Good morning. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Goodyear First Quarter 2012 Financial Results Conference Call. [Operator Instructions] Greg Fritz, Vice President of Investor Relations, you may begin your conference.

Thank you, Gina, and good morning, everyone. Welcome to Goodyear's first quarter conference call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer; and Darren Wells, Executive Vice President and Chief Financial Officer. Before we get started, there are few items I would like to cover. To begin, the webcast of this morning's discussion and the supporting slide presentation can be found on our website at investor.goodyear.com. Additionally, a replay of this call will be available later today. Replay instructions were included in our earnings release issued earlier this morning. If I can now direct your attention to the Safe Harbor statement on Slide 2. Our discussion this morning may contain forward-looking statements based on our current expectations and assumptions that are subject to risks and uncertainties. These risks and uncertainties, which can cause our actual results to differ materially, are outlined in Goodyear's filings with the SEC and in the earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Turning now to the agenda. On today's call, Rich will provide a business overview, including perspective on our first quarter results and our progress and Goodyear's key strategic objectives. After Rich's remarks, Darren will discuss the financial results and outlook before opening the call to your questions. With that, I would like to turn the call over to Rich.

Great. Thanks, Greg, and good morning, everyone. For more than a year, we've discussed Goodyear's strategy roadmap and our destination of creating sustainable value. But during that time, we've seen significant changes and continued volatility in both the business environment and the economic outlook. But despite these changes, we've remained focused on our strategies that we laid out, building towards our destination. We believe that by executing our strategies, we will be competitively advantaged in an industry that is being shaped by the 7 MegaTrends that we've discussed with you previously. Our strategy roadmap journey aligns not only with where the global tire industry is now but more importantly, where it's headed. We continued on that journey in the first quarter of 2012. Our results confirm that we are continuing to make progress on the path to our 2013 target of $1.6 billion in segment operating income. Over the first 3 months of the year, we recorded $292 million in segment operating income and a record $5.5 billion in sales. We achieved these results despite weaker industry volumes and continued high raw material costs. We were once again able to more than offset raw material increases with price mix as our overall revenue per tire increased 16% versus a year ago. And we continue to focus on, and win in, targeted market segments, growing volume and share in many of these profitable segments while selling fewer, low value and private label tires. Now to reiterate my comments from our Q4 call, we are not running our business for one good quarter or one good year, but rather with the consistencies and stability over the long-term to withstand the inevitable ups and downs of the tire industry. The progress in our North America business provides us with a great example of…

Thanks, Rich, and good morning, everyone. While our Q1 results were not as strong as last year, given significantly lower industry volumes, our performance was substantially improved from fourth quarter levels. As North America earnings improvement continued and Asia recognized insurance proceeds that more than offset the impact of the Thailand flood in the quarter. We continue to believe the underlying structural improvements in our business, including the end of the inefficiencies related to the plant closing in North America will support solid earnings growth through 2012 and beyond. Turning to the income statement on Slide 8, our first quarter revenue increased 2% to $5.5 billion on an 8% reduction in volume. Replacement unit volumes decreased 12% during the quarter, while OE volumes rose 4%. It's important to note that our replacement unit volume comparisons were challenging given the very strong performance we had during the prior year in many of our business. Revenue for tire increased 16% compared with the prior year, excluding the impact of foreign exchange. We generated gross margin of 16.7% in the quarter, representing a 70 basis point decline compared to the prior year. As has been the case for several quarters now, the decline is more than explained by increases in both COGS and sales as a direct consequence of higher raw material cost. Selling, administrative and general expense decreased $6 million to $662 million during the quarter. As a percentage of sales, SAG declined 40 basis points to 12%. Excluding the discrete items, our first quarter tax rate as a percentage of foreign segment operating income was approximately 21%. First quarter after-tax results were impacted by certain significant items. The most notable of these was $86 million in charges related to the successful redemption of 10.5% notes which resulted in an unfavorable impact…

[Operator Instructions] Your first question comes from Itay Michaeli, Citigroup.

Just 2 questions. One, Darren, can you just clarify what you just said about pricing and mix? I think may have missed it. I think previously, you were looking for price mix versus raw to be neutral in Q2. I was hoping you can update us a bit more on the comment on price mix.

Yes. So Itay, what I said was that the -- our performance of price mix versus raw materials over the balance of the year ought to be similar to what we saw the last couple of quarters. So when you look at the back of the last couple of quarters, the takeaway is, it was, on average, $50 million or $60 million positive between the 2 of them.

And then just a bigger picture question. You've expressed confidence this morning around the 2013 targets. Just maybe if you could talk a little bit more about what gives you that level of confidence. And maybe perhaps, list some of the headwinds that you faced in the last quarter or 2 that might be somewhat nonrecurring in nature, not saying that they'll definitely non-recur, but things that may be sort of non repeat going to 2013, Thailand for example, the farm tire business. Just if you could talk a little bit more about that, how that plays into perhaps your confidence around 2013?

Itay, no, it's a good question. And I think, the best way to start the answer to the question is just looking at the first quarter performance. With 8% volumes down, we had segment operating income $292 million and I think it's reflective of a lot of the benefit to the actions that we've taken in our business overtime around structural costs and capacity, as well as building in some of the benefits of the business model that we're building. And ultimately, that's what give us the confidence that we'll be able to hit the targets that we have. If we look at it, things like the Union City savings, we mentioned in the call, we're going to get that $80 million as we go ahead. We look at our business model around the combination of innovating, bringing new products to market, putting those products in the right targeted market segments again, being very choiceful about where we're going to play in our business to drive the price mix as we move ahead and then, driving continual operational efficiencies in our business to be able to make more of the right tires that we have and that we need to deliver to our customers, that's what's driving the price mix as we move ahead. And you see that probably best in our North American business, where we've had, what I would say, a very good quarter in terms of doubling our earnings there. In terms of headwinds, as you look at it, I think if we go back to what we said when we met in New York about a year ago, 2 of the key elements that we said we had -- we really were looking to help us get to that target was about a 3% of 5% volume growth. Last year, we were about flat. This year, we just say about minus 2%, you've heard us say. So that's a bit of a headwind. And also, we saw a benefit from pension coming in when we laid this out about a year ago. Clearly, now we have a little bit more headwinds from pension. But as we look at that, those are things that we're going to have to work through. And again, I would say Q1 is evidence that our business model now is one that allows us to have confidence that we could hit those targets. And frankly, our goal is certainly to deliver on those targets but build this business beyond that and drive ourselves to our destination of creating sustainable value for this business over time and being profitable throughout the cycles.

Your next question comes from Rod Lache of Deutsche Bank.

It's actually Pat Nolan on for Rod. A couple of questions. First on the free cash flow, 1.1 burn in the quarter, I know that includes the pension contribution. How should we think about the working capital for the balance of the year and are there going to be other call backs on what's been used over the past, I guess, it's been a 1.25 years now?

Yes. Pat, I think it is a good question. And I think, ultimately, we're going to come back to the fact that we see working capital as neither a source nor a use for us the full year. So in the first quarter, we saw a seasonal build similar to what we saw a year ago. In addition, we had the pension contributions that we made that were higher than last year. So what we've got there was largely what we would have expected to get. I will make a comment about inventory though, because if there's one area that we're focused on, it is inventory. We did see an uptick in the first quarter inventory. We saw an uptick in Q4 as well and both of those, given the soft volume environment declines in the -- and ultimately, declines in the industry unit demand. So we've taken actions in Q4 and Q1 to cut production. And so we're taking steps to proactively manage inventory, deal with our cost position. We'll take additional actions during the second quarter and the remainder of the year as we need to but we come back and say, given the first quarter volume was soft, and what we see for the balance of the year is essentially unchanged from what we have previously expected, volume-wise, we'll get some improvement in demand for the first quarter levels. And those, along with the production actions we've taken are going to get our inventories in line for year end and bring us back to working capital being neither a source nor a use for 2012.

Just another couple of quick ones. Just on the Union City run rate, are we at the full $80 million annual run rate in the first quarter or does that improve going forward?

What we saw in the first quarter, we get the savings of essentially $20 million a quarter for the Union City closure. But we continue to have that offset by the inefficiencies that are created by moving those Union City products to other North American factories. So we get those transitory cost that we saw in Q4, we also see Q1. Q1 is the last quarter where we're going to see those. So in Q2, you still get the $20 million of savings but you're not going to have those offsets with the product transfer inefficiencies. So that said, that there is continuing improvement for North America in Q2 and the remainder of the year versus Q1.

Just one last one. On the commercial vehicle business, is there a material difference as far as a percent of your volume that the commercial vehicle industry represents in Europe and North America. I know it's higher in Latin America but when you look at North America versus Europe, is one of those regions more significant?

No, no. They're about the same.

Your next question comes from John Murphy, Bank of America Merrill Lynch.

This is actually Elizabeth Lane on for John. You may just have answered this on Pat's question but I just wanted to confirm. So your reduced full year outlook for tire volumes, is that really just a result of the first quarter being weaker than expected or does it seem like Q2 and onward might be a little worse than previously expected as well?

Now listen, I think, you understood it correctly.

Okay, great. And you mentioned that you expect solid earnings growth in 2012 and beyond, should we be thinking about that as -- that earnings growth as net income basis or on an operating income basis? And besides the cost savings coming through better in the rest of the year, in such a sluggish volume environment, do you think -- what do you think are the biggest drivers of that solid earnings growth?

Yes, so I think the -- as we look at -- I mean, first of all, the measurement that we use for our segment operating income that doesn't show our target when we make those comments generally, that's what's we're referencing. I think Itay asked a question about some of things that our headwinds force now that won't be there going forward. And I think we talked about, one, which is the transition cost around moving products from Union City to other factories in North America. Clearly, that's going to be an improvement. This is the -- first quarter was the last quarter where we'll take the impact of having sold the farm business in Latin America. So that's behind us now. The recovery and the full recovery in the Thailand factory, that's something that is going to be behind us. And those are of a one-time nature. If we look beyond that, we're looking to get volume growth back, so we're expecting and planning for volume growth in 2013, after having flat volumes last year and volumes slightly declining this year, particularly in the first quarter. I think balance of the year, we expect them to be essentially flat. In addition to that, we should see some continued improvement in unabsorbed overhead. We have expected some improve this year. What you'll see now is that we expect it to be essentially flat to last year but that still leaves us with a significant amount of factory utilization benefit that we can get going forward. And we take all that, you can also add to that the fact that our pension expense, given the contributions that we're making this year, our pension expense will be down next year in the range of $50 million. So we have a number of things there that are going to help us that are discrete in nature in addition to just expecting better industry environment. So, Rich?

I would add 2 things. I think Darren has given you a very good, almost a walk of how you could go through that. I'd emphasize one and add another and that's the benefits, just remind you, the benefit of volume. Darren mentioned unabsorbed overhead. Remember, we were flat last year. Year-over-year, down 2%. This year, as we look at it, the thing I'd remind everyone is ultimately the volume that we seek today will get better. Now the exact timing of that, obviously, is a little bit hard to predict. But as we look at where we were, say prerecession, there was sort of a sentiment that volume was going to go up and it wasn't going to decrease anymore. Now, we're in a situation where certainly volume is moderated because of the great recession. But I would tell you, we will get back to the higher levels than we are today. And that volume going through our plants given that the business model that we're structuring will be very valuable to us. And the second thing is as we look at our plans in 2012 and beyond, we're continually making a higher mix of products that's driving what we're selling in the marketplace, supporting the price/mix and supporting our ability to win in those targeted market segments. We've made more of those in 2012, we'll make more of them in 2013. And as we get the benefits of the capital investments we're making in all of our factories around the world, that's going to continue to improve as well.

Okay, right. Yes, that makes sense for getting to your 2013, that's how I targeted. So I just wanted to confirm that you're expecting SOI high-growth in 2012 versus 2011.

Yes. We're not giving specific guidance on that. I think we're giving you an indication that what we see is some things that's clearly going to help us grow earnings going forward.

Your next question comes from Ravi Shanker, Morgan Stanley.

The start-up costs in China and the Thailand impact and even the European plant impact, were not nearly as high in 1Q as you were expecting? Is there something lumpy going on there because even your guidance remains unchanged and it did much better than what's your guidance?

The question's about the Thailand -- the impact of the Thailand flood, we experienced volume losses and extra expenses related to the flood, both in Q4 and Q1. The difference is that in Q1, we recognized insurance proceeds. And effectively, what we got was -- and insurance proceeds are recognized as a claim gets processed. So it's a little bit lumpy. And what we saw is that on the fourth quarter, we got hit with over $20 million of impact from the Thailand flood. First quarter had significant impact as well, but we actually got enough insurance proceeds recognized in Q1, that we -- not only did we offset all of the Q1 impact, but we actually got a little bit of money back from what we lost in Q4. So what you see in -- and you see this in Asia Pacific most notably, is you see a slight positive impact of the Thailand flood in Q1 because we got the insurance.

And Ravi, that's consistent with how we laid it out back to Q4 as well.

Got it. And what about the China plant? I mean, is that fairly consistent for the year as well?

Yes, so the China start-up is really no change to our outlook there. Maybe a little bit of timing, we're a couple of million dollars lower run rate in Q1 but the outlook for the full year hasn't changed.

Also your Latin America margin stepped up nicely sequentially versus the last 3 quarters. How are the -- how will you characterize the competitive and pricing environment there now?

Ravi, I would say it's really a continuation of what we saw sort of through the back half of last year. Latin America, for us has been and we believe will continue to be an excellent markets for us where our brand has tremendous value. What we're seeing there, and I've mentioned this in the past is that you see instability from time to time in Latin America, is sort of the one thing that you can count on and we're seeing a bit of that right now. But clearly, from a competitive standpoint, with the exchange rates in Brazil, certainly impacting domestic manufacturers in a variety of industries, certainly, we're in that group, where we see imports coming in at a lower cost given the exchange there. So that's been a headwind for us. But something that we're working our way through. And frankly, the way we're working our way through is really applying the same strategies that we have. We're investing in our Americana factory to make more of the HVA tires that helped distinguish our brand and our products from lower-end competitors. The same things go forward in places like Venezuela and now even a bit more in Argentina, where we see a lot of the political instability that I think all of you are certainly familiar with. So those present both opportunities and headwinds, and again, I think those are things that are temporal, we'll work our through them. We've worked through them in the past and I'm very confident we'll do it again. Our product lineup there is very good, our brand is excellent, our distribution is excellent, our commercial truck tires are probably better than they've ever been. So competitively, I think, we're very well-positioned and we're confident we'll work through the situation there.

Great. And then just a follow-up on the previous question on the insurance proceeds. That is split out as a special item, right? So that's not actually in adjusted SOI?

The benefit of that will be reflected in SOI in Asia Pacific, there is a small impact that's in corporate as well. But there is -- but most of that is reflected in Asia Pacific.

Your next question comes from the line of Saul Ludwig, Northcoast Research.

A couple of quickies here. The interest expense that you look at for the rest of the year is a much lower rate than what you incurred in the first quarter. What is giving rise to this more favorable trend in interest expense?

Yes. It's a good question because there is an adjustment that is -- it's a $13 million adjustment reflected in the interest expense line this quarter related to prior-period capitalized interest. So we've adjusted -- it was effectively was $2 million to $3 million a year over several years that we needed to put back into interest expense this year. So that's a one-time effect in the first quarter. Even with that, we have not changed our full year guidance. So you can see that as a one-time blip in the first quarter.

So the $360 million, the $385 million excludes the $13 million?

No, it includes the $13 million. So you can think, we got the $13 million which was essentially an unexpected increase. We actually -- we did the bond refinancing in the first quarter, the interest rate on that was actually a bit better than we expected. So the 2 are essentially netting against each other.

Got you. So the run rate going forward is going to be $75 million, $80 million a quarter, it sounds like.

Yes, so if you think about the interest expense without that one-time adjustment, it was about $88 million for the quarter.

Could you discuss the update on the whole issues in France, in Amiens and the Union and it's been lingering for a long, long time. I'm sure it's certainly frustrating to you guys. Any progress there? Any light at the end of the tunnel?

Saul, I think Amiens is one that we've been working through what is a very difficult labor environment in France. I would tell you that we continue to move ahead and we have progress being made. But frankly, to put a time line on that is difficult at this point. We'll continue to explore all the different alternatives that we have. We have confidence that ultimately, we'll get to a conclusion there. But again, it's very difficult to put a time period on it at this point.

And then my final question. In your 2013 goals, which was the $1.6 billion in segment operating income. Now you've highlighted, Rich, that a couple of items aren't moving as you expected, volume and pensions toward that. But when you put the $1.6 billion goal together, does that include other sort of specials, like continued start-up costs and truck tire manufacturing in China, maybe some repositioning of France, other issues that would be a negative, are they baked into the $1.6 billion SOI?

Yes, I mean. Saul, those 2 items in particular that you're mentioning are in our thinking and in our path to that $1.6 billion. So we can't speak to all the things that may have come along the way but certainly, those things we're aware of are baked into our thinking. And again, I've kind of gone through some of the ways we have confidence, we can get there. I think Darren articulated a few other things. So we're putting it all together and despite those headwinds, we're still on path to get to that number.

The final question comes from Anthony Deem, KeyBanc Capital Market.

This is actually Brett Hoselton. A couple of thoughts here. First of all, sequentially, it sounds to me -- I mean, you've given us an outlook for price mix, raws, volumes and so forth. It sounds like as you move into the second quarter, we're going to get an incremental benefit from Union City of about $20 million. It sounds like the Thailand situation is kind of maybe a push going into the second quarter. Are there any other significant variables, as we move from the first quarter to the second quarter, unusual items or anything like that, that affected maybe the first quarter or will affect the second quarter?

Brett, I think you raised the Thailand question, we got the insurance proceeds in the first quarter. We actually don't expect to have those in the second quarter. So the impact from Thailand, you might actually see as bad news in Q2 versus Q1. That's our expectation. And then later in the year, as we settle the claim, we expect we may get to recognize more insurance proceeds. But that's kind of a lumpy process. So Q1 is probably better than Q2 for the Thailand effect. Other than that, and the fact that we get past the transitory cost for Union City, I don't think that there's a lot else that we would point to there. Obviously, we're expecting that volumes will be flat in Q2 after being relatively flat Q2 or through the rest of the year, I should say. Certainly, the year-over-year volume picture, we'd expect to be better than it was in Q1, but other than that, Rich...

I think it's fairly straightforward at this point.

And as we think about the third quarter, last year, you benefited from a very good winter tire season and obviously, benefiting your price mix. You've already given us some commentary on price mix for the remainder of the year, and I'm wondering, as we think about the third quarter, that seems like a really difficult comp but it sounds like you're suggesting that we can possibly see a $50 million to $60 million price mix over raws benefit as we move to the second, third and the fourth quarter. Am I hearing you correctly?

Yes. So I think, we're not saying that it's going to happen the same way every quarter. We're just giving an indication I guess, of generally, how we see it. So we see the trends from the last couple of quarters being a good way to think about the remainder of the year. But it's not meant to be a particular point for each and every quarter.

Okay. Thanks, everyone. We appreciate you listening today and we'll speak with you next quarter. Thank you very much.

Thanks.

This concludes today's conference. You may now disconnect.