SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact name of Registrant as specified in its charter)
| OHIO | 34-0253240 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) |
Identification No.) |
|
| 1144 East Market Street, Akron, Ohio | 44316-0001 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(330) 796-2121
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
| Yes ü | No ______ |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes ü | No ______ |
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
| Number of Shares of Common Stock, | ||
| Without Par Value, Outstanding at March 31, 2003: | 175,309,002 |
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Unaudited
| (In millions, except per share) | Three Months Ended | |||||||
| March 31, | ||||||||
| 2003 | 2002 | |||||||
NET SALES |
$ | 3,545.5 | $ | 3,311.2 | ||||
Cost of Goods Sold |
2,924.4 | 2,761.1 | ||||||
Selling, Administrative and General Expense |
590.1 | 529.4 | ||||||
Rationalizations (Note 2) |
68.2 | — | ||||||
Interest Expense |
57.8 | 61.0 | ||||||
Other (Income) and Expense (Note 3) |
26.7 | 13.9 | ||||||
Foreign Currency Exchange |
(0.6 | ) | 13.3 | |||||
Equity in (Earnings) Losses of Affiliates |
2.5 | 4.6 | ||||||
Minority Interest in Net Income (Loss) of
Subsidiaries |
11.4 | 13.5 | ||||||
Loss before Income Taxes |
(135.0 | ) | (85.6 | ) | ||||
United States and Foreign Taxes on Income (Loss) |
28.3 | (22.4 | ) | |||||
NET LOSS |
$ | (163.3 | ) | $ | (63.2 | ) | ||
Retained Earnings at Beginning of Period |
2,007.1 | 3,192.7 | ||||||
CASH DIVIDENDS |
— | (19.6 | ) | |||||
Retained Earnings at End of Period |
$ | 1,843.8 | $ | 3,109.9 | ||||
NET LOSS PER SHARE OF COMMON STOCK — BASIC: |
$ | (0.93 | ) | $ | (0.39 | ) | ||
Average Shares Outstanding (Note 4) |
175.3 | 163.2 | ||||||
NET LOSS PER SHARE OF COMMON STOCK — DILUTED: |
$ | (0.93 | ) | $ | (0.39 | ) | ||
Average Shares Outstanding (Note 4) |
175.3 | 163.2 | ||||||
CASH DIVIDENDS PER SHARE |
$ | — | $ | 0.12 | ||||
The accompanying notes are an integral part of this financial statement.
-1-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
| (In millions) | March 31, | December 31, | ||||||||
| 2003 | 2002 | |||||||||
| Unaudited | ||||||||||
ASSETS: |
||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents (Note 1) |
$ | 720.3 | $ | 923.0 | ||||||
Short term securities |
— | 24.3 | ||||||||
Accounts and notes receivable,
less allowance — $103.0 ($99.9 in 2002) (Note 5) |
1,792.3 | 1,459.7 | ||||||||
Inventories: |
||||||||||
Raw materials |
472.7 | 451.0 | ||||||||
Work in process |
116.1 | 100.0 | ||||||||
Finished products |
1,942.7 | 1,820.6 | ||||||||
| 2,531.5 | 2,371.6 | |||||||||
Prepaid expenses and other current assets |
396.0 | 448.1 | ||||||||
Total Current Assets |
5,440.1 | 5,226.7 | ||||||||
Long Term Accounts and Notes Receivable |
229.1 | 236.3 | ||||||||
Investments in Affiliates |
144.3 | 141.7 | ||||||||
Other Assets |
254.4 | 254.9 | ||||||||
Goodwill and Other Intangible Assets |
772.4 | 768.7 | ||||||||
Prepaid and Deferred Pension Costs |
905.5 | 913.4 | ||||||||
Deferred Charges |
411.5 | 412.6 | ||||||||
Properties and Plants,
less accumulated depreciation — $6,750.2 ($6,571.6 in 2002) |
5,210.6 | 5,192.3 | ||||||||
TOTAL ASSETS |
$ | 13,367.9 | $ | 13,146.6 | ||||||
LIABILITIES: |
||||||||||
Current Liabilities: |
||||||||||
Accounts payable — trade |
$ | 1,535.0 | $ | 1,502.2 | ||||||
Compensation and benefits |
963.6 | 961.2 | ||||||||
Other current liabilities |
458.1 | 481.6 | ||||||||
United States and foreign taxes |
494.9 | 473.2 | ||||||||
Notes payable |
165.1 | 283.4 | ||||||||
Long term debt due within one year |
59.5 | 369.8 | ||||||||
Total Current Liabilities |
3,676.2 | 4,071.4 | ||||||||
Long Term Debt and Capital Leases |
3,602.1 | 2,989.0 | ||||||||
Compensation and Benefits |
4,231.6 | 4,194.2 | ||||||||
Other Long Term Liabilities |
526.2 | 501.2 | ||||||||
Minority Equity in Subsidiaries |
769.8 | 740.2 | ||||||||
TOTAL LIABILITIES |
12,805.9 | 12,496.0 | ||||||||
Commitments and Contingent Liabilities (Note 6) |
||||||||||
SHAREHOLDERS’ EQUITY: |
||||||||||
Preferred Stock, no par value: |
||||||||||
Authorized 50.0 shares, unissued |
— | — | ||||||||
Common Stock, no par value: |
||||||||||
| Authorized
300.0 shares Outstanding shares - 175.3 (175.3 in 2002) after deducting 20.4 treasury shares (20.4 in 2002) |
175.3 | 175.3 | ||||||||
Capital Surplus |
1,390.3 | 1,390.3 | ||||||||
Retained Earnings |
1,843.8 | 2,007.1 | ||||||||
Accumulated Other Comprehensive Income |
(2,847.4 | ) | (2,922.1 | ) | ||||||
TOTAL SHAREHOLDERS’ EQUITY |
562.0 | 650.6 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 13,367.9 | $ | 13,146.6 | ||||||
The accompanying notes are an integral part of this financial statement.
-2-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Unaudited
| (In millions) | ||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||
| Other | Total | |||||||||||||||||||||
| Common | Capital | Retained | Comprehensive | Shareholders' | ||||||||||||||||||
| Stock | Surplus | Earnings | Income (Loss) | Equity | ||||||||||||||||||
Balance at December 31, 2002 |
$ | 175.3 | $ | 1,390.3 | $ | 2,007.1 | $ | (2,922.1 | ) | $ | 650.6 | |||||||||||
Comprehensive loss for 2003: |
||||||||||||||||||||||
Net loss |
(163.3 | ) | ||||||||||||||||||||
Foreign currency translation |
64.9 | |||||||||||||||||||||
Minimum pension liability |
2.0 | |||||||||||||||||||||
Unrealized investment loss |
(1.3 | ) | ||||||||||||||||||||
Deferred derivative gain |
9.1 | |||||||||||||||||||||
Total comprehensive loss |
(88.6 | ) | ||||||||||||||||||||
Balance at March 31, 2003 |
$ | 175.3 | $ | 1,390.3 | $ | 1,843.8 | $ | (2,847.4 | ) | $ | 562.0 | |||||||||||
| March 31, | December 31, | ||||||||
| Accumulated Other Comprehensive Loss | 2003 | 2002 | |||||||
Foreign currency translation adjustment |
$ | (1,324.2 | ) | $ | (1,389.1 | ) | |||
Minimum pension liability adjustment |
(1,514.9 | ) | (1,516.9 | ) | |||||
Unrealized investment loss |
(10.6 | ) | (9.3 | ) | |||||
Deferred derivative gain (loss) |
2.3 | (6.8 | ) | ||||||
Total |
$ | (2,847.4 | ) | $ | (2,922.1 | ) | |||
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Unaudited
| (In millions) | Three Months Ended | |||||||||
| March 31, | ||||||||||
| 2003 | 2002 | |||||||||
Net Loss |
$ | (163.3 | ) | $ | (63.2 | ) | ||||
Other comprehensive income (loss): |
||||||||||
Foreign currency translation |
64.9 | (22.1 | ) | |||||||
Minimum pension liability |
2.0 | 0.7 | ||||||||
Deferred derivative gain (loss) |
22.7 | (4.2 | ) | |||||||
Tax on deferred derivative gain (loss) |
— | 1.6 | ||||||||
Reclassification adjustment for amounts
recognized in income |
(13.8 | ) | 9.2 | |||||||
Tax on derivative reclassification adjustment |
0.2 | (3.5 | ) | |||||||
Unrealized investment gain (loss) |
(1.3 | ) | — | |||||||
Comprehensive Loss |
$ | (88.6 | ) | $ | (81.5 | ) | ||||
The accompanying notes are an integral part of this financial statement.
-3-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
| (In millions) | Three Months Ended | |||||||||||
| March 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net Loss |
$ | (163.3 | ) | $ | (63.2 | ) | ||||||
Adjustments to reconcile net loss to cash flows
from operating activities: |
||||||||||||
Depreciation and amortization |
147.9 | 146.8 | ||||||||||
Rationalizations (Note 2) |
65.2 | — | ||||||||||
Net cash flows from sale of accounts receivable (Note 5) |
(71.6 | ) | (57.1 | ) | ||||||||
Changes in operating assets and liabilities, net of
asset acquisitions and dispositions: |
||||||||||||
Accounts and notes receivable |
(232.8 | ) | (219.1 | ) | ||||||||
Inventories |
(129.3 | ) | 46.5 | |||||||||
Accounts payable — trade |
(51.3 | ) | 88.2 | |||||||||
Other assets and liabilities |
62.0 | (105.3 | ) | |||||||||
Total adjustments |
(209.9 | ) | (100.0 | ) | ||||||||
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES |
(373.2 | ) | (163.2 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Capital expenditures |
(90.1 | ) | (75.8 | ) | ||||||||
Short term securities redeemed |
25.2 | — | ||||||||||
Other transactions |
7.9 | (20.4 | ) | |||||||||
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES |
(57.0 | ) | (96.2 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Short term debt incurred |
696.1 | 23.6 | ||||||||||
Short term debt paid |
(157.3 | ) | (46.9 | ) | ||||||||
Long term debt incurred |
8.7 | 0.9 | ||||||||||
Long term debt paid |
(331.8 | ) | (7.6 | ) | ||||||||
Common stock issued |
— | 2.3 | ||||||||||
Dividends paid to Goodyear shareholders |
— | (19.6 | ) | |||||||||
Other transactions |
3.6 | — | ||||||||||
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES |
219.3 | (47.3 | ) | |||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
8.2 | (6.3 | ) | |||||||||
Net Change in Cash and Cash Equivalents |
(202.7 | ) | (313.0 | ) | ||||||||
Cash and Cash Equivalents at Beginning of the Period |
923.0 | 959.4 | ||||||||||
Cash and Cash Equivalents at End of the Period |
$ | 720.3 | $ | 646.4 | ||||||||
The accompanying notes are an integral part of this financial statement.
-4-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
All per share amounts in these Notes to Financial Statements are diluted unless otherwise indicated.
NOTE 1. ACCOUNTING POLICIES
Adjustments
All adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of these unaudited interim periods have been included.
Cash and Cash Equivalents
The Company will from time to time maintain balances on deposit at various financial institutions as collateral for borrowings incurred by various subsidiaries. The availability of these balances is restricted to the extent of the borrowings. At March 31, 2003, cash balances totaling approximately $35 million were subject to such restrictions.
Rationalizations
Goodyear adopted Statement of Financial Accounting Standards No. 146 (SFAS 146), “Accounting for Costs Associated with Exit or Disposal Activities,” effective for all exit or disposal activities initiated after December 31, 2002. SFAS 146 requires that liabilities for costs associated with exit or disposal activities be recognized when the liabilities are incurred, rather than when an entity commits to an exit plan. The new rules change the timing of liability and expense recognition related to exit or disposal activities, but not the ultimate amount of such expenses. Refer to Note 2.
Stock-Based Compensation
The Company uses the intrinsic value method to measure compensation cost for stock-based compensation. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s common stock at the date of the grant over the amount an employee must pay to acquire the stock. Compensation cost for stock appreciation rights and performance units is recorded based on the quoted market price of the Company’s stock at the end of the reporting period.
The following table presents the pro forma effect from using the fair value method to measure compensation cost:
| Three Months Ended | ||||||||||||
| (In millions, except per share) | March 31, | |||||||||||
| 2003 | 2002 | |||||||||||
Net loss as reported |
$ | (163.3 | ) | $ | (63.2 | ) | ||||||
Add: Stock-based compensation expense (income)
included in net loss (net of tax) |
(0.2 | ) | (2.8 | ) | ||||||||
Deduct: Stock-based compensation expense calculated
using the fair value method (net
of tax) |
(5.4 | ) | (8.6 | ) | ||||||||
Net loss as adjusted |
$ | (168.9 | ) | $ | (74.6 | ) | ||||||
Net loss per share: |
||||||||||||
| Basic | – as reported | $ | (0.93 | ) | $ | (0.39 | ) | |||||
| – as adjusted | (0.96 | ) | (0.46 | ) | ||||||||
| Diluted | – as reported | $ | (0.93 | ) | $ | (0.39 | ) | |||||
| – as adjusted | (0.96 | ) | (0.46 | ) | ||||||||
-5-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Reclassification
Certain items previously reported in specific financial statement captions have been reclassified to conform to the 2003 presentation.
NOTE 2. RATIONALIZATIONS
To maintain global competitiveness, Goodyear has implemented rationalization actions over the past several years for the purpose of reducing excess capacity, eliminating redundancies and reducing costs.
2003 Program
| Associate- | Other Than Associate- | |||||||||||
| (In millions) | related Costs | related Costs | Total | |||||||||
Original charge |
$ | 60.9 | $ | 7.3 | $ | 68.2 | ||||||
Incurred |
(24.3 | ) | (7.2 | ) | (31.5 | ) | ||||||
Accrual balance at
March 31, 2003 |
$ | 36.6 | $ | 0.1 | $ | 36.7 | ||||||
Goodyear recorded a rationalization charge totaling $68.2 million ($65.2 million after tax or $0.37 per share) in 2003. The 2003 rationalization actions consist of research and development, retail, manufacturing and administrative consolidations in North America, Europe and Latin America. Of the $68.2 million charge, $40.7 million related to future cash outflows, primarily associate severance costs, and $27.5 million related to non-cash writeoffs of equipment taken out of service in North America and pension curtailments. Goodyear plans to complete these actions by December 31, 2003.
Associate-related rationalization costs totaled $60.9 million. Activity during 2003 is presented below: