Goodyear focuses on cash management in light of 2009 maturity

By Jennifer Lanning Drey

Portland, Ore., Nov. 3 - Goodyear Tire & Rubber Co. plans to manage the business to be able to use cash and available liquidity to satisfy its $498 million obligation under its floating-rate notes, which mature in December 2009, Darren R. Wells, chief financial officer of Goodyear, said Monday during the company's third-quarter earnings conference call.

The company ended the quarter with cash and cash equivalents of $1.6 billion, well above the $1.0 billion the company looks to maintain for operations, Wells said.

The CFO also noted that Goodyear's cash balance is expected to improve, as the third quarter typically represents peak cash usage.

"We will manage aggressively for cash, making the necessary production cutbacks with aggressive inventory targets," Robert J. Keegan, chief executive officer of Goodyear, said during the call.

Goodyear has slowed the pace of its capital investments to reflect market conditions and now expects spending to be at the low end of its previously announced range of between $1.0 billion and $1.3 billion for full-year 2008.

Spending will be severely limited in 2009, Keegan said.

"Our liquidity remains strong, which continues to be an advantage in this environment," Wells said.

Cash expenses

During the third quarter, a series of events caused Goodyear's cash balance to decrease, the most significant of which was the company's $980 million cash contribution to the Voluntary Employees' Beneficiary Association trust for retiree health care.

Additionally, $360 million of cash invested with a money market fund was reclassified to other current assets after the fund temporarily froze withdrawals.

As of last week, Goodyear had received about half of that cash amount back, Wells said during the call.

Combined with high inventories, the weak sales environment and the impact of higher material costs and currency translation, the factors led to a $1.7 billion increase in net debt at September 30, compared with the year-ago total, Wells said.

Wells also said that while the company has not changed its thoughts on year-end debt, Goodyear's unfunded pension obligations remain an uncertainty given the market volatility.

Accordingly, the unfunded pension obligation at year-end, as well as pension expense in 2009, will be affected, he said.

Other measures

Given the weakened demand that the company continues to face, Goodyear is also looking to optimize its performance through initiatives including an intense focus on new products, changes in manufacturing plants and leveraging the growth of its off-highway business, Keegan said.

The company also continues to make progress within its four-point cost savings plan, which has now generated savings of more than $1.6 billion. The plan is expected to surpass the company's original target of $2 billion in cost savings between 2006 and 2009.

"Given today's market volatility, we're taking the right actions to optimize available market opportunities. We are moving forward with our business strategies," Keegan said.

Goodyear's third-quarter sales increased to $5.2 billion, an increase of 2% over the prior year, which the company attributed to improved pricing, a richer product mix and strength in international markets.

Third-quarter net income was $31 million, down from $668 million in the third quarter of 2007.

Goodyear is a tire manufacturer based in Akron, Ohio.

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