Document
false--12-31Q22019truefalse0000042582GOODYEAR TIRE & RUBBER CO /OH/200000000P10Y10161000000104920000001130000001170000002000000004500000004500000002320000002330000000.03750.048750.051250.050.08750.070.03750.0728000000P1Y130000003314000000100000050000006000000100000030000004000000200000020000000020000006000000800000020000002000000400000000001000000100000001000000100000020000001000000100000080000008000000160000008000000800000016000000200000040000002000000000003830882538634545414476824629238445992714459422570000000


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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2019
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Ohio
 
34-0253240
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
200 Innovation Way,
Akron,
Ohio
 
 
44316-0001
(Address of Principal Executive Offices)
 
(Zip Code)
(330796-2121
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange
 on which registered
Common Stock, Without Par Value
 
GT
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock,
Without Par Value, Outstanding at June 30, 2019:
 
232,521,170
 




TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EX-101.INS INSTANCE DOCUMENT
 
EX-101.SCH SCHEMA DOCUMENT
 
EX-101.CAL CALCULATION LINKBASE DOCUMENT
 
EX-101.LAB LABELS LINKBASE DOCUMENT
 
EX-101.PRE PRESENTATION LINKBASE DOCUMENT
 
EX-101.DEF DEFINITION LINKBASE DOCUMENT





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.


THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In millions, except per share amounts)
2019
 
2018
 
2019
 
2018
Net Sales (Note 2)
$
3,632

 
$
3,841

 
$
7,230

 
$
7,671

Cost of Goods Sold
2,855

 
2,949

 
5,734

 
5,925

Selling, Administrative and General Expense
586

 
588

 
1,133

 
1,179

Rationalizations (Note 3)
4

 
(2
)
 
107

 
35

Interest Expense
88

 
78

 
173

 
154

Other (Income) Expense (Note 4)
17

 
45

 
39

 
82

Income before Income Taxes
82

 
183

 
44

 
296

United States and Foreign Tax Expense (Note 5)
26

 
19

 
32

 
52

Net Income
56

 
164

 
12

 
244

Less: Minority Shareholders’ Net Income
2

 
7

 
19

 
12

Goodyear Net Income (Loss)
$
54

 
$
157

 
$
(7
)
 
$
232

Goodyear Net Income (Loss) — Per Share of Common Stock
 
 
 
 
 
 
 
Basic
$
0.23

 
$
0.66

 
$
(0.03
)
 
$
0.97

Weighted Average Shares Outstanding (Note 6)
233

 
239

 
232

 
240

Diluted
$
0.23

 
$
0.65

 
$
(0.03
)
 
$
0.96

Weighted Average Shares Outstanding (Note 6)
234

 
241

 
232

 
242

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



- 1-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In millions)
2019
 
2018
 
2019
 
2018
Net Income
$
56

 
$
164

 
$
12

 
$
244

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
Foreign currency translation, net of tax of $2 and $4 in 2019 (($6) and ($8) in 2018)
(16
)
 
(231
)
 
14

 
(149
)
Defined benefit plans:
 
 
 
 
 
 
 
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $8 and $16 in 2019 ($8 and $16 in 2018)
26

 
26

 
52

 
53

Decrease in net actuarial losses, net of tax of $3 and $4 in 2019 ($5 and $6 in 2018)
9

 
16

 
13

 
19

Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures, net of tax of $0 and $0 in 2019 ($2 and $2 in 2018)

 
4

 

 
4

Prior service (cost) credit from plan amendments, net of tax of $0 and $0 in 2019 ($0 and $0 in 2018)
(1
)
 

 
(1
)
 

Deferred derivative gains (losses), net of tax of $0 and $0 in 2019 ($4 and $2 in 2018)
(1
)
 
10

 
4

 
6

Reclassification adjustment for amounts recognized in income, net of tax of ($1) and ($1) in 2019 ($1 and $2 in 2018)
(2
)
 
2

 
(5
)
 
5

Other Comprehensive Income (Loss)
15

 
(173
)
 
77

 
(62
)
Comprehensive Income (Loss)
71

 
(9
)
 
89

 
182

Less: Comprehensive Income (Loss) Attributable to Minority Shareholders
5

 
(11
)
 
22

 
(4
)
Goodyear Comprehensive Income
$
66

 
$
2

 
$
67

 
$
186

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

- 2-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30,
 
December 31,
(In millions, except share data)
2019
 
2018
Assets:
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
917

 
$
801

Accounts Receivable, less Allowance — $117 ($113 in 2018)
2,473

 
2,030

Inventories:
 
 
 
Raw Materials
573

 
569

Work in Process
153

 
152

Finished Products
2,365

 
2,135

 
3,091

 
2,856

Prepaid Expenses and Other Current Assets
300

 
238

Total Current Assets
6,781

 
5,925

Goodwill
570

 
569

Intangible Assets
135

 
136

Deferred Income Taxes (Note 5)
1,865

 
1,847

Other Assets
1,071

 
1,136

Operating Lease Right-of-Use Assets (Note 8)
854

 

Property, Plant and Equipment, less Accumulated Depreciation — $10,492 ($10,161 in 2018)
7,194

 
7,259

Total Assets
$
18,470

 
$
16,872

 
 
 
 
Liabilities:
 
 
 
Current Liabilities:
 
 
 
Accounts Payable — Trade
$
2,750

 
$
2,920

Compensation and Benefits (Notes 11 and 12)
507

 
471

Other Current Liabilities
653

 
737

Notes Payable and Overdrafts (Note 9)
480

 
410

Operating Lease Liabilities due Within One Year (Note 8)
200

 

Long Term Debt and Finance Leases due Within One Year (Notes 8 and 9)
491

 
243

Total Current Liabilities
5,081

 
4,781

Operating Lease Liabilities (Note 8)
664

 

Long Term Debt and Finance Leases (Notes 8 and 9)
5,766

 
5,110

Compensation and Benefits (Notes 11 and 12)
1,277

 
1,345

Deferred Income Taxes (Note 5)
94

 
95

Other Long Term Liabilities
539

 
471

Total Liabilities
13,421

 
11,802

Commitments and Contingent Liabilities (Note 13)

 

Shareholders’ Equity:
 

 
 

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

 
 

Authorized, 450 million shares, Outstanding shares — 233 and 232 million in 2019 and 2018
233

 
232

Capital Surplus
2,124

 
2,111

Retained Earnings
6,492

 
6,597

Accumulated Other Comprehensive Loss
(4,002
)
 
(4,076
)
Goodyear Shareholders’ Equity
4,847

 
4,864

Minority Shareholders’ Equity — Nonredeemable
202

 
206

Total Shareholders’ Equity
5,049

 
5,070

Total Liabilities and Shareholders’ Equity
$
18,470

 
$
16,872

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

- 3-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
Minority
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
Goodyear
 
Shareholders'
 
Total
 
 
Common Stock
 
Capital
 
Retained
 
Comprehensive
 
Shareholders'
 
Equity  Non-
 
Shareholders'
(Dollars in millions, except per share amounts)
 
Shares
 
Amount
 
Surplus
 
Earnings
 
Loss
 
Equity
 
Redeemable
 
Equity
Balance at December 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

(after deducting 46,292,384 common treasury shares)
 
232,171,043

 
$
232

 
$
2,111

 
$
6,597

 
$
(4,076
)
 
$
4,864

 
$
206

 
$
5,070

Comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
 
 

 
 

 
 

 
(61
)
 
 
 
(61
)
 
17

 
(44
)
Foreign currency translation (net of tax of $2)
 
 

 
 

 
 

 
 
 
30

 
30

 
 
 
30

Amortization of prior service cost and unrecognized gains and losses included in total benefit cost (net of tax of $8)
 
 

 
 

 
 

 
 
 
26

 
26

 
 
 
26

Decrease in net actuarial losses (net of tax of $1)
 
 

 
 

 
 

 
 
 
4

 
4

 
 
 
4

Deferred derivative gains (losses) (net of tax of $0)
 
 
 
 
 
 
 
 
 
5

 
5

 
 
 
5

Reclassification adjustment for amounts recognized in income (net of tax of $0)
 
 
 
 
 
 
 
 
 
(3
)
 
(3
)
 
 
 
(3
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
62

 

 
62

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
1

 
17

 
18

Adoption of new accounting standards update (Note 1)
 
 
 
 
 
 
 
(23
)
 
 
 
(23
)
 
 
 
(23
)
Stock-based compensation plans (Note 12)
 
 
 
 
 
4

 
 
 
 
 
4

 
 
 
4

Dividends declared (Note 14)
 
 
 
 
 
 
 
(37
)
 
 
 
(37
)
 
 
 
(37
)
Common stock issued from treasury
 
299,670

 
 
 
(1
)
 
 
 
 
 
(1
)
 
 
 
(1
)
Balance at March 31, 2019
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

(after deducting 45,992,714 common treasury shares)
 
232,470,713

 
$
232

 
$
2,114

 
$
6,476

 
$
(4,014
)
 
$
4,808

 
$
223

 
$
5,031

Comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
 
 

 
 

 
 

 
54

 
 
 
54

 
2

 
56

Foreign currency translation (net of tax of $2)
 
 

 
 

 
 

 
 
 
(19
)
 
(19
)
 
3

 
(16
)
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost (net of tax of $8)
 
 

 
 

 
 

 
 
 
26

 
26

 
 
 
26

Decrease in net actuarial losses (net of tax of $3)
 
 

 
 

 
 

 
 
 
9

 
9

 
 
 
9

Prior service (cost) credit from plan amendments (net of tax of $0)
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
 
 
 
(1
)
Deferred derivative gains (losses) (net of tax of $0)
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
 
 
 
(1
)
Reclassification adjustment for amounts recognized in income (net of tax of ($1))
 
 
 
 
 
 
 
 
 
(2
)
 
(2
)
 
 
 
(2
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
12

 
3

 
15

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
66

 
5

 
71

Stock-based compensation plans (Note 12)
 
 
 
 
 
9

 
 
 
 
 
9

 
 
 
9

Dividends declared (Note 14)
 
 
 
 
 
 
 
(38
)
 
 
 
(38
)
 
(4
)
 
(42
)
Common stock issued from treasury
 
50,457

 
1

 
 
 
 
 
 
 
1

 
 
 
1

Purchase of minority shares
 
 
 
 
 
1

 
 
 
 
 
1

 
(22
)
 
(21
)
Balance at June 30, 2019
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

(after deducting 45,942,257 common treasury shares)
 
232,521,170

 
$
233

 
$
2,124

 
$
6,492

 
$
(4,002
)
 
$
4,847

 
$
202

 
$
5,049

We declared and paid cash dividends of $0.16 and $0.32 per Common Share for the three and six months ended June 30, 2019, respectively.
The accompanying notes are an integral part of these consolidated financial statements.

- 4-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
Minority
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
Goodyear
 
Shareholders'
 
Total
 
 
Common Stock
 
Capital
 
Retained
 
Comprehensive
 
Shareholders'
 
Equity  Non-
 
Shareholders'
(Dollars in millions, except per share amounts)
 
Shares
 
Amount
 
Surplus
 
Earnings
 
Loss
 
Equity
 
Redeemable
 
Equity
Balance at December 31, 2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

(after deducting 38,308,825 common treasury shares)
 
240,154,602

 
$
240

 
$
2,295

 
$
6,044

 
$
(3,976
)
 
$
4,603

 
$
247

 
$
4,850

Comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
 

 
 

 
 

 
75

 
 
 
75

 
5

 
80

Foreign currency translation (net of tax of ($2))
 
 

 
 

 
 

 
 
 
80

 
80

 
2

 
82

Amortization of prior service cost and unrecognized gains and losses included in total benefit cost (net of tax of $8)
 
 

 
 

 
 

 
 
 
27

 
27

 
 
 
27

Decrease in net actuarial losses (net of tax of $1)
 
 

 
 

 
 

 
 
 
3

 
3

 
 
 
3

Deferred derivative gains (losses) (net of tax of ($2))
 
 
 
 
 
 
 
 
 
(4
)
 
(4
)
 
 
 
(4
)
Reclassification adjustment for amounts recognized in income (net of tax of $1)
 
 
 
 
 
 
 
 
 
3

 
3

 
 
 
3

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
109

 
2

 
111

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
184

 
7

 
191

Adoption of new accounting standards updates
 
 
 
 
 
 
 
(1
)
 
 
 
(1
)
 
 
 
(1
)
Stock-based compensation plans (Note 12)
 


 


 
4

 
 
 
 
 
4

 
 
 
4

Repurchase of common stock (Note 14)
 
(850,284
)
 
(1
)
 
(24
)
 
 
 
 
 
(25
)
 
 
 
(25
)
Dividends declared (Note 14)
 
 
 
 
 
 
 
(34
)
 
 
 
(34
)
 
 
 
(34
)
Common stock issued from treasury
 
524,564

 
1

 


 
 
 
 
 
1

 
 
 
1

Purchase of minority shares
 
 
 
 
 
5

 
 
 
 
 
5

 
(29
)
 
(24
)
Balance at March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(after deducting 38,634,545 common treasury shares)
 
239,828,882

 
$
240

 
$
2,280

 
$
6,084

 
$
(3,867
)
 
$
4,737

 
$
225

 
$
4,962

Comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
 

 
 

 
 

 
157

 
 
 
157

 
7

 
164

Foreign currency translation (net of tax of ($6))
 
 

 
 

 
 

 
 
 
(213
)
 
(213
)
 
(18
)
 
(231
)
Amortization of prior service cost and unrecognized gains and losses included in total benefit cost (net of tax of $8)
 
 

 
 

 
 

 
 
 
26

 
26

 
 
 
26

Decrease in net actuarial losses (net of tax of $5)
 
 

 
 

 
 

 
 
 
16

 
16

 
 
 
16

Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements and divestitures (net of tax of $2)
 
 

 
 

 
 

 
 
 
4

 
4

 
 
 
4

Deferred derivative gains (losses) (net of tax of $4)
 
 
 
 
 
 
 
 
 
10

 
10

 
 
 
10

Reclassification adjustment for amounts recognized in income (net of tax of $1)
 
 
 
 
 
 
 
 
 
2

 
2

 
 
 
2

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
(155
)
 
(18
)
 
(173
)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
2

 
(11
)
 
(9
)
Stock-based compensation plans (Note 12)
 
 
 
 
 
4

 
 
 
 
 
4

 
 
 
4

Repurchase of common stock (Note 14)
 
(3,000,808
)
 
(3
)
 
(72
)
 
 
 
 
 
(75
)
 
 
 
(75
)
Dividends declared (Note 14)
 
 
 
 
 
 
 
(33
)
 
 
 
(33
)
 
(7
)
 
(40
)
Common stock issued from treasury
 
187,671

 
 
 
2

 
 
 
 
 
2

 
 
 
2

Balance at June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(after deducting 41,447,682 common treasury shares)
 
237,015,745

 
$
237

 
$
2,214

 
$
6,208

 
$
(4,022
)
 
$
4,637

 
$
207

 
$
4,844

We declared and paid cash dividends of $0.14 and $0.28 per Common Share for the three and six months ended June 30, 2018, respectively.
The accompanying notes are an integral part of these consolidated financial statements.

- 5-




THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
 
June 30,
(In millions)
2019
 
2018
Cash Flows from Operating Activities:
 
 
 
Net Income
$
12

 
$
244

Adjustments to Reconcile Net Income to Cash Flows from Operating Activities:
 
 
 
Depreciation and Amortization
389

 
392

Amortization and Write-Off of Debt Issuance Costs
9

 
8

Provision for Deferred Income Taxes
(31
)
 
(55
)
Net Pension Curtailments and Settlements

 
3

Net Rationalization Charges (Note 3)
107

 
35

Rationalization Payments
(33
)
 
(131
)
Net (Gains) Losses on Asset Sales (Note 4)
(6
)
 

Operating Lease Expense (Note 8)
148

 

Operating Lease Payments (Note 8)
(134
)
 

Pension Contributions and Direct Payments
(32
)
 
(42
)
Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions:
 
 
 
Accounts Receivable
(445
)
 
(475
)
Inventories
(233
)
 
(222
)
Accounts Payable — Trade
(55
)
 
253

Compensation and Benefits
61

 
(30
)
Other Current Liabilities
(37
)
 
(100
)
Other Assets and Liabilities
(11
)
 
36

Total Cash Flows from Operating Activities
(291
)
 
(84
)
Cash Flows from Investing Activities:
 
 
 
Capital Expenditures
(401
)
 
(442
)
Asset Dispositions (Note 4)
2

 
2

Short Term Securities Acquired
(67
)
 
(30
)
Short Term Securities Redeemed
67

 
38

Notes Receivable
(7
)
 

Other Transactions
(13
)
 
(38
)
Total Cash Flows from Investing Activities
(419
)
 
(470
)
Cash Flows from Financing Activities:
 
 
 
Short Term Debt and Overdrafts Incurred
983

 
1,012

Short Term Debt and Overdrafts Paid
(908
)
 
(920
)
Long Term Debt Incurred
3,479

 
3,544

Long Term Debt Paid
(2,628
)
 
(2,933
)
Common Stock Issued
1

 
3

Common Stock Repurchased (Note 14)

 
(100
)
Common Stock Dividends Paid (Note 14)
(74
)
 
(67
)
Transactions with Minority Interests in Subsidiaries
(25
)
 
(26
)
Debt Related Costs and Other Transactions
(17
)
 
6

Total Cash Flows from Financing Activities
811

 
519

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
6

 
(25
)
Net Change in Cash, Cash Equivalents and Restricted Cash
107

 
(60
)
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period
873

 
1,110

Cash, Cash Equivalents and Restricted Cash at End of the Period
$
980

 
$
1,050

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

- 6-




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

NOTE 1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by The Goodyear Tire & Rubber Company (the “Company,” “Goodyear,” “we,” “us” or “our”) in accordance with Securities and Exchange Commission rules and regulations and generally accepted accounting principles in the United States of America ("US GAAP") and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).
Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2019.
Recently Adopted Accounting Standards
Effective January 1, 2019, we adopted an accounting standards update with new guidance intended to increase transparency and comparability among organizations relating to leases.  The new guidance requires lessees to recognize a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term.  The standards update retained a dual model for lease classification, requiring leases to be classified as finance or operating leases to determine recognition in the statements of operations and cash flows; however, substantially all leases are now required to be recognized on the balance sheet. The standards update also requires quantitative and qualitative disclosures regarding key information about leasing arrangements. We elected the optional transition method and applied the new guidance at the date of adoption, without adjusting the comparative periods presented. We also elected the practical expedients permitted under the transition guidance that retain the lease classification and initial direct costs for any leases that existed prior to adoption of the standard, and we have elected to not evaluate land easements that existed as of, or expired before, adoption of the new standard. In addition, we did not reassess whether any contracts entered into prior to adoption are leases.
The adoption of this standards update had a material impact on our Consolidated Balance Sheets and related disclosures. In addition to recognizing right-of-use assets and lease liabilities for our operating leases, we recorded $23 million as a cumulative effect adjustment to decrease Retained Earnings as a result of using the modified retrospective adoption approach. The adoption of this standards update did not have a material impact on our results of operations or cash flows.
The cumulative effect of the changes made to our January 1, 2019 balance sheet for the adoption of the standards update was as follows:
 
Balance at
 
Adjustment for
 
Balance at
(In millions)
December 31, 2018
 
New Standard
 
January 1, 2019
Deferred Income Taxes — Asset
$
1,847

 
$
7

 
$
1,854

Operating Lease Right-of-Use Assets

 
882

 
882

Property, Plant and Equipment, less Accumulated Depreciation
7,259

 
(16
)
 
7,243

Operating Lease Liabilities due Within One Year

 
204

 
204

Operating Lease Liabilities

 
684

 
684

Long Term Debt and Finance Leases
5,110

 
14

 
5,124

Other Long Term Liabilities
471

 
(6
)
 
465

Retained Earnings
6,597

 
(23
)
 
6,574


Effective January 1, 2019, we adopted an accounting standards update with new guidance intended to reduce complexity in hedge accounting and make hedge results easier to understand. This includes simplifying how hedge results are presented and disclosed in the financial statements, expanding the types of hedge strategies allowed and providing relief around the documentation and assessment requirements. The adoption of this standards update did not have a material impact on our consolidated financial statements.
Effective January 1, 2019, we adopted an accounting standards update that allows an optional one-time reclassification from Accumulated Other Comprehensive Income (Loss) ("AOCL") to Retained Earnings for the stranded tax effects resulting from the

- 7-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

new corporate tax rate under the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017 in the United States. We have elected not to reclassify the income tax effects of the Tax Act from AOCL to Retained Earnings. As such, the adoption of this standards update did not impact our consolidated financial statements. Our policy is to utilize an item-by-item approach to release stranded income tax effects from AOCL. Under this approach, the stranded income tax effects are released from AOCL when the related item ceases to exist.
Recently Issued Accounting Standards
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update with new guidance requiring a customer in a cloud computing arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to capitalize as an asset. The standards update is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted, and may be applied retrospectively or as of the beginning of the period of adoption. The adoption of this accounting standards update is not expected to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued an accounting standards update with new guidance intended to simplify the subsequent measurement of goodwill. The standards update eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity will perform its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount by which the carrying amount exceeds the fair value. The standards update is effective prospectively for annual and interim goodwill impairment testing performed in fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption of this standards update is not expected to impact our consolidated financial statements.
In June 2016, the FASB issued an accounting standards update with new guidance on accounting for credit losses on financial instruments. The new guidance includes an impairment model for estimating credit losses that is based on expected losses, rather than incurred losses. The standards update is effective prospectively for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The adoption of this standards update is not expected to have a material impact on our consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of all legal entities in which we hold a controlling financial interest. A controlling financial interest generally arises from our ownership of a majority of the voting shares of our subsidiaries. We would also hold a controlling financial interest in variable interest entities if we are considered to be the primary beneficiary. Investments in companies in which we do not own a majority interest and we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. Investments in other companies are carried at cost. All intercompany balances and transactions have been eliminated in consolidation.
Restricted Cash
The following table provides a reconciliation of Cash, Cash Equivalents and Restricted Cash as reported within the Consolidated Statements of Cash Flows:
 
June 30,
(In millions)
2019
 
2018
Cash and Cash Equivalents
$
917

 
$
975

Restricted Cash
63

 
75

Total Cash, Cash Equivalents and Restricted Cash
$
980

 
$
1,050


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


- 8-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2. NET SALES
The following tables show disaggregated net sales from contracts with customers by major source:
 
Three Months Ended June 30, 2019
 
 
 
Europe, Middle East
 
 
 
 
(In millions)
Americas
 
and Africa
 
Asia Pacific
 
Total
Tire unit sales
$
1,556

 
$
1,058

 
$
472

 
$
3,086

Other tire and related sales
159

 
80

 
30

 
269

Retail services and service related sales
138

 
3

 
17

 
158

Chemical sales
114

 

 

 
114

Other
4

 

 
1

 
5

Net Sales by reportable segment
$
1,971

 
$
1,141

 
$
520

 
$
3,632


 
Three Months Ended June 30, 2018
 
 
 
Europe, Middle East
 
 
 
 
(In millions)
Americas
 
and Africa
 
Asia Pacific
 
Total
Tire unit sales
$
1,568

 
$
1,152

 
$
511

 
$
3,231

Other tire and related sales
159

 
98

 
32

 
289

Retail services and service related sales
144

 
9

 
19

 
172

Chemical sales
143

 

 

 
143

Other
4

 
1

 
1

 
6

Net Sales by reportable segment
$
2,018

 
$
1,260

 
$
563

 
$
3,841


 
Six Months Ended June 30, 2019
 
 
 
Europe, Middle East
 
 
 
 
(In millions)
Americas
 
and Africa
 
Asia Pacific
 
Total
Tire unit sales
$
3,049

 
$
2,201

 
$
925

 
$
6,175

Other tire and related sales
296

 
152

 
62

 
510

Retail services and service related sales
270

 
7

 
32

 
309

Chemical sales
223

 

 

 
223

Other
9

 
2

 
2

 
13

Net Sales by reportable segment
$
3,847

 
$
2,362

 
$
1,021

 
$
7,230

 
Six Months Ended June 30, 2018
 
 
 
Europe, Middle East
 
 
 
 
(In millions)
Americas
 
and Africa
 
Asia Pacific
 
Total
Tire unit sales
$
3,074

 
$
2,361

 
$
1,029

 
$
6,464

Other tire and related sales
294

 
203

 
62

 
559

Retail services and service related sales
281

 
24

 
41

 
346

Chemical sales
291

 

 

 
291

Other
7

 
2

 
2

 
11

Net Sales by reportable segment
$
3,947

 
$
2,590

 
$
1,134

 
$
7,671


Tire unit sales consist of consumer, commercial, farm and off-the-road tire sales, including the sale of new Company-branded tires through Company-owned retail channels. Other tire and related sales consist of aviation, race, motorcycle and all-terrain vehicle tire sales, retread sales and other tire related sales. Sales of tires in this category are not included in reported tire unit information. Retail services and service related sales consist of automotive services performed for customers through our Company-owned retail channels, and includes service related products. Chemical sales relate to the sale of synthetic rubber and other chemicals to

- 9-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

third parties, and exclude intercompany sales. Other sales include items such as franchise fees and ancillary tire parts, such as tire rims, tire valves and valve stems.
When we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract, we record deferred revenue, which represents a contract liability. Deferred revenue included in Other Current Liabilities in the Consolidated Balance Sheets totaled $35 million and $39 million at June 30, 2019 and December 31, 2018, respectively. Deferred revenue included in Other Long Term Liabilities in the Consolidated Balance Sheets totaled $31 million and $39 million at June 30, 2019 and December 31, 2018, respectively. We recognize deferred revenue after we have transferred control of the goods or services to the customer and all revenue recognition criteria are met.
The following table presents the balance of deferred revenue related to contracts with customers, and changes during the six months ended June 30, 2019:
(In millions)
 
Balance at December 31, 2018
$
78

Revenue deferred during period
71

Revenue recognized during period
(83
)
Impact of foreign currency translation

Balance at June 30, 2019
$
66


NOTE 3. COSTS ASSOCIATED WITH RATIONALIZATION PROGRAMS
In order to maintain our global competitiveness, we have implemented rationalization actions over the past several years to reduce high-cost and excess manufacturing capacity and associate headcount.
The following table shows the roll-forward of our liability between periods:
 
Associate-
 
 
 
 
(In millions)
Related Costs
 
Other Exit Costs
 
Total
Balance at December 31, 2018
$
80

 
$
1

 
$
81

2019 Charges
100

 
9

 
109

Incurred, including net Foreign Currency Translation of $0 million and $0 million, respectively
(23
)
 
(10
)
 
(33
)
Reversed to the Statement of Operations
(2
)
 

 
(2
)
Balance at June 30, 2019
$
155

 
$

 
$
155


On March 18, 2019, we approved a plan that proposes to modernize two of our tire manufacturing facilities in Germany. The plan is in furtherance of our strategy to strengthen the competitiveness of our manufacturing footprint and increase production of premium, large-rim diameter consumer tires. The plan, which remains subject to consultation with relevant employee representative bodies, would result in approximately 1,100 job reductions as a result of changes to the layout of the plants, efficiency gains from new equipment and a reduction in the production of tires for declining, less profitable market segments. We accrued $