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Financing Arrangements and Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2018
Financing Arrangements and Derivative Financial Instruments [Abstract] |
FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS | FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS At March 31, 2018, we had total credit arrangements of $8,735 million, of which $2,439 million were unused. At that date, 39% of our debt was at variable interest rates averaging 3.84%. Notes Payable and Overdrafts, Long Term Debt and Capital Leases due Within One Year and Short Term Financing Arrangements At March 31, 2018, we had short term committed and uncommitted credit arrangements totaling $660 million, of which $328 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:
| March 31, |  | December 31,
(In millions) | 2018 |  | 2017
Notes payable and overdrafts | $ | 332 |  |  | $ | 262 |
Weighted average interest rate | 4.62 | % |  | 5.00 | %
Chinese credit facilities | $ | 73 |  |  | $ | 113 |
Other domestic and foreign debt (including capital leases) | 254 |  |  | 278 |
Long term debt and capital leases due within one year | $ | 327 |  |  | $ | 391 |
Weighted average interest rate | 5.42 | % |  | 6.86 | %
Total obligations due within one year | $ | 659 |  |  | $ | 653 |
Long Term Debt and Capital Leases and Financing Arrangements At March 31, 2018, we had long term credit arrangements totaling $8,075 million, of which $2,111 million were unused. The following table presents long term debt and capital leases, net of unamortized discounts, and interest rates:
| March 31, 2018 |  | December 31, 2017
|  |  | Interest |  |  |  | Interest
(In millions) | Amount |  | Rate |  | Amount |  | Rate
Notes: |  |  |  |  |  |  |
8.75% due 2020 | $ | 276 |  |  |  |  | $ | 275 |  |  |
5.125% due 2023 | 1,000 |  |  |  |  | 1,000 |  |  |
3.75% Euro Notes due 2023 | 308 |  |  |  |  | 300 |  |  |
5% due 2026 | 900 |  |  |  |  | 900 |  |  |
4.875% due 2027 | 700 |  |  |  |  | 700 |  |  |
7% due 2028 | 150 |  |  |  |  | 150 |  |  |
Credit Facilities: |  |  |  |  |  |  |
$2.0 billion first lien revolving credit facility due 2021 | 165 |  |  | 3.01 | % |  | — |  |  | — |
Second lien term loan facility due 2025 | 400 |  |  | 3.71 | % |  | 400 |  |  | 3.50 | %
€550 million revolving credit facility due 2020 | 401 |  |  | 1.75 | % |  | — |  |  | — |
Pan-European accounts receivable facility | 153 |  |  | 0.96 | % |  | 224 |  |  | 0.90 | %
Mexican credit facilities | 340 |  |  | 3.19 | % |  | 340 |  |  | 3.14 | %
Chinese credit facilities | 185 |  |  | 4.99 | % |  | 212 |  |  | 4.87 | %
Other foreign and domestic debt(1) | 949 |  |  | 5.63 | % |  | 967 |  |  | 6.02 | %
| 5,927 |  |  |  |  | 5,468 |  |  |
Unamortized deferred financing fees | (41 | ) |  |  |  | (41 | ) |  |
| 5,886 |  |  |  |  | 5,427 |  |  |
Capital lease obligations | 41 |  |  |  |  | 40 |  |  |
| 5,927 |  |  |  |  | 5,467 |  |  |
Less portion due within one year | (327 | ) |  |  |  | (391 | ) |  |
| $ | 5,600 |  |  |  |  | $ | 5,076 |  |  |
(1) | Interest rates are weighted average interest rates related to various foreign credit facilities with customary terms and conditions and domestic debt related to our Global and Americas Headquarters.
NOTES At March 31, 2018, we had $3,334 million of outstanding notes, compared to $3,325 million at December 31, 2017. CREDIT FACILITIES $2.0 billion Amended and Restated First Lien Revolving Credit Facility due 2021 Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit, with letter of credit availability limited to $800 million. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. Based on our current liquidity, amounts drawn under this facility bear interest at LIBOR plus 125 basis points, and undrawn amounts under the facility will be subject to an annual commitment fee of 30 basis points. Availability under the facility is subject to a borrowing base, which is based primarily on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks, and (iii) certain cash in an amount not to exceed $200 million. To the extent that our eligible accounts receivable and inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.0 billion. As of March 31, 2018, our borrowing base, and therefore our availability, under this facility was $401 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 March 31, 2018, we had $165 million of borrowings and $37 million of letters of credit issued under the revolving credit facility. At December 31, 2017, we had no borrowings and $37 million of letters of credit issued under the revolving credit facility. $400 million Amended and Restated Second Lien Term Loan Facility due 2025 In March 2018, we amended and restated our second lien term loan facility. As a result of the amendment, the term loan, which previously matured on April 30, 2019, now matures on March 7, 2025. The term loan bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). After March 7, 2018 and prior to September 3, 2018, (i) loans under the facility may not be prepaid or repaid with the proceeds of term loan indebtedness, or converted into or replaced by new term loans, bearing interest at an effective interest rate that is less than the effective interest rate then applicable to such loans and (ii) no amendment of the facility may be made that, directly or indirectly, reduces the effective interest rate applicable to the loans under the facility, in each case unless we pay a fee equal to 1.0% of the principal amount of the loans so affected. 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 March 31, 2018 and December 31, 2017, the amounts outstanding under this facility were $400 million. €550 million Amended and Restated Senior Secured European Revolving Credit Facility due 2020 Our amended and restated €550 million European revolving credit facility consists of (i) a €125 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €425 million all-borrower tranche that is available to Goodyear Dunlop Tires Europe B.V. ("GDTE"), GDTG and Goodyear Dunlop Tires Operations S.A. Up to €150 million of swingline loans and €50 million in letters of credit are available for issuance under the all-borrower tranche. Amounts drawn under this facility will bear interest at LIBOR plus 175 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 175 basis points for loans denominated in euros, and undrawn amounts under the facility will be subject to an annual commitment fee of 30 basis points. GDTE and certain of its subsidiaries in the United Kingdom, Luxembourg, France and Germany provide guarantees to support the facility. The German guarantors secure the German tranche on a first-lien basis and the all-borrower tranche on a second-lien basis. GDTE and its other subsidiaries that provide guarantees secure the all-borrower tranche on a first-lien basis and generally do not provide collateral support for the German tranche. The Company and its U.S. and Canadian subsidiaries that guarantee our U.S. senior secured credit facilities described above also provide unsecured guarantees in support of the facility. The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material 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 March 31, 2018, there were $154 million (€125 million) of borrowings outstanding under the German tranche, $247 million (€200 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility. At December 31, 2017, there were no borrowings and no letters of credit outstanding under the European revolving credit facility. Accounts Receivable Securitization Facilities (On-Balance Sheet) 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 €30 million and not more than €450 million. For the period from October 16, 2017 to October 15, 2018, 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 March 31, 2018, the amounts available and utilized under this program totaled $153 million (€124 million). At December 31, 2017, the amounts available and utilized under this program totaled $224 million (€187 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Capital Leases. For a description of the collateral securing the credit facilities described above as well as the covenants applicable to them, refer to Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2017 Form 10-K. Accounts Receivable Factoring Facilities (Off-Balance Sheet) We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At March 31, 2018, the gross amount of receivables sold was $532 million, compared to $572 million at December 31, 2017. Other Foreign Credit Facilities A Mexican subsidiary and a U.S. subsidiary have several financing arrangements in Mexico. At March 31, 2018 and December 31, 2017, the amounts available and utilized under these facilities were $340 million. The facilities ultimately mature in 2020. The facilities contain covenants relating to the Mexican and U.S. subsidiary and have customary representations and warranties and defaults relating to the Mexican and U.S. subsidiary’s ability to perform its respective obligations under the applicable facilities. A Chinese subsidiary has several financing arrangements in China. At March 31, 2018, these non-revolving credit facilities had total unused availability of $136 million and can only be used to finance the expansion of our manufacturing facility in China. At March 31, 2018 and December 31, 2017, the amounts outstanding under these facilities were $185 million and $212 million, respectively. The facilities ultimately mature in 2025 and principal amortization began in 2015. The facilities contain covenants relating to the Chinese subsidiary and have customary representations and warranties and defaults relating to the Chinese subsidiary’s ability to perform its obligations under the facilities. At March 31, 2018 and December 31, 2017, restricted cash related to funds obtained under these credit facilities was $4 million and $7 million, respectively. DERIVATIVE FINANCIAL INSTRUMENTS We utilize derivative financial instrument contracts and nonderivative instruments to manage interest rate, foreign exchange and commodity price risks. We have established a control environment that includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes. 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:
| March 31, |  | December 31,
(In millions) | 2018 |  | 2017
Fair Values — Current asset (liability): |  |  |
Accounts receivable | $ | 19 |  |  | $ | 3 |
Other current liabilities | (7 | ) |  | (9 | )
At March 31, 2018 and December 31, 2017, these outstanding foreign currency derivatives had notional amounts of $1,511 million and $1,409 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction gains on derivatives of $2 million and net transaction losses on derivatives of $4 million for the three months ended March 31, 2018 and 2017, respectively. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures. The following table presents fair values for foreign currency contracts designated as cash flow hedging instruments:
| March 31, |  | December 31,
(In millions) | 2018 |  | 2017
Fair Values — Current asset (liability): |  |  |
Accounts receivable | $ | 1 |  |  | $ | 1 |
Other current liabilities | (10 | ) |  | (8 | )
Fair Values — Long term asset (liability): |  |  |
Other long term liabilities | $ | (2 | ) |  | $ | (2 | )
At March 31, 2018 and December 31, 2017, these outstanding foreign currency derivatives had notional amounts of $259 million and $250 million, respectively, and primarily related to U.S. dollar denominated intercompany transactions. We enter into master netting agreements with counterparties. The amounts eligible for offset under the master netting agreements are not material and we have elected a gross presentation of foreign currency contracts in the Consolidated Balance Sheets. The following table presents information related to foreign currency contracts designated as cash flow hedging instruments (before tax and minority):
| Three Months Ended
| March 31,
(In millions) (Income) Expense | 2018 |  | 2017
Amounts deferred to Accumulated Other Comprehensive Loss ("AOCL") | $ | 6 |  |  | $ | 8 |
Amount of deferred (gain) loss reclassified from AOCL into CGS | 4 |  |  | (2 | )
Amounts excluded from effectiveness testing | — |  |  | (1 | )
The estimated net amount of deferred losses at March 31, 2018 that are expected to be reclassified to earnings within the next twelve months is $12 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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