XBRU:GT Goodyear Tire & Rubber Co Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2012
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Ohio
(State or Other Jurisdiction of
Incorporation or Organization)
 
34-0253240
(I.R.S. Employer
Identification No.)
 
 
 
1144 East Market Street, 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):
Large accelerated filerþ
 
Accelerated filero
 
Non-accelerated filero
 
Smaller reporting companyo
 
 
 
 
(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.
Number of Shares of Common Stock,
Without Par Value, Outstanding at March 31, 2012:
 
244,706,585
 






TABLE OF CONTENTS






PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended
 
March 31,
(In millions, except per share amounts)
2012
 
2011
Net Sales
$
5,533

 
$
5,402

Cost of Goods Sold
4,607

 
4,461

Selling, Administrative and General Expense
662

 
668

Rationalizations (Note 2)
15

 
9

Interest Expense
101

 
74

Other Expense (Note 3)
92

 
4

Income before Income Taxes
56

 
186

United States and Foreign Taxes (Note 4)
48

 
62

Net Income
8

 
124

Less: Minority Shareholders’ Net Income
12

 
21

Goodyear Net (Loss) Income
(4
)
 
103

Less: Preferred Stock Dividends
7

 

Goodyear Net (Loss) Income available to Common Shareholders
$
(11
)
 
$
103

Goodyear Net (Loss) Income available to Common Shareholders — Per Share of Common Stock
 
 
 
Basic
$
(0.05
)
 
$
0.42

Weighted Average Shares Outstanding (Note 5)
244

 
243

Diluted
$
(0.05
)
 
$
0.42

Weighted Average Shares Outstanding (Note 5)
244

 
246

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



-1-



THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
 
March 31,
(In millions)
2012
 
2011
Net Income
$
8

 
$
124

Other Comprehensive Income:
 
 
 
Foreign currency translation, net of tax of $0 in 2012 ($1 in 2011)
103

 
94

Defined benefit plans:
 
 
 
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $2 in 2012 ($3 in 2011)
55

 
40

(Increase) decrease in net actuarial losses, net of tax of $0 in 2012 ($0 in 2011)
(2
)
 
3

  Deferred derivative losses, net of tax of $0 in 2012 ($0 in 2011)
(8
)
 
(9
)
             Reclassification adjustment for amounts recognized in
             income, net of tax of $0 in 2012 ($0 in 2011)
(1
)
 

  Unrealized investment gains (losses), net of tax of $0 in 2012 ($0
  in 2011)
5

 
(1
)
Other Comprehensive Income
152

 
127

Comprehensive Income
160

 
251

Less: Comprehensive Income Attributable to Minority Shareholders
40

 
59

Goodyear Comprehensive Income
$
120

 
$
192

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



-2-



THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data)
March 31,
 
December 31,
 
2012
 
2011
Assets:
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
2,083

 
$
2,772

Accounts Receivable, less Allowance — $106 ($97 in 2011)
3,530

 
2,849

Inventories:
 
 
 
Raw Materials
904

 
937

Work in Process
207

 
186

Finished Products
2,858

 
2,733

 
3,969

 
3,856

Prepaid Expenses and Other Current Assets
406

 
335

Total Current Assets
9,988

 
9,812

Goodwill
672

 
654

Intangible Assets
157

 
157

Deferred Income Taxes
148

 
145

Other Assets
497

 
486

Property, Plant and Equipment, less Accumulated Depreciation — $8,835 ($8,629 in 2011)
6,528

 
6,375

Total Assets
$
17,990

 
$
17,629

 
 
 
 
Liabilities:
 
 
 
Current Liabilities:
 
 
 
Accounts Payable-Trade
$
3,571

 
$
3,668

Compensation and Benefits (Notes 9 and 10)
766

 
799

Other Current Liabilities
1,099

 
1,050

Notes Payable and Overdrafts (Note 7)
291

 
256

Long Term Debt and Capital Leases due Within One Year (Note 7)
154

 
156

Total Current Liabilities
5,881

 
5,929

Long Term Debt and Capital Leases (Note 7)
5,186

 
4,789

Compensation and Benefits (Notes 9 and 10)
3,885

 
4,002

Deferred and Other Noncurrent Income Taxes
253

 
244

Other Long Term Liabilities
1,008

 
1,041

Total Liabilities
16,213

 
16,005

 
 
 
 
Commitments and Contingent Liabilities (Note 11)

 

 
 
 
 
Minority Shareholders’ Equity (Note 1)
626

 
607

 
 
 
 
Shareholders’ Equity:
 
 
 
Goodyear Shareholders’ Equity:
 
 
 
Preferred Stock, no par value: (Note 12)
 
 
 
Authorized, 50 million shares, Outstanding shares — 10 million (10 million in 2011), liquidation preference $50 per share
500

 
500

Common Stock, no par value:
 
 
 
Authorized, 450 million shares, Outstanding shares —245 million (245 million in 2011) after deducting 6 million treasury shares (6 million in 2011)
245

 
245

Capital Surplus
2,809

 
2,808

Retained Earnings
1,176

 
1,187

Accumulated Other Comprehensive Loss
(3,867
)
 
(3,991
)
Goodyear Shareholders’ Equity
863

 
749

Minority Shareholders’ Equity — Nonredeemable
288

 
268

Total Shareholders’ Equity
1,151

 
1,017

Total Liabilities and Shareholders’ Equity
$
17,990

 
$
17,629

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

-3-



THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In millions)
Three Months Ended
 
March 31,
 
2012
 
2011
Cash Flows from Operating Activities:
 
 
 
Net Income
$
8

 
$
124

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
170

 
182

Amortization and write-off of debt issuance costs
33

 
5

Net rationalization charges (Note 2)
15

 
9

Net gains on asset sales (Note 3)
(4
)
 
(2
)
Pension contributions and direct payments
(114
)
 
(17
)
Rationalization payments
(31
)
 
(13
)
Customer prepayments and government grants
38

 
4

Insurance proceeds
25

 

Changes in operating assets and liabilities, net of asset acquisitions and dispositions:
 
 
 
Accounts receivable
(635
)
 
(754
)
Inventories
(48
)
 
(292
)
Accounts payable — trade
(84
)
 
276

Compensation and benefits
(19
)
 
56

Other current liabilities
(20
)
 
7

Other assets and liabilities
(88
)
 
(18
)
Total Cash Flows from Operating Activities
(754
)
 
(433
)
Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(276
)
 
(284
)
Asset dispositions (Note 3)

 
2

Increase in restricted cash
(21
)
 
(68
)
Other transactions
2

 

Total Cash Flows from Investing Activities
(295
)
 
(350
)
Cash Flows from Financing Activities:
 
 
 
Short term debt and overdrafts incurred
57

 
16

Short term debt and overdrafts paid
(31
)
 
(21
)
Long term debt incurred
1,107

 
917

Long term debt paid
(783
)
 
(423
)
Proceeds from issuance of preferred stock (Note 12)

 
485

Preferred stock dividends paid (Note 12)
(7
)
 

Common stock issued (Note 10)

 
4

Transactions with minority interests in subsidiaries
(3
)
 
(4
)
Debt related costs and other transactions
(14
)
 

Total Cash Flows from Financing Activities
326

 
974

Effect of exchange rate changes on cash and cash equivalents
34

 
19

Net Change in Cash and Cash Equivalents
(689
)
 
210

Cash and Cash Equivalents at Beginning of the Period
2,772

 
2,005

Cash and Cash Equivalents at End of the Period
$
2,083

 
$
2,215

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

-4-



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 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 accounting principles generally accepted in the United States of America 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, 2011 (the “2011 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 or a bankruptcy of Goodyear. Accordingly, we have reported the minority equity in those subsidiaries outside of Shareholders’ Equity.
Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2012.
Recently Issued Accounting Standards
In December 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standards update requiring new disclosures about financial instruments and derivative instruments that are either offset by or subject to an enforceable master netting arrangement or similar agreement. The standards update is effective for fiscal years beginning after December 15, 2012. We are currently evaluating the impact of adopting this standard on our consolidated financial statements.
Recently Adopted Accounting Standards
Effective January 1, 2012, we adopted an accounting standards update with new guidance on fair value measurement and disclosure requirements. This standard provides guidance on the application of fair value accounting where it is already required or permitted by other standards. This standard also requires additional disclosures related to transfers of financial instruments within the fair value hierarchy and quantitative and qualitative disclosures related to significant unobservable inputs. The adoption of this standard did not have a material impact on our consolidated financial statements.
Effective January 1, 2012, we adopted accounting standards updates with guidance on the presentation of other comprehensive income. These standards require an entity to either present components of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements. Accordingly, we have presented net income and other comprehensive income in two consecutive 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.


-5-


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


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 to reduce associate headcount. The net rationalization charges included in Income before Income Taxes are as follows:

 
Three Months Ended
 
March 31,
(In millions)
2012
 
2011
New charges
$
16

 
$
11

Reversals
(1
)
 
(2
)
 
$
15

 
$
9


The following table shows the roll-forward of our liability between periods:

 
Associate-
 
Other
 
 
(In millions)
Related Costs
 
Costs
 
Total
Balance at December 31, 2011
$
166

 
$
18

 
$
184

2012 Charges
8

 
8

 
16

Incurred
(19
)
 
(9
)
 
(28
)
Reversed to the statement of operations

 
(1
)
 
(1
)
Balance at March 31, 2012
$
155

 
$
16

 
$
171


During the first quarter of 2012, net rationalization charges of $15 million were recorded. New charges of $16 million were comprised of $7 million for plans initiated in 2012, consisting of associate severance costs, and $9 million for plans initiated in 2011, consisting of $1 million of associate severance costs and $8 million of other exit and non-cancelable lease costs, mainly due to the July 2011 closure of our Union City, Tennessee manufacturing facility. Substantially all of the new charges relate to future cash outflows. The net charges in 2012 also included the reversal of $1 million of charges for actions no longer needed for their originally intended purposes. Approximately 60 associates will be released under 2012 plans.
In the first quarter of 2012, $19 million was incurred for associate severance payments, net of a favorable impact of $3 million of foreign currency translation, and $9 million was incurred for other exit and non-cancelable lease costs.
The accrual balance of $171 million at March 31, 2012 consists of $155 million for associate severance costs that are expected to be substantially utilized within the next 12 months and $16 million primarily for other exit and non-cancelable lease costs. At March 31, 2012, $101 million and $29 million, respectively, of the accrual balance relates to plans associated with the announced discontinuation of consumer tire production at one of our facilities in Amiens, France and the closure of our Union City, Tennessee manufacturing facility.
Accelerated depreciation charges of $2 million were recorded in cost of goods sold (“CGS”) in the first quarter of 2012, and were related primarily to property and equipment in our Dalian, China manufacturing facility.
During the first quarter of 2011, net rationalization charges of $9 million were recorded. New charges of $11 million were comprised of $1 million for plans initiated in 2011, consisting of associate severance costs, and $10 million for plans initiated primarily in 2010, consisting of $1 million for associate severance costs and $9 million for other exit and non-cancelable lease costs. The net charges in 2011 also included the reversal of $2 million of charges for actions no longer needed for their originally intended purposes. Approximately 500 associates will be released under plans initiated in 2011, of which approximately 200 associates have been released as of March 31, 2012. There are approximately 600 associates to be released under prior year plans, primarily related to the discontinuation of consumer tire production at our Amiens, France manufacturing facility.
In the first quarter of 2011, $2 million was incurred for associate severance payments, net of a favorable impact of $7 million of foreign currency translation, and $10 million was incurred for other exit and non-cancelable lease costs. Additionally, asset write-offs and accelerated depreciation charges of $9 million, primarily related to property and equipment in our Union City, Tennessee manufacturing facility were recorded in CGS.


-6-


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



NOTE 3. OTHER (INCOME) AND EXPENSE
 
Three Months Ended
 
March 31,
(In millions) (Income) Expense
2012
 
2011
Financing fees and financial instruments
$
95

 
$
9

Net foreign currency exchange losses
11

 
3

Royalty income
(9
)
 
(9
)
Interest income
(4
)
 
(3
)
Net gains on asset sales
(4
)
 
(2
)
General and product liability — discontinued products
2

 
5

Miscellaneous
1

 
1

 
$
92

 
$
4


Financing fees were $95 million in the first quarter of 2012, compared to $9 million in the first quarter of 2011. Financing fees in 2012 included $86 million of charges 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 unamortized discount and deferred financing fees. Financing fees and financial instruments consists of the amortization of deferred financing fees, commitment fees and other charges incurred in connection with financing transactions.
Net foreign currency exchange losses in the first quarter of 2012 were $11 million, compared to $3 million in the first quarter of 2011. Foreign currency exchange in all periods reflects net gains and losses resulting from the effect of exchange rate changes on various foreign currency transactions worldwide.
Royalty income is derived primarily from licensing arrangements related to divested businesses. Interest income consists primarily of amounts earned on cash deposits.
Net gains on asset sales were $4 million in the first quarter of 2012 compared to $2 million in the first quarter of 2011. The net gains in 2012 primarily relate to the sale of property by North American Tire.
General and product liability — discontinued products includes charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries. We recorded $4 million and $5 million of expense related to asbestos claims in 2012 and 2011, respectively. In addition, we recorded $2 million of income related to probable insurance recoveries in each of these periods.

NOTE 4. INCOME TAXES
In the first three months of 2012, we recorded tax expense of $48 million on income before income taxes of $56 million. Income tax expense was unfavorably impacted by $3 million due primarily to the settlement of prior tax years. We record taxes based on overall estimated annual effective tax rates. 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.
For the first three months of 2011, we recorded tax expense of $62 million on income before income taxes of $186 million. Income tax expense was unfavorably impacted by $8 million due primarily to the settlement of prior tax years.
At January 1, 2012, we had unrecognized tax benefits of $90 million that, if recognized, would have a favorable impact on our tax expense of $84 million. We had accrued interest of $24 million as of January 1, 2012. If not favorably settled, $23 million of the unrecognized tax benefits and $24 million of the accrued interest would require the use of our cash. It is reasonably possible that our unrecognized tax benefits may change during the next 12 months. However, we do not expect changes during the next 12 months to have a significant impact on our financial position or results of operations.
Generally, years beginning after 2006 are still open to examination by foreign taxing authorities, including in Germany. In the United States, we are open to examination for 2011.


-7-


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


NOTE 5. EARNINGS (LOSS) 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)
2012
 
2011
Earnings (loss) per share — basic:
 
 
 
Goodyear net (loss) income
$
(4
)
 
$
103

Less: Preferred stock dividends
7

 

Goodyear net (loss) income available to common shareholders
$
(11
)
 
$
103

Weighted average shares outstanding
244

 
243

Earnings (loss) per common share — basic
$
(0.05
)
 
$
0.42

 
 
 
 
Earnings (loss) per share — diluted:
 
 
 
Goodyear net (loss) income
$
(4
)
 
$
103

Less: Preferred stock dividends
7

 

Goodyear net (loss) income available to common shareholders
$
(11
)
 
$
103

Weighted average shares outstanding
244

 
243

Dilutive effect of stock options and other dilutive securities

 
3

Weighted average shares outstanding — diluted
244

 
246

Earnings (loss) per common share — diluted
$
(0.05
)
 
$
0.42


Weighted average shares outstanding - diluted for the three months ended March 31, 2012 excludes the effect of approximately 34 million equivalent shares related to the mandatory convertible preferred stock as their inclusion would have been anti-dilutive. In addition, Goodyear net income used to compute earnings per common share - diluted for the three months ended March 31, 2012 is reduced by $7 million of preferred stock dividends since the inclusion of the related shares of preferred stock would have been anti-dilutive. The dividends and dilutive effect of the mandatory convertible preferred stock were de minimis on the earnings per share calculation for the three months ended March 31, 2011 since the preferred shares were issued on March 31, 2011.

Additionally, weighted average shares outstanding - diluted for the three months ended March 31, 2012 excludes approximately 3 million equivalent shares related to options with exercise prices less than the average market price of our common shares (i.e., "in-the-money" options), as their inclusion would have been anti-dilutive due to the Goodyear net loss. Weighted average shares outstanding - diluted for the three months ended March 31, 2012 and March 31, 2011 excludes approximately 11 million and 9 million equivalent shares, respectively, related to options with exercise prices greater than the average market price of our common shares (i.e., “underwater” options).



-8-


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


NOTE 6. BUSINESS SEGMENTS

 
Three Months Ended
 
 
March 31,
 
(In millions)
2012
 
2011
 
Sales:
 
 
 
 
North American Tire
$
2,497

 
$
2,307

 
Europe, Middle East and Africa Tire
1,938

 
1,959

 
Latin American Tire
521

 
585

 
Asia Pacific Tire
577

 
551

 
Net Sales
$
5,533

 
$
5,402

 
Segment Operating Income:
 
 
 
 
North American Tire
$
80

 
$
40

 
Europe, Middle East and Africa Tire
90

 
153

 
Latin American Tire
55

 
67

 
Asia Pacific Tire
67

 
67

 
Total Segment Operating Income
292

 
327

 
Less:
 
 
 
 
Rationalizations
15

 
9

 
Interest expense
101

 
74

 
Other expense
92

 
4

 
Asset write-offs and accelerated depreciation
2

 
9

 
Corporate incentive compensation plans
7

 
14

 
Intercompany profit elimination
10

 
9

 
Retained expenses of divested operations
4

 
5

 
Other
5

 
17

 
Income before Income Taxes
$
56

 
$
186

 

Rationalizations, as described in Note 2, Costs Associated with Rationalization Programs, net gains on asset sales, as described in Note 3, Other (Income) and Expense, and asset write-offs and accelerated depreciation are not charged (credited) to the strategic business units (“SBUs”) for performance evaluation purposes, but were attributable to the SBUs as follows:


-9-


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



 
Three Months Ended
 
 
March 31,
 
(In millions)
2012
 
2011
 
Rationalizations:
 
 
 
 
North American Tire
$
6

 
$
6

 
Europe, Middle East and Africa Tire
5

 
1

 
Latin American Tire
2

 

 
Asia Pacific Tire
2

 
2

 
Total Segment Rationalizations
$
15

 
$
9

 
 
 
 
 
 
 
 
 
 
 
Net (Gains) Losses on Asset Sales:
 
 
 
 
North American Tire
$
(2
)
 
$

 
Europe, Middle East and Africa Tire
(1
)
 
(1
)
 
Latin American Tire

 
(1
)
 
Asia Pacific Tire

 

 
Total Segment Asset Sales
(3
)
 
(2
)
 
Corporate
(1
)
 

 
 
$
(4
)
 
$
(2
)
 

Asset Write-offs and Accelerated Depreciation:
 
 
 
 
North American Tire
$

 
$
8

 
Europe, Middle East and Africa Tire

 

 
Latin American Tire

 

 
Asia Pacific Tire
2

 
1

 
Total Segment Asset Write-offs and Accelerated Depreciation
$
2

 
$
9

 


NOTE 7. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
At March 31, 2012, we had total credit arrangements of $8,235 million, of which $2,207 million were unused. At that date, 44% of our debt was at variable interest rates averaging 4.03%.
Notes Payable and Overdrafts, Long Term Debt and Capital Leases due Within One Year and Short Term Financing Arrangements
At March 31, 2012, we had short term committed and uncommitted credit arrangements totaling $616 million, of which $325 million were unused. These arrangements are available primarily to certain of our international subsidiaries through various banks at quoted market interest rates. There are no commitment fees associated with these arrangements.

-10-


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


The following table presents amounts due within one year:

 
March 31,
 
December 31,
(In millions)
2012
 
2011
Notes payable and overdrafts
$
291

 
$
256

Weighted average interest rate
5.86
%
 
5.56
%
Long term debt and capital leases due within one year:
 
 
 
Other domestic and international debt (including capital leases)
$
154

 
$
156

Weighted average interest rate
10.12
%
 
10.78
%
Total obligations due within one year
$
445

 
$
412


Long Term Debt and Capital Leases and Financing Arrangements
At March 31, 2012, we had long term credit arrangements totaling $7,619 million, of which $1,882 million were unused.
The following table presents long term debt and capital leases, net of unamortized discounts, and interest rates:

 
March 31, 2012
 
December 31, 2011
 
 
 
Interest
 
 
 
Interest
(In millions)
Amount
 
Rate
 
Amount
 
Rate
Notes:
 
 
 
 
 
 
 
10.5% due 2016
$

 
 
 
$
631

 
 
6.75% Euro Notes due 2019
334

 
 
 
324

 
 
8.25% due 2020
994

 
 
 
994

 
 
8.75% due 2020
265

 
 
 
264

 
 
7% due 2022
700

 
 
 

 
 
7% due 2028
149

 
 
 
149

 
 
Credit Facilities:
 
 
 
 
 
 
 
$1.5 billion first lien revolving credit facility due 2013

 

 

 

$1.2 billion second lien term loan facility due 2014
1,200

 
1.75
%
 
1,200

 
1.93
%
€400 million revolving credit facility due 2016
187

 
2.93
%
 

 

Pan-European accounts receivable facility due 2015
392

 
3.27
%
 
393

 
3.91
%
Chinese credit facilities
451

 
6.39
%
 
389

 
5.80
%
Other domestic and international debt(1)
639

 
9.45
%
 
570

 
10.00
%
 
5,311

 
 
 
4,914

 
 
Capital lease obligations
29

 
 
 
31

 
 
 
5,340

 
 
 
4,945

 
 
Less portion due within one year
(154
)
 
 
 
(156
)
 
 
 
$
5,186

 
 
 
$
4,789

 
 
________________________________
(1)
Interest rates are weighted average interest rates.



-11-


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


NOTES
$700 million 7% Senior Notes due 2022
On February 28, 2012, we issued $700 million aggregate principal amount of 7% senior notes due 2022. These notes were sold at 100% of the principal amount and will mature on May 15, 2022. These notes are unsecured senior obligations and are guaranteed by our U.S. and Canadian subsidiaries that also guarantee our obligations under our 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 May 15, 2017 at a redemption price of 103.5%, 102.333%, 101.167% and 100% during the 12-month periods commencing on May 15, 2017, 2018, 2019, and 2020 and thereafter, respectively, plus accrued and unpaid interest to the redemption date. Prior to May 15, 2017, 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 May 15, 2015, 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 107% 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 (“S&P”) 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.
Redemption of 10.5% Senior Notes due 2016
On March 29, 2012, we redeemed $650 million in aggregate principal amount of our outstanding 10.5% senior notes due 2016 at an aggregate redemption price of $709 million, including a $59 million prepayment premium, plus accrued and unpaid interest to the redemption date. We also recorded $27 million of expense for the write-off of unamortized discounts and deferred financing fees as a result of the redemption.
CREDIT FACILITIES
See Note 15, Subsequent Events for a discussion of the amendments to our $1.5 billion first lien revolving credit facility due 2013 and our $1.2 billion second lien term loan facility due 2014.
$1.5 billion Amended and Restated First Lien Revolving Credit Facility due 2013
This 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.
This 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 financial condition since December 31, 2006. This facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At March 31, 2012, we had no borrowings and $417 million of letters of credit issued under the revolving credit facility. At December 31, 2011, we had no borrowings and $407 million of letters of credit issued under the revolving credit facility.
$1.2 billion Amended and Restated Second Lien Term Loan Facility due 2014
Our obligations under this 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 $1.5 billion first lien revolving credit facility. At March 31, 2012 and December 31, 2011, this facility was fully drawn.
This facility has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.

-12-


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.
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. and Canadian subsidiaries that guarantee our U.S. senior secured credit facilities described above also provide unsecured guarantees in support of the facility.
The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our 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 March 31, 2012, there were no borrowings outstanding under the German tranche and $187 million (€140 million) was outstanding under the all-borrower tranche. At December 31, 2011, there were no borrowings under the revolving credit facility. Letters of credit issued under the all-borrower tranche totaled $8 million (€6 million) at March 31, 2012 and $8 million (€6 million) at December 31, 2011.
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. Utilization under this facility is based on current available receivable balances. The facility is subject to customary annual renewal of back-up liquidity commitments.
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 March 31, 2012 and December 31, 2011, the amount available, and fully utilized under this program, totaled $392 million (€294 million) and $393 million (€303 million), respectively. The program did 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 totaling $74 million and $75 million at March 31, 2012 and December 31, 2011, 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 Notes payable and overdrafts.
For a description of the collateral securing the facilities described above as well as the covenants applicable to them, refer to the Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2011 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 March 31, 2012, the gross amount of receivables sold was $179 million, compared to $190 million at December 31, 2011.
Other Foreign Credit Facilities
Our Chinese subsidiary has two financing agreements in China. At March 31, 2012, these non-revolving credit facilities had total unused availability of 0.8 billion renminbi ($126 million) and can only be used to finance the relocation and expansion of our manufacturing facility in China. The facilities contain covenants relating to our Chinese subsidiary and have customary representations and warranties and defaults relating to our Chinese subsidiary’s ability to perform its obligations under the facilities. One of the facilities (with 0.8 billion renminbi of unused availability at March 31, 2012) matures in 2018 and principal amortization begins in 2015. There were $247 million and $199 million of borrowings outstanding under this facility at March 31, 2012 and December 31, 2011, respectively. The other facility matures in 2019 and principal amortization begins in 2015. There were $204 million and $190 million of borrowings outstanding under this facility at March 31, 2012 and December 31, 2011, respectively. Restricted cash of $30 million and $9 million was related to funds obtained under these credit facilities at March 31, 2012 and December 31, 2011, respectively.

-13-


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


OTHER DOMESTIC DEBT
Global and North American Tire Headquarters
On April 13, 2011, we entered into agreements for the construction of a new Global and North American Tire 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. In addition, on October 31, 2011, 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 will record a non-cash increase to fixed assets and financing liabilities on our Consolidated Balance Sheet as costs are incurred during the construction period. The total cost of the project is expected to be $200 million, of which approximately $60 million will be funded by government financing and incentives. The total financing liability is expected to approximate $140 million, of which $49 million has been recorded in long term debt and capital leases at March 31, 2012.

Debt Maturities

Updates to our debt maturities in our 2011 Form 10-K are provided below and reflect the issuance of our 7% senior notes due 2022 and the redemption of our 10.5% senior notes due 2016. The following information does not reflect amendments to our credit facilities occurring after March 31, 2012.

(In millions)
2012
 
2013
 
2014
 
2015
 
2016
U.S.
$
13

 
$
4

 
$
1,200

 
$

 

International
143

 
90

 
42

 
490

 
322

 
$
156

 
$
94

 
$
1,242

 
$
490

 
$
322

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 following table presents fair values for foreign currency contracts not designated as hedging instruments:

 
March 31,
 
December 31,
(In millions)
2012
 
2011
Fair Values — asset (liability):
 
 
 
Accounts receivable
$
9

 
$
26

Other assets

 

Other current liabilities
(14
)
 
(5
)
Other long term liabilities

 
(1
)

At March 31, 2012 and December 31, 2011, these outstanding foreign currency derivatives had notional amounts of $1,102 million and $1,056 million, respectively, and were primarily related to intercompany loans. Other Expense included net transaction losses of $24 million and $35 million on foreign currency derivatives for the three months ended March 31, 2012 and March 31, 2011, respectively. These amounts were substantially offset in Other Expense by the effect of changing exchange rates on the underlying currency exposures.

-14-


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


The following table presents fair values for foreign currency contracts designated as cash flow hedging instruments:

 
March 31,
 
December 31,
(In millions)
2012
 
2011
Fair Values — asset (liability):
 
 
 
Accounts receivable
$
4

 
$
11

Other current liabilities
(1
)
 


At March 31, 2012 and December 31, 2011, these outstanding foreign currency derivatives had notional amounts of $184 million and $171 million, respectively, and primarily related to intercompany transactions.

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
 
March 31,
(In millions) (Income) Expense
2012
 
2011
Amounts deferred to Accumulated Other Comprehensive Loss ("AOCL")
$
8

 
$
9

Amount of deferred gain reclassified from AOCL into CGS
(1
)
 

Amounts excluded from effectiveness testing

 


The estimated net amount of the deferred gains on March 31, 2012 that is expected to be reclassified to earnings within the next twelve months is $5 million.
The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that are recognized market makers at the time we entered into those contracts. We seek to control our credit exposure to these counterparties by diversifying across multiple counterparties, by setting counterparty credit limits based on long term credit ratings and other indicators of counterparty credit risk such as credit default swap spreads, and by monitoring the financial strength of these counterparties on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to counterparties in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a counterparty. However, the inability of a counterparty to fulfill its contractual obligations to us could have a material adverse effect on our liquidity, financial position or results of operations in the period in which it occurs.


-15-


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 Sheet at March 31, 2012 and December 31, 2011:

 
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)
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
49

 
$
44

 
$
49

 
$
44

 
$

 
$

 
$

 
$

Foreign Exchange Contracts
13

 
37

 

 

 
13

 
37

 

 

Total Assets at Fair Value
$
62

 
$
81

 
$
49

 
$
44

 
$
13

 
$
37

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
$
15

 
$
6

 
$

 
$

 
$
15

 
$
5

 
$

 
$
1

Total Liabilities at Fair Value
$
15

 
$
6

 
$

 
$

 
$
15

 
$
5

 
$

 
$
1


Derivative financial instrument valuations classified as Level 3 are embedded currency derivatives in long-dated operating leases. The valuation of the embedded currency derivatives is based on an extrapolation of forward rates to the assumed expiration of the leases. Realized and unrealized gains and losses related to the embedded currency derivatives are included in Other Expense.
The following table presents supplemental fair value information about long term fixed rate and variable rate debt, excluding capital leases, classified as Level 1, at March 31, 2012 and December 31, 2011. The fair value was estimated using quoted market prices.

 
March 31,
 
December 31,
(In millions)
2012
 
2011
Fixed Rate Debt:
 
 
 
Carrying amount — liability
$
3,004

 
$
2,843

Fair value — liability
3,105

 
2,891

 
 
 
 
Variable Rate Debt:
 
 
 
Carrying amount — liability
$
2,307

 
$
2,071

Fair value — liability
2,274

 
2,029



-16-


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.
 
Non-U.S.
 
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
(In millions)
2012
 
2011
 
2012
 
2011
Service cost — benefits earned during the period
$
10

 
$
11

 
$
8

 
$
8

Interest cost on projected benefit obligation
66

 
71

 
35

 
38

Expected return on plan assets
(75
)
 
(77
)
 
(30
)
 
(33
)
Amortization of: — prior service cost
6

 
6

 

 

  — net losses
46

 
34

 
12

 
10

Net periodic pension cost
53

 
45

 
25

 
23

Curtailments/settlements/termination benefits

 

 

 
(1
)
Total defined benefit pension cost
$
53

 
$
45

 
$
25

 
$
22

 
 
 
 
 
 
 
 
We expect to contribute approximately $550 million to $600 million to our funded U.S. and non-U.S. pension plans in 2012. For the three months ended March 31, 2012, we contributed $51 million and $54 million to our U.S. and non-U.S. plans, respectively.
The expense recognized for our contributions to defined contribution savings plans for the three months ended March 31, 2012 and 2011 was $27 million and $26 million, respectively.
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 cost for the three months ended March 31, 2012 and 2011 was $3 million in each period.


-17-


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


NOTE 10. STOCK COMPENSATION PLANS
Our Board of Directors granted 1.8 million stock options and 0.2 million performance share units during the three months ended March 31, 2012 under our 2008 Performance Plan. The 2008 Performance Plan will expire on April 8, 2018. The weighted average exercise price per share and weighted average fair value per share of the stock option grants during the three months ended March 31, 2012 were $12.94 and $6.37, 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: 1.11%
Volatility: 50.74%
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 $13.57 for grants made during the three months ended March 31, 2012.
We recognized stock-based compensation expense of $1 million and $6 million during the three months ended March 31, 2012 and March 31, 2011, respectively. At March 31, 2012, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $34 million and is expected to be recognized over the remaining vesting period of the respective grants, through February 2016.

NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
We have recorded liabilities totaling $47 million and $46 million at March 31, 2012 and December 31, 2011, 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, $11 million was included in Other Current Liabilities at March 31, 2012 and December 31, 2011. 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.
Workers’ Compensation
We have recorded liabilities, on a discounted basis, totaling $304 million and $302 million for anticipated costs related to workers’ compensation at March 31, 2012 and December 31, 2011, respectively. Of these amounts, $68 million and $63 million were included in Current Liabilities as part of Compensation and Benefits at March 31, 2012 and December 31, 2011, 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 March 31, 2012 and December 31, 2011, the liability was discounted using a risk-free rate of return.
General and Product Liability and Other Litigation
We have recorded liabilities totaling $302 million and $293 million, including related legal fees expected to be incurred, for potential product liability and other tort claims presently asserted against us at March 31, 2012 and December 31, 2011, respectively. Of these amounts, $43 million and $40 million were included in Other Current Liabilities at March 31, 2012 and December 31, 2011, 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. The amount of our ultimate liability in respect of these matters may differ from these estimates.

-18-


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



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 101,100 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, totaled approximately $391 million through March 31, 2012 and $388 million through December 31, 2011.
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. The passage of tort reform laws and creation of deferred dockets for non-malignancy claims in several states has contributed to a decline in the number of claims filed in recent years.

 
Three Months Ended
 
Year Ended
(Dollars in millions)
March 31, 2012
 
December 31, 2011
Pending claims, beginning of period
78,500

 
83,700

New claims filed
500

 
2,200

Claims settled/dismissed
(3,000
)
 
(7,400
)
Pending claims, end of period
76,000

 
78,500

 
 
 
 
Payments (1)
$
3

 
$
23

________________________________
(1)
Represents amount spent 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 $138 million at March 31, 2012 and December 31, 2011. At March 31, 2012, we estimate that it is reasonably possible that our gross liabilities, net of our estimate for probable insurance recoveries, could exceed our recorded amounts by approximately $10 million.
We recorded a receivable related to asbestos claims of $68 million and $67 million as of March 31, 2012 and December 31, 2011, respectively. We expect that approximately 50% of asbestos claim related losses would be recoverable through insurance through the period covered by the estimated liability. Of these amounts, $8 million was included in Current Assets as part of Accounts Receivable at March 31, 2012 and December 31, 2011. 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 March 31, 2012, 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 coverage-in-place agreements at March 31, 2012.

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.


-19-


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



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. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an injunction prohibiting us from selling one or more products. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling 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 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 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, or we are required to pay amounts in excess of our liabilities, our effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash, and result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the period of resolution.
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 $51 million). We received similar assessments from the State of Sao Paulo, Brazil in December 2010 for allegedly improperly taking tax credits for value-added taxes paid to other suppliers of natural rubber during the period from January 2006 to October 2009. These assessments, including interest and penalties, totaled 88 million Brazilian real (approximately $48 million). We have filed responses contesting all of the assessments and are defending these matters. In the event we are unsuccessful in defending one or more of these assessments, our results of operations could be materially affected.    
Binding Commitments and Guarantees
At March 31, 2012, we had binding commitments for raw materials, capital expenditures, utilities and various other types of contracts. Total commitments on contracts that extend beyond March 31, 2013 are expected to total approximately $3.6 billion. In addition, we have other contractual commitments, the amounts of which cannot be estimated, pursuant to certain long term agreements under which we will purchase varying amounts of certain raw materials and finished goods at agreed upon base prices that may be subject to periodic adjustments for changes in raw material costs and market price adjustments, or in quantities that may be subject to periodic adjustments for changes in our or our suppliers' production levels.
We have off-balance sheet financial guarantees written and other commitments totaling approximately $93 million at March 31, 2012, compared to $105 million at December 31, 2011, primarily related to our obligations in connection with the financing of the construction of our new Global and North American Tire 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.


-20-


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


NOTE 12. MANDATORY CONVERTIBLE PREFERRED STOCK
On March 31, 2011, we issued 10,000,000 shares of our 5.875% mandatory convertible preferred stock, without par value and with an initial liquidation preference of $50.00 per share, at a price of $50.00 per share. 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. 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.
In the fourth quarter of 2011, the Company’s Board of Directors (or a duly authorized committee thereof) declared cash dividends of $7 million that were paid in the first quarter of 2012. On March 6, 2012, 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 April 2, 2012 to stockholders of record as of the close of business of March 15, 2012.

-21-


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 three months ended March 31, 2012 and 2011:

 
March 31, 2012
 
March 31, 2011
(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
$
749

 
$
268

 
$
1,017

 
$
644

 
$
277

 
$
921

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
(4
)
 
8

 
4

 
103

 
11

 
114

Foreign currency translation (net of tax of $0 in 2012 and $1 in 2011)
73

 
13

 
86

 
55

 
4

 
59

Amortization of prior service cost and unrecognized gains and losses included in total benefit cost (net of tax of $2 in 2012 and $3 in 2011)
53

 

 
53

 
39

 

 
39

(Increase) decrease in net actuarial losses (net of tax of $0 in 2012 and $0 in 2011)
(1
)
 

 
(1
)
 
3

 

 
3

Deferred derivative losses (net of tax of $0 in 2012 and $0 in 2011)
(5
)
 

 
(5
)
 
(7
)
 

 
(7
)
Reclassification adjustment for amounts recognized in income (net of tax of $0 in 2012 and $0 in 2011)
(1
)
 

 
(1
)
 

 

 

Unrealized investment gains (losses) (net of tax of $0 in 2012 and $0 in 2011)
5

 

 
5

 
(1
)
 

 
(1
)
Other comprehensive income
124

 
13

 
137

 
89

 
4

 
93

Total comprehensive income
120

 
21

 
141

 
192

 
15

 
207

Dividends declared to minority shareholders

 
(1
)
 
(1
)
 

 
(4
)
 
(4
)
Stock-based compensation plans (Note 10)
2

 

 
2

 
3

 

 
3

Preferred stock issued, net of expenses

 

 

 
484

 

 
484

Preferred stock dividends declared
(7
)
 

 
(7
)
 

 

 

Common stock issued from treasury

 

 

 
4

 

 
4

Other
(1
)
 

 
(1
)
 

 
1

 
1

Balance at end of period
$
863

 
$
288

 
$
1,151

 
$
1,327

 
$
289

 
$
1,616



-22-


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


The following table presents changes in Minority Equity presented outside of Shareholders’ Equity:

 
Three Months Ended
 
March 31,
(In millions)
2012
 
2011
Balance at beginning of period
$
607

 
$
584

 
 
 
 
Comprehensive income:
 
 
 
Net income
4

 
10

Foreign currency translation, net of tax of $0 in 2012 ($0 in 2011)
17

 
35

Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $0 in 2012 ($0 in 2011)
2

 
1

Increase in net actuarial losses, net of tax of $0 in 2012 ($0 in 2011)
(1
)
 

Deferred derivative losses, net of tax of $0 in 2012 ($0 in 2011)
(3
)
 
(2
)
Total comprehensive income
19

 
44

 
 
 
 
Balance at end of period
$
626

 
$
628


NOTE 14. CONSOLIDATING FINANCIAL INFORMATION
Certain of our subsidiaries have guaranteed our obligations under the $1.0 billion outstanding principal amount of 8.25% senior notes due 2020, the $282 million outstanding principal amount of 8.75% notes due 2020, and the $700 million outstanding principal amount of 7% senior notes due 2022 (collectively, the “notes”). The following presents the condensed consolidating financial information separately for:
(i)
The Goodyear Tire & Rubber Company (the “Parent Company”), the issuer of the guaranteed obligations;
(ii)
Guarantor subsidiaries, on a combined basis, as specified in the indentures related to Goodyear’s obligations under the notes;
(iii)
Non-guarantor subsidiaries, on a combined basis;
(iv)
Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate the investments in our subsidiaries, and (c) record consolidating entries; and
(v)
The Goodyear Tire & Rubber Company and Subsidiaries on a consolidated basis.
Each guarantor subsidiary is 100% owned by the Parent Company at the date of each balance sheet presented. The notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation. Changes in intercompany receivables and payables related to operations, such as intercompany sales or services charges, are included in cash flows from operating activities. Intercompany transactions reported as investing or financing activities include the sale of the capital stock of various subsidiaries, loans and other capital transactions between members of the consolidated group.
Certain non-guarantor subsidiaries of the Parent Company are limited in their ability to remit funds to it 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.


-23-


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


 
Consolidating Balance Sheet
 
March 31, 2012
(In millions)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Entries and Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
702

 
$
85

 
$
1,296

 
$

 
$
2,083

Accounts Receivable
1,030

 
251

 
2,249

 

 
3,530

Accounts Receivable From Affiliates

 
541

 
133

 
(674
)
 

Inventories
1,611

 
228

 
2,221

 
(91
)
 
3,969

Prepaid Expenses and Other Current Assets
57

 
10

 
327

 
12

 
406

Total Current Assets
3,400

 
1,115

 
6,226

 
(753
)
 
9,988

Goodwill

 
25

 
469

 
178

 
672

Intangible Assets
110

 
1

 
46

 

 
157

Deferred Income Taxes

 
82

 
66

 

 
148

Other Assets
227

 
49

 
221

 

 
497

Investments in Subsidiaries
4,185

 
346

 
4,373

 
(8,904
)
 

Property, Plant and Equipment
2,132

 
159

 
4,197

 
40

 
6,528

Total Assets
$
10,054

 
$
1,777

 
$
15,598

 
$
(9,439
)
 
$
17,990

Liabilities:
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts Payable-Trade
$
917

 
$
220

 
$
2,434

 
$

 
$
3,571

Accounts Payable to Affiliates
674

 

 

 
(674
)
 

Compensation and Benefits
405

 
35

 
326

 

 
766

Other Current Liabilities
277

 
41

 
793

 
(12
)
 
1,099

Notes Payable and Overdrafts

 

 
291

 

 
291

Long Term Debt and Capital Leases Due Within One Year
11

 

 
143

 

 
154

Total Current Liabilities
2,284

 
296

 
3,987

 
(686
)
 
5,881

Long Term Debt and Capital Leases
3,360

 

 
1,826

 

 
5,186

Compensation and Benefits
2,712

 
290

 
883

 

 
3,885

Deferred and Other Noncurrent Income Taxes
33

 
5

 
206

 
9

 
253

Other Long Term Liabilities
802

 
33

 
173

 

 
1,008

Total Liabilities
9,191

 
624

 
7,075

 
(677
)
 
16,213

Commitments and Contingent Liabilities

 

 

 

 

Minority Shareholders’ Equity

 

 
417

 
209

 
626

Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
Goodyear Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
Preferred Stock
500

 

 

 

 
500

Common Stock
245

 
333

 
5,041

 
(5,374
)
 
245

Capital Surplus
2,809

 
40

 
1,063

 
(1,103
)
 
2,809

Retained Earnings
1,176

 
1,314

 
2,898

 
(4,212
)
 
1,176

Accumulated Other Comprehensive Loss
(3,867
)
 
(534
)
 
(1,184
)
 
1,718

 
(3,867
)
Goodyear Shareholders’ Equity
863

 
1,153

 
7,818

 
(8,971
)
 
863

Minority Shareholders’ Equity — Nonredeemable

 

 
288

 

 
288

Total Shareholders’ Equity
863

 
1,153

 
8,106

 
(8,971
)
 
1,151

Total Liabilities and Shareholders’ Equity
$
10,054

 
$
1,777

 
$
15,598

 
$
(9,439
)
 
$
17,990


-24-


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



 
Consolidating Balance Sheet
 
December 31, 2011
(In millions)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Entries and Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
916

 
$
108

 
$
1,748

 
$

 
$
2,772

Accounts Receivable
984

 
217

 
1,648

 

 
2,849

Accounts Receivable From Affiliates

 
512

 
204

 
(716
)
 

Inventories
1,579

 
227

 
2,135

 
(85
)
 
3,856

Prepaid Expenses and Other Current Assets
53

 
9

 
262

 
11

 
335

Total Current Assets
3,532

 
1,073

 
5,997

 
(790
)
 
9,812

Goodwill

 
25

 
460

 
169

 
654

Intangible Assets
110

 
1

 
46

 

 
157

Deferred Income Taxes

 
82

 
63

 

 
145

Other Assets
226

 
49

 
211

 

 
486

Investments in Subsidiaries
4,067

 
339

 
4,367

 
(8,773
)
 

Property, Plant and Equipment
2,129

 
162

 
4,044

 
40

 
6,375

Total Assets
$
10,064

 
$
1,731

 
$
15,188

 
$