The Goodyear Tire(GT) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides a detailed overview of the company's financial performance, including statements, notes, and management's discussion and analysis for the reporting period ITEM 1. FINANCIAL STATEMENTS The company reported a significant increase in net income for Q2 and H1 2025, primarily driven by substantial gains from asset sales, while net sales saw a slight decline due to lower global tire volume and divestitures Note 2. Divestitures The company completed major divestitures, including the OTR tire business for $905 million and Dunlop brand rights for $526 million, generating significant pre-tax gains as part of its transformation plan - Completed the sale of the OTR tire business to Yokohama for a purchase price of $905 million, recording a pre-tax gain of $260 million in Q1 2025[42][43] - Completed the sale of Dunlop brand rights in Europe, North America, and Oceania to SRI for a purchase price of $526 million, recognizing a pre-tax gain of $385 million in Q2 2025[45][46] - Entered into an agreement to sell the polymer chemicals business for approximately $650 million in cash, subject to customary closing conditions[47] Net Gains on Asset Sales | Period | Net Gains on Asset Sales | | :--- | :--- | | Three Months Ended June 30, 2025 | $439 million | | Three Months Ended June 30, 2024 | $96 million | | Six Months Ended June 30, 2025 | $701 million | | Six Months Ended June 30, 2024 | $94 million | Note 4. Costs Associated with Rationalization Programs As part of the Goodyear Forward plan, the company is implementing rationalization actions, including facility closures and production cessation, resulting in significantly higher charges in 2025 Total Net Rationalization Charges | Period | Total Net Rationalization Charges | | :--- | :--- | | Three Months Ended June 30, 2025 | $59 million | | Three Months Ended June 30, 2024 | $19 million | | Six Months Ended June 30, 2025 | $140 million | | Six Months Ended June 30, 2024 | $41 million | - Approved a plan to close the manufacturing facility in Kariega, South Africa, expecting total charges of $100 million to $110 million and affecting approximately 900 jobs[54] - Approved a plan to cease commercial tire production at the Danville, Virginia facility, expecting total pre-tax charges of $130 million to $140 million and affecting approximately 850 jobs[55] Note 6. Income Taxes The company's H1 2025 effective tax rate was favorably impacted by tax-free gains from asset sales, while it maintains significant U.S. deferred tax assets but faces an IRS challenge on a 2021 intercompany transaction - The effective tax rate for H1 2025 was favorably impacted by gains from the OTR and Dunlop sales in jurisdictions with no tax, offset by losses in foreign jurisdictions where no tax benefits are recorded[71] - As of June 30, 2025, the company had U.S. net deferred tax assets of approximately $1.4 billion and believes they will be fully utilized, supported by forecasts of future profitability and tax planning strategies[75][77] - The IRS issued a Notice of Proposed Adjustment (NOPA) in Q2 2025, proposing to disallow $1.5 billion in income recognition from a 2021 intercompany IP sale, which Goodyear is challenging[81][82] Note 8. Business Segments Total segment operating income decreased significantly in Q2 2025, with all segments experiencing declines due to higher costs, lower volumes, and divestiture impacts, partially offset by pricing and transformation plan benefits Segment Operating Income (Loss) | Segment Operating Income (Loss) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Americas | $141 million | $241 million | | Europe, Middle East and Africa | ($25 million) | $30 million | | Asia Pacific | $43 million | $63 million | | Total Segment Operating Income | $159 million | $334 million | Net Sales by Segment | Net Sales by Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Americas | $2,662 million | $2,697 million | | Europe, Middle East and Africa | $1,344 million | $1,279 million | | Asia Pacific | $459 million | $594 million | | Total Net Sales | $4,465 million | $4,570 million | Note 9. Financing Arrangements and Derivative Financial Instruments Goodyear actively managed its debt profile, issuing $500 million in new senior notes, redeeming existing notes, and extending its U.S. first lien revolving credit facility to 2030, maintaining $3.2 billion in unused credit - On June 3, 2025, the company issued $500 million of 6.625% senior notes due 2030[98] - On June 30, 2025, redeemed $400 million of its 5% senior notes due 2026, with the remaining $500 million redeemed on July 3, 2025[101] - On May 19, 2025, the company amended and restated its U.S. first lien revolving credit facility, extending the maturity to May 19, 2030[102] Key Financial Metrics | Financial Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $4,465 million | $4,570 million | $8,718 million | $9,107 million | | Net Income | $281 million | $73 million | $399 million | $3 million | | Goodyear Net Income | $254 million | $79 million | $369 million | $10 million | | Diluted EPS | $0.87 | $0.28 | $1.27 | $0.04 | Balance Sheet Summary | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $8,885 million | $7,589 million | | Total Assets | $22,259 million | $20,921 million | | Total Current Liabilities | $7,701 million | $7,377 million | | Total Liabilities | $16,965 million | $16,098 million | | Total Shareholders' Equity | $5,294 million | $4,823 million | Cash Flow Summary | Cash Flow Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Cash Flows from Operating Activities | ($718 million) | ($518 million) | | Cash Flows from Investing Activities | $837 million | ($488 million) | | Cash Flows from Financing Activities | ($107 million) | $896 million | - The company identified and corrected non-material errors in previously issued financial statements (2022-2024) related to the currency remeasurement of its Turkish operations, primarily impacting Cost of Goods Sold, Other Expense, and Net Income[33][34][168] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management attributes the Q2 2025 net sales decrease to lower tire volume and divestitures, while net income significantly increased due to asset sale gains, despite a decline in segment operating income from higher costs - The Goodyear Forward transformation plan is intended to optimize the product portfolio, expand margins, and reduce leverage, providing $395 million in benefits to segment operating income during H1 2025[177] - Q2 2025 net income was $254 million, up from $79 million in Q2 2024, primarily due to a gain on the sale of the Dunlop brand, partially offset by lower segment operating income and higher rationalization charges[186] - Total segment operating income for Q2 2025 decreased by $175 million to $159 million, primarily due to higher raw material costs ($174 million), increased conversion costs ($90 million), and lower tire volume ($37 million), partially offset by Goodyear Forward benefits ($195 million) and price/mix improvements ($91 million)[187] - For the full year 2025, the company expects capital expenditures of approximately $900 million and rationalization payments of about $400 million, with working capital expected to be neutral[198] Results of Operations Consolidated net sales for Q2 2025 decreased 2.3% to $4.5 billion due to a 5.3% decline in worldwide tire unit sales, while Cost of Goods Sold increased as a percentage of sales, and SAG expenses decreased Key Operating Metrics | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $4,465 million | $4,570 million | -2.3% | | Tire Unit Sales | 37.9 million | 40.1 million | -5.3% | | Cost of Goods Sold | $3,705 million | $3,627 million | +2.2% | | SAG | $692 million | $731 million | -5.3% | - The decrease in net sales was primarily due to lower global tire volume ($157 million impact) and the sale of the OTR business ($149 million impact), partially offset by price/mix improvements ($93 million)[202] Segment Information In Q2 2025, all segments experienced a decline in operating income, with Americas, EMEA, and Asia Pacific impacted by higher raw material and conversion costs, lower volumes, and divestitures - Americas: Operating income decreased by $100 million, driven by higher raw material costs ($108 million) and conversion costs ($82 million), partially offset by $149 million in benefits from the Goodyear Forward plan[247] - EMEA: Swung to a $25 million operating loss, a decrease of $55 million, primarily due to higher raw material costs ($48 million) and a $43 million net benefit from insurance recoveries in the prior year that did not repeat[257] - Asia Pacific: Operating income decreased by $20 million, mainly due to a $21 million negative impact from the OTR and Dunlop divestitures and a $19 million impact from lower tire volume[266] Liquidity and Capital Resources As of June 30, 2025, the company maintained $785 million in cash and $3.2 billion in unused credit, with net cash from investing activities offsetting negative operating cash flow due to significant asset dispositions - At June 30, 2025, the company had $785 million in cash and cash equivalents and $3,158 million of unused availability under its credit agreements[193][275] - Net cash used in operating activities for H1 2025 was $718 million, while net cash provided by investing activities was $837 million, primarily from asset sales[274] - The company was in compliance with all material debt covenants as of June 30, 2025[308] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to commodity price risk for raw materials, manages interest rate risk with approximately 30% variable-rate debt, and uses derivative contracts to mitigate foreign currency risk - The company's primary raw material cost exposures are to natural rubber, synthetic rubber, and other petrochemical-based commodities, which it does not currently hedge[334] - As of June 30, 2025, approximately 30% of the company's debt was at variable interest rates, averaging 6.42%[335] - The company uses foreign currency contracts to manage exposure from trade, intercompany loans, and royalty agreements, where a hypothetical 10% adverse change in exchange rates would result in a pro forma decrease in the fair value of these contracts by $217 million[336][337] ITEM 4. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[340] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[341] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and other miscellaneous information not included in the financial statements ITEM 1. LEGAL PROCEEDINGS The company remains a defendant in numerous asbestos-related lawsuits, with 32,860 claims pending as of June 30, 2025, and $7 million expended on defense and resolution in H1 2025 Asbestos Claims Activity | Asbestos Claims Activity | Six Months Ended June 30, 2025 | | :--- | :--- | | Pending Claims (Start of Period) | 35,400 | | New Claims Filed | 360 | | Claims Settled/Dismissed | (2,900) | | Pending Claims (End of Period) | 32,860 | | Payments (by company & insurers) | $7 million | ITEM 1A. RISK FACTORS The report refers to the comprehensive discussion of potential risks detailed in the company's 2024 Form 10-K - For a discussion of risk factors, the report directs readers to "Item 1A. Risk Factors" in the company's 2024 Form 10-K[346] ITEM 5. OTHER INFORMATION No directors or officers reported any changes to their Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025 - No directors or officers informed the company of changes to their trading arrangements (as defined in Regulation S-K, Item 408) during the quarter ended June 30, 2025[347]