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Financing Arrangements and Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2017
Financing Arrangements and Derivative Financial Instruments [Abstract] |
FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS | FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS At September 30, 2017, we had total credit arrangements of $8,851 million, of which $2,420 million were unused. At that date, 41% of our debt was at variable interest rates averaging 4.08%. Notes Payable and Overdrafts, Long Term Debt and Capital Leases due Within One Year and Short Term Financing Arrangements At September 30, 2017, we had short term committed and uncommitted credit arrangements totaling $627 million, of which $351 million were unused. These arrangements are available primarily to certain of our foreign subsidiaries through various banks at quoted market interest rates. The following table presents amounts due within one year:
| September 30, |  | December 31,
(In millions) | 2017 |  | 2016
Notes payable and overdrafts | $ | 276 |  |  | $ | 245 |
Weighted average interest rate | 5.98 | % |  | 6.18 | %
Chinese credit facilities | $ | 125 |  |  | $ | 146 |
Other domestic and foreign debt (including capital leases) | 253 |  |  | 290 |
Long term debt and capital leases due within one year | $ | 378 |  |  | $ | 436 |
Weighted average interest rate | 6.98 | % |  | 9.39 | %
Total obligations due within one year | $ | 654 |  |  | $ | 681 |
Long Term Debt and Capital Leases and Financing Arrangements At September 30, 2017, we had long term credit arrangements totaling $8,224 million, of which $2,069 million were unused. The following table presents long term debt and capital leases, net of unamortized discounts, and interest rates:
| September 30, 2017 |  | December 31, 2016
|  |  | Interest |  |  |  | Interest
(In millions) | Amount |  | Rate |  | Amount |  | Rate
Notes: |  |  |  |  |  |  |
8.75% due 2020 | $ | 275 |  |  |  |  | $ | 273 |  |  |
7% due 2022 | — |  |  |  |  | 700 |  |  |
5.125% due 2023 | 1,000 |  |  |  |  | 1,000 |  |  |
3.75% Euro Notes due 2023 | 296 |  |  |  |  | 264 |  |  |
5% due 2026 | 900 |  |  |  |  | 900 |  |  |
4.875% due 2027 | 700 |  |  |  |  | — |  |  |
7% due 2028 | 150 |  |  |  |  | 150 |  |  |
Credit Facilities: |  |  |  |  |  |  |
$2.0 billion first lien revolving credit facility due 2021 | 375 |  |  | 2.45 | % |  | 85 |  |  | 1.98 | %
Second lien term loan facility due 2019 | 399 |  |  | 3.24 | % |  | 399 |  |  | 3.75 | %
€550 million revolving credit facility due 2020 | 390 |  |  | 1.75 | % |  | — |  |  | — |
Pan-European accounts receivable facility | 241 |  |  | 0.89 | % |  | 198 |  |  | 0.98 | %
Chinese credit facilities | 247 |  |  | 4.81 | % |  | 315 |  |  | 4.68 | %
Other foreign and domestic debt(1) | 1,145 |  |  | 6.08 | % |  | 951 |  |  | 9.14 | %
| 6,118 |  |  |  |  | 5,235 |  |  |
Unamortized deferred financing fees | (43 | ) |  |  |  | (42 | ) |  |
| 6,075 |  |  |  |  | 5,193 |  |  |
Capital lease obligations | 40 |  |  |  |  | 41 |  |  |
| 6,115 |  |  |  |  | 5,234 |  |  |
Less portion due within one year | (378 | ) |  |  |  | (436 | ) |  |
| $ | 5,737 |  |  |  |  | $ | 4,798 |  |  |
(1) | Interest rates are weighted average interest rates related to various foreign credit facilities with customary terms and conditions and domestic debt related to our Global and Americas Headquarters.
NOTES $700 million 4.875% Senior Notes due 2027 In March 2017, we issued $700 million in aggregate principal amount of 4.875% senior notes due 2027. These notes were sold at 100% of the principal amount and will mature on March 15, 2027. These notes are unsecured senior obligations and are guaranteed by our U.S. and Canadian subsidiaries that also guarantee our obligations under our U.S. senior secured credit facilities described below. $700 million 7% Senior Notes due 2022 In May 2017, we used the proceeds from the $700 million 4.875% senior notes due 2027, together with cash and cash equivalents, to redeem in full our $700 million 7% senior notes due 2022, which included the payment of a $25 million redemption premium plus accrued and unpaid interest to the redemption date. We also recorded $6 million of expense for the write-off of deferred financing fees as a result of the redemption. CREDIT FACILITIES $2.0 billion Amended and Restated First Lien Revolving Credit Facility due 2021 Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit, with letter of credit availability limited to $800 million. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. Based on our current liquidity, amounts drawn under this facility bear interest at LIBOR plus 125 basis points, and undrawn amounts under the facility will be subject to an annual commitment fee of 30 basis points. Availability under the facility is subject to a borrowing base, which is based primarily on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks, and (iii) certain cash in an amount not to exceed $200 million. To the extent that our eligible accounts receivable and inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.0 billion. As of September 30, 2017, our borrowing base, and therefore our availability, under this facility was $266 million below the facility's stated amount of $2.0 billion. The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2015. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries. At September 30, 2017, we had $375 million of borrowings and $37 million of letters of credit issued under the revolving credit facility. At December 31, 2016, we had $85 million of borrowings and $40 million of letters of credit issued under the revolving credit facility. Amended and Restated Second Lien Term Loan Facility due 2019 In March 2017, we amended our second lien term loan facility. As a result of the amendment, the term loan now bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). In addition, if the Total Leverage Ratio is equal to or less than 1.25 to 1.00, we have the option to further reduce the spreads described above by 25 basis points. "Total Leverage Ratio" has the meaning given it in the facility. Our obligations under our second lien term loan facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second priority security interests in the same collateral securing the $2.0 billion first lien revolving credit facility. At September 30, 2017 and December 31, 2016, the amounts outstanding under this facility were $399 million. €550 million Amended and Restated Senior Secured European Revolving Credit Facility due 2020 Our amended and restated €550 million European revolving credit facility consists of (i) a €125 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €425 million all-borrower tranche that is available to Goodyear Dunlop Tires Europe B.V. ("GDTE"), GDTG and Goodyear Dunlop Tires Operations S.A. Up to €150 million of swingline loans and €50 million in letters of credit are available for issuance under the all-borrower tranche. Amounts drawn under this facility will bear interest at LIBOR plus 175 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 175 basis points for loans denominated in euros, and undrawn amounts under the facility will be subject to an annual commitment fee of 30 basis points. GDTE and certain of its subsidiaries in the United Kingdom, Luxembourg, France and Germany provide guarantees to support the facility. The German guarantors secure the German tranche on a first-lien basis and the all-borrower tranche on a second-lien basis. GDTE and its other subsidiaries that provide guarantees secure the all-borrower tranche on a first-lien basis and generally do not provide collateral support for the German tranche. The Company and its U.S. subsidiaries and primary Canadian subsidiary that guarantee our U.S. senior secured credit facilities described above also provide unsecured guarantees in support of the facility. The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2014. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries. At September 30, 2017, there were $148 million (€125 million) of borrowings outstanding under the German tranche and there were $242 million (€205 million) of borrowings outstanding under the all-borrower tranche. At December 31, 2016, there were no borrowings outstanding under the European revolving credit facility. There were no letters of credit issued at September 30, 2017 and December 31, 2016. Accounts Receivable Securitization Facilities (On-Balance Sheet) GDTE and certain other of our European subsidiaries are parties to a pan-European accounts receivable securitization facility that expires in 2019. The terms of the facility provide the flexibility to designate annually the maximum amount of funding available under the facility in an amount of not less than €45 million and not more than €450 million. For the period beginning October 16, 2016 to October 15, 2017, the designated maximum amount of the facility was €320 million. Effective October 16, 2017, the designated maximum amount of the facility was reduced to €275 million. The facility involves an ongoing daily sale of substantially all of the trade accounts receivable of certain GDTE subsidiaries to a bankruptcy-remote French company controlled by one of the liquidity banks in the facility. These subsidiaries retain servicing responsibilities. Utilization under this facility is based on eligible receivable balances. The funding commitments under the facility will expire upon the earliest to occur of: (a) September 25, 2019, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events similar to the events of default under our senior secured credit facilities; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 15, 2018. At September 30, 2017, the amounts available and utilized under this program totaled $241 million (€204 million). At December 31, 2016, the amounts available and utilized under this program totaled $198 million (€188 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Capital Leases. In addition to the pan-European accounts receivable securitization facility discussed above, subsidiaries in Australia have an accounts receivable securitization program that provides flexibility to designate semi-annually the maximum amount of funding available under the facility in an amount of not less than 60 million Australian dollars and not more than 85 million Australian dollars. From July 1, 2016 to December 31, 2017, the designated maximum amount of the facility is 60 million Australian dollars. At September 30, 2017, the amounts available and utilized under this program were $31 million (AUD 39 million) and $29 million (AUD 37 million), respectively. At December 31, 2016, the amounts available and utilized under this program were $28 million (AUD 39 million) and $12 million (AUD 16 million), respectively. The receivables sold under this program also serve as collateral for the related facility. We retain the risk of loss related to these receivables in the event of non-payment. These amounts are included in Long Term Debt and Capital Leases due Within One Year. For a description of the collateral securing the credit facilities described above as well as the covenants applicable to them, refer to Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2016 Form 10-K. Accounts Receivable Factoring Facilities (Off-Balance Sheet) We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At September 30, 2017, the gross amount of receivables sold was $495 million, compared to $502 million at December 31, 2016. Other Foreign Credit Facilities A Chinese subsidiary has several financing arrangements in China. At September 30, 2017, these non-revolving credit facilities had total unused availability of $218 million and can only be used to finance the expansion of our manufacturing facility in China. At September 30, 2017 and December 31, 2016, the amounts outstanding under these facilities were $247 million and $315 million, respectively. The facilities ultimately mature in 2025 and principal amortization began in 2015. The facilities contain covenants relating to the Chinese subsidiary and have customary representations and warranties and defaults relating to the Chinese subsidiary’s ability to perform its obligations under the facilities. At September 30, 2017 and December 31, 2016, restricted cash related to funds obtained under these credit facilities was $14 million and $8 million, respectively. DERIVATIVE FINANCIAL INSTRUMENTS We utilize derivative financial instrument contracts and nonderivative instruments to manage interest rate, foreign exchange and commodity price risks. We have established a control environment that includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes. Foreign Currency Contracts We enter into foreign currency contracts in order to manage the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts may be used to reduce exposure to currency movements affecting existing foreign currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting primarily from trade purchases and sales, equipment acquisitions, intercompany loans and royalty agreements. Contracts hedging short term trade receivables and payables normally have no hedging designation. The following table presents the fair values for foreign currency contracts not designated as hedging instruments:
| September 30, |  | December 31,
(In millions) | 2017 |  | 2016
Fair Values — Current asset (liability): |  |  |
Accounts receivable | $ | 6 |  |  | $ | 30 |
Other current liabilities | (8 | ) |  | (18 | )
At September 30, 2017 and December 31, 2016, these outstanding foreign currency derivatives had notional amounts of $1,121 million and $1,812 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction losses on derivatives of $10 million and $55 million for the three and nine months ended September 30, 2017, respectively, and net transaction losses on derivatives of $15 million and $33 million for the three and nine months ended September 30, 2016, respectively. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures. The following table presents fair values for foreign currency contracts designated as cash flow hedging instruments:
| September 30, |  | December 31,
(In millions) | 2017 |  | 2016
Fair Values — Current asset (liability): |  |  |
Accounts receivable | $ | — |  |  | $ | 9 |
Other current liabilities | (10 | ) |  | — |
Fair Values — Long term asset (liability): |  |  |
Other assets | $ | — |  |  | $ | 2 |
Other long term liabilities | (2 | ) |  | — |
At September 30, 2017 and December 31, 2016, these outstanding foreign currency derivatives had notional amounts of $261 million and $293 million, respectively, and primarily related to U.S. dollar denominated intercompany transactions. We enter into master netting agreements with counterparties. The amounts eligible for offset under the master netting agreements are not material and we have elected a gross presentation of foreign currency contracts in the Consolidated Balance Sheets. The following table presents information related to foreign currency contracts designated as cash flow hedging instruments (before tax and minority):
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
(In millions) (Income) Expense | 2017 |  | 2016 |  | 2017 |  | 2016
Amounts deferred to Accumulated Other Comprehensive Loss ("AOCL") | $ | 7 |  |  | $ | 1 |  |  | $ | 28 |  |  | $ | 1 |
Amount of deferred (gain) loss reclassified from AOCL into CGS | 1 |  |  | — |  |  | (3 | ) |  | (6 | )
Amounts excluded from effectiveness testing | (1 | ) |  | (1 | ) |  | (2 | ) |  | (1 | )
The estimated net amount of deferred losses at September 30, 2017 that are expected to be reclassified to earnings within the next twelve months is $14 million. The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that are recognized market makers at the time we entered into those contracts. We seek to control our credit exposure to these counterparties by diversifying across multiple counterparties, by setting counterparty credit limits based on long term credit ratings and other indicators of counterparty credit risk such as credit default swap spreads, and by monitoring the financial strength of these counterparties on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to counterparties in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a counterparty. However, the inability of a counterparty to fulfill its contractual obligations to us could have a material adverse effect on our liquidity, financial position or results of operations in the period in which it occurs.

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