Goodyear Tire & Rubber Co: Form 10-Q for the period ended Sep 30, 2023

All per share amounts are diluted and refer to Goodyear net income (loss).

OVERVIEW

The Goodyear Tire & Rubber Company (the "Company," "Goodyear," "we," "us" or "our") is one of the world’s leading manufacturers of tires, with one of the most recognizable brand names in the world and operations in most regions of the world. We have a broad global footprint with 57 manufacturing facilities in 23 countries, including the United States. We operate our business through three operating segments representing our regional tire businesses: Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific.

On September 5, 2023, we approved a rationalization and workforce reorganization plan in EMEA to improve our cost structure. The proposed actions would lead to a reduction of approximately 1,200 positions across multiple countries within EMEA while also creating approximately 500 new roles principally in our existing shared services organization in Romania, resulting in an overall net reduction of approximately 700 positions. In certain countries, relevant portions of the plan remain subject to consultation with employee representative bodies. We expect these actions will be substantially complete in 2025. The total pre-tax charges associated with the plan are expected to be $210 million to $230 million, substantially all of which are expected to be cash charges primarily for associate-related and other implementation and exit costs. During the third quarter of 2023, we accrued $167 million of pre-tax charges. The majority of the remaining charges are expected to be recorded in 2024. The majority of the cash outflows associated with this plan are expected to occur in 2024.

On September 19, 2023, we approved a rationalization plan in Asia Pacific to improve profitability in our Australia and New Zealand operations. The proposed plan will change the Company’s operating model to a third-party distribution and retail sales model instead of a company-owned approach. The plan will lead to a reduction of approximately 700 positions, the exit of nine warehouse locations, and the sale or exit of approximately 100 retail and fleet store locations. The plan remains subject to consultation with employee representative bodies. We expect to substantially complete this rationalization plan by the end of 2024 and estimate total pre-tax charges associated with this action to be between $55 million and $65 million, of which $40 million to $50 million are expected to be cash charges primarily for associate-related and lease exit costs, with the remainder primarily representing non-cash charges for accelerated depreciation and other asset-related charges. We have recorded $20 million of pre-tax charges in the third quarter of 2023 and expect to record approximately $5 million of pre-tax charges in the fourth quarter of 2023 related to this plan. The majority of the remaining charges are expected to be recorded in 2024. The majority of the cash outflows associated with this plan are expected to occur in 2024.

The full run rate savings for these actions are expected to be approximately $150 million by 2025. These actions are a part of a broader set of actions we expect to take in order to fundamentally streamline our business, improve our competitive position and drive growth. We expect to share this broader plan with investors during the fourth quarter.

Results of Operations

During the third quarter and first nine months of 2023, our operating results reflected the impact of the ongoing effects of inflation and increases in interest rates on the global economy. While global tire industry demand remains below 2019 levels, operating margins improved for each of our segments during the third quarter of 2023, when compared to the second quarter of 2023. Additionally, we saw signs of improving volume conditions in several of our markets, including the U.S., where industry volume grew 10% over the third quarter of last year. The United Auto Workers strike did not significantly impact our results during the third quarter of 2023, and we saw improvement in demand from our OE customers globally, primarily due to demand in China.

The inflationary cost pressures we experienced in the first half of 2023 eased in the third quarter as decreases in raw material and transportation costs offset inflation. However, cost pressures remain on wages and benefits as we continue to experience increased labor-related costs and manufacturing inefficiencies associated with the ongoing tight labor supply, particularly in the U.S. Additionally, energy costs remain elevated in EMEA, driven by the indirect impacts of the war in Ukraine.

During the second quarter of 2023, a severe storm in the U.S. significantly damaged and caused the temporary shut-down of our tire manufacturing facility and adjacent warehouse in Tupelo, Mississippi (“Tupelo”). The damage to Tupelo was significant; however, we were able to restart production earlier than expected and returned to full production in the beginning of the third quarter. We estimate the negative impact of the Tupelo storm on sales in Americas for the three and nine months ended September 30, 2023 was $33 million and $110 million, respectively. We estimate that the negative impact on our earnings for the three and nine months ended September 30, 2023 was $5 million ($4 million after-tax and minority) and $69 million ($56 million after-tax and minority), respectively. The negative impact on our earnings for the nine months ended September 30, 2023 included $55 million in Americas segment operating income and $14 million of corporate expense for an insurance deductible.

On August 20, 2023, a fire significantly damaged a portion of the tire curing area and caused the temporary shutdown of our tire manufacturing facility in Debica, Poland (“Debica”). Tire production at Debica resumed in August at approximately 55% of capacity and is currently at approximately 70% of capacity. A full ramp-up is not expected until the fourth quarter of 2024 due to the lead time to replace the damaged equipment. We estimate the negative impact on our earnings during the third quarter was approximately $14 million ($12 million after-tax and minority), including $8 million of corporate expense for an insurance deductible and a $6 million impact on EMEA’s segment operating income, primarily comprised of fixed costs incurred during the plant shutdown and subsequent ramp-up. There were no significant lost sales during the third quarter as a result of leveraging existing inventory and increasing production at other facilities.

We maintain third-party insurance coverage for property damage, repair expenses and business interruption, subject to a $15 million deductible for each of the events at Tupelo and Debica. While we expect to be reimbursed for a significant portion of our business interruption impacts for Tupelo and Debica by our third-party insurance coverage, consistent with past practice, we will record a receivable related to the business interruption once the claim is substantially complete.

During the third quarter and first nine months of 2023, in order to address softening industry demand and prevent the buildup of excess inventory, we reduced production at many of our tire manufacturing facilities, resulting in a reduction of 4.4 million units and 12.0 million units, respectively (excluding in each case the impact of the Tupelo storm and Debica fire), compared to production in the third quarter and first nine months of 2022, primarily in Americas and EMEA. Decisions to change production levels in the future will be based on an evaluation of market demand signals and inventory and supply levels, as well as the availability of sufficient qualified labor.

Our results for the third quarter of 2023 include a 2.8% decrease in tire unit shipments compared to 2022, primarily due to lower global replacement tire volume. In the third quarter of 2023, we realized approximately $84 million of inflationary cost pressures, which were partially offset by cost savings of $17 million, primarily due to lower transportation costs.

Net sales in the third quarter of 2023 were $5,142 million, compared to $5,311 million in the third quarter of 2022. Net sales decreased in the third quarter of 2023 primarily due to lower tire volume in Americas and EMEA, partially offset by higher tire volume in Asia Pacific, lower sales in other tire-related businesses, primarily due to a decrease in third-party chemical sales in Americas, and the negative impact of the Tupelo storm on sales. These decreases were partially offset by favorable foreign currency translation, driven by the weakening of the U.S. dollar, and improvements in price and product mix, primarily in EMEA.

In the third quarter of 2023, Goodyear net loss was $89 million, or $0.31 per share, compared to Goodyear net income of $44 million, or $0.16 per share, in the third quarter of 2022. The change in Goodyear net income (loss) was primarily due to higher rationalization charges, lower segment operating income and higher interest expense. These decreases were partially offset by lower U.S. and Foreign Tax Expense driven by the pre-tax loss and lower other expense.

Total segment operating income for the third quarter of 2023 was $336 million, compared to $373 million in the third quarter of 2022. The $37 million decrease was primarily due to increased conversion costs of $154 million driven by the effect of decreased tire production on fixed cost absorption, inflation and higher energy costs, lower tire volume of $26 million, primarily in Americas and EMEA, and lower earnings in other tire-related businesses of $23 million, primarily related to a decrease in third-party chemical and retread sales in Americas, partially offset by higher global aviation sales. These decreases were partially offset by lower raw material costs of $140 million and improvements in price and product mix of $22 million, primarily in EMEA and Asia Pacific. Refer to “Results of Operations — Segment Information” for additional information.

Net sales in the first nine months of 2023 were $14,950 million, compared to $15,431 million in the first nine months of 2022. Net sales decreased in 2023 primarily due to lower tire volume, primarily in Americas and EMEA, unfavorable foreign currency translation, driven by the strengthening of the U.S. dollar, the negative impact of the Tupelo storm on sales, and a decrease in sales in other tire-related businesses, primarily related to a decrease in third-party chemical sales in Americas and retread sales in EMEA, partially offset by higher global aviation sales, growth in EMEA's Fleet Solutions and increased retail sales in Americas. These decreases were partially offset by global improvements in price and product mix.

In the first nine months of 2023, Goodyear net loss was $398 million, or $1.40 per share, compared to Goodyear net income of $306 million, or $1.07 per share, in the first nine months of 2022. The change in Goodyear net income (loss) was primarily due to lower segment operating income, higher rationalization charges, an increase in Other Expense and higher interest expense. These decreases were partially offset by lower U.S. and Foreign Tax Expense driven by the pre-tax loss.

Total segment operating income for the first nine months of 2023 was $585 million, compared to $1,040 million in the first nine months of 2022. The $455 million decrease was primarily due to increased conversion costs of $511 million driven by the effect of decreased tire production on fixed cost absorption, inflation and higher energy costs, lower tire volume of $193 million, primarily in Americas and EMEA, higher transportation and imported tire costs of $94 million, a $55 million negative impact due to the Tupelo storm, and unfavorable foreign currency translation of $23 million driven by the strengthening of the U.S. dollar. These decreases were partially offset by global improvements in price and product mix of $659 million, which more than offset higher raw material costs of $262 million, and lower research and development costs of $25 million. Refer to "Results of Operations — Segment Information" for additional information.

Liquidity

At September 30, 2023, we had $1,002 million of cash and cash equivalents as well as $3,077 million of unused availability under our various credit agreements, compared to $1,227 million and $4,035 million, respectively, at December 31, 2022. The decrease in cash and cash equivalents of $225 million was primarily due to net cash used for operating activities of $204 million, capital expenditures of $807 million, loans to TireHub, LLC ("TireHub") of $61 million and net securities acquired of $13 million, partially offset by net borrowings of $787 million and cash proceeds from sale and leaseback transactions in Americas of $73 million. Net cash used for operating activities reflects cash used for working capital of $811 million and the Company's net loss for the period of $391 million, which includes non-cash charges for depreciation and amortization of $751 million and rationalizations of $302 million. Refer to "Liquidity and Capital Resources" for additional information.

Outlook

In the fourth quarter of 2023, we expect our replacement tire volume will be lower by approximately 3% to 4% when compared to the fourth quarter of 2022. Despite our lower expected volume, we view the 10% growth in U.S. industry volume in the third quarter of 2023 as a signal of the end of channel destocking that began in the fourth quarter of 2022. We expect our OE tire volume will be approximately 5% higher than the fourth quarter of 2022, particularly in China which continues to benefit from a focus on growing premium segments of the market including electric vehicles, sports utility vehicles and luxury vehicles.

We expect our raw material costs to be lower by approximately $300 million in the fourth quarter of 2023 compared to the fourth quarter of 2022. We anticipate price and product mix, when netted with the lower raw material costs, will be a benefit of approximately $250 million in the fourth quarter of 2023. Price and product mix are expected to reflect lower selling prices to customers with contractual raw material index adjustments and the continuing negative impact of lower commercial tire volume as a proportion of our overall tire volume, driven by weakness in the commercial truck industry. Natural and synthetic rubber prices and other commodity prices historically have been volatile, and our raw material costs could change based on future cost fluctuations and changes in foreign exchange rates. We continue to focus on price and product mix, to substitute lower cost materials where possible, to work to identify additional substitution opportunities, to reduce the amount of material required in each tire, and to pursue alternative raw materials to minimize the impact of higher raw material costs.

Additionally, we expect inflationary cost pressures to persist in the fourth quarter of 2023, particularly with respect to labor and energy costs. We expect the negative impact on segment operating income from non-raw material inflation, net of expected cost savings, will be approximately $65 million compared with the fourth quarter of 2022.

We continue to focus on actions to offset costs other than raw materials through cost savings initiatives, including rationalization actions, further pricing actions and improvements in product mix. We also anticipate our fourth quarter 2023 results will be negatively impacted by approximately $40 million as a result of lower production volume of approximately $4.4 million units during the third quarter of 2023 when compared with the third quarter of 2022, excluding the impact of the fire in Debica. We expect the lower production levels in the third quarter of 2023 as a result of the fire in Debica will negatively impact our EMEA segment operating results by approximately $15 million in the fourth quarter of 2023. In addition, we expect our corporate expenses to be negatively impacted by approximately $5 million as we anticipate recognizing additional deductibles related to the fire in Debica as repair activities continue.

For the full year of 2023, we now expect working capital to be a source of operating cash flows of approximately $150 million. We anticipate our capital expenditures will be approximately $1.05 billion. Our capital expenditures in 2023 are focused on projects to modernize certain of our manufacturing facilities and expand others to address anticipated future demand, in addition to capital expenditures to sustain our facilities. We anticipate our cash flows will include rationalization payments of approximately $100 million, as we continue to improve our cost structure.

Refer to "Item 1A. Risk Factors" in the 2022 Form 10-K for a discussion of the factors that may impact our business, results of operations, financial condition or liquidity and "Forward-Looking Information — Safe Harbor Statement" in this Quarterly Report on Form 10-Q for a discussion of our use of forward-looking statements.

RESULTS OF OPERATIONS

CONSOLIDATED

Three Months Ended September 30, 2023 and 2022

Net sales in the third quarter of 2023 were $5,142 million, decreasing $169 million, or 3.2%, from $5,311 million in the third quarter of 2022. Goodyear net loss was $89 million, or $0.31 per share, in the third quarter of 2023, compared to Goodyear net income of $44 million, or $0.16 per share, in the third quarter of 2022.

Net sales decreased in the third quarter of 2023 primarily due to lower tire volume of $115 million, representing lower tire volume in Americas and EMEA, partially offset by higher tire volume in Asia Pacific, lower sales in other tire-related businesses of $78 million, primarily due to a decrease in third-party chemical sales in Americas, and the unfavorable impact of the Tupelo storm of $33 million. These decreases were partially offset by favorable foreign currency translation of $32 million, primarily in EMEA and Americas, and improvements in price and product mix of $23 million, primarily in EMEA.

Worldwide tire unit sales in the third quarter of 2023 were 45.3 million units, decreasing 1.4 million units, or 2.8%, from 46.7 million units in the third quarter of 2022. Replacement tire volume decreased globally by 2.0 million units, or 5.3%. OE tire volume increased by 0.6 million units, or 5.7%, driven by Asia Pacific, reflecting the impact of new consumer fitments.

Cost of Goods Sold ("CGS") in the third quarter of 2023 was $4,171 million, decreasing $134 million, or 3.1%, from $4,305 million in the third quarter of 2022. CGS decreased primarily due to lower raw material costs of $140 million, lower tire volume of $89 million, primarily in Americas and EMEA, lower costs in other tire-related businesses of $55 million, primarily related to lower third-party chemical sales in Americas, a $28 million reduction due to lower sales from the impact of the Tupelo storm, and lower transportation costs of $15 million, primarily in Americas. These decreases were partially offset by increased conversion costs of $154 million driven by the effect of decreased tire production on fixed cost absorption, inflation and higher energy costs, foreign currency translation of $27 million, primarily in EMEA and Americas, driven by the weakening of the U.S. dollar, and $8 million ($7 million after-tax and minority) of accelerated depreciation and asset write-offs, primarily related to the integration of Cooper Tire & Rubber Company ("Cooper Tire") and the closure of Cooper Tire's Melksham, United Kingdom tire manufacturing facility ("Melksham").

CGS in the third quarter of 2023 and 2022 included pension expense of $3 million and $5 million, respectively. CGS was 81.1% of sales in both the third quarter of 2023 and 2022.

Selling, Administrative and General Expense ("SAG") in the third quarter of 2023 was $673 million, decreasing $23 million, or 3.3%, from $696 million in the third quarter of 2022. SAG decreased primarily due to lower wages and benefits costs of $36 million, primarily due to lower incentive compensation and restructuring savings, and lower advertising costs of $3 million. These decreases were partially offset by inflation and unfavorable foreign currency translation of $7 million, primarily in EMEA.

SAG in the third quarter of 2023 and 2022 included pension expense of $4 million for each period. SAG in the third quarter of 2023 included $12 million of incremental savings from rationalization plans, compared to $5 million in 2022. SAG in the third quarter of 2022 included a total of $6 million ($5 million after-tax and minority) of accelerated depreciation. SAG was 13.1% of sales in both the third quarter of 2023 and 2022.

We recorded net rationalization charges of $198 million ($177 million after-tax and minority) in the third quarter of 2023, primarily related to the proposed rationalization and workforce reorganization plan in EMEA and the plan to improve profitability in our Australia and New Zealand operations. We recorded net rationalization charges of $45 million ($47 million after-tax and minority) in the third quarter of 2022, primarily related to the closure of Melksham and a plan to exit our retail operations in South Africa. For further information, refer to Note to the Consolidated Financial Statements No. 3, Costs Associated with Rationalization Programs.

Interest expense in the third quarter of 2023 was $138 million, increasing $21 million, or 17.9%, from $117 million in the third quarter of 2022. The average interest rate was 6.32% in the third quarter of 2023 compared to 5.49% in the third quarter of 2022. The average debt balance was $8,738 million in the third quarter of 2023 compared to $8,525 million in the third quarter of 2022.

Other (Income) Expense in the third quarter of 2023 was $21 million of expense, compared to $42 million of expense in the third quarter of 2022. The decrease in Other (Income) Expense was primarily due to an $11 million increase in foreign currency exchange gains driven by the impact of lower net monetary assets in Turkey, a $10 million net increase in interest income, net gains on asset sales in 2023 of $6 million ($4 million after-tax and minority), and $14 million ($11 million after-tax and minority) of expense in 2022 related to intellectual property-related legal claims. These decreases were partially offset by an increase in non-service related pension and other postretirement benefits cost of $5 million due to higher interest rates, including pension settlement charges of $4 million ($2 after-tax and minority) in 2023 compared to pension settlement charges of $10 million ($7 million after-tax and minority) in 2022, a $4 million increase in fees in 2023 related to accounts receivable factoring programs driven by higher interest rates, and $4 million ($3 million after-tax and minority) of expense in 2023 for non-indemnified costs for product liability claims related to products manufactured by a formerly consolidated joint venture entity.

For the third quarter of 2023, we recorded income tax expense of $25 million on a loss before income taxes of $59 million. Income tax expense for the three months ended September 30, 2023 was favorably impacted by a net discrete tax benefit of $8 million ($8 million after minority interest). In the third quarter of 2022, we recorded income tax expense of $58 million on income before income taxes of $106 million. Income tax expense for the three months ended September 30, 2022 includes net discrete tax expense of $2 million ($2 million after minority interest).

Minority shareholders’ net income in the third quarter of 2023 was $5 million, compared to $4 million in the third quarter of 2022.

Nine Months Ended September 30, 2023 and 2022

Net sales in the first nine months of 2023 were $14,950 million, decreasing $481 million, or 3.1%, from $15,431 million in the first nine months of 2022. Goodyear net loss was $398 million, or $1.40 per share, in the first nine months of 2023, compared to Goodyear net income of $306 million, or $1.07 per share, in the first nine months of 2022.

Net sales decreased in the first nine months of 2023 primarily due to lower tire volume of $808 million, representing lower tire volume in Americas and EMEA, partially offset by higher tire volume in Asia Pacific, unfavorable foreign currency translation of $232 million, driven by the strengthening of the U.S. dollar, the unfavorable impact of the Tupelo storm of $110 million, and a decrease in sales in other tire-related businesses of $60 million, primarily related to a decrease in third-party chemical sales in Americas, partially offset by higher global aviation sales, growth in EMEA's Fleet Solutions and increased retail sales in Americas. These decreases were partially offset by global improvements in price and product mix of $724 million.

Worldwide tire unit sales in the first nine months of 2023 were 127.9 million units, decreasing 9.4 million units, or 6.8%, from 137.3 million units in the first nine months of 2022. Replacement tire volume decreased globally by 11.4 million units, or 10.5%, driven by reduced industry demand. OE tire volume increased by 2.0 million units, or 6.4%, primarily in Asia Pacific and EMEA, reflecting the impact of new consumer fitments and continued recovery in OE production.

CGS in the first nine months of 2023 was $12,487 million, increasing $44 million, or 0.4%, from $12,443 million in the first nine months of 2022. CGS increased primarily due to increased conversion costs of $511 million driven by the effect of decreased tire production on fixed cost absorption, inflation and higher energy costs, higher raw material costs of $262 million, higher transportation and imported tire costs of $94 million, higher costs related to product mix of $65 million, primarily in Americas and EMEA, and $31 million ($26 million after-tax and minority) of accelerated depreciation and asset write-offs, primarily related to the integration of Cooper Tire and the closure of Melksham. These increases were partially offset by lower tire volume of $615 million, foreign currency translation of $186 million, driven by the strengthening of the U.S. dollar, a $55 million reduction due to the net impact of lower sales, partially offset by higher period costs as a result of the Tupelo storm, lower costs in other tire-related businesses of $52 million, primarily related to a decrease in third-party chemical sales in Americas, and a $5 million ($4 million after-tax and minority) reversal of a portion of the estimated cleanup costs associated with the permanent closure of Gadsden. CGS in the first nine months of 2023 was favorably impacted by a successful legal claim of $3 million ($3 million after-tax and minority) related to a 2005 warehouse fire in Spain.

CGS in the first nine months of 2023 and 2022 included pension expense of $11 million and $17 million, respectively. CGS was 83.5% of sales in the first nine months of 2023, compared to 80.6% in the first nine months of 2022.

SAG in the first nine months of 2023 was $2,045 million, decreasing $56 million, or 2.7%, from $2,101 million in the first nine months of 2022. SAG decreased primarily due to lower wages and benefit costs of $41 million, lower foreign currency translation of $23 million, driven by the strengthening of the U.S. dollar, lower advertising costs of $21 million, and recoveries of previously written-off accounts receivable and other assets related to our exited business in Russia of $10 million ($10 million after-tax and minority). These decreases were partially offset by the impact of inflation.

SAG in the first nine months of 2023 and 2022 included pension expense of $9 million and $11 million, respectively. SAG in the first nine months of 2023 included $34 million of incremental savings from rationalization plans, compared to $7 million in 2022. SAG in the first nine months of 2022 included a total of $6 million ($5 million after-tax and minority) of accelerated depreciation. SAG was 13.7% of sales in the first nine months of 2023, compared to 13.6% in the first nine months of 2022.

We recorded net rationalization charges of $302 million ($262 million after-tax and minority) in the first nine months of 2023 and $82 million ($75 million after-tax and minority) in the first nine months of 2022. Net rationalization charges in the first nine months of 2023 primarily related to the proposed rationalization and workforce reorganization plan in EMEA, the proposed plan to reduce production capacity at Fulda, the plan to improve profitability in our Australia and New Zealand operations, and the plan to streamline our EMEA distribution network. Net rationalization charges in the first nine months of 2022 primarily related to the closure of Melksham, a plan to reduce duplicative global SAG headcount and close redundant warehouse locations in Americas as part of the integration of Cooper Tire, and a plan to exit our retail operations in South Africa. For further information, refer to Note to the Consolidated Financial Statements No. 3, Costs Associated with Rationalization Programs.

Interest expense in the first nine months of 2023 was $403 million, increasing $72 million, or 21.8%, from $331 million in the first nine months of 2022. The average interest rate was 6.18% in the first nine months of 2023 compared to 5.34% in the first nine months of 2022. The average debt balance was $8,700 million in the first nine months of 2023 compared to $8,265 million in the first nine months of 2022.

Other (Income) Expense in the first nine months of 2023 was $82 million of expense, compared to $18 million of income in the first nine months of 2022. The change in Other (Income) Expense was primarily due to an increase in non-service related pension and other postretirement benefits cost of $56 million due to higher interest rates and pension settlement charges of $40 million ($30 after-tax and minority) in 2023 compared to pension settlement charges of $28 million ($21 million after-tax and minority) in 2022. Additionally, the change in Other (Income) Expense reflects net gains on asset and other sales in 2023 of $58 million ($41 million after-tax and minority), primarily related to the sale and leaseback transaction of a warehouse in Americas, compared to a gain of $98 million ($75 million after-tax and minority) in 2022, primarily related to the sale and leaseback transaction of certain consumer and commercial retail locations in Americas, a $29 million net increase in foreign currency exchange losses driven by the weakening of the Argentine peso, offset by an increase in interest income of $33 million, primarily in Argentina, $19 million ($14 million after-tax and minority) of expense for non-indemnified costs for product liability claims related to products manufactured by a formerly consolidated joint venture entity, and a $16 million increase in fees related to accounts receivable factoring programs driven by higher interest rates. These increases were partially offset by $5 million ($5 million after-tax and minority) of income for the write-off of accumulated foreign currency translation related to our exited business in Russia. Other (Income) Expense in 2023 includes $11 million ($8 million after-tax and minority) of income related to a favorable court decision setting aside a previous unfavorable verdict on intellectual property-related legal claims. The impact of that verdict and other fees in 2022 related to these claims was $15 million of expense ($11 after-tax and minority).

For the first nine months of 2023, we recorded income tax expense of $22 million on a loss before income taxes of $369 million. Income tax expense for the nine months ended September 30, 2023 was favorably impacted by a net discrete tax benefit of $5 million ($6 million after minority interest). In the first nine months of 2022, we recorded income tax expense of $178 million on income before income taxes of $492 million. Income tax expense for the nine months ended September 30, 2022 includes net discrete tax expense of $20 million ($20 million after minority interest), including charges of $14 million to write off deferred tax assets related to tax loss carryforwards in the UK and $11 million to establish a full valuation allowance on our net deferred tax assets in Russia, partially offset by a net benefit of $5 million for various other items.

We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory rate of 21% for both the nine months ended September 30, 2023 and 2022 primarily relates to losses in foreign jurisdictions in which no tax benefits are recorded and the discrete items noted above.

For 2023, we do not anticipate that the 15% corporate alternative minimum tax ("CAMT") under the Inflation Reduction Act of 2022 will apply to us due to the significant pandemic-driven losses we incurred in 2020. As allowed, we elected to not consider the estimated impact of potential future CAMT obligations for purposes of assessing valuation allowances on our deferred tax assets.

At September 30, 2023 and December 31, 2022, we had approximately $1.2 billion and $1.1 billion of U.S. federal, state and local net deferred tax assets, respectively, inclusive of valuation allowances totaling $26 million in each period primarily for state tax loss carryforwards with limited lives. Approximately $800 million of these U.S. net deferred tax assets have unlimited lives and approximately $400 million have limited lives and expire between 2023 and 2042.

At September 30, 2023 and December 31, 2022, our U.S. net deferred tax assets described above include approximately $245 million and $230 million, respectively, of foreign tax credits with limited lives. Our earnings and forecasts of future profitability, taking into consideration recent trends, along with three significant sources of foreign income, provide us sufficient positive evidence that we will be able to utilize these net foreign tax credits which expire through 2032. Our sources of foreign income are (1) 100% of our domestic profitability can be re-characterized as foreign source income under current U.S. tax law to the extent domestic losses have offset foreign source income in prior years, (2) annual net foreign source income, exclusive of dividends, primarily from royalties, and (3) tax planning strategies, including accelerating income on cross border transactions, including sales of inventory or raw materials to our subsidiaries, reducing U.S. interest expense by, for example, reducing intercompany loans through repatriating current year earnings of foreign subsidiaries, and other financing transactions, all of which would increase our domestic profitability.

We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our foreign tax credits. These forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of raw material, transportation, labor and energy costs, on our profitability, as well as the impact of tax planning strategies. These macroeconomic factors possess a high degree of volatility and can significantly impact our profitability. As such, there is a risk that future earnings will not be sufficient to fully utilize our U.S. net deferred tax assets, including our foreign tax credits. However, we believe our forecasts of future profitability along with the three significant sources of foreign income described above provide us sufficient positive, objectively verifiable evidence to conclude that it is more likely than not that, at September 30, 2023, our U.S. net deferred tax assets, including our foreign tax credits, will be fully utilized.

At September 30, 2023 and December 31, 2022, we also had approximately $1.3 billion and $1.2 billion of foreign net deferred tax assets, respectively, and related valuation allowances of approximately $1.1 billion and $1.0 billion, respectively. Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of these net foreign deferred tax assets. Most notably, in Luxembourg, we maintain a valuation allowance of $918 million on all of our net deferred tax assets. Each reporting period, we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release valuation allowances having a significant impact on our financial position or results of operations will exist within the next twelve months.

For further information regarding income taxes and the realizability of our deferred tax assets, including our foreign tax credits, refer to Note to the Consolidated Financial Statements No. 5, Income Taxes.

Minority shareholders’ net income in the first nine months of 2023 was $7 million, compared to $8 million in the first nine months of 2022.

SEGMENT INFORMATION

Segment information reflects our strategic business units (“SBUs”), which are organized to meet customer requirements and global competition and are segmented on a regional basis.

Results of operations are measured based on net sales to unaffiliated customers and segment operating income. Each segment exports tires to other segments. The financial results of each segment exclude sales of tires exported to other segments, but include operating income derived from such transactions. Segment operating income is computed as follows: Net Sales less CGS (excluding asset write-off and accelerated depreciation charges) and SAG (including certain allocated corporate administrative expenses). Segment operating income also includes certain royalties and equity in earnings of most affiliates. Segment operating income does not include net rationalization charges (credits), asset sales and certain other items.

Total segment operating income for the third quarter of 2023 was $336 million, a decrease of $37 million, or 9.9%, from $373 million in the third quarter of 2022. Total segment operating margin in the third quarter of 2023 was 6.5%, compared to 7.0% in the third quarter of 2022. Total segment operating income for the first nine months of 2023 was $585 million, a decrease of $455 million, or 43.8%, from $1,040 million in the first nine months of 2022. Total segment operating margin in the first nine months of 2023 was 3.9%, compared to 6.7% in the first nine months of 2022.

Management believes that total segment operating income is useful because it represents the aggregate value of income created by our SBUs and excludes items not directly related to the SBUs for performance evaluation purposes. Total segment operating income is the sum of the individual SBUs’ segment operating income. Refer to Note to the Consolidated Financial Statements No. 7, Business Segments, for further information and for a reconciliation of total segment operating income to Income (Loss) before Income Taxes.

Americas

(In millions)

Three Months Ended September 30, 2023 and 2022

Americas unit sales in the third quarter of 2023 decreased 1.2 million units, or 4.9%, to 22.9 million units. Replacement tire volume decreased 1.1 million units, or 5.0%, primarily due to a decrease in our consumer business, driven by lower share in Brazil and Mexico as a result of increased competitor imports, and the impact of the severe storm at our Tupelo facility in the second quarter, as production did not fully recover until early in the third quarter. OE tire volume decreased 0.1 million units, or 4.3%.

Net sales in the third quarter of 2023 were $3,120 million, decreasing $184 million, or 5.6%, from $3,304 million in the third quarter of 2022. The decrease in net sales was primarily due to lower tire volume of $90 million, decreased sales in other tire-related businesses of $67 million, primarily due to lower third-party chemical sales, partially offset by higher aviation sales, the unfavorable impact of the Tupelo storm of $33 million and unfavorable price and product mix of $21 million. These decreases were partially offset by favorable foreign currency translation of $25 million, primarily related to the strengthening of the Brazilian real and Mexican peso, partially offset by weakening in the Canadian dollar.

Operating income in the third quarter of 2023 was $258 million, decreasing $48 million, or 15.7%, from $306 million in the third quarter of 2022. The decrease in operating income was due to higher conversion costs of $84 million, driven by the effect of decreased tire production on fixed cost absorption as well as inflation, unfavorable price and product mix of $44 million, lower tire volume of $21 million, lower earnings in other tire-related businesses of $17 million, primarily due to lower third-party chemical sales and lower retread sales, and $5 million as a result of the Tupelo storm. These decreases were partially offset by lower raw material costs of $95 million, lower transportation and imported tire costs of $19 million, and lower SAG of $7 million. Operating income for 2023 includes incremental SAG savings from rationalization plans of $10 million.

Operating income in the third quarter of 2023 excluded net gains on asset sales of $6 million, net rationalization charges of $4 million and accelerated depreciation and asset write-offs of $3 million. Operating income in the third quarter of 2022 excluded net rationalization charges of $4 million.

Nine Months Ended September 30, 2023 and 2022

Americas unit sales in the first nine months of 2023 decreased 5.4 million units, or 7.8%, to 64.2 million units. Replacement tire volume decreased 5.4 million units, or 9.2%, primarily due to a decrease in our consumer business, driven by reduced industry demand in the U.S., the impact of the Tupelo storm, and lower share in Mexico and Brazil as a result of increased imports. OE tire volume was flat compared to the first nine months of 2022.

Net sales in the first nine months of 2023 were $8,926 million, decreasing $440 million, or 4.7%, from $9,366 million in the first nine months of 2022. The decrease in net sales was primarily due to lower tire volume of $448 million, the unfavorable impact of the Tupelo storm of $110 million and decreased sales in other tire-related businesses of $79 million, primarily due to lower third-party chemical sales, partially offset by higher aviation and retail sales. These decreases were partially offset by improvements in price and product mix of $187 million, driven by price increases, and favorable foreign currency translation of $8 million.

Operating income in the first nine months of 2023 was $440 million, decreasing $375 million, or 46.0%, from $815 million in the first nine months of 2022. The decrease in operating income was due to higher conversion costs of $276 million, driven by the effect of decreased tire production on fixed cost absorption and inflation, lower tire volume of $108 million, higher transportation and imported tire costs of $65 million, a $55 million negative impact as a result of the Tupelo storm, and lower earnings in other tire-related businesses of $6 million, primarily due to lower third-party chemical sales, partially offset by higher aviation sales. These decreases were partially offset by improvements in price and product mix of $132 million, which more than offset higher raw material costs of $34 million, and lower SAG of $20 million. Operating income for 2023 includes incremental SAG savings from rationalization plans of $24 million.

Operating income in the first nine months of 2023 excluded net gains on asset sales of $68 million, primarily related to the warehouse sale and leaseback transaction, accelerated depreciation and asset write-offs of $18 million and net rationalization charges of $12 million. Operating income in the first nine months of 2022 excluded net gains on asset sales of $98 million, primarily related to the retail sale and leaseback transaction in the second quarter of 2022, and net rationalization charges of $22 million.

Europe, Middle East and Africa

(In millions)

Three Months Ended September 30, 2023 and 2022

EMEA unit sales in the third quarter of 2023 decreased 0.8 million units, or 4.9%, to 12.5 million units. Replacement tire volume decreased 0.8 million units, or 6.8%, primarily in our consumer business, reflecting the impacts of continued industry declines. OE tire volume was flat compared to the third quarter of 2022.

Net sales in the third quarter of 2023 were $1,374 million, increasing $16 million, or 1.2%, from $1,358 million in the third quarter of 2022. The increase in net sales was primarily driven by improvements in price and product mix of $46 million, driven by price increases, and favorable foreign currency translation of $33 million, driven by a stronger euro, Polish zloty and British pound, partially offset by a weaker Turkish lira. These increases were partially offset by lower tire volume of $58 million and lower sales in other tire-related businesses of $5 million, primarily due to lower retread sales.

Operating income in the third quarter of 2023 was $22 million, decreasing $8 million, or 26.7%, from $30 million in the third quarter of 2022. The decrease in operating income was primarily due to higher conversion costs of $68 million, driven by the effect of decreased tire production on fixed cost absorption, higher energy costs and inflation, lower tire volume of $12 million, lower earnings in other tire-related businesses of $7 million, primarily due to lower Fleet Solutions earnings, $6 million as a result of the Debica fire, primarily comprised of fixed costs incurred during the plant shut down and subsequent ramp-up, unfavorable foreign currency translation of $3 million and higher cost of imported tires of $1 million. These decreases were partially offset by improvements in price and product mix of $59 million and lower raw material costs of $34 million. SAG for the third quarter of 2023 includes incremental savings from rationalization plans of $2 million.

Operating income in the third quarter of 2023 excluded net rationalization charges of $139 million and accelerated depreciation of $5 million. Operating income in the third quarter of 2022 excluded net rationalization charges of $42 million.

Nine Months Ended September 30, 2023 and 2022

EMEA unit sales in the first nine months of 2023 decreased 4.8 million units, or 11.2%, to 37.5 million units. Replacement tire volume decreased 5.7 million units, or 16.8%, primarily in our consumer business, reflecting the impacts of continued industry declines. OE tire volume increased 0.9 million units, or 10.0%, reflecting continued recovery in OE production.

Net sales in the first nine months of 2023 were $4,207 million, decreasing $74 million, or 1.7%, from $4,281 million in the first nine months of 2022. The decrease in net sales was primarily due to lower tire volume of $413 million and unfavorable foreign currency translation of $140 million, driven by a weaker Turkish lira and South African rand, partially offset by a stronger euro. These decreases were partially offset by improvements in price and product mix of $456 million, driven by price increases, and higher sales in other tire-related businesses of $22 million, primarily due to growth in Fleet Solutions, partially offset by lower retread sales.

Operating income in the first nine months of 2023 was $11 million, decreasing $130 million, or 92.2%, from $141 million in the first nine months of 2022. The decrease in operating income was primarily due to higher conversion costs of $225 million, driven by higher energy costs, inflation and the effect of decreased tire production on fixed cost absorption, lower tire volume of $94 million, higher transportation costs of $26 million, unfavorable foreign currency translation of $15 million and higher SAG of $14 million, primarily due to inflation, partially offset by lower advertising costs. These decreases were partially offset by improvements in price and product mix of $434 million, which more than offset higher raw material costs of $186 million. SAG for the first nine months of 2023 includes incremental savings from rationalization plans of $10 million.

Operating income in the first nine months of 2023 excluded net rationalization charges of $227 million, accelerated depreciation of $13 million and recoveries of previously written-off accounts receivable and other assets of $10 million in Russia. Operating income in the first nine months of 2022 excluded net rationalization charges of $56 million.

Asia Pacific

(In millions)

Three Months Ended September 30, 2023 and 2022

Asia Pacific unit sales in the third quarter of 2023 increased 0.6 million units, or 5.4%, to 9.9 million units. OE tire volume increased 0.7 million units, or 18.5%, driven by new consumer fitments. Replacement tire volume decreased 0.1 million units, or 3.5%, primarily in our consumer business, driven by decreased demand in most of our markets, partially offset by industry recovery in China.

Net sales in the third quarter of 2023 were $648 million, decreasing $1 million, or 0.2%, from $649 million in the third quarter of 2022. The decrease in net sales was primarily due to unfavorable foreign currency translation of $26 million, primarily related to the strengthening of the U.S. dollar, and lower sales in other tire-related businesses of $6 million, primarily due to lower retail sales. These decreases were offset by higher tire volume of $33 million.

Operating income in the third quarter of 2023 was $56 million, increasing $19 million, or 51.4%, from $37 million in the third quarter of 2022. The increase in operating income was primarily due to lower raw material cost of $11 million, improvements in price and product mix of $7 million, driven by price increases, and higher tire volume of $7 million. These increases were partially offset by higher conversion costs of $2 million and unfavorable foreign currency translation of $2 million.

Operating income in the third quarter of 2023 excluded net rationalization charges of $20 million.

Nine Months Ended September 30, 2023 and 2022

Asia Pacific unit sales in the first nine months of 2023 increased 0.8 million units, or 3.1%, to 26.2 million units. OE tire volume increased 1.1 million units, or 10.6%, driven by new consumer fitments. Replacement tire volume decreased 0.3 million units, or 1.9%, driven by decreased demand in most of our markets, partially offset by industry recovery in China.

Net sales in the first nine months of 2023 were $1,817 million, increasing $33 million, or 1.8%, from $1,784 million in the first nine months of 2022. Net sales increased primarily due to improvements in price and product mix of $81 million, driven by price increases, and higher tire volume of $53 million. These increases were partially offset by unfavorable foreign currency translation of $100 million, primarily related to the strengthening of the U.S. dollar.

Operating income in the first nine months of 2023 was $134 million, increasing $50 million, or 59.5%, from $84 million in the first nine months of 2022. The increase in operating income was primarily due to improvements in price and product mix of $93 million, which more than offset higher raw material costs of $42 million, and higher tire volume of $9 million. These increases were partially offset by higher conversion costs of $10 million.

Operating income in the first nine months of 2023 excluded net rationalization charges of $23 million.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash generated from our operating and financing activities. Our cash flows from operating activities are driven primarily by our operating results and changes in our working capital requirements and our cash flows from financing activities are dependent upon our ability to access credit or other capital.

At September 30, 2023, we had $1,002 million in cash and cash equivalents, compared to $1,227 million at December 31, 2022. For the nine months ended September 30, 2023, net cash used for operating activities was $204 million, reflecting cash used for working capital of $811 million and the Company's net loss for the period of $391 million, which included non-cash charges for depreciation and amortization of $751 million and rationalizations of $302 million. Net cash used for investing activities was $818 million, primarily representing capital expenditures of $807 million, loans to TireHub of $61 million and net securities acquired of $13 million, partially offset by cash proceeds from sale and leaseback transactions in Americas totaling $73 million. Net cash provided by financing activities was $774 million, primarily due to net borrowings of $787 million.

At September 30, 2023, we had $3,077 million of unused availability under our various credit agreements, compared to $4,035 million at December 31, 2022. The table below presents unused availability under our credit facilities at those dates:

(In millions)

We have deposited our cash and cash equivalents and entered into various credit agreements and derivative contracts with financial institutions that we considered to be substantial and creditworthy at the time of such transactions. We seek to control our exposure to these financial institutions by diversifying our deposits, credit agreements and derivative contracts across multiple financial institutions, by setting deposit and counterparty credit limits based on long term credit ratings and other indicators of credit risk such as credit default swap spreads, and by monitoring the financial strength of these financial institutions on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to financial institutions in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a financial institution. However, we cannot provide assurance that we will not experience losses or delays in accessing our deposits or lines of credit due to the nonperformance of a financial institution. Our inability to access our cash deposits or make draws on our lines of credit, or the inability of a counterparty to fulfill its contractual obligations to us, could have a material adverse effect on our liquidity, financial condition or results of operations in the period in which it occurs.

We expect our 2023 full-year cash flow needs to include capital expenditures of approximately $1.05 billion. We also expect interest expense to be approximately $540 million; rationalization payments to be approximately $100 million; income tax payments to be approximately $200 million, excluding one-time items; and contributions to our funded pension plans to be $25 million to $50 million. We expect working capital to be a source of operating cash flows for the full year of 2023 of approximately $150 million.

We are continuing to actively monitor our liquidity and intend to operate our business in a way that allows us to address our cash flow needs with our existing cash and available credit if they cannot be funded by cash generated from operating or other financing activities. We believe that our liquidity position is adequate to fund our operating and investing needs and debt maturities for the next twelve months and to provide us with the ability to respond to further changes in the business environment.

Our ability to service debt and operational requirements is also dependent, in part, on the ability of our subsidiaries to make distributions of cash to various other entities in our consolidated group, whether in the form of dividends, loans or otherwise. In certain countries where we operate, such as China, South Africa, Serbia and Argentina, transfers of funds into or out of such countries by way of dividends, loans, advances or payments to third-party or affiliated suppliers are generally or periodically subject to certain requirements, such as obtaining approval from the foreign government and/or currency exchange board before net assets can be transferred out of the country. In addition, certain of our credit agreements and other debt instruments limit the ability of foreign subsidiaries to make distributions of cash. Thus, we would have to repay and/or amend these credit agreements and other debt instruments in order to use this cash to service our consolidated debt. Because of the inherent uncertainty of satisfactorily meeting these requirements or limitations, we do not consider the net assets of our subsidiaries, including our Chinese, South African, Serbian and Argentinian subsidiaries, which are subject to such requirements or limitations to be integral to our liquidity or our ability to service our debt and operational requirements. At September 30, 2023, approximately $960 million of net assets, including approximately $226 million of cash and cash equivalents, were subject to such requirements. The requirements we must comply with to transfer funds out of China, South Africa, Serbia and Argentina have not adversely impacted our ability to make transfers out of those countries.

Operating Activities

Net cash used for operating activities was $204 million in the first nine months of 2023, compared to net cash used for operating activities of $627 million in the first nine months of 2022. The $423 million improvement in net cash used for operating activities was primarily due to a decrease in cash used for working capital of $969 million, partially offset by lower earnings in our SBU's of $455 million, higher cash tax payments of $18 million and higher pension contributions and direct payments of $9 million.

The net improvement in cash used for working capital reflects an increase in cash provided by Inventory of $2,043 million and a decrease in cash used for Accounts Receivable of $564 million, partially offset by an increase in cash used for Accounts Payable — Trade of $1,638 million. These changes were driven by the impact of reduced production to address softening industry demand and prevent the buildup of excess inventory, as well as the impact of lower sales volume.

Investing Activities

Net cash used for investing activities was $818 million in the first nine months of 2023, compared to $648 million in the first nine months of 2022. Capital expenditures were $807 million in the first nine months of 2023, compared to $765 million in the first nine months of 2022. Investing activities in the first nine months of 2023 also included cash proceeds from sale and leaseback transactions of $73 million compared to $108 million of cash proceeds from a sale and leaseback transaction in the first nine months of 2022, net loans to TireHub of $61 million in the first nine months of 2023 compared to $16 million in the first nine months of 2022, and a year-over-year increase of $39 million in net securities acquired and redeemed. Beyond expenditures required to sustain our facilities, capital expenditures in 2023 and 2022 primarily related to the modernization and expansion of tire manufacturing facilities around the world.

Financing Activities

Net cash provided by financing activities was $774 million in the first nine months of 2023, compared to net cash provided by financing activities of $1,500 million in the first nine months of 2022. Financing activities in the first nine months of 2023 included net borrowings of $787 million. Financing activities in the first nine months of 2022 included net borrowings of $1,500 million.

Credit Sources

In aggregate, we had total credit arrangements of $11,624 million available at September 30, 2023, of which $3,077 million were unused, compared to $11,806 million available at December 31, 2022, of which $4,035 million were unused. At September 30, 2023, we had long term credit arrangements totaling $10,956 million, of which $2,774 million were unused, compared to $10,925 million and $3,566 million, respectively, at December 31, 2022. At September 30, 2023, we had short term committed and uncommitted credit arrangements totaling $668 million, of which $303 million were unused, compared to $881 million and $469 million, respectively, at December 31, 2022. The continued availability of the short term uncommitted arrangements is at the discretion of the relevant lender and may be terminated at any time.

Outstanding Notes

At September 30, 2023, we had $5,554 million of outstanding notes compared to $5,560 million at December 31, 2022.

$2.75 billion Amended and Restated First Lien Revolving Credit Facility due 2026

Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit. Up to $800 million in letters of credit and $50 million of swingline loans are available for issuance under the facility. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million.

Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. Based on our current liquidity, amounts drawn under this facility bear interest at SOFR plus 125 basis points. Undrawn amounts under the facility are subject to an annual commitment fee of 25 basis points.

Availability under the facility is subject to a borrowing base, which is based on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks in an amount not to exceed $400 million, (iii) the value of eligible machinery and equipment, and (iv) certain cash in an amount not to exceed $275 million. To the extent that our eligible accounts receivable, inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.75 billion. In addition, if the amount of outstanding borrowings and letters of credit under the facility exceeds the borrowing base, we would be required to prepay borrowings and/or cash collateralize letters of credit sufficient to eliminate the excess. As of September 30, 2023, our borrowing base was above the facility's stated amount of $2.75 billion.

At September 30, 2023, we had $790 million of borrowings and $1 million of letters of credit issued under the revolving credit facility. At December 31, 2022, we had no borrowings and $3 million of letters of credit issued under the revolving credit facility.

€800 million Amended and Restated Senior Secured European Revolving Credit Facility due 2028

Our amended and restated European revolving credit facility consists of (i) a €180 million German tranche that is available only to Goodyear Germany GmbH and (ii) a €620 million all-borrower tranche that is available to Goodyear Europe B.V. ("GEBV"), Goodyear Germany and Goodyear Operations S.A. Up to €175 million of swingline loans and €75 million in letters of credit are available for issuance under the all-borrower tranche. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to €200 million. Amounts drawn under this facility will bear interest at SOFR plus 150 basis points for loans denominated in U.S. dollars, EURIBOR plus 150 basis points for loans denominated in euros, and SONIA plus 150 basis points for loans denominated in pounds sterling. Undrawn amounts under the facility are subject to an annual commitment fee of 25 basis points.

At September 30, 2023, there were $191 million (€180 million) of borrowings outstanding under the German tranche, $339 million (€320 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility. At December 31, 2022, there were no borrowings outstanding under the German tranche, $374 million (€350 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility.

Both our first lien revolving credit facility and our European revolving credit facility have customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2020 under the first lien facility and December 31, 2021 under the European facility.

Accounts Receivable Securitization Facilities (On-Balance Sheet)

GEBV and certain other of our European subsidiaries are parties to a pan-European accounts receivable securitization facility that expires in 2027. The terms of the facility provide the flexibility to designate annually the maximum amount of funding available under the facility in an amount of not less than €30 million and not more than €450 million. For the period from October 20, 2022 through October 18, 2023, the designated maximum amount of the facility was €300 million. For the period from October 19, 2023 through October 16, 2024, the designated maximum amount of the facility will remain €300 million.

The facility involves an ongoing daily sale of substantially all of the trade accounts receivable of certain GEBV subsidiaries. These subsidiaries retain servicing responsibilities. Utilization under this facility is based on eligible receivable balances.

The funding commitments under the facility will expire upon the earliest to occur of: (a) October 19, 2027, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events similar to the events of default under our first lien revolving credit facility; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 16, 2024.

At September 30, 2023, the amounts available and utilized under this program totaled $260 million (€245 million). At December 31, 2022, the amounts available and utilized under this program totaled $267 million (€250 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Finance Leases.

Accounts Receivable Factoring Facilities (Off-Balance Sheet)

We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At September 30, 2023, the gross amount of receivables sold was $621 million, compared to $744 million at December 31, 2022.

Letters of Credit

At September 30, 2023, we had $219 million in letters of credit issued under bilateral letter of credit agreements and other foreign credit facilities. The majority of these letter of credit agreements are in lieu of security deposits.

Supplier Financing

We have entered into supplier finance programs with several financial institutions. Under these agreements, the financial institutions act as our paying agents with respect to accounts payable due to our suppliers. We agree to pay the financial institutions the stated amount of the confirmed invoices from the designated suppliers on the original maturity dates of the invoices. Invoice payment terms can be up to 120 days based on industry norms for the specific item purchased. We do not pay any fees to the financial institutions for these programs. There are no assets pledged as security or other forms of guarantees associated with these agreements. These agreements allow our suppliers to sell their receivables to the financial institutions at the sole discretion of the suppliers and the financial institutions on terms that are negotiated among them. We are not always notified when our suppliers sell receivables under these programs. Our obligations to our suppliers, including the amounts due and scheduled payment dates, are not impacted by our suppliers’ decisions to sell their receivables under the programs. The amount available under these programs was $872 million and $920 million at September 30, 2023 and December 31, 2022, respectively. The amounts confirmed to the financial institutions were $598 million and $710 million at September 30, 2023 and December 31, 2022, respectively, and are included in Accounts Payable — Trade in our Consolidated Balance Sheets. All activity related to these obligations is presented within operating activities on the Consolidated Statements of Cash Flows.

Further Information

For a further description of the terms of our outstanding notes, first lien revolving credit facility, European revolving credit facility and pan-European accounts receivable securitization facility, refer to Note to the Consolidated Financial Statements No. 16, Financing Arrangements and Derivative Financial Instruments, in our 2022 Form 10‑K and Note to the Consolidated Financial Statements No. 8, Financing Arrangements and Derivative Financial Instruments, in this Form 10-Q.

Covenant Compliance

Our first lien revolving credit facility and some of the indentures governing our notes contain certain covenants that, among other things, limit our ability to incur additional debt or issue redeemable preferred stock, pay dividends, repurchase shares or make certain other restricted payments or investments, incur liens, sell assets, incur restrictions on the ability of our subsidiaries to pay dividends or to make other payments to us, enter into affiliate transactions, engage in sale and leaseback transactions, and consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. These covenants are subject to significant exceptions and qualifications. Our first lien revolving credit facility and the indentures governing our notes also have customary defaults, including cross-defaults to material indebtedness of Goodyear and its subsidiaries.

We have an additional financial covenant in our first lien revolving credit facility that is currently not applicable. We become subject to that financial covenant when the aggregate amount of our Parent Company (The Goodyear Tire & Rubber Company) and guarantor subsidiaries cash and cash equivalents (“Available Cash”) plus our availability under our first lien revolving credit facility is less than $275 million. If this were to occur, our ratio of EBITDA to Consolidated Interest Expense may not be less than 2.0 to 1.0 for the most recent period of four consecutive fiscal quarters. As of September 30, 2023, our unused availability under this facility of $1,959 million, plus our Available Cash of $255 million, totaled $2,214 million, which is in excess of $275 million.

In addition, our European revolving credit facility contains non-financial covenants similar to the non-financial covenants in our first lien revolving credit facility that are described above and a financial covenant applicable only to GEBV and its subsidiaries. This financial covenant provides that we are not permitted to allow GEBV’s ratio of Consolidated Net GEBV Indebtedness to Consolidated GEBV EBITDA for a period of four consecutive fiscal quarters to be greater than 3.0 to 1.0 at the end of any fiscal quarter. Consolidated Net GEBV Indebtedness is determined net of the sum of cash and cash equivalents in excess of $100 million held by GEBV and its subsidiaries, cash and cash equivalents in excess of $150 million held by the Parent Company and its U.S. subsidiaries, and availability under our first lien revolving credit facility if the ratio of EBITDA to Consolidated Interest Expense described above is not applicable and the conditions to borrowing under the first lien revolving credit facility are met. Consolidated Net GEBV Indebtedness also excludes loans from other consolidated Goodyear entities. This financial covenant is also included in our pan-European accounts receivable securitization facility. At September 30, 2023, we were in compliance with this financial covenant.

Our credit facilities also state that we may only incur additional debt or make restricted payments that are not otherwise expressly permitted if, after giving effect to the debt incurrence or the restricted payment, our ratio of EBITDA to Consolidated Interest Expense for the prior four fiscal quarters would exceed 2.0 to 1.0. Certain of our senior note indentures have substantially similar limitations on incurring debt and making restricted payments. Our credit facilities and indentures also permit the incurrence of additional debt through other provisions in those agreements without regard to our ability to satisfy the ratio-based incurrence test described above. We believe that these other provisions provide us with sufficient flexibility to incur additional debt necessary to meet our operating, investing and financing needs without regard to our ability to satisfy the ratio-based incurrence test.

Covenants could change based upon a refinancing or amendment of an existing facility, or additional covenants may be added in connection with the incurrence of new debt.

At September 30, 2023, we were in compliance with the currently applicable material covenants imposed by our principal credit facilities and indentures.

The terms “Available Cash,” “EBITDA,” “Consolidated Interest Expense,” “Consolidated Net GEBV Indebtedness” and “Consolidated GEBV EBITDA” have the meanings given them in the respective credit facilities.

Potential Future Financings

In addition to the financing activities described above, we may seek to undertake additional financing actions which could include restructuring bank debt or capital markets transactions, possibly including the issuance of additional debt or equity. Given the inherent uncertainty of market conditions, access to the capital markets cannot be assured.

Our future liquidity requirements will make it necessary for us to incur additional debt. However, a substantial portion of our assets are already subject to liens securing our indebtedness. As a result, we are limited in our ability to pledge our remaining assets as security for additional secured indebtedness. In addition, no assurance can be given as to our ability to raise additional unsecured debt.

Dividends and Common Stock Repurchases

Under our primary credit facilities and some of our note indentures, we are permitted to pay dividends on and repurchase our capital stock (which constitute restricted payments) as long as no default will have occurred and be continuing, additional indebtedness can be incurred under the credit facilities or indentures following the payment, and certain financial tests are satisfied.

We do not currently pay a quarterly dividend on our common stock.

We may repurchase shares delivered to us by employees as payment for the exercise price of stock options and the withholding taxes due upon the exercise of stock options or the vesting or payment of stock awards. During the first nine months of 2023, we did not repurchase any shares from employees.

The restrictions imposed by our credit facilities and indentures are not expected to significantly affect our ability to pay dividends or repurchase our capital stock in the future.

Asset Dispositions

Historically, the restrictions on asset sales and sale and leaseback transactions imposed by our material indebtedness have not affected our ability to divest non-core businesses or assets, and those divestitures have not affected our ability to comply with those restrictions.

We may undertake additional asset sales and sale and leaseback transactions in the future. The restrictions imposed by our material indebtedness may require us to seek waivers or amendments of covenants or alternative sources of financing to proceed with future transactions. We cannot assure you that such waivers, amendments or alternative financing could be obtained, or if obtained, would be on terms acceptable to us.

Supplemental Guarantor Financial Information

Certain of our subsidiaries, which are listed on Exhibit 22.1 to this Quarterly Report on Form 10-Q and are generally holding or operating companies, have guaranteed our obligations under the $800 million outstanding principal amount of 9.5% senior notes due 2025, the $900 million outstanding principal amount of 5% senior notes due 2026, the $700 million outstanding principal amount of 4.875% senior notes due 2027, the $850 million outstanding principal amount of 5% senior notes due 2029, the $550 million outstanding principal amount of 5.25% senior notes due April 2031, the $600 million outstanding principal amount of 5.25% senior notes due July 2031 and the $450 million outstanding principal amount of 5.625% senior notes due 2033 (collectively, the “Notes”).

The Notes have been issued by The Goodyear Tire & Rubber Company (the “Parent Company”) and are its senior unsecured obligations. The Notes rank equally in right of payment with all of our existing and future senior unsecured obligations and senior to any of our future subordinated indebtedness. The Notes are effectively subordinated to our existing and future secured indebtedness to the extent of the assets securing that indebtedness. The Notes are fully and unconditionally guaranteed on a joint and several basis by each of our wholly-owned U.S. and Canadian subsidiaries that also guarantee our obligations under our first lien revolving credit facility (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees are senior unsecured obligations of the Subsidiary Guarantors and rank equally in right of payment with all existing and future senior unsecured obligations of our Subsidiary Guarantors. The Guarantees are effectively subordinated to existing and future secured indebtedness of the Subsidiary Guarantors to the extent of the assets securing that indebtedness.

The Notes are structurally subordinated to all of the existing and future debt and other liabilities, including trade payables, of our subsidiaries that do not guarantee the Notes (the “Non-Guarantor Subsidiaries”). The Non-Guarantor Subsidiaries will have no obligation, contingent or otherwise, to pay amounts due under the Notes or to make funds available to pay those amounts. Certain Non-Guarantor Subsidiaries are limited in their ability to remit funds to us by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or limitations in credit agreements or other debt instruments of those subsidiaries.

The Subsidiary Guarantors, as primary obligors and not merely as sureties, jointly and severally irrevocably and unconditionally guarantee on a senior unsecured basis the performance and full and punctual payment when due of all obligations of the Parent Company under the Notes and the related indentures, whether for payment of principal of or interest on the Notes, expenses, indemnification or otherwise. The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.

Although the Guarantees provide the holders of Notes with a direct unsecured claim against the assets of the Subsidiary Guarantors, under U.S. federal bankruptcy law and comparable provisions of U.S. state fraudulent transfer laws, in certain circumstances a court could cancel a Guarantee and order the return of any payments made thereunder to the Subsidiary Guarantor or to a fund for the benefit of its creditors.

A court might take these actions if it found, among other things, that when the Subsidiary Guarantors incurred the debt evidenced by their Guarantee (i) they received less than reasonably equivalent value or fair consideration for the incurrence of the debt and (ii) any one of the following conditions was satisfied:

• the Subsidiary Guarantor was insolvent or rendered insolvent by reason of the incurrence;
• the Subsidiary Guarantor was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
• the Subsidiary Guarantor intended to incur, or believed (or reasonably should have believed) that it would incur, debts beyond its ability to pay as those debts matured.

In applying the above factors, a court would likely find that a Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for its Guarantee, except to the extent that it benefited directly or indirectly from the issuance of the Notes. The determination of whether a guarantor was or was not rendered “insolvent” when it entered into its guarantee will vary depending on the law of the jurisdiction being applied. Generally, an entity would be considered insolvent if the sum of its debts (including contingent or unliquidated debts) is greater than all of its assets at a fair valuation or if the present fair salable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts, including contingent or unliquidated debts, as they mature.

Under Canadian federal bankruptcy and insolvency laws and comparable provincial laws on preferences, fraudulent conveyances or other challengeable or voidable transactions, the Guarantees could be challenged as a preference, fraudulent conveyance, transfer at undervalue or other challengeable or voidable transaction. The test to be applied varies among the different pieces of legislation, but as a general matter these types of challenges may arise in circumstances where:

• such action was intended to defeat, hinder, delay, defraud or prejudice creditors or others;
• such action was taken within a specified period of time prior to the commencement of proceedings under Canadian bankruptcy, insolvency or restructuring legislation in respect of a Subsidiary Guarantor, the consideration received by

the Subsidiary Guarantor was conspicuously less than the fair market value of the consideration given, and the Subsidiary Guarantor was insolvent or rendered insolvent by such action and (in some circumstances, or) such action was intended to defraud, defeat or delay a creditor;

• such action was taken within a specified period of time prior to the commencement of proceedings under Canadian bankruptcy, insolvency or restructuring legislation in respect of a Subsidiary Guarantor and such action was taken, or is deemed to have been taken, with a view to giving a creditor a preference over other creditors or, in some circumstances, had the effect of giving a creditor a preference over other creditors; or
• a Subsidiary Guarantor is found to have acted in a manner that was oppressive, unfairly prejudicial to or unfairly disregarded the interests of any shareholder, creditor, director, officer or other interested party.

In addition, in certain insolvency proceedings a Canadian court may subordinate claims in respect of the Guarantees to other claims against a Subsidiary Guarantor under the principle of equitable subordination if the court determines that (1) the holder of Notes engaged in some type of inequitable or improper conduct, (2) the inequitable or improper conduct resulted in injury to other creditors or conferred an unfair advantage upon the holder of Notes and (3) equitable subordination is not inconsistent with the provisions of the relevant solvency statute.

If a court canceled a Guarantee, the holders of Notes would no longer have a claim against that Subsidiary Guarantor or its assets.

Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor without rendering the Guarantee, as it relates to that Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.

Each Subsidiary Guarantor is a consolidated subsidiary of the Parent Company at the date of each balance sheet presented. The following tables present summarized financial information for the Parent Company and the Subsidiary Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) equity in earnings from and investments in any Non-Guarantor Subsidiary.

(In millions)

(1) Includes receivables due from Non-Guarantor Subsidiaries of $1,964 million and $1,499 million as of September 30, 2023 and December 31, 2022, respectively.

(In millions)

(2) Includes income from intercompany transactions with Non-Guarantor Subsidiaries of $451 million for the nine months ended September 30, 2023, primarily from royalties, intercompany product sales, dividends and interest, and $577 million for the year ended December 31, 2022, primarily from royalties, dividends, interest and intercompany product sales.

CRITICAL ACCOUNTING POLICIES

Goodwill and Intangible Assets. Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if an indicator of impairment is present. Intangible assets with finite lives are amortized over their useful lives and are reviewed for impairment whenever events or circumstances warrant such review. Goodwill and intangible assets would be written down to fair value if considered impaired. Goodwill and Intangible Assets totaled $1,010 million and $975 million, respectively, at September 30, 2023, compared to $1,014 million and $1,004 million, respectively, at December 31, 2022. At September 30, 2023, the goodwill associated with reporting units in our Americas, EMEA and Asia Pacific segments was $724 million, $230 million and $56 million, respectively.

Goodwill and intangible assets with indefinite useful lives are not amortized but are assessed for impairment annually on October 31st with the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of the reporting unit or indefinite-lived intangible asset to its carrying value. In addition to the annual assessment, impairment evaluation is considered during interim quarters when events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. During our annual impairment assessment and in subsequent interim quarters, we review events that occur or circumstances that change, including the macroeconomic environment, our business performance and our market capitalization, to determine if a quantitative impairment assessment is necessary. We review our business performance and the macroeconomic environment against our recent expectations and evaluate book value compared to market capitalization, including fluctuations in our stock price, to determine if this could be an indicator of potential impairment. Consideration is given as to whether a fluctuation in our stock price is a result of current market conditions, due to a transitory event or an event that is expected to continue to affect us, or is consistent with our historical stock price volatility. We also consider these factors compared to the results of our most recent quantitative goodwill impairment assessment.

Under the qualitative assessment, we assess whether it is more likely than not (defined as a likelihood of more than 50%) that the fair value of our goodwill or indefinite-lived intangible assets is less than the respective carrying values. If it is more likely than not that an impairment exists, then a quantitative impairment assessment is performed. If under the quantitative assessment the fair value is less than the carrying value, an impairment loss will be recorded for the difference between the carrying value and the fair value. Under the quantitative assessment, we estimate the fair value of goodwill using the discounted cash flows of a reporting unit and using discounted cash flows following a relief-from-royalty method for indefinite-lived intangible assets. Forecasts of future cash flows are based on our best estimate of projected revenue and projected operating margin, based primarily on pricing, raw material costs, market share, industry outlook and general economic conditions. Cash flows are discounted using our weighted average cost of capital.

In the third quarter, we reduced the near-term and long-term outlook of our EMEA segment based on recent business performance and the industry outlook. As announced in the third quarter, we are reviewing various strategic actions to improve EMEA’s operations, including the approved rationalization and workforce reorganization plan. We viewed these events as potential triggering events and performed a quantitative analysis of the fair value of the EMEA reporting unit. We determined the estimated fair value for the EMEA reporting unit based on discounted cash flow projections. The most critical assumptions used in the calculation of the fair value of the EMEA reporting unit are the projected revenue, projected operating margin and discount rate. Our forecast of future cash flows is based on our best estimate of projected revenue and projected operating margin, based primarily on pricing, raw material costs, market share, industry outlook, general economic conditions and strategic actions to improve EMEA’s operating margin, as described above. Based on our interim impairment test, EMEA had an estimated fair value that exceeded its carrying value, including goodwill, by approximately 15%.

The following table highlights the sensitivities of the EMEA reporting unit’s goodwill as of September 30, 2023:

The fair value of the EMEA reporting unit’s goodwill is sensitive to differences between estimated and actual cash flows, including changes in the projected revenue, projected operating margin and discount rate used to evaluate the fair value of these assets. Although we believe our estimate of fair value is reasonable, the reporting unit’s future financial performance is dependent on our ability to execute our business plan and to successfully implement the aforementioned strategic actions which we expect will improve our long-term operating margin. If a reporting unit’s future financial performance falls below our expectations, there are adverse revisions to significant assumptions, or our market capitalization declines further or does not improve from the strategic actions we are implementing, this could be indicative that the fair values of each of our reporting units has declined below their carrying values, and therefore we may need to record a material, non-cash goodwill impairment charge in a future period.

At September 30, 2023, after evaluating macroeconomic conditions, our market capitalization and our current and future results of operations, we concluded that there were no triggering events and it was not more likely than not that the fair values of our reporting units within our Americas and Asia Pacific segments or indefinite-lived intangible assets were less than their respective carrying values and, therefore, did not have any impairment. Future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets, including discount rates and cash flow projections, could result in significantly different estimates of the fair values. A significant reduction in the estimated fair values could result in impairment charges that could adversely affect our results of operations.

FORWARD-LOOKING INFORMATION — SAFE HARBOR STATEMENT

Certain information in this Form 10-Q (other than historical data and information) may constitute forward-looking statements regarding events and trends that may affect our future operating results and financial position. The words “estimate,” “expect,” “intend” and “project,” as well as other words or expressions of similar meaning, are intended to identify forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Such statements are based on current expectations and assumptions, are inherently uncertain, are subject to risks and should be viewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors, including:

• if we do not successfully implement our cost reduction and rationalization actions and other strategic initiatives, including any initiatives resulting from the strategic and operational review of our business that we announced in July 2023, our operating results, financial condition and liquidity may be materially adversely affected;
• a prolonged economic downturn or economic uncertainty could adversely impact our business and results of operations;
• raw material cost increases may materially adversely affect our operating results and financial condition;
• we are experiencing inflationary cost pressures, including with respect to wages, benefits, transportation and energy costs, that may materially adversely affect our operating results and financial condition;
• delays or disruptions in our supply chain or in the provision of services, including utilities, to us could result in increased costs or disruptions in our operations;
• changes to tariffs, trade agreements or trade restrictions may materially adversely affect our operating results;
• we face significant global competition and our market share could decline;
• deteriorating economic conditions in any of our major markets, or an inability to access capital markets or third-party financing when necessary, may materially adversely affect our operating results, financial condition and liquidity;
• if we experience a labor strike, work stoppage, labor shortage or other similar event at the Company or its joint ventures, our business, results of operations, financial condition and liquidity could be materially adversely affected;
• financial difficulties, work stoppages, labor shortages, supply disruptions or economic conditions affecting our major OE customers, dealers or suppliers could harm our business;
• our capital expenditures may not be adequate to maintain our competitive position and may not be implemented in a timely or cost-effective manner;
• our international operations have certain risks that may materially adversely affect our operating results, financial condition and liquidity;
• we have foreign currency translation and transaction risks that may materially adversely affect our operating results, financial condition and liquidity;
• our long term ability to meet our obligations, to repay maturing indebtedness or to implement strategic initiatives may be dependent on our ability to access capital markets in the future and to improve our operating results;
• we have a substantial amount of debt, which could restrict our growth, limit our ability to pursue strategic initiatives, place us at a competitive disadvantage or otherwise materially adversely affect our financial health;
• any failure to be in compliance with any material provision or covenant of our debt instruments, or a material reduction in the borrowing base under our first lien revolving credit facility, could materially adversely affect our liquidity and operations;
• our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly;
• we have substantial fixed costs and, as a result, our operating income fluctuates disproportionately with changes in our net sales;
• we may incur significant costs in connection with our contingent liabilities and tax matters;
• our reserves for contingent liabilities and our recorded insurance assets are subject to various uncertainties, the outcome of which may result in our actual costs being significantly higher than the amounts recorded;
• environmental issues, including climate change, or legal, regulatory or market measures to address environmental issues, may negatively affect our business and operations and cause us to incur significant costs;
• we are subject to extensive government regulations that may materially adversely affect our operating results;
• we may be adversely affected by any disruption in, or failure of, our information technology systems due to computer viruses, unauthorized access, cyber-attack, natural disasters or other similar disruptions;
• we may not be able to protect our intellectual property rights adequately;
• if we are unable to attract and retain key personnel, our business could be materially adversely affected; and
• we may be impacted by economic and supply disruptions associated with events beyond our control, such as war, including the current conflict between Russia and Ukraine, acts of terror, political unrest, public health concerns, labor disputes or natural disasters.

It is not possible to foresee or identify all such factors. We will not revise or update any forward-looking statement or disclose any facts, events or circumstances that occur after the date hereof that may affect the accuracy of any forward-looking statement.

We utilize derivative financial instrument contracts and nonderivative instruments to manage interest rate, foreign exchange and commodity price risks. We have established a control environment that includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes.

Commodity Price Risk

The raw material costs to which our operations are principally exposed include the cost of natural rubber, synthetic rubber, carbon black, fabrics, steel cord and other petrochemical-based commodities. Approximately two-thirds of our raw materials are petroleum-based, the cost of which may be affected by fluctuations in the price of oil. We currently do not hedge commodity prices. We do, however, use various strategies to partially offset cost increases for raw materials, including centralizing purchases of raw materials through our global procurement organization in an effort to leverage our purchasing power, expanding our capabilities to substitute lower cost raw materials, and reducing the amount of material required in each tire.

Interest Rate Risk

We continuously monitor our fixed and floating rate debt mix. Within defined limitations, we manage the mix using refinancing. At September 30, 2023, approximately 30% of our debt was at variable interest rates averaging 6.99%.

The following table presents information about long term fixed rate debt, excluding finance leases, at September 30, 2023:

(In millions)

The pro forma information assumes a 100 basis point decrease in market interest rates at September 30, 2023, and reflects the estimated fair value of fixed rate debt outstanding at that date under that assumption. The sensitivity of our fixed rate debt to changes in interest rates was determined using current market pricing models.

Foreign Currency Exchange Risk

We enter into foreign currency contracts in order to reduce the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts reduce exposure to currency movements affecting existing foreign currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting primarily from trade purchases and sales, equipment acquisitions, intercompany loans and royalty agreements. Contracts hedging short term trade receivables and payables normally have no hedging designation.

The following table presents net foreign currency contract information at September 30, 2023:

(In millions)

The pro forma decrease in fair value assumes a 10% adverse change in underlying foreign exchange rates at September 30, 2023, and reflects the estimated change in the fair value of contracts outstanding at that date under that assumption. The sensitivity of our foreign currency positions to changes in exchange rates was determined using current market pricing models.

Fair values are recognized on the Consolidated Balance Sheet at September 30, 2023 as follows:

(In millions)

For further information on foreign currency contracts, refer to Note to the Consolidated Financial Statements No. 8, Financing Arrangements and Derivative Financial Instruments. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for a discussion of our management of counterparty risk.

Management’s Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” which, consistent with Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, we define to mean controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of September 30, 2023 (the end of the period covered by this Quarterly Report on Form 10-Q).

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.