GT - Q3 2013 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2013
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
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| | |
Ohio (State or Other Jurisdiction of Incorporation or Organization) | | 34-0253240 (I.R.S. Employer Identification No.) |
| | |
200 Innovation Way, Akron, Ohio (Address of Principal Executive Offices) | | 44316-0001 (Zip Code) |
(330) 796-2121
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ | | Accelerated filer o | | Non-accelerated filer o | | Smaller reporting company o |
| | | | (Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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Number of Shares of Common Stock,
Without Par Value, Outstanding at September 30, 2013: | | 246,897,295 |
TABLE OF CONTENTS
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 | | Nine Months Ended |
| September 30, | | September 30, |
(In millions, except per share amounts) | 2013 | | 2012 | | 2013 | | 2012 |
Net Sales | $ | 5,002 |
| | $ | 5,264 |
| | $ | 14,749 |
| | $ | 15,947 |
|
Cost of Goods Sold | 3,946 |
| | 4,315 |
| | 11,732 |
| | 13,063 |
|
Selling, Administrative and General Expense | 686 |
| | 652 |
| | 2,022 |
| | 2,011 |
|
Rationalizations (Note 2) | 21 |
| | 26 |
| | 41 |
| | 67 |
|
Interest Expense | 100 |
| | 86 |
| | 287 |
| | 270 |
|
Other (Income) Expense (Note 3) | — |
| | (1 | ) | | 112 |
| | 128 |
|
Income before Income Taxes | 249 |
| | 186 |
| | 555 |
| | 408 |
|
United States and Foreign Taxes (Note 4) | 54 |
| | 53 |
| | 136 |
| | 164 |
|
Net Income | 195 |
| | 133 |
| | 419 |
| | 244 |
|
Less: Minority Shareholders’ Net Income | 22 |
| | 16 |
| | 25 |
| | 39 |
|
Goodyear Net Income | 173 |
| | 117 |
| | 394 |
| | 205 |
|
Less: Preferred Stock Dividends | 7 |
| | 7 |
| | 22 |
| | 22 |
|
Goodyear Net Income available to Common Shareholders | $ | 166 |
| | $ | 110 |
| | $ | 372 |
| | $ | 183 |
|
Goodyear Net Income available to Common Shareholders — Per Share of Common Stock | | | | | | | |
Basic | $ | 0.67 |
| | $ | 0.45 |
| | $ | 1.51 |
| | $ | 0.75 |
|
Weighted Average Shares Outstanding (Note 5) | 246 |
| | 245 |
| | 246 |
| | 245 |
|
Diluted | $ | 0.62 |
| | $ | 0.41 |
| | $ | 1.43 |
| | $ | 0.73 |
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Weighted Average Shares Outstanding (Note 5) | 278 |
| | 281 |
| | 276 |
| | 281 |
|
| | | | | | | |
Cash Dividends Declared Per Common Share | $ | 0.05 |
| | — |
| | $ | 0.05 |
| | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
Net Income | $ | 195 |
| | $ | 133 |
| | $ | 419 |
| | $ | 244 |
|
Other Comprehensive Income: | | | | | | | |
Foreign currency translation, net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | 39 |
| | 73 |
| | (116 | ) | | 52 |
|
Reclassification adjustment for amounts recognized in income, net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | — |
| | — |
| | 1 |
| | — |
|
Defined benefit plans: | | | | | | | |
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $1 and $8 in 2013 ($2 and $6 in 2012) | 54 |
| | 52 |
| | 174 |
| | 158 |
|
Decrease (increase) in net actuarial losses, net of tax of $0 and $2 in 2013 ($0 and $7 in 2012) | — |
| | (12 | ) | | 124 |
| | 13 |
|
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures, net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | 1 |
| | 9 |
| | 2 |
| | 9 |
|
Prior service credit from plan amendments, net of tax of $0 and $0 in 2013 ($5 and $3 in 2012) | — |
| | 77 |
| | — |
| | 73 |
|
Deferred derivative gains (losses), net of tax of $0 and $1 in 2013 ($0 and $0 in 2012) | (5 | ) | | (4 | ) | | 1 |
| | (2 | ) |
Reclassification adjustment for amounts recognized in income, net of tax of $0 and $1 in 2013 ($(1) and $(3) in 2012) | 1 |
| | (5 | ) | | 2 |
| | (7 | ) |
Unrealized investment gains (losses), net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | (3 | ) | | (3 | ) | | 12 |
| | — |
|
Other Comprehensive Income | 87 |
| | 187 |
| | 200 |
| | 296 |
|
Comprehensive Income | 282 |
| | 320 |
| | 619 |
| | 540 |
|
Less: Comprehensive Income Attributable to Minority Shareholders | 41 |
| | 36 |
| | 28 |
| | 52 |
|
Goodyear Comprehensive Income | $ | 241 |
| | $ | 284 |
| | $ | 591 |
| | $ | 488 |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| | | | | | | |
(In millions, except share data) | September 30, | | December 31, |
| 2013 | | 2012 |
Assets: | | | |
Current Assets: | | | |
Cash and Cash Equivalents | $ | 2,500 |
| | $ | 2,281 |
|
Accounts Receivable, less Allowance — $106 ($99 in 2012) | 3,254 |
| | 2,563 |
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Inventories: | | | |
Raw Materials | 616 |
| | 743 |
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Work in Process | 172 |
| | 169 |
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Finished Products | 2,156 |
| | 2,338 |
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| 2,944 |
| | 3,250 |
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Prepaid Expenses and Other Current Assets | 371 |
| | 404 |
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Total Current Assets | 9,069 |
| | 8,498 |
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Goodwill | 660 |
| | 664 |
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Intangible Assets | 138 |
| | 140 |
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Deferred Income Taxes | 190 |
| | 186 |
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Other Assets | 550 |
| | 529 |
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Property, Plant and Equipment, less Accumulated Depreciation — $9,151 ($8,991 in 2012) | 7,065 |
| | 6,956 |
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Total Assets | $ | 17,672 |
| | $ | 16,973 |
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| | | |
Liabilities: | | | |
Current Liabilities: | | | |
Accounts Payable-Trade | $ | 3,084 |
| | $ | 3,223 |
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Compensation and Benefits (Notes 9 and 10) | 794 |
| | 719 |
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Other Current Liabilities | 1,130 |
| | 1,182 |
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Notes Payable and Overdrafts (Note 7) | 44 |
| | 102 |
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Long Term Debt and Capital Leases due Within One Year (Note 7) | 132 |
| | 96 |
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Total Current Liabilities | 5,184 |
| | 5,322 |
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Long Term Debt and Capital Leases (Note 7) | 6,366 |
| | 4,888 |
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Compensation and Benefits (Notes 9 and 10) | 3,111 |
| | 4,340 |
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Deferred and Other Noncurrent Income Taxes | 273 |
| | 264 |
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Other Long Term Liabilities | 995 |
| | 1,000 |
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Total Liabilities | 15,929 |
| | 15,814 |
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| | | |
Commitments and Contingent Liabilities (Note 11) |
| |
|
| | | |
Minority Shareholders’ Equity (Note 1) | 540 |
| | 534 |
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| | | |
Shareholders’ Equity: | | | |
Goodyear Shareholders’ Equity: | | | |
Preferred Stock, no par value: (Note 12) | | | |
Authorized, 50 million shares, Outstanding shares — 10 million (10 million in 2012), liquidation preference $50 per share | 500 |
| | 500 |
|
Common Stock, no par value: | | | |
Authorized, 450 million shares, Outstanding shares — 247 million (245 million in 2012) after deducting 4 million treasury shares (6 million in 2012) | 247 |
| | 245 |
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Capital Surplus | 2,838 |
| | 2,815 |
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Retained Earnings | 1,730 |
| | 1,370 |
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Accumulated Other Comprehensive Loss | (4,363 | ) | | (4,560 | ) |
Goodyear Shareholders’ Equity | 952 |
| | 370 |
|
Minority Shareholders’ Equity — Nonredeemable | 251 |
| | 255 |
|
Total Shareholders’ Equity | 1,203 |
| | 625 |
|
Total Liabilities and Shareholders’ Equity | $ | 17,672 |
| | $ | 16,973 |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| | | | | | | |
(In millions) | Nine Months Ended |
| September 30, |
| 2013 | | 2012 |
Cash Flows from Operating Activities: | | | |
Net Income | $ | 419 |
| | $ | 244 |
|
Adjustments to Reconcile Net Income to Cash Flows from Operating Activities: | | | |
Depreciation and Amortization | 539 |
| | 513 |
|
Amortization and Write-Off of Debt Issuance Costs | 13 |
| | 64 |
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Net Rationalization Charges (Note 2) | 41 |
| | 67 |
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Rationalization Payments | (60 | ) | | (66 | ) |
Net (Gains) Losses on Asset Sales (Note 3) | (6 | ) | | (22 | ) |
Pension Contributions and Direct Payments | (1,072 | ) | | (490 | ) |
Venezuela Currency Devaluation (Note 3) | 115 |
| | — |
|
Customer Prepayments and Government Grants | 32 |
| | 94 |
|
Insurance Proceeds | 17 |
| | 39 |
|
Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions: | | | |
Accounts Receivable | (728 | ) | | (729 | ) |
Inventories | 249 |
| | 257 |
|
Accounts Payable — Trade | (26 | ) | | (432 | ) |
Compensation and Benefits | 215 |
| | 169 |
|
Other Current Liabilities | (12 | ) | | 70 |
|
Other Assets and Liabilities | (34 | ) | | (107 | ) |
Total Cash Flows from Operating Activities | (298 | ) | | (329 | ) |
Cash Flows from Investing Activities: | | | |
Capital Expenditures | (734 | ) | | (788 | ) |
Asset Dispositions (Note 3) | 8 |
| | 14 |
|
Government Grants Received | 6 |
| | 2 |
|
Decrease (Increase) in Restricted Cash | 3 |
| | (17 | ) |
Short Term Securities Acquired | (89 | ) | | (25 | ) |
Short Term Securities Redeemed | 81 |
| | 10 |
|
Other Transactions | — |
| | 4 |
|
Total Cash Flows from Investing Activities | (725 | ) | | (800 | ) |
Cash Flows from Financing Activities: | | | |
Short Term Debt and Overdrafts Incurred | 30 |
| | 74 |
|
Short Term Debt and Overdrafts Paid | (89 | ) | | (89 | ) |
Long Term Debt Incurred | 2,152 |
| | 3,042 |
|
Long Term Debt Paid | (660 | ) | | (2,322 | ) |
Common Stock Issued | 15 |
| | 1 |
|
Preferred Stock Dividends Paid (Note 12) | (22 | ) | | (22 | ) |
Transactions with Minority Interests in Subsidiaries | (10 | ) | | (23 | ) |
Debt Related Costs and Other Transactions | (16 | ) | | (63 | ) |
Total Cash Flows from Financing Activities | 1,400 |
| | 598 |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (158 | ) | | 16 |
|
Net Change in Cash and Cash Equivalents | 219 |
| | (515 | ) |
Cash and Cash Equivalents at Beginning of the Period | 2,281 |
| | 2,772 |
|
Cash and Cash Equivalents at End of the Period | $ | 2,500 |
| | $ | 2,257 |
|
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by The Goodyear Tire & Rubber Company (the “Company,” “Goodyear,” “we,” “us” or “our”) in accordance with Securities and Exchange Commission rules and regulations and generally accepted accounting principles in the United States of America ("US GAAP") and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”).
We are a party to shareholder agreements concerning certain of our less-than-wholly-owned consolidated subsidiaries. Under the terms of certain of these agreements, the minority shareholders have the right to require us to purchase their ownership interests in the respective subsidiaries if there is a change in control of Goodyear, a bankruptcy of Goodyear, or other circumstances. Accordingly, we have reported the minority equity in those subsidiaries outside of shareholders’ equity.
Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2013.
Recently Issued Accounting Standards
In July 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update requiring the presentation of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. This net presentation is required unless a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset to settle any additional income tax that would result from the disallowance of the unrecognized tax benefit. The standards update is effective for fiscal years beginning after December 15, 2013, with early adoption permitted. The adoption of this standards update will not have a material impact on our consolidated financial statements.
In March 2013, the FASB issued an accounting standards update providing guidance with respect to the release of cumulative translation adjustments into net income when a parent sells either a part or all of its investment in a foreign entity. The standards update also requires the release of cumulative translation adjustments when a company no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, and provides guidance for the acquisition in stages of a controlling interest in a foreign entity. The standards update is effective for fiscal years beginning after December 15, 2013, with early adoption permitted. The adoption of this standards update will not have a material impact on our consolidated financial statements.
In February 2013, the FASB issued an accounting standards update requiring an entity to record obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The standards update is effective for fiscal years beginning after December 15, 2013, with early adoption permitted. The adoption of this standards update will not have a material impact on our consolidated financial statements.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Adopted Accounting Standards
Effective January 1, 2013, we adopted an accounting standards update with new guidance on the presentation of reclassifications from accumulated other comprehensive loss to net income. This standard requires an entity to present reclassifications from accumulated other comprehensive loss to net income either on the face of the statements or in the notes to the consolidated financial statements. Accordingly, we have presented such reclassifications in Note 14, Reclassifications Out Of Accumulated Other Comprehensive Loss, to the consolidated financial statements.
Effective January 1, 2013, we adopted accounting standards updates with new guidance on disclosures related to financial instruments and derivative instruments that are either offset by or subject to an enforceable master netting arrangement or similar agreement and have expanded our disclosure to discuss amounts eligible for offsetting under our master netting agreements.
Effective with our 2013 annual impairment test, we adopted an accounting standards update with new guidance on annual impairment testing of indefinite-lived intangible assets. The standards update allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If based on its qualitative assessment an entity concludes it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. We assess goodwill and intangible assets with indefinite useful lives for impairment annually as of July 31. The adoption of this standards update at July 31, 2013 did not have an impact on our consolidated financial statements.
Reclassifications and Adjustments
Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation. In the first quarter of 2012, we recorded an out of period adjustment of $13 million of additional interest expense to correct capitalized interest recorded in prior periods.
NOTE 2. 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 manufacturing capacity and associate headcount. The following table shows the roll forward of our liability between periods:
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| | | | | | | | | | | |
| | | Other Exit and | | |
(In millions) | Associate- | | Non-cancelable | | |
| Related Costs | | Lease Costs | | Total |
Balance at December 31, 2012 | $ | 229 |
| | $ | 23 |
| | $ | 252 |
|
2013 Charges | 32 |
| | 20 |
| | 52 |
|
Reversed to the Statements of Operations | (6 | ) | | (5 | ) | | (11 | ) |
Incurred, Net of Foreign Currency Translation of $(2) million and $(2) million, respectively | (37 | ) | | (23 | ) | | (60 | ) |
Balance at September 30, 2013 | $ | 218 |
| | $ | 15 |
| | $ | 233 |
|
Rationalization actions initiated in 2013 consisted primarily of manufacturing headcount reductions in Europe, Middle East and Africa (“EMEA”) and Latin America and selling, administrative and general expense (“SAG”) headcount reductions in Asia Pacific and EMEA.
The accrual balance of $233 million at September 30, 2013 is expected to be substantially utilized within the next 12 months and includes $177 million relating to plans associated with the announced closure of one of our manufacturing facilities in Amiens, France.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table shows net rationalization charges included in Income before Income Taxes:
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| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Current Year Plans | | | | | | | | |
Associate Severance and Other Related Costs | | $ | 11 |
| | $ | 21 |
| | $ | 16 |
| | $ | 29 |
|
Other Exit and Non-Cancelable Lease Costs | | 2 |
| | — |
| | 2 |
| | 10 |
|
Current Year Plans - Net Charges | | $ | 13 |
| | $ | 21 |
| | $ | 18 |
| | $ | 39 |
|
| | | | | | | | |
Prior Year Plans | | | | | | | | |
Associate Severance and Other Related Costs | | $ | 3 |
| | $ | 1 |
| | $ | 9 |
| | $ | 11 |
|
Other Exit and Non-Cancelable Lease Costs | | 5 |
| | 4 |
| | 14 |
| | 17 |
|
Prior Year Plans - Net Charges | | 8 |
| | 5 |
| | 23 |
| | 28 |
|
Total Net Charges | | $ | 21 |
| | $ | 26 |
| | $ | 41 |
| | $ | 67 |
|
| | | | | | | | |
Asset Write-off and Accelerated Depreciation Charges | | $ | 5 |
| | $ | 13 |
| | $ | 15 |
| | $ | 19 |
|
Substantially all of the new charges for the three and nine months ended September 30, 2013 and 2012 related to future cash outflows. Net charges for the three and nine months ended September 30, 2013 included reversals of $4 million and $11 million, respectively, and net charges for the nine months ended September 30, 2012 included reversals of $2 million for actions no longer needed for their originally intended purposes.
Approximately 400 associates will be released under plans initiated in 2013, of which approximately 200 associates have been released as of September 30, 2013. In total, approximately 1,600 associates remain to be released under rationalization plans, including approximately 1,200 associates related to the announced plan to exit the farm tire business and close one of our facilities in Amiens, France.
Accelerated depreciation charges for the three and nine months ended September 30, 2013 related primarily to property and equipment in one of our facilities in Amiens, France. Accelerated depreciation charges for the three and nine months ended September 30, 2012 were primarily related to property and equipment in our Dalian, China manufacturing facility. Accelerated depreciation charges for all periods were recorded in cost of goods sold (“CGS”).
NOTE 3. OTHER (INCOME) EXPENSE
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
Net foreign currency exchange (gains) losses | $ | (2 | ) | | $ | 3 |
| | $ | 116 |
| | $ | 20 |
|
Financing fees and financial instruments | 14 |
| | 14 |
| | 41 |
| | 143 |
|
Royalty income | (10 | ) | | (10 | ) | | (39 | ) | | (29 | ) |
Interest income | (6 | ) | | (4 | ) | | (18 | ) | | (12 | ) |
General and product liability — discontinued products | 4 |
| | 3 |
| | 12 |
| | 5 |
|
Net (gains) losses on asset sales | (3 | ) | | (5 | ) | | (6 | ) | | (22 | ) |
Miscellaneous | 3 |
| | (2 | ) | | 6 |
| | 23 |
|
| $ | — |
| | $ | (1 | ) | | $ | 112 |
| | $ | 128 |
|
Net foreign currency exchange losses in the first nine months of 2013 were $116 million, which included a net loss of $115 million resulting from the devaluation of the Venezuelan bolivar fuerte against the U.S. dollar, compared to net losses of $20 million in the first nine months of 2012. Foreign currency exchange also reflects net gains and losses resulting from the effect of exchange rate changes on various foreign currency transactions worldwide.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Effective February 13, 2013, Venezuela's official exchange rate changed from 4.3 to 6.3 bolivares fuertes to the U.S. dollar for substantially all goods. In the first quarter of 2013, we recorded a $115 million remeasurement loss on bolivar-denominated net monetary assets and liabilities, including deferred taxes, primarily related to cash deposits in Venezuela. We also recorded a one-time subsidy receivable of $13 million related to certain U.S. dollar-denominated payables that are expected to be settled at the official subsidy exchange rate of 4.3 bolivares fuertes per U.S. dollar applicable to certain import purchases prior to the devaluation date. A portion of this subsidy will reduce cost of goods sold in periods when the related inventory is sold.
Financing fees in the first nine months of 2013 were $41 million, compared to $143 million in the first nine months of 2012. Financing fees in 2012 included charges of $24 million for debt issuance costs primarily related to the amendment and restatement of our U.S. second lien term loan facility, and $86 million related to the redemption of $650 million in aggregate principal amount of our outstanding 10.5% senior notes due 2016, of which $59 million related to cash premiums paid on the redemption and $27 million related to the write-off of deferred financing fees and unamortized discount. Financing fees and financial instruments also include the amortization of deferred financing fees, commitment fees and other charges incurred in connection with financing transactions.
Royalty income in the nine months ended September 30, 2013 was $39 million, compared to royalty income of $29 million in the nine months ended September 30, 2012. Royalty income in 2013 includes a one-time royalty of $8 million related to our chemical operations. Royalty income is derived primarily from licensing arrangements related to divested businesses.
Interest income consists primarily of amounts earned on cash deposits. General and product liability — discontinued products includes charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries.
Net gains on asset sales were $6 million for the first nine months of 2013, compared to net gains of $22 million for the first nine months of 2012. Net gains on asset sales in 2013 include gains on the transfer of property in Dalian, China to the Chinese government and the sale of property in North America. Net gains on asset sales in 2012 included sales of property in North America, a gain on the sale of a minority interest in a retail business in EMEA and the sale of certain assets related to our bias tire business in Latin America.
Miscellaneous expense in the nine months ended September 30, 2013 and 2012 includes charges of $6 million and $20 million, respectively, related to labor claims in EMEA.
NOTE 4. INCOME TAXES
In the third quarter of 2013, we recorded tax expense of $54 million on income before income taxes of $249 million. For the first nine months of 2013, we recorded tax expense of $136 million on income before income taxes of $555 million. Income tax expense for the first nine months of 2013 was favorably impacted by $5 million due primarily to recently enacted law changes. In the third quarter of 2012, we recorded tax expense of $53 million on income before income taxes of $186 million. Income tax expense in the third quarter of 2012 was unfavorably impacted by $4 million due primarily to an enacted tax law change. For the first nine months of 2012, we recorded tax expense of $164 million on income before income taxes of $408 million. Income tax expense for the first nine months of 2012 was unfavorably impacted by $10 million of various discrete items.
We record taxes based on overall estimated annual effective tax rates. In addition to the discrete items noted above, the difference between our effective tax rate and the U.S. statutory rate was primarily attributable to continuing to maintain a full valuation allowance against our net Federal and State deferred tax assets.
At January 1, 2013, we had unrecognized tax benefits of $82 million that if recognized, would have a favorable impact on our tax expense of $70 million. We had accrued interest of $20 million as of January 1, 2013. If not favorably settled, $24 million of the unrecognized tax benefits and all of the accrued interest would require the use of our cash. It is reasonably possible that our total amount of unrecognized tax benefits may change during the next 12 months. However, we do not expect these changes to have a significant impact on our financial position or results of operations.
Generally, years from 2007 onward are still open to examination by foreign taxing authorities. We are open to examination in Germany from 2006 onward and in the United States for 2012.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. 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 | | Nine Months Ended |
| September 30, | | September 30, |
(In millions, except per share amounts) | 2013 | | 2012 | | 2013 | | 2012 |
Earnings per share — basic: | | | | | | | |
Goodyear net income | $ | 173 |
| | $ | 117 |
| | $ | 394 |
| | $ | 205 |
|
Less: Preferred stock dividends | 7 |
| | 7 |
| | 22 |
| | 22 |
|
Goodyear net income available to common shareholders | $ | 166 |
| | $ | 110 |
| | $ | 372 |
| | $ | 183 |
|
Weighted average shares outstanding | 246 |
| | 245 |
| | 246 |
| | 245 |
|
Earnings per common share — basic | $ | 0.67 |
| | $ | 0.45 |
| | $ | 1.51 |
| | $ | 0.75 |
|
| | | | | | | |
Earnings per share — diluted: | | | | | | | |
Goodyear net income | $ | 173 |
| | $ | 117 |
| | $ | 394 |
| | $ | 205 |
|
Less: Preferred stock dividends | — |
| | — |
| | — |
| | — |
|
Goodyear net income available to common shareholders | $ | 173 |
| | $ | 117 |
| | $ | 394 |
| | $ | 205 |
|
Weighted average shares outstanding | 246 |
| | 245 |
| | 246 |
| | 245 |
|
Dilutive effect of mandatory convertible preferred stock | 27 |
| | 34 |
| | 27 |
| | 34 |
|
Dilutive effect of stock options and other dilutive securities | 5 |
| | 2 |
| | 3 |
| | 2 |
|
Weighted average shares outstanding — diluted | 278 |
| | 281 |
| | 276 |
| | 281 |
|
Earnings per common share — diluted | $ | 0.62 |
| | $ | 0.41 |
| | $ | 1.43 |
| | $ | 0.73 |
|
Weighted average shares outstanding - diluted for the three and nine months ended September 30, 2013 excludes approximately 4 million and 5 million equivalent shares, respectively, and for both the three and nine months ended September 30, 2012 excludes approximately 11 million equivalent shares related to options with exercise prices greater than the average market price of our common shares (i.e., “underwater” options).
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6. BUSINESS SEGMENTS
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
Sales: | | | | | | | |
North America | $ | 2,186 |
| | $ | 2,404 |
| | $ | 6,553 |
| | $ | 7,352 |
|
Europe, Middle East and Africa | 1,752 |
| | 1,748 |
| | 4,936 |
| | 5,282 |
|
Latin America | 527 |
| | 520 |
| | 1,571 |
| | 1,544 |
|
Asia Pacific | 537 |
| | 592 |
| | 1,689 |
| | 1,769 |
|
Net Sales | $ | 5,002 |
| | $ | 5,264 |
| | $ | 14,749 |
| | $ | 15,947 |
|
Segment Operating Income: | | | | | | | |
North America | $ | 161 |
| | $ | 130 |
| | $ | 492 |
| | $ | 398 |
|
Europe, Middle East and Africa | 115 |
| | 105 |
| | 197 |
| | 214 |
|
Latin America | 89 |
| | 49 |
| | 231 |
| | 162 |
|
Asia Pacific | 66 |
| | 64 |
| | 241 |
| | 202 |
|
Total Segment Operating Income | 431 |
| | 348 |
| | 1,161 |
| | 976 |
|
Less: | | | | | | | |
Rationalizations | 21 |
| | 26 |
| | 41 |
| | 67 |
|
Interest expense | 100 |
| | 86 |
| | 287 |
| | 270 |
|
Other (income) expense | — |
| | (1 | ) | | 112 |
| | 128 |
|
Asset write-offs and accelerated depreciation | 5 |
| | 13 |
| | 15 |
| | 19 |
|
Corporate incentive compensation plans | 34 |
| | 25 |
| | 79 |
| | 47 |
|
Intercompany profit elimination | 5 |
| | (12 | ) | | 5 |
| | (11 | ) |
Retained expenses of divested operations | 7 |
| | 3 |
| | 17 |
| | 12 |
|
Other | 10 |
| | 22 |
| | 50 |
| | 36 |
|
Income before Income Taxes | $ | 249 |
| | $ | 186 |
| | $ | 555 |
| | $ | 408 |
|
Rationalizations, as described in Note 2, Costs Associated with Rationalization Programs, net (gains) losses on asset sales, as described in Note 3, Other (Income) Expense, and asset write-offs and accelerated depreciation are not (credited) charged to the strategic business units (“SBUs”) for performance evaluation purposes, but were attributable to the SBUs as follows:
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
Rationalizations: | | | | | | | |
North America | $ | 1 |
| | $ | 9 |
| | $ | 8 |
| | $ | 28 |
|
Europe, Middle East and Africa | 9 |
| | 8 |
| | 15 |
| | 18 |
|
Latin America | 2 |
| | — |
| | 4 |
| | 2 |
|
Asia Pacific | 9 |
| | 9 |
| | 14 |
| | 19 |
|
Total Segment Rationalizations | $ | 21 |
| | $ | 26 |
| | $ | 41 |
| | $ | 67 |
|
| | | | | | | |
| | | | | | | |
Net (Gains) Losses on Asset Sales: | | | | | | | |
North America | $ | (2 | ) | | $ | (3 | ) | | $ | (4 | ) | | $ | (7 | ) |
Europe, Middle East and Africa | — |
| | — |
| | 2 |
| | (8 | ) |
Latin America | — |
| | (1 | ) | | — |
| | (4 | ) |
Asia Pacific | (1 | ) | | (1 | ) | | (4 | ) | | (1 | ) |
Total Segment Asset Sales | (3 | ) | | (5 | ) | | (6 | ) | | (20 | ) |
Corporate | — |
| | — |
| | — |
| | (2 | ) |
| $ | (3 | ) | | $ | (5 | ) | | $ | (6 | ) | | $ | (22 | ) |
|
| | | | | | | | | | | | | | | |
Asset Write-offs and Accelerated Depreciation: | | | | | | | |
Europe, Middle East and Africa | $ | 5 |
| | $ | — |
| | $ | 15 |
| | $ | — |
|
Asia Pacific | — |
| | 13 |
| | — |
| | 19 |
|
Total Segment Asset Write-offs and Accelerated Depreciation | $ | 5 |
| | $ | 13 |
| | $ | 15 |
| | $ | 19 |
|
NOTE 7. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
At September 30, 2013, we had total credit arrangements of $9,250 million, of which $2,374 million were unused. At that date, 37% of our debt was at variable interest rates averaging 5.36%.
Notes Payable and Overdrafts, Long Term Debt and Capital Leases due Within One Year and Short Term Financing Arrangements
At September 30, 2013, we had short term committed and uncommitted credit arrangements totaling $424 million, of which $380 million were unused. These arrangements are available primarily to certain of our international subsidiaries through various banks at quoted market interest rates.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents amounts due within one year:
|
| | | | | | | |
| September 30, | | December 31, |
(In millions) | 2013 | | 2012 |
Notes payable and overdrafts | $ | 44 |
| | $ | 102 |
|
Weighted average interest rate | 4.31 | % | | 4.29 | % |
Long term debt and capital leases due within one year | | | |
Other domestic and international debt (including capital leases) | $ | 132 |
| | $ | 96 |
|
Weighted average interest rate | 5.90 | % | | 6.88 | % |
Total obligations due within one year | $ | 176 |
| | $ | 198 |
|
Long Term Debt and Capital Leases and Financing Arrangements
At September 30, 2013, we had long term credit arrangements totaling $8,826 million, of which $1,993 million were unused.
The following table presents long term debt and capital leases, net of unamortized discounts, and interest rates:
|
| | | | | | | | | | | | | |
| September 30, 2013 | | December 31, 2012 |
| | | Interest | | | | Interest |
(In millions) | Amount | | Rate | | Amount | | Rate |
Notes: | | | | | | | |
6.75% Euro Notes due 2019 | $ | 338 |
| | | | $ | 330 |
| | |
8.25% due 2020 | 995 |
| | | | 994 |
| | |
8.75% due 2020 | 267 |
| | | | 266 |
| | |
6.5% due 2021 | 900 |
| | | | — |
| | |
7% due 2022 | 700 |
| | | | 700 |
| | |
7% due 2028 | 149 |
| | | | 149 |
| | |
Credit Facilities: | | | | | | | |
$2.0 billion first lien revolving credit facility due 2017 | — |
| | — |
| | — |
| | — |
|
$1.2 billion second lien term loan facility due 2019 | 1,195 |
| | 4.75 | % | | 1,194 |
| | 4.75 | % |
€400 million revolving credit facility due 2016 | — |
| | — |
| | — |
| | — |
|
Pan-European accounts receivable facility due 2015 | 394 |
| | 2.87 | % | | 192 |
| | 3.00 | % |
Chinese credit facilities | 533 |
| | 5.86 | % | | 471 |
| | 6.38 | % |
Other domestic and international debt(1) | 962 |
| | 7.83 | % | | 630 |
| | 8.40 | % |
| 6,433 |
| | | | 4,926 |
| | |
Capital lease obligations | 65 |
| | | | 58 |
| | |
| 6,498 |
| | | | 4,984 |
| | |
Less portion due within one year | (132 | ) | | | | (96 | ) | | |
| $ | 6,366 |
| | | | $ | 4,888 |
| | |
________________________________
| |
(1) | Interest rates are weighted average interest rates related to various international credit facilities with customary terms and conditions and the Global and North America Headquarters financing liability described below. |
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES
$900 million 6.5% Senior Notes due 2021
On February 25, 2013, we issued $900 million aggregate principal amount of 6.5% senior notes due 2021. These notes were sold at 100% of the principal amount and will mature on March 1, 2021. These notes are unsecured senior obligations and are guaranteed by our U.S. and Canadian subsidiaries that also guarantee our obligations under our U.S. senior secured credit facilities described below.
We have the option to redeem these notes, in whole or in part, at any time on or after March 1, 2016 at a redemption price of 104.875%, 103.25%, 101.625% and 100% during the 12-month periods commencing on March 1, 2016, 2017, 2018 and 2019 and thereafter, respectively, plus accrued and unpaid interest to the redemption date. Prior to March 1, 2016, we may redeem these notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest to the redemption date. In addition, prior to March 1, 2016, we may redeem up to 35% of the original aggregate principal amount of these notes from the net cash proceeds of certain equity offerings at a redemption price equal to 106.5% of the principal amount plus accrued and unpaid interest to the redemption date.
The terms of the indenture for these notes, among other things, limit our ability and the ability of certain of our subsidiaries to (i) incur additional debt or issue redeemable preferred stock, (ii) pay dividends or make certain other restricted payments or investments, (iii) incur liens, (iv) sell assets, (v) incur restrictions on the ability of our subsidiaries to pay dividends to us, (vi) enter into affiliate transactions, (vii) engage in sale and leaseback transactions, and (viii) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. These covenants are subject to significant exceptions and qualifications. For example, if these notes are assigned an investment grade rating by Moody's and Standard & Poor's and no default has occurred or is continuing, certain covenants will be suspended. The indenture has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
CREDIT FACILITIES
$2.0 billion Amended and Restated First Lien Revolving Credit Facility due 2017
Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit, with letter of credit availability limited to $800 million. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. Amounts drawn under this facility will bear interest at LIBOR plus 150 basis points.
Availability under the facility is subject to a borrowing base, which is based primarily on eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries. To the extent that our eligible accounts receivable and inventory decline, our borrowing base will decrease and the availability under the facility may decrease below $2.0 billion. As of September 30, 2013, our borrowing base, and therefore our availability, under this facility was $487 million below the facility's stated amount of $2.0 billion.
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 consolidated financial condition since December 31, 2011. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At September 30, 2013 and December 31, 2012, we had no borrowings outstanding under the first lien revolving credit facility. Letters of credit issued totaled $392 million at September 30, 2013 and $400 million at December 31, 2012.
$1.2 billion Amended and Restated Second Lien Term Loan Facility due 2019
Our obligations under our amended and restated second lien term loan facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second priority security interests in the same collateral securing the $2.0 billion first lien revolving credit facility. This facility may be increased by up to $300 million at our request, subject to the consent of the lenders making such additional term loans. The term loan bears interest at LIBOR plus 375 basis points, subject to a minimum LIBOR rate of 100 basis points.
At September 30, 2013 and December 31, 2012, this facility was fully drawn.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
€400 million Amended and Restated Senior Secured European Revolving Credit Facility due 2016
Our amended and restated €400 million European revolving credit facility consists of (i) a €100 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (the “German borrower”) and (ii) a €300 million all-borrower tranche that is available to Goodyear Dunlop Tires Europe B.V. (“GDTE"), the German borrower and certain of GDTE's other subsidiaries. Up to €50 million in letters of credit are available for issuance under the all-borrower tranche. Amounts drawn under this facility will bear interest at LIBOR plus 250 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 250 basis points for loans denominated in euros.
GDTE 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. GDTE and its other subsidiaries that provide guarantees secure the all-borrower tranche on a first-lien basis and do not provide collateral support for the German tranche. The Company and its U.S. subsidiaries and primary Canadian subsidiary that guarantee our U.S. senior secured credit facilities described above also provide unsecured guarantees in support of the facility.
The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in either our or GDTE's consolidated financial condition since December 31, 2010. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At September 30, 2013 and December 31, 2012, there were no borrowings outstanding under the revolving credit facility. Letters of credit issued under the all-borrower tranche totaled $8 million (€6 million) and $10 million (€7 million) at September 30, 2013 and December 31, 2012, respectively.
International Accounts Receivable Securitization Facilities (On-Balance Sheet)
GDTE and certain of its subsidiaries are parties to a pan-European accounts receivable securitization facility that provides up to €450 million of funding and expires in 2015. Availability under this facility is based on eligible receivable balances. The facility is subject to the customary renewal of its back-up liquidity commitments, which expire on October 17, 2014.
The facility involves an ongoing daily sale of substantially all of the trade accounts receivable of certain GDTE subsidiaries to a bankruptcy-remote French company controlled by one of the liquidity banks in the facility. These subsidiaries retain servicing responsibilities. At September 30, 2013, the amounts available and utilized under this program totaled $394 million (€291 million). At December 31, 2012, the amounts available and utilized under this program totaled $348 million (€264 million) and $192 million (€145 million), respectively. The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Capital Leases.
In addition to the pan-European accounts receivable securitization facility discussed above, subsidiaries in Australia have an accounts receivable securitization program that provides up to $89 million (95 million Australian dollars) of funding. Availability under this program is based on eligible receivable balances. At September 30, 2013, the amounts available and utilized under this program were $52 million. At December 31, 2012, the amounts available and utilized under this program were $99 million and $40 million, respectively. The receivables sold under this program also serve as collateral for the related facility. We retain the risk of loss related to these receivables in the event of non-payment. These amounts are included in Long Term Debt and Capital Leases due Within One Year.
For a description of the collateral securing the credit facilities described above as well as the covenants applicable to them, refer to the Note to the Consolidated Financial Statements No. 14, Financing Arrangements and Derivative Financial Instruments, in our 2012 Form 10-K.
Accounts Receivable Factoring Facilities (Off-Balance Sheet)
Various subsidiaries sold certain of their 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 September 30, 2013, the gross amount of receivables sold was $270 million, compared to $243 million at December 31, 2012.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other Foreign Credit Facilities
A Chinese subsidiary has several financing arrangements in China. At September 30, 2013, these non-revolving credit facilities were fully drawn and can only be used to finance the relocation and expansion of our manufacturing facility in China. Borrowings outstanding under these facilities were $533 million and $471 million at September 30, 2013 and December 31, 2012, respectively. The facilities mature in 2020 and principal amortization begins in 2015. The facilities contain covenants relating to the Chinese subsidiary and have customary representations and warranties and defaults relating to the Chinese subsidiary’s ability to perform its obligations under the facilities. At September 30, 2013, restricted cash of $22 million was related to funds obtained under these credit facilities. At December 31, 2012, there was no restricted cash related to funds obtained under these credit facilities.
OTHER DOMESTIC DEBT
Global and North America Headquarters
In 2011, we entered into agreements for the construction of a new Global and North America Headquarters facility in Akron, Ohio. We concurrently entered into an agreement to occupy the facility under a 27-year lease, including the two-year construction period, with multiple renewal options available at our discretion. Additionally, we entered into similar agreements for the construction and lease of a new parking deck adjacent to the Headquarters facility. Due to our continuing involvement with the financing during construction of the Headquarters facility and the parking deck, we recorded a non-cash increase to fixed assets and financing liabilities on our Consolidated Balance Sheets as costs were incurred during the construction period. The total financing liability of approximately $150 million, including capitalized interest, has been recorded in Long Term Debt and Capital Leases at September 30, 2013.
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 will 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 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 GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents fair values for foreign currency contracts not designated as hedging instruments:
|
| | | | | | | |
| September 30, | | December 31, |
(In millions) | 2013 | | 2012 |
Fair Values — asset (liability): | | | |
Accounts receivable | $ | 8 |
| | $ | 2 |
|
Other current liabilities | (24 | ) | | (24 | ) |
At September 30, 2013 and December 31, 2012, these outstanding foreign currency derivatives had notional amounts of $1,491 million and $1,289 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction losses of $28 million and $21 million for the three and nine months ended September 30, 2013, respectively, compared to net transaction losses of $1 million and $4 million for the three and nine months ended September 30, 2012, respectively, on foreign currency derivatives. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures.
The following table presents fair values for foreign currency contracts designated as cash flow hedging instruments:
|
| | | | | | | |
| September 30, | | December 31, |
(In millions) | 2013 | | 2012 |
Fair Values — asset (liability): | | | |
Accounts receivable | $ | 2 |
| | $ | — |
|
Other current liabilities | (3 | ) | | (5 | ) |
At September 30, 2013 and December 31, 2012, these outstanding foreign currency derivatives had notional amounts of $156 million and $138 million, respectively, and primarily related to intercompany transactions.
We enter into master netting agreements with counterparties. The amounts eligible for offset under the master netting agreements are not material and we have elected a gross presentation of foreign currency contracts in the Consolidated Balance Sheets.
The following table presents the classification of changes in fair values of foreign currency contracts designated as cash flow hedging instruments (before tax and minority):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) (Income) Expense | 2013 | | 2012 | | 2013 | | 2012 |
Amounts deferred to Accumulated Other Comprehensive Loss ("AOCL") | $ | 5 |
| | $ | 4 |
| | $ | (2 | ) | | $ | 2 |
|
Amount of deferred (gain) loss reclassified from AOCL into CGS | 1 |
| | (6 | ) | | 3 |
| | (10 | ) |
Amounts excluded from effectiveness testing | — |
| | (1 | ) | | — |
| | (1 | ) |
The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that are recognized market makers at the time we entered into those contracts. We seek to control our credit exposure to these counterparties by diversifying across multiple counterparties, by setting counterparty credit limits based on long term credit ratings and other indicators of counterparty credit risk such as credit default swap spreads, and by monitoring the financial strength of these counterparties on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to counterparties in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a counterparty. However, the inability of a counterparty to fulfill its contractual obligations to us could have a material adverse effect on our liquidity, financial position or results of operations in the period in which it occurs.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8. FAIR VALUE MEASUREMENTS
The following table presents information about assets and liabilities recorded at fair value on the Consolidated Balance Sheets at September 30, 2013 and December 31, 2012:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Carrying Value in the Consolidated Balance Sheet | | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
Assets: | | | | | | | | | | | | | | | |
Investments | $ | 57 |
| | $ | 45 |
| | $ | 57 |
| | $ | 45 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Foreign Exchange Contracts | 10 |
| | 2 |
| | — |
| | — |
| | 10 |
| | 2 |
| | — |
| | — |
|
Total Assets at Fair Value | $ | 67 |
| | $ | 47 |
| | $ | 57 |
| | $ | 45 |
| | $ | 10 |
| | $ | 2 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | |
Foreign Exchange Contracts | $ | 27 |
| | $ | 29 |
| | $ | — |
| | $ | — |
| | $ | 27 |
| | $ | 29 |
| | $ | — |
| | $ | — |
|
Other | — |
| | 3 |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
|
Total Liabilities at Fair Value | $ | 27 |
| | $ | 32 |
| | $ | — |
| | $ | — |
|
| $ | 27 |
| | $ | 32 |
| | $ | — |
| | $ | — |
|
The following table presents supplemental fair value information about long term fixed rate and variable rate debt, excluding capital leases, at September 30, 2013 and December 31, 2012. The fair value was estimated using quoted market prices.
|
| | | | | | | |
| September 30, | | December 31, |
(In millions) | 2013 | | 2012 |
Fixed Rate Debt: | | | |
Carrying amount — liability | $ | 4,087 |
| | $ | 3,128 |
|
Fair value — liability | 4,352 |
| | 3,378 |
|
| | | |
Variable Rate Debt: | | | |
Carrying amount — liability | $ | 2,346 |
| | $ | 1,798 |
|
Fair value — liability | 2,356 |
| | 1,808 |
|
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. 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. | | U.S. |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
Service cost — benefits earned during the period | $ | 11 |
| | $ | 10 |
| | $ | 34 |
| | $ | 30 |
|
Interest cost on projected benefit obligation | 61 |
| | 65 |
| | 182 |
| | 196 |
|
Expected return on plan assets | (84 | ) | | (75 | ) | | (252 | ) | | (225 | ) |
Amortization of: — prior service cost | 4 |
| | 5 |
| | 13 |
| | 17 |
|
— net losses | 51 |
| | 45 |
| | 154 |
| | 134 |
|
Total defined benefit pension cost | $ | 43 |
| | $ | 50 |
| | $ | 131 |
| | $ | 152 |
|
|
| | | | | | | | | | | | | | | |
| Non-U.S. | | Non-U.S. |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
Service cost — benefits earned during the period | $ | 10 |
| | $ | 8 |
| | $ | 30 |
| | $ | 23 |
|
Interest cost on projected benefit obligation | 32 |
| | 36 |
| | 97 |
| | 106 |
|
Expected return on plan assets | (27 | ) | | (28 | ) | | (83 | ) | | (87 | ) |
Amortization of: — prior service cost | — |
| | — |
| | 1 |
| | 1 |
|
— net losses | 7 |
| | 11 |
| | 37 |
| | 34 |
|
Net periodic pension cost | 22 |
| | 27 |
| | 82 |
| | 77 |
|
Curtailments/settlements/termination benefits | 2 |
| | 11 |
| | 4 |
| | 11 |
|
Total defined benefit pension cost | $ | 24 |
| | $ | 38 |
| | $ | 86 |
| | $ | 88 |
|
| | | | | | | |
During the first quarter of 2013, we made $34 million of required contributions and $834 million of discretionary contributions to fully fund our frozen U.S. pension plans. Following these contributions, the Company changed its target asset allocation for these plans to a portfolio of substantially all fixed income securities designed to offset the future impact of discount rate movements on the plans' funded status. As a result of the asset allocation change, we were required to remeasure the benefit obligations and assets of the affected plans at February 28, 2013, which resulted in a first quarter reduction to net actuarial losses included in Accumulated Other Comprehensive Loss of $93 million. The weighted average discount rate used to measure the benefit obligations of the frozen U.S. pension plans at February 28, 2013 was 3.82% as compared to 3.61% at December 31, 2012. As a result of the change in target asset allocation for the frozen U.S. pension plans, the expected long term return on plan assets for these plans is 4.75% as of March 1, 2013. At February 28, 2013, these frozen U.S. pension plans had assets of $2,072 million.
In addition to the $834 million of discretionary contributions to our frozen U.S. pension plans in the first quarter of 2013, we expect to contribute approximately $275 million to $325 million to our funded U.S. and non-U.S. pension plans in 2013. For the three and nine months ended September 30, 2013, we contributed $21 million and $77 million, respectively, to our non-U.S. plans and for the three and nine months ended September 30, 2013, we contributed $49 million and $967 million, respectively, to our U.S. plans.
For the three months ended September 30, 2012, curtailments/settlements/termination benefits of $11 million include a settlement charge of $9 million related to the purchase of annuities from existing plan assets to settle obligations of one of our U.K. pension plans.
The expense recognized for our contributions to defined contribution savings plans for the three months ended September 30, 2013 and 2012 was $34 million and $22 million, respectively, and for the nine months ended September 30, 2013 and 2012 was $83 million and $72 million, respectively.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We provide certain U.S. employees and employees at certain non-U.S. subsidiaries with health care benefits or life insurance benefits upon retirement. Postretirement benefit (credit) cost for the three months ended September 30, 2013 and 2012 was $(3) million and $0 million, respectively, and $(7) million and $3 million for the nine months ended September 30, 2013 and 2012, respectively. During the third quarter of 2012, we announced changes to our U.S. and Canadian salaried other postretirement benefit plans, effective January 1, 2013. The changes consisted primarily of eliminating coverage for participants who are or become at least age 65 and eligible for government subsidized programs and reduced our U.S. other postretirement benefit obligation by $56 million and our Canadian other postretirement benefit obligation by $18 million.
NOTE 10. STOCK COMPENSATION PLANS
Our Board of Directors granted 2.2 million stock options and 0.2 million performance share units during the nine months ended September 30, 2013 under our stock compensation plans. The weighted average exercise price per share and weighted average fair value per share of the stock option grants during the nine months ended September 30, 2013 were $13.42 and $6.11, respectively. We estimated the fair value of the stock options using the following assumptions in our Black-Scholes model:
Expected term: 6.25 years
Interest rate: 1.07%
Volatility: 46.79%
Dividend yield: Nil
We measure the fair value of grants of performance share units based primarily on the closing market price of a share of our common stock on the date of the grant, modified as appropriate to take into account the features of such grants. The weighted average fair value per share was $13.65 for grants made during the nine months ended September 30, 2013.
We recognized stock-based compensation expense of $8 million and $16 million during the three and nine months ended September 30, 2013, respectively. At September 30, 2013, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $28 million and is expected to be recognized over the remaining vesting period of the respective grants, through September 2017. We recognized stock-based compensation expense of $5 million and $10 million during the three and nine months ended September 30, 2012, respectively.
Stock-based awards are made pursuant to stock compensation plans that are approved by our shareholders. The 2013 Performance Plan was adopted by our shareholders on April 15, 2013 and will expire on April 14, 2023 unless earlier terminated. The 2013 Performance Plan replaced the 2008 Performance Plan, which was terminated on April 15, 2013, except with respect to outstanding awards.
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
We have recorded liabilities totaling $45 million and $43 million at September 30, 2013 and December 31, 2012, respectively, for anticipated costs related to various environmental matters, primarily the remediation of numerous waste disposal sites and certain properties sold by us. Of these amounts, $10 million and $9 million were included in Other Current Liabilities at September 30, 2013 and December 31, 2012, respectively. The costs include legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring and related activities, and will be paid over several years. The amount of our ultimate liability in respect of these matters may be affected by several uncertainties, primarily the ultimate cost of required remediation and the extent to which other responsible parties contribute. We have limited potential insurance coverage for future environmental claims.
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.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Workers’ Compensation
We have recorded liabilities, on a discounted basis, totaling $315 million and $307 million for anticipated costs related to workers’ compensation at September 30, 2013 and December 31, 2012, respectively. Of these amounts, $83 million and $57 million were included in Current Liabilities as part of Compensation and Benefits at September 30, 2013 and December 31, 2012, respectively. The costs include an estimate of expected settlements on pending claims, defense costs and a provision for claims incurred but not reported. These estimates are based on our assessment of potential liability using an analysis of available information with respect to pending claims, historical experience, and current cost trends. The amount of our ultimate liability in respect of these matters may differ from these estimates. We periodically, and at least annually, update our loss development factors based on actuarial analyses. At September 30, 2013 and December 31, 2012, the liability was discounted using a risk-free rate of return. At September 30, 2013, we estimate that it is reasonably possible that the liability could exceed our recorded amounts by approximately $40 million.
General and Product Liability and Other Litigation
We have recorded liabilities totaling $302 million and $298 million, including related legal fees expected to be incurred, for potential product liability and other tort claims, including asbestos claims, presently asserted against us at September 30, 2013 and December 31, 2012, respectively. Of these amounts, $43 million and $40 million were included in Other Current Liabilities at September 30, 2013 and December 31, 2012, respectively. The amounts recorded were estimated based on an assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and, where available, recent and current trends. Based upon that assessment, at September 30, 2013, we do not believe that estimated reasonably possible losses associated with general and product liability claims in excess of the amounts recorded will have a material adverse effect on our financial position, cash flows or results of operations. However, the amount of our ultimate liability in respect of these matters may differ from these estimates.
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 106,900 claims by defending and obtaining the dismissal thereof or by entering into a settlement. The sum of our accrued asbestos-related liability and gross payments to date, including legal costs, by us and our insurers totaled approximately $424 million through September 30, 2013 and $407 million through December 31, 2012.
A summary of recent approximate asbestos claims activity follows. Because claims are often filed and disposed of by dismissal or settlement in large numbers, the amount and timing of settlements and the number of open claims during a particular period can fluctuate significantly.
|
| | | | | | | |
| Nine Months Ended | | Year Ended |
(Dollars in millions) | September 30, 2013 | | December 31, 2012 |
Pending claims, beginning of period | 73,200 |
| | 78,500 |
|
New claims filed | 2,100 |
| | 2,200 |
|
Claims settled/dismissed | (1,300 | ) | | (7,500 | ) |
Pending claims, end of period | 74,000 |
| | 73,200 |
|
Payments (1) | $ | 15 |
| | $ | 18 |
|
________________________________
| |
(1) | Represents cash payments made during the period by us and our insurers on asbestos litigation defense and claim resolution. |
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 had recorded gross liabilities for both asserted and unasserted claims, inclusive of defense costs, totaling $141 million and $139 million at September 30, 2013 and December 31, 2012, respectively.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We recorded a receivable related to asbestos claims of $75 million and $73 million as of September 30, 2013 and December 31, 2012, respectively. We expect that approximately 50% of asbestos claim related losses will be recoverable through insurance during the ten-year period covered by the estimated liability. Of these amounts, $11 million and $10 million were included in Current Assets as part of Accounts Receivable at September 30, 2013 and December 31, 2012, respectively. The recorded receivable consists of an amount we expect to collect under coverage-in-place agreements with certain primary carriers as well as an amount we believe is probable of recovery from certain of our excess coverage insurance carriers.
We believe that, at September 30, 2013, we had approximately $160 million in limits of excess level policies potentially applicable to indemnity and defense costs for asbestos products claims. We also had coverage under certain primary policies for indemnity and defense costs for asbestos products claims under remaining aggregate limits, as well as coverage for indemnity and defense costs for asbestos premises claims on a per occurrence basis pursuant to a coverage-in-place agreement.
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. Depending upon the nature of these characteristics, 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 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 and Other 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 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.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In September 2011, the State of Sao Paulo, Brazil issued an assessment to us for allegedly improperly taking tax credits for value-added taxes paid to a supplier of natural rubber during the period from January 2006 to August 2008. The assessment, including interest and penalties, totals 92 million Brazilian real (approximately $41 million). We have filed a response contesting this assessment and are defending the matter. In the event we are unsuccessful in defending the assessment, our results of operations could be materially affected.
Guarantees
We have off-balance sheet financial guarantees and other commitments totaling approximately $20 million at September 30, 2013, compared to $45 million at December 31, 2012, primarily related to our obligations in connection with the financing of the construction of our new Global and North America Headquarters facility. In addition, we will from time to time issue guarantees to financial institutions or other entities on behalf of certain of our affiliates, lessors or customers. Normally there is no separate premium received by us as consideration for the issuance of guarantees. We also generally do not require collateral in connection with the issuance of these guarantees. 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 or customer. The guarantees expire at various times through 2023. We are unable to estimate the extent to which our affiliates’, lessors’ or customers’ assets would be adequate to recover any payments made by us under the related guarantees.
NOTE 12. CAPITAL STOCK
Mandatory Convertible Preferred Stock
At September 30, 2013, 10,000,000 shares of our 5.875% mandatory convertible preferred stock, without par value, were outstanding. Quarterly dividends on each share of the mandatory convertible preferred stock will accrue at a rate of 5.875% per year on the initial liquidation preference of $50.00 per share. Dividends will accrue and accumulate from the date of issuance and, to the extent that we are legally permitted to pay a dividend and the Board of Directors declares a dividend payable, we will pay dividends in cash on January 1, April 1, July 1 and October 1 of each year, commencing on July 1, 2011 and ending on April 1, 2014.
Unless converted earlier, each share of the mandatory convertible preferred stock will automatically convert on April 1, 2014 into between 2.7454 and 3.4317 shares of common stock, depending on the market value of our common stock for the 20 consecutive trading day period ending on the third trading day prior to April 1, 2014, subject to customary anti-dilution adjustments (including in connection with the declaration of dividends on our common stock). At any time prior to April 1, 2014, holders may elect to convert shares of the mandatory convertible preferred stock at the minimum conversion rate of 2.7454 shares of common stock, subject to customary anti-dilution adjustments (including in connection with the declaration of dividends on our common stock).
Dividends
In the first nine months of 2013, we paid cash dividends of $22 million on our mandatory convertible preferred stock. On August 26, 2013, the Company’s Board of Directors (or a duly authorized committee thereof) declared cash dividends of $0.7344 per share of mandatory convertible preferred stock or $7 million in the aggregate. The dividend was paid on October 1, 2013 to stockholders of record as of the close of business of September 13, 2013.
On September 18, 2013, the Company's Board of Directors (or a duly authorized committee thereof) declared cash dividends of $0.05 per share of common stock, or approximately $12 million in the aggregate. The dividend will be paid on December 1, 2013 to stockholders of record as of the close of business of November 1, 2013.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13. CHANGES IN SHAREHOLDERS’ EQUITY
The following tables present the changes in shareholders’ equity for the nine months ended September 30, 2013 and 2012: |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2013 | | September 30, 2012 |
(In millions) | Goodyear Shareholders’ Equity | | Minority Shareholders’ Equity – Nonredeemable | | Total Shareholders’ Equity | | Goodyear Shareholders’ Equity | | Minority Shareholders’ Equity – Nonredeemable | | Total Shareholders’ Equity |
Balance at beginning of period | $ | 370 |
| | $ | 255 |
| | $ | 625 |
| | $ | 749 |
| | $ | 268 |
| | $ | 1,017 |
|
Comprehensive income (loss): | | | | | | | | | | | |
Net income (loss) | 394 |
| | 26 |
| | 420 |
| | 205 |
| | 26 |
| | 231 |
|
Foreign currency translation (net of tax of $0 in 2013 and $0 in 2012) | (111 | ) | | (15 | ) | | (126 | ) | | 40 |
| | 11 |
| | 51 |
|
Reclassification adjustment for amounts recognized in income (net of tax of $0 in 2013 and $0 in 2012) | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost (net of tax of $8 in 2013 and $6 in 2012) | 168 |
| | — |
| | 168 |
| | 154 |
| | — |
| | 154 |
|
Decrease (increase) in net actuarial losses (net of tax of $2 in 2013 and $7 in 2012) | 122 |
| | — |
| | 122 |
| | 15 |
| | — |
| | 15 |
|
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures (net of tax of $0 in 2013 and $0 in 2012) | 2 |
| | — |
| | 2 |
| | 7 |
| | — |
| | 7 |
|
Prior service credit (cost) from plan amendments (net of tax of $0 in 2013 and $3 in 2012) | — |
| | — |
| | — |
| | 72 |
| | — |
| | 72 |
|
Deferred derivative gains (losses) (net of tax of $1 in 2013 and $0 in 2012) | 1 |
| | — |
| | 1 |
| | (1 | ) | | — |
| | (1 | ) |
Reclassification adjustment for amounts recognized in income (net of tax of $1 in 2013 and $(3) in 2012) | 2 |
| | — |
| | 2 |
| | (4 | ) | | — |
| | (4 | ) |
Unrealized investment gains (losses) (net of tax of $0 in 2013 and $0 in 2012) | 12 |
| | — |
| | 12 |
| | — |
| | — |
| | — |
|
Other comprehensive income (loss) | 197 |
| | (15 | ) | | 182 |
| | 283 |
| | 11 |
| | 294 |
|
Total comprehensive income (loss) | 591 |
| | 11 |
| | 602 |
| | 488 |
| | 37 |
| | 525 |
|
Purchase of subsidiary shares from minority interest | (2 | ) | | (2 | ) | | (4 | ) | | — |
| | (18 | ) | | (18 | ) |
Dividends declared to minority shareholders | — |
| | (9 | ) | | (9 | ) | | — |
| | (9 | ) | | (9 | ) |
Stock-based compensation plans (Note 10) | 12 |
| | — |
| | 12 |
| | 14 |
| | — |
| | 14 |
|
Preferred stock dividends declared | (22 | ) | | — |
| | (22 | ) | | (22 | ) | | — |
| | (22 | ) |
Common stock dividends declared | (12 | ) | | — |
| | (12 | ) | | — |
| | — |
| | — |
|
Common stock issued from treasury | 15 |
| | — |
| | 15 |
| | 1 |
| | — |
| | 1 |
|
Other | — |
| | (4 | ) | | (4 | ) | | — |
| | — |
| | — |
|
Balance at end of period | $ | 952 |
| | $ | 251 |
| | $ | 1,203 |
| | $ | 1,230 |
| | $ | 278 |
| | $ | 1,508 |
|
The following table presents changes in Minority Equity presented outside of Shareholders’ Equity:
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
Balance at beginning of period | $ | 520 |
| | $ | 602 |
| | $ | 534 |
| | $ | 607 |
|
Comprehensive income (loss): | | | | | | | |
Net income (loss) | 12 |
| | 8 |
| | (1 | ) | | 13 |
|
Foreign currency translation, net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | 18 |
| | 13 |
| | 10 |
| | 1 |
|
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | 2 |
| | 1 |
| | 6 |
| | 4 |
|
Decrease (increase) in net actuarial losses, net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | — |
| | (2 | ) | | 2 |
| | (2 | ) |
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures, net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | — |
| | 2 |
| | — |
| | 2 |
|
Prior service credit (cost) from plan amendments, net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | — |
| | 1 |
| | — |
| | 1 |
|
Deferred derivative gains (losses), net of tax of $0 and $0 in 2013 ($0 and $0 in 2012) | (1 | ) | | (1 | |