Goodyear Reports Fourth Quarter and Full-Year 2005 Results
- 2005 sales are record $19.7 billion; records set in all six businesses
- Highest full-year net income since 1998, nearly double 2004 level
- Full-year segment operating income increases 23 percent from 2004
- Price/mix improvements offset higher raw material costs
- Debt reduced in 2005
AKRON, Ohio, Feb. 16 -- The Goodyear Tire & Rubber Company today reported record sales for the fourth quarter and the full year of 2005. The company's full-year net income is the highest since 1998.
"Strong demand for our innovative new tires coupled with improved marketing drove a richer product mix and record sales for the company," said Robert J. Keegan, chairman and chief executive officer.
Goodyear reported sales of $4.9 billion in the fourth quarter of 2005. Sales benefited from improved pricing and product mix and higher volume in the international tire businesses, while the effect of currency translation reduced sales by approximately $107 million in the quarter.
Fourth quarter total segment operating income was $226 million, including the $15 million impact of the hurricanes in the U.S. Gulf Coast region. This compares to segment operating income of $238 million in the 2004 quarter. Raw material costs increased 13 percent, or $160 million, compared to the year-ago quarter. Improvements in price and mix of approximately $190 million, however, more than offset these cost increases.
Goodyear reported a net loss of $51 million (29 cents per share) for the 2005 fourth quarter, which includes a $78 million (44 cents per share) after- tax loss on asset sales.
The company had net income of $125 million (62 cents per share) for the 2004 fourth quarter. The period was positively impacted by an after-tax insurance settlement benefit of $157 million (75 cents per share).
See the table at the end of this release for a list of other significant items from the 2005 and 2004 quarters.
"Our company completed another very good year, and I am extremely proud of the progress we made in 2005," Keegan said. "I am gratified by the work of our people, who demonstrated an intense, informed market focus and a commitment to innovation and building strong brands.
"Our new product success reflects our commitment to understanding consumer needs and providing them with relevant technology to meet those needs," he said. "The market has responded positively to our new high-margin tires such as Assurance and SilentArmor in North America, UltraGrip 7 and RunOnFlat in Europe. Earlier this month, we unveiled our latest new premium tire for North American consumers, Eagle ResponsEdge with carbon fiber, a performance touring tire," he continued.
"While escalating raw material costs and currency fluctuations will continue to challenge our business, our fundamentals remain sound. We believe the impact of our innovative new products, together with intensified efforts to reduce costs and improve our mix, gives us a solid foundation to continue our turnaround," Keegan said.
The company continues to focus on reducing its working capital requirements and made production adjustments during the quarter to reduce global tire inventories, particularly in Europe and Latin America. Inventories were down about 2 million units from the third quarter of 2005 and more than 600,000 units from a year ago.
Full-Year Results
Goodyear's net sales for 2005 were a record $19.7 billion, an increase of 7 percent over $18.4 billion in 2004.
Sales increased in 2005 largely due to improved pricing and product mix in all of the company's business units, higher unit volume and currency translation. The company estimates that currency translation had a positive impact on sales of approximately $211 million.
Goodyear's net income in 2005 nearly doubled to $228 million ($1.16 per share), compared to $115 million (63 cents per share) in 2004. Segment operating income from the company's business segments was almost $1.2 billion, a 23 percent increase compared to $946 million in 2004. Full-year 2005 results include the previously mentioned fourth quarter hurricane impact as well as $10 million recorded in the third quarter.
For the year, raw material costs increased 11 percent, or approximately $550 million, compared to 2004. This was offset by price/mix improvement of approximately $635 million.
During 2005, total debt was reduced by $257 million and net debt by $467 million, while the company made more than $500 million in contributions to its pension plans.
Business Segments North American Tire Fourth Quarter Twelve Months (in millions) 2005 2004 2005 2004 Tire Units 24.7 25.5 101.9 102.5 Sales $2,287 $2,203 $9,091 $8,569 Segment Operating Income $43 $29 $167 $74 Segment Operating Margin 1.9% 1.3% 1.8% 0.9%
North American Tire's sales reached a fourth-quarter record, and were up 4 percent compared to the 2004 period. Sales increased as a result of improved pricing and product mix, particularly in the consumer replacement and original equipment markets. Volume was down, primarily as a result of the company's selectivity strategy in the lower-value segment of the consumer replacement market.
The quarter does not include results from the company's plantations and Wingtack adhesive resins business, both of which were sold in the third quarter of 2005.
Fourth quarter segment operating income was $43 million, up from $29 million in the 2004 period. Segment operating income benefited from stronger pricing and product mix and lower selling and administrative costs, partially offset by higher raw material costs of approximately $73 million and an approximate $15 million impact from hurricanes.
European Union Tire Fourth Quarter Twelve Months (in millions) 2005 2004 2005 2004 Tire Units 16.2 15.3 64.3 62.8 Sales $1,169 $1,220 $4,676 $4,476 Segment Operating Income $45 $58 $317 $253 Segment Operating Margin 3.8% 4.8% 6.8% 5.7%
During the quarter, European Union Tire had higher volume and stronger pricing and product mix, driven by robust sales of winter tires, however sales decreased 4 percent due to the negative impact of currency translation, estimated at approximately $119 million. Volume improvements resulted in market share gains in virtually all segments of the consumer replacement market.
Segment operating income decreased 22 percent during the quarter primarily due to higher raw material costs and production adjustments to reduce inventories. The company estimates higher raw material costs had a $20 million impact on segment operating income during the quarter. These factors offset the favorable effect of price increases and product mix improvements driven by a strong consumer replacement market.
Eastern Europe, Middle Fourth Quarter Twelve Months East and Africa Tire (in millions) 2005 2004 2005 2004 Tire Units 4.8 4.5 19.7 18.9 Sales $361 $351 $1,437 $1,279 Segment Operating Income $38 $46 $198 $194 Segment Operating Margin 10.5% 13.1% 13.8% 15.2%
Eastern Europe, Middle East and Africa Tire's sales reflected a fourth- quarter record and a 3 percent increase over the 2004 period. Volume gains, improved pricing and product mix more than offset unfavorable currency translation, estimated at approximately $11 million in the quarter.
Segment operating income decreased 17 percent due to higher raw material costs, estimated at $12 million, lower margins on exports, and the impact of production adjustments to reduce inventories. These factors were partially offset by higher volume and stronger pricing and product mix.
Latin America Tire Fourth Quarter Twelve Months (in millions) 2005 2004 2005 2004 Tire Units 5.0 5.0 20.4 19.6 Sales $365 $335 $1,466 $1,245 Segment Operating Income $54 $64 $295 $251 Segment Operating Margin 14.8% 19.1% 20.1% 20.2%
Latin America Tire's sales increased 9 percent compared to 2004, driven by the favorable impact of currency translation, estimated at approximately $28 million, as well as pricing increases.
Segment operating income decreased 16 percent due to the impact of an estimated $28 million in higher raw material costs, production adjustments to reduce inventories and a less favorable product mix resulting from strong original equipment sales. These factors countered approximately $19 million in favorable currency translation and the impact of price increases.
Asia Pacific Tire Fourth Quarter Twelve Months (in millions) 2005 2004 2005 2004 Tire Units 5.0 4.9 20.1 19.5 Sales $358 $342 $1,423 $1,312 Segment Operating Income $21 $16 $84 $60 Segment Operating Margin 5.9% 4.7% 5.9% 4.6%
Asia Pacific Tire's sales increased 5 percent to a fourth-quarter record driven by the favorable impact of higher selling prices, product mix, and higher volume, offset somewhat by unfavorable currency translation of approximately $12 million.
Segment operating income was a fourth quarter record, increasing 31 percent compared to the 2004 period due to higher selling prices and improved product mix, offset somewhat by an increase in raw material costs of approximately $18 million.
Engineered Products Fourth Quarter Twelve Months (in millions) 2005 2004 2005 2004 Sales $394 $381 $1,630 $1,472 Segment Operating Income $25 $25 $103 $114 Segment Operating Margin 6.3% 6.6% 6.3% 7.7%
Engineered Products' sales reached a fourth quarter record and increased 3 percent compared to 2004 due largely to strong industrial and replacement channel sales. As anticipated, sales of military products declined in the quarter.
Segment operating income was equal to 2004, as pricing and product mix offset the impact of higher raw material and production costs.
Management's Report on Internal Control Over Financial Reporting
Goodyear has concluded that the two material weaknesses identified in its December 31, 2004 management report on internal control over financial reporting have been successfully remediated as of December 31, 2005 and no material weaknesses have been identified in conjunction with management's 2005 assessment.
"Our remediation of these material weaknesses demonstrates that the changes we have made to our internal controls are working," Keegan said. "I am pleased with the progress we made in 2005."
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 more than 80,000 people worldwide.
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statement of Operations
(In millions, except per share)
Three Months Twelve Months
Ended Dec. 31 Ended Dec. 31
2005 2004 2005 2004
Net Sales $4,934 4,832 $ 19,723 $18,353
Cost of Goods Sold 4,000 3,875 15,772 14,691
Selling, Administrative
and General Expense 736 754 2,875 2,833
Rationalizations 15 (7) 11 56
Interest Expense 105 101 411 369
Other (Income) Expense 75 (94) 70 23
Minority Interest in
Net Income of Subsidiaries 16 15 95 58
Income (Loss) before Income
Taxes and the Cumulative
Effect of Accounting Change (13) 188 489 323
United States and Foreign
Taxes on Income (Loss) 27 63 250 208
Net Income (Loss) before
Cumulative effect of
Accounting Change $(40) $125 $239 $115
Cumulative Effect of
Accounting Change, net of
income taxes and minority
interest (11) - (11) -
Net Income (Loss) $(51) $125 $228 $115
Basic Shares Outstanding 176 175 176 175
Net Income (Loss) per share
- Basic Income (Loss) before
Cumulative Effect of
Accounting Change $(0.23) $0.71 $1.36 $0.65
Cumulative Effect of
Accounting Change (0.06) - (.06) -
Net Income (Loss) per
share - Basic $(0.29) $0.71 $1.30 $0.65
Diluted Shares Outstanding 176 208 209 192
Per Share of Common Stock
- Diluted Net Income
(Loss) before Cumulative
Effect of Accounting
Change $(0.23) $0.62 $1.21 $0.63
Cumulative Effect of
Accounting Change (0.06) - (.05) -
Net Income (Loss) per
share - Diluted $(0.29) $0.62 $1.16 $0.63
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheet
(In millions) Dec. 31 Dec. 31
2005 2004
Current Assets:
Cash and cash equivalents $2,178 $ 1,968
Restricted cash 231 152
Accounts and notes receivable, less allowance
- $130($144 in 2004) 3,158 3,398
Inventories 2,862 2,784
Prepaid expenses and other current assets 251 272
Total Current Assets 8,680 8,574
Deferred pension costs and other assets 870 1,105
Goodwill 637 717
Intangible assets 159 169
Deferred income tax 102 83
Properties and plants,
Less accumulated depreciation - $7,729
($7,826 in 2004) 5,179 5,453
Total Assets $15,627 16,101
Liabilities
Current Liabilities:
Accounts payable - trade $1,945 $1,970
Compensation and benefits 1,121 1,029
Other current liabilities 671 718
United States and foreign taxes 393 245
Notes payable 233 227
Long term debt and capital leases due within
one year 448 1,010
Total Current Liabilities 4,811 5,199
Long term debt and capital leases 4,742 4,443
Compensation and benefits 4,480 4,645
Deferred and other noncurrent income taxes 304 402
Other long term liabilities 426 495
Minority equity in subsidiaries 791 843
Total Liabilities 15,554 16,027
Commitment and contingencies
Shareholders' Equity
Preferred stock lines go here
Outstanding shares, common stock, 177 (176 in 2004)
after deducting treasury shares 19 (20 in 2004) 177 176
Capital Surplus 1,398 1,392
Retained Earnings 1,298 1,070
Accumulated other comprehensive loss (2,800) (2,564)
Total Shareholders' Equity 73 74
Total Liabilities and Shareholders' Equity $15,627 $16,101
Non-GAAP Financial Measures
This earnings release presents total segment operating income and net debt, each of which are important financial measures for the company but are not financial measures defined by GAAP.
Total segment operating income is the sum of the individual strategic business unit'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." Management believes that total segment operating income is useful because it represents the aggregate value of income created by the company's SBUs and excludes items not directly related to the SBUs for performance evaluation purposes. See the table below for the reconciliation of total segment operating income.
Net debt is total debt (the sum of long term debt and capital leases, notes payable, and long-term debt and capital leases due within one year) minus cash and cash equivalents. Management believes net debt is an important measure of liquidity, which it uses as a tool to assess the company's capital structure and measure its ability to meet its future debt obligations. Cash and cash equivalents are subtracted from the GAAP measure because they could be used to reduce our debt obligations. See the table below for the reconciliation of net debt.
Total Segment Operating Income Reconciliation Table
(In millions)
Fourth Quarter Year
Ended Dec. 31 Ended Dec. 31
2005 2004 2005 2004
Total Segment Operating
Income $226 238 $1,164 $946
Rationalizations and
asset sales (92) (3) (47) (60)
Accelerated depreciation
and asset impairments (3) (3) (5) (10)
Interest expense (105) (101) (411) (369)
Foreign currency exchange (3) (9) (22) (23)
Minority interest in net
income of subsidiaries (16) (15) (95) (58)
Financing fees and
financial instruments (10) (27) (109) (117)
General and product
liability, discontinued
products (5) (28) (9) (53)
Recovery (expense) for
insurance fire loss
deductible - - 14 (12)
Professional fees associated
with restatement (2) (3) (4) (30)
Professional fees associated
with Sarbanes-Oxley (1) (6) (4) (18)
Environmental remediation
expenditure (2) (4) (8) (12)
Environmental insurance
settlement - 157 29 157
Other - (8) (4) (18)
Income (Loss) before income
taxes and cumulative effect
of accounting change (13) 188 489 323
US and foreign taxes on
income (loss) 27 63 250 208
Income (Loss) before
cumulative effect of
accounting change (40) 125 239 115
Cumulative effect of
accounting change, net of
income taxes and minority
interest (11) - (11) -
Net Income (Loss) $(51) $125 $228 $115
Net Debt Reconciliation Table
(In millions)
Year ended Dec. 31
2005 2004
Long term debt and capital leases $4,742 $4,443
Notes payable 233 227
Long term debt and capital leases due within
one year 448 1,010
Total debt 5,423 5,680
Less: Cash and cash equivalents 2,178 1,968
Net Debt $3,245 $3,712
Change in Net Debt ($467)
Fourth Quarter Significant Items (after tax)
2005
- Loss on asset sales, $78 million (44 cents per share)
- Cost related to hurricanes in the U.S. Gulf Coast region, $21 million
(12 cents per share)
- Charge for implementing the FIN 47 accounting change, $11 million (6
cents per share)
- Rationalization charges, $7 million (4 cents per share)
- Favorable tax adjustments primarily related to the release of valuation
allowances in Asia, $21 million (12 cents per share)
- Favorable settlements with certain suppliers, $12 million (7 cents per
share)
- After-tax income relating to prior periods decreased the loss by $8
million (5 cents per share); of this amount, $3 million relates to
previous quarters of 2005.
2004
- Insurance settlement gain, $157 million (75 cents per share)
- Favorable settlements with certain suppliers, $19 million (9 cents per
share)
- Positive net tax adjustments, $10 million (5 cents per share)
- Net reversals of rationalization charges, $7 million (4 cents per
share)
- Charges for general and product liability-discontinued products, $27
million (13 cents per share)
- Loss on asset sales, $12 million (6 cents per share)
- External professional fees associated with Sarbanes-Oxley compliance
and restatement matters, $9 million (4 cents per share)