Document


 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2019
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Ohio
(State or Other Jurisdiction of
Incorporation or Organization)
 
34-0253240
(I.R.S. Employer
Identification No.)
 
 
 
200 Innovation Way, Akron, Ohio
(Address of Principal Executive Offices)
 
44316-0001
(Zip Code)

(330) 796-2121
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock,
Without Par Value, Outstanding at March 31, 2019:
 
232,470,713
 




TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.


THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
March 31,
(In millions, except per share amounts)
2019
 
2018
Net Sales (Note 2)
$
3,598

 
$
3,830

Cost of Goods Sold
2,879

 
2,976

Selling, Administrative and General Expense
547

 
591

Rationalizations (Note 3)
103

 
37

Interest Expense
85

 
76

Other (Income) Expense (Note 4)
22

 
37

Income (Loss) before Income Taxes
(38
)
 
113

United States and Foreign Tax Expense (Note 5)
6

 
33

Net Income (Loss)
(44
)
 
80

Less: Minority Shareholders’ Net Income
17

 
5

Goodyear Net Income (Loss)
$
(61
)
 
$
75

Goodyear Net Income (Loss) — Per Share of Common Stock
 
 
 
Basic
$
(0.26
)
 
$
0.31

Weighted Average Shares Outstanding (Note 6)
232

 
240

Diluted
$
(0.26
)
 
$
0.31

Weighted Average Shares Outstanding (Note 6)
232

 
244

The accompanying notes are an integral part of these consolidated financial statements.



- 1-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Net Income (Loss)
$
(44
)
 
$
80

Other Comprehensive Income (Loss):
 
 
 
Foreign currency translation, net of tax of $2 in 2019 ($2 in 2018)
30

 
82

Defined benefit plans:
 
 
 
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $8 in 2019 ($8 in 2018)
26

 
27

Decrease in net actuarial losses, net of tax of $1 in 2019 ($1 in 2018)
4

 
3

Deferred derivative gains (losses), net of tax of $0 in 2019 (($2) in 2018)
5

 
(4
)
Reclassification adjustment for amounts recognized in income, net of tax of $0 in 2019 ($1 in 2018)
(3
)
 
3

Other Comprehensive Income
62

 
111

Comprehensive Income
18

 
191

Less: Comprehensive Income Attributable to Minority Shareholders
17

 
7

Goodyear Comprehensive Income
$
1

 
$
184

The accompanying notes are an integral part of these consolidated financial statements.

- 2-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
 
December 31,
(In millions, except share data)
2019
 
2018
Assets:
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
860

 
$
801

Accounts Receivable, less Allowance — $115 ($113 in 2018)
2,446

 
2,030

Inventories:
 
 
 
Raw Materials
549

 
569

Work in Process
161

 
152

Finished Products
2,230

 
2,135

 
2,940

 
2,856

Prepaid Expenses and Other Current Assets
246

 
238

Total Current Assets
6,492

 
5,925

Goodwill
563

 
569

Intangible Assets
136

 
136

Deferred Income Taxes (Note 5)
1,864

 
1,847

Other Assets
1,160

 
1,136

Operating Lease Right-of-Use Assets (Note 8)
862

 

Property, Plant and Equipment, less Accumulated Depreciation — $10,285 ($10,161 in 2018)
7,196

 
7,259

Total Assets
$
18,273

 
$
16,872

 
 
 
 
Liabilities:
 
 
 
Current Liabilities:
 
 
 
Accounts Payable — Trade
$
2,737

 
$
2,920

Compensation and Benefits (Notes 11 and 12)
492

 
471

Other Current Liabilities
694

 
737

Notes Payable and Overdrafts (Note 9)
495

 
410

Operating Lease Liabilities due Within One Year (Note 8)
203

 

Long Term Debt and Finance Leases due Within One Year (Notes 8 and 9)
466

 
243

Total Current Liabilities
5,087

 
4,781

Operating Lease Liabilities (Note 8)
667

 

Long Term Debt and Finance Leases (Notes 8 and 9)
5,545

 
5,110

Compensation and Benefits (Notes 11 and 12)
1,299

 
1,345

Deferred Income Taxes (Note 5)
94

 
95

Other Long Term Liabilities
550

 
471

Total Liabilities
13,242

 
11,802

Commitments and Contingent Liabilities (Note 13)

 

Shareholders’ Equity:
 

 
 

Goodyear Shareholders’ Equity:
 
 
 
Common Stock, no par value:
 

 
 

Authorized, 450 million shares, Outstanding shares — 232 million in 2019 and 2018
232

 
232

Capital Surplus
2,114

 
2,111

Retained Earnings
6,476

 
6,597

Accumulated Other Comprehensive Loss
(4,014
)
 
(4,076
)
Goodyear Shareholders’ Equity
4,808

 
4,864

Minority Shareholders’ Equity — Nonredeemable
223

 
206

Total Shareholders’ Equity
5,031

 
5,070

Total Liabilities and Shareholders’ Equity
$
18,273

 
$
16,872

The accompanying notes are an integral part of these consolidated financial statements.

- 3-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
Minority
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
Goodyear
 
Shareholders'
 
Total
 
 
Common Stock
 
Capital
 
Retained
 
Comprehensive
 
Shareholders'
 
Equity  Non-
 
Shareholders'
(Dollars in millions, except per share amounts)
 
Shares
 
Amount
 
Surplus
 
Earnings
 
Loss
 
Equity
 
Redeemable
 
Equity
Balance at December 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

(after deducting 46,292,384 common treasury shares)
 
232,171,043

 
$
232

 
$
2,111

 
$
6,597

 
$
(4,076
)
 
$
4,864

 
$
206

 
$
5,070

Comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
 
 

 
 

 
 

 
(61
)
 
 
 
(61
)
 
17

 
(44
)
Foreign currency translation (net of tax of $2)
 
 

 
 

 
 

 
 
 
30

 
30

 
 
 
30

Amortization of prior service cost and unrecognized gains and losses included in total benefit cost (net of tax of $8)
 
 

 
 

 
 

 
 
 
26

 
26

 
 
 
26

Decrease in net actuarial losses (net of tax of $1)
 
 

 
 

 
 

 
 
 
4

 
4

 
 
 
4

Deferred derivative gains (losses) (net of tax of $0)
 
 
 
 
 
 
 
 
 
5

 
5

 
 
 
5

Reclassification adjustment for amounts recognized in income (net of tax of $0)
 
 
 
 
 
 
 
 
 
(3
)
 
(3
)
 
 
 
(3
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
62

 

 
62

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
1

 
17

 
18

Adoption of new accounting standards update (Note 1)
 
 
 
 
 
 
 
(23
)
 
 
 
(23
)
 
 
 
(23
)
Stock-based compensation plans (Note 12)
 
 
 
 
 
4

 
 
 
 
 
4

 
 
 
4

Dividends declared (Note 14)
 
 
 
 
 
 
 
(37
)
 
 
 
(37
)
 
 
 
(37
)
Common stock issued from treasury
 
299,670

 
 
 
(1
)
 
 
 
 
 
(1
)
 
 
 
(1
)
Balance at March 31, 2019
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

(after deducting 45,992,714 common treasury shares)
 
232,470,713

 
$
232

 
$
2,114

 
$
6,476

 
$
(4,014
)
 
$
4,808

 
$
223

 
$
5,031

We declared and paid cash dividends of $0.16 per Common Share for the three months ended March 31, 2019.
The accompanying notes are an integral part of these consolidated financial statements.











- 4-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
Minority
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
Goodyear
 
Shareholders'
 
Total
 
 
Common Stock
 
Capital
 
Retained
 
Comprehensive
 
Shareholders'
 
Equity  Non-
 
Shareholders'
(Dollars in millions, except per share amounts)
 
Shares
 
Amount
 
Surplus
 
Earnings
 
Loss
 
Equity
 
Redeemable
 
Equity
Balance at December 31, 2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

(after deducting 38,308,825 common treasury shares)
 
240,154,602

 
$
240

 
$
2,295

 
$
6,044

 
$
(3,976
)
 
$
4,603

 
$
247

 
$
4,850

Comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
 

 
 

 
 

 
75

 
 
 
75

 
5

 
80

Foreign currency translation (net of tax of $2)
 
 

 
 

 
 

 
 
 
80

 
80

 
2

 
82

Amortization of prior service cost and unrecognized gains and losses included in total benefit cost (net of tax of $8)
 
 

 
 

 
 

 
 
 
27

 
27

 
 
 
27

Decrease in net actuarial losses (net of tax of $1)
 
 

 
 

 
 

 
 
 
3

 
3

 
 
 
3

Deferred derivative gains (losses) (net of tax of ($2))
 
 
 
 
 
 
 
 
 
(4
)
 
(4
)
 
 
 
(4
)
Reclassification adjustment for amounts recognized in income (net of tax of $1)
 
 
 
 
 
 
 
 
 
3

 
3

 
 
 
3

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
109

 
2

 
111

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
184

 
7

 
191

Adoption of new accounting standards updates
 
 
 
 
 
 
 
(1
)
 
 
 
(1
)
 
 
 
(1
)
Stock-based compensation plans (Note 12)
 


 


 
4

 
 
 
 
 
4

 
 
 
4

Repurchase of common stock (Note 14)
 
(850,284
)
 
(1
)
 
(24
)
 
 
 
 
 
(25
)
 
 
 
(25
)
Dividends declared (Note 14)
 
 
 
 
 
 
 
(34
)
 
 
 
(34
)
 
 
 
(34
)
Common stock issued from treasury
 
524,564

 
1

 


 
 
 
 
 
1

 
 
 
1

Purchase of minority shares
 
 
 
 
 
5

 
 
 
 
 
5

 
(29
)
 
(24
)
Balance at March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(after deducting 38,634,545 common treasury shares)
 
239,828,882

 
$
240

 
$
2,280

 
$
6,084

 
$
(3,867
)
 
$
4,737

 
$
225

 
$
4,962

We declared and paid cash dividends of $0.14 per Common Share for the three months ended March 31, 2018.
The accompanying notes are an integral part of these consolidated financial statements.



- 5-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Cash Flows from Operating Activities:
 
 
 
Net Income (Loss)
$
(44
)
 
$
80

Adjustments to Reconcile Net Income (Loss) to Cash Flows from Operating Activities:
 
 
 
Depreciation and Amortization
193

 
199

Amortization and Write-Off of Debt Issuance Costs
4

 
3

Provision for Deferred Income Taxes
(23
)
 
(17
)
Net Rationalization Charges (Note 3)
103

 
37

Rationalization Payments
(18
)
 
(106
)
Net (Gains) Losses on Asset Sales (Note 4)
(5
)
 
2

Operating Lease Expense Under New Accounting Standard (Note 8)
74

 

Operating Lease Payments Under New Accounting Standard (Note 8)
(71
)
 

Pension Contributions and Direct Payments
(18
)
 
(21
)
Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions:
 
 
 
Accounts Receivable
(425
)
 
(467
)
Inventories
(93
)
 
(81
)
Accounts Payable — Trade
(71
)
 
99

Compensation and Benefits
31

 
(16
)
Other Current Liabilities
(11
)
 
(64
)
Other Assets and Liabilities
10

 
(37
)
Total Cash Flows from Operating Activities
(364
)
 
(389
)
Cash Flows from Investing Activities:
 
 
 
Capital Expenditures
(221
)
 
(248
)
Short Term Securities Acquired
(31
)
 
(8
)
Short Term Securities Redeemed
31

 
8

Notes Receivable
(7
)
 

Other Transactions
(16
)
 

Total Cash Flows from Investing Activities
(244
)
 
(248
)
Cash Flows from Financing Activities:
 
 
 
Short Term Debt and Overdrafts Incurred
571

 
584

Short Term Debt and Overdrafts Paid
(485
)
 
(518
)
Long Term Debt Incurred
1,850

 
1,652

Long Term Debt Paid
(1,223
)
 
(1,226
)
Common Stock Issued

 
1

Common Stock Repurchased (Note 14)

 
(25
)
Common Stock Dividends Paid (Note 14)
(37
)
 
(34
)
Transactions with Minority Interests in Subsidiaries

 
(22
)
Debt Related Costs and Other Transactions
(31
)
 
(13
)
Total Cash Flows from Financing Activities
645

 
399

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash

 
16

Net Change in Cash, Cash Equivalents and Restricted Cash
37

 
(222
)
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period
873

 
1,110

Cash, Cash Equivalents and Restricted Cash at End of the Period
$
910

 
$
888

The accompanying notes are an integral part of these consolidated financial statements.

- 6-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by The Goodyear Tire & Rubber Company (the “Company,” “Goodyear,” “we,” “us” or “our”) in accordance with Securities and Exchange Commission rules and regulations and generally accepted accounting principles in the United States of America ("US GAAP") and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).
Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2019.
Recently Adopted Accounting Standards
Effective January 1, 2019, we adopted an accounting standards update with new guidance intended to increase transparency and comparability among organizations relating to leases.  The new guidance requires lessees to recognize a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term.  The standards update retained a dual model for lease classification, requiring leases to be classified as finance or operating leases to determine recognition in the statements of operations and cash flows; however, substantially all leases are now required to be recognized on the balance sheet. The standards update also requires quantitative and qualitative disclosures regarding key information about leasing arrangements. We elected the optional transition method and applied the new guidance at the date of adoption, without adjusting the comparative periods presented. We also elected the practical expedients permitted under the transition guidance that retain the lease classification and initial direct costs for any leases that existed prior to adoption of the standard, and we have elected to not evaluate land easements that existed as of, or expired before, adoption of the new standard. In addition, we did not reassess whether any contracts entered into prior to adoption are leases.
The adoption of this standards update had a material impact on our Consolidated Balance Sheets and related disclosures. In addition to recognizing right-of-use assets and lease liabilities for our operating leases, we recorded $23 million as a cumulative effect adjustment to decrease Retained Earnings as a result of using the modified retrospective adoption approach. The adoption of this standards update did not have a material impact on our results of operations or cash flows.
The cumulative effect of the changes made to our January 1, 2019 balance sheet for the adoption of the standards update was as follows:
 
Balance at
 
Adjustment for
 
Balance at
(In millions)
December 31, 2018
 
New Standard
 
January 1, 2019
Deferred Income Taxes — Asset
$
1,847

 
$
7

 
$
1,854

Operating Lease Right-of-Use Assets

 
882

 
882

Property, Plant and Equipment, less Accumulated Depreciation
7,259

 
(16
)
 
7,243

Operating Lease Liabilities due Within One Year

 
204

 
204

Operating Lease Liabilities

 
684

 
684

Long Term Debt and Finance Leases
5,110

 
14

 
5,124

Other Long Term Liabilities
471

 
(6
)
 
465

Retained Earnings
6,597

 
(23
)
 
6,574

Effective January 1, 2019, we adopted an accounting standards update with new guidance intended to reduce complexity in hedge accounting and make hedge results easier to understand. This includes simplifying how hedge results are presented and disclosed in the financial statements, expanding the types of hedge strategies allowed and providing relief around the documentation and assessment requirements. The adoption of this standards update did not have a material impact our consolidated financial statements.
Effective January 1, 2019, we adopted an accounting standards update that allows an optional one-time reclassification from Accumulated Other Comprehensive Income (Loss) ("AOCL") to Retained Earnings for the stranded tax effects resulting from the new corporate tax rate under the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017 in the United

- 7-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

States. We have elected not to reclassify the income tax effects of the Tax Act from AOCL to Retained Earnings. As such, the adoption of this standards update did not impact our consolidated financial statements. Our policy is to utilize an item-by-item approach to release stranded income tax effects from AOCL. Under this approach, the stranded income tax effects are released from AOCL when the related item ceases to exist.
Recently Issued Accounting Standards
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update with new guidance requiring a customer in a cloud computing arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to capitalize as an asset. The standards update is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted, and may be applied retrospectively or as of the beginning of the period of adoption. The adoption of this accounting standards update is not expected to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued an accounting standards update with new guidance intended to simplify the subsequent measurement of goodwill. The standards update eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity will perform its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount by which the carrying amount exceeds the fair value. The standards update is effective prospectively for annual and interim goodwill impairment testing performed in fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption of this standards update is not expected to impact our consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of all legal entities in which we hold a controlling financial interest. A controlling financial interest generally arises from our ownership of a majority of the voting shares of our subsidiaries. We would also hold a controlling financial interest in variable interest entities if we are considered to be the primary beneficiary. Investments in companies in which we do not own a majority interest and we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. Investments in other companies are carried at cost. All intercompany balances and transactions have been eliminated in consolidation.
Restricted Cash
The following table provides a reconciliation of Cash, Cash Equivalents and Restricted Cash as reported within the Consolidated Statements of Cash Flows:
 
March 31,
(In millions)
2019
 
2018
Cash and Cash Equivalents
$
860

 
$
837

Restricted Cash
50

 
51

Total Cash, Cash Equivalents and Restricted Cash
$
910

 
$
888

Restricted Cash, which is included in Prepaid Expenses and Other Current Assets in the Consolidated Balance Sheets, primarily represents amounts required to be set aside in connection with accounts receivable factoring programs.  The restrictions lapse when cash from factored accounts receivable is remitted to the purchaser of those receivables.
Reclassifications and Adjustments
Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.


- 8-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2. NET SALES
The following tables show disaggregated net sales from contracts with customers by major source:
 
Three Months Ended March 31, 2019
 
 
 
Europe, Middle East
 
 
 
 
(In millions)
Americas
 
and Africa
 
Asia Pacific
 
Total
Tire unit sales
$
1,493

 
$
1,143

 
$
453

 
$
3,089

Other tire and related sales
137

 
72

 
32

 
241

Retail services and service related sales
132

 
4

 
15

 
151

Chemical
109

 

 

 
109

Other
5

 
2

 
1

 
8

Net Sales by reportable segment
$
1,876

 
$
1,221

 
$
501

 
$
3,598

 
Three Months Ended March 31, 2018
 
 
 
Europe, Middle East
 
 
 
 
(In millions)
Americas
 
and Africa
 
Asia Pacific
 
Total
Tire unit sales
$
1,506

 
$
1,209

 
$
518

 
$
3,233

Other tire and related sales
135

 
105

 
30

 
270

Retail services and service related sales
137

 
15

 
22

 
174

Chemical
148

 

 

 
148

Other
3

 
1

 
1

 
5

Net Sales by reportable segment
$
1,929

 
$
1,330

 
$
571

 
$
3,830

Tire unit sales consist of consumer, commercial, farm and off-the-road tire sales, including the sale of new Company-branded tires through Company-owned retail channels. Other tire and related sales consist of aviation, race, motorcycle and all-terrain vehicle tire sales, retread sales and other tire related sales. Sales of tires in this category are not included in reported tire unit information. Retail services and service related sales consist of automotive services performed for customers through our Company-owned retail channels, and includes service related products. Chemical sales relate to the sale of synthetic rubber and other chemicals to third-parties, and exclude intercompany sales. Other sales include items such as franchise fees and ancillary tire parts, such as tire rims, tire valves and valve stems.
When we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract, we record deferred revenue, which represents a contract liability. Deferred revenue included in Other Current Liabilities in the Consolidated Balance Sheets totaled $37 million and $39 million at March 31, 2019 and December 31, 2018, respectively. Deferred revenue included in Other Long Term Liabilities in the Consolidated Balance Sheets totaled $35 million and $39 million at March 31, 2019 and December 31, 2018, respectively. We recognize deferred revenue after we have transferred control of the goods or services to the customer and all revenue recognition criteria are met.
The following table presents the balance of deferred revenue related to contracts with customers, and changes during the three months ended March 31, 2019:
 
 
(In millions)
 
Balance at December 31, 2018
$
78

Revenue deferred during period
34

Revenue recognized during period
(40
)
Impact of foreign currency translation

Balance at March 31, 2019
$
72


- 9-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3. COSTS ASSOCIATED WITH RATIONALIZATION PROGRAMS
In order to maintain our global competitiveness, we have implemented rationalization actions over the past several years to reduce high-cost and excess manufacturing capacity and associate headcount.
The following table shows the roll-forward of our liability between periods:
 
 
 
 
 
 
 
Associate-
 
 
 
 
(In millions)
Related Costs
 
Other Exit Costs
 
Total
Balance at December 31, 2018
$
80

 
$
1

 
$
81

2019 Charges (1)
100

 
4

 
104

Incurred, including net Foreign Currency Translation of $(3) million and $0 million, respectively
(17
)
 
(4
)
 
(21
)
Reversed to the Statement of Operations
(2
)
 

 
(2
)
Balance at March 31, 2019
$
161

 
$
1

 
$
162

(1)
Charges of $104 million in 2019, exclude $1 million of benefit plan termination benefits recorded in Rationalizations in the Statement of Operations.
On March 18, 2019, we approved a plan that proposes to modernize two of our tire manufacturing facilities in Germany. The plan is in furtherance of our strategy to strengthen the competitiveness of our manufacturing footprint and increase production of premium, large-rim diameter consumer tires. The plan, which remains subject to consultation with relevant employee representative bodies, would result in approximately 1,100 job reductions as a result of changes to the layout of the plants, efficiency gains from new equipment and a reduction in the production of tires for declining, less profitable market segments. We accrued $93 million in charges related to the plan in the first quarter of 2019, which are expected to be substantially paid through 2023.
The remainder of the accrual balance at March 31, 2019 is expected to be substantially utilized in the next 12 months and includes $35 million related to plans to reduce manufacturing headcount and improve operating efficiency in Europe, Middle East and Africa ("EMEA"), $24 million related to global plans to reduce Selling, Administrative and General Expense ("SAG") headcount and $6 million related to a plan to reduce manufacturing headcount and improve operating efficiency in Americas.
The following table shows net rationalization charges included in Income (Loss) before Income Taxes:
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Current Year Plans
 
 
 
Associate Severance and Other Related Costs
$
98

 
$
31

Benefit Plan Termination Benefits
1

 

Other Exit Costs
1

 

    Current Year Plans - Net Charges
$
100

 
$
31

 
 
 
 
Prior Year Plans
 
 
 
Associate Severance and Other Related Costs
$

 
$
(2
)
Other Exit Costs
3

 
8

    Prior Year Plans - Net Charges
3

 
6

        Total Net Charges
$
103

 
$
37

 
 
 
 
Asset Write-off and Accelerated Depreciation Charges
$

 
$
1

Substantially all of the new charges for the three months ended March 31, 2019 and 2018 related to future cash outflows. Net current year plan charges for the three months ended March 31, 2019 include $93 million related to a proposed plan to modernize two of our tire manufacturing facilities in Germany and $7 million related to a plan to reduce manufacturing headcount and improve operating efficiency in Americas. Net current year plan charges for the three months ended March 31, 2018 include $25 million related to a global plan to reduce SAG headcount and $6 million related to a plan to improve operating efficiency in EMEA.

- 10-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Net prior year plan charges for the three months ended March 31, 2019 were $3 million, primarily related to EMEA manufacturing plans. Net prior year plan charges for the three months ended March 31, 2019 also include reversals of $2 million for actions no longer needed for their originally intended purposes. Net prior year plan charges for the three months ended March 31, 2018 include $7 million related to the closure of our tire manufacturing facility in Philippsburg, Germany. Net prior year plan charges for the three months ended March 31, 2018 also include reversals of $5 million for actions no longer needed for their originally intended purposes.
Ongoing rationalization plans had approximately $720 million in charges incurred prior to 2019 and approximately $45 million is expected to be incurred in future periods.
Approximately 1,050 associates will be released under new plans initiated in 2019, of which approximately 50 were released through March 31, 2019. In the first three months of 2019, approximately 100 associates were released under plans initiated in prior years. Approximately 1,450 associates remain to be released under all ongoing rationalization plans.
Approximately 850 former associates of the closed Amiens, France manufacturing facility have asserted wrongful termination or other claims against us. Refer to Note to the Consolidated Financial Statements No. 13, Commitments and Contingent Liabilities, in this Form 10-Q.
NOTE 4. OTHER (INCOME) EXPENSE
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Non-service related pension and other postretirement benefits cost
$
30

 
$
34

Financing fees and financial instruments expense
8

 
9

Net foreign currency exchange (gains) losses
(7
)
 
(7
)
General and product liability expense (income) - discontinued products
6

 
1

Royalty income
(5
)
 
(5
)
Net (gains) losses on asset sales
(5
)
 
2

Interest income
(3
)
 
(4
)
Miscellaneous (income) expense
(2
)
 
7

 
$
22

 
$
37

Non-service related pension and other postretirement benefits cost consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost, as well as curtailments and settlements which are not related to rationalization plans. Non-service related pension and other postretirement benefits cost for the three months ended March 31, 2018 includes expense of $9 million related to the adoption of the new accounting standards update which no longer allows non-service related pension and other postretirement benefits cost to be capitalized in inventory. For further information, refer to Note to the Consolidated Financial Statements No. 11, Pension, Savings and Other Postretirement Benefit Plans, in this Form 10-Q.
Other (Income) Expense also includes financing fees and financial instruments expense which consists of commitment fees and charges incurred in connection with financing transactions; net foreign currency exchange (gains) and losses; general and product liability expense (income) - discontinued products, which consists of charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries; royalty income which is derived primarily from licensing arrangements; net (gains) losses on asset sales; interest income; and miscellaneous (income) expense.
NOTE 5. INCOME TAXES
For the first quarter of 2019, we recorded tax expense of $6 million on a loss before income taxes of $38 million. Income tax expense for the three months ended March 31, 2019 includes net discrete charges of $7 million.
In the first quarter of 2018, we recorded tax expense of $33 million on income before income taxes of $113 million. Income tax expense for the three months ended March 31, 2018 included a charge of $7 million to increase our provisional tax obligation for the one-time transition tax imposed by the Tax Act.
We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three months ended March 31, 2019 and March 31, 2018, primarily relates to the discrete items noted

- 11-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

above and an overall higher effective tax rate in the foreign jurisdictions in which we operate, partially offset by a benefit from our foreign derived intangible income deduction provided for in the Tax Act.
At March 31, 2019, our valuation allowance on certain of our U.S. federal, state and local deferred tax assets was $113 million, primarily related to deferred tax assets for foreign tax credits, and our valuation allowance on our foreign deferred tax assets was $222 million. At December 31, 2018, our valuation allowance on certain U.S. federal, state and local deferred tax assets was $113 million, and our valuation allowance on our foreign deferred tax assets was $204 million.
Our net deferred tax assets include approximately $637 million of foreign tax credits, net of valuation allowances of $103 million, generated primarily from the receipt of foreign dividends. Our earnings and forecasts of future profitability along with three significant sources of foreign income provide us sufficient positive evidence to utilize these credits, despite the negative evidence of their limited carryforward periods. Those sources of foreign income are (1) 100% of our domestic profitability can be re-characterized as foreign source income under current U.S. tax law to the extent domestic losses have offset foreign source income in prior years, (2) annual net foreign source income, exclusive of dividends, primarily from royalties and (3) if necessary, we can enact tax planning strategies, including the ability to capitalize research and development costs annually, accelerate income on cross border sales of inventory or raw materials to our subsidiaries and reduce U.S. interest expense by, for example, reducing intercompany loans through repatriating current year earnings of foreign subsidiaries, all of which would increase our domestic profitability.
We considered our current forecasts of future profitability in assessing our ability to realize our foreign tax credits. These forecasts include the impact of recent trends, including various macroeconomic factors such as raw material prices, on our profitability, as well as the impact of tax planning strategies. Macroeconomic factors, including raw material prices, possess a high degree of volatility and can significantly impact our profitability. As such, there is a risk that future foreign source income will not be sufficient to fully utilize these foreign tax credits. However, we believe our forecasts of future profitability along with the three significant sources of foreign income described above provide us sufficient positive evidence to conclude that it is more likely than not that the remaining foreign tax credits will be fully utilized prior to their various expiration dates.
Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets. Each reporting period we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release all or a significant portion of these valuation allowances will exist within the next twelve months.
For the three months ending March 31, 2019, changes to our unrecognized tax benefits did not, and for the full year of 2019 are not expected to, have a significant impact on our financial position or results of operations.
We are open to examination in the United States for 2018 and in Germany from 2013 onward. Generally, for our remaining tax jurisdictions, years from 2013 onward are still open to examination.
NOTE 6. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share are calculated to reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock.

- 12-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Basic and diluted earnings (loss) per common share are calculated as follows:
 
Three Months Ended
 
March 31,
(In millions, except per share amounts)
2019
 
2018
Earnings (loss) per share — basic:
 
 
 
Goodyear net income (loss)
$
(61
)
 
$
75

Weighted average shares outstanding
232

 
240

Earnings (loss) per common share — basic
$
(0.26
)
 
$
0.31

 
 
 
 
Earnings (loss) per share — diluted:
 
 
 
Goodyear net income (loss)
$
(61
)
 
$
75

Weighted average shares outstanding
232

 
240

Dilutive effect of stock options and other dilutive securities

 
4

Weighted average shares outstanding — diluted
232

 
244

Earnings (loss) per common share — diluted
$
(0.26
)
 
$
0.31

Weighted average shares outstanding - diluted for the three months ended March 31, 2019 excludes the dilutive effect of approximately 3 million shares, related primarily to options with exercise prices less than the average market price of our common shares (i.e., "in-the-money" options), as their inclusion would have been anti-dilutive due to the Goodyear net loss. Additionally, weighted average shares outstanding - diluted for the three months ended March 31, 2019 and 2018 exclude approximately 2 million and 1 million equivalent shares, respectively, related to options with exercise prices greater than the average market price of our common shares (i.e., "underwater" options).
NOTE 7. BUSINESS SEGMENTS
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Sales:
 
 
 
Americas
$
1,876

 
$
1,929

Europe, Middle East and Africa
1,221

 
1,330

Asia Pacific
501

 
571

Net Sales
$
3,598

 
$
3,830

Segment Operating Income:
 
 
 
Americas
$
89

 
$
127

Europe, Middle East and Africa
54

 
78

Asia Pacific
47

 
76

Total Segment Operating Income
$
190

 
$
281

Less:
 
 
 
Rationalizations
$
103

 
$
37

Interest expense
85

 
76

Other (income) expense (Note 4)
22

 
37

Asset write-offs and accelerated depreciation

 
1

Corporate incentive compensation plans
1

 
4

Intercompany profit elimination
(4
)
 
(3
)
Retained expenses of divested operations
3

 
3

Other
18

 
13

Income (Loss) before Income Taxes
$
(38
)
 
$
113


- 13-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Rationalizations, as described in Note to the Consolidated Financial Statements No. 3, Costs Associated with Rationalization Programs, in this Form 10-Q, net (gains) losses on asset sales, as described in Note to the Consolidated Financial Statements No. 4, Other (Income) Expense, in this Form 10-Q, and asset write-offs and accelerated depreciation were not charged (credited) to the strategic business units ("SBUs") for performance evaluation purposes but were attributable to the SBUs as follows:
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Rationalizations:
 
 
 
Americas
$
7

 
$
3

Europe, Middle East and Africa
96

 
27

Asia Pacific

 
3

Total Segment Rationalizations
$
103

 
$
33

Corporate

 
4

Total Rationalizations
$
103


$
37

 
 
 
 
Net (Gains) Losses on Asset Sales:

 
 
Europe, Middle East and Africa
$
(5
)
 
$
2

Total Net (Gains) Losses on Asset Sales
$
(5
)
 
$
2

Asset Write-offs and Accelerated Depreciation:
 
 
 
Europe, Middle East and Africa
$

 
$
1

Total Asset Write-offs and Accelerated Depreciation
$

 
$
1

NOTE 8. LEASES
We determine if an arrangement is or contains a lease at inception. We enter into leases primarily for our wholesale distribution facilities, manufacturing equipment, administrative offices, retail stores, vehicles and data processing equipment under varying terms and conditions. Our leases have remaining lease terms of less than 1 year to approximately 50 years. Most of our leases include options to extend the lease, with renewal terms ranging from 1 to 50 years or more, and some include options to terminate the lease within 1 year. If it is reasonably certain that an option to extend or terminate a lease will be exercised, that option is considered in the lease term at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize short-term lease expense for these leases on a straight-line basis over the lease term.
Certain of our lease agreements include variable lease payments, generally based on consumer price indices. Variable lease payments that are assigned to an index are determined based on the initial index at commencement, and the variability based on changes in the index is accounted for as it changes. The variable portion of payments is not included in the initial measurement of the right-of-use asset or lease liability due to the uncertainty of the payment amount and are recorded as lease expense in the period incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have lease agreements with lease and non-lease components, which are accounted for separately.
Operating leases are included in Operating Lease Right-of-Use (“ROU”) Assets, Operating Lease Liabilities due Within One Year and Operating Lease Liabilities on our Consolidated Balance Sheets. Finance leases are included in Property, Plant and Equipment, Long Term Debt and Finance Leases due Within One Year, and Long Term Debt and Finance Leases on our Consolidated Balance Sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Generally, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments, unless there is a rate implicit in the lease agreement. Operating lease cost is recognized on a straight-line basis over the lease term.

- 14-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The components of lease expense included in Income (Loss) before Income Taxes are as follows:
 
Three Months Ended
 
March 31,
(In millions)
2019
Operating Lease Cost
$
74

Finance Lease Cost
 
Amortization of ROU Assets
2

Interest on Lease Liabilities
5

Short Term Lease Cost
1

Variable Lease Cost
2

Sublease Income
(4
)
Total Lease Cost
$
80

Supplemental cash flow information related to leases is as follows:
 
Three Months Ended
 
March 31,
(In millions)
2019
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
 
Operating Cash Flows for Operating Leases
$
71

Operating Cash Flows for Finance Leases
5

Financing Cash Flows for Finance Leases
2

ROU Assets Obtained in Exchange for Lease Obligations
 
Operating Leases
37

Finance Leases
28


- 15-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Supplemental balance sheet information related to leases is as follows:
 
March 31,
(In millions, except lease term and discount rate)
2019
Operating Leases
 
Operating Lease ROU Assets
$
862

 
 
Operating Lease Liabilities due Within One Year
$
203

Operating Lease Liabilities
667

Total Operating Lease Liabilities
$
870

 


Finance Leases
 
Property, Plant and Equipment, at cost
$
263

Accumulated Depreciation
52

Property, Plant and Equipment, net
$
211

 
 
Long Term Debt and Finance Leases due Within One Year
$
5

Long Term Debt and Finance Leases
240

Total Finance Lease Liabilities
$
245

 
 
Weighted Average Remaining Lease Term
 
Operating Leases
6.9 years

Finance Leases
32.4 years

 
 
Weighted Average Discount Rate
 
Operating Leases
6.71
%
Finance Leases
8.44
%
Future maturities of our lease liabilities, excluding subleases, as of March 31, 2019 are as follows:
(In millions)
Operating Leases
 
Finance Leases
 
 
 
 
2019 (excluding the three months ended March 31)
$
190

 
$
19

2020
213

 
23

2021
162

 
34

2022
113

 
21

2023
86

 
20

Thereafter
359

 
706

Total Lease Payments
1,123

 
823

Less: Imputed Interest
253

 
578

Total
$
870

 
$
245


- 16-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Future maturities of our lease liabilities as of December 31, 2018 were as follows:
 
 
 
 
 
 
 
 
 
 
 
2024 and
 
 
(In millions)
2019
 
2020
 
2021
 
2022
 
2023
 
Beyond
 
Total
Capital Leases
 

 
 

 
 

 
 

 
 
 
 

 
 

Minimum lease payments
$
8

 
$
7

 
$
18

 
$
3

 
$
2

 
$
23

 
$
61

Imputed interest
(3
)
 
(3
)
 
(3
)
 
(1
)
 
(1
)
 
(13
)
 
(24
)
Present value
$
5

 
$
4

 
$
15

 
$
2

 
$
1

 
$
10

 
$
37

Operating Leases
 

 
 

 
 

 
 

 
 
 
 

 
 

Minimum lease payments
$
266

 
$
214

 
$
161

 
$
110

 
$
84

 
$
391

 
$
1,226

Minimum sublease rentals
(15
)
 
(12
)
 
(8
)
 
(5
)
 
(3
)
 
(6
)
 
(49
)
 
$
251

 
$
202

 
$
153

 
$
105

 
$
81

 
$
385

 
$
1,177

Imputed interest
 

 
 

 
 

 
 

 
 
 
 

 
(263
)
Present value
 

 
 

 
 

 
 

 
 
 
 

 
$
914

As of March 31, 2019, we have additional operating leases that have not yet commenced for which the present value of lease payments over the respective lease terms totals $33 million. Accordingly, these leases are not recorded on the Consolidated Balance Sheet at March 31, 2019. These operating leases will commence between 2019 and 2022 with lease terms of 1 year to 15 years.
NOTE 9. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
At March 31, 2019, we had total credit arrangements of $9,029 million, of which $2,683 million were unused. At that date, 40% of our debt was at variable interest rates averaging 4.69%.
Notes Payable and Overdrafts, Long Term Debt and Finance Leases due Within One Year and Short Term Financing Arrangements
At March 31, 2019, we had short term committed and uncommitted credit arrangements totaling $804 million, of which $294 million were unused. These arrangements are available primarily to certain of our foreign subsidiaries through various banks at quoted market interest rates.
The following table presents amounts due within one year:
 
March 31,
 
December 31,
(In millions)
2019
 
2018
Chinese credit facilities
$
154

 
$
122

Other domestic and foreign debt
341

 
288

Notes Payable and Overdrafts
$
495

 
$
410

Weighted average interest rate
7.90
%
 
8.03
%
 
 
 
 
Chinese credit facilities
$
30

 
$
32

Mexican credit facilities
90

 

Other foreign and domestic debt (including finance leases)
346

 
211

Long Term Debt and Finance Leases due Within One Year
$
466

 
$
243

Weighted average interest rate
3.83
%
 
4.57
%
Total obligations due within one year
$
961

 
$
653

Long Term Debt and Finance Leases and Financing Arrangements
At March 31, 2019, we had long term credit arrangements totaling $8,225 million, of which $2,389 million were unused.

- 17-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents long term debt and finance leases, net of unamortized discounts, and interest rates:
 
March 31, 2019
 
December 31, 2018
 
 
 
Interest
 
 
 
Interest
(In millions)
Amount
 
Rate
 
Amount
 
Rate
Notes:
 
 
 
 
 
 
 
8.75% due 2020
$
278

 
 
 
$
278

 
 
5.125% due 2023
1,000

 
 
 
1,000

 
 
3.75% Euro Notes due 2023
281

 
 
 
286

 
 
5% due 2026
900

 
 
 
900

 
 
4.875% due 2027
700

 
 
 
700

 
 
7% due 2028
150

 
 
 
150

 
 
Credit Facilities:
 
 
 
 
 
 
 
First lien revolving credit facility due 2021
285

 
3.66
%
 

 

Second lien term loan facility due 2025
400

 
4.49
%
 
400

 
4.46
%
European revolving credit facility due 2024
140

 
1.50
%
 

 

Pan-European accounts receivable facility
246

 
1.05
%
 
335

 
1.01
%
Mexican credit facilities
290

 
4.26
%
 
200

 
4.30
%
Chinese credit facilities
224

 
5.00
%
 
219

 
5.03
%
Other foreign and domestic debt(1)
905

 
4.36
%
 
884

 
5.35
%
 
5,799

 
 
 
5,352

 
 
Unamortized deferred financing fees
(33
)
 
 
 
(36
)
 
 
 
5,766

 
 
 
5,316

 
 
Finance lease obligations(2)
245

 
 
 
37

 
 
 
6,011

 
 
 
5,353

 
 
Less portion due within one year
(466
)
 
 
 
(243
)
 
 
 
$
5,545

 
 
 
$
5,110

 
 
(1)
Interest rates are weighted average interest rates related to various foreign credit facilities with customary terms and conditions.
(2)
Includes finance lease obligations related to our Global and Americas Headquarters.
NOTES
At March 31, 2019, we had $3,309 million of outstanding notes, compared to $3,314 million at December 31, 2018.
CREDIT FACILITIES
$2.0 billion Amended and Restated First Lien Revolving Credit Facility due 2021
Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit, with letter of credit availability limited to $800 million. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. Based on our current liquidity, amounts drawn under this facility bear interest at LIBOR plus 125 basis points, and undrawn amounts under the facility will be subject to an annual commitment fee of 30 basis points.
Availability under the facility is subject to a borrowing base, which is based primarily on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks, and (iii) certain cash in an amount not to exceed $200 million. To the extent that our eligible accounts receivable and inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.0 billion. As of March 31, 2019, our borrowing base, and therefore our availability, under this facility was $382 million below the facility's stated amount of $2.0 billion.

- 18-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2015. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At March 31, 2019, we had $285 million of borrowings and $37 million of letters of credit issued under the revolving credit facility. At December 31, 2018, we had no borrowings and $37 million of letters of credit issued under the revolving credit facility.
Amended and Restated Second Lien Term Loan Facility due 2025
Our amended and restated second lien term loan facility matures on March 7, 2025. The term loan bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). In addition, if the Total Leverage Ratio is equal to or less than 1.25 to 1.00, we have the option to further reduce the spreads described above by 25 basis points. "Total Leverage Ratio" has the meaning given it in the facility.
Our obligations under our second lien term loan facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second priority security interests in the same collateral securing the $2.0 billion first lien revolving credit facility.
At March 31, 2019 and December 31, 2018, the amounts outstanding under this facility were $400 million.
€800 million Amended and Restated Senior Secured European Revolving Credit Facility due 2024
On March 27, 2019, we amended and restated our European revolving credit facility. Significant changes to the European revolving credit facility include extending the maturity to March 27, 2024, increasing the available commitments thereunder from €550 million to €800 million, decreasing the interest rate margin by 25 basis points and decreasing the annual commitment fee by 5 basis points to 25 basis points. Loans will now bear interest at LIBOR plus 150 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 150 basis points for loans denominated in euros.
The European revolving credit facility consists of (i) a €180 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €620 million all-borrower tranche that is available to Goodyear Europe B.V. (“GEBV”), GDTG and Goodyear Dunlop Tires Operations S.A. Up to €175 million of swingline loans and €75 million in letters of credit are available for issuance under the all-borrower tranche. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to €200 million.
GEBV and certain of its subsidiaries in the United Kingdom, Luxembourg, France and Germany provide guarantees to support the facility. The German guarantors secure the German tranche on a first-lien basis and the all-borrower tranche on a second-lien basis. GEBV and its other subsidiaries that provide guarantees secure the all-borrower tranche on a first-lien basis and generally do not provide collateral support for the German tranche. The Company and its U.S. and Canadian subsidiaries that guarantee our U.S. senior secured credit facilities described above also provide unsecured guarantees in support of the facility.
The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2018. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At March 31, 2019, there were no borrowings outstanding under the German tranche, $140 million (€125 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility. At December 31, 2018, there were no borrowings and no letters of credit outstanding under the European revolving credit facility.
Accounts Receivable Securitization Facilities (On-Balance Sheet)
GEBV and certain other of our European subsidiaries are parties to a pan-European accounts receivable securitization facility that expires in 2023. The terms of the facility provide the flexibility to designate annually the maximum amount of funding available under the facility in an amount of not less than €30 million and not more than €450 million. For the period from October 18, 2018 through October 17, 2019, the designated maximum amount of the facility is €320 million.
The facility involves the ongoing daily sale of substantially all of the trade accounts receivable of certain GEBV subsidiaries. These subsidiaries retain servicing responsibilities. Utilization under this facility is based on eligible receivable balances.
The funding commitments under the facility will expire upon the earliest to occur of: (a) September 26, 2023, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

similar to the events of default under our senior secured credit facilities; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 17, 2019.
At March 31, 2019, the amounts available and utilized under this program totaled $246 million (€219 million). At December 31, 2018, the amounts available and utilized under this program totaled $335 million (€293 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Finance Leases.
For a description of the collateral securing the credit facilities described above as well as the covenants applicable to them, refer to Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2018 Form 10-K.
Accounts Receivable Factoring Facilities (Off-Balance Sheet)
We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At March 31, 2019, the gross amount of receivables sold was $550 million, compared to $568 million at December 31, 2018.
Other Foreign Credit Facilities
A Mexican subsidiary and a U.S. subsidiary have several financing arrangements in Mexico. At March 31, 2019, the amounts available and utilized under these facilities were $290 million, of which $90 million is due within a year. At December 31, 2018, the amounts available and utilized under these facilities were $340 million and $200 million, respectively. The facilities ultimately mature in 2020. The facilities contain covenants relating to the Mexican and U.S. subsidiary and have customary representations and warranties and default provisions relating to the Mexican and U.S. subsidiary’s ability to perform its respective obligations under the applicable facilities.
A Chinese subsidiary has several financing arrangements in China. At March 31, 2019 and December 31, 2018, the amounts available under these facilities were $720 million and $672 million, respectively. At March 31, 2019, the amount utilized under these facilities was $378 million, of which $224 million was long term debt and $154 million was notes payable. At March 31, 2019, $30 million of the long term debt was due within a year. At December 31, 2018, the amount utilized under these facilities was $341 million, of which $219 million was long term debt and $122 million was notes payable. At December 31, 2018, $32 million of the long term debt was due within a year. The facilities contain covenants relating to the Chinese subsidiary and have customary representations and warranties and defaults relating to the Chinese subsidiary’s ability to perform its obligations under the facilities. Certain of the facilities can only be used to finance the expansion of our manufacturing facility in China. At March 31, 2019 and December 31, 2018, the unused amounts available under these facilities were $107 million and $116 million, respectively. At March 31, 2019 and December 31, 2018, restricted cash related to funds obtained under these credit facilities was $3 million and $0 million, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
We utilize derivative financial instrument contracts and nonderivative instruments to manage interest rate, foreign exchange and commodity price risks. We have established a control environment that includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes.
Foreign Currency Contracts
We enter into foreign currency contracts in order to manage the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts may be used to reduce exposure to currency movements affecting existing foreign currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting primarily from trade purchases and sales, equipment acquisitions, intercompany loans and royalty agreements. Contracts hedging short term trade receivables and payables normally have no hedging designation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents the fair values for foreign currency hedge contracts that do not meet the criteria to be accounted for as cash flow hedging instruments:
 
March 31,
 
December 31,
(In millions)
2019
 
2018
Fair Values — Current asset (liability):
 
 
 
Accounts receivable
$
21

 
$
7

Other current liabilities
(2
)
 
(6
)
At March 31, 2019 and December 31, 2018, these outstanding foreign currency derivatives had notional amounts of $1,625 million and $1,240 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction gains on derivatives of $15 million and $2 million for the three months ended March 31, 2019 and 2018, respectively. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures.
The following table presents fair values for foreign currency hedge contracts that meet the criteria to be accounted for as cash flow hedging instruments:
 
March 31,
 
December 31,
(In millions)
2019
 
2018
Fair Values — Current asset (liability):
 
 
 
Accounts receivable
$
11

 
$
9

Other current liabilities
(1
)
 
(1
)
Fair Values — Long term asset (liability):
 
 
 
Other assets
$
3

 
$
2

Other long term liabilities

 

At March 31, 2019 and December 31, 2018, these outstanding foreign currency derivatives had notional amounts of $344 million and $347 million, respectively, and primarily related to U.S. dollar denominated intercompany transactions.
We enter into master netting agreements with counterparties. The amounts eligible for offset under the master netting agreements are not material and we have elected a gross presentation of foreign currency contracts in the Consolidated Balance Sheets.
The following table presents the classification of changes in fair values of foreign currency hedge contracts that meet the criteria to be accounted for as cash flow hedging instruments (before tax and minority):
 
Three Months Ended
 
March 31,
(In millions) (Income) Expense
2019
 
2018
Amounts deferred to AOCL(1)
$
(5
)
 
$
6

Amount of deferred (gain) loss reclassified from AOCL into Cost of Goods Sold ("CGS")(1)
 
(3
)
 
4

(1)
Excluded components deferred to AOCL and excluded components reclassified from AOCL to CGS for the three months ended March 31, 2019 were not material.
The estimated net amount of deferred gains at March 31, 2019 that are expected to be reclassified to earnings within the next twelve months is $6 million.
The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that are recognized market makers at the time we entered into those contracts. We seek to control our credit exposure to these counterparties by diversifying across multiple counterparties, by setting counterparty credit limits based on long term credit ratings and other indicators of counterparty credit risk such as credit default swap spreads, and by monitoring the financial strength of these counterparties on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to counterparties in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a counterparty. However, the inability of a counterparty to fulfill its contractual obligations to us could have a material adverse effect on our liquidity, financial position or results of operations in the period in which it occurs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 10. FAIR VALUE MEASUREMENTS
The following table presents information about assets and liabilities recorded at fair value on the Consolidated Balance Sheets at March 31, 2019 and December 31, 2018:
 
Total Carrying Value in the
Consolidated
Balance Sheet
 
Quoted Prices in Active Markets for Identical
Assets/Liabilities
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
(In millions)
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
10

 
$
10

 
$
10

 
$
10

 
$

 
$

 
$

 
$

Foreign Exchange Contracts
35

 
18

 

 

 
35

 
18

 

 

Total Assets at Fair Value
$
45

 
$
28

 
$
10

 
$
10

 
$
35

 
$
18

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
$
3

 
$
7

 
$

 
$

 
$
3

 
$
7

 
$

 
$

Total Liabilities at Fair Value
$
3

 
$
7

 
$

 
$


$
3

 
$
7

 
$

 
$

The following table presents supplemental fair value information about long term fixed rate and variable rate debt, excluding finance leases, at March 31, 2019 and December 31, 2018:
 
March 31,
 
December 31,
(In millions)
2019
 
2018
Fixed Rate Debt:(1)
 
 
 
Carrying amount — liability
$
3,402

 
$
3,609

Fair value — liability
3,342

 
3,443

 
 
 
 
Variable Rate Debt:(1)
 
 
 
Carrying amount — liability
$
2,364

 
$
1,707

Fair value — liability
2,339

 
1,689

(1)
Excludes Notes Payable and Overdrafts of $495 million and $410 million at March 31, 2019 and December 31, 2018, respectively, of which $261 million and $230 million, respectively, are at fixed rates and $234 million and $180 million, respectively, are at variable rates.  The carrying value of Notes Payable and Overdrafts approximates fair value due to the short term nature of the facilities.
Long term debt with fair values of $3,605 million and $3,496 million at March 31, 2019 and December 31, 2018, respectively, were estimated using quoted Level 1 market prices.  The carrying value of the remaining long term debt approximates fair value since the terms of the financing arrangements are similar to terms that could be obtained under current lending market conditions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11. PENSION, SAVINGS AND OTHER POSTRETIREMENT BENEFIT PLANS
We provide employees with defined benefit pension or defined contribution savings plans.
Defined benefit pension cost follows:
 
U.S.
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Service cost
$
1

 
$
1

Interest cost
44

 
40

Expected return on plan assets
(56
)
 
(55
)
Amortization of net losses
28

 
28

Net periodic pension cost
$
17

 
$
14

 
Non-U.S.
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Service cost
$
7

 
$
7

Interest cost
18

 
18

Expected return on plan assets
(15
)
 
(18
)
Amortization of net losses
7