Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Goodyear Tire and Rubber Co. Second Quarter Earning Conference Call. [Operator Instructions] It is now my pleasure to hand the program over to Mr. Greg Fritz, Vice President of Investor Relations.

Thank you, Christy, and good morning, everyone, and welcome to Goodyear's second quarter conference call. Joining me today are Rich Kramer, Chairman and the CEO; and Darren Wells, Executive Vice President and CFO. Before we get started, there are a 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. Rich will provide a business overview, including perspective on our second quarter results and our progress on 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 will now turn the call over to Rich.

Great. Thanks, Greg, and good morning, everyone. We look forward to discussing our business which continues to do well in this uncertain environment. For the past several months, we have all seen increasing uncertainty in the global economy and its effect on virtually every industry and business. Beginning with the great recession of late 2008, and continuing with today's volatility in Europe, this has been a time of immense challenges. Yet our second quarter results gives us confidence that we have the right strategies in place and we are successfully building our business to better withstand the fluctuations of the tire industry, the marketplace and the global economy. In the second quarter, we delivered $336 million of segment operating income and $85 million in net income. This is a strong result and one that I'm very proud of, given that industry volumes declined to levels similar to those we saw during the depths of the great recession. Now during my remarks this morning, I'll take you through an overview of the second quarter results, offer my perspective on our outstanding performance in North America, address the business situation in Europe and offer an outlook for 2013. I'll begin by taking a look at some of the positives and negatives that stood out during the second quarter. Our North America business delivered record results for any quarter. I'll elaborate on this further in a few moments, but I want to emphasize that these results were not based on volume but rather the structural change we have been implementing to our business model, aimed at creating consistent earnings, positive cash generation and most importantly, industry-leading customer service. For the total company, our gross margin also improved year-over-year, reflective of continued strong price/mix, offsetting what continue to be historically high raw material cost…

Thanks, Rich, and good morning, everyone. Our solid second quarter results continue to reflect the benefit of underlying structural improvements in our business. You can see the result of our improved cost structure and manufacturing footprint in North America. You can see the result of the investment that we've made for growth in Asia, and you can see the improvement in specific businesses like our OE business in North America, where we've made choices that ensure an acceptable level of profitability given the capital and resources we commit to the business. Our results also show areas where we need to make further improvement. Examples include our cost structure and manufacturing footprint in EMEA, and our distribution strategy in Brazil, both opportunities to drive future results. So while there are a lot of macroeconomic factors impacting our results, we're working to ensure that we can deliver in all parts of the cycle, requiring us to focus on continuing the changes in our business model. Turning to the income statement on Slide 10, our second quarter revenue decreased 8% to $5.2 billion, on a 9% reduction in unit volume, and a 6% reduction due to currency translation. Replacement unit volumes decreased 14% during the quarter, while OE volumes rose 6%. The Replacement volume decline was largely attributable to softness in industry volumes globally. The OE strength was predominantly due to higher consumer OE volumes in North America and Asia. Our volumes were also impacted by choices we made, consistent with our long-term strategy to pursue only profitable volume. Revenue per tire increased 8% compared with the prior year, excluding the impact of foreign exchange, reflecting continued progress in price and mix. We generated gross margin of 19.6% in the quarter, representing 100 basis point improvement compared to the prior year, despite lower…

[Operator Instructions] Our first question comes from the line of Itay Michaeli with Citigroup.

Just a couple of questions. First, Darren, I just want to clarify that the pricing commentary, if I heard you correctly, it looks like you think, in the third quarter, the price/mix versus raw should be similar or positive in spite of what you've seen in the last couple of quarters which if my math is correct, is about cost $50 million, $60 million?

No, that was the comment.

Okay, great. And then as I think about your 2013 SOI target, what kind of volume growth do you think you'll need to really gain confidence you can get there? I mean, the comps seem to be getting a lot easier for you as you start looking at 2013, is that low single-digit, mid-single-digit, if you can just kind of help us with that?

Sure. As we look at that, Itay, when we reflect on the last slide of the presentation, the fact that we're assuming that we have 2013 volumes in line with 2010. We had sold about 181 million units in 2010, which was also how many we sold in 2011. We're now looking to be down 5% to 7% this year, and so that 5% to 7% is call it in the area of 10 million or 11 million units. What this would imply then is that we get those units back next year. I mean, that's effectively what this says, we'd be back in that range of 180 million units for 2013.

Okay, that's helpful. And then a couple on just cash flow. It looks like Q2 was a very good quarter there. It seems like you're kind of running a little bit below the full-year CapEx target, and you'll get some working capital relief, I suppose, in the fourth quarter. So can you help us in terms of walking through cash flow in the second half of the year?

Yes. So Itay, I think we'd just stick to the guidance that we provided here and say that don’t read too much into the CapEx. I think, we have taken our CapEx guidance to down a bit to $1.1 billion to $1.2 billion for the year. Previously, we've been at $1.1 billion to $1.3 billion. But I'll still say the full year rate ought to reflect what we're providing in the guidance. So I would stick with that. Working capital, I think our view has been neither a source nor a use on working capital, I think we'll stay with that as well as we look at the full year.

Great. And then just lastly, on cash flow, on Slide 19, it looks like $200 million positive, but then if I equate that to the new definition on Slide 13, which is really helpful by the way, it looks like you're guiding to something like $650 million of free cash flow, I just want to make sure I'm doing that math correctly, in terms of what your expectations are for 2013 because clearly, pretty substantial free cash flow next year?

Itay, I think -- appreciate you raising the point because we do -- we're doing essentially 2 cash flow metrics that we're showing here. And we are maintaining both of them because we made -- we laid out our targets last year, based on slide 19. The metric on Slide 13 is a bit different. I think the bottom line is that on Slide 13, if you take the free cash flow from operations and then reflect the pension contributions in it, we're expecting to be cash flow positive on Page 19. So I think, directionally, you're reconciling the 2 correctly. And we're coming back to a positive cash flow outlook for 2013, not just as free cash flow from operations, but total cash flow after we take into account pension and restructuring costs.

Your next question comes from the line of Rod Lache with Deutsche Bank.

Just hoping you can, first of all, elaborate on that comment you made about expecting the volumes to come back next year, just to the extent that some of this looks like it was market share as opposed to the market. And maybe you could just explain North America for example, Replacement volumes down 10%. I think the industry was down single-digits and the same goes for Europe, it looked like it was quite a bit more than the overall market?

Rod, maybe I'll take it in 2 parts, maybe first talk about share, and I guess, if you go back to what our strategy is, I think we've been very happy with our focus on targeted market segments. And as we've often said, not volume for volume's sake. So I think we're comfortable with where we're at. And as we look at volumes, obviously, mature markets are growing certainly below their historical trend line. But you also have to remember, this is particularly true in North America, that we've consciously exited unprofitable business. Certainly, we've done that relative to some unprofitable OE fitments but we've also exited, as you know, the low end and a lot of private label fitments, and these we're tough choices for us but I would tell you, the right choices as we manage the business. So our focus continues to remain on profitable share and I think the results in the quarter, again, even particularly in North America, show that, but that philosophy permeates all our businesses and you'll continue to see that coming through. Now relative to volumes in '13, I think the way we look at it, I think number one, that Darren walked you through the percentages and the numbers, the units that we have to bring back. But as we look at that, I think we look at the volume coming back, really from 2 sort of assumptions that we have in there, and the first is not a repeat of the significant deal with destocking that's going on right now; and secondly, some moderate growth. And I think, if you dissect the businesses by region, we think those are certainly reasonable assumptions as we go forward. In my remarks, I kind of walked you through a picture of North America and the sort of the dealer destocking event that's going on. I think that, that similar event is happening within Europe as well. So as we look to '13, we don't envision that same thing happening again. That gives us an opportunity for growth. And again, there is an opportunity for certainly moderate growth in the other geographies as well. So that's how we think about the '13 volume increase.

Is there restocking next year post labeling or is that not a factor?

Pardon me, Rod?

Is there restocking? To some extent, I think, you'd commented previously that the labeling implementation might actually be contributing to the destocking? Then are you assuming that there is restocking next year post labeling?

Rod, I don't think that given everything going on, that we're assuming a restocking right now. I think, as we think about labeling, everyone -- manufacturers have now voluntarily started labeling tires, but as I mentioned, we really see that really taking hold as we get into 2013. And particularly with the summer selling season, when labeling really takes root, consumers understand it and what have you. So I think the labeling impact will be there, but we're not attributing a restocking particularly to that effect. And I think the reason -- part of the reason for that is just sort of the -- as we've called it sort of a continuation of the muddling through strategy in Europe. And I think that probably alone will keep dealers cautious -- short of solving that problem, dealers will be cautious in terms of rebuilding their inventory. That's our view.

Okay. And Darren, in the past, you've commented on this raw material inflation being a pretty big negative for working capital?

Yes.

It seems like you've had a pretty big drop here since April. Is there some reason why you're not anticipating this as a pretty huge positive for working capital going forward?

Yes. So Rod, I think that the outlook is right and we -- there will ultimately be some benefit from lower raw materials to the extent they stay where they are. If I look at the third quarter though, what we've said is we expect our raw material cost to be flat year-over-year. So if our raw material costs are flat year-over-year for the sales we expect in the third quarter, I think, probably realistic to conclude that the raw materials in inventory, sort of the rates in inventory aren't much different than they were a year ago either. And I think as we get later in the year, some of our higher cost inventory will roll off and there's an opportunity to -- for that to benefit working capital. Having said that, I'm going to stick with my neither a source nor a use view of working capital for the year.

Okay. And just lastly, just any update on restructuring actions in Europe. Obviously, there've been some talk about Amiens possibly being a source of that going forward, just given how weak the volumes are there, is that influencing the pace of restructuring in that region?

Rod, I think we're going to -- as we think about Europe, we're going to stick to the strategies that we've put in place. And recognizing that in the slowing market, our focus on cost is going to have to continue to increase. So Amiens is the path for us to get incremental production out and we're still working on that, we see a path forward. Obviously, that's taken quite some time. And I think, at this point, we'll tell you will continue to look at all aspects of our business as we go forward.

Rod, just one more thing, I guess, that may add to the conversation, and I think appropriately so, is there's no question that there's a lot of production cuts that we're going to have to go through as a result of a lower volume outlook. And what you heard is in the second quarter, we cut 5 million units out of our production schedule, most of that for Europe. We expect we'll take another 5 million out in the third quarter, and we are looking at a number, something like 14 million units this year compared to last year, if we look at our production schedule overall. And when we have those levels of production cuts, there's no question that it makes us feel that it's even more important to get the footprint action completed in Amiens and to take a hard look at our cost structure of our production footprint in Europe overall.

Your next question comes from the line of John Murphy with Bank of America Merrill Lynch.

It's actually Liz Lane on for John. On the 2013 targets, you're still comfortable in general with the full company 2013 targets. For North America specifically, the guidance, it looks like you might reach that target a little early even though the guidance you gave was incrementally somewhat more negative except for consumer OE and raw material cost. Are those 2 items a strong enough benefit to offset the weakness in the Replacement market or do you expect improvement elsewhere in the business for North America in the second half of the year to be able to reach that target early?

The volume situation in North America, I think, you can go back to the guidance that we've given there. But if you -- I'd have you think about hitting our target in North America and we said that we see a path to do that a year early to hit that $450 million a year early. More than volume that's going to get us there is the structural changes we've made in the business going forward -- that we've made so far and will continue to see going forward, around focusing on the targeted market segments where we can get value for our brand, around taking costs down, around aligning our production and our manufacturing, linking it to what the demand signals are in the marketplace and being able to manage our costs that way. So it's not -- the North America strategy is not a volume strategy, it hasn't been and it won't be going forward. So clearly, in our business, volume has an impact, but that's not going to be the key that gets us to the $450 million, it's going to be the things that we talked about.

Okay, great. And can you breakout, by segment, the mix of consumer versus commercial?

So we -- I think, we do provide 2 things, Liz. One, we provide a consumer versus commercial disclosure in the appendix of the slide deck. It's on Page 22 and 23, I think, we're going to provide that for the quarter, as well as for last year [indiscernible] consumer versus commercial...

Right. Do you have that for the full -- for each segment or is that...

I'm sorry?

Do you have that for each segment or is that...

We don’t disclose it by segment.

Okay. And finally, just one more. It looks like -- I mean foreign exchange was a pretty big negative hit and you mentioned that you expect about $60 million negative impact for the year. Can you just remind us what the total impact was -- has been year-to-date and what you expect incrementally for the rest of the year?

The question is year-to-date foreign exchange impact on segment operating income or on sales?

On segment operating income.

On segment operating income. Okay. So I think about $15 million year-to-date.

Your next question comes from the line of Aditya Oberoi with Goldman Sachs.

Can you talk a little bit about pricing in the back half. What are you hearing given that raw materials have pulled back? Are you getting some pushback on rolling back some of the pricing that you implemented earlier?

So I think -- and the first place to look at is the performance we had in price/mix in the quarter and I think that's a good indication of what we've been doing for, now I think 5 quarters in a row, where we've offset price/mix with raw material. And that pricing power around our products and around the value proposition is holding us in good stead as we look at the environment that we're in right now. So I think, over the balance of the year, we still see price/mix being ahead of raw materials as Darren went through. And from a marketplace perspective, I would say that the price pressure probably is more in the context of not getting the incremental price increases that we had perhaps planned on as opposed to rolling back existing prices.

The only thing I would add to that is that there -- we do have raw material index agreements in a number of our contracts, and that would apply predominantly to OE and to fleet, commercial fleet agreements. And in those contracts, we will make adjustments downward for lower raw material cost. Just as when raw materials rise, we adjust upwards. So when you see our price/mix for the remainder the year, you have to keep that in mind as well.

Got it. But on -- I would say more on the retail side, you guys are not forcing any kind of price rollbacks?

No.

Okay, great. My second question was on the demand on the Replacement side, specifically in North America. What do you think is kind of causing the delay in people coming back and replacing their tires? Is it the macro economy or is it just that the tires are still very expensive?

No, I think it's the macroenvironment. And I think the consumer confidence numbers certainly show that. And it's understandable as we think about what consumers are doing. But I would say, as we look at the miles driven numbers, as miles driven is increasing, tread rubber is being sort of burned off as we go, therefore, those tires have to be replaced at some point in time. And I think the fundamentals point toward that happening. As we said, it's a question of if, not when. Some uptick in the economy may trigger that but we certainly see some need for it just as I said, as people drive more.

Got it. And finally, on your North America SOI target. Obviously, you guys had a very strong 2Q, you pulled forward your SOI target, margin target for North America. Like what are the points you think that you cannot sustain the 7%, 7.5% performance going forward?

That we can't sustain that?

Yes.

I think, number one, our goal is to not only sustain the $450 million, the earnings power of the business, but to grow it going forward. And again, I think, there's a view that volume is going to have an impact on that. And certainly, it may, but ultimately, it's the structural changes that we're making in the business is what gives us confidence to the consistent and sustainable earnings power of the business. As you look at Q2, it's a stand-alone quarter, we do have the impact of seasonality in there as well. But I would tell you, that's a normal occurrence, that's not something that is unique to North America's performance as we think about it over the long term.

Your final question comes from the line of Brett Hoselton with KeyBanc.

In looking at your volume guidance for the year, it appears, relative to your peers, that you're taking a more conservative stance towards the back half of the year. I'm wondering if I'm interpreting that correctly or is that more of a reflection of a difference in your business profile possibly.

Brett, I think it's a good question. I think it's reflective of how we look at things and it really reflects our proactive planning relative to what we're seeing in the industry. So certainly, it reflects the weaker European environment that we've talked about, but it also reflects what we see as further dealer destocking, particularly in Europe, as we see the balance of the year. And as I've often said, not a throwaway of words. As we think about our business, we're not managing it just for the quarter or the year. As we look at this, we want to make sure that we get our business best positioned as we can for the environment that we're working in. And again, that's always going choose cash over volume. And what you see are some of the perspectives that we have and our proactive approach to it. That's how we think about it and that's going to drive our decisions as we go forward. So I think that's the underlying view that we would give you.

And then as we think about pricing into the back half of the year, you've got the additional impact, I mean, you obviously -- raw is coming down and there's substantial pressure there, but also the additional impact of the tariff. Maybe you could discuss what you think the potential impact of the tariff would be on pricing in general for Goodyear? And then secondly, it would seem that pricing is going to be negatively impacted by declining raws, is there some reason to believe that you think that it's more sustainable as opposed to maybe a slow drift off along with the raws?

So I think the question on tariff, I'll give you a view as we think about those coming off. And really, Brett, the answer there is that part of the market has really not been the place that Goodyear plays. It hasn't had a significant impact to us as we've seen the tariffs in place the last 3 years and we've moved up market. And I think as these tariffs come back, it's going to be not in our targeted market segments. So that's the perspective I'd give you on that. And in terms of price in the second half or over the long-term, Brett, what I'd have you think most about here is, again, the value proposition that we're offering, the cadence of innovation, the new products we have out there that's allowing us to get value in the marketplace. And the second thing which I think is an important point for us to continually to stress is that over the long term, we see raw materials increasing to levels above where they are today. The trend of raw materials for a variety of reasons that we could talk through are going to increase over time as the economies grow again. And natural rubber, just to single one out, is down right now, it's come down, I think, from $1.60 the last time we talked, to about $1.30, even a little bit below that today. But over the long-term, raw material prices are going to increase and our view is to offset, our philosophy is that we're going to offset those raw materials with price and with mix. Okay. Everybody, thanks very much for listening today.

And that concludes today's conference call. You may now disconnect.