Document


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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2018
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Ohio
(State or Other Jurisdiction of
Incorporation or Organization)
 
34-0253240
(I.R.S. Employer
Identification No.)
 
 
 
200 Innovation Way, Akron, Ohio
(Address of Principal Executive Offices)
 
44316-0001
(Zip Code)

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock,
Without Par Value, Outstanding at September 30, 2018:
 
233,010,046
 




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
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions, except per share amounts)
2018
 
2017
 
2018
 
2017
Net Sales (Note 2)
$
3,928

 
$
3,921

 
$
11,599

 
$
11,306

Cost of Goods Sold
3,028

 
3,054

 
8,953

 
8,599

Selling, Administrative and General Expense
553

 
545

 
1,732

 
1,700

Rationalizations (Note 3)
5

 
46

 
40

 
102

Interest Expense
82

 
84

 
236

 
260

Other (Income) Expense (Note 4)
(253
)
 
30

 
(171
)
 
54

Income before Income Taxes
513

 
162

 
809

 
591

United States and Foreign Tax Expense (Note 5)
159

 
30

 
211

 
136

Net Income
354

 
132

 
598

 
455

Less: Minority Shareholders’ Net Income
3

 
3

 
15

 
13

Goodyear Net Income
$
351

 
$
129

 
$
583

 
$
442

Goodyear Net Income — Per Share of Common Stock
 
 
 
 
 
 
 
Basic
$
1.49

 
$
0.52

 
$
2.45

 
$
1.76

Weighted Average Shares Outstanding (Note 6)
236

 
250

 
238

 
251

Diluted
$
1.48

 
$
0.50

 
$
2.42

 
$
1.73

Weighted Average Shares Outstanding (Note 6)
238

 
254

 
241

 
255

 
 
 
 
 
 
 
 
Cash Dividends Declared Per Common Share (Note 13)
$
0.14

 
$
0.10

 
$
0.42

 
$
0.30

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
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Net Income
$
354

 
$
132

 
$
598

 
$
455

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
Foreign currency translation, net of tax of $0 and ($8) in 2018 ($25 and $44 in 2017)
(86
)
 
35

 
(235
)
 
169

Defined benefit plans:
 
 
 
 
 
 
 
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $8 and $24 in 2018 ($10 and $31 in 2017)
26

 
18

 
79

 
57

(Increase)/Decrease in net actuarial losses, net of tax of ($4) and $2 in 2018 (($16) and ($15) in 2017)
(20
)
 
(26
)
 
(1
)
 
(23
)
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures, net of tax of $2 and $4 in 2018 ($9 and $9 in 2017)
9

 
15

 
13

 
15

Deferred derivative gains (losses), net of tax of $1 and $3 in 2018 (($2) and ($9) in 2017)

 
(5
)
 
6

 
(19
)
Reclassification adjustment for amounts recognized in income, net of tax of $0 and $2 in 2018 ($0 and ($1) in 2017)
1

 
1

 
6

 
(2
)
Other Comprehensive Income (Loss)
(70
)
 
38

 
(132
)
 
197

Comprehensive Income (Loss)
284

 
170

 
466

 
652

Less: Comprehensive Income (Loss) Attributable to Minority Shareholders
(6
)
 
4

 
(10
)
 
27

Goodyear Comprehensive Income
$
290

 
$
166

 
$
476

 
$
625

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

- 2-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
 
December 31,
(In millions, except share data)
2018
 
2017
Assets:
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
896

 
$
1,043

Accounts Receivable, less Allowance — $117 ($116 in 2017)
2,670

 
2,025

Inventories:
 
 
 
Raw Materials
567

 
466

Work in Process
155

 
142

Finished Products
2,216

 
2,179

 
2,938

 
2,787

Prepaid Expenses and Other Current Assets
249

 
224

Total Current Assets
6,753

 
6,079

Goodwill
572

 
595

Intangible Assets
137

 
139

Deferred Income Taxes (Note 5)
1,908

 
2,008

Other Assets
1,089

 
792

Property, Plant and Equipment, less Accumulated Depreciation — $10,199 ($10,078 in 2017)
7,132

 
7,451

Total Assets
$
17,591

 
$
17,064

 
 
 
 
Liabilities:
 
 
 
Current Liabilities:
 
 
 
Accounts Payable — Trade
$
2,819

 
$
2,807

Compensation and Benefits (Notes 10 and 11)
517

 
539

Other Current Liabilities
795

 
1,026

Notes Payable and Overdrafts (Note 8)
445

 
262

Long Term Debt and Capital Leases due Within One Year (Note 8)
471

 
391

Total Current Liabilities
5,047

 
5,025

Long Term Debt and Capital Leases (Note 8)
5,604

 
5,076

Compensation and Benefits (Notes 10 and 11)
1,350

 
1,515

Deferred Income Taxes (Note 5)
95

 
100

Other Long Term Liabilities
495

 
498

Total Liabilities
12,591

 
12,214

Commitments and Contingent Liabilities (Note 12)

 

Shareholders’ Equity:
 

 
 

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

 
 

Authorized, 450 million shares, Outstanding shares — 233 and 240 million in 2018 and 2017 after deducting 45 and 38 million treasury shares in 2018 and 2017
233

 
240

Capital Surplus
2,125

 
2,295

Retained Earnings
6,525

 
6,044

Accumulated Other Comprehensive Loss
(4,083
)
 
(3,976
)
Goodyear Shareholders’ Equity
4,800

 
4,603

Minority Shareholders’ Equity — Nonredeemable
200

 
247

Total Shareholders’ Equity
5,000

 
4,850

Total Liabilities and Shareholders’ Equity
$
17,591

 
$
17,064

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)
 
Nine Months Ended
 
September 30,
(In millions)
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net Income
$
598

 
$
455

Adjustments to Reconcile Net Income to Cash Flows from Operating Activities:
 
 
 
Depreciation and Amortization
589

 
586

Amortization and Write-Off of Debt Issuance Costs
11

 
17

Provision for Deferred Income Taxes
59

 
33

Net Pension Curtailments and Settlements
13

 
13

Net Rationalization Charges (Note 3)
40

 
102

Rationalization Payments
(151
)
 
(96
)
Net (Gains) Losses on Asset Sales (Note 4)
(1
)
 
(14
)
Gain on TireHub Transaction, Net of Transaction Costs (Note 4)
(273
)
 

Pension Contributions and Direct Payments
(56
)
 
(67
)
Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions:
 
 
 
Accounts Receivable
(807
)
 
(807
)
Inventories
(254
)
 
(254
)
Accounts Payable — Trade
235

 
5

Compensation and Benefits
7

 
(27
)
Other Current Liabilities
(119
)
 
(51
)
Other Assets and Liabilities
85

 
(49
)
Total Cash Flows from Operating Activities
(24
)
 
(154
)
Cash Flows from Investing Activities:
 
 
 
Capital Expenditures
(615
)
 
(683
)
Asset Dispositions (Note 4)
2

 
9

Short Term Securities Acquired
(61
)
 
(51
)
Short Term Securities Redeemed
61

 
51

Notes Receivable
(50
)
 

Other Transactions
(1
)
 
(1
)
Total Cash Flows from Investing Activities
(664
)
 
(675
)
Cash Flows from Financing Activities:
 
 
 
Short Term Debt and Overdrafts Incurred
1,458

 
544

Short Term Debt and Overdrafts Paid
(1,267
)
 
(523
)
Long Term Debt Incurred
4,704

 
4,972

Long Term Debt Paid
(3,992
)
 
(4,193
)
Common Stock Issued
4

 
12

Common Stock Repurchased (Note 13)
(200
)
 
(205
)
Common Stock Dividends Paid (Note 13)
(100
)
 
(75
)
Transactions with Minority Interests in Subsidiaries
(27
)
 
(6
)
Debt Related Costs and Other Transactions
(3
)
 
(69
)
Total Cash Flows from Financing Activities
577

 
457

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(37
)
 
51

Net Change in Cash, Cash Equivalents and Restricted Cash
(148
)
 
(321
)
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period
1,110

 
1,189

Cash, Cash Equivalents and Restricted Cash at End of the Period
$
962

 
$
868

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 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, 2017 (the “2017 Form 10-K”).
Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2018.
Recently Adopted Accounting Standards
Effective January 1, 2018, we adopted an accounting standards update, and all related amendments, 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 or services. We applied the new guidance to all open contracts at the date of adoption using the modified retrospective method. We recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The cumulative effect of the changes made to our January 1, 2018 balance sheet for the adoption of the standards update was as follows:
 
Balance at
 
Adjustment for
 
Balance at
(In millions)
December 31, 2017
 
New Standard
 
January 1, 2018
Accounts Receivable
$
2,025

 
$
3

 
$
2,028

Prepaid Expenses and Other Current Assets
224

 
7

 
231

Deferred Income Taxes — Asset
2,008

 
1

 
2,009

Accounts Payable — Trade
2,807

 
7

 
2,814

Other Current Liabilities
1,026

 
7

 
1,033

Retained Earnings
6,044

 
(3
)
 
6,041

The impact of the adoption of the standards update on our Consolidated Statements of Operations for the nine month period ended September 30, 2018 was an increase of $7 million to Net Sales and an increase of $5 million to Net Income. There was no impact to Net Sales or Net Income for the three month period ended September 30, 2018.
The impact of the adoption of the standards update on our Consolidated Balance Sheet as of September 30, 2018 was as follows:
 
As of September 30, 2018
 
 
 
Balances
 
 
(In millions)
As Reported
 
Without Adoption
 
Effect of Change
Accounts Receivable
$
2,670

 
$
2,658

 
$
12

Prepaid Expenses and Other Current Assets
249

 
238

 
11

Deferred Income Taxes — Asset
1,908

 
1,909

 
(1
)
Accounts Payable — Trade
2,819

 
2,810

 
9

Other Current Liabilities
795

 
784

 
11

Retained Earnings
6,525

 
6,523

 
2


- 5-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

We do not expect the impact of the adoption of this new standards update to be material to our consolidated financial statements on an ongoing basis.
Effective January 1, 2018, we adopted an accounting standards update intended to improve the financial statement presentation of pension and postretirement benefits cost. The new guidance 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. In addition, the new guidance allows only service cost to be capitalized. We applied the new guidance using the retrospective method. In alignment with the new standards update, we reclassified $15 million and $27 million of expense from Cost of Goods Sold ("CGS") and $11 million and $18 million of expense from Selling, Administrative and General Expense (“SAG”), including corporate related costs of $16 million and $22 million, to Other (Income) Expense for the three and nine months ended September 30, 2017, respectively. The provision of the new standards update that allows only service cost to be capitalized resulted in an additional one-time charge of $9 million which was recorded in Other (Income) Expense for the nine months ended September 30, 2018.
We expect service related costs of approximately $35 million per year, including approximately $5 million per year of corporate related costs, will remain in CGS and SAG. Further, we expect approximately $90 million of non-service related costs, including approximately $15 million of corporate related costs and excluding settlement/curtailment charges, to be classified in Other (Income) Expense during 2018.
Effective January 1, 2018, we adopted 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.  As a result of using the modified retrospective adoption approach, $2 million was recorded as a cumulative effect adjustment to increase Retained Earnings, with Deferred Income Taxes increasing by $7 million and Other Assets decreasing by $5 million. We do not expect the impact of the adoption of this new standards update to be material to our consolidated financial statements on an ongoing basis.
Effective January 1, 2018, we adopted 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 adoption of this standards update did not impact our consolidated financial statements.
Recently Issued Accounting Standards
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update with new guidance requiring a customer in a cloud computing arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to capitalize as an asset. The standards update is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted, and may be applied retrospectively or as of the beginning of the period of adoption. The adoption of this accounting standards update is not expected to have a material impact on our consolidated financial statements.
In February 2018, the FASB issued an accounting standards update that allows an optional one-time reclassification from Accumulated Other Comprehensive Income (Loss) to Retained Earnings for the stranded tax effects resulting from the new corporate tax rate under the Tax Cuts and Jobs Act. The new guidance requires additional disclosures, regardless of whether the optional reclassification is elected. The standards update is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted, and may be applied retrospectively or as of the beginning of the period of adoption. Goodyear has elected not to adopt this optional reclassification.
In August 2017, the FASB issued an accounting standards update with new guidance intended to reduce complexity in hedge accounting and make hedge results easier to understand. This includes simplifying how hedge results are presented and disclosed in the financial statements, expanding the types of hedge strategies allowed and providing relief around the documentation and assessment requirements. The standards update is effective using a modified retrospective approach, with the presentation and disclosure guidance required prospectively, for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The adoption of this accounting standards update is not expected to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued an accounting standards update with new guidance intended to simplify the subsequent measurement of goodwill. The standards update eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity will perform its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount by which the carrying amount exceeds the fair value. The standards update is effective prospectively for annual and interim

- 6-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 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. The standards update will also require quantitative and qualitative disclosures regarding key information about leasing arrangements. The standards update is effective using a modified retrospective approach for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. As originally issued, the standards update requires application at the beginning of the earliest comparative period presented at the time of adoption.  In July 2018, the FASB issued new guidance allowing entities the option to instead apply the provisions of the new leases guidance at the effective date, without adjusting the comparative periods presented.  We plan to elect this optional transition method. The standard also provides for certain practical expedients. We have completed aggregating our worldwide lease contracts, are currently in the process of evaluating those lease contracts and are implementing a new lease accounting system to support the accounting and disclosure requirements of this standards update. The adoption of this standards update will have a material impact on our financial statements as we have significant operating lease commitments that are off-balance sheet in accordance with current US GAAP.
Principles of Consolidation
The consolidated financial statements include the accounts of all legal entities in which we hold a controlling financial interest. A controlling financial interest generally arises from our ownership of a majority of the voting shares of our subsidiaries. We would also hold a controlling financial interest in variable interest entities if we are considered to be the primary beneficiary. Investments in companies in which we do not own a majority interest and we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. Investments in other companies are carried at cost. All intercompany balances and transactions have been eliminated in consolidation.
Restricted Cash
The following table provides a reconciliation of Cash, Cash Equivalents and Restricted Cash as reported within the Consolidated Statements of Cash Flows:
 
September 30,
(In millions)
2018
 
2017
Cash and Cash Equivalents
$
896

 
$
822

Restricted Cash
66

 
46

Total Cash, Cash Equivalents and Restricted Cash
$
962

 
$
868


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

- 7-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2. NET SALES
The following table shows disaggregated net sales from contracts with customers by major source:
 
Three Months Ended September 30, 2018
 
 
 
Europe, Middle East
 
 
 
 
(In millions)
Americas
 
and Africa
 
Asia Pacific
 
Total
Tire unit sales
$
1,647

 
$
1,184

 
$
479

 
$
3,310

Other tire and related sales
166

 
100

 
32

 
298

Retail services and service related sales
145

 
5

 
19

 
169

Chemical
146

 

 

 
146

Other
3

 
1

 
1

 
5

Net Sales by reportable segment
$
2,107

 
$
1,290

 
$
531

 
$
3,928

 
Nine Months Ended September 30, 2018
 
 
 
Europe, Middle East
 
 
 
 
(In millions)
Americas
 
and Africa
 
Asia Pacific
 
Total
Tire unit sales
$
4,721

 
$
3,545

 
$
1,508

 
$
9,774

Other tire and related sales
460

 
303

 
94

 
857

Retail services and service related sales
426

 
29

 
60

 
515

Chemical
437

 

 

 
437

Other
10

 
3

 
3

 
16

Net Sales by reportable segment
$
6,054

 
$
3,880

 
$
1,665

 
$
11,599

Tire unit sales consist of consumer, commercial, farm and off-the-road tire sales, including the sale of new Company-branded tires through Company-owned retail channels. Other tire and related sales consist of aviation, race, motorcycle and all-terrain vehicle tire sales, retread sales and other tire related sales. Sales of tires in this category are not included in reported tire unit information. Retail services and service related sales consist of automotive services performed for customers through our Company-owned retail channels, and includes service related products. Chemical sales relate to the sale of synthetic rubber and other chemicals to third-parties, and excludes intercompany sales. Other sales include items such as franchise fees and ancillary tire parts, such as tire rims, tire valves and valve stems.
Sales are recognized when obligations under the terms of a contract are satisfied and control is transferred. This generally occurs with shipment or delivery, depending on the terms of the underlying contract, or when services have been rendered. Sales are measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The amount of consideration we receive and sales we recognize can vary due to changes in sales incentives, rebates, rights of return or other items we offer our customers, for which we estimate the expected amounts based on an analysis of historical experience, or as the most likely amount in a range of possible outcomes. Payment terms with customers vary by region and customer, but are generally 30-90 days or at the point of sale for our consumer retail locations. Net sales exclude sales, value added and other taxes. Costs to obtain contracts are generally expensed as incurred due to the short term nature of individual contracts. Incidental items that are immaterial in the context of the contract are recognized as expense as incurred. We have elected to recognize the costs incurred for transportation of products to customers as a component of CGS.
When we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract, we record deferred revenue, which represents a contract liability. Deferred revenue included in Other Current Liabilities and Other Long Term Liabilities in the Consolidated Balance Sheet totaled $49 million and $43 million, respectively, at September 30, 2018. We recognize deferred revenue after we have transferred control of the goods or services to the customer and all revenue recognition criteria are met.

- 8-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents the balance of deferred revenue related to contracts with customers, and changes during the nine months ended September 30, 2018:
(In millions)
 
Balance at December 31, 2017
$
121

Revenue deferred during period
88

Revenue recognized during period
(117
)
Impact of foreign currency translation

Balance at September 30, 2018
$
92

NOTE 3. COSTS ASSOCIATED WITH RATIONALIZATION PROGRAMS
In order to maintain our global competitiveness, we have implemented rationalization actions over the past several years to reduce high-cost and excess manufacturing capacity and associate headcount.
The following table shows the roll-forward of our liability between periods:
 
 
 
Other Exit and
 
 
 
Associate-
 
Non-cancelable
 
 
(In millions)
Related Costs
 
Lease Costs
 
Total
Balance at December 31, 2017
$
210

 
$
3

 
$
213

2018 Charges
39

 
14

 
53

Incurred, including net Foreign Currency Translation of $2 million and $0 million, respectively
(137
)
 
(16
)
 
(153
)
Reversed to the Statements of Operations
(13
)
 

 
(13
)
Balance at September 30, 2018
$
99

 
$
1

 
$
100

The accrual balance of $100 million at September 30, 2018 is expected to be substantially utilized in the next 12 months and includes $47 million related to plans to reduce manufacturing headcount and improve operating efficiency in Europe, Middle East and Africa ("EMEA"), $38 million related to global plans to reduce SAG headcount as well as a separate SAG headcount reduction plan in EMEA, and $4 million related to the closure of our tire manufacturing facility in Philippsburg, Germany.
The following table shows net rationalization charges included in Income before Income Taxes:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Current Year Plans
 
 
 
 
 
 
 
Associate Severance and Other Related Costs
$

 
$
26

 
$
32

 
$
51

Other Exit and Non-Cancelable Lease Costs
1

 

 
1

 
1

    Current Year Plans - Net Charges
$
1

 
$
26

 
$
33

 
$
52

 
 
 
 
 
 
 
 
Prior Year Plans
 
 
 
 
 
 
 
Associate Severance and Other Related Costs
$
1

 
$
(5
)
 
$
(6
)
 
$
12

Benefit Plan Curtailments and Settlements

 
13

 

 
14

Other Exit and Non-Cancelable Lease Costs
3

 
12

 
13

 
24

    Prior Year Plans - Net Charges
4

 
20

 
7

 
50

        Total Net Charges
$
5

 
$
46

 
$
40

 
$
102

 
 
 
 
 
 
 
 
Asset Write-off and Accelerated Depreciation Charges
$

 
$
10

 
$
2

 
$
39

Substantially all of the new charges for the three and nine months ended September 30, 2018 and 2017 related to future cash outflows. Net current year plan charges for the three and nine months ended September 30, 2018 include charges of $1 million and $27 million, respectively, related to a global plan to reduce SAG headcount. Net current year plan charges for the nine months

- 9-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

ended September 30, 2018 also include charges of $6 million related to a plan to improve operating efficiency in EMEA. Net current year plan charges for the three and nine months ended September 30, 2017 include charges of $25 million related to a global plan to reduce SAG headcount. Net current year plan charges for the nine months ended September 30, 2017 also include charges of $20 million related to SAG headcount reductions in EMEA and $7 million related to a plan to improve operating efficiency in EMEA.
Net prior year plan charges for the three and nine months ended September 30, 2018 include charges of $2 million and $11 million, respectively, related to the closure of our tire manufacturing facility in Philippsburg, Germany and $2 million and $4 million, respectively, related to a plan to reduce manufacturing headcount in EMEA. Net prior year plan charges for the nine months ended September 30, 2018 also include charges of $3 million related to a global plan to reduce SAG headcount. Net prior year plan charges for the three and nine months ended September 30, 2018 include reversals of $1 million and $13 million, respectively, for actions no longer needed for their originally intended purposes. Net prior year plan charges for the three months ended September 30, 2017 include $9 million related to the closure of our tire manufacturing facility in Philippsburg, Germany, $9 million related to a global plan to reduce SAG headcount and $7 million related to manufacturing headcount reductions in EMEA. Net prior year plan charges for the nine months ended September 30, 2017 include $29 million related to the closure of our tire manufacturing facility in Philippsburg, Germany, $13 million related to a global plan to reduce SAG headcount and $11 million related to manufacturing headcount reductions in EMEA. Net charges for the three and nine months ended September 30, 2017 include reversals of $5 million and $7 million, respectively, for actions no longer needed for their originally intended purposes.
Ongoing rationalization plans had approximately $730 million in charges incurred prior to 2018 and approximately $12 million is expected to be incurred in future periods.
Approximately 300 associates will be released under new plans initiated in 2018, of which approximately 200 were released through September 30, 2018. In the first nine months of 2018, approximately 500 associates were released under plans initiated in prior years. Approximately 300 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. 12, Commitments and Contingent Liabilities, in this Form 10-Q.
Asset write-off and accelerated depreciation charges for the three and nine months ended September 30, 2018 and 2017 primarily related to the closure of our tire manufacturing facility in Philippsburg, Germany and were recorded in CGS.
NOTE 4. OTHER (INCOME) EXPENSE
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Gain on TireHub transaction, net of transaction costs
$
(287
)
 
$

 
$
(273
)
 
$

Non-service related pension and other postretirement benefits cost
33

 
26

 
92

 
45

Financing fees and financial instruments
9

 
8

 
27

 
48

Royalty income
(5
)
 
(10
)
 
(15
)
 
(26
)
Interest income
(6
)
 
(3
)
 
(12
)
 
(10
)
Net foreign currency exchange (gains) losses
(2
)
 
(1
)
 
(7
)
 
(4
)
General and product liability expense (income) - discontinued products
5

 
(3
)
 
3

 

Net (gains) losses on asset sales
(1
)
 
(1
)
 
(1
)
 
(14
)
Miscellaneous expense
1

 
14

 
15

 
15

 
$
(253
)
 
$
30

 
$
(171
)
 
$
54

On April 16, 2018, we announced an agreement to form a 50/50 joint venture with Bridgestone Americas, Inc. ("Bridgestone") that would combine our Company-Owned Wholesale Distribution (“COWD”) business and Bridgestone’s tire wholesale warehouse business to create TireHub, LLC ("TireHub"), a national tire distributor in the United States. On July 1, 2018, the transaction closed and TireHub commenced operations. Upon closing, we transferred certain assets and liabilities of the COWD business, with a net book value of $6 million, to TireHub. With the assistance of a third party valuation specialist, we determined the fair value of our equity interest in TireHub to be $292 million as of July 1, 2018, using a discounted cash flow method. As a result,

- 10-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

we recognized a gain of $286 million, which represents the difference between the fair value of the equity interest received and the net book value of the assets and liabilities contributed. For the three and nine months ended September 30, 2018, we incurred transaction costs of $(1) million and $13 million in connection with the formation of the joint venture.
Non-service related pension and other postretirement benefits cost consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost, as well as curtailments and settlements which are not related to rationalization plans. Non-service related pension and other postretirement benefits cost for the nine months ended September 30, 2018 includes expense of $9 million related to the adoption of the new accounting standards update which no longer allows non-service related pension and other postretirement benefits cost to be capitalized in inventory. For further information, refer to Note to the Consolidated Financial Statements No. 10, Pension, Savings and Other Postretirement Benefit Plans, in this Form 10-Q.
Financing fees and financial instruments consist of commitment fees and charges incurred in connection with financing transactions. Financing fees and financial instruments for the nine months ended September 30, 2017 include a redemption premium of $25 million related to the redemption of our $700 million 7% senior notes due 2022 in May 2017.
Miscellaneous expense for the three and nine months ended September 30, 2018 includes continuing repair expenses of $2 million and $12 million, respectively, incurred by the Company as a direct result of hurricanes Harvey and Irma during the third quarter of 2017. Miscellaneous expense for the three and nine months ended September 30, 2017 includes $12 million related to expenses incurred by the Company as a direct result of the hurricanes.
Other (Income) Expense also includes 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, net foreign currency exchange (gains) and losses, general and product liability expense (income) - discontinued products, which consists of charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries, and net (gains) losses on asset sales.
NOTE 5. INCOME TAXES
For the third quarter of 2018, we recorded tax expense of $159 million on income before income taxes of $513 million. For the first nine months of 2018, we recorded tax expense of $211 million on income before income taxes of $809 million. Income tax expense for the three and nine months ended September 30, 2018 includes net discrete charges of $31 million and $10 million, respectively.
The Tax Cuts and Jobs Act (the "Tax Act") enacted on December 22, 2017 in the United States included a one-time tax on certain previously untaxed accumulated earnings and profits of foreign subsidiaries (the "transition tax"). During the second quarter of 2018, we received dividends, primarily from subsidiaries in Japan and Singapore, and recorded a $25 million discrete tax benefit to claim foreign tax credits for taxes that were not creditable for purposes of the transition tax obligation. On August 1, 2018, the Department of Treasury and the Internal Revenue Service released a proposed regulation regarding the transition tax. The proposed regulation provides that income taxes on income subject to the transition tax that are not creditable for purposes of the transition tax obligation, will not be a creditable foreign tax. As a result, we have recorded a third quarter discrete charge of $25 million primarily to reverse the tax benefit recorded in the second quarter. The proposed regulation also would require accumulated deficits of foreign subsidiaries to be excluded for purposes of calculating taxes creditable against the transition tax. As such, we recorded a third quarter charge of $11 million to adjust our transition tax obligation based upon that proposed regulation. For the nine months ended September 30, 2018, we have recorded a discrete net tax charge of $14 million related to the transition tax. Discrete tax charges for the three and nine months ended September 30, 2018 also include net benefits of $5 million and $4 million, respectively, for various other tax adjustments.
We were able to reasonably estimate the transition tax and record an initial provisional tax obligation of $77 million at December 31, 2017. Adjusted for guidance provided through September 30, 2018, we have now recorded a provisional transition tax obligation totaling $91 million. At December 31, 2017, we established a provisional reserve of $19 million related to foreign withholding taxes that we would incur should we repatriate certain earnings. During the nine months ending September 30, 2018, our reserve decreased to $10 million to reflect payments of withholding tax on dividends from foreign subsidiaries. In the fourth quarter of 2018, we will further adjust our provisional amounts to reflect the impact of changes to earnings and profits of our subsidiaries resulting from our 2017 corporate income tax return.  We also will continue to consider new guidance related to our provisional amounts and will complete our accounting during the fourth quarter of 2018.
In the third quarter of 2017, we recorded tax expense of $30 million on income before income taxes of $162 million. For the first nine months of 2017, we recorded tax expense of $136 million on income before income taxes of $591 million. Income tax expense for the three and nine months ended September 30, 2017 was favorably impacted by $12 million and $23 million, respectively, of various discrete tax adjustments.

- 11-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate for the three and nine months ended September 30, 2018 and the U.S. statutory rate of 21% primarily relates to the discrete items noted above and an overall higher effective tax rate in the foreign jurisdictions in which we operate, partially offset by a benefit from our foreign derived intangible income deduction provided for in the Tax Act. The difference between our effective tax rate for the three and nine months ended September 30, 2017 and the then applicable U.S. statutory rate of 35% was primarily attributable to the discrete items noted above and an overall lower effective tax rate in the foreign jurisdictions in which we operate.
The Tax Act subjects a U.S. parent to the base erosion minimum tax ("BEAT") and a current tax on its global intangible low-taxed income ("GILTI"). We have elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred. We estimate that the impact from the BEAT and GILTI taxes will not be material to our income tax provision.
Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets. Each reporting period we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. If recent positive evidence provided by the profitability of our Brazilian subsidiary continues, it will provide us the opportunity to apply greater significance to our forecasts in assessing the need for a valuation allowance. We believe it is reasonably possible that sufficient positive evidence required to release all, or a portion, of its valuation allowance will exist within the next twelve months. This may result in a reduction of the valuation allowance and a one-time tax benefit of up to $25 million.
Based on positive evidence and future sources of income in the U.S., it is more likely than not that our foreign tax credits of approximately $750 million as of December 31, 2017, will be fully utilized.
We are open to examination in the United States for 2017 and in Germany from 2013 onward. Generally, for our remaining tax jurisdictions, years from 2012 onward are still open to examination.
NOTE 6. EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are calculated to reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock.
Basic and diluted earnings per common share are calculated as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions, except per share amounts)
2018
 
2017
 
2018
 
2017
Earnings per share — basic:
 
 
 
 
 
 
 
Goodyear net income
$
351

 
$
129

 
$
583

 
$
442

Weighted average shares outstanding
236

 
250

 
238

 
251

Earnings per common share — basic
$
1.49

 
$
0.52

 
$
2.45

 
$
1.76

 
 
 
 
 
 
 
 
Earnings per share — diluted:
 
 
 
 
 
 
 
Goodyear net income
$
351

 
$
129

 
$
583

 
$
442

Weighted average shares outstanding
236

 
250

 
238

 
251

Dilutive effect of stock options and other dilutive securities
2

 
4

 
3

 
4

Weighted average shares outstanding — diluted
238

 
254

 
241

 
255

Earnings per common share — diluted
$
1.48

 
$
0.50

 
$
2.42

 
$
1.73

Weighted average shares outstanding - diluted for the three and nine months ended September 30, 2018 exclude approximately 2 million equivalent shares related to options with exercise prices greater than the average market price of our common shares (i.e., "underwater" options). There were approximately 1 million equivalent shares related to options with exercise prices greater than the average market price of our common shares for the three and nine months ended September 30, 2017.

- 12-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 7. BUSINESS SEGMENTS
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Sales:
 
 
 
 
 
 
 
Americas
$
2,107

 
$
2,041

 
$
6,054

 
$
6,028

Europe, Middle East and Africa
1,290

 
1,311

 
3,880

 
3,664

Asia Pacific
531

 
569

 
1,665

 
1,614

Net Sales
$
3,928

 
$
3,921

 
$
11,599

 
$
11,306

Segment Operating Income:
 
 
 
 
 
 
 
Americas
$
194

 
$
196

 
$
475

 
$
630

Europe, Middle East and Africa
111

 
90

 
289

 
271

Asia Pacific
57

 
81

 
203

 
225

Total Segment Operating Income
$
362

 
$
367

 
$
967

 
$
1,126

Less:
 
 
 
 
 
 
 
Rationalizations
$
5

 
$
46

 
$
40

 
$
102

Interest expense
82

 
84

 
236

 
260

Other (income) expense (Note 4)
(253
)
 
30

 
(171
)
 
54

Asset write-offs and accelerated depreciation

 
10

 
2

 
39

Corporate incentive compensation plans
(1
)
 

 
6

 
27

Intercompany profit elimination
2

 
21

 
(2
)
 
16

Retained expenses of divested operations
2

 
3

 
7

 
9

Other
12

 
11

 
40

 
28

Income before Income Taxes
$
513

 
$
162

 
$
809

 
$
591



- 13-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Rationalizations, as described in Note to the Consolidated Financial Statements No. 3, Costs Associated with Rationalization Programs, Net (gains) losses on asset sales and Asset write-offs and accelerated depreciation were not charged (credited) to the strategic business units ("SBUs") for performance evaluation purposes but were attributable to the SBUs as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Rationalizations:
 
 
 
 
 
 
 
Americas
$

 
$
4

 
$
3

 
$
6

Europe, Middle East and Africa
5

 
25

 
31

 
78

Asia Pacific

 
1

 
3

 
2

Total Segment Rationalizations
$
5

 
$
30

 
$
37

 
$
86

Corporate

 
16

 
3

 
16

Total Rationalizations
$
5

 
$
46


$
40


$
102

 
 
 
 
 
 
 
 
Net (Gains) Losses on Asset Sales:
 
 
 
 

 
 
Americas(1)
$
(288
)
 
$
(1
)
 
$
(276
)
 
$
(4
)
Europe, Middle East and Africa

 

 
2

 
(10
)
Total Net (Gains) Losses on Asset Sales
$
(288
)
 
$
(1
)
 
$
(274
)
 
$
(14
)
(1)
Americas Net (Gains) Losses on Asset Sales for the three and nine months ended September 30, 2018 includes gains of $287 million and $273 million, respectively, related to the TireHub transaction, net of transaction costs.
Asset Write-offs and Accelerated Depreciation:
 
 
 
 
 
 
 
Europe, Middle East and Africa
$

 
$
10

 
$
2

 
$
39

Total Asset Write-offs and Accelerated Depreciation
$

 
$
10

 
$
2

 
$
39


NOTE 8. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
At September 30, 2018, we had total credit arrangements of $8,689 million, of which $2,132 million were unused. At that date, 40% of our debt was at variable interest rates averaging 4.42%.
Notes Payable and Overdrafts, Long Term Debt and Capital Leases Due Within One Year and Short Term Financing Arrangements
At September 30, 2018, we had short term committed and uncommitted credit arrangements totaling $681 million, of which $236 million were unused. These arrangements are available primarily to certain of our foreign subsidiaries through various banks at quoted market interest rates.

- 14-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents amounts due within one year:
 
September 30,
 
December 31,
(In millions)
2018
 
2017
Notes payable and overdrafts
$
445

 
$
262

Weighted average interest rate
6.63
%
 
5.00
%
 
 
 
 
Chinese credit facilities
$
43

 
$
113

Mexican credit facilities
90

 

Other foreign and domestic debt (including capital leases)
338

 
278

Long term debt and capital leases due within one year
$
471

 
$
391

Weighted average interest rate
3.49
%
 
6.86
%
Total obligations due within one year
$
916

 
$
653

Long Term Debt and Capital Leases and Financing Arrangements
At September 30, 2018, we had long term credit arrangements totaling $8,008 million, of which $1,896 million were unused.
The following table presents long term debt and capital leases, net of unamortized discounts, and interest rates:
 
September 30, 2018
 
December 31, 2017
 
 
 
Interest
 
 
 
Interest
(In millions)
Amount
 
Rate
 
Amount
 
Rate
Notes:
 
 
 
 
 
 
 
8.75% due 2020
$
277

 
 
 
$
275

 
 
5.125% due 2023
1,000

 
 
 
1,000

 
 
3.75% Euro Notes due 2023
290

 
 
 
300

 
 
5% due 2026
900

 
 
 
900

 
 
4.875% due 2027
700

 
 
 
700

 
 
7% due 2028
150

 
 
 
150

 
 
Credit Facilities:
 
 
 
 
 
 
 
$2.0 billion first lien revolving credit facility due 2021
325

 
3.41
%
 

 

Second lien term loan facility due 2025
400

 
4.15
%
 
400

 
3.50
%
€550 million revolving credit facility due 2020
360

 
3.90
%
 

 

Pan-European accounts receivable facility
221

 
0.89
%
 
224

 
0.90
%
Mexican credit facilities
340

 
3.90
%
 
340

 
3.14
%
Chinese credit facilities
157

 
4.98
%
 
212

 
4.87
%
Other foreign and domestic debt(1)
955

 
5.28
%
 
967

 
6.02
%
 
6,075

 
 
 
5,468

 
 
Unamortized deferred financing fees
(37
)
 
 
 
(41
)
 
 
 
6,038

 
 
 
5,427

 
 
Capital lease obligations
37

 
 
 
40

 
 
 
6,075

 
 
 
5,467

 
 
Less portion due within one year
(471
)
 
 
 
(391
)
 
 
 
$
5,604

 
 
 
$
5,076

 
 
(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.

- 15-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTES
At September 30, 2018, we had $3,317 million of outstanding notes, compared to $3,325 million at December 31, 2017.
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 September 30, 2018, our borrowing base, and therefore our availability, under this facility was $302 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 September 30, 2018, we had $325 million of borrowings and $37 million of letters of credit issued under the revolving credit facility. At December 31, 2017, we had no borrowings and $37 million of letters of credit issued under the revolving credit facility.
$400 million Amended and Restated Second Lien Term Loan Facility due 2025
In March 2018, we amended and restated our second lien term loan facility. As a result of the amendment, the term loan, which previously matured on April 30, 2019, now matures on March 7, 2025. The term loan bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). In addition, if the Total Leverage Ratio is equal to or less than 1.25 to 1.00, we have the option to further reduce the spreads described above by 25 basis points. "Total Leverage Ratio" has the meaning given it in the facility.
Our obligations under our second lien term loan facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second priority security interests in the same collateral securing the $2.0 billion first lien revolving credit facility.
At September 30, 2018 and December 31, 2017, the amounts outstanding under this facility were $400 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. 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

- 16-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 September 30, 2018, there were $140 million (€121 million) of borrowings outstanding under the German tranche, $220 million (€190 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility. At December 31, 2017, there were no borrowings and no letters of credit outstanding under the European revolving credit facility.
Accounts Receivable Securitization Facilities (On-Balance Sheet)
On September 28, 2018, GDTE and certain other of our European subsidiaries amended and restated the definitive agreements for our pan-European accounts receivable securitization facility, extending the term through 2023. The terms of the facility provide the flexibility to designate annually the maximum amount of funding available under the facility in an amount of not less than €30 million and not more than €450 million. For the period from October 16, 2017 to October 17, 2018, the designated maximum amount of the facility was €275 million. Effective October 18, 2018, the designated maximum amount of the facility was increased to €320 million.
The facility involves the ongoing daily sale of substantially all of the trade accounts receivable of certain GDTE subsidiaries. These subsidiaries retain servicing responsibilities. Utilization under this facility is based on eligible receivable balances.
The funding commitments under the facility will expire upon the earliest to occur of: (a) September 26, 2023, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events similar to the events of default under our senior secured credit facilities; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 17, 2019.
At September 30, 2018, the amounts available and utilized under this program totaled $221 million (€191 million). At December 31, 2017, the amounts available and utilized under this program totaled $224 million (€187 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Capital Leases.
For a description of the collateral securing the credit facilities described above as well as the covenants applicable to them, refer to Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2017 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 September 30, 2018, the gross amount of receivables sold was $540 million, compared to $572 million at December 31, 2017.
Other Foreign Credit Facilities
A Mexican subsidiary and a U.S. subsidiary have several financing arrangements in Mexico. At September 30, 2018, the amounts available and utilized under these facilities were $340 million, of which $90 million is due within a year. At December 31, 2017, the amounts available and utilized under these facilities were $340 million. The facilities ultimately mature in 2020. The facilities contain covenants relating to the Mexican and U.S. subsidiary and have customary representations and warranties and defaults relating to the Mexican and U.S. subsidiary’s ability to perform its respective obligations under the applicable facilities.
A Chinese subsidiary has several financing arrangements in China. At September 30, 2018, these non-revolving credit facilities had total unused availability of $116 million and can only be used to finance the expansion of our manufacturing facility in China. At September 30, 2018 and December 31, 2017, the amounts outstanding under these facilities were $157 million and $212 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 September 30, 2018 and December 31, 2017, restricted cash related to funds obtained under these credit facilities was $5 million and $7 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.

- 17-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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:
 
September 30,
 
December 31,
(In millions)
2018
 
2017
Fair Values — Current asset (liability):
 
 
 
Accounts receivable
$
22

 
$
3

Other current liabilities
(3
)
 
(9
)
At September 30, 2018 and December 31, 2017, these outstanding foreign currency derivatives had notional amounts of $2,576 million and $1,409 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction gains on derivatives of $7 million and $52 million for the three and nine months ended September 30, 2018, respectively, and net transaction losses on derivatives of $10 million and $55 million for the three and nine months ended September 30, 2017, respectively. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures.
The following table presents fair values for foreign currency contracts designated as cash flow hedging instruments:
 
September 30,
 
December 31,
(In millions)
2018
 
2017
Fair Values — Current asset (liability):
 
 
 
Accounts receivable
$
6

 
$
1

Other current liabilities
(2
)
 
(8
)
Fair Values — Long term asset (liability):
 
 
 
Other assets
$
2

 
$

Other long term liabilities

 
(2
)
At September 30, 2018 and December 31, 2017, these outstanding foreign currency derivatives had notional amounts of $273 million and $250 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
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions) (Income) Expense
2018
 
2017
 
2018
 
2017
Amounts deferred to Accumulated Other Comprehensive Loss ("AOCL")
$
(1
)
 
$
7

 
$
(9
)
 
$
28

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

 
1

 
8

 
(3
)
Amounts excluded from effectiveness testing

 
(1
)
 
(1
)
 
(2
)
The estimated net amount of deferred gains at September 30, 2018 that are expected to be reclassified to earnings within the next twelve months is $2 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

- 18-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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.
NOTE 9. FAIR VALUE MEASUREMENTS
The following table presents information about assets and liabilities recorded at fair value on the Consolidated Balance Sheets at September 30, 2018 and December 31, 2017:
 
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)
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
11

 
$
11

 
$
11

 
$
11

 
$

 
$

 
$

 
$

Foreign Exchange Contracts
30

 
4

 

 

 
30

 
4

 

 

Total Assets at Fair Value
$
41

 
$
15

 
$
11

 
$
11

 
$
30

 
$
4

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
$
5

 
$
19

 
$

 
$

 
$
5

 
$
19

 
$

 
$

Total Liabilities at Fair Value
$
5

 
$
19

 
$

 
$


$
5

 
$
19

 
$

 
$

The following table presents supplemental fair value information about long term fixed rate and variable rate debt, excluding capital leases, at September 30, 2018 and December 31, 2017:
 
September 30,
 
December 31,
(In millions)
2018
 
2017
Fixed Rate Debt(1):
 
 
 
Carrying amount — liability
$
3,601

 
$
3,616

Fair value — liability
3,551

 
3,786

 
 
 
 
Variable Rate Debt(1):
 
 
 
Carrying amount — liability
$
2,437

 
$
1,811

Fair value — liability
2,421

 
1,811

(1)
Excludes Notes Payable and Overdrafts of $445 million and $262 million at September 30, 2018 and December 31, 2017, respectively, of which $245 million and $110 million, respectively, are at fixed rates and $200 million and $152 million, respectively, are at variable rates.  The carrying value of Notes Payable and Overdrafts approximates fair value due to the short term nature of the facilities.

Long term debt with fair values of $3,632 million and $3,857 million at September 30, 2018 and December 31, 2017, respectively, were estimated using quoted Level 1 market prices.  The carrying value of the remaining long term debt approximates fair value since the terms of the financing arrangements are similar to terms that could be obtained under current lending market conditions.

- 19-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 10. PENSION, SAVINGS AND OTHER POSTRETIREMENT BENEFIT PLANS
We provide employees with defined benefit pension or defined contribution savings plans.
Defined benefit pension cost follows:
 
U.S.
 
U.S.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Service cost
$
1

 
$
1

 
$
3

 
$
3

Interest cost
39

 
39

 
118

 
120

Expected return on plan assets
(55
)
 
(60
)
 
(164
)
 
(181
)
Amortization of net losses
28

 
27

 
84

 
83

Net periodic pension cost
$
13

 
$
7

 
$
41

 
$
25

Net curtailments/settlements/termination benefits

 
24

 
3

 
25

Total defined benefit pension cost
$
13

 
$
31

 
$
44

 
$
50

 
Non-U.S.
 
Non-U.S.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Service cost
$
7

 
$
8

 
$
21

 
$
23

Interest cost
17

 
18

 
52

 
53

Expected return on plan assets
(17
)
 
(20
)
 
(53
)
 
(59
)
Amortization of net losses
7

 
8

 
22

 
24

Net periodic pension cost
$
14

 
$
14

 
$
42

 
$
41

Net curtailments/settlements/termination benefits
10

 
2

 
10

 
2

Total defined benefit pension cost
$
24

 
$
16

 
$
52

 
$
43

 
 
 
 
 
 
 
 
Service cost is recorded in CGS or SAG. Other components of net periodic pension cost are recorded in Other (Income) Expense. Net curtailments and settlements are recorded in Other (Income) Expense or Rationalizations if related to a rationalization plan.
During the third quarter of 2018, we recognized a settlement charge of $9 million in Other (Income) Expense for our frozen U.K. pension plan. This settlement charge is related primarily to an offer of lump sum payments over a limited time during 2018 to non-retiree participants of the plan. Lump sum payments of $74 million, primarily related to this offer, were made from existing plan assets for the nine months ended September 30, 2018. As a result, total lump sum payments related to this plan exceeded annual interest cost for 2018. We expect to incur incremental settlement charges in the fourth quarter of 2018 due to additional lump sum payments to be made during that quarter.
During the third quarter of 2017, we recognized a settlement charge of $24 million in connection with our frozen salaried U.S. pension plan. The settlement charge resulted from total lump sum benefit payments exceeding annual interest cost.
For the three and nine months ended September 30, 2017, net curtailment and settlement charges of $13 million and $14 million, respectively, were included in rationalization charges for employees who terminated service as a result of ongoing rationalization plans, and net curtailment and settlement charges of $13 million in each period were recorded in Other (Income) Expense.
We expect to contribute approximately $25 million to $50 million to our funded non-U.S. pension plans in 2018. For the three and nine months ended September 30, 2018, we contributed $7 million and $26 million, respectively, to our non-U.S. plans.
The expense recognized for our contributions to defined contribution savings plans for the three months ended September 30, 2018 and 2017 was $27 million and $28 million, respectively, and for the nine months ended September 30, 2018 and 2017 was $84 million and $86 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 expense (credit) for the three months ended September 30, 2018 and 2017

- 20-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

was $2 million and $(2) million, respectively, and for the nine months ended September 30, 2018 and 2017 was $8 million and $(5) million, respectively.
NOTE 11. STOCK COMPENSATION PLANS
Our Board of Directors granted 0.8 million restricted stock units and 0.2 million performance share units during the nine months ended September 30, 2018 under our stock compensation plans.
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 $29.17 for restricted stock units and $29.04 for performance share units granted during the nine months ended September 30, 2018.
We recognized stock-based compensation expense of $6 million and $11 million during the three and nine months ended September 30, 2018, respectively. At September 30, 2018, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $33 million and is expected to be recognized over the remaining vesting period of the respective grants, through the third quarter of 2022. We recognized stock-based compensation expense of $5 million and $17 million during the three and nine months ended September 30, 2017, respectively.
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
We have recorded liabilities totaling $47 million and $46 million at September 30, 2018 and December 31, 2017, respectively, for anticipated costs related to various environmental matters, primarily the remediation of numerous waste disposal sites and certain properties sold by us. Of these amounts, $10 million was included in Other Current Liabilities at both September 30, 2018 and December 31, 2017, 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 $240 million and $243 million for anticipated costs related to workers’ compensation at September 30, 2018 and December 31, 2017, respectively. Of these amounts, $44 million and $45 million were included in Current Liabilities as part of Compensation and Benefits at September 30, 2018 and December 31, 2017, respectively. The costs include an estimate of expected settlements on pending claims, defense costs and a provision for claims incurred but not reported. These estimates are based on our assessment of potential liability using an analysis of available information with respect to pending claims, historical experience, and current cost trends. The amount of our ultimate liability in respect of these matters may differ from these estimates. We periodically, and at least annually, update our loss development factors based on actuarial analyses. At September 30, 2018 and December 31, 2017, the liability was discounted using a risk-free rate of return. At September 30, 2018, we estimate that it is reasonably possible that the liability could exceed our recorded amounts by approximately $30 million.

- 21-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

General and Product Liability and Other Litigation
We have recorded liabilities totaling $330 million and $316 million, including related legal fees expected to be incurred, for potential product liability and other tort claims, including asbestos claims, at September 30, 2018 and December 31, 2017, respectively. Of these amounts, $48 million and $55 million were included in Other Current Liabilities at September 30, 2018 and December 31, 2017, respectively. The amounts recorded were estimated based on an assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and, where available, recent and current trends. Based upon that assessment, at September 30, 2018, 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 $31 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 146,300 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 $546 million through September 30, 2018 and $529 million through December 31, 2017.
A summary of recent approximate asbestos claims activity follows. Because claims are often filed and disposed of by dismissal or settlement in large numbers, the amount and timing of settlements and the number of open claims during a particular period can fluctuate significantly.
 
Nine Months Ended
 
Year Ended
(Dollars in millions)
September 30, 2018
 
December 31, 2017
Pending claims, beginning of period
54,300

 
64,400

New claims filed
1,000

 
1,900

Claims settled/dismissed
(11,600
)
 
(12,000
)
Pending claims, end of period
43,700

 
54,300

Payments (1)
$
8

 
$
16

(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 $176 million and $167 million at September 30, 2018 and December 31, 2017, 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 $121 million and $113 million at September 30, 2018 and December 31, 2017, 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, $15 million was included in Current Assets as part of Accounts Receivable at September 30, 2018 and December 31, 2017, respectively. 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, 2017, we had approximately $440 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

- 22-



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. Recoveries may be limited by insurer insolvencies or financial difficulties. Depending upon the nature of these characteristics or events, as well as the resolution of certain legal issues, some portion of the insurance may not be accessible by us.
Amiens Labor Claims
Approximately 850 former employees of the closed Amiens, France manufacturing facility have asserted wrongful termination or other claims totaling €120 million ($139 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.

- 23-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Guarantees
We have off-balance sheet financial guarantees and other commitments totaling approximately $79 million and $82 million at September 30, 2018 and December 31, 2017, respectively. We issue guarantees to financial institutions or other entities on behalf of certain of our affiliates, lessors or customers. We generally do not require collateral in connection with the issuance of these guarantees. In 2017, we issued a guarantee of approximately $47 million in connection with an indirect tax assessment in EMEA. As of September 30, 2018, this guarantee amount has been reduced to $45 million. We have concluded our performance under this guarantee is not probable and, therefore, have not recorded a liability for this guarantee. 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 September 30, 2018, this guarantee amount has been reduced to $33 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 13. CAPITAL STOCK
Dividends
In the first nine months of 2018, we paid cash dividends of $100 million on our common stock. On October 9, 2018, the Board of Directors (or duly authorized committee thereof) declared cash dividends of $0.16 per share of common stock, or approximately $37 million in the aggregate. The dividend will be paid on December 3, 2018, to stockholders of record as of the close of business on November 1, 2018. 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 third quarter of 2018, we repurchased 4,188,492 shares at an average price, including commissions, of $23.87 per share, or $100 million in the aggregate. During the first nine months of 2018, we repurchased 8,039,584 shares at an average price, including commissions, of $24.88 per share, or $200 million in the aggregate. Since 2013, we repurchased 52,009,241 shares at an average price, including commissions, of $29.10 per share, or $1,514 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 nine months of 2018, we did not repurchase any shares from employees.

- 24-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 14. CHANGES IN SHAREHOLDERS’ EQUITY
The following tables present the changes in shareholders’ equity for the nine months ended September 30, 2018 and 2017:
 
September 30, 2018
 
September 30, 2017
(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
$
4,603

 
$
247

 
$
4,850

 
$
4,507

 
$
218

 
$
4,725

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Net income
583

 
15

 
598

 
442

 
13

 
455

Foreign currency translation, net of tax of ($8) in 2018 ($44 in 2017)
(210
)
 
(25
)
 
(235
)
 
155

 
14

 
169

Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $24 in 2018 ($31 in 2017)
79

 

 
79

 
57

 

 
57

(Increase)/Decrease in net actuarial losses, net of tax of $2 in 2018 (($15) in 2017)
(1
)
 

 
(1
)
 
(23
)
 

 
(23
)
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures, net of tax of $4 in 2018 ($9 in 2017)
13

 

 
13

 
15

 

 
15

Deferred derivative gains (losses), net of tax of $3 in 2018 (($9) in 2017)
6

 

 
6

 
(19
)
 

 
(19
)
Reclassification adjustment for amounts recognized in income, net of tax of $2 in 2018 (($1) in 2017)
6

 

 
6

 
(2
)
 

 
(2
)
Other comprehensive income (loss)
(107
)
 
(25
)
 
(132
)
 
183

 
14

 
197