Attached files
| file | filename |
|---|---|
| EX-12 - EX-12.1 - GOODYEAR TIRE & RUBBER CO /OH/ | gt-q22017xratioofearningse.htm |
| EX-32 - EX-32.1 - GOODYEAR TIRE & RUBBER CO /OH/ | gt-q22017xex_321.htm |
| EX-31 - EX-31.2 - GOODYEAR TIRE & RUBBER CO /OH/ | gt-q22017xex_312.htm |
| EX-31 - EX-31.1 - GOODYEAR TIRE & RUBBER CO /OH/ | gt-q22017xex_311.htm |
| EX-10 - EX-10.1 - GOODYEAR TIRE & RUBBER CO /OH/ | gt-q22017xdeferredcompensa.htm |
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 June 30, 2017
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Ohio (State or Other Jurisdiction of Incorporation or Organization) | 34-0253240 (I.R.S. Employer Identification No.) | |
200 Innovation Way, Akron, Ohio (Address of Principal Executive Offices) | 44316-0001 (Zip Code) | |
(330) 796-2121
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | Emerging growth company o | ||||
(Do not check if a smaller reporting company) | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock, Without Par Value, Outstanding at June 30, 2017: | 251,763,670 | |
TABLE OF CONTENTS
EX-10.1 | ||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions, except per share amounts) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net Sales | $ | 3,686 | $ | 3,879 | $ | 7,385 | $ | 7,570 | |||||||
Cost of Goods Sold | 2,792 | 2,813 | 5,557 | 5,514 | |||||||||||
Selling, Administrative and General Expense | 583 | 593 | 1,162 | 1,208 | |||||||||||
Rationalizations (Note 2) | 27 | 48 | 56 | 59 | |||||||||||
Interest Expense | 89 | 104 | 176 | 195 | |||||||||||
Other (Income) Expense (Note 3) | 5 | 20 | 5 | 26 | |||||||||||
Income before Income Taxes | 190 | 301 | 429 | 568 | |||||||||||
United States and Foreign Taxes Expense (Note 4) | 36 | 93 | 106 | 171 | |||||||||||
Net Income | 154 | 208 | 323 | 397 | |||||||||||
Less: Minority Shareholders’ Net Income | 7 | 6 | 10 | 11 | |||||||||||
Goodyear Net Income | $ | 147 | $ | 202 | $ | 313 | $ | 386 | |||||||
Goodyear Net Income — Per Share of Common Stock | |||||||||||||||
Basic | $ | 0.58 | $ | 0.76 | $ | 1.24 | $ | 1.45 | |||||||
Weighted Average Shares Outstanding (Note 5) | 252 | 264 | 252 | 266 | |||||||||||
Diluted | $ | 0.58 | $ | 0.75 | $ | 1.23 | $ | 1.43 | |||||||
Weighted Average Shares Outstanding (Note 5) | 256 | 268 | 256 | 269 | |||||||||||
Cash Dividends Declared Per Common Share | $ | 0.10 | $ | 0.07 | $ | 0.20 | $ | 0.14 | |||||||
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 | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net Income | $ | 154 | $ | 208 | $ | 323 | $ | 397 | |||||||
Other Comprehensive Income (Loss): | |||||||||||||||
Foreign currency translation, net of tax of $16 and $19 in 2017 (($3) and $14 in 2016) | 50 | (53 | ) | 134 | 7 | ||||||||||
Defined benefit plans: | |||||||||||||||
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $11 and $21 in 2017 ($8 and $16 in 2016) | 19 | 16 | 39 | 32 | |||||||||||
(Increase)/Decrease in net actuarial losses, net of tax of $0 and $1 in 2017 ($1 and $0 in 2016) | (1 | ) | 1 | 3 | 1 | ||||||||||
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 2017 and 2016 | — | 15 | — | 15 | |||||||||||
Deferred derivative gains and losses, net of tax of ($5) and ($7) in 2017 ($1 and $0 in 2016) | (8 | ) | 9 | (14 | ) | 3 | |||||||||
Reclassification adjustment for amounts recognized in income, net of tax of $0 and ($1) in 2017 (($1) and ($2) in 2016) | (2 | ) | (5 | ) | (3 | ) | (8 | ) | |||||||
Other Comprehensive Income (Loss) | 58 | (17 | ) | 159 | 50 | ||||||||||
Comprehensive Income | 212 | 191 | 482 | 447 | |||||||||||
Less: Comprehensive Income Attributable to Minority Shareholders | 14 | 1 | 23 | 13 | |||||||||||
Goodyear Comprehensive Income | $ | 198 | $ | 190 | $ | 459 | $ | 434 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 2-
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, | December 31, | ||||||
(In millions) | 2017 | 2016 | |||||
Assets: | |||||||
Current Assets: | |||||||
Cash and Cash Equivalents | $ | 903 | $ | 1,132 | |||
Accounts Receivable, less Allowance — $113 ($101 in 2016) | 2,309 | 1,769 | |||||
Inventories: | |||||||
Raw Materials | 560 | 436 | |||||
Work in Process | 145 | 131 | |||||
Finished Products | 2,479 | 2,060 | |||||
3,184 | 2,627 | ||||||
Prepaid Expenses and Other Current Assets | 236 | 190 | |||||
Total Current Assets | 6,632 | 5,718 | |||||
Goodwill | 571 | 535 | |||||
Intangible Assets | 137 | 136 | |||||
Deferred Income Taxes (Note 4) | 2,361 | 2,414 | |||||
Other Assets | 700 | 668 | |||||
Property, Plant and Equipment, less Accumulated Depreciation — $9,662 ($9,125 in 2016) | 7,245 | 7,040 | |||||
Total Assets | $ | 17,646 | $ | 16,511 | |||
Liabilities: | |||||||
Current Liabilities: | |||||||
Accounts Payable — Trade | $ | 2,774 | $ | 2,589 | |||
Compensation and Benefits (Notes 9 and 10) | 567 | 584 | |||||
Other Current Liabilities | 1,055 | 963 | |||||
Notes Payable and Overdrafts (Note 7) | 238 | 245 | |||||
Long Term Debt and Capital Leases due Within One Year (Note 7) | 435 | 436 | |||||
Total Current Liabilities | 5,069 | 4,817 | |||||
Long Term Debt and Capital Leases (Note 7) | 5,403 | 4,798 | |||||
Compensation and Benefits (Notes 9 and 10) | 1,408 | 1,460 | |||||
Deferred Income Taxes (Note 4) | 86 | 85 | |||||
Other Long Term Liabilities | 535 | 626 | |||||
Total Liabilities | 12,501 | 11,786 | |||||
Commitments and Contingent Liabilities (Note 11) | |||||||
Shareholders’ Equity: | |||||||
Goodyear Shareholders’ Equity: | |||||||
Common Stock, no par value: | |||||||
Authorized, 450 million shares, Outstanding shares — 252 million in 2017 and 2016 after deducting 26 million treasury shares in 2017 and 2016 | 252 | 252 | |||||
Capital Surplus | 2,638 | 2,645 | |||||
Retained Earnings | 6,071 | 5,808 | |||||
Accumulated Other Comprehensive Loss | (4,052 | ) | (4,198 | ) | |||
Goodyear Shareholders’ Equity | 4,909 | 4,507 | |||||
Minority Shareholders’ Equity — Nonredeemable | 236 | 218 | |||||
Total Shareholders’ Equity | 5,145 | 4,725 | |||||
Total Liabilities and Shareholders’ Equity | $ | 17,646 | $ | 16,511 | |||
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)
Six Months Ended | |||||||
June 30, | |||||||
(In millions) | 2017 | 2016 | |||||
Cash Flows from Operating Activities: | |||||||
Net Income | $ | 323 | $ | 397 | |||
Adjustments to Reconcile Net Income to Cash Flows from Operating Activities: | |||||||
Depreciation and Amortization | 387 | 355 | |||||
Amortization and Write-Off of Debt Issuance Costs | 14 | 20 | |||||
Provision for Deferred Income Taxes | 45 | 87 | |||||
Net Pension Curtailments and Settlements | 1 | 14 | |||||
Net Rationalization Charges (Note 2) | 56 | 59 | |||||
Rationalization Payments | (54 | ) | (52 | ) | |||
Net (Gains) Losses on Asset Sales (Note 3) | (13 | ) | (1 | ) | |||
Pension Contributions and Direct Payments | (45 | ) | (48 | ) | |||
Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions: | |||||||
Accounts Receivable | (470 | ) | (417 | ) | |||
Inventories | (482 | ) | (176 | ) | |||
Accounts Payable — Trade | 190 | (93 | ) | ||||
Compensation and Benefits | (67 | ) | (104 | ) | |||
Other Current Liabilities | 27 | (68 | ) | ||||
Other Assets and Liabilities | (97 | ) | (40 | ) | |||
Total Cash Flows from Operating Activities | (185 | ) | (67 | ) | |||
Cash Flows from Investing Activities: | |||||||
Capital Expenditures | (497 | ) | (466 | ) | |||
Asset Dispositions (Note 3) | 2 | 1 | |||||
Short Term Securities Acquired | (43 | ) | (34 | ) | |||
Short Term Securities Redeemed | 43 | 23 | |||||
Other Transactions | (3 | ) | — | ||||
Total Cash Flows from Investing Activities | (498 | ) | (476 | ) | |||
Cash Flows from Financing Activities: | |||||||
Short Term Debt and Overdrafts Incurred | 290 | 124 | |||||
Short Term Debt and Overdrafts Paid | (303 | ) | (36 | ) | |||
Long Term Debt Incurred | 3,456 | 3,283 | |||||
Long Term Debt Paid | (2,905 | ) | (2,931 | ) | |||
Common Stock Issued | 11 | 3 | |||||
Common Stock Repurchased (Note 12) | (30 | ) | (150 | ) | |||
Common Stock Dividends Paid (Note 12) | (50 | ) | (38 | ) | |||
Transactions with Minority Interests in Subsidiaries | (5 | ) | (7 | ) | |||
Debt Related Costs and Other Transactions | (38 | ) | (76 | ) | |||
Total Cash Flows from Financing Activities | 426 | 172 | |||||
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | 37 | 22 | |||||
Net Change in Cash, Cash Equivalents and Restricted Cash | (220 | ) | (349 | ) | |||
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period | 1,189 | 1,502 | |||||
Cash, Cash Equivalents and Restricted Cash at End of the Period | $ | 969 | $ | 1,153 | |||
- 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 generally accepted accounting principles in the United States of America ("US GAAP") and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”).
Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2017.
Recently Adopted Accounting Standards
Effective January 1, 2017, we adopted an accounting standards update with new guidance on the transition to the equity method of accounting. The new guidance eliminates the requirement for an investor to retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. Instead, the investor is required to apply the equity method prospectively from the date the investment qualifies for the equity method. In addition, an entity that has an available-for-sale equity security that becomes qualified for the equity method must recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment qualifies for the equity method. The adoption of this standards update did not impact our consolidated financial statements.
Effective January 1, 2017, we adopted an accounting standards update with new guidance on the measurement of inventory. Inventory within the scope of this update is required to be measured at the lower of its cost or net realizable value, with net realizable value being the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The adoption of this standards update did not impact our consolidated financial statements.
Effective January 1, 2017, we early adopted an accounting standards update with new guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update provides guidance on eight specific cash flow issues. As a result of the adoption, premiums for debt extinguishment of $53 million were reclassified from Operating Activities to Financing Activities in the statement of cash flows for the six months ended June 30, 2016. The other seven specific cash flow issues were either not applicable to Goodyear or the treatment has not changed from our current practice.
Effective January 1, 2017, we early adopted an accounting standards update with new guidance on the presentation of restricted cash in the statement of cash flows. The standards update requires that the reconciliation of the beginning and end of period cash amounts shown in the statement of cash flows include restricted cash. When restricted cash is presented separately from cash and cash equivalents on the balance sheet, a reconciliation is required between the amounts presented on the statement of cash flows and the balance sheet. Also, the new guidance requires the disclosure of information about the nature of the restrictions. The restricted cash balances as of June 30, 2017, December 31, 2016, and June 30, 2016 were $66 million, $57 million and $15 million, respectively.
Recently Issued Accounting Standards
In May 2017, the Financial Accounting Standards Board ("FASB") issued an accounting standards update with new guidance to clarify when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires the application of modification accounting if the value, vesting conditions or classification of the award changes. The standards update is effective prospectively for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. The adoption of this standards update is not expected to impact our consolidated financial statements.
In March 2017, the FASB issued an accounting standards update intended to improve the financial statement presentation of pension and postretirement benefits cost. The standards update requires employers that offer defined benefit pension or other postretirement benefit plans to report service cost in the same income statement line as compensation costs and to report non-service related costs separately from service cost outside a sub-total of income from operations, if one is presented. Currently, the Company records both service and non-service related costs in selling, administrative and general expense ("SAG") and cost of goods sold ("CGS"), as appropriate. In addition, the new guidance allows only service cost to be capitalized. The standards update
- 5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
is effective retrospectively for the financial statement presentation of benefits cost and prospectively for the capitalization of service cost, for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted.
In January 2017, the FASB issued an accounting standards update with new guidance intended to simplify the subsequent measurement of goodwill. The standards update eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity will perform its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount by which the carrying amount exceeds the fair value. The standards update is effective prospectively for annual and interim goodwill impairment testing performed in fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption of this standards update is not expected to impact our consolidated financial statements.
In October 2016, the FASB issued an accounting standards update with new guidance on the accounting for the income tax consequences of intra-entity transfers of assets other than inventory, including the elimination of the prohibition on recognition of current and deferred income taxes on such transfers. The standards update is effective using the modified retrospective approach for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. The adoption of this standards update will not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued an accounting standards update with new guidance intended to increase transparency and comparability among organizations relating to leases. Lessees will be required to recognize a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. The FASB retained a dual model for lease classification, requiring leases to be classified as finance or operating leases to determine recognition in the statements of operations and cash flows; however, substantially all leases will be required to be recognized on the balance sheet. Lessor accounting is largely unchanged from the current accounting model. The standards update will also require quantitative and qualitative disclosures regarding key information about leasing arrangements. The standards update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. It must be adopted using a modified retrospective approach, and provides for certain practical expedients. The transition will require application at the beginning of the earliest comparative period presented at the time of adoption. We are currently assessing the impact of this standards update on our consolidated financial statements.
In May 2014, the FASB issued an accounting standards update with new guidance on recognizing revenue from contracts with customers. The standards update outlines a single comprehensive model for entities to utilize to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that will be received in exchange for the goods and services. Additional disclosures will also be required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In 2016, the FASB issued several amendments which provide clarification, additional guidance, practical expedients and technical corrections. In August 2015, the FASB deferred the effective date of this standards update to fiscal years beginning after December 15, 2017, with early adoption permitted on the original effective date of fiscal years beginning after December 15, 2016. The standard permits the use of either a retrospective or modified retrospective application. We intend to use the modified retrospective approach. The adoption of this standards update is not expected to have a material impact on our consolidated financial statements. We will continue our evaluation of the standards update through the date of adoption, including assessing the impact of required new disclosures.
Principles of Consolidation
The consolidated financial statements include the accounts of all legal entities in which we hold a controlling financial interest. A controlling financial interest generally arises from our ownership of a majority of the voting shares of our subsidiaries. We would also hold a controlling financial interest in variable interest entities if we are considered to be the primary beneficiary. Investments in companies in which we do not own a majority interest and we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. Investments in other companies are carried at cost. All intercompany balances and transactions have been eliminated in consolidation.
- 6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted Cash
The following table provides a reconciliation of Cash, Cash Equivalents and Restricted Cash as reported within the Consolidated Statements of Cash Flows:
(In millions) | June 30, | ||||||
2017 | 2016 | ||||||
Cash and Cash Equivalents | $ | 903 | $ | 1,138 | |||
Restricted Cash | 66 | 15 | |||||
Total Cash, Cash Equivalents and Restricted Cash | $ | 969 | $ | 1,153 | |||
Restricted Cash, which is included in Prepaid Expenses and Other Current Assets in the Consolidated Balance Sheets, primarily represents amounts required to be set aside in connection with accounts receivable factoring programs and funds obtained under certain Chinese credit facilities for plant expansion in China. The restrictions lapse when cash from factored accounts receivable are remitted to the purchaser of those receivables or when funds are used for plant expansion expenditures, respectively.
Reclassifications and Adjustments
Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.
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 and excess manufacturing capacity and associate headcount.
The following table shows the roll-forward of our liability between periods:
Other Exit and | |||||||||||
(In millions) | Associate- | Non-cancelable | |||||||||
Related Costs | Lease Costs | Total | |||||||||
Balance at December 31, 2016 | $ | 214 | $ | 5 | $ | 219 | |||||
2017 Charges | 45 | 13 | 58 | ||||||||
Incurred, including net Foreign Currency Translation of $15 million and $0 million, respectively | (27 | ) | (13 | ) | (40 | ) | |||||
Reversed to the Statements of Operations | (2 | ) | — | (2 | ) | ||||||
Balance at June 30, 2017 | $ | 230 | $ | 5 | $ | 235 | |||||
Rationalization actions accrued at June 30, 2017 include $128 million related to the closure of our tire manufacturing facility in Philippsburg, Germany. The closure is in furtherance of our strategy to capture the growing demand for premium, large-rim diameter tires in part by reducing excess capacity in declining, less profitable segments of the tire market. The closure will result in approximately 890 job reductions. Approximately $120 million of the accrued charges related to the closure are expected to be paid during the second half of 2017 with the remainder paid in 2018.
The remainder of the accrual balance at June 30, 2017 is expected to be substantially utilized within the next 12 months and includes $36 million related to manufacturing headcount reductions in certain countries in Europe, Middle East and Africa ("EMEA"), $18 million related to a SAG headcount reduction plan in certain countries in EMEA, and $17 million related to a separate global plan to reduce SAG headcount.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table shows net rationalization charges included in Income before Income Taxes:
Three Months Ended | Six Months Ended | ||||||||||||||
(In millions) | June 30, | June 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Current Year Plans | |||||||||||||||
Associate Severance and Other Related Costs | $ | 2 | $ | 43 | $ | 25 | $ | 43 | |||||||
Other Exit and Non-Cancelable Lease Costs | 1 | — | 1 | — | |||||||||||
Current Year Plans - Net Charges | $ | 3 | $ | 43 | $ | 26 | $ | 43 | |||||||
Prior Year Plans | |||||||||||||||
Associate Severance and Other Related Costs | $ | 17 | $ | 6 | $ | 17 | $ | 10 | |||||||
Benefit Plan Curtailment Loss (Gain) | — | (1 | ) | — | (1 | ) | |||||||||
Other Exit and Non-Cancelable Lease Costs | 7 | — | 13 | 7 | |||||||||||
Prior Year Plans - Net Charges | 24 | 5 | 30 | 16 | |||||||||||
Total Net Charges | $ | 27 | $ | 48 | $ | 56 | $ | 59 | |||||||
Asset Write-off and Accelerated Depreciation Charges | $ | 21 | $ | 5 | $ | 29 | $ | 7 | |||||||
Substantially all of the new charges for the three and six months ended June 30, 2017 and 2016 related to future cash outflows. Net current year plan charges for the three and six months ended June 30, 2017 include charges of $2 million and $19 million, respectively, related to SAG headcount reductions in certain countries in EMEA and $1 million and $7 million, respectively, related to a plan to improve operating efficiency in EMEA. Net current year plan charges for the three and six months ended June 30, 2016 primarily related to manufacturing headcount reductions in EMEA to improve operating efficiency. In addition, we initiated a plan to reduce SAG headcount globally.
Net prior year plan charges for the three and six months ended June 30, 2017 include $18 million and $20 million, respectively, related to the closure of our tire manufacturing facility in Philippsburg, Germany, and charges of $2 million and $5 million, respectively, related to the closure of our Wolverhampton, U.K. mixing and retreading facility and the plan to transfer consumer tire production from our manufacturing facility in Wittlich, Germany to other manufacturing facilities in EMEA. Net prior year plan charges for the three and six months ended June 30, 2016 include charges of $3 million and $9 million, respectively, for associate severance and idle plant costs related to the closure of one of our manufacturing facilities in Amiens, France.
Net charges for the three and six months ended June 30, 2017 included reversals of $1 million and $2 million, respectively, for actions no longer needed for their originally intended purposes. Ongoing rationalization plans had approximately $595 million in charges incurred prior to 2017 and approximately $80 million is expected to be incurred in future periods.
Approximately 300 associates will be released under new plans initiated in 2017, of which approximately 50 were released through June 30, 2017. In the first six months of 2017, approximately 200 associates were released under plans initiated in prior years. In July 2017, in connection with the closure of our tire manufacturing facility in Philippsburg, Germany, approximately 600 associates were released, and approximately 1,100 associates remain to be released under all ongoing rationalization plans.
Approximately 850 former associates of the closed Amiens, France manufacturing facility have asserted wrongful termination or other claims against us. Refer to Note to the Consolidated Financial Statements No. 11, Commitments and Contingent Liabilities, in this Form 10-Q.
Accelerated depreciation charges for the three and six months ended June 30, 2017 primarily related to the closure of our tire manufacturing facility in Philippsburg, Germany. Accelerated depreciation charges for the three and six months ended June 30, 2016 primarily related to the closure of our Wolverhampton, U.K. mixing and retreading facility. Asset write-off and accelerated depreciation charges for all periods were recorded in CGS.
- 8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. OTHER (INCOME) EXPENSE
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Financing fees and financial instruments | $ | 32 | $ | 52 | $ | 40 | $ | 68 | |||||||
Royalty income | (11 | ) | (10 | ) | (16 | ) | (14 | ) | |||||||
Net (gains) losses on asset sales | (12 | ) | — | (13 | ) | (1 | ) | ||||||||
Interest income | (3 | ) | (4 | ) | (7 | ) | (8 | ) | |||||||
Net foreign currency exchange (gains) losses | (2 | ) | (1 | ) | (3 | ) | (3 | ) | |||||||
General and product liability expense (income) - discontinued products | 1 | (14 | ) | 3 | (16 | ) | |||||||||
Miscellaneous (income) expense | — | (3 | ) | 1 | — | ||||||||||
$ | 5 | $ | 20 | $ | 5 | $ | 26 | ||||||||
Financing fees and financial instruments consist of commitment fees and charges incurred in connection with financing transactions. Financing fees and financial instruments for the three and six months ended June 30, 2017 include a redemption premium of $25 million related to the redemption of our $700 million 7% senior notes due 2022. Financing fees and financial instruments for the three and six months ended June 30, 2016 include redemption premiums of $44 million and $53 million, respectively, related to the redemption of our $900 million 6.5% senior notes due 2021 in June 2016 and our €250 million 6.75% senior notes due 2019 in January 2016.
Net (gains) losses on asset sales for the three and six months ended June 30, 2017 include a gain of $6 million related to the sale of a former wire plant site in Luxembourg.
General and product liability expense (income) - discontinued products consists of charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries. General and product liability expense (income) - discontinued products for the three and six months ended June 30, 2016 includes a benefit of $4 million for the recovery of past costs from one of our asbestos insurers and a benefit of $10 million related to changes in assumptions for probable insurance recoveries for asbestos claims in future periods.
Also, included in Other (Income) Expense is royalty income which is derived primarily from licensing arrangements related to divested businesses as well as other licensing arrangements, interest income which primarily consists of amounts earned on cash deposits, and net foreign currency exchange (gains) and losses.
NOTE 4. INCOME TAXES
In the second quarter of 2017, we recorded tax expense of $36 million on income before income taxes of $190 million. For the first six months of 2017, we recorded tax expense of $106 million on income before income taxes of $429 million. Income tax expense for the three and six months ended June 30, 2017 was favorably impacted by $9 million and $11 million of various discrete tax adjustments, respectively. In the second quarter of 2016, we recorded tax expense of $93 million on income before income taxes of $301 million. For the first six months of 2016, we recorded tax expense of $171 million on income before income taxes of $568 million. Income tax expense for the three and six months ended June 30, 2016 was unfavorably impacted by $3 million and favorably impacted by $9 million of various discrete tax adjustments, respectively.
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 the discrete items noted above and an overall lower effective tax rate in the foreign jurisdictions in which we operate.
Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net foreign deferred tax assets. Each reporting period we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release all or a significant portion of these valuation allowances will exist within the next twelve months.
At January 1, 2017, we had unrecognized tax benefits of $63 million that if recognized, would have a favorable impact on our tax expense of $47 million. We had accrued interest of $4 million as of January 1, 2017. If not favorably settled, $12 million of the
- 9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
unrecognized tax benefits and all of the accrued interest would require the use of our cash. We do not expect any changes to our unrecognized tax benefits during 2017 to have a significant impact on our financial position or results of operations.
We are open to examination in the United States for 2016 and in Germany from 2013 onward. Generally, for our remaining tax jurisdictions, years from 2012 onward are still open to examination.
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 | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions, except per share amounts) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Earnings per share — basic: | |||||||||||||||
Goodyear net income | $ | 147 | $ | 202 | $ | 313 | $ | 386 | |||||||
Weighted average shares outstanding | 252 | 264 | 252 | 266 | |||||||||||
Earnings per common share — basic | $ | 0.58 | $ | 0.76 | $ | 1.24 | $ | 1.45 | |||||||
Earnings per share — diluted: | |||||||||||||||
Goodyear net income | $ | 147 | $ | 202 | $ | 313 | $ | 386 | |||||||
Weighted average shares outstanding | 252 | 264 | 252 | 266 | |||||||||||
Dilutive effect of stock options and other dilutive securities | 4 | 4 | 4 | 3 | |||||||||||
Weighted average shares outstanding — diluted | 256 | 268 | 256 | 269 | |||||||||||
Earnings per common share — diluted | $ | 0.58 | $ | 0.75 | $ | 1.23 | $ | 1.43 | |||||||
Weighted average shares outstanding - diluted for the three and six months ended June 30, 2017 and 2016 exclude approximately 1 million equivalent shares related to options with exercise prices greater than the average market price of our common shares (i.e., "underwater" options).
- 10-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6. BUSINESS SEGMENTS
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Sales: | |||||||||||||||
Americas | $ | 2,029 | $ | 2,090 | $ | 3,987 | $ | 4,041 | |||||||
Europe, Middle East and Africa | 1,114 | 1,261 | 2,353 | 2,512 | |||||||||||
Asia Pacific | 543 | 528 | 1,045 | 1,017 | |||||||||||
Net Sales | $ | 3,686 | $ | 3,879 | $ | 7,385 | $ | 7,570 | |||||||
Segment Operating Income: | |||||||||||||||
Americas | $ | 213 | $ | 291 | $ | 427 | $ | 551 | |||||||
Europe, Middle East and Africa | 77 | 148 | 175 | 228 | |||||||||||
Asia Pacific | 71 | 92 | 144 | 171 | |||||||||||
Total Segment Operating Income | $ | 361 | $ | 531 | $ | 746 | $ | 950 | |||||||
Less: | |||||||||||||||
Rationalizations | $ | 27 | $ | 48 | $ | 56 | $ | 59 | |||||||
Interest expense | 89 | 104 | 176 | 195 | |||||||||||
Other (income) expense (Note 3) | 5 | 20 | 5 | 26 | |||||||||||
Asset write-offs and accelerated depreciation | 21 | 5 | 29 | 7 | |||||||||||
Corporate incentive compensation plans | 12 | 14 | 27 | 40 | |||||||||||
Pension curtailments/settlements | — | 14 | — | 14 | |||||||||||
Intercompany profit elimination | (2 | ) | 3 | (5 | ) | 5 | |||||||||
Retained expenses of divested operations | 3 | 5 | 6 | 10 | |||||||||||
Other | 16 | 17 | 23 | 26 | |||||||||||
Income before Income Taxes | $ | 190 | $ | 301 | $ | 429 | $ | 568 | |||||||
- 11-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Rationalizations, as described in Note to the Consolidated Financial Statements No. 2, Costs Associated with Rationalization Programs, Net (gains) losses on asset sales and Asset write-offs and accelerated depreciation were not charged (credited) to the SBUs for performance evaluation purposes but were attributable to the SBUs as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Rationalizations: | |||||||||||||||
Americas | $ | 1 | $ | 1 | $ | 2 | $ | 4 | |||||||
Europe, Middle East and Africa | 26 | 45 | 53 | 53 | |||||||||||
Asia Pacific | — | 1 | 1 | 1 | |||||||||||
Total Segment Rationalizations | $ | 27 | $ | 47 | $ | 56 | $ | 58 | |||||||
Corporate | — | 1 | — | 1 | |||||||||||
$ | 27 | $ | 48 | $ | 56 | $ | 59 | ||||||||
Net (Gains) Losses on Asset Sales: | |||||||||||||||
Americas | $ | (2 | ) | $ | — | $ | (3 | ) | $ | — | |||||
Europe, Middle East and Africa | (10 | ) | — | (10 | ) | — | |||||||||
Asia Pacific | — | — | — | (1 | ) | ||||||||||
Total Segment Asset Sales | $ | (12 | ) | $ | — | $ | (13 | ) | $ | (1 | ) | ||||
Asset Write-offs and Accelerated Depreciation: | |||||||||||||||
Europe, Middle East and Africa | $ | 21 | $ | 5 | $ | 29 | $ | 7 | |||||||
Total Segment Asset Write-offs and Accelerated Depreciation | $ | 21 | $ | 5 | $ | 29 | $ | 7 | |||||||
NOTE 7. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
At June 30, 2017, we had total credit arrangements of $8,559 million, of which $2,440 million were unused. At that date, 38% of our debt was at variable interest rates averaging 4.78%.
Notes Payable and Overdrafts, Long Term Debt and Capital Leases due Within One Year and Short Term Financing Arrangements
At June 30, 2017, we had short term committed and uncommitted credit arrangements totaling $591 million, of which $353 million were unused. These arrangements are available primarily to certain of our foreign subsidiaries through various banks at quoted market interest rates.
- 12-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents amounts due within one year:
June 30, | December 31, | ||||||
(In millions) | 2017 | 2016 | |||||
Notes payable and overdrafts | $ | 238 | $ | 245 | |||
Weighted average interest rate | 5.19 | % | 6.18 | % | |||
Chinese credit facilities | $ | 141 | $ | 146 | |||
Other domestic and foreign debt (including capital leases) | 294 | 290 | |||||
Long term debt and capital leases due within one year | $ | 435 | $ | 436 | |||
Weighted average interest rate | 8.46 | % | 9.39 | % | |||
Total obligations due within one year | $ | 673 | $ | 681 | |||
Long Term Debt and Capital Leases and Financing Arrangements
At June 30, 2017, we had long term credit arrangements totaling $7,968 million, of which $2,087 million were unused.
The following table presents long term debt and capital leases, net of unamortized discounts, and interest rates:
June 30, 2017 | December 31, 2016 | ||||||||||||
Interest | Interest | ||||||||||||
(In millions) | Amount | Rate | Amount | Rate | |||||||||
Notes: | |||||||||||||
8.75% due 2020 | $ | 274 | $ | 273 | |||||||||
7% due 2022 | — | 700 | |||||||||||
5.125% due 2023 | 1,000 | 1,000 | |||||||||||
3.75% Euro Notes due 2023 | 285 | 264 | |||||||||||
5% due 2026 | 900 | 900 | |||||||||||
4.875% due 2027 | 700 | — | |||||||||||
7% due 2028 | 150 | 150 | |||||||||||
Credit Facilities: | |||||||||||||
$2.0 billion first lien revolving credit facility due 2021 | 420 | 2.44 | % | 85 | 1.98 | % | |||||||
Second lien term loan facility due 2019 | 399 | 3.12 | % | 399 | 3.75 | % | |||||||
€550 million revolving credit facility due 2020 | 245 | 1.75 | % | — | — | ||||||||
Pan-European accounts receivable facility | 160 | 0.96 | % | 198 | 0.98 | % | |||||||
Chinese credit facilities | 276 | 4.77 | % | 315 | 4.68 | % | |||||||
Other foreign and domestic debt(1) | 1,035 | 7.58 | % | 951 | 9.14 | % | |||||||
5,844 | 5,235 | ||||||||||||
Unamortized deferred financing fees | (45 | ) | (42 | ) | |||||||||
5,799 | 5,193 | ||||||||||||
Capital lease obligations | 39 | 41 | |||||||||||
5,838 | 5,234 | ||||||||||||
Less portion due within one year | (435 | ) | (436 | ) | |||||||||
$ | 5,403 | $ | 4,798 | ||||||||||
(1) Interest rates are weighted average interest rates related to various foreign credit facilities with customary terms and conditions and domestic debt related to our Global and Americas Headquarters.
- 13-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES
$700 million 4.875% Senior Notes due 2027
In March 2017, we issued $700 million in aggregate principal amount of 4.875% senior notes due 2027. These notes were sold at 100% of the principal amount and will mature on March 15, 2027. 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 prior to their maturity. If we elect to redeem the notes prior to December 15, 2026, we will pay a redemption price equal to the greater of 100% of the principal amount of the notes redeemed or the sum of the present values of the remaining scheduled payments on the notes redeemed, discounted using a defined treasury rate plus 50 basis points, plus in either case accrued and unpaid interest to the redemption date. If we elect to redeem the notes on or after December 15, 2026, we will pay a redemption price equal to 100% of the principal amount of the notes redeemed 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 certain liens, (ii) engage in sale and leaseback transactions, and (iii) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. These covenants are subject to significant exceptions and qualifications.
$700 million 7% Senior Notes due 2022
In May 2017, we used the proceeds from the $700 million 4.875% senior notes due 2027, together with cash and cash equivalents, to redeem in full our $700 million 7% senior notes due 2022, which included the payment of a $25 million redemption premium plus accrued and unpaid interest to the redemption date. We also recorded $6 million of expense for the write-off of deferred financing fees as a result of the redemption.
CREDIT FACILITIES
$2.0 billion Amended and Restated First Lien Revolving Credit Facility due 2021
Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit, with letter of credit availability limited to $800 million. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. Based on our current liquidity, amounts drawn under this facility bear interest at LIBOR plus 125 basis points, and undrawn amounts under the facility will be subject to an annual commitment fee of 30 basis points.
Availability under the facility is subject to a borrowing base, which is based primarily on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks, and (iii) certain cash in an amount not to exceed $200 million. To the extent that our eligible accounts receivable and inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.0 billion. As of June 30, 2017, our borrowing base, and therefore our availability, under this facility was $348 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 business or financial condition since December 31, 2015. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At June 30, 2017, we had $420 million of borrowings and $37 million of letters of credit issued under the revolving credit facility. At December 31, 2016, we had $85 million of borrowings and $40 million of letters of credit issued under the revolving credit facility.
Amended and Restated Second Lien Term Loan Facility due 2019
In March 2017, we amended our second lien term loan facility. As a result of the amendment, the term loan now bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). After March 7, 2017 and prior to September 3, 2017, (i) loans under the facility may not be prepaid or repaid with the proceeds of term loan indebtedness, or converted into or replaced by new term loans, bearing interest at an effective interest rate that is less than the effective interest rate then applicable to such loans and (ii) no amendment of the facility may be made that, directly or
- 14-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
indirectly, reduces the effective interest rate applicable to the loans under the facility, in each case unless we pay a fee equal to 1.0% of the principal amount of the loans so affected. In addition, if the Total Leverage Ratio is equal to or less than 1.25 to 1.00, we have the option to further reduce the spreads described above by 25 basis points. "Total Leverage Ratio" has the meaning given it in the facility.
Our obligations under our second lien term loan facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second priority security interests in the same collateral securing the $2.0 billion first lien revolving credit facility.
At June 30, 2017 and December 31, 2016, the amounts outstanding under this facility were $399 million.
€550 million Amended and Restated Senior Secured European Revolving Credit Facility due 2020
Our amended and restated €550 million European revolving credit facility consists of (i) a €125 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €425 million all-borrower tranche that is available to Goodyear Dunlop Tires Europe B.V. ("GDTE"), GDTG and Goodyear Dunlop Tires Operations S.A. Up to €150 million of swingline loans and €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 175 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 175 basis points for loans denominated in euros, and undrawn amounts under the facility will be subject to an annual commitment fee of 30 basis points.
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 generally 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 our business or financial condition since December 31, 2014. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At June 30, 2017, there were $142 million (€125 million) of borrowings outstanding under the German tranche and there were $103 million (€90 million) of borrowings outstanding under the all-borrower tranche. At December 31, 2016, there were no borrowings outstanding under the European revolving credit facility. There were no letters of credit issued at June 30, 2017 and December 31, 2016.
Accounts Receivable Securitization Facilities (On-Balance Sheet)
GDTE and certain other of our European subsidiaries are parties to a pan-European accounts receivable securitization facility that expires in 2019. The terms of the facility provide the flexibility to designate annually the maximum amount of funding available under the facility in an amount of not less than €45 million and not more than €450 million. For the period beginning October 16, 2016 to October 15, 2017, the designated maximum amount of the facility is €320 million.
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. Utilization under this facility is based on eligible receivable balances.
The funding commitments under the facility will expire upon the earliest to occur of: (a) September 25, 2019, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events similar to the events of default under our senior secured credit facilities; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 15, 2017.
At June 30, 2017, the amounts available and utilized under this program totaled $160 million (€140 million). At December 31, 2016, the amounts available and utilized under this program totaled $198 million (€188 million). 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 flexibility to designate semi-annually the maximum amount of funding available under the facility in an amount of not less than 60 million Australian dollars and not more than 85 million Australian dollars. From July 1, 2016 to December 31, 2017, the designated maximum amount of the facility is 60 million Australian dollars. At June 30, 2017, the amounts available and utilized under this program were $28 million (AUD 37 million) and $13 million
- 15-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(AUD 17 million), respectively. At December 31, 2016, the amounts available and utilized under this program were $28 million (AUD 39 million) and $12 million (AUD 16 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 Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2016 Form 10-K.
Accounts Receivable Factoring Facilities (Off-Balance Sheet)
We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At June 30, 2017, the gross amount of receivables sold was $467 million, compared to $502 million at December 31, 2016.
Other Foreign Credit Facilities
A Chinese subsidiary has several financing arrangements in China. At June 30, 2017, these non-revolving credit facilities had total unused availability of $224 million and can only be used to finance the expansion of our manufacturing facility in China. At June 30, 2017 and December 31, 2016, the amounts outstanding under these facilities were $276 million and $315 million, respectively. The facilities ultimately mature in 2025 and principal amortization began 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 June 30, 2017 and December 31, 2016, restricted cash related to funds obtained under these credit facilities was $18 million and $8 million, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
We utilize derivative financial instrument contracts and nonderivative instruments to manage interest rate, foreign exchange and commodity price risks. We have established a control environment that includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes.
Foreign Currency Contracts
We enter into foreign currency contracts in order to manage the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts may be used to reduce exposure to currency movements affecting existing foreign currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting primarily from trade purchases and sales, equipment acquisitions, intercompany loans and royalty agreements. Contracts hedging short term trade receivables and payables normally have no hedging designation.
The following table presents the fair values for foreign currency contracts not designated as hedging instruments:
June 30, | December 31, | ||||||
(In millions) | 2017 | 2016 | |||||
Fair Values — Current asset (liability): | |||||||
Accounts receivable | $ | 4 | $ | 30 | |||
Other current liabilities | (39 | ) | (18 | ) | |||
At June 30, 2017 and December 31, 2016, these outstanding foreign currency derivatives had notional amounts of $1,236 million and $1,812 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction losses on derivatives of $41 million and $45 million for the three and six months ended June 30, 2017, respectively, and net transaction gains on derivatives of $5 million and net transaction losses on derivatives of $18 million for the three and six months ended June 30, 2016, respectively. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures.
- 16-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents fair values for foreign currency contracts designated as cash flow hedging instruments:
June 30, | December 31, | ||||||
(In millions) | 2017 | 2016 | |||||
Fair Values — Current asset (liability): | |||||||
Accounts receivable | $ | — | $ | 9 | |||
Other current liabilities | (7 | ) | — | ||||
Fair Values — Long term asset (liability): | |||||||
Other assets | $ | — | $ | 2 | |||
Other long term liabilities | (1 | ) | — | ||||
At June 30, 2017 and December 31, 2016, these outstanding foreign currency derivatives had notional amounts of $215 million and $293 million, respectively, and primarily related to U.S. dollar denominated intercompany transactions.
We enter into master netting agreements with counterparties. The amounts eligible for offset under the master netting agreements are not material and we have elected a gross presentation of foreign currency contracts in the Consolidated Balance Sheets.
The following table presents information related to foreign currency contracts designated as cash flow hedging instruments (before tax and minority):
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions) (Income) Expense | 2017 | 2016 | 2017 | 2016 | |||||||||||
Amounts deferred to Accumulated Other Comprehensive Loss ("AOCL") | $ | 13 | $ | (6 | ) | $ | 21 | $ | 1 | ||||||
Amount of deferred (gain) loss reclassified from AOCL into CGS | (2 | ) | (1 | ) | (4 | ) | (6 | ) | |||||||
Amounts excluded from effectiveness testing | — | (1 | ) | (1 | ) | (1 | ) | ||||||||
The estimated net amount of deferred gains at June 30, 2017 that are expected to be reclassified to earnings within the next twelve months is $8 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.
- 17-
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 June 30, 2017 and December 31, 2016:
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) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Investments | $ | 10 | $ | 9 | $ | 10 | $ | 9 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Foreign Exchange Contracts | 4 | 41 | — | — | 4 | 41 | — | — | |||||||||||||||||||||||
Total Assets at Fair Value | $ | 14 | $ | 50 | $ | 10 | $ | 9 | $ | 4 | $ | 41 | $ | — | $ | — | |||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||
Foreign Exchange Contracts | $ | 47 | $ | 18 | $ | — | $ | — | $ | 47 | $ | 18 | $ | — | $ | — | |||||||||||||||
Total Liabilities at Fair Value | $ | 47 | $ | 18 | $ | — | $ | — | $ | 47 | $ | 18 | $ | — | $ | — | |||||||||||||||
The following table presents supplemental fair value information about long term fixed rate and variable rate debt, excluding capital leases, at June 30, 2017 and December 31, 2016.
June 30, | December 31, | ||||||
(In millions) | 2017 | 2016 | |||||
Fixed Rate Debt: | |||||||
Carrying amount — liability | $ | 3,586 | $ | 3,514 | |||
Fair value — liability | 3,773 | 3,669 | |||||
Variable Rate Debt: | |||||||
Carrying amount — liability | $ | 2,213 | $ | 1,679 | |||
Fair value — liability | 2,198 | 1,678 | |||||
Long term debt with a fair value of $3,856 million and $3,804 million at June 30, 2017 and December 31, 2016, respectively, was estimated using quoted Level 1 market prices. The carrying value of the remaining long term debt is categorized within the Level 2 hierarchy and approximates fair value since the terms of the financing arrangements are similar to terms that could be obtained under current lending market conditions.
- 18-
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 | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Service cost | $ | 1 | $ | 1 | $ | 2 | $ | 2 | |||||||
Interest cost | 41 | 40 | 81 | 82 | |||||||||||
Expected return on plan assets | (61 | ) | (63 | ) | (121 | ) | (127 | ) | |||||||
Amortization of net losses | 28 | 27 | 56 | 54 | |||||||||||
Net periodic pension cost | 9 | 5 | 18 | 11 | |||||||||||
Net curtailments/settlements/termination benefits | 1 | — | 1 | — | |||||||||||
Total defined benefit pension cost | $ | 10 | $ | 5 | $ | 19 | $ | 11 | |||||||
Non-U.S. | Non-U.S. | ||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Service cost | $ | 8 | $ | 8 | $ | 15 | $ | 15 | |||||||
Interest cost | 18 | 21 | 35 | 41 | |||||||||||
Expected return on plan assets | (20 | ) | (24 | ) | (39 | ) | (46 | ) | |||||||
Amortization of net losses | 8 | 7 | 16 | 14 | |||||||||||
Net periodic pension cost | 14 | 12 | 27 | 24 | |||||||||||
Net curtailments/settlements/termination benefits | — | 13 | — | 13 | |||||||||||
Total defined benefit pension cost | $ | 14 | $ | 25 | $ | 27 | $ | 37 | |||||||
During the second quarter of 2016, annuities were purchased from existing plan assets to settle $41 million in obligations of one of our U.K. pension plans which resulted in a settlement charge of $14 million.
We expect to contribute approximately $50 million to $75 million to our funded non-U.S. pension plans in 2017. For the three and six months ended June 30, 2017, we contributed $13 million and $27 million, respectively, to our non-U.S. plans.
The expense recognized for our contributions to defined contribution savings plans for the three months ended June 30, 2017 and 2016 was $28 million and $29 million, respectively, and for the six months ended June 30, 2017 and 2016 was $58 million and $63 million, respectively.
We also provide certain U.S. employees and employees at certain non-U.S. subsidiaries with health care benefits or life insurance benefits upon retirement. Other postretirement benefits credit for the three months ended June 30, 2017 and 2016 was $1 million and $7 million, respectively, and for the six months ended June 30, 2017 and 2016 was $3 million and $13 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10. STOCK COMPENSATION PLANS
Our Board of Directors granted 0.7 million stock options, 0.1 million restricted stock units and 0.2 million performance share units during the six months ended June 30, 2017 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 six months ended June 30, 2017 were $35.26 and $12.08, respectively. We estimated the fair value of the stock options using the following assumptions in our Black-Scholes model:
Expected term: 7.2 years
Interest rate: 2.13%
Volatility: 33.63%
Dividend yield: 1.13%
We measure the fair value of grants of restricted stock units and 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 $35.25 for restricted stock units and $36.78 for performance share units granted during the six months ended June 30, 2017.
We recognized stock-based compensation expense of $6 million and $12 million during the three and six months ended June 30, 2017, respectively. At June 30, 2017, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $36 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of 2022. We recognized stock-based compensation expense of $4 million and $11 million during the three and six months ended June 30, 2016, respectively.
Stock based awards are made pursuant to stock compensation plans that are approved by our shareholders. The 2017 Performance Plan was adopted by our shareholders on April 10, 2017 and will expire on April 9, 2027 unless earlier terminated. The 2017 Performance Plan replaced the 2013 Performance Plan, which was terminated on April 10, 2017, except with respect to outstanding awards.
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
We have recorded liabilities totaling $52 million and $55 million at June 30, 2017 and December 31, 2016, 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, $19 million and $21 million was included in Other Current Liabilities at June 30, 2017 and December 31, 2016, 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.
Workers’ Compensation
We have recorded liabilities, on a discounted basis, totaling $249 million and $248 million for anticipated costs related to workers’ compensation at June 30, 2017 and December 31, 2016, respectively. Of these amounts, $44 million and $48 million was included in Current Liabilities as part of Compensation and Benefits at June 30, 2017 and December 31, 2016, 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 June 30, 2017 and December 31, 2016, the liability was discounted using a risk-free rate of return. At June 30, 2017, we estimate that it is reasonably possible that the liability could exceed our recorded amounts by approximately $30 million.
- 20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General and Product Liability and Other Litigation
We have recorded liabilities totaling $329 million and $316 million, including related legal fees expected to be incurred, for potential product liability and other tort claims, including asbestos claims, at June 30, 2017 and December 31, 2016, respectively. Of these amounts, $54 million and $49 million was included in Other Current Liabilities at June 30, 2017 and December 31, 2016, 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 June 30, 2017, 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.
We have recorded an indemnification asset within Accounts Receivable of $5 million and within Other Assets of $28 million for Sumitomo Rubber Industries, Ltd.'s ("SRI") obligation to indemnify us for certain product liability claims related to products manufactured by a formerly consolidated joint venture entity, subject to certain caps and restrictions.
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 126,700 claims by defending, obtaining the dismissal thereof, or 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 $525 million through June 30, 2017 and $517 million through December 31, 2016.
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.
Six Months Ended | Year Ended | ||||||
(Dollars in millions) | June 30, 2017 | December 31, 2016 | |||||
Pending claims, beginning of period | 64,400 | 67,400 | |||||
New claims filed | 1,000 | 1,900 | |||||
Claims settled/dismissed | (4,000 | ) | (4,900 | ) | |||
Pending claims, end of period | 61,400 | 64,400 | |||||
Payments (1) | $ | 4 | $ | 20 | |||
(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 recorded gross liabilities for both asserted and unasserted claims, inclusive of defense costs, totaling $175 million and $171 million at June 30, 2017 and December 31, 2016, respectively. In determining the estimate of our asbestos liability, we evaluated claims over the next ten-year period. Due to the difficulties in making these estimates, analysis based on new data and/or a change in circumstances arising in the future may result in an increase in the recorded obligation, and that increase could be significant.
We maintain certain primary and excess insurance coverage under coverage-in-place agreements, and also have additional excess liability insurance with respect to asbestos liabilities. After consultation with our outside legal counsel and giving consideration to agreements with certain of our insurance carriers, the financial viability and legal obligations of our insurance carriers and other relevant factors, we determine an amount we expect is probable of recovery from such carriers. We record a receivable with respect to such policies when we determine that recovery is probable and we can reasonably estimate the amount of a particular recovery.
We recorded a receivable related to asbestos claims of $126 million and $123 million at June 30, 2017 and December 31, 2016, respectively. We expect that approximately 70% of asbestos claim related losses would be recoverable through insurance during the ten-year period covered by the estimated liability. Of these amounts, $12 million was included in Current Assets as part of Accounts Receivable at June 30, 2017 and December 31, 2016. The recorded receivable consists of an amount we expect to collect under coverage-in-place agreements with certain primary and excess insurance carriers as well as an amount we believe is probable of recovery from certain of our other excess insurance carriers.
We believe that, at December 31, 2016, we had approximately $430 million in excess level policy limits applicable to indemnity and defense costs for asbestos products claims under coverage-in-place agreements. We also had additional unsettled excess level
- 21-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
policy limits potentially applicable to such costs. We had coverage under certain primary policies for indemnity and defense costs for asbestos products claims under remaining aggregate limits pursuant to a coverage-in-place agreement, as well as coverage for indemnity and defense costs for asbestos premises claims pursuant to coverage-in-place agreements.
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.
Amiens Labor Claims
Approximately 850 former employees of the closed Amiens, France manufacturing facility have asserted wrongful termination or other claims totaling €118 million ($135 million) against Goodyear Dunlop Tires France. We intend to vigorously defend ourselves against these claims, and any additional claims that may be asserted against us, and cannot estimate the amounts, if any, that we may ultimately pay in respect of such claims.
Other Actions
We are currently a party to various claims, indirect tax assessments and legal proceedings in addition to those noted above. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations.
Our recorded liabilities and estimates of reasonably possible losses for the contingent liabilities described above are based on our assessment of potential liability using the information available to us at the time and, where applicable, any past experience and recent and current trends with respect to similar matters. Our contingent liabilities are subject to inherent uncertainties, and unfavorable judicial or administrative decisions could occur which we did not anticipate. Such an unfavorable decision could include monetary damages, fines or other penalties or an injunction prohibiting us from taking certain actions or selling certain products. If such an unfavorable decision were to occur, it could result in a material adverse impact on our financial position and results of operations in the period in which the decision occurs, or in future periods.
Income Tax Matters
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize income tax benefits to the extent that it is more likely than not that our positions will be sustained when challenged by the taxing authorities. We derecognize income tax benefits when based on new information we determine that it is no longer more likely than not that our position will be sustained. To the extent we prevail in matters for which liabilities have been established, or determine we need to derecognize tax benefits recorded in prior periods, our results of operations and effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash, and lead to recognition of expense to the extent the settlement amount exceeds recorded liabilities and, in the case of an income tax settlement, result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction of expense to the extent the settlement amount is lower than recorded liabilities and, in the case of an income tax settlement, would result in a reduction in our effective tax rate in the period of resolution.
While the Company applies consistent transfer pricing policies and practices globally, supports transfer prices through economic studies, seeks advance pricing agreements and joint audits to the extent possible and believes its transfer prices to be appropriate, such transfer prices, and related interpretations of tax laws, are occasionally challenged by various taxing authorities globally. We have received various tax assessments challenging our interpretations of applicable tax laws in various jurisdictions. Although we believe we have complied with applicable tax laws, have strong positions and defenses and have historically been 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.
- 22-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Guarantees
We have off-balance sheet financial guarantees and other commitments totaling approximately $39 million and $40 million at June 30, 2017 and December 31, 2016, respectively. We issue guarantees to financial institutions or other entities on behalf of certain of our affiliates, lessors or customers. We also generally do not require collateral in connection with the issuance of these guarantees. In 2015, as a result of the dissolution of the global alliance with SRI, we issued a guarantee of approximately $46 million to an insurance company related to SRI's obligation to pay certain outstanding workers' compensation claims of a formerly consolidated joint venture entity. As of June 30, 2017, this guarantee amount has been reduced to $38 million. We have concluded the probability of our performance to be remote and, therefore, have not recorded a liability for this guarantee. While there is no fixed duration of this guarantee, we expect the amount of this guarantee to continue to decrease over time as the formerly consolidated joint venture entity pays its outstanding claims. If our performance under these guarantees is triggered by non-payment or another specified event, we would be obligated to make payment to the financial institution or the other entity, and would typically have recourse to the affiliate, lessor, customer, or SRI. Except for the workers' compensation guarantee described above, the guarantees expire at various times through 2020. We are unable to estimate the extent to which our affiliates’, lessors’, customers’, or SRI's assets would be adequate to recover any payments made by us under the related guarantees.
NOTE 12. CAPITAL STOCK
Dividends
In the first six months of 2017, we paid cash dividends of $50 million on our common stock. On July 12, 2017, the Board of Directors (or a duly authorized committee thereof) declared cash dividends of $0.10 per share of common stock, or approximately $25 million in the aggregate. The dividend will be paid on September 1, 2017 to stockholders of record as of the close of business on August 1, 2017. Future quarterly dividends are subject to Board approval.
Common Stock Repurchases
On September 18, 2013, the Board of Directors approved our common stock repurchase program. From time to time, the Board of Directors has approved increases in the amount authorized to be purchased under that program. On February 2, 2017, the Board of Directors approved a further increase in that authorization to an aggregate of $2.1 billion. This program expires on December 31, 2019. We intend to repurchase shares of common stock in open market transactions in order to offset new shares issued under equity compensation programs and to provide for additional shareholder returns. During the second quarter of 2017, we repurchased 146,626 shares at an average price, including commissions, of $35.17 per share, or $5 million in the aggregate. During the first six months of 2017, we repurchased 843,120 shares at an average price, including commissions, of $35.77 per share, or $30 million in the aggregate. Since 2013, we repurchased 32,057,230 shares at an average price, including commissions, of $29.43 per share, or $943 million in the aggregate.
In addition, we may repurchase shares delivered to us by employees as payment for the exercise price of stock options and the withholding taxes due upon the exercise of the stock options or the vesting or payment of stock awards. During the first six months of 2017, we did not repurchase any shares from employees.
- 23-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13. CHANGES IN SHAREHOLDERS’ EQUITY
The following tables present the changes in shareholders’ equity for the six months ended June 30, 2017 and 2016:
June 30, 2017 | June 30, 2016 | ||||||||||||||||||||||
(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 | $ | 4,507 | $ | 218 | $ | 4,725 | $ | 3,920 | $ | 222 | $ | 4,142 | |||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||
Net income | 313 | 10 | 323 | 386 | 11 | 397 | |||||||||||||||||
Foreign currency translation, net of tax of $19 in 2017 ($14 in 2016) | 121 | 13 | 134 | 5 | 2 | 7 | |||||||||||||||||
Amortization of prior service cost and unrecognized gains (losses) included in total benefit cost, net of tax of $21 in 2017 ($16 in 2016) | 39 | — | 39 | 32 | — | 32 | |||||||||||||||||
Decrease in net actuarial losses, net of tax of $1 in 2017 ($0 in 2016) | 3 | — | 3 | 1 | — | 1 | |||||||||||||||||
Immediate recognition of prior service cost and unrecognized gains (losses) due to curtailments, settlements, and divestitures, net of tax of $0 in 2017 and 2016 | — | — | — | 15 | — | 15 | |||||||||||||||||
Deferred derivative gains (losses), net of tax of ($7) in 2017 ($0 in 2016) | (14 | ) | — | (14 | ) | 3 | — | 3 | |||||||||||||||
Reclassification adjustment for amounts recognized in income, net of tax of ($1) in 2017 (($2) in 2016) | (3 | ) | — | (3 | ) | (8 | ) | — | (8 | ) | |||||||||||||
Other comprehensive income | 146 | 13 | 159 | 48 | 2 | 50 | |||||||||||||||||
Total comprehensive income | 459 | 23 | 482 | 434 | 13 | 447 | |||||||||||||||||
Dividends declared to minority shareholders | — | (5 | ) | (5 | ) | — | (9 | ) | (9 | ) | |||||||||||||
Stock-based compensation plans (Note 10) | 12 | — | 12 | 13 | — | 13 | |||||||||||||||||
Repurchase of common stock (Note 12) | (30 | ) | — | (30 | ) | (150 | ) | — | (150 | ) | |||||||||||||
Dividends declared (Note 12) | (50 | ) | — | (50 | ) | (38 | ) | — | (38 | ) | |||||||||||||
Common stock issued from treasury | 11 | — | 11 | 3 | — | 3 | |||||||||||||||||
Balance at end of period | $ | 4,909 | $ | 236 | $ | 5,145 | $ | 4,182 | $ | 226 | $ | 4,408 | |||||||||||
- 24-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents changes in Accumulated Other Comprehensive Loss (AOCL), by component, for the six months ended June 30, 2017 and 2016:
(In millions) Income (Loss) | Foreign Currency Translation Adjustment | Unrecognized Net Actuarial Losses and Prior Service Costs | Deferred Derivative Gains (Losses) | Total | |||||||||||
Balance at December 31, 2016 | $ | (1,155 | ) | $ | (3,053 | ) | $ | 10 | $ | (4,198 | ) | ||||
Other comprehensive income (loss) before reclassifications | 121 | 3 | (14 | ) | 110 | ||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 39 | (3 | ) | 36 | ||||||||||
Balance at June 30, 2017 | $ | (1,034 | ) | $ | (3,011 | ) | $ | (7 | ) | $ | (4,052 | ) | |||
Foreign Currency Translation Adjustment | Unrecognized Net Actuarial Losses and Prior Service Costs | Deferred Derivative Gains (Losses) | Total | ||||||||||||
Balance at December 31, 2015 | $ | (946 | ) | $ | (3,071 | ) | $ | 7 | $ | (4,010 | ) | ||||
Other comprehensive income (loss) before reclassifications | 5 | 1 | 3 | 9 | |||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 47 | (8 | ) | 39 | ||||||||||
Balance at June 30, 2016 | $ | (941 | ) | $ | (3,023 | ) | $ | 2 | $ | (3,962 | ) | ||||
The following table presents reclassifications out of Accumulated Other Comprehensive Loss:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
(In millions) (Income) Expense | 2017 | ||||||||||||||||