Goodyear Achieves Record Sales, Highest Quarterly Net Income
- Net income reaches $142 million, up 274 percent
- Sales surpass $5 billion, record for any quarter
- Total segment operating income increases 21 percent to $330 million
- $10 million third quarter impact from hurricanes, tire plants return to normal production levels
AKRON, Ohio, Oct. 27 -- The Goodyear Tire & Rubber Company today reported net income of $142 million (70 cents per share), the highest quarterly result since the third quarter of 1998, reflecting record net sales and strong operating results in the company's tire businesses.
The quarterly results were up substantially from the prior-year period, when the company recorded net income of $38 million (20 cents per share). All per share amounts are diluted.
Record quarterly sales of $5.0 billion were a 7 percent increase from $4.7 billion during the 2004 period. The growth in sales reflects improved pricing and product mix in each of the company's businesses, higher volume in its international tire businesses, and the favorable impact of currency translation.
Third quarter tire unit volume increased to 58.4 million units, compared to 57.4 million units in the 2004 period, a 1.8 percent gain.
Third quarter total segment operating income increased 21.3 percent to $330 million.
"All six of our business units achieved third quarter sales records, and all of our tire businesses achieved improvements in segment operating income compared to last year," said Chairman and Chief Executive Officer Robert J. Keegan.
"This improvement, including a second consecutive $5 billion sales quarter, is further evidence that we are executing to our plan," he said. "Specifically, we are winning through our strategy of focusing on high margin market segments and bringing higher-margin, differentiated new products to market quickly. Our new-product focus was highlighted during the quarter by the introduction of the Goodyear Fortera featuring TripleTred technology in North America, the Dunlop Wintersport 3D in Europe, and the early European success of the Goodyear UltraGrip 7 winter tire."
Keegan said the strategy to focus on enhancing the company's brand and product mix, together with increased pricing, has enabled Goodyear to offset the impact of higher raw material costs, which increased approximately $148 million compared to the third quarter of 2004.
Goodyear's third quarter 2005 results include after-tax charges of $10 million (5 cents per share) related to hurricanes Katrina and Rita.
Goodyear said the effects of these hurricanes in North America principally have involved temporary reductions in production at its North American Tire facilities due to disruption in the supply of certain key raw materials. The company's tire plants returned to normal production levels in mid October and its Beaumont, Texas, chemical plant is operating at near capacity. The continuing impact of the hurricanes could result in future raw material shortages, which could cause intermittent reductions in production, although none are expected at this time.
"I am extremely pleased with the way our Business Continuity team and our plant associates managed through the difficult circumstances surrounding Hurricane Rita," Keegan said. "Outstanding planning and execution helped minimize the financial impact and kept our products flowing to our customers."
In addition to the hurricane-related charge, Goodyear's third quarter 2005 results include an after-tax charge of $8 million (4 cents per share) for rationalizations. The quarter also included after-tax gains of $25 million (12 cents per share) related to the sale of the company's Wingtack adhesive resins business, and $14 million (7 cents per share) from an insurance settlement.
Third quarter 2004 results include net after-tax charges of $32 million (15 cents per share) for rationalizations and accelerated depreciation, and $9 million (4 cents per share) related to an accounting investigation and external professional fees associated with Sarbanes-Oxley compliance. The quarter also included a favorable $44 million (21 cents per share) tax adjustment related to the settlement of prior-year tax liabilities.
The company anticipates continued year-over-year gains in operating performance in the fourth quarter, however the rate of those gains is expected to be less than in the third quarter.
Business Segments
Third quarter total segment operating income was $330 million, an increase of 21.3 percent compared to $272 million in the 2004 period. All of Goodyear's tire business units reported higher segment operating income compared to the year-ago period.
See the note at the end of this release for further explanation and a reconciliation table.
North American Tire Third Quarter Nine Months
(in millions) 2005 2004 2005 2004
Tire Units 26.6 26.6 77.2 77.1
Sales $2,370 $2,257 $6,804 $6,366
Segment Operating Income 58 27 124 44
Segment Operating Margin 2.4% 1.2% 1.8% 0.7%
North American Tire's sales were a record for any quarter, increasing 5 percent compared to the 2004 period. Sales were positively affected by favorable pricing and product mix, and the continued success of Goodyear's strategy to focus on the higher-margin segments of the replacement market.
Third quarter segment operating income more than doubled compared to the 2004 period due to improved pricing and product mix. The quarter was adversely affected by higher raw material costs, estimated at $80 million, and $10 million in costs related to the hurricanes.
European Union Tire Third Quarter Nine Months
(in millions) 2005 2004 2005 2004
Tire Units 16.2 15.8 48.1 47.5
Sales $1,131 $1,085 $3,507 $3,256
Segment Operating Income 80 68 272 195
Segment Operating Margin 7.1% 6.3% 7.8% 6.0%
European Union Tire's sales increased 4.2 percent for a third quarter record due primarily to improved pricing and product mix as well as higher volume in the consumer replacement and commercial original equipment markets. The company estimates currency translation had a negative effect on sales of approximately $11 million.
Segment operating income increased 17.6 percent to a third-quarter record primarily due to improved pricing and product mix. These actions offset rising raw material costs, estimated at $13 million.
Eastern Europe, Middle Third Quarter Nine Months
East, and Africa Tire
(in millions) 2005 2004 2005 2004
Tire Units 5.4 5.2 14.9 14.4
Sales $394 $344 $1,076 $928
Segment Operating Income 64 60 160 148
Segment Operating Margin 16.2% 17.4% 14.9% 15.9%
Eastern Europe, Middle East and Africa Tire's sales were a record for any quarter and up 14.5 percent compared to the third quarter of 2004 due to improved pricing and product mix, and to volume increases in replacement markets. The company estimates currency translation had a positive impact on sales of approximately $11 million in the third quarter.
Segment operating income was a record for any quarter, and represented a 6.7 percent improvement over 2004. This gain was due to improved pricing and product mix, particularly in premium brands. Segment operating income also benefited from higher volume and favorable currency translation of approximately $3 million. These offset higher raw material costs, estimated at $8 million, and higher manufacturing costs.
Latin American Tire Third Quarter Nine Months
(in millions) 2005 2004 2005 2004
Tire Units 5.0 4.9 15.4 14.5
Sales $372 $316 $1,101 $910
Segment Operating Income 77 64 241 187
Segment Operating Margin 20.7% 20.3% 21.9% 20.5%
Latin American Tire's sales increased 17.7 percent to a third quarter record due to the favorable impact of currency translation, improved pricing and product mix, and higher volume. Currency translation had a favorable impact of approximately $37 million on the quarter's results.
Segment operating income was a third quarter record and an increase of 20.3 percent due to improved pricing and product mix, higher volume, and approximately $24 million from the favorable impact of currency translation. These factors offset higher raw material costs, estimated at $29 million, and higher manufacturing costs.
Asia/Pacific Tire Third Quarter Nine Months
(in millions) 2005 2004 2005 2004
Tire Units 5.2 4.9 15.1 14.6
Sales $356 $319 $1,065 $970
Segment Operating Income 24 19 63 44
Segment Operating Margin 6.7% 6.0% 5.9% 4.5%
Asia/Pacific Tire's sales increased 11.6 percent for a third quarter record due to higher volume, favorable currency translation, and improved pricing and product mix. The impact of currency translation is estimated at approximately $14 million.
Segment operating income was a third quarter record and increased 26.3 percent in the quarter as a result of improved pricing and product mix and higher volume, offset in part by higher raw material costs, estimated at $11 million.
Engineered Products Third Quarter Nine Months
(in millions) 2005 2004 2005 2004
Sales $407 $379 $1,236 $1,091
Segment Operating Income 27 34 78 89
Segment Operating Margin 6.6% 9.0% 6.3% 8.2%
Engineered Products' sales in the third quarter of 2005 increased 7.4 percent to a new third quarter record due to improved pricing and product mix, as well as favorable currency translation of approximately $11 million. The quarter was marked by growing demand in the industrial products and automotive replacement markets, which more than offset weakness in the military businesses.
Segment operating income decreased 20.6 percent due to higher manufacturing costs, increasing raw material costs, and higher expense related to bad debt and freight costs. These factors more than offset higher volume and improvements in pricing and product mix.
Year-to-Date Results
Net income for the first nine months of 2005 was $279 million ($1.39 per share) compared to a net loss of $10 million (6 cents per share) during the year-ago period.
Sales for the first nine months of 2005 were a record $14.8 billion, an increase of 9.4 percent from $13.5 billion in the 2004 period. Tire unit volume was 170.7 million units, up 1.5 percent from a year ago.
Segment operating income reached $938 million, a 32.7 percent increase compared to the first nine months of 2004.
Goodyear is the world's largest tire company. The company manufactures tires, engineered rubber products and chemicals in more than 90 facilities in 28 countries around the world. Goodyear employs about 75,000 people worldwide.
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statements of Income (Loss) (unaudited)
(In millions, except
per share) Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
2005 2004 2005 2004
Net Sales $5,030 $4,700 $14,789 $13,521
Cost of Goods Sold 4,008 3,750 11,772 10,816
Selling, Administrative
and General Expense 707 703 2,139 2,079
Rationalizations 9 29 (4) 63
Interest Expense 103 95 306 268
Other (Income) Expense (35) 38 (5) 117
Minority Interest in
Net Income of Subsidiaries 25 18 79 43
Income before Income
Taxes 213 67 502 135
United States and Foreign
Taxes on Income 71 29 223 145
Net Income (Loss) $142 $38 $279 $(10)
Net Income (Loss) Per
Share of Common Stock
- Basic 0.81 $0.22 $1.59 $(0.06)
Average Shares
Outstanding 176 175 176 175
Net Income (Loss) Per
Share of Common Stock -
Diluted $0.70 $0.20 $1.39 $(0.06)
Average Shares
Outstanding 209 207 209 175
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheets (unaudited)
(In millions) Sept. 30 Dec. 31
2005 2004
Assets
Current Assets:
Cash and Cash Equivalents $1,662 $1,968
Restricted Cash 215 152
Accounts and Notes Receivable, less
allowance - $137 ($144 in 2004) 3,712 3,408
Inventories 2,894 2,785
Prepaid Expenses and Other Current Assets 268 300
Total Current Assets 8,751 8,613
Other Assets 492 669
Goodwill 661 720
Other Intangible Assets 154 163
Deferred Income Taxes 83 83
Deferred Pension Cost 919 830
Properties and Plants, less Accumulated
Depreciation -$7,890 ($7,836 in 2004) 5,179 5,455
Total Assets $16,239 $16,533
Liabilities
Current Liabilities:
Accounts Payable - Trade $1,859 $1,970
Compensation and Benefits 1,084 1,029
Other Current Liabilities 575 741
United States and Foreign Taxes 331 271
Notes Payable 252 221
Long Term Debt and Capital Leases due
within one year 252 1,010
Total Current Liabilities 4,353 5,242
Long Term Debt and Capital Leases 4,944 4,449
Compensation and Benefits 4,989 5,036
Deferred and Other Non-Current Income Taxes 385 406
Other Long Term Liabilities 440 481
Minority Equity in Subsidiaries 832 846
Total Liabilities 15,943 16,460
Commitments and Contingent liabilities
Shareholders' Equity
Preferred Stock, no par value:
Authorized 50 shares, unissued -- --
Common Stock, no par value:
Authorized 300 shares, Outstanding Shares -
176 (176 in 2004) after deducting 19
Treasury Shares (20 in 2004) 176 176
Capital Surplus 1,397 1,392
Retained Earnings 1,349 1,070
Accumulated Other Comprehensive Income (Loss) (2,626) (2,565)
Total Shareholders' Equity 296 73
Total Liabilities and Shareholders' Equity $16,239 $16,533
Total Segment Operating Income Reconciliation Table (unaudited)
(In millions)
Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
2005 2004 2005 2004
Total Segment Operating
Income $330 $272 $938 $707
Rationalizations and Gains
(Losses) on Asset Sales 19 (28) 45 (57)
Interest Expense (103) (95) (306) (268)
Foreign Currency Exchange (8) (10) (19) (14)
Minority Interest in Net
Income of Subsidiaries (25) (18) (79) (43)
Financing Fees and
Financial Instruments (10) (29) (99) (90)
General and Product
Liability - Discont.
Products - (8) (4) (25)
Recovery (Expenses) for Fire
Loss Deductibles - - 14 (12)
Professional Fees Associated
with Restatement - (3) (2) (27)
Environmental Insurance
Recoveries 9 - 29 -
Other 1 (14) (15) (36)
Income before Income Taxes 213 67 502 135
United States and Foreign
Taxes on income 71 29 223 145
Net Income (Loss) $142 $38 $279 $(10)
Management believes that total segment operating income is useful because it represents the aggregate value of income created by the company's strategic business units ("SBUs") and excludes items not directly related to the SBUs for performance evaluation purposes. Total segment operating income is the sum of the individual SBU's segment operating income as determined in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information.
