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Financing Arrangements and Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2021
Financing Arrangements And Derivative Financial Instruments [Abstract] |
Financing Arrangements and Derivative Financial Instruments | NOTE 8. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS At March 31, 2021, we had total credit arrangements of $9,318 million, of which $3,396 million were unused. At that date, 25% of our debt was at variable interest rates averaging 2.87%. Notes Payable and Overdrafts, Long Term Debt and Finance Leases due Within One Year and Short Term Financing Arrangements At March 31, 2021, we had short term committed and uncommitted credit arrangements totaling $1,035 million, of which $611 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) |  | 2021 |  |  | 2020 |
Chinese credit facilities |  | $ | 136 |  |  | $ | 163 |
Other foreign and domestic debt |  |  | 254 |  |  |  | 243 |
Notes Payable and Overdrafts |  | $ | 390 |  |  | $ | 406 |
Weighted average interest rate |  |  | 4.50 | % |  |  | 4.52 | %
Chinese credit facilities |  | $ | 14 |  |  | $ | 13 |
Other foreign and domestic debt (including finance leases) |  |  | 372 |  |  |  | 139 |
Long Term Debt and Finance Leases due Within One Year |  | $ | 386 |  |  | $ | 152 |
Weighted average interest rate |  |  | 2.75 | % |  |  | 3.87 | %
Total obligations due within one year |  | $ | 776 |  |  | $ | 558 |
Long Term Debt and Finance Leases and Financing Arrangements At March 31, 2021, we had long term credit arrangements totaling $8,283 million, of which $2,785 million were unused. The following table presents long term debt and finance leases, net of unamortized discounts, and interest rates:
|  | March 31, 2021 |  |  | December 31, 2020 |
|  |  |  |  |  | Interest |  |  |  |  |  |  | Interest |
(In millions) |  | Amount |  |  | Rate |  |  | Amount |  |  | Rate |
Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
5.125% due 2023 |  | $ | 1,000 |  |  |  |  |  |  | $ | 1,000 |  |  |  |  |
3.75% Euro Notes due 2023 |  |  | 293 |  |  |  |  |  |  |  | 307 |  |  |  |  |
9.5% due 2025 |  |  | 803 |  |  |  |  |  |  |  | 803 |  |  |  |  |
5% due 2026 |  |  | 900 |  |  |  |  |  |  |  | 900 |  |  |  |  |
4.875% due 2027 |  |  | 700 |  |  |  |  |  |  |  | 700 |  |  |  |  |
7% due 2028 |  |  | 150 |  |  |  |  |  |  |  | 150 |  |  |  |  |
Credit Facilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
European revolving credit facility due 2024 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
First lien revolving credit facility due 2025 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Second lien term loan facility due 2025 |  |  | 400 |  |  |  | 2.12 | % |  |  | 400 |  |  |  | 2.15 | %
Pan-European accounts receivable facility |  |  | 158 |  |  |  | 1.19 | % |  |  | 291 |  |  |  | 1.18 | %
Mexican credit facility |  |  | 200 |  |  |  | 1.87 | % |  |  | 152 |  |  |  | 1.87 | %
Chinese credit facilities |  |  | 257 |  |  |  | 4.28 | % |  |  | 212 |  |  |  | 4.49 | %
Other foreign and domestic debt(1) |  |  | 636 |  |  |  | 2.85 | % |  |  | 451 |  |  |  | 3.22 | %
|  |  | 5,497 |  |  |  |  |  |  |  | 5,366 |  |  |  |  |
Unamortized deferred financing fees |  |  | (31 | ) |  |  |  |  |  |  | (32 | ) |  |  |  |
|  |  | 5,466 |  |  |  |  |  |  |  | 5,334 |  |  |  |  |
Finance lease obligations |  |  | 246 |  |  |  |  |  |  |  | 250 |  |  |  |  |
|  |  | 5,712 |  |  |  |  |  |  |  | 5,584 |  |  |  |  |
Less portion due within one year |  |  | (386 | ) |  |  |  |  |  |  | (152 | ) |  |  |  |
|  | $ | 5,326 |  |  |  |  |  |  | $ | 5,432 |  |  |  |  |
(1) | Interest rates are weighted average interest rates primarily related to various foreign credit facilities with customary terms and conditions.
NOTES At March 31, 2021, we had $3,846 million of outstanding notes, compared to $3,860 million at December 31, 2020. On April 6, 2021, we completed a public offering of $550 million 5.25% Senior Notes due 2031 and $450 million 5.625% Senior Notes due 2033. On April 6, 2021, we also issued a notice to redeem our $1.0 billion 5.125% Senior Notes due 2023 on May 6, 2021 at a price of 100% of the principal amount, plus accrued and unpaid interest through the redemption date. The redemption will be funded using the proceeds of the new debt offering, together with cash and cash equivalents. As a result of the redemption, we anticipate incurring approximately $5 million of debt extinguishment costs related to remaining unamortized debt issuance costs. CREDIT FACILITIES $2.0 billion Amended and Restated First Lien Revolving Credit Facility due 2025 Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit. Up to $800 million in letters of credit and $50 million of swingline loans are available for issuance under the facility. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. Based on our current liquidity, amounts drawn under this facility bear interest at LIBOR plus 175 basis points, and undrawn amounts under the facility will be 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 $200 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 $2.0 billion. As of March 31, 2021, our borrowing base, and therefore our availability, under this facility was $570 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, 2019. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries. At March 31, 2021, we had no borrowings and $1 million of letters of credit issued under the revolving credit facility. At December 31, 2020, we had no borrowings and $11 million of letters of credit issued under the revolving credit facility. Amended and Restated Second Lien Term Loan Facility due 2025 Our amended and restated second lien term loan facility 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). 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, 2021 and December 31, 2020, the amounts outstanding under this facility were $400 million. €800 million Amended and Restated Senior Secured European Revolving Credit Facility due 2024 Our amended and restated European revolving credit facility consists of (i) a €180 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €620 million all-borrower tranche that is available to Goodyear Europe B.V. (“GEBV”), GDTG and Goodyear Dunlop Tires 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. Amounts drawn under this facility will bear interest at LIBOR plus 150 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 150 basis points for loans denominated in euros, and undrawn amounts under the facility are subject to an annual commitment fee of 25 basis points. GEBV 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. GEBV 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, 2018. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries. At March 31, 2021 and December 31, 2020, there were no borrowings and no letters of credit outstanding under the European revolving credit 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 2023. 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, 2020 through October 18, 2021, the designated maximum amount of the facility is €280 million. The facility involves the 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) September 26, 2023, (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 18, 2021. At March 31, 2021, the amounts available and utilized under this program totaled $158 million (€135 million). At December 31, 2020, the amounts available and utilized under this program totaled $291 million (€237 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Finance 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 2020 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, 2021, the gross amount of receivables sold was $459 million, compared to $451 million at December 31, 2020. Other Foreign Credit Facilities A Mexican subsidiary and a U.S. subsidiary have a revolving credit facility in Mexico. At March 31, 2021, the amounts available and utilized under this facility were $200 million. At December 31, 2020, the amounts available and utilized under this facility were $200 million and $152 million, respectively. The facility ultimately matures in 2022, has covenants relating to the Mexican and U.S. subsidiary, and has customary representations and warranties and defaults relating to the Mexican and U.S. subsidiary’s ability to perform its respective obligations under the facility. A Chinese subsidiary has several financing arrangements in China. At March 31, 2021 and December 31, 2020, the amounts available under these facilities were $994 million and $981 million, respectively. At March 31, 2021, the amount utilized under these facilities was $393 million, of which $136 million represented notes payable and $257 million represented long term debt. At March 31, 2021, $14 million of the long term debt was due within a year. At December 31, 2020, the amount utilized under these facilities was $375 million, of which $163 million represented notes payable and $212 million represented long term debt. At December 31, 2020, $13 million of the long term debt was due within a year. 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. Certain of the facilities can only be used to finance the expansion of our manufacturing facility in China and, at March 31, 2021 and December 31, 2020, the unused amounts available under these facilities were $93 million and $99 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 hedge contracts that do not meet the criteria to be accounted for as cash flow hedging instruments:
|  | March 31, |  |  | December 31, |
(In millions) |  | 2021 |  |  | 2020 |
Fair Values — Current asset (liability): |  |  |  |  |  |  |  |
Accounts receivable |  | $ | 40 |  |  | $ | 1 |
Other current liabilities |  |  | (2 | ) |  |  | (27 | )
At March 31, 2021 and December 31, 2020, these outstanding foreign currency derivatives had notional amounts of $1,435 million and $1,664 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction gains on derivatives of $55 million and $39 million for the three months ended March 31, 2021 and 2020. 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 hedge contracts that meet the criteria to be accounted for as cash flow hedging instruments:
|  | March 31, |  |  | December 31, |
(In millions) |  | 2021 |  |  | 2020 |
Fair Values — Current asset (liability): |  |  |  |  |  |  |  |
Other current liabilities |  | $ | (3 | ) |  | $ | (7 | )
At March 31, 2021 and December 31, 2020, these outstanding foreign currency derivatives had notional amounts of $48 million and $50 million, respectively, and primarily related to U.S. dollar denominated intercompany transactions. Based on our current forecasts, including the expected ongoing impacts of the COVID-19 pandemic, we believe that it is probable that the underlying hedge transactions will occur within an appropriate time frame in order to continue to qualify for cash flow hedge accounting treatment. 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 the classification of changes in fair values of foreign currency contracts that meet the criteria to be accounted for as cash flow hedging instruments (before tax and minority):
|  | Three Months Ended |
|  | March 31, |
(In millions) |  | 2021 |  |  | 2020 |
Amount of gains (losses) deferred to Accumulated Other Comprehensive Loss ("AOCL") |  | $ | 1 |  |  | $ | 23 |
Reclassification adjustment for amounts recognized in Cost of Goods Sold ("CGS") |  |  | (2 | ) |  |  | (4 | )
The estimated net amount of deferred gains at March 31, 2021 that are expected to be reclassified to earnings within the next twelve months is $2 million. The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that were 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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