Goodyear planning to further reduce debt in 2008, will use cash for $750 million debt reduction in March

By Jennifer Lanning Drey

Portland, Ore., Feb. 14 - Goodyear Tire & Rubber Co. reduced debt by $2.5 billion in 2007 and will use cash to repay an additional $750 million of debt in March, Robert J. Keegan, Goodyear's chief executive officer, said during the company's fourth-quarter earnings conference call held Thursday.

The March repayment will include a $100 million maturity as well as the redemption of all of the company's $650 million outstanding senior secured notes due March 3.

"We view this as a milestone event as this is not only our highest-cost debt, but it is the last remaining debt from the company's near-distressed period back in 2003/2004," Keegan said.

Goodyear went into 2008 with a cash balance of about $3.5 billion and has earmarked $1.0 billion of its current cash to fund the Voluntary Employees' Beneficiary Association trust, Keegan said.

The company's total debt balance was $4.7 billion at Dec. 31, down from $7.2 billion at the end of 2006 and from $5.1 billion at Sept. 30, Mark Schmitz, the company's chief financial officer, reported during the call.

A portion of the 2007 debt reduction occurred in the fourth quarter when the company completed the conversion of nearly $350 million of its 4% convertible notes into equity.

"We'll face the current economic slowdown with a considerably healthier balance sheet," Keegan said.

When asked by an analyst on the call whether there may be opportunities for further debt repayments in 2008, Schmitz said Goodyear is always looking to pay down debt faster than planned but was not going to commit to anything at the present time.

Also during the call, Keegan said Goodyear continues to evaluate its level of planned capital investments for 2008 and currently expects them to be above 2007 levels.

"Higher levels of investment can be funded using cash generated in our business so that our balance sheet metrics, particularly net debt, will continue to improve," he said.

Goodyear will provide more details on its capital investment plan as the year progresses, he said.

For the full-year 2007, Goodyear reported operating cash flow provided by continuing operations of $92 million, demonstrating a $353 million decline from 2006 levels. The change primarily reflects the company's need to rebuild working capital in early 2007 following a 12-week strike at the end by members of the United Steelworkers at 12 of its plants.

Prepared for economic uncertainty

Despite the continued uncertain economic environment of early 2008, Goodyear's management believes the company is well-positioned to deal with the situation throughout the year, Keegan said during Thursday's call.

To combat the economic challenges, Goodyear is focusing on its higher-margin premium product lines, which experience less elasticity in their pricing dynamics. Additionally, improvements in the company's fixed-cost structure and balance sheet are expected to help Goodyear weather a potential downturn.

"The improvements we've made in our go-to-market model, our balance sheet and our cost structure give us confidence that we're well-positioned to progress through the current uncertain economic environment," Keegan said.

Goodyear reported record sales for both the fourth quarter and full year of 2007, with fourth-quarter sales coming in at $5.2 billion. The amount is 11% higher than fourth-quarter sales in 2006.

The company's focus on premium products, particularly in its emerging markets businesses, drove the sales increase.

Goodyear reported fourth-quarter income from continuing operations of $61 million, compared to a loss from continuing operations of $310 million in the strike-impacted fourth quarter of 2006.

Cost savings on target

Keegan also reported Thursday that Goodyear is on track to reach its goal of achieving $1.8 billion to $2.0 billion in gross cost savings by the end of 2009. So far, the company has achieved more than $1.0 billion in cost savings under the plan.

Goodyear is a tire manufacturer based in Akron, Ohio.

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