Goodyear ups debt by $376 million in 2012; revenue tops $1 billion

By Lisa Kerner

Charlotte, N.C., Feb. 12 - Goodyear Tire & Rubber Co.'s North American tire business had a record fourth quarter and was the highlight of the company's performance in 2012, according to chairman and chief executive officer Rich Kramer.

"Overall, our segment operating income for 2012 was just over $1.2 billion, marking the second year in a row and only the third time in the company's history that we've reached that level of performance," Kramer said during the company's fourth-quarter earnings conference call on Tuesday.

"Our record fourth quarter pushed our full-year [North American tire] earnings to $514 million, beating our 2013 target of $450 million a year early," Kramer said.

The North American business delivered a margin of 5.3%, achieving that level for the first time in 10 years, according to Kramer.

"[Now] in addition, we delivered strong cash results for the year as our progress on working capital helped generate $700 million of free cash flow from operations," the CEO said.

The Akron, Ohio-based tire manufacturer ended the year with over $2.28 billion of cash and available credit, compared with about $2.77 billion at the end of 2011.

Total liquidity was $5.4 billion at year's end.

"Our net debt totaled $2.8 billion," executive vice president and chief financial officer Darren Wells said on the call.

"Compared to a year ago, our debt increased $376 million."

Wells attributed the increase to debt refinancing and notes prepayment as well as the lease of a new headquarters facility that was debt on the balance sheet.

According to Wells, fourth-quarter revenue fell 11% to $5 billion, reflecting a 7% reduction in unit volume and lower third-party chemical sales.

Goodyear reported 2012 annual sales of $21 billion, an 8% decline from 2011.

"We generated gross margin of 18.7% in the quarter, a 340 basis point improvement versus the prior year despite lower volumes," the CFO said.

The increase was driven by price mix performance and strong cost savings, Wells said.

Financial highlights

Goodyear's 2012 reported net income available to common shareholders was $183 million, or 74 cents per diluted share, versus $321 million, or $1.26 per diluted share, in 2011.

Looking ahead, Goodyear expects its segment operating income to increase 12% for 2013 and targets positive cash flow for the year.

Pension plan funding

Wells also discussed Goodyear's plan to prefund and derisk its pension plans.

"We expect to use debt financing to raise funds for the accelerated contributions," he said, adding that the company has derivatives in place to reduce exposure to market movements during 2013.

The company announced a strategy on Tuesday to accelerate funding of its U.S. pension plans once frozen. As funded levels increase, Goodyear said it plans to shift its U.S. pension plan asset allocation to a portfolio of fixed-income securities.

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