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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
Emerging growth company |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
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 April 30, 2023: |
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TABLE OF CONTENTS
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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EX-101.INS INSTANCE DOCUMENT |
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EX-101.SCH SCHEMA DOCUMENT |
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EX-101.CAL CALCULATION LINKBASE DOCUMENT |
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EX-101.DEF DEFINITION LINKBASE DOCUMENT |
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EX-101.LAB LABELS LINKBASE DOCUMENT |
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EX-101.PRE PRESENTATION LINKBASE DOCUMENT |
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EX-104 |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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March 31, |
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(In millions, except per share amounts) |
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2023 |
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2022 |
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Net Sales (Note 2) |
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$ |
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$ |
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Cost of Goods Sold |
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Selling, Administrative and General Expense |
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Rationalizations (Note 3) |
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Interest Expense |
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Other (Income) Expense (Note 4) |
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Income (Loss) before Income Taxes |
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United States and Foreign Tax (Benefit) Expense (Note 5) |
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Net Income (Loss) |
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Less: Minority Shareholders’ Net Income |
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Goodyear Net Income (Loss) |
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$ |
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$ |
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Goodyear Net Income (Loss) — Per Share of Common Stock |
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Basic |
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$ |
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$ |
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Weighted Average Shares Outstanding (Note 6) |
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Diluted |
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$ |
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$ |
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Weighted Average Shares Outstanding (Note 6) |
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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)
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Three Months Ended |
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March 31, |
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(In millions) |
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2023 |
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2022 |
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Net Income (Loss) |
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$ |
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$ |
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Other Comprehensive Income (Loss): |
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Foreign currency translation, net of tax of $ |
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Defined benefit plans: |
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Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $ |
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Change in net actuarial losses, net of tax of ($ |
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Deferred derivative gains (losses), net of tax of ($ |
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Reclassification adjustment for amounts recognized in income, net of tax of $ |
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Other Comprehensive Income (Loss) |
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Comprehensive Income (Loss) |
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Less: Comprehensive Income (Loss) Attributable to Minority Shareholders |
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Goodyear Comprehensive Income (Loss) |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
2
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, |
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December 31, |
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(In millions, except share data) |
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2023 |
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2022 |
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Assets: |
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Current Assets: |
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Cash and Cash Equivalents |
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$ |
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$ |
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Accounts Receivable, less Allowance — $ |
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Inventories: |
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Raw Materials |
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Work in Process |
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Finished Products |
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Prepaid Expenses and Other Current Assets |
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Total Current Assets |
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Goodwill |
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Intangible Assets |
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Deferred Income Taxes (Note 5) |
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Other Assets |
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Operating Lease Right-of-Use Assets |
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Property, Plant and Equipment, less Accumulated Depreciation — $ |
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Total Assets |
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$ |
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$ |
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Liabilities: |
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Current Liabilities: |
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Accounts Payable — Trade |
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$ |
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$ |
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Compensation and Benefits (Notes 10 and 11) |
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Other Current Liabilities |
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Notes Payable and Overdrafts (Note 8) |
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Operating Lease Liabilities due Within One Year |
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Long Term Debt and Finance Leases due Within One Year (Note 8) |
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Total Current Liabilities |
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Operating Lease Liabilities |
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Long Term Debt and Finance Leases (Note 8) |
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Compensation and Benefits (Notes 10 and 11) |
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Deferred Income Taxes (Note 5) |
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Other Long Term Liabilities |
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Total Liabilities |
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Shareholders’ Equity: |
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Goodyear Shareholders’ Equity: |
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Common Stock, |
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Authorized, |
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Capital Surplus |
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Retained Earnings |
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Accumulated Other Comprehensive Loss (Note 14) |
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Goodyear Shareholders’ Equity |
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Minority Shareholders’ Equity — Nonredeemable |
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Total Shareholders’ Equity |
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Total Liabilities and Shareholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
(Unaudited)
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Accumulated |
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Minority |
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Other |
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Goodyear |
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Shareholders' |
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Total |
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Common Stock |
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Capital |
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Retained |
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Comprehensive |
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Shareholders' |
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Equity — Non- |
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Shareholders' |
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(In millions, except share data) |
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Shares |
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Amount |
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Surplus |
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Earnings |
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Loss |
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Equity |
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Redeemable |
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Equity |
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Balance at December 31, 2022 |
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(after deducting |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) |
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Other comprehensive income (loss) |
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Total Comprehensive Income (Loss) |
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Stock-based compensation plans |
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Common stock issued from treasury |
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Balance at March 31, 2023 |
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(after deducting |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Accumulated |
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Minority |
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Other |
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Goodyear |
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Shareholders' |
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Total |
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Common Stock |
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Capital |
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Retained |
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Comprehensive |
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Shareholders' |
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Equity — Non- |
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Shareholders' |
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(In millions, except share data) |
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Shares |
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Amount |
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Surplus |
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Earnings |
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Loss |
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Equity |
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Redeemable |
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Equity |
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Balance at December 31, 2021 |
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(after deducting |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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Other comprehensive income (loss) |
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Total Comprehensive Income (Loss) |
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Stock-based compensation plans |
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Common stock issued from treasury |
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Balance at March 31, 2022 |
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(after deducting |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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There were
The accompanying notes are an integral part of these consolidated financial statements.
4
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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March 31, |
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(In millions) |
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2023 |
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2022 |
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Cash Flows from Operating Activities: |
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Net Income (Loss) |
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$ |
( |
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$ |
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Adjustments to Reconcile Net Income (Loss) to Cash Flows from Operating Activities: |
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Depreciation and Amortization |
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Amortization and Write-Off of Debt Issuance Costs |
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Provision for Deferred Income Taxes (Note 5) |
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Net Rationalization Charges (Note 3) |
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Rationalization Payments |
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Net (Gains) Losses on Asset Sales (Note 4) |
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Operating Lease Expense |
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Operating Lease Payments |
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Pension Contributions and Direct Payments |
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Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions: |
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Accounts Receivable |
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( |
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Inventories |
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Accounts Payable — Trade |
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( |
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Compensation and Benefits |
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( |
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Other Current Liabilities |
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Other Assets and Liabilities |
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( |
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Total Cash Flows from Operating Activities |
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( |
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Cash Flows from Investing Activities: |
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Capital Expenditures |
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Asset Dispositions |
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Short Term Securities Acquired |
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( |
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Short Term Securities Redeemed |
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Notes Receivable |
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( |
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Other Transactions |
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( |
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Total Cash Flows from Investing Activities |
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( |
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Cash Flows from Financing Activities: |
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Short Term Debt and Overdrafts Incurred |
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Short Term Debt and Overdrafts Paid |
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Long Term Debt Incurred |
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Long Term Debt Paid |
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( |
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( |
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Common Stock Issued |
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( |
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Debt Related Costs and Other Transactions |
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Total Cash Flows from Financing Activities |
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Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash |
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Net Change in Cash, Cash Equivalents and Restricted Cash |
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( |
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( |
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Cash, Cash Equivalents and Restricted Cash at Beginning of the Period |
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Cash, Cash Equivalents and Restricted Cash at End of the Period |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
5
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 (“SEC”) rules and regulations and generally accepted accounting principles in the United States of America ("U.S. 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 U.S. 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, 2022 (the “2022 Form 10-K”).
Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2023.
Recently Adopted Accounting Standards
We have entered into supplier finance programs with several financial institutions. Under these agreements, the financial institutions act as our paying agents with respect to accounts payable due to our suppliers. We agree to pay the financial institutions the stated amount of the confirmed invoices from the designated suppliers on the original maturity dates of the invoices. Invoice payment terms can be up to
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 primarily 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) |
|
2023 |
|
|
2022 |
|
||
Cash and Cash Equivalents |
|
$ |
|
|
$ |
|
||
Restricted Cash |
|
|
|
|
|
|
||
Total Cash, Cash Equivalents and Restricted Cash |
|
$ |
|
|
$ |
|
||
6
Restricted Cash primarily represents amounts required to be set aside in relation to (i) accounts receivable factoring programs and (ii) change-in-control provisions of certain Cooper Tire & Rubber Company ("Cooper Tire") compensation plans. The restrictions lapse when cash from factored accounts receivable is remitted to the purchaser of those receivables or as the compensation payments are made, respectively. At March 31, 2023, $
Reclassifications and Adjustments
Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.
NOTE 2. NET SALES
The following tables show disaggregated net sales from contracts with customers by major source:
|
|
Three Months Ended March 31, 2023 |
|
|||||||||||||
|
|
|
|
|
Europe, Middle East |
|
|
|
|
|
|
|
||||
(In millions) |
|
Americas |
|
|
and Africa |
|
|
Asia Pacific |
|
|
Total |
|
||||
Tire unit sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other tire and related sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail services and service related sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Chemical sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Sales by reportable segment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Three Months Ended March 31, 2022 |
|
|||||||||||||
|
|
|
|
|
Europe, Middle East |
|
|
|
|
|
|
|
||||
(In millions) |
|
Americas |
|
|
and Africa |
|
|
Asia Pacific |
|
|
Total |
|
||||
Tire unit sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other tire and related sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail services and service related sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Chemical sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Sales by reportable segment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 and motorcycle 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.
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 $
The following table presents the balance of deferred revenue related to contracts with customers, and changes during the three months ended March 31, 2023:
|
|
|
|
|
(In millions) |
|
|
|
|
Balance at December 31, 2022 |
|
$ |
|
|
Revenue deferred during period |
|
|
|
|
Revenue recognized during period |
|
|
( |
) |
Impact of foreign currency translation |
|
|
|
|
Balance at March 31, 2023 |
|
$ |
|
|
7
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 operating and administrative costs, and, more recently, related to the integration of Cooper Tire.
The following table presents a roll-forward of the liability balance between periods:
|
|
Associate- |
|
|
|
|
|
|
|
|||
(In millions) |
|
Related Costs |
|
|
Other Costs |
|
|
Total |
|
|||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2023 Charges |
|
|
|
|
|
|
|
|
|
|||
Incurred, net of foreign currency translation of $ |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Reversed to the Statement of Operations |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
In April 2023, we approved a rationalization plan designed to streamline our Europe, Middle East and Africa (“EMEA”) distribution network that will result in the eventual closure of our Philippsburg, Germany distribution center. The rationalization plan will lower our operating costs while maintaining or improving the existing service levels to our customers. Relevant portions of the rationalization plan remain subject to consultation with employee and governmental representative bodies. We expect approximately 10 net headcount reductions related to this plan, which is expected to be substantially completed by the end of 2024. Total pre-tax cash charges are expected to be approximately $
In April 2023, we also approved a rationalization plan in EMEA designed to reduce staffing levels and capacity at several manufacturing facilities commensurate with the decline in demand. We expect approximately 280 net headcount reductions and total pre-tax charges of approximately $
The remainder of the accrual balance at March 31, 2023 is expected to be substantially utilized in the next 12 months and includes $
The following table shows net rationalization charges included in Income (Loss) before Income Taxes:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Current Year Plans |
|
|
|
|
|
|
||
Associate Severance and Other Related Costs |
|
$ |
|
|
$ |
|
||
Other Exit Costs |
|
|
|
|
|
|
||
Current Year Plans - Net Charges |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Prior Year Plans |
|
|
|
|
|
|
||
Associate Severance and Other Related Costs |
|
$ |
|
|
$ |
|
||
Other Exit Costs |
|
|
|
|
|
|
||
Prior Year Plans - Net Charges |
|
$ |
|
|
$ |
|
||
Total Net Charges |
|
$ |
|
|
$ |
|
||
Asset Write-offs (Recoveries) and Accelerated Depreciation, net |
|
$ |
|
|
$ |
|
||
Substantially all of the new charges for the three months ended March 31, 2023 and 2022 relate to future cash outflows. Net current year plan charges for the three months ended March 31, 2023 relate to the plan to streamline our EMEA distribution network and the plan to reduce manufacturing staffing levels and capacity in EMEA.
Net prior year plan charges for the three months ended March 31, 2023 include $
8
intended purpose. Net prior year plan charges for the three months ended March 31, 2022 included $
Ongoing rationalization plans had approximately $
In the first three months of 2023, approximately
NOTE 4. OTHER (INCOME) EXPENSE
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Non-service related pension and other postretirement benefits cost |
|
$ |
|
|
$ |
|
||
Financing fees and financial instruments expense |
|
|
|
|
|
|
||
Net foreign currency exchange (gains) losses |
|
|
|
|
|
|
||
General and product liability expense - discontinued products |
|
|
|
|
|
|
||
Royalty income |
|
|
( |
) |
|
|
( |
) |
Net (gains) losses on asset sales |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
( |
) |
|
|
( |
) |
Miscellaneous (income) expense |
|
|
( |
) |
|
|
|
|
|
|
$ |
|
|
$ |
|
||
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. For further information, refer to Note to the Consolidated Financial Statements No. 10, Pension, Savings and Other Postretirement Benefit Plans.
Net foreign currency exchange losses in the first quarter of 2023 includes $
Interest income in the first quarter of 2023 includes interest income in Argentina of $
Miscellaneous (income) expense for the first quarter of 2023 includes $
Other (Income) Expense also includes financing fees and financial instruments expense, which consists of commitment fees and charges incurred in connection with financing transactions; general and product liability expense - discontinued products, which consists of charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries; royalty income; and net (gains) losses on asset sales.
NOTE 5. INCOME TAXES
For the first quarter of 2023, we recorded an income tax benefit of $
For the first quarter of 2022, we recorded income tax expense of $
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
We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. We give operating results during the most recent three-year period a significant weight in our analysis. We typically only consider forecasts of future profitability when positive cumulative operating results exist in the most recent three-year period. We perform scheduling exercises to determine if sufficient taxable income of
9
the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We also consider prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized.
At March 31, 2023 and December 31, 2022, we had approximately $
At March 31, 2023 and December 31, 2022, our U.S. net deferred tax assets described above both include approximately $
We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our foreign tax credits. These forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of higher raw material, transportation, labor and energy costs, on our profitability, as well as the impact of tax planning strategies. These macroeconomic factors possess a high degree of volatility and can significantly impact our profitability. As such, there is a risk that future earnings will not be sufficient to fully utilize our U.S. net deferred tax assets, including our 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, objectively verifiable evidence to conclude that it is more likely than not that, at March 31, 2023, our U.S. net deferred tax assets, including our foreign tax credits, will be fully utilized.
At March 31, 2023 and December 31, 2022, we also had approximately $
For the three months ended March 31, 2023, changes to our unrecognized tax benefits did
We are open to examination in the United States from 2021 onward and in Germany from 2018 onward. Generally, for our remaining tax jurisdictions, years from 2018 onward are still open to examination.
10
NOTE 6. EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are calculated to reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock.
Basic and diluted earnings per common share are calculated as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(In millions, except per share amounts) |
|
2023 |
|
|
2022 |
|
||
Earnings (loss) per share — basic: |
|
|
|
|
|
|
||
Goodyear net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
||
Earnings (loss) per common share — basic |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Earnings (loss) per share — diluted: |
|
|
|
|
|
|
||
Goodyear net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
||
Dilutive effect of stock options and other dilutive securities |
|
|
|
|
|
|
||
Weighted average shares outstanding — diluted |
|
|
|
|
|
|
||
Earnings (loss) per common share — diluted |
|
$ |
( |
) |
|
$ |
|
|
Weighted average shares outstanding — diluted for the three months ended March 31, 2023 excludes the dilutive effect of approximately
NOTE 7. BUSINESS SEGMENTS
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Sales: |
|
|
|
|
|
|
||
Americas |
|
$ |
|
|
$ |
|
||
Europe, Middle East and Africa |
|
|
|
|
|
|
||
Asia Pacific |
|
|
|
|
|
|
||
Net Sales |
|
$ |
|
|
$ |
|
||
Segment Operating Income: |
|
|
|
|
|
|
||
Americas |
|
$ |
|
|
$ |
|
||
Europe, Middle East and Africa |
|
|
|
|
|
|
||
Asia Pacific |
|
|
|
|
|
|
||
Total Segment Operating Income |
|
$ |
|
|
$ |
|
||
Less: |
|
|
|
|
|
|
||
Rationalizations (Note 3) |
|
$ |
|
|
$ |
|
||
Interest expense |
|
|
|
|
|
|
||
Other (income) expense (Note 4) |
|
|
|
|
|
|
||
Asset write-offs (recoveries) and accelerated depreciation, net (Note 3) |
|
|
|
|
|
|
||
Corporate incentive compensation plans |
|
|
|
|
|
|
||
Retained expenses of divested operations |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Income (Loss) before Income Taxes |
|
$ |
( |
) |
|
$ |
|
|
11
Rationalizations, as described in Note to the Consolidated Financial Statements No. 3, Costs Associated with Rationalization Programs, net (gains) losses on asset sales, as described in Note to the Consolidated Financial Statements No. 4, Other (Income) Expense, and asset write-offs (recoveries) and accelerated depreciation were not charged 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) |
|
2023 |
|
|
2022 |
|
||
Rationalizations: |
|
|
|
|
|
|
||
Americas |
|
$ |
|
|
$ |
|
||
Europe, Middle East and Africa |
|
|
|
|
|
|
||
Asia Pacific |
|
|
|
|
|
( |
) |
|
Total Segment Rationalizations |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Net (Gains) Losses on Asset Sales: |
|
|
|
|
|
|
||
Americas |
|
$ |
( |
) |
|
$ |
( |
) |
Total Segment Net (Gains) Losses on Asset Sales |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Asset Write-offs (Recoveries) and Accelerated Depreciation, net: |
|
|
|
|
|
|
||
Americas |
|
$ |
|
|
$ |
|
||
Europe, Middle East and Africa |
|
|
( |
) |
|
|
|
|
Total Segment Asset Write-offs (Recoveries) and Accelerated Depreciation, net |
|
$ |
|
|
$ |
|
||
NOTE 8. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
At March 31, 2023, we had total credit arrangements of $
Notes Payable and Overdrafts, Long Term Debt and Finance Leases due Within One Year and Short Term Financing Arrangements
At March 31, 2023, we had short term committed and uncommitted credit arrangements totaling $
The following table presents amounts due within one year:
|
|
March 31, |
|
|
December 31, |
|
||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Chinese credit facilities |
|
$ |
|
|
$ |
|
||
Other foreign and domestic debt |
|
|
|
|
|
|
||
Notes Payable and Overdrafts |
|
$ |
|
|
$ |
|
||
Weighted average interest rate |
|
|
% |
|
|
% |
||
|
|
|
|
|
|
|
||
Chinese credit facilities |
|
$ |
|
|
$ |
|
||
Other foreign and domestic debt (including finance leases) |
|
|
|
|
|
|
||
Long Term Debt and Finance Leases due Within One Year |
|
$ |
|
|
$ |
|
||
Weighted average interest rate |
|
|
% |
|
|
% |
||
Total obligations due within one year |
|
$ |
|
|
$ |
|
||
12
Long Term Debt and Finance Leases and Financing Arrangements
At March 31, 2023, we had long term credit arrangements totaling $
The following table presents long term debt and finance leases, net of unamortized discounts, and interest rates:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
|
|
|
Interest |
|
|
|
|
|
Interest |
|
||||
(In millions) |
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
||||
Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Credit Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
First lien revolving credit facility due 2026 |
|
|
|
|
|
% |
|
|
|
|
|
|
||||
European revolving credit facility due 2028 |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Pan-European accounts receivable facility |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Mexican credit facility |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Chinese credit facilities |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other foreign and domestic debt(1) |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unamortized deferred financing fees |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finance lease obligations(2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less portion due within one year |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
NOTES
At March 31, 2023, we had $
CREDIT FACILITIES
$
Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit. Up to $
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.
Availability under the facility is subject to a borrowing base, which is based 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 in an amount not to exceed $
13
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, 2020. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
If Available Cash (as defined in the facility) plus the availability under the facility is greater than $
At March 31, 2023, we had $
€
Our amended and restated European revolving credit facility consists of (i) a €
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. first lien revolving credit facility 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, 2021. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At March 31, 2023, there were $
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 2027. 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 €
The facility involves an 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) October 19, 2027, (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 similar to the events of default under our first lien revolving credit facility; 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 18, 2023.
At March 31, 2023, the amounts available and utilized under this program totaled $
14
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. 16, Financing Arrangements and Derivative Financial Instruments, in our 2022 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, 2023, the gross amount of receivables sold was $
Other Foreign Credit Facilities
A Mexican subsidiary and a U.S. subsidiary have a revolving credit facility in Mexico. At March 31, 2023 and December 31, 2022, the amounts available and utilized under this facility were $
Our Chinese subsidiaries have several financing arrangements in China. These facilities contain covenants relating to these Chinese subsidiaries and have customary representations and warranties and defaults relating to these Chinese subsidiaries' ability to perform their respective obligations under these facilities. These facilities are also available for other off-balance sheet utilization, such as letters of credit and bank acceptances.
The following table presents the total amounts available and utilized under the Chinese financing arrangements:
|
|
March 31, |
|
|
December 31, |
|
||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Total available |
|
$ |
|
|
$ |
|
||
Amounts utilized: |
|
|
|
|
|
|
||
Notes Payable and Overdrafts |
|
$ |
|
|
$ |
|
||
Long Term Debt due Within One Year |
|
|
|
|
|
|
||
Long Term Debt |
|
|
|
|
|
|
||
Letters of credit, bank acceptances and other utilization |
|
|
|
|
|
|
||
Total utilized |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Maturities |
|
- |
|
|
- |
|
||
Certain of these facilities can only be used to finance the expansion of one of our manufacturing facilities in China and, at March 31, 2023 and December 31, 2022, the unused amounts available under these facilities was $
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.
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) |
|
2023 |
|
|
2022 |
|
||
Fair Values — Current asset (liability): |
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Other current liabilities |
|
|
( |
) |
|
|
( |
) |
15
At March 31, 2023 and December 31, 2022, these outstanding foreign currency derivatives had notional amounts of $
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) |
|
2023 |
|
|
2022 |
|
||
Fair Values — Current asset (liability): |
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Other current liabilities |
|
|
( |
) |
|
|
( |
) |
At March 31, 2023 and December 31, 2022, these outstanding foreign currency derivatives had notional amounts of $
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 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) |
|
2023 |
|
|
2022 |
|
||
Amount of gains (losses) deferred to Accumulated Other Comprehensive Loss ("AOCL") |
|
$ |
( |
) |
|
$ |
( |
) |
Reclassification adjustment for amounts recognized in Cost of Goods Sold ("CGS") |
|
|
|
|
|
( |
) |
|
The estimated net amount of deferred losses at March 31, 2023 that are expected to be reclassified to earnings within the next twelve months is $
The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that were 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.
16
NOTE 9. FAIR VALUE MEASUREMENTS
The following table presents information about assets and liabilities recorded at fair value on the Consolidated Balance Sheets at March 31, 2023 and December 31, 2022:
|
|
Total Carrying Value |
|
|
Quoted Prices in Active |
|
|
Significant Other |
|
|
Significant |
|
||||||||||||||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Foreign Exchange Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Assets at Fair Value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign Exchange Contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total Liabilities at Fair Value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
The following table presents supplemental fair value information about long term fixed rate and variable rate debt, excluding finance leases, at March 31, 2023 and December 31, 2022:
|
|
March 31, |
|
|
December 31, |
|
||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Fixed Rate Debt:(1) |
|
|
|
|
|
|
||
Carrying amount — liability |
|
$ |
|
|
$ |
|
||
Fair value — liability |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Variable Rate Debt:(1) |
|
|
|
|
|
|
||
Carrying amount — liability |
|
$ |
|
|
$ |
|
||
Fair value — liability |
|
|
|
|
|
|
||
Long term debt with fair values of $
NOTE 10. 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) |
|
2023 |
|
|
2022 |
|
||
|
$ |
|
|
$ |
|
|||
Interest cost |
|
|
|
|
|
|
||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Amortization of net losses |
|
|
|
|
|
|
||
Net periodic pension cost |
|
$ |
|
|
$ |
|
||
17
|
|
Non-U.S. |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
|
$ |
|
|
$ |
|
|||
Interest cost |
|
|
|
|
|
|
||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Amortization of net losses |
|
|
|
|
|
|
||
Net periodic pension cost |
|
$ |
|
|
$ |
|
||
Service cost is recorded in CGS or SAG. Other components of net periodic pension cost are recorded in Other (Income) Expense. Net curtailments, settlements and termination benefits, if any, are recorded in Other (Income) Expense or Rationalizations if related to a rationalization plan.
In the first quarter of 2022, we communicated the termination of the Cooper Tire U.S. salaried defined benefit pension plan, which was frozen in 2009, to applicable participants. The termination of the plan, which had $
We also provide certain U.S. employees and employees at certain non-U.S. subsidiaries with health care benefits or life insurance benefits upon retirement. Other postretirement benefits expense for the three months ended March 31, 2023 and 2022 was $
We expect to contribute $
The expense recognized for our contributions to defined contribution savings plans for the three months ended March 31, 2023 and 2022 was $
NOTE 11. STOCK COMPENSATION PLANS
Our Board of Directors granted
We recognized stock-based compensation expense of $
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
We have recorded liabilities totaling $
Since many of the remediation activities related to environmental matters vary substantially in duration and cost from site to site and the associated costs for each vary depending on the mix of unique site characteristics, in some cases we cannot reasonably estimate a range of possible losses. Although it is not possible to estimate with certainty the outcome of all of our environmental matters, management believes that potential losses in excess of current reserves for environmental matters, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.
18
Workers’ Compensation
We have recorded liabilities, on a discounted basis, totaling $
General and Product Liability and Other Litigation
We have recorded liabilities for both asserted and unasserted claims totaling $
We have recorded an indemnification asset within Accounts Receivable of $
Asbestos. We are a defendant in numerous lawsuits alleging various asbestos-related personal injuries purported to result from alleged exposure to asbestos in certain products manufactured by us or present in certain of our facilities. Typically, these lawsuits have been brought against multiple defendants in state and federal courts. To date, we have disposed of approximately
A summary of recent approximate asbestos claims activity follows. Because claims are often filed and disposed of by settlement or dismissal in large numbers, the amount and timing of filings, settlements and dismissals and the number of open claims during a particular period can fluctuate significantly.
|
|
Three Months Ended |
|
|
Year Ended |
|
||
(Dollars in millions) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Pending claims, beginning of period |
|
|
|
|
|
|
||
New claims filed |
|
|
|
|
|
|
||
Claims settled/dismissed |
|
|
( |
) |
|
|
( |
) |
Pending claims, end of period |
|
|
|
|
|
|
||
Payments(1) |
|
$ |
|
|
$ |
|
||
We periodically, and at least annually, review our existing reserves for pending claims, including a reasonable estimate of the liability associated with unasserted asbestos claims, and estimate our receivables from probable insurance recoveries. We recorded gross liabilities for both asserted and unasserted claims, inclusive of defense costs, totaling $
We maintain certain primary and excess insurance coverage under coverage-in-place agreements, and also have additional excess liability insurance with respect to asbestos liabilities. After consultation with our outside legal counsel and giving consideration to agreements with certain of our insurance carriers, the financial viability and legal obligations of our insurance carriers and other relevant factors, we determine an amount we expect is probable of recovery from such carriers. We record a receivable
19
with respect to such policies when we determine that recovery is probable and we can reasonably estimate the amount of a particular recovery.
We recorded an insurance receivable related to asbestos claims of $
We believe that, at December 31, 2022, we had approximately $
With respect to both asserted and unasserted claims, it is reasonably possible that we may incur a material amount of cost in excess of the current reserve; however, such amounts cannot be reasonably estimated. Coverage under insurance policies is subject to varying characteristics of asbestos claims including, but not limited to, the type of claim (premise vs. product exposure), alleged date of first exposure to our products or premises and disease alleged. Recoveries may also be limited by insurer insolvencies or financial difficulties. Depending upon the nature of these characteristics or events, as well as the resolution of certain legal issues, some portion of the insurance may not be accessible by us.
Other Actions
We are currently a party to various claims, indirect tax assessments and legal proceedings in addition to those noted above. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations.
Our recorded liabilities and estimates of reasonably possible losses for the contingent liabilities described above are based on our assessment of potential liability using the information available to us at the time and, where applicable, any past experience and recent and current trends with respect to similar matters. Our contingent liabilities are subject to inherent uncertainties, and unfavorable judicial or administrative decisions could occur which we did not anticipate. Such an unfavorable decision could include monetary damages, fines or other penalties or an injunction prohibiting us from taking certain actions or selling certain products. If such an unfavorable decision were to occur, it could result in a material adverse impact on our financial position and results of operations in the period in which the decision occurs or in future periods.
Income Tax Matters
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize income tax benefits to the extent that it is more likely than not that our positions will be sustained when challenged by the taxing authorities. We derecognize income tax benefits when based on new information we determine that it is no longer more likely than not that our position will be sustained. To the extent we prevail in matters for which liabilities have been established, or determine we need to derecognize tax benefits recorded in prior periods, our results of operations and effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash, and lead to recognition of expense to the extent the settlement amount exceeds recorded liabilities and, in the case of an income tax settlement, result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction of expense to the extent the settlement amount is lower than recorded liabilities and, in the case of an income tax settlement, would result in a reduction in our effective tax rate in the period of resolution.
While the Company applies consistent transfer pricing policies and practices globally, supports transfer prices through economic studies, seeks advance pricing agreements and joint audits to the extent possible and believes its transfer prices to be appropriate, such transfer prices, and related interpretations of tax laws, are occasionally challenged by various taxing authorities globally. We have received various tax assessments challenging our interpretations of applicable tax laws in various jurisdictions. Although we believe we have complied with applicable tax laws, have strong positions and defenses and have historically been
20
successful in defending such claims, our results of operations could be materially adversely affected in the case we are unsuccessful in the defense of existing or future claims.
Binding Commitments and Guarantees
We have off-balance sheet financial guarantees and other commitments totaling $
In 2015, as a result of the dissolution of the global alliance with SRI, we issued a guarantee of $
If our performance under these guarantees is triggered by non-payment or another specified event, we would be obligated to make payment to the financial institution or the other entity, and would typically have recourse to the affiliate, lessor, customer or SRI, as applicable. We are unable to estimate the extent to which our lessors’, customers’ or SRI's assets would be adequate to recover any payments made by us under the related guarantees.
We have an agreement to provide a revolving loan commitment to TireHub of up to $
NOTE 13. CAPITAL STOCK
Common Stock Repurchases
We may repurchase shares delivered to us by employees as payment for the exercise price of stock options and the withholding taxes due upon the exercise of stock options or the vesting or payment of stock awards. During the first quarter of 2023, we did
21
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present changes in AOCL, by component, for the three months ended March 31, 2023 and 2022, after tax and minority interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(In millions) Income (Loss) |
|
Foreign |
|
|
Unrealized Gains (Losses) from Securities |
|
|
Unrecognized |
|
|
Deferred |
|
|
Total |
|
|||||
Balance at December 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balance at March 31, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(In millions) Income (Loss) |
|
Foreign |
|
|
Unrecognized |
|
|
Deferred |
|
|
Total |
|
||||
Balance at December 31, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive income (loss) before |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
||
Balance at March 31, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
The following table presents reclassifications out of AOCL:
|
|
Three Months Ended |
|
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
|
||
(In millions) (Income) Expense |
|
Amount Reclassified |
|
|
Affected Line Item in the Consolidated |
|||||
Component of AOCL |
|
from AOCL |
|
|
Statements of Operations |
|||||
Amortization of prior service cost and |
|
$ |
|
|
$ |
|
|
Other (Income) Expense |
||
Tax effect |
|
|
( |
) |
|
|
( |
) |
|
United States and Foreign Taxes |
Net of tax |
|
$ |
|
|
$ |
|
|
Goodyear Net Income (Loss) |
||
|
|
|
|
|
|
|
|
|
||
Deferred derivative (gains) losses, before tax |
|
$ |
|
|
$ |
( |
) |
|
Cost of Goods Sold |
|
Tax effect |
|
|
|
|
|
|
|
United States and Foreign Taxes |
||
Net of tax |
|
$ |
|
|
$ |
( |
) |
|
Goodyear Net Income (Loss) |
|
Total reclassifications |
|
$ |
|
|
$ |
|
|
Goodyear Net Income (Loss) |
||
The following table presents the details of comprehensive income (loss) attributable to minority shareholders:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Net Income (Loss) Attributable to Minority Shareholders |
|
$ |
|
|
$ |
|
||
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
||
Foreign currency translation |
|
|
|
|
|
( |
) |
|
Other Comprehensive Income (Loss) |
|
$ |
|
|
$ |
( |
) |
|
Comprehensive Income (Loss) Attributable to Minority Shareholders |
|
$ |
|
|
$ |
( |
) |
|
22
NOTE 15. SUBSEQUENT EVENTS
On April 1, 2023, a severe weather system in the U.S., which included multiple tornadoes, significantly damaged and caused the shut-down of our tire manufacturing facility and adjacent warehouse in Tupelo, Mississippi (“Tupelo”), as well as a leased distribution center in Whiteland, Indiana (“Whiteland”). The Whiteland distribution center and Tupelo warehouse were able to restart tire shipments on
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
All per share amounts are diluted and refer to Goodyear net income (loss).
OVERVIEW
The Goodyear Tire & Rubber Company (the "Company," "Goodyear," "we," "us" or "our") is one of the world’s leading manufacturers of tires, with one of the most recognizable brand names in the world and operations in most regions of the world. We have a broad global footprint with 57 manufacturing facilities in 23 countries, including the United States. We operate our business through three operating segments representing our regional tire businesses: Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific.
Results of Operations
During the first quarter of 2023, our operating results reflected a difficult macroeconomic environment, including the impact of the ongoing effects of inflation and increases in interest rates on the global economy. These conditions and uncertainties about the future have affected demand for our products globally. The impact is more pronounced in Europe, primarily due to the indirect impacts of the ongoing conflict in Ukraine. We saw improvement in demand from our OE customers, which continue to recover from supply constraints that have reduced their production. However, demand from our OE customers remains lower than what we experienced before the COVID-19 pandemic. In China, consumer demand continued to recover throughout the first quarter of 2023 following an increase in the spread of COVID-19 during the fourth quarter of 2022. Our other global businesses have largely recovered from the direct impacts of the COVID-19 pandemic.
Supply chain disruptions and other factors have led to continuing inflationary cost pressures on our results, including higher costs for certain raw materials, higher transportation costs and higher energy costs. Energy cost increases continue to be more pronounced in Europe driven by the indirect impacts of the conflict in Ukraine. We also continue to experience increased labor-related costs and manufacturing inefficiencies associated with the ongoing tight labor supply, particularly in the U.S. Price and product mix continues to offset the increase in raw material costs as well as a majority of other inflationary costs affecting our results.
During the first quarter of 2023, in order to address softening industry demand and prevent the buildup of excess inventory, we reduced production at many of our tire manufacturing facilities, resulting in a reduction of 3.7 million units compared to production in the first quarter of 2022, primarily in Americas and EMEA. Decisions to change production levels in the future will be based on an evaluation of market demand signals and inventory and supply levels, as well as the availability of sufficient qualified labor.
Our results for the first quarter of 2023 include a 7.1% decrease in tire unit shipments compared to 2022, primarily due to lower global replacement tire volume. In the first quarter of 2023, we incurred approximately $185 million of additional costs related to inflation and other cost pressures, primarily higher transportation and energy costs.
Net sales in the first quarter of 2023 were $4,941 million, compared to $4,908 million in the first quarter of 2022. Net sales increased in 2023 primarily due to global improvements in price and product mix and higher sales in other tire-related businesses, driven by increased retail sales in Americas, growth in EMEA's Fleet Solutions and higher global aviation sales, partially offset by a decrease in third-party chemical sales in Americas. These increases were partially offset by lower global tire volume and unfavorable foreign currency translation, primarily in EMEA and Asia Pacific, driven by the strengthening of the U.S. dollar.
In the first quarter of 2023, Goodyear net loss was $101 million, or $0.35 per share, compared to Goodyear net income of $96 million, or $0.33 per share, in the first quarter of 2022. The change in Goodyear net income (loss) was primarily due to lower segment operating income driven by inflationary cost pressures on cost of goods sold ("CGS"), higher interest expense, higher rationalization charges and higher non-service related pension and other postretirement benefits cost included in Other (Income) Expense driven by higher interest rates, partially offset by lower U.S. and Foreign Tax Expense as a result of our lower pre-tax earnings.
Total segment operating income for the first quarter of 2023 was $125 million, compared to $303 million in the first quarter of 2022. The $178 million decrease was primarily due to increased conversion costs of $169 million driven by inflation, the effect of decreased tire production on fixed cost absorption and higher energy costs, higher transportation and imported tire costs of $86 million, lower global tire volume of $73 million, and unfavorable foreign currency translation of $7 million, primarily in EMEA and Asia Pacific, driven by the strengthening of the U.S. dollar. These decreases were partially offset by global improvements in price and product mix of $418 million, which more than offset higher raw material costs of $304 million, a favorable adjustment of $21 million in Americas due to a reduction in certain U.S. duty rates on various commercial tires from China that were imported into the U.S. during 2021, and recoveries of previously written-off accounts receivable and other assets in Russia of $10 million. Refer to "Results of Operations — Segment Information" for additional information.
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Liquidity
At March 31, 2023, we had $1,082 million of cash and cash equivalents as well as $2,904 million of unused availability under our various credit agreements, compared to $1,227 million and $4,035 million, respectively, at December 31, 2022. The decrease in cash and cash equivalents of $145 million was primarily due to cash used for operating activities of $775 million, capital expenditures of $291 million, short-term securities acquired of $82 million, and loans to TireHub, LLC ("TireHub") of $76 million, partially offset by net borrowings of $1,076 million. Cash used by operating activities reflects cash used for working capital of $859 million and the Company's net loss for the period of $99 million, which included non-cash charges for depreciation and amortization of $251 million. Refer to "Liquidity and Capital Resources" for additional information.
Outlook
Looking ahead to the second quarter of 2023, we expect that our industry will continue to face uncertain macroeconomic conditions as a result of the ongoing effects of inflation, which have led to higher interest rates and lower consumer confidence in the U.S. and Europe. In addition, replacement demand will continue to be negatively impacted by tire dealer and distributor channel destocking, after a period of significant growth in channel inventories in the first and second quarters of 2022. We expect our replacement tire volume to be lower by approximately 5% when compared to the second quarter of 2022. Although OE manufacturers continue to be affected by shortages of materials and components, we anticipate continued recovery in demand for OE tires. We expect our OE tire volume will be higher by approximately 10% when compared to the second quarter of 2022. We expect relative stability in demand during the third quarter of 2023 and the resumption of growth in the fourth quarter of 2023, given the volume declines we experienced in the second half of 2022.
We expect our raw material costs to increase approximately $100 million in the second quarter of 2023 compared to the second quarter of 2022, including the impact of the stronger U.S. dollar and higher transportation and supplier costs. We anticipate price and product mix improvements to more than offset raw material cost increases in the second quarter of 2023 by approximately $200 million. Natural and synthetic rubber prices and other commodity prices historically have been volatile, and our raw material costs could change based on future cost fluctuations and changes in foreign exchange rates. We continue to focus on price and product mix, to substitute lower cost materials where possible, to work to identify additional substitution opportunities, to reduce the amount of material required in each tire, and to pursue alternative raw materials to minimize the impact of higher raw material costs.
In addition to higher raw material costs, we expect the impact of other inflationary cost pressures to persist, particularly with respect to transportation, labor and energy costs. We expect the negative impact on segment operating income from non-raw material inflation in the second quarter of 2023 will be approximately $180 million compared with the second quarter of 2022, net of manufacturing cost savings or inefficiencies. We continue to focus on actions to offset costs other than raw materials through cost savings initiatives, including rationalization actions, further pricing actions and improvements in product mix. We also anticipate our second quarter 2023 results will be negatively impacted by lower production volume of 3.7 million units during the first quarter of 2023 when compared with the first quarter of 2022. Similarly, we plan to reduce our production levels in the second quarter of 2023 by approximately 3.0 million units, which will impact our third quarter of 2023 results.
For the full year of 2023, we continue to expect working capital to be a source of operating cash flows of approximately $100 million. We also continue to anticipate our capital expenditures will be approximately $1.0 billion. Our capital expenditures in 2023 will be focused on projects to modernize certain of our manufacturing facilities and expand others to address anticipated future demand, in addition to capital expenditures to sustain our facilities. We anticipate our cash flows will include rationalization payments of approximately $100 million, as we continue to address our cost structure.
This outlook excludes the impact of the severe weather system that affected our tire manufacturing facility and adjacent warehouse in Tupelo, Mississippi (“Tupelo”) and a leased distribution center in Whiteland, Indiana (“Whiteland”) discussed below.
Subsequent Events – Impact of Severe Weather System in the U.S.
On April 1, 2023, a severe weather system in the U.S., which included multiple tornadoes, significantly damaged and caused the shut-down of Tupelo and Whiteland. The Whiteland distribution center and Tupelo warehouse were able to restart tire shipments on April 11, 2023 and April 18, 2023, respectively, while repairs to those facilities were ongoing. We currently expect to be able to restart and begin ramping up production at the Tupelo tire manufacturing facility by the beginning of June 2023, with full ramp-up not expected until the third quarter of 2023.
Americas sales are expected to be negatively impacted by $110 million to $130 million in the second quarter of 2023, primarily due to the shut-down and subsequent ramp-up of the Tupelo tire manufacturing facility. The related lost sales margins, as well as unabsorbed fixed costs and other period expenses, including our intent to continue to pay our workforce, during the shut-down and subsequent ramp-up period are expected to negatively impact Americas operating income by $60 million to $80 million in
25
the second quarter of 2023. With a successful ramp-up of the facility beginning in June, along with actions we are taking to mitigate lost production, we would not expect the full-year impact to materially exceed this amount.
We maintain third-party insurance with a $15 million per occurrence deductible that covers property damage, clean-up expenses and qualifying business interruption impacts. We will reach the deductible limit and expense $15 million in the second quarter of 2023 related to property damage and clean-up expenses. We expect that a significant portion of the business interruption impacts will be reimbursed by our insurance. However, due to uncertainty in determining the ultimate amount and timing of business interruption coverage that could be available to us, we did not reflect potential insurance reimbursement for business interruption in the above sales and operating income estimates for Americas nor have we recognized a business interruption receivable at this time. Consistent with past practice, we will record a receivable related to business interruption insurance once the claim is substantially complete.
Refer to "Item 1A. Risk Factors" in the 2022 Form 10-K for a discussion of the factors that may impact our business, results of operations, financial condition or liquidity and "Forward-Looking Information — Safe Harbor Statement" in this Quarterly Report on Form 10-Q for a discussion of our use of forward-looking statements.
RESULTS OF OPERATIONS
CONSOLIDATED
Three Months Ended March 31, 2023 and 2022
Net sales in the first quarter of 2023 were $4,941 million, increasing $33 million, or 0.7%, from $4,908 million in the first quarter of 2022. Goodyear net loss was $101 million, or $0.35 per share, in the first quarter of 2023, compared to Goodyear net income of $96 million, or $0.33 per share, in the first quarter of 2022.
Net sales increased in the first quarter of 2023 primarily due to global improvements in price and product mix of $503 million and higher sales in other tire-related businesses of $32 million, driven by increased retail sales in Americas, growth in EMEA's Fleet Solutions and higher global aviation sales, partially offset by a decrease in third-party chemical sales in Americas. These increases were partially offset by lower global tire volume of $338 million and unfavorable foreign currency translation of $166 million, primarily in EMEA and Asia Pacific, driven by the strengthening of the U.S. dollar.
Worldwide tire unit sales in the first quarter of 2023 were 41.8 million units, decreasing 3.2 million units, or 7.1%, from 45.0 million units in the first quarter of 2022. Replacement tire volume decreased globally by 4.0 million units, or 11.2%, driven by reduced industry demand. OE tire volume increased globally by 0.8 million units, or 8.2%, reflecting share gains driven by new consumer fitments and continued recovery in OE production.
CGS in the first quarter of 2023 was $4,193 million, increasing $227 million, or 5.7%, from $3,966 million in the first quarter of 2022. CGS increased primarily due to higher raw material costs of $304 million, increased conversion costs of $169 million driven by inflation, the effect of decreased tire production on fixed cost absorption and higher energy costs, increased transportation and imported tire costs of $86 million, primarily in Americas and EMEA, higher costs related to global product mix of $85 million, and higher costs in other tire-related businesses of $25 million driven by retail sales in Americas and EMEA's Fleet Solutions. These increases were partially offset by lower global tire volume of $265 million, foreign currency translation of $141 million, primarily in EMEA and Asia Pacific, driven by the strengthening of the U.S. dollar, and a favorable adjustment of $21 million due to a reduction in certain U.S. duty rates on various commercial tires imported from China during 2021. CGS in the first quarter of 2023 was favorably impacted by a successful legal claim of $3 million ($3 million after-tax and minority) related to a 2005 warehouse fire in Spain.
CGS in the first quarter of 2023 and 2022 included pension expense of $4 million and $5 million, respectively. CGS in the first quarter of 2023 included $12 million ($10 million after-tax and minority) of accelerated depreciation and asset write-offs, primarily related to the integration of Cooper Tire and the closure of Cooper Tire's Melksham, United Kingdom tire manufacturing facility ("Melksham"). CGS in the first quarter of 2022 included $1 million of incremental savings from rationalization plans. CGS was 84.9% of sales in the first quarter of 2023, compared to 80.8% in the first quarter of 2022.
Selling, Administrative and General Expense ("SAG") in the first quarter of 2023 was $664 million, decreasing $24 million, or 3.5%, from $688 million in the first quarter of 2022. SAG decreased primarily due to foreign currency translation of $18 million, primarily in EMEA and Asia Pacific, driven by the strengthening of the U.S. dollar, recoveries of previously written-off accounts receivable and other assets in Russia of $10 million ($10 million after-tax and minority), lower legal reserves of $6 million and lower advertising costs of $4 million. These decreases were partially offset by the impact of inflation.
SAG in the first quarter of 2023 and 2022 included pension expense of $3 million and $4 million, respectively. SAG in the first quarter of 2023 included $10 million of incremental savings from rationalization plans, compared to $1 million in 2022. SAG was 13.4% of sales in the first quarter of 2023, compared to 14.0% in the first quarter of 2022.
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We recorded net rationalization charges of $32 million ($26 million after-tax and minority) in the first quarter of 2023 and $11 million ($9 million after-tax and minority) in the first quarter of 2022. Net rationalization charges in the first quarter of 2023 primarily related to the plan to streamline our EMEA distribution network, the plan to reduce salaried staffing globally and the plan to reduce staffing and capacity in certain of our EMEA manufacturing facilities. Net rationalization charges in the first quarter of 2022 primarily related to the permanent closure of our Gadsden, Alabama manufacturing facility and the modernization of two of our tire manufacturing facilities in Germany. For further information, refer to Note to the Consolidated Financial Statements No. 3, Costs Associated with Rationalization Programs.
Interest expense in the first quarter of 2023 was $127 million, increasing $23 million, or 22.1%, from $104 million in the first quarter of 2022. The average interest rate was 6.01% in the first quarter of 2023 compared to 5.28% in the first quarter of 2022. The average debt balance was $8,451 million in the first quarter of 2023 compared to $7,884 million in the first quarter of 2022.
Other (Income) Expense in the first quarter of 2023 was $25 million of expense, compared to $5 million of expense in the first quarter of 2022. Other (Income) Expense increased in the first quarter of 2023 primarily due to a $16 million increase in non-service related pension and other postretirement benefit costs driven by higher interest rates and a $10 million increase in net foreign currency exchange losses driven by the strengthening of the U.S. dollar. In addition, Other (Income) Expense for the three months ended March 31, 2023 includes $11 million ($9 million after-tax and minority) of expense for non-indemnified costs for product liability claims related to products manufactured by a formerly consolidated joint venture entity, $11 million ($8 million after-tax and minority) of income related to a favorable court decision setting aside a previous unfavorable verdict on intellectual property-related legal claims, and $5 million ($5 million after-tax and minority) of income related to the write-off of accumulated foreign currency translation in Russia. Other (Income) Expense for the three months ended March 31, 2022 includes net gains on asset sales of $4 million ($4 million after-tax and minority), primarily related to the sale of an equity investment in Americas.
For the first quarter of 2023, we recorded an income tax benefit of $1 million on a loss before income taxes of $100 million. Income tax benefit for the three months ended March 31, 2023 was unfavorably impacted by net discrete tax expense of $1 million.
In the first quarter of 2022, we recorded income tax expense of $38 million on income before income taxes of $134 million. Income tax expense for the three months ended March 31, 2022 was unfavorably impacted by net discrete tax expense of $4 million ($4 million after minority interest), including a charge of $11 million to establish a full valuation allowance on our net deferred tax assets in Russia, partially offset by a net benefit of $7 million for various other items.
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 both the three months ended March 31, 2023 and 2022 primarily relates to losses in foreign jurisdictions in which no tax benefits are recorded and the discrete items noted above.
For 2023, we do not anticipate that the 15% corporate alternative minimum tax ("CAMT") under the Inflation Reduction Act of 2022 will apply to us due to the significant pandemic-driven losses we incurred in 2020. As allowed, we elected to not consider the estimated impact of potential future CAMT obligations for purposes of assessing valuation allowances on our deferred tax assets.
At March 31, 2023 and December 31, 2022, we had approximately $1.2 billion and $1.1 billion of U.S. federal, state and local net deferred tax assets, respectively, inclusive of valuation allowances totaling $26 million in each period primarily for state tax loss carryforwards with limited lives. Approximately $800 million of these U.S. net deferred tax assets have unlimited lives and approximately $400 million have limited lives and expire between 2023 and 2042. In the U.S., we have a cumulative loss for the three-year period ended March 31, 2023. However, as the three-year cumulative loss in the U.S. is driven by business disruptions created by the COVID-19 pandemic, primarily in 2020, and only includes the favorable impact of Cooper Tire since June 7, 2021, the date the acquisition was completed (the "Closing Date"), we also considered other objectively verifiable information in assessing our ability to utilize our net deferred tax assets, including continued favorable overall volume trends in the tire industry and our tire volume compared to 2020 levels. In addition, the Cooper Tire acquisition has generated significant incremental domestic earnings since the Closing Date and continues to provide cost and other operating synergies to further improve our U.S. profitability.
At March 31, 2023 and December 31, 2022, our U.S. net deferred tax assets described above both include approximately $230 million of foreign tax credits with limited lives. Our earnings and forecasts of future profitability, taking into consideration recent trends, along with three significant sources of foreign income, provide us sufficient positive evidence that we will be able to utilize these net foreign tax credits which expire through 2032. Our 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) tax planning strategies, including accelerating income on cross border transactions, including sales of inventory or raw materials to our subsidiaries, reducing U.S. interest expense by, for example, reducing intercompany loans through repatriating
27
current year earnings of foreign subsidiaries, and other financing transactions, all of which would increase our domestic profitability.
We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our foreign tax credits. These forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of higher raw material, transportation, labor and energy costs, on our profitability, as well as the impact of tax planning strategies. These macroeconomic factors possess a high degree of volatility and can significantly impact our profitability. As such, there is a risk that future earnings will not be sufficient to fully utilize our U.S. net deferred tax assets, including our 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, objectively verifiable evidence to conclude that it is more likely than not that, at March 31, 2023, our U.S. net deferred tax assets, including our foreign tax credits, will be fully utilized.
At March 31, 2023 and December 31, 2022, we also had approximately $1.3 billion and $1.2 billion of foreign net deferred tax assets, respectively, and related valuation allowances of approximately $1.1 billion and $1.0 billion, respectively. 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 these net foreign deferred tax assets. Most notably, in Luxembourg, we maintain a valuation allowance of $909 million on all 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 valuation allowances having a significant impact on our financial position or results of operations will exist within the next twelve months.
For further information regarding income taxes and the realizability of our deferred tax assets, including our foreign tax credits, refer to Note to the Consolidated Financial Statements No. 5, Income Taxes.
Minority shareholders’ net income in the first quarter of 2023 was $2 million, compared to breakeven in the first quarter of 2022.
SEGMENT INFORMATION
Segment information reflects our strategic business units (“SBUs”), which are organized to meet customer requirements and global competition and are segmented on a regional basis.
Results of operations are measured based on net sales to unaffiliated customers and segment operating income. Each segment exports tires to other segments. The financial results of each segment exclude sales of tires exported to other segments, but include operating income derived from such transactions. Segment operating income is computed as follows: Net Sales less CGS (excluding asset write-off and accelerated depreciation charges) and SAG (including certain allocated corporate administrative expenses). Segment operating income also includes certain royalties and equity in earnings of most affiliates. Segment operating income does not include net rationalization charges (credits), asset sales and certain other items.
Total segment operating income for the first quarter of 2023 was $125 million, a decrease of $178 million, or 58.7%, from $303 million in the first quarter of 2022. Total segment operating margin in the first quarter of 2023 was 2.5%, compared to 6.2% in the first quarter of 2022.
Management believes that total segment operating income is useful because it represents the aggregate value of income created by our SBUs and excludes items not directly related to the SBUs for performance evaluation purposes. Total segment operating income is the sum of the individual SBUs’ segment operating income. Refer to Note to the Consolidated Financial Statements No. 7, Business Segments, for further information and for a reconciliation of total segment operating income to Income (Loss) before Income Taxes.
28
Americas
|
|
Three Months Ended March 31, |
|
|||||||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Percent |
|
||||
Tire Units |
|
|
20.5 |
|
|
|
22.2 |
|
|
|
(1.7 |
) |
|
|
(7.5 |
)% |
Net Sales |
|
$ |
2,867 |
|
|
$ |
2,915 |
|
|
$ |
(48 |
) |
|
|
(1.6 |
)% |
Operating Income |
|
|
79 |
|
|
|
216 |
|
|
|
(137 |
) |
|
|
(63.4 |
)% |
Operating Margin |
|
|
2.8 |
% |
|
|
7.4 |
% |
|
|
|
|
|
|
||
Three Months Ended March 31, 2023 and 2022
Americas unit sales in first quarter of 2023 decreased 1.7 million units, or 7.5%, to 20.5 million units. Replacement tire volume decreased 1.8 million units, or 9.9%, primarily due a decrease in our consumer business in the U.S. and Canada, driven by reduced industry demand. OE tire volume increased 0.1 million units, or 4.8%.
Net sales in the first quarter of 2023 were $2,867 million, decreasing $48 million, or 1.6%, from $2,915 million in the first quarter of 2022. The decrease in net sales was primarily due to lower tire volume of $214 million, partially offset by improvements in price and product mix of $155 million, driven by price increases, and higher sales in other tire-related businesses of $10 million, primarily due to higher retail and aviation sales, partially offset by lower third-party chemical sales.
Operating income in the first quarter of 2023 was $79 million, decreasing $137 million, or 63.4%, from $216 million in the first quarter of 2022. The decrease in operating income was due to higher conversion costs of $89 million, driven by the effect of decreased tire production on fixed cost absorption and inflation, higher transportation and imported tire costs of $70 million, and lower tire volume of $44 million. These decreases were partially offset by improvements in price and product mix of $149 million, which more than offset higher raw material costs of $106 million, and a favorable adjustment of $21 million due to a reduction in certain U.S. duty rates on various commercial tires from China that were imported into the U.S. during 2021. Operating income for 2023 includes incremental SAG savings from rationalization plans of $7 million.
Operating income in the first quarter of 2023 excluded accelerated depreciation and asset write-offs of $8 million, net rationalization charges of $5 million and net gains on asset sales of $2 million. Operating income in the first quarter of 2022 excluded net rationalization charges of $7 million and net gains on asset sales of $4 million.
Europe, Middle East and Africa
|
|
Three Months Ended March 31, |
|
|||||||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Percent |
|
||||
Tire Units |
|
|
13.2 |
|
|
|
14.5 |
|
|
|
(1.3 |
) |
|
|
(9.1 |
)% |
Net Sales |
|
$ |
1,492 |
|
|
$ |
1,426 |
|
|
$ |
66 |
|
|
|
4.6 |
% |
Operating Income |
|
|
8 |
|
|
|
59 |
|
|
|
(51 |
) |
|
|
(86.4 |
)% |
Operating Margin |
|
|
0.5 |
% |
|
|
4.1 |
% |
|
|
|
|
|
|
||
Three Months Ended March 31, 2023 and 2022
EMEA unit sales in the first quarter of 2023 decreased 1.3 million units, or 9.1%, to 13.2 million units. Replacement tire volume decreased 1.9 million units, or 16.1%, primarily in our consumer business, reflecting the impacts of continued industry declines. OE tire volume increased 0.6 million units, or 18.9%, reflecting share gains driven by new consumer fitments and continued recovery in OE production.
Net sales in the first quarter of 2023 were $1,492 million, increasing $66 million, or 4.6%, from $1,426 million in the first quarter of 2022. The increase in net sales was primarily due to improvements in price and product mix of $283 million, driven by price increases, and higher sales in other tire-related businesses of $23 million, primarily due to growth in Fleet Solutions. These increases were partially offset by unfavorable foreign currency translation of $128 million, driven by a weaker euro and Turkish lira, and lower tire volume of $112 million.
Operating income in the first quarter of 2023 was $8 million, decreasing $51 million, or 86.4%, from $59 million in the first quarter of 2022. The decrease in operating income was primarily due to higher conversion costs of $78 million, driven by higher energy costs, inflation and the effect of decreased tire production on fixed cost absorption, lower tire volume of $26 million, higher transportation costs of $15 million, and higher SAG of $11 million, primarily due to inflation. These decreases were partially offset by improvements in price and product mix of $223 million, which more than offset higher raw material costs of $163 million, higher earnings in other tire-related businesses of $8 million and lower research and development costs of $5 million. SAG for 2023 includes incremental savings from rationalization plans of $3 million.
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Operating income in the first quarter of 2023 excluded net rationalization charges of $24 million, recoveries of previously written-off accounts receivable and other assets of $10 million in Russia and accelerated depreciation of $4 million. Operating income in the first quarter of 2022 excluded net rationalization charges of $5 million.
Asia Pacific
|
|
Three Months Ended March 31, |
|
|||||||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Percent |
|
||||
Tire Units |
|
|
8.1 |
|
|
|
8.3 |
|
|
|
(0.2 |
) |
|
|
(2.2 |
)% |
Net Sales |
|
$ |
582 |
|
|
$ |
567 |
|
|
$ |
15 |
|
|
|
2.6 |
% |
Operating Income |
|
|
38 |
|
|
|
28 |
|
|
|
10 |
|
|
|
35.7 |
% |
Operating Margin |
|
|
6.5 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
||
Three Months Ended March 31, 2023 and 2022
Asia Pacific unit sales in the first quarter of 2023 decreased 0.2 million units, or 2.2%, to 8.1 million units. Replacement tire volume decreased 0.3 million units, or 5.2%, primarily due to a decrease in our consumer business in India, driven by reduced industry demand. OE tire volume increased 0.1 million units, or 2.4%.
Net sales in the first quarter of 2023 were $582 million, increasing $15 million, or 2.6%, from $567 million in the first quarter of 2022. Net sales increased primarily due to improvements in price and product mix of $65 million, reflecting price increases and favorable mix primarily related to increased off-the-road tire volume. These increases were partially offset by unfavorable foreign currency translation of $39 million, primarily related to the strengthening of the U.S. dollar against the Chinese yuan, Indian rupee, Japanese yen and Australian dollar, and lower tire volume of $12 million.
Operating income in the first quarter of 2023 was $38 million, increasing $10 million, or 35.7%, from $28 million in the first quarter of 2022. The increase in operating income was primarily due to improvements in price and product mix of $46 million, which more than offset higher raw material costs of $35 million.
Operating income in the first quarter of 2023 excluded net rationalization charges of $3 million. Operating income in the first quarter of 2022 excluded net rationalization reversals of $1 million.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash generated from our operating and financing activities. Our cash flows from operating activities are driven primarily by our operating results and changes in our working capital requirements and our cash flows from financing activities are dependent upon our ability to access credit or other capital.
At March 31, 2023, we had $1,082 million in cash and cash equivalents, compared to $1,227 million at December 31, 2022. For the three months ended March 31, 2023, net cash used by operating activities was $775 million, reflecting cash used for working capital of $859 million and the Company's net loss for the period of $99 million, which included non-cash charges for depreciation and amortization of $251 million. Net cash used by investing activities was $456 million, primarily representing capital expenditures of $291 million, short-term securities acquired of $82 million and loans to TireHub of $76 million. Cash provided by financing activities was $1,075 million, primarily due to net borrowings.
At March 31, 2023, we had $2,904 million of unused availability under our various credit agreements, compared to $4,035 million at December 31, 2022. The table below presents unused availability under our credit facilities at those dates:
(In millions) |
|
March 31, |
|
|
December 31, |
|
||
First lien revolving credit facility |
|
$ |
1,900 |
|
|
$ |
2,747 |
|
European revolving credit facility |
|
|
283 |
|
|
|
480 |
|
Chinese credit facilities |
|
|
547 |
|
|
|
516 |
|
Other foreign and domestic debt |
|
|
174 |
|
|
|
292 |
|
|
|
$ |
2,904 |
|
|
$ |
4,035 |
|
We have deposited our cash and cash equivalents and entered into various credit agreements and derivative contracts with financial institutions that we considered to be substantial and creditworthy at the time of such transactions. We seek to control our exposure to these financial institutions by diversifying our deposits, credit agreements and derivative contracts across multiple financial institutions, by setting deposit and counterparty credit limits based on long term credit ratings and other indicators of credit risk such as credit default swap spreads, and by monitoring the financial strength of these financial institutions on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to financial institutions in this manner, we believe that we effectively manage the risk of loss due to nonperformance
30
by a financial institution. However, we cannot provide assurance that we will not experience losses or delays in accessing our deposits or lines of credit due to the nonperformance of a financial institution. Our inability to access our cash deposits or make draws on our lines of credit, or the inability of a counterparty to fulfill its contractual obligations to us, could have a material adverse effect on our liquidity, financial condition or results of operations in the period in which it occurs.
We expect our 2023 full-year cash flow needs to include capital expenditures of approximately $1.0 billion. We also expect interest expense to be approximately $500 million; rationalization payments to be approximately $100 million; income tax payments to be approximately $200 million, excluding one-time items; and contributions to our funded pension plans to be $25 million to $50 million. We expect working capital to be a source of operating cash flows for the full year of 2023 of approximately $100 million.
We are continuing to actively monitor our liquidity and intend to operate our business in a way that allows us to address our cash flow needs with our existing cash and available credit if they cannot be funded by cash generated from operating or other financing activities. We believe that our liquidity position is adequate to fund our operating and investing needs and debt maturities for the next twelve months and to provide us with the ability to respond to further changes in the business environment.
Our ability to service debt and operational requirements is also dependent, in part, on the ability of our subsidiaries to make distributions of cash to various other entities in our consolidated group, whether in the form of dividends, loans or otherwise. In certain countries where we operate, such as China, South Africa, Serbia and Argentina, transfers of funds into or out of such countries by way of dividends, loans, advances or payments to third-party or affiliated suppliers are generally or periodically subject to certain requirements, such as obtaining approval from the foreign government and/or currency exchange board before net assets can be transferred out of the country. In addition, certain of our credit agreements and other debt instruments limit the ability of foreign subsidiaries to make distributions of cash. Thus, we would have to repay and/or amend these credit agreements and other debt instruments in order to use this cash to service our consolidated debt. Because of the inherent uncertainty of satisfactorily meeting these requirements or limitations, we do not consider the net assets of our subsidiaries, including our Chinese, South African, Serbian and Argentinian subsidiaries, which are subject to such requirements or limitations to be integral to our liquidity or our ability to service our debt and operational requirements. At March 31, 2023, approximately $1.0 billion of net assets, including approximately $253 million of cash and cash equivalents, were subject to such requirements. The requirements we must comply with to transfer funds out of China, South Africa, Serbia and Argentina have not adversely impacted our ability to make transfers out of those countries.
Operating Activities
Net cash used by operating activities was $775 million in the first quarter of 2023, compared to net cash used by operating activities of $711 million in the first quarter of 2022. The $64 million increase in net cash used by operating activities was primarily due to lower earnings in our SBUs of $178 million, partially offset by a decrease in cash used for working capital of $143 million.
The net decrease in cash used for working capital reflects an increase in cash provided by Inventory of $482 million and a decrease in cash used for Accounts Receivable of $239 million, partially offset by an increase in cash used for Accounts Payable — Trade of $578 million. These changes were driven by the impact of reduced production in the fourth quarter of 2022 and the first quarter of 2023 to address softening industry demand and prevent the buildup of excess inventory, as well as the impact of lower volume on our sales.
Investing Activities
Net cash used by investing activities was $456 million in the first quarter of 2023, compared to $300 million in the first quarter of 2022. Capital expenditures were $291 million in the first quarter of 2023, compared to $276 million in the first quarter of 2022. Investing activities in the first quarter of 2023 also included loans to TireHub of $76 million compared to $35 million in the first quarter of 2022 and a year-over-year increase of $88 million in net short-term securities acquired. Beyond expenditures required to sustain our facilities, capital expenditures in 2023 and 2022 primarily related to the modernization and expansion of tire manufacturing facilities around the world.
Financing Activities
Net cash provided by financing activities was $1,075 million in the first quarter of 2023, compared to net cash provided by financing activities of $982 million in the first quarter of 2022. Financing activities in the first quarter of 2023 included net borrowings of $1,076 million. Financing activities in 2022 included net borrowings of $972 million.
Credit Sources
In aggregate, we had total credit arrangements of $11,768 million available at March 31, 2023, of which $2,904 million were unused, compared to $11,806 million available at December 31, 2022, of which $4,035 million were unused. At March 31, 2023, we had long term credit arrangements totaling $10,862 million, of which $2,532 million were unused, compared to
31
$10,925 million and $3,566 million, respectively, at December 31, 2022. At March 31, 2023, we had short term committed and uncommitted credit arrangements totaling $906 million, of which $372 million were unused, compared to $881 million and $469 million, respectively, at December 31, 2022. The continued availability of the short term uncommitted arrangements is at the discretion of the relevant lender and may be terminated at any time.
Outstanding Notes
At March 31, 2023, we had $5,567 million of outstanding notes compared to $5,560 million at December 31, 2022.
$2.75 billion Amended and Restated First Lien Revolving Credit Facility due 2026
Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit. Up to $800 million in letters of credit and $50 million of swingline loans are available for issuance under the facility. 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 SOFR plus 125 basis points.
Availability under the facility is subject to a borrowing base, which is based 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 in an amount not to exceed $400 million, (iii) the value of eligible machinery and equipment, and (iv) certain cash in an amount not to exceed $275 million. To the extent that our eligible accounts receivable, 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 $2.75 billion. In addition, if the amount of outstanding borrowings and letters of credit under the facility exceeds the borrowing base, we would be required to prepay borrowings and/or cash collateralize letters of credit sufficient to eliminate the excess. As of March 31, 2023, our borrowing base, and therefore our availability, under this facility was $42 million below the facility's stated amount of $2.75 billion.
At March 31, 2023, we had $805 million of borrowings and $3 million of letters of credit issued under the revolving credit facility. At December 31, 2022, we had no borrowings and $3 million of letters of credit issued under the revolving credit facility.
€800 million Amended and Restated Senior Secured European Revolving Credit Facility due 2028
Our amended and restated European revolving credit facility consists of (i) a €180 million German tranche that is available only to Goodyear Germany GmbH and (ii) a €620 million all-borrower tranche that is available to Goodyear Europe B.V. ("GEBV"), Goodyear Germany and Goodyear 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. Amounts drawn under this facility will bear interest at SOFR plus 150 basis points for loans denominated in U.S. dollars, EURIBOR plus 150 basis points for loans denominated in euros, and SONIA plus 150 basis points for loans denominated in pounds sterling. Undrawn amounts under the facility are subject to an annual commitment fee of 25 basis points.
At March 31, 2023, there were $196 million (€180 million) of borrowings outstanding under the German tranche, $392 million (€360 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility. At December 31, 2022, there were no borrowings outstanding under the German tranche, $374 million (€350 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility.
Both our first lien revolving credit facility and our European revolving credit facility have 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, 2020 under the first lien facility and December 31, 2021 under the European 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 2027. 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 current period ending October 18, 2023, the designated maximum amount of the facility is €300 million.
The facility involves an 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.
32
The funding commitments under the facility will expire upon the earliest to occur of: (a) October 19, 2027, (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 similar to the events of default under our first lien revolving credit facility; 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 18, 2023.
At March 31, 2023, the amounts available and utilized under this program totaled $218 million (€200 million). At December 31, 2022, the amounts available and utilized under this program totaled $267 million (€250 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Finance Leases.
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, 2023, the gross amount of receivables sold was $722 million, compared to $744 million at December 31, 2022.
Letters of Credit
At March 31, 2023, we had $212 million in letters of credit issued under bilateral letter of credit agreements and other foreign credit facilities. The majority of these letter of credit agreements are in lieu of security deposits.
Supplier Financing
We have entered into supplier finance programs with several financial institutions. Under these agreements, the financial institutions act as our paying agents with respect to accounts payable due to our suppliers. We agree to pay the financial institutions the stated amount of the confirmed invoices from the designated suppliers on the original maturity dates of the invoices. Invoice payment terms can be up to 120 days based on industry norms for the specific item purchased. We do not pay any fees to the financial institutions for these programs. There are no assets pledged as security or other forms of guarantees associated with these agreements. These agreements allow our suppliers to sell their receivables to the financial institutions at the sole discretion of the suppliers and the financial institutions on terms that are negotiated among them. We are not always notified when our suppliers sell receivables under these programs. Our obligations to our suppliers, including the amounts due and scheduled payment dates, are not impacted by our suppliers’ decisions to sell their receivables under the programs. The amounts available under these programs were $905 million and $920 million at March 31, 2023 and December 31, 2022, respectively. The amounts confirmed to the financial institutions were $611 million and $710 million at March 31, 2023 and December 31, 2022, respectively, and are included in Accounts Payable — Trade in our Consolidated Balance Sheets. All activity related to these obligations is presented within operating activities on the Consolidated Statements of Cash Flows.
Further Information
For a further description of the terms of our outstanding notes, first lien revolving credit facility, European revolving credit facility and pan-European accounts receivable securitization facility, refer to Note to the Consolidated Financial Statements No. 16, Financing Arrangements and Derivative Financial Instruments, in our 2022 Form 10‑K and Note to the Consolidated Financial Statements No. 8, Financing Arrangements and Derivative Financial Instruments, in this Form 10-Q.
Covenant Compliance
Our first lien revolving credit facility and some of the indentures governing our notes contain certain covenants that, among other things, limit our ability to incur additional debt or issue redeemable preferred stock, pay dividends, repurchase shares or make certain other restricted payments or investments, incur liens, sell assets, incur restrictions on the ability of our subsidiaries to pay dividends or to make other payments to us, enter into affiliate transactions, engage in sale and leaseback transactions, and consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. These covenants are subject to significant exceptions and qualifications. Our first lien revolving credit facility and the indentures governing our notes also have customary defaults, including cross-defaults to material indebtedness of Goodyear and its subsidiaries.
We have an additional financial covenant in our first lien revolving credit facility that is currently not applicable. We become subject to that financial covenant when the aggregate amount of our Parent Company (The Goodyear Tire & Rubber Company) and guarantor subsidiaries cash and cash equivalents (“Available Cash”) plus our availability under our first lien revolving credit facility is less than $275 million. If this were to occur, our ratio of EBITDA to Consolidated Interest Expense may not be less than 2.0 to 1.0 for the most recent period of four consecutive fiscal quarters. As of March 31, 2023, our unused availability under this facility of $1,900 million, plus our Available Cash of $276 million, totaled $2,176 million, which is in excess of $275 million.
In addition, our European revolving credit facility contains non-financial covenants similar to the non-financial covenants in our first lien revolving credit facility that are described above and a financial covenant applicable only to GEBV and its subsidiaries.
33
This financial covenant provides that we are not permitted to allow GEBV’s ratio of Consolidated Net GEBV Indebtedness to Consolidated GEBV EBITDA for a period of four consecutive fiscal quarters to be greater than 3.0 to 1.0 at the end of any fiscal quarter. Consolidated Net GEBV Indebtedness is determined net of the sum of cash and cash equivalents in excess of $100 million held by GEBV and its subsidiaries, cash and cash equivalents in excess of $150 million held by the Parent Company and its U.S. subsidiaries, and availability under our first lien revolving credit facility if the ratio of EBITDA to Consolidated Interest Expense described above is not applicable and the conditions to borrowing under the first lien revolving credit facility are met. Consolidated Net GEBV Indebtedness also excludes loans from other consolidated Goodyear entities. This financial covenant is also included in our pan-European accounts receivable securitization facility. At March 31, 2023, we were in compliance with this financial covenant.
Our credit facilities also state that we may only incur additional debt or make restricted payments that are not otherwise expressly permitted if, after giving effect to the debt incurrence or the restricted payment, our ratio of EBITDA to Consolidated Interest Expense for the prior four fiscal quarters would exceed 2.0 to 1.0. Certain of our senior note indentures have substantially similar limitations on incurring debt and making restricted payments. Our credit facilities and indentures also permit the incurrence of additional debt through other provisions in those agreements without regard to our ability to satisfy the ratio-based incurrence test described above. We believe that these other provisions provide us with sufficient flexibility to incur additional debt necessary to meet our operating, investing and financing needs without regard to our ability to satisfy the ratio-based incurrence test.
Covenants could change based upon a refinancing or amendment of an existing facility, or additional covenants may be added in connection with the incurrence of new debt.
At March 31, 2023, we were in compliance with the currently applicable material covenants imposed by our principal credit facilities and indentures.
The terms “Available Cash,” “EBITDA,” “Consolidated Interest Expense,” “Consolidated Net GEBV Indebtedness” and “Consolidated GEBV EBITDA” have the meanings given them in the respective credit facilities.
Potential Future Financings
In addition to the financing activities described above, we may seek to undertake additional financing actions which could include restructuring bank debt or capital markets transactions, possibly including the issuance of additional debt or equity. Given the inherent uncertainty of market conditions, access to the capital markets cannot be assured.
Our future liquidity requirements will make it necessary for us to incur additional debt. However, a substantial portion of our assets are already subject to liens securing our indebtedness. As a result, we are limited in our ability to pledge our remaining assets as security for additional secured indebtedness. In addition, no assurance can be given as to our ability to raise additional unsecured debt.
Dividends and Common Stock Repurchases
Under our primary credit facilities and some of our note indentures, we are permitted to pay dividends on and repurchase our capital stock (which constitute restricted payments) as long as no default will have occurred and be continuing, additional indebtedness can be incurred under the credit facilities or indentures following the payment, and certain financial tests are satisfied.
We do not currently pay a quarterly dividend on our common stock.
We may repurchase shares delivered to us by employees as payment for the exercise price of stock options and the withholding taxes due upon the exercise of stock options or the vesting or payment of stock awards. During the first quarter of 2023, we did not repurchase any shares from employees.
The restrictions imposed by our credit facilities and indentures are not expected to significantly affect our ability to pay dividends or repurchase our capital stock in the future.
Asset Dispositions
The restrictions on asset sales and sale and leaseback transactions imposed by our material indebtedness have not affected our ability to divest non-core businesses or assets, and those divestitures have not affected our ability to comply with those restrictions.
Supplemental Guarantor Financial Information
Certain of our subsidiaries, which are listed on Exhibit 22.1 to this Quarterly Report on Form 10-Q and are generally holding or operating companies, have guaranteed our obligations under the $800 million outstanding principal amount of 9.5% senior notes
34
due 2025, the $900 million outstanding principal amount of 5% senior notes due 2026, the $700 million outstanding principal amount of 4.875% senior notes due 2027, the $850 million outstanding principal amount of 5% senior notes due 2029, the $550 million outstanding principal amount of 5.25% senior notes due April 2031, the $600 million outstanding principal amount of 5.25% senior notes due July 2031 and the $450 million outstanding principal amount of 5.625% senior notes due 2033 (collectively, the “Notes”).
The Notes have been issued by The Goodyear Tire & Rubber Company (the “Parent Company”) and are its senior unsecured obligations. The Notes rank equally in right of payment with all of our existing and future senior unsecured obligations and senior to any of our future subordinated indebtedness. The Notes are effectively subordinated to our existing and future secured indebtedness to the extent of the assets securing that indebtedness. The Notes are fully and unconditionally guaranteed on a joint and several basis by each of our wholly-owned U.S. and Canadian subsidiaries that also guarantee our obligations under our first lien revolving credit facility (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees are senior unsecured obligations of the Subsidiary Guarantors and rank equally in right of payment with all existing and future senior unsecured obligations of our Subsidiary Guarantors. The Guarantees are effectively subordinated to existing and future secured indebtedness of the Subsidiary Guarantors to the extent of the assets securing that indebtedness.
The Notes are structurally subordinated to all of the existing and future debt and other liabilities, including trade payables, of our subsidiaries that do not guarantee the Notes (the “Non-Guarantor Subsidiaries”). The Non-Guarantor Subsidiaries will have no obligation, contingent or otherwise, to pay amounts due under the Notes or to make funds available to pay those amounts. Certain Non-Guarantor Subsidiaries are limited in their ability to remit funds to us by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or limitations in credit agreements or other debt instruments of those subsidiaries.
The Subsidiary Guarantors, as primary obligors and not merely as sureties, jointly and severally irrevocably and unconditionally guarantee on a senior unsecured basis the performance and full and punctual payment when due of all obligations of the Parent Company under the Notes and the related indentures, whether for payment of principal of or interest on the Notes, expenses, indemnification or otherwise. The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.
Although the Guarantees provide the holders of Notes with a direct unsecured claim against the assets of the Subsidiary Guarantors, under U.S. federal bankruptcy law and comparable provisions of U.S. state fraudulent transfer laws, in certain circumstances a court could cancel a Guarantee and order the return of any payments made thereunder to the Subsidiary Guarantor or to a fund for the benefit of its creditors.
A court might take these actions if it found, among other things, that when the Subsidiary Guarantors incurred the debt evidenced by their Guarantee (i) they received less than reasonably equivalent value or fair consideration for the incurrence of the debt and (ii) any one of the following conditions was satisfied:
In applying the above factors, a court would likely find that a Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for its Guarantee, except to the extent that it benefited directly or indirectly from the issuance of the Notes. The determination of whether a guarantor was or was not rendered “insolvent” when it entered into its guarantee will vary depending on the law of the jurisdiction being applied. Generally, an entity would be considered insolvent if the sum of its debts (including contingent or unliquidated debts) is greater than all of its assets at a fair valuation or if the present fair salable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts, including contingent or unliquidated debts, as they mature.
Under Canadian federal bankruptcy and insolvency laws and comparable provincial laws on preferences, fraudulent conveyances or other challengeable or voidable transactions, the Guarantees could be challenged as a preference, fraudulent conveyance, transfer at undervalue or other challengeable or voidable transaction. The test to be applied varies among the different pieces of legislation, but as a general matter these types of challenges may arise in circumstances where:
35
In addition, in certain insolvency proceedings a Canadian court may subordinate claims in respect of the Guarantees to other claims against a Subsidiary Guarantor under the principle of equitable subordination if the court determines that (1) the holder of Notes engaged in some type of inequitable or improper conduct, (2) the inequitable or improper conduct resulted in injury to other creditors or conferred an unfair advantage upon the holder of Notes and (3) equitable subordination is not inconsistent with the provisions of the relevant solvency statute.
If a court canceled a Guarantee, the holders of Notes would no longer have a claim against that Subsidiary Guarantor or its assets.
Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor without rendering the Guarantee, as it relates to that Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.
Each Subsidiary Guarantor is a consolidated subsidiary of the Parent Company at the date of each balance sheet presented. The following tables present summarized financial information for the Parent Company and the Subsidiary Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) equity in earnings from and investments in any Non-Guarantor Subsidiary.
|
|
Summarized Balance Sheets |
|
|||||
(In millions) |
|
March 31, |
|
|
December 31, |
|
||
Total Current Assets(1) |
|
$ |
6,033 |
|
|
$ |
5,657 |
|
Total Non-Current Assets |
|
|
8,565 |
|
|
|
8,463 |
|
|
|
|
|
|
|
|
||
Total Current Liabilities |
|
$ |
2,929 |
|
|
$ |
3,124 |
|
Total Non-Current Liabilities |
|
|
9,340 |
|
|
|
8,594 |
|
|
|
Summarized Statements of Operations |
|
|||||
(In millions) |
|
Three Months Ended |
|
|
Year Ended |
|
||
Net Sales |
|
$ |
2,651 |
|
|
$ |
11,909 |
|
Cost of Goods Sold |
|
|
2,327 |
|
|
|
9,769 |
|
Selling, Administrative and General Expense |
|
|
367 |
|
|
|
1,511 |
|
Rationalizations |
|
|
5 |
|
|
|
35 |
|
Interest Expense |
|
|
113 |
|
|
|
358 |
|
Other (Income) Expense |
|
|
(36 |
) |
|
|
(118 |
) |
Income (Loss) before Income Taxes(2) |
|
$ |
(125 |
) |
|
$ |
354 |
|
|
|
|
|
|
|
|
||
Net Income (Loss) |
|
$ |
(90 |
) |
|
$ |
300 |
|
Goodyear Net Income (Loss) |
|
$ |
(90 |
) |
|
$ |
300 |
|
36
FORWARD-LOOKING INFORMATION — SAFE HARBOR STATEMENT
Certain information in this Form 10-Q (other than historical data and information) may constitute forward-looking statements regarding events and trends that may affect our future operating results and financial position. The words “estimate,” “expect,” “intend” and “project,” as well as other words or expressions of similar meaning, are intended to identify forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Such statements are based on current expectations and assumptions, are inherently uncertain, are subject to risks and should be viewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors, including:
37
It is not possible to foresee or identify all such factors. We will not revise or update any forward-looking statement or disclose any facts, events or circumstances that occur after the date hereof that may affect the accuracy of any forward-looking statement.
38
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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.
Commodity Price Risk
The raw material costs to which our operations are principally exposed include the cost of natural rubber, synthetic rubber, carbon black, fabrics, steel cord and other petrochemical-based commodities. Approximately two-thirds of our raw materials are petroleum-based, the cost of which may be affected by fluctuations in the price of oil. We currently do not hedge commodity prices. We do, however, use various strategies to partially offset cost increases for raw materials, including centralizing purchases of raw materials through our global procurement organization in an effort to leverage our purchasing power, expanding our capabilities to substitute lower cost raw materials, and reducing the amount of material required in each tire.
Interest Rate Risk
We continuously monitor our fixed and floating rate debt mix. Within defined limitations, we manage the mix using refinancing. At March 31, 2023, approximately 31% of our debt was at variable interest rates averaging 6.26%.
The following table presents information about long term fixed rate debt, excluding finance leases, at March 31, 2023:
(In millions) |
|
|
|
|
Carrying amount — liability |
|
$ |
5,785 |
|
Fair value — liability |
|
|
5,286 |
|
Pro forma fair value — liability |
|
|
5,494 |
|
The pro forma information assumes a 100 basis point decrease in market interest rates at March 31, 2023, and reflects the estimated fair value of fixed rate debt outstanding at that date under that assumption. The sensitivity of our fixed rate debt to changes in interest rates was determined using current market pricing models.
Foreign Currency Exchange Risk
We enter into foreign currency contracts in order to reduce the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts 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.
The following table presents net foreign currency contract information at March 31, 2023:
(In millions) |
|
|
|
|
Fair value — asset (liability) |
|
$ |
(8 |
) |
Pro forma decrease in fair value |
|
|
(135 |
) |
Contract maturities |
|
4/23-3/24 |
|
|
The pro forma decrease in fair value assumes a 10% adverse change in underlying foreign exchange rates at March 31, 2023, and reflects the estimated change in the fair value of contracts outstanding at that date under that assumption. The sensitivity of our foreign currency positions to changes in exchange rates was determined using current market pricing models.
Fair values are recognized on the Consolidated Balance Sheet at March 31, 2023 as follows:
(In millions) |
|
|
|
|
Current asset (liability): |
|
|
|
|
Accounts receivable |
|
$ |
13 |
|
Other current liabilities |
|
|
(21 |
) |
For further information on foreign currency contracts, refer to Note to the Consolidated Financial Statements No. 8, Financing Arrangements and Derivative Financial Instruments. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for a discussion of our management of counterparty risk.
39
ITEM 4. CONTROLS AND PROCEDURES.
Management’s Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” which, consistent with Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, we define to mean controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of March 31, 2023 (the end of the period covered by this Quarterly Report on Form 10-Q).
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
40
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Asbestos Litigation
As reported in our Form 10-K for the year ended December 31, 2022, we were one of numerous defendants in legal proceedings in certain state and federal courts involving approximately 37,200 claimants relating to their alleged exposure to materials containing asbestos in products allegedly manufactured by us or asbestos materials present in our facilities. During the first three months of 2023, approximately 200 claims were filed against us and approximately 100 were settled or dismissed. The amounts expended on asbestos defense and claim resolution by us and our insurers during the first three months of 2023 was $4 million. At March 31, 2023, there were approximately 37,300 asbestos claims pending against us. The plaintiffs are seeking unspecified actual and punitive damages and other relief. Refer to Note to the Consolidated Financial Statements No. 12, Commitments and Contingent Liabilities, for additional information on asbestos litigation.
Shareholder Derivative Litigation
On October 24, 2018, a purported shareholder of the Company filed a derivative action on behalf of the Company in the Court of Common Pleas for Summit County, Ohio against certain of our directors, our chief executive officer, and certain former officers and directors. The complaint also names the Company as a nominal defendant. The lawsuit alleges, among other things, breach of fiduciary duties, waste of corporate assets and fraudulent concealment in connection with certain G159 tires manufactured by us from 1996 until 2003. The lawsuit seeks unspecified monetary damages, an award of attorney’s fees and expenses, and other legal and equitable relief.
On September 25, 2020, the Court of Common Pleas dismissed the derivative action and the purported shareholder appealed that dismissal. On June 30, 2021, the Ohio Court of Appeals for the Ninth Judicial District reversed the trial court's judgment and remanded the case for further proceedings. On March 16, 2023, the Court of Common Pleas dismissed the derivative action again and the purported shareholder appealed that dismissal.
Reference is made to Item 3 of Part I of our 2022 Form 10-K for additional discussion of legal proceedings.
ITEM 1A. RISK FACTORS.
Refer to “Item 1A. Risk Factors” in our 2022 Form 10-K for a discussion of our risk factors.
ITEM 6. EXHIBITS.
Refer to the Index of Exhibits, which is by specific reference incorporated into and made a part of this Quarterly Report on Form 10-Q.
41
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2023
INDEX OF EXHIBITS
Exhibit Table Item No. |
|
Description of Exhibit |
|
Exhibit Number |
|
|
|
|
|
3 |
|
Articles of Incorporation and By-Laws |
|
|
|
|
|
|
|
(a) |
|
|
3.1 |
|
|
|
|
|
|
10 |
|
Material Contracts |
|
|
|
|
|
|
|
(a) |
|
|
10.1 |
|
|
|
|
|
|
22 |
|
Subsidiary Guarantors of Guaranteed Securities |
|
|
|
|
|
|
|
(a) |
|
|
22.1 |
|
|
|
|
|
|
31 |
|
Rule 13a-14(a) Certifications |
|
|
|
|
|
|
|
(a) |
|
|
31.1 |
|
|
|
|
|
|
(b) |
|
|
31.2 |
|
|
|
|
|
|
32 |
|
Section 1350 Certifications |
|
|
|
|
|
|
|
(a) |
|
|
32.1 |
|
|
|
|
|
101 |
|
Interactive Data Files |
|
|
|
|
|
|
|
|
|
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
101.INS |
|
|
|
|
|
|
|
Inline XBRL Taxonomy Extension Schema Document. |
|
101.SCH |
|
|
|
|
|
|
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
101.CAL |
|
|
|
|
|
|
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
101.DEF |
|
|
|
|
|
|
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
101.LAB |
|
|
|
|
|
|
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
101.PRE |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File |
|
|
|
|
|
|
|
|
|
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL (included as Exhibit 101). |
|
|
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
THE GOODYEAR TIRE & RUBBER COMPANY |
|
|
|
(Registrant) |
|
|
|
|
|
Date: |
May 5, 2023 |
By |
/s/ MARGARET V. SNYDER |
|
|
Margaret V. Snyder, Vice President and Controller (Signing on behalf of the Registrant as a duly authorized officer of the Registrant and signing as the Principal Accounting Officer of the Registrant.) |
|
43
