Goodyear Reports Results for Third Quarter, Nine Months
24 October 2000
Goodyear Reports Results for Third Quarter, Nine Months
Global Tire Unit Volume Up 8.7% In Third Quarter
High Raw Material, Energy Costs Impact Results
Goodyear Consumer Tire Growth Outpaces Industry In North America
AKRON, Ohio, Oct. 24 The Goodyear Tire & Rubber Company
today reported a net loss of $6.6 million (4 cents per share) for the third
quarter of 2000. Net income in the third quarter of 1999 was $109.1 million
(69 cents per share).
The 2000 results include after-tax rationalization charges of $1.2 million
(1 cent per share) related to closing a manufacturing facility in Italy and a
gain of $3.2 million (2 cents per share) resulting from a property sale in
Mexico. Last year's results include various adjustments, most notably an
after-tax gain of $143.7 million (90 cents per share) resulting from the
completion of the company's Dunlop joint ventures in September 1999. All per
share amounts are diluted.
Third quarter results reflect rapidly escalating costs for raw materials
and energy, incremental costs associated with ongoing manufacturing
restructuring in Europe, the further deterioration of the euro's value versus
the U.S. dollar, competitive market conditions around the world and reduced
original equipment tire shipments in North America resulting primarily from
production cutbacks by automobile and commercial truck manufacturers.
"High raw material costs, especially those for oil-derived products,
remain a major factor in our results," said Samir G. Gibara, chairman and
chief executive officer. "Third quarter 2000 earnings were approximately 40
cents per share lower than they would have been if these costs had remained at
1999 levels. Energy costs are about double what they were last year," he
said.
"Despite very challenging industry and marketplace conditions, Goodyear is
seeing benefits from our Dunlop joint ventures, cost reduction efforts, our
recent new product introductions and heightened consumer awareness of tire
quality due to the Bridgestone/Firestone recall," Gibara added.
In response to these difficult industry-wide conditions, Gibara noted
Goodyear has reduced production in certain markets to better align inventory
levels with demand, curtailed discretionary expenditures and implemented
several initiatives to increase sales revenue and margins.
"We are advancing efforts to streamline our global manufacturing
operations; moving some production out of the United Kingdom, which has been
severely impacted by the weak euro; and -- through our innovative agreement
with Phoenix -- adding access to European hose manufacturing capacity with no
investment," he said. "Additionally, our businesses around the world are
moving aggressively to implement the price increases required to offset the
sudden surge in raw material and energy costs," he said.
"It is too early to measure the full impact the Bridgestone/Firestone tire
recall will have on Goodyear or the industry, both in the original equipment
and replacement markets," Gibara said. "However, consumers are showing more
interest in safety and brand quality than price. This clearly benefits
Goodyear. We have a unique opportunity to achieve market share gains that can
be sustainable and profitable. We intend to maximize this opportunity."
Goodyear's North American Tire business has shipped more than 2.5 million
tires of the size and type being used to replace the 6.5 million recalled
Firestone tires. Goodyear is producing more than 28,000 tires a day to serve
as replacements for those recalled.
"Consumer reaction to the recall has been felt throughout the Goodyear
consumer tire line," Gibara said. "Despite a general softening in the
marketplace, Goodyear-brand replacement tire shipments grew at a pace more
than four times the industry average in September. Our objective is for these
consumers to remain Goodyear customers."
Worldwide, Goodyear's third quarter sales were $3.5 billion in 2000,
versus $3.3 billion in 1999. The Dunlop operations contributed $540 million
in sales in 2000's third quarter and $232 million in September 1999. The
company estimates that the negative effect of currency movements reduced
consolidated sales by approximately $135 million in the quarter.
Tire unit volume in 2000's third quarter was 56.9 million units, up
4.6 million units or 8.7 percent from last year, reflecting the addition of
9.4 million units from the company's Dunlop operations. Volume for the 1999
third quarter included 4.1 million units shipped in September by Dunlop.
Sales for the first nine months of 2000 were $10.5 billion compared with
$9.3 billion in 1999. The Dunlop businesses contributed $1.7 billion in sales
during the 2000 nine-month period. The company estimates that the negative
effect of currency movements reduced consolidated sales by approximately
$265 million in the nine months. Tire unit volume was 167.6 million units, up
22.9 million units or 15.8 percent in the nine-month period. The Dunlop
operation shipped 28.1 million units during the nine months.
Net income for the first nine months of 2000 was $116.7 million (74 cents
per share). This includes after-tax net rationalization charges of
$6.4 million (4 cents per share). The 1999 period's net income of
$200.3 million ($1.26 per share) included net after-tax rationalization
charges of $125.7 million (80 cents per share). The company estimates that
the negative effect of currency movements reduced operating income by
approximately $47 million in 2000's nine-month period.
Capital expenditures in the 2000's third quarter were $144.4 million
compared with $206.6 million in the 1999 period. For the nine months, capital
expenditures were $411.1 million in 2000 and $560 million in 1999.
Depreciation and amortization expense in 2000's third quarter was
$155.5 million compared with $146.2 million in the 1999 period. For the nine-
month period, depreciation and amortization expense was $475.7 million in 2000
and $411.6 million in 1999.
Interest expense increased 59.5 percent in the 2000 quarter and 66.6
percent in the nine months due to higher debt levels incurred primarily to
fund the acquisition of the Dunlop operations and higher interest rates.
"Our businesses are quickly implementing plans to increase margins," Gibara
said. "Price increases around the globe are a key part of this effort.
Economic and marketplace conditions, however, will make it difficult to
realize bottom-line improvement in the fourth quarter.
"Our 2001 results should reflect the benefits of the price increases
announced this year, market share gains in both the original equipment and
replacement markets, improved manufacturing efficiencies resulting from
restructuring and stabilizing raw material costs with some continued weakness
in the commercial truck tire market."
Business Segments
Third quarter segment operating income was $83.9 million in 2000 and
$10.6 million in 1999. For the first nine months, segment operating income
was $487.0 million in 2000 and $396.1 million in 1999. Segment operating
income does not reflect the rationalization charges and certain other items in
2000 and 1999.
North American Tire Third Quarter Nine Months
(in millions of dollars) 2000 1999 2000 1999
Sales $1,745.3 $1,622.5 $5,075.6 $4,709.4
Operating Income (Loss) 32.0 (108.6) 172.6 7.4
Margin 1.8% (6.7)% 3.4% 0.2%
Tire unit volume in 2000's third quarter was up 4.3 percent from 1999 to
29.5 million units, and 7.1 percent to 86.8 million units for the first nine
months principally due to the addition of the Dunlop operations. In 2000, the
Dunlop businesses sold 3.3 million units in the third quarter and 9.3 million
units in the nine months. Dunlop sold 1 million units in September 1999.
Replacement market volumes increased, while shipments to original equipment
automobile and commercial truck customers were down during the third quarter.
For the nine months, volumes in both replacement and original equipment
markets are above 1999 levels. Third quarter 2000 shipments to original
equipment customers fell approximately 7 percent from last year and 20 percent
from second quarter 2000 levels.
Sales revenue increased in both periods due to the higher unit volume,
however, competitive pricing had an adverse impact on sales in both periods.
Operating income increased in both periods as a result of the volume
contributed by the Dunlop businesses. Income, however, was negatively
impacted by higher costs for raw materials and energy and production cutbacks
to better align inventory levels with demand. Operating income in 1999's
third quarter included one-time charges primarily related to inventory write-
offs associated with a market distribution strategy realignment.
European Union Tire Third Quarter Nine Months
(in millions of dollars) 2000 1999 2000 1999
Sales $731.2 $661.5 $2,351.8 $1,635.8
Operating Income 12.3 42.7 95.8 123.3
Margin 1.7% 6.5% 4.1% 7.5%
Tire unit volume in 2000's third quarter was up 24.9 percent from 1999 to
14.9 million units, and 50.7 percent to 45.3 million units for the first nine
months due to the addition of the Dunlop operations. The Dunlop businesses
sold 6.1 million units in the third quarter of 2000 and 18.7 million units in
the nine months. In September 1999, Dunlop sold 3 million units. Substantial
volume growth was achieved in both replacement and original equipment markets
because of the additional Dunlop business.
Sales revenue in both periods also increased due to the additional Dunlop
businesses, but was negatively impacted by the continuing decreased value of
the euro versus the U.S. dollar and British pound; competitive pricing,
especially in Germany and the United Kingdom; lower volume in some market
segments; and an adverse change in product mix. The euro's value versus the
U.S. dollar has fallen 13 percent this year. The company estimates that the
effects of currency movements reduced sales by approximately $90 million in
the quarter and $180 million in the nine months.
Operating income decreased in both the quarter and nine months due to
increasing costs for raw materials, competitive pricing conditions in the
region, manufacturing inefficiencies resulting from the ongoing transfer of
production from the United Kingdom to the European continent, costs associated
with closing a plant in Italy and the negative impact of currency movements.
The company estimates that the effects of currency movements reduced operating
income by approximately $10 million in the quarter and $39 million in the nine
months. Synergies from the Dunlop joint ventures are being achieved ahead of
schedule.
Eastern Europe, Africa, Third Quarter Nine Months
Middle East Tire
(in millions of dollars) 2000 1999 2000 1999
Sales $211.1 $212.3 $588.0 $582.8
Operating Income 19.0 13.1 46.4 34.3
Margin 9.0% 6.2% 7.9% 5.9%
Tire unit volume in 2000's third quarter was up 2.4 percent from 1999 to
4.5 million units, and 4.1 percent to 11.7 million units for the first nine
months. Third quarter sales revenue fell slightly as a result of a downturn
in the replacement market and currency movements. For the nine months,
however, sales revenue increased as a result of improving economic conditions
in the region. The company estimates that currency movements negatively
impacted sales by approximately $25 million in the quarter and $50 million in
the nine months.
Operating income increased in both periods primarily as a result of
increased factory utilization levels and improving market conditions.
Additionally, the 2000 nine-month period was negatively impacted by an
industry-wide strike in Turkey.
Latin American Tire Third Quarter Nine Months
(in millions of dollars) 2000 1999 2000 1999
Sales $258.2 $234.7 $771.3 $694.5
Operating Income 10.1 12.5 54.9 58.6
Margin 3.9% 5.3% 7.1% 8.4%
Tire unit volume in 2000's third quarter was up 10.4 percent from 1999 to
5 million units, and 10.9 percent to 14.7 million units for the first nine
months. Substantial growth was achieved in the original equipment market in
both periods. Replacement market volume was down for the quarter but up for
the nine months. Sales revenue in both periods was up as a result of the
higher volume, but negatively impacted by competitive pricing, ongoing weak
economic conditions and currency movements. Operating income fell in both
periods because of higher raw material costs, manufacturing inefficiencies and
labor costs.
Asia Tire Third Quarter Nine Months
(in millions of dollars) 2000 1999 2000 1999
Sales $126.0 $150.0 $395.5 $439.8
Operating Income 3.5 5.5 19.6 16.9
Margin 2.8% 3.7% 5.0% 3.8%
Tire unit volume in 2000's third quarter was down 7 percent from 1999 to
3 million units, and 1 percent to 9.1 million units for the first nine months.
Both 2000 periods reflect the exclusion of replacement market sales that were
transferred to the company's Japanese joint venture with Sumitomo Rubber
Industries, as well as stronger original equipment sales. Sales revenue
decreased as a result of the lower volume, competitive pricing, a less-
favorable product mix and currency movements.
Operating income decreased in the quarter primarily because of the lower
volume, competitive pricing and the change in product mix. For the nine
months, operating income increased due to a one-time operating charge in
1999's third quarter. Both periods were impacted by high raw material and
energy costs as well as competitive pricing.
Engineered Products Third Quarter Nine Months
(in millions of dollars) 2000 1999 2000 1999
Sales $276.1 $297.9 $890.1 $935.3
Operating Income 0.8 8.9 45.0 60.2
Margin 0.3% 3.0% 5.1% 6.4%
Sales revenue in 2000's third quarter and first nine months decreased
primarily because of the company's exit from the interior trim business as
well as reduced demand for conveyor belting by the mining and agriculture
industries and for hose and power transmission products in the North American
replacement market. Operating income decreased in both periods as a result of
lower volume, competitive pricing conditions, higher raw material costs and
reduced capacity utilization.
Chemical Products Third Quarter Nine Months
(in millions of dollars) 2000 1999 2000 1999
Sales $272.4 $231.5 $834.0 $683.1
Operating Income 6.2 36.5 52.7 95.4
Margin 2.3% 15.8% 6.3% 14.0%
Sales revenue increased in 2000's third quarter and first nine months due
to price increases and higher volume. Operating income decreased in both
periods primarily due to increased raw material and energy costs and the
inability to recover cost increases due to competitive pricing conditions.
Goodyear will hold an investor conference call at 11 a.m. ET today.
Shareholders, members of the media and other interested persons may access the
conference call on the Internet at http://www.goodyear.com/us/investor or via
telephone by calling 800-289-0436 before 10:55 a.m. A taped replay of the
conference call will be available at 3 p.m. ET by calling 888-203-1112 and
entering access code number 614373.
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statement of Income (unaudited)
(In millions, except per share)
Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
2000 1999 2000 1999
Net Sales $3,482.4 $3,288.8 $10,493.6 $9,328.7
Cost of Goods Sold 2,865.3 2,764.6 8,395.1 7,531.2
Selling, Administrative and
General Expense 549.2 515.4 1,662.2 1,435.4
Rationalizations 1.2 6.1 5.9 163.9
Interest Expense 73.7 46.2 205.7 123.5
Other (Income) Expense 4.4 (159.2) 17.4 (148.2)
Foreign Currency Exchange (2.9) (1.3) 0.8 (34.8)
Minority Interest in
Net Income of Subsidiaries 10.0 12.1 37.5 23.1
Income (Loss) before Income Taxes (18.5) 104.9 169.0 234.6
United States and Foreign Taxes
on Income (11.9) (4.2) 52.3 34.3
Net Income (Loss) $(6.6) $109.1 $116.7 $200.3
Per Share of Common Stock - Basic
Net Income (Loss) $(0.04) $0.70 $0.75 $1.28
Average Shares Outstanding 157.0 156.3 156.6 156.1
Per Share of Common Stock - Diluted
Net Income (Loss) $(0.04) $0.69 $0.74 $1.26
Average Shares Outstanding 158.2 159.5 158.6 159.0
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheet (unaudited)
(In millions)
Sept. 30 Dec. 31
Assets 2000 1999
Current Assets:
Cash and Cash Equivalents $236.8 $241.3
Accounts and Notes Receivable,
less allowance - $87.7 ($81.9 in 1999) 2,514.0 2,296.3
Inventories:
Raw Materials 336.9 389.7
Work in Process 92.7 99.2
Finished Product 1,989.6 1,798.3
Total 2,419.2 2,287.2
Sumitomo 1.2% Convertible Note
Receivable Due 8/00 -- 107.2
Prepaid Expenses and Other Current Assets 312.3 263.9
Total Current Assets 5,482.3 5,195.9
Long Term Accounts and Notes Receivable 85.0 97.7
Investments in Affiliates, at Equity 98.7 115.4
Other Assets 224.1 79.0
Goodwill 573.2 516.9
Deferred Charges 1,279.3 1,336.7
Properties and Plants,
Less Accumulated
Depreciation - $5,733.9
($5,551.4 in 1999) 5,521.9 5,761.0
Total Assets $13,264.5 $13,102.6
Liabilities
Current Liabilities:
Accounts Payable - Trade $1,313.2 $1,417.5
Compensation and Benefits 754.3 794.5
Other Current Liabilities 326.2 294.5
United States and Foreign Taxes 150.8 249.0
Notes Payable 1,508.7 862.3
Sumitomo 1.2% Convertible Note Payable
Due 8/01 60.4 127.8
Long Term Debt due within One Year 176.1 214.3
Total Current Liabilities 4,289.7 3,959.9
Long Term Debt and Capital Leases 2,319.6 2,347.9
Compensation and Benefits 2,131.0 2,137.4
Other Long Term Liabilities 203.0 149.1
Minority Equity in Subsidiaries 835.0 891.2
Total Liabilities 9,778.3 9,485.5
Shareholders' Equity
Preferred Stock, no par value:
Authorized 50 shares, unissued -- --
Common Stock, no par value:
Authorized 300 shares
Outstanding Shares - 157.6 (156.3 in 1999)
After Deducting 38.1 Treasury
Shares (39.3 in 1999) 157.6 156.3
Capital Surplus 1,089.9 1,029.6
Retained Earnings 3,507.0 3,531.4
Accumulated Other Comprehensive Income (1,268.3) (1,100.2)
Total Shareholders' Equity 3,486.2 3,617.1
Total Liabilities and Shareholders' Equity $13,264.5 $13,102.6