AKRON, Ohio, Dec. 29 /PRNewswire-FirstCall/ -- The Goodyear Tire & Rubber Company announced today that it expects to realize substantial cost savings as a result of a master contract ratified December 29 by members of the United Steelworkers union.
Provisions of the three-year contract provide Goodyear with the ability to achieve up to $610 million in cost savings over its term and $300 million a year in ongoing savings. Compared with 2006 pre-strike levels, savings are expected to total $70 million in 2007, $240 million in 2008 and $300 million in 2009. (See attached savings table)
The agreement provides the transfer of responsibility for all current and future retiree health care liabilities for Goodyear's USW workforce to a VEBA trust, reducing a significant portion of the company's legacy costs.
"Reaching agreement on a contract that competitively positions Goodyear for the future is a huge achievement for everyone involved in the negotiation process," said Robert J. Keegan, chairman and chief executive officer. "The end result is Goodyear will be a stronger company, a stronger employer and a stronger overall global competitor."
The master contract, which covers workers at 12 tire and engineered products factories in the United States, gives Goodyear the ability to reduce excess high-cost manufacturing capacity, lower legacy costs, improve productivity and source product globally.
The agreement provides for investment of $550 million over three years in the company's USW facilities to make them more efficient and productive in manufacturing high-value-added branded products. Additionally, the contract provides improved job security for the vast majority of the company's 12,600- member USW workforce.
There were three primary areas of focus in the negotiations: excess high- cost manufacturing capacity, legacy costs and productivity including wage costs. The ratified contract achieves Goodyear's objectives and enables cost savings initiatives in each of these areas, according to the company. Key elements of the contract include:
Reducing Excess High-Cost Manufacturing Capacity
- The company will close its Tyler, Texas, plant after December 31, 2007,
thereby eliminating 9 million units of high-cost tire capacity and
yielding approximately $50 million in annual savings.
- The company had previously announced a goal to eliminate 15 to 20
million units of high-cost tire capacity by 2008. With the Tyler
closure, Goodyear will have eliminated 14 million units toward this
goal.
Reducing Legacy Costs While Securing Health Care Benefits
- Goodyear will transfer all USW retiree medical obligations to a VEBA
trust (subject to court and regulatory approvals)
- Goodyear's up-front contribution to the trust of $1 billion will
consist of at least $700 million in cash with the balance in additional
cash or common stock at the company's option.
- Goodyear will reduce OPEB expenses annually by an estimated $110
million and improve cash flows by $145 million annually compared with
2006.
- After the VEBA is established Goodyear will eliminate all current and
future OPEB liability related to the USW work force, which represents
more than half of the company's projected benefit obligation for post-
retirement benefits.
Increasing Productivity
- Lower-cost wages and benefits for new hires during the first three
years of employment.
- Incentive systems have been designed to improve productivity.
- The expected combined benefits realized from the new wage structure and
additional productivity initiatives would total a savings of $300
million over the three-year contract. Compared to 2006 rates the
ongoing annual savings will total $155 million by 2009.
- Goodyear will invest $550 million over three years to modernize its
North American plants.
Other Terms of Contract
- Goodyear has agreed to profit sharing of up to $25 million in 2009 and
up to $30 million in 2010.
- Goodyear has also agreed to restoration of pension service resulting in
a cost of approximately $13 million annually.
The 12 master contract plants and their workers covered by the agreement are: Akron, Ohio; Buffalo, N.Y.; Danville, Va.; Fayetteville, N.C.; Gadsden, Ala.; Lincoln, Neb.; Marysville, Ohio; St. Marys, Ohio; Sun Prairie, Wis.; Topeka, Kan.; Tyler, Texas; and Union City, Tenn.
Goodyear will address the specifics of the new contract in a conference call for investors, financial analysts and media in January. The timing of that call will be announced at a later date.
Goodyear is one of the world's largest tire companies. The company manufactures tires, engineered rubber products and chemicals in more than 100 facilities in 29 countries around the world. Goodyear employs about 80,000 people worldwide.
Certain information contained in this press release may constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various factors, including, with respect to the Voluntary Employee Beneficiary Association (VEBA), whether or not the various contingencies and requirements are met for the establishment of the VEBA, including the receipt of the necessary court and regulatory approvals. There are a variety of additional factors, many of which are beyond the company's control, which affect its operations, performance, business strategy and results and could cause its actual results and experience to differ materially from the assumptions, expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to, actions and initiatives taken by both current and potential competitors, increases in the prices paid for raw materials and energy, the company's ability to realize anticipated savings and operational benefits from its cost reduction initiatives, including those expected to be achieved under the company's master labor contract with the United Steelworkers and those related to the closure of the company's Tyler, Texas facility, potential adverse consequences of litigation involving the company, pension plan funding obligations as well as the effects of more general factors such as changes in general market or economic conditions or in legislation, regulation or public policy. Additional factors are discussed in the company's filings with the Securities and Exchange Commission, including the company's annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.
Expected Savings from USW Contract versus Pre-Strike Levels
$, millions
2007 2008 2009 Total
Reduced Capacity -- $25 $50 $75
Reduced Legacy Costs $55 $110 $110 $275
Increased Productivity $30 $115 $155 $300
Other Terms ($15) ($10) ($15) ($40)
Total $70 $240 $300 $610
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