Goodyear Tire & Rubber Co (GT) 2002 Q1 法說會逐字稿

I would like to remind you our conversation this morning includes certain forward-looking statements based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include price and product competition, customer demand for the company's products, the ability to control costs and expenses, general industry and market conditions, and general domestic and international economic conditions. The company disclaims any intention or obligation to update or revise any forward-looking statements whereas a result of new information, future events, or otherwise. It is my pleasure to introduce to you the management team on today's call. Samir Gibara our Chairman and CEO. Robert Keegan our President and COO. Stephanie Bergeron, Senior Vice President and Treasurer. I would like to turn the call over to Samir Gibara.

Well, thank you. Good morning everyone. Thank you for being with us today. Earlier this morning we reported a net loss for the first quarter of 2002 of $63.2 million or 39 cents per share. This includes a charge of approximately $10 million or 4 cents per share primarily related to the return of inventory following the closure of Penske Automotive Centers in the U.S. on April 6th. What I would like to do with you today is to divide my presentations into three parts. First I'll give you a general overview of the company in Q1. Then we'll get into the reviews by business units. And the last part will have to do with the balance sheet and how our balance sheet looks at the end of the quarter. And then I'll be happy to take your questions. So starting with the brief overview of the quarter. This year's first quarter had a charge of $95 million for unabsorbed overhead from the [fourth] quarter of 2001. This was partially offset with cost reduction programs and long SAG in Q1. As a result our EBITDA was down about $60 million from first quarter 2001. The first quarter also included a charge of over $13 million compared to an income of about $10 million a year ago on the foreign currency exchange line on the income statement. This is due, primarily, to Argentina and I will get back to that later in this presentation. The next point I would like to make is that our commitment to cash generation continues to remain a priority. Our working capital requirements at the end of the quarter were in excess of $1 billion below last year at the same time. In North America the first quarter in many respects was much like the fourth quarter. We experienced weak retail demand for consumer tires, no improvement in truck tire shipments, and unabsorbed overhead costs from production cutbacks made in the previous quarter which impacted our earnings negatively. New to the first quarter in North America compared to the previous quarter, were profitability initiatives implemented in our replacement distribution model, additional price increases that went into effect January 1, and specific initiatives we undertook aimed at improving future OE profitability as we shared with you at our February conference in New York. We expect a turn around in our North American operations in the second quarter as a result of these initiatives. In the European [INAUDIBLE], the truck tire market continued to show significant weakness. I'll cover that in more detail when I get to the business units part of the presentation. Unabsorbed overhead cost from fourth quarter production cutbacks were about $10 million in the European union and had a negative impact on earnings in this region. As for the other SBUS, through better volumes and cost reduction initiatives, Eastern Europe, Latin America, Asia and engineering products all made improvements to their operating income over first quarter 2001. Now, I would like to discuss each business unit in more detail with you. Starting with North America tire, and with the replacement business in North America Tire, I would like to say first that tire retail sales for the industry in Q1 were soft and down from a year ago. The way we measure retail demand at Goodyear is based on three separate data points. First, all brand retail sales at mass merchandisers across the country are measured. Second, we get feedback on retail sales from large national tire chains, including our large retailers, and our company-owned retail network. Third, the bureau of census reports issued monthly on national retail sales serves also as a guide to measure retail sales. Moving on to industry shipments. Replacement tire shipments for the industry increased in the first quarter while Goodyear consumer shipments were down almost two percent and commercial shipments were almost flat year-over-year. Let me explain why that is. Our competitors shipped tires in January and February ahead of their price increases, which were effective March 1st. As you know, in our case, price increases for consumer and commercial tires went into effect January 1st. At the same time, we also changed our discount structure to large distributors, effectively raising their prices significantly, also effective January 1st. Because of these two changes, our distributors and our dealers bought ahead of the January 1st changes in the fourth quarter, and with the weak retail market, they didn't need to buy as much as they would otherwise have bought in Q1. And to confirm this analysis that I'm sharing with you, I have to say that in January and February is when Goodyear saw its biggest market share losses. In March, we saw our market share come back, and this is the explanation for our market share coming back. The fact that all price increases went into effect March 1st, and all pre-buying was done in December in our case, or in January and February in the case of our competitors, is the reason why in March we had more of a level playing field. But the quarter, for us, was down. Revenue per tire in the quarter was up only slightly year-over-year. As an unfavorable mix of -- upset most of the positive effect of the price increase results. Let me explain the mix impact on revenue per tire. First, as I said, our replacement tire units were down by about half a million units. At the same time the OE market it was strong and we sold almost more than 1 million more units than a year ago. We had a business mix that was unfavorable in that we sold more oe tires and fewer replacement tires. Within replacement, we experienced an unfavorable brand and product mix as our large distributors, whose price increases were increased on January 1st, by almost exclusively the Goodyear brand, and that includes a high proportion of high-performance and SUV tires. As I mentioned before, our sales to these distributors were down in Q1. But by the end of the quarter, we had a much better level playing field. As far as we can tell so far, the new price increases are sticking, and we anticipate to see more benefit of the price increase in Q2. That really, basically, covers our replacement business. Moving on to oe, I would like to take a few minutes to update you on the initiatives we announced in February regarding improvements to future profitability with our oe accounts. We continue, as we speak, to work with the OEMs, and you will remember that this discussion involves many different actions we are taking with them, and the many different facets in these negotiations. One, price improvement. Two, de-sourcing of Goodyear tires, if necessary, if margins are unsatisfactory, we have asked our OE accounts to de-source us. And three, the ability to supply more value-added products. We have pursued all three avenues and I can report that we have made some progress in Q1 with the oe accounts. Through the first quarter, our estimate is that we are about 20 to 25 percent complete with individual platform discussions that will begin to impact the second half of this year and into next year. We will pursue these discussions in Q2 and Q3 until we complete our program with the oe accounts. Looking at cost. Our North American operating profit took a charge of approximately $85 million related to production cutbacks made in Q4. We do not anticipate any significant unabsorbed overhead charges going forward in Q2 or beyond. In the first quarter, we also had a favorable impact of about $25 million for improved raw material costs. Most of the improvement came in March. Looking at Q2, we expect raw material prices to remain roughly at this point at first quarter level. We believe that all derivatives will continue to trend down, but natural rubber prices are edging up. And it is possible by June natural rubber prices, for us, will be up. European Union. In the European Union the consumer market was fairly stable with flat industry replacement shipments and up slightly on OE shipments. In the highly competitive high performance market, Goodyear introduced, in March, a new Eagle F-1 tire which is attracting a lot of anticipated attention, and has resulted in sales of Eagle F-1 fires being up 21 percent from a year ago. Our strategy is to remain the leader in the high performance segment of the European market which, as you know, is a very profitable segment for us. The truck tire market in Europe was very soft. Industry replacement shipments declined 6 percent in the quarter. Industry OE shipments declined 24 percent. Our shipments generally reflected the market. Our operating profit was impacted negatively in the first quarter with a $10 million of unabsorbed overhead cost related to fourth quarter production cutbacks. Better capacity utilization, including the shutdown of the high cost hampton truck tire production line in the first quarter will begin to benefit this business units performance as we move throughout the year. Eastern Europe, Africa and the Middle East. Moving onto the Eastern Europe, Africa and the Middle East business unit. I am pleased to report that despite economic and political turmoil in the Middle East, this business unit had a 6.2 percent operating margin, its best performance in six quarters. This was fueled by increased replacement volume and better pricing in Poland and South Africa. Our [INAUDIBLE] region continues to demonstrate strong results. This is the second quarter in a row that Latin America reported a double digit operating margin percentage. Despite lower replacement tire sales volume, operating margin, as a percent to sales, increased to 10.3 percent this year from 8.8 percent a year ago. As you are probably aware, significant currency devaluation in Argentina also occurred in the quarter. The argentine peso devalued 75 percent in the quarter with 42 percent coming in the month of March. In Argentina we import tires from Brazil. And the government mandated exchange rate changes and dictated a re-evaluation of the intercompany dollar payable during the quarter. Creating for us, a loss of about $13 million reflected on the foreign currency exchange line of the income statement. As I mentioned earlier, last year we had a 10 million gain. Asia. I am also pleased to report that the Asia region had its best operating performance of 6.2 percent to net sales in eight quarters. Higher replacement unit sales, better pricing for truck tires, and planned cost savings all had a positive effect on profitability. The closing of one of our plants in the Philippines in the quarter is expected to further improve planned performance as we move forward during the year. Engineered products. Our engineered products business unit had its best operating performance in 7 quarters. Despite low sales volume, cost reduction programs in seg and better capacity worked to improve profitability over the first quarter last year. Chemical. Sales for the chemical business were down about $95 million from first quarter last year. You will remember that we sold our specialty chemical business in the fourth quarter of 2001, accounting for about $30 million of the sales reduction we have experienced in Q1 this year. The remainder is primarily due to low sales volume of synthetic rubber to the tire industry. Lower energy costs and cost reduction programs continue to benefit operating profit as a percentage of sales. Which, for the chemical division, came in at almost 7 percent. Now, I would like to briefly cover our balance sheet and working capital picture at the end of the quarter. Our commitment to cash generation continues to remain a priority. Our working capital requirements at the end of the quarter, as I mentioned earlier were over $1 million below March of last year. Despite soft shipments in most markets, supply chain initiatives including improved demand forecasting and SKU reductions have proven that significant inventory reductions made last year are sustainable. At the end of last year's first quarter, our inventory balance was over $3 billion. At the end of the first quarter this year, the inventory balance was $2.3 billion or the reduction of over $700 million or 24 percent reduction. Inventory days at the end of March, or at the lowest levels in over two years. Before taking your questions, let me just say that while we are disappointed in reporting a loss in the first quarter, we believe that profitability initiatives implemented last year are beginning to show positive results outside of North America. And this should continue in Q2. The more recent profitability initiatives in North America will return this division to profitability in Q2 and they are essential to returning the company to historic levels of profitability. Our commitment to cash generation continues to remain a priority sustainable achievements in working capital will continue throughout 2002. Now, looking forward, we see progressive improvement in the balance of the year. Looking at Q2 more specifically, we are estimating, at this time, EPS in the range of 5 to 10 cents. Being that this is still very early in the quarter, we will update you on our business conditions regularly as we typically do, through our monthly communication letters to allow you to have a better appreciation of how the quarter is evolving for us. And now, we would like to take your questions.

At this time, I would like to remind everyone, in order to ask a question please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A rosters. First question comes from Steve Haggerty of Merrill Lynch.

Hello?

I just want to make sure you can hear me. Two quick questions. One is your North American oe business was very strong despite some of the initiatives you are talking about of potentially walking away from unprofitable business. What drove your oe business to be so much stronger than oe production in the first quarter?

Okay, Steve. Two questions. Why was it strong in the first quarter? It's because the oe business is a function of the model that sell well. On the models that sell well, it depends what market share we have. We had, in Q1, a high market share in the models that sold very well. So that explains why our oe business was strong. Now, we always have said, to answer the other part of your question, we always have said that it will take time for the oe initiatives to be implemented because we have commitments to OEs. As I said in my remarks we don't expect to see any change in our oe supplies until the second half of the year. Because whatever agreements we make with them have to account for the lag required to implement them.

Okay. Thank you. One last follow-up question. In terms of the price changes that you pass through to your major distributors, is that all resolved now? Those distributors are happy with the current pricing structure and ordering tires again?

Those distributors are happy with the price reductions. Now, it's -- how -- the price increases, I'm sorry. The price increases. The question as to how and when they will reorder remains an open question. We believe that in Q2 they will start coming back, but they still have -- they'll still have enough inventory to maybe not buy as many as they would otherwise have bought. So we'll start seeing some coming back. It's going to be Q3 before we believe that we will be in full supply to the large distributors. But the price increases are sticking.

Thank you.

Next question comes from David Bradley of J.P. Morgan.

Good morning.

Good morning, David.

One technical question first. Sold receivables, the balance at the end of the quarter versus the end of the year?

Okay. Our receivables sold at the end of the quarter was $791 million. At the end of the year $853 million.

So reduction of about 60 million?

Correct.

If you want last year it was -- excuse me 614. Last year Q1.

Okay. And then a little bit on the distributor issue. Is there a possibility that distributors having to pay now prices that are, you know, a lot higher, could end up in the long run ordering fewer Goodyear tires? Would you be prepared to do some downsizing to take that into account?

Yes. Well, we don't think that they can buy fewer tires in the long term, David. They are exclusive Goodyear distributors. They are organized to sell Goodyear tires. They have been our customers for a long time. They have their distribution network established. And we don't think that we will see a significant loss at all over the long-term with these distributors. We -- what we have done, basically -- let me say this for the benefit of everyone who is listening. We have, for a long time, a price disparity between the big distributors and the smaller distributors. And we felt that this had an impact on our overall pricing of the Goodyear brand. These distributors buy primarily almost exclusively Goodyear tires. And high performance tires. That has put pressure on our pricing level in general, especially since we didn't have a second brand. Now that we have Dunlop, we felt it was time to bring the price level of the Goodyear brand, as a premium brand to where it needs to be. One action we needed to take was the price parity program we have announced. We don't think we will lose volume with the distributors long-term. We think that there has been an impact on the first quarter very definitely. There may be one in the second quarter, but then it will come back.

Okay. Then Penske, what percentage of sales -- you had a special relationship there where they were exclusive Goodyear. Now that they are out of business, does that -- what implications of that have a longer term percentage of your business?

Let me first say we have a very broad relationship with Penske. It covers truck leasing. We are exclusive supplier of truck leasing. We have a great relationship. We have had a long relationship for a long time. Automotive centers now that they are out of selling tires, the annual impact is about one million tires, David. And they are not all Goodyear tires, but in the majority they are Goodyear tires. We believe that we -- these tires will now be sold at other mass merchandisers. And we are, as you know, a major supplier of Wal-Mart and other mass merchandisers. So we think that we will be able for recover a portion of that million tires. It's difficult to tell how many. Our deals will recover some. In the scheme of things it's a million tires and that's a small number for us in North America. But it is a million tires.

Thank you.

You're welcome.

Next question comes from Wendy Needham from Credit Suisse First Boston.

Good morning.

Good morning, Wendy.

Sam, have you set any targets for working capital reduction over the course of the year? I think it was a negative outflow of about 250 million more or less in the first quarter. What do you think will happen to working capital this year?

Yes. It was a negative outflow, you are right. Last year the negative outflow was 500 million. We said all along that now we are in much better control of working capital and inventories. But there is seasonality in our business.

Right.

We said first quarter will be up. But, as I said in my remarks, we are down a billion dollars from a year ago. Inventory is 700 million from a year ago. So is there potential for more? Yes, absolutely. We think that accounts receivable and inventories will continue to come down through the balance of the year. We have not disclosed a specific number or a specific target. We believe they will come down.

Wendy, this is Bob Keegan. Normally you would expect to see some type of inventory growth. This time it came down. Heavy sales volume we had in the month of March. We are going to continue, you know, our indication is that we will continue to bring our inventories down and continue to profit from the programs we implemented.

Just to give you an indication, Wendy, even though March is typically a much better selling month than December, our inventories came down $30 million from year-end. Just from last year end. So we brought it down, in spite of the seasonality. And they'll continue to come down. So we let you maybe try to figure out how much we can do. We will do more.

What do you think working capital will be for the year? Will it be a source or an use then?

It will be a source.

Okay. And then, I'm not sure if I understood you, Sam. When you were making the comments on raw materials, was the just of it that there will be no benefit in second quarter versus first quarter on raw materials, or what?

That was exactly what I said, yes. We are seeing raw materials -- at least in our assumptions we are estimating raw materials to be flat from the first quarter. We think that we still benefit from the all derivatives and synthetic rubber, we think natural rubber has edged up in the first quarter. And has increased substantially. And will have a negative impact on our cost in the second quarter. So overall, what I said is raw material prices in the second quarter will show no major change from Q1.

And then for the rest of the year, I know it's hard to predict, but we sort of -- we've had the dip in oil prices and they have gone back up. The assumption would be that they won't get any better from here.

Correct.

For the rest of the year.

Yes. You are right in that, it is very difficult to predict. Let me just only say this. We are absolutely determined to stay ahead of the raw material cost curve. So if we see raw materials really going up -- you know, they have been in the last two, three weeks, they have been -- there have been indications -- there has been some indication they may come back down. It's a very volatile environment, Wendy. We do not know for sure which way they will go. They come up, but yes there are people that tell us they are coming down. What we are going to do, in any event, is stay ahead of the raw material cost curve.

Okay. Thank you.

Next question comes from Saul Ludwig of McDonald Investments.

Good morning.

Good morning, Saul.

You know on this comment about the -- your dealers and distributors bought ahead of the price increase because you announced first and your competitors announced for March. But recall in the fourth quarter, that your replacement volume in North America was off, I think it was 9.2 percent when the market was off only 8 percent. So even in the fourth quarter a year ago, you did worse than the industry and I'm trying to reconcile that with the statement that your fourth quarter benefited by advanced buying in light of the price increase.

Yes. Well, let me say that in the months of December, you are talking about the quarter.

Right.

You are talking about the quarter, Saul.

Yes.

The month of December we did much better than the industry. In the month of December our sales were way up from an industry that was way down. So it's true that for the quarter we were down, but the buying took place in December.

Okay. Second question. You mentioned that you had lower raw material costs to the tune of $25 million which really hit in the month of March. Was that North America or globally?

That was North America.

North America.

Globally, there is always a time lag for the other divisions compared to North America.

Now, because you are on FIFO accounting, wouldn't that lower raw material costs not helped your P&L statement, but go into inventory and then as those units are sold which were produced with the lower raw material cost, wouldn't that give you an accounting help, if you will, in the second quarter versus the first quarter?

What -- Saul, this is Bob. Basically what you saw coming through our statements in the month of March was some of the raw material cost reductions that were actually incurred during the fourth quarter of the year and they started rolling into our inventories in the month of March.

If you had 25 million help for the month of March, would you expect to have 25 million a month help for the second quarter which would add up to $75 million?

If so, we don't know. But if so, we also seeing natural rubber prices going up the other way.

But that's gone into inventory.

Which is also reflected -- which is going to come through in April, may, and June. Which we have only bought the tire -- it is in our inventory.

Okay. So even natural rubber, that item alone would mute this $25 million? You are saying the help will be 25 million in the second quarter?

That's what we are saying. But, you know, yeah. But it could change.

It could be a little conservative there?

That's the assumption, Saul. The assumption.

And also you'll get help, you are not going to have any undeserved overhead in North America or Europe in the second quarter?

That's correct.We said that. Nothing really significant. Nothing that's material, no.

Finally, how [INAUDIBLE] you haven't talked about private brand tires in a long time. How did your non-Goodyear brand tires perform in the first quarter?

Well, it didn't do too badly, let me say this. It didn't do too badly. I will give you the numbers. We are getting the numbers for you here. Let me say this, Saul, in a few cases and that's part of our strategy to improve our mix of brand and product, we, going forward and starting now, is not to compete on price. So whenever there is a price competition, we may, in some cases, elect not to participate. Now, let me give you exactly what we did in Q1 with private brands. Our private brands in Q1, '02 we were flat. Yes, we were flat. Is that the number? Yes. We were flat in Q1 compared to a year ago.

When you say private, is Kelly included in that or is Kelly not counted as part of private brands?

No, Kelly is not counted.

Good. Finally, has there been any -- you heard of any discounting off of the price increases that were announced, let's say for March, for now that everybody is in the boat. Have you heard of any discounting off of those, let's call it four or five percent price increases?

No, I have not. Let me just explain. No. I don't think there has been any. Or I don't know of any. Let me tell you what happened in March, which is no different than what happens every year, not only in March but the first quarter. Every company in the first quarter has a spring dating campaign to position itself for the selling season in April, May and June. All that happened to our knowledge, in the first quarter is spring dating campaigns that were no different than what we had in the past. But I can say that price increases, as I mentioned, are sticking. To our knowledge they are sticking. The Goodyear prices are sticking and, as far as we can tell, prices are sticking in March and in April.

Very good. Thank you very much.

You're welcome.

Next question comes from Saul Rubbin of UBS Warburg.

Good morning, Sam.

Good morning, Saul.

A question on the commercial vehicle business in North America. Really two parts, I suppose. First is, just generally where your share is going. I think you said your volumes were flat. I don't know what the industry was doing. And what your share was doing for that time. The second part was you expect a good improvement in that business in the next couple of quarters? And we are seeing sort of pre-buy activity in the truck segment ahead of the emission changes. And then do you see a collapse in the fourth quarter? How might that impact your earnings through the year?

Let me say that our earnings -- our unit sales for commercial were flat. And that we basically tracked the industry. Now, in terms of what we see going forward, Saul, we see an uptick, especially at OE, because as you know starting with Q3, the truck manufacturers have to comply with these new environmental requirements, and they will be buying -- they will be building additional new trucks and we see the market picking up. I think even for the replacement market the -- we have hit bottom in terms of the commercial truck market in North America. On the other hand, I think in Europe we are starting to see the decline that we saw a year ago in North America. So I think North America is going to see a higher volumes in Q2, certainly Q3 and Q4. And in Europe it's going to be the other way. As I mentioned in my remarks, we -- the market was down 24 percent at oe in Q1. And six percent at replacement.

That was in Europe, right?

Yes. That would have been Europe. North America was flat and going up.

Okay. Fine. Will that impact the free buy activity in Q2 and Q3, do you think that will be significant enough to impact your numbers? Your earnings?

I'm not sure I understand the question.

We don't understand pre-buy, Saul.

Are you expecting a lot of oe truck builds through the second and third quarters?

Will that be -- you don't expect that?

No. No. And if there is that, it will be minimum.

Okay. Fine. And overall, the general flavor coming through is that, I mean taking out the month-by-month activity, you seem to be losing a little bit of share through the fourth quarter of last year and the first quarter of this year. What is your [expectation] generally in the consumer market for the course of this year in North America and Europe?

Our intention is to not lose market share. We will gain market share. As I said the only concern we have in Q2, I think we will gain market share. The only concern we have in Q2 is the large distributors that we mentioned before. How many they will buy in Q2 we do not know for sure. And that may have some impact. But we think it's an impact worth having because of the pricing levels that we will have established with them and in the market place. But over the year, we don't expect to lose any market share.

Just a follow-up to that. Bridgestone has sort of come out and said they intend to gain another percent or a percent of market share through the course of the year. And they are bringing out new bridgestone branded tires at lower price points. I mean, it might not be a discount on the tires they are selling so far, but it is, in effect, reducing the pricing throughout the market place. Do you agree with that?

We -- we -- we -- I suspect every company you ask will tell you they want to increase market share. But as far as the Bridgestone's -- the way we see Bridgestone behaving in the market place, we think that their price increases are sticking. We think that they are not going after market share for the sake of market share. We think that there has been a big change in their strategy from two or three years ago.

Okay. Thank you.

You're welcome.

Next question comes from [INAUDIBLE] of Deutsche Banc.

Good morning.

Good morning.

I have a few questions. First of all I would like to different into this Q1 to Q2 progression going from the losses of this quarter to the profit of five or ten cents. It looks like this quarter, Q1 you basically would have been at break even, maybe a two cent profit excluding the charge and excluding the impact from inventory reduction already. So the improvement from Q1 to Q2 going from let's say two cents to five to 10 cents, is that volume related, or is that additional benefit from pricing? What exactly is the sequential progression?

This is primarily -- this is primarily better prices and somewhat lower cost.

Okay. As far as the costs part of this, you had quantified some of the cost savings you are shooting for this year. I think it was something like $140 million in 2002 just from memory from restructuring. How much of that did you already experience in the first quarter?

In the first quarter there wasn't much. In the first quarter there was about, I don't know, two or three million dollars. There wasn't much in the first quarter. We said there wasn't going to be much. In Q2, we'll see more. So there was some in Q1. Let me get you the numbers in Q1 and Q2. I don't have them here. Q1 $2 million and Q2 we are looking at 11.

I think, Rod, that pertains to the restructuring program we announced in the fourth quarter.

Right.

Your 140 million you are talking about multiple programs.

There's a bunch of kind of laid in programs from that.

Right.

Okay. So this is just that fourth quarter restructuring?

Yes.

Additional head count reduction?

Correct.

And there's just so much noise in the volume numbers. The replacement market share was, I guess, surprisingly weak. Close to about 30 percent. Last year you averaged over 32 percent excluding the firestone recall volumes. If it wasn't for this distributor issue, would -- do you think that the normal market share power of good year at the moment is close to the 32 percent level, or is it somewhere between those numbers?

It's close, yes. Whether it's 51 or 52 let me, as I said before, let me say in January and February we didn't hit 30. In January and February we were below 30. In March we came back to our normal level. So we think that our market share power in the market place is anywhere between 30 and 72.

This is Robert Keegan. I might just add that our share position in March, I think beat eight months of the 12 months in 2001. In absolute level of market share. So, you know, we feel pretty good about market position with some give-up, obviously in January and February.

How are the April shipments looking every?

Well, April, as you know, is not a big month, anyway. And year-over-year I will say it's nothing to, you know, it's about the same. It's nothing great. It's the same. But it's a small month. May and June are the big months.

Okay. European replacement shipments were well below the industry. Was there any anomaly that was driving that?

No. I don't know that they were really well below the industry. They were somewhat below the industry. Now anything that is up normal, no. I would say no.

Okay. You said that the European industry, I thought you had said was flat.

Yes. There is something. Excuse me. I have to -- let me. I'll take this back. Now I'll have to say something about it. I'm sorry to interrupt you. Last year in the first quarter we shipped winter tires, and considerably more winter tires than we are shipping this year. That's because of the seasonality. This year the good news is that the winter tire market in Europe for us is going to be very strong given that there are no inventories in our dealers. The other thing is we are selling lots more high performance tires, as I mentioned. And we are focusing, as in North America, on high performance and the high end of the market and the good year brand at the expense of the less profitable tire line.

Mmmm-hmmm.

I think, just to clear up, rod, I think you said in the consumer replacement market, I think your question might have been on the industry being so down so dramatically?

I thought you said the industry was flat and you were down 6.7 percent in Europe replacement market.

No. No.

I must have mis-heard it though.

No. No. We did fine.

Your industry was fairly flat and we -- and we were down a bit for the quarter in the month of March better than the industry, but for the quarter down slightly.

Okay. Last question. This $13 million foreign exchange issue, I am not sure I understand exactly -- I understood what you had said, but it sounded like this $13 million was sort of a nonrecurring factor that was related to some transactions between Brazil and Argentina.

That is correct.

You will not see a foreign exchange negative, or you are not anticipating one at the moment -- you are not anticipating one in the second quarter?

That is correct. We are not anticipating one in the second quarter.

Great. Thank you.

You're welcome.

Next question comes from Camille Carlstrom of Putnam Investments.

Good morning.

Good morning. How are you?

I'm well. Thank you.

I don't mean to bring up the [INAUDIBLE] one more time, but I will have to.

Yeah, sure.

I'm thinking about what you were saying how they bought early in December for the decrease in the rebate in the first part of the year. But what you said was they are not going -- they most likely will not buy in second quarter, either which is a strong selling wean from what I'm learning on the call. Did they actually buy about six months of inventory in December? It just doesn't add up in my mind they would do that to their own businesses. That they would take on about six months of inventory.

That's a very good question and it gives me an opportunity to really maybe answer it more fully. No, they did not buy six months in December. But, let me explain what these distributors do. They are not typical Goodyear dealers. They are some large distributors, wholesalers. We don't have that many of them. We just have a few. And what they do is they supply very small retail outlets that we cannot reach at a cost competitive -- in a cost competitive way. So the way these people operate is, traditionally, regardless of what we have done this time, these people usually have in excess of six months inventory. The way they operate their business is to keep up to 12 months inventory sometimes. So that is -- that's what they do. Because they have to have complete lines to supply all the very small retailers who buy from them. And they have been buying at very low prices, and think have been able to carry a lot of inventory. So in December they did buy substantial amounts. But that was just in addition to what they typically do, which is to carry a lot of inventory. Let me add to that, as we mentioned -- as I mentioned in my remarks, camille, the first quarter retail market was weak. We had a weak retail market. So they didn't sell very many tires. That's why they still have some in inventory. I hope that answer your questions.

Are they exclusive under a contract? Could they very easily go and start selling a competitor's tire instead of yours?

They are not exclusive on the contract. But as I said before they could buy from other suppliers. But they typically do not do that. Their customers are Goodyear dealers. Their customers are only Goodyear dealers. If they bought competitors tires, they wouldn't know where to sell them and how to sell them. These people are organized to [INAUDIBLE] Goodyear dealers. We wouldn't have done this had we thought we would take a risk of these distributors buying competitive tires.

Right. And one last question. It was on the Argentina and Brazil issue. What exactly -- exactly what was it that changed? If it was a government intervention, why wouldn't it occur again?

Camille this is Stephanie Bergeron. We purchased in Argentina tires made in Brazil and we pay for them in U.S. dollars. When we closed the books in December there were two rates established by the government for making conversion of your balance sheets and your profit and loss items. In the month of February, the government gave up the two pegged rates and moved to a market floating rate. It was with that move to the floating rate we had to revalue our intercompany payable. Since that payable was revalued it has been settled and the exposure doesn't exist any longer. That's why we don't have the problem going forward.

Thank you.

Okay. Anymore questions?

Next question comes from Mike Kinder of Salomon, Smith Barney.

Just wanted to go back to the raw material question. You said that raw material costs will be flat for the second quarter versus the first quarter. What about the year-over-year comparison second quarter of '02 versus second quarter of '01, how much of a swing will that be?

Raw material prices are down Q2 compared to -- Q2 last year.

Okay. Can you give us a rough order of magnitude of how much?

We'll check that for you, Mike. I don't have a number for you. But we will be happy to answer that question for you later. I don't have it here.

Okay. That's fine. Just one housekeeping question. What was your revolver balance in unused availability?

We haven't drawn the revolver so we have a full billion 550 available to us and another billion dollars of undrawn bank lines available to us.

Great. Thank you.

You're welcome.

That concludes today's Q&A session. I would like to turn the call back over to Samir Gibara.

Well, these were our observations for the quarter, and I want to thank you all for being with us this morning. We have tried to answer all the questions to the best of our ability. And we are looking forward to talking to you again at the end of Q2. Thank you.

I would like to thank everyone for participating in today's Goodyear earnings release teleconference. That concludes today's call.