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5. The Goodyear Tire & Rubber Company Business Report FY ended Dec. 2016

The Goodyear Tire & Rubber Company Business Report FY ended Dec. 2016

Factor
1) Net Sales
-The Company's net sales in the fiscal year ended December 31, 2016 of USD 15,158 million represented 7.8% decrease from the previous year. Sales decrease is primarily to lower sales of USD 531 million as a result of the deconsolidation of our Venezuelan subsidiary, unfavorable foreign currency translation of USD 258 million, a decline in price and product mix of USD 230 million, lower sales in other tire related businesses of USD 188 million, primarily related to motorcycle tire sales in Americas due to the dissolution of the global alliance with SRI, and lower tire unit volume of USD 75 million.

2) Operating Income
-In the fiscal year ended December 31, 2016, the Company's operating income decreased by 1.7% over the previous year to USD 1,985 million. Decrease in operating income was due primarily to the impact of the deconsolidation of our Venezuelan subsidiary of USD 119 million, lower income in other tire-related business of USD 61 million, primarily due to decreased motorcycle tire sales as a result of the dissolution of the global alliance with SRI, unfavorable foreign currency translation of USD 30 million, lower volume of USD 24 million and an out of period adjustment of USD 24 million of expense related to the elimination of intracompany profit in Americas, primarily related to the years 2012 to 2015. These decreases were partially offset by lower raw material costs of USD 346 million, which more than offset the effect of lower price and product mix of USD 178 million, and lower SAG of USD 56 million, primarily related to lower incentive compensation and restructuring savings.

Dissolution of alliance with Sumitomo Rubber Industries

-The Company and Sumitomo Rubber Industries, Ltd. (SRI) executed an agreement to dissolve the global alliance agreement and joint ventures on June 4, 2015. SRI will acquire the Dunlop trademark license of original equipment tires for Japanese automakers in North America, and the exclusive usage of the Dunlop trademark for other 33 countries including Russia, Middle East and African countries. The Company will obtain the ownership of the Dunlop trademark license in Europe and for replacement tires in North America. The Company will acquire the European tire plant Goodyear Dunlop Tires Europe B.V., and Nippon Goodyear Ltd. in Japan. SRI will acquire the North American plant, Goodyear Dunlop Tires North America Ltd., a test track associated with the plant, and Dunlop Goodyear Tires Ltd. in Japan. The joint ventures established for procurement and technology development will also be dissolved. On October 1, 2015, the Company and Sumitomo Rubber Industries, Ltd. completed the dissolution of the global alliance between the two parties.

Restructuring

-The Company announced it will combine its North America and Latin America businesses into one Americas business unit, effective January 1, 2016. The combined business will serve customers and consumers more effectively and efficiently by integrating processes such as product development, market forecasting, and product supply. All manufacturing plants in the combined region – including the new Americas plant in San Luis Potosi, Mexico, scheduled to open in 2017 – will be leveraged to serve all customers in Mexico, Latin America and North America. (From a press release on December 1, 2015)

Business Partnerships

-The Company and Sumitomo Rubber Industries Ltd. (SRI) have reportedly entered into a new long-term agreement regarding the development and production of Goodyear-brand replacement tires in Japan. The two companies have just recently agreed on the dissolution of their alliance for global tire businesses. However, in the replacement tire market in Japan, the Company will use SRI's development and supply capacities to supply tires that will meet the needs of Japanese customers. The Company intends to strengthen its presence in Japan by ensuring a stable supply of replacement tires. (From an article in the Nikkan Jidosha Shimbun on June 9, 2015)

Awards

-The Company received two North American supplier awards for its performance in environmental sustainability and environmental stewardship by Subaru of Indiana Automotive, Inc. (SIA). Goodyear supplies original equipment tires to the Subaru Legacy model. (From a press release on May 19, 2016)

Major Contracts

Outlook

-The Company expects that its tire sales volumes in the fiscal year ending December 31, 2017 will increase approximately 1% from the 166.1 million units sold in 2016.

R&D Facilities

-The Company has two innovation centers located in Akron, Ohio, U.S., and Colmar-Berg, Luxembourg, as well as two research and development centers in Hebron, Ohio, U.S., and Hanau, Germany. The Company also has seven tire proving grounds.

Product Development

Concept tires for Lexus UX Concept
-The Company announced that it has developed a new concept tire for Lexus UX Concept. The Urban Crossover tire incorporates state-of-the-art features including Goodyear’s Sound Comfort Technology, which uses an open-cell polyurethane foam element attached to the inner surface of the tire, and RunOnFlat Technology which incorporates reinforced sidewalls that can properly carry the weight of a car for up to 80km after a puncture with complete loss of air pressure. (From a press release on September 30, 2016)

Concept tires shown at 2016 Geneva International Motor Show
-The Company has revealed two innovative new concept tires at the 86th Geneva International Motor Show that could literally reshape the future for autonomous cars. The Eagle-360 is a spherical-shaped design tire that would provide self-driving cars ultimate maneuverability, connectivity and biomimicry to increase safety. The IntelliGrip tire is designed to communicate with autonomous vehicle control systems, sensing road surface and weather conditions for improved driving safety and performance. (From a press release on March 1, 2016)

Patents

-As of December 31, 2016, the Company owns approximately 1,900 product, process and equipment patents issued by the United States Patent Office and approximately 3,600 patents issued or granted in other countries around the world. The Company has approximately 400 applications for United States patents pending and approximately 1,900 patent applications on file in other countries around the world.

-The Company's capital expenditures in the fiscal year ended December 31, 2016 were invested primarily into the modernization and expansion of manufacturing capacity in the U.S., Brazil, China, and Mexico.

Investments outside U.S.

-The Company launched the fifth phase of the expansion project for its plant in Pulandian, Dalian, Liaodong Province. The Company is investing USD 485 million to expand the plant’s floor area by 56,700 square meters. The construction project is expected to be completed by 2020. The expansion will boost the plant’s annual capacity for passenger car radial tires to 5 million units and increase the total investment in the Pulandian plant to USD 1.6 billion. (From a press release on November 4, 2016)

-The Company announced that it will build a new tire factory in San Luis Potosi, Mexico to serve its customers in the Americas. The new factory, combined with investments in its existing U.S. and Canadian factories, will enable the Company to meet growing market demand for high-value-added (HVA) consumer tires in North America and Latin America. The new factory is scheduled to begin production in mid-2017 and will have a capacity of approximately six million tires per year. At full capacity, the factory will employ about 1,000 people. The total capital investment for the project is expected to be between USD 500 million and USD 550 million. (From a press release on April 24, 2015)