Second Quarter 2013 Conference Call - Goodyear Corporate€¦ · Q2 Q2 2013 2012 +$92 Second...

32
Second Quarter 2013 Conference Call July 30, 2013

Transcript of Second Quarter 2013 Conference Call - Goodyear Corporate€¦ · Q2 Q2 2013 2012 +$92 Second...

Page 1: Second Quarter 2013 Conference Call - Goodyear Corporate€¦ · Q2 Q2 2013 2012 +$92 Second Quarter 2013 Segment Operating Results (a) Raw material variance of $177 million excludes

Second Quarter 2013 Conference Call July 30, 2013

Page 2: Second Quarter 2013 Conference Call - Goodyear Corporate€¦ · Q2 Q2 2013 2012 +$92 Second Quarter 2013 Segment Operating Results (a) Raw material variance of $177 million excludes

Forward-Looking Statements

Certain information contained in this presentation constitutes forward-looking statements for purposes of the

safe harbor provisions of The Private Securities Litigation Reform Act of 1995. There are a variety of factors,

many of which are beyond our control, that affect our operations, performance, business strategy and

results and could cause our actual results and experience to differ materially from the assumptions,

expectations and objectives expressed in any forward-looking statements. These factors include, but are not

limited to: our ability to implement successfully our strategic initiatives; pension plan funding obligations;

actions and initiatives taken by both current and potential competitors; increases in the prices paid for raw

materials and energy; a labor strike, work stoppage or other similar event; deteriorating economic conditions

or an inability to access capital markets; work stoppages, financial difficulties or supply disruptions at our

suppliers or customers; the adequacy of our capital expenditures; our failure to comply with a material

covenant in our debt obligations; potential adverse consequences of litigation involving the company; as well

as the effects of more general factors such as changes in general market, economic or political conditions or

in legislation, regulation or public policy. Additional factors are discussed in our filings with the Securities and

Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and

current reports on Form 8-K. In addition, any forward-looking statements represent our estimates only as of

today and should not be relied upon as representing our estimates as of any subsequent date. While we

may elect to update forward-looking statements at some point in the future, we specifically disclaim any

obligation to do so, even if our estimates change.

2

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Q2 Highlights

3

• Record segment operating income of $428 million

– All business units achieved higher year-over-year SOI

– All-time records for North America and Asia Pacific

• Three business units posted higher tire unit volumes versus last year

• Strong cash flow

– Cash flow positive in Q2 and continued progress managing working capital

• Pension underfunded status benefitting from higher interest rates

• Increasing confidence in 2013 targets

– SOI expected at approximately $1.5 billion, at high end of original $1.4 - $1.5 billion range

– Cash-flow positive (excluding pension pre-funding)

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Strategy Roadmap

Where We Are

Key How To’s

Our Destination

Key Strategies

Industry

MegaTrends

2012 – 2014

1. North America: Profitability

2. Asia: Winning in China

3. EMEA/LA: Continued Success

NA Adding Economic Value

Weak Volume

Pension Remains a Challenge

Executing Plan

Innovation Leader

Strong Earnings

Creating Sustainable Value

First with Customers

Innovation Leader

Leader in Targeted Segments

Competitively Advantaged

Profitable thru Economic Cycle

Cash Flow Positive

Investment Grade

1. Market-Back Innovation Excellence

2. Target Profitable Market Segments

3. Operational Excellence

4. Enabling Investments

5. Top Talent / Top Teams

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5

Strong Product Performance Examples

Recent magazine test results confirm strong performance of our new products

EMEA Asia Pacific North America

2013 Tire of The Year - China

Tested by German magazine AUTOBILD June 2013 very

recommended ranking; Tire dimension: 205/55R16 91V Test track:

Goodyear Mireval, France

Tested by Motor Trend Magazine China against other global brands Tested at Bob Bondurant School of High

Performance Driving, Phoenix, Ariz., May 30, 2013,

by independent journalists. Tire dimension:

245/40R18

Dunlop Sport BlueResponse

Goodyear Efficient Grip

Product launch test drive

high marks

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Record Results in a Challenging Environment

We have demonstrated profitability in a down economic cycle

Now targeting 2013 SOI of ~$1.5 billion at high end of previous range

Creating Sustainable Economic Value

By being…

• First with our customers

• Leader in our targeted segments

• The innovation leader

• Competitively advantaged

And as a result, we will be…

• Profitable through economic cycles

• Cash flow positive

• Investment grade

$ In millions

Segment Operating Income(a)

(a) See Segment Operating Income reconciliation in Appendix on page 28.

$917

$1,368 $1,248

2010 2011 2012 2013E

~$1,500

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Financial Update

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Second Quarter 2013

Income Statement

(a) See Segment Operating Income and Margin reconciliation in Appendix on page 28.

In millions, except EPS

8

June 30, June 30,

2013 2012 Change

Units 39.5 39.2 1%

Net Sales $4,894 $5,150 (5)%

Gross Margin 21.4% 19.6% 1.8 pts

SAG $691 $697 (1)%

Segment Operating Income(a) $428 $336 27.4%

Segment Operating Margin(a) 8.7% 6.5% 2.2 pts

Goodyear Net Income $188 $92

Less: Preferred Stock Dividends $7 $7

Goodyear Net Income Available to

Common Shareholders$181 $85

Goodyear Net Income Available to

Common Shareholders - Per Share of

Common Stock

Basic $0.74 $0.35

Diluted $0.67 $0.33

Three Months Ended

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$336

$177

$106 $11 ($85)

($68)

($47) ($12) $10

$428

Raw

Materials(a)

Cost

Savings Inflation(b)

Volume

Unabsorbed

Fixed

Cost

Price / Mix

Other(c) Currency

Q2

2013 Q2

2012

+$92

Second Quarter 2013

Segment Operating Results

(a) Raw material variance of $177 million excludes raw material cost saving measures of $53 million, which are included in Cost Savings above (b) Estimated impact of inflation (wages, utilities, energy, transportation and other) (c) Other includes $16 million pension and ($7) million other tire-related business impact

$ In millions

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(a) Working capital represents accounts receivable and inventories, less accounts payable – trade. (b) See Total Debt and Net Debt reconciliation in Appendix on page 29.

Second Quarter 2013

Balance Sheet

$ In millions

10

June 30, March 31, December 31, June 30,2013 2013 2012 2012

Cash and cash equivalents 2,564$ 2,386$ 2,281$ 2,156$

Accounts receivable 2,880 3,021 2,563 3,174Inventories 3,138 3,168 3,250 3,940Accounts payable - trade (3,213) (3,218) (3,223) (3,324)

Working capital(a)

2,805$ 2,971$ 2,590$ 3,790$

Total debt(b)

6,529$ 6,581$ 5,086$ 5,670$

Net debt(b)

3,965$ 4,195$ 2,805$ 3,514$

Memo:Net Global Pension Liability 2,487$ 3,522$

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Pension Update

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a) Reflects discretionary contributions and February 28, 2013 remeasurement of frozen U.S. pension plans.

b) Includes cash funding for direct benefit payments for 2008 - 2012 only.

c) Excludes one-time charges.

$ In millions

U.S. D.R. 6.50% 5.75% 5.20% 4.52% 3.71% 3.78% 3.78%

$364 $430 $405

$294

$684

$350-$400

$-

$200

$400

$600

$800

$1,000

$1,200

2008 2009 2010 2011 2012 2013E 2014E

Total Global Cash Flow Impact (a) (b)

Domestic International

$1,100-$1,150

$2,748 $2,715 $2,549

$3,097 $3,522

$2,275 $1,875

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2008 2009 2010 2011 2012 2013E 2014E

Global Unfunded Obligations(a)

Domestic International

$181

$387

$300 $266

$307

$225-$275

$-

$100

$200

$300

$400

2008 2009 2010 2011 2012 2013E 2014E

Global Pension Expense (a)(c)

Domestic International

$275-$325

Unfunded status at year-end 2013 would

improve by an additional ~$400 million,

based on conditions at June 30, primarily

due to increased discount rate

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U.S. Pension Unfunded Liability Sensitivity Analysis (2013)

(a) Assumes parallel shifts in interest rates. 12

$ In millions

Favorable / (Unfavorable) + 50 bps

Liability 1,191$ 794$ 397$ (397)$ (794)$

Funded Frozen Plans (400) (266) (133) 133 266

Hedged Hourly Plans (181) (68) - 214 353

Net Unfunded Liability Impact 610$ 460$ 264$ (50)$ (175)$

(50) bps

Interest Rate

Decrease

Interest Rate Movement (a)

Interest Rate

Increase

+ 100 bps+ 150 bps (100) bps

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Cash Flow

Creating Sustainable Value

First with Customers

Innovation Leader

Leader in Targeted Segments (a) See page 30 for a reconciliation of “Free Cash Flow from Operations,” a non-GAAP measure, to the most directly comparable GAAP measure.

$ In millions

13

Trailing Twelve

Months Ended

June 30, 2013 June 30, 2012 June 30, 2013

Net Income 193$ 103$ 350$

Depreciation and Amortization 180 167 707

Working Capital 114 (1) 1,004

Pension Expense 72 74 303

Other 20 90 214

Capital Expenditures (222) (214) (1,130)

Free Cash Flow from Operations (non-GAAP) (a) 357$ 219$ 1,448$

Memo:

Pension Contributions & Direct Payments (85)$ (113)$ (1,450)$

Debt Change, net (32)$ 98$ 741$

Rationalization Payments (19)$ (17)$ (101)$

Net (Gains) / Losses on Asset Sales (5)$ (13)$ (11)$

Three

Months Ended

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Second Quarter 2013

Segment Results

In millions

14

2013 2012 Change 2013 2012 Change

Units 14.8 15.4 (3.4%) Units 14.6 14.2 2.5%

Net Sales $2,201 $2,451 (10.2%) Net Sales $1,577 $1,596 (1.2%)

Operating Income $204 $188 8.5% Operating Income $51 $19 168.4%

Margin 9.3% 7.7% Margin 3.2% 1.2%

2013 2012 Change 2013 2012 Change

Units 4.5 4.3 4.1% Units 5.6 5.3 5.3%

Net Sales $531 $503 5.6% Net Sales $585 $600 (2.5%)

Operating Income $82 $58 41.4% Operating Income $91 $71 28.2%

Margin 15.4% 11.5% Margin 15.6% 11.8%

North America Europe, Middle East and Africa

Latin America Asia Pacific

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2013 Full-Year Industry Outlook

July Full-Year

2013 Guidance

April Full-Year

2013 Guidance

NAT EMEA NAT EMEA

Consumer

Replacement ~Flat ~ Flat ~ Flat ~ Flat

Consumer OE ~ +5% ~ (5)% ~ +5% ~ (5)%

Commercial

Replacement ~Flat ~ +5% ~ Flat ~ +5%

Commercial OE ~Flat Flat to +5% ~ Flat Flat to +5%

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July full-year guidance unchanged from April

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2013 Key Segment Operating Income Drivers

Fourth Quarter 2011 Segment Operating Income [slightly below/similar t]o]

2010 Level Note: All referenced USD figures relate to year-over-year impact on Segment Operating Income.

Driver Q3 Full Year Comments

Global

Volume + 3 – 5% ~ Flat

• Volumes stabilizing; growth in

2nd half

Price/Mix vs.

Raw Materials Slightly Positive Positive • Lower raw material costs

Unabsorbed

Overhead ~Flat

~ ($25) – ($50)

million

• Production ramp-up in line

with stabilizing volume

Cost Savings

vs. Inflation

~Flat

Second Half Positive

• Cost savings & inflation

expected to offset in H2;

impact of H2 marketing efforts

Foreign

Exchange ~ ($15) million ~ ($60) million

• Venezuela devaluation and

other impacts of stronger

dollar

Other

Tire-Related ~$20 million ~Flat • Impact of Chemical earnings

China Startup ~$5 million $20 - $30 million • Improved ramp-up of

Pulandian facility

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2013 Outlook Financial Assumptions

Assumption Comments

Interest Expense $395 – $415 million

Income Tax ~25% of International

Segment Operating Income

Global Pension

$275 - $325 million expense

~$1.10 - $1.15 billion in total

contributions

Working Capital Neither source, nor use

Capital Expenditures ~$1.1 billion

Depreciation &

Amortization ~$700 million

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Appendix

Page 19: Second Quarter 2013 Conference Call - Goodyear Corporate€¦ · Q2 Q2 2013 2012 +$92 Second Quarter 2013 Segment Operating Results (a) Raw material variance of $177 million excludes

2013 2012 % Change

Consumer

Units 35.7 35.5 0.7%

Sales $2,643 $2,709 (2.4%)

Commercial

Units 3.2 3.2 0.9%

Sales $1,023 $1,038 (1.4%)

Unit/Sales Mix

Second Quarter 2013

Tire Unit & Sales Summary

2013 Q2 Sales = $4,894

In millions

19

Consumer 54%

Commercial 21%

Other 13%

Retail 7%

Chemical 5%

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Full Year 2012

Tire Unit & Sales Summary

2012 Sales = $20,992

In millions

20

2012 2011 % Change

Consumer

Units 149.2 163.6 (8.8%)

Sales $11,429 $12,065 (5.3%)

Commercial

Units 12.8 14.8 (13.6%)

Sales $4,202 $4,588 (8.4%)

Unit/Sales Mix

Consumer 54% Commercial

20%

Other 13%

Retail 7%

Chemical 6%

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$942

$207

$689

$2,356

$1,017

($157)

$712

($115)

$549

$1,822

$327

($517)

2008 2009 2010 2011 2012 2013 Through 6/30/13

Price/Mix Raw Materials

Price/Mix Improvements

(a) Reflects impact on Segment Operating Income. Raw Materials include the impact of raw material cost savings measures. (b) Raw material variance of $327 million includes raw material cost savings measures of $249 million. (c) Raw material variance of ($517) million includes raw material cost savings measures of $110 million.

Price/Mix vs. Raw Materials(a)

$ in millions

(c)

21

(b)

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Second Quarter 2013

Liquidity Profile

(a) Total liquidity comprised of $2,564 million cash and cash equivalents, $2,421 million of unused availability under various credit agreements, and the additional $241 million committed under the Pan-European securitization program.

(b) Committed Pan-European securitization program of $586 million (€450 million) subject to available receivables. At June 30, 2013, the amounts available and utilized under this program totaled $345 million (€265 million).

(c) Includes $324 million of cash in Venezuela denominated in bolivares fuertes at the official exchange rate of 6.3 bolivares fuertes per U.S. dollar at June 30, 2013.

22

$5.2(a)

Cash &

Equivalents(c)

$1 billion

required for

operations

Available

Credit Lines

Liquidity Profile

Pan European

Securitization(b)

$ In billions

$2.6

$2.4

$0.2

June 30, 2013

Page 23: Second Quarter 2013 Conference Call - Goodyear Corporate€¦ · Q2 Q2 2013 2012 +$92 Second Quarter 2013 Segment Operating Results (a) Raw material variance of $177 million excludes

Note: Based on June 30, 2013 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. Details on all other actual

outstanding debt as of June 30, 2013 in Appendix on page 31.

(a) At June 30, 2013, the amounts available and utilized under the committed Pan-European securitization program of $586 million (€450 million) totaled $345 million

(€265 million).

(b) At June 30, 2013, there were no borrowings under the European revolving credit facility. Letters of credit issued as of this date totaled $10 million (€7 million).

(c) At June 30, 2013, our borrowing base, and therefore our availability, under the U.S. revolving credit facility was $459 million below the facility’s stated amount of

$2.0 billion. Also, $394 million of letters of credit were issued under this facility.

Second Quarter 2013

Maturity Schedule

$ In millions

23

$345

$1,520

$1,262

$900 $849

2013 2014 2015 2016 2017 2018 2019 2020 2021 ≥ 2022

Undrawn Credit Lines

Funded Debt

$586 (a) $521 (b)

$2,000 (c)

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Second Quarter Significant Items (after taxes and minority interest)

$ In millions, except EPS

24

Reported

Net Sales 4,894$

Cost of Goods Sold 3,846 (5) - -

Gross Margin 1,048 5 - - -

SAG 691 - - - -

Interest Expense 102 - - - -

Rationalizations 13 (13) - - -

Other Income (14) - - (5) 5

Pre-tax Income 256 18 - 5 (5)

Taxes 63 2 (8) - (1)

Minority Interest 5 3 1 - -

Goodyear Net Income 188$ 13 7 5 (4)

EPS (Diluted) 0.67$ 0.05$ 0.03$ 0.02$ (0.01)$

Second Quarter 2013

Significant Items

Discrete

Tax Items

Charges for

EMEA Labor

Claims

Net Gains on

Asset Sales

Charges for

Restructuring &

Accelerated

Depreciation

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Second Quarter Significant Items (after taxes and minority interest)

25

2013

• Rationalizations, asset write-offs and accelerated depreciation, $13 million (5 cents per share)

• Discrete tax charges, $7 million (3 cents per share)

• Charges relating to labor claims with respect to a previously closed facility in Europe, $5 million (2 cents per share)

• Gain from asset sales, $4 million (1 cent per share)

2012

• Rationalizations, asset write-offs and accelerated depreciation, $25 million (9 cents per share)

• Debt financing fees related to the refinancing of $3.2 billion in credit facilities, $24 million (9 cents per share)

• Charges relating to labor claims with respect to a previously closed facility in Europe, $20 million (7 cents per share)

• Discrete tax charges, $2 million (1 cent per share)

• Costs related to tornado damage in 2011 at a manufacturing facility, $2 million (1 cent per share)

• Gain from asset sales, $10 million (3 cents per share)

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26

40% 60%

EU Summer Replacement Market(a)

Tire Units in Millions

Summer HP Market Rest of Summer Replacement Market

(a) Passenger market based on Europool 2012 Total Europe (excl. Turkey and Ukraine). All grades based upon publically available information on tires

available for sale as at July 2013. HP segment covers H and V speed indexes.

(b) B grade in Rolling Resistance Index / A grade in Wet Grip Index.

(c) Competitors include Premium brands and best available reported grades by size.

0% 20% 40% 60% 80%

Competitor 4

Competitor 3

Competitor 2

Competitor 1

Dunlop

Goodyear

% Summer HP Market Potential Rated B/A(b) or Better

Latest analysis of summer announcements by competition confirms the label

competitiveness of our new HP line.

(c)

+

Continued strong product performance in EMEA – label grades

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Mandatory Convertible Preferred Stock Common Share Impact Upon Conversion

27

* Assumes 246 million common shares outstanding as of 6/30/13

** Appreciation from Goodyear common share price of $14.57 on date of issuance of Mandatory

Convertible Preferred Stock

Common

Share Price

Conversion

Rate

Common Shares

Issuable upon

Conversion % Dilution*

Common Share

Price

Appreciation**

$14.57 3.4317 34,317,000 14.0% 0%and below

$15.00 3.3333 33,333,333 13.6% 3%

$16.00 3.1250 31,250,000 12.7% 10%

$17.00 2.9412 29,411,765 12.0% 17%

$18.00 2.7778 27,777,778 11.3% 24%

$18.21 2.7454 27,454,000 11.2% 25%and above

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Reconciliation for Segment Operating Income / Margin

$ In millions

28

This presentation also presents total segment operating income on a forward-looking basis. The company is unable to reconcile

forward-looking total segment operating income without unreasonable efforts because management cannot predict, with sufficient

certainty, the various elements necessary to provide such a reconciliation.

2013 2012 2012 2011 2010

Total Segment Operating Income 428$ 336$ 1,248$ 1,368$ 917$

Rationalizations (13) (26) (175) (103) (240)

Interest expense (102) (83) (357) (330) (316)

Other income / (expense) 14 (37) (139) (73) (186)

Asset write-offs & accelerated depreciation (5) (4) (20) (50) (15)

Corporate incentive compensation plans (35) (15) (69) (70) (71)

Corporate pension curtailments/settlements - - 1 (15) -

Intercompany profit elimination 3 9 (1) (5) (14)

Retained expenses of divested operations (6) (5) (14) (29) (20)

Other (28) (9) (34) (75) (47)

Income before Income Taxes 256$ 166$ 440$ 618$ 8$

United States and Foreign Taxes 63 63 203 201 172

Less: Minority Shareholders Net Income 5 11 25 74 52

Goodyear Net Income (Loss) 188$ 92$ 212$ 343$ (216)$

Sales $4,894 $5,150 $20,992 $22,767 $18,832

Return on Sales 3.8% 1.8% 1.0% 1.5% (1.1)%

Total Segment Operating Margin 8.7% 6.5% 5.9% 6.0% 4.9%

Three Months Ended

June 30,

Twelve Months Ended

December 31,

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Reconciliation for Total Debt and Net Debt

$ In millions

29

($ in millions)

June 30, March 31, December 31, June 30,

2013 2013 2012 2012

Long term debt and capital leases 6,325$ 6,307$ 4,888$ 5,395$

Notes payable and overdrafts 79 107 102 168

Long term debt and capital leases due within one year 125 167 96 107

Total debt 6,529$ 6,581$ 5,086$ 5,670$

Less: Cash and cash equivalents 2,564 2,386 2,281 2,156

Net debt 3,965$ 4,195$ 2,805$ 3,514$

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Reconciliation for Free Cash Flow from Operations

(1) Working capital represents total changes in accounts receivable, inventories and accounts payable – trade.

(2) Other includes amortization and write-off of debt issuance costs, net rationalization charges, net (gains) losses on asset sales, Venezuela currency

devaluation, customer prepayments and government grants, insurance proceeds, compensation and benefits less the total defined benefit pension

cost (before curtailments, settlements, and termination benefits) reported in the pension-related note in the Notes to Consolidated Financial

Statements, other current liabilities, and other assets and liabilities. 30

Trailing Twelve

Months Ended

($ in millions)

June 30,

2013

March 31,

2013

Dec. 31,

2012

Sept. 30,

2012

June 30,

2012

June 30,

2013

Net Income 193$ 31$ (7)$ 133$ 103$ 350$

Depreciation and Amortization 180 177 174 176 167 707

Working Capital (1)

114 (335) 1,361 (136) (1) 1,004

Pension Expense 72 76 78 77 74 303

Other (2)

20 46 (5) 153 90 214

Capital Expenditures (222) (271) (339) (298) (214) (1,130)

Free Cash Flow from Operations (non-GAAP) 357$ (276)$ 1,262$ 105$ 219$ 1,448$

Capital Expenditures 222 271 339 298 214 1,130

Pension Contributions & Direct Payments (85) (908) (194) (263) (113) (1,450)

Rationalization Payments (19) (24) (40) (18) (17) (101)

Cash Flow from Operating Activities (GAAP) 475$ (937)$ 1,367$ 122$ 303$ 1,027$

The amounts below are calculated from the Consolidated Statements of Cash Flows except for pension expense, which is the total defined benefit

pension cost (before curtailments, settlements, and termination benefits) as reported in the pension-related note in the Notes to Consolidated

Financial Statements.

Three Months Ended

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Financing Arrangements

$ In millions

31

June 30, March 31, December 31, June 30,

2013 2013 2012 2012

Notes Payable:

Notes Payable and Overdrafts 79$ 107$ 102$ 168$

Long-Term Debt:

Notes:6.75% Euro Notes due 2019 326$ 321$ 330$ 317$

8.25% due 2020 995 995 994 994

8.75% due 2020 267 266 266 265

6.5% due 2021 900 900 - -

7% due 2022 700 700 700 700

7% due 2028 149 149 149 149

Credit Facilities:

$2.0 billion first lien revolving credit facility due 2017 - - - -

$1.2 billion second lien term loan facility due 2019 1,194 1,194 1,194 1,194

€400 million revolving credit facility due 2016 - 256 - 292 Pan-European accounts receivable facility due 2015 345 186 192 395 Chinese credit facilities 531 505 471 469

Other domestic and international debt 976 933 630 694

6,383$ 6,405$ 4,926$ 5,469$

Capital lease obligations 67 69 58 33

Long-Term Debt Total: 6,450$ 6,474$ 4,984$ 5,502$

Total Debt 6,529$ 6,581$ 5,086$ 5,670$

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