Good morning. My name is Kevin, and I will be your conference operator today. At this time, I would like to welcome everyone to The Goodyear Tire & Rubber Company Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the program over to Greg Fritz, Goodyear's Vice President of Investor Relations.

Thank you, Kevin, and good morning, everyone. Welcome to Goodyear's Fourth Quarter 2012 Conference Call. Joining me today are Rich Kramer, Chairman and CEO; and Darren Wells, Executive Vice President and CFO. On today's call, Rich and Darren will discuss our fourth quarter results, 2013 outlook and review the pension strategy we announced this morning. Before we get started, there are a few items I need to cover. To begin, the supporting slide presentation for today's call can be found on our website at investor.goodyear.com. 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. Today's presentation includes some forward-looking statements about Goodyear's future performance. Actual results could differ materially from those suggested by our comments today. The most significant factors that could affect future results 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. The financial results presented are on a GAAP basis and in some cases, a non-GAAP basis. Non-GAAP financial measures discussed in the call are reconciled to the U.S. GAAP equivalent as part of the appendix to the slide presentation. With that, I will now turn the call over to Rich.

Thank you, Greg, and good morning, everyone. Thanks for joining us today. Today I'll discuss our fourth quarter and full year results, elaborate on significant progress we have made, comment on the areas where we face challenges and discuss our plans to address these challenges. I'll also provide some perspective on the year ahead. But let me say upfront that overall, I'm particularly pleased with our fourth quarter and full year results and the execution of our strategy. The exception, however, is Europe as its economy continues to worsen despite some recent financial stability. Now before I get started, let me provide some context. Industry volumes in 2012 were a challenge throughout the year, and in particular, mature markets were close to levels that we saw during the great recession. In the U.S., the economy improved, lifting OE sales, but replacement volumes remained depressed. In Europe, economic weakness continued, and consumer sales, which had been resilient in 2011, became increasingly weaker throughout the year. Though Latin America and parts of Asia were stable, growth was not robust, and some of our key markets, such as Australia, were extremely weak. That provides the backdrop for both our success and our challenges in 2012. Overall, our segment operating income for 2012 was just over $1.2 billion, marking the second year in a row and only the third time in the company's history that we've reached that level of performance. Now in addition, we delivered strong cash results for the year as our progress on working capital helped generate $700 million of free cash flow from operations. These positive results were driven by strong performance in 3 of our 4 businesses. In Latin America, we delivered solid fourth quarter results that reflect a stabilizing business. Investments in our operations in Brazil are helping…

Thanks, Rich. We have quite a bit of material to cover today, so I'll keep my fourth quarter remarks brief to leave more time to discuss our pension strategy, our 2013 outlook and your other questions. Turning to the income statement on Slide 11. Our fourth quarter revenue decreased 11% from last year to $5 billion. The decline primarily reflected a 7% reduction in unit volume and lower third-party chemical sales due to the year-over-year decline in butadiene spot prices. EMEA volumes accounted for about 80% of the overall unit volume decline. Revenue per tire increased 1% compared with the prior year, excluding the impact of foreign exchange, and we continue to benefit from mix improvements, reflecting our ongoing focus on profitable market segments. We generated gross margin of 18.7% in the quarter, a 340-basis-point improvement versus the prior year despite lower volumes. Improvement was largely driven by continued strong price mix performance as we continue to see the benefit of lower raw material costs. Gross margins also reflected strong cost savings. Selling, administrative and general expense decreased $17 million to $707 million during the quarter. Foreign currency translation and lower advertising expenses more than accounted for the decline in SAG. Excluding discrete items, our fourth quarter tax rate as a percent of foreign segment operating income was about 21%. As in 2012, we expect 2013 income tax expense as a percent of foreign segment operating income of approximately 25% to 30%. Fourth quarter after-tax results were impacted by certain significant items. A summary of significant items can be found in the appendix of today's presentation. Turning to the segment operating income step chart on Slide 12, you can see the comparison of operating income compared to the prior year. Favorable raw material costs and price mix were significant drivers…

[Operator Instructions] We'll take our first question from the site of Rod Lache from Deutsche Bank.

Just a couple things. First, on your volume expectations for North America and Europe, you said 0% to 2% for Replacement. Wondering what does that imply for Goodyear? Is it similar? Just over the course of this past year, you had some underperformance both in -- in both of those regions.

Well, Rod, I think from our North America businesses, as we look ahead, we don't see a robust industry in terms of what the economy is doing here, but we still see sort of the GDP type of growth in the economy, and that's going to drive the volume forecast that we see.

Yes, so I guess, Rod, if you look at our -- I mean, our view is that we'll have low-single-digit growth this year. I think if you match that up with the industry outlook, you're going to find it's pretty well in line.

Okay. Can you comment also on raw materials. If spot prices stay where they are right now, how would you see that going forward?

Yes, so I think the answer on this is a little bit longer answer, Rod, because I think if we just said that raw materials remain flat for the remainder of the year, there would be a raw material cost decline in the neighborhood of $800 million. Yet the difficulty is that we do -- I mean, we do see some recovery in industry volume this year, but to the extent volumes start to increase again, we would expect that raw material costs would start to increase also. And that's effectively what we've had to take into account as we look at what our performance looks like during the year. Because we are expecting some improvement in volumes even at low single digits, us and the industry. And I think that to go along with that, we have to expect the raw materials are going to start to increase again as well. And as you know, our expectation over time is that raw material costs are going to continue to rise.

Okay. And just lastly, a little clarification here on the pension funding. What discount rate are you using right now? What's the rate of return on your assets that you're assuming? Is that current discount rate a good proxy for the underfundedness just given that you're planning to shift more towards fixed income? And can you just lastly add a little commentary on why are you making these changes right now? Did something serve as a catalyst for that?

So, Rod, I'll start, and I'll let Darren go through the discount rates with you as well. But I think as we think about this -- I'll just personalize it a little bit. I've been here now about 13 years. In the early part of the last decade, we were about $2 billion underfunded. And after we put in literally billions of dollars into our pension plans and doing a lot of things like changing the benefit structures that we had, moving to 401(k)s, freezing the salary plans and the like, we end 2012 with an unfunded domestic pension plan of about $2.7 billion. In other words, after putting a lot of money in, it's gotten even worse. And we know why that is, discount rates and the like. So we take a step back and concluded ourselves that we need to address the volatility we have here. As you know, it's volatile to our earnings, to our leverage, to our cash flow and ultimately, to our stock price. And as we think about the strategy roadmap that we've put out, as we think about the destination of where we want to go to create value over the long term to improve shareholder value, we think that this is very much consistent with that. So that's sort of a view into the thinking of what we're doing here. But, Darren, you could -- you can elaborate on the discount rates.

Yes. So, Rod, the -- at the end of the year, the average discount rate for the U.S. plans is about 3.7%, which compares to about 4.5% at the end of last year. We obviously -- I think given the movement in the bond markets, discount rates have probably risen a bit earlier -- early this year. But at year end, it was 3.7%. We continue to assume -- for the purposes of our pension expense estimates for 2013, we're assuming portfolio returns at 8.5%. So that has not changed. I will tell you that as we execute the pre-funding actions, we will adjust that. As we pre-fund, we will shift the portfolio more toward fixed income, which means that assumed return will come down. But as we execute those actions, there are a number of assumptions that we'll have to provide you to update for those funding actions. So what you've got right now is 2 things. You've got sort of our normal pension assumptions going into the year. So you've got our required contributions, which are around $300 million. And you've got our pension expense, assuming we don't do anything beyond what we've done right now, which is just the hedging transactions that we talked about. As we implement pre-funding, those assumptions are going to change. But since the pre-funding is not done, we've given you the baseline assumptions, and we'll update you as we need to.

When you say fixed income, moving toward fixed income, I'm presuming you're not assuming entirely fixed income. Do you have some ratio in mind of what asset allocation should be?

Yes, so, Rod, I think we'll take a pass on that right now, and we'll come back as we execute that. But I think the closer we get to fully funded, the closer we're going to be to being fully invested in fixed income. And I think the ultimate idea is that once the plans are fully funded, that we would have an asset portfolio that would be made up of bonds that would closely mirror the bonds that are used to calculate our discount rate. So that if there was a move in the interest rate curve, the gain on the asset would offset any loss related to discount rate and vice versa.

We'll go next to the line of Itay Michaeli from Citi.

Just first, 2 clarifications on Europe. One, are any of the savings from the French closure, to get $75 million, contemplated in the 2013 SOI target, or is that mostly a 2014 event?

No, Itay, that is not going to be achieved in 2013. That's one of the things I think we concluded as we went through the fourth quarter, is what the status of that situation is. Obviously, we made some changes to that with -- to what we were on plan to do with our announcements in early January -- or late January, I should say. And the impact of that sort of pushes out the benefits we're going to get beyond 2013.

That's helpful. And then the $75 million to $100 million of additional productivity over the next 3 years, should we think about that as a gross savings that could be offset with some inflation, or is that sort of a net-of-inflation savings number we should be modeling?

Our target is that's gross savings. That's as we look at -- excuse me, the $75 million is net savings, I'm sorry, excuse me. But the goal that we have is to drive those programs to take our European business back toward its -- toward the historical profit margins that we've seen in the past.

Yes, so when you look at cost savings actions overall, Itay, you're going to -- you heard the view that as we look at cost savings going forward, we're going to at least offset inflation. You should look at those -- that $75 million to $100 million of productivity actions in Europe as being over and above inflation.

That's great. And then go back to volume, the Q1 outlook is still sort of weak, and you do expect improvement throughout the year. Can you talk about what you're assuming for dealer stock situations, restocking, destocking in both North America and Europe throughout 2013?

I think, Itay, as we talk about North America, we said now for a number of quarters that as we look at what we see, we see low inventory in the RMA manufacturing inventory, we see low inventory in the channels, which continues to point toward an opportunity for a rebound. So inventories are low. As volume comes back, we think there's going to be an opportunity for restocking. As we said, it is not a question of if but when. But as we plan the year, we see the opportunity for it happening. However, as we talked earlier, our growth rates in North America continue to be in that low-single-digit rate. For Europe, we continue to see higher inventories still, as we said in our remarks. Because of the low -- weak economy there, dealers continue to sort of take a wait-and-see attitude. The sort of weak start to the winter again resulted in dealers still having higher inventories than we'd like. So it's very hard to get insight into exactly what inventories are across Europe. But I would tell you, our view right now is it's still higher inventory levels, and that's certainly played into our volume outlook and our adjustments to our outlook on Europe for 2013.

And we'll go next to the line of Aditya Oberoi from Goldman Sachs.

Guys, I had a question on your guidance for segment operating income. At the midpoint, it implies $150 million cut, and that is driven by a couple of -- 2 or 3 factors. Can you bucket how much of an impact is due to Venezuela and how much is EMEA and then how much is Europe?

Yes, so, Aditya, I think the -- what we've done -- first of all, I guess on the Venezuela situation, obviously, that's one that's -- it's a very recent effect, so that was just announced at the end of last week. So we've tried to take that devaluation and work it into our foreign exchange expectations for the year. So the foreign exchange impact that we expect for the year is a negative impact of $40 million to $60 million, a significant part of that driven by the situation in Venezuela. But I'll say that we're internally [indiscernible], we're still evaluating Venezuela, so not easy to pin that down with any precision at this point. But you can certainly assume that there is some element there. I think the impact beyond that is very focused in EMEA, and I think we look at that, we look at where we've been over the last 3 months, we -- I think we were still, even as late as October, continuing to work on a plan that would get us to $1.6 billion. And what we saw as we went through November, went through December and went through January, was -- rather than recovering, rather than Europe recovering, it, in fact, continued to get even weaker. So we were seeing very significant slide there in volume, very weak winter season, so the environment there getting even tougher. And what became clear is we were going to have to take another approach to the situation in Amiens, France, which we announced at the end of January. But clearly, if we'd been able to complete the restructuring and sale of that factory, then that would have given us an opportunity for benefits in 2013. As it is now, the -- we've begun the consultation process on a plan to close that factory in its entirety, so both the Consumer and the Farm Tire production. But that process is going to take us longer, so we won't get the benefit in 2013. I think we take all of that and add to it the continued weak outlook for auto production in Europe. And we see a number of things that are going the wrong direction, so you can tell that a lot of the impact we're looking at here does relate to Europe.

And that's helpful, guys. And one more, if I may. You guys did a good job in constraining or pulling back on inventory versus where you guys were in the recent past. Do you think it could weigh on your sales? Because historically, we have seen like having tight inventories at dealer level has impacted your sales and market share in the past.

No, I think we actually feel very comfortable how we've managed our inventories. And I think what I'd point toward is the improvements we made in the element of our strategy around operational excellence as we've -- as we made progress on our internal processes and forecasting and the like, we've actually been able to improve our supply to our customers while maintaining lower inventories through the process changes we've made, and that's one of our focus, to make that a sustainable improvement to how we manage the business. So of course, inventories may move around as we see -- when the industry does come back, we'll adjust a little bit accordingly. But at the end of the day, our goal is to run our business on lower inventory while improving our service levels. And I would say particularly in our North America business, we made tremendous progress on that in 2012.

We'll go next to the line of John Murphy from Bank of America.

This pension stuff is really interesting, and the timing sounds pretty good from a borrowing standpoint. I'm just curious, as we look at the $2.7 billion underfunded, looks like you got $1 billion that is frozen at this point. Is that sort of the target of the capital or the debt raises, the $1 billion? Or if there's a big appetite, would you be more opportunistic and maybe do something even larger? Just trying to understand how big this effort might be.

Yes, no, John, I think you -- yes, I mean, you picked up on the right point there, which is the fact that we see this as a 3-step process: first is to freeze the plan; second, to pre-fund it; and third, to de-risk the asset portfolio or the investments related to it. And right now, the only -- the part of our pension plans that are through step 1 or the freezing step is that $1 billion. So that's effectively what's eligible for the pre-funding step as we sit here today. Having said that, I mean, our view is that we should take the step of freezing in our other plans as well. Obviously, that will require discussions with our workforce and some additional steps that will take some time, so that hasn't happened yet. We're obviously anxious to do that as quickly as possible, but the -- for right now, what we'd be looking at is the $1 billion of the unfunded amount that's in frozen plans.

Okay, that's great. And then just a second question, as we look at the SOI increase year-over-year in 2013, it's about $150 million to $250 million, which is a big increase. And you guys are kind of indicating that Europe is not going to be so great on a year-over-year basis. I'm just curious as we look at the 3 other major regions where you think that real strength or increase year-over-year will be, will that be really North America, Asia Pac or Lat Am? I'm just trying to understand where you see that big positive year-over-year increase.

Yes, John, we don't -- obviously, we don't give guidance on each of the -- each of our SBUs, but I think as we looked at the $1.6 billion target, I have to say all of our businesses were really on path to achieving the sort of the goals that we set out for them. So I think we see certainly a continued, sustainable progress in North America. As we said on the call, our Asia business, led by the growth in China and our new factory there, presents us with excellent opportunities. We're growing there faster than the industry and gaining share in the segments that we want. And we got some headwinds in Australia, but we're managing them, and hopefully, we'll see some upside. And in Latin America, we're stabilizing our business there. We've seen improvements in Brazil, and obviously, that's a great market and a great place where our brand and our distribution is still a big asset for us. So to those 3 businesses, really, we still see the same things we saw before. It's really a question of what Darren went through in Europe around a weak economy, weak -- weaker volumes, a tougher auto industry and the impact that's going to have on our volumes and unabsorbed overhead. That's really where we stand.

We'll go next to the site of John Healy with Northcoast Research.

Question for you, Darren, on cash flow. I think in the slides, you mentioned working capital would be neutral to the use of about $100 million. I hope you can give us a little color on how you get there, with the thought that volume increases low single digits and the thought that with volume gains, maybe raw material prices go up a bit. Are there some things working in the background that are making you guys more efficient at kind of managing the working capital of the business and maybe how you think about working capital longer term as you guys enter this next phase of, hopefully, industry growth.

Yes, so, John, yes, I think it's a fair question. And as we look at this, the fact that we're -- we look to use anywhere from $0 to $100 million this year, obviously, it's not part of our long-term outlook. I mean, our long-term outlook has been that working capital should be neither a source nor a use. However, I would say in the last couple years, and in 2012 in particular, we did very well and, in 2012, generated a significant amount of cash from working capital. If I take the long-term perspective, I would say we have consistently driven down working capital as a percent of sales, and that is what we plan to continue to do. We're going to continue to work on that rhythm. I would say that for much of the last 5 years, significant amount of progress has come in working on our accounts receivable and working on our accounts payable. I think with the work that we're doing in operational excellence, we see some opportunity in inventory, and that's where I think I see some of the forward opportunity. We've essentially delivered some of that in our North American business, and that's been -- as Rich said, that's a part of the story. We've delivered it in North America, and we've maintained and improved our service levels. There are other parts of the world where our supply chain processes are not as advanced and where we have that same opportunity. So I think we're looking at being able to continue to drive down inventory levels, and that's going to allow us to continue to drive down working capital as a percent of sales as a long-term matter. Having said that, 2013, with the volume increases that we're looking at and the fact that raw materials may come back, I think that that's what led us to the view that there may be a modest use of cash there in 2013.

That's helpful. And then I was hoping you guys could give a little bit more color on the environment in Australia. I know you called it out earlier in the prepared remarks, but maybe just also on the competitive environment there, how the [indiscernible] and just your thought process on when that market may turn.

So, John, Australia is a business where basically our business is all retail at this point. As you may remember, we closed a number of factories over the past few years, and by and large, the retail business that we have there is really being impacted by the economy. As you're I'm sure aware, the non-mining economy in Australia is very -- is a very difficult one right now, and that's what we're feeling. In addition, Australia is a market that gets a lot of imported tires, so a lot of that market is certainly receiving some of the volumes from other parts of the world, which also adds another headwind to our challenge there. That said, our retail presence there is significant. We feel the value proposition that we have and that we're going to improve is going to put us at a competitive advantage in the region. We've taken a lot of actions to do that in terms of new products, in terms of how we go to market there and in terms of significant cost reductions, both within our stores and within the supply chain in Australia as well. So the environment there I think will remain tough. I think to a large degree, it's going to be contingent on the Australian economy at large, but we're not going to wait again for the economy to improve to drive improvements in our business. Long term, we see it as a good business. Near term, we're going to continue to work hard to get to an improved position at this point. Now, John, also say -- well, I'll leave it at that. I'll leave it up to your [indiscernible]. That's it.

Moving next to the site of Brett Hoselton from KeyBanc.

I wanted to ask you a little bit about Europe and some of your thoughts there. I guess, specifically first of all, increasing market share, what segments are you thinking about in terms of your potential market share increases there?

Yes, I think, Brett, I think we -- I highlighted, and I think Darren may have commented as well, we play very well in the premium segments there, ultra-high performance, Run On Flat, winter high performance, 4x4, all these segments, and those are opportunities where our technology really plays traditionally, and we're going to continue to go after those markets. Now in addition to that, the new opportunity in Europe is in tire labeling. And as I made a remark -- as I made comments in my remarks, that as we look at the summer portfolio, the high-performance summer portfolio that's out right now, our Goodyear brand and Dunlop brand products are really doing fabulous. I'm extremely pleased with the team and how they put together the technology, industrialize it and have these products to market to lead the industry in the best labeled portfolio in the industry right now. That's a huge win for us. And when we talk about -- in our strategy, we talk about technology being an advantage for us and really the megatrends playing up to technology increases plays to our advantage, I think labeling is really the proof point of why we think that and what we're capable of doing.

And as you think about your comment regarding European margins returning to historic levels based on the actions that you're looking to take here, can you talk a little bit about how should we think about your operating income progressing from 2012 to 2013 in Europe? Do you expect it to improve? And then in terms of returning to historic margin levels, is that kind of in line with the 3-year restructuring that you're looking to do, or is that more of a "we think it's going to take 2 years," or is it 5 years? How do we think about the timing there?

Yes, so, Brett, I think you've picked up the right point in terms of the productivity plan. Yes, so we've got a couple of things going on. I think, base income level for 2012 was $252 million premium. We've said that we will have some modest volume growth in the Consumer Replacement business, but overall, not a lot of volume growth in Europe, so there's not a lot of volume in 2013. And I think we've said that the savings -- or the profit improvement from the restructuring plan in Amiens is something that won't affect 2013. And I think we look at the productivity as $75 million to $100 million over 3 years, so there may be some modest amount there achieved in 2013 but not a lot. So I think you can look at this and say that a lot of the actions that we're taking are going to affect 2014, 2015, to the extent there is some volume recovery in 2013, and that's helpful. But that's the thing that is going to be most helpful in the near term.

And then just finally here, the growth in the emerging markets, I believe that's a European comment, and it's -- I think you're thinking Eastern and Central Europe or some of the regions or countries in that area. Is that correct?

Yes, no, you're right on, Brett.

And we'll take our final questions from the line of Ravi Shanker with Morgan Stanley.

A follow-up question on the share. You have been giving up share in North America the last few quarters to focus on segments that you really want to be in and to boost the price mix. So when you're talking about future share gains, are you referring to just the segments you are in or versus the overall market?

Yes, I think, Ravi, our strategy is to focus on profitable volume. So we've often said, not volume simply for volume's sake. And our volume weakness that you refer to is reflected in a number of factors really on an overall basis, reflecting our weighting toward more mature markets and as you rightly pointed out, our choice to leave certain of those businesses. So I'm very pleased, I have to say, with the disciplined strategy that the teams have implemented and executed, and particularly in North America. We've made some very good choices both on the Replacement side and the OE side to drive our profitability. And as we've always said, our goal is to win in those targeted market segments where our value proposition delivers value for ourselves, for our customers and for our consumers. That's where we're going to focus. And by definition, that hasn't been at the low end of the market, which is why we exited some of those opening-price-point tires. That said, we're very cognizant that volume in total is not something that we can take our eye off of and we won't, but again, our focus will not be on simply volume for volume's sake.

No, the only other thing I could add there, Ravi, is the fact that we did see share gains in the Goodyear brand at the end of the year. We're continuing to get -- continuing to build the value of that brand. So it's other area -- other tires outside the Goodyear brand that have driven some of the volume losses.

Understood. If I can also ask a question on Amiens, obviously, you've had difficulties with that facility for a while. Are you now and do you have a greater degree of confidence now that you'll be able to close it this time around compared to what happened the last couple years?

Yes, I think, we worked -- as you know, we worked for 3 years on a plan that would've closed Consumer production in that factory and preserved the jobs in Farm Tire production by selling the factory. That plan was rejected by the majority union in the factory. So we announced on January 31 that we'll now pursue a full closure of the Amiens North facility and that we're going to exit the Farm Tire business in Europe. So that -- in some ways, it's unfortunate because I think there was an opportunity there. But the fact is that this is, in many ways, a more direct approach. And I think we're not happy with where we've ended up. But the fact is we're going to go through the required consultation process, which has begun. We had an additional works council meeting today in Paris. We can't completely estimate the timing of the plan, as we've talked about, but we're going to move our way through the process, and today's meeting was another step in the process. So I think we're confident in the plan that we've laid out. We are taking care to present plans that support the employees and limit the social consequences of the closure as much as possible. But this is the -- really, the only option we have left, and we're going to move our way through it.

And finally on the pension, I apologize if you touched on this before, but what's the timing on the debt freeze, and are you planning to do that through a convert or some other method?

Yes, so the comment was that we're going to use the debt capital markets. We can't comment any further than that.

Okay, I think that wraps up the call. We appreciate your attention today. Thanks very much.

And this concludes today's program. Have a great day. You may disconnect at this time.