The Goodyear Tire & Rubber Company POS AM
As filed with the Securities and Exchange Commission on
March 21, 2006
Registration
No. 333-127918
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective
Amendment No. 2
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
The Goodyear Tire & Rubber Company
(Exact Name of Registrant as Specified in Its Charter)
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Ohio |
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3011 |
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34-0253240 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
1144 East Market Street
Akron, Ohio 44316-0001
(330) 796-2121
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrants Principal Executive
Offices)
C. Thomas Harvie, Esq.
Senior Vice President, General Counsel and Secretary
The Goodyear Tire & Rubber Company
1144 East Market Street
Akron, Ohio 44316-0001
(330) 796-2121
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Leonard Chazen, Esq.
Covington & Burling
1330 Avenue of the Americas
New York, NY 10019
(212) 841-1000
Approximate date of commencement of proposed sales to the
public: From time to time after this registration statement
becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. þ
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box. o
The information in
this prospectus is not complete and may be changed. The selling
security holders identified in this prospectus may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities, and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
MARCH 21, 2006
PROSPECTUS
$350,000,000
THE GOODYEAR TIRE & RUBBER COMPANY
4.00% Convertible Senior Notes due June 15, 2034
and Shares of Common Stock Issuable Upon Conversion of the
Senior Notes
This prospectus covers resales by selling security holders
identified herein of our 4.00% convertible senior notes due
June 15, 2034 and shares of our common stock into which the
notes are convertible. We will not receive any proceeds from the
resale of the notes or the shares of common stock hereunder.
The notes will mature on June 15, 2034. You may convert
your notes into shares of our common stock at a conversion rate
of 83.0703 shares of common stock per $1,000 principal
amount of notes (subject to adjustment in certain events), which
is equivalent to a conversion price of approximately
$12.04 per share, under the following circumstances:
(1) during specified periods, if the closing sale price of
our common stock reaches, or the trading price of the notes
falls below, specified levels described in this prospectus;
(2) if we call the notes for redemption; (3) if
specified corporate transactions occur; or (4) if a
fundamental change occurs. Upon conversion, we may at our option
choose to deliver, in lieu of our common stock, cash or a
combination of cash and common stock as described in this
prospectus.
We will pay interest on the notes on June 15 and December 15 of
each year. The notes will be issued only in denominations of
$1,000 and integral multiples of $1,000.
On or after June 20, 2008, we have the option to redeem all
or a portion of the notes that have not been previously
converted at redemption prices set forth in this prospectus. On
June 15 of each of 2011, 2014, 2019, 2024 and 2029, or upon a
designated event as described in this prospectus, you have the
option to require us to repurchase all or a portion of your
notes at 100% of the principal amount, plus accrued and unpaid
interest to the date of repurchase, plus, in the case of certain
designated events as described in this prospectus, a make-whole
premium determined as described in this prospectus.
The notes will be evidenced by a global note deposited with a
custodian for and registered in the name of a nominee of The
Depository Trust Company. Except as described in this
prospectus, beneficial interests in the global note will be
shown on, and transfers thereon will be effected only through,
records maintained by The Depository Trust Company and its
direct and indirect participants.
The notes are senior, unsecured obligations that rank equally
with our existing and future unsecured and unsubordinated
indebtedness. See Description of Notes
Ranking.
Prior to this offering, the notes have been eligible for trading
on The
PORTALsm
Market of the National Association of Securities Dealers, Inc.
Notes sold by means of this prospectus are not expected to
remain eligible for trading on The PORTAL Market. We do not
intend to list the notes for trading on any national securities
exchange or on the Nasdaq Stock Market.
Our common stock trades on the New York Stock Exchange under the
symbol GT. The last reported sales price on
March 20, 2006 was $13.70 per share.
See Risk Factors on page 7 of this
prospectus to read about factors you should consider before
purchasing the notes or our common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful and
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is .
TABLE OF CONTENTS
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OR SOLICITING
A PURCHASE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH THE
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE THE OFFER OR SOLICITATION.
Forward-Looking Information Safe Harbor
Statement
Certain information set forth herein (other than historical data
and information) may constitute forward-looking statements
regarding events and trends that may affect our future operating
results and financial position. The words estimate,
expect, intend and project,
as well as other words or expressions of similar meaning, are
intended to identify forward-looking statements. You are
cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this prospectus.
Such statements are based on current expectations and
assumptions, are inherently uncertain, are subject to risks and
should be viewed with caution. Actual results and experience may
differ materially from the forward-looking statements as a
result of many factors, including:
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although we recorded net income in 2004 and 2005, we cannot
provide assurance that we will be able to achieve or sustain
future profitability. Our future profitability is dependent
upon, among other things, our ability to continue to
successfully implement our turnaround strategy for our North
American Tire segment; |
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we face significant global competition, increasingly from lower
cost manufacturers, and our market share could decline; |
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our pension plans are significantly underfunded and our required
contributions to those plans are substantial. Proposed
U.S. legislation affecting pension plan funding could
result in the need for additional cash payments by us into our
U.S. pension plans and increase the insurance premiums we
pay to the Pension Benefit Guaranty Corporation; |
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higher raw material and energy costs may materially adversely
affect our operating results and financial condition; |
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continued pricing pressures from vehicle manufacturers may
materially adversely affect our business; |
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our financial position, results of operations and liquidity
could be materially adversely affected if we experience a labor
strike, work stoppage or other similar difficulty; |
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pending litigation relating to our 2003 restatement could have a
material adverse effect on our financial condition; |
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an ongoing SEC investigation regarding our accounting
restatement could materially adversely affect us; |
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our long-term ability to meet current obligations and to repay
maturing indebtedness, is dependent on our ability to access
capital markets in the future and to improve our operating
results; |
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we have a substantial amount of debt, which could restrict our
growth, place us at a competitive disadvantage or otherwise
materially adversely affect our financial health; |
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any failure to be in compliance with any material provision or
covenant of our secured credit facilities and the indenture
governing our senior secured notes could have a material adverse
effect on our liquidity and our operations; |
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our secured credit facilities limit the amount of capital
expenditures that we may make; |
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our variable rate indebtedness subjects us to interest rate
risk, which could cause our debt service obligations to increase
significantly; |
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we may incur significant costs in connection with product
liability and other tort claims; |
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our reserves for product liability and other tort claims and our
recorded insurance assets are subject to various uncertainties,
the outcome of which may result in our actual costs being
significantly higher than the amounts recorded; |
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we may be required to deposit cash collateral to support an
appeal bond if we are subject to a significant adverse judgment,
which may have a material adverse effect on our liquidity; |
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we are subject to extensive government regulations that may
materially adversely affect our operating results; |
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our international operations have certain risks that may
materially adversely affect our operating results; |
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we have foreign currency translation and transaction risks that
may materially adversely affect our operating results; |
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the terms and conditions of our global alliance with Sumitomo
Rubber Industries, Ltd. (SRI) provide for certain exit
rights available to SRI in 2009 or thereafter, upon the
occurrence of certain events, which could require us to make a
substantial payment to acquire SRIs interest in certain of
our joint venture alliances (which include much of our
operations in Europe); |
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if we are unable to attract and retain key personnel, our
business could be materially adversely affected; and |
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we may be impacted by economic and supply disruptions associated
with global events including war, acts of terror, civil
obstructions and natural disasters. |
It is not possible to foresee or identify all such factors. We
will not revise or update any forward-looking statement or
disclose any facts, events or circumstances that occur after the
date hereof that may affect the accuracy of any forward-looking
statement.
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Additional Information
We have filed with the SEC a registration statement on
Form S-1 under the
Securities Act, to register the notes offered by this
prospectus. This prospectus does not contain all of the
information included in the registration statement and the
exhibits and the schedules to the registration statement. We
strongly encourage you to read carefully the registration
statement and the exhibits and the schedules to the registration
statement.
Any statement made in this prospectus concerning the contents of
any contract, agreement or other document is only a summary of
the actual contract, agreement or other document. If we have
filed any contract, agreement or other document as an exhibit to
the registration statement, you should read the exhibit for a
more complete understanding of the document or matter involved.
Each statement regarding a contract, agreement or other document
is qualified in its entirety by reference to the actual document.
We file and furnish annual, quarterly and special reports, proxy
statements and other information with the Securities and
Exchange Commission. You may read and copy any documents we file
at the SECs public reference room at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the SEC at
1-888-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public from the
SECs web site at www.sec.gov or through our web site at
www.goodyear.com. We have not incorporated by reference into
this prospectus the information included on or linked from our
website, and you should not consider it to be part of this
prospectus.
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Summary
The following summary contains basic information about this
offering. It may not contain all of the information that is
important to you and it is qualified in its entirety by the more
detailed information included in this prospectus. You should
carefully consider the information contained in the entire
prospectus, including the information set forth under the
heading Risk Factors in this prospectus. In
addition, certain statements include forward-looking information
that involves risks and uncertainties. See Forward-looking
Information Safe Harbor Statement.
In this prospectus, Goodyear,
Company, we, us, and
our refer to The Goodyear Tire & Rubber
Company and its subsidiaries on a consolidated basis, except as
otherwise indicated.
The Company
We are one of the worlds leading manufacturers of tires
and rubber products, engaging in operations in most regions of
the world. Our 2005 net sales were $19.7 billion and
our net income for 2005 was $228 million. Together with our
U.S. and international subsidiaries and joint ventures, we
develop, manufacture, market and distribute tires for most
applications. We also manufacture and market several lines of
power transmission belts, hoses and other rubber products for
the transportation industry and various industrial and chemical
markets, and rubber-related chemicals for various applications.
We are one of the worlds largest operators of commercial
truck service and tire retreading centers. In addition, we
operate more than 1,800 tire and auto service center outlets
where we offer our products for retail sale and provide
automotive repair and other services. We manufacture our
products in more than 100 facilities in 29 countries, and we
have marketing operations in almost every country around the
world. We employ approximately 80,000 associates worldwide.
Recent Developments
New Product Introductions
In 2005, we continued our transformation to a market-driven,
consumer-focused company with the introduction in North America
of the Fortera featuring TripleTred Technology, a premium SUV
tire incorporating the same technology we introduced with the
successful launch of our Assurance line of tires in 2004. In
Europe, we introduced two new high performance winter tires, the
Goodyear Ultra Grip 7 and Dunlop SP Winter Sport 3D, both of
which have received highly favorable consumer reviews.
In February 2006, we released our newest Goodyear brand product
for North America, the Eagle featuring ResponsEdge Technology.
The ResponsEdge features an asymmetrical construction and tread
that combine to provide a smooth and comfortable ride from the
inboard side of the tire and ultra-high performance type grip
from the outer edge of the tire. The ResponsEdge is the latest
example of our ability to rapidly bring to market
technologically sophisticated products designed to meet consumer
demand.
Sale of Assets of North American Farm Tire Business
On December 28, 2005, we completed the previously announced
sale of our North America farm tire assets to Titan Tire
Corporation, a subsidiary of Titan International, Inc. The sale
included our farm tire manufacturing plant, property and
equipment in Freeport, Ill., and inventories. It also included a
licensing agreement with Titan to pay a royalty to manufacture
and sell Goodyear branded farm tires in North America. We
received $100 million from Titan for the assets and
recorded a loss in the fourth quarter of approximately
$73 million on the sale, primarily related to pension and
retiree medical costs.
Acquisition of South Pacific Tyres
In January 2006, we acquired Ansell Limiteds interest in
our South Pacific Tyres (SPT) joint ventures in both
Australia and New Zealand. We now own 100% of both of these
operations. In connection with the acquisition we paid Ansell
approximately $40 million for its 50% ownership and repaid
approximately $50 million of outstanding loans from Ansell
to SPT. SPT has approximately 4,000 associates. SPTs
results have been consolidated in our financial statements since
January 2004.
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Conversion Period for $350 Million of
4% Convertible Notes due 2034
The notes are now convertible at the option of the holders and
will remain convertible through March 31, 2006, the last
day of the current fiscal quarter. The notes became convertible
because the last reported sale price of our common stock for at
least 20 trading days during the 30 consecutive trading-day
period ending on January 17, 2006 (the 11th trading
day of the current fiscal quarter) was greater than
120 percent of the conversion price in effect on such day.
The notes were previously convertible during the third and
fourth quarters of 2005 for the same reasons, although no
conversions have occurred to date. If all outstanding notes are
surrendered for conversion, the aggregate number of shares of
common stock issued would be approximately 29 million. The
notes could be convertible after March 31, 2006 if the sale
price condition is met in any future fiscal quarter or if any of
the other conditions to conversion set forth in the indenture
governing the notes are met.
Our Principal Executive Offices
We are an Ohio corporation, organized in 1898. Our principal
executive offices are located at 1144 East Market Street, Akron,
Ohio 44316-0001. Our telephone number is (330) 796-2121.
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The Notes
The following summary contains basic information about the
notes and is not intended to be complete. For a more complete
understanding of the notes, please refer to the section entitled
Description of the Notes in this prospectus.
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Issuer |
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The Goodyear Tire & Rubber Company, an Ohio corporation. |
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Notes |
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$350,000,000 aggregate principal amount of
4.00% Convertible Senior Notes due 2034. |
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Issue Price |
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100% of the principal amount of each note, plus accrued
interest, if any, from July 2, 2004. |
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Maturity |
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June 15, 2034 unless earlier redeemed, repurchased or
converted. |
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Ranking |
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The notes are our senior, unsecured obligations and rank equal
in right of payment with all of our other unsecured and
unsubordinated indebtedness. At December 31, 2005, our
consolidated senior secured indebtedness, including capital
leases, totaled approximately $3.0 billion and our
consolidated senior unsecured indebtedness totaled approximately
$2.4 billion. The notes are not guaranteed by any of our
subsidiaries and, accordingly, the notes are structurally
subordinated to the existing and future indebtedness and other
liabilities of our subsidiaries. At December 31, 2005, the
total subsidiary liabilities, including guarantees of our
indebtedness, was approximately $8.2 billion. |
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Make Whole Premium |
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If a fundamental change that is a change of
control (each as defined below under Description of
the Notes Designated Event Permits Holders to
Require Us to Purchase Notes) becomes effective on or
prior to June 15, 2011, holders of notes will be entitled
to a make whole premium upon the repurchase of notes as
described below under Description of the Notes
Designated Event Permits Holders to Require Us to Purchase
Notes and upon the conversion of notes as described below
under Description of the Notes Conversion in
Connection with a Fundamental Change. We may satisfy the
make whole premium solely in shares of our common stock (other
than cash paid in lieu of fractional shares) or in the same form
of consideration into which shares of our common stock have been
converted in connection with the change of control. The amount
of the make whole premium, if any, will be based on the
stock price (as defined below under
Description of the Notes Determination of Make
Whole Premium) and the effective date of the fundamental
change. A description of how the make whole premium will be
determined and tables illustrating the make whole premium that
would apply in different circumstances is provided under
Description of the Notes Determination of Make
Whole Premium. Holders will not be entitled to the make
whole premium if the stock price is less than $9.26 (subject to
adjustment). |
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Interest |
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4.00% per year on the principal amount, payable
semiannually in arrears on each June 15 and December 15. |
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Conversion Rights |
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The notes are convertible at the option of the holder, prior to
the close of business on the maturity date, under any of the
following circumstances: |
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on any business day in any fiscal quarter commencing prior to
the maturity date, if the last reported sale price of our common
stock for at least 20 trading days in the 30 consecutive
trading-day period ending on the 11th trading day of such fiscal
quarter is greater than 120% of the applicable conversion price
per share of our common stock on such 11th trading day; or |
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on any business day after June 15, 2029 and through the
business day immediately preceding the maturity date, if the
last reported sale price of our common stock on any trading date
after June 15, 2029 is greater than 120% of the applicable
conversion price per share of our common stock on such trading
day; or |
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at any time prior to June 15, 2029, during the five
consecutive business day period following any five consecutive
trading day period in which the trading price per $1,000
principal amount of notes for each day of that trading period
was less than 98% of the product of the last reported sale price
of our common stock on such corresponding trading day and the
applicable conversion rate; |
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if we have called the notes for redemption; or |
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upon the occurrence of specified corporate events described
under Description of the Notes Conversion upon
Specified Corporate Transactions and
Conversion in Connection with a Fundamental
Change. |
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For each $1,000 original principal amount of notes surrendered
for conversion, you will receive 83.0703 shares of our
common stock. This represents an initial conversion price of
approximately $12.04 per share of common stock. As
described in this prospectus, the conversion rate may be
adjusted for certain reasons, but it will not be adjusted for
accrued and unpaid interest. Except as otherwise described in
this prospectus, you will not receive any payment representing
accrued and unpaid interest upon conversion of a note. |
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Upon conversion, we will have the right to deliver, in lieu of
shares of our common stock, cash or a combination of cash and
shares of our common stock. See Description of the
Notes Conversion Rights. |
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Redemption of Notes at Our Option |
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On or after June 20, 2008, we may redeem for cash all or a
portion of the notes at any time, upon not less than 30 nor more
than 60 days prior notice, at redemption prices
described in this prospectus, plus accrued but unpaid interest
to but excluding the redemption date. See Description of
the Notes Optional Redemption. |
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Purchase of Notes at Your Option |
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Holders of the notes will have the right to require us to
purchase all or a portion of their notes on each June 15 of
2011, 2014, 2019, 2024 and 2029, each of which we refer to as a
purchase date. In each case, we will pay a purchase price equal
to 100% of the |
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principal amount of the notes to be purchased, plus any accrued
and unpaid interest to but excluding the purchase date. See
Description of the Notes Purchase of Notes by
Us at the Option of the Holders. |
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Purchase of Notes Upon a Designated Event |
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If we undergo a designated event, (as defined below
under Description of Notes Designated Event
Permits Holders to Require Us to Purchase Notes) holders
will have the right, at their option, to require us to purchase
all of their notes or any portion of the principal amount
thereof that is equal to $1,000 or an integral multiple of
$1,000. The purchase price we are required to pay is equal to
100% of the principal amount of the notes to be purchased plus
accrued and unpaid interest to but excluding the designated
event repurchase date, plus, in the case of a fundamental change
that is a change of control, a make whole premium, if any, as
described above. See Description of the Notes
Designated Event Permits Holders to Require Us to Purchase
Notes. |
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Use of Proceeds |
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We will not receive any proceeds from the sale by any selling
security holder of the notes or the common stock issuable upon
conversion thereof. |
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Events of Default |
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The following will be events of default under the indenture for
the notes: |
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we fail to pay principal of, or premium (if any) on, any of the
notes when due at maturity, upon redemption, required repurchase
or otherwise; |
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we fail to pay interest on the notes when due and payable and
that default continues for a period of 30 days; |
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we fail to convert notes into shares of common stock upon
exercise of a holders conversion right and that default
continues for a period of 10 days; |
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we fail to comply with or observe in any material respect any of
the other covenants or agreements in the indenture for
60 days after written notice; |
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we fail to pay any indebtedness (other than indebtedness owing
to the Company or a significant subsidiary) within any
applicable grace period after final maturity or the acceleration
of any such indebtedness by the holders thereof because of a
default if the total amount of such indebtedness unpaid or
accelerated exceeds $50.0 million or its foreign currency
equivalent; |
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the rendering of any final nonappealable judgment or decree (not
covered by insurance) for the payment of money in excess of
$50.0 million or its foreign currency equivalent (treating
any deductibles, self-insurance or retention as not so covered)
against the Company or a significant subsidiary if such final
judgment or decree remains outstanding and is not satisfied,
discharged or waived within a period of 60 days following
such judgment; |
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we fail to give notice of the right to require us to repurchase
notes following the occurrence of a designated event within the
time required to give such notice; and |
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certain events of bankruptcy, insolvency or reorganization
affecting the Company or a significant subsidiary. See
Description of the Notes Events of Default and
Remedies. |
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Book Entry Form |
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The notes were issued in book-entry form and are represented by
permanent global certificates deposited with a custodian for and
registered in the name of a nominee of The Depository Trust
Company, commonly known as DTC, in New York, New York.
Beneficial interest in any of the notes are shown on, and
transfers are effected only through, records maintained by DTC
and its direct and indirect participants and any such interest
may not be exchanged for certificated notes, except in limited
circumstances. See Book-Entry System. |
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Trading |
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The notes will not be listed on any securities exchange or
included in any automated quotation system. Our common stock is
traded on the New York Stock Exchange under the symbol
GT. |
6
Risk Factors
You should carefully consider the risks described below and
other information contained in this prospectus before making an
investment decision. Additional risks and uncertainties not
presently known to us, or that we currently deem immaterial, may
also impair our business operations. Any of the events discussed
in the risk factors below may occur. If they do, our business,
results of operations or financial condition could be materially
adversely affected. In such an instance, the trading price of
our securities could decline, and you might lose all or part of
your investment.
Risks Relating to Our Business
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It is uncertain whether we will successfully implement the
turnaround strategy for our North American Tire segment. |
We are in the process of implementing a turnaround strategy for
our North American Tire Segment. Based in part on successes in
implementing this strategy, North American Tire had positive
segment operating income in 2004 and 2005, after recording
operating losses in the previous two years. Additional progress
in implementing the turnaround strategy is needed, however, to
enable the North American Tire business segment to continue to
achieve and maintain profitability.
The ability of the North American Tire Segment to achieve and
maintain profitability may be hampered by trends that continue
to negatively affect the business, including industry
overcapacity, which limits pricing power, increased competition
from low-cost manufacturers and uncertain economic conditions in
the United States. In addition, our North American Tire Segment
has been, and may continue to be negatively affected by higher
than expected raw materials and energy costs, weakness in the
domestic auto industry, as well as the continuing burden of
legacy pension and postretirement benefit costs. The success of
our turnaround strategy is dependent, in part, on our ability to
address and manage these costs as well as the costs associated
with operating our manufacturing facilities in North America and
to implement productivity improvements in these facilities.
The success of the turnaround strategy is also dependent on
North American Tires ability to continue to improve the
proportion, or mix, of higher margin tires it sells. In order to
continue this improvement, North American Tire must be
successful in marketing and selling products that offer higher
margins such as the Assurance and Fortera lines of tires and in
developing additional higher margin tires that achieve broad
market acceptance. Other initiatives that may impact our
turnaround effort include our ability to successfully expand
into the truck service business and to continue our selective
fitment strategy with our OE customers.
We cannot assure that our turnaround strategy will be
successful. If our turnaround strategy is not successful, we may
not be able to achieve or sustain future profitability, which
would impair our ability to meet our debt and other obligations
and would otherwise negatively affect our financial condition
and operations.
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We face significant global competition and our market
share could decline. |
New tires are sold under highly competitive conditions
throughout the world. We compete with other tire manufacturers
on the basis of product design, performance, price, reputation,
warranty terms, customer service and consumer convenience. On a
worldwide basis, we have two major competitors, Bridgestone
(based in Japan) and Michelin (based in France), that dominate
the markets of the countries in which they are based and are
aggressively seeking to maintain or improve their respective
shares of the North American, European, Latin American and other
world tire markets. Other significant competitors include
Continental, Cooper Tire, Pirelli, Toyo, Yokohama, Kumho,
Hankook and various regional tire manufacturers. Our competitors
produce significant numbers of tires in low-cost markets. We are
limited by our master contract with the United Steelworkers
(USW) in our ability to shift production of certain
products from U.S. facilities to low-cost markets and our
credit agreements limit the amount of capital expenditures we
may make. Our ability to compete successfully will depend, in
significant part, on our ability to reduce costs by such means
as reduction of excess capacity, leveraging global purchasing,
improving productivity, elimination of redundancies and
7
increasing production at low-cost supply sources. If we are
unable to compete successfully, our market share may decline,
materially adversely affecting our results of operations and
financial condition.
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Our pension plans are significantly underfunded and our
required contributions to these plans are expected to
increase. |
The unfunded amount of the projected benefit obligation for our
U.S. and
non-U.S. pension
plans was $2 billion and $1 billion at
December 31, 2005, respectively. Our funding obligations
for our U.S. plans are governed by the Employee Retirement
Income Security Act of 1974, or ERISA. In 2005, we met or
exceeded our required funding obligations for these plans under
ERISA. Estimates of the amount and timing of our future funding
obligations are based on various assumptions. These include
assumptions concerning, among other things, the actual and
projected market performance of the pension plan assets;
interest rates on long-term obligations; statutory requirements;
and demographic data for pension plan participants. The amount
and timing of our future funding obligations also depend on
whether we elect to make contributions to the pension plans in
excess of those required under ERISA, as such voluntary
contributions could reduce or defer our future funding
obligations.
At the end of 2005, interest rate relief measures relating to
the calculation of pension funding obligations expired. Since
new legislation has not yet been enacted, the interest rate
reverted to a 30-year
U.S. Treasury bond basis beginning in 2006 and we estimate
that we will be required to contribute approximately
$700 million to $750 million to our domestic pension
plans in 2006 under this basis. If new legislation is enacted in
2006, we expect that the interest rate used for 2006 will be
based on a corporate bond basis. Using an estimate of these
rates would result in estimated required contributions to our
domestic pension plans in 2006 of $550 million to
$600 million. For more information on the calculation of
our estimated domestic pension plan contributions, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Commitments and
Contingent Liabilities. The anticipated funding
obligations under our pension plans for 2007 and thereafter
cannot be reasonably estimated at this time because of the
current uncertainty around pension reform legislation. Pension
reform legislation before Congress would replace the interest
rate used to calculate pension funding obligations starting in
2007, require more rapid funding of underfunded plans, restrict
the use of techniques that reduce funding volatility, and limit
pension increases in underfunded plans. In addition, Congress
has recently passed legislation increasing the insurance
premiums charged by the Pension Benefit Guaranty Corporation. It
is not possible to predict whether Congress will adopt pension
reform legislation, or what form any final legislation might
take. If legislation similar to the pending bills were enacted,
it could materially increase our pension funding obligations and
insurance premiums, and could limit our ability to negotiate
pension increases for our union-represented employees.
Nevertheless, we presently expect that our funding obligations
under our pension plans in 2007 and subsequent years will be
substantial and could have a material adverse impact on our
liquidity.
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Higher raw material and energy costs may materially
adversely affect our operating results and financial
condition. |
Raw material costs increased significantly over the past few
years driven by increases in costs of oil and natural rubber.
Market conditions may prevent us from passing these increased
costs on to our customers through timely price increases.
Additionally, higher raw material costs around the world may
continue to hinder our ability to fully realize our turnaround
strategy. As a result, higher raw material and energy costs
could result in declining margins and operating results.
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Continued pricing pressures from vehicle manufacturers may
materially adversely affect our business. |
Approximately 28% of the tires we sell are sold to vehicle
manufacturers for mounting as OE. Pricing pressure from vehicle
manufacturers has been a characteristic of the tire industry in
recent years. Many vehicle manufacturers have policies of
seeking price reductions each year. Although we have taken steps
to reduce costs and resist price reductions, current and future
price reductions could materially adversely impact our sales and
profit margins. If we are unable to offset continued price
reductions through improved operating
8
efficiencies and reduced expenditures, those price reductions
may result in declining margins and operating results.
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If we fail to extend or renegotiate our primary collective
bargaining contracts with our labor unions as they expire from
time to time, or if our unionized employees were to engage in a
strike or other work stoppage, our business and operating
results could be materially adversely affected. |
We are a party to collective bargaining contracts with our labor
unions, which represent a significant number of our employees.
In particular, our master collective bargaining agreement with
the USW covers approximately 13,600 employees in the United
States at December 31, 2005 and expires in July 2006.
Although we believe that our relations with our employees are
satisfactory, no assurance can be given that we will be able to
successfully extend or renegotiate our collective bargaining
agreements as they expire from time to time. If we fail to
extend or renegotiate our collective bargaining agreements, if
disputes with our unions arise, or if our unionized workers
engage in a strike or other work stoppage, we could incur higher
labor costs or experience a significant disruption of
operations, which could have a material adverse effect on our
business, financial position and results of operations.
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Pending litigation relating to our 2003 restatement could
have a material adverse effect on our financial position, cash
flows and results of operation. |
At least 36 lawsuits were filed against us and certain of our
current or former officers or directors following our October
2003 announcement regarding the restatement of our previously
issued financial results. These actions have been consolidated
into three separate actions in the United States District Court
for the Northern District of Ohio. We intend to vigorously
defend these lawsuits. However, we cannot currently predict or
determine the outcome or resolution of these proceedings or the
timing for their resolution, or reasonably estimate the amount,
or potential range, of possible loss, if any. In addition to any
damages that we may suffer, our managements efforts and
attention may be diverted from our ordinary business operations
in order to address these claims. The final resolution of these
lawsuits could have a material adverse effect on our financial
position, cash flows and results of operation.
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An ongoing SEC investigation regarding our accounting
restatement could materially adversely affect us. |
Following our October 2003 announcement regarding the
restatement of our previously issued financial results, the SEC
advised us that it had initiated an informal inquiry into the
facts and circumstances related to the restatement. On
February 5, 2004, the SEC advised us that it had approved
the issuance of a formal order of investigation. On
August 16, 2005, we announced that we had received a
Wells Notice from the SEC indicating that the staff
of the SEC intends to recommend that a civil or administrative
enforcement action be brought against us for alleged violations
of the Securities Exchange Act of 1934, relating to the
maintenance of books, records and internal accounting controls,
the establishment of disclosure controls and procedures, and
periodic SEC filing requirements. The alleged violations relate
to the account reconciliation matters giving rise to our initial
decision to restate in October 2003. We have also been informed
that Wells Notices have been issued to a former chief financial
officer and a former chief accounting officer of ours. We
continue to cooperate with the SEC regarding this matter. We are
unable to predict the outcome of this process, and an
unfavorable outcome could harm our reputation and our business.
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Our long-term ability to meet our obligations and to repay
maturing indebtedness is dependent on our ability to access
capital markets in the future and to improve our operating
results. |
The adequacy of our liquidity depends on our ability to achieve
an appropriate combination of operating improvements, financing
from third parties, access to capital markets and asset sales.
Although we completed a major refinancing of our senior secured
credit facilities on April 8, 2005, issued
$400 million in Senior unsecured notes in June 2005, and
repaid our
63/8%
Euro Notes due 2005 upon maturity on June 6, 2005, we may
undertake additional financing actions in the capital markets in
order to ensure that our future liquidity requirements are
addressed. These actions may include the issuance of additional
equity.
9
Our access to the capital markets cannot be assured and is
dependent on, among other things, the degree of success we have
implementing our North American Tire turnaround strategy. See
It is uncertain whether we will successfully
implement the turnaround strategy for our North American Tire
segment. Future liquidity requirements also may make it
necessary for us to incur additional debt. A substantial portion
of our assets is subject to liens securing our indebtedness. As
a result, we are limited in our ability to pledge our remaining
assets as security for additional secured indebtedness. Our
failure to access the capital markets or incur additional debt
in the future could have a material adverse effect on our
liquidity and operations, and could require us to consider
further measures, including deferring planned capital
expenditures, reducing discretionary spending, selling
additional assets and restructuring existing debt.
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We have a substantial amount of debt, which could restrict
our growth, place us at a competitive disadvantage or otherwise
materially adversely affect our financial health. |
We have a substantial amount of debt. As of December 31,
2005, our debt (including capital leases) on a consolidated
basis was approximately $5.4 billion. Our substantial
amount of debt and other obligations could have important
consequences. For example, it could:
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Make it more difficult for us to satisfy our obligations; |
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Impair our ability to obtain financing in the future for working
capital, capital expenditures, research and development,
acquisitions or general corporate requirements; |
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Increase our vulnerability to general adverse economic and
industry conditions; |
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Limit our ability to use operating cash flow in other areas of
our business because we would need to dedicate a substantial
portion of these funds for payments on our indebtedness; |
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Limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate; and |
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Place us at a competitive disadvantage compared to our
competitors that have less debt. |
The agreements governing our debt, including our credit
agreements, limit, but do not prohibit, us from incurring
additional debt and we may incur a significant amount of
additional debt in the future, including additional secured
debt. If new debt is added to our current debt levels, our
ability to satisfy our debt obligations may become more limited.
Our ability to make scheduled payments on, or to refinance, our
debt and other obligations will depend on our financial and
operating performance, which, in turn, is subject to our ability
to implement our turnaround strategy, prevailing economic
conditions and certain financial, business and other factors
beyond our control. If our cash flow and capital resources are
insufficient to fund our debt service and other obligations,
including required pension contributions, we may be forced to
reduce or delay expansion plans and capital expenditures, sell
material assets or operations, obtain additional capital or
restructure our debt. We cannot assure you that our operating
performance, cash flow and capital resources will be sufficient
to pay our debt obligations when they become due. We cannot
assure you that we would be able to dispose of material assets
or operations or restructure our debt or other obligations if
necessary or, even if we were able to take such actions, that we
could do so on terms that were acceptable to us.
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Any failure to be in compliance with any material
provision or covenant of our debt instruments could have a
material adverse effect on our liquidity and operations. |
The indentures and other agreements governing our secured credit
facilities and secured notes and our other outstanding
indebtedness impose significant operating and financial
restrictions on us. These restrictions
10
may affect our ability to operate our business and may limit our
ability to take advantage of potential business opportunities as
they arise. These restrictions limit our ability to, among other
things:
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Incur additional indebtedness and issue preferred stock; |
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Pay dividends and other distributions with respect to our
capital stock or repurchase our capital stock or make other
restricted payments; |
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Enter into transactions with affiliates; |
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Create or incur liens to secure debt; |
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Make certain investments; |
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Enter into sale/leaseback transactions; |
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Sell or otherwise transfer or dispose of assets; |
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Incur dividend or other payment restrictions affecting certain
subsidiaries; |
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Use proceeds from the sale of certain assets; and |
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Engage in certain mergers or consolidations and transfers of
substantially all assets. |
Our ability to comply with these covenants may be affected by
events beyond our control, and unanticipated events could
require us to seek waivers or amendments of covenants or
alternative sources of financing or to reduce expenditures. We
cannot assure you that such waivers, amendments or alternative
financing could be obtained, or if obtained, would be on terms
acceptable to us.
Our first lien credit facility and European term loan and
revolving credit facility require us to maintain certain
specified thresholds of Consolidated EBITDA to Consolidated
Interest Expense (as defined in each of the facilities). In
addition, under these facilities, we are required not to permit
our ratio of Consolidated Net Secured Indebtedness (net of cash
in excess of $400 million) to Consolidated EBITDA to be
greater than certain specified thresholds. These restrictions
could limit our ability to plan for or react to market
conditions or meet extraordinary capital needs or otherwise
restrict capital activities.
A breach of any of the covenants or restrictions contained in
any of our existing or future financing agreements, including
the financial covenants in our secured credit facilities, could
result in an event of default under those agreements. Such a
default could allow the lenders under our financing agreements,
if the agreements so provide, to discontinue lending, to
accelerate the related debt as well as any other debt to which a
cross-acceleration or cross-default provision applies, and/or to
declare all borrowings outstanding thereunder to be due and
payable. In addition, the lenders could terminate any
commitments they have to provide us with further funds. If any
of these events occur, we cannot assure you that we will have
sufficient funds available to pay in full the total amount of
obligations that become due as a result of any such
acceleration, or that we will be able to find additional or
alternative financing to refinance any such accelerated
obligations. Even if we obtain additional or alternative
financing, we cannot assure you that it would be on terms that
would be acceptable to us. Finally, we have agreed with the USW
that if we do not remain in compliance with our prevailing
principal bank financial covenants, we will seek a substantial
private equity investment. Any such investor or investors could
exercise influence over the management of our business and may
have interests that conflict with the interests of our other
investors.
We cannot assure you that we will be able to remain in
compliance with the covenants to which we are subject in the
future and, if we fail to do so, that we will be able to obtain
waivers from our lenders or amend the covenants.
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Our capital expenditures may not be adequate to maintain
our competitive position. |
Our capital expenditures are limited by our liquidity and
capital resources and restrictions in our credit agreements. The
amount Goodyear has available for capital spending is limited by
the need to pay its other expenses and to maintain adequate cash
reserves and borrowing capacity to meet unexpected demands that
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may arise. In addition, our credit facilities limit the amount
of capital expenditures that we may make to $700 million in
each year through 2010. The amounts of permitted capital
expenditures may be increased with the proceeds of equity
issuances. In addition, unused capital expenditures may be
carried over into the next year. In 2005, capital expenditures
as defined in our borrowing agreements totaled $621 million
and are expected to increase to approximately $665 million
in 2006. Capital expenditures as defined in our borrowing
agreements do not include capitalized software and include
non-cash capital lease transactions and, accordingly, differ
from capital expenditures reported in our Consolidated
Statements of Cash Flows. We believe that our ratio of capital
expenditures to sales is lower than the comparable ratio for our
principal competitors.
Productivity improvements through process re-engineering, design
efficiency and manufacturing cost improvements may be required
to offset potential increases in labor and raw material costs
and competitive price pressures. In addition, as part of our
strategy to increase the percentage of tires sold in higher cost
markets that are produced at our lower-cost production
facilities, we may need to modernize or expand certain of those
facilities. If we are unable to make sufficient capital
expenditures, or to maximize the efficiency of the capital
expenditures we do make, we may be unable to achieve
productivity improvements, which may harm our competitive
position.
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Our variable rate indebtedness subjects us to interest
rate risk, which could cause our debt service obligations to
increase significantly. |
Certain of our borrowings, primarily borrowings under our credit
facilities, are at variable rates of interest and expose us to
interest rate risk. If interest rates increase, our debt service
obligations on the variable rate indebtedness would increase
even though the amount borrowed remained the same, which would
require us to use more of our available cash to service our
indebtedness. There can be no assurance that we will be able to
enter into swap agreements or other hedging arrangements in the
future, or that existing or future hedging arrangements will
offset increases in interest rates. At December 31, 2005,
we had $2,764 million of variable rate debt outstanding.
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We may incur significant costs in connection with asbestos
claims. |
We are among many defendants named in legal proceedings
involving claims of individuals relating to alleged exposure to
asbestos. At December 31, 2005, approximately 125,500
claims were pending against us alleging various asbestos-related
personal injuries purported to have resulted from alleged
exposure to asbestos in certain rubber encapsulated products or
aircraft braking systems manufactured by us in the past or to
asbestos in certain of our facilities. We expect that additional
claims will be brought against us in the future. Our ultimate
liability with respect to such pending and unasserted claims is
subject to various uncertainties, including the following:
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the number of claims that are brought in the future; |
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the costs of defending and settling these claims; |
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the risk of insolvencies among our insurance carriers; |
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the possibility that adverse jury verdicts could require us to
pay damages in amounts greater than the amounts for which we
have historically settled claims; |
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the risk of changes in the litigation environment or Federal and
state law governing the compensation of asbestos
claimants; and |
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the risk that the bankruptcies of other asbestos defendants may
increase our costs. |
Because of the uncertainties related to such claims, it is
possible that we may incur a material amount in excess of our
current reserve for such claims. In addition, if any of the
foregoing risks were to materialize, the resulting costs could
have a material adverse impact on our liquidity, financial
position and results of operations in future periods.
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We may be required to deposit cash collateral to support
an appeal bond if we are subject to a significant adverse
judgment, which may have a material adverse effect on our
liquidity. |
We are subject to various legal proceedings. If we wish to
appeal any future adverse judgment in any of these proceedings,
we may be required to post an appeal bond with the relevant
court. We may be required to issue a letter of credit to the
surety posting the bond. We may issue up to an aggregate of
$700 million in letters of credit under our
$1.5 billion U.S. first lien credit facility. As of
December 31, 2005, we had $499 million in letters of
credit issued under this facility. If we are subject to a
significant adverse judgment and do not have sufficient
availability under our credit facilities to issue a letter of
credit to support an appeal bond, we may be required to pay down
borrowings under the facilities or deposit cash collateral in
order to stay the enforcement of the judgment pending an appeal.
A significant deposit of cash collateral may have a material
adverse effect on our liquidity. If we are unable to post cash
collateral, we may be unable to stay enforcement of the judgment.
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We are subject to extensive government regulations that
may materially adversely affect our operating results. |
We are subject to regulation by the Department of Transportation
and by the National Highway Traffic Safety Administration, or
NHTSA, which have established various standards and regulations
applicable to tires sold in the United States and tires sold in
a foreign country that are identical or substantially similar to
tires sold in the United States. NHTSA has the authority to
order the recall of automotive products, including tires, having
safety-related defects. NHTSAs regulatory authority was
expanded in November 2000 as a result of the enactment of the
Transportation Recall Enhancement, Accountability, and
Documentation Act, or TREAD Act. The TREAD Act imposes numerous
requirements with respect to the early warning reporting of
warranty claims, property damage claims, and bodily injury and
fatality claims and also requires tire manufacturers, among
other things, to conform with revised and more rigorous tire
testing standards, once the revised standards are implemented.
Compliance with the TREAD Act regulations will increase the cost
of producing and distributing tires in the United States. In
addition, while we believe that our tires are free from design
and manufacturing defects, it is possible that a recall of our
tires, under the TREAD Act or otherwise, could occur in the
future. A substantial recall could have a material adverse
effect on our reputation, operating results and financial
position. Compliance with these and other Federal, state and
local laws and regulations in the future may require a material
increase in our capital expenditures and could materially
adversely affect the Companys earnings and competitive
position.
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Our international operations have certain risks that may
materially adversely affect our operating results. |
Goodyear has manufacturing and distribution facilities
throughout the world. The international operations are subject
to certain inherent risks, including:
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exposure to local economic conditions; |
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adverse changes in the diplomatic relations of foreign countries
with the United States; |
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hostility from local populations and insurrections; |
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adverse currency exchange controls; |
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restrictions on the withdrawal of foreign investment and
earnings; |
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withholding taxes and restrictions on the withdrawal of foreign
investment and earnings; |
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labor regulations; |
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expropriations of property; |
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the potential instability of foreign governments; |
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risks of renegotiation or modification of existing agreements
with governmental authorities; |
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export and import restrictions; and |
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other changes in laws or government policies. |
The likelihood of such occurrences and their potential effect on
Goodyear vary from country to country and are unpredictable.
Certain regions, including Latin America and Asia, are
inherently more economically and politically volatile and as a
result, our business units that operate in these regions could
be subject to significant fluctuations in sales and operating
income from quarter to quarter. Because a significant percentage
of our operating income in recent years has come from these
regions, adverse fluctuations in the operating results in these
regions could have a disproportionate impact on our results of
operations in future periods.
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We have foreign currency translation and transaction risks
that may materially adversely affect our operating
results. |
The financial condition and results of operations of certain of
our operating entities are reported in various foreign
currencies and then translated into U.S. dollars at the
applicable exchange rate for inclusion in our financial
statements. As a result, the appreciation of the
U.S. dollar against these foreign currencies has a negative
impact on our reported sales and operating margin (and
conversely, the depreciation of the U.S. dollar against
these foreign currencies has a positive impact). For the fiscal
year ended December 31, 2005, we estimate that foreign
currency translation favorably impacted sales and segment
operating income by approximately $210 million and
$95 million, respectively, compared to the prior year. The
volatility of currency exchange rates may materially adversely
affect our operating results.
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The terms and conditions of our global alliance with
Sumitomo Rubber Industries, Ltd. (SRI) provide for
certain exit rights available to SRI upon the occurrence of
certain events, which could require us to make a substantial
payment to acquire SRIs interest in certain of their joint
venture alliances. |
In 1999, we entered into a global alliance with SRI. Under the
global alliance agreements, we acquired 75%, and SRI owned 25%,
of Goodyear Dunlop Tires Europe B.V., which concurrently with
the transaction acquired substantially all of SRIs tire
businesses in Europe and most of Goodyears tire businesses
in Europe. We also acquired 75%, and SRI acquired 25%, of
Goodyear Dunlop Tires North America, Ltd., a holding company
that purchased SRIs tire manufacturing operations in North
America and certain of its primarily OE-related tire sales and
distribution operations. In addition, we also acquired 25% of
the capital stock of two newly-formed tire companies in Japan,
as well as 51% of the capital stock of a newly-formed technology
company and 80% of the capital stock of a newly-formed global
purchasing company. SRI owns the balance of the capital stock in
each of these companies. Under the Umbrella Agreement between us
and SRI, SRI has the right to require us to purchase from SRI
its ownership interests in the European and North American joint
ventures in September 2009 if certain triggering events have
occurred. In addition, the occurrence of certain other events
enumerated in the Umbrella Agreement, including certain
bankruptcy events or changes in control of Goodyear, could
provide SRI with the right to require us to repurchase these
interests immediately. While we have not done any current
valuation of these businesses, our cost of acquiring an interest
in these businesses in 1999 was approximately $1.2 billion.
Any payment required to be made to SRI pursuant to an exit under
the terms of the global alliance agreements could be
substantial. We cannot assure you that our operating
performance, cash flow and capital resources would be sufficient
to make such a payment or, if we were able to make the payment,
that there would be sufficient funds remaining to satisfy our
other obligations. The withdrawal of SRI from the global
alliance could also have other adverse effects on our business.
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If we are unable to attract and retain key personnel our
business could be materially adversely affected. |
Our business substantially depends on the continued service of
key members of our management. The loss of the services of a
significant number of members of our management could have a
material adverse effect on our business. Our future success will
also depend on our ability to attract and retain highly skilled
personnel, such as engineering, marketing and senior management
professionals. Competition for these employees is intense, and
we could experience difficulty from time to time in hiring and
retaining the
14
personnel necessary to support our business. If we do not
succeed in retaining our current employees and attracting new
high quality employees, our business could be materially
adversely affected.
Risks Relating to the Notes
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The notes are unsecured and rank pari passu with our other
senior debt; the notes are effectively subordinated to our
secured debt and structurally subordinated to all liabilities of
our subsidiaries. |
The notes rank pari passu with other senior debt of Goodyear,
including our trade payables. The notes are not secured by any
of our assets or those of our subsidiaries. As a result, the
notes will be effectively subordinated to any secured debt we
may incur. In any liquidation, dissolution, bankruptcy or other
similar proceeding, holders of our secured debt may assert
rights against any assets securing such debt in order to receive
full payment of their debt before those assets may be used to
pay the holders of the notes. At December 31, 2005, we had
approximately $5.4 billion of total debt (including capital
leases) on a consolidated basis, $3.0 billion of which is
senior secured debt.
Furthermore, our subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to
make payments on the notes or to make any funds available for
that purpose. Holders of notes will not have any claims as a
creditor against our subsidiaries. As a result, the notes will
be structurally subordinated to all liabilities of our
subsidiaries. Therefore, in the event of any bankruptcy,
liquidation or reorganization of any subsidiary, the rights of
the holders of the notes to participate in the assets of such
subsidiary will rank behind the claims of that subsidiarys
creditors, including trade creditors (except to the extent we
have a claim as a creditor of such subsidiary). The ability of
our subsidiaries to pay dividends and make other payments to us
may be restricted by, among other things, applicable corporate
and other laws and regulations as well as agreements to which
our subsidiaries may become a party. At December 31, 2005,
the total subsidiary liabilities, including guarantees of our
indebtedness, was approximately $8.2 billion.
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We expect that the trading value of the notes will be
significantly affected by the price of our common stock and
other factors and our stock price may be volatile and could
decline substantially. |
Because the notes are convertible into shares of our common
stock, the market price of the notes is expected to be
significantly affected by the market price of our common stock.
This may result in greater volatility in the trading value of
the notes than would be expected for nonconvertible debt
securities we issue. From the beginning of 2002 to
December 31, 2005, the reported high and low sales prices
for our common stock ranged from a low of $3.35 per share to a
high of $28.31 per share. The market price of our common stock
will likely continue to fluctuate in response to factors
including those listed elsewhere in this Risk
Factors section, under the caption Forward-looking
Information Safe Harbor Statement and the
following, many of which are beyond our control:
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quarterly fluctuations in our operating and financial results; |
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changes in financial estimates and recommendations by financial
analysts; |
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sales by investors who view notes as more attractive means for
equity participation and hedging or arbitrage activity; |
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fluctuations in the stock price and operating results of our
competitors; |
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our credit rating with major credit rating agencies; |
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the prevailing interest rates being paid by other companies
similar to us; |
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other financing activity in which we may engage; |
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our financial condition, financial performance and future
prospects; |
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the global threat of terrorism; and |
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the overall condition of the financial markets and the economy. |
15
The stock markets in general, including the New York Stock
Exchange, have experienced substantial price and trading
fluctuations. These fluctuations have resulted in volatility in
the market prices of securities that often has been unrelated or
disproportionate to changes in operating performance. These
broad market fluctuations may adversely affect the market prices
of our notes and our common stock.
|
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The make whole premium on notes converted in connection
with, or tendered for purchase upon, a change of control may not
adequately compensate the holder for the lost option time value
of notes. |
If a fundamental change that constitutes a change of control
occurs on or prior to June 15, 2011, holders of notes will
be entitled to a make whole premium in respect of notes
converted in connection with, or (in certain circumstances)
tendered for purchase upon, the change of control. The amount of
the make whole premium will be determined based on the date on
which the change of control becomes effective and the price paid
per share of our common stock in the transaction constituting
the change of control, as described below under
Description of the Notes Determination of Make
Whole Premium.
While the make whole premium is designed to compensate the
holder of notes for the lost option time value of notes as a
result of a change of control, the amount of the make whole
premium is only an approximation of the lost value and may not
adequately compensate the holder for such loss. In addition, if
a change of control occurs after June 15, 2011 or if the
price paid per share in the transaction constituting the change
of control is less than $9.26 (subject to adjustment), no make
whole premium entitlement will arise.
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Conversion of the notes will dilute the ownership
interests of existing stockholders. |
The conversion of some or all of the notes will dilute the
ownership interest of our existing stockholders. Any sales in
the public market of the common stock issuable upon such
conversion could adversely affect prevailing market prices of
our common stock. In addition, the existence of the notes may
encourage short selling in our common stock by market
participants which could depress the price of our common stock.
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|
We may be unable to repay or repurchase the notes. |
At maturity, the entire outstanding principal amount of the
notes will become due and payable by us. In addition, holders of
the notes will have the right to require us to repurchase all or
a portion of their notes on each June 15 of 2011, 2014, 2019,
2024 and 2029 or if a designated event, as defined in the
indenture, occurs. See Description of the
Notes Purchase of Notes by Us at the Option of the
Holders and Designated Event Permits
Holders to Require Us to Purchase Notes. A designated
event would likely constitute an event of default and result in
the acceleration of the maturity of our existing credit
facilities. In addition, the repurchase of the notes upon a
designated event may constitute an event of default under our
then-existing debt instruments. We cannot assure you that we
will have sufficient financial resources, or will be able to
arrange financing, to pay the principal amount at maturity or
the repurchase price in cash with respect to any notes tendered
by holders for repurchase on any of these dates or upon a
designated event. In addition, restrictions in our then-existing
credit facilities or other indebtedness may not allow us to
repay or repurchase the notes. Our failure to repay or
repurchase the notes when required would result in an event of
default with respect to the notes. Any such default, in turn,
may cause a default under the terms of our other debt.
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The notes are not protected by restrictive
covenants. |
The indenture governing the notes does not contain any financial
or operating covenants or restrictions on the payments of
dividends, the incurrence of indebtedness or the issuance or
repurchase of securities by us or any of our subsidiaries. Our
ability to recapitalize, incur additional debt and take a number
of other actions that are not limited by the terms of the notes
could have the effect of diminishing our ability to make
payments on the notes when due. The indenture also contains no
covenants or other provisions to afford protection to holders of
the notes in the event of a fundamental change involving us,
except to the extent described under Description of the
Notes Designated Event Permits Holders to Require Us
to Purchase Notes.
16
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Shares eligible for public sale after this offering could
adversely affect our stock price and in turn the market price of
the notes. |
The future sale of a substantial number of our shares of common
stock in the public market, or the perception that such sales
could occur, could significantly reduce our stock price which,
in turn, could adversely affect the market price of the notes.
It could also make it more difficult for us to raise funds
through equity offerings in the future.
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An active trading market may not develop for the
notes. |
We do not intend to list the notes on any securities exchange.
As a result, we cannot ensure that any market for the notes will
develop or, if one does develop, that it will be maintained. If
an active market for the notes fails to develop or be sustained,
the trading price of the notes could be materially and adversely
affected and could trade at prices that may be lower than the
initial offering price of the notes.
In addition, the liquidity of the trading market for the notes,
if any, and the market price quoted for the notes may be
adversely affected by changes in interest rates in the market
for comparable securities and by changes in our financial
performance or prospects, as well as by declines in the prices
of securities, or the financial performance or prospects of,
similar companies.
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The conditional conversion feature of the notes could
result in you receiving less than the value of the common stock
into which a note is convertible. |
The notes are convertible into shares of our common stock only
if specified conditions are met. If the specific conditions for
conversion are not met, you will not be able to convert your
notes, and you may not be able to receive the value of the
common stock into which the notes would otherwise be convertible.
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|
If you hold notes, you will not be entitled to any rights
with respect to our common stock, but you will be subject to all
changes made with respect to our common stock. |
If you hold notes, you will not be entitled to any rights with
respect to our common stock (including, without limitation,
voting rights and rights to receive any dividends or other
distributions on our common stock), but you will be subject to
all changes affecting the common stock. You will only be
entitled to rights on the common stock if and when we deliver
shares of common stock to you upon conversion or required
repurchase of your notes. For example, in the event that an
amendment is proposed to our Code of Regulations or Articles of
Incorporation requiring stockholder approval and the record date
for determining the stockholders of record entitled to vote on
the amendment occurs prior to your conversion of notes, you will
not be entitled to vote on the amendment, although you will
nevertheless be subject to any changes in the powers,
preferences or special rights of our common stock or other
classes of capital stock.
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The conversion rate of the notes may not be adjusted for
all dilutive events. |
The conversion rate of the notes is subject to adjustment for
certain events, including but not limited to the issuance of
stock dividends on our common stock, the issuance of rights or
warrants, subdivisions, combinations, distributions of capital
stock, indebtedness or assets, certain cash dividends and
certain tender or exchange offers as described under
Description of the Notes Conversion Rate
Adjustments. The conversion rate will not be adjusted for
other events, such as a third party tender or exchange offer or
an issuance of common stock for cash, that may adversely affect
the trading price of the notes or the common stock. There can be
no assurance that an event that adversely affects the value of
the notes, but does not result in an adjustment to the
conversion rate, will not occur.
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Our corporate structure may materially adversely affect
our ability to meet our debt service obligations under the
notes. |
A significant portion of our consolidated assets is held by our
subsidiaries. We have manufacturing and/or sales operations in
most countries in the world, often through subsidiary companies.
Our cash flow and our ability to service our debt, including the
notes, depends on the results of operations of these
subsidiaries and upon the ability of these subsidiaries to make
distributions of cash to us, whether in the form of dividends,
loans or otherwise. In recent years, our foreign subsidiaries
have been a significant source of cash flow for our
17
business. In certain countries where we operate, transfers of
funds into or out of such countries are generally or
periodically subject to various restrictive governmental
regulations and there may be adverse tax consequences to such
transfers. In addition, our debt instruments in certain cases
place limitations on the ability of our subsidiaries to make
distributions of cash to us. While the indenture limits our
ability to enter into agreements that restrict our ability to
receive dividends and other distributions from our subsidiaries,
these limitations are subject to a number of significant
exceptions, and we are generally permitted to enter into such
instruments in connection with financing our foreign
subsidiaries.
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We may issue preferred stock whose terms could adversely
affect the voting power or value of our common stock. |
Our Articles of Incorporation and Code of Regulations authorize
us to issue, without the approval of our stockholders, one or
more classes or series of preferred stock having such
preferences, powers and relative, participating, optional and
other rights, including preferences over our common stock
respecting dividends and distributions, as our board of
directors may determine. The terms of one or more classes or
series of preferred stock could adversely impact the voting
power or value of our common stock which the notes are
convertible into thereby adversely affecting the value of the
notes. For example, we might afford holders of preferred stock
the right to elect some number of our directors in all events or
on the happening of specified events or the right to veto
specified transactions. Similarly, the repurchase or redemption
rights or liquidation preferences we might assign to holders of
preferred stock could affect the residual value of our common
stock which the notes are convertible into, thereby adversely
affecting the value of the notes.
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Provisions of Ohio law and provisions in our Articles of
Incorporation and Code of Regulations could delay or prevent a
change in control of us, even if that change would be beneficial
to our stockholders. |
We are incorporated under the laws of the State of Ohio. Ohio
law imposes some restrictions on mergers and other business
combinations between us and holders of 10% or more of our
outstanding common stock. In addition, provisions in our
Articles of Incorporation and Code of Regulations may have the
effect, either alone or in combination with each other, of
making more difficult or discouraging a business combination or
an attempt to obtain control of Goodyear that is not approved by
our board of directors, even if such combination would be
beneficial to our stockholders. Since the notes are convertible
into our common stock this could adversely affect the value of
the notes.
18
Use of Proceeds
The selling holders will receive all of the net proceeds of the
resale of the notes and our common stock issuable upon
conversion of the notes. We will not receive any of the proceeds
from the resale of any of these securities.
Consolidated Ratio of Earnings to Fixed Charges
The following table sets forth our consolidated ratio of
earnings to fixed charges for each of the last five years.
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Year Ended December 31, |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
2.05 |
|
|
|
1.72 |
|
|
|
|
(1) |
|
|
1.16 |
|
|
|
|
(2) |
|
|
(1) |
Earnings for the year ended December 31, 2003 were
inadequate to cover fixed charges. The coverage deficiency was
$641.7 million. |
|
(2) |
Earnings for the year ended December 31, 2001 were
inadequate to cover fixed charges. The coverage deficiency was
$271.2 million. |
For purposes of calculating our ratio of earnings to fixed
charges:
Earnings consist of income (loss) before income taxes plus
(i) amortization of previously capitalized interest,
(ii) minority interest in net income of consolidated
subsidiaries with fixed charges, (iii) proportionate share
of fixed charges of investees accounted for by the equity
method, and (iv) proportionate share of net loss of
investees accounted for by the equity method, less
(i) capitalized interest, (ii) minority interest in
net loss of consolidated subsidiaries, and
(iii) undistributed proportionate share of net income of
investees accounted for by the equity method.
Fixed charges consist of (i) interest, whether expensed or
capitalized, (ii) amortization of debt discount, premium or
expense, (iii) the interest portion of rental expense, and
(iv) proportionate share of fixed charges of investees
accounted for by the equity method.
Selected Financial Data
|
|
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|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
(In millions, except per share amounts) |
|
| |
|
| |
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
19,723 |
|
|
$ |
18,353 |
|
|
$ |
15,102 |
|
|
$ |
13,828 |
|
|
$ |
14,140 |
|
Income (Loss) before Cumulative Effect of Accounting Change
|
|
$ |
239 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
|
$ |
(1,247 |
) |
|
$ |
(255 |
) |
Cumulative Effect of Accounting Change
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
|
$ |
(1,247 |
) |
|
$ |
(255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting Change
|
|
$ |
1.36 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
|
$ |
(7.47 |
) |
|
$ |
(1.59 |
) |
|
Cumulative Effect of Accounting Change
|
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic
|
|
$ |
1.30 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
|
$ |
(7.47 |
) |
|
$ |
(1.59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
(In millions, except per share amounts) |
|
| |
|
| |
|
| |
|
| |
|
| |
Net Income (Loss) Per Share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting Change
|
|
$ |
1.21 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
|
$ |
(7.47 |
) |
|
$ |
(1.59 |
) |
|
Cumulative Effect of Accounting Change
|
|
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Diluted
|
|
$ |
1.16 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
|
$ |
(7.47 |
) |
|
$ |
(1.59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Per Share
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.48 |
|
|
$ |
1.02 |
|
Total Assets
|
|
|
15,627 |
|
|
|
16,101 |
|
|
|
14,285 |
|
|
|
12,461 |
|
|
|
13,565 |
|
Long Term Debt and Capital Leases due Within One Year
|
|
|
448 |
|
|
|
1,010 |
|
|
|
114 |
|
|
|
370 |
|
|
|
110 |
|
Long Term Debt and Capital Leases
|
|
|
4,742 |
|
|
|
4,443 |
|
|
|
4,826 |
|
|
|
2,990 |
|
|
|
3,203 |
|
Shareholders Equity (Deficit)
|
|
|
73 |
|
|
|
74 |
|
|
|
(33 |
) |
|
|
221 |
|
|
|
2,597 |
|
|
|
(1) |
Refer to Principles of Consolidation in the Note to
the Consolidated Financial Statements No. 1, Accounting
Policies, included herein. |
|
(2) |
Net Income in 2005 included net after-tax charges of
$68 million, or $0.33 per share-diluted, due to
reductions in production resulting from the impact of
hurricanes, fire loss recovery, favorable settlements with
certain chemical suppliers, rationalizations, receipt of
insurance proceeds for an environmental insurance settlement,
general and product liability discontinued products,
asset sales, write-off of debt fees, the cumulative effect of
adopting FIN 47, and the impact of certain tax adjustments. |
|
(3) |
Net sales in 2004 increased $1 billion resulting from the
consolidation of two businesses in accordance with FASB
Interpretation No. 46R (revised December 2003)
Consolidation of Variable Interest Entities (FIN
46R). Net Income in 2004 included net after-tax charges of
$154 million, or $0.80 per share-diluted, for
rationalizations and related accelerated depreciation, general
and product liability-discontinued products, insurance fire loss
deductibles, external professional fees associated with an
accounting investigation, and asset sales. Net income in 2004
also included net after-tax benefits of $239 million, or
$1.24 per share-diluted, from an environmental insurance
settlement, net favorable tax adjustments and a favorable
lawsuit settlement. |
|
(4) |
Net Loss in 2003 included net after-tax charges of
$516 million, or $2.93 per share-diluted, for
rationalizations, general and product liability-discontinued
products, accelerated depreciation and asset write-offs, net
favorable tax adjustments, and an unfavorable settlement of a
lawsuit. In addition, we recorded account reconciliation
adjustments related to Engineered Products in the restatements
totaling $19 million or $0.11 per share in 2003. |
|
(5) |
Net Loss in 2002 included net after-tax charges of
$24 million, or $0.14 per share-diluted, for general
and product liability discontinued products, asset
sales, rationalizations, and the write-off of a miscellaneous
investment. Net loss in 2002 also included a non-cash charge of
$1.2 billion, or $7.31 per share-diluted, to establish
a valuation allowance against net federal and state deferred tax
assets. |
|
(6) |
Net Loss in 2001 included net after-tax charges of
$187 million, or $1.18 per share-diluted, for
rationalizations, asset sales, general and product
liability discontinued products, rationalization
costs at an equity affiliate and costs related to a tire
replacement program. |
20
Managements Discussion and Analysis of Financial
Condition and Results of Operations
(All per share amounts are diluted)
Overview
The Goodyear Tire & Rubber Company is one of the
worlds leading manufacturers of tires and rubber products
with one of the most recognizable brand names in the world. We
have a broad global footprint with 102 manufacturing facilities
in 29 countries. We operate our business through six operating
segments: North American Tire; European Union Tire; Eastern
Europe, Middle East and Africa Tire (Eastern Europe
Tire); Latin American Tire; Asia Pacific Tire; and
Engineered Products.
Since 2003 we have been implementing a turnaround strategy aimed
at cost reductions, productivity improvements, capital structure
improvements and new product developments. Throughout 2005 we
continued to make progress on this strategy. In 2005 we recorded
net income of $228 million compared to net income of
$115 million in the comparable period of 2004. In addition,
in 2005 our total segment operating income increased to nearly
$1.2 billion from $946 million in 2004, reflecting an
increase in segment operating income in all five of our tire
segments. Total segment operating margin also improved to 5.9%
in 2005 from 5.2% in 2004. See Results of
Operations Segment Information for additional
information. Although segment operating margin in North American
Tire also improved in 2005 to 1.8% from 0.9% in 2004, segment
operating margin for North American Tire continues to lag behind
that of our other tire segments. The improvement was driven by
our strategy to focus on the higher value replacement market and
being more selective in the OE market, strong performance of
high performance and premium branded tires, our ability to
recover higher raw material costs through pricing actions and
the results of our cost reduction programs. To extend and
enhance our turnaround strategy, in September 2005 we announced
additional cost reduction initiatives we plan to implement over
the next several years. The initiatives include reducing our
high-cost manufacturing capacity by between 8 percent and
12 percent resulting in anticipated annual savings of
between $100 million and $150 million. In connection
with the reduction in manufacturing capacity, we anticipate
incurring cash restructuring charges of approximately
$150 million to $250 million over the next three years.
In 2005, we continued our transformation to a market-driven,
consumer-focused company with the introduction in North America
of the Fortera featuring TripleTred Technology, a premium SUV
tire incorporating the same technology we introduced with the
successful launch of our Assurance line of tires in 2004. In
Europe, we introduced two new high performance winter tires, the
Goodyear Ultra Grip 7 and Dunlop SP Winter Sport 3D, both of
which have received highly favorable consumer reviews.
We also continued to make progress on our capital structure
improvement plan in 2005 with the completion of three asset
dispositions: (i) the sale of our Indonesian natural rubber
plantation at a sale price of approximately $70 million,
(ii) the sale of our Wingtack adhesive resin business in
which we received approximately $55 million in cash and
retained about $10 million in working capital, and
(iii) the sale of the assets of our North American farm
tire business to Titan International for approximately
$100 million. We also announced that we are exploring the
possible sale of our Engineered Products business. We also
successfully lengthened a significant portion of our debt
maturities with the refinancing of our primary credit facilities
in April 2005. While these and other activities have improved
our liquidity position, we continue to review potential
divestitures of other non-core assets and other financing
options, including the issuance of additional equity.
As a result of our focus on the higher margin replacement
products, in 2005 we estimate that we had a slight increase in
share of sales of replacement tires compared to 2004. In the OE
market we estimate that our share of sales increased primarily
as a result of gains in our international markets. In 2006, we
estimate that industry volume for OE and replacement tires in
the European Union will be flat. In North America, we estimate
volume growth of about 5% for commercial OE tires and a slight
decrease in volume for consumer OE tires. We also anticipate
approximately 2% of growth in industry volume in both consumer
and commercial replacement tires.
21
While our operating results continued to improve in 2005, we
continue to face several challenges, including rising raw
material costs (for the full year 2005 raw material costs
increased approximately 11% compared to 2004), currency
fluctuations, increasing competition from low-cost
manufacturers, a high level of debt and significant pension
funding requirements, including domestic pension funding
obligations in 2006 of as much as $750 million. Subject to
the outcome of pending legislation, our domestic pension
obligations are expected to peak in 2006. However, we anticipate
being subject to significant required pension funding
obligations in 2007 and beyond. Our ability to successfully
implement our turnaround strategy will depend, in large part, on
our ability to address and manage these challenges. In the
fourth quarter of 2005, our segment operating income declined
slightly compared to the prior year. This reduction was
primarily due to the impact of the hurricanes, higher than
expected raw material costs and production adjustments to reduce
tire inventories, particularly in Europe and Latin America.
In the fall of 2005, we implemented temporary reductions in
production at our North American Tire facilities due to
disruptions in the supply of certain raw materials resulting
from the impact of Hurricanes Katrina and Rita. The hurricanes
had an adverse impact of approximately $31 million on our
results of operations in 2005 ($21 million of which related
to the fourth quarter) primarily reflecting the unabsorbed fixed
costs related to the temporary closures of our chemical plants
on the Texas Gulf Coast and production cuts at our North
American Tire plants as well as the impairment of certain
assets, and loss of inventories.
Out-of-period
adjustments totaled $8 million in after-tax income in the
fourth quarter of 2005 and primarily related to income taxes. Of
this amount, $3 million relates to prior quarters of 2005.
For the year ended December 31, 2005 we recorded
approximately $3 million in net after-tax expense relating
to prior periods.
We remain subject to a Securities and Exchange Commission
(SEC) investigation into the facts and circumstances
surrounding the restatement of our historical financial
statements. In connection with this investigation, we received a
Wells Notice from the staff of the SEC in August
2005. The Wells Notice is described more fully under the heading
Legal Proceedings in this Prospectus. Also as
described in Item 9A of the
Form 10-K for the
year ended December 31, 2005, we remediated two material
weaknesses in our internal control over financial reporting and
have determined that our internal control over financial
reporting was effective as of December 31, 2005.
Beginning in 2006 we will be working with the United
Steelworkers of America (USW) to extend or
renegotiate the master collective bargaining agreement that
covers approximately 13,600 employees in the United States and
expires in July 2006. The outcome of these collective bargaining
negotiations cannot presently be determined. If we are unable to
reach an agreement with the USW regarding the terms of a
collective bargaining agreement, we may be subject to work
interruptions or stoppages that could have a material adverse
impact on our consolidated results of operations, financial
positions and liquidity.
Our results of operations, financial position and liquidity
could be adversely affected in future periods by loss of market
share or lower demand in the replacement market or the OE
industry, which would result in lower levels of plant
utilization and an increase in unit costs. Also, we could
experience higher raw material and energy costs in future
periods. These costs, if incurred, may not be recoverable due to
pricing pressures present in todays highly competitive
market and we may not be able to continue improving our product
mix. Our future results of operations are also dependent on our
ability to (i) successfully implement cost reduction
programs to address, among other things, higher wage and benefit
costs, and (ii) where necessary, reduce excess
manufacturing capacity. We are unable to predict future currency
fluctuations. Sales and earnings in future periods would be
unfavorably impacted if the U.S. dollar strengthens against
various foreign currencies, or if economic conditions
deteriorate in the economies in which we operate. Continued
volatile economic conditions or changes in government policies
in emerging markets could adversely affect sales and earnings in
future periods. We may also be impacted by economic disruptions
associated with global events including natural disasters, war,
acts of terror and civil obstructions. For additional factors
that may impact our business and results of operations please
see the information set forth under the heading Risk
Factors in this prospectus.
22
Results of Operations Consolidated
|
|
|
(All per share amounts are diluted) |
2005 Compared to 2004
Net Sales
Net sales in 2005 were $19.7 billion, increasing
$1.4 billion or 7% compared to 2004. Net income of
$228 million, or $1.16 per share, was recorded in 2005
compared to net income of $115 million, or $0.63 per
share in 2004.
Net sales in 2005 for our tire segments were impacted favorably
by price and product mix by approximately $737 million,
primarily related to price increases to offset higher raw
material costs, higher volume of approximately $186 million
and foreign currency translation of approximately
$175 million. Sales also increased approximately
$158 million due to improvements in the Engineered Products
Division, primarily related to improved price and product mix of
$65 million, increased volume of $59 million and
foreign currency translation of $35 million.
The following table presents our tire unit sales for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
% Change | |
(In millions of tires) |
|
| |
|
| |
|
| |
Replacement Units
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire (U.S. and Canada)
|
|
|
71.2 |
|
|
|
70.8 |
|
|
|
0.5 |
% |
International
|
|
|
90.8 |
|
|
|
88.8 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
162.0 |
|
|
|
159.6 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
OE Units
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire (U.S. and Canada)
|
|
|
30.7 |
|
|
|
31.7 |
|
|
|
(3.3 |
)% |
International
|
|
|
33.7 |
|
|
|
32.0 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
64.4 |
|
|
|
63.7 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
Goodyear worldwide tire units
|
|
|
226.4 |
|
|
|
223.3 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
Worldwide replacement unit sales in 2005 increased from 2004 due
primarily to improvements in European Union Tire. OE unit sales
in 2005 increased from 2004 due primarily to improvements in
Asia Pacific Tire, Latin American Tire and Eastern Europe Tire.
Cost of Goods Sold
Cost of goods sold (CGS) was $15.8 billion in 2005, an
increase of $1.1 billion, or 7% compared to the 2004
period. CGS decreased to 80.0% of sales in 2005 compared to
80.1% in 2004. CGS for our tire segments in 2005 increased due
to higher raw material costs of approximately $526 million,
higher volume of approximately $146 million, product
mix-related manufacturing cost increases of approximately
$141 million and foreign currency translation of
approximately $71 million. Partially offsetting these
increases were decreased costs of $37 million from
rationalization activities and $42 million of lower other
post-employment benefit costs (OPEB). Also included in these
costs were $21 million of hurricane related expenses. CGS
also increased by $168 million in the Engineered Products
Division primarily related to higher conversion costs of
$33 million, increased raw material costs of
$30 million, increased foreign currency translation of
$28 million, higher volume of $26 million and
$21 million of mix.
Research and development expenditures are expensed in CGS as
incurred and were $365 million in 2005, compared to
$364 million in 2004. Research and development expenditures
in 2006 are expected to be approximately $360 million to
$370 million.
23
Selling, Administrative and General Expense
Selling, administrative and general expense (SAG) was
$2.9 billion in 2005, an increase of $42 million or 1%
compared to 2004. SAG in 2005 was 14.6% of sales, compared to
15.4% in 2004. The increase in our tire segments was driven
primarily by wage and benefits expenses that increased by nearly
$46 million, which included an OPEB savings of
$11 million, when compared to 2004. Foreign currency
translation, primarily in Latin American Tire, increased SAG in
2005 by approximately $14 million. In addition, SAG
increased by $16 million due to our acquisition and
consolidation of the remaining 50% interest of a Swedish retail
subsidiary during the third quarter of 2004. $10 million of
costs related to hurricanes also impacted SAG in 2005. SAG in
2005 included expenses for professional fees associated with the
restatement and SEC investigation as well as costs for
Sarbanes-Oxley compliance. These costs decreased
$26 million and $11 million, respectively from 2004
levels. In addition, rationalization activities decreased SAG by
$8 million.
Interest Expense
Interest expense increased by $42 million in 2005 from
$369 million in 2004, primarily as a result of higher
average interest rates, debt levels and interest penalties. We
expect interest expense to increase in 2006 primarily due to
higher interest rates.
Other (Income) and Expense
Other (income) and expense was $70 million of expense in
2005, an increase of $47 million compared to
$23 million of expense in 2004. Income from settlements
with certain insurance companies related to environmental
insurance coverage decreased $128 million in 2005 from
2004. General and product liability-discontinued product expense
decreased $44 million from 2004 primarily due to
$32 million of insurance settlements received in 2005. 2005
also included greater net losses on asset sales of
$32 million, primarily due to the $73 million loss on
the sale of the Farm Tire business in North American Tire. These
factors were partially offset by insurance recoveries in 2005
related to fire losses experienced in 2004 at company facilities
in Germany, France and Thailand, which reduced expenses by
$26 million from 2004. Interest income increased
$25 million in 2005 due to higher average cash balances and
higher interest rates, and income from equity in earnings of
affiliates increased by $3 million in 2005. Expense from
financing fees and financial instruments decreased
$8 million compared to 2004.
For further information, refer to the Note to the Consolidated
Financial Statements No. 3, Other (Income) and Expense,
included herein.
Income Taxes
For 2005, we recorded tax expense of $250 million on income
before income taxes and cumulative effect of accounting change
and minority interest in net income of subsidiaries of
$584 million. For 2004, we recorded tax expense of
$208 million on income before income taxes and minority
interest in net income of subsidiaries of $381 million.
The difference between our effective tax rate and the
U.S. statutory rate was due primarily to our continuing to
maintain a full valuation allowance against our net Federal and
state deferred tax assets.
Income tax expense in 2005 and 2004 includes net favorable tax
adjustments totaling $27 million and $60 million,
respectively. These adjustments related primarily to the release
of certain foreign valuation allowances for 2005 and primarily
for the settlement of prior years tax liabilities in 2004.
The American Job Creation Act of 2004 (the Act) was signed into
law in October 2004 and replaces an export incentive with a
deduction from domestic manufacturing income. As we are both an
exporter and a domestic manufacturer and in a U.S. tax loss
position, this change did not have a material impact on our
income tax provision for 2005. It also provided for a special
one-time tax deduction of 85% of certain foreign earnings that
were repatriated no later than 2005. We evaluated the effects of
this provision in light of our 2005 U.S. loss position and
determined not to repatriate under the provisions of the Act as
it would not provide a tax benefit to us.
24
The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We
recognize liabilities for anticipated tax audit issues based on
our estimate of whether, and the extent to which, additional
taxes will be due. If we ultimately determine that payment of
these amounts is unnecessary, we reverse the liability and
recognize a tax benefit during the period in which we determine
that the liability is no longer necessary. We also recognize tax
benefits to the extent that it is probable that our positions
will be sustained when challenged by the taxing authorities. As
of December 31, 2005, we had not recognized tax benefits of
approximately $157 million ($118 million net of
minority interest in net income of subsidiaries) relating to the
reorganization of certain legal entities in 2001, which is the
subject of a tax examination that could be settled in 2006.
Pursuant to the reorganization, our tax payments have been
reduced by approximately $67 million through
December 31, 2005. Should the ultimate outcome be
unfavorable, we would be required to make a cash payment, with
interest, for all tax benefits claimed as of that date.
For further information, refer to the Note to the Consolidated
Financial Statements No. 13, Income Taxes, included herein.
Rationalization Activity
To maintain global competitiveness, we have implemented
rationalization actions over the past several years for the
purpose of reducing excess capacity, eliminating redundancies
and reducing costs. We recorded net rationalization costs of
$11 million in 2005 and $56 million in 2004.
Rationalization charges in 2005 consisted of manufacturing
associate reductions, retail store reductions, IT associate
reductions, and a sales function reorganization in European
Union Tire; manufacturing and administrative associate
reductions in Eastern Europe Tire; sales, marketing, and
research and development associate reductions in Engineered
Products; and manufacturing and corporate support group
associate reductions in North American Tire.
For 2005, $11 million of net charges were recorded, which
included $29 million of new rationalization charges. The
charges were partially offset by $18 million of reversals
of rationalization charges no longer needed for their
originally-intended purposes. The $18 million of reversals
consisted of $11 million of associate-related costs for
plans initiated in 2004 and 2003, and $7 million primarily
for non-cancelable leases that were exited during the first
quarter related to plans initiated in 2001 and earlier. The
$29 million of new charges primarily represented
associate-related costs and consist of $26 million for
plans initiated in 2005 and $3 million for plans initiated
in 2004 and 2003. Approximately 900 associates will be released
under the programs initiated in 2005, of which approximately 425
were released by December 31, 2005.
In 2005, $35 million was incurred primarily for associate
severance payments, $1 million for cash pension settlement
benefit costs, $1 million for non-cash pension and
postretirement special termination benefit costs, and
$8 million was incurred primarily for non-cancelable lease
costs.
The accrual balance of $34 million at December 31,
2005 includes approximately $10 million related to
long-term non-cancelable lease costs and approximately
$24 million of employee severance and other costs that are
expected to be substantially utilized within the next twelve
months.
2004 rationalization activities consisted primarily of
warehouse, manufacturing and sales and marketing associate
reductions in Engineered Products, a farm tire manufacturing
consolidation in European Union Tire, administrative associate
reductions in North American Tire, European Union Tire and
corporate functional groups, and manufacturing sales and
research and development associate reductions in North American
Tire. In fiscal year 2004, net charges were recorded totaling
$56 million. The net charges included reversals of
$39 million related to reserves from rationalization
actions no longer needed for their originally-intended purpose,
and new charges of $95 million. Included in the
$95 million of new charges was $77 million for plans
initiated in 2004. Approximately 1,165 associates will be
released under programs initiated in 2004, of which
25
approximately 1,085 have been released to date (445 in 2005 and
640 in 2004). The costs of the 2004 actions consisted of
$40 million related to future cash outflows, primarily for
associate severance costs, including $32 million in
non-cash pension curtailments and postretirement benefit costs
and $5 million of non-cancelable lease costs and other exit
costs. Costs in 2004 also included $16 million related to
plans initiated in 2003, consisting of $14 million for
non-cancelable lease costs and other exit costs and
$2 million of associate severance costs. The reversals are
primarily the result of lower than initially estimated associate
severance costs of $35 million and lower leasehold and
other exit costs of $4 million. Of the $35 million of
associate severance cost reversals, $12 million related to
previously-approved plans in Engineered Products that were
reorganized into the 2004 warehouse, manufacturing, and sales
and marketing associate reductions.
In 2006, we estimate savings of approximately $39 million
(approximately $25 million in CGS and approximately
$14 million in SAG) for plans initiated in 2005. The
savings realized in 2005 for the 2005 plans totaled
approximately $4 million. We estimate that CGS and SAG were
reduced in 2005 by approximately $19 million and
$26 million, respectively, as a result of the
implementation of the 2004 plans. 2005 savings related to 2004
rationalization activities did not achieve expected levels
primarily due to plan changes and implementation delays.
For further information, refer to the Note to the Consolidated
Financial Statements No. 2, Costs Associated with
Rationalization Programs, included herein.
Cumulative Effect of Accounting Change
We adopted FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47) an
interpretation of FASB Statement No. 143, Accounting
for Asset Retirement Obligations (SFAS 143) on
December 31, 2005. FIN 47 requires that the fair value
of a liability for an asset retirement obligation (ARO) be
recognized in the period in which it is incurred and the
settlement date is estimable, and is capitalized as part of the
carrying amount of the related tangible long-lived asset. Our
AROs are primarily associated with the cost of removal and
disposal of asbestos.
Upon adoption of FIN 47, on December 31, 2005, we
recognized a non-cash cumulative effect charge of approximately
$11 million, net of taxes and minority interest of
$3 million.
2004 compared to 2003
Net Sales
Net sales in 2004 were $18.4 billion, an increase of
$3.3 billion compared to 2003. Net income of
$115 million, or $0.63 per share, was recorded in
2004. A net loss of $807 million, or $4.61 per share,
was recorded in 2003. The 2004 net sales increase was
primarily related to the consolidation of two affiliates deemed
to be variable interest entities, SPT and Tire & Wheels
Assemblies (T&WA), in January 2004. The consolidation of
these businesses increased net sales in 2004 by approximately
$1.2 billion. Additionally, in our tire segments improved
price and product mix improvements, primarily in North American
Tire, increased 2004 net sales by approximately
$762 million. Higher unit volume in North American Tire,
Latin American Tire, Eastern Europe Tire and European Union Tire
had a favorable impact on 2004 net sales of approximately
$412 million. Currency translation, mainly in Europe,
favorably affected 2004 net sales by approximately
$507 million. Sales also increased approximately
$267 million due to improvements in the Engineered Products
Division, primarily related to improved volume of
$194 million, price and product mix of $37 million and
currency translation of approximately $35 million.
26
The following table presents our tire unit sales for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
% Change | |
(In millions of tires) |
|
| |
|
| |
|
| |
Replacement Units
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire (U.S. and Canada)
|
|
|
70.8 |
|
|
|
68.6 |
|
|
|
3.2 |
% |
International
|
|
|
88.8 |
|
|
|
82.0 |
|
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
159.6 |
|
|
|
150.6 |
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
OE Units
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire (U.S. and Canada)
|
|
|
31.7 |
|
|
|
32.6 |
|
|
|
(2.6 |
)% |
International
|
|
|
32.0 |
|
|
|
30.3 |
|
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
63.7 |
|
|
|
62.9 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
Goodyear worldwide tire units
|
|
|
223.3 |
|
|
|
213.5 |
|
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
Worldwide replacement unit sales in 2004 increased from 2003,
due primarily to the consolidation of SPT and improvement in
North American Tire, Latin American Tire and Eastern Europe
Tire. OE unit sales in 2004 increased from 2003 due primarily to
the consolidation of SPT and improvement in Eastern Europe Tire,
Latin American Tire and European Union Tire.
Cost of Goods Sold
Cost of goods sold (CGS) was $14.7 billion in 2004, an
increase of $2.2 billion compared to 2003. CGS was 80.1% of
sales in 2004, compared to 82.7% in 2003. CGS in 2004 increased
by approximately $1.0 billion due to the previously
mentioned consolidation of SPT and T&WA in accordance with
FIN 46R. CGS for our tire segments in 2004 increased by
approximately $310 million in 2004 due to higher volume and
approximately $382 million due to currency translation,
primarily in Europe. Manufacturing costs related to changes in
product mix increased 2004 CGS by approximately
$175 million. In addition, 2004 raw material costs
increased by approximately $268 million, although
conversion costs were flat. Savings from rationalization
programs totaling approximately $107 million favorably
affected CGS in 2004. CGS in 2004 also includes a fourth quarter
benefit of approximately $23 million resulting from a
settlement with certain suppliers of various raw materials. CGS
also increased $183 million in the Engineered Products
Division primarily related to higher volume of $119 million
and translation of $27 million.
Research and development expenditures were $364 million in
2004, compared to $339 million in 2003.
Selling, Administrative and General Expense
Selling, administrative and general expense (SAG) was
$2.8 billion in 2004, an increase of $0.5 billion
compared to 2003. SAG in 2004 was 15.4% of sales, compared to
15.7% in 2003. SAG increased by approximately $200 million
in 2004 due to the previously mentioned consolidation of SPT and
T&WA in accordance with FIN 46R. SAG in 2004 included
expenses of approximately $30 million for professional fees
associated with the restatement and SEC investigation, and
approximately $25 million for Sarbanes-Oxley compliance.
Currency translation, in our tire segments, primarily in Europe,
increased SAG in 2004 by approximately $98 million.
Advertising expenses were approximately $46 million higher
due in part to the launch of the Assurance tire in North
America, and wage and benefit costs rose by approximately
$46 million. SAG in 2004 benefited from approximately
$28 million in savings from rationalization programs.
Interest Expense
Interest expense in 2004 was $369 million, an increase of
$73 million compared to $296 million in 2003. Interest
expense increased in 2004 from 2003 due to higher average debt
levels, higher average interest rates and the April 1, 2003
restructuring and refinancing of our credit facilities.
27
Other (Income) and Expense
Other (income) and expense was $23 million of expense in
2004, a decrease of $294 million compared to
$317 million of expense in 2003. The decrease in expense
was primarily due to settlements with certain insurance
companies related to environmental insurance coverage which
provided additional income of $157 million in 2004. General
and product liability-discontinued product net expense in 2004
related to Entran II decreased $138 million and net
expense from asbestos claims increased by $53 million.
Expense from insurance fire deductible in 2004 was
$12 million related to fires in 2004 at company facilities
in Germany, France and Thailand. Net loss on asset sales
decreased $21 million in 2004, primarily related to a loss
of $18 million on the sale of 20,833,000 shares of
common stock of Sumitomo Rubber Industries, Ltd. in 2003. Equity
in earnings of affiliates increased $23 million in 2004,
primarily due to improved results at Rubbernetwork.com and the
consolidation of SPT. Our share of losses at SPT was included in
2003 in Equity in earnings of affiliates.
Income Taxes
For 2004, we recorded tax expense of $208 million on income
before income taxes and minority interest in net income of
subsidiaries of $381 million. For 2003, we recorded tax
expense of $117 million on a loss before income taxes and
minority interest in net income of subsidiaries of
$657 million.
The difference between our effective tax rate and the
U.S. statutory rate was due primarily to our continuing to
maintain a full valuation allowance against our net
U.S. Federal and state deferred tax assets.
Income tax expense in 2004 includes net favorable tax
adjustments totaling $60 million. These adjustments related
primarily to the settlement of prior years tax liabilities.
Rationalization Activity
To maintain global competitiveness, we have implemented
rationalization actions over the past several years for the
purpose of reducing excess capacity, eliminating redundancies
and reducing costs. We recorded net rationalization costs of
$56 million in 2004 and $291 million in 2003.
2004 rationalization activities consisted primarily of
warehouse, manufacturing and sales and marketing associate
reductions in Engineered Products, a farm tire manufacturing
consolidation in European Union Tire, administrative associate
reductions in North American Tire, European Union Tire and
corporate functional groups, and manufacturing, sales and
research and development associate reductions in North American
Tire. In fiscal year 2004, net charges were recorded totaling
$56 million. The net charges included reversals of
$39 million related to reserves from rationalization
actions no longer needed for their originally-intended purpose,
and new charges of $95 million. Included in the
$95 million of new charges were $77 million for plans
initiated in 2004. Approximately 1,165 associates will be
released under programs initiated in 2004, of which
approximately 1,085 associates have been released to date (445
in 2005 and 640 in 2004). The costs of the 2004 actions
consisted of $40 million related to future cash outflows,
primarily for associate severance costs, including
$32 million in non-cash pension curtailments and
postretirement benefit costs and $5 million of
non-cancelable lease costs and other exit costs. Costs in 2004
also included $16 million related to plans initiated in
2003, consisting of $14 million for non-cancelable lease
costs and other exit costs and $2 million of associate
severance costs. The reversals are primarily the result of lower
than initially estimated associate severance costs of
$35 million and lower leasehold and other exit costs of
$4 million. Of the $35 million of associate severance
cost reversals, $12 million related to previously-approved
plans in Engineered Products that were reorganized into the 2004
warehouse, manufacturing, and sales and marketing associate
reductions.
In 2003, net charges were recorded totaling $291 million.
The net charges included reversals of $16 million related
to reserves from rationalization actions no longer needed for
their originally intended
28
purpose, and new charges of $307 million. The 2003
rationalization actions consisted of manufacturing, research and
development, administrative and retail consolidations in North
America, Europe and Latin America. Of the $307 million of
new charges, $175 million related to future cash outflows,
primarily associate severance costs, and $132 million
related primarily to non-cash special termination benefits and
pension and retiree benefit curtailments. Approximately 4,300
associates have been released under the programs initiated in
2003, of which approximately 100 were exited in 2005,
approximately 1,500 were exited during 2004 and approximately
2,700 were exited in 2003. The reversals are primarily the
result of lower than initially estimated associate-related
payments of approximately $12 million, favorable sublease
contract signings in the European Union of approximately
$3 million and lower contract termination costs in the
United States of approximately $1 million.
As part of the 2003 rationalization program, we closed our
Huntsville, Alabama tire facility in the fourth quarter of 2003.
Of the $307 million of new rationalization charges in 2003,
approximately $138 million related to the Huntsville
closure and were primarily for associate-related costs,
including severance, special termination benefits and pension
and retiree benefit curtailments. The Huntsville closure also
resulted in charges to CGS of approximately $35 million for
asset impairments and $85 million for accelerated
depreciation and the write-off of spare parts. In addition, 2003
CGS included charges totaling approximately $8 million to
write-off construction in progress related to the research and
development rationalization plan, and approximately
$5 million for accelerated depreciation on equipment taken
out of service at European Union Tires facility in
Wolverhampton, England.
Recently Issued Accounting Pronouncements
The FASB has issued Statement of Financial Accounting Standards
No. 151, Inventory Costs an amendment of
ARB No. 43, Chapter 4 (SFAS 151). The
provisions of SFAS 151 are intended to eliminate narrow
differences between the existing accounting standards of the
FASB and the International Accounting Standards Board
(IASB) related to inventory costs, in particular, the
treatment of abnormal idle facility expense, freight, handling
costs and spoilage. SFAS 151 requires that these costs be
recognized as current period charges regardless of the extent to
which they are considered abnormal. The provisions of
SFAS 151 are effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We early
adopted SFAS 151 in 2005. The adoption of SFAS 151 did
not have a significant impact on our results of operations or
financial position.
The FASB has issued Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment
(SFAS 123R) which replaced SFAS 123 and superseded
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25). Under the provisions of SFAS 123R, companies
are required to measure the cost of employee services received
in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exception).
That cost will be recognized over the period during which an
employee is required to provide service in exchange for the
award, usually the vesting period. On April 14, 2005, the
SEC approved a delay to the effective date of SFAS 123R.
Under the new SEC rule, SFAS 123R is effective for annual
periods that begin after June 15, 2005. SFAS 123R
applies to all awards granted, modified, repurchased or
cancelled by us after December 31, 2005 and to unvested
awards at the date of adoption. We will adopt SFAS 123R in
the first quarter of 2006. In 2006, we will recognize
approximately $15 million in expense for stock options,
which were previously not expensed under APB 25.
The FASB issued FSP FAS 123R-2, Practical
Accommodation to the Application of Grant Date as Defined in
FAS 123R (FSP 123R-2) in October 2005. FSP 123R-2
provides guidance on the application of grant date as defined in
SFAS No. 123R. In accordance with this standard, a
grant date of an award exists if a) the award is a
unilateral grant and b) the key terms and conditions of the
award are expected to be communicated to an individual recipient
within a relatively short time period from the date of approval.
We will adopt this standard when we adopt SFAS 123R, and it
is not expected to have a material impact on our consolidated
financial position, results of operations or cash flows.
29
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
(SFAS 154). SFAS 154 is a replacement of Accounting
Principles Board No. 20, Accounting Changes and
FASB Statement No. 3 Reporting Accounting Changes in
Interim Financial Statements. SFAS 154 provides
guidance on the accounting for and reporting of accounting
changes and error corrections. It establishes retrospective
application as the required method for reporting a change in
accounting principle. SFAS 154 provides guidance for
determining whether retrospective application of a change in
accounting principle is impracticable and for reporting a change
when retrospective application is impracticable. The reporting
of a correction of an error by restating previously issued
financial statements is also addressed by SFAS 154.
SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 31, 2005. We will adopt this pronouncement
beginning in fiscal year 2006.
In June 2005, the FASB staff issued FASB Staff Position
143-1 Accounting
for Electronic Equipment Waste Obligations (FSP
143-1) to address the
accounting for obligations associated with the Directive
2002/96/ EC on Waste Electrical and Electronic Equipment (the
Directive) adopted by the European Union (EU). The
Directive effectively obligates a commercial user to incur costs
associated with the retirement of a specified asset that
qualifies as historical waste equipment. The commercial user
should apply the provisions of SFAS 143 and FIN 47.
FSP 143-1 shall be
applied the later of the first reporting period ending after
June 8, 2005 or the date of the adoption of the law by the
applicable EU-member country. We adopted the FSP at certain of
our European operations where applicable legislation was
adopted. The impact of the adoption on the consolidated
financial statements was not significant.
Critical Accounting Policies
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and related notes to
the financial statements. Actual results could differ from those
estimates. Significant estimates include:
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general and product liability and other litigation, |
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workers compensation, |
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recoverability of goodwill and other intangible assets, |
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deferred tax asset valuation allowance and uncertain income tax
positions, and |
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pension and other postretirement benefits. |
On an ongoing basis, management reviews its estimates, based on
currently available information. Changes in facts and
circumstances may alter such estimates and affect results of
operations and financial position in future periods.
General and Product Liability and Other Litigation.
General and product liability and other recorded litigation
liabilities are recorded based on managements analysis
that a loss arising from these matters is probable. If the loss
can be reasonably estimated, we record the amount of the
estimated loss. If the loss is estimated using a range and no
point within the range is more probable than another, we record
the minimum amount in the range. As additional information
becomes available, any potential liability related to these
matters is assessed and the estimates are revised, if necessary.
Loss ranges are based upon the specific facts of each claim or
class of claim and were determined after review by counsel.
Court rulings on our cases or similar cases could impact our
assessment of the probability and estimate of our loss, which
could have an impact on our reported results of operations,
financial position and liquidity. We record insurance recovery
receivables related to our litigation claims when it is probable
we will receive reimbursement from the insurer. Specifically, we
are a defendant in numerous lawsuits alleging various
asbestos-related personal injuries purported to result from
alleged exposure to asbestos 1) in certain rubber
encapsulated products or aircraft braking systems manufactured
by us in the past, or 2) in certain of our facilities.
Typically, these lawsuits have been brought against multiple
defendants in state and Federal courts.
30
We engage an independent asbestos valuation firm to review our
existing reserves for pending claims, provide a reasonable
estimate of the liability associated with unasserted asbestos
claims, and determine our receivables from probable insurance
recoveries.
A significant assumption in our estimated liability is that it
represents our estimated liability through 2009, which
represents the period over which the liability can be reasonably
estimated. Due to the difficulties in making these estimates,
analysis based on new data and/or changed circumstances arising
in the future could result in an increase in the recorded
obligation in an amount that cannot be reasonably estimated, and
that increase could be significant. We had recorded liabilities
for both asserted and unasserted claims, inclusive of defense
costs, totaling $104 million at December 31, 2005 and
$119 million at December 31, 2004. The portion of the
liability associated with unasserted asbestos claims and related
defense costs was $31 million at December 31, 2005 and
$38 million at December 31, 2004. At December 31,
2005, our liability with respect to asserted claims and related
defense costs was $73 million, compared to $81 million
at December 31, 2004.
We maintain primary insurance coverage under
coverage-in-place
agreements as well as excess liability insurance with respect to
asbestos liabilities. We record a receivable with respect to
such policies when we determine that recovery is probable and we
can reasonably estimate the amount of a particular recovery.
This determination is based on consultation with our outside
legal counsel and giving consideration to relevant factors,
including the ongoing legal proceedings with certain of our
excess coverage insurance carriers, their financial viability,
their legal obligations and other pertinent facts.
The valuation firm also assisted us in valuing receivables
recorded for probable insurance recoveries. Based upon the model
employed by the valuation firm, as of December 31, 2005,
(i) we had recorded a receivable related to asbestos claims
of $53 million, compared to $108 million at
December 31, 2004, and (ii) we expect that
approximately 50% of asbestos claim related losses would be
recoverable up to our accessible policy limits. The receivable
recorded consists of an amount we expect to collect under
coverage-in-place
agreements with certain primary carriers as well as an amount we
believe is probable of recovery from certain of our excess
coverage insurance carriers. Of this amount, $9 million was
included in Current Assets as part of Accounts and Notes
receivable at December 31, 2005 and 2004.
In addition to our asbestos claims, we are a defendant in
various lawsuits related to our Entran II rubber hose
product. During 2004, we entered into a settlement agreement to
address a substantial portion of our Entran II liabilities.
The claims associated with the plaintiffs that opted not to
participate in the settlement will be evaluated in a manner
consistent with our other litigation claims. We had recorded
liabilities related to Entran II claims totaling
$248 million at December 31, 2005 and
$307 million at December 31, 2004.
Workers Compensation. We recorded liabilities, on a
discounted basis, totaling $250 million and
$231 million for anticipated costs related to workers
compensation at December 31, 2005 and 2004, respectively.
The costs include an estimate of expected settlements on pending
claims, defense costs and a provision for claims incurred but
not reported. These estimates are based on our assessment of
potential liability using an analysis of available information
with respect to pending claims, historical experience, and
current cost trends. The amount of our ultimate liability in
respect of these matters may differ from these estimates. We
periodically update our loss development factors based on
actuarial analyses. At December 31, 2005, the liability was
discounted using the risk-free rate of return.
For further information on general and product liability and
other litigation, environmental matters and workers
compensation, refer to the Note to the Consolidated Financial
Statements No. 17, Commitments and Contingent Liabilities,
included herein.
Recovery of Goodwill and Other Intangible Assets.
Generally accepted accounting principles do not permit goodwill
or other intangible assets with indefinite lives to be
amortized. Rather, these assets must be tested annually for
impairment. The impairment testing would have to be performed
more frequently than on an annual basis as a result of the
occurrence of a potential indicator of impairment.
For purposes of our annual impairment testing, which is
conducted during the third quarter each year, we determine the
estimated fair values of our reporting units using a valuation
methodology based upon an
31
EBITDA multiple using comparable companies in the global
automotive industry sector. The EBITDA multiple is adjusted if
necessary to reflect local market conditions and recent
transactions. The EBITDA of the reporting units are adjusted to
exclude certain non-recurring or unusual items and corporate
charges. EBITDA is based upon a combination of historical and
forecasted results. Significant decreases in EBITDA in future
periods could be an indication of a potential impairment.
Additionally, valuation multiples in the global automotive
industry sector would have to decline in excess of 50% to
indicate a potential goodwill impairment.
Goodwill totaled $637 million and other intangible assets
with indefinite lives totaled $110 million at
December 31, 2005. We completed our 2005 annual valuation
during the third quarter of 2005. The valuation indicated that
there was no impairment of goodwill or other intangible assets
with indefinite lives.
Deferred Tax Asset Valuation Allowance and Uncertain Income
Tax Positions. At December 31, 2005 and 2004, we had
valuation allowances aggregating $2 billion against all of
our net Federal and state and some of our foreign net deferred
tax assets.
The valuation allowance was calculated in accordance with the
provisions of SFAS 109 which requires an assessment of both
negative and positive evidence when measuring the need for a
valuation allowance. In accordance with SFAS 109, evidence,
such as operating results during the most recent three-year
period, is given more weight than our expectations of future
profitability, which are inherently uncertain. Our losses in the
U.S., and certain foreign locations in recent periods
represented sufficient negative evidence to require a full
valuation allowance against our net Federal, state and certain
of our foreign deferred tax assets under SFAS 109. We
intend to maintain a valuation allowance against our net
deferred tax assets until sufficient positive evidence exists to
support realization of such assets.
The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We
recognize liabilities for anticipated tax audit issues based on
our estimate of whether, and the extent to which, additional
taxes will be due. If we ultimately determine that payment of
these amounts is unnecessary, we reverse the liability and
recognize a tax benefit during the period in which we determine
that the liability is no longer necessary. We also recognize tax
benefits to the extent that it is probable that our positions
will be sustained when challenged by the taxing authorities. To
the extent we prevail in matters for which liabilities have been
established, or are required to pay amounts in excess of our
liabilities, our effective tax rate in a given period could be
materially affected. An unfavorable tax settlement would require
use of our cash and result in an increase in our effective tax
rate in the year of resolution. A favorable tax settlement would
be recognized as a reduction in our effective tax rate in the
year of resolution.
Pensions and Other Postretirement Benefits. Our recorded
liability for pensions and postretirement benefits other than
pensions is based on a number of assumptions, including:
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life expectancies, |
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retirement rates, |
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discount rates, |
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long term rates of return on plan assets, |
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future compensation levels, |
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future health care costs, and |
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maximum company-covered benefit costs. |
Certain of these assumptions are determined with the assistance
of outside actuaries. Assumptions about life expectancies,
retirement rates, future compensation levels and future health
care costs are based on past experience and anticipated future
trends, including an assumption about inflation. The discount
rate for our U.S. plans is derived from a portfolio of
corporate bonds from issuers rated AA- or higher by
Standard & Poors as of December 31 and is
reviewed annually. The total cash flows provided by the
portfolio are similar to the timing of our expected benefit
payment cash flows. The long term rate of return on plan assets
is based
32
on the compound annualized return of our U.S. pension fund
over periods of 15 years or more, asset class return
expectations and long term inflation. These assumptions are
regularly reviewed and revised when appropriate, and changes in
one or more of them could affect the amount of our recorded net
expenses for these benefits. Other assumptions involving
demographic factors such as retirement age, mortality and
turnover are evaluated periodically and are updated to reflect
our experience and expectations for the future. If the actual
experience differs from expectations, our financial position,
results of operations and liquidity in future periods could be
affected.
The discount rate used in determining the total liability for
our U.S. pension and postretirement plans was 5.50% at
December 31, 2005, compared to 5.75% at December 31,
2004 and 6.25% for December 31, 2003. The decrease in the
rate was due primarily to lower interest rates on long term
highly rated corporate bonds. As a result, interest cost
included in our net periodic pension cost decreased to
$294 million in 2005, compared to $300 million in 2004
and $295 million in 2003. Interest cost included in our
worldwide net periodic postretirement benefit cost was
$149 million in 2005, compared to $188 million in 2004
and $174 million in 2003. Interest cost was lower in 2005
as a result of the reduction in the postretirement liability due
to Medicare Part D. The weighted average remaining service
period for employees covered by our U.S. plans is
approximately 13 years.
The following table presents the sensitivity of our
U.S. projected pension benefit obligation, accumulated
other postretirement obligation, shareholders equity, and
2006 expense to the indicated increase/decrease in key
assumptions:
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+/ - Change at December 31, 2005 | |
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Change | |
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PBO/ABO | |
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Equity | |
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2006 Expense | |
(Dollars in millions) |
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Pensions:
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Assumption:
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Discount rate
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+/- 0.5 |
% |
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$ |
340 |
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$ |
340 |
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$ |
30 |
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Actual return on assets
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+/- 1.0 |
% |
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N/A |
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30 |
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5 |
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Estimated return on assets
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+/- 1.0 |
% |
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N/A |
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N/A |
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34 |
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Postretirement Benefits:
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Assumption:
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Discount rate
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+/- 0.5 |
% |
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$ |
103 |
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N/A |
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$ |
2 |
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Health care cost trends total cost
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+/- 1.0 |
% |
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11 |
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N/A |
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1 |
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The continuous decline in U.S. discount rates, have largely
contributed to an unrecognized actuarial loss of
$1,646 million in our U.S. pension plans as of
December 31, 2005. For purposes of determining 2005
U.S. net periodic pension expense, our funded status was
such that we recognized $86 million of the unrecognized
actuarial loss in 2005. We will recognize approximately
$95 million of unrecognized actuarial losses in 2006. Given
no change to the assumptions at our December 31, 2005
measurement, actuarial loss recognition will remain at an amount
near that to be recognized in 2006 over the next few years
before it begins to gradually decline.
The actual rate of return on our U.S. pension fund was
8.5%, 12.1% and 23.5% in 2005, 2004 and 2003, respectively, as
compared to the expected rate of return of 8.5%.
This decline in U.S. discount rates also produced a large
portion of the unrecognized actuarial loss of $355 million
in our worldwide postretirement plans as of December 31,
2005. The unrecognized actuarial loss decreased from 2004
primarily due to a gain from the recognition of Medicare
Part D. For purposes of determining 2005 worldwide net
periodic postretirement cost, we recognized $10 million of
the unrecognized actuarial loss in 2005. We will recognize
approximately $13 million of unrecognized actuarial losses
in 2006. If our future experience is consistent with our
assumptions as of December 31, 2005, actuarial loss
recognition will gradually decline from the 2006 levels.
For further information on pensions and postretirement benefits,
refer to the Note to the Consolidated Financial Statements
No. 12, Pensions, Other Postretirement Benefits and Savings
Plans, included herein.
33
Results of Operations Segment Information
Segment information reflects our strategic business units
(SBUs), which are organized to meet customer requirements and
global competition. The Tire business is managed on a regional
basis. Engineered Products is managed on a global basis.
Effective January 1, 2005 our former Chemical Products
Segment was integrated into North American Tire. Intercompany
sales from Chemical Products to other segments are no longer
reflected in our segment sales. In addition, segment operating
income from intercompany sales from Chemical Products to other
segments is no longer reflected in our total segment operating
income.
Results of operations are measured based on net sales to
unaffiliated customers and segment operating income. Segment
operating income includes transfers to other SBUs. Segment
operating income is computed as follows: Net Sales less CGS
(excluding accelerated depreciation charges and asset impairment
charges) and SAG (including certain allocated corporate
administrative expenses). Segment operating income also includes
equity in (earnings) losses of most unconsolidated
affiliates. Equity in (earnings) losses of certain
unconsolidated affiliates, including SPT (in 2003) and
Rubbernetwork.com, are not included in segment operating income.
Segment operating income does not include rationalization
charges (credits) and certain other items. Segment assets
include those assets under the management of the SBU.
Total segment operating income was nearly $1.2 billion in
2005, $946 million in 2004 and $419 million in 2003.
Total segment operating margin (segment operating income divided
by segment sales) in 2005 was 5.9%, compared to 5.2% in 2004 and
2.8% in 2003.
Management believes that total segment operating income is
useful because it represents the aggregate value of income
created by our SBUs and excludes items not directly related to
the SBUs for performance evaluation purposes. Total segment
operating income is the sum of the individual SBUs segment
operating income, as determined in accordance with Statement of
Financial Accounting Standard No. 131, Disclosures
about Segments of an Enterprise and Related Information.
Refer to the Note to the Consolidated Financial Statements
No. 15, Business Segments, included herein, for further
information and for a reconciliation of total segment operating
income to Income (Loss) before Income Taxes and Cumulative
Effect of Accounting Change.
North American Tire
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Year Ended December 31, | |
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2005 | |
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2004 | |
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2003 | |
(In millions) |
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Tire Units
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101.9 |
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102.5 |
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101.2 |
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Net Sales
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$ |
9,091 |
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$ |
8,569 |
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$ |
7,279 |
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Operating Income (Loss)
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167 |
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74 |
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(103 |
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Operating Margin
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1.8 |
% |
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0.9 |
% |
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(1.4 |
)% |
North American Tire unit sales in 2005 decreased
0.6 million units or 0.6% from 2004. Replacement unit sales
in 2005 increased 0.4 million units or 0.5% from 2004. OE
volume in 2005 decreased 1.0 million units or 3.3% from
2004 due primarily to a slowdown in the automotive industry that
resulted in lower levels of vehicle production and our selective
fitment strategy in the consumer OE business.
Net sales in 2005 increased $522 million or 6% from 2004.
Net sales in 2005 increased approximately $353 million due
primarily to price increases to offset higher raw material costs
and improved mix resulting from our strategy to focus on the
higher value consumer replacement market and greater selectivity
in the consumer OE market. Also, positively impacting sales in
the period was a growth in other tire related businesses
including T&WA, our consolidated affiliate, of approximately
$167 million, as well as translation of $33 million.
The improvements were offset by a decrease in volume of
approximately $31 million.
Operating income in 2005 increased $93 million or 126%
compared to 2004. The improvement was due to our tire
business improved price and product mix of approximately
$244 million, driven by factors described
34
above, lower conversion costs of $85 million, primarily
related to the implementation of cost reduction initiatives
resulting in productivity improvements, lower other
post-employment benefit costs (OPEB) costs and
rationalization activities, and lower segment SAG costs of
approximately $8 million. The decrease is SAG costs was
primarily related to lower OPEB and lower general and product
liability expenses, partially offset by higher wage and benefit
costs. Also positively impacting our operating income was an
approximate $46 million improvement in the earnings of our
retail, external chemicals and other tire related businesses.
The 2005 period was unfavorably impacted by increased raw
material costs of approximately $283 million in our tire
business and $25 million of costs associated with the
hurricanes.
In connection with our master contract with the USW, employees
represented by the USW did not receive service credit under the
U.S. hourly pension plan for a two year period ended
October 2005. As a result, pension expense was reduced in 2005
and 2004 by approximately $43 million and $44 million,
respectively.
Operating income did not include net rationalization charges
(credits) totaling $(8) million in 2005 and
$9 million in 2004. In addition, operating income did not
include losses on asset sales of $43 million in 2005 and
$13 million in 2004.
North American Tire unit sales in 2004 increased
1.3 million units or 1.3% from 2003. Replacement unit sales
in 2004 increased 2.2 million units or 3.2% from 2003. OE
volume in 2004 decreased 0.9 million units or 2.6% from
2003. Replacement unit volume in 2004 increased from 2003 due
primarily to higher sales of Goodyear brand tires. OE unit sales
in 2004 decreased from 2003 due primarily to a slowdown in the
automotive industry that resulted in lower levels of vehicle
production and our selective fitment strategy in the consumer
OE business.
Net sales in 2004 increased $1.3 billion or 18% from 2003.
Net sales in 2004 increased $524 million from 2003 due to
the consolidation of T&WA in January 2004 in accordance with
FIN 46. Sales were also favorably affected by approximately
$312 million resulting from favorable price and product
mix, due primarily to strong sales of Goodyear brand consumer
tires and commercial tires. In addition, net sales benefited by
approximately $271 million due to increased volume, mainly
in the commercial OE and consumer replacement and retail
markets. External chemical sales increased approximately
$189 million primarily from increased price and improved
volume.
Operating income in 2004 increased $177 million or 172%
from 2003. Operating income in 2004 rose from 2003 due primarily
to improvements in price and product mix of approximately
$201 million, primarily in the consumer and commercial
replacement markets. In addition, operating income benefited by
approximately $65 million from increased volume, primarily
in the consumer replacement, commercial OE and retail markets.
Operating income was favorably affected by savings from
rationalization programs totaling approximately
$78 million. Operating income in 2004 was unfavorably
impacted by increased raw material costs of approximately
$99 million and higher transportation costs of
$32 million. SAG in 2004 was approximately $58 million
higher than in 2003, due in part to increased advertising costs
of approximately $25 million and increased compensation and
benefits costs of approximately $12 million. External
chemical operating income improved approximately
$14 million due to improved price and product mix and
higher volume.
Operating income did not include net rationalization charges
totaling $9 million in 2004 and $192 million in 2003.
In addition, operating income did not include losses on asset
sales of $13 million in 2004 and $4 million in 2003.
35
European Union Tire
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Year Ended December 31, | |
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2005 | |
|
2004 | |
|
2003 | |
(In millions) |
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Tire Units
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64.3 |
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62.8 |
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62.3 |
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Net Sales
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|
$ |
4,676 |
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$ |
4,476 |
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$ |
3,922 |
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Operating Income
|
|
|
317 |
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|
|
253 |
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130 |
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Operating Margin
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6.8 |
% |
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|
5.7 |
% |
|
|
3.3 |
% |
European Union Tire Segment unit sales in 2005 increased
1.5 million units or 2.4% from 2004. Replacement unit sales
increased 2.1 million units or 5.0% due primarily to share
gains in the consumer market. OE volume decreased
0.6 million units or 3.4% due to overall softness in
markets in the region.
Net sales in 2005 increased $200 million or 4% from 2004.
The increase was due primarily to price and product mix of
approximately $214 million, driven by price increases to
offset higher raw material costs and a favorable mix toward the
consumer replacement and commercial markets. Also contributing
to the sales increase was a volume increase of approximately
$95 million, largely due to increases in the consumer
replacement market. This improvement was partially offset by the
lower sales in other tire related businesses of
$62 million, primarily due to the closure and sale of
retail locations, and unfavorable currency translation totaling
approximately $43 million.
Operating income in 2005 increased $64 million or 25%
compared to 2004 due to improvements in price and product mix of
approximately $145 million driven by price increases to
offset higher raw material costs and the continued shift towards
high performance, ultra-high performance and commercial tires.
Also positively impacting operating income was higher volume of
$23 million. Operating income was adversely affected by
higher raw material costs of approximately $60 million,
higher pension costs in the United Kingdom of
$23 million, primarily due to a lower discount rate, and
higher SAG expenses of approximately $18 million, primarily
related to higher distribution and advertising expenses.
Operating income did not include net rationalization charges
totaling $8 million in 2005 and $23 million in 2004.
In addition, operating income did not include gains on asset
sales of $5 million in 2005 and $6 million in 2004.
European Union Tires results are highly dependent upon the
German market, which accounted for 38% of European Union
Tires net sales in 2005. Accordingly, results of
operations in Germany will have a significant impact on European
Union Tires future performance.
European Union Tire unit sales in 2004 increased
0.5 million units or 0.8% from 2003. Replacement unit sales
in 2004 approximated 2003 levels, reflecting product shortages,
especially in the first half of 2004. OE volume in 2004
increased 0.5 million units or 2.4% from 2003, due
primarily to increased sales of consumer tires and improved
conditions in the commercial market.
Net sales in 2004 increased $554 million or 14% from 2003.
Net sales in 2004 increased from 2003 due primarily to a benefit
of approximately $382 million from currency translation,
mainly from the Euro. Net sales rose by approximately
$130 million due to improved price and product mix, due
primarily to price increases and a shift in mix towards higher
priced premium brands. Additionally, higher OE volume increased
2004 net sales by approximately $41 million.
Operating income in 2004 increased $123 million or 95% from
2003. Operating income in 2004 rose from 2003 due primarily to
improvements in price and product mix of approximately
$135 million. In addition, higher sales volume benefited
operating income by approximately $9 million, and higher
production and productivity improvements increased 2004
operating income by approximately $4 million. Savings from
rationalization actions benefited operating income by
approximately $47 million. Operating income rose by
36
approximately $13 million from currency translation.
Operating income was adversely impacted by higher raw material
costs totaling approximately $42 million. SAG rose by
approximately $39 million, due primarily to higher selling
and advertising expenses related to premium brand tires.
Operating income did not include net rationalization charges
totaling $23 million in 2004 and $54 million in 2003.
In addition, operating income did not include
(gains) losses on asset sales of $(6) million in 2004
and $1 million in 2003.
Eastern Europe, Middle East and Africa Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Tire Units
|
|
|
19.7 |
|
|
|
18.9 |
|
|
|
17.9 |
|
Net Sales
|
|
$ |
1,437 |
|
|
$ |
1,279 |
|
|
$ |
1,073 |
|
Operating Income
|
|
|
198 |
|
|
|
194 |
|
|
|
147 |
|
Operating Margin
|
|
|
13.8 |
% |
|
|
15.2 |
% |
|
|
13.7 |
% |
Eastern Europe, Middle East and Africa Tire unit sales in 2005
increased 0.8 million units or 4.5% from 2004 primarily
related to increased OE unit sales of 0.4 million or 13.9%
primarily due to growth in the automotive industry in South
Africa. Replacement units sales increased 0.4 million units
or 2.4% driven by growth in emerging markets.
Net sales in 2005 increased by $158 million, or 12%
compared to 2004 mainly due to price increases to recover higher
raw material costs and favorable product mix due to continued
growth of high performance tires and premium brands of
approximately $60 million, favorable translation of
$42 million, increased volume of approximately
$37 million, mainly in emerging markets, as well as
increased South African retail sales of approximately
$15 million.
Operating income in 2005 increased by $4 million, or 2%
from 2004. Operating income in 2005 was favorably impacted by
price and product mix of approximately $39 million due to
factors described above, improved volume of approximately
$16 million primarily in emerging markets, foreign currency
translation of approximately $16 million and improvement in
other tire related businesses of $4 million. Negatively
impacting operating income were higher raw material costs of
approximately $40 million, higher conversion costs of
approximately $18 million primarily related to production
adjustments in certain markets to reduce inventory levels.
Higher SAG costs also negatively impacted operating income by
$15 million, primarily due to increased selling activity in
emerging markets.
Operating income did not include net rationalization charges
totaling $9 million in 2005 and $4 million in 2004. In
addition, operating income did not include losses on asset sales
of $1 million in 2005.
Eastern Europe, Middle East and Africa Tire unit sales in 2004
increased 1.0 million units or 5.2% from 2003. Replacement
unit sales in 2004 increased 0.6 million units or 4.0% from
2003 due primarily to growth in emerging markets. OE volume in
2004 increased 0.4 million units or 10.7% from 2003 due
primarily to growth in the automotive industry in Turkey and
South Africa.
Net sales in 2004 increased $206 million or 19% from 2003.
Net sales in 2004 increased from 2003 due primarily to a benefit
of approximately $102 million from currency translation. In
addition, net sales rose by approximately $97 million on
improved price and mix. Higher overall volume, mainly due to
growth in emerging markets and improved economic conditions,
increased net sales by $41 million. Negative results in our
South African retail business adversely impacted net sales by
approximately $32 million.
Operating income in 2004 increased $47 million or 32% from
2003. Operating income in 2004 rose from 2003 due primarily to a
benefit of approximately $62 million resulting from price
increases and a shift in mix
37
toward high performance tires. Operating income increased by
approximately $16 million on higher volume, and by
approximately $11 million from the favorable effect of
currency translation. Operating income was adversely impacted by
higher raw material and conversion costs totaling approximately
$28 million. In addition, SAG expense was approximately
$16 million higher resulting primarily from increased
selling activity in growing and emerging markets.
Operating income did not include net rationalization charges
totaling $4 million in 2004.
Latin American Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Tire Units
|
|
|
20.4 |
|
|
|
19.6 |
|
|
|
18.7 |
|
Net Sales
|
|
$ |
1,466 |
|
|
$ |
1,245 |
|
|
$ |
1,041 |
|
Operating Income
|
|
|
295 |
|
|
|
251 |
|
|
|
149 |
|
Operating Margin
|
|
|
20.1 |
% |
|
|
20.2 |
% |
|
|
14.3 |
% |
Latin American Tire unit sales in 2005 increased
0.8 million units or 4.5% compared to 2004 primarily due to
an increase in OE volume of 0.8 million units or 18.9%. OE
volume increased as a result of strong growth in Latin American
vehicle exports to Europe, Africa and North America. Replacement
unit sales remained relatively flat, in line with a relatively
flat replacement market in Latin America.
Net sales in 2005 increased $221 million, or 18% compared
to 2004. Net sales increased in 2005 due to the favorable impact
of currency translation, mainly in Brazil, of approximately
$117 million, favorable price and product mix of
approximately $61 million, and increased volume of
approximately $54 million. These increases were partially
offset by a reduction in sales of other tire related businesses
of $15 million.
Operating income in 2005 increased $44 million, or 18%
compared to 2004. Operating income was favorably impacted by
approximately $87 million primarily due to improved price,
approximately $66 million from the favorable impact of
currency translation, and $16 million due to increased
volumes. Increased raw material costs of approximately
$93 million, higher conversion costs and SAG expenses of
approximately $21 million and $8 million,
respectively, due primarily to higher compensation costs,
negatively impacted operating income as compared to 2004. The
reduction in sales of other tire related businesses reduced
operating income by approximately $7 million.
Operating income did not include net rationalization credits
totaling $2 million in 2004. In addition, operating income
did not include gains on asset sales of $1 million in 2005.
Latin American Tires results are highly dependent upon the
Brazilian market, which accounted for 44% of Latin American
Tires net sales in 2005. Accordingly, results of
operations in Brazil will have a significant impact on Latin
American Tires future performance. Moreover, given Latin
American Tires significant contribution to our operating
income, significant fluctuations in their sales, operating
income or operating margins may have disproportionate impact on
our consolidated results of operations.
Latin American Tire unit sales in 2004 increased
0.9 million units or 5.0% from 2003. Replacement unit sales
in 2004 increased 0.8 million units or 5.3% from 2003 due
primarily to improved commercial and consumer demand. OE volume
in 2004 increased 0.1 million units or 3.9% from 2003
reflecting improved commercial volume.
Net sales in 2004 increased $204 million or 20% from 2003.
Net sales in 2004 increased from 2003 due primarily to a benefit
of approximately $134 million from price increases and
improved product mix in the replacement market. Net sales rose
by approximately $60 million on higher volume and
approximately $7 million from currency translation.
38
Operating income in 2004 increased $102 million or 68% from
2003. Operating income in 2004 increased from 2003 due primarily
to a benefit of approximately $126 million from improved
price and product mix in the replacement market. Operating
income benefited by approximately $13 million from higher
volume and $5 million from savings from rationalization
programs. Operating income was adversely impacted by higher raw
material and conversion costs totaling approximately
$41 million and approximately $2 million from currency
translation. In addition, SAG expense rose by approximately
$11 million, due primarily to increased wages and benefits
and advertising expenses.
Operating income did not include net rationalization charges
(credits) totaling $(2) million in 2004 and
$10 million in 2003. In addition, operating income did not
include gains on asset sales of $2 million in 2003.
Asia Pacific Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Tire Units
|
|
|
20.1 |
|
|
|
19.5 |
|
|
|
13.4 |
|
Net Sales
|
|
$ |
1,423 |
|
|
$ |
1,312 |
|
|
$ |
582 |
|
Operating Income
|
|
|
84 |
|
|
|
60 |
|
|
|
49 |
|
Operating Margin
|
|
|
5.9 |
% |
|
|
4.6 |
% |
|
|
8.4 |
% |
Asia Pacific Tire unit sales in 2005 increased 0.6 million
units or 2.5% compared to 2004. OE volume increased
1.2 million units or 20.9% mainly due to improvements in
the Chinese OE market. Replacement units decreased
0.6 million units or 4.0% driven by increased competition
with low cost imports.
Net sales in 2005 increased $111 million or 8% from 2004
due to favorable price and product mix of approximately
$49 million, driven by price increases to offset higher raw
material costs, and to favorable price in our off-the-road
business in response to strong market demand. Also favorably
impacting sales was currency translation of approximately
$26 million and volume of approximately $31 million.
Operating income in 2005 increased $24 million or 40% from
2004 due primarily to improved price and product mix of
approximately $60 million, driven by factors described
above, non-recurring FIN 46 related charges of
approximately $7 million in 2004, and lower research and
development costs of $5 million. Also positively impacting
income for the period was increased volume of approximately
$6 million and a $4 million increase in other tire
related businesses. These were offset in part by raw material
cost increases of $50 million and higher SAG costs of
$8 million due primarily to development of our branded
retail and global sourcing infrastructure in China.
Operating income did not include net rationalization credits
totaling $2 million in 2005.
See Note to the Consolidated Financial Statements No. 21,
Subsequent Events, included herein, for a discussion of the
acquisition of the remaining interest in SPT in January 2006.
Asia Pacific Tire unit sales in 2004 increased 6.1 million
units or 45.5% from 2003. Replacement unit sales in 2004
increased 5.4 million units or 60.0% from 2003. OE volume
in 2004 increased 0.7 million units or 15.6% from 2003.
Unit sales in 2004 increased by 5.5 million replacement
units and 0.8 million OE units due to the consolidation of
SPT, as discussed below. Excluding the impact of SPT,
replacement unit volume increased slightly, and OE volume
decreased due primarily to lower consumer volume.
Effective January 1, 2004, Asia Pacific Tire includes the
operations of South Pacific Tyres, an Australian Partnership,
and South Pacific Tyres N.Z. Limited, a New Zealand company
(together, SPT), joint ventures 50% owned by
Goodyear and 50% owned by Ansell Ltd. SPT sells Goodyear brand,
Dunlop brand and other house and private brand tires through its
chain of retail stores, commercial tire centers and independent
dealers.
39
Net sales in 2004 increased $730 million or 125% from 2003.
Net sales in 2004 increased from 2003 due primarily to the
consolidation of SPT, which benefited 2004 sales by
$707 million. Net sales also rose by approximately
$32 million due to improved price and product mix, but were
adversely impacted by lower volume, excluding SPT, of
$18 million.
Operating income in 2004 increased $11 million or 22% from
2003. Operating income in 2004 increased from 2003 due primarily
to a benefit of approximately $25 million from price
increases and improved product mix, and a reduction in
conversion costs of approximately $4 million. Operating
income was adversely impacted by higher raw material costs
totaling approximately $22 million and approximately
$3 million from lower volume. In addition, SAG expenses
rose by approximately $6 million. The consolidation of SPT
increased Asia Pacific Tire operating income by approximately
$12 million in 2004; however, it reduced operating margin
to 4.6% in 2004 from 8.4% in 2003.
Operating income did not include gains on asset sales of
$2 million in 2003.
Engineered Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
1,630 |
|
|
$ |
1,472 |
|
|
$ |
1,205 |
|
Operating Income
|
|
|
103 |
|
|
|
114 |
|
|
|
47 |
|
Operating Margin
|
|
|
6.3 |
% |
|
|
7.7 |
% |
|
|
3.9 |
% |
Engineered Products sales increased $158 million, or 11% in
2005 compared to 2004 levels due to improved price and product
mix of approximately $65 million, increased volume of
approximately $59 million, and favorable currency
translation of approximately $35 million. The growth in net
sales was driven by an increase in Industrial sales of
approximately $144 million compared to 2004, primarily due
to strong industry demand from petrochemical and mining
customers. Replacement product sales increased by approximately
$16 million compared to 2004 primarily due to increased
market penetration. As anticipated, sales of Military products
declined by approximately $13 million compared to 2004.
Operating income in 2005 decreased $11 million, or 10%
compared to 2004 due primarily to increased conversion costs of
approximately $33 million, related to the decline in our
military business and OE production shifts to Mexico. Also
negatively impacting operating income were increased raw
material costs of approximately $30 million, higher SAG
expenses of approximately $13 million due primarily to
increased compensation, consulting expense, and bad debt expense
and higher freight costs of approximately $11 million as a
result of higher fuel costs. Partially offsetting these higher
raw material and conversion costs were price and product mix
improvements of approximately $44 million and increased
volume of approximately $33 million.
Operating income did not include net rationalization charges
totaling $4 million in 2005 and $23 million in 2004.
In addition, operating income did not include gains on asset
sales of $3 million in 2004.
Engineered Products sales increased $267 million or 22% in
2004 from 2003 due to improved volume of approximately
$194 million and improved price and product mix of
approximately $37 million. This growth in revenue was led
by strong sales in Military and Industrial products. Net sales
also rose by approximately $35 million due to currency
translation.
Operating income in 2004 increased $67 million or 143% from
2003. Increased Military and Industrial volume contributed
approximately $75 million to the improved profitability.
Operating income also reflected savings from rationalization
programs of approximately $24 million. SAG was
approximately $18 million higher and conversion costs rose
approximately $10 million compared to 2003. Operating
income in 2003 was
40
adversely impacted by charges totaling approximately
$19 million related to account reconciliation adjustments
in the restatement reported in our 2003
Form 10-K.
Operating income did not include net rationalization charges
totaling $23 million in 2004 and $29 million in 2003.
In addition, operating income did not include
(gains) losses on asset sales of $(3) million in 2004
and $6 million in 2003.
Liquidity and Capital Resources
At December 31, 2005, we had $2,178 million in cash
and cash equivalents as well as $1,677 million of unused
availability under our various credit agreements, compared to
$1,968 million and $1,116 million, respectively, at
December 31, 2004. Cash and cash equivalents do not include
restricted cash. Restricted cash primarily consists of Goodyear
contributions made related to the settlement of the
Entran II litigation and proceeds received pursuant to
insurance settlements. In addition, we will, from time to time,
maintain balances on deposit at various financial institutions
as collateral for borrowings incurred by various subsidiaries,
as well as cash deposited in support of trade agreements and
performance bonds. At December 31, 2005, cash balances
totaling $231 million were subject to such restrictions,
compared to $152 million at December 31, 2004. The
increase was primarily due to the receipt of insurance
settlements subject to restrictions.
Our ability to service our debt depends in part on the results
of operations of our subsidiaries and upon the ability of our
subsidiaries to make distributions of cash to various other
entities in our consolidated group, whether in the form of
dividends, loans or otherwise. In recent years, our foreign
subsidiaries have been a significant source of cash flow. In
certain countries where we operate, transfers of funds into or
out of such countries by way of dividends, loans or advances are
generally or periodically subject to various restrictive
governmental regulations. In addition, certain of our credit
agreements and other debt instruments restrict the ability of
foreign subsidiaries to make distributions of cash. At
December 31, 2005, approximately $236 million of net
assets were subject to such restrictions, compared to
approximately $221 million at December 31, 2004.
Operating Activities
Cash flows from operations for 2005 of $885 million
increased $100 million compared to $785 million in
2004. Cash flows from operations in 2004 of $785 million
increased $1,054 million compared to cash used in
operations of $269 million in 2003. Improvements in
operating cash flows are primarily attributable to improved
operating results. Net income increased by $113 million as
compared to 2004 and 2004 net income increased by
$922 million as compared to 2003. In 2005 and 2004 we
received proceeds from insurance settlements of
$228 million and $175 million, respectively, which
also contributed to the improvement in operating cash flows.
Partially offsetting these improvements were increases in
pension contributions of $261 million in 2005 and
$149 million in 2004. Cash flows from operating activities
in 2004 and 2003 included net outflows of $118 million and
$840 million, respectively, due to the termination of our
accounts receivable securitization program. In 2004, we
terminated certain of our off-balance sheet account receivable
securitization programs in Europe and in 2003 we terminated our
domestic accounts receivable securitization program.
Investing Activities
Net cash used in investing activities was $440 million
during 2005, compared to $651 million in 2004 and
$290 million in 2003. Capital expenditures were
$634 million, $529 million and $405 million in
2005, 2004 and 2003, respectively. Capital expenditures in 2005
of approximately $128 million were used on projects to
increase capacity, approximately $173 million were used to
improve productivity and quality and approximately
$333 million were used for tire molds and various other
projects. Major investments in fiscal year 2005 focused on
growth in the Latin American Tire and Asia Pacific Tire Segments
with several manufacturing improvements in the North American
Tire Segment. Capital expenditures are expected to be
approximately $720 million in 2006. This amount includes
expenditures for capitalized software of approximately
$55 million, which are included in capital expenditures in
our Consolidated Statements of Cash Flows; however, are
41
not treated as capital expenditures under our credit agreements.
We expect to spend $65 million for projects to increase
capacity, $250 million for productivity and quality
improvements, and $350 million for tire molds, maintenance
and other activities. During 2005, we revised the classification
for certain items, including changes in restricted cash, in our
Consolidated Statements of Cash Flows. Restricted cash is now
presented as an investing activity. The revised classifications
have also been reflected in the comparative prior year amounts
for purposes of consistency.
At December 31, 2005, we had binding commitments for raw
materials and investments in land, buildings and equipment of
$1,288 million, and off-balance-sheet financial guarantees
written and other commitments totaling $11 million.
Cash provided by asset dispositions in 2005 was
$257 million, primarily from asset sales in the
North American Tire Segment, including net proceeds from
the sales of our North American Farm Tire business of
$100 million, our Sumatran rubber plantation, of
approximately $70 million and our Wingtack adhesive resin
business of $55 million. Cash used for asset acquisitions
was $62 million in 2004. In June 2004, we exercised our
call option and a subsidiary in Luxembourg purchased the
remaining 20% of outstanding shares that it did not already own
of Sava Tires d.o.o. (Sava Tires), a joint venture tire
manufacturing company in Kranj, Slovenia, for $52 million.
On July 13, 2004, we purchased the remaining 50% ownership
interest that we did not already own of Däckia, a tire
retail group in Sweden, for $10 million. During 2003, cash
flows from asset sales of $104 million included net
proceeds of $83 million for the sale of 20.8 million
shares of SRI. Cash used for asset acquisitions in 2003 included
the purchase of Arkansas Best Corporations 19% ownership
interest in Wingfoot Commercial Tire Systems, LLC
(Wingfoot) for $71 million. Wingfoot was a
joint venture company formed by Goodyear and Arkansas Best
Corporation to sell and service commercial truck tires, provide
retread services and conduct related business.
Financing Activities
Net cash provided by (used in) financing activities was
$(175) million in 2005, compared to $250 in 2004 and
$1,121 million in 2003. Consolidated debt and our ratio of
debt to debt and equity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Consolidated debt
|
|
$ |
5,423 |
|
|
$ |
5,680 |
|
|
$ |
5,087 |
|
Debt to debt and equity
|
|
|
98.7 |
% |
|
|
98.7 |
% |
|
|
100.7 |
% |
Consolidated debt decreased in 2005 compared to 2004 due
primarily to a net repayment of debt of $63 million in
conjunction with our April 8, 2005 refinancing, the
issuance of $400 million in senior notes due in 2015 and
the repayment of our
63/8%
Euro Notes due in 2005. Consolidated debt increased in 2004 from
2003 due primarily to the net issuance of debt of
$328 million in connection with certain financing actions
in 2004 including the completion of a $350 million
convertible senior notes offering, the completion of the
pan-European accounts receivable securitization facility and the
consolidation of VIEs as defined by FIN 46. A net issuance
of debt of $1,220 million in 2003 was due primarily to the
April 1, 2003 restructuring and refinancing of our credit
facilities, including the termination of our domestic
off-balance sheet accounts receivable securitization program.
Credit Sources
In aggregate, we had committed and uncommitted credit facilities
of $7,527 million available at December 31, 2005, of
which $1,677 million were unused, compared to
$7,295 million available at December 31, 2004, of
which $1,116 million were unused.
|
|
|
$650 Million Senior Secured Notes |
On March 12, 2004, we completed a private offering of
$650 million of senior secured notes, consisting of
$450 million of 11% senior secured notes due 2011 and
$200 million of floating rate notes due 2011, which accrue
interest at LIBOR plus 8%. The proceeds of the notes were used
to prepay the remaining outstanding
42
amount under the then-existing U.S. term loan facility,
permanently reduce commitments under the then-existing revolving
credit facility by $70 million, and for general corporate
purposes. The notes are guaranteed by the same subsidiaries that
guarantee our $1.5 billion first lien credit facility. The
notes are secured by perfected third-priority liens on the same
collateral securing those facilities.
We have the right to redeem the fixed rate notes in whole or in
part from time to time on and after March 1, 2008. The
redemption price, plus accrued and unpaid interest to the
redemption date, would be 105.5%, 102.75%, and 100.0% on and
after March 1, 2008, 2009 and 2010, respectively. We may
also redeem the fixed rate notes prior to March 1, 2008 at
a redemption price equal to 100% of the principal amount plus a
make-whole premium. We have the right to redeem the floating
rate notes in whole or in part from time to time on and after
March 1, 2008. The redemption price, plus accrued and
unpaid interest to the redemption date, would be 104.0%, 102.0%,
and 100.0% on and after March 1, 2008, 2009 and 2010,
respectively. In addition, prior to March 1, 2007, we have
the right to redeem up to 35% of the fixed and floating rate
notes with net cash proceeds from one or more public equity
offerings. The redemption price would be 111% for the fixed rate
notes and 100% plus the then-applicable floating rate for the
floating rate notes, plus accrued and unpaid interest to the
redemption date.
The Indenture for the senior secured notes contains restrictions
on our operations, including limitations on:
|
|
|
|
|
incurring additional indebtedness or liens, |
|
|
|
paying dividends, making distributions and stock repurchases, |
|
|
|
making investments, |
|
|
|
selling assets, and |
|
|
|
merging and consolidating. |
In the event that the senior secured notes have a rating equal
to or greater than Baa3 from Moodys and BBB-from Standard
and Poors, a number of those restrictions will not apply,
for so long as those credit ratings are maintained.
|
|
|
$350 Million Convertible Senior
Note Offering |
On July 2, 2004, we completed an offering of
$350 million aggregate principal amount of
4% Convertible Senior Notes due June 15, 2034. The
notes are convertible into shares of our common stock initially
at a conversion rate of 83.07 shares of common stock per
$1,000 principal amount of notes, which is equal to an initial
conversion price of $12.04 per share. The proceeds from the
notes were used to repay temporarily a revolving credit facility
and for working capital purposes.
|
|
|
$400 Million Senior Notes Offering |
On June 23, 2005, we completed an offering of
$400 million aggregate principal amount of 9% Senior
Notes due 2015 in a transaction under Rule 144A and
Regulation S of the Securities Act of 1933. The senior
notes are guaranteed by our U.S. and Canadian subsidiaries that
also guarantee our obligations under our senior secured credit
facilities. The guarantees are unsecured. The proceeds were used
to repay $200 million in borrowings under our
U.S. first lien revolving credit facility, and to replace
$190 million of the cash, that we used to pay the
$488 million principal amount of our
63/8%
Euro Notes due 2005 at maturity on June 6, 2005. The
remainder of the proceeds was used for general corporate
purposes. In conjunction with the debt issuance, we paid fees of
approximately $10 million, which will be amortized over the
term of the senior notes.
The Indenture governing the senior notes limits our ability and
the ability of certain of our subsidiaries to (i) incur
additional debt or issue redeemable preferred stock,
(ii) pay dividends, or make certain other restricted
payments or investments, (iii) incur liens, (iv) sell
assets, (v) incur restrictions on the ability of our
subsidiaries to pay dividends to us, (vi) enter into
affiliate transactions, (vii) engage in sale and leaseback
transactions, and (viii) consolidate, merge, sell or
otherwise dispose of all or substantially all of our assets.
43
These covenants are subject to significant exceptions and
qualifications. For example, if the senior notes are assigned an
investment grade rating by Moodys and S&P and no
default has occurred or is continuing, certain covenants will be
suspended.
|
|
|
April 8, 2005 Refinancing |
On April 8, 2005 we completed a refinancing in which we
replaced approximately $3.28 billion of credit facilities
with new facilities aggregating $3.65 billion. The new
facilities consist of:
|
|
|
|
|
a $1.5 billion first lien credit facility due
April 30, 2010 (consisting of a $1.0 billion revolving
facility and a $500 million deposit-funded facility); |
|
|
|
a $1.2 billion second lien term loan facility due
April 30, 2010; |
|
|
|
the Euro equivalent of approximately $650 million in credit
facilities for Goodyear Dunlop Tires Europe B.V.
(GDTE) due April 30, 2010 (consisting of
approximately $450 million in revolving facilities and
approximately $200 million in term loan facilities); and |
|
|
|
a $300 million third lien term loan facility due
March 1, 2011. |
In connection with the refinancing, we paid down and retired the
following facilities:
|
|
|
|
|
our $1.3 billion asset-based credit facility, due March
2006 (the $800 million term loan portion of this facility
was fully drawn prior to the refinancing); |
|
|
|
our $650 million asset-based term loan facility, due March
2006 (this facility was fully drawn prior to the refinancing); |
|
|
|
our $680 million deposit-funded credit facility due
September 2007 (there were $492 million of letters of
credit outstanding under this facility prior to the
refinancing); and |
|
|
|
our $650 million senior secured European facilities due
April 2005 (the $400 million term loan portion of this
facility was fully drawn prior to the refinancing). |
In conjunction with the refinancing, we paid fees of
approximately $57 million. In addition, we paid
approximately $20 million of termination fees associated
with the replaced facilities. We recognized approximately
$47 million of expense in the second quarter to write-off
fees associated with the refinancing, including approximately
$30 million of previously unamortized fees related to the
replaced facilities. The remaining fees are being amortized over
the term of the new facilities. The new facilities have
customary representations and warranties including, as a
condition to borrowing, material adverse change representations
in our financial condition since December 31, 2004.
|
|
|
$1.5 Billion First Lien Credit Facility |
The $1.5 billion first lien credit facility consists of a
$1.0 billion revolving facility and a $500 million
deposit-funded facility. Our obligations under these facilities
are guaranteed by most of our wholly-owned
U.S. subsidiaries and by our wholly-owned Canadian
subsidiary, Goodyear Canada Inc. Our obligations under this
facility and our subsidiaries obligations under the
related guarantees are secured by first priority security
interests in a variety of collateral.
With respect to the deposit-funded facility, the lenders
deposited the entire $500 million of the facility in an
account held by the administrative agent, and those funds are
used to support letters of credit or borrowings on a revolving
basis, in each case subject to customary conditions. The full
amount of the deposit-funded facility is available for the
issuance of letters of credit or for revolving loans. As of
December 31, 2005, there were $499 million of letters
of credit issued under the deposit-funded facility and no
borrowings under the revolving facility.
44
|
|
|
$1.2 Billion Second Lien Term Loan Facility |
Our obligations under this facility are guaranteed by most of
our wholly-owned U.S. subsidiaries and by our wholly-owned
Canadian subsidiary, Goodyear Canada Inc. and are secured by
second priority security interests in the same collateral
securing the $1.5 billion first lien credit facility. As of
December 31, 2005 this facility was fully drawn.
|
|
|
$300 Million Third Lien Secured Term
Loan Facility |
Our obligations under this facility are guaranteed by most of
our wholly-owned U.S. subsidiaries and by our wholly-owned
Canadian subsidiary, Goodyear Canada Inc. and are secured by
third priority security interests in the same collateral
securing the $1.5 billion first lien credit facility
(however, the facility is not secured by any of the
manufacturing facilities that secure the first and second lien
facilities). As of December 31, 2005, this facility was
fully drawn.
|
|
|
Euro Equivalent of $650 Million
(505 Million)
Senior Secured European Credit Facilities |
These facilities consist of (i) a
195 million
European revolving credit facility, (ii) an additional
155 million
German revolving credit facility, and
(iii) 155 million
of German term loan facilities. We secure the
U.S. facilities described above and provide unsecured
guarantees to support these facilities. GDTE and certain of its
subsidiaries in the United Kingdom, Luxembourg, France and
Germany also provide guarantees. GDTEs obligations under
the facilities and the obligations of subsidiary guarantors
under the related guarantees are secured by a variety of
collateral. As of December 31, 2005, there were
$4 million of letters of credit issued under the European
revolving credit facility, $183 million was drawn under the
German term loan facilities and there were no borrowings under
the German or European revolving credit facilities.
For a description of the collateral securing the above
facilities as well as the covenants applicable to them, please
refer to the Note to the Consolidated Financial Statements
No. 10, Financing Arrangements and Derivative Financial
Instruments, included herein.
|
|
|
Consolidated EBITDA (per Credit Agreements) |
Under our primary credit facilities we are not permitted to fall
below a ratio of 2.00 to 1.00 of Consolidated EBITDA to
Consolidated Interest Expense (as such terms are defined in each
of the relevant credit facilities) for any period of four
consecutive fiscal quarters. In addition, our ratio of
Consolidated Net Secured Indebtedness to Consolidated EBITDA (as
such terms are defined in each of the relevant credit
facilities) is not permitted to be greater than 3.50 to 1.00 at
any time.
Consolidated EBITDA is a non-GAAP financial measure that is
presented not as a measure of operating results, but rather as a
measure under our debt covenants. It should not be construed as
an alternative to either (i) income from operations or
(ii) cash flows from operating activities. Our failure to
comply with the financial covenants in our credit facilities
could have a material adverse effect on our liquidity and
operations. Accordingly, we believe that the presentation of
Consolidated EBITDA will provide investors with information
needed to assess our ability to continue to comply with these
covenants.
45
The following table presents the calculation of EBITDA and
Consolidated EBITDA for the periods indicated. Other companies
may calculate similarly titled measures differently than we do.
Certain line items are presented as defined in the primary
credit facilities and do not reflect amounts as presented in the
Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net Income (Loss)
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
Consolidated Interest Expense
|
|
|
411 |
|
|
|
369 |
|
|
|
296 |
|
U.S. and Foreign Taxes on Income
|
|
|
250 |
|
|
|
208 |
|
|
|
117 |
|
Depreciation and Amortization Expense
|
|
|
630 |
|
|
|
629 |
|
|
|
692 |
|
Cumulative Effect of Accounting Change
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
1,530 |
|
|
|
1,321 |
|
|
|
298 |
|
Credit Agreement Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income) and Expense
|
|
|
70 |
|
|
|
1 |
|
|
|
343 |
|
Minority Interest in Net Income (Loss) of Subsidiaries
|
|
|
95 |
|
|
|
58 |
|
|
|
33 |
|
Consolidated Interest Expense Adjustment
|
|
|
5 |
|
|
|
11 |
|
|
|
18 |
|
Non-cash Non-recurring Items
|
|
|
|
|
|
|
|
|
|
|
55 |
|
Rationalizations
|
|
|
11 |
|
|
|
56 |
|
|
|
291 |
|
Less Excess Cash Rationalization Charges
|
|
|
|
|
|
|
|
|
|
|
(13 |
)(1) |
|
|
|
|
|
|
|
|
|
|
Consolidated EBITDA
|
|
$ |
1,711 |
|
|
$ |
1,447 |
|
|
$ |
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Excess Cash Rationalization Charges is defined in
our credit facilities, for the year ended December 31,
2003, only contemplates cash expenditures with respect to
rationalization charges recorded on the Consolidated Statements
of Operations after April 1, 2003. |
|
|
|
Other Foreign Credit Facilities |
At December 31, 2005, we had short-term committed and
uncommitted bank credit arrangements totaling $415 million,
of which $182 million were unused, compared to
$413 million and $192 million at December 31,
2004. The continued availability of these arrangements is at the
discretion of the relevant lender, and a portion of these
arrangements may be terminated at any time.
|
|
|
International Accounts Receivable Securitization
Facilities (On-Balance-Sheet) |
On December 10, 2004, GDTE and certain of its subsidiaries
entered into a new five-year pan-European accounts receivable
securitization facility. The facility provides
275 million
of funding and is subject to customary annual renewal of
back-up liquidity lines.
As of December 31, 2005, the amount available and fully
utilized under this program was $324 million compared to
$225 million as of December 31, 2004.
In addition to the pan-European accounts receivable
securitization facility discussed above, SPT and other
subsidiaries in Australia have accounts receivable programs
totaling $67 million and $63 million at
December 31, 2005 and December 31, 2004, respectively.
|
|
|
International Accounts Receivable Securitization
Facilities (Off-Balance-Sheet) |
Various international subsidiaries sold certain of their trade
receivables under off-balance sheet programs during 2005 and
2004. The receivable financing programs of these international
subsidiaries did not utilize an SPE. At December 31, 2005
and 2004, the value in U.S. dollars available to and
utilized by these international subsidiaries was $3 million
and $5 million, respectively.
46
We are a party to three registration rights agreements in
connection with the following transactions: (i) the March
2004 issuance of $650 million of senior secured notes due
2011 (consisting of $450 million of 11% senior secured
notes and $200 million of senior secured floating rate
notes), (ii) the July 2004 issuance of $350 million of
4% convertible senior notes due 2034, and (iii) the
June 2005 issuance of $400 million of 9% senior notes
due 2015.
The registration rights agreement for the convertible notes
required us to pay additional interest to investors since we did
not file a registration statement to register the convertible
notes by November 7, 2004. Additional interest was paid to
investors at a rate of 0.25% per year for the first
90 days following November 7, 2004 and 0.50% per
year thereafter, until December 13, 2005, when a
registration statement on
Form S-1
registering the convertible notes was declared effective.
Following the effectiveness of the registration statement, the
additional interest ceased to accrue on the convertible notes.
On January 31, 2006, we suspended the use of the prospectus
for the convertible notes in order to update the registration
statement of which that prospectus formed a part to reflect
certain expected financial results for the fourth quarter of
2005 as well as the year ended December 31, 2005. A
post-effective amendment to the registration statement did not
become effective prior to or on the 30th day of such suspension.
Accordingly, pursuant to the terms of the registration rights
agreement for the convertible notes, we will be obligated to pay
additional interest to investors at a rate of 0.25% per year for
the period from March 2, 2006 until
March , 2006, the date that
the registration statement of which this prospectus forms a part
became effective.
On December 22, 2005, we completed an exchange offer
related to the $450 million of 11% senior secured
notes due in 2011 and $200 million of senior secured
floating rate notes due in 2011. The registration rights
agreement with respect to these notes required us to pay
additional interest to investors since a registered exchange
offer was not completed by December 7, 2004. The additional
interest payable to investors increased in increments and
reached a maximum of 2% per year immediately prior to the
completion of the exchange offer. Following the completion of
the exchange offer, the additional interest of 2% on the notes
ceased to accrue and, pursuant to the terms of the registration
rights agreement, additional interest of 0.25% per year
began to accrue on the notes and will continue to accrue until
payment in full of the principal amount of the notes.
On January 12, 2006, we completed an exchange offer related
to the $400 million of 9% senior notes due in 2015.
Our credit ratings as of the date of this report are presented
below:
|
|
|
|
|
|
|
S&P |
|
Moodys |
|
|
|
|
|
$1.5 Billion First Lien Credit Facility
|
|
BB |
|
Ba3 |
$1.2 Billion Second Lien Term Loan Facility
|
|
B+ |
|
B2 |
$300 Million Third Lien Secured Term Loan Facility
|
|
B- |
|
B3 |
European Facilities
|
|
B+ |
|
B1 |
$650 Million Senior Secured Notes due 2011
|
|
B- |
|
B3 |
Corporate Rating (implied)
|
|
B+ |
|
B1 |
Senior Unsecured Debt
|
|
B- |
|
|
Outlook
|
|
Stable |
|
Stable |
Although we do not request ratings from Fitch, the rating agency
rates our secured debt facilities (ranging from B+ to B-
depending on facility) and our unsecured debt (CCC+).
As a result of these ratings and other related events, we
believe that our access to capital markets may be limited.
Unless our debt credit ratings and operating performance
improve, our access to the credit markets in
47
the future may be limited. Moreover, a reduction in our credit
ratings would further increase the cost of any financing
initiatives we may pursue.
A rating reflects only the view of a rating agency, and is not a
recommendation to buy, sell or hold securities. Any rating can
be revised upward or downward at any time by a rating agency if
such rating agency decides that circumstances warrant such a
change.
Potential Future Financings
In addition to our previous financing activities, we plan to
undertake additional financing actions in the capital markets in
order to ensure that our future liquidity requirements are
addressed. These actions may include the issuance of additional
equity.
Because of our debt ratings, operating performance over the past
few years and other factors, access to the capital markets
cannot be assured. Our ongoing ability to access the capital
markets is also dependent on the degree of success we have
implementing our North American Tire turnaround strategy.
Successful implementation of the turnaround strategy is also
crucial to ensuring that we have sufficient cash flow from
operations to meet our obligations. While we have made progress
in implementing the turnaround strategy, there is no assurance
that our progress will continue, or that we will be able to
sustain any future progress to a degree sufficient to maintain
access to capital markets and meet liquidity requirements. As a
result, failure to complete the turnaround strategy successfully
could have a material adverse effect on our financial position,
results of operations and liquidity.
Future liquidity requirements also may make it necessary for us
to incur additional debt. However, a substantial portion of our
assets is already subject to liens securing our indebtedness. As
a result, we are limited in our ability to pledge our remaining
assets as security for additional secured indebtedness. In
addition, no assurance can be given as to our ability to raise
additional unsecured debt.
Dividends
On February 4, 2003, we announced that we eliminated our
quarterly cash dividend. The dividend reduction was approved by
the Board of Directors in order to conserve cash. Under our
primary credit facilities we are permitted to pay dividends on
our common stock of $10 million or less in any fiscal year.
This limit increases to $50 million in any fiscal year if
Moodys senior (implied) rating and
Standard & Poors (S&P) corporate rating
improve to Ba2 or better and BB or better, respectively.
Asset Dispositions
In 2005, we completed the sale of our natural rubber plantation
in Indonesia at a sales price of approximately $70 million.
We also completed the sale of our Wingtack adhesive resins
business to Sartomer Company, Inc. in 2005. We received
approximately $55 million in cash proceeds and retained
approximately $10 million in working capital in connection
with the Wingtack sale. In connection with the transaction, we
recorded a gain of approximately $24 million on the sale.
We may also receive additional consideration over the next three
years ($5 million per year, $15 million aggregate)
based on future operating performance of the Wingtack business.
In 2005 we also completed the sale of assets of our North
American farm tire business to Titan International for
approximately $100 million. In connection with the
transaction, we recorded a loss of approximately
$73 million in the fourth quarter of 2005, primarily
related to pension and retiree medical costs. Also, we have
announced that we are exploring the possible sale of our
Engineered Products business. Engineered Products manufactures
and markets engineered rubber products for industrial, military,
consumer and transportation OE end-users. We continue to
evaluate our portfolio of businesses and, where appropriate, may
pursue additional dispositions of non-core assets. Refer to the
Note to the Consolidated Financial Statements No. 20, Asset
Dispositions, included herein.
48
Commitments and Contingent Liabilities
Contractual Obligations
The following table presents our contractual obligations and
commitments to make future payments as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period as of December 31, 2005 | |
|
|
| |
|
|
|
|
After | |
|
|
Total | |
|
1st Year | |
|
2nd Year | |
|
3rd Year | |
|
4th Year | |
|
5th Year | |
|
5 Years | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Long Term Debt(1)
|
|
$ |
5,347 |
|
|
$ |
674 |
|
|
$ |
329 |
|
|
$ |
102 |
|
|
$ |
327 |
|
|
$ |
1,385 |
|
|
$ |
2,530 |
|
Capital Lease Obligations(2)
|
|
|
107 |
|
|
|
13 |
|
|
|
12 |
|
|
|
12 |
|
|
|
12 |
|
|
|
12 |
|
|
|
46 |
|
Interest Payments(3)
|
|
|
2,387 |
|
|
|
389 |
|
|
|
344 |
|
|
|
332 |
|
|
|
330 |
|
|
|
249 |
|
|
|
743 |
|
Operating Leases(4)
|
|
|
1,471 |
|
|
|
315 |
|
|
|
254 |
|
|
|
193 |
|
|
|
145 |
|
|
|
109 |
|
|
|
455 |
|
Pension Benefits(5)
|
|
|
838 |
|
|
|
838 |
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
Other Post Retirement Benefits(6)
|
|
|
2,204 |
|
|
|
254 |
|
|
|
250 |
|
|
|
245 |
|
|
|
236 |
|
|
|
227 |
|
|
|
992 |
|
Workers Compensation(7)
|
|
|
334 |
|
|
|
86 |
|
|
|
43 |
|
|
|
32 |
|
|
|
23 |
|
|
|
17 |
|
|
|
133 |
|
Binding Commitments(8)
|
|
|
1,288 |
|
|
|
1,020 |
|
|
|
51 |
|
|
|
32 |
|
|
|
30 |
|
|
|
26 |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,976 |
|
|
$ |
3,589 |
|
|
$ |
1,283 |
|
|
$ |
948 |
|
|
$ |
1,103 |
|
|
$ |
2,025 |
|
|
$ |
5,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Long term debt payments include notes payable and reflect long
term debt maturities as of December 31, 2005. |
|
|
(2) |
The present value of capital lease obligations is
$76 million. |
|
|
(3) |
These amounts represent future interest payments related to our
existing debt obligations based on fixed and variable interest
rates specified in the associated debt agreements. Payments
related to variable debt are based on the six-month LIBOR rate
at December 31, 2005 plus the specified margin in the
associated debt agreements for each period presented. The
amounts provided relate only to existing debt obligations and do
not assume the refinancing or replacement of such debt. |
|
|
(4) |
Operating lease obligations have not been reduced by minimum
sublease rentals of $51 million, $42 million,
$33 million, $24 million, $15 million, and
$20 million in each of the periods above, respectively, for
a total of $185 million. Payments, net of minimum sublease
rentals, total $1,286 million. The present value of the net
operating lease payments is $893 million. The operating
leases relate to, among other things, computers and office
equipment, real estate and miscellaneous other assets. No asset
is leased from any related party. |
|
|
(5) |
The obligation related to pension benefits is actuarially
determined and is reflective of obligations as of
December 31, 2005. Although subject to change, the amount
set forth in the table represents the midpoint of our estimated
minimum funding requirements in 2006 for domestic defined
benefit pension plans under current ERISA law, and the midpoint
of our expected contributions to our funded
non-U.S. pension
plans in 2006. The expected contributions are based upon a
number of assumptions, including, an ERISA liability interest
rate of 5.08% for 2006. |
|
|
|
At the end of 2005, the interest relief rate measures used for
pension funding calculations expired. Since new legislation has
not yet been enacted, the interest rate has reverted to a
30-year
U.S. Treasury bond basis beginning in 2006. Under this
basis, we estimate that we will be required to contribute
approximately $700 million to $750 million to our
domestic pension plans in 2006, as reflected in the table above.
If new legislation is enacted in 2006, we expect the interest
rate used for 2006 will be based on a Corporate bond basis.
Using an estimate of these rates would result in estimated
U.S. contributions during 2006 in the range of
$550 million to $600 million. We are not able to
reasonably estimate our future required contributions beyond
2006 due to uncertainties |
49
|
|
|
regarding significant assumptions involved in estimating future
required contributions to our defined benefit pension plans,
including: |
|
|
|
|
|
interest rate levels, |
|
|
|
the amount and timing of asset returns, |
|
|
|
what, if any, changes may occur in pending pension funding
legislation, and |
|
|
|
how contributions in excess of the minimum requirements could
impact the amounts and timing of future contributions. |
|
|
|
Subject to the outcome of pending legislation, our domestic
pension obligations are expected to peak in 2006. However, we
anticipate being subject to significant required pension funding
obligations in 2007 and beyond. |
|
|
|
|
(6) |
The payments presented above are expected payments for the next
10 years. The payments for other postretirement benefits
reflect the estimated benefit payments of the plans using the
provisions currently in effect. Under the relevant summary plan
descriptions or plan documents we have the right to modify or
terminate the plans. The obligation related to other
postretirement benefits is actuarially determined on an annual
basis. The estimated payments have been reduced to reflect the
provisions of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. |
|
|
(7) |
The payments for workers compensation obligations are
based upon recent historical payment patterns on claims. The
present value of anticipated claims payments for workers
compensation is $250 million. |
|
|
(8) |
Binding commitments are for our normal operations and are
related primarily to obligations to acquire land, buildings and
equipment. In addition, binding commitments includes obligations
to purchase raw materials through short term supply contracts at
fixed prices or at formula prices related to market prices or
negotiated prices. |
Additional other long-term liabilities include items such as
income taxes, general and product liabilities, environmental
liabilities and miscellaneous other long-term liabilities. These
other liabilities are not contractual obligations by nature. We
cannot, with any degree of reliability, determine the years in
which these liabilities might ultimately be settled.
Accordingly, these other long-term liabilities are not included
in the above table.
In addition, the following contingent contractual obligations,
the amounts of which cannot be estimated, are not included in
the table above:
|
|
|
|
|
The terms and conditions of our global alliance with Sumitomo as
set forth in the Umbrella Agreement between Sumitomo and us
provide for certain minority exit rights available to Sumitomo
commencing in 2009. In addition, the occurrence of certain other
events enumerated in the Umbrella Agreement, including certain
bankruptcy events or changes in control of us, could trigger a
right of Sumitomo to require us to purchase these interests
immediately. Sumitomos exit rights, in the unlikely event
of exercise, could require us to make a substantial payment to
acquire Sumitomos interest in the alliance. |
|
|
|
Pursuant to certain long term agreements, we shall purchase
minimum amounts of a raw material at an agreed upon base price
that is subject to quarterly adjustments for changes in raw
material costs, natural gas costs, and market price adjustments. |
We do not engage in the trading of commodity contracts or any
related derivative contracts. We generally purchase raw
materials and energy through short-term, intermediate and long
term supply contracts at fixed prices or at formula prices
related to market prices or negotiated prices. We may, however,
from time to time, enter into contracts to hedge our energy
costs.
50
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement
or other contractual arrangement involving an unconsolidated
entity under which a company has:
|
|
|
|
|
made guarantees, |
|
|
|
retained or held a contingent interest in transferred assets, |
|
|
|
undertaken an obligation under certain derivative
instruments, or |
|
|
|
undertaken any obligation arising out of a material variable
interest in an unconsolidated entity that provides financing,
liquidity, market risk or credit risk support to the company, or
that engages in leasing, hedging or research and development
arrangements with the company. |
We have also entered into certain arrangements under which we
have provided guarantees, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration per Period | |
|
|
| |
|
|
Total | |
|
1st Year | |
|
2nd Year |
|
3rd Year | |
|
4th Year | |
|
5th Year |
|
Thereafter | |
(In millions) |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Customer Financing Guarantees
|
|
$ |
8 |
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
2 |
|
Affiliate Financing Guarantees
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Guarantees
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
|
|
$ |
11 |
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
3 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For further information about guarantees, refer to the Note to
the Consolidated Financial Statements No. 17, Commitments
and Contingent Liabilities, included herein.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We continuously monitor our fixed and floating rate debt mix.
Within defined limitations, we manage the mix using refinancing
and unleveraged interest rate swaps. We will enter into fixed
and floating interest rate swaps to alter our exposure to the
impact of changing interest rates on consolidated results of
operations and future cash outflows for interest. Fixed rate
swaps are used to reduce our risk of increased interest costs
during periods of rising interest rates, and are normally
designated as cash flow hedges. Floating rate swaps are used to
convert the fixed rates of long-term borrowings into short-term
variable rates, and are normally designated as fair value
hedges. Interest rate swap contracts are thus used to separate
interest rate risk management from debt funding decisions. At
December 31, 2005, the interest rates on 49% of our debt
were fixed by either the nature of the obligation or through the
interest rate swap contracts, compared to 50% at
December 31, 2004. We also have from time to time entered
into interest rate lock contracts to hedge the risk-free
component of anticipated debt issuances. As a result of credit
ratings actions and other related events, our access to these
instruments may be limited.
51
The following table presents information on interest rate swap
contracts at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(Dollars in millions) |
|
| |
|
| |
Fixed Rate Contracts:
|
|
|
|
|
|
|
|
|
|
Notional principal amount
|
|
$ |
|
|
|
$ |
15 |
|
|
Pay fixed rate
|
|
|
|
|
|
|
5.94 |
% |
|
Receive variable Australian Bank Bill Rate
|
|
|
|
|
|
|
5.43 |
% |
|
Average years to maturity
|
|
|
|
|
|
|
0.50 |
|
|
Fair value
|
|
$ |
|
|
|
$ |
|
|
|
Pro forma fair value
|
|
|
|
|
|
|
|
|
Floating Rate Contracts:
|
|
|
|
|
|
|
|
|
|
Notional principal amount
|
|
$ |
200 |
|
|
$ |
200 |
|
|
Pay variable LIBOR
|
|
|
6.27 |
% |
|
|
4.31 |
% |
|
Receive fixed rate
|
|
|
6.63 |
% |
|
|
6.63 |
% |
|
Average years to maturity
|
|
|
0.92 |
|
|
|
1.92 |
|
|
Fair value asset
|
|
$ |
|
|
|
$ |
6 |
|
|
Pro forma fair value asset
|
|
|
|
|
|
|
5 |
|
The pro forma fair value assumes a 10% increase in variable
market interest rates at December 31 of each year, and
reflects the estimated fair value of contracts outstanding at
that date under that assumption.
Weighted average interest rate swap contract information follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(Dollars in millions) |
|
| |
|
| |
|
| |
Fixed Rate Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional principal amount
|
|
$ |
7 |
|
|
$ |
96 |
|
|
$ |
325 |
|
|
Pay fixed rate
|
|
|
5.94 |
% |
|
|
5.14 |
% |
|
|
5.00 |
% |
|
Receive variable LIBOR
|
|
|
5.66 |
% |
|
|
1.86 |
% |
|
|
1.24 |
% |
Floating Rate Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional principal amount
|
|
$ |
200 |
|
|
$ |
200 |
|
|
$ |
207 |
|
|
Pay variable LIBOR
|
|
|
4.92 |
% |
|
|
3.27 |
% |
|
|
3.03 |
% |
|
Receive fixed rate
|
|
|
6.63 |
% |
|
|
6.63 |
% |
|
|
6.63 |
% |
The following table presents information about long term fixed
rate debt, including capital leases, at December 31:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Carrying amount liability
|
|
$ |
2,847 |
|
|
$ |
3,055 |
|
Fair value liability
|
|
|
3,119 |
|
|
|
3,388 |
|
Pro forma fair value liability
|
|
|
3,203 |
|
|
|
3,467 |
|
The pro forma information assumes a 100 basis point
decrease in market interest rates at December 31 of each
year, and reflects the estimated fair value of fixed rate debt
outstanding at that date under that assumption. The sensitivity
of our interest rate contracts and fixed rate debt to changes in
interest rates was determined with a valuation model based upon
net modified duration analysis. The model assumes a parallel
shift in the yield curve. The precision of the model decreases
as the assumed change in interest rates increases.
Foreign Currency Exchange Risk
We enter into foreign currency contracts in order to reduce the
impact of changes in foreign exchange rates on consolidated
results of operations and future foreign currency-denominated
cash flows. These contracts reduce exposure to currency
movements affecting existing foreign currency-denominated
assets, liabilities, firm commitments and forecasted
transactions resulting primarily from trade receivables and
52
payables, equipment acquisitions, intercompany loans and royalty
agreements and forecasted purchases and sales. In addition, the
principal and interest on our Swiss franc bonds due 2006 is
hedged by currency swap agreements, as were
100 million
of the
63/8%
Euro Notes until they matured in June 2005.
Contracts hedging the Swiss franc bonds are designated as cash
flow hedges, as were contracts hedging
100 million
of the
63/8%
Euro Notes until they matured in June 2005. Contracts hedging
short-term trade receivables and payables normally have no
hedging designation.
The following table presents foreign currency contract
information at December 31:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Fair value asset
|
|
|
$40 |
|
|
|
$102 |
|
Pro forma decrease in fair value
|
|
|
(47 |
) |
|
|
(71 |
) |
Contract maturities
|
|
|
1/06-10/19 |
|
|
|
1/05-10/19 |
|
We were not a party to any foreign currency option contracts at
December 31, 2005 or 2004.
The pro forma change in fair value assumes a 10% decrease in
foreign exchange rates at December 31 of each year, and
reflects the estimated change in the fair value of contracts
outstanding at that date under that assumption. The sensitivity
of our foreign currency positions to changes in exchange rates
was determined using current market pricing models.
Fair values are recognized on the Consolidated Balance Sheets at
December 31 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Asset (liability):
|
|
|
|
|
|
|
|
|
|
Swiss franc swap current
|
|
$ |
38 |
|
|
$ |
|
|
|
Swiss franc swap long term
|
|
|
|
|
|
|
60 |
|
|
Euro swaps current
|
|
|
|
|
|
|
46 |
|
|
Other current asset
|
|
|
3 |
|
|
|
4 |
|
|
Other long term assets
|
|
|
2 |
|
|
|
1 |
|
|
Other current liability
|
|
|
(1 |
) |
|
|
(6 |
) |
|
Other long term liability
|
|
|
(2 |
) |
|
|
(3 |
) |
For further information on interest rate contracts and foreign
currency contracts, refer to the Note to the Consolidated
Financial Statements No. 10, Financing Arrangements and
Derivative Financial Instruments, included herein.
53
Business
We are one of the worlds leading manufacturers of tires
and rubber products, engaging in operations in most regions of
the world. Our 2005 net sales were $19.7 billion and
our net income for 2005 was $228 million. Together with our
U.S. and international subsidiaries and joint ventures, we
develop, manufacture, market and distribute tires for most
applications. We also manufacture and market several lines of
power transmission belts, hoses and other rubber products for
the transportation industry and various industrial and chemical
markets, and rubber-related chemicals for various applications.
We are one of the worlds largest operators of commercial
truck service and tire retreading centers. In addition, we
operate more than 1,800 tire and auto service center outlets
where we offer our products for retail sale and provide
automotive repair and other services. We manufacture our
products in more than 100 facilities in 29 countries, and we
have marketing operations in almost every country around the
world. We employ approximately 80,000 associates worldwide.
General Segment Information
Our operating segments are North American Tire; European Union
Tire; Eastern Europe, Middle East and Africa Tire (Eastern
Europe Tire) (formerly known as Eastern Europe,
Africa and Middle East Tire); Latin American Tire; Asia
Pacific Tire (collectively, the Tire Segments); and
Engineered Products.
Financial Information About Our Segments
Financial information related to our operating segments for the
three year period ended December 31, 2005 appears in the
Note to the Financial Statements No. 15, Business Segments,
included herein.
General Information Regarding Tire Segments
Our principal business is the development, manufacture,
distribution and sale of tires and related products and services
worldwide. We manufacture and market numerous lines of rubber
tires for:
|
|
|
|
|
automobiles |
|
|
|
trucks |
|
|
|
buses |
|
|
|
aircraft |
|
|
|
motorcycles |
|
|
|
farm implements |
|
|
|
earthmoving equipment |
|
|
|
industrial equipment |
|
|
|
various other applications. |
In each case our tires are offered for sale to vehicle
manufacturers for mounting as original equipment
(OE) and in replacement markets worldwide. We
manufacture and sell tires under the Goodyear-brand, the
Dunlop-brand, the Kelly-brand, the Fulda-brand, the
Debica-brand, the Sava-brand and various other Goodyear owned
house brands, and the private-label brands of
certain customers. In certain markets we also:
|
|
|
|
|
retread truck, aircraft and heavy equipment tires, |
|
|
|
manufacture and sell tread rubber and other tire retreading
materials, |
|
|
|
provide automotive repair services and miscellaneous other
products and services, and |
|
|
|
manufacture and sell flaps for truck tires and other types of
tires. |
54
The principal products of the Tire Segments are new tires for
most applications. Approximately 78.2% of our consolidated sales
in 2005 were of new tires, compared to 77.6% in 2004 and 78.3%
in 2003. The percentages of each Tire Segments sales
attributable to new tires during the periods indicated were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
Sales of New Tires By |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
North American Tire
|
|
|
87.8 |
% |
|
|
87.9 |
% |
|
|
86.3 |
% |
European Union Tire
|
|
|
89.5 |
|
|
|
87.4 |
|
|
|
89.2 |
|
Eastern Europe Tire
|
|
|
95.0 |
|
|
|
94.6 |
|
|
|
94.1 |
|
Latin American Tire
|
|
|
92.2 |
|
|
|
92.5 |
|
|
|
91.1 |
|
Asia Pacific Tire
|
|
|
80.7 |
|
|
|
82.2 |
|
|
|
97.7 |
|
Each Tire Segment exports tires to other Tire Segments. The
financial results of each Tire Segment exclude sales of tires
exported to other Tire Segments, but include operating income
derived from such transactions. The financial results of each
Tire Segment include sales and operating income derived from the
sale of tires imported from other Tire Segments. Sales to
unaffiliated customers are attributed to the Tire Segment that
makes the sale to the unaffiliated customer.
Goodyear does not include motorcycle, all terrain vehicle or
consigned tires in reporting tire unit sales.
Tire unit sales for each Tire Segment and for Goodyear worldwide
during the periods indicated were:
Goodyears Annual Tire Unit Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions of tires) |
|
| |
|
| |
|
| |
North American Tire
|
|
|
101.9 |
|
|
|
102.5 |
|
|
|
101.2 |
|
European Union Tire
|
|
|
64.3 |
|
|
|
62.8 |
|
|
|
62.3 |
|
Eastern Europe Tire
|
|
|
19.7 |
|
|
|
18.9 |
|
|
|
17.9 |
|
Latin American Tire
|
|
|
20.4 |
|
|
|
19.6 |
|
|
|
18.7 |
|
Asia Pacific Tire
|
|
|
20.1 |
|
|
|
19.5 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodyear worldwide tire units
|
|
|
226.4 |
|
|
|
223.3 |
|
|
|
213.5 |
|
Our worldwide tire unit sales in the replacement and OE markets
during the periods indicated were:
Goodyear Worldwide Annual Tire Unit Sales
Replacement and OE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions of tires) |
|
| |
|
| |
|
| |
Replacement tire units
|
|
|
162.0 |
|
|
|
159.6 |
|
|
|
150.6 |
|
OE tire units
|
|
|
64.4 |
|
|
|
63.7 |
|
|
|
62.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodyear worldwide tire units
|
|
|
226.4 |
|
|
|
223.3 |
|
|
|
213.5 |
|
Worldwide replacement unit sales in 2005 increased from 2004 due
primarily to improvements in European Union Tire. OE unit sales
in 2005 increased from 2004 due primarily to improvements in
Asia Pacific Tire, Latin American Tire and Eastern Europe Tire.
Worldwide replacement unit sales in 2004 increased from 2003,
due primarily to the consolidation of SPT and improvement in
North American Tire, Latin American Tire and Eastern Europe
Tire. OE unit sales in 2004 increased from 2003 due primarily to
the consolidation of SPT and improvement in Eastern Europe Tire,
Latin American Tire and European Union Tire. For further
information regarding the consolidation of SPT effective
January 1, 2004, refer to the Note to the Consolidated
Financial Statements No. 7, Investments, included herein.
New tires are sold under highly competitive conditions
throughout the world. On a worldwide basis, we have two major
competitors: Bridgestone (based in Japan) and Michelin (based in
France). Other significant
55
competitors include Continental, Cooper, Pirelli, Toyo,
Yokohama, Kumho, Hankook and various regional tire manufacturers.
We compete with other tire manufacturers on the basis of product
design, performance, price, reputation, warranty terms, customer
service and consumer convenience. Goodyear brand and Dunlop
brand tires enjoy a high recognition factor and have a
reputation for performance, quality and value. Kelly brand,
Debica brand, Sava brand and various other house brand tire
lines offered by us, and tires manufactured and sold by us to
private brand customers, compete primarily on the basis of value
and price.
We do not consider our tire businesses to be seasonal to any
significant degree. A significant inventory of new tires is
maintained in order to optimize production schedules consistent
with anticipated demand and assure prompt delivery to customers,
especially just in time deliveries of tires or tire
and wheel assemblies to OE manufacturers. Notwithstanding, tire
inventory levels are designed to minimize working capital
requirements.
North American Tire
North American Tire, our largest segment in terms of revenue,
develops, manufactures, distributes and sells tires and related
products and services in the United States and Canada. North
American Tire manufactures tires in nine plants in the United
States and three plants in Canada. Certain Dunlop brand related
businesses of North American Tire are conducted by Goodyear
Dunlop Tires North America, Ltd., which is 75% owned by Goodyear
and 25% owned by Sumitomo Rubber Industries, Ltd.
Tires. North American Tire manufactures and sells
tires for automobiles, trucks, motorcycles, buses, earthmoving
equipment, commercial and military aviation and industrial
equipment and for various other applications.
Goodyear brand radial passenger tire lines sold in North America
include Assurance with ComforTred Technology for the luxury
market, Assurance with TripleTred Technology with broad market
appeal, Eagle high performance and run-flat extended mobility
technology (EMT) tires. Dunlop brand radial passenger tire
lines sold in North America include SP Sport performance tires.
The major lines of Goodyear brand radial tires offered in the
United States and Canada for sport utility vehicles and light
trucks are Wrangler and Fortera including Fortera featuring
TripleTred Technology and SilentArmor Technology. Goodyear also
offers Dunlop brand radials for light trucks such as the Rover
and Grandtrek lines. North American Tire also manufactures and
sells several lines of Kelly brand, other house brands and
several lines of private brand radial passenger tires in the
United States and Canada.
A full line of Goodyear brand all-steel cord and belt
construction medium radial truck tires, the Unisteel series, is
manufactured and sold for various applications, including line
haul highway use and off-road service. In addition, various
lines of Dunlop brand, Kelly brand, other house and private
brand radial truck tires are sold in the United States and
Canada.
|
|
|
Related Products and Services |
North American Tire also:
|
|
|
|
|
retreads truck, aviation and heavy equipment tires, primarily as
a service to its commercial customers, |
|
|
|
manufactures tread rubber and other tire retreading materials
for trucks, heavy equipment and aviation, |
|
|
|
provides automotive maintenance and repair services at
approximately 780 owned retail outlets, |
|
|
|
provides trucking fleets with new tires, retreads, mechanical
service, preventative maintenance and roadside assistance from
170 Goodyear operated Wingfoot Commercial Centers, |
|
|
|
sells automotive repair and maintenance items, automotive
equipment and accessories and other items to dealers and
consumers, |
56
|
|
|
|
|
sells chemical products to Goodyears other business
segments and to unaffiliated customers, and |
|
|
|
provides miscellaneous other products and services. |
Markets and Other Information
North American Tire distributes and sells tires throughout the
United States and Canada. Tire unit sales to OE customers and to
replacement customers served by North American Tire during the
periods indicated were:
North American Tire Unit Sales Replacement and
OE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions of tires) |
|
| |
|
| |
|
| |
Replacement tire units
|
|
|
71.2 |
|
|
|
70.8 |
|
|
|
68.6 |
|
OE tire units
|
|
|
30.7 |
|
|
|
31.7 |
|
|
|
32.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total tire units
|
|
|
101.9 |
|
|
|
102.5 |
|
|
|
101.2 |
|
North American Tire is a major supplier of tires to most
manufacturers of automobiles, motorcycles, trucks and aircraft
that have production facilities located in North America. Our
2005 unit sales in the North American OE channel
decreased compared to 2004 and 2003 due to a slowdown in the
automotive industry and our selective fitment strategy in the
consumer OE business.
Goodyear brand, Dunlop brand and Kelly brand tires are sold in
the United States and Canada through several channels of
distribution. The principal channel for Goodyear brand tires is
a large network of independent dealers. Goodyear brand, Dunlop
brand and Kelly brand tires are also sold to numerous national
and regional retail marketing firms in the United States. North
American Tire also operates approximately 970 retail outlets
(including auto service centers, commercial tire and service
centers and leased space in department stores) under the
Goodyear name or under the Wingfoot Commercial Tire Systems,
Allied or Just Tires trade styles. Several lines of house brand
tires and private and associate brand tires are sold to
independent dealers, national and regional wholesale marketing
organizations and various other retail marketers.
Automotive parts, automotive maintenance and repair services and
associated merchandise are sold under highly competitive
conditions in the United States and Canada through retail
outlets operated by North American Tire.
North American Tire periodically offers various financing and
extended payment programs to certain of its replacement tire
customers. We do not believe these programs, when considered in
the aggregate, require a significant amount of working capital
relative to the volume of sales involved, and they are
consistent with prevailing tire industry practices.
We are subject to regulation by the National Highway Traffic
Safety Administration (NHTSA), which has established
various standards and regulations applicable to tires sold in
the United States for highway use. NHTSA has the authority to
order the recall of automotive products, including tires, having
safety defects related to motor vehicle safety. In addition, the
Transportation Recall Enhancement, Accountability, and
Documentation Act (the TREAD Act) imposes numerous
requirements with respect to tire recalls. The TREAD Act also
requires tire manufacturers to, among other things, remedy tire
safety defects without charge for five years and conform with
revised and more rigorous tire standards, once the revised
standards are implemented.
European Union Tire
European Union Tire, our second largest segment in terms of
revenue, develops, manufactures, distributes and sells tires for
automobiles, motorcycles, trucks, farm implements and
construction equipment in Western Europe, exports tires to other
regions of the world and provides related products and services.
European Union Tire manufactures tires in 12 plants in England,
France, Germany and Luxembourg.
57
Substantially all of the operations and assets of European Union
Tire are owned and operated by Goodyear Dunlop Tires Europe
B.V., a 75% owned subsidiary of Goodyear. European Union Tire:
|
|
|
|
|
manufactures and sells Goodyear brand, Dunlop brand and Fulda
brand and other house brand passenger, truck, motorcycle, farm
and heavy equipment tires, |
|
|
|
sells Debica brand and Sava brand passenger, truck and farm
tires manufactured by the Eastern Europe Tire Segment, |
|
|
|
sells new, and manufactures and sells retreaded aviation tires, |
|
|
|
provides various retreading and related services for truck and
heavy equipment tires, primarily for its commercial truck tire
customers, |
|
|
|
offers automotive repair services at owned retail
outlets, and |
|
|
|
provides miscellaneous related products and services. |
Markets and Other Information
European Union Tire distributes and sells tires throughout
Western Europe. Tire unit sales to OE customers and in the
replacement markets served by European Union Tire during the
periods indicated were:
European Union Tire Unit Sales Replacement and
OE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions of tires) |
|
| |
|
| |
|
| |
Replacement tire units
|
|
|
46.0 |
|
|
|
43.9 |
|
|
|
43.9 |
|
OE tire units
|
|
|
18.3 |
|
|
|
18.9 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Total tire units
|
|
|
64.3 |
|
|
|
62.8 |
|
|
|
62.3 |
|
European Union Tire is a significant supplier of tires to most
manufacturers of automobiles, trucks and farm and construction
equipment located in Western Europe.
European Union Tires primary competitor in Western Europe
is Michelin. Other significant competitors include Continental,
Bridgestone, Pirelli, several regional tire producers and
imports from other regions, primarily Eastern Europe and Asia.
Goodyear brand and Dunlop brand tires are sold in several
replacement markets served by European Union Tire through
various channels of distribution, principally independent multi
brand tire dealers. In some markets, Goodyear brand tires, as
well as Dunlop brand, Fulda brand, Debica brand and Sava brand
tires, are distributed through independent dealers, regional
distributors and retail outlets, of which approximately 295 are
owned by Goodyear.
Eastern Europe, Middle East and Africa Tire
Our Eastern Europe, Middle East and Africa Tire segment
(Eastern Europe Tire) manufactures and sells
passenger, truck, farm, bicycle and construction equipment tires
in Eastern Europe, the Middle East and Africa. Eastern Europe
Tire manufactures tires in six plants in Poland, Slovenia,
Turkey, Morocco and South Africa. Eastern Europe Tire:
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|
|
maintains sales operations in most countries in Eastern Europe
(including Russia), the Middle East and Africa, |
|
|
|
exports tires for sale in Western Europe, North America and
other regions of the world, |
|
|
|
provides related products and services in certain markets, |
|
|
|
manufactures and sells Goodyear brand, Kelly brand, Debica
brand, Sava brand and Fulda brand tires and sells Dunlop brand
tires manufactured by European Union Tire, |
58
|
|
|
|
|
sells new and retreaded aviation tires, |
|
|
|
provides various retreading and related services for truck and
heavy equipment tires, |
|
|
|
sells automotive parts and accessories, and |
|
|
|
provides automotive repair services at owned retail outlets. |
Markets and Other Information
Eastern Europe Tire distributes and sells tires in most
countries in Eastern Europe, the Middle East and Africa. Tire
unit sales to OE customers and in the replacement markets served
by Eastern Europe Tire during the periods indicated were:
Eastern Europe Tire Unit Sales Replacement and
OE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions of tires) |
|
| |
|
| |
|
| |
Replacement tire units
|
|
|
15.8 |
|
|
|
15.4 |
|
|
|
14.8 |
|
OE tire units
|
|
|
3.9 |
|
|
|
3.5 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total tire units
|
|
|
19.7 |
|
|
|
18.9 |
|
|
|
17.9 |
|
Eastern Europe Tire has a significant share of each of the
markets it serves and is a significant supplier of tires to
manufacturers of automobiles, trucks, and farm and construction
equipment in Morocco, Poland, South Africa and Turkey. Its major
competitors are Michelin, Bridgestone, Continental and Pirelli.
Other competition includes regional and local tire producers and
imports from other regions, primarily Asia.
Goodyear brand tires are sold by Eastern Europe Tire in the
various replacement markets primarily through independent tire
dealers and wholesalers who sell several brands of tires. In
some countries, Goodyear brand, Dunlop brand, Kelly brand, Fulda
brand, Debica brand and Sava brand tires are sold through
regional distributors and multi brand dealers. In the Middle
East and most of Africa, tires are sold primarily to regional
distributors for resale to independent dealers. In South Africa
and sub-Saharan Africa, tires are also sold through a chain of
approximately 160 retail stores operated by Goodyear primarily
under the trade name Trentyre.
Latin American Tire
Our Latin American Tire segment manufactures and sells
automobile, truck and farm tires throughout Central and South
America and in Mexico, sells tires to various export markets,
retreads and sells commercial truck, aviation and heavy
equipment tires, and provides other products and services. Latin
American Tire manufactures tires in six facilities in Brazil,
Chile, Colombia, Peru and Venezuela.
Latin American Tire manufactures and sells several lines of
passenger, light and medium truck and farm tires. Latin American
Tire also:
|
|
|
|
|
manufactures and sells pre-cured treads for truck and heavy
equipment tires, |
|
|
|
retreads, and provides various materials and related services
for retreading, truck, aviation and heavy equipment tires, |
|
|
|
manufactures other products, including off-the-road tires, |
|
|
|
manufactures and sells new aviation tires, and |
|
|
|
provides miscellaneous other products and services. |
59
Markets and Other Information
Latin American Tire distributes and sells tires in most
countries in Latin America. Tire sales to OE customers and in
the replacement markets served by Latin American Tire during the
periods indicated were:
Latin American Tire Unit Sales Replacement and
OE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions of tires) |
|
| |
|
| |
|
| |
Replacement tire units
|
|
|
15.0 |
|
|
|
15.0 |
|
|
|
14.2 |
|
OE tire units
|
|
|
5.4 |
|
|
|
4.6 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total tire units
|
|
|
20.4 |
|
|
|
19.6 |
|
|
|
18.7 |
|
Asia Pacific Tire
Our Asia Pacific Tire segment manufactures and sells tires for
automobiles, light and medium trucks, farm and construction
equipment and aviation throughout the Asia Pacific markets. Asia
Pacific Tire manufactures tires in 11 plants in Australia,
China, India, Indonesia, Japan, Malaysia, New Zealand, the
Philippines, Taiwan and Thailand. Asia Pacific Tire also:
|
|
|
|
|
retreads truck and aviation tires, |
|
|
|
manufactures tread rubber and other tire retreading materials
from truck and aviation tires, and |
|
|
|
provides automotive maintenance and repair services at company
owned retail outlets. |
Effective January 1, 2004, Asia Pacific Tire includes the
operations of South Pacific Tyres, an Australian Partnership,
and South Pacific Tyres N.Z. Limited, a New Zealand company
(together, SPT), joint ventures 50% owned by
Goodyear and 50% owned by Ansell Ltd. SPT is the largest tire
manufacturer in Australia and New Zealand, with two tire
manufacturing plants and 15 retread plants. SPT sells Goodyear
brand, Dunlop brand and other house and private brand tires
through its chain of approximately 415 retail stores, commercial
tire centers and independent dealers. In January 2006, Goodyear
completed the purchase of Ansells interests in SPT
resulting in SPT becoming a wholly-owned subsidiary of Goodyear.
For further information about SPT, refer to the Notes to the
Consolidated Financial Statements No. 7, Investments,
No. 15, Business Segments and No. 21, Subsequent
Events.
Markets and Other Information
Asia Pacific Tire distributes and sells tires in most countries
in the Asia Pacific region. Tire sales to OE customers and in
the replacement markets served by Asia Pacific Tire during the
periods indicated were:
Asia Pacific Tire Unit Sales Replacement and
OE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions of tires) |
|
| |
|
| |
|
| |
Replacement tire units
|
|
|
13.9 |
|
|
|
14.5 |
|
|
|
9.1 |
|
OE tire units
|
|
|
6.2 |
|
|
|
5.0 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total tire units
|
|
|
20.1 |
|
|
|
19.5 |
|
|
|
13.4 |
|
Unit sales in 2004 increased by 5.5 million replacement
units and 0.8 million OE units due to the consolidation of
SPT, which occurred on January 1, 2004.
60
Engineered Products
Our Engineered Products segment develops, manufactures,
distributes and sells numerous rubber and thermoplastic products
worldwide. The products and services offered by Engineered
Products include:
|
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|
belts and hoses for motor vehicles, |
|
|
|
conveyor and power transmission belts, |
|
|
|
air, water, steam, hydraulic, petroleum, fuel, chemical and
materials handling hose for industrial applications, |
|
|
|
rubber track for agricultural and construction equipment, |
|
|
|
anti-vibration products, |
|
|
|
tank tracks, and |
|
|
|
miscellaneous products and services. |
Engineered Products manufactures products at 8 plants in the
United States and 22 plants in Australia, Brazil, Canada, Chile,
China, France, Mexico, Slovenia, South Africa and Venezuela.
Markets and Other Information
Engineered Products sells its products to the military,
manufacturers of vehicles and various industrial products and to
independent wholesale distributors. Numerous major firms
participate in the various markets served by Engineered
Products. There are several suppliers of automotive belts and
hose products, air springs, engine mounts and other rubber
components for motor vehicles. Engineered Products is a
significant supplier of these products, and is also a leading
supplier of conveyor and power transmission belts and industrial
hose products. The principal competitors of Engineered Products
include Dana, Mark IV, Gates, Bridgestone, Conti-Tech,
Trelleborg, Tokai/ DTR, Unipoly and Habasit.
These markets are highly competitive, with quality, service and
price all being significant factors to most customers.
Engineered Products believes its products are considered to be
of high quality and are competitive in price and performance.
General Business Information
Sources and Availability of Raw Materials
The principal raw materials used by Goodyear are synthetic and
natural rubber. We purchase all of our requirements for natural
rubber in the world market. Synthetic rubber typically accounts
for slightly more than half of all rubber consumed by us on an
annual basis. Our plants located in Beaumont, and Houston,
Texas, supply the major portion of our synthetic rubber
requirements in North America. We purchase a significant amount
of our synthetic rubber requirements outside North America from
third parties.
We use nylon and polyester yarns, substantial quantities of
which are processed in our textile mills. Significant quantities
of steel wire are used for radial tires, a portion of which we
produce. Other important raw materials we use are carbon black,
pigments, chemicals and bead wire. Substantially all of these
raw materials are purchased from independent suppliers, except
for certain chemicals we manufacture. We purchase most raw
materials in significant quantities from several suppliers,
except in those instances where only one or a few qualified
sources are available. We anticipate the continued availability
of all raw materials we will require during 2006, subject to
spot shortages and unexpected disruptions caused by natural
disasters such as hurricanes and other similar events.
Substantial quantities of hydrocarbon-based chemicals and fuels
are used in the production of tires and other rubber products,
synthetic rubber, latex and other products. Supplies of
chemicals and fuels have been
61
and are expected to continue to be available to us in quantities
sufficient to satisfy our anticipated requirements, subject to
spot shortages.
In the fall of 2005, we implemented temporary reductions in
production at our North American Tire facilities due to
disruptions in the supply of carbon black and other raw
materials resulting from the impact of Hurricanes Katrina and
Rita. The hurricanes had an adverse impact of approximately
$31 million on our results of operations in 2005
($21 million of which related to the fourth quarter)
primarily reflecting the unabsorbed fixed costs related to the
temporary closures of our Houston and Beaumont chemical plants
on the Texas Gulf Coast and reductions in production at our
North American Tire plants, as well as the impairment of certain
assets and loss of inventory.
Patents and Trademarks
We own approximately 2,588 product, process and equipment
patents issued by the United States Patent Office and
approximately 5,827 patents issued or granted in other countries
around the world. We also have licenses under numerous patents
of others. We have approximately 638 applications for United
States patents pending and approximately 4,042 patent
applications on file in other countries around the world. While
such patents, patent applications and licenses as a group are
important, we do not consider any patent, patent application or
license, or any related group of them, to be of such importance
that the loss or expiration thereof would materially affect
Goodyear or any business segment.
We own or control or use approximately 1,717 different
trademarks, including several using the word
Goodyear or the word Dunlop.
Approximately 9,973 registrations and 1,434 pending applications
worldwide protect these trademarks. While such trademarks as a
group are important, the only trademarks we consider material to
our business, or to the business of any of our segments, are
those using the word Goodyear, and with respect to
certain of our international business segments, those using the
word Dunlop. We believe our trademarks are valid and
most are of unlimited duration as long as they are adequately
protected and appropriately used.
Backlog
Our backlog of orders is not considered material to, or a
significant factor in, evaluating and understanding any of our
business segments or our businesses considered as a whole.
Research and Development
Our direct and indirect expenditures on research, development
and certain engineering activities relating to the design,
development and significant modification of new and existing
products and services and the formulation and design of new, and
significant improvements to existing, manufacturing processes
and equipment during the periods indicated were:
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
(In millions) |
|
|
|
|
|
|
Research and development expenditures
|
|
$365 |
|
$364 |
|
$339 |
These amounts were expensed as incurred.
Employees
At December 31, 2005, we employed approximately 80,000
people throughout the world, including approximately 32,000
persons in the United States. Approximately 13,600 of our
employees in the United States were covered by a master
collective bargaining agreement, dated August 20, 2003,
with the United Steelworkers, A.F.L.-C.I.O.-C.L.C.
(USW), which expires on July 22, 2006. In
addition, approximately 1,800 of our employees in the United
States were covered by other contracts with the USW and various
other unions. Unions represent the major portion of our
employees in Europe, Latin America and Asia.
62
Compliance with Environmental Regulations
We are subject to extensive regulation under environmental and
occupational health and safety laws and regulations. These laws
and regulations relate to, among other things, air emissions,
discharges to surface and underground waters and the generation,
handling, storage, transportation and disposal of waste
materials and hazardous substances. We have several continuing
programs designed to ensure compliance with federal, state and
local environmental and occupational safety and health laws and
regulations. We expect capital expenditures for pollution
control facilities and occupational safety and health projects
will be approximately $27 million during 2006 and
approximately $29 million during 2007.
We expended approximately $62 million during 2005, and
expect to expend approximately $64 million during 2006 and
2007 to maintain and operate our pollution control facilities
and conduct our other environmental activities, including the
control and disposal of hazardous substances. These expenditures
are expected to be sufficient to comply with existing
environmental laws and regulations and are not expected to have
a material adverse effect on our competitive position.
In the future we may incur increased costs and additional
charges associated with environmental compliance and cleanup
projects necessitated by the identification of new waste sites,
the impact of new environmental laws and regulatory standards,
or the availability of new technologies. Compliance with
federal, state and local environmental laws and regulations in
the future may require a material increase in our capital
expenditures and could adversely affect our earnings and
competitive position.
Information About International Operations
We engage in manufacturing and/or sales operations in most
countries in the world, often through subsidiary companies. We
have manufacturing operations in the United States and 28 other
countries. Most of our international manufacturing operations
are engaged in the production of tires. Several engineered
rubber products and certain other products are also manufactured
in plants located outside the United States. Financial
information related to our geographic areas for the three year
period ended December 31, 2005 appears in the Note to the
Consolidated Financial Statements No. 18, Business
Segments, included herein.
In addition to the ordinary risks of the marketplace, in some
countries our operations are affected by price controls, import
controls, labor regulations, tariffs, extreme inflation and/or
fluctuations in currency values. Furthermore, in certain
countries where we operate, transfers of funds into or out of
such countries are generally or periodically subject to various
restrictive government regulations.
Properties
We manufacture our products in 102 manufacturing facilities
located around the world. There are 30 plants in the United
States and 72 plants in 28 other countries.
North American Tire Manufacturing Facilities. North
American Tire owns (or leases with the right to purchase at a
nominal price) and operates 25 manufacturing facilities in the
United States and Canada, including:
|
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|
|
12 tire plants (9 in the United States and 3 in Canada), |
|
|
|
1 steel tire wire cord plant, |
|
|
|
4 chemical plants, |
|
|
|
1 tire mold plant, |
|
|
|
2 textile mills, |
|
|
|
3 tire retread plants, and |
|
|
|
2 aviation retread plants. |
63
These facilities have floor space aggregating approximately
25.9 million square feet.
European Union Tire Manufacturing Facilities. European
Union Tire owns and operates 18 manufacturing facilities in 5
countries, including:
|
|
|
|
|
12 tire plants, |
|
|
|
1 tire fabric processing facility, |
|
|
|
1 steel tire wire cord plant, |
|
|
|
1 tire mold and tire manufacturing machines facility, |
|
|
|
1 tire retread plant, |
|
|
|
1 aviation retread plant, and |
|
|
|
1 mix plant. |
These facilities have floor space aggregating approximately
14.6 million square feet.
Eastern Europe, Middle East And Africa Tire Manufacturing
Facilities. Eastern Europe Tire owns and operates 6 tire
plants in 5 countries. These facilities have floor space
aggregating approximately 7.6 million square feet.
Latin American Tire Manufacturing Facilities. Latin
American Tire owns and operates 10 manufacturing facilities in 5
countries including:
|
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|
|
6 tire plants, |
|
|
|
1 textile mill, |
|
|
|
1 tire retread plant, |
|
|
|
1 aviation retread plant, and |
|
|
|
1 mold plant. |
These facilities have floor space aggregating approximately
5.6 million square feet.
Asia Pacific Tire Manufacturing Facilities. Asia Pacific
Tire (including SPT) owns and operates 11 tire plants in 10
countries, including 2 aviation retread plants. These facilities
have floor space aggregating approximately 6.3 million
square feet.
Engineered Products Manufacturing Facilities. Engineered
Products owns (or leases with the right to purchase at a nominal
price) 30 facilities, 8 located within the United States and 22
international locations throughout 10 other countries. These
facilities have floor space aggregating approximately
6.1 million square feet. Certain facilities manufacture
more than one group of products. The facilities include:
In the United States, Mexico and Canada
7 hose products plants
3 conveyor belting plants
3 molded rubber products plants
3 power transmission products plants
1 air springs plant
In Latin America
1 air springs plant
3 hose products plants
1 power transmission products plant
1 conveyor belt plant
1 textile mill
1 film plant
64
In Europe
1 air springs plant
1 power transmission products plant
In Asia Pacific
1 conveyor belting plant
1 hose products plant
In Africa
1 conveyor belting and power transmission products
plant
Plant Utilization. Our worldwide tire capacity
utilization rate was approximately 86% during 2005, compared to
approximately 88% during 2004 and 2003, respectively. We expect
to have production capacity sufficient to satisfy presently
anticipated demand for our tires and other products.
Other Facilities. We also own and operate four research
and development facilities and technical centers, and four tire
proving grounds. We also operate approximately 1,850 retail
outlets for the sale of our tires to consumers, approximately 65
tire retreading facilities and approximately 195 warehouse
distribution facilities. Substantially all of these facilities
are leased. We do not consider any one of these leased
properties to be material to our operations. For additional
information regarding leased properties, refer to the Notes to
the Consolidated Financial Statements No. 8, Properties and
Plants and No. 9, Leased Assets, included herein.
Legal Proceedings
Heatway Litigation and Settlement
On June 4, 2004, we entered into an amended settlement
agreement in Galanti et al. v. Goodyear (Case
No. 03-209, United States District Court, District of New
Jersey) that was intended to address the claims arising out of a
number of Federal, state and Canadian actions filed against us
involving a rubber hose product, Entran II, that we
supplied from 1989 to 1993 to Chiles Power Supply, Inc. (d/b/a
Heatway Systems), a designer and seller of hydronic radiant
heating systems in the United States. Heating systems using
Entran II are typically attached or embedded in either
indoor flooring or outdoor pavement, and use Entran II hose
as a conduit to circulate warm fluid as a source of heat.
On October 19, 2004, the Galanti court gave final
approval to the amended settlement. As a result, we made
$100 million of cash contributions to a settlement fund
through 2005. We will make additional payments of
$15 million, $15 million and $20 million in 2006,
2007 and 2008, respectively. In addition to these annual
payments, we contributed approximately $174 million
received from insurance contributions to a settlement fund
pursuant to the terms of the settlement agreement. We do not
expect to receive any additional insurance reimbursements for
Entran II related matters.
Approximately 41 sites ultimately opted-out of the settlement.
Nine of these sites are the subject of the one case pending
against us that has yet to go to trial, Bloom
et al. v. Goodyear (Case No. 05-CV-1317,
United States District Court for the District of Colorado). A
portion of the remaining 32 opt-outs may file actions against us
in the future. Although any liability resulting from
Bloom, the remaining opt-outs or the three actions
described below will not be covered by the amended settlement,
we will be entitled to assert a proxy claim against the
settlement fund for the payment such claimant would have been
entitled to under the amended settlement.
|
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|
|
Malek, et al. v. Goodyear (Case No. 02-B-1172,
United States District Court for the District of Colorado), a
case involving 25 homesites, in which a federal jury awarded the
plaintiffs aggregate damages of $8.1 million of which 40%
was allocated to us. Subsequent to the jury verdict, an
additional $4.8 million in prejudgment interest was awarded
to the plaintiffs, all of which was allocated to us. |
|
|
|
Holmes v. Goodyear (Case No. 98CV268-A,
District Court, Pitkin County, Colorado), a case involving one
site in which the jury awarded the plaintiff $633,000 in
damages, of which the jury allocated 20% to us. The plaintiff
was also awarded $368,000 in prejudgment interest and costs, all
of which was allocated to us. |
65
|
|
|
|
|
Cross Mountain Ranch, LP v. Goodyear (Case
No. 04CV105, District Court, Routt County, Colorado), a
case involving one site in which a jury awarded the plaintiff
approximately $450,000 in damages. No decision has been made
with respect to the amount, if any, of prejudgment interest to
be awarded to the plaintiff. |
During 2005, we reached resolution of Goodyear v. Vista
Resorts, Inc. (Case No. 02CA1690, Colorado Court of
Appeals), an action involving five homesites. After exhausting
our appeals in Vista, we paid the plaintiffs
$25.6 million in satisfaction of the judgment. This
liability was not covered by the amended settlement.
We also remain subject to the following two actions:
|
|
|
|
|
Sumerel et al. v. Goodyear et al. (Case
No. 02CA1997, Colorado Court of Appeals), a case involving
six sites in which a judgment was entered against us in the
amount of $1.3 million plus interest and costs; and |
|
|
|
|
Loughridge v. Goodyear and Chiles Power Supply, Inc.
(Case No. 98-B-1302, United States District Court for the
District of Colorado), a case in which a federal jury awarded 34
homeowners aggregate damages of $8.2 million, 50% of which
was allocated to us. The plaintiffs were also awarded an
additional $5.7 million in prejudgment interest, all of
which was allocated to us. On March 20, 2006, the United
States Court of Appeals for the Tenth Circuit denied
Goodyears petition for rehearing, effectively terminating
the litigation with respect to all but two of the
Loughridge homeowners. The Court of Appeals also ruled
that two homeowners whose claims had been rejected by the trial
court were entitled to a new trial. |
|
Any liability arising out of Sumerel or Loughridge
will not be covered by the amended settlement nor will we be
entitled to assert a proxy claim against the settlement fund for
amounts (if any) paid to plaintiffs in these actions.
We are pursuing appeals of Malek, Holmes and Sumerel
and may appeal Cross Mountain Ranch. We expect that
except for liabilities associated with these four cases,
Vista, Bloom, Loughridge and the remaining sites that
have opted-out of the amended settlement, our liability with
respect to Entran II matters has been addressed by the
amended settlement.
The ultimate cost of disposing of Entran II claims is
dependent upon a number of factors, including our ability to
resolve claims not subject to the amended settlement (including
the cases in which we have received adverse judgments), the
extent to which the liability, if any, associated with such a
claim may be offset by our ability to assert a proxy claim
against the settlement fund and whether or not claimants
opting-out of the amended settlement pursue claims against us in
the future.
Japan Investigation
On June 17, 2004, we became aware that the Japan Fair Trade
Commission had commenced an investigation into alleged unfair
business practices by several tire manufacturers and
distributors in Japan that supply tires to the Japan National
Defense Agency. One of the companies investigated was Goodyear
Wingfoot KK, a subsidiary of ours. In January 2006, Goodyear
Wingfoot KK was assessed a fine of approximately $37,000 by the
Japan Fair Trade Commission as a result of the investigation.
SEC Investigation
On October 22, 2003, we announced that we would restate our
financial results for the years ended 1998 through 2002 and for
the first and second quarters of 2003. Following this
announcement, the SEC advised us that they had initiated an
informal inquiry into the facts and circumstances related to the
restatement. On February 5, 2004, the SEC advised us that
it had approved the issuance of a formal order of investigation.
The order authorized an investigation into possible violations
of the securities laws related to the restatement and previous
public filings. On August 16, 2005, we announced that we
had received a Wells Notice from the staff of the
SEC. The Wells Notice states that the SEC staff intends to
recommend that a civil or
66
administrative enforcement action be brought against us for
alleged violations of provisions of the Securities Exchange Act
of 1934 relating to the maintenance of books, records and
internal accounting controls, the establishment of disclosure
controls and procedures, and the periodic SEC filing
requirements, as set forth in Sections 13(a) and
13(b)(2)(A) and (B) of the Act and SEC
Rules 12b-20,
13a-13 and
13a-15(a). The alleged
violations relate to the account reconciliation matters giving
rise to our initial decision to restate in October 2003. We have
also been informed that Wells Notices have been issued to a
former chief financial officer and a former chief accounting
officer of ours. We continue to cooperate with the SEC in
connection with this matter, the outcome of which cannot be
predicted at this time.
Securities Litigation
On October 23, 2003, following the announcement of the
restatement, a purported class action lawsuit was filed against
us in the United States District Court for the Northern District
of Ohio on behalf of purchasers of Goodyear common stock
alleging violations of the federal securities laws. After that
date, a total of 20 of these purported class actions were filed
against us in that court. These lawsuits name as defendants
several of Goodyears present or former officers and
directors, including Goodyears current chief executive
officer, Robert J. Keegan, Goodyears current chief
financial officer, Richard J. Kramer, and Goodyears former
chief financial officer, Robert W. Tieken, and allege, among
other things, that Goodyear and the other named defendants
violated federal securities laws by artificially inflating and
maintaining the market price of Goodyears securities. Five
derivative lawsuits were also filed by purported shareholders on
behalf of Goodyear in the United States District Court for the
Northern District of Ohio and two similar derivative lawsuits
originally filed in the Court of Common Pleas for Summit County,
Ohio were removed to federal court. The derivative actions are
against present and former directors, Goodyears present
and former chief executive officers and Goodyears former
chief financial officer and allege, among other things, breach
of fiduciary duty and corporate waste arising out of the same
events and circumstances upon which the securities class actions
are based. The plaintiffs in the federal derivative actions also
allege violations of Section 304 of the Sarbanes-Oxley Act
of 2002, by certain of the named defendants. Finally, at least
11 lawsuits have been filed in the United States District Court
for the Northern District of Ohio against Goodyear, The Northern
Trust Company, and current and/or former officers of Goodyear
asserting breach of fiduciary claims under the Employee
Retirement Income Security Act (ERISA) on behalf of a
putative class of participants in Goodyears Employee
Savings Plan for Bargaining Unit Employees and Goodyears
Savings Plan for Salaried Employees. The plaintiffs claims
in these actions arise out of the same events and circumstances
upon which the securities class actions and derivative actions
are based. All of these actions have been consolidated into
three separate actions before the Honorable Judge John Adams in
the United States District Court for the Northern District of
Ohio. On June 28 and July 16, 2004, amended complaints were
filed in each of the three consolidated actions. The amended
complaint in the purported ERISA class action added certain
current and former directors and associates of Goodyear as
additional defendants and the Northern Trust Company was
subsequently dismissed without prejudice from this action. On
November 15, 2004, the defendants filed motions to dismiss
all three consolidated cases and the Court is considering these
motions. While Goodyear believes these claims are without merit
and intends to vigorously defend them, it is unable to predict
their outcome.
Asbestos Litigation
We are currently one of several (typically 50 to 80) defendants
in civil actions involving approximately 125,500 claimants (as
of December 31, 2005) relating to their alleged exposure to
materials containing asbestos in products manufactured by us or
asbestos materials at our facilities. These cases are pending in
various state courts, including primarily courts in California,
Florida, Illinois, Maryland, Michigan, Mississippi, New York,
Ohio, Pennsylvania, Texas and West Virginia, and in certain
federal courts relating to the plaintiffs alleged exposure
to materials containing asbestos. We manufactured, among other
things, rubber coated asbestos sheet gasket materials from 1914
through 1973 and aircraft brake assemblies containing asbestos
materials prior to 1987. Some of the claimants are independent
contractors or their employees who allege exposure to asbestos
while working at certain of our facilities. It is expected that
in a substantial portion of these cases there will be no
evidence of exposure to a Goodyear manufactured product
containing asbestos
67
or asbestos in Goodyear facilities. The amount expended by us
and our insurers on defense and claim resolution was
approximately $22 million during 2005. The plaintiffs in
the pending cases allege that they were exposed to asbestos and,
as a result of such exposure suffer from various respiratory
diseases, including in some cases mesothelioma and lung cancer.
The plaintiffs are seeking unspecified actual and punitive
damages and other relief.
Engineered Products Antitrust Investigation
The Antitrust Division of the United States Department of
Justice is conducting a grand jury investigation concerning the
closure of a portion of our Bowmanville, Ontario conveyor
belting plant announced in October 2003. In that connection, the
Division has sought documents and other information from us and
several associates. The plant was part of our Engineered
Products division and originally employed approximately
120 people. Although we do not believe that we have
violated the antitrust laws, we are cooperating with the
Department of Justice.
DOE Facility Litigation
On June 7, 1990, a civil action, Teresa Boggs,
et al. v. Divested Atomic Corporation, et al.
(Case No. C-1-90-450), was filed in the United States
District Court for the Southern District of Ohio by Teresa Boggs
and certain other named plaintiffs on behalf of themselves and a
putative class comprised of certain other persons who resided
near the Portsmouth Uranium Enrichment Complex, a facility owned
by the United States Department of Energy located in Pike
County, Ohio (the DOE Plant), against Divested
Atomic Corporation (DAC), the successor by merger of
Goodyear Atomic Corporation (GAC), Goodyear, and
Lockheed Martin Energy Systems (LMES). GAC operated
the DOE Plant for several years pursuant to a series of
contracts with the DOE until LMES assumed operation of the DOE
Plant on November 16, 1986. The plaintiffs allege that the
operators of the DOE Plant contaminated certain areas near the
DOE Plant with radioactive and/or other hazardous materials
causing property damage and emotional distress. Plaintiffs claim
$300 million in compensatory damages, $300 million in
punitive damages and unspecified amounts for medical monitoring
and cleanup costs. This civil action is no longer a class action
as a result of rulings of the District Court decertifying the
class. On June 8, 1998, a civil action, Adkins,
et al. v. Divested Atomic Corporation, et al.
(Case No. C2 98-595), was filed in the United States
District Court for the Southern District of Ohio, Eastern
Division, against DAC, Goodyear and LMES on behalf of
approximately 276 persons who currently reside, or in the
past resided, near the DOE Plant. The plaintiffs allege, on
behalf of themselves and a putative class of all persons who
were residents, property owners or lessees of property subject
to alleged windborne particulates and water run-off from the DOE
Plant, that DAC (and, therefore, Goodyear) and LMES in their
operation of the Portsmouth DOE Plant (i) negligently
contaminated, and are strictly liable for contaminating, the
plaintiffs and their property with allegedly toxic substances,
(ii) have in the past maintained, and are continuing to
maintain, a private nuisance, (iii) have committed, and
continue to commit, trespass, and (iv) violated the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980. The plaintiffs are seeking $30 million in
actual damages, $300 million in punitive damages, other
unspecified legal and equitable remedies, costs, expenses and
attorneys fees.
Notice of Violation
In November 2005, the Texas Commission on Environmental Quality
(TCEQ) notified Goodyear that it was pursuing an
enforcement action in connection with alleged violations of
state air emission standards at Goodyears Beaumont, Texas
chemical facility. The violations are alleged to have occurred
between November 2003 and June 2005. TCEQ is seeking a penalty
of approximately $350,000. Goodyear is currently negotiating a
resolution of this matter with the TCEQ.
68
Other Matters
In addition to the legal proceedings described above, various
other legal actions, claims and governmental investigations and
proceedings covering a wide range of matters are pending against
us, including claims and proceedings relating to several waste
disposal sites that have been identified by the United States
Environmental Protection Agency and similar agencies of various
States for remedial investigation and cleanup, which sites were
allegedly used by us in the past for the disposal of industrial
waste materials. Based on available information, we do not
consider any such action, claim, investigation or proceeding to
be material, within the meaning of that term as used in
Item 103 of
Regulation S-K and
the instructions thereto. For additional information regarding
our legal proceedings, refer to the Note to the Consolidated
Financial Statements No. 17, Commitments and Contingent
Liabilities, included herein.
Supplementary Data
The supplementary data specified by Item 302 of
Regulation S-K as
it relates to quarterly data is included in
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
69
Management
Directors and Executive Officers
Set forth below are the names and ages of all of the members of
the Board of Directors and executive officers of Goodyear as of
the date of this prospectus, all positions with Goodyear
presently held by each such person and the positions held by,
and principal areas of responsibility of, each such person
during the last five years.
The Board of Directors is classified into three classes of
directors: Class I, Class II and Class III. At
each annual meeting of shareholders, directors of one class are
elected, on a rotating basis, to three year terms, to serve as
the successors to the directors of the same class whose terms
expire at that annual meeting. The current terms of the
Class I, Class II and Class III Directors will
expire at the 2008, 2007 and 2006 annual meetings, respectively.
Each executive officer is elected by Goodyears Board of
Directors at its annual meeting to a term of one year or until
his or her successor is duly elected, except in those instances
where the person is elected at other than an annual meeting, in
which event such persons term will expire at the next
annual meeting.
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position(s) Held |
|
|
| |
|
|
Robert J. Keegan
|
|
|
58 |
|
|
Chairman of the Board, Chief Executive Officer and President |
Jonathan D. Rich
|
|
|
50 |
|
|
President, North American Tire |
Arthur de Bok
|
|
|
43 |
|
|
President, European Union Tire |
Jarro F. Kaplan
|
|
|
58 |
|
|
President, Eastern Europe, Middle East and Africa Business |
Eduardo A. Fortunato
|
|
|
52 |
|
|
President, Latin America Region |
Pierre Cohade
|
|
|
44 |
|
|
President, Asia Pacific Region |
Timothy R. Toppen
|
|
|
50 |
|
|
President, Engineered Products |
Lawrence D. Mason
|
|
|
45 |
|
|
President, North American Tire Consumer Business |
Richard J. Kramer
|
|
|
42 |
|
|
Executive Vice President and Chief Financial Officer |
Joseph M. Gingo
|
|
|
61 |
|
|
Executive Vice President, Quality Systems and Chief Technical
Officer |
C. Thomas Harvie
|
|
|
62 |
|
|
Senior Vice President, General Counsel and Secretary |
Charles L. Sinclair
|
|
|
54 |
|
|
Senior Vice President, Global Communications |
Christopher W. Clark
|
|
|
54 |
|
|
Senior Vice President, Global Sourcing |
Kathleen T. Geier
|
|
|
49 |
|
|
Senior Vice President, Human Resources |
Darren R. Wells
|
|
|
40 |
|
|
Senior Vice President, Business Development and Treasurer |
Thomas A. Connell
|
|
|
57 |
|
|
Vice President and Controller |
Donald D. Harper
|
|
|
59 |
|
|
Vice President |
William M. Hopkins
|
|
|
61 |
|
|
Vice President |
Isabel H. Jasinowski
|
|
|
57 |
|
|
Vice President |
Gary A. Miller
|
|
|
59 |
|
|
Vice President |
James C. Boland
|
|
|
66 |
|
|
Director |
John G. Breen
|
|
|
71 |
|
|
Director |
Gary D. Forsee
|
|
|
55 |
|
|
Director |
William J. Hudson, Jr.
|
|
|
71 |
|
|
Director |
70
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position(s) Held |
|
|
| |
|
|
Steven A. Minter
|
|
|
67 |
|
|
Director |
Denise M. Morrison
|
|
|
52 |
|
|
Director |
Rodney ONeal
|
|
|
52 |
|
|
Director |
Shirley D. Peterson
|
|
|
64 |
|
|
Director |
Thomas H. Weidemeyer
|
|
|
58 |
|
|
Director |
Michael R. Wessel
|
|
|
46 |
|
|
Director |
Robert J. Keegan, Chairman, President and Chief Executive
Officer. Mr. Keegan joined Goodyear on October 1, 2000.
He was elected President and Chief Operating Officer and a
Director of the Company on October 3, 2000, and President
and Chief Executive Officer of the Company effective
January 1, 2003. Effective June 30, 2003, he became
Chairman. He is the principal executive officer of the Company.
Prior to joining Goodyear, Mr. Keegan held various
marketing, finance and managerial positions at Eastman Kodak
Company from 1972 through September 2000, including Vice
President from July 1997 to October 1998, Senior Vice President
from October 1998 to July 2000 and Executive Vice President from
July 2000 to September 2000. Mr. Keegan is a Class II
director.
Jonathan D. Rich, President, North American Tire.
Mr. Rich joined Goodyear in September 2000 and was elected
President, Chemical Division on August 7, 2001, serving as
the executive officer responsible for Goodyears chemical
products operations worldwide. Effective December 1, 2002,
Mr. Rich was appointed, and on December 3, 2002 he was
elected President, North American Tire and is the executive
officer responsible for Goodyears tire operations in the
United States and Canada. Prior to joining Goodyear,
Mr. Rich was technical director of GE Bayer Silicones in
Leverkusen, Germany. He also served in various managerial posts
with GE Corporate R&D and GE Silicones, units of the General
Electric Company from 1986 to 1998.
Arthur de Bok, President, European Union Business. On
September 16, 2005, Mr. de Bok was appointed
president, European Union Business and was elected to that
position on October 4, 2005. After joining Goodyear on
December 31, 2001, Mr. de Bok served in various
managerial positions in Goodyears European operations.
Prior to joining Goodyear, Mr. de Bok served in various
marketing and managerial posts for The Procter & Gamble
Company from 1989 to 2001. Mr. de Bok is the executive
officer responsible for Goodyears tire operations in
Western Europe.
Jarro F. Kaplan, President, Eastern Europe, Middle East and
Africa Business. Mr. Kaplan served in various
development and sales and marketing managerial posts until he
was appointed Managing Director of Goodyear Turkey in 1993 and
thereafter Managing Director of Goodyear Great Britain Limited
in 1996. He was appointed Managing Director of Deutsche Goodyear
in 1999. On May 7, 2001, Mr. Kaplan was elected
President, Eastern Europe, Middle East and Africa Business and
is the executive officer responsible for Goodyears tire
operations in Eastern Europe, the Middle East and Africa.
Goodyear employee since 1969.
Eduardo A. Fortunato, President, Latin American Region.
Mr. Fortunato served in various international managerial,
sales and marketing posts with Goodyear until he was elected
President and Managing Director of Goodyear Brazil in 2000. On
November 4, 2003, Mr. Fortunato was elected President,
Latin American Region. Mr. Fortunato is the executive
officer responsible for Goodyears tire operations in
Mexico, Central America and South America. Goodyear employee
since 1975.
Pierre Cohade, President, Asia Pacific Region.
Mr. Cohade joined Goodyear in October, 2004 and was elected
President Asia Pacific Region on October 5, 2004.
Mr. Cohade is the executive officer responsible for
Goodyears tire operations in Asia, Australia and the
Western Pacific. Prior to joining Goodyear, Mr. Cohade
served in various finance and managerial posts with the Eastman
Kodak Company from 1985 to 2001, including chairman of Eastman
Kodaks Europe, Africa, Middle East and Russian Region from
2001 to 2003. From February 2003 to April 2004, Mr. Cohade
served as the Executive Vice President of Groupe Danones
beverage division.
71
Timothy R. Toppen, President, Engineered Products.
Mr. Toppen served in various research, technology and
marketing posts until April 1, 1997 when he was appointed
Director of Research and Development for Engineered Products.
Mr. Toppen was elected President, Chemical Division, on
August 1, 2000, serving in that office until he was elected
President, Engineered Products on August 7, 2001.
Mr. Toppen is the executive officer responsible for
Goodyears Engineered Products operations worldwide.
Goodyear employee since 1978.
Lawrence D. Mason, President, Consumer Tires, North American
Tires. Mr. Mason joined Goodyear on October 7, 2003 and
was elected President, North American Tire Consumer Business
effective October 13, 2003. Mr. Mason is the executive
officer responsible for the business activities of
Goodyears tire consumer business in North America. Prior
to joining Goodyear, Mr. Mason was employed by
Huhtamaki Americas as Division President of North
American Foodservice and Retail Consumer Products from 2002 to
2003. From 1983 to 2001, Mr. Mason served in various sales
and managerial posts with The Procter & Gamble Company.
Richard J. Kramer, Executive Vice President and Chief
Financial Officer. Mr. Kramer joined Goodyear on
March 6, 2000, when he was appointed a Vice President for
corporate finance. On April 10, 2000, Mr. Kramer was
elected Vice President-Corporate Finance, serving in that
capacity as the Companys principal accounting officer
until August 6, 2002, when he was elected Vice President,
Finance North American Tire. Effective
August 28, 2003 he was appointed, and on October 7,
2003 he was elected, Senior Vice President, Strategic Planning
and Restructuring. He was elected Executive Vice President and
Chief Financial Officer on June 1, 2004. Mr. Kramer is
the principal financial officer of the Company. Prior to joining
Goodyear, Mr. Kramer was an associate of
PricewaterhouseCoopers LLP for 13 years, including
two years as a partner.
Joseph M. Gingo, Executive Vice President, Quality Systems
and Chief Technical Officer. Mr. Gingo served in
various research and development and managerial posts until
November 5, 1996, when he was elected a Vice President,
responsible for Goodyears operations in Asia, Australia
and the western Pacific. On September 1, 1998,
Mr. Gingo was placed on special assignment with the office
of the Chairman of the Board. From December 1, 1998 to
June 30, 1999, Mr. Gingo served as the Vice President
responsible for Goodyears worldwide Engineered Products
operations. Effective July 1, 1999 to June 1, 2003,
Mr. Gingo served as Senior Vice President, Technology and
Global Products Planning. On June 2, 2003, Mr. Gingo
was elected Executive Vice President, Quality Systems and Chief
Technical Officer. Mr. Gingo is the executive officer
responsible for Goodyears research and tire technology
development and product planning operations worldwide. Goodyear
employee since 1966.
C. Thomas Harvie, Senior Vice President, General Counsel
and Secretary. Mr. Harvie joined Goodyear on
July 1, 1995, when he was elected a Vice President and the
General Counsel. Effective July 1, 1999, Mr. Harvie
was appointed, and on August 3, 1999 he was elected, Senior
Vice President and General Counsel. He was elected Senior Vice
President, General Counsel and Secretary effective June 16,
2000. Mr. Harvie is the chief legal officer and is the
executive officer responsible for the government relations and
real estate activities of Goodyear.
Charles L. Sinclair, Senior Vice President, Global
Communications. Mr. Sinclair served in various public
relations and communications positions until 2002, when he was
named Vice President, Public Relations and Communications for
North American Tire. Effective June 16, 2003, he was
appointed, and on August 5, 2003, he was elected Senior
Vice President, Global Communications. Mr. Sinclair is the
executive officer responsible for Goodyears worldwide
communications activities. Goodyear employee since 1984.
Christopher W. Clark, Senior Vice President, Global
Sourcing. Mr. Clark served in various managerial and
financial posts until October 1, 1996, when he was
appointed managing director of P.T. Goodyear Indonesia Tbk,
a subsidiary of Goodyear. On September 1, 1998, he was
appointed managing director of Goodyear do Brasil Produtos de
Borracha Ltda, a subsidiary of Goodyear. On August 1, 2000,
he was elected President, Latin America Tire. On
November 4, 2003, Mr. Clark was named Senior Vice
President, Global Sourcing. Mr. Clark is the executive
officer responsible for coordinating Goodyears supply
activities worldwide. Goodyear employee since 1973.
72
Kathleen T. Geier, Senior Vice President, Human
Resources. Ms. Geier served in various managerial and
human resources posts until July 1, 2002 when she was
appointed and later elected, Senior Vice President, Human
Resources. Ms. Geier is the executive officer responsible
for Goodyears human resources activities worldwide.
Goodyear employee since 1978.
Darren R. Wells, Senior Vice President, Business Development
and Treasurer. Mr. Wells joined Goodyear on
August 1, 2002 and was elected Vice President and Treasurer
on August 6, 2002. On May 11, 2005, Mr. Wells was
named Senior Vice President, Business Development and Treasurer.
Mr. Wells is the executive officer responsible for
Goodyears treasury operations, risk management and pension
asset management activities as well as its worldwide business
development activities. Prior to joining Goodyear,
Mr. Wells served in various financial posts with Ford Motor
Company units from 1989 to 2000 and was the Assistant Treasurer
of Visteon Corporation from 2000 to July 2002.
Thomas A. Connell, Vice President and Controller.
Mr. Connell joined Goodyear on September 1, 2003 and
was elected Vice President and Controller on October 7,
2003. Mr. Connell serves as Goodyears principal
accounting officer. Prior to joining Goodyear, Mr. Connell
served in various financial positions with TRW Inc. from 1979 to
June 2003, most recently as its Vice President and corporate
controller. From 1970 to 1979, Mr. Connell was an audit
supervisor with the accounting firm of Ernst & Whinney.
Donald D. Harper, Vice President. Mr. Harper served
in various organizational effectiveness and human resources
posts until June 1996, when he was appointed Vice President of
Human Resources Planning, Development and Change. Effective
December 1, 2003, Mr. Harper has served as the Vice
President, Human Resources, North America Shared Services.
Mr. Harper was elected a Vice President effective
December 1, 1998 and is the executive officer responsible
for corporate human resources activities in North America.
Goodyear employee since 1968.
William M. Hopkins, Vice President. Mr. Hopkins
served in various tire technology and managerial posts until
appointed Director of Tire Technology for North American Tire
effective June 1, 1996. He was elected a Vice President
effective May 19, 1998. He served as the executive officer
responsible for Goodyears worldwide tire technology
activities until August 1, 1999. Since August 1, 1999,
Mr. Hopkins has served as the executive officer responsible
for Goodyears worldwide product marketing and technology
planning activities. Goodyear employee since 1967.
Isabel H. Jasinowski, Vice President. Ms. Jasinowski
served in various government relations posts until she was
appointed Vice President of Government Relations in 1995. On
April 2, 2001, Ms. Jasinowski was elected Vice
President, Government Relations, serving as the executive
officer primarily responsible for Goodyears governmental
relations and public policy activities. Goodyear employee since
1981.
Gary A. Miller, Vice President. Mr. Miller served in
various management and research and development posts until he
was elected a Vice President effective November 1, 1992.
Mr. Miller was elected Purchasing and Chief Procurement
Officer in May 2003. He is the executive officer primarily
responsible for Goodyears purchasing operations worldwide.
Goodyear employee since 1967.
James C. Boland, Director. Mr. Boland was the
President and Chief Executive Officer of Cavs/ Gund Arena
Company (the Cleveland Cavaliers professional basketball team
and Gund Arena) from 1998 to December 31, 2002. He became
Vice Chairman of that organization on January 1, 2003,
which, following a change in ownership, was renamed the
Cavaliers Operating Company, LLC. Prior to his retirement from
Ernst & Young in 1998, Mr. Boland served for
22 years as a partner of Ernst & Young in various
roles including Vice Chairman and Regional Managing Partner, as
well as a member of the firms Management Committee.
Mr. Boland is a director of Invacare Corporation and The
Sherwin-Williams Company.
John G. Breen, Director. Mr. Breen was the Chairman
of the Board and Chief Executive Officer of The Sherwin-Williams
Company from January 15, 1979 to October 25, 1999,
when he retired as Chief Executive Officer. He served as
Chairman of the Board of The Sherwin-Williams Company until
April 26, 2000, when he retired. He is a director of The
Stanley Works.
73
Gary D. Forsee, Director. Mr. Forsee has served as
Sprint Nextels President and Chief Executive Officer since
the merger of Sprint and Nextel in August 2005. Mr. Forsee
previously served as Sprint Corp.s Chief Executive Officer
from March 2003 to August 2005 and as its Chairman of the Board
from May 2003 to August 2005. Prior to joining Sprint,
Mr. Forsee served as the Vice Chairman-Domestic Operations
of BellSouth Corporation from December 2001 to February 2003,
and held other managerial positions at BellSouth from September
1999 to December 2001. Prior to joining BellSouth,
Mr. Forsee was President and Chief Executive Officer of
Global One, a global telecommunications joint venture, from
January 1998 to July 1999.
William J. Hudson, Jr., Director. Mr. Hudson
was the President and Chief Executive Officer of AMP,
Incorporated from January 1, 1993 to August 10, 1998.
Mr. Hudson served as the Vice Chairman of AMP, Incorporated
from August 10, 1998 to April 30, 1999.
Mr. Hudson is a member of the Executive Committee of the
United States Council for International Business.
Steven A. Minter, Director. Mr. Minter was the
President and Executive Director of The Cleveland Foundation,
Cleveland, Ohio, from January 1, 1984 to June 30,
2003, when he retired. Since September 1, 2003,
Mr. Minter has served as a part-time
Executive-in-Residence
at Cleveland State University. Mr. Minter is a director of
KeyCorp.
Denise M. Morrison, Director. Ms. Morrison has
served as the President of the Campbell USA Soup, Sauce and
Beverage division of The Campbell Soup Company since June 2005.
From April 2003 to June 2005 she served as Campbell Soups
President of Global Sales and Chief Customer Officer. She has
been a Senior Vice President of Campbell Soup since April 2003.
Prior to joining Campbell Soup, Ms. Morrison served in
various managerial positions at Kraft Foods, including as
Executive Vice President/ General Manager of the Snacks Division
from October 2001 to March 2003 and the Confections Division
from January 2001 to September 2001. Ms. Morrison also
served in various managerial positions at Nabisco Inc. from 1995
to 2000 and at Nestle USA from 1984 to 1995.
Rodney ONeal, Director. Mr. ONeal has
served in various managerial positions at Delphi Corporation
since 1999 and has served as the President and Chief Operating
Officer since January 7, 2005, when he was also elected to
Delphis Board of Directors. Mr. ONeal also
served in various managerial and engineering positions at
General Motors Corporation from 1976 to 1999, including Vice
President of General Motors and President of Delphi Interior
Systems prior to Delphis separation from General Motors.
Shirley D. Peterson, Director. Mrs. Peterson was
President of Hood College from 1995-2000. From 1989 to 1993 she
served in the U.S. Government, first appointed by the
President as Assistant Attorney General in the Tax Division of
the Department of Justice, then as Commissioner of the Internal
Revenue Service. She was also a partner in the law firm of
Steptoe & Johnson LLP where she served a total of
22 years from 1969 to 1989 and from 1993 to 1994.
Mrs. Peterson is also a director of AK Steel Corp.,
Champion Enterprises Federal-Mogul Corp., Wolverine Worldwide,
Inc. and is an independent trustee for Scudder Mutual Funds.
Thomas H. Weidemeyer, Director. Until his retirement in
December 2003, Mr. Weidemeyer served as Director, Senior
Vice President and Chief Operating Officer of United Parcel
Service, Inc., the worlds largest transportation company,
since January 2001, and President of UPS Airlines since June
1994. Mr. Weidemeyer became Manager of the Americas
International Operation in 1989, and in that capacity directed
the development of the UPS delivery network throughout Central
and South America. In 1990, Mr. Weidemeyer became Vice
President and Airline Manager of UPS Airlines and in 1994 was
elected its President and Chief Operating Officer.
Mr. Weidemeyer became Manager of the Air Group and a member
of the Management Committee that same year. In 1998 he was
elected as a Director and he became Chief Operating Officer of
United Parcel Service, Inc. in 2001. Mr. Weidemeyer is also
a director of NRG Energy, Inc. and Waste Management, Inc.
Michael R. Wessel, Director. Mr. Wessel is an
attorney with almost 30 years experience as a policy and
international trade advisor in Washington, D.C. In 1977 as
a staff assistant to Richard Gephardt, he advised government
officials on a wide range of domestic and international issues,
and in 1984 he was named legislative director. In 1989, he
became the policy director and in 1991 he was named general
counsel for the
74
Congressman. Mr. Wessel also served as a key economic and
trade policy advisor for Gephardts presidential campaigns
in 1987-88 and 2003-04, as well as John Kerrys campaign in
2004. He was a senior policy advisor for the Clinton/ Gore
Transition Office in 1992 and 1993.
Compensation of Directors
Goodyear directors who are not officers or employees of Goodyear
or any of its subsidiaries receive, as compensation for their
services as a director, $17,500 per calendar quarter. The
Presiding Director receives an additional $13,750 per
calendar quarter. The chairperson of the Audit Committee
receives an additional $3,750 per calendar quarter and the
chairpersons of all other committees receive an additional
$1,250 per calendar quarter. Any director who attends more
than 24 board and committee meetings will receive $1,700
for each additional meeting attended ($1,000 if the meeting is
attended by telephone). Travel and lodging expenses incurred in
attending board and committee meetings are paid by Goodyear. A
director who is also an officer or an employee of Goodyear or
any of its subsidiaries does not receive additional compensation
for his or her services as a director.
Directors who are not current or former employees of Goodyear or
its subsidiaries participate in the Outside Directors
Equity Participation Plan (the Directors Equity
Plan). The Directors Equity Plan is intended to
further align the interests of directors with the interests of
shareholders by making part of each directors compensation
dependent on the value and appreciation over time of the Common
Stock.
Under the Directors Equity Plan, on the first business day
of each calendar quarter each eligible director who has been a
director for the entire preceding calendar quarter will have
$20,000 accrued to his or her plan account. Amounts accrued are
converted into units equivalent in value to shares of Common
Stock at the fair market value of the Common Stock on the
accrual date. The units will receive dividend equivalents at the
same rate as the Common Stock, which dividends will also be
converted into units in the same manner. The Directors
Equity Plan also permits each participant to annually elect to
have 25%, 50%, 75% or 100% of his or her retainer and meeting
fees deferred and converted into share equivalents on
substantially the same basis.
A participating director is entitled to benefits under the
Directors Equity Plan after leaving the Board of Directors
unless the Board of Directors elects to deny or reduce benefits.
Benefits may not be denied or reduced if, prior to leaving the
Board of Directors, the director either (i) attained the
age of 70 with at least five years of Board service or
(ii) attained the age of 65 with at least ten years of
Board service. The units will be converted to a dollar value at
the price of the Common Stock on the later of the first business
day of the seventh month following the month during which the
participant ceases to be a director and the fifth business day
of the year next following the year during which the participant
ceased to be a director. Such amounts earned and vested prior to
January 1, 2005 will be paid in ten annual installments or,
at the discretion of the Compensation Committee, in a lump sum
or in fewer than ten installments beginning on the fifth
business day following the conversion from units to a dollar
value. Amounts earned and vested after December 31, 2004
will be paid out in a lump sum on the fifth business day
following the conversion from units to dollar value. Amounts in
Plan accounts will earn interest from the date converted to a
dollar value until paid at a rate one percent higher than the
prevailing yield on United States Treasury securities having a
ten-year maturity on the conversion date.
The units accrued to the accounts of the participating directors
under the Directors Equity Plan at January 31, 2006
are set forth in the Deferred Share Equivalent Units
column of the Beneficial Ownership of Directors and Management
table set forth under the heading Security Ownership of
Certain Beneficial Owners and Management.
Goodyear also sponsors a Directors Charitable Award
Program funded by life insurance policies owned by Goodyear on
the lives of pairs of directors. Goodyear donates
$1 million per director to one or more qualifying
charitable organizations recommended by each director after both
of the paired directors are deceased. Assuming current tax laws
remain in effect, Goodyear will recover the cost of the program
over time with the proceeds of the insurance policies purchased.
Directors derive no financial benefit from the program. This
program is not available to directors elected after
October 1, 2005.
75
Compensation of Executive Officers
Summary of Compensation
The table below sets forth information regarding the
compensation of the Chief Executive Officer of Goodyear and the
persons who were, at December 31, 2005, the other four most
highly compensated executive officers of Goodyear (the
Named Officers) for services in all capacities to
Goodyear and its subsidiaries during 2005, 2004 and 2003.
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Long Term Compensation | |
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Awards | |
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Payouts | |
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Annual Compensation | |
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Securities | |
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Other | |
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Underlying | |
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Long Term | |
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All | |
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Annual | |
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Restricted | |
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Options/ | |
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Incentive | |
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Other | |
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Compen- | |
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Stock | |
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SARs | |
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Plan | |
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Compen- | |
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Bonus | |
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sation | |
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Award(s) | |
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(Number | |
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Payouts | |
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sation | |
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Salary | |
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(Dollars) | |
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(Dollars) | |
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(Dollars) | |
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of | |
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(Dollars) | |
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(Dollars) | |
Name and Principal Position |
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Year | |
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(Dollars) | |
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(1) | |
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(2) | |
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(3) | |
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Shares) | |
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(4) | |
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(5) | |
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Robert J. Keegan
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2005 |
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$1,083,333 |
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$ |
3,000,000 |
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$ |
52,615 |
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413,859 |
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$ |
1,181,540 |
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$ |
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Chairman of the Board,
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2004 |
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1,050,000 |
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2,600,000 |
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261,548 |
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472,113 |
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1,000,000 |
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Chief Executive Officer
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2003 |
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1,000,000 |
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509,200 |
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200,000 |
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and President(6)
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Richard J. Kramer
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2005 |
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452,400 |
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660,000 |
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82,192 |
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104,369 |
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Executive Vice President and
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2004 |
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378,750 |
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587,704 |
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47,861 |
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78,686 |
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500,000 |
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Chief Financial Officer(7)
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2003 |
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300,000 |
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50,496 |
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41,600 |
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Jonathan D. Rich
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2005 |
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436,800 |
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654,500 |
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54,598 |
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263,877 |
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President, North American
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2004 |
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420,000 |
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680,000 |
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52,000 |
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55,080 |
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500,000 |
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Tire(8)
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2003 |
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345,000 |
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63,476 |
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45,000 |
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C. Thomas Harvie
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2005 |
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441,067 |
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580,000 |
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67,020 |
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236,308 |
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Senior Vice President,
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2004 |
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431,000 |
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560,000 |
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49,087 |
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157,371 |
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200,000 |
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General Counsel and
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2003 |
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415,000 |
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175,000 |
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42,700 |
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Secretary
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Joseph M. Gingo
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2005 |
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372,333 |
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520,000 |
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24,894 |
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137,846 |
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Executive Vice President
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2004 |
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362,083 |
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500,000 |
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25,600 |
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91,800 |
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150,000 |
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Quality Systems and Chief
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2003 |
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344,250 |
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111,692 |
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24,000 |
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Technical Officer(9)
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Notes to Summary Compensation Table:
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(1) |
Represents amounts awarded under the Performance Recognition
Plan. The entire amount of the award to Mr. Rich in 2005
was deferred in stock units pursuant to the Deferred
Compensation Plan for Executives. Amounts deferred are included
in the amounts shown on the table. |
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(2) |
The amount reported for Mr. Keegan in 2005 includes $37,194
for home security system installation and monitoring expenses. |
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(3) |
No restricted stock was awarded or issued by the Company to any
Named Officer during 2005, 2004 or 2003. On August 6, 2002,
Mr. Kramer purchased 10,000 shares of Common Stock for
a purchase price of $.01 per share that were subject to
transfer and other restrictions and to Goodyears option to
repurchase under specified circumstances through August 6,
2005. The market value of the shares at the date of grant was
$15.55, and Mr. Kramer received all dividends paid on the
Common Stock. Although the three-year period during which the
shares were restricted from transfer lapsed on August 6,
2005, restrictions on the transfer of the shares will remain in
effect until such time as the Company determines it is able to
deduct the value of the shares under Section 162(m) of the
Internal Revenue Code. |
|
|
(4) |
The payouts for 2005 relate to performance equity units granted
on December 3, 2002 (the 2005 Units), and the
payouts for 2004 relate to performance equity units granted on
December 3, 2001 and August 6, 2002 (the 2004
Units). Amounts earned were determined by the extent to
which the performance goals related to the units were achieved
during the three year performance period applicable to the
grant. The performance measure for 50% of each unit was based on
Goodyears average annual |
76
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return on invested capital and the other 50% was based on
Goodyears total shareholder return relative to a peer
group consisting of the firms included in the S&P Auto Parts
& Equipment Index. Payouts ranging from 0% to 150% of the
units granted could have been earned. Amounts earned for both
the 2005 Units and 2004 Units were determined based on
Goodyears average annual total shareholder return
(potential payouts ranged from 30% of the units if the total
shareholder return equaled or exceeded the 30th percentile of
the peer group to 75% of the units if Goodyears total
shareholder return during the relevant performance period
equaled or exceeded the 75th percentile of the peer group) and
its return on the invested capital (with respect to the 2005
Units, potential payouts ranging from 35% of the units if a
12.4% average annual return were achieved to 75% of the units if
a 18.4% average annual return were achieved, and with respect to
the 2004 Units, potential payouts ranging from 35% of the units
if a 7.6% average annual return were achieved to 75% of the
units if a 13.6% average annual return were achieved) during the
performance period. With respect to the 2005 Units, as a result
of the achievement of the target levels during the three year
performance period ending December 30, 2005, each
participant earned 112.85% of the units granted. The value of
each unit, $17.45, was based on the average of the high and low
sale price of the Common Stock on December 31, 2005. With
respect to the 2004 Units, as a result of the achievement of the
target levels during the three year performance period ending
December 31, 2004, each participant earned 89.64% of the
units granted. The value of each unit, $14.63, was based on the
average of the high and low sale price of the Common Stock on
December 31, 2004. Payouts with respect to both the 2005
Units and 2004 Units were made 50% in cash and 50% in shares of
Common Stock. |
|
|
(5) |
All Other Compensation for each Named Officer in 2004 consists
of the guaranteed payout related to grants to the Named Officers
under the Executive Performance Plan (the EP Plan).
This payout will only be made if the Named Officer remains an
employee of Goodyear through December 31, 2006. |
|
|
(6) |
Mr. Keegan became a Goodyear employee on October 1,
2000 and served as President and Chief Operating Officer from
October 3, 2000 until he was elected the President and
Chief Executive Officer effective January 1, 2003.
Mr. Keegan became Chairman of the Board effective
June 30, 2003. |
|
|
(7) |
Mr. Kramer has served as Executive Vice President and Chief
Financial Officer since June of 2004. He previously served as
Vice President-Corporate Finance from March 2000 to July 2002,
Vice President, Finance-North American Tire from July 2002 to
August 2003 and Senior Vice President, Strategic Planning and
Restructuring from September 2003 to June 2004. |
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|
(8) |
Mr. Rich has served as President of North American Tire
since December of 2002. He previously served as President of
Chemical Products. |
|
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(9) |
Mr. Gingo has served as Executive Vice President, Quality
Systems and Chief Technology Officer since June 2003. He
previously served as Senior Vice President, Technology and
Global Products Planning, from July 1999 to June 2003. |
77
Option/ SAR Grants in 2005
The table below shows all grants of stock options and SARs
during 2005 to the Named Officers. Ordinarily, Stock Options and
SARs are granted annually in December of each year.
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|
|
Individual Grants | |
|
|
|
|
| |
|
Potential Realizable Value | |
|
|
Number of Securities | |
|
% of Total | |
|
|
|
at Assumed Annual Rates of | |
|
|
Underlying | |
|
Options/ | |
|
Exercise | |
|
|
|
Stock Price Appreciation for | |
|
|
Options/SARs | |
|
SARs | |
|
or | |
|
|
|
Option Term | |
|
|
Granted | |
|
Granted to | |
|
Base Price | |
|
|
|
(Dollars)(3) | |
|
|
(Number of | |
|
Employees | |
|
(Dollars per | |
|
Expiration | |
|
| |
Name |
|
Shares)(1) | |
|
in 2005 | |
|
Share)(2) | |
|
Date | |
|
5% | |
|
10% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Robert J. Keegan
|
|
|
250,000 |
|
|
|
12.32 |
% |
|
$ |
17.15 |
|
|
|
12/6/2015 |
|
|
$ |
2,697,500 |
|
|
$ |
6,832,500 |
|
|
|
|
33,134 |
* |
|
|
1.63 |
% |
|
|
13.62 |
|
|
|
12/2/2013 |
|
|
|
215,371 |
|
|
|
516,228 |
|
|
|
|
25,103 |
* |
|
|
1.24 |
% |
|
|
13.62 |
|
|
|
12/3/2012 |
|
|
|
139,071 |
|
|
|
324,331 |
|
|
|
|
48,941 |
* |
|
|
2.41 |
% |
|
|
17.18 |
|
|
|
12/9/2014 |
|
|
|
463,471 |
|
|
|
1,141,794 |
|
|
|
|
32,559 |
* |
|
|
1.60 |
% |
|
|
17.18 |
|
|
|
12/2/2013 |
|
|
|
266,984 |
|
|
|
639,784 |
|
|
|
|
24,122 |
* |
|
|
1.19 |
% |
|
|
17.18 |
|
|
|
12/3/2012 |
|
|
|
168,613 |
|
|
|
393,189 |
|
Richard J. Kramer
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|
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52,000 |
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|
|
2.56 |
% |
|
|
17.15 |
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|
|
12/6/2015 |
|
|
|
561,080 |
|
|
|
1,421,160 |
|
|
|
|
2,668 |
* |
|
|
0.13 |
% |
|
|
13.83 |
|
|
|
12/3/2012 |
|
|
|
15,021 |
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|
|
35,004 |
|
|
|
|
6,822 |
* |
|
|
0.34 |
% |
|
|
13.83 |
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|
|
12/2/2013 |
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|
|
45,025 |
|
|
|
107,924 |
|
|
|
|
8,961 |
* |
|
|
0.44 |
% |
|
|
17.35 |
|
|
|
12/9/2014 |
|
|
|
85,757 |
|
|
|
211,121 |
|
|
|
|
6,117 |
* |
|
|
0.30 |
% |
|
|
17.35 |
|
|
|
12/2/2013 |
|
|
|
50,649 |
|
|
|
121,361 |
|
|
|
|
3,253 |
* |
|
|
0.16 |
% |
|
|
17.35 |
|
|
|
8/6/2012 |
|
|
|
22,966 |
|
|
|
53,544 |
|
|
|
|
2,371 |
* |
|
|
0.12 |
% |
|
|
17.35 |
|
|
|
12/3/2012 |
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|
|
16,739 |
|
|
|
39,027 |
|
Jonathan D. Rich
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|
|
44,000 |
|
|
|
2.17 |
% |
|
|
17.15 |
|
|
|
12/6/2015 |
|
|
|
474,760 |
|
|
|
1,202,520 |
|
|
|
|
3,775 |
* |
|
|
0.19 |
% |
|
|
13.36 |
|
|
|
12/2/2013 |
|
|
|
24,085 |
|
|
|
57,682 |
|
|
|
|
6,823 |
* |
|
|
0.34 |
% |
|
|
17.35 |
|
|
|
12/2/2013 |
|
|
|
56,494 |
|
|
|
135,368 |
|
C. Thomas Harvie
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|
|
37,000 |
|
|
|
1.82 |
% |
|
|
17.15 |
|
|
|
12/6/2015 |
|
|
|
399,230 |
|
|
|
1,011,210 |
|
|
|
|
7,127 |
* |
|
|
0.35 |
% |
|
|
13.36 |
|
|
|
12/2/2013 |
|
|
|
45,470 |
|
|
|
108,901 |
|
|
|
|
10,117 |
* |
|
|
0.50 |
% |
|
|
17.35 |
|
|
|
12/3/2012 |
|
|
|
71,426 |
|
|
|
166,526 |
|
|
|
|
6,497 |
* |
|
|
0.32 |
% |
|
|
17.35 |
|
|
|
12/9/2014 |
|
|
|
62,176 |
|
|
|
153,069 |
|
|
|
|
6,279 |
* |
|
|
0.31 |
% |
|
|
17.35 |
|
|
|
12/2/2013 |
|
|
|
51,990 |
|
|
|
124,575 |
|
Joseph M. Gingo
|
|
|
21,000 |
|
|
|
1.03 |
% |
|
|
17.15 |
|
|
|
12/6/2015 |
|
|
|
226,590 |
|
|
|
573,930 |
|
|
|
|
3,894 |
* |
|
|
0.19 |
% |
|
|
14.12 |
|
|
|
12/2/2013 |
|
|
|
26,246 |
|
|
|
62,888 |
|
|
|
* |
Reinvestment option. See description of reinvestment
options in footnote 1 below. |
Notes to Option/ SAR Grants Table:
|
|
|
|
(1) |
On December 6, 2005, stock options in respect of an
aggregate of 1,605,936 shares of Common Stock were granted
to 836 persons, including the Named Officers. All shares in the
table above are the subject of non-qualified stock options. Each
stock option will vest at the rate of 25% per annum. Each
unexercised stock option terminates automatically if the
optionee ceases to be an employee of Goodyear or one of its
subsidiaries for any reason, except that (a) upon
retirement or disability of the optionee more than six months
after the grant date, the stock option will become immediately
exercisable and remain exercisable until its expiration date,
and (b) in the event of the death of the optionee more than
six months after the grant thereof, each stock option will
become exercisable and remain exercisable for up to three years
after the date of death of the optionee. Each option also
includes the right to the automatic grant of a new option (a
reinvestment option) for that number of shares
tendered in the exercise of the original stock option. The
reinvestment option will be granted on, and will have an
exercise price equal to the fair market value of the Common
Stock on |
78
|
|
|
|
|
the date of the exercise of the original stock option and will
be subject to the same terms and conditions as the original
stock option except for the exercise price and the reinvestment
option feature. In addition, all reinvestment options vest one
year from the date of grant. The following reinvestment options
were granted during 2005: Mr. Keegan, two grants of 33,134,
and 25,103 shares on March 22, 2005, and three grants
of 48,941, 32,559, and 24,122 shares on December 13,
2005; Mr. Kramer, 2,668 and 6,822 shares on
March 18, 2005, and four grants of 8,961, 6,117, 3,253 and
2,371 shares on December 20, 2005; Mr. Rich,
3,775 shares on March 30, 2005, and 6,823 shares
on December 20, 2005; Mr. Harvie, 7,127 shares on
March 30, 2005, and three grants of 10,117, 6,497, and
6,279 shares on December 20, 2005; Mr. Gingo,
3,894 shares on May 20, 2005. |
|
|
(2) |
The exercise price of each stock option is equal to 100% of the
per share fair market value of the Common Stock on the date
granted. The option exercise price and/or withholding tax
obligations may be paid by delivery of shares of Common Stock
valued at the market value on the date of exercise. |
|
|
(3) |
The dollar amounts shown reflect calculations at the 5% and 10%
rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future
appreciation, if any, of the price of the Common Stock. No
economic benefit to the optionees is possible without an
increase in price of the Common Stock, which will benefit all
shareholders commensurately. |
Option/ SAR 2005 Exercises and Year-End Values
The table below sets forth certain information regarding option
and SAR exercises during 2005, and the value of options/ SARs
held at December 31, 2005, by the Named Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
|
|
|
|
Underlying | |
|
|
|
|
|
|
|
|
Unexercised | |
|
Value of Unexercised | |
|
|
Shares | |
|
|
|
Options/SARs at | |
|
In-the-Money Options/SARs | |
|
|
Acquired | |
|
|
|
December 31, 2005 | |
|
at December 31, 2005 | |
|
|
on Exercise | |
|
Value | |
|
(Number of Shares) | |
|
(Dollars)(2) | |
|
|
(Number | |
|
Realized | |
|
| |
|
| |
Name |
|
of Shares) | |
|
(Dollars)(1) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Robert J. Keegan
|
|
|
228,250 |
|
|
$ |
1,641,726 |
|
|
|
448,548 |
|
|
|
723,609 |
|
|
$ |
184,706 |
|
|
$ |
2,530,786 |
|
Richard J. Kramer
|
|
|
43,050 |
|
|
|
290,961 |
|
|
|
63,611 |
|
|
|
143,242 |
|
|
|
23,484 |
|
|
|
288,603 |
|
Jonathan D. Rich
|
|
|
17,254 |
|
|
|
159,298 |
|
|
|
57,396 |
|
|
|
122,348 |
|
|
|
295,370 |
|
|
|
511,085 |
|
C. Thomas Harvie
|
|
|
45,350 |
|
|
|
371,476 |
|
|
|
154,837 |
|
|
|
128,620 |
|
|
|
44,415 |
|
|
|
495,127 |
|
Joseph M. Gingo
|
|
|
6,000 |
|
|
|
43,860 |
|
|
|
107,700 |
|
|
|
60,594 |
|
|
|
221,836 |
|
|
|
279,772 |
|
Note to Option/ SAR Exercises and Year-End Values Table:
|
|
(1) |
In accordance with the Companys 2002 Performance Plan, the
Named Officers delivered previously owned shares in payment of
the exercise price with respect to each option exercised in 2005. |
|
(2) |
Determined using $17.38 per share, the closing price of the
Common Stock on December 30, 2005, as reported on the New
York Stock Exchange Composite Transactions tape. |
Long Term Incentive Awards
During 2005, the Company did not make any long-term incentive
plan awards to any Named Officer. Accordingly, the Long Term
Incentive Plan awards table is omitted.
Other Compensation Plan Information
Performance Recognition Plan
Approximately 696 key employees, including all executive
officers of Goodyear, will participate in the Performance
Recognition Plan of Goodyear (the Performance Plan)
for plan year 2006. On December 6, 2005, the Compensation
Committee selected the participants, established the respective
target bonuses for non-officers, and, on February 21, 2006,
approved the performance measurements and target bonuses for
79
officers. Awards in respect of plan year 2006 will be made in
2007 based on each participants level of achievement of
his or her goals, the Chief Executive Officers (or, in the
case of participants who are not officers, other officers
of Goodyear) evaluation of the extent of the participants
contribution to Goodyear, and the Committees determination
of the amount available for payment to the relevant group of
participants. Awards, if any, are generally paid in cash,
although executive officers may elect to defer all or a portion
of their award in the form of cash or stock units. If deferred
in the form of stock units, the Company will match 20% of the
amount deferred. The stock units are converted to shares of
common stock and paid to the participant on the first business
day of the third year following the end of the plan year under
which the award was earned. Target bonuses under the Performance
Plan have been established for calendar year 2006 as follows:
Mr. Keegan, $1,700,000; Mr. Kramer, $470,000;
Mr. Rich, $400,000; Mr. Harvie, $290,000; and
Mr. Gingo, $260,000 and all participants (696 persons as a
group), approximately $30 million.
Executive Performance Plan
On December 1, 2003, the Compensation Committee established
the Executive Performance Plan (the EP Plan). The
purpose of the EP Plan is to provide long-term incentive
compensation opportunities to attract, retain and reward key
personnel and to motivate key personnel to achieve business
objectives. Upon the attainment of performance goals established
by the Committee, participants will be eligible to receive a
cash award at the end of the performance period subject to
adjustment and approval by the Committee. Grants under the EP
Plan have a three year performance period and payment on each
unit may range between $0 and $200, depending upon the
attainment of the performance criteria and assuming the
recipient remains in the continuous employ of the Company
through the performance period. For grants made in 2003, the
performance criteria for the performance period is based 50% on
net income and 50% on total cash flow. For grants made in 2004,
the performance criteria for the performance period is based 50%
on net income and 50% on total cash flow, net debt. No grants
were made in 2005 to the Named Officers.
Savings Plan
Goodyear sponsors the Employee Savings Plan for Salaried
Employees (the Savings Plan). An eligible employee,
including officers, may contribute 1% to 50% of his or her
compensation to the Savings Plan, subject to an annual
contribution ceiling ($15,000 in 2006). Savings Plan
participants who are age 50 or older and contributing at
the maximum plan limits or at the annual contribution ceiling
are entitled to make catch-up contributions annually
up to a specified amount ($5,000 in 2006). Contributions to the
Savings Plan are not included in the current taxable income of
the employee pursuant to Section 401(k) of the Internal
Revenue Code of 1986, as amended. Employee contributions are
invested, at the direction of the participant, in any one or
more of the fifteen available funds and/or in mutual funds under
a self directed account.
Prior to January 1, 2003, Goodyear matched at a 50% rate
each dollar contributed by a participating employee up to a
maximum of the lesser of (i) 6% of the participants
annual compensation or (ii) legally imposed limits.
Goodyear contributions were invested by the Savings Plan trustee
in shares of Common Stock. Goodyear suspended the matching
program effective January 1, 2003.
Eligible employees hired after January 1, 2005 will not
participate in the pension plan described below, but will
receive company contributions to their Savings Plan accounts in
an amount equal to 5% of compensation up to the Social Security
wage base ($94,200 in 2006), plus 11.2% of compensation in
excess of the wage base. The maximum company contribution for
any individual in 2006 is $18,800.
Severance Plan
The Goodyear Employee Severance Plan (the Severance
Plan), adopted on February 14, 1989, provides that,
if a full-time salaried employee of Goodyear or any of the
domestic subsidiaries (who participates in the Salaried Pension
Plan) with at least one year of service is involuntarily
terminated (as defined in the Severance Plan) within two years
following a change in control, the employee is entitled to
severance pay, either in a lump sum or, at the employees
election, on a regular salary payroll interval basis.
80
The severance pay will equal the sum of (a) two weeks
pay for each full year of service with Goodyear and its
subsidiaries and (b) one months pay for each $12,000
of total annual compensation (the base salary rate in effect at
the date of termination, plus all incentive compensation
received during the twelve months prior to his or her
separation). Severance pay may not exceed two times the
employees total annual compensation.
In addition, medical benefits and basic life insurance coverage
will be provided to each employee on the same basis as in effect
prior to his or her separation for a period of weeks equal to
the number of weeks of severance pay. A change in control is
deemed to occur upon the acquisition of 35% or more of the
Common Stock by any acquiring person or any change
in the composition of the Board of Directors of Goodyear with
the effect that a majority of the directors are not
continuing directors.
If the Named Officers had been involuntarily terminated as of
December 31, 2005 (following a change in control), the
amount of severance pay due would have been: Mr. Keegan
$8,344,226; Mr. Kramer $2,236,620; Mr. Rich
$2,360,560; Mr. Harvie $2,326,942; Mr. Gingo
$1,935,600. In addition, Mr. Keegans employment
agreement provides that in the event he is subject to any excise
taxes resulting from a severance payment under a change in
control, he be paid an additional amount sufficient to cover the
amount of any excise or related taxes imposed.
The Company also follows general guidelines for providing
severance benefits to executive officers of the Company whose
employment terminates prior to retirement, and under appropriate
circumstances. Executive officers eligible for such benefits
typically receive a separation allowance based on individual
circumstances, including length of service, in an amount
generally equivalent to 6 to 18 months of base salary plus
an amount based on the individuals target bonus then in
effect over an equivalent period. The separation allowance may
be paid in a single lump sum or in installments. The Company may
also provide limited outplacement and personal financial
planning services to eligible executive officers following their
termination.
Deferred Compensation Plan
Goodyears Deferred Compensation Plan for Executives
provides that an eligible employee may elect to defer all or a
portion of his or her Performance Plan award and/or annual
salary by making a timely deferral election. Several deferral
period options are available. All amounts deferred earn amounts
equivalent to the returns on one or more of five reference
investment funds, as selected by the participant. The plan was
amended in 2002 to eliminate a provision that required the
automatic deferral of any cash compensation earned which, if
paid as and when due, would not be deductible by Goodyear for
federal income tax purposes by reason of Section 162(m) of
the Code.
Retirement Benefits
Goodyear maintains a Salaried Pension Plan (the Pension
Plan), a defined benefit plan qualified under the Code, in
which many salaried employees, including most executive
officers, hired prior to January 1, 2005 participate. The
Pension Plan permits any eligible employee to make monthly
optional contributions of 1% of the first $47,100 of
compensation and 2% on compensation between $47,100 and $220,000
in 2006. The Code limits the maximum amount of earnings that may
be used in calculating benefits under the Pension Plan, which
limit is $220,000 for 2006. The Pension Plan provides benefits
to participants who have at least five years of service upon any
termination of employment. Under the Pension Plan, benefits
payable to a participant who retires prior to age 65 are
subject to a reduction for each full month of retirement before
age 65.
Goodyear also maintains a Supplementary Pension Plan (the
Supplementary Plan), a non-qualified plan partially
funded by a Rabbi Trust which provides additional retirement
benefits to certain officers. The Supplementary Plan provides
pension benefits to participants who have at least 30 years
of service or have ten years of service and are age 55 or
older. Under the Supplementary Plan, benefits payable to a
participant who retires prior to age 62 are subject to a
reduction for each month of retirement before age 62.
Participants may elect a lump sum payment of benefits under the
Supplementary Plan (the Pension Plans) for benefits
accrued and vested prior to January 1, 2005, subject to the
approval of the Companys ERISA appeals committee in
respect of benefits under the Supplementary Plan. For benefits
accrued or
81
vested after December 31, 2004, a lump sum will be the
default form of payment; however, these benefits cannot be
distributed prior to six months after separation of service.
Goodyear maintains a non-qualified unfunded Excess Benefit Plan
which pays an additional pension benefit over that paid under
the Pension Plan if a participant does not meet the eligibility
requirements of the Supplementary Plan. The additional benefit
is equal to the amount a participant would have received from
the Pension Plan but does not because of the limitations imposed
by the Code. These limitations set a maximum level of
compensation that can be considered in determining benefits
under the Pension Plan (currently $220,000) and a maximum
allowable annual benefit ($175,000 for 2006). Distribution of
amounts earned and vested prior to January 1, 2005 will be
paid out in the same manner as the Pension Plan unless otherwise
elected by the participant at least 12 months prior to
termination or severance. Distributions for amounts earned or
vested after December 31, 2004 will be paid out in a lump
sum six months after termination of service.
The table below shows estimated annual benefits payable at
selected earnings levels assuming retirement on July 1,
2006 at age 65 after selected periods of service. The
pension benefit amounts shown include the maximum benefits
obtainable and assume payments are made on a five year certain
and life annuity basis and are not subject to any deduction for
social security or any other offsets. Pension benefits are based
on the retirees highest average annual earnings,
consisting of salary and awards under the Performance
Recognition Plan, for any five calendar years out of the ten
years immediately preceding his or her retirement (assuming full
participation in the contributory feature of the Pension Plan).
Earnings covered by the Pension Plans are substantially
equivalent to the sum of the amounts set forth under the
Salary and Bonus columns of the Summary
Compensation Table. The years of credited service used to
determine the amounts in the table for the Named Officers are:
Mr. Keegan, 34 years; Mr. Kramer, 14 years;
Mr. Rich, 5 years; Mr. Harvie, 30 years; and
Mr. Gingo, 39 years. As described below in
Employment Agreement, Mr. Keegans years
of credited service include his years of service with Eastman
Kodak Company. Mr. Kramer and Mr. Harvies years
of credited service also include their years of service with
their respective prior employers. The benefits paid to
Mr. Keegan, Mr. Kramer and Mr. Harvie under the
Pension Plans will be reduced by amounts they are entitled to
receive under the pension plans maintained by their prior
employers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 Year Average | |
|
Estimated annual benefits upon retirement for years of service indicated. | |
Annual | |
|
| |
Remuneration | |
|
10 Years | |
|
15 Years | |
|
20 Years | |
|
25 Years | |
|
30 Years | |
|
35 Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$ |
250,000 |
|
|
$ |
50,180 |
|
|
$ |
68,637 |
|
|
$ |
86,709 |
|
|
$ |
98,663 |
|
|
$ |
110,571 |
|
|
$ |
118,113 |
|
|
500,000 |
|
|
|
105,180 |
|
|
|
143,637 |
|
|
|
181,709 |
|
|
|
206,163 |
|
|
|
230,571 |
|
|
|
245,613 |
|
|
750,000 |
|
|
|
160,180 |
|
|
|
218,637 |
|
|
|
276,709 |
|
|
|
313,663 |
|
|
|
350,571 |
|
|
|
373,113 |
|
|
1,000,000 |
|
|
|
215,180 |
|
|
|
293,637 |
|
|
|
371,709 |
|
|
|
421,163 |
|
|
|
470,571 |
|
|
|
500,613 |
|
|
1,250,000 |
|
|
|
270,180 |
|
|
|
368,637 |
|
|
|
466,709 |
|
|
|
528,663 |
|
|
|
590,571 |
|
|
|
628,113 |
|
|
1,500,000 |
|
|
|
325,180 |
|
|
|
443,637 |
|
|
|
561,709 |
|
|
|
636,163 |
|
|
|
710,571 |
|
|
|
755,613 |
|
|
1,750,000 |
|
|
|
380,180 |
|
|
|
518,637 |
|
|
|
656,709 |
|
|
|
743,663 |
|
|
|
830,571 |
|
|
|
883,113 |
|
|
2,000,000 |
|
|
|
435,180 |
|
|
|
593,637 |
|
|
|
751,709 |
|
|
|
851,163 |
|
|
|
950,571 |
|
|
|
1,010,613 |
|
|
2,500,000 |
|
|
|
545,180 |
|
|
|
743,637 |
|
|
|
941,709 |
|
|
|
1,066,163 |
|
|
|
1,190,571 |
|
|
|
1,265,613 |
|
|
3,000,000 |
|
|
|
655,180 |
|
|
|
893,637 |
|
|
|
1,131,709 |
|
|
|
1,281,163 |
|
|
|
1,430,571 |
|
|
|
1,520,613 |
|
|
3,500,000 |
|
|
|
765,180 |
|
|
|
1,043,637 |
|
|
|
1,321,709 |
|
|
|
1,496,163 |
|
|
|
1,670,571 |
|
|
|
1,775,613 |
|
|
4,000,000 |
|
|
|
875,180 |
|
|
|
1,193,637 |
|
|
|
1,511,709 |
|
|
|
1,711,163 |
|
|
|
1,910,571 |
|
|
|
2,030,613 |
|
Compensation Committee Interlocks and Insider
Participation
During fiscal year 2005, the Compensation Committee consisted of
the following directors: John G. Breen (chair), James C. Boland,
Gary D. Forsee, William J. Hudson, Jr. and Denise M. Morrison.
None of
82
our executive officers serves as a member of the compensation
committee, or other committee serving an equivalent function, of
any other entity that has one or more of its executive officers
serving as a member of our board of directors or compensation
committee. None of the members of our compensation committee has
ever been our employee.
Employment Agreement
Mr. Keegan and Goodyear entered into an agreement, dated
September 11, 2000, which provided, among other things, for
the employment of Mr. Keegan as President and Chief
Operating Officer. The agreement provided for an initial salary
of $800,000. Mr. Keegan was also granted a stock option for
250,000 shares of common stock on October 3, 2000, at an
exercise price of $18.25 per share and 50,000 shares of
restricted stock, the restrictions on which lapsed on
October 3, 2002. The agreement also established
Mr. Keegans participation in the Companys
Performance Recognition Plan as well as Goodyears
equity-based incentive compensation programs.
Mr. Keegan will also receive a total pension benefit from
Goodyear equal to what he would have earned under
Goodyears pension plans if his service with Goodyear were
equal to the total of his service with Goodyear and Eastman
Kodak Company less the amount received under the Eastman Kodak
pension plan. He also receives the same non-salary benefits
generally made available to Goodyear executive officers.
Mr. Keegans agreement was supplemented on
February 3, 2004 to provide for the payment of severance
compensation to Mr. Keegan upon the termination of his
employment with Goodyear under the circumstances outlined in the
supplemental agreement. If paid, the severance compensation
would consist of (i) two times the sum of
Mr. Keegans annual base salary and target bonus then
in effect, plus (ii) the pro rata portion of
Mr. Keegans target bonus for the then current fiscal
year. In the event that severance compensation is paid to
Mr. Keegan under the agreement, the agreement restricts
Mr. Keegan from participating in any business that competes
with Goodyear for a period of two years. The term of the
supplemental agreement is from February 3, 2004 to
February 28, 2009. If Mr. Keegans employment was
terminated as of December 31, 2005 and the supplemental
agreement was in effect at that time, the amount of severance
due Mr. Keegan would have been $6,700,000. This amount
would not be payable if Mr. Keegan received benefits under
the previously described Severance Plan.
83
Security Ownership of Certain Beneficial Owners and
Management
The firms identified in the table below have reported that they
beneficially owned at December 31, 2005 more than 5% of the
outstanding shares of the Common Stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common | |
|
Percent of Common | |
Name and Address |
|
Stock Beneficially | |
|
Stock Outstanding | |
of Beneficial Owner |
|
Owned | |
|
Beneficially Owned | |
|
|
| |
|
| |
Brandes Investment Partners, L.P.
|
|
|
|
|
|
|
|
|
|
11988 El Camino Real, Suite 500 |
|
|
|
|
|
|
|
|
|
San Diego, California 92130 |
|
|
26,665,275 |
(1) |
|
|
15.1 |
% |
State Street Bank and Trust Company, acting in various fiduciary
capacities
|
|
|
|
|
|
|
|
|
|
225 Franklin Street |
|
|
|
|
|
|
|
|
|
Boston, Massachusetts 02110 |
|
|
10,477,102 |
(2) |
|
|
5.9 |
% |
Impala Asset Management LLC
|
|
|
|
|
|
|
|
|
|
134 Main Street |
|
|
|
|
|
|
|
|
|
New Canaan, Connecticut 06840 |
|
|
9,853,400 |
(3) |
|
|
5.6 |
% |
LSV Asset Management
|
|
|
|
|
|
|
|
|
|
1 N. Wacker Drive, Suite 4000 |
|
|
|
|
|
|
|
|
|
Chicago, Illinois 60606 |
|
|
9,701,500 |
(4) |
|
|
5.5 |
% |
Merrill Lynch & Co., Inc., on behalf of
|
|
|
|
|
|
|
|
|
|
Merrill Lynch Investment Managers |
|
|
|
|
|
|
|
|
|
World Financial Center, North Tower |
|
|
|
|
|
|
|
|
|
250 Vesey Street |
|
|
|
|
|
|
|
|
|
New York, New York 10381 |
|
|
9,576,933 |
(5) |
|
|
5.4 |
% |
Mellon Financial Corporation and related reporting persons
|
|
|
|
|
|
|
|
|
|
One Mellon Center |
|
|
|
|
|
|
|
|
|
Pittsburgh, Pennsylvania 15258 |
|
|
8,883,179 |
(6) |
|
|
5.0 |
% |
Notes:
|
|
|
|
(1) |
Shared dispositive power in respect of 26,665,275 shares
and shared voting power in respect of 22,321,996 shares, as
stated in a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2006. |
|
|
(2) |
Sole voting and shared dispositive power in respect of
10,477,102 shares, as stated in a Schedule 13G filed with
the Securities and Exchange Commission on February 13, 2006. |
|
|
(3) |
Shared voting and dispositive power in respect of
9,853,400 shares, as stated in a Schedule 13G filed with
the Securities and Exchange Commission on February 6, 2006. |
|
|
(4) |
Sole dispositive power in respect of 9,528,200 shares and
sole voting power in respect of 6,730,400 shares, as stated
in a Schedule 13G filed with the Securities and Exchange
Commission on February 13, 2006. |
|
|
(5) |
Shared voting and dispositive power in respect of
9,576,933 shares, as stated in a Schedule 13G filed
with the Securities and Exchange Commission on February 7,
2006. Ownership of the shares is disclaimed pursuant to
Section 13d-4 of the Securities Exchange Act of 1934. |
|
|
(6) |
Sole voting and shared voting power in respect of 3,203,464 and
66,900 shares, respectively, and sole dispositive and
shared dispositive power in respect of 8,533,526 and
309,156 shares, respectively, as stated in a
Schedule 13G filed with the Securities and Exchange
Commission on February 15, 2006. |
84
In addition, The Northern Trust Company, 50 South LaSalle
Street, Chicago, Illinois 60675, has indicated that as of
February 16, 2006 it held 28,663,522 shares, or
approximately 16.2% of the outstanding shares, of Common Stock,
including 16,483,106 shares, or approximately 9.3% of the
outstanding shares, of Common Stock held as the trustee of four
employee savings plans sponsored by Goodyear and certain
subsidiaries.
On January 31, 2006, each of our directors, each of the
executive officers named below and all of our directors and
executive officers as a group beneficially owned the number of
shares of Common Stock set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership at January 31, 2006 (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of |
|
|
|
|
|
|
|
|
Shares of Common |
|
Common Stock |
|
Shares of Common |
|
|
|
|
|
|
Stock Owned |
|
Held in Savings |
|
Stock Subject to |
|
Deferred Share |
|
Percent of |
Name |
|
Directly (2) |
|
Plan (3) |
|
Exercisable Options (4) |
|
Equivalent Units |
|
Class |
|
|
|
|
|
|
|
|
|
|
|
James C. Boland
|
|
|
3,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
17,769 |
(11) |
|
|
* |
|
John G. Breen
|
|
|
200 |
(5) |
|
|
-0- |
|
|
|
-0- |
|
|
|
48,178 |
(11) |
|
|
* |
|
Gary D. Forsee
|
|
|
1,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
24,623 |
(11) |
|
|
* |
|
Joseph M. Gingo
|
|
|
8,889 |
(6) |
|
|
863 |
|
|
|
102,100 |
|
|
|
2,707 |
(12) |
|
|
* |
|
C. Thomas Harvie
|
|
|
29,858 |
|
|
|
1,075 |
|
|
|
150,964 |
|
|
|
-0- |
|
|
|
* |
|
William J. Hudson, Jr
|
|
|
5,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
36,849 |
(11) |
|
|
* |
|
Robert J. Keegan
|
|
|
152,160 |
(7) |
|
|
433 |
|
|
|
506,785 |
|
|
|
-0- |
|
|
|
* |
|
Richard J. Kramer
|
|
|
38,000 |
(8) |
|
|
209 |
|
|
|
73,101 |
|
|
|
455 |
(12) |
|
|
* |
|
Steven A. Minter
|
|
|
3,580 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
29,848 |
(11) |
|
|
* |
|
Denise M. Morrison
|
|
|
1,100 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
3,740 |
(11) |
|
|
* |
|
Rodney ONeal
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
9,754 |
(11) |
|
|
* |
|
Shirley D. Peterson
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
7,852 |
(11) |
|
|
* |
|
Jonathan D. Rich
|
|
|
26,272 |
(9) |
|
|
3,211 |
|
|
|
61,171 |
|
|
|
-0- |
|
|
|
* |
|
Thomas H. Weidemeyer
|
|
|
1,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
5,054 |
(11) |
|
|
* |
|
Michael R. Wessel
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
* |
|
All directors, the Named Officers and all other executive
officers as a group (30 persons)
|
|
|
404,653 |
(10) |
|
|
17,614 |
|
|
|
1,569,576 |
|
|
|
192,530 |
|
|
|
1.1 |
|
* Less than 1%
Notes:
|
|
|
|
(1) |
The number of shares indicated as beneficially owned by each of
the directors and named executive officers, and the
1,991,843 shares of Common Stock indicated as beneficially
owned by all directors and officers as a group, and the
percentage of Common Stock outstanding beneficially owned by
each person and the group, has been determined in accordance
with
Rule 13d-3(d)(1)
promulgated under the Securities Exchange Act of 1934. |
|
|
(2) |
Unless otherwise indicated in a subsequent note, each person
named and each member of the group has sole voting and
investment power with respect to the shares of Common Stock
shown. |
|
|
(3) |
Shares held in trust under Goodyears Employee Savings Plan
for Salaried Employees. |
|
|
(4) |
Shares which may be acquired upon the exercise of options which
are exercisable prior to April 3, 2006 under
Goodyears 2002 Performance Plan (the 2002
Plan), Goodyears 1997 Performance Incentive Plan
(the 1997 Plan) and the 1989 Goodyear Performance
and Equity Incentive Plan (the 1989 Plan). |
|
|
(5) |
Shares acquired by Mr. Breen pursuant to Goodyears
1994 Restricted Stock Award Plan for Non-employee Directors,
which shares are subject to certain restrictions. |
|
|
(6) |
Includes 2,284 shares owned by his spouse. |
85
|
|
|
|
(7) |
Includes 13,000 shares owned by his spouse. |
|
|
(8) |
Includes 10,000 shares acquired under the 2002 Plan and a
Restricted Stock Purchase Agreement, which shares are subject to
the Companys repurchase option and certain restrictions on
transfer. |
|
|
(9) |
Includes 1,000 shares owned jointly by Mr. Rich and
his spouse. |
|
|
|
|
(10) |
Includes 371,038 shares owned of record and beneficially or
owned beneficially through a nominee, and 33,615 shares
held by or jointly with family members of certain directors and
executive officers. |
|
|
(11) |
Deferred units, each equivalent to a hypothetical share of
Common Stock, accrued to accounts of the director under
Goodyears Outside Directors Equity Participation
Plan, payable in cash following retirement from the Board of
Directors. See Directors Compensation. |
|
|
(12) |
Units, each equivalent to a hypothetical share of Common Stock,
deferred pursuant to performance awards earned under the 2002
Plan, 1997 Plan and the 1989 Plan and receivable in cash, shares
of Common Stock, or any combination thereof, at the election of
the executive officer. |
86
Selling Security Holders
We originally issued the notes to Goldman, Sachs & Co.,
Deutsche Bank Securities Inc. and, J.P. Morgan Securities
Inc. as initial purchasers in a transaction exempt from the
registration requirements of the Securities Act. The initial
purchasers resold the notes in transactions exempt from the
registration requirements of the Securities Act in reliance on
Rule 144A under the Securities Act to persons reasonably
believed by them to be qualified institutional buyers.
The selling security holders identified below, including their
transferees, pledgees, donees and successors, may from time to
time offer and sell pursuant to this prospectus or a supplement
hereto any or all of the notes of such selling security holder
described below and the common stock into which such notes are
convertible. Any selling security holder may also elect not to
sell any notes or common stock issuable upon conversion of the
notes held by it. Certain selling security holders identified
below may already have sold, transferred or disposed of all or a
portion of their notes or shares of common stock issuable upon
conversion of the notes since the date on which they provided
the information regarding their ownership of those securities
included in this prospectus and other selling security holders
identified below may have purchased such notes or shares of
common stock issuable upon conversion of such notes. Only those
notes and shares of common stock issuable upon conversion of the
notes listed below or in any supplement hereto may be offered
for resale by the selling holders pursuant to this prospectus.
The following table sets forth recent information with respect
to the selling security holders of the notes and the number of
notes beneficially owned by each selling security holder that
may be offered pursuant to this prospectus. We prepared this
table based on information supplied to us by or on behalf of the
selling holders. Because the selling security holders may offer
all or only some portion of the notes or the common stock listed
in the table, no estimate can be given as to the amount of those
securities that will be held by the selling holders upon
termination of any sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate | |
|
|
|
|
|
Shares of | |
|
|
Principal | |
|
|
|
|
|
Common Stock | |
|
|
Amount of Notes | |
|
Shares of | |
|
|
|
Beneficially | |
|
|
Beneficially | |
|
Common Stock | |
|
Shares of | |
|
Owned After | |
|
|
Owned and | |
|
Beneficially | |
|
Common Stock | |
|
Completion of | |
Selling Holder |
|
Offered | |
|
Owned(1) | |
|
Offered | |
|
the Offering(2) | |
|
|
| |
|
| |
|
| |
|
| |
AHFP Context(3)
|
|
|
300,000 |
|
|
|
24,921 |
|
|
|
24,921 |
|
|
|
0 |
|
Allstate Insurance Company(4)
|
|
|
750,000 |
|
|
|
72,803 |
|
|
|
62,303 |
|
|
|
10,500 |
|
Altma Fund Sicav Plc in respect of The Grafton Sub Fund(5)
|
|
|
400,000 |
|
|
|
33,228 |
|
|
|
33,228 |
|
|
|
0 |
|
Aristeia International Limited(6)
|
|
|
23,750,000 |
|
|
|
1,972,920 |
|
|
|
1,972,920 |
|
|
|
0 |
|
Aristeia Partners LP(7)
|
|
|
1,550,000 |
|
|
|
128,759 |
|
|
|
128,759 |
|
|
|
0 |
|
Citigroup Global Markets Inc.
|
|
|
8,063,000 |
|
|
|
669,796 |
|
|
|
669,796 |
|
|
|
0 |
|
CNH CA Master Account, L.P.(8)
|
|
|
17,750,000 |
|
|
|
1,474,498 |
|
|
|
1,474,498 |
|
|
|
0 |
|
Context Convertible Arbitrage Fund, LP(3)
|
|
|
1,850,000 |
|
|
|
153,680 |
|
|
|
153,680 |
|
|
|
0 |
|
Context Convertible Arbitrage Offshore, LTD(3)
|
|
|
5,350,000 |
|
|
|
444,426 |
|
|
|
444,426 |
|
|
|
0 |
|
Credit Suisse Europe LTD(9)
|
|
|
8,000,000 |
|
|
|
664,562 |
|
|
|
664,562 |
|
|
|
0 |
|
DBAG London(10)
|
|
|
45,000,000 |
|
|
|
3,738,164 |
|
|
|
3,738,164 |
|
|
|
0 |
|
D.E. Shaw Valence Portfolios, L.L.C(11)
|
|
|
37,500,000 |
|
|
|
2,699,785 |
|
|
|
2,699,785 |
|
|
|
0 |
|
Deutsche Bank Securities Inc.
|
|
|
13,600,000 |
|
|
|
1,129,756 |
|
|
|
1,129,756 |
|
|
|
0 |
|
Ellington Overseas Partners, Ltd.(12)
|
|
|
1,000,000 |
|
|
|
83,070 |
|
|
|
83,070 |
|
|
|
0 |
|
Galleon Explorers Partners, L.P.(13)
|
|
|
32,000 |
|
|
|
2,658 |
|
|
|
2,658 |
|
|
|
0 |
|
Galleon Explorers Offshore, Ltd.(13)
|
|
|
128,000 |
|
|
|
10,633 |
|
|
|
10,633 |
|
|
|
0 |
|
Goldman, Sachs & Co.
|
|
|
64,278,000 |
|
|
|
5,339,593 |
|
|
|
5,339,593 |
|
|
|
0 |
|
Grace Convertible Arbitrage Fund, Ltd.(14)
|
|
|
2,000,000 |
|
|
|
166,141 |
|
|
|
166,141 |
|
|
|
0 |
|
HBMC LLC(15)
|
|
|
2,500,000 |
|
|
|
207,676 |
|
|
|
207,676 |
|
|
|
0 |
|
Highbridge International LLC(16)
|
|
|
20,000,000 |
|
|
|
1,661,406 |
|
|
|
1,661,406 |
|
|
|
0 |
|
HSBC Investments (USA) Inc. A/ C HSBC Multi-Strategy
Arbitrage Fund
|
|
|
1,000,000 |
|
|
|
83,070 |
|
|
|
83,070 |
|
|
|
0 |
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate | |
|
|
|
|
|
Shares of | |
|
|
Principal | |
|
|
|
|
|
Common Stock | |
|
|
Amount of Notes | |
|
Shares of | |
|
|
|
Beneficially | |
|
|
Beneficially | |
|
Common Stock | |
|
Shares of | |
|
Owned After | |
|
|
Owned and | |
|
Beneficially | |
|
Common Stock | |
|
Completion of | |
Selling Holder |
|
Offered | |
|
Owned(1) | |
|
Offered | |
|
the Offering(2) | |
|
|
| |
|
| |
|
| |
|
| |
Institutional Benchmarks Series (Master Feeder) Limited in
Respect of Electra Series c/o Quatro Fund(17)
|
|
|
250,000 |
|
|
|
20,768 |
|
|
|
20,768 |
|
|
|
0 |
|
KBC Financial Products, Cayman Islands, Ltd.(18)
|
|
|
15,000,000 |
|
|
|
1,246,055 |
|
|
|
1,246,055 |
|
|
|
0 |
|
KBC Financial Products USA, Inc.(18)
|
|
|
4,000,000 |
|
|
|
415,352 |
|
|
|
415,352 |
|
|
|
0 |
|
Lehman Brothers Inc.
|
|
|
2,000,000 |
|
|
|
166,141 |
|
|
|
166,141 |
|
|
|
0 |
|
Lyxor/ Context Fund LTD(3)
|
|
|
1,050,000 |
|
|
|
87,224 |
|
|
|
87,224 |
|
|
|
0 |
|
McMahan Securities Co. L.P.(19)
|
|
|
500,000 |
|
|
|
41,535 |
|
|
|
41,535 |
|
|
|
0 |
|
Morgan Stanley Convertible Securities Trust(20)
|
|
|
600,000 |
|
|
|
49,842 |
|
|
|
49,842 |
|
|
|
0 |
|
National Bank of Canada(3)
|
|
|
850,000 |
|
|
|
70,609 |
|
|
|
70,609 |
|
|
|
0 |
|
National Benefit Life Insurance Company(21)
|
|
|
4,000 |
|
|
|
332 |
|
|
|
332 |
|
|
|
0 |
|
Northern Income Equity Fund
|
|
|
6,000,000 |
|
|
|
498,422 |
|
|
|
498,422 |
|
|
|
0 |
|
Primerica Life Insurance Company(21)
|
|
|
38,000 |
|
|
|
3,157 |
|
|
|
3,157 |
|
|
|
0 |
|
Quattro Fund Ltd.(22)
|
|
|
4,500,000 |
|
|
|
373,816 |
|
|
|
373,816 |
|
|
|
0 |
|
Quattro Multistrategy Masterfund LP(22)
|
|
|
250,000 |
|
|
|
20,768 |
|
|
|
20,768 |
|
|
|
0 |
|
Radcliffe SPC, Ltd.(23)
|
|
|
24,600,000 |
|
|
|
2,043,529 |
|
|
|
2,043,529 |
|
|
|
0 |
|
Sage Capital Management, LLC(24)
|
|
|
2,300,000 |
|
|
|
191,062 |
|
|
|
191,062 |
|
|
|
0 |
|
Shepard Investments International, Ltd.(25)
|
|
|
7,500,000 |
|
|
|
750,627 |
|
|
|
623,027 |
|
|
|
127,600 |
|
Stark International(25)
|
|
|
2,500,000 |
|
|
|
207,676 |
|
|
|
207,676 |
|
|
|
0 |
|
UBS OConnor LLC F/ B/ O OConnor Global Convertible
Arbitrage Master Limited
|
|
|
1,500,000 |
|
|
|
124,605 |
|
|
|
124,605 |
|
|
|
0 |
|
UFJ International PLC
|
|
|
100,000 |
|
|
|
8,307 |
|
|
|
8,307 |
|
|
|
0 |
|
Vicis Capital Master Fund(26)
|
|
|
1,000,000 |
|
|
|
83,070 |
|
|
|
83,070 |
|
|
|
0 |
|
Whitebox Diversified Convertible Arbitrage Partners L.P.(27)
|
|
|
1,000,000 |
|
|
|
83,070 |
|
|
|
83,070 |
|
|
|
0 |
|
|
|
|
|
|
(1) |
The number of conversion shares shown in the table above assumes
conversion of the full amount of notes held by such holder at
the initial conversion rate of 83.0703 shares per $1,000
principal amount at maturity of notes. This conversion rate is
subject to certain adjustments. Accordingly, the number of
shares of common stock issuable upon conversion of the notes may
increase or decrease from time to time. |
|
|
|
|
(2) |
Assumes all of the notes and shares of common stock issuable
upon their conversion are sold in the offering. |
|
|
|
|
(3) |
Michael Rosen and William Fertig exercise voting or investment
control over the notes owned by this selling security holder. |
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(4) |
Allstate Insurance Company is a wholly-owned subsidiary of The
Allstate Corporation. |
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(5) |
Michael Rosen and William Fertig exercise voting or investment
control over the notes owned by this selling security holder. |
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(6) |
Aristeia Capital LLC is the investment manager for Aristeia
International Limited. Aristeia Capital LLC is jointly owned by
Kevin Toner, Robert H. Lynch Jr., Anthony Franscella and Bill
Techar. |
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(7) |
Aristeia Advisors LLC is the investment manager for Aristeia
Trading Partners LP. Aristeia Advisors LLC is jointly owned by
Robert H. Lynch Jr., Kevin Toner, Anthony Franscella and Bill
Techar. |
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(8) |
CNH Partners, LLC is the investment advisor of the selling
security holder with respect to the notes owned by this selling
holder and has sole voting and dispositive power over the notes.
The Investment Principals for the investment advisor are Robert
Krail, Mark Mitchell and Todd Palvino. |
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(9) |
Gerry Murtagh exercises voting or investment control over the
notes owned by this selling security holder. |
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(10) |
This selling security holder is a wholly-owned subsidiary of
Deutsche Bank Securities Inc. |
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(11) |
D.E. Shaw & Co. L.P., as either managing member or
investment adviser, has voting and investment control over any
shares of Common Stock issuable upon conversion of the Notes
owned by this selling shareholder. Julius Gaudio, Eric Wepsic,
and Anne Dinning, or their designees exercise voting and
investment control over the notes on D.E. Shaw & Co.
L.P.s behalf. |
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(12) |
Ellington Management Group, LLC is the investment adviser of
this selling security holder. Michael Vranos, as principal of
Ellington Management Group, LLC, exercises voting or investment
control over the notes owned by this selling security holder.
Mr. Vranos disclaims beneficial ownership over the notes offered
by this selling security holder except to the extent of any
indirect ownership interest he may have in such notes through
his economic participation in this selling security holder. |
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(13) |
Raj Rajaratnam exercises voting or investment control over the
notes owned by this selling security holder. |
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(14) |
Bradford Whitmore and Michael Brailov exercise voting or
investment control over the notes owned by this selling security
holder. |
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(15) |
Highbridge Capital Management, LLC (Highbridge) is
the trading manager of HBMC LLC (HBMC) and
consequently has voting control and investment discretion over
securities held by HBMC. Glenn Dubin and Henry Swieca control
Highbridge. Each of Highbridge, Glenn Dubin and Henry Swieca
disclaims beneficial ownership of the securities held by HMBC. |
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(16) |
Highbridge Capital Management, LLC (Highbridge) is
the trading manager of Highbridge International LLC
(HIC) and consequently has voting control and
investment discretion over securities held by HCC. Glenn Dubin
and Henry Swieca control Highbridge. Each of Highbridge, Glenn
Dubin and Henry Swieca disclaims beneficial ownership of the
securities held by HIC. |
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(17) |
Gary Crowdek exercises voting or investment control over the
notes owned by this selling security holder. |
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(18) |
Alex Bezjian, Darren Carter, Jason Cuevas, Damir Delic, Luke
Edwards, Jeff Engelberg, Dennis Fitzgerald, Thomas Korossy,
Liming Kwan, Dan Lerner, Daniel McAloon, Brian Murphy, Eric
Needleman, Timothy Quarnstrom, David Ricciardi, Quincy Scott,
Rupen Soultanian, Mark Sullivan, John Tonzola, Tim Vaughan,
Vincenzo Vigliotti, Richard Winter and Brandon Yarckin exercise
voting or investment control over the notes owned by this
selling security holder. |
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(19) |
The executive committee that exercises voting or investment
control over the notes owned by this selling security holder
consists of Ronald Fertig, Jay Glassman, Joe Dwyer, D. Bruce
McMahon, Scott Dillinger and Norman Ziegleb. |
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(20) |
This selling security holder is a wholly-owned subsidiary of
Morgan Stanley. |
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(21) |
This selling security holder is a wholly-owned subsidiary of
Citigroup, Inc. |
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(22) |
Andrew Kaplan, Brian Swain and Louis Napoli exercise voting or
investment control over the notes owned by this selling security
holder. |
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(23) |
Pursuant to an investment management agreement, RG Capital
Management, L.P. (RG Capital) serves as the
investment manager of Radcliffe SPC, Ltd.s Class A
Convertible Crossover Segregated Portfolio. RGC Management
Company, LLC (Management) is the general partner of
RG Capital. Steve Katznelson and Gerald Stahlecker serve as the
managing members of Management. Each of RG Capital, Management
and Messrs. Katznelson and Stahlecker disclaims beneficial
ownership of the securities owned by Radcliffe SPC, Ltd. for and
on behalf of the Class A Convertible Crossover Segregated
Portfolio. |
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(24) |
Peter deLisser exercises voting or investment control over the
notes owned by this selling security holder. |
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(25) |
Michael A. Roth and Brian J. Stark exercise voting or investment
control over the notes owned by this selling security holder. |
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(26) |
John Succo, Sky Lucas and Shad Stastney exercise voting or
investment control over the notes owned by this selling security
holder. |
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(27) |
Andrew Redleaf exercises voting or investment control over the
notes owned by this selling security holder. |
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Plan of Distribution
The notes and the common stock issuable upon conversion of the
notes may be offered and sold from time to time to purchasers
directly by the selling security holders. Alternatively, the
selling security holders may from time to time offer those
securities to or through underwriters, broker-dealers or agents,
who may receive compensation in the form of underwriting
discounts, concessions or commissions from the selling holders
or the purchasers of the securities for whom they act as agents.
The selling security holders and any underwriters,
broker-dealers or agents that participate in the distribution of
the securities may be deemed to be underwriters
within the meaning of the Securities Act, and any profit on the
sale of securities and any discounts, commissions, concessions
or other compensation received by any underwriter, broker-dealer
or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the
time of sale, at varying prices determined at the time of sale
or at negotiated prices. The sale of the securities may be
effected in transactions, which may involve crosses or block
transactions:
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on any national securities exchange or quotation service on
which the securities may be listed or quoted at the time of sale; |
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in the over-the-counter
market; |
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in transactions otherwise than on exchanges or in the
over-the-counter market; |
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through the writing and exercise of options; or |
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through the settlement of short sales. |
In connection with the sale of the notes and the underlying
common stock or otherwise, the selling security holders may
enter into hedging transactions with broker-dealers or other
financial institutions. These broker-dealers or financial
institutions may in turn engage in short sales of the common
stock in the course of hedging the positions they assume with
selling security holders. The selling security holders may also
sell the notes and the underlying common stock short and deliver
these securities to close out such short positions, or loan or
pledge the notes or the underlying common stock short and
deliver these securities to close out such short positions, or
loan or pledge the notes or the underlying common stock to
broker-dealers that in turn may sell these securities.
At the time a particular offering of the securities is made, if
required, a prospectus supplement will be distributed, which
will set forth the names of the selling security holders, the
aggregate amount and type of securities being offered and the
terms of the offering, including the name or names of any
underwriters, broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the
selling security holders and any discounts, commissions or
concessions allowed or reallowed to paid broker-dealers.
To comply with the securities laws of some jurisdictions, if
applicable, the securities will be offered or sold in some
jurisdictions only through registered or licensed brokers or
dealers. In addition, in some jurisdictions the securities may
not be offered or sold unless they have been registered or
qualified for sale in those jurisdictions or any exemption from
registration or qualification is available and is complied with.
The selling security holders and any other person participating
in the distribution of securities will be subject to applicable
provisions of the Securities Exchange Act and the rules and
regulations under the Securities Exchange Act, including,
without limitation, Regulation M of the Securities Exchange
Act, which may limit the timing of purchases and sales of any of
the offered securities by the selling security holders and any
other person. Furthermore, Regulation M may restrict the
ability of any person engaged in the distribution of the offered
securities to engage in market-making activities with respect to
the particular offered securities being distributed. Compliance
with the Securities Exchange Act, as described in this
paragraph, may affect the marketability of the offered
securities and the ability of any person or entity to engage
with respect to the offered securities.
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Broker-dealers or agents who participate in the sale of the
notes and the underlying common stock will be deemed to be
underwriters within the meaning of
Section 2(11) of the Securities Act. The following selling
security holders are underwriters within the meaning of the
Securities Act: Citigroup Global Markets Inc., Deutsche Bank
Securities, Inc., Goldman, Sachs & Co., KBC Financial
Products USA, Inc., Lehman Brothers Inc. and McMahon Securities
Co., L.P. None of the selling security holders who are
affiliates of broker-dealers, other than the initial purchasers,
purchased the securities outside of the ordinary course of
business or, at the time of the purchase of the securities, had
any agreements, plans or understandings, directly or indirectly,
with any person to distribute the securities.
Pursuant to a registration rights agreement, we have borne all
fees and expenses incurred in connection with the registration
of the notes and the common stock issuable upon conversion of
the notes, except that selling security holders will pay all
brokers commissions and underwriting discounts and
commissions, if any, in connection with any sales effected
pursuant to this prospectus. The registration rights agreement
provides that we will indemnify the selling security holders
against some civil liabilities, including some liabilities under
the Securities Act or the Securities Exchange Act or otherwise,
or alternatively the selling security holders will be entitled
to contribution in connection with those liabilities.
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Description of the Notes
The notes were issued under an indenture dated as of
July 2, 2004, between us and Wells Fargo Bank, N.A., as
trustee, which we refer to in this prospectus as the indenture.
The notes and the shares of common stock issuable upon
conversion of the notes are covered by a registration rights
agreement. You may request a copy of the indenture and the
registration rights agreement from the trustee.
The following description is a summary of the material
provisions of the notes and the indenture and does not purport
to be complete. This summary is subject to and is qualified by
reference to all the provisions of the notes and the indenture,
including the definitions of certain terms used in the
indenture. Wherever particular provisions or defined terms of
the indenture or form of note are referred to, these provisions
or defined terms are incorporated in this prospectus by
reference. We urge you to read the indenture because it, and not
this description, defines your rights as a holder of the notes.
For purposes of this description, references to the
Company, Goodyear, we,
our and us refer only to The Goodyear
Tire & Rubber Company and not to any of its
subsidiaries.
General
The Notes:
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are general unsecured obligations of Goodyear and rank equally
in right of payment with all of our other existing and future
unsubordinated unsecured debt and prior to all of our
subordinated debt; |
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are issued in an aggregate principal amount of $350 million; |
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will mature on June 15, 2034, unless earlier converted,
purchased by us (whether at your option or upon a designated
event (as defined below)) or redeemed; |
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accrue interest at a rate of 4.00% per year payable in cash
on each June 15 and December 15, beginning
December 15, 2004; |
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were issued in denominations of $1,000 and integral multiples of
$1,000; |
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are represented by one or more registered notes in global form,
but in certain limited circumstances may be represented by notes
in definitive form; |
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are redeemable by us for cash, at our option, in whole or in
part beginning on June 20, 2008 at the redemption prices
set forth below under Optional
Redemption, plus accrued and unpaid interest (including
liquidated damages, if any) to but excluding the redemption date; |
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are subject to repurchase by us for cash at the option of the
holder on June 15 of 2011, 2014, 2019, 2024 and 2029, or upon a
designated event; and |
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in the case of certain designated events, will entitle holders
to a make whole premium upon the repurchase of notes as
described below under Designated Event Permits
Holders to Require Us to Purchase Notes and upon the
conversion of notes as described below under
Conversion in Connection with a Fundamental
Change. |
You have the option, subject to fulfillment of certain
conditions and during the periods described below, to convert
your notes into our common stock initially at a conversion rate
of 83.0703 shares of common stock per $1,000 principal
amount of notes (subject to adjustment as described below). This
conversion rate is equivalent to an initial conversion price of
approximately $12.04 per share of common stock. Upon
conversion of a note, you will receive only shares of our common
stock and a cash payment to account for fractional shares. In
lieu of delivering common stock upon conversion of all or any
portion of the notes, we may elect to pay holders surrendering
notes for conversion cash or any combination of cash and common
stock as described herein. See Conversion
Rights.
If any interest payment date, maturity date, redemption date,
purchase date or repurchase date (including upon the occurrence
of a designated event as described below) falls on a day that is
not a business
93
day, the required payment of principal, premium (if any) and
interest will be made on the next succeeding business day with
the same force and effect as if made on the date that the
payment was due, and no interest will accrue on that payment for
the period from and after the interest payment date, maturity
date, redemption date, purchase date or repurchase date
(including upon the occurrence of a designated event as
described below), as the case may be, to that next succeeding
business day. The term business day means, with
respect to any note, any day other than Saturday, Sunday or
other day on which banking institutions are not required by law
or regulation to be open in the State of New York.
We are not subject to any financial covenants under the
indenture. In addition, we are not restricted under the
indenture from paying dividends, incurring debt, securing our
debt or issuing or repurchasing our securities.
You are not afforded protection in the event of a highly
leveraged transaction, or a change of control of us under the
indenture, except to the extent described below under the
caption Designated Event Permits Holders to
Require Us to Purchase Notes and
Conversion in Connection with a Fundamental
Change.
We do not intend to list the notes for trading on any national
security exchange or on the Nasdaq Stock Market.
When we refer to common stock, we mean the common
stock, without par value, of The Goodyear Tire & Rubber
Company.
Additional Notes
We may, without the consent of the holders of the notes,
increase the principal amount of the notes by issuing additional
notes in the future on the same terms and conditions, except for
any differences in the issue price and the interest accrued
prior to the issue date of the additional notes. Any such
additional notes will be fungible with the notes offered hereby
and will have the same CUSIP numbers as the notes offered
hereby. The notes offered by this prospectus and any additional
notes would rank equally and ratably and would be treated as a
single class for all purposes under the indenture, including
with respect to waivers, amendments, redemptions and offers to
purchase. No additional notes may be issued if any event of
default has occurred with respect to the notes.
Ranking
The notes are our general unsecured obligations and rank senior
in right of payment to all existing and future debt that is
expressly subordinated in right of payment to the notes. The
notes rank equally in right of payment with all of our existing
and future liabilities that are not so subordinated. The notes
effectively rank junior to any of our secured indebtedness to
the extent of the assets securing such indebtedness. In the
event of our bankruptcy, liquidation, reorganization or other
winding up, our assets that secure debt will be available to pay
obligations from the notes only after all debt secured by such
assets has been repaid in full from such assets. We advise you
that there may not be sufficient assets remaining to pay amounts
due on any or all the notes then outstanding.
The indenture under which the notes were issued does not limit
us or our subsidiaries from incurring additional indebtedness.
As of December 31, 2005, we had approximately
$4.5 billion of indebtedness (including capital leases)
outstanding, of which $2.3 billion was senior secured
indebtedness. None of our subsidiaries will guarantee our
obligations under the notes. As such, the notes are structurally
subordinated to all liabilities of our subsidiaries, which are
distinct legal entities having no legal obligation to pay any
amounts pursuant to the notes or to make funds available
therefor. At December 31, 2005, the total subsidiary
liabilities, including guarantees of our indebtedness, was
approximately $8.2 billion, which would effectively rank
senior to the notes.
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Interest
The notes accrue interest at a rate of 4.00% per annum from
the most recent interest payment date to which interest has been
paid or duly provided for on the unregistered notes, and any
accrued and unpaid interest (including liquidated damages, if
any) will be payable semi-annually in arrears on June 15 and
December 15 of each year. Interest will be paid to the person in
whose name a note is registered at the close of business on the
June 1 or December 1 (any of which we refer to as a
record date) immediately preceding the relevant
interest payment date. However, in the case of a note redeemed
by us at our option or repurchased upon the occurrence of a
designated event, as described below, during the period from the
applicable record date to, but excluding, the next succeeding
interest payment date, accrued interest (including liquidated
damages, if any) will be payable to the holder of the note
redeemed or repurchased, and we will not be required to pay
interest on such interest payment date in respect of any such
note (or portion thereof). Interest is be computed on the basis
of a 360-day year
comprised of twelve
30-day months and, in
the case of an incomplete month, the actual number of days
elapsed. Interest payments for the notes include accrued
interest from and including the date of issue or from and
including the last date in respect of which interest has been
paid, as the case may be, to, but excluding the related interest
payment date or date of maturity, as the case may be.
Conversion Rights
Subject to the conditions and during the periods described
below, prior to the close of business on the maturity date of
the notes (subject to prior redemption or repayment), you may
convert all or some of your notes into shares of our common
stock initially at a conversion rate of 83.0703 shares of
common stock per $1,000 principal amount of notes, which is
equivalent to an initial conversion price of approximately
$12.04 per share of common stock. The conversion rate in
effect at any given time will be subject to adjustment as
described below. A note for which a holder has delivered a
purchase notice or a notice requiring us to repurchase such note
upon a designated event may be surrendered for conversion only
if such notice is withdrawn three business days prior to the
repurchase date and in accordance with the indenture. You may
convert fewer than all of your notes so long as the notes
converted are an integral multiple of $1,000 principal amount.
Upon conversion, you will not receive any payment of interest
(including liquidated damages, if any) unless such conversion
occurs between a regular record date and the interest payment
date to which it relates and you were the record holder on such
record date, or unless included in the payment of a make whole
premium (if any). We will not issue fractional shares of common
stock upon conversion of notes. Instead, we will pay cash in
lieu of fractional shares. Our delivery to you of the full
number of shares of our common stock into which a note is
convertible, or cash or a combination of cash and shares of
common stock, including any cash payment for any fractional
share, will be deemed to satisfy our obligation to pay:
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the principal amount of the note; and |
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all accrued but unpaid interest (including liquidated damages,
if any). |
As a result, accrued but unpaid interest (including liquidated
damages, if any) will be deemed to be paid in full rather than
cancelled, extinguished or forfeited. For a discussion of the
tax treatment to you of receiving our common stock upon
conversion. See Certain United States Federal Income Tax
Considerations.
Notwithstanding the preceding paragraph, if notes are converted
after the close of business on a record date but prior to the
opening of business on the next succeeding interest payment
date, holders of such notes at the close of business on the
record date will receive the interest (including liquidated
damages, if any) payable on such notes on the corresponding
interest payment date notwithstanding the conversion. Such
notes, upon surrender for conversion, must be accompanied by
funds equal to the amount of interest (including liquidated
damages, if any) payable on the notes so converted; provided
that no such payment need be made (1) if we have specified
a redemption date that is after a record date and on or prior to
the next interest payment date, (2) if we have specified a
designated event repurchase date that is after a record date and
on or prior to the
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next interest payment date, or (3) to the extent of any
overdue interest (including liquidated damages, if any) if any
overdue interest exists at the time of conversion with respect
to such note.
In the event any holder exercises its right to require us to
purchase any notes on any purchase date, such holders
conversion right with respect to such notes will terminate on
the close of business on the relevant purchase date, unless we
default on the payment due upon purchase of such notes or the
holder elects to withdraw the submission of election to have
such notes purchased. See Purchase of Notes by
Us at the Option of the Holders. In the event any holder
exercises its right to require us to repurchase any notes upon a
designated event, such holders conversion right with
respect to such notes will terminate on the close of business on
the designated event purchase date, unless we default on the
payment due upon repurchase of such notes or the holder elects
to withdraw the submission of election to have such notes
repurchased. See Designated Event Permits
Holders to Require Us to Purchase Notes.
To convert your note into common stock you must do the following:
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complete and manually sign the conversion notice on the back of
the note, or a facsimile of the conversion notice, and deliver
this irrevocable notice to the conversion agent; |
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surrender the note to the conversion agent; |
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if required, furnish appropriate endorsements and transfer
documents; |
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if required, pay all transfer or similar taxes; and |
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if required, pay funds equal to interest payable on the next
interest payment date. |
The conversion date will be the date on which the note, the duly
signed and completed notice of conversion, and any funds that
may be required as described above shall have been so delivered.
If your interest is a beneficial interest in a global note, to
convert you must comply with the last three requirements listed
above and comply with the depositarys procedures for
converting a beneficial interest in a global note. The note will
be deemed to have been converted immediately prior to the close
of business on the conversion date. A holder delivering a note
for conversion will not be required to pay any taxes or duties
payable in respect of the issue or delivery of common stock on
conversion, but will be required to pay any tax or duty which
may be payable in respect of any transfer involved in the issue
or delivery of the common stock in a name other than the holder
of the note. Certificates representing shares of common stock
will not be issued or delivered unless all taxes and duties, if
any, payable by the holder have been paid.
Except as described below under Conversion in
Connection with a Fundamental Change, if you surrender
your notes for conversion, we will have the right to deliver
cash, shares of our common stock, or a combination of cash and
shares of our common stock. We will inform the holders through
the trustee no later than two trading days following the
conversion date of our election to deliver shares of common
stock or to pay cash in lieu of delivery of shares of common,
unless we have already informed holders of our election in
connection with our optional redemption of the notes as
described below under Optional
Redemption. If we elect to deliver all of such payment in
shares of common stock, the shares of common stock will be
delivered through the trustee no later than the fifth trading
day following the conversion date. If we elect to pay all or a
portion of such payment in cash, the payment, including any
delivery of shares of common stock, will be made to holders
surrendering notes no later than the 15th trading day following
the conversion date. If an event of default, as described below
under Events of Default and Remedies
(other than a default in a cash payment upon conversion of the
notes) has occurred and is continuing, we may not pay cash upon
conversion of any notes (other than cash in lieu of fractional
shares).
If we elect to satisfy the entire conversion obligation with
shares of our common stock, we will deliver to the holders a
number of shares equal to (1) the aggregate principal
amount of notes to be converted divided by $1,000, multiplied by
(2) the applicable conversion rate.
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If we elect to satisfy the entire conversion obligation in cash,
we will deliver to the holders cash in an amount equal to the
product of:
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a number equal to (1) the aggregate principal amount of
notes to be converted divided by $1,000 multiplied by
(2) the applicable conversion rate, and |
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the average of the last reported sale prices (as defined below)
of our common stock for the ten consecutive trading days
beginning on the third day after the conversion date (the
cash settlement averaging period). |
If we elect to satisfy a fixed amount (but not all) of the
conversion obligation per $1,000 principal amount of notes in
cash, we will deliver to you (x) such fixed amount per
$1,000 principal amount of notes (the cash amount)
and (y) a number of shares of our common stock per $1,000
principal amount of notes equal to the sum, for each trading day
of the cash settlement averaging period, of the greater of:
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zero; and |
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a number of shares determined by the following formula: |
(last reported sale price of our common stock on such trading
day X applicable conversion rate) the cash amount
last reported sale price of our common stock on such trading day
X number of trading days in the cash settlement averaging period
We are not required to issue fractional shares of common stock
upon conversion of notes and, in each case, in lieu of such
fractional shares, we will pay a cash adjustment based upon the
last reported sale price of our common stock during the trading
day immediately preceding the conversion date.
Our ability to pay holders cash in lieu of shares of common
stock upon a conversion of the notes is prohibited under our
existing credit facilities (the latest of which currently
expires in March 2006) and may be prohibited or limited in the
future by the terms of our borrowing agreements in effect from
time to time. At any time prior to maturity, we may at our
option elect, by notice to the trustee and the holders of the
notes, that upon conversion of the notes at any time following
the date of such notice, we shall be required to deliver cash in
an amount at least equal to the principal amount of the notes
converted. If we make this election, we will also be required to
deliver cash only in connection with any principal value
conversion pursuant to the trading price condition.
Conversion upon Satisfaction of Sale Price Condition
You may surrender your notes for conversion into our common
stock: (1) on any business day in any fiscal quarter
commencing prior to the maturity date of the notes (and only
during such fiscal quarter), if the last reported sale price of
our common stock for at least 20 trading days during the period
of 30 consecutive trading days ending on the eleventh trading
day of such fiscal quarter is greater than 120% of the
applicable conversion price per share of our common stock on
such eleventh trading day (initially 120% of $12.04, or $14.45,
which we refer to as the conversion trigger price) and
(2) on any business day after June 15, 2029 (through
the business day immediately prior to the maturity of the notes)
if the last reported sale price of our common stock on any
trading date after June 15, 2029 is greater than 120% of
the applicable conversion trigger price. Upon surrender of notes
for conversion, we will have the right to deliver, at our
option, shares of our common stock, cash or a combination of
cash and shares of our common stock.
The last reported sale price of our common stock on
any date means the closing sale price per share (or if no
closing sale price is reported, the average of the last reported
bid and asked prices or, if more than one in either case, the
average of the average bid and the average asked prices) on that
date as reported in composite transactions for the principal
United States securities exchange on which our common stock is
traded or, if our common stock is not listed on a United States
national or regional securities exchange, as reported by the
Nasdaq National Market. If our common stock is not listed for
trading on a United States national or regional securities
exchange and not reported by the Nasdaq National Market on the
relevant date, the last reported
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sale price will be the last quoted bid price for our
common stock in the
over-the-counter market
on the relevant date as reported by the National Quotation
Bureau Incorporated or similar organization. If our common stock
is not so quoted, we will determine the last reported sale
price on the basis we consider appropriate.
Conversion Based on Trading Price of the Notes
You also may surrender your notes for conversion during the five
consecutive business day period following any five consecutive
trading day period in which the trading price per
$1,000 principal amount of notes for each day of that trading
period, as determined following a request by a holder of notes
in accordance with the procedures described below, was less than
98% of the product of the last reported sale price of our common
stock on such corresponding trading day and the applicable
conversion rate (the trading price condition). Upon
surrender of notes for conversion, we will have the right to
deliver, at our option, shares of our common stock, cash or a
combination of cash and shares of our common stock.
Notwithstanding the foregoing paragraph, if, on the date of any
conversion pursuant to the trading price condition that is on or
after June 15, 2029, the last reported sale price of our
common stock on the trading day before the conversion date is
greater than 100% but less than 120% of the conversion price,
then holders surrendering notes for conversion will receive, in
lieu of shares of our common stock (or cash or a combination of
cash and shares of our common stock) based on the then
applicable conversion rate, an amount in cash or common stock or
a combination of cash and common stock, at our option, with a
value equal to the principal amount of the notes being
converted, plus accrued and unpaid interest (including
liquidated damages, if any), as of the conversion date (a
principal value conversion). Any common stock
delivered upon a principal value conversion will be valued at
the greater of the conversion price on the conversion date and
the average of the last reported sale price of our common stock
for a five trading day period starting on the third trading day
following the conversion date of the notes.
The trading price of the notes on any date of
determination means the average of the secondary market bid
quotations per $1,000 principal amount of notes obtained by the
trustee (or another conversion agent obtained by us) for
$2,000,000 principal amount of the notes at approximately
3:30 p.m., New York City time, on such determination date
from three independent nationally recognized securities dealers
we select, which may include one or more of the initial
purchasers, provided that if at least three such bids cannot be
reasonably obtained by the trustee (or another conversion agent
obtained by us), but two such bids are obtained by the trustee
(or another conversion agent obtained by us), then the average
of the two bids shall be used, and if only one bid can be
reasonably obtained by the trustee (or another conversion agent
obtained by us), such one bid shall be used. If the trustee (or
another conversion agent obtained by us) cannot reasonably
obtain at least one bid for $2,000,000 principal amount of the
notes from an independent nationally recognized securities
dealer on any date, or in our reasonable judgment, the bid
quotations are not indicative of the secondary market value of
the notes on such date, then the trading price of the notes on
such date will be deemed to be less than 98% of (a) the
last reported sale price of our common stock on such date
multiplied by (b) the conversion rate of the notes on the
date of determination.
In connection with any conversion upon satisfaction of the above
trading price condition, the trustee (or other conversion agent
appointed by us) shall have no obligation to determine the
trading price of the notes unless we have requested such
determination. We will have no obligation to make that request
unless a holder of notes provides us with reasonable evidence
that the trading price of the notes may be less than 98% of the
last reported sale price of our common stock multiplied by the
applicable conversion rate. At such time, we shall instruct the
trustee or conversion agent, as the case may be, to determine
the trading price of the notes beginning on the next trading day
and on each successive trading day until, and only until, the
trading price per $1,000 principal amount of notes on a trading
day is greater than or equal to 98% of the average last reported
sale prices of our common stock multiplied by the applicable
conversion rate.
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Conversion upon Notice of Redemption
If we call any or all of the notes for redemption, you may
surrender any of your notes that have been called for redemption
for conversion at any time prior to the close of business on the
second business day prior to the redemption date; provided that
if we elect to redeem less than all of the notes, only those
notes called for redemption may be converted. Upon surrender of
notes for conversion after a redemption call, we will have the
right to deliver, at our option, shares of our common stock,
cash or a combination of cash and shares of our common stock. We
will give notice of our election to pay cash in lieu of common
stock in the notice of redemption.
Conversion upon Specified Corporate Transactions
If we elect to:
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distribute to all holders of our common stock certain rights
entitling them to purchase, for a period expiring within
60 days after the date of the distribution, shares of our
common stock at less than the last reported sale price of a
share of our common stock on the trading day immediately
preceding the declaration date of the distribution; or |
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distribute to all holders of our common stock, assets (including
cash), debt securities or rights to purchase our securities,
which distribution has a per share value as determined by our
board of directors exceeding 5% of the last reported sale price
of our common stock on the trading day immediately preceding the
declaration date for such distribution, |
we must notify holders of the notes at least 20 business days
prior to the ex-dividend date for such distribution. Once we
have given such notice, holders may surrender their notes for
conversion at any time until the earlier of the close of
business on the business day immediately prior to the
ex-dividend date or any announcement that such distribution will
not take place. No holder may exercise this right to convert if
the holder otherwise will participate in the distribution
without conversion. The ex-dividend date is the first date upon
which a sale of the common stock does not automatically transfer
the right to receive the relevant distribution from the seller
of the common stock to its buyer. If the distribution does not
take place, no notes surrendered for conversion will be
converted.
Conversion in Connection with a Fundamental Change
We must give notice to all record holders and to the trustee at
least 10 trading days prior to the anticipated effective date of
a fundamental change (as defined below). We must also give
notice to all record holders and to the trustee that such
fundamental change has become effective within the five trading
day period after the date such fundamental change becomes
effective. You may surrender your notes for conversion at any
time during the period from the opening of business on the date
we give notice of the anticipated effective date of the
fundamental change to the close of business on the 10th trading
day from and including the date of our notice (the
effective date notice) that such fundamental change
has become effective, or, if later, the related repurchase date,
if any, for that fundamental change.
If you convert your notes in connection with a fundamental
change, you will receive
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if you are entitled to the make whole premium, an amount
determined as set forth below under
Determination of the Make Whole Premium
which will be payable on the repurchase date for the notes after
a certain fundamental change as described under
Designated Event Permits Holders to Require Us
to Purchase Notes and an amount equal to any accrued but
unpaid cash interest to, but excluding, the conversion date,
which interest will be payable in cash; plus |
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the number of shares of our common stock (or cash or a
combination of cash and common stock, as described above) into
which your notes are convertible (if you surrender your notes
for conversion prior to the record date for receiving
distributions in connection with the fundamental change or, if
earlier, the effective time of the fundamental change) or the
kind and amount of cash, securities and other assets or property
which you would have received if you had held the number of
shares of our common |
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stock into which your notes were convertible immediately prior
to the transaction (if you surrender your notes for conversion
after such record date or effective time, as the case may be). |
Conversion Rate Adjustments
The conversion rate (as well as the stock price (as defined
below) used to determine the make whole premium described under
Determination of the Make Whole Premium)
will be adjusted as described below, except that we will not
make any adjustments to the conversion rate (or the stock price
used to determine the make whole premium) if holders of the
notes participate in any of the transactions described below.
(1) If we issue shares of our common stock as a dividend or
distribution on our common stock, or if we effect a stock split
or stock combination, the conversion rate will be adjusted based
on the following formula:
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OS(1) |
CR(1)
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= |
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CR(o |
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× |
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OS(o) |
where,
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CR(o)
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= |
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the conversion rate in effect immediately prior to such event |
CR(1)
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= |
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the conversion rate in effect immediately after such event |
OS(o)
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= |
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the number of shares of our common stock outstanding immediately
prior to such event |
OS(1)
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= |
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the number of shares of our common stock outstanding immediately
prior to such event plus the total number of shares constituting
such dividend or distribution |
(2) If we issue to all or substantially all holders of our
common stock any rights, warrants or options entitling them for
a period of not more than 60 days to subscribe for or
purchase shares of our common stock, or securities convertible
into shares of our common stock, at a price per share or a
conversion price per share less than the last reported sale
price of our common stock on the trading day immediately
preceding the day on which such issuance is announced, the
conversion rate will be adjusted based on the following formula
(provided that the conversion rate will be readjusted to the
extent that such rights, warrants or options are not exercised
prior to their expiration):
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OS(o) + X |
CR(1)
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= |
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CR(o) |
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× |
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OS(o) + Y |
where,
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CR(o)
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= |
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the conversion rate in effect immediately prior to such event |
CR(1)
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= |
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the conversion rate in effect immediately after such event |
OS(o)
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= |
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the number of shares of our common stock outstanding immediately
prior to such event |
X
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= |
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the total number of shares of our common stock issuable pursuant
to such rights, warrants or options |
Y
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= |
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the number of shares of our common stock equal to the aggregate
price payable to exercise such rights divided by the average of
the last reported sale prices of our common stock for the ten
consecutive trading days prior to the trading day immediately
preceding the record date for the issuance of such rights,
warrants or options |
(3) If we distribute shares of our capital stock, evidences
of our indebtedness or other assets or property of ours to all
or substantially all holders of our common stock, excluding:
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dividends, distributions, rights, warrants, options or
securities referred to in clause (1) or
(2) above; and |
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dividends or distributions in cash referred to in
clause (4) below; |
then the conversion rate will be adjusted based on the following
formula:
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SP(O) |
CR(1)
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× |
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SP(O) - FMV |
where,
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CR(o)
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= |
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the conversion rate in effect immediately prior to such
distribution |
CR(1)
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= |
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the conversion rate in effect immediately after such distribution |
SP(o)
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= |
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the average of the last reported sale prices of our common stock
for the ten consecutive trading days prior to the trading day
immediately preceding the ex dividend date for such distribution |
FMV
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the fair market value (as determined by our board of directors)
of the shares of capital stock, evidences of indebtedness,
assets or property distributed with respect to each outstanding
share of our common stock on the ex dividend date for such
distribution |
With respect to an adjustment pursuant to this clause (3)
where there has been a payment of a dividend or other
distribution on our common stock or shares of capital stock of
any class or series, or similar equity interest, of or relating
to a subsidiary or other business unit, which we refer to as a
spin-off, the conversion rate in effect immediately
before the close of business on the record date fixed for
determination of shareholders entitled to receive the
distribution will be increased based on the following formula:
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FMV + MP(o) |
CR(1)
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MP(o) |
where,
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CR(o)
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= |
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the conversion rate in effect immediately prior to such
distribution |
CR(1)
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the conversion rate in effect immediately after such distribution |
FMV
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the average of the last reported sale prices of the capital
stock or similar equity interest distributed to holders of our
common stock applicable to one share of our common stock over
the first 10 trading days after the effective date of the
spin-off |
MP(o)
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the average of the last reported sale prices of our common stock
over the first 10 consecutive trading days after the effective
date of the spin-off |
(4) If we make cash dividends or distributions to all or
substantially all holders of our common stock, the conversion
rate will be adjusted based on the following formula:
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SP(o) |
CR(1)
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CR(o) |
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× |
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SP(o) - C |
where,
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CR(o)
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the conversion rate in effect immediately prior to the record
date for such distribution |
CR(1)
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= |
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the conversion rate in effect immediately after the ex dividend
date for such distribution |
SP(o)
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= |
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the average of the last reported sale prices of our common stock
for the ten consecutive trading days prior to the trading day
immediately preceding the ex dividend date of such distribution |
C
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the amount in cash per share we distribute to holders of our
common stock |
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(5) If we or any of our subsidiaries purchase shares of our
common stock pursuant to a tender offer or exchange offer which
involves an aggregate consideration that exceeds the last
reported sale price of our common stock on the trading day next
succeeding the last date on which tenders or exchanges may be
made pursuant to the tender offer or exchange offer, the
conversion rate will be increased based on the following formula:
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AC + (SP(1) × OS(1)) |
CR(1)
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CR(o) |
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× |
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SP(1) × OS(o) |
where,
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CR(o)
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= |
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the conversion rate in effect on the date such tender offer or
exchange offer expires |
CR(1)
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= |
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the conversion rate in effect on the day next succeeding the
date such tender offer or exchange offer expires |
AC
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= |
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the aggregate value of all cash and any other consideration (as
determined by our board of directors) paid or payable for all
shares of common stock that the Company or one of its
subsidiaries purchases in the tender offer or exchange offer |
OS(o)
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= |
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the number of shares of our common stock outstanding immediately
prior to the date such tender offer or exchange offer expires |
OS(1)
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= |
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the number of shares of our common stock outstanding immediately
after the date such tender offer or exchange offer expires |
SP(1)
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the average of the last reported sale prices of our common stock
for the ten consecutive trading days commencing on the trading
day next succeeding the date such tender offer or exchange offer
expires |
If, however, the application of the foregoing formula would
result in a decrease in the conversion rate, no adjustment to
the conversion rate will be made.
Notwithstanding the foregoing, in the event of an adjustment
pursuant to clauses (4) or (5) above, in no event will
the conversion rate exceed 107.9914, subject to adjustment
pursuant to clauses (1), (2) and (3) above.
To the extent that we adopt any stockholder rights plan, upon
conversion of the notes into our common stock, you will receive,
in addition to our common stock, the rights under the rights
plan unless the rights have separated from our common stock at
the time of conversion, in which case the conversion rate will
be adjusted as if we distributed to all holders of our common
stock, shares of our capital stock, evidences of indebtedness or
assets or property as described above, subject to readjustment
in the event of the expiration, termination or redemption of
such rights.
No adjustment to the conversion rate or the ability of a holder
of a note to convert will be made if the holder will otherwise
participate in the distribution without conversion solely as a
holder of a note.
Except as stated herein, we will not adjust the conversion rate
for the issuance of our common stock or any securities
convertible into or exchangeable for our common stock or the
right to purchase our common stock or such convertible or
exchangeable securities.
In particular, the applicable conversion rate will not be
adjusted:
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upon the issuance of any shares of our common stock pursuant to
any present or future plan providing for the reinvestment of
dividends or interest payable on our securities and the
investment of additional optional amounts in shares of our
common stock under any plan; |
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upon the issuance of any shares of our common stock or options
or rights to purchase those shares pursuant to any present or
future employee, director or consultant benefit plan or program
of or assumed by us or any of our subsidiaries; |
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upon the issuance of any shares of our common stock pursuant to
any option, warrant, right or exercisable, exchangeable or
convertible security not described in the preceding bullet and
outstanding as of the date the notes were first issued; |
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for a change in the par value of the common stock; or |
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for accrued and unpaid interest (including liquidated damages,
if any). |
Adjustments to the applicable conversion rate will be calculated
to the nearest 1/10,000th of a share.
We are permitted to increase the conversion rate of the notes by
any amount for a period of at least 20 business days (or
such longer period as may be required by law) if our Board of
Directors determines that such increase would be in our best
interest. We are required to give at least 15 days prior
notice of any increase in the conversion rate. We may also (but
are not required to) increase the conversion rate to avoid or
diminish income tax to holders of our common stock or rights to
purchase common stock in connection with a dividend or
distribution of stock (or rights to acquire stock) or similar
event.
Holders of the notes may, in some circumstances, be deemed to
have received a distribution or dividend subject to United
States federal income tax as a result of an adjustment or the
nonoccurrence of an adjustment to the conversion rate. See
Certain United States Federal Income Tax
Considerations.
Exchange in Lieu of Conversion
When you surrender the notes for conversion, the conversion
agent may direct you to surrender your notes to a financial
institution designated by us for exchange in lieu of conversion.
In order to accept any notes surrendered for conversion, the
designated institution must agree to deliver, in exchange for
your notes, a number of shares of our common stock equal to the
applicable conversion rate, plus cash for any fractional shares,
or cash or a combination of cash and shares of our common stock
in lieu thereof. If the designated institution accepts any such
notes, it will deliver the appropriate number of shares of our
common stock to the conversion agent and the conversion agent
will deliver those shares to you. Any notes exchanged by the
designated institution will remain outstanding. If the
designated institution agrees to accept any notes for exchange
but does not timely deliver the related consideration, we will,
as promptly as practical thereafter, but not later than the
third business day following determination of the applicable
stock price, convert the notes and deliver cash, shares of our
common stock or a combination of cash and shares of our common
stock as described under Conversion
Rights.
Our designation of an institution to which the notes may be
submitted for exchange does not require the institution to
accept any notes. If the designated institution declines to
accept any notes surrendered for exchange, we will convert those
notes into shares of our common stock, cash, or a combination of
cash and shares of our common stock, as described under
Conversion Rights.
We will not pay any consideration to, or otherwise enter into
any arrangement with, the designated institution for or with
respect to such designation.
Optional Redemption
Prior to June 20, 2008, the notes will not be redeemable.
On or after June 20, 2008, we may redeem for cash all or a
portion of the notes at any time at the declining redemption
prices below, plus any accrued and unpaid interest (including
liquidated damages, if any) to but excluding the redemption
date. We will provide not less than 30 nor more than
60 days notice mailed to each registered holder of
the notes to be redeemed. If the redemption notice is given and
funds deposited as required, then interest will cease to accrue
on and after the redemption date on the notes or portions of
such notes called for redemption. If the redemption date is an
interest payment date, interest (including liquidated damages,
if any) shall be paid on such interest payment
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date to the record holder on the relevant record date. The
redemption price, expressed as a percentage of the principal
amount of the notes to be redeemed, is as follows for the
following periods:
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Redemption | |
Period |
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Beginning June 20, 2008 and ending on June 14, 2009
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101.714 |
% |
Beginning June 15, 2009 and ending on June 14, 2010
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101.143 |
% |
Beginning June 15, 2010 and ending on June 14, 2011
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100.571 |
% |
Beginning June 15, 2011 and thereafter
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100.000 |
% |
Notes or portions of notes called for redemption will be
convertible by the holder until the close of business on the
second business day prior to the redemption date. We will give
notice of our election to pay cash in lieu of shares of common
stock upon a conversion in the notice of redemption.
If we decide to redeem fewer than all of the outstanding notes,
the trustee will select the notes to be redeemed in principal
amounts of $1,000 or multiples of $1,000 by lot, on a pro rata
basis or by another method the trustee considers fair and
appropriate.
If the trustee selects a portion of your notes for partial
redemption and you convert a portion of your notes, the
converted portion will be deemed to be from the portion selected
for redemption.
We may not redeem the notes if we have failed to pay any
interest on the notes (including liquidated damages, if any) and
such failure to pay is continuing.
Purchase of Notes by Us at the Option of the Holders
Holders have the right to require us to purchase for cash all or
a portion of their notes on June 15 of 2011, 2014, 2019, 2024
and 2029 (each, a purchase date). We will be
required to purchase any outstanding notes for which a holder
delivers a written purchase notice to the paying agent. This
notice must be delivered during the period beginning at any time
from the opening of business on the date that is 20 business
days prior to the relevant purchase date until the close of
business on the third business day prior to the purchase date.
If the purchase notice is given and withdrawn during such
period, we will not be obligated to purchase the related notes.
The purchase price payable will be equal to 100% of the
principal amount of the notes to be purchased, plus any accrued
and unpaid interest (including liquidated damages, if any) to,
but excluding, the purchase date.
On or before the 20th business day prior to each purchase date,
we will provide to the trustee, the paying agent and all holders
of the notes at their addresses shown in the register of the
registrar, and to beneficial owners as required by applicable
law, a notice stating, among other things:
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the purchase price; |
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the name and address of the paying agent and the conversion
agent; and |
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the procedures that holders must follow to require us to
purchase their notes. |
On or prior to the date we provide such notice, we will publish
a notice containing this information in a newspaper of general
circulation in The City of New York or publish the information
on our web site or through such other public medium as we may
use at that time.
The purchase notice given by each holder electing to require us
to purchase notes shall be given so as to be received by the
paying agent no later than the close of business on the third
business day prior to the purchase date and must state:
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if certificated notes have been issued, the certificate numbers
of the notes; |
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the portion of the principal amount of notes to be purchased, in
integral multiples of $1,000; and |
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that the notes are to be purchased by us pursuant to the
applicable provisions of the notes and the indenture. |
If the notes are not in certificated form, your notice must
comply with appropriate DTC procedures.
You may withdraw any purchase notice in whole or in part by a
written notice of withdrawal delivered to the paying agent prior
to the close of business on the business day prior to the
purchase date. The notice of withdrawal must state:
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the principal amount of the withdrawn notes; |
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if certificated notes have been issued, the certificate numbers
of the withdrawn notes; and |
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the principal amount, if any, which remains subject to the
purchase notice. |
If the notes are not in certificated form, your withdrawal
notice must comply with appropriate DTC procedures.
You must either effect book-entry transfer or deliver the notes,
together with necessary endorsements, to the office of the
paying agent after delivery of the purchase notice to receive
payment of the purchase price. You will receive payment promptly
following the later of the purchase date or the time of
book-entry transfer or the delivery of the notes. If the paying
agent holds money sufficient to pay the purchase price of the
notes on the business day following the purchase date, then:
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the notes will cease to be outstanding and interest will cease
to accrue (whether or not book-entry transfer of the notes is
made or whether or not the notes are delivered to the paying
agent); and |
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all other rights of the holder will terminate (other than the
right to receive the purchase price upon delivery or transfer of
the notes). |
Our ability to pay holders cash may be prohibited or limited in
the future by the terms of our borrowing agreements in effect
from time to time. Although we may become obligated to purchase
any outstanding notes on a purchase date, we may not have
sufficient funds to pay the purchase price on that purchase date.
We may not purchase any notes at the option of holders if there
has occurred and is continuing an event of default with respect
to the notes other than an event of default that is cured by the
payment of the repurchase price of the notes.
Designated Event Permits Holders to Require Us to Purchase
Notes
If a designated event occurs at any time, you will have the
right, at your option, to require us to purchase any or all of
your notes, or any portion of the principal amount thereof, that
is equal to $1,000 or an integral multiple of $1,000. We will
pay a designated event repurchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest
(including liquidated damages, if any) to but excluding the
designated event repurchase date, plus, in the case of a
fundamental change that is a change of control (as defined
below), a make whole premium, if any, determined as described
below under Determination of the Make Whole
Premium.
A designated event will be deemed to have occurred
upon a fundamental change or a termination of
trading; provided that a fundamental change occurring on
or prior to June 15, 2011, will not be a designated event
unless the transaction or event resulting in such fundamental
change also constitutes a change of control.
A fundamental change is any transaction or event
(whether by means of an exchange offer, liquidation, tender
offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) in connection with which all or
substantially all of our common stock is exchanged for,
converted into, acquired for or constitutes solely the right to
receive, consideration that is not at least 90% (excluding cash
payments for fractional shares) common shares, common stock or
American depositary shares that are (i) listed on, or
immediately after the transaction or event will be listed on,
the New York Stock Exchange or a United States national
securities exchange; or (ii) approved, or immediately after
the transaction or event will be approved,
105
for quotation on the Nasdaq National Market or any similar
United States system of automated dissemination of quotations of
securities prices.
A change of control will be deemed to have occurred
at the time any of the following occurs after the notes are
originally issued:
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(1) any person or group (within the
meaning of Section 13(d) of the Exchange Act) other than
us, our subsidiaries or any of our or their employee benefit
plans files a Schedule TO, Schedule 13D or any
schedule, form or report under the Exchange Act disclosing that
such person or group has become the direct or indirect ultimate
beneficial owner (as defined in
Rule 13d-3 under
the Exchange Act) of the Companys common equity
representing more than 50% of the voting power of the
Companys common equity entitled to vote generally in the
election of directors; or |
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(2) consummation of any share exchange, consolidation or
merger of the Company pursuant to which the Companys
common stock will be converted into cash, securities or other
property or any sale, lease or transfer in one transaction or a
series of transactions of all or substantially all of the
consolidated assets of us and our subsidiaries, taken as a
whole, to any person other than us or one or more of our
subsidiaries; provided, however, that a transaction where the
holders of the Companys common equity immediately prior to
such transaction have, directly or indirectly, more than 50% of
the aggregate voting power of the voting stock of the continuing
or surviving corporation or transferee entitled to vote
generally in the election of directors immediately after such
event shall not be a change of control. |
A termination of trading will be deemed to have
occurred if our common stock or other common stock into which
the notes are convertible is neither listed for trading on a
United States national securities exchange nor approved for
listing on the Nasdaq National Market or another established
automated
over-the-counter
trading market in the United States, and no American depositary
shares or similar instruments for such common stock are so
listed or approved for listing in the United States.
On or before the fifth trading day after the occurrence of a
designated event, we will provide to all holders of the notes
and the trustee and paying agent a notice of the occurrence of
the designated event and of the resulting repurchase right. Such
notice shall state, among other things:
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the events causing a designated event; |
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the date of the designated event; |
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the last date on which a holder may exercise the repurchase
right; |
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the designated event repurchase price; |
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the designated event repurchase date; |
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the name and address of the paying agent and conversion agent; |
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the conversion price and any adjustments to the conversion price; |
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that the notes with respect to which a designated event
repurchase notice has been given by the holder may be converted,
if permitted under the terms of the indenture, only if the
holder withdraws the designated event repurchase notice in
accordance with the terms of the indenture; and |
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the procedures that holders must follow to require us to
repurchase their notes. |
In connection with providing such notice, we will publish a
notice containing this information in a newspaper of general
circulation in the City of New York or publish the information
on our website or through such other public medium as we may use
at that time.
To exercise the repurchase right, you must deliver, on or before
the close of business on the third business day immediately
preceding the designated event repurchase date, subject to
extension to comply with applicable law, a written repurchase
notice and the form entitled Form of Designated Event
Repurchase
106
Election on the reverse side of the notes duly completed,
to the paying agent. Your repurchase election must state:
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if certificated, the certificate numbers of your notes to be
delivered for repurchase; |
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the portion of the principal amount of notes to be repurchased,
which must be $1,000 or an integral multiple thereof; and |
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that the notes are to be repurchased by us pursuant to the
applicable provisions of the notes and the indenture. |
If the notes are not in certificated form, your notice must
comply with appropriate DTC procedures.
You may withdraw any repurchase election (in whole or in
part) by a written notice of withdrawal delivered to the paying
agent prior to the close of business on the business day prior
to the designated event repurchase date. The notice of
withdrawal shall state:
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the principal amount of the withdrawn notes; |
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if certificated notes have been issued, the certificate numbers
of the withdrawn notes; and |
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the principal amount, if any, which remains subject to the
repurchase election. |
If the notes are not in certificated form, your withdrawal
notice must comply with appropriate DTC procedures.
You must either effect book-entry transfer or deliver the notes,
together with necessary endorsements, to the office of the
paying agent after delivery of the repurchase election to
receive payment of the designated event repurchase price. We
will be required to repurchase the notes no later than
35 days after the day of our notice of the occurrence of
the relevant designated event subject to extension to comply
with applicable law. You will receive payment of the designated
event repurchase price promptly following the later of the
designated event repurchase date or the time of book-entry
transfer or the delivery of the notes. If the paying agent holds
money sufficient to pay the designated event repurchase price of
the notes on the business day following the designated event
repurchase date, then:
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the notes will cease to be outstanding and interest will cease
to accrue (whether or not book-entry transfer of the notes is
made or whether or not the notes are delivered to the paying
agent); and |
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all other rights of the holder will terminate (other than the
right to receive the designated event repurchase price and
previously accrued and unpaid interest upon delivery or transfer
of the notes). |
The repurchase rights of the holders could discourage a
potential acquirer of us. The designated event repurchase
feature, however, is not the result of managements
knowledge of any specific effort to obtain control of us by any
means or part of a plan by management to adopt a series of
anti-takeover provisions.
The term designated event is limited to specified transactions
and may not include other events that might adversely affect our
financial condition. In addition, the requirement that we offer
to repurchase the notes upon a designated event may not protect
holders in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving us.
The definition of designated event includes a phrase relating to
the conveyance, transfer, sale, lease or disposition of
all or substantially all of our consolidated assets.
There is no precise, established definition of the phrase
substantially all under applicable law. Accordingly,
the ability of a holder of the notes to require us to repurchase
its notes as a result of the conveyance, transfer, sale, lease
or other disposition of less than all of our assets may be
uncertain.
No notes may be repurchased at the option of holders (other than
through the issuance of shares of common stock and cash in lieu
of fractional shares) upon a designated event if there has
occurred and is continuing an event of default other than an
event of default that is cured by the payment of the designated
event repurchase price of the notes.
107
If a designated event were to occur, we may not have enough
funds to pay the designated event repurchase price in cash. See
Risk Factors We May be Unable to Repay or
Repurchase the Notes. If we fail to repurchase the notes
when required following a designated event, we will be in
default under the indenture. Under our existing credit
facilities, the occurrence of certain types of designated events
would be an event of default and allow the lenders to accelerate
the debt under that facility. This could result in an event of
default under the notes. See Events of Default
and Remedies. In addition, we have, and may in the future
incur, other indebtedness with similar change in control
provisions permitting our holders to accelerate or to require us
to repurchase our indebtedness upon the occurrence of similar
events or on some specific dates.
Our obligation to make a repurchase upon a designated event will
be satisfied if a third party makes the designated event
repurchase offer in a manner and at the times and otherwise in
compliance in all material respects with the requirements
applicable to a designated event repurchase offer made by us,
purchases all notes properly tendered and not withdrawn under
the designated event repurchase offer and otherwise complies
with its obligations in connection therewith.
Determination of Make Whole Premium
If a fundamental change that constitutes a change of control
becomes effective on or prior to June 15, 2011, holders of
notes will be entitled to a make whole premium upon the
repurchase of notes as described above under
Designated Event Permits Holders to Require Us
to Purchase Notes and upon the conversion of notes as
described above under Conversion in Connection
with a Fundamental Change.
Holders will not be entitled to the make whole premium if the
stock price (as defined below) is less than $9.26
(subject to adjustment).
The make whole premium will be a percentage of the original
principal amount of the notes being purchased or converted. The
make whole premium will be determined by reference to the table
below and is based on the date on which the fundamental change
becomes effective and the stock price.
For these purposes, the price paid per share of our common stock
in the transaction constituting the fundamental change, or
stock price, will be determined as follows:
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if holders of our common stock receive only cash in such
transaction, the stock price will be the cash amount paid per
share; and |
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otherwise, the stock price will be the average of the last
reported sale price of our common stock on the 10 trading days
up to but not including the effective date of such transaction. |
We may satisfy the make whole premium solely in shares of our
common stock (other than cash paid in lieu of fractional shares)
or in the same form of consideration into which shares of our
common stock have been converted in connection with the
fundamental change. If holders of our common stock have the
right to elect the form of consideration received in a
fundamental change, then for purposes of the foregoing the
consideration into which a share of our common stock has been
converted shall be deemed to equal the aggregate consideration
distributed in respect of all shares of our common stock divided
by the total number of shares of our common stock participating
in the distribution.
The value of the shares of our common stock, or other
consideration to be received, for purposes of determining the
number of shares to be issued, or other consideration to be
delivered, in respect of the make whole premium will be
calculated as follows:
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in the case of a fundamental change in which all or
substantially all of the shares of our common stock have been
converted as of the effective date into the right to receive
securities or other assets or property, then the value of the
shares of our common stock will equal the value of the
consideration paid per share, with the consideration valued as
follows: |
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securities that are traded on an United States national
securities exchange or approved for quotation on the Nasdaq
National Market or any similar system of automated dissemination
of quotations of |
108
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securities prices will be valued based on 98% of the average
last reported sale price on the 10 trading days prior to but
excluding the repurchase date, |
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other securities, assets or property (other than cash) which
holders will have the right to receive will be valued based on
98% of the average of the fair market value of such securities,
assets or property (other than cash) as determined by two
independent nationally recognized investment banks selected by
the trustee, and |
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100% of any cash; and |
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in all other cases, the value of our shares of common stock will
equal 98% of the average last reported sale price on the 10
trading days prior to but excluding the repurchase date. |
Notwithstanding the foregoing, in no event shall the value of
the shares of our common stock be less than 50% of the stock
price used to determine the amount of the make whole premium.
The stock prices set forth in the first row of the first
following table (i.e., the column headers) will be adjusted as
of any date on which the conversion rate of the notes is
adjusted. The adjusted stock prices will equal the stock prices
applicable immediately before that adjustment of the conversion
rate of the notes multiplied by a fraction, the numerator of
which is the conversion rate immediately prior to the adjustment
giving rise to the stock price adjustment and the denominator of
which is the conversion rate as so adjusted.
The table below sets forth the additional premiums prior to
June 20, 2008 (table in percentages).
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Stock Price | |
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Effective Date of Fundamental Change |
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$9.26 | |
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$10.00 | |
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$11.00 | |
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$12.00 | |
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$13.00 | |
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$15.00 | |
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$20.00 | |
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$50.00 | |
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$100.00 | |
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July 2, 2004
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0.0 |
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4.6 |
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10.9 |
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17.4 |
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16.4 |
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14.0 |
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9.3 |
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0.6 |
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0.0 |
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June 15, 2005
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0.0 |
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2.4 |
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8.8 |
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15.4 |
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14.6 |
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11.5 |
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7.8 |
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0.4 |
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0.0 |
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June 15, 2006
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0.0 |
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1.0 |
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6.9 |
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13.4 |
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11.9 |
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9.5 |
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5.3 |
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0.4 |
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0.0 |
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June 15, 2007
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0.0 |
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0.5 |
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4.5 |
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10.5 |
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9.3 |
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6.0 |
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2.9 |
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0.4 |
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0.0 |
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June 19, 2008
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0.0 |
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1.7 |
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1.7 |
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1.7 |
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1.7 |
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1.7 |
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1.7 |
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1.7 |
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0.0 |
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The exact stock price and repurchase dates may not be set forth
on the table; in which case, if the stock price is:
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between two stock price amounts on the table or the repurchase
date is between two dates on the table, the make whole premium
will be determined by straight-line interpolation between make
whole premium amounts set forth for the higher and lower stock
price amounts and the two dates, as applicable, based on a
365 day year; |
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more than $100.00 per share (subject to adjustment), no
make whole premium will be paid; and |
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less than the last reported sale price of our common stock on
the date of pricing (subject to adjustment), no make whole
premium will be paid. |
The table below sets forth the additional premiums on or after
June 20, 2008 (table in percentages):
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Make Whole | |
Effective Date of Fundamental Change |
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Premiums | |
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Beginning June 20, 2008 and ending on June 14, 2009
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1.7 |
% |
Beginning June 15, 2009 and ending on June 14, 2010
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1.1 |
% |
Beginning June 15, 2010 and ending on June 15, 2011
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0.6 |
% |
109
Merger and Consolidation
We will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of our assets to, any
person, unless:
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(1) the resulting, surviving or transferee person (the
Successor Company) will be a corporation organized
and existing under the laws of the United States of America, any
State thereof or the District of Columbia and the Successor
Company (if not the company) will expressly assume, by a
supplemental indenture, executed and delivered to the trustee,
if form satisfactory to the trustee, all the obligations of the
company under the notes and the indenture; |
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(2) immediately after giving effect to such transaction, no
default will have occurred and be continuing; and |
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(3) we shall have delivered to the trustee an
officers certificate and an opinion of counsel, each
stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the indenture. |
The Successor Company will succeed to, and be substituted for,
and may exercise every right and power of, the company under the
indenture, and the predecessor company, other than in the case
of a lease, will be released from the obligation to pay the
principal of and interest on the notes.
Notwithstanding the foregoing, we may merge with an affiliate
incorporated solely for the purpose of reincorporating the
company in another jurisdiction to realize tax or other benefits.
Events of Default and Remedies
An event of default is defined in the indenture as being:
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(1) a default in payment of the principal of, or premium
(if any) on, any of the notes when due at maturity, upon
redemption, required repurchase or otherwise; |
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(2) a default in any payment of interest (including
liquidated damages, if any) on any note when due and payable and
continued for 30 days; |
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(3) a default for 10 days in our obligation to satisfy
our conversion obligation upon exercise of a holders
conversion right; |
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(4) a failure to comply with or observe in any material
respect any other covenant or agreement in respect of the notes
contained in the indenture or the notes for 60 days after
written notice to us by the trustee or to us and the trustee by
holders of at least 25% in aggregate principal amount of the
notes then outstanding; |
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(5) the failure by the Company or any significant
subsidiary (as defined in Rule 1-02 of
Regulation S-X) to
pay any indebtedness (other than indebtedness owing to the
Company or a significant subsidiary) within any applicable grace
period after final maturity or the acceleration of any such
indebtedness by the holders thereof because of a default if the
total amount of such indebtedness unpaid or accelerated exceeds
$50.0 million or its foreign currency equivalent; |
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(6) the rendering of any final nonappealable judgment or
decree (not covered by insurance) for the payment of money in
excess of $50.0 million or its foreign currency equivalent
(treating any deductibles, self-insurance or retention as not so
covered) against the Company or a significant subsidiary (as
defined in Rule 1-02 of
Regulation S-X) if
such final judgment or decree remains outstanding and is not
satisfied, discharged or waived within a period of 60 days
following such judgment; |
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(7) a failure to give notice of the right to require us to
repurchase notes following the occurrence of a designated event
within the time required to give such notice; or |
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(8) certain events of bankruptcy, insolvency or
reorganization affecting the Company or a significant subsidiary. |
110
A default under clauses (5) and (6) will not
constitute an event of default until the trustee notifies the
Company or the holders of at least 25% in principal amount of
the outstanding notes notify the Company and the trustee of the
default and the Company does not cure such default within the
time specified in clauses (5) or (6) hereof after
receipt of such notice.
If an event of default (other than an event of default specified
in clause (8) above) occurs and is continuing, then and in
every such case the trustee, by written notice to us, or the
holders of not less than 25% in aggregate principal amount of
the notes then outstanding, by written notice to us and the
trustee, may declare the unpaid principal of, and accrued and
unpaid interest (including liquidated damages, if any) on, all
the notes then outstanding to be due and payable. Upon such
declaration, such principal amount and accrued and unpaid
interest (including liquidated damages, if any), will become
immediately due and payable, notwithstanding anything contained
in the indenture or the notes to the contrary. If any event of
default specified in clause (8) above occurs, all unpaid
principal of, and accrued and unpaid interest (including
liquidated damages, if any) on, the notes then outstanding will
automatically become due and payable without any declaration or
other act on the part of the trustee or any holder of notes.
However, if we cure all defaults, except the nonpayment of
principal or interest (including liquidated damages, if any)
that became due as a result of the acceleration, and meet
certain other conditions, with certain exceptions, this
declaration may be cancelled and the holders of a majority of
the principal amount of outstanding notes may waive these past
defaults.
Payments of principal or interest on the notes that are not made
when due will accrue interest at the annual rate of 1% above the
then-applicable interest rate from the required payment date.
The holders of a majority of outstanding notes will have the
right to direct the time, method and place of any proceedings
for any remedy available to the trustee, subject to limitations
specified in the indenture.
No holder of the notes may pursue any remedy under the
indenture, except in the case of a default in the payment of
principal or interest (including liquidated damages, if any) on
the notes, unless:
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the holder has given the trustee written notice of an event of
default; |
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the holders of at least 25% in principal amount of outstanding
notes make a written request to the trustee to institute
proceedings in respect of such event of default; |
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the holder has offered reasonable indemnity to the trustee
against any costs, expenses or liabilities of the trustee; |
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the trustee fails to comply with the request within 60 days
after receipt of the request and offer of indemnity; and |
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the trustee does not receive an inconsistent direction from the
holders of a majority in principal amount of the notes. |
The trustee may withhold notice to the holders of the notes of
any default, except defaults in payment of principal or interest
(including liquidated damages, if any) on the notes. However,
the trustee must consider it to be in the interest of the
holders of the notes to withhold this notice.
A default in the payment of the notes, or a default with respect
to the notes that causes them to be accelerated, may give rise
to a default under our credit facilities or other indebtedness.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
indenture may be amended or supplemented with the consent of the
holders of at least a majority in aggregate principal amount of
the notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for notes).
111
Without the consent of each holder affected, an amendment or
waiver may not (with respect to any notes held by a
non-consenting holder):
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reduce the amount of notes whose holders must consent to an
amendment; |
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reduce the stated rate of or extend the stated time for payment
of interest (including liquidated damages, if any) on any note; |
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reduce the principal of or extend the stated maturity of any
note; |
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affect our obligation to redeem any notes on a redemption date
in a manner adverse to such holders; |
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affect our obligation to repurchase any note at the option of
the holder in a manner adverse to such holders; |
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affect our obligation to repurchase any note upon a designated
event in a manner adverse to such holders; |
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reduce the amount payable upon the redemption or repurchase of
any note or change the time at which any note may be redeemed or
repurchased; |
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make the principal or interest on any note payable in money
other than that stated in the note; |
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impair the right of a holder to convert any note or reduce the
number of shares of common stock or any other property
receivable upon conversion; |
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impair the right of any holder to institute suit for the
enforcement of any payment on or with respect to such
holders notes; or |
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make any change in the amendment provisions which require each
holders consent or in the waiver provisions. |
Notwithstanding the foregoing, without the consent of any holder
of notes, we and the trustee may amend or supplement the
indenture or the notes to:
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cure any ambiguity, defect or inconsistency; |
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provide for the assumption by a successor corporation of our
obligations under the indenture; |
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provide for uncertificated notes in addition to or in place of
certificated notes; |
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add guarantees with respect to the notes; |
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secure the notes; |
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add covenants for the benefit of the holders or surrender any
right or power conferred upon us; |
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make any change that does not adversely affect the rights of any
holder, subject to the provisions of the indenture; |
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evidence and provide the acceptance of the appointment of a
successor trustee under the indenture; |
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modify the restrictions on, and procedures for, resale and other
transfers of shares pursuant to law, regulation or practice
relating to the resale or transfer of restricted securities
generally; or |
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comply with any requirement of the SEC in connection with the
qualification of the indenture or any supplemental indenture
under the Trust Indenture Act of 1939 as then in effect. |
112
The holders of a majority in principal amount of the outstanding
notes may waive any existing or past default or event of
default. Those holders may not, however, waive any default or
event of default in any payment of principal or interest on any
note or compliance with a provision that cannot be amended or
supplemented without the consent of each holder affected.
Satisfaction and Discharge of the Indenture
The indenture will generally cease to be of any further effect
with respect to the notes, if:
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we have delivered to the trustee for cancellation all
outstanding notes (with certain limited exceptions); or |
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all notes not previously delivered to the trustee for
cancellation have become due and payable, whether at stated
maturity or any redemption date or any repurchase date
(including upon the occurrence of a designated event), or |
upon conversion or otherwise, and we have deposited with the
trustee as trust funds the entire amount in cash and/or our
common stock (as applicable under the terms of the indenture)
sufficient to pay all the outstanding notes, and if, in either
case, we also pay or cause to be paid all other sums payable
under the indenture by us.
Calculations in Respect of the Notes
Unless otherwise specified, we will be responsible for making
all calculations called for under the notes. These calculations
include, but are not limited to, the amount of accrued interest
(including liquidated damages, if any) payable on the notes and
the conversion price of the notes. We will make all these
calculations in good faith, and, absent manifest error, our
calculations will be final and binding on holders of notes. We
will provide a schedule of our calculations to each of the
trustee and the conversion agent, and each of the trustee and
the conversion agent is entitled to rely upon the accuracy of
our calculations without independent verification. The trustee
will forward our calculations to any holder of notes upon the
request of that holder.
Limitations of Claims of Bankruptcy
If a bankruptcy proceeding is commenced in respect of the
company, the claim of a holder of a note is, under Title 11
of the United States Code, limited to the issue price of the
note together with any unpaid cash interest that has accrued
from the date of issue to the commencement of the proceeding.
Governing Law
The indenture provides that the notes and the indenture will be
governed by, and construed in accordance with, the laws of the
State of New York.
Form, Exchange, Registration and Transfer
We issued the notes in fully registered form, without interest
coupons, in denominations of $1,000 principal amount and
integral multiples thereof. We will not charge a service fee for
any registration of transfer or exchange of the notes. We may,
however, require the payment of any tax or other governmental
charge payable for that registration.
If the notes become certificated, the notes will be exchangeable
for other notes, for the same total principal amount and for the
same terms but in different authorized denominations, in
accordance with the indenture. Also, holders may present
certificated notes for registration of transfer at the office of
the security registrar or any transfer agent we designate. The
security registrar or transfer agent will effect the transfer or
exchange when it is satisfied with the documents of title and
identity of the person making the request.
We have initially appointed the trustee as security registrar
for the notes and holders may present notes for conversion,
registration of transfer and exchange at the Corporate
Trust Office of the trustee in the City of
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New York. We may at any time rescind that designation or approve
a change in the location through which any such security
registrar acts. We are required to maintain an office or agency
for transfer and exchanges in each place of payment. We may at
any time designate additional registrars for the notes.
The registered holder of a note will be treated as the owner of
it for all purposes.
Payment and Paying Agent
We will maintain an office in the Borough of Manhattan, The City
of New York, which shall initially be an office of the agent of
the trustee, where we will pay the principal on the notes and
you may present the notes for conversion, registration of
transfer or exchange for other denominations. We may pay
interest by check mailed to your address as it appears in the
note register, provided that if you are a holder with an
aggregate principal amount of notes in excess of
$2.0 million, you shall be paid, at your written election,
by wire transfer in immediately available funds. However,
payments to The Depository Trust Company, New York, New York,
which we refer to as DTC, will be made by wire transfer of
immediately available funds to the account of DTC or its nominee.
Notices
Except as otherwise described herein, notice to registered
holders of the notes will be given by mail to the addresses as
they appear in the security register. Notices will be deemed to
have been given on the date of such mailing.
Reports
We are required to file with the trustee and the SEC, and
transmit to holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant
to the Trust Indenture Act at the times and in the manner
provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act is
required to be filed with the trustee within 15 days after
it is so required to be filed with the SEC.
The Trustee
We have appointed Wells Fargo Bank, N.A., the trustee under the
indenture, as paying agent, conversion agent, note registrar and
custodian for the notes. The trustee or its affiliates may also
provide banking and other services to us in the ordinary course
of their business.
No Recourse Against Others
None of our directors, officers, employees, shareholders or
affiliates, as such, shall have any liability or any obligations
under the notes or the indenture or for any claim based on, in
respect of or by reason of such obligations or the creation of
such obligations. Each holder by accepting a note waives and
releases all such liability. The waiver and release are part of
the consideration for the notes.
Anyone who receives this prospectus may obtain a copy of the
indenture, without charge, by writing to The Goodyear
Tire & Rubber Company, 1144 East Market Street, Akron,
Ohio 44316.
114
Book-Entry System
Notes were issued in the form of global notes held in book-entry
form. We deposited the global notes with DTC and registered the
global notes in the name of Cede & Co. as DTCs
nominee. Except as set forth below, a global note may be
transferred, in whole or in part, only to another nominee of DTC
or to a successor of DTC or its nominee.
Beneficial interests in a global note may be held through
organizations that are participants in DTC (called
participants). Transfers between participants will
be effected in the ordinary way in accordance with DTC rules and
will be settled in clearing house funds. The laws of some states
require that certain persons take physical delivery of
securities in definitive form. As a result, the ability to
transfer beneficial interests in the global notes to such
persons may be limited.
Beneficial interests in a global note held by DTC may be held
only through participants, or certain banks, brokers, dealers,
trust companies and other parties that clear through or maintain
a custodial relationship with a participant, either directly or
indirectly (called indirect participants). So long
as Cede & Co., as the nominee of DTC, is the registered
owner of global notes, Cede & Co. for all purposes will
be considered the sole holder of such global notes. Except as
provided below, owners of beneficial interests in a global note
will:
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not be entitled to have certificates registered in their names; |
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not receive physical delivery of certificates in definitive
registered form; and |
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not be considered holders of the global note. |
We will pay interest on and the redemption price and the
repurchase price of a global note to Cede & Co., as the
registered owner of the global note, by wire transfer of
immediately available funds on each interest payment date or the
redemption or repurchase date, as the case may be. Neither we,
the trustee nor any paying agent will be responsible or liable:
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for the records relating to, or payments made on account of,
beneficial ownership interests in a global note; or |
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for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests. |
Neither we, the trustee, registrar, paying agent nor conversion
agent will have any responsibility for the performance by DTC or
its participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations. DTC has advised us that it will take any action
permitted to be taken by a holder of notes, including the
presentation of notes for conversion, only at the direction of
one or more participants to whose account with DTC interests in
the global note are credited, and only in respect of the
principal amount of the notes represented by the global note as
to which the participant or participants has or have given such
direction.
In order to ensure that DTCs nominee will timely exercise
a right conferred by the notes, the beneficial owner of the note
must instruct the broker or other direct or indirect participant
through which it holds an interest in that note to notify DTC of
its desire to exercise that right. Different firms have
different deadlines for accepting instructions from their
customers. Each beneficial owner should consult the broker or
other direct or indirect participant through which it holds an
interest in the notes in order to ascertain the deadline for
ensuring that timely notice will be delivered to DTC.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York, and a member of the Federal Reserve System; |
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a clearing corporation within the meaning of the
Uniform Commercial Code; and |
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a clearing agency registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of
1934, or the Exchange Act. |
115
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the
participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate
transfers of interests in a global note among participants.
However, DTC is under no obligation to perform or continue to
perform these procedures, and may discontinue these procedures
at any time. If DTC is at any time unwilling or unable to
continue as depositary and a successor depositary is not
appointed by us within 90 days, we will issue notes in
certificated form in exchange for global notes. In addition, we
may at any time and in our sole discretion determine not to have
notes represented by global notes and in such event will issue
certificates in definitive form in exchange for the global notes.
116
Description of Capital Stock
This section contains a description of our common stock. The
following description is based on our Amended Articles of
Incorporation, as amended (Articles of
Incorporation), our Code of Regulations, as amended
(Code of Regulations) and applicable provisions of
Ohio law. The summary is not complete. Our Articles of
Incorporation and Code of Regulations are filed as exhibits to
this registration statement on
Form S-1. You
should read our Articles of Incorporation and Code of
Regulations for the provisions that are important to you.
Our authorized capital stock consists of:
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300,000,000 shares of common stock, without par
value; and |
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50,000,000 shares of preferred stock, issuable in series. |
At December 31, 2005, there were 176,509,751 shares of
common stock issued and an additional 19,158,917 outstanding and
issued shares of common stock which we hold as treasury shares.
No shares of preferred stock were issued or outstanding at
December 31, 2005. The outstanding shares of our common
stock are listed on the New York Stock Exchange. Computershare
Trust Company, N.A. is the transfer agent and registrar for our
common stock.
Common Stock
Each share of our common stock is entitled to one vote per share
on each matter (other than the election of directors) voted upon
by shareholders, subject to the rights of the holders of shares
of preferred stock, if any, that may be outstanding.
Except as may otherwise be required by our Articles of
Incorporation, our Code of Regulations or Ohio law in respect of
certain matters, the affirmative vote of at least a majority of
the shares of common stock outstanding on the record date is
required for any proposal to be adopted. Various matters,
including the approval of certain transactions and certain
amendments to the Articles of Incorporation or Code of
Regulations, require the affirmative vote of the holder of
two-thirds
(2/3)
of the shares of common stock outstanding.
In voting for the election of directors, each share is entitled
to one vote for each director to be elected. In the election of
directors, the candidates for directorships to be filled
receiving the most votes will be elected. Any holder of shares
of common stock may request that voting for the election of
directors be cumulative. In voting cumulatively, as a
shareholder you may give any one candidate for director a number
of votes equal to the number of directors to be elected
multiplied by the number of shares you are entitled to vote, or
you may distribute your votes on the same principle among two or
more candidates as you desire.
If any shares of a series of preferred stock are outstanding and
if six quarterly dividends thereon have not been paid as
provided by the terms of that outstanding series of preferred
stock, then the holders of the preferred stock have the right to
elect, as a class, two members of our board of directors, which
rights continue until the dividend payment default is cured. In
addition, the separate affirmative vote or consent of the
holders of any outstanding preferred stock may be required to
authorize certain corporate actions, including mergers and
certain amendments to our Articles of Incorporation.
The holders of shares of our common stock are entitled to
receive dividends and other distributions if, as and when
declared by our board of directors, out of funds legally
available for that purpose. These rights are subject to any
preferential rights and any sinking fund, redemption or
repurchase rights of any outstanding shares of preferred stock.
We are not permitted to pay dividends to holders of our common
stock if we have not paid or provided for the dividends, if any,
fixed with respect to any outstanding shares of preferred stock.
117
In addition, under our restructured credit facilities we are
prohibited from paying dividends on our common stock.
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Liability for Calls and Assessments |
The outstanding shares of our common stock are validly issued,
fully paid and non-assessable.
Holders of shares of our common stock do not have preemptive
rights or conversion rights as to additional issuances of shares
of our common stock or of securities convertible into, or
entitling the holder to purchase, shares of our common stock.
If Goodyear is voluntarily or involuntarily liquidated,
dissolved or wound up, the holders of our outstanding shares of
common stock would be entitled to share in the distribution of
all assets remaining after payment of all of our liabilities and
after satisfaction of prior distribution rights and payment of
any distributions owing to holders of any outstanding shares of
preferred stock.
Holders of shares of our common stock have no conversion,
redemption or call rights related to their shares. We may,
pursuant to action authorized by our board of directors, offer
to repurchase or otherwise reacquire shares of our common stock,
but we may not redeem issued and outstanding shares.
Policy Regarding Shareholder Rights Plans
Until recently, we had a shareholder rights plan that would have
resulted in substantial dilution to a person or group that
attempted to acquire us on terms not approved by our board of
directors. Our board of directors terminated our shareholder
rights plan effective as of June 1, 2004. The board of
directors has also agreed to the following policy, which is set
forth in our corporate governance guidelines, with respect to
the future adoption of a rights plan:
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if we ever were to adopt a rights plan, the board of directors
would seek prior shareholder approval of the plan unless, due to
timing constraints or other reasons, a committee consisting
solely of independent directors determines that it would be in
the best interests of shareholders to adopt a plan before
obtaining shareholder approval; and |
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if a rights plan is adopted without prior shareholder approval,
the plan must either be ratified by shareholders or must expire
within one year. |
Certain Provisions of Ohio Law and Goodyears Articles
of Incorporation and Code of Regulations
There are statutory provisions of Ohio law and provisions in our
Articles of Incorporation and Code of Regulations that may have
the effect of deterring hostile takeovers or delaying or
preventing changes in control or changes in management of
Goodyear, including transactions in which our shareholders might
otherwise receive a premium over the then current market prices
for their shares.
Our Articles of Incorporation and Code of Regulations contain
various provisions that may have the effect, either alone or in
combination with each other, of making more difficult or
discouraging a business combination or an attempt to obtain
control of Goodyear that is not approved by the board of
directors. These provisions include:
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the right of our board of directors to issue authorized and
unissued shares of common stock without shareholder approval; |
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the right of our board of directors to issue shares of preferred
stock in one or more series and to designate the number of
shares of those series and certain terms, rights and preferences
of those series, including redemption terms and prices and
conversion rights, without shareholder approval; |
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a board of directors divided into three classes such that at
each annual meeting of shareholders directors of one class
(comprising approximately one-third of the entire board of
directors) are elected, on a rotating basis, to serve for
three-year terms; and |
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provisions prohibiting the removal of directors except upon the
vote of holders of two-thirds of the combined voting power
represented by the outstanding shares of common stock. |
Under Ohio law, any person who proposes to make a control
share acquisition must provide written notice thereof to
the target corporation and must obtain prior shareholder
approval. A control share acquisition is the
acquisition of shares in an issuing public
corporation resulting in the person being able to exercise
voting power in the election of directors of the issuing public
corporation within any of three ranges: (i) one-fifth to
one-third, (ii) one-third to one-half, and (iii) more
than one-half of that voting power. We are an issuing
public corporation. Assuming compliance with the notice
and information filing requirements prescribed by the statute,
the proposed control share acquisition may take place only if
the acquisition is approved by a majority of the voting power of
the target corporation and a majority of the voting power
remaining after excluding the combined voting power of the
intended acquirer, directors of the target corporation who are
also employees and officers of the target corporation and
persons that acquire specified amounts of shares after the
public disclosure of the proposed control share acquisition.
Further, Ohio law prohibits any person who owns 10% or more of
an issuing public corporations stock from engaging in
mergers, consolidations, majority share acquisitions, asset
sales, loans and other specified transactions with the
corporation for a three-year period after acquiring the 10%
ownership, unless approval is first obtained from the
corporations board of directors. After the three-year
waiting period, the 10% shareholder can complete the
transaction only if, among other things: (i) approval is
received from two-thirds of all voting shares and from a
majority of shares not held by the 10% shareholder or certain
affiliated persons; or (ii) the transaction meets specified
criteria designed to ensure fairness to all remaining
shareholders. We are also an issuing public corporation under
this statute.
In addition, other provisions of Ohio law:
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permit a corporation to recover profits realized under certain
circumstances by persons who dispose of securities of a
corporation within 18 months of proposing to acquire such
corporation; |
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impose advance filing and notice requirements for tenders of
more than 10% of certain Ohio corporations; and |
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provide that directors of a classified board may be removed only
for cause. |
119
Market Price of and Dividends on the Common Stock and
Related Shareholder Matters
Price Range of Our Common Stock
Our common stock trades on the New York Stock Exchange under the
symbol GT. The following table sets forth, for the
periods indicated, the high and low sale prices for our common
stock, as reported by the New York Stock Exchange. On
March 20, 2006, the closing price of our common stock was
$13.70 per share.
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2006:
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First Quarter (through March 20, 2006)
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19.31 |
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12.78 |
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2005:
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First Quarter
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16.08 |
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13.11 |
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Second Quarter
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15.46 |
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11.24 |
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Third Quarter
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18.59 |
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15.00 |
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Fourth Quarter
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18.18 |
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13.00 |
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2004:
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First Quarter
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11.97 |
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7.06 |
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Second Quarter
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10.45 |
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7.66 |
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Third Quarter
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12.00 |
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8.70 |
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Fourth Quarter
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15.01 |
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9.15 |
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2003:
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First Quarter
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7.33 |
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3.35 |
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Second Quarter
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7.35 |
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4.55 |
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Third Quarter
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8.19 |
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4.49 |
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Fourth Quarter
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7.94 |
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5.55 |
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2002:
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First Quarter
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28.31 |
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21.29 |
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Second Quarter
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23.70 |
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18.50 |
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Third Quarter
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18.52 |
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8.49 |
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Fourth Quarter
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9.36 |
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6.60 |
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On December 31, 2005, there were approximately
26,225 holders of record of our common stock.
Dividend Policy
Under the terms of our credit facilities, we are permitted to
pay dividends on our common stock of $10 million or less in
any fiscal year. This limit increases to $50 million in any
fiscal year if Moodys public sector implied rating and
Standard & Poors (S&P) corporate credit
rating improve to Ba2 or better and BB or better, respectively.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Dividends.
120
Certain United States Federal Income Tax Consequences
The following is a summary of certain of the material United
States federal income tax consequences of the ownership and
disposition of the notes and shares of common stock into which
the notes are convertible (the securities). Unless
otherwise stated, this summary deals only with U.S. holders
who hold the notes and any shares of common stock into which the
notes are converted as capital assets. This summary assumes that
transfers of the notes and payments thereon will be made in
accordance with the applicable indenture.
As used herein, U.S. holders are any beneficial
owners of the securities, that are, for United States federal
income tax purposes, (i) citizens or residents of the
United States, (ii) corporations created or organized in,
or under the laws of, the United States, any state thereof or
the District of Columbia, (iii) estates, the income of
which is subject to United States federal income taxation
regardless of its source, or (iv) trusts if (a) a
court within the United States is able to exercise primary
supervision over the administration of the trust and
(b) one or more United States persons have the authority to
control all substantial decisions of the trust. In addition,
certain trusts in existence on August 20, 1996 and treated
as a U.S. holder prior to such date may also be treated as
U.S. holders. As used herein,
non-U.S. holders
are beneficial owners of the securities, other than
partnerships, that are not U.S. holders. If a partnership
(including for this purpose any entity treated as a partnership
for United States federal income tax purposes) is a beneficial
owner of the securities, the treatment of a partner in the
partnership will generally depend upon the status of the partner
and upon the activities of the partnership. Partnerships and
partners in such partnerships should consult their tax advisors
about the United States federal income tax consequences of
owning and disposing of the securities.
This summary does not describe all of the tax consequences that
may be relevant to a holder in light of its particular
circumstances. For example, it does not deal with special
classes of holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, insurance
companies, dealers and traders in securities or currencies, or
tax-exempt investors. It also does not discuss securities held
as part of a hedge, straddle, synthetic security or
other integrated transaction. This summary does not address the
tax consequences to (i) U.S. persons that have a
functional currency other than the U.S. dollar,
(ii) certain U.S. expatriates or
(iii) shareholders, partners or beneficiaries of a holder
of the securities. Further, it does not include any description
of any estate, gift or alternative minimum tax consequences or
the tax laws of any state or local government or of any foreign
government that may be applicable to the securities.
This summary is based on the Internal Revenue Code of 1986, as
amended (the Code), the Treasury regulations
promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof, and all of
which are subject to change or differing interpretations,
possibly on a retroactive basis.
You should consult with your own tax advisor regarding the
federal, state, local and foreign income, franchise, personal
property and any other tax consequences of the ownership and
disposition of the securities.
Taxation of U.S. Holders
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Characterization of the Notes |
As discussed in the offering memorandum related to the notes,
our obligation to pay liquidated damages in the form of
additional interest on the notes in the event of a default under
the registration rights agreement potentially implicate Treasury
regulations governing contingent payment debt instruments. The
special mandatory accrual and other rules applicable to
contingent payment debt instruments do not apply to debt
instruments subject to contingencies that are either remote or
incidental. At the time the notes were originally issued, we
determined that the likelihood of payments of liquidated
damages, as described above, was remote. As a result, we
determined that the rules applicable to contingent payment debt
instruments did not apply to the notes at the time of their
original issuance.
Because liquidated damages began to accrue on December 7,
2004, a determination had to be made whether as of that date the
notes had become subject to the rules related to contingent
payment debt instruments. We have determined that the
contingency related to the possible payment of a premium upon
121
conversion of the notes or the exercise of certain options
remains a remote contingency. Moreover, we have determined that
the contingency related to the payment of liquidated damages
upon a registration default was an incidental contingency
because, at the time liquidated damages began to accrue, we
believed that, under all reasonably expected market conditions,
the potential amount of liquidated damages due prior to our
curing of the registration default was insignificant relative to
the total expected amount of the remaining payments on the
notes. Our determination that the contingency related to the
payment of liquidated damages was an incidental contingency did
not change during the time liquidated damages accrued.
Our determination that the contingencies with respect to the
notes are either remote or incidental is binding on all holders
of notes (but not on the Internal Revenue Service) unless a
holder explicitly discloses on a statement attached to the
holders timely filed federal income tax return for the
year that includes its acquisition of a note that its
determination is different from ours. Unless specified
otherwise, the remainder of this discussion assumes that our
determination that the contingencies with respect to the notes
are either remote or incidental is correct.
Payments of interest on the notes (including liquidated damages
resulting from a registration default) generally will be taxable
as ordinary interest income at the time such payments are
accrued or received (in accordance with the holders
regular method of tax accounting).
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Notes Purchased with Market Discount |
A holder will be considered to have purchased a note with
market discount if the holders tax basis in
the note immediately after purchase is less than the notes
stated redemption price at maturity. A note is not treated as
having market discount if the amount of market discount is de
minimis. For this purpose, the amount of market discount is de
minimis if it is less than the product of 0.25 percent of
the stated redemption price at maturity on the purchase date
multiplied by the number of complete years to maturity remaining
as of such date.
If a note is treated as having market discount, any gain
recognized upon the sale, redemption or other disposition of the
note will generally be treated as ordinary income to the extent
that such gain does not exceed the accrued market discount on
the note that has not been previously included in income.
Alternatively, a holder of a note may elect to include market
discount in income currently over the life of the note. Such an
election applies to all notes with market discount acquired by
the electing holder on or after the first day of the first
taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service.
Market discount accrues on a straight-line basis unless the
holder elects to accrue such discount on a constant yield to
maturity basis. This latter election is applicable only to the
note with respect to which it is made and is irrevocable. A
holder of a note that does not elect to include market discount
in income currently generally will be required to defer
deductions for interest on borrowings allocable to such note in
an amount not exceeding the accrued market discount on such note
until the maturity or disposition of such note.
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Notes Purchased at a Premium |
A holder will be considered to have purchased a note at a
premium if the holders tax basis in the note immediately
after the purchase (which does not include any amount paid in
respect of accrued interest on the note) is greater than the
amount payable at maturity. For this purpose only, a
holders basis in a note is reduced by an amount equal to
the value of the option to convert the note into common stock;
the value of this conversion option may be determined under any
reasonable method. A holder may elect to treat such premium as
amortizable bond premium, in which case the amount
of interest required to be included in the holders income
each year with respect to the note will be reduced by the amount
of the amortizable bond premium allocable (generally under a
constant yield method based on the holders yield to
maturity) to such year with a corresponding decrease in the
holders tax basis in the note. Any election to amortize
bond premium is applicable to all notes (other than a tax-exempt
note) held by the holder at the beginning of the
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first taxable year to which the election applies or thereafter
acquired by the holder, and may not be revoked without the
consent of the Internal Revenue Service.
A U.S. holder will generally not recognize income, gain or
loss (except with respect to cash in lieu of a fractional share
and shares attributable to accrued but unpaid interest not
previously included in the income of the holder) upon the
conversion of a note solely into common stock. A
U.S. holders tax basis in the common stock received
(other than common stock attributable to accrued but unpaid
interest) will be the same as the U.S. holders tax
basis in the note at the time of conversion (exclusive of any
tax basis allocable to a fractional share). The holding period
for any common stock received pursuant to a conversion of a note
(including any fractional share treated as received but
excluding common stock attributable to accrued but unpaid
interest) will include the holding period for the note. If cash
is received in lieu of a fractional share, the holder will be
treated as having received the fractional share and as having
immediately sold it for an amount equal to such cash.
Accordingly, the receipt of cash in lieu of a fractional share
will generally result in capital gain or loss, if any, measured
by the difference between the cash received for the fractional
share and the U.S. holders tax basis in the
fractional share.
If a U.S. holder converts a note and we deliver a
combination of shares of common stock and cash, the tax
treatment to the holder is uncertain. A holder may be required
to recognize any gain (but not loss) realized, but only to the
extent such gain does not exceed the amount of cash received
(other than cash received in lieu of a fractional share or
attributable to accrued but unpaid interest). In such case, a
holders basis in the common stock received in the
conversion (including any basis allocable to a fractional share
but excluding shares of common stock attributable to accrued but
unpaid interest) would be equal to such holders tax basis
in the note, reduced by any cash received in the conversion
(other than cash received in lieu of a fractional share or
attributable to accrued but unpaid interest) and increased by
the amount of any gain recognized on the conversion (other than
gain with respect to a fractional share). Alternatively, the
cash payment may be treated as proceeds from a sale of a portion
of the note, as described below under Sale,
Exchange or Redemption of Notes. In such case, a
holders tax basis in the note would be allocated pro rata
between the common stock received and the portion of the note
that is treated as sold for cash (including any fractional share
treated as received but excluding any amounts attributable to
accrued and unpaid interest). If cash is received in lieu of a
fractional share, the holder will be treated as having received
the fractional share and as having immediately sold it for an
amount equal to such cash. Accordingly, the receipt of cash in
lieu of a fractional share will generally result in capital gain
or loss, if any, measured by the difference between the cash
received for the fractional share and the
U.S. holders tax basis in the fractional share. The
holding period for any common stock received in a conversion
(including any fractional share treated as received but
excluding any common stock received that is attributable to
accrued but unpaid interest) will include the holding period for
the note. Holders should consult their tax advisors regarding
the proper treatment to them of the receipt of a combination of
cash and common stock upon a conversion of the notes.
If a U.S. holder converts a note and we deliver solely cash
in satisfaction of our obligation, such cash payment will
generally be treated as received from a sale of the note by the
U.S. holder as described below under
Sale, Exchange or Redemption of Notes.
If a U.S. holder converts a note and the conversion agent
directs the holder to surrender the note to a financial
institution (as described in Description of the
Notes Exchange in Lieu of Conversion), any
amounts paid by the financial institution will generally be
treated as received from a sale of the note by the
U.S. holder as described below under
Sale, Exchange or Redemption of Notes.
The amount of cash and the fair market value of any common stock
received by the holder that is attributable to accrued but
unpaid interest not previously included in the income will be
taxable to the holder as ordinary income. A holders tax
basis in any such shares of common stock will equal such accrued
interest and the holding period will begin on the day following
the conversion.
Any amount of market discount accrued on a note that has not
been recognized as ordinary income prior to, or as a result of,
the conversion of a note will carry over to the common stock
received upon conversion. As
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a result, any gain on the sale or exchange of common stock
received upon conversion will be treated as ordinary income,
rather than capital gain, to the extent of such carried over
accrued market discount.
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Adjustment of Conversion Rate |
If at any time we make a distribution of property to
shareholders that would be taxable as a dividend for United
States federal income tax purposes (for example, distributions
of evidences of indebtedness or assets, but generally not stock
dividends or rights to subscribe for common stock) and the
conversion rate of the notes is increased, such increase may be
deemed to be the payment of a taxable dividend to a
U.S. holder of the notes to the extent of our current and
accumulated earnings and profits. If the conversion rate is
increased at our discretion or in certain other circumstances,
such increase also may be deemed to be the payment of a taxable
dividend to the U.S. holder.
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Sale, Exchange or Redemption of Notes |
Except as set forth under Conversion of
Notes above, a U.S. holder will generally recognize
taxable gain or loss equal to the difference between the amount
realized on the sale, exchange, redemption or other disposition
of a note (except to the extent the amount realized is
attributable to accrued unpaid interest not previously included
in income, which will be taxable as ordinary interest income)
and the holders tax basis in such note. A holders
tax basis in the note generally will be the initial purchase
price paid therefore, increased by any market discount
previously included in income with respect to the note and
reduced by any amortizable bond allocable to periods prior to
the sale, exchange, redemption or other disposition.
In the case of a holder other than a corporation, preferential
tax rates may apply to gain recognized on the sale of a note if
such holders holding period for such note exceeds one
year. To the extent the amount realized is less than the
holders tax basis, the holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States
federal income tax purposes.
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Alternative Tax Treatment of the Notes |
If our determination that the contingencies with respect to the
notes are remote and incidental is not correct, the notes will
be subject to the regulations governing contingent payment debt
instruments. Under the contingent payment debt instrument
regulations, a U.S. holder, regardless of its method of tax
accounting, would be required to accrue interest income on the
notes on a constant yield basis at an assumed yield (the
comparable yield). The comparable yield would be
based on the yield at which we could have issued on
November 7, 2004, a fixed rate, nonconvertible debt
instrument with no contingent payments, but with terms otherwise
similar to those of the notes. Accordingly, if the contingent
payment debt instrument regulations were to apply to the notes,
U.S. holders generally would be required to include in
income an amount of interest in excess of the stated interest
and liquidated damage payments on the notes.
If the contingent payment debt instrument regulations were
applicable to the notes, solely for purposes of determining the
amount of interest income that a U.S. holder would be
required to accrue we would be required to construct a
projected payment schedule in respect of the notes
representing a series of payments (including issuances of our
common stock upon conversion) the amount and timing of which
would produce a yield to maturity on the notes equal to the
comparable yield. Based on the comparable yield and the issue
price of the notes, a U.S. holder of a note (regardless if
its tax accounting method) would be required to accrue as
interest income the sum of the daily portions of interest on the
notes for each day in the taxable year on which the
U.S. holder holds the notes, adjusted upward or downward to
reflect the difference, if any, between the actual and projected
amount of any contingent payments on the notes (as set forth
below). The issue price of the notes is the first price at which
a substantial amount of the notes were originally sold to the
public, excluding bond houses, brokers or similar persons acting
in the capacity as underwriters, placement agents or wholesalers.
If the contingent payment debt regulations were applicable to
the notes, the daily portions of interest in respect of the
notes would be determined by allocating to each day in an
accrual period the ratable portion of interest on the notes that
accrues in the accrual period. The amount of interest on a note
that would accrue in
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an accrual period would be the product of the comparable yield
(adjusted to reflect the length of the accrual period) and the
adjusted issue price of the note. The adjusted issue price of a
note at the beginning of the first accrual period will be its
issue price and at the beginning of any accrual period
thereafter would be equal to (x) the sum of the issue price
of such note and any interest previously accrued thereon
(disregarding any positive or negative adjustments, described
below) minus (y) the amount of the non-contingent stated
interest paid on the notes and the projected amount of
contingent payments previously made on the notes for previous
accrual periods.
In addition to the interest accruals discussed above, if the
contingent debt regulations were applicable to the notes, a
U.S. holder would be required to recognize interest income
equal to the amount of any excess of actual payments over
projected payments (a positive adjustment) in
respect of a note for a taxable year. For this purpose, the
payments in a taxable year would include the fair market value
of property (including our common stock issued upon conversion)
received in that year. If a U.S. holder receives actual
payments that are less than the projected payments in a taxable
year, the holder would incur a negative adjustment
equal to the amount of such difference. This negative adjustment
would (i) first reduce the amount of interest in respect of
the note that a U.S. holder would otherwise be required to
include in the taxable year and (ii) to the extent of any
excess, would give rise to an ordinary loss equal to that
portion of such excess that does not exceed the excess of
(A) the amount of all previous interest inclusions under
the note over (B) the total amount of the holders net
negative adjustments treated as ordinary losses in prior taxable
years. A net negative adjustment is not subject to the
two-percent floor limitation imposed on miscellaneous deductions
under Section 67 of the Code. Any negative adjustment in
excess of the amounts described in (i) and (ii) above
would be carried forward to offset future interest income in
respect of the notes or to reduce the amount realized on a sale,
exchange, conversion or retirement of the notes.
If the notes were subject to the contingent payment debt
instrument regulations, if a U.S. holders basis in a
note upon its acquisition is different than the notes
adjusted issue price at such time, such holder would be required
to reasonably allocate such difference to daily portions of
interest or projected payments over the remaining term of the
note. If a U.S. holders basis is greater than the
notes adjusted issue price at the time of acquisition, the
allocable portion of such difference would be treated as a
negative adjustment in such period subject to the rules related
to negative adjustments described above. If a
U.S. holders basis is less than the notes
adjusted issue price at the time of acquisition, the allocable
portion of such difference would be treated as a positive
adjustment in such period subject to the rules related to
positive adjustment described above.
If the notes were subject to the contingent payment debt
instrument regulations, the tax consequences of a sale, exchange
or retirement of a note (other than a conversion) would be the
same as had the contingent payment debt instrument regulations
not applied to the notes except that any gain recognized would
be treated as ordinary income rather than capital gains, and any
loss would be treated as an ordinary loss to the extent of the
excess of previous interest inclusions over the total negative
adjustments previously taken into account as ordinary loss (and
the balance of any loss would be a capital loss). In addition,
if the notes were subject to the contingent payment debt
instrument regulations, the conversion of a note would be a
taxable event. The amount realized upon conversion would include
the fair market value of our common stock received and any gain
or loss would be recognized as described above in this
paragraph. A U.S. holders basis in our common stock
received upon conversion would equal the then current fair
market value of such stock and the holders holding period
would commence on the day immediately following the date of
conversion.
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Distributions on Common Stock |
The amount of any distribution we make in respect of the common
stock will be equal to the amount of cash and the fair market
value, on the date of distribution, of any property distributed.
Generally, distributions will be treated as a dividend to the
extent of our current or accumulated earnings and profits, then
as a tax-free return of capital to the extent of a holders
tax basis in the common stock and thereafter as gain from the
sale or exchange of such common stock as described below. In
general, a dividend distribution to a corporate holder will
qualify for the dividends-received deduction. The
dividends-received deduction is subject to certain holding
period, taxable income, and other limitations.
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Dividends received by a non-corporate taxpayer during taxable
years before 2009 will be taxed at a maximum rate of 15%,
provided the taxpayer held the stock for more than 60 days
during a specified period of time and certain other requirements
are met. Dividends received by a non-corporate taxpayer for
taxable years after 2008 will be subject to tax at ordinary
income rates.
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Sale or Exchange of Common Stock |
Upon the sale or exchange of common stock, a holder generally
will recognize capital gain or loss equal to the difference
between the amount realized on the sale or exchange and the
holders tax basis in the common stock. However, a
U.S. holder will recognize any gain as ordinary income upon
the sale or exchange of common stock received upon conversion to
the extent of any accrued market discount not previously
recognized as ordinary income by such holder with respect to its
notes. In the case of a holder other than a corporation,
preferential tax rates may apply to such gain if the
holders holding period for the common stock exceeds one
year. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States
federal income tax purposes.
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Information Reporting and Backup Withholding Tax |
In general, information reporting requirements will apply to
payments of principal and interest on the notes, payments of
dividends on the common stock and payments of the proceeds of
the sale of the notes or common stock. A backup withholding tax
may apply to such payments if the holder fails to comply with
certain identification requirements. Backup withholding is
currently imposed at a rate of 28%. Any amounts withheld under
the backup withholding rules from a payment to a holder will be
allowed as a credit against such holders United States
federal income tax and may entitle the holder to a refund,
provided that the required information is furnished to the
Internal Revenue Service. Certain taxpayers, including all
corporations, are exempt from the information reporting and
backup withholding rules.
Taxation of
Non-U.S. Holders
The rules governing United States federal income taxation of a
non-U.S. holder of
the securities are complex and no attempt will be made herein to
provide more than a summary of such rules.
Non-U.S. holders
should consult with their own tax advisors to determine the
effect of United States federal, state and local and foreign tax
laws, as well as treaties, with regard to an investment in the
securities, including any reporting requirements.
Generally, interest income of a
non-U.S. holder
that is not effectively connected with a United States trade or
business is subject to a withholding tax at a 30% rate (or, if
applicable, a lower tax rate specified by a treaty). However,
interest income earned on a note by a
non-U.S. holder
will qualify for the portfolio interest exemption
and therefore will not be subject to United States federal
income tax or withholding tax, provided that such interest
income is not effectively connected with a United States trade
or business of the
non-U.S. holder
and provided that (i) the
non-U.S. holder
does not actually or constructively own 10% of more of the total
combined voting power of all classes of Goodyear stock entitled
to vote; (ii) the
non-U.S. holder is
not a controlled foreign corporation that is related to us
through stock ownership; (iii) the
non-U.S. holder is
not a bank which acquired the note in consideration for an
extension of credit made pursuant to a loan agreement entered
into in the ordinary course of business; and (iv) either
(a) the
non-U.S. holder
certifies to the payor or the payors agent, under
penalties of perjury, that it is not a United States person and
provides its name, address, and certain other information on a
properly executed Internal Revenue Service Form W-8BEN or a
suitable substitute form or (b) a securities clearing
organization, bank or other financial institution that holds
customer securities in the ordinary course of its trade or
business and holds the notes in such capacity, certifies to the
payor or the payors agent, under penalties of perjury,
that such a statement has been received from the beneficial
owner by it or by a financial institution between it and the
beneficial owner, and furnishes the payor or the payors
agent with a copy thereof. The applicable Treasury regulations
also provide alternative methods for satisfying the
certification requirements of clause (iv), above.
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If a
non-U.S. holder
holds the note through certain foreign intermediaries or
partnerships, such holder and the foreign intermediary or
partnership may be required to satisfy certification
requirements under applicable Treasury regulations.
Except to the extent that an applicable income tax treaty
otherwise provides, a
non-U.S. holder
generally will be taxed with respect to interest in the same
manner as a U.S. holder if the interest is effectively
connected with a United States trade or business of the
non-U.S. holder.
Effectively connected interest income received or accrued by a
corporate
non-U.S. holder
may also, under certain circumstances, be subject to an
additional branch profits tax at a 30% rate (or, if
applicable, at a lower tax rate specified by a treaty). Even
though such effectively connected income is subject to income
tax, and may be subject to the branch profits tax, it is not
subject to withholding tax if the
non-U.S. holder
delivers a properly executed Internal Revenue Service
Form W-8ECI (or successor form) to the payor or the
payors agent.
In general, a
non-U.S. holder
will not recognize gain upon conversion of a note to the extent
such holder receives common stock (except with respect to shares
attributable to accrued but unpaid interest not previously
included in the income of the holder, which would be subject to
the rules described under Interest
Income above). To the extent a
non-U.S. holder
receives cash upon conversion of a note (except with respect to
cash attributable to accrued but unpaid interest not previously
included in the income of the holder, which would be subject to
the rules described under Interest
Income above), such cash may give rise to gain that would
be subject to the rules described under Sale,
Exchange or Redemption of Notes; Sale or Exchange of Common
Stock below. If a
non-U.S. holder
converts a note and the conversion agent directs the holder to
surrender the note to a financial institution (as described in
Description of the Notes Exchange in Lieu of
Conversion), any amounts paid by the financial institution
will generally be treated as received from a sale of the note by
the
non-U.S. holder as
described under Sale, Exchange or Redemption
of Notes; Sale or Exchange of Common Stock below.
If the notes were subject to the regulations applicable to
contingent payment debt instruments, any gain realized upon a
sale, exchange, retirement or conversion of a note would be
treated as interest income subject to the same rules as
described under Interest Income
above.
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Adjustment of Conversion Rate |
Certain adjustments in the conversion rate of the notes may be
treated as a taxable dividend to a
non-U.S. holder.
See Taxation of U.S. Holders Adjustment
of Conversion Rate above and
Dividends below.
Distributions we make with respect to the common stock that are
treated as dividends paid, as described above under
Taxation of U.S. Holders Distributions on
Common Stock, to a
non-U.S. holder
(excluding dividends that are effectively connected with the
conduct of a United States trade or business by such holder and
are taxable as described below) will be subject to United States
federal withholding tax at a 30% rate (or a lower rate provided
under an applicable income tax treaty). Except to the extent
that an applicable income tax treaty otherwise provides, a
non-U.S. holder
will be taxed in the same manner as a U.S. holder on
dividends paid (or deemed paid) that are effectively connected
with the conduct of a United States trade or business by the
non-U.S. holder.
If such
non-U.S. holder is
a foreign corporation, it may also be subject to a United States
branch profits tax on such effectively connected income at a 30%
rate (or such lower rate as may be specified by an applicable
income tax treaty). Even though such effectively connected
dividends are subject to income tax and may be subject to the
branch profits tax, they will not be subject to United States
federal withholding tax if the holder delivers a properly
executed Internal Revenue Service Form W-8ECI (or successor
form) to the payor or the payors agent.
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Sale, Exchange or Redemption of Notes; Sale or Exchange of
Common Stock |
Except as set forth under Conversion of
Notes above, a
non-U.S. holder
generally will be subject to United States federal income tax on
any gain realized on the sale, exchange, redemption or other
disposition of a note or the sale or exchange of common stock if
(i) the gain is effectively connected with a United States
trade or business of the
non-U.S. holder,
(ii) in the case of a
non-U.S. holder
who is an individual, such holder is present in the United
States for a period or periods aggregating 183 days or more
during the taxable year of the disposition, and either
(a) such holder has a tax home in the United
States or (b) the disposition is attributable to an office
or other fixed place of business maintained by such holder in
the United States, or (iii) in the event that we are or
have been characterized as a United States real property holding
corporation for U.S. federal income tax purposes. Goodyear
believes that it is not and, within the past five years, has not
been a U.S. real property holding corporation
for U.S. federal income tax purposes.
Except to the extent that an applicable income tax treaty
otherwise provides, (1) if an individual
non-U.S. holder
falls under clause (i) above, such individual generally
will be taxed on the net gain derived from a sale in the same
manner as a U.S. holder and (2) if an individual
non-U.S. holder
falls under clause (ii) above, such individual generally
will be subject to a 30% tax on the capital gain derived from a
sale, which may be offset by certain United States-related
capital losses (notwithstanding the fact that such individual is
not considered a resident of the United States). Individual
non-U.S. holders
who have spent (or expect to spend) 183 days or more in the
United States in the taxable year in which they contemplate a
disposition of notes or common stock are urged to consult their
tax advisors as to the tax consequences of such sale. If a
non-U.S. holder
that is a foreign corporation falls under clause (i), it
generally will be taxed on the net gain derived from a sale in
the same manner as a U.S. holder and, in addition, may be
subject to the branch profits tax on such effectively connected
income at a 30% rate (or such lower rate as may be specified by
an applicable income tax treaty).
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Information Reporting and Backup Withholding Tax |
United States backup withholding tax will not apply to payments
on the notes or payments of dividends on the common stock to a
non-U.S. holder if
the requirements described in clause (iv) of
Interest Income above are satisfied with
respect to the holder unless the payor has actual knowledge or
reason to know that the holder is a United States person.
Information reporting requirements may apply with respect to
interest payments on the notes and dividend payments on the
common stock, in which event the amount of interest or dividends
paid and tax withheld (if any) with respect to each
non-U.S. holder
will be reported annually to the Internal Revenue Service.
Information reporting requirements and backup withholding tax
will not apply to any payment of the proceeds of the sale of
notes or common stock effected outside the United States by a
foreign office of a broker as defined in applicable
Treasury regulations (absent actual knowledge or reason to know
that the payee is a United States person), unless such broker
(i) is a United States person as defined in the Code,
(ii) is a foreign person that derives 50% or more of its
gross income for certain periods from the conduct of a trade or
business in the United States, (iii) is a controlled
foreign corporation for United States federal income tax
purposes or (iv) is a foreign partnership with certain
U.S. connections. Payment of the proceeds of any such sale
effected outside the United States by a foreign office of any
broker that is described in the preceding sentence may be
subject to information reporting unless such broker has
documentary evidence in its records that the beneficial owner is
a non-U.S. holder
and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption. Payment of the proceeds of
any such sale to or through the United States office of a broker
is subject to information reporting and backup withholding
requirements unless the beneficial owner satisfies the
requirements described in clause (iv) of
Interest Income above or otherwise
establishes an exemption.
The United States federal income tax discussion set forth
above is included for general information only and may not be
applicable depending upon a holders particular situation.
Holders should consult their tax advisors with respect to the
tax consequences to them of the ownership and disposition of the
securities, including the tax consequences under state, local,
foreign and other tax laws and the possible effects of changes
in United States federal or other tax laws.
128
Benefit Plan Considerations
If you intend to use the assets of any employee benefit plan,
as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (ERISA); any
plan described in Section 4975(e)(1) of the Code; any plan,
individual retirement account, or other arrangement that is
subject to provisions of any federal, state, local, foreign, or
other law, rule, or regulation that is similar to provisions of
ERISA and the Code (Similar Laws); or any entity
whose underlying assets include plan assets by reason of a
plans investment in such entity (each of the foregoing is
hereafter referred to as a Plan), directly or
indirectly to purchase any of the notes offered for sale in
connection with this prospectus, you should consult with counsel
on the potential consequences of your investment under the
fiduciary responsibility provisions of ERISA, the prohibited
transaction provisions of ERISA and the Code and the provisions
of any Similar Laws.
The following summary relates to Plans that are subject to
ERISA and/or the Code (ERISA Plans) and is based on
the provisions of ERISA and the Code and related guidance in
effect as of the date of this prospectus. This summary is
general in nature and is not intended as a complete summary of
these considerations. Future legislation, court decisions,
administrative regulations or other guidance might change the
requirements summarized in this section. Any of these changes
could be made retroactively and could apply to transactions
entered into before the change is enacted. In addition, benefit
plans that are not subject to ERISA or the Code might be subject
to comparable requirements under applicable Similar Laws.
Fiduciary Responsibilities
ERISA imposes requirements on ERISA Plans and fiduciaries of
ERISA Plans. Under ERISA, fiduciaries generally include persons
who exercise authority or control over ERISA Plan assets, or who
render investment advice with respect to an ERISA Plan for
compensation. Before investing any ERISA Plan assets in any note
offered in connection with this prospectus, you should determine
whether the investment:
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1. is permitted under the plan document and other
instruments governing the ERISA Plan; and |
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2. is appropriate for the ERISA Plan in view of its overall
investment policy and the composition and diversification of its
portfolio, taking into account the limited liquidity of the
notes. |
You should consider all factors and circumstances of a
particular investment in the notes, including, for example, the
risk factors discussed in Risk Factors and the fact
that in the future there may not be a market in which you will
be able to sell or otherwise dispose of your interest in the
notes.
We are not making any representation that the sale of any notes
to an ERISA Plan meets the fiduciary requirements for investment
by ERISA Plans generally or any particular ERISA Plan or that
such an investment is appropriate for ERISA Plans generally or
any particular ERISA Plan. We are not providing investment
advice to any ERISA Plan, through this prospectus or otherwise,
in connection with the sale of the notes.
Foreign Indicia of Ownership
ERISA also prohibits ERISA Plan fiduciaries from maintaining the
indicia of ownership of any ERISA Plan assets outside the
jurisdiction of the United States district courts except in
specified cases. Before investing in any note offered for sale
in connection with this prospectus, you should consider whether
the acquisition, holding or disposition of a note would satisfy
such indicia of ownership rules.
Prohibited Transactions
ERISA and the Code prohibit a wide range of transactions
involving ERISA Plans, on the one hand, and persons who have
specified relationships to such ERISA Plans, on the other. These
persons are called parties in interest under ERISA
and disqualified persons under the Code. The
transactions prohibited by ERISA and the Code are called
prohibited transactions. If you are a party in
interest or disqualified person who engages in a prohibited
transaction, or a fiduciary who causes an ERISA Plan to engage
in a prohibited transaction, you may be subject to excise taxes
and other penalties and liabilities under ERISA and/or the
129
Code. As a result, if you are considering using ERISA Plan
assets directly or indirectly to invest in any of the notes
offered for sale in connection with this prospectus, you should
consider whether the investment might be a prohibited
transaction under ERISA and/or the Code.
Prohibited transactions may arise, for example, if the notes are
acquired by an ERISA Plan with respect to which we, the initial
purchasers and/or any of our or their respective affiliates, are
parties in interest or disqualified persons. Exemptions from the
prohibited transaction provisions of ERISA and the Code may
apply, depending in part on the type of plan fiduciary making
the decision to acquire a note and the circumstances under which
such decision is made. These exemptions include:
|
|
|
1. Prohibited transaction class exemption
(PTCE) 75-1 (relating to specified transactions
involving employee benefit plans and broker-dealers, reporting
dealers, and banks); |
|
|
2. PTCE 84-14 (relating to specified transactions
directed by independent qualified professional asset managers); |
|
|
3. PTCE 90-1 (relating to specified transactions
involving insurance company pooled separate accounts); |
|
|
4. PTCE 91-38 (relating to specified transactions by
bank collective investment funds); |
|
|
5. PTCE 95-60 (relating to specified transactions
involving insurance company general accounts); and |
|
|
6. PTCE 96-23 (relating to specified transactions
directed by in-house asset managers). |
These exemptions do not, however, provide relief from the
provisions of ERISA and the Code that prohibit self-dealing and
conflicts of interest by plan fiduciaries. In addition, there is
no assurance that any of these class exemptions or any other
exemption will be available with respect to any particular
transaction involving the notes.
Treatment of Insurance Company Assets as Plan Assets
Based on the reasoning of the United States Supreme Court in
John Hancock Mutual Life Insurance Co. v. Harris Trust
and Savings Bank, 510 U.S. 86 (1993), assets in the
general account of an insurance company might be deemed to be
ERISA Plan assets under certain circumstances. If general
account assets are deemed to be ERISA Plan assets, an insurance
companys purchase of the notes with assets of its general
account might be subject to ERISAs fiduciary
responsibility provisions or might give rise to prohibited
transactions under ERISA and the Code. Insurance companies that
intend to use assets of their general accounts to purchase the
notes should consider the potential effects of
Section 401(c) of ERISA,
PTCE 95-60, and
Department of Labor Regulations Section 2550.401c-1 on
their purchase.
Representations and Warranties
If you acquire or accept a note (or any interest therein)
offered in connection with this prospectus, you will be deemed
to have represented and warranted that either:
|
|
|
1. you have not used the assets directly or indirectly of
any Plan to acquire such note; or |
|
|
2. your acquisition and holding of such note (A) is
exempt from the prohibited transaction restrictions of ERISA and
the Code under one or more prohibited transaction class
exemptions or does not constitute a prohibited transaction under
ERISA and the Code, (B) meets the applicable fiduciary
requirements of ERISA, and (C) does not violate any
applicable Similar Law. |
Any subsequent purchaser of such note will be required to make
the same representations concerning the use of Plan assets to
purchase the note.
130
Legal Matters
The validity of the notes offered hereby has been passed upon
for us by Covington & Burling, New York, New York.
C. Thomas Harvie, our general counsel, has passed upon the
validity of the shares of common stock issuable upon conversion
of the notes. Mr. Harvie is paid a salary and a bonus by
us, is a participant in our Performance Recognition Plan and
Executive Performance Plan, and owns and has options to purchase
shares of our common stock. See Management
Compensation of Executive Officers.
Experts
The financial statements as of December 31, 2005 and 2004
and for each of the three years in the period ended
December 31, 2005 and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) as of December 31, 2005
included in this prospectus, have been so included in reliance
on the report of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
said firm as experts in accounting and auditing.
131
Index to Consolidated Financial Statements
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Page | |
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F-2 |
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F-3 |
|
Consolidated Financial Statements of The Goodyear
Tire & Rubber Company:
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|
F-5 |
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|
F-6 |
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F-7 |
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F-8 |
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F-9 |
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F-71 |
|
Financial Statement Schedules:
|
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|
|
The following consolidated financial statement schedules of The
Goodyear Tire & Rubber Company are included as part of
this prospectus and should be read in conjunction with the
Consolidated Financial Statements of The Goodyear
Tire & Rubber Company:
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FS-2 |
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FS-8 |
|
Schedules not listed above have been omitted since they are not
applicable or are not required, or the information required to
be set forth therein is included in the Consolidated Financial
Statements or Notes thereto.
F-1
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting
as such term is defined under
Rule 13a-15(f)
promulgated under the Securities Exchange Act, 1934, as
amended.
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Companys
consolidated financial statements for external purposes in
accordance with generally accepted accounting principles.
Internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit the preparation
of the consolidated financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with appropriate authorizations of management and directors of
the Company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets
that could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the Companys
internal control over financial reporting as of
December 31, 2005 using the framework specified in
Internal Control Integrated Framework,
published by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on such assessment, management has
concluded that the Companys internal control over
financial reporting was effective as of December 31, 2005.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their accompanying report.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Shareholders
of The Goodyear Tire & Rubber Company
We have completed integrated audits of The Goodyear
Tire & Rubber Companys 2005 and 2004 consolidated
financial statements and of its internal control over financial
reporting as of December 31, 2005, and an audit of its 2003
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.
|
|
|
Consolidated financial statements and financial
statement schedules |
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of The Goodyear Tire & Rubber
Company and its subsidiaries at December 31, 2005 and 2004,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2005 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion,
the financial statement schedules listed in the accompanying
index present fairly, in all material respects, the information
set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements
and financial statement schedules are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 7 to the consolidated financial
statements, the Company adopted the provisions of FASB
Interpretation No. 46R (revised December 2003),
Consolidation of Variable Interest Entities, as of
January 1, 2004.
As discussed in Note 19 to the consolidated financial
statements, the Company adopted the provisions of FASB
Interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations, an interpretation of FASB
Statement No. 143, as of December 31, 2005.
|
|
|
Internal control over financial reporting |
Also, in our opinion, managements assessment, included in
the accompanying Managements Report on Internal Control
over Financial Reporting, that the Company maintained effective
internal control over financial reporting as of
December 31, 2005 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting,
F-3
evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
|
|
/s/ PricewaterhouseCoopers LLP |
|
PRICEWATERHOUSECOOPERS LLP |
|
Cleveland, Ohio
February 17, 2006
F-4
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(Dollars in millions, except per share amounts) |
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
19,723 |
|
|
$ |
18,353 |
|
|
$ |
15,102 |
|
Cost of Goods Sold
|
|
|
15,772 |
|
|
|
14,691 |
|
|
|
12,481 |
|
Selling, Administrative and General Expense
|
|
|
2,875 |
|
|
|
2,833 |
|
|
|
2,374 |
|
Rationalizations (Note 2)
|
|
|
11 |
|
|
|
56 |
|
|
|
291 |
|
Interest Expense (Note 14)
|
|
|
411 |
|
|
|
369 |
|
|
|
296 |
|
Other (Income) and Expense (Note 3)
|
|
|
70 |
|
|
|
23 |
|
|
|
317 |
|
Minority Interest in Net Income of Subsidiaries
|
|
|
95 |
|
|
|
58 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes and Cumulative Effect of
Accounting Change
|
|
|
489 |
|
|
|
323 |
|
|
|
(690 |
) |
United States and Foreign Taxes on Income (Loss) (Note 13)
|
|
|
250 |
|
|
|
208 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting
Change
|
|
|
239 |
|
|
|
115 |
|
|
|
(807 |
) |
Cumulative Effect of Accounting Change, net of income taxes and
minority interest (Note 19)
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before cumulative effect of accounting change
|
|
$ |
1.36 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
|
Cumulative effect of accounting change
|
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic
|
|
$ |
1.30 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding (Note 11)
|
|
|
176 |
|
|
|
175 |
|
|
|
175 |
|
Net Income (Loss) Per Share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before cumulative effect of accounting change
|
|
$ |
1.21 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
|
Cumulative effect of accounting change
|
|
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Diluted
|
|
$ |
1.16 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding (Note 11)
|
|
|
209 |
|
|
|
192 |
|
|
|
175 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
(Dollars in millions) |
|
| |
|
| |
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 1)
|
|
$ |
2,178 |
|
|
$ |
1,968 |
|
|
Restricted cash (Note 1)
|
|
|
231 |
|
|
|
152 |
|
|
Accounts and notes receivable (Note 4)
|
|
|
3,158 |
|
|
|
3,398 |
|
|
Inventories (Note 5)
|
|
|
2,862 |
|
|
|
2,784 |
|
|
Prepaid expenses and other current assets
|
|
|
251 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
8,680 |
|
|
|
8,574 |
|
Goodwill (Note 6)
|
|
|
637 |
|
|
|
717 |
|
Intangible Assets (Note 6)
|
|
|
159 |
|
|
|
169 |
|
Deferred Income Tax (Note 13)
|
|
|
102 |
|
|
|
83 |
|
Deferred Pension Costs and Other Assets (Note 7 and 12)
|
|
|
870 |
|
|
|
1,105 |
|
Properties and Plants (Note 8)
|
|
|
5,179 |
|
|
|
5,453 |
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
15,627 |
|
|
$ |
16,101 |
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade
|
|
$ |
1,945 |
|
|
$ |
1,970 |
|
|
Compensation and benefits (Note 11 and Note 12)
|
|
|
1,121 |
|
|
|
1,029 |
|
|
Other current liabilities
|
|
|
671 |
|
|
|
718 |
|
|
United States and foreign taxes
|
|
|
393 |
|
|
|
245 |
|
|
Notes payable (Note 10)
|
|
|
233 |
|
|
|
227 |
|
|
Long term debt and capital leases due within one year
(Note 10)
|
|
|
448 |
|
|
|
1,010 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
4,811 |
|
|
|
5,199 |
|
Long Term Debt and Capital Leases (Note 10)
|
|
|
4,742 |
|
|
|
4,443 |
|
Compensation and Benefits (Note 11 and Note 12)
|
|
|
4,480 |
|
|
|
4,645 |
|
Deferred and Other Noncurrent Income Taxes (Note 13)
|
|
|
304 |
|
|
|
402 |
|
Other Long Term Liabilities
|
|
|
426 |
|
|
|
495 |
|
Minority Equity in Subsidiaries
|
|
|
791 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
15,554 |
|
|
|
16,027 |
|
Commitments and Contingent Liabilities (Note 17)
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Preferred Stock, no par value:
|
|
|
|
|
|
|
|
|
|
Authorized, 50,000,000 shares, unissued
|
|
|
|
|
|
|
|
|
Common Stock, no par value:
|
|
|
|
|
|
|
|
|
|
Authorized, 300,000,000 shares
|
|
|
|
|
|
|
|
|
|
Outstanding shares, 176,509,751 (175,619,639 in 2004)
|
|
|
177 |
|
|
|
176 |
|
Capital Surplus
|
|
|
1,398 |
|
|
|
1,392 |
|
Retained Earnings
|
|
|
1,298 |
|
|
|
1,070 |
|
Accumulated Other Comprehensive Loss (Note 16)
|
|
|
(2,800 |
) |
|
|
(2,564 |
) |
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
73 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$ |
15,627 |
|
|
$ |
16,101 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
Consolidated Statements of Shareholders Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Common Stock | |
|
|
|
|
|
Other | |
|
Total | |
|
|
| |
|
Capital | |
|
Retained | |
|
Comprehensive | |
|
Shareholders | |
|
|
Shares | |
|
Amount | |
|
Surplus | |
|
Earnings | |
|
Loss | |
|
Equity (Deficit) | |
(Dollars in millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(after deducting 20,371,235 treasury shares)
|
|
|
175,307,433 |
|
|
$ |
175 |
|
|
$ |
1,390 |
|
|
$ |
1,762 |
|
|
$ |
(3,106 |
) |
|
$ |
221 |
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(807 |
) |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (net of tax benefit of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393 |
|
|
|
|
|
|
|
Minimum pension liability (net of tax of $2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
Unrealized investment gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
Deferred derivative gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254 |
) |
|
|
Common stock issued from treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans
|
|
|
18,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(after deducting 20,352,239 treasury shares)
|
|
|
175,326,429 |
|
|
|
175 |
|
|
|
1,390 |
|
|
|
955 |
|
|
|
(2,553 |
) |
|
|
(33 |
) |
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (net of tax benefit of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
Minimum pension liability (net of tax of $34)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284 |
) |
|
|
|
|
|
|
Unrealized investment gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
Deferred derivative gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $(4))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
Common stock issued from treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans
|
|
|
293,210 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(after deducting 20,059,029 treasury shares)
|
|
|
175,619,639 |
|
|
|
176 |
|
|
|
1,392 |
|
|
|
1,070 |
|
|
|
(2,564 |
) |
|
|
74 |
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (net of tax benefit of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201 |
) |
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
Minimum pension liability (net of tax of $23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97 |
) |
|
|
|
|
|
|
Unrealized investment gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
Deferred derivative gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $(1))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
Common stock issued from treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans
|
|
|
890,112 |
|
|
|
1 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(after deducting 19,168,917 treasury shares)
|
|
|
176,509,751 |
|
|
$ |
177 |
|
|
$ |
1,398 |
|
|
$ |
1,298 |
|
|
$ |
(2,800 |
) |
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
|
|
Adjustments to reconcile net income (loss) to cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
630 |
|
|
|
629 |
|
|
|
692 |
|
|
|
|
Amortization of debt issuance costs
|
|
|
76 |
|
|
|
74 |
|
|
|
62 |
|
|
|
|
Deferred tax provision (Note 13)
|
|
|
(19 |
) |
|
|
(4 |
) |
|
|
(10 |
) |
|
|
|
Net rationalization charges (Note 2)
|
|
|
5 |
|
|
|
48 |
|
|
|
267 |
|
|
|
|
Rationalization payments
|
|
|
(43 |
) |
|
|
(97 |
) |
|
|
(93 |
) |
|
|
|
Net loss on asset sales (Note 3)
|
|
|
38 |
|
|
|
8 |
|
|
|
16 |
|
|
|
|
Net insurance settlement gains (Note 3)
|
|
|
(79 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
|
Insurance recoveries
|
|
|
228 |
|
|
|
175 |
|
|
|
20 |
|
|
|
|
Minority interest and equity earnings
|
|
|
91 |
|
|
|
59 |
|
|
|
54 |
|
|
|
|
Cumulative effect of accounting change
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of accounts receivable (Note 4)
|
|
|
2 |
|
|
|
(118 |
) |
|
|
(840 |
) |
|
|
|
Pension contributions
|
|
|
(526 |
) |
|
|
(265 |
) |
|
|
(116 |
) |
|
|
|
Changes in operating assets and liabilities, net of asset
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
|
(16 |
) |
|
|
(277 |
) |
|
|
(9 |
) |
|
|
|
|
Inventories
|
|
|
(253 |
) |
|
|
(50 |
) |
|
|
39 |
|
|
|
|
|
Accounts payable trade
|
|
|
44 |
|
|
|
153 |
|
|
|
(104 |
) |
|
|
|
|
Compensation and benefits
|
|
|
439 |
|
|
|
474 |
|
|
|
387 |
|
|
|
|
|
Other current liabilities
|
|
|
(62 |
) |
|
|
145 |
|
|
|
70 |
|
|
|
|
|
Other long term liabilities
|
|
|
(34 |
) |
|
|
(149 |
) |
|
|
115 |
|
|
|
|
|
Other assets and liabilities
|
|
|
125 |
|
|
|
14 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from operating activities
|
|
|
885 |
|
|
|
785 |
|
|
|
(269 |
) |
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(634 |
) |
|
|
(529 |
) |
|
|
(405 |
) |
|
|
Short term securities redeemed
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
Asset dispositions
|
|
|
257 |
|
|
|
19 |
|
|
|
104 |
|
|
|
Asset acquisitions
|
|
|
(2 |
) |
|
|
(62 |
) |
|
|
(71 |
) |
|
|
Increase in restricted cash
|
|
|
(79 |
) |
|
|
(129 |
) |
|
|
(24 |
) |
|
|
Other transactions
|
|
|
18 |
|
|
|
50 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from investing activities
|
|
|
(440 |
) |
|
|
(651 |
) |
|
|
(290 |
) |
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt incurred
|
|
|
169 |
|
|
|
169 |
|
|
|
323 |
|
|
|
Short term debt paid
|
|
|
(131 |
) |
|
|
(191 |
) |
|
|
(469 |
) |
|
|
Long term debt incurred
|
|
|
2,289 |
|
|
|
1,899 |
|
|
|
2,978 |
|
|
|
Long term debt paid
|
|
|
(2,390 |
) |
|
|
(1,549 |
) |
|
|
(1,612 |
) |
|
|
Common stock issued (Note 11)
|
|
|
7 |
|
|
|
2 |
|
|
|
|
|
|
|
Dividends paid to minority interests in subsidiaries
|
|
|
(52 |
) |
|
|
(29 |
) |
|
|
(23 |
) |
|
|
Debt issuance costs
|
|
|
(67 |
) |
|
|
(51 |
) |
|
|
(104 |
) |
|
|
Other transactions
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from financing activities
|
|
|
(175 |
) |
|
|
250 |
|
|
|
1,121 |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
(60 |
) |
|
|
38 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
210 |
|
|
|
422 |
|
|
|
626 |
|
Cash and Cash Equivalents at Beginning of the Year
|
|
|
1,968 |
|
|
|
1,546 |
|
|
|
920 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash equivalents at End of the Year
|
|
$ |
2,178 |
|
|
$ |
1,968 |
|
|
$ |
1,546 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note 1. |
Accounting Policies |
A summary of the significant accounting policies used in the
preparation of the accompanying consolidated financial
statements follows:
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts of
all majority-owned subsidiaries in which no substantive
participating rights are held by minority shareholders. All
intercompany transactions have been eliminated. Our investments
in companies in which we have the ability to exercise
significant influence over operating and financial policies are
accounted for using the equity method. Accordingly, our share of
the earnings of these companies is included in consolidated Net
Income (Loss). Investments in other companies are carried at
cost.
The consolidated financial statements also include the accounts
of entities consolidated pursuant to the provisions of
Interpretation No. 46 of the Financial Accounting Standards
Board, Consolidation of Variable Interest
Entities an Interpretation of ARB No. 51,
as amended by FASB Interpretation No. 46 (revised December
2003) (collectively, FIN 46). FIN 46
requires companies to consolidate, at fair value, the assets,
liabilities and results of operations of variable interest
entities (VIEs) in which the equity investment at risk is not
sufficient to permit the entity to finance its activities
without additional subordinated financial support from other
parties. In addition, FIN 46 requires consolidation of VIEs
in which a company holds a controlling financial interest
through means other than the majority ownership of voting equity.
Effective January 1, 2004, we applied the provisions of
FIN 46 to entities that are not special purpose entities
(SPEs). This resulted in the consolidation of South Pacific
Tyres (SPT), a tire manufacturer, marketer and exporter of tires
in Australia and New Zealand, and T&WA, a wheel mounting
operation in the United States which sells to original equipment
(OE) manufacturers.
Refer to Note 7 and Note 9.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and related notes to
financial statements. Actual results could differ from those
estimates. On an ongoing basis, management reviews its
estimates, including those related to:
|
|
|
|
|
allowance for doubtful accounts, |
|
|
|
recoverability of intangibles and other long-lived assets, |
|
|
|
deferred tax asset valuation allowances and uncertain income tax
positions, |
|
|
|
workers compensation, |
|
|
|
general and product liabilities and other litigations, |
|
|
|
environmental liabilities, |
|
|
|
pension and other postretirement benefits, |
|
|
|
asset retirement obligations, and |
|
|
|
various other operating allowances and accruals, based on
currently available information. |
Changes in facts and circumstances may alter such estimates and
affect results of operations and financial position in future
periods.
F-9
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 1. |
Accounting Policies (continued) |
Revenues are recognized when finished products are shipped to
unaffiliated customers, both title and the risks and rewards of
ownership are transferred or services have been rendered and
accepted, and collectibility is reasonably assured. A provision
for sales returns and allowances is recorded at the time of
sale. Appropriate provision is made for uncollectible accounts
based on historical experience and specific circumstances, as
appropriate.
|
|
|
Shipping and Handling Fees and Costs |
Expenses for transportation of products to customers are
recorded as a component of Cost of goods sold.
|
|
|
Research and Development Costs |
Research and development costs include, among other things,
materials, equipment, compensation and contract services. These
costs are expensed as incurred and included as a component of
Cost of goods sold. Research and development expenditures were
$365 million, $364 million and $339 million in
2005, 2004 and 2003, respectively.
We offer warranties on the sale of certain of our products and
services and record an accrual for estimated future claims at
the time revenue is recognized. Tire replacement under most of
the warranties we offer is on a prorated basis. Warranty
reserves are based on past claims experience, sales history and
other considerations. Refer to Note 17.
|
|
|
Environmental Cleanup Matters |
We expense environmental expenditures related to existing
conditions resulting from past or current operations and from
which no current or future benefit is discernible. Expenditures
that extend the life of the related property or mitigate or
prevent future environmental contamination are capitalized. We
determine our liability on a site by site basis and record a
liability at the time when it is probable and can be reasonably
estimated. Our estimated liability is reduced to reflect the
anticipated participation of other potentially responsible
parties in those instances where it is probable that such
parties are legally responsible and financially capable of
paying their respective shares of the relevant costs. Our
estimated liability is not discounted or reduced for possible
recoveries from insurance carriers. Refer to Note 17.
We record a liability for estimated legal and defense costs
related to pending general and product liability claims,
environmental matters and workers compensation claims.
Refer to Note 17.
Costs incurred for producing and communicating advertising are
generally expensed when incurred. Costs incurred under our
cooperative advertising program with dealers and franchisees are
generally recorded as reductions of sales as related revenues
are recognized. Advertising costs, including costs for our
cooperative advertising programs with dealers and franchisees,
were $379 million, $383 million and $331 million
in 2005, 2004 and 2003, respectively.
F-10
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 1. |
Accounting Policies (continued) |
We account for rationalizations in accordance with the
provisions of Statement of Financial Accounting Standards
No. 146 (SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities, which
requires, among other things, 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. Refer to Note 2.
Income taxes are recognized during the year in which
transactions enter into the determination of financial statement
income, with deferred taxes being provided for temporary
differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax
laws. Valuation allowances are recorded to reduce net deferred
tax assets to the amount that is more likely than not to be
realized. Refer to Note 13.
|
|
|
Cash and Cash Equivalents/ Consolidated Statements of Cash
Flows |
Cash and cash equivalents include cash on hand and in the bank
as well as all short term securities held for the primary
purpose of general liquidity. Such securities normally mature
within three months from the date of acquisition. Cash flows
associated with items intended as hedges of identifiable
transactions or events are classified in the same category as
the cash flows from the items being hedged. Book overdrafts are
recorded within Accounts payable-trade and totaled
$196 million and $181 million at December 31,
2005 and 2004, respectively. Cash flows associated with book
overdrafts are classified as financing activities. During 2005,
we revised the classification for certain items, including
restricted cash, in our Consolidated Statements of Cash Flows.
Restricted cash is now presented as an investing activity. The
revised classifications have also been reflected in the
comparative prior year amounts for purposes of consistency.
|
|
|
Restricted Cash and Restricted Net Assets |
Restricted cash primarily consists of Goodyear contributions
made related to the settlement of the Entran II litigation
and proceeds received pursuant to insurance settlements. Refer
to Note 17 for further information about Entran II
claims. In addition, we will, from time to time, maintain
balances on deposit at various financial institutions as
collateral for borrowings incurred by various subsidiaries, as
well as cash deposited in support of trade agreements and
performance bonds. The availability of these balances is
restricted to the extent of borrowings.
In certain countries where we operate, transfers of funds into
or out of such countries by way of dividends, loans or advances
are generally or periodically subject to various restrictive
governmental regulations. In addition, certain of our credit
agreements and other debt instruments restrict the ability of
foreign subsidiaries to make distributions of cash. At
December 31, 2005, approximately $236 million of net
assets were subject to such restrictions, compared to
approximately $221 million at December 31, 2004.
Inventories are stated at the lower of cost or market. Cost is
determined using FIFO or the average cost method. Costs include
direct material, direct labor and applicable manufacturing and
engineering overhead. We determine a provision for excess and
obsolete inventory based on managements review of
inventories on hand compared to estimated future usage and
sales. Refer to Note 5.
We early adopted the provisions of Statement of Financial
Accounting Standards No. 151, Inventory
Costs an amendment of ARB No. 43,
Chapter 4 (SFAS 151) in 2005. The adoption of
SFAS 151 did not
F-11
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 1. |
Accounting Policies (continued) |
have a significant impact on our results of operations or
financial position. In accordance with SFAS 151, we
recognize abnormal manufacturing variances as period costs and
allocate fixed manufacturing overheads based on normal
production capacity.
|
|
|
Goodwill and Other Intangible Assets |
Goodwill is recorded when the cost of acquired businesses
exceeds the fair value of the identifiable net assets acquired.
Goodwill and intangible assets with indefinite useful lives are
not amortized, but are tested for impairment annually or when
events or circumstances indicate that impairment may have
occurred, as provided in Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets. We perform the goodwill and intangible assets with
indefinite useful lives impairment tests annually as of
July 31. The impairment test uses a valuation methodology
based upon an EBITDA multiple using comparable companies in the
global automotive industry sector. In addition, the carrying
amount of goodwill and intangible assets with indefinite useful
lives is reviewed whenever events or circumstances indicated
that revisions might be warranted. Goodwill and intangible
assets with indefinite useful lives would be written down to
fair value if considered impaired. Intangible assets with finite
useful lives are amortized to their estimated residual values
over such finite lives, and reviewed for impairment in
accordance with Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Refer to Note 6.
Investments in marketable securities are stated at fair value.
Fair value is determined using quoted market prices at the end
of the reporting period and, when appropriate, exchange rates at
that date. Unrealized gains and losses on marketable securities
classified as available-for-sale are recorded in Accumulated
Other Comprehensive Income (Loss), net of tax. We regularly
review our investments to determine whether a decline in fair
value below the cost basis is other than temporary. If the
decline in fair value is judged to be other than temporary, the
cost basis of the security is written down to fair value and the
amount of the write-down is included in the Consolidated
Statements of Operations. Refer to Notes 7 and 16.
Properties and plants are stated at cost. Depreciation is
computed using the straight-line method. Additions and
improvements that substantially extend the useful life of
properties and plants, and interest costs incurred during the
construction period of major projects, are capitalized. Repair
and maintenance costs are charged to income in the period
incurred. Properties and plants are depreciated to their
estimated residual values over their estimated useful lives, and
reviewed for impairment in accordance with Statement of
Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. Refer
to Notes 8 and 14.
|
|
|
Foreign Currency Translation |
Financial statements of international subsidiaries are
translated into U.S. dollars using the exchange rate at
each balance sheet date for assets and liabilities and a
weighted average exchange rate for each period for revenues,
expenses, gains and losses. Where the local currency is the
functional currency, translation adjustments are recorded as
Accumulated Other Comprehensive Income (Loss). Where the
U.S. dollar is the functional currency, adjustments are
recorded in income.
F-12
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 1. |
Accounting Policies (continued) |
|
|
|
Derivative Financial Instruments and Hedging
Activities |
To qualify for hedge accounting, hedging instruments must be
designated as hedges and meet defined correlation and
effectiveness criteria. These criteria require that the
anticipated cash flows and/or financial statement effects of the
hedging instrument substantially offset those of the position
being hedged.
Derivative contracts are reported at fair value on the
Consolidated Balance Sheets as both current and long term
Accounts Receivable or Other Liabilities. Deferred gains and
losses on contracts designated as cash flow hedges are recorded
in Accumulated Other Comprehensive Income (Loss) (OCI).
Ineffectiveness in hedging relationships is recorded as Other
(Income) and Expense in the current period.
Interest Rate Contracts Gains and losses on
contracts designated as cash flow hedges are initially deferred
and recorded in OCI. Amounts are transferred from OCI and
recognized in income as Interest Expense in the same period that
the hedged item is recognized in income. Gains and losses on
contracts designated as fair value hedges are recognized in
income in the current period as Interest Expense. Gains and
losses on contracts with no hedging designation are recorded in
income in the current period as Other (Income) and Expense.
Foreign Currency Contracts Gains and losses
on contracts designated as cash flow hedges are initially
deferred and recorded in OCI. Amounts are transferred from OCI
and recognized in income in the same period and on the same line
that the hedged item is recognized in income. Gains and losses
on contracts with no hedging designation are recorded in income
currently as Foreign Currency Exchange.
We do not include premiums paid on forward currency contracts in
our assessment of hedge effectiveness. Premiums on contracts
designated as hedges are recognized in income as Foreign
Currency Exchange over the life of the contract.
Net Investment Hedging Nonderivative
instruments denominated in foreign currencies are used from time
to time to hedge net investments in foreign subsidiaries. Gains
and losses on these instruments are deferred and recorded in OCI
as Foreign Currency Translation Adjustment. These gains and
losses are only recognized in income upon the complete or
partial sale of the related investment or the complete
liquidation of the investment.
Termination of Contracts Gains and losses
(including deferred gains and losses in OCI) are recognized in
income as Other (Income) and Expense when contracts are
terminated concurrently with the termination of the hedged
position. To the extent that such position remains outstanding,
gains and losses are amortized to Interest Expense or Foreign
Currency Exchange over the remaining life of that position.
Gains and losses on contracts that we temporarily continue to
hold after the early termination of a hedged position, or that
otherwise no longer qualify for hedge accounting, are recognized
in income as Other (Income) and Expense.
Refer to Note 10.
We use the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees,
(APB 25) 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
our 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 our common stock at the end
of the reporting period. Refer to Note 11.
F-13
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 1. |
Accounting Policies (continued) |
We determined pro forma amounts as if the fair value method
required by SFAS No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) had been applied
to our stock-based compensation. The fair value of stock options
was estimated on the date of grant using the Black-Scholes
option pricing model.
The pro forma effect on net income (loss) as if the fair value
of stock-based compensation had been recognized as compensation
expense on a straight-line basis over the vesting period of the
stock option or purchase right was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions, except per share) |
|
| |
|
| |
|
| |
Net income (loss) as reported
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
Add: Stock-based compensation expense included in net income
(loss) (net of tax)
|
|
|
5 |
|
|
|
6 |
|
|
|
1 |
|
Deduct: Stock-based compensation expense calculated using the
fair value method (net of tax)
|
|
|
(21 |
) |
|
|
(20 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) as adjusted
|
|
$ |
212 |
|
|
$ |
101 |
|
|
$ |
(834 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
1.30 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
|
as adjusted
|
|
|
1.20 |
|
|
|
0.58 |
|
|
|
(4.76 |
) |
|
Diluted as reported
|
|
$ |
1.16 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
|
as adjusted
|
|
|
1.09 |
|
|
|
0.56 |
|
|
|
(4.76 |
) |
|
|
|
Earnings Per Share of Common Stock |
Basic earnings per share were computed based on the weighted
average number of common shares outstanding. Diluted earnings
per share primarily reflects the dilutive impact of outstanding
stock options and in 2005 and 2004, contingently convertible
debt, regardless of whether the provision of the contingent
features had been met.
All earnings per share amounts in these notes to the financial
statements are diluted, unless otherwise noted. Refer to
Note 11.
|
|
|
Asset Retirement Obligations |
We adopted FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47) an
interpretation of FASB Statement No. 143, Accounting
for Asset Retirement Obligations (SFAS 143) on
December 31, 2005. FIN 47 requires that the fair value
of a liability for an asset retirement obligation (ARO) be
recognized in the period in which it is incurred and the
settlement date is estimable, and is capitalized as part of the
carrying amount of the related tangible long-lived asset. The
liability is recorded at fair value and the capitalized cost is
depreciated over the remaining useful life of the related asset.
Refer to Note 19.
Certain items previously reported in specific financial
statement captions have been reclassified to conform to the 2005
presentation.
F-14
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 1. |
Accounting Policies (continued) |
|
|
|
Recently Issued Accounting Pronouncements |
The provisions of SFAS 151 are intended to eliminate narrow
differences between the existing accounting standards of the
FASB and the International Accounting Standards Board
(IASB) related to inventory costs, in particular, the
treatment of abnormal idle facility expense, freight, handling
costs and spoilage. SFAS 151 requires that these costs be
recognized as current period charges regardless of the extent to
which they are considered abnormal. The provisions of
SFAS 151 are effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We early
adopted SFAS 151 in 2005. The adoption of SFAS 151 did
not have a significant impact on our results of operations or
financial position.
The FASB has issued Statement of Financial Accounting Standards
No. 123 (revised 2004),
Share-Based
Payment (SFAS 123R) which replaced SFAS 123 and
superseded APB 25. Under the provisions of SFAS 123R,
companies are required to measure the cost of employee services
received in exchange for an award of equity instruments based on
the grant-date fair value of the award (with limited exception).
That cost will be recognized over the period during which an
employee is required to provide service in exchange for the
award, usually the vesting period. On April 14, 2005, the
SEC approved a delay to the effective date of SFAS 123R.
Under the new SEC rule, SFAS 123R is effective for annual
periods that begin after June 15, 2005. SFAS 123R
applies to all awards granted, modified, repurchased or
cancelled by us after December 31, 2005 and to unvested
awards at the date of adoption. We will adopt SFAS 123R in
the first quarter of 2006. In 2006, we will recognize
approximately $15 million in expense for stock options,
which were previously not expensed under APB 25.
The FASB issued FSP FAS 123R-2, Practical
Accommodation to the Application of Grant Date as Defined in
FAS 123R (FSP 123R-2) in October 2005. FSP 123R-2
provides guidance on the application of grant date as defined in
SFAS No. 123R. In accordance with this standard, a
grant date of an award exists if a) the award is a
unilateral grant and b) the key terms and conditions of the
award are expected to be communicated to an individual recipient
within a relatively short time period from the date of approval.
We will adopt this standard when we adopt SFAS 123R, and it
will not have a material impact on our consolidated financial
position, results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
(SFAS 154). SFAS 154 is a replacement of Accounting
Principles Board No. 20, Accounting Changes and
FASB Statement No. 3 Reporting Accounting Changes in
Interim Financial Statements. SFAS 154 provides
guidance on the accounting for and reporting of accounting
changes and error corrections. It establishes retrospective
application as the required method for reporting a change in
accounting principle. SFAS 154 provides guidance for
determining whether retrospective application of a change in
accounting principle is impracticable and for reporting a change
when retrospective application is impracticable. The reporting
of a correction of an error by restating previously issued
financial statements is also addressed by SFAS 154.
SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 31, 2005. We will adopt this pronouncement
beginning in fiscal year 2006.
In June 2005, the FASB staff issued FASB Staff Position
143-1 Accounting
for Electronic Equipment Waste Obligations (FSP
143-1) to address the
accounting for obligations associated with the Directive
2002/96/ EC on Waste Electrical and Electronic Equipment (the
Directive) adopted by the European Union (EU). The
Directive effectively obligates a commercial user to incur costs
associated with the retirement of a specified asset that
qualifies as historical waste equipment. The commercial user
should apply the provisions of SFAS 143 and FIN 47.
FSP 143-1 shall be
applied the later of the first reporting period ending after
June 8, 2005 or the date of the adoption of the law by the
applicable EU-member country. We adopted the FSP at certain of
our European operations where applicable legislation was
adopted. The impact of the adoption on the consolidated
financial statements was not significant.
F-15
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2. |
Costs Associated with Rationalization Programs |
To maintain global competitiveness, we have implemented
rationalization actions over the past several years for the
purpose of reducing excess capacity, eliminating redundancies
and reducing costs. The net amounts of rationalization charges
included in the Consolidated Statements of Operations were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
New charges
|
|
$ |
29 |
|
|
$ |
95 |
|
|
$ |
307 |
|
Reversals
|
|
|
(18 |
) |
|
|
(39 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11 |
|
|
$ |
56 |
|
|
$ |
291 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents the reconciliation of the liability
balance between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Than | |
|
|
|
|
Associate- | |
|
Associate- | |
|
|
|
|
related | |
|
related | |
|
|
|
|
Costs | |
|
Costs | |
|
Total | |
(In millions) |
|
| |
|
| |
|
| |
Accrual balance at December 31, 2002
|
|
$ |
25 |
|
|
$ |
44 |
|
|
$ |
69 |
|
2003 charges
|
|
|
295 |
|
|
|
12 |
|
|
|
307 |
|
Incurred
|
|
|
(198 |
) |
|
|
(16 |
) |
|
|
(214 |
) |
Reversed to goodwill
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
Reversed to the statement of operations
|
|
|
(12 |
) |
|
|
(4 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
Accrual balance at December 31, 2003
|
|
|
110 |
|
|
|
33 |
|
|
|
143 |
|
2004 charges
|
|
|
76 |
|
|
|
19 |
|
|
|
95 |
|
Incurred
|
|
|
(110 |
) |
|
|
(23 |
) |
|
|
(133 |
) |
FIN 46 adoption
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Reversed to the statement of operations
|
|
|
(35 |
) |
|
|
(4 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
Accrual balance at December 31, 2004
|
|
|
41 |
|
|
|
27 |
|
|
|
68 |
|
2005 charges
|
|
|
26 |
|
|
|
3 |
|
|
|
29 |
|
Incurred
|
|
|
(37 |
) |
|
|
(8 |
) |
|
|
(45 |
) |
Reversed to the statement of operations
|
|
|
(11 |
) |
|
|
(7 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Accrual balance at December 31, 2005
|
|
$ |
19 |
|
|
$ |
15 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
|
|
Rationalization charges in 2005 consisted of manufacturing
associate reductions, retail store reductions, IT associate
reductions, and a sales function reorganization in European
Union Tire; manufacturing and administrative associate
reductions in Eastern Europe, Middle East and Africa Tire;
sales, marketing, and research and development associate
reductions in Engineered Products; and manufacturing and
corporate support group associate reductions in North American
Tire.
For 2005, $11 million ($5 million after-tax or
$0.02 per share) of net charges were recorded, which
included $29 million ($20 million after-tax or
$0.09 per share) of new rationalization charges. The
charges were partially offset by $18 million
($15 million after-tax or $0.07 per share) of
reversals of rationalization charges no longer needed for their
originally-intended purposes. The $18 million of reversals
consisted of $11 million of associate-related costs for
plans initiated in 2004 and 2003, and $7 million primarily
for non-cancelable
leases that were exited during the first quarter related to
plans initiated in 2001 and earlier. The $29 million of
charges primarily represented associate-related costs and
consist of $26 million for plans initiated in 2005 and
$3 million for plans initiated in 2004 and 2003.
Approximately 900 associates will be
F-16
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2. |
Costs Associated with Rationalization Programs (continued) |
released under the programs initiated in 2005, of which
approximately 425 were released by December 31, 2005.
In 2005, $35 million was incurred primarily for associate
severance payments, $1 million for cash pension settlement
benefit costs, $1 million for non-cash pension and
postretirement special termination benefit costs, and
$8 million was incurred primarily for non-cancelable lease
costs.
The accrual balance of $34 million at December 31,
2005 includes approximately $10 million related to
long-term non-cancelable lease costs and approximately
$24 million of other costs that are expected to be
substantially utilized within the next twelve months.
Accelerated depreciation charges totaling $5 million were
recorded for fixed assets that will be taken out of service in
connection with certain rationalization plans initiated in 2005
and 2004 in the Engineered Products and European Union Tire
Segments. During 2005, $4 million was recorded as Cost of
goods sold and $1 million was recorded as Selling,
administrative and general expense.
The following table summarizes, by segment, the total charges
expected to be recorded and the total charges recorded in 2005,
related to the new plans initiated in 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges | |
|
|
Expected Total | |
|
Recorded in | |
|
|
Charge | |
|
2005 | |
(In millions) |
|
| |
|
| |
North American Tire
|
|
$ |
3 |
|
|
$ |
3 |
|
European Union Tire
|
|
|
9 |
|
|
|
9 |
|
Eastern Europe, Middle East and Africa Tire
|
|
|
14 |
|
|
|
10 |
|
Engineered Products
|
|
|
7 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
$ |
33 |
|
|
$ |
26 |
|
|
|
|
|
|
|
|
Additional rationalizations charges of $6 million and
$1 million related to rationalization plans announced in
2005 and 2004, respectively, have not yet been recorded and are
expected to be incurred and recorded during the next twelve
months. There are no remaining restructuring charges related to
rationalization plans initiated in 2003.
2004 rationalizations activities consisted primarily of
warehouse, manufacturing and sales and marketing associate
reductions in Engineered Products, a farm tire manufacturing
consolidation in European Union Tire, administrative associate
reductions in North American Tire, European Union Tire and
corporate functional groups, and manufacturing, sales and
research and development associate reductions in North American
Tire.
In fiscal year 2004, net charges were recorded totaling
$56 million ($48 million after-tax or $0.27 per
share). The net charges included reversals of $39 million
($32 million after-tax or $0.17 per share) related to
reserves from rationalization actions no longer needed for their
originally-intended purpose, and new charges of $95 million
($84 million after-tax or $0.44 per share). Included
in the $95 million of new charges was $77 million for
plans initiated in 2004. Approximately 1,165 associates will be
released under programs initiated in 2004, of which
approximately 1,085 have been released to date (445 in 2005 and
640 in 2004). The costs of the 2004 actions consisted of
$40 million related to future cash outflows, primarily for
associate severance costs, including $32 million in
non-cash pension curtailments and postretirement benefit costs
and $5 million for non-cancelable lease costs and other
exit costs. Costs in 2004 also included $16 million related
to plans initiated in 2003, consisting of $14 million of
non-cancelable lease costs and other exit costs and
$2 million of associate severance costs. The reversals are
primarily the result of lower than initially estimated associate
severance costs of $35 million and lower leasehold and
other exit costs of $4 million. Of the $35 million of
associate severance cost reversals, $12 million related to
previously-approved plans in
F-17
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2. |
Costs Associated with Rationalization Programs (continued) |
Engineered Products that were reorganized into the 2004
warehouse, manufacturing, and sales and marketing associate
reductions.
In 2004, $75 million was incurred primarily for associate
severance payments, $35 million for non-cash pension
curtailments and postretirement benefit costs, and
$23 million was incurred for non-cancelable lease costs and
other costs. The accrual balance of $68 million at
December 31, 2004 includes approximately $17 million
related to long term non-cancelable lease costs and
approximately $51 million of associate and other costs.
Accelerated depreciation charges totaling $10 million were
recorded in 2004 for fixed assets that were taken out of service
in connection with certain rationalization plans initiated in
2003 and 2004 in European Union Tire, Latin American Tire and
Engineered Products. During 2004, $7 million was recorded
as CGS and $3 million was recorded as SAG.
In 2003, net charges were recorded totaling $291 million
($267 million after-tax or $1.52 per share). The net
charges included reversals of $16 million ($14 million
after-tax or $0.08 per share) related to reserves from
rationalization actions no longer needed for their originally
intended purpose, and new charges of $307 million
($281 million after-tax or $1.60 per share). The 2003
rationalization actions consisted of manufacturing, research and
development, administrative and retail consolidations in North
America, Europe and Latin America. Of the $307 million of
new charges, $175 million related to future cash outflows,
primarily associate severance costs, and $132 million
related primarily to non-cash special termination benefits and
pension and retiree benefit curtailments. Approximately 4,300
associates have been released under the programs initiated in
2003, of which approximately 100 were exited in 2005,
approximately 1,500 were exited during 2004 and approximately
2,700 were exited in 2003. The reversals are primarily the
result of lower than initially estimated
associate-related
payments of approximately $12 million, favorable sublease
contract signings in the European Union of approximately
$3 million and lower contract termination costs in the
United States of approximately $1 million.
As part of the 2003 rationalization program, we closed our
Huntsville, Alabama tire facility in the fourth quarter of 2003.
Of the $307 million of new rationalization charges in 2003,
approximately $138 million related to the Huntsville
closure and were primarily for associate-related costs,
including severance, special termination benefits and pension
and retiree benefit curtailments. The Huntsville closure also
resulted in charges to CGS of approximately $35 million for
asset impairments and $85 million for accelerated
depreciation and the write-off of spare parts. In addition, 2003
CGS included charges totaling approximately $8 million to
write-off construction in progress related to the research and
development rationalization plan, and approximately
$5 million for accelerated depreciation on equipment taken
out of service at European Union Tires facility in
Wolverhampton, England.
F-18
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3. |
Other (Income) and Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Financing fees and financial instruments
|
|
$ |
109 |
|
|
$ |
117 |
|
|
$ |
99 |
|
Interest income
|
|
|
(59 |
) |
|
|
(34 |
) |
|
|
(28 |
) |
Environmental insurance settlement
|
|
|
(29 |
) |
|
|
(157 |
) |
|
|
|
|
Net loss on asset sales
|
|
|
36 |
|
|
|
4 |
|
|
|
25 |
|
Foreign currency exchange
|
|
|
22 |
|
|
|
23 |
|
|
|
41 |
|
Insurance fire (recovery)/ loss deductible
|
|
|
(14 |
) |
|
|
12 |
|
|
|
|
|
Equity in (earnings) losses of affiliates
|
|
|
(11 |
) |
|
|
(8 |
) |
|
|
15 |
|
General and product liability discontinued products
|
|
|
9 |
|
|
|
53 |
|
|
|
138 |
|
Miscellaneous
|
|
|
7 |
|
|
|
13 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
70 |
|
|
$ |
23 |
|
|
$ |
317 |
|
|
|
|
|
|
|
|
|
|
|
Financing fees and financial instruments in 2005 included
$47 million of debt issuance costs written-off in
connection with our refinancing activities during the second
quarter of 2005. This includes approximately $30 million of
previously unamortized fees related to replaced facilities and
$17 million of costs related to the new facilities. In
2004, $21 million of deferred costs were written-off in
connection with our refinancing activities. Refer to
Note 10, Financing Arrangements and Derivative Financial
Instruments, for further information on the 2005 refinancing
activities.
Interest income consisted primarily of amounts earned on cash
deposits. The increase was due primarily to higher levels of
cash deposits in the United States. At December 31, 2005,
significant concentrations of cash, cash equivalents and
restricted cash held by our international subsidiaries included
the following amounts:
|
|
|
|
|
$673 million or 28% in Europe, primarily Western Europe,
($590 million or 28% at December 31, 2004), |
|
|
|
$213 million or 9% in Asia, primarily Australia,
($140 million or 7% at December 31, 2004), and |
|
|
|
$203 million or 8% in Latin America, primarily Brazil,
($198 million or 9% at December 31, 2004). |
In 2005, we recorded a gain of $29 million
($29 million after-tax or $0.14 per share) from
settlements with certain insurance companies related to
environmental coverage. Environmental insurance settlement in
2004 included a benefit of $157 million resulting from a
settlement with certain insurance companies in exchange for
releasing the insurers from certain past, present and future
environmental claims. A significant portion of the costs
incurred by us related to these claims had been recorded in
prior years. See further discussion on insurance settlements
discussed in general and product liability
discontinued products below.
Net loss on asset sales in the 2005 included a loss of
$73 million ($73 million after-tax or $0.35 per
share) on the sale of the Farm Tire business in North American
Tire , a gain of $24 million ($24 million after-tax or
$0.12 per share) on the sale of the Wingtack adhesive
resins business in North American Tire and net gains of
$13 million ($12 million after-tax or $0.06 per
share) on the sales of other assets primarily in North American
Tire.
Net losses on asset sales in 2004 were $4 million
($8 million after-tax or $0.04 per share) on the sale
of assets in North American Tire, European Union Tire and
Engineered Products. The net loss includes $15 million on
the write-down of assets of our natural rubber plantation in
Indonesia.
Net losses on asset sales in 2003 included a loss of
$18 million ($9 million after-tax or $0.05 per
share) on the sale of 20,833,000 shares of common stock of
Sumitomo Rubber Industries, Ltd., for which we received
F-19
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3. |
Other (Income) and Expense (continued) |
$83 million. Also in 2003, net losses of $7 million
($7 million after-tax or $0.04 per share) was recorded
on the sale of assets in Engineered Products, North American
Tire, European Union Tire, Asia Pacific Tire and Latin American
Tire.
Foreign currency exchange loss in 2004 was lower than in 2003,
as 2003 reflected the weakening of the Brazilian real versus the
U.S. dollar.
Insurance fire recovery of $14 million ($7 million
after-tax or $0.03 per share) in 2005 was related to a 2004
fire at a company facility in Germany. The gain represents
insurance recoveries in excess of the net book value of assets
destroyed. Goodyear has reached final settlement with its
insurance providers.
Insurance fire loss deductible in 2004 included a charge of
$12 million ($12 million after-tax or $0.07 per
share) related to fires at our facilities in Germany, France and
Thailand. During 2004, approximately $36 million in
insurance recoveries were received related to these fire losses.
At December 31, 2004 we had recorded an insurance
receivable of approximately $16 million to recover
additional expenses associated with the fire losses in Germany.
We did not record any insurance recoveries in excess of the net
book value of the assets destroyed (less the insurance
deductible limits) and other costs incurred.
Equity in (earnings) losses of affiliates in 2004 compared
to 2003 increased primarily due to improved results at
Rubbernetwork.com and the consolidation of SPT effective
January 1, 2004. Our share of losses at SPT was included in
2003.
General and product liability-discontinued products includes
charges for claims against us related to asbestos personal
injury claims, and for liabilities related to Entran II
claims, net of probable insurance recoveries. During 2005, we
recorded gains of $32 million ($32 million after-tax
or $0.16 per share) from settlements with certain insurance
companies related to asbestos coverage. A portion of the costs
incurred by us related to these claims had been recorded in
prior years. Refer to Note 17, Commitments and Contingent
Liabilities, for further information.
During 2004, $42 million of net expenses related to
Entran II claims ($142 million of expense and
$100 million of insurance recoveries) and $11 million
of net expenses related to asbestos claims ($13 million of
expense and $2 million of probable insurance recoveries).
During 2003, $180 million of net expenses related to
Entran II claims ($255 million of expense and
$75 million of insurance recoveries) was partially offset
by $42 million of net income related to asbestos claims
($24 million of expense and $66 million of probable
insurance recoveries).
Miscellaneous items included financial transaction taxes in
Latin America of $8 million, $8 million, and
$13 million in 2005, 2004 and 2003, respectively. Costs
related to the exploration of a possible sale of our Chemical
Products business totaling $4 million and $3 million
were included in 2004 and 2003, respectively. A $6 million
charge for the adoption of FIN 46 for lease-financing SPEs
was recorded in 2003.
|
|
Note 4. |
Accounts and Notes Receivable |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Accounts and notes receivable
|
|
$ |
3,288 |
|
|
$ |
3,542 |
|
Allowance for doubtful accounts
|
|
|
(130 |
) |
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
$ |
3,158 |
|
|
$ |
3,398 |
|
|
|
|
|
|
|
|
Accounts and Notes Receivable included non-trade
receivables totaling $300 million and $426 million at
December 31, 2005 and 2004, respectively. These amounts
primarily related to value-added taxes, an environmental
receivable, derivative financial instruments, and tax
receivables.
F-20
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4. |
Accounts and Notes Receivable (continued) |
The allowance for doubtful accounts represents an estimate of
the losses expected from our accounts and notes receivable
portfolio. The level of the allowance is based on many
quantitative and qualitative factors, including historical loss
experience by region, portfolio duration, economic conditions
and credit risk quality. The adequacy of the allowance is
assessed quarterly.
Various international subsidiaries sold certain of their trade
receivables under off-balance sheet programs during 2005 and
2004. The receivable financing programs of these international
subsidiaries did not utilize an SPE. At December 31, 2005
and 2004, the value in U.S. dollars available to and
utilized by these international subsidiaries was $3 million
and $5 million, respectively.
During 2004, one of our international subsidiaries had
established an accounts receivable continuous sales program
whereunder this subsidiary may receive proceeds from the sale of
certain of its receivables to a SPE affiliates of a certain
bank. This subsidiary retained servicing responsibilities. This
program was terminated during 2004.
The following table presents certain cash flows related to this
program:
|
|
|
|
|
|
|
2004 | |
(In millions) |
|
| |
Proceeds from collections reinvested in previous securitizations
|
|
$ |
633 |
|
Reimbursement for rebates and discounts issued
|
|
|
60 |
|
Cash used for termination of program
|
|
|
76 |
|
Prior to April 1, 2003, we maintained a program for the
continuous sale of substantially all of our domestic trade
accounts receivable to Wingfoot A/ R LLC, a wholly-owned limited
liability subsidiary company that was a bankruptcy-remote SPE. A
similar program also was maintained for substantially all of the
trade accounts receivable of our wholly-owned subsidiary in
Canada. The results of operations and financial position of
Wingfoot A/ R LLC were not included in our consolidated
financial statements as provided by Statement of Financial
Accounting Standards No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This program was terminated on
April 1, 2003. Our consolidated debt increased by
$578 million at April 1, 2003 in connection with the
termination of this program.
The following table presents certain cash flows related to this
program:
|
|
|
|
|
|
|
2003 | |
(In millions) |
|
| |
Proceeds from collections reinvested in previous securitizations
|
|
$ |
1,089 |
|
Servicing fees received
|
|
|
1 |
|
Reimbursement for rebates and discounts issued
|
|
|
28 |
|
Cash used for termination of program
|
|
|
545 |
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Raw materials
|
|
$ |
639 |
|
|
$ |
586 |
|
Work in process
|
|
|
137 |
|
|
|
140 |
|
Finished products
|
|
|
2,086 |
|
|
|
2,058 |
|
|
|
|
|
|
|
|
|
|
$ |
2,862 |
|
|
$ |
2,784 |
|
|
|
|
|
|
|
|
F-21
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6. |
Goodwill and Other Intangible Assets |
The net carrying amount of goodwill allocated by reporting unit,
and changes during 2005, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation & | |
|
|
|
|
Balance at | |
|
Purchase Price | |
|
|
|
Other | |
|
Balance at | |
|
|
December 31, 2004 | |
|
Allocation | |
|
Divestitures | |
|
Adjustments | |
|
December 31, 2005 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
North American Tire
|
|
$ |
102 |
|
|
$ |
|
|
|
$ |
(8 |
) |
|
$ |
4 |
|
|
$ |
98 |
|
European Union Tire
|
|
|
403 |
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
343 |
|
Eastern Europe, Middle East and Africa Tire
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
111 |
|
Latin American Tire
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Asia Pacific Tire
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
64 |
|
Engineered Products
|
|
|
20 |
|
|
|
2 |
|
|
|
|
|
|
|
(1 |
) |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
717 |
|
|
$ |
2 |
|
|
$ |
(8 |
) |
|
$ |
(74 |
) |
|
$ |
637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net carrying amount of goodwill allocated by reporting unit,
and changes during 2004, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation & | |
|
|
|
|
Balance at | |
|
Purchase Price | |
|
FIN 46 | |
|
Other | |
|
Balance at | |
|
|
December 31, 2003 | |
|
Allocation | |
|
Impact | |
|
Adjustments | |
|
December 31, 2004 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
North American Tire
|
|
$ |
101 |
|
|
$ |
|
|
|
$ |
3 |
|
|
$ |
(2 |
) |
|
$ |
102 |
|
European Union Tire
|
|
|
355 |
|
|
|
17 |
|
|
|
|
|
|
|
31 |
|
|
|
403 |
|
Eastern Europe, Middle East and Africa Tire
|
|
|
110 |
|
|
|
1 |
|
|
|
|
|
|
|
13 |
|
|
|
124 |
|
Latin American Tire
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Asia Pacific Tire
|
|
|
63 |
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
67 |
|
Engineered Products
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
650 |
|
|
$ |
18 |
|
|
$ |
5 |
|
|
$ |
44 |
|
|
$ |
717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information about other intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Intangible assets with indefinite lives
|
|
$ |
119 |
|
|
$ |
(9 |
) |
|
$ |
110 |
|
|
$ |
121 |
|
|
$ |
(9 |
) |
|
$ |
112 |
|
Trademarks and Patents
|
|
|
48 |
|
|
|
(20 |
) |
|
|
28 |
|
|
|
53 |
|
|
|
(19 |
) |
|
|
34 |
|
Other intangible assets
|
|
|
28 |
|
|
|
(7 |
) |
|
|
21 |
|
|
|
34 |
|
|
|
(11 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other intangible assets
|
|
$ |
195 |
|
|
$ |
(36 |
) |
|
$ |
159 |
|
|
$ |
208 |
|
|
$ |
(39 |
) |
|
$ |
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amount of intangible assets with indefinite lives
totaled $110 million and $112 million at
December 31, 2005 and 2004, respectively. This amount is
primarily comprised of the right to use certain brand names and
trademarks on a non-competitive basis related to our global
alliance with Sumitomo Rubber Industries, Ltd.
Amortization expense for intangible assets totaled
$4 million, $4 million and $5 million in 2005,
2004 and 2003, respectively. We estimate that annual
amortization expense related to intangible assets will range
from approximately $3 million to $4 million during
each of the next five years and the weighted average remaining
amortization period is approximately 20 years.
F-22
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Consolidation of Variable Interest Entities |
We applied the provisions of FIN 46 for entities that are
not SPEs effective January 1, 2004 and consolidated two
previously unconsolidated investments, SPT, a tire manufacturer,
marketer and exporter of tires in Australia and New Zealand, and
T&WA, a wheel mounting operation in the United States which
sells to OE manufacturers. This consolidation was treated as a
non-cash transaction on the Consolidated Statements of Cash
Flows with the exception of approximately $24 million of
cash and cash equivalents from SPT and T&WA, which was
included in Other assets and liabilities in the Operating
activities section of the statement. In connection with the
consolidation of SPT and T&WA, we recorded approximately
$5 million of goodwill.
|
|
|
Investments and Acquisitions |
We have funded approximately 40% of the obligations under our
Supplemental Pension Plan as of December 31, 2005
(approximately 47% at December 31, 2004) using a Trust. The
Trust invests in debt and equity securities and funds current
benefit payments under the Supplemental Pension Plan. No
contributions were made to the Trust in 2005 or 2004. The debt
securities have maturities ranging from August 15, 2008
through February 15, 2010. The fair value of the Trust
assets was $26 million and $29 million at
December 31, 2005 and 2004, respectively, and was included
in Other Assets on the Consolidated Balance Sheets. We have
classified the Trust assets as available-for-sale, as provided
in Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115). Accordingly, gains and losses
resulting from changes in the fair value of the Trust assets are
deferred and reported on the Consolidated Balance Sheets as OCI.
At December 31, 2005, OCI included a gross unrealized
holding gain on the Trust assets of $4 million
($1 million after-tax).
We owned 3,421,305 shares of Sumitomo Rubber Industries,
Ltd. (SRI) at December 31, 2005 and 2004 (the
Sumitomo Investment). The fair value of the Sumitomo
Investment was $49 million and $32 million at
December 31, 2005 and 2004, respectively, and was included
in Other Assets on the Consolidated Balance Sheets. We have
classified the Sumitomo Investment as available-for-sale, as
provided in SFAS 115. At December 31, 2005, OCI
included gross unrealized holding gains on the Sumitomo
Investment of $32 million ($34 million after-tax),
compared to $16 million ($17 million after-tax) at
December 31, 2004.
In July 2004, Goodyear Dunlop Tires Europe B.V.
(GDTE), a 75% owned subsidiary, completed the
acquisition of the remaining 50% outstanding ownership
interest of Däckia, a major tire retail group in Sweden,
for approximately $10 million. We originally acquired a 50%
stake in 1995. As a result of this transaction, we now
indirectly own 75% of Däckia, with SRI owning the remaining
25%. The acquisition was accounted for using the purchase method
of accounting. The asset valuation and the purchase price
allocation were completed in 2004. Pursuant to the purchase and
resulting consolidation, we recorded an addition to goodwill of
$17 million in 2004. We also recorded intangible assets,
including customer relationships, trademarks and partner
relationships, totaling $8 million.
During 2003, we transferred our 80% ownership of Sava Tires
Joint Venture Holding d.o.o (Sava Tire), a tire
manufacturing subsidiary in Slovenia, to GDTE, for
$282 million. In June 2004, we exercised our call option,
purchased the remaining outstanding 20% ownership interest of
Sava Tires for approximately $52 million, and sold it to
GDTE for approximately $85 million. As a result of these
transactions, we now indirectly own 75% of Sava Tire, with
GDTEs joint venture partner, SRI, owning the remaining
25%. The acquisition was accounted for using the purchase method
of accounting. Pursuant to this transaction, we recorded an
addition to goodwill of $1 million in 2004. The purchase
price allocation was completed at December 31, 2004.
F-23
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7. |
Investments (continued) |
In 2003, we purchased Arkansas Best Corporations remaining
19% ownership interest in Wingfoot Commercial Tire Systems, LLC,
a joint venture company formed by Goodyear and Arkansas Best
Corporation to sell and service commercial truck tires, provide
retread services and conduct related business, for
$71 million.
Dividends received from our consolidated subsidiaries were
$290 million, $155 million and $219 million in
2005, 2004 and 2003, respectively. Dividends received from our
unconsolidated affiliates accounted for using the equity method
were $7 million, $3 million and $3 million in
2005, 2004 and 2003, respectively.
|
|
Note 8. |
Properties and Plants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
Capital | |
|
|
|
|
|
Capital | |
|
|
|
|
Owned | |
|
Leases | |
|
Total | |
|
Owned | |
|
Leases | |
|
Total | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Properties and plants, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$ |
415 |
|
|
$ |
9 |
|
|
$ |
424 |
|
|
$ |
360 |
|
|
$ |
17 |
|
|
$ |
377 |
|
|
Buildings and improvements
|
|
|
1,856 |
|
|
|
91 |
|
|
|
1,947 |
|
|
|
1,778 |
|
|
|
94 |
|
|
|
1,872 |
|
|
Machinery and equipment
|
|
|
9,982 |
|
|
|
110 |
|
|
|
10,092 |
|
|
|
10,479 |
|
|
|
102 |
|
|
|
10,581 |
|
|
Construction in progress
|
|
|
445 |
|
|
|
|
|
|
|
445 |
|
|
|
449 |
|
|
|
|
|
|
|
449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,698 |
|
|
|
210 |
|
|
|
12,908 |
|
|
|
13,066 |
|
|
|
213 |
|
|
|
13,279 |
|
Accumulated depreciation
|
|
|
(7,635 |
) |
|
|
(94 |
) |
|
|
(7,729 |
) |
|
|
(7,736 |
) |
|
|
(90 |
) |
|
|
(7,826 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,063 |
|
|
$ |
116 |
|
|
$ |
5,179 |
|
|
$ |
5,330 |
|
|
$ |
123 |
|
|
$ |
5,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The range of useful lives of property used in arriving at the
annual amount of depreciation provided are as follows: buildings
and improvements, 8 to 45 years; machinery and equipment, 3
to 30 years.
Net rental expense charged to income follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Gross rental expense
|
|
$ |
379 |
|
|
$ |
349 |
|
|
$ |
331 |
|
Sublease rental income
|
|
|
(76 |
) |
|
|
(74 |
) |
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
303 |
|
|
$ |
275 |
|
|
$ |
266 |
|
|
|
|
|
|
|
|
|
|
|
We enter into leases primarily for vehicles, data processing
equipment and our wholesale and retail distribution facilities
under varying terms and conditions. A portion of our domestic
retail distribution network is sublet to independent dealers.
Many of the leases require us to pay taxes assessed against
leased property and the cost of insurance and maintenance.
While substantially all subleases and some operating leases are
cancelable for periods beyond 2006, management expects that in
the normal course of its business nearly all of its independent
dealer distribution network will be actively operated. As leases
and subleases for existing locations expire, we would normally
expect to evaluate such leases and either renew the leases or
substitute another more favorable retail location.
F-24
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9. |
Leased Assets (continued) |
The following table presents minimum future lease payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 and | |
|
|
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Beyond | |
|
Total | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Capital Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum lease payments
|
|
$ |
13 |
|
|
$ |
12 |
|
|
$ |
12 |
|
|
$ |
12 |
|
|
$ |
12 |
|
|
$ |
46 |
|
|
$ |
107 |
|
|
Imputed interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
Executory costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum lease payments
|
|
$ |
315 |
|
|
$ |
254 |
|
|
$ |
193 |
|
|
$ |
145 |
|
|
$ |
109 |
|
|
$ |
455 |
|
|
$ |
1,471 |
|
|
Minimum sublease rentals
|
|
|
(51 |
) |
|
|
(42 |
) |
|
|
(33 |
) |
|
|
(24 |
) |
|
|
(15 |
) |
|
|
(20 |
) |
|
|
(185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
264 |
|
|
$ |
212 |
|
|
$ |
160 |
|
|
$ |
121 |
|
|
$ |
94 |
|
|
$ |
435 |
|
|
|
1,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, we were a party to lease agreements
with an unrelated SPE that was a VIE as defined by FIN 46.
The agreements were related to certain North American
distribution facilities. At December 31, 2004, the carrying
amount of the warehouses that were pledged as collateral under
the North American distribution facilities agreements totaled
$27 million. These agreements were terminated during 2005.
|
|
Note 10. |
Financing Arrangements and Derivative Financial
Instruments |
At December 31, 2005, we had total credit arrangements
totaling $7,527 million, of which $1,677 million were
unused.
|
|
|
Notes Payable, Long Term Debt and Capital Leases
due Within One Year and Short Term Financing
Arrangements |
At December 31, 2005, we had short term committed and
uncommitted credit arrangements totaling $415 million, of
which $92 million related to consolidated VIEs. Of these
amounts, $182 million and $18 million, respectively,
were unused. These arrangements are available primarily to
certain of our international subsidiaries through various banks
at quoted market interest rates. There are no commitment fees
associated with these arrangements.
F-25
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
The following table presents amounts due within one year at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Notes payable:
|
|
|
|
|
|
|
|
|
|
Amounts related to VIEs
|
|
$ |
74 |
|
|
$ |
91 |
|
|
Other international subsidiaries
|
|
|
159 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
$ |
233 |
|
|
$ |
227 |
|
|
|
|
|
|
|
|
|
Weighted average interest rate
|
|
|
5.43 |
% |
|
|
6.72 |
% |
Long term debt and capital leases due within one year:
|
|
|
|
|
|
|
|
|
|
Amounts related to VIEs
|
|
$ |
54 |
|
|
$ |
24 |
|
|
63/8%
Euro Notes due 2005
|
|
|
|
|
|
|
542 |
|
|
53/8%
Swiss Franc Bond due 2006
|
|
|
120 |
|
|
|
|
|
|
65/8%
due 2006
|
|
|
216 |
|
|
|
|
|
|
European credit facilities
|
|
|
|
|
|
|
400 |
|
|
Other (including capital leases)
|
|
|
58 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
$ |
448 |
|
|
$ |
1,010 |
|
|
|
|
|
|
|
|
|
Weighted average interest rate
|
|
|
6.13 |
% |
|
|
6.34 |
% |
Total obligations due within one year
|
|
$ |
681 |
|
|
$ |
1,237 |
|
|
|
|
|
|
|
|
Amounts related to VIEs in Notes payable represent short term
debt of SPT. Amounts related to VIEs in Long term debt and
capital leases due within one year represented amounts owed by
T&WA and SPT.
|
|
|
Long Term Debt and Capital Leases and Financing
Arrangements |
At December 31, 2005, we had long term credit arrangements
totaling $7,112 million, of which $1,495 million were
unused.
F-26
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
The following table presents long term debt and capital leases,
net of unamortized discounts, and interest rates at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest | |
|
|
|
Interest | |
|
|
2005 | |
|
Rate | |
|
2004 | |
|
Rate | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63/8%
Euro Notes due 2005
|
|
$ |
|
|
|
|
|
|
|
$ |
542 |
|
|
|
* |
|
|
53/8%
Swiss franc bonds due 2006
|
|
|
120 |
|
|
|
* |
|
|
|
139 |
|
|
|
* |
|
|
65/8%
due 2006
|
|
|
216 |
|
|
|
* |
|
|
|
223 |
|
|
|
* |
|
|
81/2%
due 2007
|
|
|
300 |
|
|
|
* |
|
|
|
300 |
|
|
|
* |
|
|
63/8%
due 2008
|
|
|
100 |
|
|
|
* |
|
|
|
100 |
|
|
|
* |
|
|
76/7%
due 2011
|
|
|
650 |
|
|
|
* |
|
|
|
650 |
|
|
|
* |
|
|
Floating rate notes due 2011
|
|
|
200 |
|
|
|
12.31 |
% |
|
|
200 |
|
|
|
9.99 |
% |
|
11% due 2011
|
|
|
448 |
|
|
|
* |
|
|
|
448 |
|
|
|
* |
|
|
9% due 2015
|
|
|
400 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
7% due 2028
|
|
|
149 |
|
|
|
* |
|
|
|
149 |
|
|
|
* |
|
|
4% Convertible Senior Notes due 2034
|
|
|
350 |
|
|
|
* |
|
|
|
350 |
|
|
|
* |
|
Bank term loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$400 million senior secured term loan European
facilities due 2005
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
6.33 |
% |
|
$800 million senior secured asset-based term loan due 2006
|
|
|
|
|
|
|
|
|
|
|
800 |
|
|
|
6.14 |
% |
|
$650 million senior secured asset-based term loan due 2006
|
|
|
|
|
|
|
|
|
|
|
650 |
|
|
|
7.03 |
% |
|
$1.2 billion second lien term loan facility due 2010
|
|
|
1,200 |
|
|
|
7.06 |
% |
|
|
|
|
|
|
|
|
|
$300 million third lien secured term loan due 2011
|
|
|
300 |
|
|
|
7.81 |
% |
|
|
|
|
|
|
|
|
|
155 million
senior secured term loan European facility due 2010
|
|
|
183 |
|
|
|
4.85 |
% |
|
|
|
|
|
|
|
|
Pan-European accounts receivable facility due 2009
|
|
|
324 |
|
|
|
3.91 |
% |
|
|
225 |
|
|
|
3.90 |
% |
Other domestic and international debt
|
|
|
85 |
|
|
|
6.20 |
% |
|
|
123 |
|
|
|
6.19 |
% |
Amounts related to VIEs
|
|
|
89 |
|
|
|
6.45 |
% |
|
|
94 |
|
|
|
6.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,114 |
|
|
|
|
|
|
|
5,393 |
|
|
|
|
|
Capital lease obligations
|
|
|
76 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,190 |
|
|
|
|
|
|
|
5,453 |
|
|
|
|
|
Less portion due within one year
|
|
|
(448 |
) |
|
|
|
|
|
|
(1,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,742 |
|
|
|
|
|
|
$ |
4,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Represents debt with fixed interest rate. |
F-27
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
The following table presents information about long term fixed
rate, including capital leases, debt at December 31:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Carrying amount liability
|
|
$ |
2,847 |
|
|
$ |
3,055 |
|
Fair value liability
|
|
|
3,119 |
|
|
|
3,388 |
|
The fair value was estimated using quoted market prices or
discounted future cash flows. The fair value exceeded the
carrying amount at December 31, 2005 and 2004 due primarily
to lower market interest rates. The fair value of the
65/8% Notes
due 2006 was partially hedged by floating rate swap contracts
with notional principal amounts totaling $200 million at
December 31, 2005 and 2004, respectively. The fair value of
our variable rate debt approximated its carrying amount at
December 31, 2005 and 2004.
|
|
|
$650 Million Senior Secured Notes |
On March 12, 2004, we completed a private offering of
$650 million of senior secured notes, consisting of
$450 million of 11% senior secured notes due 2011 and
$200 million of floating rate notes due 2011, which accrue
interest at LIBOR plus 8%. The proceeds of the notes were used
to prepay the remaining outstanding amount under the
then-existing U.S. term loan facility, permanently reduce
commitments under the
then-existing revolving
credit facility by $70 million, and for general corporate
purposes. The notes are guaranteed by the same subsidiaries that
guarantee our $1.5 billion first lien credit facility. The
notes are secured by perfected third-priority liens on the same
collateral securing those facilities.
We have the right to redeem the fixed rate notes in whole or in
part from time to time on and after March 1, 2008. The
redemption price, plus accrued and unpaid interest to the
redemption date, would be 105.5%, 102.75%, and 100.0% on and
after March 1, 2008, 2009 and 2010, respectively. We may
also redeem the fixed rate notes prior to March 1, 2008 at
a redemption price equal to 100% of the principal amount plus a
make-whole premium. We have the right to redeem the floating
rate notes in whole or in part from time to time on and after
March 1, 2008. The redemption price, plus accrued and
unpaid interest to the redemption date, would be 104.0%, 102.0%,
and 100.0% on and after March 1, 2008, 2009 and 2010,
respectively. In addition, prior to March 1, 2007, we have
the right to redeem up to 35% of the fixed and floating rate
notes with net cash proceeds from one or more public equity
offerings. The redemption price would be 111% for the fixed rate
notes and 100% plus the then-applicable floating rate for the
floating rate notes, plus accrued and unpaid interest to the
redemption date.
The Indenture for the senior secured notes contains restrictions
on our operations, including limitations on:
|
|
|
|
|
incurring additional indebtedness or liens, |
|
|
|
paying dividends, making distributions and stock repurchases, |
|
|
|
making investments, |
|
|
|
selling assets, and |
|
|
|
merging and consolidating. |
In the event that the senior secured notes have a rating equal
to or greater than Baa3 from Moodys and BBB- from Standard
and Poors, a number of those restrictions will not apply,
for so long as those credit ratings are maintained.
F-28
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
|
|
|
$350 Million Convertible Senior
Note Offering |
On July 2, 2004, we completed an offering of
$350 million aggregate principal amount of
4% Convertible Senior Notes due June 15, 2034. The
notes are convertible into share of our common stock initially
at a conversion rate of 83.07 shares of common stock per
$1,000 principal amounts of notes, which is equal to an initial
conversion price of $12.04 per share. The proceeds from the
notes were used to repay temporarily a revolving credit facility
and for working capital purposes.
|
|
|
$400 Million Senior Notes Offering |
On June 23, 2005, we completed an offering of
$400 million aggregate principal amount of 9% Senior
Notes due 2015 in a transaction under Rule 144A and
Regulation S under the Securities Act of 1933. The senior
notes are guaranteed by our U.S. and Canadian subsidiaries that
also guarantee our obligations under our senior secured credit
facilities. The guarantees are unsecured. The proceeds were used
to repay $200 million in borrowings under our
U.S. first lien revolving credit facility, and to replace
$190 million of the cash, that we used to pay the
$488 million principal amount of our
63/8%
Euro Notes due 2005 at maturity on June 6, 2005. The
remainder of the proceeds was used for general corporate
purposes. In conjunction with the debt issuance, we paid fees of
approximately $10 million, which are being amortized over
the term of the senior notes.
The Indenture governing the senior notes limits our ability and
the ability of certain of our subsidiaries to (i) incur
additional debt or issue redeemable preferred stock,
(ii) pay dividends, or make certain other restricted
payments or investments, (iii) incur liens, (iv) sell
assets, (v) incur restrictions on the ability of our
subsidiaries to pay dividends to us, (vi) enter into
affiliate transactions, (vii) engage in sale and leaseback
transactions, and (viii) consolidate, merge, sell or
otherwise dispose of all or substantially all of our assets.
These covenants are subject to significant exceptions and
qualifications. For example, if the senior notes are assigned an
investment grade rating by Moodys and S&P and no
default has occurred or is continuing, certain covenants will be
suspended.
|
|
|
April 8, 2005 Refinancing |
On April 8, 2005 we completed a refinancing in which we
replaced approximately $3.28 billion of credit facilities
with new facilities aggregating $3.65 billion. The new
facilities consist of:
|
|
|
|
|
a $1.5 billion first lien credit facility due
April 30, 2010 (consisting of a $1.0 billion revolving
facility and a $500 million deposit-funded facility); |
|
|
|
a $1.2 billion second lien term loan facility due
April 30, 2010; |
|
|
|
the Euro equivalent of approximately $650 million in credit
facilities for Goodyear Dunlop Tires Europe B.V.
(GDTE) due April 30, 2010 (consisting of
approximately $450 million in revolving facilities and
approximately $200 million in term loan facilities); and |
|
|
|
a $300 million third lien term loan facility due
March 1, 2011. |
In connection with the refinancing, we paid down and retired the
following facilities:
|
|
|
|
|
our $1.3 billion asset-based credit facility, due March
2006 (the $800 million term loan portion of this facility
was fully drawn prior to the refinancing); |
|
|
|
our $650 million asset-based term loan facility, due March
2006 (this facility was fully drawn prior to the refinancing); |
F-29
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
|
|
|
|
|
our $680 million deposit-funded credit facility due
September 2007 (there were $492 million of letters of
credit outstanding under this facility prior to the
refinancing); and |
|
|
|
our $650 million senior secured European facilities due
April 2005 (the $400 million term loan portion of this
facility was fully drawn prior to the refinancing). |
In conjunction with the refinancing, we paid fees of
approximately $57 million. In addition, we paid
approximately $20 million of termination fees associated
with the replaced facilities. We recognized approximately
$47 million of expense in the second quarter to write-off
fees associated with the refinancing, including approximately
$30 million of previously unamortized fees related to the
replaced facilities. The remaining fees are being amortized over
the term of the new facilities. The new facilities have
customary representations and warranties including, as a
condition to borrowing, material adverse change representations
in our financial condition since December 31, 2004.
|
|
|
$1.5 Billion First Lien Credit Facility |
The $1.5 billion first lien credit facility consists of a
$1.0 billion revolving facility and a $500 million
deposit-funded facility. Our obligations under these facilities
are guaranteed by most of our wholly-owned
U.S. subsidiaries and by our wholly-owned Canadian
subsidiary, Goodyear Canada Inc. Our obligations under this
facility and our subsidiaries obligations under the
related guarantees are secured by collateral that includes,
subject to certain exceptions:
|
|
|
|
|
first-priority security interests in certain U.S. and Canadian
accounts receivable and inventory; |
|
|
|
first-priority security interests in and mortgages on our
U.S. corporate headquarters and certain of our
U.S. manufacturing facilities; |
|
|
|
first-priority security interests in the equity interests in our
U.S. subsidiaries and up to 65% of the equity interests in
our foreign subsidiaries, excluding GDTE and its subsidiaries
and certain other subsidiaries; and |
|
|
|
first-priority security interests in substantially all other
tangible and intangible assets, including equipment, contract
rights and intellectual property. |
The facility, which matures on April 30, 2010, contains
certain covenants that, among other things, limit our ability to
incur additional unsecured and secured indebtedness (including a
limit on accounts receivable transactions), make investments and
sell assets beyond specified limits. Under certain
circumstances, borrowings under the facility are required to be
prepaid with proceeds of asset sales greater than
$15 million. The facility limits the amount of dividends we
may pay on our common stock in any fiscal year to
$10 million. This limit increases to $50 million in
any fiscal year if Moodys public senior implied rating and
Standard & Poors (S&P) corporate credit
rating improve to Ba2 or better and BB or better, respectively.
The facility also limits the amount of capital expenditures we
may make to $700 million in each year through 2010 (with
increases for the proceeds of equity issuances). Any unused
capital expenditures for a year may be carried over into
succeeding years.
We are not permitted to allow the ratio of Consolidated EBITDA
to Consolidated Interest Expense to fall below a ratio of 2.00
to 1.00 for any period of four consecutive fiscal quarters. In
addition, our ratio of Consolidated Secured Indebtedness (net of
cash in excess of $400 million) to Consolidated EBITDA is
not permitted to be greater than 3.50 to 1.00 at the end of any
fiscal quarter.
Availability under the facility is subject to a borrowing base,
which is based on eligible accounts receivable and inventory,
with reserves which are subject to adjustment from time to time
by the administrative agent and the majority lenders at their
discretion (not to be exercised unreasonably).
F-30
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
Adjustments are based on the results of periodic collateral and
borrowing base evaluations and appraisals. If at any time the
amount of outstanding borrowings and letters of credit under the
facility exceeds the borrowing base, we are required to prepay
borrowings and/or cash collateralize letters of credit
sufficient to eliminate the excess.
Interest rates on the facility are dependent on the amount of
the facility that is available and unused.
|
|
|
|
|
If the availability under the facility is greater than or equal
to $400 million, then drawn amounts (including amounts
outstanding under the deposit-funded facility) will bear
interest at a rate of 175 basis points over LIBOR, and
undrawn amounts under the facilities will be subject to an
annual commitment fee of 50 basis points; |
|
|
|
If the availability under the facility is less than
$400 million and greater than or equal to
$250 million, then drawn amounts (including amounts
outstanding under the deposit-funded facility) will bear
interest at a rate of 200 basis points over LIBOR, and
undrawn amounts under the facilities will be subject to an
annual commitment fee of 40 basis points; and |
|
|
|
If the availability under the facility is less than
$250 million, then drawn amounts (including amounts
outstanding under the deposit-funded facility) will bear
interest at a rate of 225 basis points over LIBOR, and
undrawn amounts under the facilities will be subject to an
annual commitment fee of 37.5 basis points. |
With respect to the deposit-funded facility, the lenders
deposited the entire $500 million of the facility in an
account held by the administrative agent, and those funds are
used to support letters of credit or borrowings on a revolving
basis, in each case subject to customary conditions. The full
amount of the deposit-funded facility is available for the
issuance of letters of credit or for revolving loans. As of
December 31, 2005, there were $499 million of letters
of credit issued under the deposit-funded facility. There were
no borrowings under the revolving facility.
|
|
|
$1.2 Billion Second Lien Term Loan Facility |
At closing, we used the entire availability under this facility
to pay down and retire our prior credit facilities. Our
obligations under this facility are guaranteed by most of our
wholly-owned U.S. subsidiaries and by our wholly-owned
Canadian subsidiary, Goodyear Canada Inc. and are secured by
second priority security interests in the same collateral
securing the $1.5 billion first lien credit facility. The
facility contains covenants similar to those in the
$1.5 billion first lien credit facility. However, the
facility contains additional flexibility for the incurrence of
indebtedness, making of investments and asset dispositions, the
payment of dividends and the making of capital expenditures and
does not contain the two financial covenants that are in the
first lien credit facility. Under certain circumstances,
borrowings under the facility are required to be prepaid with
proceeds of asset sales greater than $15 million. Loans
under this facility bear interest at LIBOR plus 275 basis
points. As of December 31, 2005, this facility was fully
drawn.
|
|
|
Euro Equivalent of $650 Million
(505 Million)
Senior Secured European Credit Facilities |
These facilities consist of (i) a
195 million
European revolving credit facility, (ii) an additional
155 million
German revolving credit facility, and
(iii) 155 million
of German term loan facilities. We secure the
U.S. facilities described above and provide unsecured
guarantees to support these facilities. GDTE and certain of its
subsidiaries in the United Kingdom, Luxembourg, France and
Germany also provide guarantees.
F-31
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
GDTEs obligations under the facilities and the obligations
of subsidiary guarantors under the related guarantees are
secured by collateral that includes, subject to certain
exceptions:
|
|
|
|
|
first-priority security interests in the capital stock of the
principal subsidiaries of GDTE; and |
|
|
|
first-priority security interests in and mortgages on
substantially all the tangible and intangible assets of GDTE and
GDTEs subsidiaries in the United Kingdom, Luxembourg,
France and Germany, including certain accounts receivable,
inventory, real property, equipment, contract rights and cash
and cash accounts, but excluding certain accounts receivable and
cash accounts in subsidiaries that are or may become parties to
securitization programs. |
The facilities contain covenants similar to those in the
$1.5 billion first lien credit facility, with special
limits on the ability of GDTE and its subsidiaries to incur
additional unsecured and secured indebtedness, make investments
and sell assets beyond specified limits. The facilities also
limit the amount of capital expenditures that GDTE may make to
$200 million in 2005, $250 million in 2006 and
$300 million per year thereafter, with the unused amount in
any year carried forward to the succeeding years. In addition,
under the facilities we are not permitted to allow the ratio of
Consolidated Indebtedness (net of cash in excess of
$100 million) to Consolidated EBITDA of GDTE to be greater
than 2.75 to 1.00 at the end of any fiscal quarter. Under
certain circumstances, borrowings under the term facility are
required to be prepaid with proceeds of asset sales by GDTE and
its subsidiaries greater than $15 million. Loans under the
term loan facility bear interest at LIBOR plus 237.5 basis
points. With respect to the revolving credit facilities, we pay
an annual commitment fee of 75 basis points on the undrawn
portion of the commitments and loans bear interest at LIBOR plus
275 basis points. As of December 31, 2005, there were
$4 million of letters of credit issued under the European
revolving credit facility, $183 million was drawn under the
German term loan facilities and there were no borrowings under
the German or European revolving credit facilities.
|
|
|
$300 Million Third Lien Secured Term
Loan Facility |
At closing, we used the availability under this facility to pay
down and retire our prior credit facilities and pay certain fees
and expenses. Our obligations under this facility are guaranteed
by most of our wholly-owned U.S. subsidiaries and by our
wholly-owned Canadian subsidiary, Goodyear Canada Inc. and are
secured by third priority security interests in the same
collateral securing the $1.5 billion first lien credit
facility (however, the facility is not secured by any of the
manufacturing facilities that secure the first and second lien
facilities). The liens are pari-passu with the liens securing
our $650 million secured notes due 2011. The facility
contains covenants substantially identical to those contained in
the $650 million secured notes due 2011, which limit our
ability to incur additional indebtedness or liens, pay
dividends, make distributions and stock repurchases, make
investments and sell assets, among other limitations. Loans
under this facility bear interest at LIBOR plus 350 basis
points. As of December 31, 2005, this facility was fully
drawn.
|
|
|
International Accounts Receivable Securitization
Facilities (On-Balance-Sheet) |
On December 10, 2004, GDTE and certain of its subsidiaries
entered into a new five-year pan-European accounts receivable
securitization facility. The facility provides
275 million
of funding and is subject to customary annual renewal of
back-up liquidity lines.
F-32
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
The facility involves the twice-monthly sale of substantially
all of the trade accounts receivable of certain GDTE
subsidiaries to a bankruptcy-remote French company
controlled by one of the liquidity banks in the facility. These
subsidiaries retained servicing responsibilities. It is an event
of default under the facility if:
|
|
|
|
|
the ratio of our Consolidated EBITDA to our Consolidated
Interest Expense falls below 2.00 to 1.00; |
|
|
|
the ratio of our Consolidated Secured Indebtedness (net of cash
in excess of $400 million) to our Consolidated EBITDA is
greater than 3.50 to 1.00; or |
|
|
|
the ratio of GDTEs third party indebtedness (net of cash
held by GDTE and its Consolidated subsidiaries in excess of
$100 million) to its Consolidated EBITDA is greater than
2.75 to 1.00. |
The defined terms used in the events of default tests are
similar to those in the European Credit Facilities. As of
December 31, 2005 and 2004, the amount available and fully
utilized under this program totaled $324 million and
$225 million, respectively. The program did not qualify for
sale accounting pursuant to the provisions of Statement of
Financial Accounting Standards No. 140, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and accordingly, this
amount is included in Long term debt and capital leases.
In addition to the pan-European accounts receivable
securitization facility discussed above, SPT and other
subsidiaries in Australia have accounts receivable programs
totaling $67 million and $63 million at
December 31, 2005 and 2004, respectively. These amounts are
included in Notes payable.
The annual aggregate maturities of long term debt and capital
leases for the five years subsequent to December 31, 2005
are presented below. Maturities of debt credit agreements have
been reported on the basis that the commitments to lend under
these agreements will be terminated effective at the end of
their current terms.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
Domestic
|
|
$ |
345 |
|
|
$ |
305 |
|
|
$ |
107 |
|
|
$ |
5 |
|
|
$ |
1,206 |
|
International
|
|
|
103 |
|
|
|
33 |
|
|
|
4 |
|
|
|
330 |
|
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
448 |
|
|
$ |
338 |
|
|
$ |
111 |
|
|
$ |
335 |
|
|
$ |
1,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments |
We utilize derivative financial instrument contracts and
nonderivative instruments to manage interest rate, foreign
exchange and commodity price risks. We have established a
control environment that includes policies and procedures for
risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. Company policy
prohibits holding or issuing derivative financial instruments
for trading purposes.
|
|
|
Interest Rate Exchange Contracts |
We manage our fixed and floating rate debt mix, within defined
limitations, using refinancings and unleveraged interest rate
swaps. We will enter into fixed and floating interest rate swaps
to hedge against the effects of adverse changes in interest
rates on consolidated results of operations and future cash
outflows for interest. Fixed rate swaps are used to reduce our
risk of increased interest costs during periods of rising
interest rates, and are normally designated as cash flow hedges.
Floating rate swaps are used to convert the fixed rates of long
term borrowings into short term variable rates, and are normally
designated as fair value hedges. We
F-33
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
use interest rate swap contracts to separate interest rate risk
management from the debt funding decision. At December 31,
2005, the interest rate on 49% of our debt was fixed by either
the nature of the obligation or through the interest rate
contracts, compared to 50% at December 31, 2004.
The following tables present contract information and weighted
average interest rates. Current market pricing models were used
to estimate the fair values of interest rate exchange contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
Settled | |
|
December 31, 2005 | |
(Dollars in millions) |
|
| |
|
| |
|
| |
Fixed rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional principal amount
|
|
$ |
15 |
|
|
$ |
15 |
|
|
$ |
|
|
|
Pay fixed rate
|
|
|
5.94 |
% |
|
|
5.94 |
% |
|
|
|
|
|
Receive variable Australian Bank Bill Rate
|
|
|
5.43 |
% |
|
|
5.43 |
% |
|
|
|
|
|
Average years to maturity
|
|
|
0.50 |
|
|
|
|
|
|
|
|
|
|
Fair value: asset (liability)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term liability
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional principal amount
|
|
$ |
200 |
|
|
$ |
|
|
|
$ |
200 |
|
|
Pay variable LIBOR
|
|
|
4.31 |
% |
|
|
|
|
|
|
6.27 |
% |
|
Receive fixed rate
|
|
|
6.63 |
% |
|
|
|
|
|
|
6.63 |
% |
|
Average years to maturity
|
|
|
1.92 |
|
|
|
|
|
|
|
0.92 |
|
|
Fair value: asset (liability)
|
|
$ |
6 |
|
|
$ |
|
|
|
$ |
|
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Long term asset
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Weighted average interest rate swap contract information follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
(Dollars in millions) |
|
| |
|
| |
|
| |
Fixed rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional principal amount
|
|
$ |
7 |
|
|
$ |
96 |
|
|
$ |
325 |
|
|
Pay fixed rate
|
|
|
5.94 |
% |
|
|
5.14 |
% |
|
|
5.00 |
% |
|
Receive variable LIBOR
|
|
|
5.66 |
% |
|
|
1.86 |
% |
|
|
1.24 |
% |
Floating rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional principal amount
|
|
$ |
200 |
|
|
$ |
200 |
|
|
$ |
207 |
|
|
Pay variable LIBOR
|
|
|
4.92 |
% |
|
|
3.27 |
% |
|
|
3.03 |
% |
|
Receive fixed rate
|
|
|
6.63 |
% |
|
|
6.63 |
% |
|
|
6.63 |
% |
|
|
|
Interest Rate Lock Contracts |
We will use, when appropriate, interest rate lock contracts to
hedge the risk-free rate component of anticipated long term debt
issuances. These contracts are designated as cash flow hedges of
forecasted
F-34
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
transactions. Gains and losses on these contracts are amortized
to income over the life of the debt. No contracts were
outstanding at December 31, 2005 or 2004.
|
|
|
Foreign Currency Contracts |
We will enter into foreign currency contracts in order to reduce
the impact of changes in foreign exchange rates on consolidated
results of operations and future foreign currency-denominated
cash flows. These contracts reduce exposure to currency
movements affecting existing foreign currency-denominated
assets, liabilities, firm commitments and forecasted
transactions resulting primarily from trade receivables and
payables, equipment acquisitions, intercompany loans, royalty
agreements and forecasted purchases and sales. In addition, the
principal and interest on our Swiss franc bonds due 2006 is
hedged by currency swap agreements, as were
100 million
of the
63/8%
Euro Notes until they matured in June 2005.
Contracts hedging the Swiss franc bonds are designated as cash
flow hedges, as were contracts hedging
100 million
of the
63/8%
Euro Notes until they matured in June 2005. Contracts hedging
short term trade receivables and payables normally have no
hedging designation.
Amounts are reclassified from OCI into earnings each period to
offset the effects of exchange rate movements on the hedged
amounts of principal and interest of the Swiss franc bonds and,
through June 2005, the Euro Notes. Amounts are also reclassified
concurrently with the recognition of intercompany royalty
expense and sales of intercompany purchases to third parties.
The following table presents foreign currency contract
information at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Fair | |
|
Contract | |
|
Fair | |
|
Contract | |
|
|
Value | |
|
Amount | |
|
Value | |
|
Amount | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
Buy currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
$ |
34 |
|
|
$ |
34 |
|
|
$ |
159 |
|
|
$ |
116 |
|
|
Swiss franc
|
|
|
120 |
|
|
|
82 |
|
|
|
140 |
|
|
|
81 |
|
|
Japanese yen
|
|
|
30 |
|
|
|
31 |
|
|
|
23 |
|
|
|
22 |
|
|
U.S. dollar
|
|
|
127 |
|
|
|
126 |
|
|
|
144 |
|
|
|
145 |
|
|
All other
|
|
|
3 |
|
|
|
2 |
|
|
|
13 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
314 |
|
|
$ |
275 |
|
|
$ |
479 |
|
|
$ |
377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swiss franc swap
|
|
3/06 |
|
3/06 |
|
|
Euro swap
|
|
|
|
6/05 |
|
|
All other
|
|
1/06 10/19 |
|
1/05 10/19 |
F-35
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Financing Arrangements and Derivative Financial Instruments
(continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Fair | |
|
Contract | |
|
Fair | |
|
Contract | |
|
|
Value | |
|
Amount | |
|
Value | |
|
Amount | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
Sell currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British pound
|
|
$ |
41 |
|
|
$ |
41 |
|
|
$ |
217 |
|
|
$ |
219 |
|
|
Swedish krona
|
|
|
13 |
|
|
|
13 |
|
|
|
34 |
|
|
|
34 |
|
|
Canadian dollar
|
|
|
64 |
|
|
|
65 |
|
|
|
62 |
|
|
|
63 |
|
|
Euro
|
|
|
120 |
|
|
|
120 |
|
|
|
77 |
|
|
|
74 |
|
|
All other
|
|
|
11 |
|
|
|
11 |
|
|
|
24 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
249 |
|
|
$ |
250 |
|
|
$ |
414 |
|
|
$ |
414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract maturity
|
|
1/06 9/06 |
|
1/05 12/05 |
The following table presents foreign currency contract carrying
amounts at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Carrying amount asset (liability):
|
|
|
|
|
|
|
|
|
|
Swiss franc swap current
|
|
$ |
38 |
|
|
$ |
|
|
|
Swiss franc swap long term
|
|
|
|
|
|
|
60 |
|
|
Euro swaps current
|
|
|
|
|
|
|
46 |
|
|
Other current asset
|
|
|
3 |
|
|
|
4 |
|
|
Other long term asset
|
|
|
2 |
|
|
|
1 |
|
|
Other current liability
|
|
|
(1 |
) |
|
|
(6 |
) |
|
Other long term liability
|
|
|
(2 |
) |
|
|
(3 |
) |
We were not a party to any foreign currency option contracts at
December 31, 2005 or 2004.
The counterparties to our interest rate and foreign exchange
contracts were substantial and creditworthy multinational
commercial banks or other financial institutions that are
recognized market makers. Due to the creditworthiness of the
counterparties, we consider the risk of counterparty
nonperformance associated with these contracts to be remote.
However, the inability of a counterparty to fulfill its
obligations when due could have a material effect on our
consolidated financial position, results of operations or
liquidity in the period in which it occurs.
|
|
Note 11. |
Stock Compensation Plans and Dilutive Securities |
Our 1989 Performance and Equity Incentive Plan, 1997 Performance
Incentive Plan, 2002 Performance Plan, and 2005 Performance Plan
provide for the granting of stock options and stock appreciation
rights (SARs), restricted stock, performance grants and other
stock-based awards. For options granted in tandem with SARs, the
exercise of a SAR cancels the stock option; conversely, the
exercise of the stock option cancels the SAR. The 1989 Plan
expired on April 14, 1997, the 1997 Plan expired on
December 31, 2001, and the 2002 Plan expired on
April 15, 2005, except, in each case, with respect to
grants and awards outstanding. The 2005 Plan will expire on
April 26, 2008, except with respect to grants and awards
then outstanding. A maximum of 12,000,000 shares of our
Common Stock are available for issuance pursuant to grants and
awards made under the 2005 Plan through April 26, 2008.
Stock options and related SARs granted under the above plans
generally have a maximum term of ten years and vest pro rata
over four years.
Performance units granted under the 2002 Plan are earned based
on Return on Invested Capital and Total Shareholder Return
relative to the S&P Auto Parts & Equipment
Companies (each weighted at 50%)
F-36
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11. |
Stock Compensation Plans and Dilutive Securities
(continued) |
over a three year performance period beginning January 1 of the
year subsequent to the year of grant. Any additional grants made
during the three year period are earned over the remaining
portion of the period. To the extent earned, a portion of the
performance units will generally be paid 50% in cash and 50% in
stock (subject to deferral under certain circumstances). A
portion may be automatically deferred in the form of units until
the participant is no longer an employee of the Company. Each
unit is equivalent to a share of our Common Stock and payable in
cash, shares of our Common Stock or a combination thereof at the
election of the participant. As of December 31, 2005, all
performance units granted under the 2002 Plan are earned and are
subject to payment in 2006.
On December 4, 2000, we adopted The Goodyear
Tire & Rubber Company Stock Option Plan for Hourly
Bargaining Unit Employees, under which options in respect of up
to 3,500,000 shares of our Common Stock may be granted. We
also adopted on that date the Hourly and Salaried Employee Stock
Option Plan, under which options in respect of up to
600,000 shares of our Common Stock may be granted. Stock
options granted under these plans generally have a maximum term
of ten years and vest over one to three years. The Hourly
Bargaining Unit Plan expired on September 30, 2001, and the
Hourly and Salaried Plan expired on December 31, 2002,
except, in each case, with respect to options then outstanding.
Stock-based compensation activity for the years 2005, 2004 and
2003 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Shares | |
|
SARs | |
|
Shares | |
|
SARs | |
|
Shares | |
|
SARs | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at January 1
|
|
|
29,323,012 |
|
|
|
5,863,250 |
|
|
|
26,999,985 |
|
|
|
4,965,789 |
|
|
|
24,476,229 |
|
|
|
4,110,830 |
|
|
Options granted
|
|
|
2,038,050 |
|
|
|
453,425 |
|
|
|
4,149,660 |
|
|
|
1,103,052 |
|
|
|
3,907,552 |
|
|
|
1,009,588 |
|
|
Options without SARs exercised
|
|
|
(1,151,743 |
) |
|
|
|
|
|
|
(293,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options with SARs exercised
|
|
|
(149,010 |
) |
|
|
(149,010 |
) |
|
|
(16,300 |
) |
|
|
(16,300 |
) |
|
|
|
|
|
|
|
|
|
SARs exercised
|
|
|
(17,060 |
) |
|
|
(17,060 |
) |
|
|
(360 |
) |
|
|
(360 |
) |
|
|
|
|
|
|
|
|
|
Options without SARs expired
|
|
|
(951,599 |
) |
|
|
|
|
|
|
(1,105,094 |
) |
|
|
|
|
|
|
(1,011,943 |
) |
|
|
|
|
|
Options with SARs expired
|
|
|
(238,326 |
) |
|
|
(238,326 |
) |
|
|
(188,931 |
) |
|
|
(188,931 |
) |
|
|
(154,629 |
) |
|
|
(154,629 |
) |
|
Performance units granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,500 |
|
|
|
|
|
|
Performance unit shares issued
|
|
|
(155,330 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance units cancelled
|
|
|
(29,953 |
) |
|
|
|
|
|
|
(222,149 |
) |
|
|
|
|
|
|
(225,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
28,668,041 |
|
|
|
5,912,279 |
|
|
|
29,323,012 |
|
|
|
5,863,250 |
|
|
|
26,999,985 |
|
|
|
4,965,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31
|
|
|
21,333,128 |
|
|
|
3,985,595 |
|
|
|
20,362,573 |
|
|
|
3,517,595 |
|
|
|
18,697,146 |
|
|
|
2,899,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31
|
|
|
10,301,344 |
|
|
|
|
|
|
|
965,138 |
|
|
|
|
|
|
|
4,846,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11. |
Stock Compensation Plans and Dilutive Securities
(continued) |
Significant option groups outstanding at December 31, 2005
and related weighted average price and remaining life
information follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
Options | |
|
Exercisable | |
|
Remaining | |
Grant Date |
|
Outstanding | |
|
Exercisable | |
|
Price | |
|
Life (Years) | |
|
|
| |
|
| |
|
| |
|
| |
12/06/05(1)
|
|
|
1,605,936 |
|
|
|
|
|
|
$ |
17.15 |
|
|
|
10 |
|
12/09/04
|
|
|
3,718,590 |
|
|
|
867,392 |
|
|
|
12.54 |
|
|
|
9 |
|
12/03/03
|
|
|
2,906,667 |
|
|
|
1,249,495 |
|
|
|
6.81 |
|
|
|
8 |
|
12/03/02
|
|
|
1,972,317 |
|
|
|
1,428,863 |
|
|
|
7.94 |
|
|
|
7 |
|
12/03/01
|
|
|
2,724,939 |
|
|
|
2,724,939 |
|
|
|
22.05 |
|
|
|
6 |
|
12/04/00
|
|
|
5,205,334 |
|
|
|
5,205,334 |
|
|
|
17.68 |
|
|
|
5 |
|
12/06/99
|
|
|
2,923,658 |
|
|
|
2,923,658 |
|
|
|
32.00 |
|
|
|
4 |
|
11/30/98
|
|
|
1,916,352 |
|
|
|
1,916,352 |
|
|
|
57.25 |
|
|
|
3 |
|
12/02/97
|
|
|
1,687,837 |
|
|
|
1,687,837 |
|
|
|
63.50 |
|
|
|
2 |
|
12/03/96
|
|
|
1,404,255 |
|
|
|
1,404,255 |
|
|
|
50.00 |
|
|
|
1 |
|
All other
|
|
|
2,229,454 |
|
|
|
1,925,003 |
|
|
|
34.07 |
|
|
|
3 |
|
|
|
|
|
(1) |
The number of options granted in 2005 decreased in comparison to
2004 and 2003, as we expect to grant performance units to
certain employees in 2006 in lieu of a portion of their 2005
option grant. |
The 2,229,454 options in the All other category were
outstanding at exercise prices ranging from $5.52 to $74.25,
with a weighted average exercise price of $31.21. All options,
SARs and performance units were granted at an exercise price
equal to the fair market value of our Common Stock at the date
of grant.
Weighted average option exercise price information follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Outstanding at January 1
|
|
$ |
24.96 |
|
|
$ |
26.90 |
|
|
$ |
30.28 |
|
Granted during the year
|
|
|
17.15 |
|
|
|
12.54 |
|
|
|
6.81 |
|
Exercised during the year
|
|
|
8.03 |
|
|
|
7.61 |
|
|
|
|
|
Outstanding at December 31
|
|
|
25.11 |
|
|
|
24.96 |
|
|
|
26.90 |
|
Exercisable at December 31
|
|
|
29.49 |
|
|
|
31.02 |
|
|
|
33.80 |
|
Forfeitures and cancellations were insignificant.
Weighted average fair values at date of grant for grants in
2005, 2004 and 2003 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Options
|
|
$ |
8.61 |
|
|
$ |
6.36 |
|
|
$ |
3.41 |
|
Performance units
|
|
|
|
|
|
|
|
|
|
|
6.81 |
|
The above fair value of options at date of grant was estimated
using the Black-Scholes model with the following weighted
average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Expected life (years)
|
|
|
6.25 |
|
|
|
5.00 |
|
|
|
5.00 |
|
Interest rate
|
|
|
4.35 |
% |
|
|
3.55 |
% |
|
|
3.41 |
% |
Volatility
|
|
|
44.7 |
|
|
|
54.7 |
|
|
|
54.0 |
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11. |
Stock Compensation Plans and Dilutive Securities
(continued) |
|
|
|
Earnings Per Share Information |
Basic earnings per share have been computed based on the
weighted average number of common shares outstanding.
There are contingent conversion features included in our
$350 million 4% Convertible Senior Notes due 2034 (the
Notes), issued on July 2, 2004. Accordingly,
weighted average shares outstanding diluted in 2005
and 2004 included approximately 29.1 million and
14.5 million, respectively, contingently issuable shares.
Net income per share diluted in 2005 and 2004 also
included an earnings adjustment representing avoided after-tax
interest expense of $14 million and $7 million,
respectively, resulting from the assumed conversion of the Notes.
The Notes became convertible on July 18, 2005 and remained
convertible through September 30, 2005. The Notes became
convertible again on October 18, 2005 and remained
convertible through December 31, 2005. No Notes were
converted in 2005. If all outstanding Notes are surrendered for
conversion, the aggregate number of shares of common stock
issued would be approximately 29 million shares. The Notes
became convertible on January 17, 2006 and will remain
convertible through March 31, 2006. The Notes could be
convertible after March 31, 2006 if the sales price
condition is met in any future fiscal quarter or if any other
conditions to conversion set forth in the indenture governing
the Notes is met.
The following table presents the number of incremental weighted
average shares used in computing diluted per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Weighted average shares outstanding basic
|
|
|
176,107,411 |
|
|
|
175,377,316 |
|
|
|
175,314,449 |
|
4% Convertible Senior Notes due 2034
|
|
|
29,069,767 |
|
|
|
14,534,884 |
|
|
|
|
|
Stock options
|
|
|
3,553,194 |
|
|
|
2,346,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
208,730,372 |
|
|
|
192,258,270 |
|
|
|
175,314,449 |
|
|
|
|
|
|
|
|
|
|
|
In 2005, 2004 and 2003, approximately 23.1 million,
23.1 million and 21.4 million, respectively, of
equivalent shares related to stock options with exercise prices
that were greater than the average market price of our common
shares, and performance grants, were excluded from weighted
average shares outstanding-diluted, as inclusion would have been
anti-dilutive. In addition, in 2003, the earnings per share
calculation does not include approximately 1 million
equivalent shares of stock options with exercise prices that
were less than the average market price of our common shares,
and performance grants, in weighted average shares
outstanding diluted as we were in a net loss
position and inclusion would also have been anti-dilutive.
The following table presents the computation of adjusted net
income (loss) used in computing net income (loss) per
share diluted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net Income (Loss)
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
After-tax impact of 4% Convertible Senior Notes due 2034
|
|
|
14 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income (Loss)
|
|
$ |
242 |
|
|
$ |
122 |
|
|
$ |
(807 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Note 12. |
Pension, Other Postretirement Benefit and Savings Plans |
We provide substantially all employees with pension benefits.
The principal domestic hourly plan provides benefits based on
length of service. The principal domestic plans covering
salaried employees provide benefits based on final five-year
average earnings formulas. Salaried employees making voluntary
contribu-
F-39
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12. |
Pension, Other Postretirement Benefit and Savings Plans
(continued) |
tions to these plans receive higher benefits. Effective
January 1, 2005, the U.S. salaried pension plan was
closed to new participants and effective October 1, 2005,
our UK pension plans were closed to new participants. Other
pension plans provide benefits similar to the principal domestic
plans as well as termination indemnity plans at certain
non-U.S. subsidiaries.
We also provide substantially all domestic employees and
employees at certain
non-U.S. subsidiaries
with health care and life insurance benefits upon retirement.
Insurance companies provide life insurance and certain health
care benefits through premiums based on expected benefits to be
paid during the year. Substantial portions of the health care
benefits for domestic retirees are not insured and are paid by
us. Benefit payments are funded from operations.
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act (the Act) was
signed into law. The Act provides plan sponsors a federal
subsidy for certain qualifying prescription drug benefits
covered under the sponsors postretirement health care
plans. On May 19, 2004, the FASB issued Staff Position
No. FAS 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (FSP 106-2),
which requires measures of the accumulated postretirement
benefit obligation and net periodic postretirement benefit costs
to reflect the effects of the Act in the first interim or annual
period beginning after June 15, 2004. On January 21,
2005, final regulations under the Act were issued. Based on the
clarifications provided in the final regulations, our total
periodic postretirement cost was lowered by $64 million in
2005. This change increased pre-tax income (loss) by
$53 million in 2005. The difference between the net
periodic postretirement cost and pre-tax income (loss) amounts
represents the portion of net periodic postretirement cost that
is carried in inventory at December 31, 2005. The
accumulated postretirement benefit obligation was reduced by
$529 million. This reduction in the obligation is amortized
as a reduction of expense over the average remaining service
life of active employees.
We use a December 31 measurement date for the majority of
our plans.
Pension cost follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. | |
|
Non-U.S. | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Service cost benefits earned during the period
|
|
$ |
56 |
|
|
$ |
41 |
|
|
$ |
83 |
|
|
$ |
49 |
|
|
$ |
45 |
|
|
$ |
40 |
|
Interest cost on projected benefit obligation
|
|
|
294 |
|
|
|
300 |
|
|
|
295 |
|
|
|
128 |
|
|
|
121 |
|
|
|
105 |
|
Expected return on plan assets
|
|
|
(258 |
) |
|
|
(234 |
) |
|
|
(211 |
) |
|
|
(115 |
) |
|
|
(116 |
) |
|
|
(100 |
) |
Amortization of unrecognized: prior service cost
|
|
|
63 |
|
|
|
71 |
|
|
|
70 |
|
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
net
(gains) losses
|
|
|
86 |
|
|
|
79 |
|
|
|
96 |
|
|
|
59 |
|
|
|
39 |
|
|
|
30 |
|
transition
amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
|
241 |
|
|
|
257 |
|
|
|
333 |
|
|
|
125 |
|
|
|
94 |
|
|
|
80 |
|
Curtailments/settlements
|
|
|
13 |
|
|
|
14 |
|
|
|
40 |
|
|
|
2 |
|
|
|
(7 |
) |
|
|
5 |
|
Special termination benefits
|
|
|
15 |
|
|
|
4 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension cost
|
|
$ |
269 |
|
|
$ |
275 |
|
|
$ |
416 |
|
|
$ |
127 |
|
|
$ |
87 |
|
|
$ |
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12. |
Pension, Other Postretirement Benefit and Savings Plans
(continued) |
Postretirement benefit cost follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With | |
|
Without | |
|
|
|
|
|
|
Medicare | |
|
Medicare | |
|
|
|
|
|
|
Subsidy | |
|
Subsidy | |
|
|
|
|
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
Service cost benefits earned during the period
|
|
$ |
23 |
|
|
$ |
28 |
|
|
$ |
25 |
|
|
$ |
24 |
|
Interest cost on accumulated benefit obligation
|
|
|
149 |
|
|
|
178 |
|
|
|
188 |
|
|
|
174 |
|
Amortization of unrecognized: net losses
|
|
|
10 |
|
|
|
41 |
|
|
|
35 |
|
|
|
32 |
|
prior
service cost
|
|
|
43 |
|
|
|
43 |
|
|
|
45 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement cost
|
|
|
225 |
|
|
|
290 |
|
|
|
293 |
|
|
|
247 |
|
Curtailments/settlements
|
|
|
25 |
|
|
|
24 |
|
|
|
12 |
|
|
|
24 |
|
Special termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total postretirement cost
|
|
$ |
250 |
|
|
$ |
314 |
|
|
$ |
305 |
|
|
$ |
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12. |
Pension, Other Postretirement Benefit and Savings Plans
(continued) |
The change in benefit obligation and plan assets for 2005 and
2004 and the amounts recognized in our Consolidated Balance
Sheets at December 31, 2005 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
U.S. | |
|
Non-U.S. | |
|
Other Benefits | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$ |
(5,191 |
) |
|
$ |
(4,887 |
) |
|
$ |
(2,529 |
) |
|
$ |
(1,996 |
) |
|
$ |
(3,218 |
) |
|
$ |
(3,079 |
) |
|
|
Newly adopted plans
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
Service cost benefits earned
|
|
|
(56 |
) |
|
|
(41 |
) |
|
|
(49 |
) |
|
|
(45 |
) |
|
|
(23 |
) |
|
|
(25 |
) |
|
|
Interest cost
|
|
|
(294 |
) |
|
|
(300 |
) |
|
|
(128 |
) |
|
|
(121 |
) |
|
|
(149 |
) |
|
|
(188 |
) |
|
|
Plan amendments
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
Actuarial (loss) gain
|
|
|
(174 |
) |
|
|
(301 |
) |
|
|
(273 |
) |
|
|
(231 |
) |
|
|
532 |
|
|
|
(165 |
) |
|
|
Employee contributions
|
|
|
(11 |
) |
|
|
(10 |
) |
|
|
(8 |
) |
|
|
(9 |
) |
|
|
(19 |
) |
|
|
(9 |
) |
|
|
Curtailments/settlements
|
|
|
|
|
|
|
(2 |
) |
|
|
1 |
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
Special termination benefits
|
|
|
(15 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
203 |
|
|
|
(172 |
) |
|
|
(5 |
) |
|
|
(14 |
) |
|
|
Benefit payments
|
|
|
334 |
|
|
|
353 |
|
|
|
129 |
|
|
|
132 |
|
|
|
260 |
|
|
|
258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
(5,407 |
) |
|
$ |
(5,191 |
) |
|
$ |
(2,646 |
) |
|
$ |
(2,529 |
) |
|
$ |
(2,629 |
) |
|
$ |
(3,218 |
) |
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$ |
3,046 |
|
|
$ |
2,886 |
|
|
$ |
1,552 |
|
|
$ |
1,243 |
|
|
$ |
|
|
|
$ |
|
|
|
|
Newly adopted plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
261 |
|
|
|
330 |
|
|
|
206 |
|
|
|
149 |
|
|
|
|
|
|
|
|
|
|
|
Company contributions to pension funds
|
|
|
407 |
|
|
|
157 |
|
|
|
81 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
Cash funding of direct participant payments
|
|
|
13 |
|
|
|
16 |
|
|
|
25 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
Employee contributions
|
|
|
11 |
|
|
|
10 |
|
|
|
8 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(105 |
) |
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
Benefit payments
|
|
|
(334 |
) |
|
|
(353 |
) |
|
|
(129 |
) |
|
|
(132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
3,404 |
|
|
$ |
3,046 |
|
|
$ |
1,638 |
|
|
$ |
1,552 |
|
|
$ |
|
|
|
$ |
|
|
Funded status
|
|
|
(2,003 |
) |
|
|
(2,145 |
) |
|
|
(1,008 |
) |
|
|
(977 |
) |
|
|
(2,629 |
) |
|
|
(3,218 |
) |
|
Unrecognized prior service cost
|
|
|
325 |
|
|
|
401 |
|
|
|
20 |
|
|
|
17 |
|
|
|
359 |
|
|
|
420 |
|
|
Unrecognized net loss
|
|
|
1,646 |
|
|
|
1,561 |
|
|
|
1,025 |
|
|
|
987 |
|
|
|
355 |
|
|
|
895 |
|
|
Unrecognized net obligation at transition
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
(32 |
) |
|
$ |
(183 |
) |
|
$ |
39 |
|
|
$ |
30 |
|
|
$ |
(1,915 |
) |
|
$ |
(1,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12. |
Pension, Other Postretirement Benefit and Savings Plans
(continued) |
Amounts recognized in the Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
U.S. | |
|
Non-U.S. | |
|
Other Benefits | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Prepaid benefit cost long term
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17 |
|
|
$ |
19 |
|
|
$ |
|
|
|
$ |
|
|
Accrued benefit cost current
|
|
|
(192 |
) |
|
|
(58 |
) |
|
|
(21 |
) |
|
|
(27 |
) |
|
|
(254 |
) |
|
|
(303 |
) |
|
|
long term
|
|
|
(1,725 |
) |
|
|
(2,006 |
) |
|
|
(848 |
) |
|
|
(817 |
) |
|
|
(1,661 |
) |
|
|
(1,600 |
) |
Intangible asset included in other assets
|
|
|
329 |
|
|
|
405 |
|
|
|
22 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
210 |
|
|
|
210 |
|
|
|
117 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
Minority shareholders equity
|
|
|
28 |
|
|
|
25 |
|
|
|
143 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (OCI)
|
|
|
1,318 |
|
|
|
1,241 |
|
|
|
609 |
|
|
|
589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
(32 |
) |
|
$ |
(183 |
) |
|
$ |
39 |
|
|
$ |
30 |
|
|
$ |
(1,915 |
) |
|
$ |
(1,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase (decrease) in minimum pension liability adjustment
(net of tax) included in OCI follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
U.S. | |
|
Non-U.S. | |
|
Other Benefits | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Increase (decrease) in minimum pension liability adjustment
included in OCI
|
|
$ |
77 |
|
|
$ |
126 |
|
|
$ |
(176 |
) |
|
$ |
20 |
|
|
$ |
158 |
|
|
$ |
48 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
The following table presents significant weighted average
assumptions used to determine benefit obligations at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans | |
|
Other Benefits | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Discount rate: U.S.
|
|
|
5.50 |
% |
|
|
5.75 |
% |
|
|
5.50 |
% |
|
|
5.75 |
% |
Non-U.S.
|
|
|
4.96 |
|
|
|
5.41 |
|
|
|
6.13 |
|
|
|
6.91 |
|
Rate of compensation increase: U.S.
|
|
|
4.04 |
|
|
|
4.04 |
|
|
|
4.08 |
|
|
|
4.00 |
|
Non-U.S.
|
|
|
3.64 |
|
|
|
3.48 |
|
|
|
4.27 |
|
|
|
4.67 |
|
The following table presents significant weighted average
assumptions used to determine net periodic
pension/postretirement cost for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans | |
|
Other Benefits | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Discount rate: U.S.
|
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
6.75 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
6.75 |
% |
Non-U.S.
|
|
|
5.41 |
|
|
|
5.93 |
|
|
|
6.20 |
|
|
|
6.91 |
|
|
|
7.22 |
|
|
|
7.48 |
|
Expected long term return on plan assets: U.S.
|
|
|
8.50 |
|
|
|
8.50 |
|
|
|
8.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S
|
|
|
. 7.49 |
|
|
|
8.03 |
|
|
|
8.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase: U.S.
|
|
|
4.04 |
|
|
|
4.00 |
|
|
|
4.00 |
|
|
|
4.00 |
|
|
|
4.00 |
|
|
|
4.00 |
|
Non-U.S.
|
|
|
3.48 |
|
|
|
3.43 |
|
|
|
3.50 |
|
|
|
4.67 |
|
|
|
4.47 |
|
|
|
4.80 |
|
For 2005, an assumed long-term rate of return of 8.5% was used
for the U.S. pension plans. In developing this rate, we
evaluated the compound annualized returns of our
U.S. pension fund over periods of 15 years or more
(through December 31, 2004). In addition, we evaluated
input from our pension fund consultant on asset class return
expectations and long-term inflation. For our
non-U.S. locations,
a weighted average
F-43
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12. |
Pension, Other Postretirement Benefit and Savings Plans
(continued) |
assumed long-term rate
of return of 7.49% was used. Input from local pension fund
consultants concerning asset class return expectations and
long-term inflation form the basis of this assumption.
The following table presents estimated future benefit payments
from the plans as of December 31, 2005. Benefit payments
for other postretirement benefits are presented net of retiree
contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits | |
|
|
Pension Plans | |
|
| |
|
|
| |
|
Without Medicare | |
|
Medicare Part D | |
|
|
U.S. | |
|
Non-U.S. | |
|
Part D Subsidy | |
|
Subsidy Receipts | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
2006
|
|
$ |
332 |
|
|
$ |
116 |
|
|
$ |
272 |
|
|
$ |
(18 |
) |
2007
|
|
|
342 |
|
|
|
117 |
|
|
|
272 |
|
|
|
(22 |
) |
2008
|
|
|
352 |
|
|
|
120 |
|
|
|
270 |
|
|
|
(25 |
) |
2009
|
|
|
362 |
|
|
|
124 |
|
|
|
264 |
|
|
|
(28 |
) |
2010
|
|
|
383 |
|
|
|
128 |
|
|
|
258 |
|
|
|
(31 |
) |
2011-2015
|
|
|
2,072 |
|
|
|
727 |
|
|
|
1,181 |
|
|
|
(189 |
) |
The following table presents selected information on our pension
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. | |
|
Non-U.S. | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
All plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$ |
5,315 |
|
|
$ |
5,104 |
|
|
$ |
2,464 |
|
|
$ |
2,344 |
|
Plans not fully-funded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$ |
5,407 |
|
|
$ |
5,191 |
|
|
$ |
2,499 |
|
|
$ |
2,368 |
|
|
Accumulated benefit obligation
|
|
|
5,315 |
|
|
|
5,104 |
|
|
|
2,332 |
|
|
|
2,199 |
|
|
Fair value of plan assets
|
|
|
3,404 |
|
|
|
3,046 |
|
|
|
1,486 |
|
|
|
1,385 |
|
Certain
non-U.S. subsidiaries
maintain unfunded pension plans consistent with local practices
and requirements. At December 31, 2005, these plans
accounted for $221 million of our accumulated pension
benefit obligation, $235 million of our projected pension
benefit obligation and $49 million of our minimum pension
liability adjustment ($233 million, $247 million and
$43 million, respectively, at December 31, 2004).
Our pension plan weighted average asset allocation at
December 31, by asset category, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. | |
|
Non-U.S. | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Equity securities
|
|
|
69 |
% |
|
|
71 |
% |
|
|
48 |
% |
|
|
52 |
% |
Debt securities
|
|
|
31 |
|
|
|
28 |
|
|
|
50 |
|
|
|
45 |
|
Cash and short term securities
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 and 2004, we did not directly hold any
of our Common Stock.
Our pension investment policy recognizes the long-term nature of
pension liabilities, the benefits of diversification across
asset classes and the effects of inflation. The diversified
portfolio is designed to maximize returns consistent with levels
of liquidity and investment risk that are prudent and
reasonable. All assets are managed externally according to
guidelines we have established individually with investment
managers. The manager guidelines prohibit the use of any type of
investment derivative without our prior approval. Portfolio risk
is controlled by having managers comply with guidelines,
establishing the maximum size of any single holding in their
portfolios and by using managers with different investment
styles. We periodically undertake
F-44
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12. |
Pension, Other Postretirement Benefit and Savings Plans
(continued) |
asset and liability modeling studies to determine the
appropriateness of the investments. The portfolio includes
holdings of domestic,
non-U.S., and private
equities, global high quality and high yield fixed income
securities, and short-term interest bearing deposits. The target
asset allocation of the U.S. pension fund is 70% equities
and 30% fixed income.
We expect to contribute approximately $800 million to
$875 million to our funded major U.S. and
non-U.S. pension
plans in 2006.
Assumed health care cost trend rates at December 31 follow:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Health care cost trend rate assumed for the next year
|
|
|
11.5 |
% |
|
|
12.0 |
% |
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
|
|
5.0 |
|
|
|
5.0 |
|
Year that the rate reaches the ultimate trend rate
|
|
|
2013 |
|
|
|
2013 |
|
A 1% change in the assumed health care cost trend would have
increased (decreased) the accumulated postretirement
benefit obligation at December 31, 2005 and the aggregate
service and interest cost for the year then ended as follows:
|
|
|
|
|
|
|
|
|
|
|
1% Increase | |
|
1% Decrease | |
(In millions) |
|
| |
|
| |
Accumulated postretirement benefit obligation
|
|
$ |
39 |
|
|
$ |
(33 |
) |
Aggregate service and interest cost
|
|
|
3 |
|
|
|
(3 |
) |
Substantially all employees in the U.S. and employees of certain
non-U.S. locations
are eligible to participate in a savings plan. Effective
January 1, 2005, all newly hired salaried employees in the
U.S. are eligible for a Company-funded contribution into
the Salaried Savings Plan, as they are not eligible to
participate in our defined benefit pension plan. The expenses
recognized for contributions were $21 million,
$18 million and $15 million for 2005, 2004 and 2003,
respectively.
The components of Income (Loss) before Income Taxes and
Cumulative Effect of Accounting Change, adjusted for Minority
Interest in Net Income of Subsidiaries, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
U.S.
|
|
$ |
(278 |
) |
|
$ |
(329 |
) |
|
$ |
(1,048 |
) |
Foreign
|
|
|
767 |
|
|
|
652 |
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489 |
|
|
|
323 |
|
|
|
(690 |
) |
Minority Interest in Net Income of Subsidiaries
|
|
|
95 |
|
|
|
58 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
584 |
|
|
$ |
381 |
|
|
$ |
(657 |
) |
|
|
|
|
|
|
|
|
|
|
F-45
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13. |
Income Taxes (continued) |
A reconciliation of income taxes at the U.S. statutory rate
to income taxes provided before cumulative effect of accounting
change follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
U.S. Federal income tax at the statutory rate of 35%
|
|
$ |
204 |
|
|
$ |
133 |
|
|
$ |
(230 |
) |
Adjustment for foreign income taxed at different rates
|
|
|
(16 |
) |
|
|
(12 |
) |
|
|
|
|
U.S. loss with no tax benefit
|
|
|
69 |
|
|
|
98 |
|
|
|
359 |
|
State income taxes, net of Federal benefit
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(4 |
) |
Foreign operating losses
|
|
|
21 |
|
|
|
45 |
|
|
|
47 |
|
Release of valuation allowances
|
|
|
(20 |
) |
|
|
|
|
|
|
(11 |
) |
Settlement of prior years liabilities
|
|
|
(4 |
) |
|
|
(46 |
) |
|
|
(44 |
) |
Provision for repatriation of foreign earnings
|
|
|
3 |
|
|
|
(5 |
) |
|
|
8 |
|
Other
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
United States and Foreign Taxes on Income (Loss)
|
|
$ |
250 |
|
|
$ |
208 |
|
|
$ |
117 |
|
|
|
|
|
|
|
|
|
|
|
The components of the provision (benefit) for income taxes by
taxing jurisdiction before cumulative effect of accounting
change follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(26 |
) |
|
$ |
(60 |
) |
|
$ |
(49 |
) |
|
Foreign
|
|
|
297 |
|
|
|
273 |
|
|
|
180 |
|
|
State
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
269 |
|
|
|
212 |
|
|
|
127 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(8 |
) |
|
Foreign
|
|
|
(16 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
State
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
(4 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
United States and Foreign Taxes on Income (Loss)
|
|
$ |
250 |
|
|
$ |
208 |
|
|
$ |
117 |
|
|
|
|
|
|
|
|
|
|
|
F-46
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13. |
Income Taxes (continued) |
Temporary differences and carryforwards giving rise to deferred
tax assets and liabilities at December 31 follow:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Postretirement benefits and pensions
|
|
$ |
1,306 |
|
|
$ |
1,235 |
|
Tax credit and operating loss carryforwards
|
|
|
454 |
|
|
|
457 |
|
Capitalized expenditures for tax reporting
|
|
|
232 |
|
|
|
259 |
|
Accrued expenses deductible as paid
|
|
|
270 |
|
|
|
277 |
|
Alternative minimum tax credit carryforwards
|
|
|
63 |
|
|
|
62 |
|
Vacation and sick pay
|
|
|
54 |
|
|
|
52 |
|
Rationalizations and other provisions
|
|
|
7 |
|
|
|
17 |
|
Other
|
|
|
81 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
2,467 |
|
|
|
2,460 |
|
Valuation allowance
|
|
|
(2,052 |
) |
|
|
(2,072 |
) |
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
415 |
|
|
|
388 |
|
Tax on undistributed subsidiary earnings
|
|
|
(18 |
) |
|
|
(18 |
) |
Total deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
property basis differences
|
|
|
(448 |
) |
|
|
(482 |
) |
|
|
|
|
|
|
|
Total net deferred tax liabilities
|
|
$ |
(51 |
) |
|
$ |
(112 |
) |
|
|
|
|
|
|
|
At December 31, 2005, we had $299 million of tax
assets for net operating loss and tax credit carryforwards
related to certain international subsidiaries, some of which are
subject to expiration beginning in 2006. A valuation allowance
totaling $247 million has been recorded against these and
other deferred tax assets where recovery of the asset or
carryforward is uncertain. In addition, we had $155 million
of Federal and state tax assets for net operating loss and tax
credit carryforwards, some of which are subject to expiration
beginning in 2006. A full valuation allowance has also been
recorded against these deferred tax assets as recovery is
uncertain.
No provision for Federal income tax or foreign withholding tax
on undistributed earnings of international subsidiaries of
$1,839 million is required because the amount has been or
will be reinvested in properties and plants and working capital.
It is not practicable to calculate the deferred taxes associated
with the remittance of these investments.
On June 30, 2005, the State of Ohio enacted significant
changes to its tax system that will be phased in over a five
year period including repealing the Corporate Ohio Franchise/
Income Tax, repealing the Tangible Personal Property Tax on
business equipment, inventory and fixtures, and enacted a new
commercial activity tax based on Ohio gross receipts. The effect
of these changes is not expected to have a material impact on
our results of operations, financial position or liquidity.
The American Job Creation Act of 2004 was signed into law in
October 2004 and replaces an export incentive with a deduction
from domestic manufacturing income. As we are both an exporter
and a domestic manufacturer and in a U.S. tax loss
position, this change did not have a material impact on our
income tax provision for 2005. It also provides for a special
one-time tax deduction of 85% of certain foreign earnings that
were repatriated no later than 2005. We evaluated the effects of
this provision in light of our 2005 U.S. loss position and
determined not to repatriate under the provisions of the Act as
it would not provide a tax benefit to us.
F-47
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13. |
Income Taxes (continued) |
Net cash payments for income taxes were $239 million,
$201 million and $73 million in 2005, 2004 and 2003,
respectively.
|
|
Note 14. |
Interest Expense |
Interest expense includes interest and amortization of debt
discounts, less amounts capitalized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Interest expense before capitalization
|
|
$ |
418 |
|
|
$ |
376 |
|
|
$ |
304 |
|
Capitalized interest
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
411 |
|
|
$ |
369 |
|
|
$ |
296 |
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest were $401 million,
$357 million and $283 million in 2005, 2004 and 2003,
respectively.
|
|
Note 15. |
Business Segments |
Segment information reflects our strategic business units
(SBUs), which are organized to meet customer requirements and
global competition.
Effective January 1, 2005 our former Chemical Products
Segment was integrated into North American Tire. Intercompany
sales from Chemical Products to other segments are no longer
reflected in our segment sales. In addition, segment operating
income from intercompany sales from Chemical Products to other
segments is no longer reflected in our total segment operating
income.
The Tire business is comprised of five regional SBUs. Engineered
Products is managed on a global basis. Segment information is
reported on the basis used for reporting to our Chairman of the
Board, Chief Executive Officer and President.
Each of the five regional tire business segments is involved in
the development, manufacture, distribution and sale of tires.
Certain of the tire business segments also provide related
products and services, which include retreads, automotive repair
services and merchandise purchased for resale.
North American Tire provides OE and replacement tires for autos,
motorcycles, trucks, aviation and construction applications in
the United States, Canada and export markets. North American
Tire also provides related products and services including tread
rubber, tubes, retreaded tires, automotive repair services and
merchandise purchased for resale. North American Tire
information in 2005 and 2004 includes T&WA, which was
consolidated effective January 1, 2004 pursuant to
FIN 46. Refer to Note 7.
European Union Tire provides OE and replacement tires for autos,
motorcycles, trucks, farm and construction applications in
Western Europe and export markets. European Union Tire also
provides related products and services including tread rubber,
retread truck and aviation tires, automotive repair services and
merchandise purchased for resale.
Eastern Europe, Middle East and Africa Tire provides OE and
replacement tires for autos, trucks, farm, bicycle, construction
and mining applications in Eastern Europe, the Middle East,
Africa and export markets.
Latin American Tire provides OE and replacement tires for autos,
trucks, tractors, aviation and construction applications in
Central and South America, Mexico and export markets. Latin
American Tire also provides related products and services
including tread rubber, retreaded tires, automotive repair
services and merchandise purchased for resale.
F-48
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15. |
Business Segments (continued) |
Asia Pacific Tire provides OE and replacement tires for autos,
trucks, farm, aviation and construction applications in Asia,
the Pacific and export markets. Asia Pacific Tire also provides
related products and services including tread rubber, retread
aviation tires, automotive repair services and merchandise
purchased for resale. Asia Pacific Tire information in 2005 and
2004 includes SPT, which was consolidated effective
January 1, 2004 pursuant to FIN 46. Refer to
Note 21.
Engineered Products develops, manufactures and sells belts,
hoses, molded products, airsprings, tank tracks and other
products for OE and replacement transportation applications and
industrial markets worldwide.
F-49
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15. |
Business Segments (continued) |
The following table presents segment sales and operating income,
and the reconciliation of segment operating income to Income
(Loss) before Income Taxes and Cumulative Effect of Accounting
Change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire
|
|
$ |
9,091 |
|
|
$ |
8,569 |
|
|
$ |
7,279 |
|
|
European Union Tire
|
|
|
4,676 |
|
|
|
4,476 |
|
|
|
3,922 |
|
|
Eastern Europe, Middle East and Africa Tire
|
|
|
1,437 |
|
|
|
1,279 |
|
|
|
1,073 |
|
|
Latin American Tire
|
|
|
1,466 |
|
|
|
1,245 |
|
|
|
1,041 |
|
|
Asia Pacific Tire
|
|
|
1,423 |
|
|
|
1,312 |
|
|
|
582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tires
|
|
|
18,093 |
|
|
|
16,881 |
|
|
|
13,897 |
|
|
Engineered Products
|
|
|
1,630 |
|
|
|
1,472 |
|
|
|
1,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Sales
|
|
$ |
19,723 |
|
|
$ |
18,353 |
|
|
$ |
15,102 |
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire
|
|
$ |
167 |
|
|
$ |
74 |
|
|
$ |
(103 |
) |
|
European Union Tire
|
|
|
317 |
|
|
|
253 |
|
|
|
130 |
|
|
Eastern Europe, Middle East and Africa Tire
|
|
|
198 |
|
|
|
194 |
|
|
|
147 |
|
|
Latin American Tire
|
|
|
295 |
|
|
|
251 |
|
|
|
149 |
|
|
Asia Pacific Tire
|
|
|
84 |
|
|
|
60 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tires
|
|
|
1,061 |
|
|
|
832 |
|
|
|
372 |
|
|
Engineered Products
|
|
|
103 |
|
|
|
114 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Operating Income
|
|
|
1,164 |
|
|
|
946 |
|
|
|
419 |
|
|
Rationalizations and asset sales
|
|
|
(47 |
) |
|
|
(60 |
) |
|
|
(316 |
) |
|
Accelerated depreciation, asset impairment and asset write-offs
|
|
|
(5 |
) |
|
|
(10 |
) |
|
|
(133 |
) |
|
Interest expense
|
|
|
(411 |
) |
|
|
(369 |
) |
|
|
(296 |
) |
|
Foreign currency exchange
|
|
|
(22 |
) |
|
|
(23 |
) |
|
|
(41 |
) |
|
Minority interest in net income of subsidiaries
|
|
|
(95 |
) |
|
|
(58 |
) |
|
|
(33 |
) |
|
Financing fees and financial instruments
|
|
|
(109 |
) |
|
|
(117 |
) |
|
|
(99 |
) |
|
General and product liability discontinued products
|
|
|
(9 |
) |
|
|
(53 |
) |
|
|
(138 |
) |
|
Recovery (expense) for fire loss deductibles
|
|
|
14 |
|
|
|
(12 |
) |
|
|
|
|
|
Professional fees associated with the restatement
|
|
|
(4 |
) |
|
|
(30 |
) |
|
|
(6 |
) |
|
Professional fees associated with Sarbanes-Oxley
|
|
|
(4 |
) |
|
|
(18 |
) |
|
|
|
|
|
Expenses for environmental remediation at non-operating sites
|
|
|
(8 |
) |
|
|
(12 |
) |
|
|
|
|
|
Environmental insurance recoveries
|
|
|
29 |
|
|
|
157 |
|
|
|
|
|
|
Other
|
|
|
(4 |
) |
|
|
(18 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes and Cumulative Effect of
Accounting Change
|
|
$ |
489 |
|
|
$ |
323 |
|
|
$ |
(690 |
) |
|
|
|
|
|
|
|
|
|
|
F-50
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15. |
Business Segments (continued) |
The following table presents segment assets at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Assets
|
|
|
|
|
|
|
|
|
|
North American Tire
|
|
$ |
5,438 |
|
|
$ |
5,504 |
|
|
European Union Tire
|
|
|
3,690 |
|
|
|
4,056 |
|
|
Eastern Europe, Middle East and Africa Tire
|
|
|
1,227 |
|
|
|
1,315 |
|
|
Latin American Tire
|
|
|
900 |
|
|
|
846 |
|
|
Asia Pacific Tire
|
|
|
1,126 |
|
|
|
1,154 |
|
|
|
|
|
|
|
|
|
|
Total Tires
|
|
|
12,381 |
|
|
|
12,875 |
|
|
Engineered Products
|
|
|
799 |
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
Total Segment Assets
|
|
|
13,180 |
|
|
|
13,639 |
|
|
Corporate
|
|
|
2,447 |
|
|
|
2,462 |
|
|
|
|
|
|
|
|
|
|
$ |
15,627 |
|
|
$ |
16,101 |
|
|
|
|
|
|
|
|
Results of operations are measured based on net sales to
unaffiliated customers and segment operating income. Segment
operating income includes transfers to other SBUs. Segment
operating income is computed as follows: Net Sales less CGS
(excluding accelerated depreciation charges and asset impairment
charges) and SAG (including certain allocated corporate
administrative expenses). Segment operating income also includes
equity in (earnings) losses of most unconsolidated
affiliates. Equity in (earnings) losses of certain
unconsolidated affiliates, including SPT (in 2003) and
Rubbernetwork.com, are not included in segment operating income.
Segment operating income does not include rationalization
charges (credits) and certain other items. Segment assets
include those assets under the management of the SBU.
For 2003, results of operations of SPT and T&WA were not
reported in segment results, but were reflected in our
Consolidated Statements of Operations using the equity method.
The following table presents segment investments in and advances
to affiliates at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Investments in and Advances to Affiliates
|
|
|
|
|
|
|
|
|
|
North American Tire
|
|
$ |
16 |
|
|
$ |
14 |
|
|
European Union Tire
|
|
|
3 |
|
|
|
2 |
|
|
Eastern Europe, Middle East and Africa Tire
|
|
|
3 |
|
|
|
3 |
|
|
Asia Pacific Tire
|
|
|
13 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
Total Segment Investments in and Advances to Affiliates
|
|
|
35 |
|
|
|
35 |
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35 |
|
|
$ |
35 |
|
|
|
|
|
|
|
|
The following table presents 100% of the sales and operating
income of SPT for 2003:
|
|
|
|
|
|
|
2003 | |
(In millions) |
|
| |
Net Sales
|
|
$ |
640 |
|
Operating Income
|
|
|
8 |
|
F-51
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15. |
Business Segments (continued) |
SPT operating income did not include net rationalization charges
of approximately $9 million in 2003. SPT debt totaled
$255 million at December 31, 2003, of which
$72 million was payable to Goodyear. Refer to Note 21.
The following table presents geographic information. Net sales
by country were determined based on the location of the selling
subsidiary. Long-lived assets consisted of properties and
plants. Management did not consider the net sales or long-lived
assets of individual countries outside the United States to be
significant to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
9,048 |
|
|
$ |
8,459 |
|
|
$ |
7,194 |
|
|
International
|
|
|
10,675 |
|
|
|
9,894 |
|
|
|
7,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,723 |
|
|
$ |
18,353 |
|
|
$ |
15,102 |
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
2,313 |
|
|
$ |
2,407 |
|
|
|
|
|
|
International
|
|
|
2,866 |
|
|
|
3,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,179 |
|
|
$ |
5,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portions of the items described in Note 2, Costs Associated
with Rationalization Programs, and Note 3, Other (Income)
and Expense, were not charged (credited) to the SBUs for
performance evaluation purposes but were attributable to the
SBUs as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Rationalizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire
|
|
$ |
(8 |
) |
|
$ |
9 |
|
|
$ |
192 |
|
|
European Union Tire
|
|
|
8 |
|
|
|
23 |
|
|
|
54 |
|
|
Eastern Europe, Middle East and Africa Tire
|
|
|
9 |
|
|
|
4 |
|
|
|
|
|
|
Latin American Tire
|
|
|
|
|
|
|
(2 |
) |
|
|
10 |
|
|
Asia Pacific Tire
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tires
|
|
|
7 |
|
|
|
34 |
|
|
|
256 |
|
|
Engineered Products
|
|
|
4 |
|
|
|
23 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Rationalizations
|
|
|
11 |
|
|
|
57 |
|
|
|
285 |
|
|
Corporate
|
|
|
|
|
|
|
(1 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11 |
|
|
$ |
56 |
|
|
$ |
291 |
|
|
|
|
|
|
|
|
|
|
|
F-52
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15. |
Business Segments (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Other (Income) and Expense(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire
|
|
$ |
43 |
|
|
$ |
13 |
|
|
$ |
4 |
|
|
European Union Tire
|
|
|
(5 |
) |
|
|
(6 |
) |
|
|
1 |
|
|
Eastern Europe, Middle East and Africa Tire
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Latin American Tire
|
|
|
(1 |
) |
|
|
|
|
|
|
(2 |
) |
|
Asia Pacific Tire
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Tires
|
|
|
38 |
|
|
|
7 |
|
|
|
1 |
|
|
Engineered Products
|
|
|
|
|
|
|
(3 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Other (Income) and Expense
|
|
|
38 |
|
|
|
4 |
|
|
|
7 |
|
|
Corporate
|
|
|
21 |
|
|
|
4 |
|
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
59 |
|
|
$ |
8 |
|
|
$ |
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Excludes equity in (earnings) losses of affiliates and
foreign currency exchange. |
The following table presents segment capital expenditures,
depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire
|
|
$ |
237 |
|
|
$ |
176 |
|
|
$ |
153 |
|
|
European Union Tire
|
|
|
126 |
|
|
|
103 |
|
|
|
87 |
|
|
Eastern Europe, Middle East and Africa Tire
|
|
|
51 |
|
|
|
56 |
|
|
|
41 |
|
|
Latin American Tire
|
|
|
72 |
|
|
|
65 |
|
|
|
35 |
|
|
Asia Pacific Tire
|
|
|
70 |
|
|
|
66 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tires
|
|
|
556 |
|
|
|
466 |
|
|
|
365 |
|
|
Engineered Products
|
|
|
33 |
|
|
|
30 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Capital Expenditures
|
|
|
589 |
|
|
|
496 |
|
|
|
384 |
|
|
Corporate
|
|
|
45 |
|
|
|
33 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
634 |
|
|
$ |
529 |
|
|
$ |
405 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Tire
|
|
$ |
296 |
|
|
$ |
303 |
|
|
$ |
314 |
|
|
European Union Tire
|
|
|
121 |
|
|
|
130 |
|
|
|
120 |
|
|
Eastern Europe, Middle East and Africa Tire
|
|
|
45 |
|
|
|
46 |
|
|
|
44 |
|
|
Latin American Tire
|
|
|
29 |
|
|
|
24 |
|
|
|
20 |
|
|
Asia Pacific Tire
|
|
|
55 |
|
|
|
52 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tires
|
|
|
546 |
|
|
|
555 |
|
|
|
529 |
|
|
Engineered Products
|
|
|
36 |
|
|
|
33 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Depreciation and Amortization
|
|
|
582 |
|
|
|
588 |
|
|
|
568 |
|
|
Corporate
|
|
|
48 |
|
|
|
41 |
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
630 |
|
|
$ |
629 |
|
|
$ |
692 |
|
|
|
|
|
|
|
|
|
|
|
F-53
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15. |
Business Segments (continued) |
Out-of-period
adjustments totaled $8 million in after-tax income in the
fourth quarter of 2005 and primarily related to income taxes. Of
this amount, $3 million relates to prior quarters of 2005.
For the year ended December 31, 2005 we recorded
approximately $3 million in net after-tax expense relating
to prior periods.
|
|
Note 16. |
Accumulated Other Comprehensive Loss |
The components of Accumulated Other Comprehensive Income (Loss)
follow:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Foreign currency translation adjustment
|
|
$ |
(910 |
) |
|
$ |
(757 |
) |
Minimum pension liability adjustment
|
|
|
(1,927 |
) |
|
|
(1,830 |
) |
Unrealized investment gain
|
|
|
35 |
|
|
|
17 |
|
Deferred derivative gain
|
|
|
2 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
$ |
(2,800 |
) |
|
$ |
(2,564 |
) |
|
|
|
|
|
|
|
|
|
Note 17. |
Commitments and Contingent Liabilities |
At December 31, 2005, we had binding commitments for raw
materials and investments in land, buildings and equipment of
$1,288 million and off-balance-sheet financial guarantees
written and other commitments totaling $11 million.
At December 31, 2005 and 2004, we had recorded, in Other
current liabilities, $18 million and $18 million,
respectively, for potential claims under warranties offered by
us. Tire replacement under most of the warranties we offer is on
a prorated basis. Warranty reserves are based on past claims
experience, sales history and other considerations. The amount
of our ultimate liability in respect of these matters may differ
from these estimates.
The following table presents changes in the warranty reserve
during 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
Balance at January 1
|
|
$ |
18 |
|
|
$ |
13 |
|
|
Payments made during the period
|
|
|
(38 |
) |
|
|
(28 |
) |
|
Expense recorded during the period
|
|
|
39 |
|
|
|
31 |
|
|
Translation adjustment
|
|
|
(1 |
) |
|
|
|
|
|
FIN 46 impact
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
18 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
We had recorded liabilities totaling $43 million and
$40 million at December 31, 2005 and 2004,
respectively, for anticipated costs related to various
environmental matters, primarily the remediation of
F-54
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 17. |
Commitments and Contingent Liabilities (continued) |
numerous waste disposal sites and certain properties sold by us.
Of these amounts, $12 million and $9 million were
included in Other current liabilities at December 31, 2005
and 2004, respectively. The costs include:
|
|
|
|
|
legal and consulting fees, |
|
|
|
site studies, |
|
|
|
the design and implementation of remediation plans, and |
|
|
|
post-remediation monitoring and related activities. |
These costs will be paid over several years. The amount of our
ultimate liability in respect of these matters may be affected
by several uncertainties, primarily the ultimate cost of
required remediation and the extent to which other responsible
parties contribute. During 2004, we reached a settlement with
certain insurance companies under which we will receive
approximately $159 million. We have received
$116 million in 2005 with the balance due in 2006. A
significant portion of the costs incurred by us related to these
claims had been recorded in prior years. See
Asbestos below for information regarding insurance
settlements completed during the second and third quarters of
2005 related to both asbestos and environmental matters.
We had recorded liabilities, on a discounted basis, totaling
$250 million and $231 million for anticipated costs
related to workers compensation at December 31, 2005
and December 31, 2004, respectively. Of these amounts,
$103 million and $99 million were included in Current
Liabilities as part of Compensation and benefits at
December 31, 2005 and December 31, 2004, respectively.
The costs include an estimate of expected settlements on pending
claims, defense costs and a provision for claims incurred but
not reported. These estimates are based on our assessment of
potential liability using an analysis of available information
with respect to pending claims, historical experience, and
current cost trends. The amount of our ultimate liability in
respect of these matters may differ from these estimates. We
periodically update our loss development factors based on
actuarial analyses. The increase in the liability from 2004 to
2005 was due primarily to an increase in reserves for existing
claims and revised actuarial estimates of our ultimate
liability. At December 31, 2005 and 2004, the liability was
discounted using the risk-free rate of return.
|
|
|
General and Product Liability and Other Litigation |
We had recorded liabilities totaling $467 million at
December 31, 2005 and $549 million at
December 31, 2004 for potential product liability and other
tort claims, including related legal fees expected to be
incurred. Of these amounts, $247 million and
$266 million were included in Other current liabilities at
December 31, 2005 and 2004, respectively. The amounts
recorded were estimated based on an assessment of potential
liability using an analysis of available information with
respect to pending claims, historical experience and, where
available, recent and current trends. We had recorded insurance
receivables for potential product liability and other tort
claims of $53 million at December 31, 2005 and
$117 million at December 31, 2004. Of these amounts,
$9 million and $14 million were included in Current
Assets as part of Accounts and notes receivable at
December 31, 2005 and 2004, respectively.
Asbestos. We are a defendant in numerous lawsuits
alleging various asbestos-related personal injuries purported to
result from alleged exposure to asbestos in certain rubber
encapsulated products or aircraft braking systems manufactured
by us in the past, or to asbestos in certain of our facilities.
Typically, these lawsuits have been brought against multiple
defendants in state and Federal courts. To date, we have
disposed of approximately 34,700 claims by defending and
obtaining the dismissal thereof or by entering into a
settlement. The sum of our accrued asbestos-related liability
and gross payments to date, including legal costs, totaled
approximately $233 million through December 31, 2005
and $226 million through December 31, 2004.
F-55
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 17. |
Commitments and Contingent Liabilities (continued) |
A summary of approximate asbestos claims activity in recent
years follows. Because claims are often filed and disposed of by
dismissal or settlement in large numbers, the amount and timing
of settlements and the number of open claims during a particular
period can fluctuate significantly.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(Dollars in millions) |
|
| |
|
| |
|
| |
Pending claims, beginning of year
|
|
|
127,300 |
|
|
|
118,000 |
|
|
|
99,700 |
|
New claims filed during the year
|
|
|
6,200 |
|
|
|
12,700 |
|
|
|
26,700 |
|
Claims settled/dismissed during the year
|
|
|
(8,000 |
) |
|
|
(3,400 |
) |
|
|
(8,400 |
) |
|
|
|
|
|
|
|
|
|
|
Pending claims, end of year
|
|
|
125,500 |
|
|
|
127,300 |
|
|
|
118,000 |
|
|
|
|
|
|
|
|
|
|
|
Payments(1)
|
|
$ |
22 |
|
|
$ |
30 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents amount spent by us and our insurers on asbestos
litigation defense and claim resolution. |
We engaged an independent asbestos valuation firm to review our
existing reserves for pending claims, provide a reasonable
estimate of the liability associated with unasserted asbestos
claims, and determine our receivables from probable insurance
recoveries.
We had recorded gross liabilities for both asserted and
unasserted claims, inclusive of defense costs, totaling
$104 million and $119 million at December 31,
2005 and 2004, respectively. The recorded liability represents
our estimated liability over the next four years, which
represents the period over which the liability can be reasonably
estimated. Due to the difficulties in making these estimates,
analysis based on new data and/or a change in circumstances
arising in the future could result in an increase in the
recorded obligation in an amount that cannot be reasonably
estimated, and that increase could be significant. The portion
of the liability associated with unasserted asbestos claims and
related defense costs was $31 million at December 31,
2005 and $38 million at December 31, 2004. At
December 31, 2005, our liability with respect to asserted
claims and related defense costs was $73 million, compared
to $81 million at December 31, 2004.
We maintain primary insurance coverage under
coverage-in-place
agreements, and also have excess liability insurance with
respect to asbestos liabilities. We have instituted coverage
actions against certain of these excess carriers. After
consultation with our outside legal counsel and giving
consideration to relevant factors including the ongoing legal
proceedings with certain of our excess coverage insurance
carriers, their financial viability, their legal obligations and
other pertinent facts, we determine an amount we expect is
probable of recovery from such carriers. We record a receivable
with respect to such policies when we determine that recovery is
probable and we can reasonably estimate the amount of a
particular recovery.
Based upon a model employed by the valuation firm, as of
December 31, 2005, (i) we had recorded a receivable
related to asbestos claims of $53 million, compared to
$108 million at December 31, 2004, and (ii) we
expect that approximately 50% of asbestos claim related losses
would be recoverable up to our accessible policy limits through
the period covered by the estimated liability. Of this amount,
$9 million was included in Current Assets as part of
Accounts and notes receivable at December 31, 2005 and
2004. The receivable recorded consists of an amount we expect to
collect under
coverage-in-place
agreements with certain primary carriers as well as an amount we
believe is probable of recovery from certain of our excess
coverage insurance carriers. During the second quarter of 2005,
as a result of a court determination, we further refined our
method of allocating losses to excess coverage policies,
resulting in a reduction in available insurance coverage over
the period covered by the estimated liability. The recorded
receivable also declined during the second and third quarters
due to settlements with certain excess insurance carriers, as
discussed below.
F-56
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 17. |
Commitments and Contingent Liabilities (continued) |
We believe that, at December 31, 2005, we had approximately
$179 million in aggregate limits of excess level policies
potentially applicable to indemnity payments for asbestos
products claims, in addition to limits of available primary
insurance policies. Some of these excess policies provide for
payment of defense costs in addition to indemnity limits. A
portion of the availability of the excess level policies is
included in the $53 million insurance receivable recorded
at December 31, 2005. We also had approximately
$20 million in aggregate limits for products claims, as
well as coverage for premise claims on a per occurrence basis
and defense costs, available with our primary insurance carriers
through
coverage-in-place
agreements at December 31, 2005.
We reached an agreement effective April 13, 2005, to settle
our claims for insurance coverage for asbestos and pollution
related liabilities with respect to
pre-1993 insurance
policies issued by certain underwriters at Lloyds, London,
and reinsured by Equitas. The settlement agreement generally
provides for the payment of money to us in exchange for the
release by us of past, present and future claims under those
policies and the cancellation of those policies; agreement by us
to indemnify the underwriters from claims asserted under those
policies; and includes provisions addressing the impact on the
settlement should federal asbestos reform legislation be enacted
on or before January 3, 2007.
Under the agreement, Equitas paid $22 million to us and
placed $39 million into a trust. The trust funds may be
used to reimburse us for a portion of costs we incur in the
future to resolve certain asbestos claims. Our ability to use
any of the trust funds is subject to specified confidential
criteria, as well as limits on the amount that may be drawn from
the trust in any one month. If federal asbestos reform
legislation is enacted into law on or prior to January 3,
2007, then the trust would repay Equitas any amount it is
required to pay with respect to our asbestos liabilities as a
result of such legislation up to the amount remaining in the
trust at that time. If such legislation is not enacted by that
date, any funds remaining in the trust will be disbursed to us
to enable us to meet future asbestos-related liabilities or for
other purposes.
We also reached an agreement effective July 27, 2005, to
settle our claims for insurance coverage for asbestos and
pollution related liabilities with respect to insurance policies
issued by certain other non-Equitas excess insurance carriers
which participated in policies issued in the London Market. The
settlement agreement generally provided for the payment of
$25 million to us in exchange for the release by us of
past, present and future claims under those policies and the
cancellation of those policies; and agreement by us to indemnify
the underwriters from claims asserted under those policies.
We believe that our reserve for asbestos claims, and the
receivable for recoveries from insurance carriers recorded in
respect of these claims, reflect reasonable and probable
estimates of these amounts, subject to the exclusion of claims
for which it is not feasible to make reasonable estimates. The
estimate of the assets and liabilities related to pending and
expected future asbestos claims and insurance recoveries is
subject to numerous uncertainties, including, but not limited
to, changes in:
|
|
|
|
|
the litigation environment, |
|
|
|
Federal and state law governing the compensation of asbestos
claimants, |
|
|
|
recoverability of receivables due to potential insolvency of
carriers, |
|
|
|
our approach to defending and resolving claims, and |
|
|
|
the level of payments made to claimants from other sources,
including other defendants. |
As a result, with respect to both asserted and unasserted
claims, it is reasonably possible that we may incur a material
amount of cost in excess of the current reserve, however, such
amount cannot be reasonably
F-57
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 17. |
Commitments and Contingent Liabilities (continued) |
estimated. Coverage under insurance policies is subject to
varying characteristics of asbestos claims including, but not
limited to, the type of claim (premise vs. product exposure),
alleged date of first exposure to our products or premises and
disease alleged. Depending upon the nature of these
characteristics, as well as the resolution of certain legal
issues, some portion of the insurance may not be accessible by
us.
Heatway (Entran II). On June 4, 2004, we
entered into an amended settlement agreement that was intended
to address the claims arising out of a number of Federal, state
and Canadian actions filed against us involving a rubber hose
product, Entran II. We supplied Entran II from 1989 to
1993 to Chiles Power Supply, Inc. (d/b/a Heatway Systems), a
designer and seller of hydronic radiant heating systems in the
United States. Heating systems using Entran II are
typically attached or embedded in either indoor flooring or
outdoor pavement, and use Entran II hose as a conduit to
circulate warm fluid as a source of heat. We had recorded
liabilities related to Entran II claims totaling
$248 million and $307 million at December 31,
2005 and 2004, respectively.
On October 19, 2004, the amended settlement received court
approval. As a result, we have made, or will make annual cash
contributions to a settlement fund of $60 million,
$40 million, $15 million, $15 million and
$20 million in 2004, 2005, 2006, 2007 and 2008,
respectively. In addition to these annual payments, we
contributed approximately $174 million received from
insurance contributions to the settlement fund pursuant to the
terms of the settlement agreement. We do not expect to receive
any additional insurance reimbursements for Entran II
related matters.
Forty-one sites remain opted-out of the amended settlement. One
action involving approximately nine of these sites is currently
pending against us, and additional actions may be filed against
us in the future. Although any liability resulting from the
opt-outs will not be covered by the amended settlement, we will
be entitled to assert a proxy claim against the settlement fund
for the payment such claimant would have been entitled to under
the amended settlement.
In addition to the sites that have been opted-out of the amended
settlement, any liability related to six actions in which we
have received adverse judgments also will not be covered by the
amended settlement. With respect to three of these matters,
however, we will be entitled to assert a proxy claim against the
settlement fund for amounts (if any) paid to plaintiffs in these
actions.
The ultimate cost of disposing of Entran II claims is
dependent upon a number of factors, including our ability to
resolve claims not subject to the amended settlement (including
the cases in which we have received adverse judgments), the
extent to which the liability, if any, associated with such a
claim may be offset by our ability to assert a proxy claim
against the settlement fund and whether or not claimants
opting-out of the amendment settlement pursue claims against us
in the future.
Other Actions. We are currently a party to various claims
and legal proceedings in addition to those noted above. If
management believes that a loss arising from these matters is
probable and can reasonably be estimated, we record the amount
of the loss, or the minimum estimated liability when the loss is
estimated using a range, and no point within the range is more
probable than another. As additional information becomes
available, any potential liability related to these matters is
assessed and the estimates are revised, if necessary. Based on
currently available information, management believes that the
ultimate outcome of these matters, individually and in the
aggregate, will not have a material adverse effect on our
financial position or overall trends in results of operations.
However, litigation is subject to inherent uncertainties, and
unfavorable rulings could occur. An unfavorable ruling could
include monetary damages or an injunction prohibiting us from
selling one or more products. If an unfavorable ruling were to
occur, there exists the possibility of a material adverse impact
on the financial position and results of operations of the
period in which the ruling occurs, or future periods.
F-58
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 17. |
Commitments and Contingent Liabilities (continued) |
The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We
recognize liabilities for anticipated tax audit issues based on
our estimate of whether, and the extent to which, additional
taxes will be due. If we ultimately determine that payment of
these amounts is unnecessary, we reverse the liability and
recognize a tax benefit during the period in which we determine
that the liability is no longer necessary. We also recognize tax
benefits to the extent that it is probable that our positions
will be sustained when challenged by the taxing authorities. As
of December 31, 2005 we had not recognized tax benefits of
approximately $157 million ($118 million net of
minority interests) relating to the reorganization of legal
entities in 2001, which is now the subject of a tax examination
that could be settled in 2006. Pursuant to the reorganization,
our tax payments have been reduced by approximately
$67 million through December 31, 2005. Should the
ultimate outcome be unfavorable, we would be required to make a
cash payment, with interest, for all tax benefits claimed as of
that date.
Beginning in 2006 we will be working with the United Steel
Workers (USW) to extend or renegotiate the master
collective bargaining agreement that covers approximately 13,600
employees in the United States and expires in July 2006. The
outcome of these collective bargaining negotiations cannot
presently be determined. If we are unable to reach an agreement
with the USW regarding the terms of a collective bargaining
agreement, we may be subject to work interruptions or stoppages
that could have a material adverse impact on our consolidated
results of operations, financial position and liquidity.
We are a party to various agreements under which we have
undertaken obligations resulting from the issuance of certain
guarantees. Guarantees have been issued on behalf of certain of
our affiliates and customers. Normally there is no separate
premium received by us as consideration for the issuance of
guarantees. Our performance under these guarantees would
normally be triggered by the occurrence of one or more events as
provided in the specific agreements. Collateral and recourse
provisions available to us under these agreements were not
significant.
Certain of our subsidiaries guarantee certain debt obligations
of SPT and T&WA. Goodyear, Goodyear Australia Limited, a
wholly-owned subsidiary of Goodyear, and certain subsidiaries of
Goodyear Australia Limited guarantee SPTs obligations
under credit facilities in the amount of $108 million,
which expire at various times through 2007. The maximum
potential amount of payments totaled $42 million. The
guarantees are unsecured. The SPT credit facilities are secured
by certain subsidiaries of SPT. As of December 31, 2005,
the carrying amount of the secured assets of these certain
subsidiaries was $199 million, consisting primarily of
accounts receivable, inventory and fixed assets. We guarantee an
industrial revenue bond obligation of T&WA in the amount of
$5 million. The guarantee is unsecured.
We will from time to time issue guarantees to financial
institutions on behalf of certain of our unconsolidated
affiliates or our customers. We generally do not require
collateral in connection with the issuance of these guarantees.
In the event of non-payment by an affiliate, we are obligated to
make payment to
F-59
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 17. |
Commitments and Contingent Liabilities (continued) |
the financial institution, and will typically have recourse to
the assets of that affiliate or customer. At December 31,
2005, we had affiliate and customer guarantees outstanding under
which the maximum potential amount of payments totaled
$2 million and $8 million, respectively. The affiliate
and customer guarantees expire at various times through 2008 and
2019, respectively. We are unable to estimate the extent to
which our affiliates or customers assets, in the
aggregate, would be adequate to recover the maximum amount of
potential payments with that affiliate or customer.
At December 31, 2005, we were a party to various agreements
under which we had assumed obligations to indemnify the
counterparties from certain potential claims and losses. These
agreements typically involve standard commercial activities
undertaken by us in the normal course of business; the sale of
assets by us; the formation of joint venture businesses to which
we had contributed assets in exchange for ownership interests;
and other financial transactions. Indemnifications provided by
us pursuant to these agreements relate to various matters
including, among other things, environmental, tax and
shareholder matters; intellectual property rights; government
regulations and employment-related matters; and dealer, supplier
and other commercial matters.
Certain indemnifications expire from time to time, and certain
other indemnifications are not subject to an expiration date. In
addition, our potential liability under certain indemnifications
is subject to maximum caps, while other indemnifications are not
subject to caps. Although we have been subject to
indemnification claims in the past, we cannot reasonably
estimate the number, type and size of indemnification claims
that may arise in the future. Due to these and other
uncertainties associated with the indemnifications, our maximum
exposure to loss under these agreements cannot be estimated.
We have determined that there are no guarantees other than
liabilities for which amounts are already recorded or reserved
in our consolidated financial statements under which it is
probable that we have incurred a liability.
|
|
Note 18. |
Consolidating Financial Information |
Certain of our subsidiaries have guaranteed Goodyears
obligations under the $650 million of Senior Secured Notes
issued in March 2004 and the $400 million aggregate
principal amount of 9% Senior Notes due 2015 issued on
June 23, 2005. The following presents the condensed
consolidating financial information separately for:
|
|
|
(i) The Goodyear Tire & Rubber Company (the
Parent Company), the issuer of the guaranteed
obligations; |
|
|
(ii) Guarantor subsidiaries, on a combined basis, as
specified in the Indenture related to Goodyears
obligations under the $650 million of Senior Secured Notes
issued on March 12, 2004 ($450 million of
11% Senior Secured Notes due 2011 and $200 million
Senior Secured Floating Rate Notes due 2011) and the Indenture
related to Goodyears obligation under the
$400 million aggregate principal amount of 9% Senior
Notes due 2015 issued on June 23, 2005 (the
Notes); |
|
|
(iii) Non-guarantor subsidiaries, on a combined basis; |
F-60
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18. |
Consolidating Financial Information (continued) |
|
|
|
(iv) Consolidating entries and eliminations representing
adjustments to (a) eliminate intercompany transactions
between or among the Parent Company, the guarantor subsidiaries
and the non-guarantor subsidiaries, (b) eliminate the
investments in our subsidiaries and (c) record
consolidating entries; and |
|
|
(v) The Goodyear Tire & Rubber Company and
Subsidiaries on a consolidated basis. |
Each guarantor subsidiary is 100% owned by the Parent Company at
the date of each balance sheet presented. The Notes are fully
and unconditionally guaranteed on a joint and several basis by
each guarantor subsidiary. Each entity in the consolidating
financial information follows the same accounting policies as
described in the consolidated financial statements, except for
using the equity method of accounting to reflect ownership
interests in subsidiaries which are eliminated upon
consolidation.
Certain non-guarantor subsidiaries of the Parent Company are
restricted from remitting funds to it by means of dividends,
advances or loans, primarily due to restrictions in credit
facility agreements entered into by those subsidiaries.
F-61
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18. |
Consolidating Financial Information (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Balance Sheet | |
|
|
December 31, 2005 | |
|
|
| |
|
|
|
|
Non- | |
|
Consolidating | |
|
|
|
|
Parent | |
|
Guarantor | |
|
Guarantor | |
|
Entries and | |
|
|
|
|
Company | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,066 |
|
|
$ |
35 |
|
|
$ |
1,077 |
|
|
$ |
|
|
|
$ |
2,178 |
|
|
Restricted cash
|
|
|
218 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
231 |
|
|
Accounts and notes receivable
|
|
|
1,137 |
|
|
|
238 |
|
|
|
1,783 |
|
|
|
|
|
|
|
3,158 |
|
|
Accounts and notes receivable from affiliates
|
|
|
|
|
|
|
667 |
|
|
|
|
|
|
|
(667 |
) |
|
|
|
|
|
Inventories
|
|
|
1,290 |
|
|
|
270 |
|
|
|
1,340 |
|
|
|
(38 |
) |
|
|
2,862 |
|
|
Prepaid expenses and other current assets
|
|
|
107 |
|
|
|
11 |
|
|
|
125 |
|
|
|
8 |
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
3,818 |
|
|
|
1,221 |
|
|
|
4,338 |
|
|
|
(697 |
) |
|
|
8,680 |
|
Goodwill
|
|
|
|
|
|
|
32 |
|
|
|
409 |
|
|
|
196 |
|
|
|
637 |
|
Intangible Assets
|
|
|
100 |
|
|
|
35 |
|
|
|
58 |
|
|
|
(34 |
) |
|
|
159 |
|
Deferred Income Tax
|
|
|
|
|
|
|
35 |
|
|
|
67 |
|
|
|
|
|
|
|
102 |
|
Deferred Pension Costs and Other Assets
|
|
|
632 |
|
|
|
43 |
|
|
|
195 |
|
|
|
|
|
|
|
870 |
|
Investments in Subsidiaries
|
|
|
4,011 |
|
|
|
469 |
|
|
|
3,195 |
|
|
|
(7,675 |
) |
|
|
|
|
Properties and Plants
|
|
|
2,018 |
|
|
|
296 |
|
|
|
2,845 |
|
|
|
20 |
|
|
|
5,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
10,579 |
|
|
$ |
2,131 |
|
|
$ |
11,107 |
|
|
$ |
(8,190 |
) |
|
$ |
15,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade
|
|
$ |
595 |
|
|
$ |
73 |
|
|
$ |
1,277 |
|
|
$ |
|
|
|
$ |
1,945 |
|
|
Accounts payable to affiliates
|
|
|
595 |
|
|
|
|
|
|
|
72 |
|
|
|
(667 |
) |
|
|
|
|
|
Compensation and benefits
|
|
|
785 |
|
|
|
50 |
|
|
|
286 |
|
|
|
|
|
|
|
1,121 |
|
|
Other current liabilities
|
|
|
483 |
|
|
|
11 |
|
|
|
177 |
|
|
|
|
|
|
|
671 |
|
|
United States and foreign taxes
|
|
|
65 |
|
|
|
31 |
|
|
|
297 |
|
|
|
|
|
|
|
393 |
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
233 |
|
|
Long term debt and capital leases due within one year
|
|
|
338 |
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,861 |
|
|
|
165 |
|
|
|
2,452 |
|
|
|
(667 |
) |
|
|
4,811 |
|
Long Term Debt and Capital Leases
|
|
|
4,118 |
|
|
|
1 |
|
|
|
623 |
|
|
|
|
|
|
|
4,742 |
|
Compensation and Benefits
|
|
|
3,117 |
|
|
|
200 |
|
|
|
1,163 |
|
|
|
|
|
|
|
4,480 |
|
Deferred and Other Noncurrent Income Taxes
|
|
|
86 |
|
|
|
5 |
|
|
|
206 |
|
|
|
7 |
|
|
|
304 |
|
Other Long Term Liabilities
|
|
|
324 |
|
|
|
9 |
|
|
|
93 |
|
|
|
|
|
|
|
426 |
|
Minority Equity in Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
606 |
|
|
|
185 |
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
10,506 |
|
|
|
380 |
|
|
|
5,143 |
|
|
|
(475 |
) |
|
|
15,554 |
|
Commitments and Contingent Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
177 |
|
|
|
617 |
|
|
|
4,285 |
|
|
|
(4,902 |
) |
|
|
177 |
|
Capital Surplus
|
|
|
1,398 |
|
|
|
5 |
|
|
|
869 |
|
|
|
(874 |
) |
|
|
1,398 |
|
Retained Earnings
|
|
|
1,298 |
|
|
|
1,483 |
|
|
|
2,240 |
|
|
|
(3,723 |
) |
|
|
1,298 |
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
(2,800 |
) |
|
|
(354 |
) |
|
|
(1,430 |
) |
|
|
1,784 |
|
|
|
(2,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity (Deficit)
|
|
|
73 |
|
|
|
1,751 |
|
|
|
5,964 |
|
|
|
(7,715 |
) |
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity (Deficit)
|
|
$ |
10,579 |
|
|
$ |
2,131 |
|
|
$ |
11,107 |
|
|
$ |
(8,190 |
) |
|
$ |
15,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18. |
Consolidating Financial Information (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Balance Sheet | |
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
Non- | |
|
Consolidating | |
|
|
|
|
Parent | |
|
Guarantor | |
|
Guarantor | |
|
Entries and | |
|
|
|
|
Company | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,004 |
|
|
$ |
50 |
|
|
$ |
914 |
|
|
$ |
|
|
|
$ |
1,968 |
|
|
Restricted cash
|
|
|
137 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
152 |
|
|
Accounts and notes receivable
|
|
|
1,209 |
|
|
|
203 |
|
|
|
1,986 |
|
|
|
|
|
|
|
3,398 |
|
|
Accounts and notes receivable from affiliates
|
|
|
|
|
|
|
612 |
|
|
|
|
|
|
|
(612 |
) |
|
|
|
|
|
Inventories
|
|
|
1,162 |
|
|
|
250 |
|
|
|
1,425 |
|
|
|
(53 |
) |
|
|
2,784 |
|
|
Prepaid expenses and other current assets
|
|
|
98 |
|
|
|
13 |
|
|
|
151 |
|
|
|
10 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
3,610 |
|
|
|
1,128 |
|
|
|
4,491 |
|
|
|
(655 |
) |
|
|
8,574 |
|
Goodwill
|
|
|
|
|
|
|
35 |
|
|
|
467 |
|
|
|
215 |
|
|
|
717 |
|
Intangible Assets
|
|
|
101 |
|
|
|
41 |
|
|
|
67 |
|
|
|
(40 |
) |
|
|
169 |
|
Deferred Income Tax
|
|
|
|
|
|
|
14 |
|
|
|
69 |
|
|
|
|
|
|
|
83 |
|
Deferred Pension Costs and Other Assets
|
|
|
843 |
|
|
|
44 |
|
|
|
218 |
|
|
|
|
|
|
|
1,105 |
|
Investments in Subsidiaries
|
|
|
3,943 |
|
|
|
465 |
|
|
|
3,080 |
|
|
|
(7,488 |
) |
|
|
|
|
Properties and Plants
|
|
|
2,088 |
|
|
|
332 |
|
|
|
3,009 |
|
|
|
24 |
|
|
|
5,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
10,585 |
|
|
$ |
2,059 |
|
|
$ |
11,401 |
|
|
$ |
(7,944 |
) |
|
$ |
16,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade
|
|
$ |
529 |
|
|
$ |
62 |
|
|
$ |
1,379 |
|
|
$ |
|
|
|
$ |
1,970 |
|
|
Accounts payable to affiliates
|
|
|
528 |
|
|
|
|
|
|
|
84 |
|
|
|
(612 |
) |
|
|
|
|
|
Compensation and benefits
|
|
|
648 |
|
|
|
46 |
|
|
|
335 |
|
|
|
|
|
|
|
1,029 |
|
|
Other current liabilities
|
|
|
426 |
|
|
|
9 |
|
|
|
283 |
|
|
|
|
|
|
|
718 |
|
|
United States and foreign taxes
|
|
|
63 |
|
|
|
31 |
|
|
|
151 |
|
|
|
|
|
|
|
245 |
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
227 |
|
|
|
|
|
|
|
227 |
|
|
Long term debt and capital leases due within one year
|
|
|
562 |
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
1,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,756 |
|
|
|
148 |
|
|
|
2,907 |
|
|
|
(612 |
) |
|
|
5,199 |
|
Long Term Debt and Capital Leases
|
|
|
4,010 |
|
|
|
2 |
|
|
|
431 |
|
|
|
|
|
|
|
4,443 |
|
Compensation and Benefits
|
|
|
3,323 |
|
|
|
156 |
|
|
|
1,166 |
|
|
|
|
|
|
|
4,645 |
|
Deferred and Other Noncurrent Income Taxes
|
|
|
31 |
|
|
|
7 |
|
|
|
355 |
|
|
|
9 |
|
|
|
402 |
|
Other Long Term Liabilities
|
|
|
391 |
|
|
|
18 |
|
|
|
86 |
|
|
|
|
|
|
|
495 |
|
Minority Equity in Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
629 |
|
|
|
214 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
10,511 |
|
|
|
331 |
|
|
|
5,574 |
|
|
|
(389 |
) |
|
|
16,027 |
|
Commitments and Contingent Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
176 |
|
|
|
669 |
|
|
|
4,191 |
|
|
|
(4,860 |
) |
|
|
176 |
|
Capital Surplus
|
|
|
1,392 |
|
|
|
12 |
|
|
|
866 |
|
|
|
(878 |
) |
|
|
1,392 |
|
Retained Earnings
|
|
|
1,070 |
|
|
|
1,318 |
|
|
|
2,087 |
|
|
|
(3,405 |
) |
|
|
1,070 |
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
(2,564 |
) |
|
|
(271 |
) |
|
|
(1,317 |
) |
|
|
1,588 |
|
|
|
(2,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity (Deficit)
|
|
|
74 |
|
|
|
1,728 |
|
|
|
5,827 |
|
|
|
(7,555 |
) |
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity (Deficit)
|
|
$ |
10,585 |
|
|
$ |
2,059 |
|
|
$ |
11,401 |
|
|
$ |
(7,944 |
) |
|
$ |
16,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18. |
Consolidating Financial Information (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Statements of Operations | |
|
|
Twelve Months Ended December 31, 2005 | |
|
|
| |
|
|
|
|
Non- | |
|
Consolidating | |
|
|
|
|
Parent | |
|
Guarantor | |
|
Guarantor | |
|
Entries and | |
|
|
|
|
Company | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
9,398 |
|
|
$ |
2,257 |
|
|
$ |
16,035 |
|
|
$ |
(7,967 |
) |
|
$ |
19,723 |
|
Cost of Goods Sold
|
|
|
8,377 |
|
|
|
1,980 |
|
|
|
13,556 |
|
|
|
(8,141 |
) |
|
|
15,772 |
|
Selling, Administrative and General Expense
|
|
|
1,134 |
|
|
|
197 |
|
|
|
1,553 |
|
|
|
(9 |
) |
|
|
2,875 |
|
Rationalizations
|
|
|
(1 |
) |
|
|
2 |
|
|
|
10 |
|
|
|
|
|
|
|
11 |
|
Interest Expense
|
|
|
365 |
|
|
|
37 |
|
|
|
186 |
|
|
|
(177 |
) |
|
|
411 |
|
Other (Income) and Expense
|
|
|
(77 |
) |
|
|
(58 |
) |
|
|
(139 |
) |
|
|
344 |
|
|
|
70 |
|
Minority Interest in Net Income of Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes, Equity in (Earnings) Loss
of Subsidiaries and Cumulative Effect of Accounting Change
|
|
|
(400 |
) |
|
|
99 |
|
|
|
774 |
|
|
|
16 |
|
|
|
489 |
|
United States and Foreign Taxes on Income (Loss)
|
|
|
(10 |
) |
|
|
14 |
|
|
|
244 |
|
|
|
2 |
|
|
|
250 |
|
Equity in (Earnings) Loss of Subsidiaries
|
|
|
(623 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting
Change
|
|
|
233 |
|
|
|
135 |
|
|
|
530 |
|
|
|
(659 |
) |
|
|
239 |
|
Cumulative Effect of Accounting Change, net of income taxes and
minority interest
|
|
|
(5 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
228 |
|
|
$ |
135 |
|
|
$ |
524 |
|
|
$ |
(659 |
) |
|
$ |
228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2004 | |
|
|
| |
|
|
|
|
Non- | |
|
Consolidating | |
|
|
|
|
Parent | |
|
Guarantor | |
|
Guarantor | |
|
Entries and | |
|
|
|
|
Company | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
8,728 |
|
|
$ |
2,120 |
|
|
$ |
14,902 |
|
|
$ |
(7,397 |
) |
|
$ |
18,353 |
|
Cost of Goods Sold
|
|
|
7,740 |
|
|
|
1,839 |
|
|
|
12,564 |
|
|
|
(7,452 |
) |
|
|
14,691 |
|
Selling, Administrative and General Expense
|
|
|
1,165 |
|
|
|
183 |
|
|
|
1,507 |
|
|
|
(22 |
) |
|
|
2,833 |
|
Rationalizations
|
|
|
41 |
|
|
|
(6 |
) |
|
|
21 |
|
|
|
|
|
|
|
56 |
|
Interest Expense
|
|
|
326 |
|
|
|
37 |
|
|
|
242 |
|
|
|
(236 |
) |
|
|
369 |
|
Other (Income) and Expense
|
|
|
(200 |
) |
|
|
2 |
|
|
|
(76 |
) |
|
|
297 |
|
|
|
23 |
|
Minority Interest in Net Income of Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
2 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes and Equity in (Earnings)
Loss of Subsidiaries
|
|
|
(344 |
) |
|
|
65 |
|
|
|
588 |
|
|
|
14 |
|
|
|
323 |
|
United States and Foreign Taxes on Income (Loss)
|
|
|
(53 |
) |
|
|
26 |
|
|
|
236 |
|
|
|
(1 |
) |
|
|
208 |
|
Equity in (Earnings) Loss of Subsidiaries
|
|
|
(406 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
115 |
|
|
$ |
69 |
|
|
$ |
352 |
|
|
$ |
(421 |
) |
|
$ |
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-64
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18. |
Consolidating Financial Information (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Statements of Operations | |
|
|
Twelve Months Ended December 31, 2003 | |
|
|
| |
|
|
|
|
Non- | |
|
Consolidating | |
|
|
|
|
Parent | |
|
Guarantor | |
|
Guarantor | |
|
Entries and | |
|
|
|
|
Company | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
7,798 |
|
|
$ |
1,950 |
|
|
$ |
11,599 |
|
|
$ |
(6,245 |
) |
|
$ |
15,102 |
|
Cost of Goods Sold
|
|
|
7,207 |
|
|
|
1,698 |
|
|
|
9,879 |
|
|
|
(6,303 |
) |
|
|
12,481 |
|
Selling, Administrative and General Expense
|
|
|
1,071 |
|
|
|
176 |
|
|
|
1,140 |
|
|
|
(13 |
) |
|
|
2,374 |
|
Rationalizations
|
|
|
75 |
|
|
|
15 |
|
|
|
201 |
|
|
|
|
|
|
|
291 |
|
Interest Expense
|
|
|
252 |
|
|
|
36 |
|
|
|
183 |
|
|
|
(175 |
) |
|
|
296 |
|
Other (Income) and Expense
|
|
|
6 |
|
|
|
10 |
|
|
|
(91 |
) |
|
|
392 |
|
|
|
317 |
|
Minority Interest in Net Income of Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes and Equity in (Earnings)
Loss of Subsidiaries
|
|
|
(813 |
) |
|
|
15 |
|
|
|
254 |
|
|
|
(146 |
) |
|
|
(690 |
) |
United States and Foreign Taxes on Income (Loss)
|
|
|
(38 |
) |
|
|
2 |
|
|
|
151 |
|
|
|
2 |
|
|
|
117 |
|
Equity in (Earnings) Loss of Subsidiaries
|
|
|
32 |
|
|
|
(17 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
(807 |
) |
|
$ |
30 |
|
|
$ |
103 |
|
|
$ |
(133 |
) |
|
$ |
(807 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18. |
Consolidating Financial Information (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows | |
|
|
Twelve Months Ended December 31, 2005 | |
|
|
| |
|
|
|
|
Non- | |
|
Consolidating | |
|
|
|
|
Parent | |
|
Guarantor | |
|
Guarantor | |
|
Entries and | |
|
|
|
|
Company | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES
|
|
$ |
190 |
|
|
$ |
46 |
|
|
$ |
1,028 |
|
|
$ |
(379 |
) |
|
$ |
885 |
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(249 |
) |
|
|
(16 |
) |
|
|
(362 |
) |
|
|
(7 |
) |
|
|
(634 |
) |
|
Asset dispositions
|
|
|
248 |
|
|
|
1 |
|
|
|
14 |
|
|
|
(6 |
) |
|
|
257 |
|
|
Asset acquisitions
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
6 |
|
|
|
(2 |
) |
|
Capital Contributions
|
|
|
(11 |
) |
|
|
|
|
|
|
(202 |
) |
|
|
213 |
|
|
|
|
|
|
Capital Redemptions
|
|
|
59 |
|
|
|
|
|
|
|
93 |
|
|
|
(152 |
) |
|
|
|
|
|
Increase in restricted cash
|
|
|
(81 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
(79 |
) |
|
Other transactions
|
|
|
5 |
|
|
|
(1 |
) |
|
|
14 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
(29 |
) |
|
|
(16 |
) |
|
|
(449 |
) |
|
|
54 |
|
|
|
(440 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt incurred
|
|
|
9 |
|
|
|
7 |
|
|
|
153 |
|
|
|
|
|
|
|
169 |
|
|
Short-term debt paid
|
|
|
|
|
|
|
|
|
|
|
(131 |
) |
|
|
|
|
|
|
(131 |
) |
|
Long-term debt incurred
|
|
|
1,921 |
|
|
|
|
|
|
|
368 |
|
|
|
|
|
|
|
2,289 |
|
|
Long-term debt paid
|
|
|
(1,969 |
) |
|
|
(1 |
) |
|
|
(420 |
) |
|
|
|
|
|
|
(2,390 |
) |
|
Common stock issued
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
Capital Contributions
|
|
|
|
|
|
|
|
|
|
|
207 |
|
|
|
(207 |
) |
|
|
|
|
|
Capital Redemptions
|
|
|
|
|
|
|
(51 |
) |
|
|
(97 |
) |
|
|
148 |
|
|
|
|
|
|
Dividends paid to minority interests in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(436 |
) |
|
|
384 |
|
|
|
(52 |
) |
|
Debt issuance costs
|
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
(99 |
) |
|
|
(45 |
) |
|
|
(356 |
) |
|
|
325 |
|
|
|
(175 |
) |
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
62 |
|
|
|
(15 |
) |
|
|
163 |
|
|
|
|
|
|
|
210 |
|
Cash and Cash Equivalents at Beginning of the Year
|
|
|
1,004 |
|
|
|
50 |
|
|
|
914 |
|
|
|
|
|
|
|
1,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of the Year
|
|
$ |
1,066 |
|
|
$ |
35 |
|
|
$ |
1,077 |
|
|
$ |
|
|
|
$ |
2,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18. |
Consolidating Financial Information (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows | |
|
|
Twelve Months Ended December 31, 2004 | |
|
|
| |
|
|
|
|
Non- | |
|
Consolidating | |
|
|
|
|
Parent | |
|
Guarantor | |
|
Guarantor | |
|
Entries and | |
|
|
|
|
Company | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES
|
|
$ |
208 |
|
|
$ |
42 |
|
|
$ |
854 |
|
|
$ |
(319 |
) |
|
$ |
785 |
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(174 |
) |
|
|
(12 |
) |
|
|
(343 |
) |
|
|
|
|
|
|
(529 |
) |
|
Asset dispositions
|
|
|
106 |
|
|
|
1 |
|
|
|
14 |
|
|
|
(102 |
) |
|
|
19 |
|
|
Asset acquisitions
|
|
|
(51 |
) |
|
|
|
|
|
|
(113 |
) |
|
|
102 |
|
|
|
(62 |
) |
|
Capital Contributions
|
|
|
(9 |
) |
|
|
(3 |
) |
|
|
(31 |
) |
|
|
43 |
|
|
|
|
|
|
Capital Redemptions
|
|
|
6 |
|
|
|
|
|
|
|
116 |
|
|
|
(122 |
) |
|
|
|
|
|
Increase in restricted cash
|
|
|
(119 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
(129 |
) |
|
Other transactions
|
|
|
33 |
|
|
|
|
|
|
|
14 |
|
|
|
3 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
(208 |
) |
|
|
(14 |
) |
|
|
(353 |
) |
|
|
(76 |
) |
|
|
(651 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt incurred
|
|
|
44 |
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
169 |
|
|
Short-term debt paid
|
|
|
|
|
|
|
(3 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
(191 |
) |
|
Long-term debt incurred
|
|
|
1,671 |
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
1,899 |
|
|
Long-term debt paid
|
|
|
(1,247 |
) |
|
|
|
|
|
|
(302 |
) |
|
|
|
|
|
|
(1,549 |
) |
|
Common stock issued
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Capital Contributions
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
(35 |
) |
|
|
|
|
|
Capital Redemptions
|
|
|
|
|
|
|
|
|
|
|
(117 |
) |
|
|
117 |
|
|
|
|
|
|
Dividends paid to minority interests in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(342 |
) |
|
|
313 |
|
|
|
(29 |
) |
|
Debt issuance costs
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
419 |
|
|
|
(3 |
) |
|
|
(561 |
) |
|
|
395 |
|
|
|
250 |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
419 |
|
|
|
25 |
|
|
|
(22 |
) |
|
|
|
|
|
|
422 |
|
Cash and Cash Equivalents at Beginning of the Year
|
|
|
585 |
|
|
|
25 |
|
|
|
936 |
|
|
|
|
|
|
|
1,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of the Year
|
|
$ |
1,004 |
|
|
$ |
50 |
|
|
$ |
914 |
|
|
$ |
|
|
|
$ |
1,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-67
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18. |
Consolidating Financial Information (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows | |
|
|
Twelve Months Ended December 31, 2003 | |
|
|
| |
|
|
|
|
Non- | |
|
Consolidating | |
|
|
|
|
Parent | |
|
Guarantor | |
|
Guarantor | |
|
Entries and | |
|
|
|
|
Company | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES
|
|
$ |
(700 |
) |
|
$ |
(67 |
) |
|
$ |
749 |
|
|
$ |
(251 |
) |
|
$ |
(269 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(179 |
) |
|
|
(5 |
) |
|
|
(215 |
) |
|
|
(6 |
) |
|
|
(405 |
) |
|
Short-term securities redeemed
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
27 |
|
|
Asset dispositions
|
|
|
368 |
|
|
|
|
|
|
|
19 |
|
|
|
(283 |
) |
|
|
104 |
|
|
Asset acquisitions
|
|
|
(71 |
) |
|
|
|
|
|
|
(282 |
) |
|
|
282 |
|
|
|
(71 |
) |
|
Capital Contributions
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
Capital Redemptions
|
|
|
44 |
|
|
|
16 |
|
|
|
162 |
|
|
|
(222 |
) |
|
|
|
|
|
Increase in restricted cash
|
|
|
(18 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(24 |
) |
|
Other transactions
|
|
|
1 |
|
|
|
4 |
|
|
|
142 |
|
|
|
(68 |
) |
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
114 |
|
|
|
15 |
|
|
|
(153 |
) |
|
|
(266 |
) |
|
|
(290 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt incurred
|
|
|
8 |
|
|
|
|
|
|
|
315 |
|
|
|
|
|
|
|
323 |
|
|
Short-term debt paid
|
|
|
|
|
|
|
|
|
|
|
(469 |
) |
|
|
|
|
|
|
(469 |
) |
|
Long-term debt incurred
|
|
|
2,380 |
|
|
|
|
|
|
|
598 |
|
|
|
|
|
|
|
2,978 |
|
|
Long-term debt paid
|
|
|
(1,510 |
) |
|
|
|
|
|
|
(102 |
) |
|
|
|
|
|
|
(1,612 |
) |
|
Capital Contributions
|
|
|
|
|
|
|
49 |
|
|
|
31 |
|
|
|
(80 |
) |
|
|
|
|
|
Capital Redemptions
|
|
|
|
|
|
|
|
|
|
|
(205 |
) |
|
|
205 |
|
|
|
|
|
|
Dividends paid to minority interests in subsidiaries
|
|
|
|
|
|
|
2 |
|
|
|
(417 |
) |
|
|
392 |
|
|
|
(23 |
) |
|
Debt issuance costs
|
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104 |
) |
|
Other transactions
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
802 |
|
|
|
51 |
|
|
|
(249 |
) |
|
|
517 |
|
|
|
1,121 |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
|
|
|
|
2 |
|
|
|
62 |
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
216 |
|
|
|
1 |
|
|
|
409 |
|
|
|
|
|
|
|
626 |
|
Cash and Cash Equivalents at Beginning of the Year
|
|
|
369 |
|
|
|
24 |
|
|
|
527 |
|
|
|
|
|
|
|
920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of the Year
|
|
$ |
585 |
|
|
$ |
25 |
|
|
$ |
936 |
|
|
$ |
|
|
|
$ |
1,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-68
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 19. |
Adoption of New Accounting Standard |
We adopted FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47) an
interpretation of FASB Statement No. 143, Accounting
for Asset Retirement Obligations (SFAS 143) on
December 31, 2005. FIN 47 requires that the fair value
of a liability for an asset retirement obligation (ARO) be
recognized in the period in which it is incurred and the
settlement date is estimable, and is capitalized as part of the
carrying amount of the related tangible long-lived asset. Our
AROs are primarily associated with the cost of removal and
disposal of asbestos.
Upon adoption of FIN 47, on December 31, 2005, we
recorded a liability of approximately $16 million and
recognized a non-cash cumulative effect charge of approximately
$11 million, net of taxes and minority interest of
$3 million.
We are legally obligated by various country, state, or local
regulations to incur costs to retire certain of our assets. A
liability is recorded for these obligations in the period in
which sufficient information regarding timing and method of
settlement becomes available to make a reasonable estimate of
the liabilitys fair value. We have identified certain
other AROs, such as asbestos remediation activities to be
performed in the future, for which information regarding the
timing and method of potential settlement is not available as of
December 31, 2005, and therefore, we are not able to
reasonably estimate the fair value of these liabilities at this
time.
The following table sets forth information for the years ended
December 31, 2005, 2004, and 2003, adjusted for the
recognition of depreciation expense related to the cost of asset
retirements and accretion expense had we accounted for AROs in
accordance with FIN 47 in those periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Asset retirement obligation beginning of year
|
|
$ |
15 |
|
|
$ |
14 |
|
|
$ |
13 |
|
Asset retirement obligation end of year
|
|
|
16 |
|
|
|
15 |
|
|
|
14 |
|
Reported net income (loss)
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
Cumulative effect of accounting change, net of taxes and
minority interest
|
|
|
11 |
|
|
|
|
|
|
|
|
|
Depreciation expense, net of taxes and minority interest
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Accretion expense, net of taxes and minority interest
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) before cumulative effect of accounting
change
|
|
$ |
237 |
|
|
$ |
113 |
|
|
$ |
(809 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) per share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
1.30 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
Cumulative effect of accounting change, net of taxes and
minority interest
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
Depreciation expense, net of taxes and minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion expense, net of taxes and minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting
change Basic
|
|
$ |
1.36 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) per share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
1.16 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
Cumulative effect of accounting change, net of taxes and
minority interest
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
Depreciation expense, net of taxes and minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion expense, net of taxes and minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting
change Diluted
|
|
$ |
1.21 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
|
|
|
|
|
|
|
|
|
|
F-69
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 20. |
Asset Dispositions |
On August 9, 2005, we completed the sale of our 95%
ownership in Goodyear Sumatra Plantations, our natural rubber
plantation in Indonesia, to Bridgestone Corporation at a sales
price of approximately $70 million. The net assets of
Goodyear Sumatra Plantations were previously reported as assets
held for sale as of December 31, 2004. As a result, we
recorded an impairment charge of approximately $15 million
during the fourth quarter of December 2004.
On September 1, 2005, we completed the sale of our Wingtack
adhesive resins business to Sartomer Company Inc., a unit of the
French energy firm Total, S.A. We received approximately
$55 million in cash proceeds and retained an additional
$10 million of working capital and recorded a gain within
Other (Income) and Expense of approximately $24 million on
the sale. We may also receive additional consideration over the
next three years ($5 million per year, $15 million
aggregate) based on future operating performance of the Wingtack
business.
On December 28, 2005, we completed the sale of our North
American farm tire assets to Titan Tire Corporation, a
subsidiary of Titan International, Inc. The sale included our
farm tire manufacturing plant, property and equipment in
Freeport, Ill., and inventories. It also included a license
agreement with Titan to pay a royalty to manufacture and sell
Goodyear branded farm tires in North America. We received
$100 million from Titan for these assets and recorded a
loss within Other (Income) and Expense in the fourth quarter of
approximately $73 million on the sale, primarily related to
pension and retiree medical costs.
|
|
Note 21. |
Subsequent Events |
In January 2006, we acquired Ansell Limiteds interest in
our South Pacific Tyres (SPT) joint ventures in both
Australia and New Zealand. We now own 100% of both of these
operations. In connection with the acquisition we paid Ansell
approximately $40 million for its 50% ownership and repaid
approximately $50 million of outstanding loans from Ansell
to SPT. SPT has approximately 4,000 associates. SPTs
results have been consolidated in our financial statements since
January 2004.
F-70
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
Supplementary Data
(Unaudited)
Quarterly Data and Market Price Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter | |
|
|
|
|
| |
|
|
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
Year | |
(In millions, except per share amounts) |
|
| |
|
| |
|
| |
|
| |
|
| |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$ |
4,767 |
|
|
$ |
4,992 |
|
|
$ |
5,030 |
|
|
$ |
4,934 |
|
|
$ |
19,723 |
|
Gross Profit
|
|
|
948 |
|
|
|
1,047 |
|
|
|
1,022 |
|
|
|
934 |
|
|
|
3,951 |
|
Income (Loss) before Cumulative Effect of Accounting Change
|
|
$ |
68 |
|
|
$ |
69 |
|
|
$ |
142 |
|
|
$ |
(40 |
) |
|
$ |
239 |
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
68 |
|
|
$ |
69 |
|
|
$ |
142 |
|
|
$ |
(51 |
) |
|
$ |
228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting Change
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
0.81 |
|
|
$ |
(0.23 |
) |
|
$ |
1.36 |
|
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
0.81 |
|
|
$ |
(0.29 |
) |
|
$ |
1.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share
Diluted(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting Change
|
|
$ |
0.35 |
|
|
$ |
0.34 |
|
|
$ |
0.70 |
|
|
$ |
(0.23 |
) |
|
$ |
1.21 |
|
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Diluted
|
|
$ |
0.35 |
|
|
$ |
0.34 |
|
|
$ |
0.70 |
|
|
$ |
(0.29 |
) |
|
$ |
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding Basic
|
|
|
176 |
|
|
|
176 |
|
|
|
176 |
|
|
|
176 |
|
|
|
176 |
|
Diluted
|
|
|
208 |
|
|
|
208 |
|
|
|
209 |
|
|
|
176 |
|
|
|
209 |
|
Price Range of Common Stock: * High
|
|
$ |
16.08 |
|
|
$ |
15.46 |
|
|
$ |
18.59 |
|
|
$ |
18.18 |
|
|
$ |
18.59 |
|
Low
|
|
|
13.11 |
|
|
|
11.24 |
|
|
|
15.00 |
|
|
|
13.00 |
|
|
|
11.24 |
|
Selected Balance Sheet Items at Quarter-End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
15,849 |
|
|
$ |
15,573 |
|
|
$ |
15,807 |
|
|
$ |
15,627 |
|
|
|
|
|
|
Total Debt and Capital Leases
|
|
|
5,664 |
|
|
|
5,500 |
|
|
|
5,448 |
|
|
|
5,423 |
|
|
|
|
|
|
Shareholders Equity
|
|
|
43 |
|
|
|
44 |
|
|
|
296 |
|
|
|
73 |
|
|
|
|
|
|
|
|
(a) |
|
Quarterly earnings per share amounts do not add to the full year
amounts due to the averaging of shares. |
|
* |
|
New York Stock Exchange Composite Transactions |
Net income per share reflects the dilutive impact of
the assumed conversion of our $350 million Convertible
Senior Notes into shares of our Common Stock. The Notes were
issued on July 2, 2004. Net income per share
diluted in 2005 included a pro forma earnings adjustment
representing avoided after-tax interest expense of
$4 million in each of the first, second, third quarters and
$2 million in the fourth quarter. Weighted average shares
outstanding diluted included 29 million shares
in each of the first, second, third and fourth quarters,
resulting from the assumed conversion. Refer to Note 11.
F-71
The first quarter of 2005 included net
after-tax gains of
$11 million on the sale of assets and net
after-tax charges of
$12 million related to general product
liability discontinued products.
The second quarter of 2005 included after-tax gains of
$19 million related to an environmental insurance
settlement. The second quarter also included after-tax charges
of $47 million related to the write-off of debt issuance
costs.
The third quarter of 2005 included after-tax gains of
$14 million related to the receipt of insurance proceeds
and $28 million from asset sales. The third quarter also
included an after-tax charge of $10 million related to
temporary reductions in production resulting from the impact of
hurricanes.
The fourth quarter of 2005 included after-tax gains of
$12 million related to favorable settlements with certain
chemical suppliers and $29 million related to favorable tax
adjustments. The fourth quarter of 2005 also included a
$21 million after-tax charge related to temporary
reductions in production resulting from the impact of
hurricanes, a $78 million after-tax loss on the sale of
assets, and $11 million of expense related to the
cumulative effect of adopting FIN 47.
F-72
THE GOODYEAR TIRE & RUBBER COMPANY AND
SUBSIDIARIES
Supplementary Data
(Unaudited)
Quarterly Data and Market Price Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter | |
|
|
|
|
| |
|
|
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
Year | |
(In millions, except per share amounts) |
|
| |
|
| |
|
| |
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$ |
4,302 |
|
|
$ |
4,519 |
|
|
$ |
4,700 |
|
|
$ |
4,832 |
|
|
$ |
18,353 |
|
Gross Profit
|
|
|
825 |
|
|
|
929 |
|
|
|
950 |
|
|
|
958 |
|
|
|
3,662 |
|
Net Income (Loss)
|
|
$ |
(78 |
) |
|
$ |
30 |
|
|
$ |
38 |
|
|
$ |
125 |
|
|
$ |
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic
|
|
$ |
(0.45 |
) |
|
$ |
0.17 |
|
|
$ |
0.22 |
|
|
$ |
0.71 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Diluted(a)
|
|
$ |
(0.45 |
) |
|
$ |
0.17 |
|
|
$ |
0.20 |
|
|
$ |
0.62 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding Basic
|
|
|
175 |
|
|
|
175 |
|
|
|
175 |
|
|
|
175 |
|
|
|
175 |
|
Diluted
|
|
|
175 |
|
|
|
177 |
|
|
|
207 |
|
|
|
208 |
|
|
|
192 |
|
Price Range of Common Stock: * High
|
|
$ |
11.97 |
|
|
$ |
10.45 |
|
|
$ |
12.00 |
|
|
$ |
15.01 |
|
|
$ |
15.01 |
|
Low
|
|
|
7.06 |
|
|
|
7.66 |
|
|
|
8.70 |
|
|
|
9.15 |
|
|
|
7.06 |
|
Selected Balance Sheet Items at Quarter-End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
14,749 |
|
|
$ |
14,581 |
|
|
$ |
15,358 |
|
|
$ |
16,101 |
|
|
|
|
|
|
Total Debt and Capital Leases
|
|
|
5,401 |
|
|
|
5,317 |
|
|
|
5,661 |
|
|
|
5,680 |
|
|
|
|
|
|
Shareholders Equity (Deficit)
|
|
|
(145 |
) |
|
|
(168 |
) |
|
|
(49 |
) |
|
|
74 |
|
|
|
|
|
|
|
|
(a) |
|
Quarterly earnings per share amounts do not add to the full year
amounts due to the averaging of shares. |
|
* |
|
New York Stock Exchange Composite Transactions |
Net income per share diluted as restated in the
third and fourth quarters of 2004 reflected the dilutive impact
of the assumed conversion of our $350 million Convertible
Senior Notes into shares of our Common Stock. The Notes were
issued on July 2, 2004. Net income per share
diluted in 2004 included a pro forma earnings adjustment
representing avoided after-tax interest expense of
$4 million in each of the third and fourth quarters.
Weighted average shares outstanding diluted included
29 million shares in each of the third and fourth quarters,
and 14 million shares in the full year, resulting from the
assumed conversion. Refer to Note 11.
The first quarter of 2004 included net after-tax charges of
$20 million for rationalizations, $15 million related
to external professional fees associated with an accounting
investigation, and $12 million for insurance fire loss
deductibles.
The third quarter of 2004 included net favorable tax adjustments
of $44 million and net after-tax charges of
$32 million for rationalizations.
The fourth quarter of 2004 included net after-tax gains of
$157 million from an environmental insurance settlement,
$10 million related to favorable tax adjustments, and
$19 million from favorable settlements with certain
suppliers. The fourth quarter also included net after-tax
charges of $27 million for general and product
liability-discontinued products and $12 million for asset
sales.
F-73
INDEX TO FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules:
|
|
|
|
|
|
|
|
|
|
|
Schedule No. | |
|
Page Number | |
|
|
| |
|
| |
Condensed Financial Information of Registrant
|
|
|
I |
|
|
|
FS-2 |
|
Valuation and Qualifying Accounts
|
|
|
II |
|
|
|
FS-8 |
|
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
Financial statements relating to 50 percent or less owned
companies, the investments in which are accounted for by the
equity method, have been omitted as permitted because these
companies would not constitute a significant subsidiary.
FS-1
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
THE GOODYEAR TIRE & RUBBER COMPANY
PARENT COMPANY STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
(In millions, except per share amounts) |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
9,398 |
|
|
$ |
8,728 |
|
|
$ |
7,798 |
|
Cost of Goods Sold
|
|
|
8,377 |
|
|
|
7,740 |
|
|
|
7,207 |
|
Selling, Administrative and General Expense
|
|
|
1,134 |
|
|
|
1,165 |
|
|
|
1,071 |
|
Rationalizations
|
|
|
(1 |
) |
|
|
41 |
|
|
|
75 |
|
Interest Expense
|
|
|
365 |
|
|
|
326 |
|
|
|
252 |
|
Other (Income) and Expense
|
|
|
(77 |
) |
|
|
(200 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes, Equity in (Earnings) Losses of
Subsidiaries and Cumulative Effect of Accounting Change
|
|
|
(400 |
) |
|
|
(344 |
) |
|
|
(813 |
) |
United States and Foreign Taxes on Income (Loss)
|
|
|
(10 |
) |
|
|
(53 |
) |
|
|
(38 |
) |
Equity in (Earnings) Losses of Subsidiaries
|
|
|
(623 |
) |
|
|
(406 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting
Change
|
|
|
233 |
|
|
|
115 |
|
|
|
(807 |
) |
Cumulative Effect of Accounting Change, net of income taxes and
minority interest
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting Change
|
|
$ |
1.33 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
|
Cumulative Effect of Accounting Change
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
1.30 |
|
|
$ |
0.65 |
|
|
$ |
(4.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
176 |
|
|
|
175 |
|
|
|
175 |
|
Net (Income) Loss Per Share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Cumulative Effect of Accounting Change
|
|
$ |
1.19 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
|
Cumulative Effect of Accounting Change
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
1.16 |
|
|
$ |
0.63 |
|
|
$ |
(4.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
209 |
|
|
|
192 |
|
|
|
175 |
|
The accompanying notes are an integral part of these
financial statements.
FS-2
THE GOODYEAR TIRE & RUBBER COMPANY
PARENT COMPANY BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
(In millions) |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Assets |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$ |
1,066 |
|
|
$ |
1,004 |
|
|
Restricted Cash
|
|
|
218 |
|
|
|
137 |
|
|
Accounts and Notes Receivable, less allowance
$33 ($32 in 2004)
|
|
|
1,137 |
|
|
|
1,209 |
|
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
310 |
|
|
|
221 |
|
|
|
Work in Process
|
|
|
58 |
|
|
|
64 |
|
|
|
Finished Products
|
|
|
922 |
|
|
|
877 |
|
|
|
|
|
|
|
|
|
|
|
1,290 |
|
|
|
1,162 |
|
|
Prepaid Expenses and Other Current Assets
|
|
|
107 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
3,818 |
|
|
|
3,610 |
|
Intangible Assets
|
|
|
100 |
|
|
|
101 |
|
Deferred Pension Costs and Other Assets
|
|
|
632 |
|
|
|
843 |
|
Investments in Subsidiaries
|
|
|
4,011 |
|
|
|
3,943 |
|
Properties and Plants, less accumulated depreciation
$4,372 ($4,446 in 2004)
|
|
|
2,018 |
|
|
|
2,088 |
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
10,579 |
|
|
$ |
10,585 |
|
|
|
|
|
|
|
|
|
Liabilities |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade
|
|
$ |
595 |
|
|
$ |
529 |
|
|
Accounts payable to affiliates
|
|
|
595 |
|
|
|
528 |
|
|
Compensation and benefits
|
|
|
785 |
|
|
|
648 |
|
|
Other current liabilities
|
|
|
483 |
|
|
|
426 |
|
|
United states and foreign taxes
|
|
|
65 |
|
|
|
63 |
|
|
Long term debt and capital leases due within one year
|
|
|
338 |
|
|
|
562 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,861 |
|
|
|
2,756 |
|
Long Term Debt and Capital Leases
|
|
|
4,118 |
|
|
|
4,010 |
|
Compensation and Benefits
|
|
|
3,117 |
|
|
|
3,323 |
|
Deferred and Other Noncurrent Income Taxes
|
|
|
86 |
|
|
|
31 |
|
Other Long Term Liabilities
|
|
|
324 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
10,506 |
|
|
|
10,511 |
|
Commitments and Contingent Liabilities
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
Preferred Stock, no par value:
|
|
|
|
|
|
|
|
|
|
Authorized, 50 shares, unissued
|
|
|
|
|
|
|
|
|
Common Stock, no par value:
|
|
|
|
|
|
|
|
|
|
Authorized, 300 shares; Outstanding shares, 177 (176 in
2004)
|
|
|
177 |
|
|
|
176 |
|
Capital Surplus
|
|
|
1,398 |
|
|
|
1,392 |
|
Retained Earnings
|
|
|
1,298 |
|
|
|
1,070 |
|
Accumulated Other Comprehensive Loss
|
|
|
(2,800 |
) |
|
|
(2,564 |
) |
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
73 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$ |
10,579 |
|
|
$ |
10,585 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
FS-3
THE GOODYEAR TIRE & RUBBER COMPANY
PARENT COMPANY STATEMENTS OF SHAREHOLDERS EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
Common Stock | |
|
|
|
|
|
Comprehensive | |
|
Total | |
|
|
| |
|
Capital | |
|
Retained | |
|
Income | |
|
Shareholders | |
(Dollars in millions) |
|
Shares | |
|
Amount | |
|
Surplus | |
|
Earnings | |
|
(Loss) | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(after deducting 20,371,235 treasury shares)
|
|
|
175,307,433 |
|
|
$ |
175 |
|
|
$ |
1,390 |
|
|
$ |
1,762 |
|
|
$ |
(3,106 |
) |
|
$ |
221 |
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(807 |
) |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (net of tax benefit of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393 |
|
|
|
|
|
|
|
Minimum pension liability (net of tax of $2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
Unrealized investment gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
Deferred derivative gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254 |
) |
|
Common stock issued from treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans
|
|
|
18,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
175,326,429 |
|
|
|
175 |
|
|
|
1,390 |
|
|
|
955 |
|
|
|
(2,553 |
) |
|
|
(33 |
) |
|
(after deducting 20,352,239 treasury shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (net of tax benefit of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
Minimum pension liability (net of tax of $34)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284 |
) |
|
|
|
|
|
|
Unrealized investment gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
Deferred derivative gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $(4))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
Common stock issued from treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans
|
|
|
293,210 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(after deducting 20,059,029 treasury shares)
|
|
|
175,619,639 |
|
|
|
176 |
|
|
|
1,392 |
|
|
|
1,070 |
|
|
|
(2,564 |
) |
|
|
74 |
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (net of tax benefit of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201 |
) |
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
Minimum pension liability (net of tax of $23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97 |
) |
|
|
|
|
|
|
Unrealized investment gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
Deferred derivative gain (net of tax of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
Reclassification adjustment for amounts recognized in income
(net of tax of $(1))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
Common stock issued from treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans
|
|
|
890,112 |
|
|
|
1 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(after deducting 19,168,917 treasury shares)
|
|
|
176,509,751 |
|
|
$ |
177 |
|
|
$ |
1,398 |
|
|
$ |
1,298 |
|
|
$ |
(2,800 |
) |
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
FS-4
THE GOODYEAR TIRE & RUBBER COMPANY
PARENT COMPANY STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
(In millions) |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
228 |
|
|
$ |
115 |
|
|
$ |
(807 |
) |
|
|
Adjustments to reconcile net income (loss) to cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
274 |
|
|
|
291 |
|
|
|
372 |
|
|
|
|
Amortization of debt issuance costs
|
|
|
76 |
|
|
|
78 |
|
|
|
50 |
|
|
|
|
Deferred tax provision
|
|
|
|
|
|
|
(8 |
) |
|
|
(2 |
) |
|
|
|
Net rationalization charges
|
|
|
|
|
|
|
35 |
|
|
|
32 |
|
|
|
|
Rationalization payments
|
|
|
(8 |
) |
|
|
(15 |
) |
|
|
(38 |
) |
|
|
|
(Gain)loss on asset sales
|
|
|
34 |
|
|
|
(30 |
) |
|
|
(105 |
) |
|
|
|
Net insurance settlement gains
|
|
|
(65 |
) |
|
|
(161 |
) |
|
|
|
|
|
|
|
Insurance recoveries
|
|
|
206 |
|
|
|
157 |
|
|
|
20 |
|
|
|
|
Minority interest and equity earnings
|
|
|
(1 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
Cumulative effect of accounting change
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of accounts receivable
|
|
|
|
|
|
|
|
|
|
|
(826 |
) |
|
|
|
Pension contributions
|
|
|
(393 |
) |
|
|
(125 |
) |
|
|
(26 |
) |
|
|
|
Changes in operating assets and liabilities, net of asset
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
|
30 |
|
|
|
(204 |
) |
|
|
103 |
|
|
|
|
|
Inventories
|
|
|
(188 |
) |
|
|
14 |
|
|
|
29 |
|
|
|
|
|
Accounts Payable-trade
|
|
|
51 |
|
|
|
59 |
|
|
|
(18 |
) |
|
|
|
|
Compensation and Benefits
|
|
|
248 |
|
|
|
81 |
|
|
|
320 |
|
|
|
|
|
Other current liabilities
|
|
|
6 |
|
|
|
109 |
|
|
|
74 |
|
|
|
|
|
Other Long Term liabilities
|
|
|
(42 |
) |
|
|
(109 |
) |
|
|
112 |
|
|
|
|
|
Other assets and liabilities
|
|
|
(272 |
) |
|
|
(79 |
) |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from operating activities
|
|
|
190 |
|
|
|
208 |
|
|
|
(700 |
) |
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(249 |
) |
|
|
(174 |
) |
|
|
(179 |
) |
|
|
Asset dispositions
|
|
|
248 |
|
|
|
106 |
|
|
|
368 |
|
|
|
Asset acquisitions
|
|
|
|
|
|
|
(51 |
) |
|
|
(71 |
) |
|
|
Capital contributions to subsidiaries
|
|
|
(11 |
) |
|
|
(9 |
) |
|
|
(31 |
) |
|
|
Capital redemptions from subsidiaries
|
|
|
59 |
|
|
|
6 |
|
|
|
44 |
|
|
|
Increase in restricted cash
|
|
|
(81 |
) |
|
|
(119 |
) |
|
|
(18 |
) |
|
|
Other transactions
|
|
|
5 |
|
|
|
33 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from investing activities
|
|
|
(29 |
) |
|
|
(208 |
) |
|
|
114 |
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt incurred
|
|
|
9 |
|
|
|
44 |
|
|
|
8 |
|
|
|
Short term debt paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt incurred
|
|
|
1,921 |
|
|
|
1,671 |
|
|
|
2,380 |
|
|
|
Long term debt paid
|
|
|
(1,969 |
) |
|
|
(1,247 |
) |
|
|
(1,510 |
) |
|
|
Common stock issued
|
|
|
7 |
|
|
|
2 |
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
(67 |
) |
|
|
(51 |
) |
|
|
(104 |
) |
|
|
Other transactions
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from financing activities
|
|
|
(99 |
) |
|
|
419 |
|
|
|
802 |
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
62 |
|
|
|
419 |
|
|
|
216 |
|
Cash and Cash Equivalents at Beginning of the Year
|
|
|
1,004 |
|
|
|
585 |
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of the Year
|
|
$ |
1,066 |
|
|
$ |
1,004 |
|
|
$ |
585 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
FS-5
THE GOODYEAR TIRE & RUBBER COMPANY
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
LONG TERM DEBT AND FINANCING ARRANGEMENTS
At December 31, 2005, the Parent Company was a party to
various long-term financing facilities. Under the terms of these
facilities, the Parent Company pledged a significant portion of
its assets as collateral. The collateral included first, second,
and third priority security interests in current assets, certain
property, plan and equipment, capital stock of certain
subsidiaries, and other tangible and intangible assets. In
addition, the facilities contain certain covenants that, among
other things, limit the Parent Companys ability to secure
additional indebtedness, make investments, and sell assets
beyond specified limits. The facilities limit the Parent
Companys ability to pay dividends on its common stock and
limit the amount of capital expenditures the Parent Company,
together with its consolidated subsidiaries, may make. The
facilities also contain certain financial covenants including
the maintenance of a ratio of Consolidated EBITDA to
Consolidated Interest Expense, and a ratio of net Consolidated
Senior Secured Indebtedness to Consolidated EBITDA (as such
terms are defined in the respective facility agreements). For
further information, refer to the Note to the Consolidated
Financial Statements No. 10, Financing Arrangements and
Derivative Financial Instruments.
The annual aggregate maturities of long term debt and capital
leases for the five years subsequent to December 31, 2005
are presented below. Maturities of debt credit agreements have
been reported on the basis that the commitments to lend under
these agreements will be terminated effective at the end of
their current terms.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
Other
|
|
$ |
338 |
|
|
$ |
303 |
|
|
$ |
103 |
|
|
$ |
3 |
|
|
$ |
1,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 2005, the Parent Company had
off-balance-sheet financial guarantees written and other
commitments totaling $2 million.
At December 31, 2005, the Parent Company had recorded costs
related to a wide variety of contingencies. These contingencies
included, among other things, environmental matters,
workers compensation, general and product liability and
other matters. For further information, refer to the Note to the
Consolidated Financial Statements No. 17, Commitments and
Contingent Liabilities.
DIVIDENDS
The Parent Company used the equity method of accounting for
investments in consolidated subsidiaries during 2005, 2004 and
2003.
The following table presents dividends received during 2005,
2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Consolidated subsidiaries
|
|
$ |
290 |
|
|
$ |
155 |
|
|
$ |
219 |
|
50% or less-owned persons
|
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
291 |
|
|
$ |
156 |
|
|
$ |
222 |
|
|
|
|
|
|
|
|
|
|
|
Dividends received from consolidated subsidiaries included stock
dividends of $16 million, $15 million and
$152 million in 2005, 2004 and 2003, respectively.
FS-6
THE GOODYEAR TIRE & RUBBER COMPANY
NOTES TO PARENT COMPANY FINANCIAL
STATEMENTS (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
The Parent Company made cash payments for interest in 2005, 2004
and 2003 of $349 million, $308 million and
$235 million, respectively. The Parent Company had net cash
receipts for income taxes in 2005, 2004 and 2003 of
$19 million, $10 million and $44 million,
respectively.
INTERCOMPANY TRANSACTIONS
The following amounts included in the Parent Company Statements
of Operations have been eliminated in the preparation of the
consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Sales
|
|
$ |
1,359 |
|
|
$ |
1,280 |
|
|
$ |
1,182 |
|
Cost of Goods Sold
|
|
|
1,363 |
|
|
|
1,275 |
|
|
|
1,179 |
|
Interest Expense
|
|
|
22 |
|
|
|
15 |
|
|
|
11 |
|
Other (Income) and Expense
|
|
|
(401 |
) |
|
|
(386 |
) |
|
|
(441 |
) |
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
$ |
375 |
|
|
$ |
376 |
|
|
$ |
433 |
|
|
|
|
|
|
|
|
|
|
|
FS-7
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
(In millions) |
|
Balance | |
|
|
|
|
|
Translation | |
|
|
|
|
at | |
|
Charged | |
|
Charged | |
|
Acquired |
|
Deductions | |
|
adjustment | |
|
Balance | |
|
|
beginning | |
|
(credited) | |
|
(credited) | |
|
by |
|
from | |
|
during | |
|
at end of | |
Description |
|
of period | |
|
to income | |
|
to OCI | |
|
purchase |
|
reserves | |
|
period | |
|
period | |
|
2005 |
|
Allowance for doubtful accounts
|
|
$ |
144 |
|
|
$ |
29 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(35 |
)(a) |
|
$ |
(8 |
) |
|
$ |
130 |
|
Valuation allowance deferred tax assets
|
|
|
2,072 |
|
|
|
(12 |
) |
|
|
39 |
|
|
|
|
|
|
|
(20 |
) |
|
|
(27 |
) |
|
|
2,052 |
|
|
2004 |
|
Allowance for doubtful accounts
|
|
$ |
129 |
|
|
$ |
50 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(42 |
)(a) |
|
$ |
7 |
|
|
$ |
144 |
|
Valuation allowance deferred tax assets
|
|
|
2,042 |
|
|
|
(41 |
) |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
2,072 |
|
|
2003 |
|
Allowance for doubtful accounts
|
|
$ |
102 |
|
|
$ |
55 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(40 |
)(a) |
|
$ |
12 |
|
|
$ |
129 |
|
Valuation allowance deferred tax assets
|
|
|
1,811 |
|
|
|
308 |
|
|
|
(66 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
2,042 |
|
|
Note: (a) Accounts and notes receivable charged off.
FS-8
The Goodyear Tire & Rubber Company
$350,000,000 4.00% CONVERTIBLE SENIOR NOTES DUE 2034
PROSPECTUS
,
2006
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 13. |
Other Expenses of Issuance and Distribution |
Set forth below is a table of the registration fee for the
Securities and Exchange Commission and estimates of all other
expenses to be incurred in connection with the sale of
securities being registered:
|
|
|
|
|
|
SEC registration fee
|
|
$ |
62,583.44 |
|
Printing fees and expenses
|
|
$ |
145,000 |
|
Legal fees and expenses
|
|
$ |
145,000 |
|
Accounting fees and expenses
|
|
$ |
50,000 |
|
|
|
|
|
|
Total
|
|
$ |
402,583.44 |
|
|
|
|
|
|
|
Item 14. |
Indemnification of Directors and Officers |
The Goodyear Tire & Rubber Company is an Ohio corporation.
Section 1701.13(E) of the Ohio Revised Code gives a
corporation incorporated under the laws of Ohio authority to
indemnify or agree to indemnify its directors and officers,
against certain liabilities they may incur in such capacities in
connection with criminal or civil suits or proceedings, other
than an action brought by or in the right of the corporation,
provided that the director or officer acted in good faith and in
a manner that the person reasonably believed to be in or not
opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful. In
the case of an action or suit by or in the right of the
corporation, the corporation may indemnify or agree to indemnify
its directors and officers against certain liabilities they may
incur in such capacities, provided that the director or officer
acted in good faith and in a manner that the person reasonably
believed to be in or not opposed to the best interests of the
corporation, except that an indemnification shall not be made in
respect of any claim, issue, or matter as to which (a) the
person is adjudged to be liable for negligence or misconduct in
the performance of their duty to the company unless and only to
the extent that the court of common pleas or the court in which
the action or suit was brought determines, upon application,
that, despite the adjudication of liability but in view of all
the circumstances of the case, the person is fairly and
reasonably entitled to indemnification for expenses that the
court considers proper or (b) any action or suit in which
the only liability asserted against a director is pursuant to
section 1701.95 of the Ohio Revised Code.
The Goodyear Tire & Rubber Company has adopted provisions in
its Code of Regulations that provide that it shall indemnify its
directors and officers against any and all liability and
reasonable expense that may be incurred by a director or officer
in connection with or resulting from any claim, action, suit or
proceeding in which the person may become involved by reason of
his or her being or having been a director or officer of the
company, or by reason of any past or future action taken or not
taken in his or her capacity as such director or officer,
provided such person acted in good faith, in what he reasonably
believed to be the best interests of the company, and, in
addition, in any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
The Goodyear Tire & Rubber Company maintains and pays the
premiums on contracts insuring the company (with certain
exclusions) against any liability to directors and officers they
may incur under the above provisions for indemnification and
insuring each director and officer of the company and (with
certain exclusions) against liability and expense, including
legal fees, which he or she may incur by reason of his or her
relationship to the company even if the company does not have
the obligation or right to indemnify such director or officer
against such liability or expense.
II-1
|
|
Item 15. |
Recent Sales of Unregistered Securities |
Within the past three years, the Company has issued and sold the
following unregistered securities:
On March 12, 2004, the Company issued $450,000,000
11% Senior Secured Notes due 2011 (the
11% Notes) and $200,000,000 Senior Secured
Floating Rate Notes due 2011 (the Floating Rate
Notes and together with the 11% Notes, the
Secured Notes). The Secured Notes were sold in an
offering conducted by J.P. Morgan Securities Inc.,
Citigroup Global Markets Inc. and Credit Suisse First Boston
LLC, as Joint Book-Running Managers and Placement Agents. The
11% Notes were sold at a price equal to 99.413% of the
principal amount thereof and the Floating Rate Notes were sold
at a price equal to 100% of the principal amount thereof. The
offering of the Secured Notes was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended (the
Securities Act), because the Secured Notes were sold
to institutional accredited investors within the meaning of
Regulation D under the Securities Act.
On July 2, 2004, the Company issued $350,000,000
4.00% Convertible Senior Notes due 2034 (the
Convertible Notes). The Convertible Notes were sold
in an offering conducted by Goldman, Sachs & Co.,
Deutsche Bank Securities Inc. and J.P. Morgan Securities
Inc., as Joint Book-Running Managers, with the Joint
Book-Running Managers receiving a 2.75% discount on the
Convertible Notes. The offering of Convertible Notes was exempt
from registration under Rule 144A under the Securities Act
because the Convertible Notes were sold to qualified
institutional buyers within the meaning of Rule 144A under
the Securities Act.
On June 23, 2005, the Company issued $400,000,000
9% Senior Notes due 2015 (the Senior Notes).
The Senior Notes were sold in an offering conducted by Citigroup
Global Markets Inc., BNP Paribus Securities Corp., Credit Suisse
First Boston LLC, Goldman, Sachs & Co. and
J.P. Morgan Securities Inc., as Joint Book-Running
Managers, and Calyon Securities (USA) Inc., Deutsche Bank
Securities, Inc., Natexis Bleichroeder Inc. and KBC Financial
Products USA, Inc., as Co-Managers. The Joint Book-Running
Managers and Co-Managers received a 2.25% discount on the Senior
Notes. The offering of Senior Notes was exempt from registration
under Rule 144A under the Securities Act and
Regulation S under the Securities Act because the Senior
Notes were sold (i) to qualified institutional buyers
within the meaning of Rule 144A under the Securities Act or
(ii) overseas pursuant to Regulation S under the
Securities Act of 1933.
|
|
Item 16. |
Exhibits and Financial Statement Schedules |
|
|
|
|
|
|
|
|
|
Exhibit | |
|
|
|
|
Table | |
|
|
|
Exhibit | |
Item No. | |
|
Description of Exhibit |
|
Number | |
| |
|
|
|
| |
|
3 |
|
|
Articles of Incorporation and By-Laws |
|
|
|
|
|
|
|
(a)** |
|
Certificate of Amended Articles of Incorporation of The Goodyear
Tire & Rubber Company, dated December 20, 1954,
and Certificate of Amendment to Amended Articles of
Incorporation of The Goodyear Tire & Rubber Company,
dated April 6, 1993, and Certificate of Amendment to
Amended Articles of Incorporation of the Company dated
June 4, 1996, three documents comprising the Companys
Articles of Incorporation, as amended. |
|
|
|
|
|
|
|
(b)** |
|
Code of Regulations of The Goodyear Tire & Rubber
Company, adopted November 22, 1955, and amended
April 5, 1965, April 7, 1980, April 6, 1981,
April 13, 1987, May 7, 2003 and April 26, 2005. |
|
|
|
|
|
|
4 |
|
|
Instruments Defining the Rights of Security Holders,
Including Indentures |
|
|
|
|
|
|
|
(a)** |
|
Specimen nondenominational Certificate for shares of the Common
Stock, Without Par Value, of the Company; EquiServe Trust
Company, transfer agent and registrar. |
|
|
|
|
|
|
|
(b) |
|
Indenture, dated as of March 15, 1996, between the Company
and JPMorgan Chase Bank, as Trustee, as supplemented on
December 3, 1996, March 11, 1998, and March 17,
1998 (incorporated by reference, filed as Exhibit 4.1 to
the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, File No. 1-1927). |
|
|
|
|
II-2
|
|
|
|
|
|
|
|
|
Exhibit | |
|
|
|
|
Table | |
|
|
|
Exhibit | |
Item No. | |
|
Description of Exhibit |
|
Number | |
| |
|
|
|
| |
|
|
|
(c) |
|
Indenture, dated as of March 1, 1999, between the Company
and JPMorgan Chase Bank, as Trustee, as supplemented on
March 14, 2000 in respect of $300,000,000 principal amount
of the Companys 8.50% Notes due 2007 (incorporated by
reference, filed as Exhibit 4.1, to the Companys
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, File No. 1-1927), and as further
supplemented on August 15, 2001, in respect of the
Companys $650,000,000 principal amount of the
Companys 7.857% Notes due 2011 (incorporated by
reference, filed as Exhibit 4.3 to the Companys
Quarterly Report on Form 10-Q for the period ended
September 30, 2001, File No. 1-1927). |
|
|
|
|
|
|
|
(d) |
|
First Lien Credit Agreement, dated as of April 8, 2005,
among Goodyear, the lenders party thereto, the issuing banks
party thereto, Citicorp USA, Inc. as Syndication Agent, Bank of
America, N.A., the CIT Group/ Business Credit, Inc., General
Electric Capital Corporation, and GMAC Commercial Finance LLC,
as Documentation Agents and JPMorgan Chase Bank, N.A., as
Administrative Agent and Collateral Agent (incorporated by
reference, filed as Exhibit 4.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(e) |
|
Second Lien Credit Agreement, dated as of April 8, 2005,
among Goodyear, the lenders party thereto, Deutsche Bank Trust
Company Americas, as Collateral Agent, and JPMorgan Chase Bank,
N.A., as Administrative Agent (incorporated by reference, filed
as Exhibit 4.2 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005, File
No. 1-1927). |
|
|
|
|
|
|
|
(f) |
|
Third Lien Credit Agreement, dated as of April 8, 2005,
among Goodyear, the subsidiary guarantors listed on the
signature pages thereto, the lenders party thereto and JPMorgan
Chase Bank, N.A., as Administrative Agent (incorporated by
reference, filed as Exhibit 4.3 to the Companys
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(g) |
|
Amended and Restated Term Loan and Revolving Credit Agreement,
dated as of April 8, 2005, among Goodyear, Goodyear Dunlop
Tires Europe B.V., Goodyear Dunlop Tires Germany GmbH, Goodyear
GmbH & Co. KG, Dunlop GmbH & Co. KG, Goodyear
Luxembourg Tires S.A., the lenders party thereto,
J.P. Morgan Europe Limited, as Administrative Agent, and
JPMorgan Chase Bank, N.A., as Collateral Agent, including
Amendment and Restatement Agreement, dated as of April 8,
2005 (the European Term Loan and Revolving Credit
Agreement) (incorporated by reference, filed as
Exhibit 4.4 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005, File
No. 1-1927). |
|
|
|
|
|
|
|
(h) |
|
First Amendment dated as of December 22, 2005 to the
European Term Loan and Revolving Credit Agreement (incorporated
by reference, filed as Exhibit 4.1 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(i) |
|
First Lien Guarantee and Collateral Agreement, dated as of
April 8, 2005, among Goodyear, the Subsidiaries of Goodyear
identified therein and JPMorgan Chase Bank, N.A., as collateral
agent (incorporated by reference, filed as Exhibit 4.5 to
the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(j) |
|
Second Lien Guarantee and Collateral Agreement, dated as of
April 8, 2005, among Goodyear, the Subsidiaries of Goodyear
identified therein and Deutsche Bank Trust Company Americas, as
collateral agent (incorporated by reference, filed as
Exhibit 4.6 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005, File
No. 1-1927). |
|
|
|
|
II-3
|
|
|
|
|
|
|
|
|
Exhibit | |
|
|
|
|
Table | |
|
|
|
Exhibit | |
Item No. | |
|
Description of Exhibit |
|
Number | |
| |
|
|
|
| |
|
|
|
(k) |
|
Master Guarantee and Collateral Agreement dated as of
March 31, 2003, as Amended and Restated as of
February 20, 2004, and as further Amended and Restated as
of April 8, 2005, among Goodyear, Goodyear Dunlop Tires
Europe B.V., the other subsidiaries of Goodyear identified
therein and JPMorgan Chase Bank, N.A., as Collateral Agent,
including Amendment and Restatement Agreement, dated as of
April 8, 2005 (incorporated by reference, filed as
Exhibit 4.7 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005, File
No. 1-1927). |
|
|
|
|
|
|
|
(l) |
|
Lenders Lien Subordination and Intercreditor Agreement, dated as
of April 8, 2005, among JPMorgan Chase Bank, N.A. as
collateral agent for the first Lien Secured Parties referred to
therein, Deutsche Bank Trust Company Americas, as collateral
agent for the Second Lien Secured Parties referred to therein,
Goodyear, and the subsidiaries of Goodyear named therein
(incorporated by reference, filed as Exhibit 4.8 to the
Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(m) |
|
Purchase Agreement dated June 20, 2005, among Goodyear,
certain subsidiaries of Goodyear and Citigroup Global Markets
Inc., as representative of the several Purchasers listed therein
(incorporated by reference, filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K filed
June 24, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(n) |
|
Indenture, dated as of June 23, 2005 among Goodyear, the
subsidiary guarantors party thereto and Wells Fargo Bank, N.A.,
as Trustee (incorporated by reference, filed as Exhibit 4.2
to the Companys Current Report on Form 8-K filed
June 24, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(o) |
|
Registration Rights Agreement, dated as of June 23, 2005,
among Goodyear, Citigroup Global Markets Inc., BNP Paribas
Securities Corp., Credit Suisse First Boston LLC, Goldman,
Sachs & Co., J. P. Morgan Securities Inc., Calyon
Securities (USA) Inc. Deutsche Bank Securities, Inc.,
Natexis Bleichroeder Inc. and KBC Financial Products USA, Inc.
(incorporated by reference, filed as Exhibit 4.3 to the
Companys Current Report on Form 8-K filed
June 24, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(p) |
|
Amendment No. 2 to the General Master Purchase Agreement
dated May 23, 2005 and August 26, 2005 between Ester
Finance Titrisation, as Purchaser, Eurofactor, as Agent, Calyon,
as Joint Lead Arranger and as Calculation Agent, Natexis Banques
Populairies, as Joint Lead Arranger, Goodyear Dunlop Tires
Finance Europe B.V. and the Sellers listed therein (including
Amended and Restated General Master Purchase Agreement)
(incorporated by reference, filed as Exhibit 4.1 to
Goodyears Registration Statement on Form S-4, File
No. 333-128932). |
|
|
|
|
|
|
|
(q) |
|
Amendment No. 2 to the Master Subordinated Deposit
Agreement dated May 23, 2005 and August 26, 2005
between Eurofactor, as Agent, Calyon, as Calculation Agent,
Ester Finance Titrisation, as Purchaser, and Goodyear Dunlop
Tires Finance Europe B.V. (including Amended and Restated Master
Subordinated Deposit Agreement) (incorporated by reference,
filed as Exhibit 4.2 to Goodyears Registration
Statement on Form S-4, File No. 333-128932). |
|
|
|
|
|
|
|
(r) |
|
Master Complementary Deposit Agreement dated December 10,
2004 between Eurofactor, as Agent, Calyon, as Calculation Agent,
Ester Finance Titrisation, as Purchaser, and Goodyear Dunlop
Tires Finance Europe B.V. (incorporated by reference, filed as
Exhibit 4.3 to Goodyears Annual Report on
Form 10-K for the year ended December 31, 2003, File
No. 1-1927). |
|
|
|
|
|
|
|
(s) |
|
Indenture dated as of March 12, 2004 among Goodyear, the
subsidiary guarantors party thereto and Wells Fargo Bank, N.A.,
as Trustee (incorporated by reference, filed as
Exhibit 4.11 to Goodyears Annual Report on
Form 10-K for the year ended December 31, 2003, File
No. 1-1927). |
|
|
|
|
|
|
|
(t) |
|
Note Purchase Agreement dated as of March 12, 2004
among Goodyear, certain subsidiaries of Goodyear and the
investors listed therein (incorporated by reference, filed as
Exhibit 4.12 to Goodyears Annual Report on
Form 10-K for the year ended December 31, 2003, File
No. 1-1927). |
|
|
|
|
II-4
|
|
|
|
|
|
|
|
|
Exhibit | |
|
|
|
|
Table | |
|
|
|
Exhibit | |
Item No. | |
|
Description of Exhibit |
|
Number | |
| |
|
|
|
| |
|
|
|
(u) |
|
Registration Rights Agreement dated as of March 12, 2004
among Goodyear, certain subsidiaries of Goodyear and the
investors listed therein (incorporated by reference, filed as
Exhibit 4.12 to Goodyears Annual Report on
Form 10-K for the year ended December 31, 2003, File
No. 1-1927). |
|
|
|
|
|
|
|
(v) |
|
Collateral Agreement dated as of March 12, 2004 among
Goodyear, certain subsidiaries of Goodyear and Wilmington Trust
Company, as Collateral Agent (incorporated by reference, filed
as Exhibit 4.14 to Goodyears Annual Report on
Form 10-K for the year ended December 31, 2003, File
No. 1-1927). |
|
|
|
|
|
|
|
(w) |
|
Lien Subordination and Intercreditor Agreement dated as of
March 12, 2004 among Goodyear, certain subsidiaries of
Goodyear, JPMorgan Chase Bank and Wilmington Trust Company
(incorporated by reference, filed as Exhibit 4.15 to
Goodyears Annual Report on Form 10-K for the year
ended December 31, 2003, File No. 1-1927). |
|
|
|
|
|
|
|
(x) |
|
Note Purchase Agreement, dated June 28, 2004, among
Goodyear and the purchasers listed therein (incorporated by
reference, filed as Exhibit 4.3 to Goodyears
Form 10-Q for the quarter ended September 30, 2004,
File No. 1-1927). |
|
|
|
|
|
|
|
(y) |
|
Indenture, dated as of July 2, 2004, between Goodyear, as
Company, and Wells Fargo Bank, N.A., as Trustee (incorporated by
reference, filed as Exhibit 4.4 to Goodyears
Form 10-Q for the quarter ended September 30, 2004,
File No. 1-1927). |
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|
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(z) |
|
Registration Rights Agreement, dated as of July 2, 2004,
among Goodyear, Goldman, Sachs & Co., Deutsche Bank
Securities Inc., and J.P. Morgan Securities Inc.
(incorporated by reference, filed as Exhibit 4.5 to
Goodyears Form 10-Q for the quarter ended
September 30, 2004, File No. 1-1927). |
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In accordance with Item 601(b)(4)(iii) of
Regulation S-K, agreements and instruments defining the
rights of holders of long-term debt of the Company pursuant to
which the amount of securities authorized thereunder does not
exceed 10% of the consolidated assets of the Company and its
subsidiaries are not filed herewith. The Company hereby agrees
to furnish a copy of any such agreement or instrument to the
Securities and Exchange Commission upon request. |
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5 |
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|
Legal Opinion |
|
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(a)** |
|
Opinion of Covington & Burling. |
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(b)** |
|
Opinion of C. Thomas Harvie. |
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10 |
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Material Contracts |
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(a)* |
|
2005 Performance Plan of the Company (incorporated by reference,
filed as Exhibit 10.1 to Goodyears Current Report on
Form 8-K filed April 27, 2005, File No. 1-1927). |
|
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|
|
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(b)* |
|
2002 Performance Incentive Plan of the Company (incorporated by
reference, filed as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002, File No. 1-1927). |
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(c)* |
|
1997 Goodyear Performance Incentive Plan of the Company
(incorporated by reference, filed as Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, File No. 1-1927). |
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(d)* |
|
1989 Goodyear Performance and Equity Incentive Plan
(incorporated by reference, filed as Exhibit A to the
Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989, File No. 1-1927). |
|
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(e)* |
|
Performance Recognition Plan of the Company adopted effective
January 1, 2006 (incorporated by reference, filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K filed December 7, 2005, File No. 1-1927). |
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(f)* |
|
Goodyear Supplementary Pension Plan, as restated and amended
December 3, 2001 (incorporated by reference, filed as
Exhibit 10.1 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2001, File
No. 1-1927). |
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II-5
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Exhibit | |
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Table | |
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Exhibit | |
Item No. | |
|
Description of Exhibit |
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Number | |
| |
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| |
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(g)* |
|
Excess Benefit Plan of the Company as amended and restated
effective January 1, 2000 (incorporated by reference, filed
as Exhibit 10.1 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2005, File
No. 1-1927). |
|
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(h)* |
|
Goodyear Employee Severance Plan, as adopted on
February 14, 1989 (incorporated by reference, filed as
Exhibit A-II to the Companys Annual Report on
Form 10-K for the year ended December 31, 1988, File
No. 1-1927). |
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|
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(i)* |
|
The Goodyear Tire & Rubber Company Stock Option Plan
for Hourly Bargaining Unit Employees at Designated Locations, as
amended December 4, 2001 (incorporated by reference, filed
as Exhibit 10.2 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2001, File
No. 1-1927). |
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(j)* |
|
The Goodyear Tire & Rubber Company Deferred
Compensation Plan for Executives, amended and restated as of
January 1, 2002 (incorporated by reference, filed as
Exhibit 10.3 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2001, File
No. 1-1927). |
|
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|
|
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(k)* |
|
First Amendment to The Goodyear Tire & Rubber Company
Deferred Compensation Plan for Executives effective as of
December 3, 2002 (incorporated by reference, filed as
Exhibit 10.1 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2002, File
No. 1-1927). |
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(l)* |
|
1994 Restricted Stock Award Plan for Non-Employee Directors of
the Company, as adopted effective June 1, 1994
(incorporated by reference, filed as Exhibit B to the
Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, File No. 1-1927). |
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(m)* |
|
Outside Directors Equity Participation Plan, as adopted
February 2, 1996 and amended February 3, 1998
(incorporated by reference, filed as Exhibit 10.3 to the
Companys Annual Report on Form 10-K for the year
ended December 31, 1997, File No. 1-1927). |
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(n)* |
|
Executive Performance Plan of The Goodyear Tire &
Rubber Company (incorporated by reference, filed as
Exhibit 10.1 to Goodyears Annual Report on
Form 10-K for the year ended December 31, 2003, File
No. 1-1927). |
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(o)* |
|
Form of Grant Agreement for Executive Performance Plan
(incorporated by reference, filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on
February 28, 2005, File No. 1-1927). |
|
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(p) |
|
Umbrella Agreement, dated as of June 14, 1999, between the
Company and Sumitomo Rubber Industries, Ltd. (incorporated by
reference, filed as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, File No. 1-1927). |
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(q) |
|
Amendment No. 1 to the Umbrella Agreement dated as of
January 1, 2003, between the Company and Sumitomo Rubber
Industries, Ltd. (incorporated by reference, filed as
Exhibit 10.2 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2002, File
No. 1-1927). |
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(r) |
|
Amendment No. 2 to the Umbrella Agreement dated as of
April 7, 2003, between the Company and Sumitomo Rubber
Industries, Ltd. amending certain provisions of the alliance
agreements (incorporated by reference, filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2003, File
No. 1-1927). |
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(s) |
|
Amendment No. 3 to the Umbrella Agreement dated
July 15, 2004, between the Company and Sumitomo Rubber
Industries, Ltd. amending certain provisions of the alliance
agreements (incorporated by reference, filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004,
File No. 1-1927). |
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II-6
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|
Exhibit | |
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Table | |
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|
Exhibit | |
Item No. | |
|
Description of Exhibit |
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Number | |
| |
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| |
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(t) |
|
Joint Venture Agreement for Europe, dated as of June 14,
1999 (and amendment No. 1 dated as of September 1,
1999), among the Company, Goodyear S.A., a French corporation,
Goodyear S.A., a Luxembourg corporation, Goodyear Canada Inc.,
Sumitomo Rubber Industries, Ltd., and Sumitomo Rubber Europe
B.V. (incorporated by reference, filed as Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-1927). |
|
|
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|
(u) |
|
Shareholders Agreement for the Europe JVC, dated as of
June 14, 1999, among the Company, Goodyear S.A., a French
corporation, Goodyear S.A., a Luxembourg corporation, Goodyear
Canada Inc., and Sumitomo Rubber Industries, Ltd. (incorporated
by reference, filed as Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-1927). |
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(v) |
|
Amendment No. 1 to the Shareholders Agreement for the
Europe JVC dated April 21, 2000, among the Company,
Goodyear S.A., a French corporation, Goodyear S.A., a Luxembourg
corporation, Goodyear Canada Inc., and Sumitomo Rubber
Industries, Ltd. (incorporated by reference, filed as
Exhibit 10.2 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2004, File
No. 1-1927). |
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|
|
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|
(w) |
|
Amendment No. 2 to the Shareholders Agreement for the
Europe JVC dated July 15, 2004, among the Company, Goodyear
S.A., a French corporation, Goodyear S.A., a Luxembourg
corporation, Goodyear Canada Inc., and Sumitomo Rubber
Industries, Ltd. (incorporated by reference, filed as
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004,
File No. 1-1927). |
|
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|
|
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|
(x) |
|
Amendment No. 3 to the Shareholders Agreement for the
Europe JVC dated August 30, 2005 (incorporated by
reference, filed as Exhibit 10.1 to the Goodyears
Registration Statement on Form S-4, File
No. 333-128932). |
|
|
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|
|
|
|
(y) |
|
Amendment dated as of March 3, 2003, between the Goodyear
and Sumitomo Rubber Industries, Ltd. amending certain provisions
of the alliance agreements (incorporated by reference, filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004,
File No. 1-1927). |
|
|
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|
|
|
|
(z)* |
|
Letter agreement dated September 11, 2000, between the
Company and Robert J. Keegan (incorporated by reference, filed
as Exhibit 10.1 to Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000,
File No. 1-1927). |
|
|
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|
|
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|
(aa)* |
|
Supplement and amendment to letter agreement between the Company
and Robert J. Keegan dated February 3, 2004 (incorporated
by reference, filed as Exhibit 10.2 to Goodyears
Annual Report on Form 10-K for the year ended
December 31, 2003, File No. 1-1927). |
|
|
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|
|
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|
(bb)* |
|
Form of Restricted Stock Purchase Agreement (incorporated by
reference, filed as Exhibit 10.3 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2004, File No. 1-1927). |
|
|
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|
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|
(cc)* |
|
Stock Option Grant Agreement dated October 3, 2000, between
the Company and Robert J. Keegan (incorporated by reference,
filed as Exhibit 10.3 to the Companys Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2000, File No. 1-1927). |
|
|
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|
(dd)* |
|
Form of Performance Equity Grant Agreement (incorporated by
reference, filed as Exhibit 10.3 to Goodyears Annual
Report on Form 10-K for the year ended December 31,
2003, File No. 1-1927). |
|
|
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|
|
|
|
(ee)* |
|
Copy of Hourly and Salaried Employees Stock Option Plan of the
Company as amended September 30, 2002 (incorporated by
reference, filed as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002, File No. 1-1927). |
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|
II-7
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|
Exhibit | |
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Table | |
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|
Exhibit | |
Item No. | |
|
Description of Exhibit |
|
Number | |
| |
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| |
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|
|
(ff)* |
|
Forms of Stock Option Grant Agreements for options and SARs,
Part I, Agreement for Non-Qualified Stock Options, and
Part II, Agreement for Non-Qualified Stock Options with
tandem Stock Appreciation Rights (incorporated by reference,
filed as Exhibit 10.4 to Goodyears Annual Report on
Form 10-K for the year ended December 31, 2003, File
No. 1-1927). |
|
|
|
|
|
|
|
(gg)* |
|
Schedule of Outside Directors Annual Compensation
(incorporated by reference, filed as Exhibit 10.2 to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2005, File No. 1-1927). |
|
|
|
|
|
|
|
(hh)* ** |
|
Schedule of Salary and Bonus for Named Executive Officers. |
|
|
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|
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|
(ii)* |
|
Forms of Stock Option Grant Agreements for options and SARs
granted under the 2005 Performance Plan, Part I, Agreement
for Incentive Stock Options, Part II, Agreement for Non-
Qualified Stock Options, and Part III, Agreement for
Non-Qualified Stock Options with tandem Stock Appreciation
Rights (incorporated herein by reference, filed as
Exhibit 10.1 to Goodyears Quarterly Report on
Form 10-Q filed October 27, 2005, File
No. 1-1927). |
|
|
|
|
|
|
(jj)* |
|
Form of Performance Share Unit Grant Agreement for the 2005
Performance Plan (incorporated by reference, filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K filed February 27, 2006, File
No. 1-1927). |
|
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12 |
|
|
Statement re Computation of Ratios |
|
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|
(a) |
|
Statement setting forth the Computation of Ratio of Earnings to
Fixed (incorporated by reference, filed as Exhibit 12.1 to
the Companys Annual Report on Form 10-K for the year
ended December 31, 2005, File No. 1-1927). |
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21 |
|
|
Subsidiaries |
|
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|
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|
(a) |
|
List of subsidiaries of the Company at December 31, 2005
(incorporated by reference, filed as Exhibit 21.1 to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2005, File No. 1-1927). |
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23 |
|
|
Consents of Independent Registered Public Accounting Firm |
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(a) |
|
Consent of PricewaterhouseCoopers LLP. |
|
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23.1 |
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24 |
|
|
Powers of Attorney |
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|
(a)** |
|
Powers of Attorney of Officers and Directors signing this report. |
|
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25 |
|
|
Form T-1 Statement of Eligibility |
|
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|
(a)** |
|
Statement of Eligibility. |
|
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|
* |
Indicates management contract or compensatory plan or
arrangement. |
** |
Previously filed. |
The undersigned registrant hereby undertakes:
|
|
|
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement: |
|
|
|
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933; |
|
|
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or |
II-8
|
|
|
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of the securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement; and |
|
|
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement; provided, however,
that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-8, and the information
required to be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement;
provided further, however, that paragraphs (1)(i), (1)(ii) and
(1)(iii) do not apply if the registration statement is on
Form S-3 or Form F-3 and the information required to
be included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission
by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Act of 1934 that are
incorporated by reference in the registration statement, or is
contained in a form of prospectus filed pursuant to
Rule 424(b) that is part of the registration statement. |
|
|
|
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof. |
|
|
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering. |
|
|
(4) That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser: |
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|
|
(i) If the registrant is relying on Rule 430B: |
|
|
|
(A) Each prospectus filed by the registrant pursuant to
Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and |
|
|
(B) Each prospectus required to be filed pursuant to
Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering
made pursuant to Rule 415(a)(1)(i), (vii), or (x) for
the purpose of providing the information required by section
10(a) of the Securities Act of 1933 shall be deemed to be part
of and included in the registration statement as of the earlier
of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As
provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration
statement relating to the securities in the registration
statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof. Provided, however, that no statement
made in a registration statement or prospectus that is part of
the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such effective date; or |
II-9
|
|
|
(ii) If the registrant is subject to Rule 430C, each
prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in
a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use. |
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|
|
(5) That, for the purpose of determining liability of the
registrant under the Securities Act of 1933 to any purchaser in
the initial distribution of the securities: |
|
|
The undersigned registrant undertakes that in a primary offering
of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method
used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell
such securities to such purchaser: |
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|
|
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424; |
|
|
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant; |
|
|
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and |
|
|
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser. |
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by them is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Akron, State of Ohio, on the
21st day of March 2006.
|
|
|
The Goodyear Tire & Rubber Company |
|
|
|
|
Title: |
Senior Vice President Business |
|
|
|
Development and Treasurer |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
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|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Robert J. Keegan |
|
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer) |
|
|
|
*
Richard J. Kramer |
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) |
|
|
|
/s/ Thomas A. Connell
Thomas A. Connell |
|
Vice President and Controller
(Principal Accounting Officer) |
|
March 21, 2006 |
|
*
James C. Boland |
|
Director |
|
|
|
*
John G. Breen |
|
Director |
|
|
|
*
Gary D. Forsee |
|
Director |
|
|
|
*
William J. Hudson |
|
Director |
|
|
|
*
Steven A. Minter |
|
Director |
|
|
|
*
Denise M. Morrison |
|
Director |
|
|
|
*
Rodney ONeal |
|
Director |
|
|
II-11
|
|
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|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Shirley D. Peterson |
|
Director |
|
|
|
*
Thomas H. Weidemeyer |
|
Director |
|
|
|
|
*By: /s/ Thomas A. Connell |
March 21, 2006 |
Thomas A. Connell
Attorney-in-fact for each
of the persons indicated
II-12