
2,788 |
|
The pro forma information assumes a 100 basis point decrease in market interest rates at June 30,
2007 and 2006, respectively, and reflects the estimated fair value of fixed rate debt outstanding
at that date under that assumption.
-46-
The sensitivity to changes in interest rates of our interest rate contracts and fixed rate
debt was determined with a valuation model based upon net modified duration analysis. The model
assumes a parallel shift in the yield curve. The precision of the model decreases as the assumed
change in interest rates increases.
Foreign Currency Exchange Risk
We enter into foreign currency contracts in order to reduce the impact of changes in foreign
exchange rates on consolidated results of operations and future foreign currency-denominated cash
flows. These contracts reduce exposure to currency movements affecting existing foreign
currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting
primarily from trade receivables and payables, equipment acquisitions, intercompany loans and
royalty agreements and forecasted purchases and sales.
Contracts hedging short-term trade receivables and payables normally have no hedging
designation.
The following table presents foreign currency contract information at June 30:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2007 |
|
2006 |
Fair value asset (liability) |
|
$ |
(3 |
) |
|
$ |
(1 |
) |
Pro forma change in fair value |
|
|
(68 |
) |
|
|
(49 |
) |
Contract maturities |
|
|
7/07-10/19 |
|
|
|
7/06-10/19 |
|
We were not a party to any foreign currency option contracts at June 30, 2007 or 2006.
The pro forma change in fair value assumes a 10% decrease in foreign exchange rates at June 30
of each year, and reflects the estimated change in the fair value of contracts outstanding at that
date under that assumption. The sensitivity of our foreign currency positions to changes in
exchange rates was determined using current market pricing models.
Fair values are recognized on the Consolidated Balance Sheet at June 30 as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2007 |
|
2006 |
Fair value asset (liability): |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
3 |
|
|
$ |
3 |
|
Long term assets |
|
|
5 |
|
|
|
1 |
|
Current
liabilities |
|
|
(11 |
) |
|
|
(5 |
) |
FORWARD-LOOKING INFORMATION SAFE HARBOR STATEMENT
Certain information set forth herein (other than historical data and information) may constitute
forward-looking statements regarding events and trends that may affect our future operating results
and financial position. The words estimate, expect, intend and project, as well as other
words or expressions of similar meaning, are intended to identify forward-looking statements. You
are cautioned not to place undue reliance on forward-looking statements, which speak only as of the
date of this Form 10-Q. Such statements are based on current expectations and assumptions, are
inherently uncertain, are subject to risks and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result of many factors,
including:
|
|
|
if we do not achieve projected savings from various cost reduction initiatives
or successfully implement other strategic initiatives our operating results and
financial condition may be materially adversely affected; |
|
|
|
|
a significant aspect of our master labor agreement with the United Steelworkers
(USW) is subject to court and possibly regulatory approvals, which, if not received,
could result in the termination and renegotiation of the agreement; |
|
|
|
|
we face significant global competition, increasingly from lower cost
manufacturers, and our market share could decline; |
-47-
|
|
|
our pension plans are significantly underfunded and further increases in the
underfunded status of the plans could significantly increase the amount of our required
contributions and pension expenses; |
|
|
|
|
higher raw material and energy costs may materially adversely affect our
operating results and financial condition; |
|
|
|
|
continued pricing pressures from vehicle manufacturers may materially adversely
affect our business; |
|
|
|
|
pending litigation relating to our 2003 restatement could have a material
adverse effect on our financial condition; |
|
|
|
|
our long term ability to meet current obligations and to repay maturing
indebtedness is dependent on our ability to access capital markets in the future and to
improve our operating results; |
|
|
|
|
we have a substantial amount of debt, which could restrict our growth, place us
at a competitive disadvantage or otherwise materially adversely affect our financial
health; |
|
|
|
|
any failure to be in compliance with any material provision or covenant of our
secured credit facilities and the indenture governing our senior secured notes could
have a material adverse effect on our liquidity and our results of operations; |
|
|
|
|
our capital expenditures may not be adequate to maintain our competitive
position; |
|
|
|
|
our variable rate indebtedness subjects us to interest rate risk, which could
cause our debt service obligations to increase significantly; |
|
|
|
|
we may incur significant costs in connection with product liability and other
tort claims; |
|
|
|
|
our reserves for product liability and other tort claims and our recorded
insurance assets are subject to various uncertainties, the outcome of which may result
in our actual costs being significantly higher than the amounts recorded; |
|
|
|
|
we may be required to deposit cash collateral to support an appeal bond if we
are subject to a significant adverse judgment, which may have a material adverse effect
on our liquidity; |
|
|
|
|
we are subject to extensive government regulations that may materially adversely affect our operating results; |
|
|
|
|
our international operations have certain risks that may materially adversely affect our operating results; |
|
|
|
|
we have foreign currency translation and transaction risks that may materially
adversely affect our operating results; |
|
|
|
|
the terms and conditions of our global alliance with Sumitomo Rubber
Industries, Ltd. (SRI) provide for certain exit rights available to SRI in 2009 or
thereafter, upon the occurrence of certain events, which could require us to make a
substantial payment to acquire SRIs interest in certain of our joint venture alliances
(which include much of our operations in Europe); |
|
|
|
|
if we are unable to attract and retain key personnel, our business could be
materially adversely affected; |
|
|
|
|
work stoppages, financial difficulties or supply disruptions at our suppliers
or our major OE customers could harm our business; and |
|
|
|
|
we may be impacted by economic and supply disruptions associated with global
events including war, acts of terror, civil obstructions and natural disasters. |
It is not possible to foresee or identify all such factors. We will not revise or update any
forward-looking statement or
-48-
disclose any facts, events or circumstances that occur after the date hereof that may affect the
accuracy of any forward-looking statement.
ITEM 4. CONTROLS AND PROCEDURES.
Managements Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive and financial officers, has
evaluated the effectiveness of our disclosure controls and procedures to ensure that the
information required to be disclosed in our filings under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms, and to ensure that such information is accumulated and
communicated to management, including our principal executive and financial officers, as
appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation,
our principal executive and financial officers have concluded that such disclosure controls and
procedures were effective as of June 30, 2007 (the end of the period covered by this Quarterly
Report on Form 10-Q).
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the period
covered by this report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Asbestos Litigation
As reported in our Form 10-Q for the period ended March 31, 2007, we were one of numerous
defendants in legal proceedings in certain state and Federal courts involving approximately 120,200
claimants relating to their alleged exposure to materials containing asbestos in products allegedly
manufactured by us or asbestos materials present in our facilities. During the second quarter of
2007, approximately 600 new claims were filed against us and
approximately 3,300 were settled or
dismissed. The amount expended on asbestos defense and claim resolution by Goodyear and its
insurance carriers during the second quarter and first six months of 2007 was $6 million and $9
million, respectively. At June 30, 2007, there were approximately 117,500 asbestos claims pending
against us. The plaintiffs are seeking unspecified actual and punitive damages and other relief.
See Note 8, Commitments and Contingent Liabilities in this Form 10-Q for additional information
on Asbestos litigation.
Securities/ERISA Litigation
Following the announcement of a restatement of our financial statements in October 2003, several
lawsuits were filed in the United States District Court for the Northern District of Ohio against
Goodyear and current and/or former officers, directors and associates of Goodyear asserting breach
of fiduciary duty claims under the Employee Retirement Income Security Act (ERISA) on behalf of a
putative class of participants in Goodyears Employee Savings Plan for Bargaining Unit Employees
and Goodyears Savings Plan for Salaried Employees. All of these actions were consolidated into a
separate action in the United States District Court for the Northern District of Ohio. In July
2006, the Court denied the defendants motion to dismiss the breach of fiduciary duty claims under
ERISA. Although Goodyear continues to believe the ERISA claims are without merit, Goodyear has
entered into settlement discussions with the plaintiffs in order to eliminate the ongoing cost and
distraction of the litigation. If the settlement discussions are unsuccessful in resolving the
ERISA claims, Goodyear will continue to vigorously defend them.
-49-
VEBA Litigation
In connection with our master labor agreement with the USW, we also entered into a memorandum of
understanding with the USW regarding the establishment of an independent Voluntary Employees
Beneficiary Association (VEBA). The VEBA is intended to provide healthcare benefits for current
and future USW retirees. On July 3, 2007, the USW and several retirees filed a required class
action lawsuit regarding the establishment of the VEBA in the U.S. District Court for the Northern
District of Ohio. For more information regarding the VEBA, see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations VEBA in our 2006 Form 10-K.
Notice of Violation
On June 13, 2007, the Commissioners of the Texas Commission on Environmental Quality (TCEQ)
approved an agreed order resolving an enforcement action against Goodyear by TCEQ related to
alleged violations of state air emission standards at Goodyears Beaumont, Texas chemical facility.
The agreed order effectuates the settlement described in our 2006 Form 10-K and assesses an
administrative penalty of $283,654 against Goodyear.
Reference is made to Item 3 of Part I of our 2006 Form 10-K and Item 1 of Part II of our Form
10-Q for the period ended March 31, 2007 for additional discussion of legal proceedings.
ITEM 1A. RISK FACTORS
Our 2006 Form 10-K includes a detailed discussion of our risk factors. Some of these risk factors
were amended or updated in our Form 10-Q for the period ended March 31, 2007. The information
presented below further amends and updates our risk factors and should be read in conjunction with
these prior disclosures.
Due to the offering of our common stock and the partial redemption of certain of our senior
unsecured notes as described in Note 12, Equity Offering in this Form 10-Q, the risk factor set
forth below has been amended and restated.
Our long term ability to meet our obligations and to repay maturing indebtedness is dependent on
our ability to access capital markets in the future and to improve our operating results.
The adequacy of our liquidity depends on our ability to achieve an appropriate combination of
operating improvements, financing from third parties, access to capital markets and asset sales.
Although we completed a partial redemption of $315 million principal amount of senior unsecured
notes in June 2007, an offering of our common stock in May 2007, a refinancing of three of our
primary credit facilities in April 2007, and an issuance of $1.0 billion principal amount of senior
unsecured notes in November 2006 ($825 million principal amount of which remains outstanding), we
may undertake additional financing actions in the capital markets in order to ensure that our
future liquidity requirements are addressed. These actions may include the issuance of additional
debt or equity.
Our access to the capital markets cannot be assured and is dependent on, among other things, the
degree of success we have in implementing our cost reduction plans and improving the results of our
North American Tire Segment. Future liquidity requirements also may make it necessary for us to
incur additional debt. A substantial portion of our assets is subject to liens securing our
indebtedness. As a result, we are limited in our ability to pledge our remaining assets as security
for additional secured indebtedness. Our failure to access the capital markets or incur additional
debt in the future could have a material adverse effect on our liquidity and operations, and could
require us to consider further measures, including deferring planned capital expenditures, reducing
discretionary spending, selling additional assets and restructuring existing debt.
-50-
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents information with respect to repurchases of common stock made by us
during the three months ended June 30, 2007. These shares were delivered to us by employees as
payment for the exercise price of stock options as well as the withholding taxes due upon the
exercise of the stock options or the vesting or payment of stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares that May Yet |
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
Be Purchased Under |
|
|
Total Number of |
|
Average Price Paid |
|
Announced Plans or |
|
the Plans or |
Period |
|
Shares Purchased |
|
Per Share |
|
Programs |
|
Programs |
4/1/07-4/30/07 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
5/1/07-5/31/07 |
|
|
5,398 |
|
|
|
34.89 |
|
|
|
|
|
|
|
|
|
6/1/07-6/30/07 |
|
|
1,872 |
|
|
|
35.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,270 |
|
|
$ |
34.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-51-
ITEM 6. EXHIBITS.
See the Index of Exhibits at page E-1, which is by specific reference incorporated into and
made a part of this Quarterly Report on Form 10-Q.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
THE GOODYEAR TIRE & RUBBER COMPANY |
|
|
|
|
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
|
|
Date: July 26, 2007
|
|
|
|
By |
|
/s/ Thomas A. Connell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Connell, Vice President and Controller
(Signing on behalf of Registrant as a duly authorized
officer of Registrant and signing as the principal
accounting officer of Registrant.) |
|
|
-52-
THE GOODYEAR TIRE & RUBBER COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2007
INDEX OF EXHIBITS
|
|
|
|
|
|
|
Exhibit Table |
|
|
|
|
Item |
|
Description of |
|
|
No. |
|
Exhibit |
|
Exhibit Number |
3
|
|
Articles of Incorporation and By-Laws |
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Certificate of Amended Articles of Incorporation of The Goodyear Tire &
Rubber Company, dated December 20, 1954, and Certificate of Amendment to
Amended Articles of Incorporation of the Company, dated April 6, 1993,
Certificate of Amendment to Amended Articles of Incorporation of the Company,
dated June 4, 1996, and Certificate of Amendment to Amended Articles of
Incorporation of the Company, dated April 20, 2006, four documents comprising
the Companys Articles of Incorporation, as amended (incorporated by
reference, filed as Exhibit 3.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2006, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(b)
|
|
Code of Regulations of The Goodyear Tire & Rubber Company, adopted November
22, 1955, and amended April 5, 1965, April 7, 1980, April 6, 1981, April 13,
1987, May 7, 2003, April 26, 2005, and April 11, 2006 (incorporated by
reference, filed as Exhibit 3.2 to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2006, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Instruments Defining the Rights of Security Holders, Including Indentures |
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Specimen Nondenominational Certificate for Shares of the Common Stock,
Without Par Value, of the Company (incorporated by reference, filed as
Exhibit 4.1 to the Companys Current Report on Form 8-K filed May 9, 2007,
File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(b)
|
|
Indenture, dated as of March 15, 1996, between the Company and JPMorgan Chase
Bank, as Trustee, as supplemented on December 3, 1996, March 11, 1998, and
March 17, 1998 (incorporated by reference, filed as Exhibit 4.1 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
Indenture, dated as of March 1, 1999, between the Company and JPMorgan Chase
Bank, as Trustee, as supplemented on March 14, 2000, in respect of
$300,000,000 principal amount of the Companys 8.50% Notes due 2007
(incorporated by reference, filed as Exhibit 4.1, to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000, File No. 1-1927),
and as further supplemented on August 15, 2001, in respect of the Companys
$650,000,000 principal amount of the Companys 7.857% Notes due 2011
(incorporated by reference, filed as Exhibit 4.3 to the Companys Quarterly
Report on Form 10-Q for the period ended September 30, 2001, File No.
1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(d)
|
|
Amended and Restated First Lien Credit Agreement, dated as of April 20, 2007,
among the Company, the lenders party thereto, the issuing banks party
thereto, Citicorp USA, Inc., as Syndication Agent, Bank of America, N.A., BNP
Paribas, CIT Group/Business Credit, Inc., General Electric Capital
Corporation, GMAC Commercial Finance LLC, Wells Fargo Foothill, as
Documentation Agents, and JPMorgan Chase Bank, N.A., as Administrative Agent
and Collateral Agent (incorporated by reference, filed as Exhibit 4.1 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2007,
File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(e)
|
|
Amended and Restated Second Lien Credit Agreement, dated as of April 20,
2007, among the Company, the lenders party thereto, Deutsche Bank Trust
Company Americas, as Collateral Agent, and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference, filed as Exhibit 4.2 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2007,
File No. 1-1927). |
|
|
|
|
E-1
|
|
|
|
|
|
|
Exhibit Table |
|
|
|
|
Item |
|
Description of |
|
|
No. |
|
Exhibit |
|
Exhibit Number |
(f)
|
|
Third Lien Credit Agreement, dated as of April 8, 2005, among the Company,
the subsidiary guarantors listed on the signature pages thereto, the lenders
party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent
(incorporated by reference, filed as Exhibit 4.3 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(g)
|
|
Amended and Restated Revolving Credit Agreement, dated as of April 20, 2007,
among the Company, Goodyear Dunlop Tires Europe B.V., Goodyear Dunlop Tires
Germany GmbH, Goodyear GmbH & Co. KG, Dunlop GmbH & Co. KG, Goodyear
Luxembourg Tires S.A., the lenders party thereto, J.P. Morgan Europe Limited,
as Administrative Agent, and JPMorgan Chase Bank, N.A., as Collateral Agent
(incorporated by reference, filed as Exhibit 4.3 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2007, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(h)
|
|
First Lien Guarantee and Collateral Agreement, dated as of April 8, 2005,
among the Company, the subsidiaries of the Company identified therein and
JPMorgan Chase Bank, N.A., as Collateral Agent (incorporated by reference,
filed as Exhibit 4.5 to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(i)
|
|
Reaffirmation of First Lien Guarantee and Collateral Agreement, dated as of
April 20, 2007, among the Company, the subsidiaries of the Company identified
therein and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral
Agent (incorporated by reference, filed as Exhibit 4.4 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, File No.
1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(j)
|
|
Second Lien Guarantee and Collateral Agreement, dated as of April 8, 2005,
among the Company, the subsidiaries of the Company identified therein and
Deutsche Bank Trust Company Americas, as Collateral Agent (incorporated by
reference, filed as Exhibit 4.6 to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(k)
|
|
Reaffirmation of Second Lien Guarantee and Collateral Agreement, dated as of
April 20, 2007, among the Company, the subsidiaries of the Company identified
therein, Deutsche Bank Trust Company Americas, as Collateral Agent, and
JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by
reference, filed as Exhibit 4.5 to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2007, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(l)
|
|
Master Guarantee and Collateral Agreement, dated as of March 31, 2003, as
Amended and Restated as of February 20, 2004, and as further Amended and
Restated as of April 8, 2005, among the Company, Goodyear Dunlop Tires Europe
B.V., the other subsidiaries of the Company identified therein and JPMorgan
Chase Bank, N.A., as Collateral Agent (incorporated by reference, filed as
Exhibit 4.7 to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005, File No. 1-1927), as amended by the Amendment and
Restatement Agreement, dated as of April 20, 2007 (incorporated by reference,
filed as Exhibit 4.6 to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(m)
|
|
Lenders Lien Subordination and Intercreditor Agreement, dated as of April 8,
2005, among JPMorgan Chase Bank, N.A., as Collateral Agent for the First Lien
Secured Parties referred to therein, Deutsche Bank Trust Company Americas, as
Collateral Agent for the Second Lien Secured Parties referred to therein, the
Company, and the subsidiaries of the Company named therein (incorporated by
reference, filed as Exhibit 4.8 to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
|
|
|
|
(n)
|
|
Indenture, dated as of June 23, 2005, among the Company, the subsidiary
guarantors party thereto and Wells Fargo Bank, N.A., as Trustee (incorporated
by reference, filed as Exhibit 4.2 to the Companys Current Report on Form
8-K filed June 24, 2005, File No. 1-1927). |
|
|
|
|
E-2
|
|
|
|
|
|
|
Exhibit Table |
|
|
|
|
Item |
|
Description of |
|
|
No. |
|
Exhibit |
|
Exhibit Number |
(o)
|
|
Amendment No. 2 to the General Master Purchase Agreement dated May 23, 2005,
and August 26, 2005, between Ester Finance Titrisation, as Purchaser,
Eurofactor, as Agent, Calyon, as Joint Lead Arranger and as Calculation
Agent, Natexis Banques Populairies, as Joint Lead Arranger, Goodyear Dunlop
Tires Finance Europe B.V. and the Sellers listed therein (including Amended
and Restated General Master Purchase Agreement) (incorporated by reference,
filed as Exhibit 4.1 to the Companys Registration Statement on Form S-4,
File No. 333-128932). |
|
|
|
|
|
|
|
|
|
|
|
(p)
|
|
Amendment No. 2 to the Master Subordinated Deposit Agreement dated May 23,
2005, and August 26, 2005, between Eurofactor, as Agent, Calyon, as
Calculation Agent, Ester Finance Titrisation, as Purchaser, and Goodyear
Dunlop Tires Finance Europe B.V. (including Amended and Restated Master
Subordinated Deposit Agreement) (incorporated by reference, filed as Exhibit
4.2 to the Companys Registration Statement on Form S-4, File No.
333-128932). |
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(q)
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Master Complementary Deposit Agreement dated December 10, 2004, between
Eurofactor, as Agent, Calyon, as Calculation Agent, Ester Finance
Titrisation, as Purchaser, and Goodyear Dunlop Tires Finance Europe B.V.
(incorporated by reference, filed as Exhibit 4.3 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2004, File No. l-1927). |
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(r)
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Indenture dated as of March 12, 2004, among the Company, the subsidiary
guarantors party thereto and Wells Fargo Bank, N.A., as Trustee (incorporated
by reference, filed as Exhibit 4.11 to the Companys Annual Report on Form
10-K for the year ended December 31, 2003, File No. 1-1927). |
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(s)
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Collateral Agreement dated as of March 12, 2004, among the Company, certain
subsidiaries of the Company and Wilmington Trust Company, as Collateral Agent
(incorporated by reference, filed as Exhibit 4.14 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2003, File No. 1-1927). |
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(t)
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Lien Subordination and Intercreditor Agreement dated as of March 12, 2004,
among the Company, certain subsidiaries of the Company, JPMorgan Chase Bank
and Wilmington Trust Company (incorporated by reference, filed as Exhibit
4.15 to the Companys Annual Report on Form 10-K for the year ended December
31, 2003, File No. 1-1927). |
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(u)
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Indenture, dated as of July 2, 2004, between the Company and Wells Fargo
Bank, N.A., as Trustee (incorporated by reference, filed as Exhibit 4.4 to
the Companys Form 10-Q for the quarter ended September 30, 2004, File No.
1-1927). |
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(v)
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Indenture, dated as of November 21, 2006, among the Company, the subsidiary
guarantors party thereto and Wells Fargo Bank, N.A., as Trustee (incorporated
by reference, filed as Exhibit 4.2 to the Companys Current Report on Form
8-K filed November 22, 2006, File No. 1-1927). |
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(w)
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Exchange and Registration Rights Agreement with respect to Senior Floating
Rate Notes due 2009, dated as of November 21, 2006, among the Company,
certain subsidiaries of the Company and Goldman, Sachs & Co. (incorporated by
reference, filed as Exhibit 4.3 to the Companys Current Report on Form 8-K
filed November 22, 2006, File No. 1-1927). |
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(x)
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Exchange and Registration Rights Agreement with respect to
85/8% Senior Notes due 2011, dated as of November 21,
2006, among the Company, certain subsidiaries of the Company and Goldman,
Sachs & Co. (incorporated by reference, filed as Exhibit 4.4 to the Companys
Current Report on Form 8-K filed November 22, 2006, File
No. 1-1927).
In accordance with Item 601(b)(4)(iii) of Regulation S-K, the Company is not
filing certain documents. The Company agrees to furnish a copy of each such
document upon the request of the Securities and Exchange Commission. |
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10
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Material Contracts |
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E-3
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Exhibit Table |
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Item |
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Description of |
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No. |
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Exhibit |
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Exhibit Number |
(a)*
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The Goodyear Tire & Rubber Company Continuity Plan for Salaried Employees
(incorporated by reference, filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K filed April 13, 2007, File No. 1-1927). |
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12
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Statement re Computation of Ratios |
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(a)
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Statement setting forth the Computation of Ratio of Earnings to Fixed Charges.
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12.1 |
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31
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302 Certifications |
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(a)
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Certificate of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.1 |
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(b)
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Certificate of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2 |
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32
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906 Certifications |
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(a)
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Certificate of Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.1 |
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* |
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Indicates management contract or compensatory plan or arrangement. |
E-4