Akron Tire Company Sets Sales Record, Net Income Doubles in 2005 Second Quarter
- Net income $69 million, 34 cents per share
- Segment operating income increases 24 percent to $316 million
- Record global sales of $5 billion, up 10 percent
- Five business units set sales records
AKRON, Ohio, Aug. 4 -- The Goodyear Tire & Rubber Company today reported net income of $69 million (34 cents per share) for the second quarter of 2005, reflecting record sales and increased unit volume. In the second quarter of 2004, the company had net income of $30 million (17 cents per share). All per share amounts are diluted.
Sales of $5 billion were a record for any quarter, and a 10 percent increase from $4.5 billion during the 2004 period. The increase reflects improved pricing, product mix and volume, as well as the favorable impact of currency translation.
Tire unit volume in the second quarter of 2005 was 56.4 million units, up from 55.0 million units in the 2004 period. Volume increases were driven by gains in the European, Latin American and Asia/Pacific markets.
"Five of our businesses had record second quarter sales, and margins improved in our North American and European Union tire businesses," said Robert J. Keegan, Goodyear chairman and chief executive officer. "This success is further evidence that our strategies are working, and that our unwavering focus on key products, customers and markets is paying off. We continue to gain share in targeted markets," he said.
"We have been successful in offsetting the impact of record high raw material costs through strategic pricing actions and by driving product mix enhancement. We will continue to concentrate on these areas to address the inevitable raw material cost increases that we expect in the second half of 2005," Keegan added.
Raw material costs increased by approximately $133 million during the quarter, compared to a year ago. The company said it expects raw material costs to grow by approximately 10 percent for the full year of 2005 compared to 2004.
The company estimates the effects of currency translation had a positive net impact on 2005 second quarter sales of approximately $108 million.
The second quarter of 2005 includes net after-tax charges of $47 million (23 cents per share) related to financing fees, and $7 million (3 cents per share) primarily related to the settlement of prior years tax liability. The quarter also included after-tax gains of $19 million (9 cents per share) from a previously disclosed environmental insurance settlement, $6 million (2 cents per share) related to fire loss recoveries, $5 million (2 cents per share) in net rationalization reversals, and $8 million (4 cents per share) related to general and product liability -- discontinued products.
The second quarter of 2005 also included $8 million (4 cents per share) in after-tax expense relating to prior periods.
The 2004 second quarter included after-tax rationalization charges of $9 million (5 cents per share) and an after-tax charge of $9 million (5 cents per share) related to external professional fees associated with the previously disclosed accounting investigation, and $8 million (5 cents per share) related to general and product liability -- discontinued products.
The company anticipates continued year-over-year gains in operating performance during the second half of 2005, however the rate of those gains is expected to be less than they were in the first half.
Business Segments
Second quarter total segment operating income was $316 million, an increase of 24 percent compared to $254 million in the 2004 period. All of Goodyear's tire businesses 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 Second Quarter Six Months
(in millions) 2005 2004 2005 2004
Tire Units 25.3 25.7 50.6 50.4
Sales $2,296 $2,171 $4,434 $4,109
Segment Operating Income 55 41 66 17
Segment Operating Margin 2.4% 1.9% 1.5% 0.4%
North American Tire sales reached a record for any quarter, increasing 6 percent compared to the 2004 period. The increase was driven by improved pricing and product mix, and higher volume in the consumer replacement and commercial original equipment markets. These increases were offset by an 8 percent decrease in shipments to consumer OE customers, reflecting a slowdown in the U.S. automotive industry and Goodyear's selective fitment strategy in this market.
Second quarter segment operating income increased 34 percent compared to the 2004 period due to improved pricing and product mix, lower manufacturing costs and improved earnings from external chemical and other tire related businesses , partially offset by higher raw material costs of approximately $75 million.
European Union Tire Second Quarter Six Months
(in millions) 2005 2004 2005 2004
Tire Units 15.9 15.4 31.9 31.7
Sales $1,178 $1,060 $2,376 $2,171
Segment Operating Income 85 57 192 127
Segment Operating Margin 7.2% 5.4% 8.1% 5.8%
European Union Tire sales were a second quarter record and increased 11 percent over the 2004 quarter as a result of strong price and product mix, volume increases driven by the consumer replacement and commercial OE markets, and a favorable impact from currency translation of approximately $26 million.
Segment operating income increased 49 percent to a second quarter record primarily due to improved pricing and product mix, which offset higher raw material costs of approximately $11 million compared to the year-ago period.
Eastern Europe, Middle
East, Africa Tire Second Quarter Six Months
(in millions) 2005 2004 2005 2004
Tire Units 4.7 4.5 9.5 9.2
Sales $342 $301 $682 $584
Segment Operating Income 49 45 96 88
Segment Operating Margin 14.3% 15.0% 14.1% 15.1%
Eastern Europe, Middle East and Africa Tire's sales were up 14 percent and a second quarter record. The increase resulted from the favorable impact of currency translation, estimated at $12 million, improved volume, and price and product mix related to growth in replacement markets, price increases in emerging markets and continued growth in premium brands.
Segment operating income improved 9 percent, reaching a second-quarter record due to improved pricing and product mix, foreign currency translation of approximately $7 million, and strong volume. Higher raw material costs of approximately $7 million had a negative impact on results.
Latin American Tire Second Quarter Six Months
(in millions) 2005 2004 2005 2004
Tire Units 5.4 4.7 10.4 9.6
Sales $381 $291 $729 $594
Segment Operating Income 77 61 164 123
Segment Operating Margin 20.2% 21.0% 22.5% 20.7%
Latin American Tire sales increased 31 percent from the second quarter of 2004 due to higher volume, price increases and improved product mix, as well as the favorable impact of currency translation of approximately $37 million. Sales were the highest for any second quarter in the last seven years.
Segment operating income was a second quarter record, and a 26 percent increase from 2004 due to improved pricing and product mix, volume and approximately $15 million in favorable currency translation, resulting from certain currency revaluations. Higher raw material costs of approximately $20 million had a negative impact on segment operating income.
Asia/Pacific Tire Second Quarter Six Months
(in millions) 2005 2004 2005 2004
Tire Units 5.1 4.7 9.9 9.8
Sales $368 $328 $709 $651
Segment Operating Income 20 17 39 25
Segment Operating Margin 5.4% 5.2% 5.5% 3.8%
Asia/Pacific Tire sales were a record for any quarter and 12 percent higher than the 2004 quarter due primarily to favorable currency translation of approximately $21 million, and higher volume, particularly in OE markets.
Segment operating income increased 18 percent in the 2005 quarter, reaching a record for any quarter due to improved pricing and product mix, which partially offset raw material cost increases of $13 million.
Engineered Products Second Quarter Six Months
(in millions) 2005 2004 2005 2004
Sales $427 $368 $829 $712
Segment Operating Income 30 33 51 55
Segment Operating Margin 7.0% 9.0% 6.2% 7.7%
Engineered Products' sales in the second quarter of 2005 were a record for any quarter and increased 16 percent compared to the 2004 period as a result of higher volume, mainly in the industrial channel, and the favorable effect of currency translation of approximately $11 million.
Segment operating income decreased 9 percent due primarily to higher raw material costs of approximately $6 million, and higher administrative and manufacturing costs.
Year-to-Date Results
Sales for the first six months of 2005 were a record $9.8 billion, an increase of 11 percent from $8.8 billion in the 2004 period. Tire unit volume was 112.3 million units, up from 110.7 million units a year ago.
Net income for the first six months of 2005 was $137 million (69 cents per share), compared to a loss of $48 million (28 cents per share) during the year-ago period.
Total segment operating income was $608 million in the first half of 2005, an increase of 40 percent from $435 million in the first six months of 2004.
First-half 2005 raw material costs increased approximately $252 million compared to the year-ago period.
In addition to the items listed for the second quarter, the first six months of 2005 includes net after-tax gains of $7 million (3 cents per share) from reversals of rationalization charges, and net after-tax charges of $12 million (6 cents per share) related to general and product liability -- discontinued products.
In addition to items listed for the second quarter of 2004, the first six months of that year also included the following after-tax items: a rationalization charge of $20 million (11 cents per share); a charge of $15 million (9 cents per share) related to external professional fees associated with the previously disclosed accounting investigation; an expense of $12 million (7 cents per share) relating primarily to a fire at a European tire manufacturing facility and $4 million (2 cents per share) for accelerated depreciation primarily related to the closure of a Latin American tire manufacturing facility.
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 80,000 people worldwide.
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statement of Income (Loss)
(unaudited)
(In millions, except
per share) Second Quarter Six Months
Ended June 30 Ended June 30
2005 2004 2005 2004
Net Sales $4,992 $4,519 $9,759 $8,821
Cost of Goods Sold 3,945 3,590 7,764 7,066
Selling, Administrative
and General Expense 746 693 1,432 1,376
Rationalizations (5) 10 (13) 34
Interest Expense 101 89 203 173
Other (Income) and Expense 18 29 30 79
Minority Interest in
Net Income of Subsidiaries 33 19 54 25
Income before Income Taxes 154 89 289 68
United States and Foreign
Taxes on Income 85 59 152 116
Net Income (Loss) $ 69 $ 30 $137 $(48)
Net Income (Loss) Per Share
of Common Stock - Basic $0.39 $0.17 $0.78 $(0.28)
Average Shares Outstanding 176 175 176 175
Net Income (Loss) Per Share
of Common Stock - Diluted $0.34 $0.17 $0.69 $(0.28)
Average Shares Outstanding 208 177 208 175
Note: The increase in weighted average shares-diluted in 2005 compared to
2004 reflects the implementation of Emerging Issues Task Force Issue
No. 04-08 in the fourth quarter of 2004, which required the inclusion of
29 million of contingently issuable shares under the company's 4 percent
Convertible Senior Notes due 2034.
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheets
(unaudited)
(In millions) June 30 Dec. 31
2005 2004
Assets
Current Assets:
Cash and Cash Equivalents $1,621 $1,968
Restricted Cash 219 152
Accounts and Notes Receivable,
less allowance - $134 ($144 in 2004) 3,516 3,408
Inventories 2,920 2,785
Prepaid Expenses and Other Current Assets 339 300
Total Current Assets 8,615 8,613
Other Assets 509 669
Goodwill 666 720
Other Intangible Assets 154 163
Deferred Income Taxes 83 83
Deferred Pension Cost 823 830
Properties and Plants, less Accumulated
Depreciation -$7,847 ($7,836 in 2004) 5,159 5,455
Total Assets $16,009 $16,533
Liabilities
Current Liabilities:
Accounts Payable - Trade $1,850 $1,970
Compensation and Benefits 1,080 1,029
Other Current Liabilities 458 589
United States and Foreign Taxes 281 271
Notes Payable 265 221
Long Term Debt and Capital Leases due
within One Year 202 1,010
Total Current Liabilities 4,136 5,090
Long Term Debt and Capital Leases 5,033 4,449
Compensation and Benefits 4,969 5,036
Deferred and Other Noncurrent Income Taxes 394 406
Other Long Term Liabilities 616 633
Minority Equity in Subsidiaries 816 846
Total Liabilities 15,964 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 20
Treasury Shares (20 in 2004) 176 176
Capital Surplus 1,395 1,392
Retained Earnings 1,207 1,070
Accumulated Other Comprehensive Income (Loss) (2,733) (2,565)
Total Shareholders' Equity 45 73
Total Liabilities and Shareholders' Equity $16,009 $16,533
The Goodyear Tire & Rubber Company and Subsidiaries
Total Segment Operating Income Reconciliation Table
(unaudited)
(In millions) Second Quarter Six Months
Ended June 30 Ended June 30
2005 2004 2005 2004
Total Segment Operating Income $316 $254 $608 $435
Rationalizations and Asset Sales 5 (8) 26 (29)
Interest Expense (101) (89) (203) (173)
Foreign Currency Exchange (5) 2 (11) (4)
Minority Interest in Net Income
of Subsidiaries (33) (19) (54) (25)
Financing Fees and Financial
Instruments (63) (28) (89) (61)
General and Product Liability
- Discontinued Products 8 (8) (4) (17)
Recovery (Expenses) for
Fire Loss Deductible 12 - 14 (12)
Professional Fees Associated
with the Restatement (1) (9) (2) (24)
Environmental Insurance
Recoveries 19 - 20 -
Other (3) (6) (16) (22)
Income before Income Taxes
154 89 289 68
United States and Foreign
Taxes on Income (85) (59) (152) (116)
Net Income (Loss) $69 $30 $137 $(48)
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 internal 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."