Goodyear's pension funding strategy ups debt by $647 million, says CFO

By Lisa Kerner

Charlotte, N.C., April 26 - Goodyear Tire & Rubber Co. chairman and chief executive officer Rich Kramer was "very pleased" with overall first-quarter earnings results, despite two headwinds to the company's momentum: continued weakness in Europe and unfunded pension obligations.

Kramer made his comments during a conference call on Friday.

Chief financial officer Darren Wells agreed that while Goodyear faced a number of challenges, all of which are "addressable over time," the company is "continuing to deliver earnings, cost efficiency and cash flow improvement, generating strong returns on the capital we've invested both in restructuring actions and in growth cap ex."

Net debt at quarter-end totaled $4.2 billion, according to Wells.

"Compared with the year ago, our net debt increased $647 million as a result of our pension funding strategy. Note this increase in net debt is largely offset by a decrease in our unfunded pension obligation," said Wells.

"Our global unfunded pension obligation stood at $2.5 billion at quarter-end, compared to $3.5 billion at Dec. 31, 2012, as we successfully executed the prefunding and de-risking of our frozen plans."

The Akron, Ohio-based tire manufacturer ended the quarter at March 31 with liquidity of $4.9 billion, including cash and equivalents of $2.4 billion.

During the first quarter, Goodyear issued $900 million in 6½% senior notes due 2021. Proceeds were used to fully fund the company's frozen U.S. pension plans, according to Goodyear's earnings release.

Financial highlights

Goodyear reported first-quarter 2013 sales of $4.9 billion, compared to $5.5 billion a year ago. The decrease was attributed in part to lower tire unit volumes and lower sales in other tire-related businesses.

First-quarter 2013 net income available to common shareholders was $26 million, or 10 cents per share, compared to a net loss of $11 million, or five cents per share, in the 2012 quarter.

North American sales were down 13% in the quarter to $2.2 billion, while first-quarter sales for Europe, Middle East and Africa were down 17% to $1.6 billion.

Latin America's first-quarter sales decreased $8 million from last year to $513 million, and Asia Pacific's first-quarter sales decreased $10 million from last year to $567 million.

Goodyear said it is forecasting its 2013 tire unit volumes to be essentially at 2012 levels as a result of weak industry conditions, especially in Europe.

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