Goodyear Tire & Rubber Co: Form 10-Q for the period ended Mar 31, 2024

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 55 manufacturing facilities in 22 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.

Results of Operations

On November 15, 2023, we announced a transformation plan, Goodyear Forward, that is intended to optimize our portfolio of products, deliver segment operating margin expansion and reduce our leverage in order to drive sustainable, long-term shareholder value creation. Optimization of our portfolio consists of a strategic review of three major asset groups: our chemical operations which produces synthetic rubber and other chemical products in our Americas segment, the Dunlop brand for which we own rights in certain markets throughout the world, but is primarily used in our EMEA segment, and our off-the-road tire product operations. Our plans for margin expansion include brand optimization and tiering to capitalize on premium tire pricing and volume and a reduction of our overall exposure related to lower-tiered products either through margin expansion or product line rationalization. Our plans for margin expansion also include a reduction of our cost structure by $1 billion, including actions related to our manufacturing footprint, plant optimization, further improvement of our purchasing leverage, reduction of Selling, Administrative and General expenses (“SAG”) and improvements in our supply chain planning and logistics. We anticipate the accumulated benefit of these actions will improve our segment operating margin to 10% by the end of 2025. During the first quarter of 2024, the Goodyear Forward plan provided $72 million in benefits to segment operating income.

Our tire manufacturing facility in Debica, Poland (“Debica”) continues to recover from a fire in the third quarter of 2023 and full ramp-up is expected in the third quarter of 2024. We estimate the negative impact on our earnings during the first quarter was approximately $14 million ($11 million after-tax and minority), including $3 million of corporate expense for an insurance deductible and an $11 million impact on EMEA’s segment operating income, primarily comprised of fixed costs incurred during the ramp-up of the facility. There were no significant lost sales during the first quarter as a result of leveraging existing inventory and increasing production at other facilities.

Our results for the first quarter of 2024 include a 3.3% decrease in tire unit shipments compared to 2023, primarily due to lower global replacement tire volume, partially offset by growth in OE, primarily in Asia Pacific. We experienced approximately $58 million of inflationary cost pressures, which were partially offset by lower costs of $25 million, excluding the impact of Goodyear Forward.

Net sales in the first quarter of 2024 were $4,537 million, compared to $4,941 million in the first quarter of 2023. Net sales decreased in 2024 primarily due to lower tire volume in Americas and EMEA, partially offset by higher tire volume in Asia Pacific, a global decline in price and product mix, unfavorable foreign currency translation in EMEA and Asia Pacific, driven by the strengthening of the U.S. dollar, and a decrease in sales in other tire-related businesses, primarily related to a decrease in third-party chemical sales in Americas and declines in retail sales in EMEA and Asia Pacific, partially offset by growth in EMEA's Fleet Solutions.

In the first quarter of 2024, Goodyear net loss was $57 million, or $0.20 per share, compared to Goodyear net loss of $101 million, or $0.35 per share, in the first quarter of 2023. The decrease in Goodyear net loss was primarily due to higher segment operating income, partially offset by rationalization actions and execution costs related to Goodyear Forward, including accelerated depreciation and accelerated lease costs related to announced facility closures in Americas and EMEA and third-party consulting costs.

Total segment operating income for the first quarter of 2024 was $247 million, compared to $125 million in the first quarter of 2023. The $122 million increase was primarily due to lower raw material costs of $261 million, lower transportation and imported tire costs of $75 million, benefits from the Goodyear Forward plan of $72 million, and a favorable $8 million tax item in Brazil. These increases were partially offset by declines in price and product mix of $134 million, primarily in Americas and EMEA, increased conversion costs of $102 million driven by inflation, lower tire volume of $28 million, primarily in Americas and EMEA, an $11 million negative impact due to the Debica fire, a $7 million lower benefit related to a reduction in U.S. duty rates on various commercial tires from China compared to 2023 in Americas, and unfavorable foreign currency translation of $2 million driven by the strengthening of the U.S. dollar. Refer to "Results of Operations — Segment Information" for additional information.

Liquidity

At March 31, 2024, we had $893 million of cash and cash equivalents as well as $3,313 million of unused availability under our various credit agreements, compared to $902 million and $4,247 million, respectively, at December 31, 2023. The decrease in cash and cash equivalents of $9 million was primarily due to net cash used for operating activities of $451 million, capital expenditures of $318 million, loans to TireHub, LLC ("TireHub") of $21 million and accounts receivable factoring transactions of $18 million, partially offset by net borrowings of $684 million and proceeds from asset dispositions of $108 million, primarily from prepaid cash proceeds received from the sale of a distribution center in Germany. Net cash used for operating activities reflects cash used for working capital of $539 million and rationalization payments of $55 million, as well as the Company's net loss for the period of $58 million, which includes non-cash charges for depreciation and amortization of $284 million and net rationalization charges of $22 million. Refer to "Liquidity and Capital Resources" for additional information.

Outlook

Looking ahead, we expect to continue progress on our Goodyear Forward plan and expect second quarter benefits from the program of approximately $75 million in segment operating income.

We expect our global tire unit volume in the second quarter of 2024 to be approximately flat compared to the second quarter of 2023, excluding the benefit of the recovery from the tornado that affected our Tupelo, Mississippi manufacturing facility in 2023. We also expect unabsorbed overhead to be approximately $30 million higher in the second quarter of 2024 compared to the second quarter of 2023 due to lower production in the first quarter of 2024.

We expect our raw material costs to be approximately $160 million lower in the second quarter of 2024 compared to the second quarter of 2023. We expect price and product mix, when netted with the raw material reduction, to be a benefit of approximately $90 million in the second quarter of 2024. Price and product mix are expected to reflect the negative impact of customers with contractual raw material index adjustments and foreign currency-related adjustments. For the full year of 2024, we expect our raw material costs to be $325 million to $350 million lower than in 2023. 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.

We expect non-raw material inflation and other costs to be approximately $10 million higher in the second quarter of 2024 when compared with the second quarter of 2023. We also expect an approximately $35 million net benefit as a result of the recovery from the tornado that affected Tupelo in 2023, partially offset by the negative impact of lower production as a result of the fire in Debica in 2023.

We continue to focus on actions to offset costs other than raw materials through cost savings initiatives, including initiatives related to the Goodyear Forward plan, rationalization actions, and improvements in price and product mix. For the full year of 2024, we expect to benefit from Goodyear Forward by at least $375 million and expect working capital to be flat as compared to 2023. We anticipate our capital expenditures to be $1.2 billion to $1.3 billion, excluding repairs related to the Tupelo tornado and the Debica fire, which we expect to be funded by insurance claim recoveries. We anticipate our cash flows will include rationalization payments of approximately $300 million, as we continue to implement elements of our Goodyear Forward plan to improve our cost structure.

Refer to "Item 1A. Risk Factors" in the 2023 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 March 31, 2024 and 2023

Net sales in the first quarter of 2024 were $4,537 million, decreasing $404 million, or 8.2%, from $4,941 million in the first quarter of 2023. Goodyear net loss was $57 million, or $0.20 per share, in the first quarter of 2024, compared to Goodyear net loss of $101 million, or $0.35 per share, in the first quarter of 2023.

Net sales decreased in the first quarter of 2024 primarily due to lower tire volume of $187 million, representing lower tire volume in Americas and EMEA, partially offset by higher tire volume in Asia Pacific, global declines in price and product mix of $162 million, unfavorable foreign currency translation of $36 million, primarily in EMEA and Asia Pacific, driven by the strengthening of the U.S. dollar, and a decrease in sales in other tire-related businesses of $27 million, primarily related to a decrease in third-party chemical sales in Americas and declines in retail sales in EMEA and Asia Pacific, partially offset by growth in EMEA's Fleet Solutions.

Worldwide tire unit sales in the first quarter of 2024 were 40.4 million units, decreasing 1.4 million units, or 3.3%, from 41.8 million units in the first quarter of 2023. Replacement tire volume decreased globally by 2.3 million units, or 7.4%. OE tire volume increased by 0.9 million units, or 8.9%, driven by Asia Pacific, reflecting the impact of new electric vehicle consumer fitments.

Cost of Goods Sold ("CGS") in the first quarter of 2024 was $3,715 million, decreasing $478 million, or 11.4%, from $4,193 million in the first quarter of 2023. CGS decreased primarily due to lower raw material costs of $261 million, lower tire volume of $159 million, primarily in Americas and EMEA, lower transportation and imported tire costs of $75 million, primarily in Americas, savings related to the Goodyear Forward plan of $56 million, foreign currency translation of $30 million, primarily in EMEA and Asia Pacific, lower costs in other tire-related businesses of $29 million, driven by a decrease in third-party chemical sales in Americas, and a favorable $8 million ($6 million after-tax and minority) tax item in Brazil. These decreases were partially offset by higher conversion costs of $102 million driven by inflation, an increase in accelerated depreciation and asset write-offs of $31 million primarily related to the closure of a development center in the U.S. and announced plant closures in EMEA, higher costs related to product mix of $28 million, primarily in EMEA and Asia Pacific, $14 million as a result of the Debica fire, and a $7 million lower benefit related to a reduction in U.S. duty rates on various commercial tires from China compared to 2023. CGS in the first quarter 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 quarter of 2024 and 2023 included pension expense of $3 million and $4 million, respectively. CGS in the first quarter of 2024 included $4 million of incremental savings from rationalization plans. CGS was 81.9% of sales in the first quarter of 2024, compared to 84.9% in the first quarter of 2023.

SAG in the first quarter of 2024 was $696 million, increasing $32 million, or 4.8%, from $664 million in the first quarter of 2023. SAG increased primarily due to an increase in costs associated with the Goodyear Forward plan of $28 million ($21 million after-tax and minority), primarily related to third-party advisory, legal and consulting fees and costs associated with planned asset sales, the impact of recoveries in 2023 of accounts receivable and other assets in Russia of $10 million and accelerated lease costs of $8 million, primarily related to announced facility closures in Americas. These increases were partially offset by savings related to the Goodyear Forward plan of $8 million and foreign currency translation of $4 million.

SAG in the first quarter of 2024 and 2023 included pension expense of $4 million and $3 million, respectively. SAG in the first quarter of 2024 included $14 million of incremental savings from rationalization plans, compared to $10 million in 2023. SAG was 15.3% of sales in the first quarter of 2024, compared to 13.4% in the first quarter of 2023.

We recorded net rationalization charges of $22 million ($17 million after-tax and minority) in the first quarter of 2024, primarily related to the plan to close a plant in Malaysia and the closure of Cooper Tire's Melksham, United Kingdom tire manufacturing facility ("Melksham"). We recorded net rationalization charges of $32 million ($26 million after-tax and minority) in the first quarter of 2023 primarily related to the plan to streamline our EMEA distribution network, the plan to reduce salaried staffing globally and the plan to reduce staffing and capacity in certain of our EMEA manufacturing facilities. For further information, refer to Note to the Consolidated Financial Statements No. 3, Costs Associated with Rationalization Programs.

CGS and SAG in the first quarter of 2024 included $51 million ($42 million after-tax and minority) of asset write offs, accelerated depreciation and accelerated lease charges related to the closure of a development center in the U.S. and announced plant and facility closures in Americas and EMEA. CGS and SAG in the first quarter of 2023 included $2 million ($0 million after-tax and minority) of accelerated depreciation and asset write-offs related to rationalization activities.

Interest expense in the first quarter of 2024 was $126 million, decreasing $1 million, or 0.8%, from $127 million in the first quarter of 2023. The average interest rate was 6.34% in the first quarter of 2024 compared to 6.01% in the first quarter of 2023. The average debt balance was $7,945 million in the first quarter of 2024 compared to $8,451 million in the first quarter of 2023.

Other (Income) Expense in the first quarter of 2024 was $30 million of expense, compared to $25 million of expense in the first quarter of 2023. The increase in Other (Income) Expense was primarily due to a loss on asset and other sales of $10 million ($7 million after-tax and minority) primarily related to the sale of receivables in Argentina, compared to net gains of $2 million in the first quarter of 2023 and a $3 million increase in fees related to accounts receivable factoring programs driven by higher interest rates, partially offset by pension settlement income of $5 million ($4 million after-tax and minority) and a favorable $2 million ($1 million after-tax and minority) tax item in Brazil. Other (Income) Expense for the three months ended March 31, 2023 also includes $11 million ($9 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, $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, and $5 million ($5 million after-tax and minority) of income related to the write-off of accumulated foreign currency translation in Russia.

For the first quarter of 2024, we recorded income tax expense of $6 million on a loss before income taxes of $52 million. Income tax expense for the three months ended March 31, 2024 was favorably impacted by a net discrete tax benefit of $1 million ($1 million after minority interest). In the first quarter of 2023, we recorded an income tax benefit of $1 million on a loss before income taxes of $100 million. Income tax expense for the three months ended March 31, 2023 includes net discrete tax expense of $1 million.

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 three months ended March 31, 2024 and 2023 primarily relates to losses in foreign jurisdictions in which no tax benefits are recorded and the discrete items noted above.

The Organisation for Economic Co-operation and Development (OECD) have published the Pillar Two model rules which adopt a global corporate minimum tax of 15% for multinational enterprises with average revenue in excess of €750 million. Certain jurisdictions in which we operate enacted legislation consistent with one or more of the OECD Pillar Two model rules effective in 2024. The model rules include minimum domestic top-up taxes, income inclusion rules, and undertaxed profit rules all aimed to ensure that multinational corporations pay a minimum effective corporate tax rate of 15% in each jurisdiction in which they operate. We do not expect the Pillar Two model rules to materially impact our annual effective tax rate in 2024. However, we are continuing to evaluate the Pillar Two model rules and related legislation and their potential impact on future periods.

At March 31, 2024 and December 31, 2023, we had approximately $1.3 billion and $1.2 billion of U.S. federal, state and local net deferred tax assets, respectively, inclusive of valuation allowances totaling $22 million in each period, primarily for state tax loss carryforwards with limited lives. As of March 31, 2024, approximately $1.1 billion of these U.S. net deferred tax assets had unlimited lives and approximately $200 million had limited lives, including $22 million of foreign tax credits, and the majority do not start to expire until 2031. As of December 31, 2023, approximately $1.0 billion of these U.S. net deferred tax assets had unlimited lives and approximately $200 million had limited lives, including $22 million of foreign tax credits, and the majority do not start to expire until 2031. In the U.S., as of December 31, 2023, we emerged from a three-year cumulative loss which was driven by business disruptions created by the COVID-19 pandemic. Our U.S. cumulative income for the three-years ended March 31, 2024 is primarily a result of gains from other comprehensive income rather than consistently profitable U.S. operating results. Our U.S. operating results for the first quarter of 2024 have shown improvement when compared to the first quarter of 2023.

In assessing our ability to utilize our net deferred tax assets, we primarily consider objectively verifiable evidence, including the improvement of our U.S. operating results during the first quarter of 2024 as a result of lower raw material and transportation costs and benefits from the Goodyear Forward plan compared to the first quarter of 2023. In addition, we consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets as well as the impact of tax planning strategies. These forecasts include the impact of recent trends and various macroeconomic factors such as the impact of raw material, transportation, labor and energy costs on our profitability. Our tax planning strategies include 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, repatriation of certain foreign royalty income, and other financing transactions, all of which would increase our domestic profitability.

We believe our improvement in U.S. operating results for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, as well as forecasts of future profitability, provide us sufficient positive evidence to conclude that it is more likely than not that, at March 31, 2024, our U.S. net deferred tax assets will be fully utilized. However, macroeconomic factors such as raw material, transportation, labor and energy costs possess a high degree of volatility and can significantly impact our profitability. In addition, certain tax provisions, such as the annual interest expense limitation under Section 163(j) of the Internal Revenue Code of 1986, if amended, could impact our analysis of the realizability of our U.S. deferred tax assets. If our U.S. operating results significantly decline in the future, we may need to record a valuation allowance which could adversely impact our operating results. As such, we will closely monitor our U.S. operations as well as any tax law changes to assess the realizability of our U.S. deferred tax assets.

At March 31, 2024 and December 31, 2023, we also had approximately $1.5 billion of foreign net deferred tax assets and related valuation allowances of approximately $1.2 billion. 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 approximately $1.0 billion 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 on our foreign deferred tax assets 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 loss in the first quarter of 2024 was $1 million, compared to $2 million of income in the first quarter of 2023.

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 first quarter of 2024 was $247 million, an increase of $122 million, or 97.6%, from $125 million in the first quarter of 2023. Total segment operating margin in the first quarter of 2024 was 5.4%, compared to 2.5% in the first quarter of 2023.

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 March 31, 2024 and 2023

Americas unit sales in the first quarter of 2024 decreased 1.5 million units, or 7.4%, to 19.0 million units. Replacement tire volume decreased 1.5 million units, or 9.2%, primarily in our consumer business, driven by increased competitiveness in the U.S. from the lower tier market. OE tire volume remained flat versus the first quarter of 2023.

Net sales in the first quarter of 2024 were $2,588 million, decreasing $279 million, or 9.7%, from $2,867 million in the first quarter of 2023. The decrease in net sales was primarily due to lower tire volume of $176 million, unfavorable price and product mix of $104 million, and decreased sales in other tire-related businesses of $27 million, primarily due to lower third-party chemical sales. These decreases were partially offset by favorable foreign currency translation of $20 million, primarily related to the strengthening of the Brazilian real and Mexican peso, and $8 million related to the Goodyear Forward plan.

Operating income in the first quarter of 2024 was $179 million, increasing $100 million, or 126.6%, from $79 million in the first quarter of 2023. The increase in operating income was due to lower raw material costs of $144 million, lower transportation and imported tire costs of $74 million, $42 million related to the Goodyear Forward plan, lower SAG of $16 million, higher earnings in other tire-related businesses of $10 million, primarily due to lower chemical costs, and a favorable tax item in Brazil of $8 million. These increases were partially offset by unfavorable price and product mix of $117 million, higher conversion costs of $39 million, driven by inflation, lower tire volume of $28 million, and a $7 million lower benefit related to a reduction in U.S. duty rates on various commercial tires from China compared to 2023. Operating income for the first quarter of 2024 includes incremental SAG savings from rationalization plans of $11 million.

Operating income in the first quarter of 2024 excluded asset write-offs, accelerated depreciation and accelerated lease charges of $8 million and net rationalization charges of $5 million. Operating income in the first quarter of 2023 excluded asset write-offs and accelerated depreciation of $8 million, net rationalization charges of $5 million and net gains on asset sales of $2 million.

Europe, Middle East and Africa

(In millions)

Three Months Ended March 31, 2024 and 2023

EMEA unit sales in the first quarter of 2024 decreased 0.7 million units, or 5.2%, to 12.5 million units. Replacement tire volume decreased 0.7 million units, or 7.1%, driven by our consumer business, reflecting the impacts of competitiveness from the lower tier market, and industry declines in commercial. OE tire volume remained flat compared to the first quarter of 2023.

Net sales in the first quarter of 2024 were $1,347 million, decreasing $145 million, or 9.7%, from $1,492 million in the first quarter of 2023. The decrease in net sales was primarily driven by lower tire volume of $65 million, unfavorable price and product mix of $41 million and unfavorable foreign currency translation of $40 million, driven by a weaker Turkish lira, partially offset by a stronger euro, Polish zloty and British pound.

Operating income in the first quarter of 2024 was $8 million, remaining flat to the first quarter of 2023. Operating income improved $104 million due to lower raw material costs and incremental savings from the Goodyear Forward plan of $24 million. This improvement was offset by higher conversion costs of $65 million, unfavorable price and product mix of $19 million, lower motorcycle earnings of $14 million, lower tire volume of $12 million and $11 million as a result of the Debica fire, primarily comprised of fixed costs incurred during the ramp-up of the facility.

Operating income in the first quarter of 2024 excluded accelerated depreciation of $16 million, net rationalization charges of $6 million and a $2 million loss on asset sales. Operating income in the first quarter of 2023 excluded net rationalization charges of $24 million, recoveries of previously written off accounts receivable and other assets of $10 million in Russia and accelerated depreciation of $4 million.

Asia Pacific

(In millions)

Three Months Ended March 31, 2024 and 2023

Asia Pacific unit sales in the first quarter of 2024 increased 0.8 million units, or 10.0%, to 8.9 million units. OE tire volume increased 0.9 million units, or 26.7%, primarily driven by an increase in consumer EV fitments in China. Replacement tire volume decreased 0.1 million units, or 1.6%, primarily driven by weakness in the Japanese consumer industry, partially offset by China.

Net sales in the first quarter of 2024 were $602 million, increasing $20 million, or 3.4%, from $582 million in the first quarter of 2023. The increase in net sales was primarily driven by higher tire volume of $54 million, partially offset by unfavorable price and mix of $17 million and unfavorable foreign currency translation of $16 million due to the strengthening of the U.S. dollar.

Operating income in the first quarter of 2024 was $60 million, increasing $22 million, or 57.9%, from $38 million in the first quarter of 2023. The increase in operating income was primarily due to lower raw material costs of $13 million, higher tire volume of $12 million and savings generated by the Goodyear Forward plan of $6 million. These increases were partially offset by higher SAG of $6 million and unfavorable foreign currency translation of $2 million.

Operating income in the first quarter of 2024 excluded net rationalization charges of $11 million and accelerated depreciation and accelerated lease charges of $7 million. Operating income in the first quarter of 2023 excluded net rationalization charges of $3 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 March 31, 2024, we had $893 million in cash and cash equivalents, compared to $902 million at December 31, 2023. For the three months ended March 31, 2024, net cash used for operating activities was $451 million, reflecting cash used for working capital of $539 million and rationalization payments of $55 million, as well as the Company's net loss for the period of $58 million, which included non-cash charges for depreciation and amortization of $284 million and net rationalization charges of $22 million. Net cash used for investing activities was $231 million, primarily representing capital expenditures of $318 million, partially offset by proceeds from asset dispositions of $108 million, primarily from prepaid cash proceeds received from the sale of a distribution center in Germany. Net cash provided by financing activities was $661 million, primarily due to net borrowings of $684 million.

At March 31, 2024, we had $3,313 million of unused availability under our various credit agreements, compared to $4,247 million at December 31, 2023. 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 default probabilities, 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 2024 full-year cash flow needs to include capital expenditures of $1.2 billion to $1.3 billion. We also expect interest expense to be $520 million to $540 million; rationalization payments to be approximately $300 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 flat as compared to 2023.

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 March 31, 2024, approximately $916 million of net assets, including approximately $198 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 $451 million in the first three months of 2024, compared to net cash used for operating activities of $775 million in the first three months of 2023. The $324 million improvement in net cash used for operating activities was primarily due to a decrease in cash used for working capital of $320 million and higher earnings in our SBUs of $122 million, partially offset by an increase in cash used for other current liabilities of $106 million and higher rationalization payments of $34 million.

The net improvement in cash used for working capital reflects a decrease in cash used for Accounts Receivable of $278 million and a decrease in cash used for Accounts Payable — Trade of $255 million, partially offset by an increase in cash used for Inventory of $213 million. These changes were driven by the impact of lower raw material costs on our manufacturing operations and pricing.

Investing Activities

Net cash used for investing activities was $231 million in the first three months of 2024, compared to $456 million in the first three months of 2023. Capital expenditures were $318 million in the first three months of 2024, compared to $291 million in the first three months of 2023. Investing activities in the first three months of 2024 also included cash provided by asset dispositions of $108 million, net loans to TireHub of $21 million in the first three months of 2024 compared to $76 million in the first three months of 2023, and a year-over-year decrease of $81 million in net securities acquired and redeemed. Beyond expenditures required to sustain our facilities, capital expenditures in 2024 and 2023 primarily related to the modernization and expansion of tire manufacturing facilities around the world.

Financing Activities

Net cash provided by financing activities was $661 million in the first three months of 2024, compared to net cash provided by financing activities of $1,075 million in the first three months of 2023. Financing activities in the first three months of 2024 included net borrowings of $684 million and a decrease of $18 million in our factored accounts receivable liability. Financing activities in the first three months of 2023 included net borrowings of $1,076 million.

Credit Sources

In aggregate, we had total credit arrangements of $11,476 million available at March 31, 2024, of which $3,313 million were unused, compared to $11,743 million available at December 31, 2023, of which $4,247 million were unused. At March 31, 2024, we had long term credit arrangements totaling $10,722 million, of which $2,975 million were unused, compared to $10,983 million and $3,867 million, respectively, at December 31, 2023. At March 31, 2024, we had short term committed and uncommitted credit arrangements totaling $754 million, of which $338 million were unused, compared to $760 million and $380 million, respectively, at December 31, 2023. 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 March 31, 2024, we had $5,560 million of outstanding notes compared to $5,571 million at December 31, 2023.

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

Our amended and restated first lien revolving credit facility matures on June 8, 2026 and 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. As of March 31, 2024, our borrowing base, and therefore our availability, under this facility was $178 million below the facility's stated amount of $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.

At March 31, 2024, we had $630 million of borrowings and $1 million of letters of credit issued under the revolving credit facility. At December 31, 2023, we had $385 million of borrowings and $1 million of letters of credit issued under the revolving credit facility.

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

The European revolving credit facility matures on January 14, 2028 and 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 March 31, 2024, there were no borrowings outstanding under the German tranche, $292 million (€270 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility. At December 31, 2023, we had no borrowings 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 19, 2023 through October 16, 2024, the designated maximum amount of the facility is €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 March 31, 2024, the amounts available and utilized under this program totaled $159 million (€147 million). At December 31, 2023, the amounts available and utilized under this program totaled $244 million (€221 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 March 31, 2024, the gross amount of receivables sold was $689 million, compared to $693 million at December 31, 2023.

Letters of Credit

At March 31, 2024, we had $212 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 programs, 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 due 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 and we do not pledge any assets as security or provide other forms of guarantees for these programs. These programs 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 these programs. The amounts available under these programs were $860 million and $892 million at March 31, 2024 and December 31, 2023, respectively. The amounts confirmed to the financial institutions were $609 million and $580 million at March 31, 2024 and December 31, 2023, 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 2023 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 March 31, 2024, our unused availability under this facility of $1,941 million, plus our Available Cash of $230 million, totaled $2,171 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, similar non-financial covenants specifically applicable to GEBV and its subsidiaries, 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 March 31, 2024, 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 March 31, 2024, 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 may 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 three months of 2024, 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. 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 $1,945 million and $2,214 million as of March 31, 2024 and December 31, 2023, respectively.

(In millions)

(2) Includes income from intercompany transactions with Non-Guarantor Subsidiaries of $142 million for the three months ended March 31, 2024, primarily from royalties, intercompany product sales, dividends and interest, and $711 million for the year ended December 31, 2023, primarily from royalties, dividends, interest and intercompany product sales.

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 the Goodyear Forward plan and our other strategic initiatives, our operating results, financial condition and liquidity may be materially adversely affected;
• we face significant global competition and our market share could decline;
• 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;
• a prolonged economic downturn or economic uncertainty could adversely affect our business and results of operations;
• 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;
• changes to tariffs, trade agreements or trade restrictions may materially adversely affect our operating results;
• 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, 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 have a material adverse effect on 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 conflicts between Russia and Ukraine and between Israel and Hamas, 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 March 31, 2024, approximately 26% of our debt was at variable interest rates averaging 7.06%.

The following table presents information about long term fixed rate debt, excluding finance leases, at March 31, 2024:

(In millions)

The pro forma information assumes a 100 basis point decrease in market interest rates at March 31, 2024, 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 March 31, 2024:

(In millions)

The pro forma decrease in fair value assumes a 10% adverse change in underlying foreign exchange rates at March 31, 2024, 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 March 31, 2024 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 March 31, 2024 (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.