10-K 1 gt-123111x10k.htm FORM 10-K GT-12.31.11-10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Commission File Number: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
 
34-0253240
(I.R.S. Employer
Identification No.)
 
 
 
1144 East Market Street, Akron, Ohio
(Address of principal executive offices)
 
44316-0001
(Zip Code)
Registrant’s telephone number, including area code: (330) 796-2121
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of
 Each Exchange
 on Which
Registered
Common Stock, Without Par Value
 
New York Stock Exchange
5.875% Mandatory Convertible Preferred Stock
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ
No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o
No þ
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 þ
No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes þ
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o
No þ
The aggregate market value of the common stock held by nonaffiliates of the registrant, computed by reference to the last sales price of such common stock as of the closing of trading on June 30, 2011, was approximately $4.1 billion.
Shares of Common Stock, Without Par Value, outstanding at January 31, 2012:
244,559,492
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 17, 2012 are incorporated by reference in Part III.




THE GOODYEAR TIRE & RUBBER COMPANY
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2011
Table of Contents

Item
Number
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Index of Exhibits
 EX-10.1
 
 
 EX-10.2
 
 
 EX-12.1
 
 
 EX-21.1
 
 
 EX-23.1
 
 
 EX-24.1
 
 
 EX-31.1
 
 
 EX-31.2
 
 



 EX-32.1
 
 
 EX-101 INSTANCE DOCUMENT
 
 EX-101 SCHEMA DOCUMENT
 
 EX-101 CALCULATION LINKBASE DOCUMENT
 
 EX-101 LABELS LINKBASE DOCUMENT
 
 EX-101 PRESENTATION LINKBASE DOCUMENT
 
 EX-101 DEFINITION LINKBASE DOCUMENT
 




PART I.

ITEM 1.
BUSINESS.
BUSINESS OF GOODYEAR
The Goodyear Tire & Rubber Company (the “Company”) is an Ohio corporation organized in 1898. Its principal offices are located at 1144 East Market Street, Akron, Ohio 44316-0001. Its telephone number is (330) 796-2121. The terms “Goodyear,” “Company” and “we,” “us” or “our” wherever used herein refer to the Company together with all of its consolidated U.S. and foreign subsidiary companies, unless the context indicates to the contrary.
We are one of the world’s leading manufacturers of tires, engaging in operations in most regions of the world. Our 2011 net sales were $23 billion, Goodyear’s net income in 2011 was $343 million, and Goodyear's net income available to common shareholders was $321 million. Together with our U.S. and international subsidiaries and joint ventures, we develop, manufacture, market and distribute tires for most applications. We also manufacture and market rubber-related chemicals for various applications. We are one of the world’s largest operators of commercial truck service and tire retreading centers. In addition, we operate approximately 1,400 tire and auto service center outlets where we offer our products for retail sale and provide automotive repair and other services. We manufacture our products in 53 manufacturing facilities in 22 countries, including the United States, and we have marketing operations in almost every country around the world. We employ approximately 73,000 full-time and temporary associates worldwide.
AVAILABLE INFORMATION
We make available free of charge on our website, http://www.goodyear.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we file or furnish such reports to the Securities and Exchange Commission (the “SEC”). The information on our website is not incorporated by reference in or considered to be a part of this Annual Report on Form 10-K.

DESCRIPTION OF GOODYEAR’S BUSINESS
GENERAL INFORMATION REGARDING OUR SEGMENTS
For the year ended December 31, 2011, we operated our business through four operating segments representing our regional tire businesses: North American Tire; Europe, Middle East and Africa Tire (“EMEA”); Latin American Tire; and Asia Pacific Tire.
Financial information related to our operating segments for the three year period ended December 31, 2011 appears in the Note to the Consolidated Financial Statements No. 8, Business Segments.
Our principal business is the development, manufacture, distribution and sale of tires and related products and services worldwide. We manufacture and market numerous lines of rubber tires for:
automobiles
trucks
buses
aircraft
motorcycles
farm implements
earthmoving and mining equipment
industrial equipment, and
various other applications.
In each case, our tires are offered for sale to vehicle manufacturers for mounting as original equipment (“OE”) and for replacement worldwide. We manufacture and sell tires under the Goodyear, Dunlop, Kelly, Debica, Sava and Fulda brands and various other Goodyear owned “house” brands, and the private-label brands of certain customers. In certain geographic areas we also:
retread truck, aviation and off-the-road, or OTR, tires,
manufacture and sell tread rubber and other tire retreading materials,
provide automotive repair services and miscellaneous other products and services, and
manufacture and sell flaps for truck tires and other types of tires.
Our principal products are new tires for most applications. Approximately 83% of our sales in 2011 were for new tires, compared to 84% and 83% in 2010 and 2009, respectively. Sales of chemical products and natural rubber to unaffiliated customers were 7%

1


in 2011, 6% in 2010 and 4% in 2009 of our consolidated sales (17%, 14% and 9% of North American Tire’s total sales in 2011, 2010 and 2009, respectively). The percentages of each segment’s sales attributable to new tires during the periods indicated were:

 
 
Year Ended December 31,
Sales of New Tires By
 
2011
 
2010
 
2009
North American Tire
 
72%
 
74%
 
77%
Europe, Middle East and Africa Tire
 
95
 
93
 
88
Latin American Tire
 
89
 
93
 
93
Asia Pacific Tire
 
84
 
84
 
83

Each segment exports tires to other segments. The financial results of each segment exclude sales of tires exported to other segments, but include operating income derived from such transactions.
Goodyear does not include motorcycle, aviation or all terrain vehicle tires in reported tire unit sales.
Tire unit sales for each segment during the periods indicated were:
GOODYEAR’S ANNUAL TIRE UNIT SALES — SEGMENT
 
Year Ended December 31,
(In millions of tires)
2011
 
2010
 
2009
North American Tire
66.0

 
66.7

 
62.7

Europe, Middle East and Africa Tire
74.3

 
72.0

 
66.0

Latin American Tire
19.8

 
20.7

 
19.1

Asia Pacific Tire
20.5

 
21.4

 
19.2

Goodyear worldwide tire units
180.6

 
180.8

 
167.0


Our replacement and OE tire unit sales during the periods indicated were:
GOODYEAR’S ANNUAL TIRE UNIT SALES — REPLACEMENT AND OE

 
Year Ended December 31,
(In millions of tires)
2011
 
2010
 
2009
Replacement tire units
132.2

 
133.0

 
128.0

OE tire units
48.4

 
47.8

 
39.0

Goodyear worldwide tire units
180.6

 
180.8

 
167.0


New tires are sold under highly competitive conditions throughout the world. On a worldwide basis, we have two major competitors: Bridgestone (based in Japan) and Michelin (based in France). Other significant competitors include Continental, Cooper, Hankook, Kumho, Pirelli, Toyo, Yokohama and various regional tire manufacturers.
We compete with other tire manufacturers on the basis of product design, performance, price and terms, reputation, warranty terms, customer service and consumer convenience. Goodyear and Dunlop brand tires enjoy a high recognition factor and have a reputation for performance and quality. The Kelly, Debica, Sava and Fulda brands and various house brand tire lines offered by us, and tires manufactured and sold by us to private brand customers, compete primarily on the basis of value and price.
Although we do not consider our tire businesses to be seasonal to any significant degree, we historically sell more replacement tires in North American Tire and EMEA during the third quarter.

2


GLOBAL ALLIANCE
We have a global alliance with Sumitomo Rubber Industries, Ltd. (“SRI”). Under the global alliance, we own 75% and SRI owns 25% of two companies, Goodyear Dunlop Tires Europe B.V. (“GDTE”) and Goodyear Dunlop Tires North America, Ltd. (“GDTNA”). GDTE owns and operates substantially all of our tire businesses in Western Europe. GDTNA owns the Dunlop brand and operates certain related businesses in North America. In Japan, we own 25%, and SRI owns 75%, of two companies, one for the sale of Goodyear brand passenger and truck tires for replacement in Japan and the other for the sale of Goodyear brand and Dunlop brand tires to vehicle manufacturers in Japan. We also own 51%, and SRI owns 49%, of a company that coordinates and disseminates both commercialized tire technology and non-commercialized technology among Goodyear and SRI, the joint ventures and their respective affiliates, and we own 80%, and SRI owns 20%, of a global purchasing company. The global alliance also provided for the investment by Goodyear and SRI in the common stock of the other.
SRI has the right to require us to purchase its ownership interests in GDTE and GDTNA, which we refer to as “exit rights,” if there is a change in control of Goodyear, a bankruptcy of Goodyear or a breach, subject to notice and the opportunity to cure, of the global alliance agreements by Goodyear that has a material adverse effect on the rights of SRI or its affiliates under the global alliance agreements, taken as a whole. In addition, SRI has exit rights upon the occurrence of the following events:
the adoption or material revision of a business plan for GDTE or GDTNA if SRI disagrees with the adoption or revision;
certain acquisitions, investments or dispositions exceeding 10% but less than 20% of the fair market value of GDTE or GDTNA or the acquisition by GDTE or GDTNA of all or a material portion of another tire manufacturer or tire distributor;
if SRI decides not to subscribe to its pro rata share of any permitted new issue of non-voting equity capital authorized pursuant to the provisions of the shareholders agreements relating to GDTE or GDTNA;
if GDTE, GDTNA or Goodyear takes an action which, in the reasonable opinion of SRI, has, or is likely to have, a continuing material adverse effect on the tire business relating to the Dunlop brand; or
if at any time SRI’s ownership of the shares of GDTE or GDTNA is less than 10% of the equity capital of that joint venture company.
SRI must give written notice to Goodyear of its intention to exercise its exit rights no later than three months from the date such exit rights became exercisable, except that notice of SRI’s intention to exercise its exit rights upon the occurrence of the event described in the last bullet point above may be given as long as SRI’s share ownership is less than 10%. If SRI were to exercise any of its exit rights, the global alliance agreements provide that the purchase price would be based on the fair value of SRI’s minority shareholder’s interest in GDTE and GDTNA. The purchase price would be determined through a negotiation process where, if no mutually agreed purchase price was determined, a binding arbitration process would determine the purchase price. Goodyear would retain the rights to the Dunlop brand in Europe and North America following any such purchase. As of the date of this filing, SRI has not provided us notice of any exit rights that have become exercisable.
NORTH AMERICAN TIRE
North American Tire, our largest segment in terms of revenue, develops, manufactures, distributes and sells tires and related products and services in the United States and Canada. North American Tire manufactures tires in seven plants in the United States and two plants in Canada.
North American Tire manufactures and sells tires for automobiles, trucks, motorcycles, buses, earthmoving and mining equipment, commercial and military aviation and industrial equipment, and for various other applications.
Goodyear brand radial passenger tire lines sold in the United States and Canada include our Assurance Fuel Max, Assurance ComforTred Touring and new Assurance TripleTred All-Season for the premium passenger tire market; while our Eagle family of product lines is available for the high performance market and includes RunOnFlat extended mobility technology (“ROF” or “EMT”) tires. The major lines of Goodyear brand radial tires offered in the United States and Canada for sport utility vehicles and light trucks include Wrangler, featuring technologies including MT/R with Kevlar, SilentArmor and DuraTrac; and Fortera, featuring TripleTred Technology. Goodyear also offers Dunlop brand radial passenger tire lines, including Signature and SP Sport, and Fierce performance tires, as well as Dunlop brand radial tires for light trucks including the Rover and Grandtrek lines. Additionally, North American Tire manufactures and sells several lines of Kelly brand tires as well as private brand radial passenger and light truck tires in the United States and Canada.

3


North American Tire manufactures and sells all-steel, radial medium truck tires under the Goodyear, Dunlop and Kelly brands, for use on commercial trucks and trailers.
North American Tire also:
retreads truck, aviation and OTR tires, primarily as a service to its commercial customers,
manufactures tread rubber and other tire retreading materials for trucks, heavy equipment and aviation,
provides automotive maintenance and repair services at approximately 690 retail outlets primarily under the Goodyear or Just Tires names,
provides trucking fleets with new tires, retreads, mechanical service, preventative maintenance and roadside assistance from approximately 180 Wingfoot Commercial Centers,
sells automotive repair and maintenance items, automotive equipment and accessories and other items to dealers and consumers,
sells chemical and natural rubber products to Goodyear’s other business segments and to unaffiliated customers, and
provides miscellaneous other products and services.
Markets and Other Information
Tire unit sales to replacement customers and to OE customers served by North American Tire during the periods indicated were:
NORTH AMERICAN TIRE UNIT SALES — REPLACEMENT AND OE

 
Year Ended December 31,
(In millions of tires)
2011
 
2010
 
2009
Replacement tire units
50.0

 
50.8

 
50.0

OE tire units
16.0

 
15.9

 
12.7

Total tire units
66.0

 
66.7

 
62.7


North American Tire is a major supplier of tires to most manufacturers of automobiles, motorcycles, trucks and aircraft that have production facilities located in North America.
North American Tire’s primary competitors are Bridgestone and Michelin. Other significant competitors include Continental, Cooper and several Asian manufacturers.
Goodyear, Dunlop and Kelly brand tires are sold in the United States and Canada through several channels of distribution. The principal channel for Goodyear brand tires is a large network of independent dealers. Goodyear, Dunlop and Kelly brand tires are also sold to numerous national and regional retail marketing firms in the United States. Several lines of private label brand tires are sold to independent dealers, national and regional wholesale marketing organizations and various other retail marketers.
We are subject to regulation by the National Highway Traffic Safety Administration (“NHTSA”), which has established various standards and regulations applicable to tires sold in the United States for highway use. NHTSA has the authority to order the recall of automotive products, including tires, having safety defects related to motor vehicle safety. In addition, the Transportation Recall Enhancement, Accountability, and Documentation Act (the “TREAD Act”) imposes numerous requirements with respect to tire recalls. The TREAD Act also requires tire manufacturers to, among other things, remedy tire safety defects without charge for five years and comply with revised and more rigorous tire standards.

4


EUROPE, MIDDLE EAST AND AFRICA TIRE
Europe, Middle East and Africa Tire, our second largest segment in terms of revenue, develops, manufactures, distributes and sells tires for automobiles, trucks, motorcycles, farm implements and construction equipment throughout Europe, the Middle East and Africa. EMEA manufactures tires in 16 plants in England, France, Germany, Luxembourg, Poland, Slovenia, South Africa and Turkey. EMEA:
manufactures and sells Goodyear, Dunlop, Debica, Sava and Fulda brands and other house brand passenger, truck, motorcycle, farm and OTR tires,
sells new aviation tires, and manufactures and sells retreaded aviation tires,
exports tires for sale in North America and other regions of the world,
provides various retreading and related services for truck and OTR tires, primarily for its commercial truck tire customers,
offers automotive repair services at retail outlets, and
provides miscellaneous other products and services.
Markets and Other Information
Tire unit sales to replacement customers and to OE customers served by EMEA during the periods indicated were:
EUROPE, MIDDLE EAST AND AFRICA TIRE UNIT SALES — REPLACEMENT AND OE

 
Year Ended December 31,
(In millions of tires)
2011
 
2010
 
2009
Replacement tire units
56.8

 
55.6

 
52.8

OE tire units
17.5

 
16.4

 
13.2

Total tire units
74.3

 
72.0

 
66.0


EMEA is a significant supplier of tires to most manufacturers of automobiles, trucks and farm and construction equipment located in Europe, the Middle East and Africa.
EMEA’s main competitors are Michelin, Bridgestone, Continental, Pirelli, several regional and local tire producers and imports from other regions, primarily Asia.
Goodyear and Dunlop brand tires are sold for replacement in EMEA through various channels of distribution, principally independent multi-brand tire dealers. In some areas, Goodyear brand tires, as well as Dunlop, Debica, Sava, and Fulda brand tires, are distributed through independent dealers, regional distributors and retail outlets, of which approximately 180 are owned by Goodyear.
Our European operations are subject to regulation by the European Union. In 2009, two important regulations, the Tire Safety Regulation and the Tire Labeling Regulation, applicable to tires sold in the European Union were adopted. The Tire Safety Regulation sets performance standards that tires for cars and light and commercial trucks need to meet for rolling resistance, wet grip braking and noise in order to be sold in the European Union, and will become effective between 2012 and 2020. The Tire Labeling Regulation applies to all car and light and commercial truck tires produced after July 1, 2012 and requires that tires be labeled to inform consumers about the tire’s fuel efficiency, wet grip and noise characteristics.
LATIN AMERICAN TIRE
Our Latin American Tire segment manufactures and sells automobile and truck tires throughout Central and South America and in Mexico, and sells tires to various export markets. Latin American Tire manufactures tires in five plants in Brazil, Chile, Colombia, Peru and Venezuela.
Latin American Tire manufactures and sells several lines of passenger, light and medium truck tires. Latin American Tire also:
manufactures and sells pre-cured treads for truck tires,
retreads, and provides various materials and related services for retreading, truck and aviation tires,
manufactures and sells new aviation tires,
manufactures other products, including OTR tires, and
provides miscellaneous other products and services.

5


Markets and Other Information
Tire unit sales to replacement customers and to OE customers served by Latin American Tire during the periods indicated were:
LATIN AMERICAN TIRE UNIT SALES — REPLACEMENT AND OE

 
Year Ended December 31,
(In millions of tires)
2011
 
2010
 
2009
Replacement tire units
13.0

 
13.9

 
13.1

OE tire units
6.8

 
6.8

 
6.0

Total tire units
19.8

 
20.7

 
19.1


Latin American Tire is a significant supplier of tires to most manufacturers of automobiles, trucks and construction equipment located in the region. Goodyear brand tires are sold for replacement primarily through independent dealers. Significant competitors include Pirelli, Bridgestone, Michelin and Continental, and imports from other regions, primarily Asia.
ASIA PACIFIC TIRE
Our Asia Pacific Tire segment manufactures and sells tires for automobiles, light and medium trucks, farm, construction and mining equipment and the aviation industry throughout the Asia Pacific region. Asia Pacific Tire manufactures tires in eight plants in China, India, Indonesia, Japan, Malaysia and Thailand, although we expect to cease manufacturing tires at our Dalian, China facility in the second half of 2012 following completion of the relocation of tire manufacturing operations to our new Pulandian, China facility. Asia Pacific Tire also:
retreads truck tires and aviation tires,
manufactures tread rubber and other tire retreading materials for truck and aviation tires,
provides automotive maintenance and repair services at retail outlets, and
provides miscellaneous other products and services.
Markets and Other Information
Tire unit sales to replacement customers and OE customers served by Asia Pacific Tire during the periods indicated were:
ASIA PACIFIC TIRE UNIT SALES — REPLACEMENT AND OE

 
Year Ended December 31,
(In millions of tires)
2011
 
2010
 
2009
Replacement tire units
12.4

 
12.7

 
12.1

OE tire units
8.1

 
8.7

 
7.1

Total tire units
20.5

 
21.4

 
19.2


Asia Pacific Tire’s major competitors are Bridgestone and Michelin along with many other global brands present in different areas, including Continental, Dunlop, Yokohama, Pirelli, and a large number of regional and local tire producers.
Asia Pacific Tire sells primarily Goodyear brand tires throughout the region and also sells the Dunlop brand in Australia and New Zealand. Other brands of tires, such as Kelly, Fulda and Sava, are sold in smaller quantities. Tires are sold through a network of licensed or franchised stores and multi-brand retailers through a network of wholesale dealers. In Australia and New Zealand, we also operate a network of approximately 360 retail stores under the Beaurepaires and Frank Allen brands.


6


GENERAL BUSINESS INFORMATION
Sources and Availability of Raw Materials
The principal raw materials used by Goodyear are natural and synthetic rubber. Natural rubber typically accounts for approximately half of all rubber consumed by us on an annual basis. We purchase all of our requirements for natural rubber in the world market. Our plants located in Beaumont and Houston, Texas supply the major portion of our global synthetic rubber requirements.
Other important raw materials and components we use are carbon black, steel cord, fabrics and petrochemical-based commodities. Substantially all of these raw materials and components are purchased from independent suppliers, except for certain chemicals we manufacture. We purchase most raw materials and components in significant quantities from several suppliers, except in those instances where only one or a few qualified sources are available. We anticipate the continued availability of all raw materials and components we will require during 2012, subject to spot shortages and unexpected disruptions caused by natural disasters such as hurricanes and other similar events.
Substantial quantities of fuel and other petrochemical-based commodities are used in the production of tires, synthetic rubber and other products. Supplies of such fuels and commodities have been and are expected to continue to be available to us in quantities sufficient to satisfy our anticipated requirements, subject to spot shortages.
In 2011, raw material costs increased by approximately 30% in our tire businesses compared to 2010, primarily driven by an increase in the cost of natural and synthetic rubber and carbon black. We expect our raw material costs in the first quarter of 2012 to increase 20% to 25% when compared with the first quarter of 2011. Smaller increases are expected for the second quarter of 2012 compared with the second quarter of 2011. For the second half of 2012, we expect raw material costs to decrease compared with the second half of 2011. For the full year of 2012, we expect our raw material costs will increase approximately 5% compared with 2011. However, natural and synthetic rubber prices and other commodity prices have experienced significant volatility, and this estimate could change significantly based on fluctuations in the cost of these and other key raw materials.
Patents and Trademarks
We own approximately 2,400 product, process and equipment patents issued by the United States Patent Office and approximately 3,600 patents issued or granted in other countries around the world. We have approximately 500 applications for United States patents pending and approximately 2,300 patent applications on file in other countries around the world. While such patents and patent applications as a group are important, we do not consider any patent or patent application, or any related group of them, to be of such importance that the loss or expiration thereof would materially affect Goodyear or any business segment.
We own, control or use approximately 1,700 different trademarks, including several using the word “Goodyear” or the word “Dunlop.” Approximately 12,000 registrations and 700 pending applications worldwide protect these trademarks. While such trademarks as a group are important, the only trademarks we consider material to our business, or to the business of any of our segments, are those using the word “Goodyear,” and with respect to certain of our international business segments, those using the word “Dunlop.” We believe our trademarks are valid and most are of unlimited duration as long as they are adequately protected and appropriately used.
Backlog
Our backlog of orders is not considered material to, or a significant factor in, evaluating and understanding any of our business segments or our businesses considered as a whole.
Research and Development
Our direct and indirect expenditures on research, development and certain engineering activities relating to the design, development and significant modification of new and existing products and services and the formulation and design of new, and significant improvements to existing, manufacturing processes and equipment during the periods indicated were:

 
Year Ended December 31,
(In millions)
2011
 
2010
 
2009
Research and development expenditures
$369
 
$342
 
$337


7


Employees
At December 31, 2011, we employed approximately 73,000 full-time and temporary people throughout the world, including approximately 37,000 people covered under collective bargaining agreements. Approximately 8,000 of our employees in the United States are covered by a master collective bargaining agreement with the United Steelworkers (“USW”), which expires in July 2013. Approximately 11,000 of our employees outside of the United States are covered by union contracts which currently have expired or that will expire in 2012, primarily in Luxembourg, France and Poland. In addition, approximately 1,000 of our employees in the United States are covered by other contracts with the USW and various other unions. Unions represent the major portion of our employees in Europe, Latin America and Asia.
Compliance with Environmental Regulations
We are subject to extensive regulation under environmental and occupational health and safety laws and regulations. These laws and regulations relate to, among other things, air emissions, discharges to surface and underground waters and the generation, handling, storage, transportation and disposal of waste materials and hazardous substances. We have several continuing programs designed to ensure compliance with Federal, state and local environmental and occupational safety and health laws and regulations. We expect capital expenditures for pollution control facilities and occupational safety and health projects to be approximately $43 million during 2012 and approximately $57 million during 2013.
We expended approximately $52 million during 2011, and expect to expend approximately $55 million and $56 million during 2012 and 2013, respectively, to maintain and operate our pollution control facilities and conduct our other environmental activities, including the control and disposal of hazardous substances. These expenditures are expected to be sufficient to comply with existing environmental laws and regulations and are not expected to have a material adverse effect on our competitive position.
In the future, we may incur increased costs and additional charges associated with environmental compliance and cleanup projects necessitated by the identification of new waste sites, the impact of new environmental laws and regulatory standards, or the availability of new technologies. Compliance with Federal, state and local environmental laws and regulations in the future may require a material increase in our capital expenditures and could adversely affect our earnings and competitive position.
INFORMATION ABOUT INTERNATIONAL OPERATIONS
We engage in manufacturing and/or sales operations in most countries in the world, often through subsidiary companies. We have manufacturing operations in 22 countries, including the United States. Most of our international manufacturing operations are engaged in the production of tires. Certain other products are also manufactured in plants located outside the United States. Financial information related to our geographic areas for the three year period ended December 31, 2011 appears in the Note to the Consolidated Financial Statements No. 8, Business Segments, and is incorporated herein by reference.
In addition to the ordinary risks of the marketplace, in some countries our operations are affected by price controls, import controls, labor regulations, tariffs, extreme inflation and/or fluctuations in currency values. Furthermore, in certain countries where we operate, transfers of funds into or out of such countries are generally or periodically subject to certain requirements. See “Item 1A. Risk Factors” for a discussion of the risks related to our international operations.


8


EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are: (1) the names and ages of all executive officers of the Company at February 14, 2012, (2) all positions with the Company presently held by each such person and (3) the positions held by, and principal areas of responsibility of, each such person during the last five years.
Name
 
Position(s) Held
 
Age
Richard J. Kramer
 
Chairman of the Board, Chief Executive Officer
and President
 
48
 
Mr. Kramer was elected Chief Executive Officer and President effective April 13, 2010 and Chairman effective October 1, 2010. He is the principal executive officer of the Company. Mr. Kramer joined Goodyear in March 2000 and has served as Executive Vice President and Chief Financial Officer (June 2004 to August 2007), President, North American Tire (March 2007 to February 2010) and Chief Operating Officer (June 2009 to April 2010).
 
 
 
 
 
Stephen R. McClellan
 
President, North American Tire
 
46
 
Mr. McClellan was named President, North American Tire on August 18, 2011. He is the executive officer responsible for Goodyear's operations in North America. Mr. McClellan joined Goodyear in 1988 and has served as Vice President, Goodyear Commercial Tire Systems (September 2003 to August 2008) and President, Consumer Tires, North American Tire (August 2008 to August 2011).
 
 
 
 
 
Arthur de Bok
 
President, Europe, Middle East and Africa Tire
 
49
 
Mr. de Bok was named President, Europe, Middle East and Africa Tire effective February 1, 2008. He is the executive officer responsible for Goodyear's operations in Europe, the Middle East and Africa. Mr. de Bok joined Goodyear in January 2002 and has served as President, European Union Tire (September 2005 to January 2008).
 
 
 
 
 
Jaime Cohen Szulc
 
President, Latin American Tire
 
49
 
Mr. Szulc joined Goodyear as President, Latin American Tire in September 2010. He is the executive officer responsible for Goodyear's operations in Mexico, Central America and South America. Prior to joining Goodyear, Mr. Szulc was Senior Vice President and Chief Marketing Officer of Levi Strauss & Co., a global apparel company, from August 2009 until August 2010. He was also previously employed by Eastman Kodak Company, a global manufacturer of imaging technology products, from 1998 until March 2009, including most recently as Managing Director, Global Customer Operations and Chief Operating Officer for the Consumer Digital Group and Corporate Vice President.
 
 
 
 
 
Daniel L. Smytka
 
President, Asia Pacific Tire
 
49
 
Mr. Smytka was named President, Asia Pacific Tire on November 14, 2011. He is the executive officer responsible for Goodyear's operations in Asia, Australia and the Western Pacific. Mr. Smytka joined Goodyear in October 2008 and has served as Vice President, Consumer Tires, Asia Pacific Region (October 2008 to October 2010) and Vice President and Program Manager, Asia Pacific Region (October 2010 to November 2011). Prior to joining Goodyear, he was President, North American Building Systems & Services of Carrier Corp., a global provider of heating, ventilation, air conditioning and refrigeration solutions, from April 2007 to October 2008. Mr. Smytka was also previously employed by General Electric Company, a global infrastructure, finance and media company, from 1990 to March 2007, including most recently as President & CEO, Engineered Systems, GE Security.
 
 
 
 
 
Darren R. Wells
 
Executive Vice President and Chief Financial Officer
 
46
 
Mr. Wells was named Executive Vice President and Chief Financial Officer in October 2008. He is Goodyear's principal financial officer. Mr. Wells joined Goodyear in August 2002 and has served as Senior Vice President, Business Development and Treasurer (May 2005 to March 2007) and Senior Vice President, Finance and Strategy (March 2007 to October 2008).
 
 
 
 
 
Damon J. Audia
 
Senior Vice President, Finance, Asia Pacific Region
 
41
 
Mr. Audia was named Senior Vice President, Finance, Asia Pacific Region in June 2010. He is the executive officer responsible for the finance activities of Goodyear's operations in Asia, Australia and the Western Pacific. Mr. Audia joined Goodyear in December 2004 and has served as Assistant Treasurer, Capital Markets (December 2004 to March 2007), Vice President and Treasurer (March 2007 to December 2008) and Senior Vice President, Finance and Treasurer (December 2008 to June 2010).
 
 
 
 
 
David L. Bialosky
 
Senior Vice President, General Counsel and Secretary
 
54
 
Mr. Bialosky joined Goodyear as Senior Vice President, General Counsel and Secretary in September 2009. He is Goodyear's chief legal officer. Prior to joining Goodyear, Mr. Bialosky served in legal positions of increasing responsibility at TRW Inc., TRW Automotive Inc. and TRW Automotive Holdings Corp. for 20 years, including most recently as Executive Vice President, General Counsel and Secretary of TRW Automotive Holdings Corp., a global supplier of automotive parts, from April 2004 until September 2009.
 
 
 
 
 

9


Name
 
Position(s) Held
 
Age
Jean-Claude Kihn
 
Senior Vice President and Chief Technical Officer
 
52
 
Mr. Kihn was named Senior Vice President and Chief Technical Officer in January 2008. He is the executive officer responsible for Goodyear's research and tire technology development, engineering and product quality worldwide. Mr. Kihn joined Goodyear in 1988 and has served as General Director of Goodyear's Technical Center in Akron, Ohio (July 2005 to January 2008).
 
 
 
 
 
Joseph B. Ruocco
 
Senior Vice President, Human Resources
 
52
 
Mr. Ruocco joined Goodyear as Senior Vice President, Human Resources in August 2008. He is the executive officer responsible for Goodyear's human resources and communications activities worldwide. Prior to joining Goodyear, Mr. Ruocco served in human resources positions of increasing responsibility at General Electric Company for 23 years, including as Vice President, Human Resources, GE Industrial from December 2006 to July 2008.
 
 
 
 
 
Gregory L. Smith
 
Senior Vice President, Global Operations
 
48
 
Mr. Smith joined Goodyear as Senior Vice President, Global Operations on October 24, 2011. He is the executive officer responsible for Goodyear's global manufacturing and related supply chain activities. Prior to joining Goodyear, Mr. Smith served in operations, manufacturing and supply chain positions of increasing responsibility at ConAgra Foods, a packaged foods company, since 2001, including most recently as Senior Vice President, Supply Chain from December 2006 to November 2007 and Executive Vice President, Supply Chain and Operations from December 2007 to September 2011.
 
 
 
 
 
Isabel H. Jasinowski
 
Vice President, Government Relations
 
63
 
Ms. Jasinowski was elected Vice President, Government Relations, in April 2001. She is the executive officer responsible for Goodyear's governmental relations and public policy activities. Ms. Jasinowski has been a Goodyear employee since 1981.
 
 
 
 
 
Richard J. Noechel
 
Vice President and Controller
 
43
 
Mr. Noechel became Vice President and Controller effective March 1, 2011. He is Goodyear's principal accounting officer. Mr. Noechel joined Goodyear in October 2004 and has served as Chief Financial Officer of Goodyear's South Pacific Tyre subsidiary in Australia (April 2006 to February 2008), Vice President and Controller (March 2008 to December 2008) and Vice President, Finance, North American Tire (December 2008 to March 2011).
 
 
 
 
 
Mark W. Purtilar
 
Vice President and Chief Procurement Officer
 
51
 
Mr. Purtilar joined Goodyear as Vice President and Chief Procurement Officer in September 2007. He is the executive officer responsible for Goodyear's global procurement activities. Prior to joining Goodyear, Mr. Purtilar was vice president of global procurement for commercial vehicle systems at ArvinMeritor Automotive Inc., a global supplier of automotive parts, from 2004 until September 2007.
 
 
 
 
 
Michel Rzonzef
 
Vice President, Commercial Sales and Marketing Product Business Unit, EMEA
 
48
 
Mr. Rzonzef was named Vice President, Commercial Sales and Marketing Product Business Unit, EMEA effective January 1, 2012. He is the executive officer responsible for Goodyear's commercial tire sales and marketing activities in Europe, the Middle East and Africa. Mr. Rzonzef joined Goodyear in 1988 and has served as Vice President, Sales and Marketing, Eastern Europe, Middle East and Africa (January 2007 to January 2008) and President, Eastern Europe, Middle East and Africa Countries (February 2008 to December 2011).
 
 
 
 
 
 
No family relationship exists between any of the above executive officers or between the executive officers and any director of the Company.
Each executive officer is elected by the Board of Directors of the Company at its annual meeting to a term of one year or until his or her successor is duly elected. In those instances where the person is elected at other than an annual meeting, such person’s term will expire at the next annual meeting.


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ITEM 1A.
RISK FACTORS.
You should carefully consider the risks described below and other information contained in this Annual Report on Form 10-K when considering an investment decision with respect to our securities. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations. Any of the events discussed in the risk factors below may occur. If they do, our business, results of operations, financial condition or liquidity could be materially adversely affected. In such an instance, the trading price of our securities could decline, and you might lose all or part of your investment.
If we do not achieve projected savings from our cost reduction initiatives or successfully implement other strategic initiatives our operating results, financial condition and liquidity may be materially adversely affected.

Our business continues to be impacted by trends that have negatively affected the tire industry in general, as the economic recovery in developed markets was impacted by uncertainty surrounding debt issues in Europe and the United States and continued high levels of unemployment. These negative trends include volatile raw material costs, rising energy costs, wage inflation in emerging markets, and continued pressure from our unfunded pension obligations. In addition, global tire industry demand continues to be difficult to predict. If these overall trends continue or worsen, then our operational and financial condition could be adversely affected. Unlike most other tire manufacturers, we also face the continuing burden of significant legacy pension costs.
In order to offset the impact of these trends, we continue to implement various cost reduction initiatives and expect to achieve $1.0 billion in aggregate gross cost savings from 2010 through 2012 through our cost savings plan, which includes expected savings from continuous improvement initiatives, including savings under our USW agreement, increased low-cost country sourcing, high-cost capacity reductions, initiatives to reduce raw material costs and reduced selling, administrative and general expenses. As of December 31, 2011, we have realized approximately $750 million of cost savings under this three-year plan.
We have announced other important strategic initiatives, such as increasing our low-cost manufacturing capacity, reducing our high-cost manufacturing capacity, such as our plan to close one of our facilities in Amiens, France, and increasing sales in emerging markets. We are also undertaking significant capital investments in new, expanded and modernized manufacturing facilities around the world. The failure to implement successfully our important strategic initiatives may materially adversely affect our operating results, financial condition and liquidity.
Our performance is also dependent on our ability to continue to improve the proportion, or mix, of higher margin tires we sell. In order to continue this improvement, we must be successful in marketing and selling products that offer higher margins such as the Assurance, Fuel Max, Eagle and Fortera lines of tires and in developing additional higher margin tires that achieve broad market acceptance. Shifts in consumer demand away from higher margin tires could materially adversely affect our business.
We cannot assure you that our cost reduction and other initiatives will be successful. If not, we may not be able to achieve or sustain future profitability, which would impair our ability to meet our debt and other obligations and would otherwise negatively affect our operating results, financial condition and liquidity.
Higher raw material and energy costs may materially adversely affect our operating results and financial condition.
Raw material costs increased significantly over the past few years, and may continue to do so, driven by increases in prices of natural rubber and petrochemical-based commodities. Market conditions or contractual obligations may prevent us from passing these increased costs on to our customers through timely price increases. Additionally, higher raw material costs around the world may offset our efforts to reduce our cost structure. As a result, higher raw material and energy costs could result in declining margins and operating results and adversely affect our financial condition. The volatility of raw material costs may cause our margins, operating results and liquidity to fluctuate.
Our pension plans are significantly underfunded and, in the future, the underfunding levels of our pension plans and our pension expense could materially increase.
Although we have frozen a number of our pension plans globally, including our U.S. salaried pension plans, and closed participation in our primary U.S. hourly pension plan, many of our employees participate in, and many of our former employees are entitled to benefits under, defined benefit pension plans. Over time, we have experienced periods of declines in interest rates and pension asset values. As a result, our pension plans are significantly underfunded. Further declines in interest rates or the market values of the securities held by the plans, or certain other changes, could materially increase the underfunded status of our plans in 2012 and beyond and affect the level and timing of required contributions in 2013 and beyond. The unfunded amount of the projected benefit obligation for our U.S. and non-U.S. pension plans was $2,452 million and $645 million, respectively, at December 31, 2011, and we currently estimate that we will be required to make contributions to our funded U.S. pension plans of approximately $425 million to $450 million in 2012, and $425 million to $475 million in 2013. The current underfunded status of our pension

11


plans will, and a further material increase in the underfunded status of the plans would, significantly increase our required contributions and pension expense, which could impair our ability to achieve or sustain future profitability and adversely affect our financial condition.
We face significant global competition and our market share could decline.
New tires are sold under highly competitive conditions throughout the world. We compete with other tire manufacturers on the basis of product design, performance, price and terms, reputation, warranty terms, customer service and consumer convenience. On a worldwide basis, we have two major competitors, Bridgestone (based in Japan) and Michelin (based in France), that have large shares of the markets of the countries in which they are based and are aggressively seeking to maintain or improve their worldwide market share. Other significant competitors include Continental, Cooper, Hankook, Kumho, Pirelli, Toyo, Yokohama and various regional tire manufacturers. Our competitors produce significant numbers of tires in low-cost countries, and have announced plans to further increase their production capacity in low-cost countries.
In Brazil in 2011, we faced competition from increased imports of tires from Asia, which contributed to the year over year decline in Latin American Tire's segment operating income. We may face further competitive pressures in Brazil and other key countries that could adversely affect our results of operations and financial condition.
Our ability to compete successfully will depend, in significant part, on our ability to continue to innovate and manufacture the types of tires demanded by consumers, and to reduce costs by such means as reducing excess and high-cost capacity, leveraging global purchasing, improving productivity, eliminating redundancies and increasing production at low-cost supply sources. If we are unable to compete successfully, our market share may decline, materially adversely affecting our results of operations and financial condition.
Our long term ability to meet our obligations and to repay maturing indebtedness may be dependent on our ability to access capital markets in the future and to improve our operating results.
The adequacy of our liquidity depends on our ability to achieve an appropriate combination of operating improvements, financing from third parties and access to capital markets. We may need to undertake additional financing actions in the capital markets in order to ensure that our future liquidity requirements are addressed. These actions may include the issuance of additional debt or equity.
Our access to the capital markets cannot be assured and is dependent on, among other things, the ability and willingness of financial institutions to extend credit on terms that are acceptable to us, or to honor future draws on our existing lines of credit, and the degree of success we have in implementing our cost reduction plans and improving the results of our North American Tire segment. Concerns regarding the effect of the European sovereign debt crisis on financial institutions in Europe and elsewhere could have an adverse impact on the European and global capital markets and on our ability to access those markets to finance our European business or our business globally. Future liquidity requirements, or our inability to access cash deposits or make draws on our lines of credit, also may make it necessary for us to incur additional debt. A substantial portion of our assets is subject to liens securing our indebtedness. As a result, we are limited in our ability to pledge our remaining assets as security for additional secured indebtedness.
Our inability to access the capital markets or incur additional debt in the future could have a material adverse effect on our liquidity and operations, and could require us to consider further measures, including deferring planned capital expenditures, reducing discretionary spending, selling additional assets and restructuring existing debt.
Financial difficulties, work stoppages, supply disruptions or economic conditions affecting our major OE customers, dealers or suppliers could harm our business.

The economic recovery in developed markets has been negatively impacted by uncertainty surrounding debt issues in Europe and the United States and continued high levels of unemployment. In emerging markets, high inflation and interest rates also contributed to uneven industry conditions. As a result of these economic conditions, our tire unit shipments in 2011 were essentially flat compared to 2010, and automotive vehicle production and global tire industry demand continues to be difficult to predict.
Although sales to our OE customers account for less than 20% of our net sales, demand for our products by OE customers and production levels at our facilities are impacted by automotive vehicle production. We may experience future declines in sales volume due to declines in new vehicle sales, the discontinuation or sale of certain OE brands, platforms or programs, or weakness in the demand for replacement tires, which could result in us incurring under-absorbed fixed costs at our production facilities or slowing the rate at which we are able to recover those costs.

12



Automotive production can also be affected by labor relation issues, financial difficulties or supply disruptions. Our OE customers could experience production disruptions resulting from their own or supplier labor, financial or supply difficulties. Such events may cause an OE customer to reduce or suspend vehicle production. As a result, an OE customer could halt or significantly reduce purchases of our products, which would harm our results of operations, financial condition and liquidity.
In addition, the bankruptcy, restructuring or consolidation of one or more of our major OE customers, dealers or suppliers could result in the write-off of accounts receivable, a reduction in purchases of our products or a supply disruption to our facilities, which could negatively affect our results of operations, financial condition and liquidity.
Our capital expenditures may not be adequate to maintain our competitive position and may not be implemented in a timely or cost-effective manner.
Our capital expenditures are limited by our liquidity and capital resources and the amount we have available for capital spending is limited by the need to pay our other expenses and to maintain adequate cash reserves and borrowing capacity to meet unexpected demands that may arise. We believe that our ratio of capital expenditures to sales is lower than the comparable ratio for our principal competitors.
Productivity improvements through process re-engineering, design efficiency and manufacturing cost improvements may be required to offset potential increases in labor and raw material costs and competitive price pressures. In addition, as part of our strategy to increase the percentage of tires that are produced at our lower-cost production facilities and to increase our capacity to produce higher margin tires, we may need to modernize or expand our facilities. For example, we are making a significant investment in a new manufacturing facility in Pulandian, China, which began tire production in 2011. We are also currently undertaking significant expansion and modernization projects at our manufacturing facilities in Santiago, Chile; Americana, Brazil; Lawton, Oklahoma; Riesa, Germany; Fayetteville, North Carolina; and throughout EMEA in connection with new European tire labeling requirements.
We may not have sufficient resources to implement planned capital expenditures with minimal disruption to our existing manufacturing operations, or within desired time frames and budgets. Any disruption to our operations, delay in implementing capital improvements or unexpected costs may materially adversely affect our business and results of operations.
If we are unable to make sufficient capital expenditures, or to maximize the efficiency of the capital expenditures we do make, we may be unable to achieve productivity improvements, which may harm our competitive position. In addition, plant modernizations may temporarily disrupt our manufacturing operations and lead to temporary increases in our costs.
If we fail to extend or renegotiate our primary collective bargaining contracts with our labor unions as they expire from time to time, or if our unionized employees were to engage in a strike or other work stoppage or interruption, our business, results of operations, financial position and liquidity could be materially adversely affected.
We are a party to collective bargaining contracts with our labor unions, which represent a significant number of our employees. Approximately 11,000 of our employees outside of the United States are covered by union contracts that have expired or are expiring in 2012, primarily in Luxembourg, France and Poland. Although we believe that our relations with our employees are satisfactory, no assurance can be given that we will be able to successfully extend or renegotiate our collective bargaining agreements as they expire from time to time. If we fail to extend or renegotiate our collective bargaining agreements, if disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage or interruption, we could experience a significant disruption of, or inefficiencies in, our operations or incur higher labor costs, which could have a material adverse effect on our business, results of operations, financial position and liquidity.

13


We have a substantial amount of debt, which could restrict our growth, place us at a competitive disadvantage or otherwise materially adversely affect our financial health.
We have a substantial amount of debt. As of December 31, 2011, our debt (including capital leases) on a consolidated basis was approximately $5.2 billion. Our substantial amount of debt and other obligations could have important consequences. For example, it could:
make it more difficult for us to satisfy our obligations;
impair our ability to obtain financing in the future for working capital, capital expenditures, research and development, acquisitions or general corporate requirements;
increase our vulnerability to general adverse economic and industry conditions;
limit our ability to use operating cash flow in other areas of our business because we would need to dedicate a substantial portion of these funds for payments on our indebtedness;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
place us at a competitive disadvantage compared to our competitors.
The agreements governing our debt, including our credit agreements, limit, but do not prohibit, us from incurring additional debt and we may incur a significant amount of additional debt in the future, including additional secured debt. If new debt is added to our current debt levels, our ability to satisfy our debt obligations may become more limited.
Our ability to make scheduled payments on, or to refinance, our debt and other obligations will depend on our financial and operating performance, which, in turn, is subject to our ability to implement our cost reduction initiatives and other strategies, prevailing economic conditions and certain financial, business and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our debt service and other obligations, including required pension contributions, we may be forced to reduce or delay expansion plans and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. We cannot assure you that our operating performance, cash flow and capital resources will be sufficient to pay our debt obligations when they become due. We cannot assure you that we would be able to dispose of material assets or operations or restructure our debt or other obligations if necessary or, even if we were able to take such actions, that we could do so on terms that are acceptable to us.
Any failure to be in compliance with any material provision or covenant of our debt instruments, or a material reduction in the borrowing base under our revolving credit facility, could have a material adverse effect on our liquidity and operations.
The indentures and other agreements governing our secured credit facilities, senior unsecured notes and our other outstanding indebtedness impose significant operating and financial restrictions on us. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These restrictions limit our ability to, among other things:
incur additional debt or issue redeemable preferred stock;
pay dividends or make certain other restricted payments or investments;
incur liens;
sell assets;
incur restrictions on the ability of our subsidiaries to pay dividends to us;
enter into affiliate transactions;
engage in sale/leaseback transactions; and
engage in certain mergers or consolidations or transfers of substantially all of our assets.
Availability under our first lien revolving credit facility is subject to a borrowing base, which is based on eligible accounts receivable and inventory. To the extent that our eligible accounts receivable and inventory decline, our borrowing base will decrease and the availability under that facility may decrease below its stated amount. In addition, if at any time the amount of outstanding borrowings and letters of credit under that facility exceeds the borrowing base, we are required to prepay borrowings and/or cash collateralize letters of credit sufficient to eliminate the excess.
Our ability to comply with these covenants or to maintain our borrowing base may be affected by events beyond our control, including deteriorating economic conditions, and these events could require us to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. We cannot assure you that such waivers, amendments or alternative financing could be obtained, or if obtained, would be on terms acceptable to us.
A breach of any of the covenants or restrictions contained in any of our existing or future financing agreements, including the financial covenants in our secured credit facilities, could result in an event of default under those agreements. Such a default could allow the lenders under our financing agreements, if the agreements so provide, to discontinue lending, to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies, and/or to declare all borrowings

14


outstanding thereunder to be due and payable. In addition, the lenders could terminate any commitments they have to provide us with further funds. If any of these events occur, we cannot assure you that we will have sufficient funds available to pay in full the total amount of obligations that become due as a result of any such acceleration, or that we will be able to find additional or alternative financing to refinance any such accelerated obligations. Even if we obtain additional or alternative financing, we cannot assure you that it would be on terms that would be acceptable to us.
We cannot assure you that we will be able to remain in compliance with the covenants to which we are subject in the future and, if we fail to do so, that we will be able to obtain waivers from our lenders or amend the covenants.
Our international operations have certain risks that may materially adversely affect our operating results, financial condition and liquidity.
We have manufacturing and distribution facilities throughout the world. Our international operations are subject to certain inherent risks, including:
exposure to local economic conditions;
adverse changes in the diplomatic relations of foreign countries with the United States;
hostility from local populations and insurrections;
adverse currency exchange controls;
withholding taxes and restrictions on the withdrawal of foreign investment and earnings;
labor regulations;
expropriations of property;
the potential instability of foreign governments;
risks of renegotiation or modification of existing agreements with governmental authorities;
export and import restrictions; and
other changes in laws or government policies.
The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable. Certain regions, including Latin America, Asia, the Middle East and Africa, are inherently more economically and politically volatile and as a result, our business units that operate in these regions could be subject to significant fluctuations in sales and operating income from quarter to quarter. Because a significant percentage of our operating income in recent years has come from these regions, adverse fluctuations in the operating results in these regions could have a disproportionate impact on our results of operations in future periods.
For example, the European sovereign debt crisis has negatively affected economic conditions in Europe and globally. Our EMEA segment contributed 35% of our net sales and 46% of our total segment operating income in 2011. If the European sovereign debt crisis continues or deepens, economic conditions in Europe may further deteriorate. In that case, our business in Europe and elsewhere, as well as the businesses of our customers and suppliers, may be adversely affected.
As a further example, since 2003, Venezuela has imposed currency exchange controls that fix the exchange rate between the Venezuelan bolivar fuerte and the U.S. dollar and restrict the ability to exchange bolivares fuertes for dollars. These restrictions have delayed and limited our ability to pay third-party and affiliated suppliers and to otherwise repatriate funds from Venezuela, and may continue to do so, which could materially adversely affect our financial condition and liquidity. In addition, if we are unable to pay these suppliers in a timely manner, they may cease supplying us. Venezuela has also imposed restrictions on the importation of certain raw materials. If these suppliers cease supplying us or we are unable to import necessary raw materials, we may need to reduce or halt production in Venezuela, which could materially adversely affect our results of operations.
The future results of our Venezuelan operations will be affected by many factors, including actions by the Venezuelan government such as further currency devaluations, economic conditions in Venezuela such as inflation and consumer spending, and the availability of raw materials, utilities and energy. Goodyear Venezuela contributes a significant portion of the sales and operating income of our Latin American Tire segment. As a result, any disruption of Goodyear Venezuela’s operations or of our ability to pay suppliers or repatriate funds from Venezuela could have a material adverse impact on the future performance of our Latin American Tire segment and could materially adversely affect our results of operations, financial condition and liquidity.
    In addition, compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions. These numerous and sometimes conflicting laws and regulations include import and export laws, anti-competition laws, anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, and other local laws prohibiting corrupt payments to governmental officials, data privacy requirements, tax laws, and accounting, internal control and disclosure requirements. Violations of these laws and regulations could result in civil and criminal fines, penalties and sanctions against us, our officers or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our reputation, business and results of operations. In certain foreign jurisdictions, there is a higher risk of fraud or corruption and greater difficulty in maintaining

15


effective internal controls and compliance programs. Although we have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies or applicable laws and regulations.
We have foreign currency translation and transaction risks that may materially adversely affect our operating results, financial condition and liquidity.
The financial position and results of operations of our international subsidiaries are initially recorded in various foreign currencies and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. The strengthening of the U.S. dollar against these foreign currencies ordinarily has a negative impact on our reported sales and operating margin (and conversely, the weakening of the U.S. dollar against these foreign currencies has a positive impact). For the year ended December 31, 2011, foreign currency translation favorably affected sales by $599 million and favorably affected segment operating income by $57 million compared to the year ended December 31, 2010. The volatility of currency exchange rates may materially adversely affect our operating results.
We have material euro-denominated net monetary assets and liabilities. If the European sovereign debt crisis leads to a significant devaluation of the euro, the value of our euro-denominated net monetary assets and liabilities would be correspondingly reduced when translated into U.S. dollars for inclusion in our financial statements. Similarly, the re-introduction of certain individual country currencies or the complete dissolution of the euro, could adversely affect the value of our euro-denominated net monetary assets and liabilities. In either case, our business, results of operations, financial condition and liquidity could be materially adversely affected.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Certain of our borrowings are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, which would require us to use more of our available cash to service our indebtedness. There can be no assurance that we will be able to enter into swap agreements or other hedging arrangements in the future, or that existing or future hedging arrangements will offset increases in interest rates. As of December 31, 2011, we had approximately $2.2 billion of variable rate debt outstanding.
We have substantial fixed costs and, as a result, our operating income fluctuates disproportionately with changes in our net sales.
We operate with significant operating and financial leverage. Significant portions of our manufacturing, selling, administrative and general expenses are fixed costs that neither increase nor decrease proportionately with sales. In addition, a significant portion of our interest expense is fixed. There can be no assurance that we would be able to reduce our fixed costs proportionately in response to a decline in our net sales and therefore our competitiveness could be significantly impacted. As a result, a decline in our net sales would result in a higher percentage decline in our income from operations and net income.
We may incur significant costs in connection with asbestos claims.
We are among many defendants named in legal proceedings involving claims of individuals relating to alleged exposure to asbestos. At December 31, 2011, approximately 78,500 claims were pending against us alleging various asbestos-related personal injuries purported to have resulted from alleged exposure to asbestos in certain rubber encapsulated products or aircraft braking systems manufactured by us in the past or to asbestos in certain of our facilities. We expect that additional claims will be brought against us in the future. Our ultimate liability with respect to such pending and unasserted claims is subject to various uncertainties, including the following:
the number of claims that are brought in the future;
the costs of defending and settling these claims;
the risk of insolvencies among our insurance carriers;
the possibility that adverse jury verdicts could require us to pay damages in amounts greater than the amounts for which we have historically settled claims;
the risk of changes in the litigation environment or Federal and state law governing the compensation of asbestos claimants; and
the risk that the bankruptcies of other asbestos defendants may increase our costs.

16


Because of the uncertainties related to such claims, it is possible that we may incur a material amount of cost in excess of our current reserve for such claims. In addition, if any of the foregoing risks were to materialize, the resulting costs could have a material adverse impact on our liquidity, financial position and results of operations in future periods. For further information regarding our asbestos liabilities, refer to the Note to the Consolidated Financial Statements, No. 19, Commitments and Contingent Liabilities.
We may be required to provide letters of credit or post cash collateral if we are subject to a significant adverse judgment or if we are unable to obtain surety bonds, which may have a material adverse effect on our liquidity.
We are subject to various legal proceedings. If we wish to appeal any future adverse judgment in any of these proceedings, we may be required to post an appeal bond with the relevant court. In that case, we may be required to issue a letter of credit to the surety posting the bond. We may issue up to an aggregate of $800 million in letters of credit under our $1.5 billion U.S. senior secured first lien credit facility. As of December 31, 2011, we had $407 million in letters of credit issued and $1,093 million of remaining availability under this facility. If we are subject to a significant adverse judgment and do not have sufficient availability under our credit facilities to issue a letter of credit to support an appeal bond, we may be required to pay down borrowings under the facilities or deposit cash collateral in order to stay the enforcement of the judgment pending an appeal. If we are unable to post cash collateral, we may be unable to stay enforcement of the judgment.
Under standard terms in the surety market, sureties issue or continue bonds on a case-by-case basis and can decline to issue bonds at any time or require the posting of collateral as a condition to issuing or renewing any bonds. If surety providers were to limit or eliminate our access to bonding, we would need to post other forms of collateral, such as letters of credit or cash. As described above, we may be unable to secure sufficient letters of credit under our credit facilities.
If we were subject to a significant adverse judgment or experienced an interruption or reduction in the availability of bonding capacity, we may be required to provide letters of credit or post cash collateral, which may have a material adverse effect on our liquidity.
We are subject to extensive government regulations that may materially adversely affect our operating results.
We are subject to regulation by the Department of Transportation through the National Highway Traffic Safety Administration, or NHTSA, which has established various standards and regulations applicable to tires sold in the United States and tires sold in a foreign country that are identical or substantially similar to tires sold in the United States. NHTSA has the authority to order the recall of automotive products, including tires, having safety-related defects.
The Transportation Recall Enhancement, Accountability, and Documentation Act, or TREAD Act, imposes numerous requirements with respect to the early warning reporting of warranty claims, property damage claims, and bodily injury and fatality claims and also requires tire manufacturers, among other things, to conform with revised and more rigorous tire testing standards. Compliance with the TREAD Act regulations has increased the cost of producing and distributing tires in the United States. In addition, while we believe that our tires are free from design and manufacturing defects, it is possible that a recall of our tires, under the TREAD Act or otherwise, could occur in the future. A substantial recall could have a material adverse effect on our reputation, operating results and financial position.
In addition, as required by the Energy Independence and Security Act of 2007, NHTSA will establish a national tire fuel efficiency consumer information program. When the related rule-making process is completed, certain tires sold in the United States will be required to be rated for rolling resistance, traction and tread wear. While the Federal law will preempt state tire fuel efficiency laws adopted after January 1, 2006, we may become subject to additional tire fuel efficiency legislation, either in the United States or other countries.
Our European operations are subject to regulation by the European Union. In 2009, two important regulations, the Tire Safety Regulation and the Tire Labeling Regulation, applicable to tires sold in the European Union were adopted. The Tire Safety Regulation sets performance standards that tires for cars and light and commercial trucks need to meet for rolling resistance, wet grip braking and noise in order to be sold in the European Union, and will become effective between 2012 and 2020. The Tire Labeling Regulation applies to all car and light and commercial truck tires produced after June 30, 2012 and requires that tires be labeled to inform consumers about the tire’s fuel efficiency, wet grip and noise characteristics.
Tires produced or sold in Europe also have to comply with various other standards, including environmental laws such as REACH (Registration, Evaluation, Authorisation and Restriction of Chemical substances), which regulates the use of chemicals in the European Union. For example, since January 1, 2010, REACH has prohibited the use of highly aromatic oils in tires, which were used as compounding components to improve certain safety-related performance characteristics, such as grip.

17


These U.S. and European regulations, rules adopted to implement these regulations, or other similar regulations that may be adopted in the United States, Europe or elsewhere in the future may require us to alter or increase our capital spending and research and development plans or cease the production of certain tires, which could have a material adverse affect on our operating results.
Laws and regulations governing environmental and occupational safety and health are complicated, change frequently and have tended to become stricter over time. As a manufacturing company, we are subject to these laws and regulations both inside and outside the United States. We may not be in complete compliance with such laws and regulations at all times. Our costs or liabilities relating to them may be more than the amount we have reserved, and that difference may be material.
In addition, our manufacturing facilities may become subject to further limitations on the emission of “greenhouse gases” due to public policy concerns regarding climate change issues or other environmental or health and safety concerns. While the form of any additional regulations cannot be predicted, a “cap-and-trade” system similar to the one adopted in the European Union could be adopted in the United States. Any such “cap-and-trade” system (including the system currently in place in the European Union) or other limitations imposed on the emission of “greenhouse gases” could require us to increase our capital expenditures, use our cash to acquire emission credits or restructure our manufacturing operations, which could have a material adverse affect on our operating results, financial condition and liquidity.
Compliance with the laws and regulations described above or any of the myriad of applicable foreign, Federal, state and local laws and regulations currently in effect or that may be adopted in the future could materially adversely affect our competitive position, operating results, financial condition and liquidity.
The terms and conditions of our global alliance with Sumitomo Rubber Industries, Ltd. provide for exit rights available to SRI upon the occurrence of certain events, which could require us to make a substantial payment to acquire SRI’s interest in our European and North American joint ventures.
Under the global alliance agreements between us and SRI, SRI has the right to require us to purchase its ownership interests in GDTE and GDTNA if certain triggering events have occurred, including certain bankruptcy events, changes in control of Goodyear or breaches of the global alliance agreements. While we have not done any current valuation of these businesses, any payment required to be made to SRI pursuant to an exit under the terms of the global alliance agreements could be substantial. We cannot assure you that our operating performance, cash flow and capital resources would be sufficient to make such a payment or, if we were able to make the payment, that there would be sufficient funds remaining to satisfy our other obligations. The withdrawal of SRI from the global alliance could also have other adverse effects on our business, including the loss of technology and purchasing synergies. For further information regarding our global alliance with SRI, including the events that could trigger SRI’s exit rights, see “Item 1. Business. Description of Goodyear’s Business — Global Alliance.”
We may be adversely affected by any disruption in, or failure of, our information technology systems.
We rely upon the capacity, reliability and security of our information technology, or IT, systems across all of our major business functions, including our research and development, manufacturing, retail, financial and administrative functions. We also face the challenge of supporting our older systems and implementing upgrades when necessary. Our security measures are focused on the prevention, detection and remediation of damage from computer viruses, natural disasters, unauthorized access, cyber attack and other similar disruptions. We may incur significant costs in order to implement the security measures that we feel are necessary to protect our IT systems. However, our IT systems may remain vulnerable to damage despite our implementation of security measures that we deem to be appropriate.
Any system failure, accident or security breach involving our IT systems could result in disruptions to our operations. A material breach in the security of our IT systems could include the theft of our intellectual property or trade secrets, negatively impact our manufacturing or retail operations, or result in the compromise of personal information of our employees, customers or suppliers. To the extent that any system failure, accident or security breach results in disruptions to our operations or the theft, loss or disclosure of, or damage to, our data or confidential information, our reputation, business, results of operations and financial condition could be materially adversely affected.
If we are unable to attract and retain key personnel our business could be materially adversely affected.
Our business substantially depends on the continued service of key members of our management. The loss of the services of a significant number of members of our management could have a material adverse effect on our business. Our future success will also depend on our ability to attract and retain highly skilled personnel, such as engineering, marketing and senior management professionals. Competition for these employees is intense, and we could experience difficulty from time to time in hiring and retaining the personnel necessary to support our business. If we do not succeed in retaining our current employees and attracting new high quality employees, our business could be materially adversely affected.

18


We may be impacted by economic and supply disruptions associated with events beyond our control, such as war, acts of terror, political unrest, public health concerns, labor disputes or natural disasters.
We manage businesses and facilities worldwide. Our facilities and operations, and the facilities and operations of our suppliers and customers, could be disrupted by events beyond our control, such as war, acts of terror, political unrest, public health concerns, labor disputes or natural disasters. Any such disruption could cause delays in the production and distribution of our products and the loss of sales and customers. We may not be insured against all such potential losses and, if insured, the insurance proceeds that we receive may not adequately compensate us for all of our losses.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.
None.

ITEM 2.
PROPERTIES.
We manufacture our products in 53 manufacturing facilities located around the world including 15 plants in the United States.
NORTH AMERICAN TIRE MANUFACTURING FACILITIES.  North American Tire owns (or leases with the right to purchase at a nominal price) and operates 18 manufacturing facilities in the United States and Canada.
9 tire plants (7 in the United States and 2 in Canada),
4 chemical plants,
1 tire mold plant,
1 tire retread plant,
2 aviation retread plants, and
1 mix plant in Canada.
These facilities have floor space aggregating approximately 21 million square feet.
EUROPE, MIDDLE EAST AND AFRICA TIRE MANUFACTURING FACILITIES.  EMEA owns and operates 19 manufacturing facilities in 9 countries, including:
16 tire plants,
1 tire mold and tire manufacturing machine facility,
1 aviation retread plant, and
1 mix plant.
These facilities have floor space aggregating approximately 20 million square feet.
LATIN AMERICAN TIRE MANUFACTURING FACILITIES.  Latin American Tire owns and operates 6 manufacturing facilities in 5 countries, including 5 tire plants and 1 tire retread plant, and operates 1 aviation plant. These facilities have floor space aggregating approximately 5 million square feet.
ASIA PACIFIC TIRE MANUFACTURING FACILITIES.  Asia Pacific Tire owns and operates 9 manufacturing facilities in 6 countries, including 8 tire plants and 1 aviation retread plant. These facilities have floor space aggregating approximately 7 million square feet.
PLANT UTILIZATION.  Our worldwide tire capacity utilization rate was approximately 91% during 2011 compared to approximately 88% in 2010 and 73% in 2009. Our 2011 utilization improved due to a reduction in high-cost manufacturing capacity following the closure of our Union City, Tennessee facility in July 2011.
OTHER FACILITIES.  We also own and operate two research and development facilities and technical centers, and three tire proving grounds. We lease our Corporate and North American Tire headquarters, research and development facility and technical center in Akron, Ohio. We also operate approximately 1,400 retail outlets for the sale of our tires to consumer and commercial customers, approximately 50 tire retreading facilities and approximately 170 warehouse distribution facilities. Substantially all of these facilities are leased. We do not consider any one of these leased properties to be material to our operations. For additional information regarding leased properties, refer to the Notes to the Consolidated Financial Statements No. 13, Property, Plant and Equipment and No. 14, Leased Assets.


19


ITEM 3.
LEGAL PROCEEDINGS.
Asbestos Litigation
We are currently one of numerous defendants in legal proceedings in certain state and Federal courts involving approximately 78,500 claimants at December 31, 2011 relating to their alleged exposure to materials containing asbestos in products allegedly manufactured by us or asbestos materials present at our facilities. We manufactured, among other things, rubber coated asbestos sheet gasket materials from 1914 through 1973 and aircraft brake assemblies containing asbestos materials prior to 1987. Some of the claimants are independent contractors or their employees who allege exposure to asbestos while working at certain of our facilities. It is expected that in a substantial portion of these cases there will be no evidence of exposure to a Goodyear manufactured product containing asbestos or asbestos in our facilities. The amount expended by us and our insurers on defense and claim resolution was approximately $23 million during 2011. The plaintiffs in the pending cases allege that they were exposed to asbestos and, as a result of such exposure suffer from various respiratory diseases, including in some cases mesothelioma and lung cancer. The plaintiffs are seeking unspecified actual and punitive damages and other relief. For additional information on asbestos litigation, refer to the Note to the Consolidated Financial Statements No. 19, Commitments and Contingent Liabilities.
Marine Hose Investigation
In May 2007, the United States Department of Justice, Antitrust Division, announced that it had executed search and arrest warrants against a number of companies and their executives in connection with an investigation into allegations of price fixing in the marine hose industry. We received a grand jury document subpoena in May 2007 relating to that investigation. We have also received a similar request for information from European antitrust authorities in connection with a similar investigation of the marine hose industry in Europe. In addition, in November 2007, the Brazilian antitrust authority notified Goodyear’s Brazilian subsidiary that it was a party to a civil investigation into alleged anticompetitive practices in the marine hose industry in Brazil. Based on our review, we continue to believe Goodyear and its subsidiaries did not engage in unlawful conduct which is the subject of the investigations described above. None of Goodyear’s executives has been named in any criminal complaint; and no arrest or search warrants have been executed against any of our executives or at any of our facilities in connection with these investigations. We are cooperating with U.S., European and Brazilian authorities.
South African Competition Tribunal Proceedings
On August 31, 2010, the South African Competition Commission referred a complaint to the South African Competition Tribunal alleging that Goodyear South Africa (Pty) Ltd., Apollo Tyres South Africa (Pty) Ltd., Continental Tyre South Africa (Pty) Ltd., Bridgestone South Africa (Pty) Ltd., and the South African Tyre Manufacturers Conference (Pty) Ltd. engaged in anti-competitive conduct in the tire market in South Africa in violation of the South African Competition Act. The Competition Commission is seeking a penalty of approximately $30 million, which is based on a percentage of Goodyear South Africa’s annual revenues in 2008. Goodyear South Africa has conducted an internal investigation regarding these allegations and intends to defend itself before the Competition Tribunal.
Brazilian Tax Assessments
In December 2010, the State of Sao Paulo, Brazil issued assessments to us for allegedly improperly taking tax credits for value-added taxes paid to certain natural rubber processing companies from January 2006 to October 2009. These assessments, including interest and penalties, total 88 million Brazilian real (approximately $47 million). In September 2011, the State of Sao Paulo, Brazil issued an additional assessment to us for allegedly improperly taking tax credits for value-added taxes paid to another processed natural rubber supplier from January 2006 to August 2008. This assessment, including interest and penalties, totals 92 million Brazilian real (approximately $50 million). We have filed responses contesting the assessments and are defending these matters.


20


African Investigations

In June 2011, an anonymous source reported, through our confidential ethics hotline, that our majority-owned joint venture in Kenya may have made certain improper payments. In July 2011, an employee of our subsidiary in Angola reported that similar improper payments may have been made in Angola. Outside counsel and forensic accountants were retained to investigate the alleged improper payments in Kenya and Angola, including our compliance in those countries with the U.S. Foreign Corrupt Practices Act. We do not believe that the amount of the payments in question in Kenya and Angola, or any revenue or operating income related to those payments, are material to our business, results of operations, financial condition or liquidity.

Following our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures and have voluntarily disclosed the results of our investigation to the U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”), and are cooperating with those agencies in their review of these matters. We are unable to predict the outcome of any review that may be undertaken by the DOJ and SEC.
Other Matters
In addition to the legal proceedings described above, various other legal actions, claims and governmental investigations and proceedings covering a wide range of matters are pending against us, including claims and proceedings relating to several waste disposal sites that have been identified by the United States Environmental Protection Agency and similar agencies of various states for remedial investigation and cleanup, which sites were allegedly used by us in the past for the disposal of industrial waste materials. Based on available information, we do not consider any such action, claim, investigation or proceeding to be material, within the meaning of that term as used in Item 103 of Regulation S-K and the instructions thereto. For additional information regarding our legal proceedings, refer to the Note to the Consolidated Financial Statements No. 19, Commitments and Contingent Liabilities.


21


PART II.

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The principal market for our common stock is the New York Stock Exchange (Stock Exchange Symbol: GT).
Information relating to the high and low sale prices of shares of our common stock appears under the caption “Quarterly Data and Market Price Information” in Item 8 of this Annual Report at page 117, and is incorporated herein by reference. Under our primary credit facilities we are permitted to pay dividends on our common stock as long as no default will have occurred and be continuing, additional indebtedness can be incurred under the credit facilities following the payment, and certain financial tests are satisfied. So long as any of our mandatory convertible preferred stock is outstanding, no dividend, except a dividend payable in shares of our common stock, or other shares ranking junior to the mandatory convertible preferred stock, may be paid or declared or any distribution be made on shares of our common stock unless all accrued and unpaid dividends on the then outstanding mandatory convertible preferred stock payable on all dividend payment dates occurring on or prior to the date of such action have been declared and paid or sufficient funds have been set aside for that payment. We have not declared any cash dividends on our common stock in the three most recent fiscal years. At December 31, 2011, there were 19,715 record holders of the 244,535,841 shares of our common stock then outstanding.
The following table presents information with respect to repurchases of common stock made by us during the three months ended December 31, 2011. These shares were delivered to us by employees as payment for the exercise price of stock options as well as the withholding taxes due upon the exercise of the stock options or the vesting or payment of stock awards.

Period
Total Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or Programs
10/1/11-10/31/11
$—
11/1/11-11/30/11
12/1/11-12/31/11
3,541
14.17
Total
3,541
$14.17

Set forth in the table below is certain information regarding the number of shares of our common stock that were subject to outstanding stock options or other compensation plan grants and awards at December 31, 2011.
EQUITY COMPENSATION PLAN INFORMATION

Plan Category
 
Number of Shares to be
Issued upon Exercise of
Outstanding Options, Warrants and Rights
 
Weighted Average
Exercise Price of
Outstanding Options, Warrants and Rights
 
Number of Shares
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding Shares Reflected in Column (a))
 
 
 
(a)
 
(b)
 
(c)
 
Equity compensation plans approved by shareholders
 
12,734,914

 
14.87

 
8,680,840

(1)
Equity compensation plans not approved by shareholders(2)
 
52,910

 
8.82

 

 
Total
 
12,787,824

 
14.85

 
8,680,840

 
_______________________________________
(1)
Under our equity-based compensation plans, up to a maximum of 760,030 performance shares in respect of performance periods ending on or subsequent to December 31, 2011, 327,203 shares of time-vested restricted stock, and 480,000 restricted stock units have been awarded. In addition, up to 36,307 shares of common stock may be issued in respect of the deferred payout of awards made under our equity compensation plans. The number of performance shares indicated assumes the maximum possible payout that may be earned during the relevant performance periods.

22


(2)
Our Hourly and Salaried Employees Stock Option Plan provided for the issuance of stock options to selected hourly and non-executive salaried employees of Goodyear and its subsidiaries. Options in respect of 294,690 shares of common stock were granted on September 30, 2002, each having an exercise price of $8.82 per share. Each option granted has a ten-year term and was subject to certain vesting requirements. No additional options may be granted under this Plan, which expired December 31, 2002 except with respect to options then outstanding.



23


ITEM 6.
SELECTED FINANCIAL DATA.

 
Year Ended December 31,(1)
(In millions, except per share amounts)
2011(2)
 
2010(3)
 
2009(4)
 
2008(5)
 
2007(6)
Net Sales
$
22,767

 
$
18,832

 
$
16,301

 
$
19,488

 
$
19,644

Income (Loss) from Continuing Operations
$
417

 
$
(164
)
 
$
(364
)
 
$
(23
)
 
$
190

Discontinued Operations

 

 

 

 
463

Net Income (Loss)
417

 
(164
)
 
(364
)
 
(23
)
 
653

Less: Minority Shareholders’ Net Income
74

 
52

 
11

 
54

 
70

Goodyear Net Income (Loss)
$
343

 
$
(216
)
 
$
(375
)
 
$
(77
)
 
$
583

  Less: Preferred Stock Dividends
22

 

 

 

 

Goodyear Net Income (Loss) available to Common Shareholders
$
321

 
$
(216
)
 
$
(375
)
 
$
(77
)
 
$
583

Goodyear Net Income (Loss) available to Common Shareholders — Per Basic Share of Common Stock:
 
 
 

 
 

 
 

 
 

Income (Loss) from Continuing Operations
$
1.32

 
$
(0.89
)
 
$
(1.55
)
 
$
(0.32
)
 
$
0.60

Discontinued Operations

 

 

 

 
2.30

  Basic
$
1.32

 
$
(0.89
)
 
$
(1.55
)
 
$
(0.32
)
 
$
2.90

Goodyear Net Income (Loss) available to Common Shareholders — Per Diluted Share of Common Stock:
 
 
 

 
 

 
 

 
 

Income (Loss) from Continuing Operations
$
1.26

 
$
(0.89
)
 
$
(1.55
)
 
$
(0.32
)
 
$
0.59

Discontinued Operations

 

 

 

 
2.25

  Diluted
$
1.26

 
$
(0.89
)
 
$
(1.55
)
 
$
(0.32
)
 
$
2.84

 
 
 
 
 
 
 
 
 
 
Total Assets
$
17,629

 
$
15,630

 
$
14,410

 
$
15,226

 
$
17,191

Long Term Debt and Capital Leases Due Within One Year
156

 
188

 
114

 
582

 
171

Long Term Debt and Capital Leases
4,789

 
4,319

 
4,182

 
4,132

 
4,329

Goodyear Shareholders’ Equity
749

 
644

 
735

 
1,022

 
2,850

Total Shareholders’ Equity
1,017

 
921

 
986

 
1,253

 
3,150

Dividends Per Common Share

 

 

 

 

_______________________________________
(1)
Refer to “Basis of Presentation” and “Principles of Consolidation” in the Note to the Consolidated Financial Statements No. 1, Accounting Policies.
(2)
Goodyear net income in 2011 included net after-tax charges of $217 million, or $0.80 per share — diluted, due to rationalization charges, including accelerated depreciation and asset write-offs; charges related to the early redemption of debt; charges related to a flood in Thailand; and charges related to a tornado in the United States. Goodyear net income in 2011 also included after-tax benefits of $51 million, or $0.19 per share — diluted, from the benefit of certain tax adjustments and gains on asset sales.
(3)
Goodyear net loss in 2010 included net after-tax charges of $445 million, or $1.84 per share — diluted, due to rationalization charges, including accelerated depreciation and asset write-offs; the devaluation of the Venezuelan bolivar fuerte against the U.S. dollar; charges related to the early redemption of debt and a debt exchange offer; charges related to the disposal of a building in the Philippines; a one-time importation cost adjustment; supplier disruption costs; a charge related to a claim regarding the use of value-added tax credits in prior periods; and charges related to a strike in South Africa. Goodyear net loss in 2010 also included after-tax benefits of $104 million, or $0.43 per share — diluted, from gains on asset sales; favorable settlements with suppliers; an insurance recovery; and the benefit of certain tax adjustments.
(4)
Goodyear net loss in 2009 included net after-tax charges of $277 million, or $1.16 per share — diluted, due to rationalization charges, including accelerated depreciation and asset write-offs; asset sales; the liquidation of our subsidiary in Guatemala; a legal reserve for a closed facility; and our USW labor contract. Goodyear net loss in 2009 also included after-tax benefits of $156 million, or $0.65 per share — diluted, due to non-cash tax benefits related to losses from our U.S. operations; benefits primarily resulting from certain income tax items including the release of the valuation allowance on our Australian operations and the settlement of our 1997 through 2003 Competent Authority claim between the United States and Canada; and the recognition of insurance proceeds related to the settlement of a claim as a result of a fire at our manufacturing facility in Thailand.

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(5)
Goodyear net loss in 2008 included net after-tax charges of $311 million, or $1.29 per share — diluted, due to rationalization charges, including accelerated depreciation and asset write-offs; costs related to the redemption of long-term debt; write-offs of deferred debt issuance costs associated with refinancing and redemption activities; general and product liability — discontinued products; VEBA-related charges; charges related to Hurricanes Ike and Gustav; losses from the liquidation of our subsidiary in Jamaica; charges related to the exit of our Moroccan business; and the valuation allowance on our investment in The Reserve Primary Fund. Goodyear net loss in 2008 also included after-tax benefits of $68 million, or $0.28 per share — diluted, from asset sales; settlements with suppliers; and the benefit of certain tax adjustments.
(6)
Goodyear net income in 2007 included a net after-tax gain of $508 million, or $2.48 per share — diluted, related to the sale of our Engineered Products business. Goodyear net income in 2007 also included net after-tax charges of $332 million, or $1.62 per share — diluted, due to curtailment and settlement charges related to our pension plans; asset sales, including the assets of North American Tire’s tire and wheel assembly operation; costs related to the redemption and conversion of long term debt; write-offs of deferred debt issuance costs associated with refinancing, redemption and conversion activities; rationalization charges, including accelerated depreciation and asset write-offs; and the impact of the USW strike. Of these amounts, discontinued operations in 2007 included net after-tax charges of $90 million, or $0.44 per share — diluted, due to curtailment and settlement charges related to pension plans; rationalization charges; and costs associated with the USW strike.



25


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The Goodyear Tire & Rubber Company is one of the world’s leading manufacturers of tires, with one of the most recognizable brand names in the world and operations in most regions of the world. We have a broad global footprint with 53 manufacturing facilities in 22 countries, including the United States. We operate our business through four operating segments representing our regional tire businesses: North American Tire; Europe, Middle East and Africa Tire; Latin American Tire; and Asia Pacific Tire.

We experienced uneven industry conditions in 2011 as the economic recovery in developed markets was impacted by uncertainty surrounding debt issues in Europe and the United States and continued high levels of unemployment, which had a negative impact on overall economic conditions and customer and consumer confidence. In emerging markets, high inflation and interest rates also contributed to uneven industry conditions. Our tire unit shipments in 2011 were essentially flat compared to 2010, and global tire industry demand continues to be difficult to predict. In addition, our raw material costs rose by approximately 30% in 2011 compared to 2010.

We acted to address the uncertain economic environment and the challenges described above by implementing strategic initiatives aimed at permitting us to emerge stronger in the future. Under those strategic initiatives we planned to:
Continue to focus on consumer-driven product development;
Take a selective approach to the market, targeting profitable segments where we have competitive advantages;
Focus on price and product mix improvements to address rising raw material costs;
Achieve cost reductions of $1.0 billion over three years from 2010 to 2012;
Improve our manufacturing efficiency, including recovering unabsorbed fixed costs incurred during the recession;
Focus on cash flow to provide funding for investments in future growth; and
Create an advantaged supply chain focused on optimizing inventory levels and further improving customer service.

In spite of the macroeconomic and industry-specific challenges we faced, we produced record net sales and segment operating income in 2011. During 2011, improved price and product mix of nearly $2.4 billion more than offset the impact of unprecedented raw material cost increases of nearly $2.0 billion on segment operating income, exclusive of approximately $177 million of raw material cost savings included in our cost savings plan described below. Price and product mix also drove a 17% improvement in revenue per tire, excluding the impact of foreign currency translation, in 2011 compared to 2010, reflecting our continued focus on driving improved price and product mix through innovative product offerings in targeted market segments.

In 2011, we realized approximately $281 million of cost savings, bringing the total cost savings for 2010 and 2011 to approximately $748 million. Our cost savings plan includes savings from continuous improvement initiatives, including net savings under our United Steelworkers contract, increased low-cost country sourcing, and initiatives to reduce raw material costs and selling, administrative and general expense. We also recovered approximately $195 million of under-absorbed fixed overhead costs in 2011 compared to 2010. Other key strategic achievements include:
Continued progress on actions to reduce our high-cost manufacturing capacity, including the closure of our factory in Union City, Tennessee in July 2011;
Initiated production of tires at our new factory in Pulandian, China; and
Continued improvements in working capital efficiency, measured as a percent of sales.
For the year ended December 31, 2011, Goodyear net income was $343 million, compared to a Goodyear net loss of $216 million in 2010, and Goodyear net income available to common shareholders was $321 million, compared to a Goodyear net loss available to common shareholders of $216 million in 2010. Our total segment operating income for 2011 was $1,368 million, compared to $917 million in 2010. The increase in segment operating income was due primarily to strong price and product mix which more than offset raw material costs, a significant decrease in under-absorbed fixed overhead costs due to increased production volumes, and favorable foreign currency translation. See “Results of Operations — Segment Information” for additional information.
Net sales were $22.8 billion in 2011, compared to $18.8 billion in 2010. Net sales increased due to improved price and product mix, an increase in other tire-related businesses, primarily in North American Tire’s third party sales of chemical products, and favorable foreign currency translation, primarily in EMEA and Asia Pacific Tire.
Pension and Benefit Plans
During 2011, our U.S. pension plans experienced actuarial losses from decreases in discount rates, which increased plan obligations by $452 million. In addition, the actual return on plan assets for our U.S. pension fund in 2011 was $283 million less than the expected return. These results increased actuarial net losses included in Accumulated Other Comprehensive Loss ("AOCL") by

26


$735 million. As a result, annual U.S. net periodic pension cost will increase to approximately $200 million to $225 million in 2012 from $175 million in 2011, due primarily to amortization of higher net actuarial losses from AOCL.
Liquidity
At December 31, 2011, we had $2,772 million in Cash and cash equivalents as well as $2,544 million of unused availability under our various credit agreements, compared to $2,005 million and $2,475 million, respectively, at December 31, 2010. Cash and cash equivalents were favorably affected by the improvement in earnings compared to 2010, the net proceeds from the issuance of our mandatory convertible preferred stock of $484 million, and the issuance of €250 million aggregate principal amount of 6.75% senior notes due 2019. Partially offsetting these increases in Cash and cash equivalents were capital expenditures of $1,043 million, the redemption of $350 million of our 10.5% senior notes due 2016, and working capital expenditures of $650 million.
We believe that our liquidity position is adequate to fund our operating and investing needs in 2012 and to provide us with flexibility to respond to further changes in the business environment.
New Products
In 2011, we successfully launched our new Goodyear Assurance TripleTred All-Season, Goodyear Ultra Grip Ice WRT and Kelly Safari ATR tire lines in North American Tire. We also successfully launched nine new tire and retread product lines in our commercial truck tire business with three of those lines featuring SmartWay (fuel efficiency) certification and/or Duraseal Technology. At our North American Tire dealer conference in early 2012, we introduced several key products, most notably the Goodyear Assurance CS TripleTred All-Season and the Eagle F1 Asymmetric All-Season. Additionally, we are adding key sizes of new consumer products launched in recent years.
In EMEA, we launched the new Eagle F1 Asymmetric 2 summer ultra high performance tire and the Goodyear Ultra Grip 8 and Dunlop Winter Sport 4D winter tires. We have also strengthened our Max Technology commercial tire line up with a new regional haul trailer tire, RHTII, and a new line of higher load range tires that offer increased load capacity. In addition, we have upgraded our Fuel Max line with our LHS II + and LHD II + tires.
In Latin American Tire, we successfully launched the Wrangler MT/R with Kevlar in the consumer market. We also launched several products using Fuel Max Technology in the commercial market, as well as expanded our commercial product lines by adding key sizes of new commercial products launched in recent years.
In Asia Pacific Tire, we launched two of our leading ultra high performance tires, the Goodyear Eagle F1 Asymmetric 2 for luxury sports performance vehicles and the Goodyear Eagle F1 Directional 5 for mid-range sports performance vehicles. Both of these Goodyear Eagle products are successors to previous award-winning ultra high performance tires and provide superior braking and handling capabilities.
Outlook

In 2012, we expect to continue to face challenges related to uneven tire industry growth and the actions we are taking globally to improve our manufacturing footprint.

We expect long-term growth in the global tire industry to continue, but at a slower pace near-term than previously forecast due to continued economic weakness in several parts of the world, most notably in Europe. We expect that our full-year tire unit volume for 2012 will be essentially flat with 2011. For the full year of 2012 in North America, we expect consumer replacement to be flat to down 2%, consumer original equipment to be flat to up 3%, commercial replacement to be up between 2% and 6% and commercial original equipment to be up between 10% and 15%. For the full year in Europe, the consumer replacement industry is expected to be flat to down 2%, consumer original equipment to be down between 5% and 9%, commercial replacement to be down between 3% and 8% and commercial original equipment to be down between 20% and 25%.

27



We expect our raw material costs in the first quarter of 2012 to increase 20% to 25% when compared with the first quarter of 2011. Smaller increases are expected for the second quarter of 2012 compared with the second quarter of 2011. For the second half of 2012, we expect raw material costs to decrease compared with the second half of 2011. For the full year of 2012, we expect our raw material costs will increase approximately 5% compared with 2011. However, natural and synthetic rubber prices and other commodity prices have experienced significant volatility, and this estimate could change significantly based on fluctuations in the cost of these and other key raw materials. In order to mitigate some of the impact of rising raw material costs, we are continuing to focus on price and product mix, to substitute lower cost materials where possible and to work to identify additional substitution opportunities, to reduce the amount of material required in each tire, and to pursue alternative raw materials including innovative bio-based materials. However, during periods of rapidly rising raw material costs, we may not be able to fully offset those raw material cost increases through the use of these strategies, although we remain confident in our ability to do so over the longer term.

As a result of the closure of our Union City, Tennessee manufacturing facility, we now expect to recover approximately $40 million to $60 million of unabsorbed fixed costs in 2012, net of the impact of anticipated production cuts due to flat tire unit volume. We also expect to reduce costs by approximately $250 million in 2012. As a partial offset to these benefits, we expect to incur approximately $40 million to $60 million of additional costs related to start-up expenses for our new Pulandian, China manufacturing facility and under-absorbed overhead costs related to the closure of our Dalian, China manufacturing facility in 2012.
See “Item 1A. Risk Factors” at page 11 for a discussion of the factors that may impact our business, results of operations, financial condition or liquidity and “Forward-Looking Information — Safe Harbor Statement” at page 51 for a discussion of our use of forward-looking statements.

RESULTS OF OPERATIONS — CONSOLIDATED
All per share amounts are diluted and refer to Goodyear net income (loss) available to common shareholders.
2011 Compared to 2010
For the year ended December 31, 2011, Goodyear net income was $343 million, or $1.32 per share, compared to net loss of $216 million, or $0.89 per share, in 2010. For the year ended December 31, 2011 Goodyear net income available to common shareholders was $321 million, or $1.26 per share, reflecting $22 million of preferred stock dividends, compared to a Goodyear net loss available to common shareholders of $216 million, or $0.89 per share, in 2010.
Net Sales
Net sales in 2011 of $22.8 billion increased $3.9 billion, or 20.9%, compared to 2010 due primarily to favorable changes in price and product mix of $2.6 billion, increased sales in other tire-related businesses of $875 million, primarily in North American Tire’s third party sales of chemical products, and $599 million due to favorable foreign currency translation. Consumer and commercial net sales in 2011 were $12.1 billion and $4.6 billion, respectively. Consumer and commercial net sales in 2010 were $10.3 billion and $3.5 billion, respectively.
The following table presents our tire unit sales for the periods indicated:
 
Year Ended December 31,
(In millions of tires)
2011
 
2010
 
% Change
Replacement Units
 

 
 

 
 

North American Tire (U.S. and Canada)
50.0

 
50.8

 
(1.6
)%
International
82.2

 
82.2

 
 %
Total
132.2

 
133.0

 
(0.7
)%
OE Units
 

 
 

 
 

North American Tire (U.S. and Canada)
16.0

 
15.9

 
1.3
 %
International
32.4

 
31.9

 
1.6
 %
Total
48.4

 
47.8

 
1.5
 %
Goodyear worldwide tire units
180.6

 
180.8

 
(0.1
)%


28


The decrease in worldwide tire unit sales of 0.2 million units, or 0.1%, compared to 2010, included a decrease of 0.8 million replacement units, or 0.7%, due primarily to a decrease in the consumer replacement business in North American Tire due to lower industry demand and a decrease in Latin American Tire, primarily in consumer replacement, partially offset by an increase of 0.6 million units, or 1.5%, in OE units, primarily in EMEA. EMEA OE volume increased 1.1 million units, or 6.7%, due to increased demand in both our consumer and commercial businesses due to increased vehicle production. Consumer and commercial units in 2011 were 163.6 million and 14.8 million, respectively. Consumer and commercial units in 2010 were 164.4 million and 14.0 million, respectively.
Cost of Goods Sold
Cost of goods sold (“CGS”) was $18.8 billion in 2011, increasing $3.4 billion, or 21.8%, compared to 2010. CGS in 2011 increased due primarily to higher raw material costs of $1.8 billion, higher costs in other tire-related businesses of $826 million, primarily in North American Tire’s cost of chemical products, unfavorable foreign currency translation of $453 million, and product mix-related cost increases of $229 million. CGS was favorably impacted by decreased conversion costs of $19 million. The lower conversion costs were caused primarily by lower under-absorbed fixed overhead costs of $195 million due to higher production volume and savings from rationalization plans of $55 million, which were partially offset by incremental start-up costs for our new manufacturing facility in Pulandian, China of $40 million, inflationary cost increases and higher profit sharing costs in North American Tire of $55 million. CGS in 2011 included $4 million ($4 million after-tax or $0.01 per share) in charges related to tornado damage at our manufacturing facility in Fayetteville, North Carolina. CGS in 2011 also included charges for accelerated depreciation and asset write-offs of $50 million ($48 million after-tax or $0.18 per share), compared to $15 million in 2010 ($11 million after-tax or $0.05 per share). The increase in accelerated depreciation and asset write-offs in 2011 was due primarily to the closure of our manufacturing facility in Union City, Tennessee. CGS in 2010 also included gains from supplier settlements of $12 million ($8 million after-tax or $0.03 per share), expense due to a supplier disruption of $4 million ($4 million after-tax or $0.02 per share), a one-time importation cost adjustment of $3 million ($3 million after-tax or $0.01 per share), and the impact of a strike in South Africa of $3 million ($3 million after-tax or $0.01 per share). CGS was 82.7% of sales in 2011 compared to 82.1% in 2010.
Selling, Administrative and General Expense
Selling, administrative and general expense (“SAG”) was $2.8 billion in 2011, increasing $192 million, or 7.3%, compared to 2010. SAG increased due primarily to unfavorable foreign currency translation of $89 million, higher advertising and marketing expenses of $79 million, increased wages and benefits of $77 million, and increased warehousing costs of $13 million. Lower general and product liability expense of $52 million in North American Tire served to partially offset the increase. SAG benefited from savings from rationalization plans of $20 million. SAG in 2010 included an insurance recovery of $8 million ($8 million after-tax or $0.03 per share). SAG in 2011 was 12.4% of sales, compared to 14.0% in 2010.
Rationalizations
To maintain global competitiveness, we have implemented rationalization actions over the past several years to reduce excess and high-cost manufacturing capacity and to reduce selling, administrative and general expenses through associate headcount reductions. We recorded net rationalization charges of $103 million in 2011 ($95 million after-tax or $0.35 per share). Rationalization actions initiated in 2011 consisted of headcount reductions in EMEA and Asia Pacific Tire and actions in connection with the relocation of our manufacturing facility in Dalian, China to Pulandian, China.
We recorded net rationalization charges of $240 million in 2010 ($225 million after-tax or $0.93 per share). Rationalization actions initiated in 2010 consisted of the plan to close our manufacturing facility in Union City, Tennessee, the consolidation of several warehouses in North American Tire, an increase in costs related to the discontinuation of consumer tire production at one of our facilities in Amiens, France, and the closure of a manufacturing facility in Taiwan.
Upon completion of the 2011 plans, we estimate that annual operating costs will be reduced by approximately $15 million ($1 million CGS and $14 million SAG). The savings realized in 2011 for the 2011 plans totaled $2 million ($1 million CGS and $1 million SAG). In addition, savings realized in 2011 for the 2010 plans totaled $19 million ($8 million CGS and $11 million SAG).
For further information, refer to the Note to the Consolidated Financial Statements No. 2, Costs Associated with Rationalization Programs.
Interest Expense
Interest expense was $330 million in 2011, increasing $14 million from $316 million in 2010. The increase relates primarily to higher average debt balances of $5,411 million in 2011 compared to $4,701 million in 2010, partially offset by a decrease in

29


average interest rates of 6.10% in 2011 compared to 6.72% in 2010.
Other Expense
Other Expense in 2011 was $73 million, improving $113 million from $186 million in 2010. Net foreign currency exchange losses in 2011 were $27 million compared to $159 million in 2010. The 2010 period included a first quarter foreign exchange loss of $110 million ($99 million after-tax or $0.41 per share) resulting from the January 8, 2010 devaluation of the Venezuelan bolivar fuerte against the U.S. dollar and a fourth quarter foreign exchange loss of $24 million ($20 million after-tax or $0.08 per share) in connection with the January 1, 2011 elimination of the two-tier exchange rate structure, which was announced by the Venezuelan government in December 2010. For further discussion on Venezuela, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Overview." Foreign currency exchange also reflected net gains and losses resulting from the effect of exchange rate changes on various foreign currency transactions worldwide.
Financing fees in 2011 of $89 million included $53 million ($53 million after-tax or $0.20 per share) related to the redemption of $350 million aggregate principal amount of our outstanding 10.5% senior notes due 2016, of which $37 million related to a cash premium paid on the redemption and $16 million related to the write-off of deferred financing fees and unamortized discount.
Net gains on asset sales were $16 million ($8 million after-tax or $0.03 per share) in 2011 compared to net gains on asset sales of $73 million ($48 million after-tax or $0.20 per share) in 2010. Net gains in 2011 related primarily to the sale of land in Malaysia and the sale of the farm tire business in Latin America. Net gains in 2010 related primarily to the sale of a closed manufacturing facility in Taiwan and land in Thailand and the recognition of a deferred gain from the sale of a warehouse in Guatemala in 2008.
The 2011 period also included charges of $13 million for an asbestos accrual adjustment related to prior periods and $9 million for the insurance deductible related to flood damage to our manufacturing facility in Thailand. Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Segment Information -- Asia Pacific Tire" for further information. The 2010 period also included a charge of $25 million ($18 million after-tax or $0.07 per share) related to a claim regarding the use of value-added tax credits in prior years.
For further information, refer to the Note to the Consolidated Financial Statements No. 3, Other Expense.
Income Taxes
Tax expense in 2011 was $201 million on income before income taxes of $618 million. For 2010, tax expense was $172 million on income before income taxes of $8 million primarily driven by a U.S. loss of $529 million with no tax benefit. For the year ending December 31, 2010, our income tax expense or benefit was allocated among operations and items charged or credited directly to shareholders’ equity. Pursuant to this allocation requirement, a $9 million ($9 million after-minority or $0.04 per share) non-cash tax benefit was allocated to the loss from our U.S. operations, with offsetting tax expense allocated to items, primarily attributable to employee benefits, charged directly to shareholders’ equity. Income tax expense in 2011 also included net tax benefits of $36 million ($42 million after-minority or $0.16 per share) primarily related to a $64 million benefit from the release of a valuation allowance on our Canadian operations and a $24 million charge related to the settlement of prior tax years and to increase tax reserves as a result of negative tax court rulings in a foreign jurisdiction. Income tax expense in 2010 included net tax benefits of $33 million related to a $16 million benefit for enacted tax law changes and $20 million of tax benefits related to the settlement of tax audits and the expiration of statutes of limitations in multiple tax jurisdictions.
The difference between our effective tax rate and the U.S. statutory rate was due primarily to our continuing to maintain a full valuation allowance against our net Federal and state deferred tax assets and the adjustments discussed above.
Our losses in various taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets. In certain foreign locations, it is reasonably possible that sufficient positive evidence required to release all, or a portion, of these valuation allowances within the next 12 months will exist, however, we do not expect these possible one-time tax benefits to have a significant impact on our financial position or results of operation.
For further information, refer to the Note to the Consolidated Financial Statements No. 6, Income Taxes.
Minority Shareholders’ Net Income
Minority shareholders’ net income was $74 million in 2011, compared to $52 million in 2010. The increase was due primarily to increased earnings in our joint venture in Europe.

30


2010 Compared to 2009
For the year ended December 31, 2010, Goodyear net loss was $216 million, or $0.89 per share, compared to $375 million, or $1.55 per share, in 2009.
Net Sales
Net sales in 2010 of $18.8 billion increased $2.5 billion, or 15.5%, compared to 2009 due primarily to increased tire volume of $1,044 million, primarily in North American Tire and EMEA, $867 million due to favorable changes in price and product mix, and increased sales in other tire-related businesses of $582 million, primarily in North American Tire’s third party sales of chemical products. Consumer and commercial net sales in 2010 were $10.3 billion and $3.5 billion, respectively. Consumer and commercial net sales in 2009 were $9.4 billion and $2.8 billion, respectively.
The following table presents our tire unit sales for the periods indicated:
 
Year Ended December 31,
(In millions of tires)
2010
 
2009
 
% Change
Replacement Units
 

 
 

 
 

North American Tire (U.S. and Canada)
50.8

 
50.0

 
1.4
%
International
82.2

 
78.0

 
5.3
%
Total
133.0

 
128.0

 
3.9
%
OE Units
 

 
 

 
 

North American Tire (U.S. and Canada)
15.9

 
12.7

 
25.4
%
International
31.9

 
26.3

 
21.3
%
Total
47.8

 
39.0

 
22.5
%
Goodyear worldwide tire units
180.8

 
167.0

 
8.2
%

The increase in worldwide tire unit sales of 13.8 million units, or 8.2%, compared to 2009, included an increase of 8.8 million OE units, or 22.5%, due primarily to increases in the consumer markets in North American Tire and EMEA due to improved economic conditions resulting in higher demand for new vehicles, and an increase of 5.0 million units, or 3.9%, in replacement units, primarily in EMEA. EMEA replacement volume increased 2.8 million units, or 5.2%, primarily in consumer, and Latin American Tire replacement volume increased 0.9 million units, or 6.7%, due to improved economic conditions in Europe and Latin America. Consumer and commercial units in 2010 were 164.4 million and 14.0 million, respectively. Consumer and commercial units in 2009 were 152.9 million and 12.2 million, respectively.
Cost of Goods Sold
CGS was $15.5 billion in 2010, increasing $1.8 billion, or 13.0%, compared to 2009. CGS in 2010 increased due primarily to higher tire volume of $850 million, mainly in North American Tire and EMEA, higher raw material costs of $549 million, higher costs in other tire-related businesses of $529 million, primarily in North American Tire’s cost of chemical products, and product mix-related manufacturing cost increases of $178 million. CGS was favorably impacted by decreased conversion costs of $295 million, due primarily to lower under-absorbed fixed overhead costs of $278 million due to higher production volume. CGS benefited from savings from rationalization plans of $91 million. CGS in 2010 included charges for accelerated depreciation and asset write-offs of $15 million ($11 million after-tax or $0.05 per share), compared to $43 million in 2009 ($38 million after-tax or $0.16 per share). CGS in 2010 also included gains from supplier settlements of $12 million ($8 million after-tax or $0.03 per share), expense due to a supplier disruption of $4 million ($4 million after-tax or $0.02 per share), a one-time importation cost adjustment of $3 million ($3 million after-tax or $0.01 per share), and the impact of a strike in South Africa of $3 million ($3 million after-tax or $0.01 per share). CGS was 82.1% of sales in 2010 compared to 83.9% in 2009.
Selling, Administrative and General Expense
SAG was $2.6 billion in 2010, increasing $226 million, or 9.4%, compared to 2009. SAG increased due primarily to increased wages and benefits of $103 million, including $63 million of incentive compensation, higher advertising expenses of $47 million, and increased warehousing costs of $17 million. SAG benefited from savings from rationalization plans of $18 million and an insurance recovery of $8 million ($8 million after-tax or $0.03 per share). SAG in 2010 was 14.0% of sales, compared to 14.7% in 2009.

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Rationalizations
We recorded net rationalization charges of $240 million in 2010 ($225 million after-tax or $0.93 per share). Rationalization actions in 2010 consisted of the plan to close our manufacturing facility in Union City, Tennessee, the consolidation of several warehouses in North American Tire, an increase in costs related to the discontinuation of consumer tire production at one of our facilities in Amiens, France, and the closure of a manufacturing facility in Taiwan.
We recorded net rationalization charges of $227 million in 2009 ($182 million after-tax or $0.75 per share). Rationalization actions in 2009 consisted of initiatives in North American Tire to reduce manufacturing headcount at several facilities, including Union City, Tennessee, Danville, Virginia and Topeka, Kansas, to respond to lower production demand. Additional salaried headcount reductions were initiated at our corporate offices in Akron, Ohio, in North American Tire and throughout EMEA. We also initiated the discontinuation of consumer tire production at one of our facilities in Amiens, France and manufacturing headcount reductions at each of our two facilities in Brazil.
For further information, refer to the Note to the Consolidated Financial Statements No. 2, Costs Associated with Rationalization Programs.
Interest Expense
Interest expense was $316 million in 2010, increasing $5 million compared to 2009. The increase relates primarily to higher average interest rates of 6.72% in 2010 compared to 5.65% in 2009 partially offset by lower average debt balances of $4,701 million in 2010 compared to $5,509 million in 2009.
Other Expense
Other Expense in 2010 was $186 million, increasing $146 million from $40 million in 2009. Net foreign currency exchange losses in 2010 were $159 million compared to $7 million in 2009. The 2010 period included a first quarter foreign exchange loss of $110 million ($99 million after-tax or $0.41 per share) resulting from the January 8, 2010 devaluation of the Venezuelan bolivar fuerte against the U.S. dollar and a fourth quarter foreign exchange loss of $24 million ($20 million after-tax or $0.08 per share) in connection with the January 1, 2011 elimination of the two-tier exchange rate structure, which was announced by the Venezuelan government in December 2010. Foreign currency exchange also reflected net gains and losses resulting from the effect of exchange rate changes on various foreign currency transactions worldwide.
Financing fees in 2010 of $95 million included $56 million ($56 million after-tax or $0.23 per share) related to the redemption of $973 million of long term debt, of which $50 million were cash premiums paid on the redemption and $6 million were financing fees which were written off. Also included in financing fees were costs related to a debt exchange offer of $5 million ($5 million after-tax or $0.02 per share).
Net gains on asset sales were $73 million ($48 million after-tax or $0.20 per share) in 2010 compared to net losses on asset sales of $30 million ($30 million after-tax or $0.13 per share) in 2009. Net gains in 2010 related primarily to the sale of a closed manufacturing facility in Taiwan and land in Thailand and the recognition of a deferred gain from the sale of a warehouse in Guatemala in 2008. Net losses in 2009 were due primarily to the sale of certain of our properties in Akron, Ohio that comprise our current headquarters in connection with the development of a new headquarters in Akron, Ohio.
The 2010 period also included a charge of $25 million ($18 million after-tax or $0.07 per share) related to a claim regarding the use of value-added tax credits in prior years.
For further information, refer to the Note to the Consolidated Financial Statements No. 3, Other Expense.
Income Taxes
Tax expense in 2010 was $172 million on income before income taxes of $8 million primarily driven by a U.S. loss of $529 million with no tax benefit. For 2009, tax expense was $7 million on a loss before income taxes of $357 million. For the years ending December 31, 2010 and 2009, our income tax expense or benefit was allocated among operations and items charged or credited directly to shareholders’ equity. Pursuant to this allocation requirement, a $9 million ($9 million after-minority or $0.04 per share) and $100 million ($100 million after-minority or $0.42 per share), respectively, non-cash tax benefit has been allocated to the loss from our U.S. operations, with offsetting tax expense allocated to items, primarily attributable to employee benefits, charged directly to shareholders’ equity. Income tax expense in 2010 also included net tax benefits of $33 million ($31 million after-minority or $0.13 per share) primarily related to a $16 million benefit on enacted tax law changes and $20 million of tax benefits related to the settlement of tax audits and the expiration of statutes of limitations in multiple tax jurisdictions. Income tax expense in 2009 also included net tax benefits of $42 million ($42 million after-minority or $0.18 per share) primarily related to a $29 million benefit resulting from the release of a valuation allowance on our Australian operations and a $19 million benefit resulting from the settlement of our 1997 through 2003 Competent Authority claim between the United States and Canada.

32


The difference between our effective tax rate and the U.S. statutory rate was due primarily to our continuing to maintain a full valuation allowance against our net Federal and state deferred tax assets and the adjustments discussed above.
For further information, refer to the Note to the Consolidated Financial Statements No. 6, Income Taxes.

Minority Shareholders’ Net Income
Minority shareholders’ net income was $52 million in 2010, compared to $11 million in 2009. The increase was due primarily to increased earnings in our joint venture in Europe.

RESULTS OF OPERATIONS — SEGMENT INFORMATION
Segment information reflects our strategic business units (“SBUs”), which are organized to meet customer requirements and global competition and are segmented on a regional basis.
Results of operations are measured based on net sales to unaffiliated customers and segment operating income. Each segment exports tires to other segments. The financial results of each segment exclude sales of tires exported to other segments, but include operating income derived from such transactions. Segment operating income is computed as follows: Net Sales less CGS (excluding asset write-off and accelerated depreciation charges) and SAG (including certain allocated corporate administrative expenses). Segment operating income also includes certain royalties and equity in earnings of most affiliates. Segment operating income does not include net rationalization charges (credits), asset sales and certain other items.
Total segment operating income was $1,368 million in 2011, $917 million in 2010 and $372 million in 2009. Total segment operating margin (segment operating income divided by segment sales) in 2011 was 6.0%, compared to 4.9% in 2010 and 2.3% in 2009.
Management believes that total segment operating income is useful because it represents the aggregate value of income created by our SBUs and excludes items not directly related to the SBUs for performance evaluation purposes. Total segment operating income is the sum of the individual SBUs’ segment operating income. Refer to the Note to the Consolidated Financial Statements No. 8, Business Segments, for further information and for a reconciliation of total segment operating income to Income (Loss) before Income Taxes.
North American Tire

 
Year Ended December 31,
(In millions)
2011
 
2010
 
2009
Tire Units
66.0
 
66.7
 
62.7
Net Sales
$9,859
 
$8,205
 
$6,977
Operating Income (Loss)
276
 
18
 
(305)
Operating Margin
2.8%
 
0.2%
 
(4.4)%

2011 Compared to 2010
North American Tire unit sales in 2011 decreased 0.7 million units, or 0.9%, from the 2010 period. The decrease was primarily related to a decrease in replacement volume of 0.8 million units, or 1.6%, primarily in our consumer business reflecting lower industry demand. OE volume remained relatively flat with increases in our commercial business offsetting decreases in our consumer business.
Net sales in 2011 were $9,859 million, increasing $1,654 million, or 20.2%, compared to $8,205 million in 2010 due primarily to improved price and product mix of $1,000 million, increased sales in other tire-related businesses of $677 million primarily related to an increase in the price and volume of third party sales of chemical products, and favorable foreign currency translation of $28 million. Lower sales volume of $54 million partially offset these improvements.
Operating income in 2011 was $276 million, improving $258 million from $18 million in 2010. Price and product mix improved $883 million, which more than offset raw material cost increases of $706 million. Operating income also benefited from decreased SAG expenses of $53 million, increased operating income in our other tire-related businesses of $30 million driven by increased profits for our aviation products and in our retail tire businesses, and favorable foreign currency translation of $12 million. Conversion costs, which were flat compared to the prior year, benefited from lower under-absorbed fixed overhead costs of approximately $96 million due to higher production volume and decreased pension expense of $35 million. These benefits were offset by higher profit sharing costs of $55 million, increased workers compensation of $15 million, and inflation. Lower

33


volume of $5 million served to partially offset the improvement in operating income. The decrease in SAG expense was driven by lower general and product liability expenses of $52 million. Conversion costs and SAG expenses included savings from rationalization plans of $16 million and $11 million, respectively.
Operating income in 2011 excluded net rationalization charges of $72 million and charges for accelerated depreciation and asset write-offs of $43 million, primarily related to the closure of our Union City, Tennessee manufacturing facility, and net losses on asset sales of $2 million. Operating income in 2010 excluded net rationalization charges of $184 million and charges for accelerated depreciation and asset write-offs of $2 million, primarily related to the closure of our Union City, Tennessee manufacturing facility, and net gains on asset sales of $2 million.
2010 Compared to 2009
North American Tire unit sales in 2010 increased 4.0 million units, or 6.3%, from the 2009 period. The increase was primarily related to an increase in OE volume of 3.2 million units, or 25.4%, primarily in our consumer business, due to increased vehicle production. Replacement volume increased 0.8 million units, or 1.4%, due primarily to improved industry volumes driven by economic growth.
Net sales in 2010 increased $1,228 million, or 17.6%, compared to 2009 due primarily to increased sales in other tire-related businesses of $610 million, primarily related to an increase in the price and volume of third party sales of chemical products. Higher tire volume of $304 million, improved price and product mix of $269 million and favorable foreign currency translation of $39 million also contributed to the growth in net sales.
Operating income in 2010 was $18 million, improving $323 million from a loss of $305 million in 2009. Price and product mix improved $260 million, which more than offset raw material cost increases of $177 million. Operating income also benefited from lower conversion costs of $171 million, increased operating income in our other tire-related business of $47 million, primarily related to sales of chemical products, higher tire volume of $26 million and lower transportation costs of $20 million. The decrease in conversion costs was primarily driven by lower under-absorbed fixed overhead costs of $119 million due to higher production volume and savings from rationalization plans of $55 million. Lower employee benefit costs and productivity improvements were offset by inflation and higher profit sharing costs. SAG expense increased $15 million driven by increased advertising costs of $15 million and higher general and product liability expenses of $14 million partially offset by savings from rationalization plans of $8 million and lower bad debt expense of $6 million.
Operating income in 2010 excluded net rationalization charges of $184 million primarily related to the closure of our Union City, Tennessee manufacturing facility, net gains on asset sales of $2 million and charges for accelerated depreciation of $2 million. Operating loss in 2009 excluded net rationalization charges of $112 million, charges for accelerated depreciation and asset write-offs of $16 million, and net gains on asset sales of $4 million.
Europe, Middle East and Africa Tire

 
Year Ended December 31,
(In millions)
2011
 
2010
 
2009
Tire Units
74.3
 
72.0
 
66.0
Net Sales
$8,040
 
$6,407
 
$5,801
Operating Income
627
 
319
 
166
Operating Margin
7.8%
 
5.0%
 
2.9%

2011 Compared to 2010
Europe, Middle East and Africa Tire unit sales in 2011 increased 2.3 million units, or 3.2%, to 74.3 million units. Replacement volume increased 1.2 million units, or 2.2%, primarily in the consumer business, due to improved economic conditions during the first nine months of the year and strong winter tire sales. OE volume increased 1.1 million units, or 6.7%, driven by increased demand in both our consumer and commercial businesses due to increased vehicle production.
Net sales in 2011 were $8,040 million, increasing $1,633 million, or 25.5%, compared to $6,407 million in 2010, due primarily to improved price and product mix of $1,031 million and higher volume of $170 million. These increases were accompanied by favorable foreign currency translation of $342 million and higher sales by other tire-related businesses of $90 million, primarily in our retail and retread businesses.
Operating income in 2011 was $627 million, increasing $308 million, or 96.6%, compared to $319 million in 2010, due primarily to improved price and product mix of $930 million which offset higher raw material costs of $651 million, lower

34


conversion costs of $79 million, increased volume of $34 million and favorable foreign currency translation of $24 million. Conversion costs decreased due primarily to lower under-absorbed fixed overhead costs of $89 million due to higher production volume partially offset by increases in wages and general inflation. Operating income was unfavorably affected by higher SAG expenses of $91 million. SAG expenses increased primarily due to increased advertising and marketing expenses of $66 million, higher wages and benefits of $25 million and increased warehousing costs of $13 million. Conversion costs and SAG expenses included savings from rationalization plans of $17 million and $5 million, respectively.
Operating income in 2011 excluded net rationalization charges of $15 million and net gains on asset sales of $1 million. Operating income in 2010 excluded net rationalization charges of $41 million, net gains on asset sales of $6 million and charges for accelerated depreciation and asset write-offs of $1 million.
EMEA’s results are highly dependent upon Germany, which accounted for approximately 37% and 35% of EMEA’s net sales in 2011 and 2010, respectively. Accordingly, results of operations in Germany will have a significant impact on EMEA’s future performance.
In addition, the sale of the European farm tire business to Titan Tire Corporation was subject to the exercise of a put option by us following completion of a social plan related to the previously announced discontinuation of consumer tire production at one of our facilities in Amiens, France and required consultation with various works councils. The put option expired on November 30, 2011. Titan is no longer obligated to purchase our European farm tire business, and we do not have an anticipated time frame in which we expect to complete that sale.
2010 Compared to 2009
Europe, Middle East and Africa Tire unit sales in 2010 increased 6.0 million units, or 9.0%, from the 2009 period. OE volume increased 3.2 million units, or 24.4%, primarily in our consumer business, due to increased vehicle production. Replacement volume increased 2.8 million units, or 5.2%, primarily in the consumer business, due to improved economic conditions and a strong winter season.
Net sales in 2010 increased $606 million, or 10.4%, compared to 2009, due primarily to higher volume of $454 million and improved price and product mix of $356 million. These increases were partially offset by unfavorable foreign currency translation of $193 million.
Operating income in 2010 increased $153 million, or 92.2%, compared to 2009, due primarily to lower conversion costs of $174 million and increased volume of $118 million. Conversion costs decreased due primarily to lower under-absorbed fixed overhead costs of $108 million due to higher production volume. Operating income was unfavorably affected by higher raw material costs of $182 million, which were partially offset by improved price and product mix of $131 million, higher SAG expenses of $73 million, and unfavorable foreign currency translation of $17 million. SAG expenses increased due to higher wages and benefits of $35 million and increased advertising expenses of $26 million. Conversion costs and SAG expenses included savings from rationalization plans of $12 million and $7 million, respectively.
Operating income in 2010 excluded net rationalization charges of $41 million, net gains on asset sales of $6 million and charges for accelerated depreciation and asset write-offs of $1 million. Operating income in 2009 excluded net rationalization charges of $82 million and net gains on asset sales of $1 million.
Latin American Tire

 
Year Ended December 31,
(In millions)
2011
 
2010
 
2009
Tire Units
19.8
 
20.7
 
19.1
Net Sales
$2,472
 
$2,158
 
$1,814
Operating Income
231
 
330
 
301
Operating Margin
9.3%
 
15.3%
 
16.6%

2011 Compared to 2010
Latin American Tire unit sales in 2011 decreased 0.9 million units, or 4.8%, from the 2010 period. Replacement tire volume decreased 0.9 million units, or 7.0%, primarily in the lower end of the consumer tire market due to competition from increased imports of tires from Asia, while OE tire volume was flat.
Net sales in 2011 were $2,472 million, increasing $314 million, or 14.6%, from $2,158 million in 2010. Net sales increased due primarily to improved price and product mix of $296 million, increased sales by other tire-related businesses of $99 million

35


and favorable foreign currency translation of $82 million, mainly in Brazil. These increases were partially offset by lower volume of $97 million and the divestiture of the farm tire business, which reduced sales by $67 million.
Operating income in 2011 was $231 million, decreasing $99 million, or 30.0%, from $330 million in 2010. Operating income decreased due primarily to higher conversion costs of $61 million, lower tire volume of $30 million, the impact of the April 1, 2011 farm tire business divestiture of $25 million, and higher SAG expenses of $19 million, primarily driven by increased wages and benefits of $12 million and equity-based taxes of $5 million. These decreases were partially offset by improved price and product mix of $266 million, which more than offset increased raw material costs of $249 million, favorable foreign currency translation of $4 million, higher operating income from other tire-related businesses of $3 million and higher operating income from intersegment sales. The higher conversion costs were primarily driven by wage inflation, a depreciation adjustment related to prior periods of $8 million, an increase of $5 million driven by a first quarter 2010 adjustment of a legal claim reserve for payroll taxes, and ramp-up costs related to the expansion of our manufacturing facility in Chile. Conversion costs included lower under-absorbed fixed overhead costs of approximately $16 million. Conversion costs and SAG expenses included savings from rationalization plans of $22 million and $4 million, respectively.
Operating income in 2011 excluded net gains on asset sales of $4 million. Operating income in 2010 excluded a charge of $25 million related to a claim regarding the use of value-added tax credits in prior periods, net gains on asset sales of $7 million, and net rationalization charges of $5 million. In addition, a $134 million foreign currency exchange loss in Venezuela was also excluded from operating income in 2010.
Latin American Tire’s results are highly dependent upon Brazil, which accounted for 58% and 61% of Latin American Tire’s net sales in 2011 and 2010, respectively. Lower operating income in Brazil in 2011, primarily due to competition from increased imports of tires from Asia, increased raw material costs and inflationary cost increases, drove the year over year decline in segment operating income in 2011.
Goodyear Venezuela also contributed a significant portion of Latin American Tire’s sales and operating income in 2011 and 2010. For further information see “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Overview” in this Form 10-K.

2010 Compared to 2009
Latin American Tire unit sales in 2010 increased 1.6 million units, or 8.5%, from the 2009 period. Replacement tire volume increased 0.9 million units, or 6.7%, reflecting increased volume in both consumer and commercial businesses. OE volume increased 0.7 million units, or 12.3%, due primarily to an increase in our consumer business.
Net sales in 2010 increased $344 million, or 19.0%, from the 2009 period, due primarily to improved price and product mix of $219 million and increased volume of $128 million. These increases were partially offset by unfavorable foreign currency translation of $30 million which included $192 million related to the devaluation of the Venezuelan bolivar fuerte.
Operating income in 2010 increased $29 million, or 9.6%, from the same period in 2009, due primarily to improved price and product mix of $188 million, which more than offset higher raw material costs of $84 million, and lower conversion costs of $24 million. These increases were partially offset by unfavorable foreign currency translation of $49 million, higher SAG costs of $26 million, and lower profitability on intersegment transfers of $24 million. Higher SAG expenses included higher wages and benefits of $13 million and higher warehousing expenses of $11 million. Conversion costs included lower under-absorbed fixed overhead costs of $41 million and savings from rationalization plans of $8 million. The devaluation of the Venezuelan bolivar fuerte against the U.S. dollar in January 2010 and weak economic conditions adversely impacted Latin American Tire’s operating income by approximately $85 million as compared to 2009.
Operating income in 2010 excluded a charge of $25 million related to a claim regarding the use of value-added tax credits in prior periods, net gains on asset sales of $7 million, and net rationalization charges of $5 million. In addition, a $134 million foreign currency exchange loss in Venezuela also is excluded from operating income in 2010. Operating income in 2009 excluded net rationalization charges of $20 million and net gains on asset sales of $2 million. In addition, operating income excluded charges of $18 million in 2009 resulting from the recognition of accumulated foreign currency translation losses in connection with the liquidation of our subsidiary in Guatemala.
 

36


Asia Pacific Tire

 
Year Ended December 31,
(In millions)
2011
 
2010
 
2009
Tire Units
20.5
 
21.4
 
19.2
Net Sales
$2,396
 
$2,062
 
$1,709
Operating Income
234
 
250
 
210
Operating Margin
9.8%
 
12.1%
 
12.3%

2011 Compared to 2010
Asia Pacific Tire unit sales in 2011 decreased 0.9 million units, or 4.2%, from the 2010 period. OE volume decreased by 0.6 million units, or 6.5%, primarily in the consumer business and replacement volume decreased by 0.3 million units, or 2.6%. Decreases in OE unit sales were primarily caused by supply disruptions at OE manufacturers as a result of the natural disaster in Japan as well as flooding in Thailand. Declines in replacement unit sales in Australia and New Zealand, which were affected by a continued weak retail environment, and in Thailand, which was impacted by flooding, more than offset increased replacement unit sales in China and India.
Net sales in 2011 were $2,396 million, increasing $334 million, or 16.2%, from $2,062 million in the 2010 period, due primarily to improved price and product mix of $258 million and foreign currency translation of $147 million, primarily in Australia and China, which more than offset the impact of lower volume of $64 million.
Operating income in 2011 was $234 million, decreasing $16 million, or 6.4%, from $250 million in 2010, due primarily to an increase in start-up expenses for our new manufacturing facility in Pulandian, China of approximately $40 million, higher conversion costs of $13 million, lower volume of $12 million, higher SAG costs of $15 million and higher transportation costs of $6 million. These impacts were partially offset by improved price and product mix of $277 million, which more than offset higher raw material costs of $216 million, and favorable foreign currency translation of $17 million. The flooding of our factory in Thailand in the fourth quarter of 2011 reduced volume and increased conversion costs, which negatively impacted operating income by approximately $12 million.
Operating income in 2011 and 2010 excluded net rationalization charges of $16 million and $11 million, respectively, and charges for accelerated depreciation and asset write-offs of $7 million and $12 million, respectively. In addition, operating income excluded net gains on asset sales of $9 million in 2011, due primarily to the sale of land in Malaysia, and $58 million in 2010, due primarily to the sale of a closed manufacturing facility in Taiwan and land in Thailand.
Asia Pacific Tire’s results are highly dependent upon Australia, which accounted for approximately 44% and 43% of Asia Pacific Tire’s net sales in 2011 and 2010, respectively. Accordingly, results of operations in Australia will have a significant impact on Asia Pacific Tire's future performance. In 2012, start-up expenses at our new manufacturing facility in Pulandian, China and under-absorbed overhead costs at our Dalian, China manufacturing facility that is expected to be closed in the second half of 2012 are anticipated to adversely impact Asia Pacific Tire's operating income by $40 million to $60 million compared to 2011.
Following severe flooding in Thailand, we closed our consumer and aviation tire manufacturing facility in Bangkok in October 2011. The floodwaters that idled the plant receded in late November 2011, allowing us to make an assessment of the damage. In addition to the approximate $12 million impact on segment operating income, we recorded charges of $9 million during the fourth quarter of 2011 in Other Expense, representing our deductible under an insurance policy. In the aggregate, our fourth quarter results of operations were negatively affected by approximately $21 million ($16 million after-tax, or $0.07 per share). Restoration of our facility has commenced and we expect to resume production of aviation and consumer tires during the first quarter, ramping up to full production during the second quarter. As a result, we expect our first half of 2012 production and sales to be adversely affected. Over time, we do not expect the impact on our results of operations to be material due to available insurance coverage; however, the timing of recognition of insurance recoveries may lag the recording of incurred losses.

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2010 Compared to 2009
Asia Pacific Tire unit sales in 2010 increased 2.2 million units, or 11.6%, from the 2009 period. OE volumes increased 1.6 million units, or 22.5%, primarily in the consumer business, and replacement unit sales increased 0.6 million units, or 5.2%. The increase in units was due to growth in vehicle production in China and India.
Net sales in 2010 increased $353 million, or 20.7%, compared to the 2009 period, due primarily to foreign currency translation of $172 million, increased volume of $158 million and improved price and product mix of $23 million.
Operating income in 2010 increased $40 million, or 19.0%, compared to the 2009 period, due primarily to improved price and product mix of $110 million, which offset higher raw material costs of $106 million, increased volume of $32 million, favorable foreign currency translation of $21 million and decreased conversion costs of $19 million. Conversion costs included savings from rationalization plans of $16 million and lower under-absorbed fixed overhead costs of $10 million. Operating income was adversely affected by start-up expenses for our new manufacturing facility in Pulandian, China of approximately $10 million and higher SAG costs of $22 million, including increased wages and benefits of $9 million. Operating income in 2009 included a gain of $7 million from insurance proceeds related to the settlement of a claim as a result of a fire at our manufacturing facility in Thailand in 2007.
Operating income in 2010 and 2009 excluded charges for accelerated depreciation and asset write-offs of $12 million and $26 million, respectively, and net rationalization charges of $11 million and $10 million, respectively. In addition, operating income excluded net gains on asset sales of $58 million and $5 million in 2010 and 2009, respectively, due primarily to the sale of a closed manufacturing facility in Taiwan and land in Thailand in 2010.


38


CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. On an ongoing basis, management reviews its estimates, based on currently available information. Changes in facts and circumstances may alter such estimates and affect our results of operations and financial position in future periods. Our critical accounting policies relate to:
general and product liability and other litigation,
workers’ compensation,
recoverability of goodwill,
deferred tax asset valuation allowances and uncertain income tax positions, and
pensions and other postretirement benefits.
General and Product Liability and Other Litigation.  General and product liability and other recorded litigation liabilities are recorded based on management’s assessment that a loss arising from these matters is probable. If the loss can be reasonably estimated, we record the amount of the estimated loss. If the loss is estimated within a range and no point within the range is more probable than another, we record the minimum amount in the range. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Loss ranges are based upon the specific facts of each claim or class of claims and are determined after review by counsel. Court rulings on our cases or similar cases may impact our assessment of the probability and our estimate of the loss, which may have an impact on our reported results of operations, financial position and liquidity. We record receivables for insurance recoveries related to our litigation claims when it is probable that we will receive reimbursement from the insurer. Specifically, we are a defendant in numerous lawsuits alleging various asbestos-related personal injuries purported to result from alleged exposure to asbestos in certain products manufactured by us or present in certain of our facilities. Typically, these lawsuits have been brought against multiple defendants in Federal and state courts.
A significant assumption in our estimated asbestos liability is the period over which the liability can be reasonably estimated. Due to the difficulties in making these estimates, analysis based on new data and/or changed circumstances arising in the future may result in an increase in the recorded obligation in an amount that cannot be reasonably estimated, and that increase may be significant. We had recorded gross liabilities for both asserted and unasserted asbestos claims, inclusive of defense costs, totaling $138 million at December 31, 2011. The portion of the liability associated with unasserted asbestos claims and related defense costs was $64 million. At December 31, 2011, we estimate that it is reasonably possible that our gross liabilities, net of our estimate for probable insurance recoveries, could exceed our recorded amounts by approximately $10 million.
We maintain primary insurance coverage under coverage-in-place agreements, and also have excess liability insurance with respect to asbestos liabilities. We record a receivable with respect to such policies when we determine that recovery is probable and we can reasonably estimate the amount of a particular recovery. This determination is based on consultation with our outside legal counsel and taking into consideration agreements with certain of our insurance carriers, the financial viability and legal obligations of our insurance carriers and other relevant factors.
As of December 31, 2011, we recorded a receivable related to asbestos claims of $67 million, and we expect that approximately 50% of asbestos claim related losses would be recoverable through insurance through the period covered by the estimated liability. Of this amount, $8 million was included in Current Assets as part of Accounts receivable at December 31, 2011. The recorded receivable consists of an amount we expect to collect under coverage-in-place agreements with certain primary carriers as well as an amount we believe is probable of recovery from certain of our excess coverage insurance carriers.
Workers’ Compensation.  We had recorded liabilities, on a discounted basis, of $302 million for anticipated costs related to U.S. workers’ compensation claims at December 31, 2011. The costs include an estimate of expected settlements on pending claims, defense costs and a provision for claims incurred but not reported. These estimates are based on our assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and current cost trends. The amount of our ultimate liability in respect of these matters may differ from these estimates. We periodically, and at least annually, update our loss development factors based on actuarial analyses. The liability is discounted using the risk-free rate of return.
For further information on general and product liability and other litigation, and workers’ compensation, refer to the Note to the Consolidated Financial Statements No. 19, Commitments and Contingent Liabilities.

39


Recoverability of Goodwill.  Goodwill is tested for impairment annually or more frequently if an indicator of impairment is present. Goodwill totaled $654 million at December 31, 2011.
We have determined our reporting units to be consistent with our operating segments comprised of four strategic business units: North American Tire, Europe, Middle East and Africa Tire, Latin American Tire and Asia Pacific Tire. Goodwill is allocated to these reporting units based on the original purchase price allocation for acquisitions within the various reporting units. There have been no changes to our reporting units or in the manner in which goodwill was allocated in 2011.
FASB Accounting Standard Update No. 2011-08 Intangibles - Goodwill and Other Topics was issued in September 2011 and allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and if a quantitative assessment should be performed. We adopted this standard update in the third quarter in connection with our July 31, 2011 annual impairment assessment and performed a qualitative analysis. After considering changes to assumptions used in the prior year test, including the capital markets environment, global economic conditions, tire industry competition and trends, and improvements in our results of operations, as well as the excess of fair value over the carrying amount of each reporting unit as determined in our 2010 annual testing of 40% for North American Tire, over 45% for EMEA and over 20% for Asia Pacific Tire, and other factors, we concluded it was more likely than not that the fair value of each reporting unit was not less than its carrying value and, therefore, did not perform a quantitative analysis. Accordingly, the annual impairment test at July 31, 2011 indicated there was no impairment of goodwill.
Deferred Tax Asset Valuation Allowances and Uncertain Income Tax Positions.  At December 31, 2011, we had valuation allowances aggregating $3.1 billion against all of our net Federal and state and certain of our foreign net deferred tax assets.
We assess both negative and positive evidence when measuring the need for a valuation allowance. Evidence, such as operating results during the most recent three-year period, is given more weight than our expectations of future profitability, which are inherently uncertain. Our losses in the U.S. and certain foreign locations in recent periods represented sufficient negative evidence to require a full valuation allowance against our net Federal, state and certain of our foreign deferred tax assets. We intend to maintain valuation allowances against our net deferred tax assets until sufficient positive evidence exists to support the realization of such assets.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained when challenged by the taxing authorities. We derecognize tax benefits when based on new information we determine that it is no longer more likely than not that our position will be sustained. To the extent we prevail in matters for which liabilities have been established, or determine we need to derecognize tax benefits recorded in prior periods, or that we are required to pay amounts in excess of our liabilities, our effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash and result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the period of resolution. We report interest and penalties related to uncertain income tax positions as income taxes. For additional information regarding uncertain income tax positions, refer to the Note to the Consolidated Financial Statements No. 6, Income Taxes.
Pensions and Other Postretirement Benefits.  Our recorded liabilities for pensions and other postretirement benefits are based on a number of assumptions, including:
life expectancies,
retirement rates,
discount rates,
long term rates of return on plan assets,
inflation rates,
future compensation levels,
future health care costs, and
maximum company-covered benefit costs.
Certain of these assumptions are determined with the assistance of independent actuaries. Assumptions about life expectancies, retirement rates, future compensation levels and future health care costs are based on past experience and anticipated future trends. The discount rate for our U.S. plans is based on a yield curve derived from a portfolio of corporate bonds from issuers rated Aa

40


or higher as of December 31 and is reviewed annually. Our expected benefit payment cash flows are discounted based on spot rates developed from the yield curve. The long term rate of return on plan assets is based on the compound annualized return of our U.S. pension fund over a period of 15 years or more, estimates of future long term rates of return on assets similar to the target allocation of our pension fund and long term inflation. Actual U.S. pension fund asset allocations are reviewed on a monthly basis and the pension fund is rebalanced to target ranges on an as-needed basis. These assumptions are reviewed regularly and revised when appropriate. Changes in one or more of them may affect the amount of our recorded liabilities and net periodic costs for these benefits. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience and expectations for the future. If the actual experience differs from expectations, our financial position, results of operations and liquidity in future periods may be affected.
The weighted average discount rate used in estimating the total liability for our U.S. pension and other postretirement benefit plans was 4.52% and 4.12%, respectively, at December 31, 2011, compared to 5.20% and 4.62% for our U.S. pension and other postretirement benefit plans, respectively, at December 31, 2010. The decrease in the discount rate at December 31, 2011 was due primarily to lower interest rate yields on highly rated corporate bonds. Interest cost included in our U.S. net periodic pension cost was $283 million in 2011, compared to $296 million in 2010 and $314 million in 2009. Interest cost included in our worldwide net periodic other postretirement benefits cost was $30 million in 2011, compared to $33 million in 2010 and $32 million in 2009.
The following table presents the sensitivity of our U.S. projected pension benefit obligation, accumulated other postretirement benefits obligation, shareholders’ equity, and 2012 expense to the indicated increase/decrease in key assumptions:

 
 
 
+ / − Change at December 31, 2011
(Dollars in millions)
Change
 
PBO/ABO
 
Equity
 
2012 Expense
Pensions:
 
 
 
 
 
 
 
Assumption:
 
 
 
 
 
 
 
Discount rate
+/- 0.5%
 
$337
 
$337
 
$12
Actual 2011 return on assets
+/- 1.0%
 
N/A
 
36
 
6
Expected return on assets
+/- 1.0%
 
N/A
 
N/A
 
35
Other Postretirement Benefits:
 
 
 
 
 
 
 
Assumption:
 
 
 
 
 
 
 
Discount rate
+/- 0.5%
 
$11
 
$11
 
$—
Health care cost trends — total cost
+/- 1.0%
 
3
 
3
 

A significant portion of the net actuarial loss included in AOCL of $2,900 million in our U.S. pension plans as of December 31, 2011 is a result of plan asset losses and the overall decline in U.S. discount rates over time. For purposes of determining our 2011 U.S. net periodic pension expense, our funded status was such that we recognized $134 million of the net actuarial loss in 2011. We will recognize approximately $183 million of net actuarial losses in 2012. If our future experience is consistent with our assumptions as of December 31, 2011, actuarial loss recognition over the next few years will remain at an amount near that to be recognized in 2012 before it begins to gradually decline.
The actual rate of return on our U.S. pension fund was 0.7%, 14.4% and 25.6% in 2011, 2010 and 2009, respectively, as compared to the expected rate of 8.50% for all three years. We use the fair value of our pension assets in the calculation of pension expense for all of our U.S. pension plans.
We experienced a decrease in our U.S. discount rate at the end of 2011 and a large portion of the net actuarial loss included in AOCL of $185 million in our worldwide other postretirement benefit plans as of December 31, 2011 is a result of the overall decline in U.S. discount rates over time. The net actuarial loss increased from 2010 due to the decrease in the discount rate at December 31, 2011. For purposes of determining 2011 worldwide net periodic other postretirement benefits cost, we recognized $10 million of the net actuarial losses in 2011. We will recognize approximately $12 million of net actuarial losses in 2012. If our future experience is consistent with our assumptions as of December 31, 2011, actuarial loss recognition over the next few years will remain at an amount near that to be recognized in 2012 before it begins to gradually decline.
The weighted average amortization period for our U.S. plans is approximately 14 years.
For further information on pensions and other postretirement benefits, refer to the Note to the Consolidated Financial Statements No. 17, Pension, Other Postretirement Benefits and Savings Plans.

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LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our primary sources of liquidity are cash generated from our operating and financing activities. Our cash flows from operating activities are driven primarily by our operating results and changes in our working capital requirements and our cash flows from financing activities are dependent upon our ability to access credit or other capital.

We experienced uneven industry conditions in 2011 as the economic recovery in developed markets was impacted by uncertainty surrounding debt issues in Europe and the United States and continued high levels of unemployment, which had a negative impact on overall economic conditions. In emerging markets, high inflation and interest rates also contributed to uneven industry conditions. In 2011, we took several actions to strengthen our balance sheet and improve our liquidity, including the issuance of our mandatory convertible preferred stock, the redemption of a portion of our 10.5% senior notes due 2016 with the proceeds of that equity offering, the refinancing of our European revolving credit facility and the issuance of euro-denominated notes by GDTE. At December 31, 2011, we had solid liquidity, with approximately $5.3 billion of cash and cash equivalents and unused availability under our credit facilities.
For further information on the other strategic initiatives we pursued in 2011, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview.”
At December 31, 2011, we had $2,772 million in Cash and cash equivalents, compared to $2,005 million at December 31, 2010. For the year ended December 31, 2011, net cash provided by operating activities was $773 million. Net income of $417 million and non-cash depreciation and amortization of $715 million were partially offset by working capital expenditures of $650 million. Higher raw material costs and increased selling prices drove the increase in working capital, while higher inventory units to support customer service levels and weaker industry sales in the fourth quarter, primarily in EMEA, also contributed. For the year ended December 31, 2011, net cash used by investing activities was $902 million and net cash provided by financing activities was $994 million. Cash and cash equivalents were favorably affected by the net proceeds from the issuance of our mandatory convertible preferred stock of $484 million and the issuance of €250 million aggregate principal amount of 6.75% senior notes due 2019. Partially offsetting these increases in Cash and cash equivalents were capital expenditures of $1,043 million and the redemption of $350 million of our 10.5% senior notes due 2016.
At December 31, 2011 and 2010, we had $2,544 million and $2,475 million, respectively, of unused availability under our various credit agreements. The table below provides unused availability by our significant credit facilities as of December 31:

(In millions)
2011
 
2010
First lien revolving credit facility
$
1,093

 
$
1,001

European revolving credit facility
511

 
664

Chinese credit facilities
188

 
394

Other domestic and international debt
410

 
158

Notes payable and overdrafts
342

 
258

 
$
2,544

 
$
2,475


At December 31, 2011, our unused availability included $188 million that can only be used to finance the relocation and expansion of our manufacturing facility in China. These credit facilities, along with government grants, should provide funding for most of the cost related to the relocation and expansion of our manufacturing facility. There were $389 million of borrowings outstanding under these credit facilities at December 31, 2011.
We have deposited our cash and cash equivalents and entered into various credit agreements and derivative contracts with financial institutions that we considered to be substantial and creditworthy at the time of such transactions. We seek to control our exposure to these financial institutions by diversifying our deposits, credit agreements and derivative contracts across multiple financial institutions, by setting deposit and counterparty credit limits based on long term credit ratings and other indicators of credit risk such as credit default swap spreads, and by monitoring the financial strength of these financial institutions on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to financial institutions in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a financial institution. However, we cannot provide assurance that we will not experience losses or delays in accessing our deposits or lines of credit due to the nonperformance of a financial institution. Our inability to access our cash deposits or make draws on our lines of credit, or 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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In 2012, we expect our operating needs to include global contributions to our funded pension plans of approximately $550 million to $600 million and our investing needs to include capital expenditures of approximately $1.1 billion to $1.3 billion. We also expect interest expense to range between $360 million and $385 million and, when and if future dividends are declared, dividends on our mandatory convertible preferred stock to be $29 million. We intend to operate the business in a way that allows us to address these needs with our existing cash and available credit if they cannot be funded by cash generated from operations.
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (the “Pension Relief Act”) provides funding relief for defined benefit pension plan sponsors by deferring near-term contributions. As allowed by the Pension Relief Act, we elected funding relief for the 2009 and 2011 plan years. Funding relief delays certain funding requirements for the elected plan years to years after 2014 and is expected to reduce our total U.S. pension contributions in 2011 to 2014 by approximately $275 million to $325 million. Current low interest rates have increased our funding requirements, thereby offsetting much of the benefit provided by funding relief. We currently estimate that we will be required to make contributions to our funded U.S. pension plans of approximately $425 million to $450 million in 2012 and $425 million to $475 million in 2013. If the current low interest rate environment continues without funding stabilization legislation, we will experience additional increases in our funding obligations in 2014. For additional information, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Commitments and Contingent Liabilities.”
SRI has certain minority exit rights that, if triggered and exercised, could require us to make a substantial payment to acquire SRI’s interests in GDTE and GDTNA following the determination of the fair value of SRI’s interests. For further information regarding our global alliance with SRI, including the events that could trigger SRI’s exit rights, see “Item 1. Business. Description of Goodyear’s Business — Global Alliance.” As of the date of this filing, SRI has not provided us notice of any exit rights that have become exercisable.
Our ability to service debt and operational requirements is also dependent, in part, on the ability of our subsidiaries to make distributions of cash to various other entities in our consolidated group, whether in the form of dividends, loans or otherwise. In certain countries where we operate, such as China, Venezuela, and South Africa, transfers of funds into or out of such countries by way of dividends, loans, advances or payments to third-party or affiliated suppliers are generally or periodically subject to certain requirements, such as obtaining approval from the foreign government and/or currency exchange board before net assets can be transferred out of the country. In addition, certain of our credit agreements and other debt instruments limit the ability of foreign subsidiaries to make distributions of cash. Thus, we would have to repay and/or amend these credit agreements and other debt instruments in order to use this cash to service our consolidated debt. Because of the inherent uncertainty of satisfactorily meeting these requirements or limitations, we do not consider the net assets of our subsidiaries, including our Chinese, Venezuelan and South African subsidiaries, that are subject to such requirements or limitations to be integral to our liquidity or our ability to service our debt and operational requirements. At December 31, 2011, approximately $647 million of net assets, including $534 million of cash and cash equivalents, were subject to such requirements, including $291 million of cash in Venezuela. The requirements we must comply with to transfer funds out of China and South Africa have not adversely impacted our ability to make transfers out of those countries.
Effective January 1, 2010, Venezuela’s economy was considered to be highly inflationary under U.S. generally accepted accounting principles since it experienced a rate of general inflation in excess of 100% over the latest three year period, based upon the blended Consumer Price Index and National Consumer Price Index. Accordingly, the U.S. dollar was determined to be the functional currency of our Venezuelan subsidiary. All gains and losses resulting from the remeasurement of its financial statements since January 1, 2010 were determined using official exchange rates and are reported in Other Expense. Venezuela remained a highly inflationary economy for U.S. GAAP purposes during 2011.
On January 8, 2010, Venezuela established a two-tier exchange rate structure for essential and non-essential goods. For essential goods the official exchange rate was 2.6 bolivares fuertes to the U.S. dollar and for non-essential goods the official exchange rate was 4.3 bolivares fuertes to the U.S. dollar. On January 1, 2011, the two-tier exchange rate structure was eliminated. For our unsettled amounts at December 31, 2010 and going forward, the official exchange rate of 4.3 bolivares fuertes to the U.S. dollar is expected to be used for substantially all goods.

43


The $110 million foreign currency exchange loss in the first quarter of 2010 primarily consisted of a $157 million remeasurement loss on bolivar-denominated net monetary assets and liabilities, including deferred taxes, at the time of the January 2010 devaluation. The loss was primarily related to cash deposits in Venezuela that were remeasured at the official exchange rate of 4.3 bolivares fuertes applicable to non-essential goods, and was partially offset by a $47 million subsidy receivable related to U.S. dollar-denominated payables that were expected to be settled at the official subsidy exchange rate of 2.6 bolivares fuertes applicable to essential goods. Since we expected these payables to be settled at the subsidy essential goods rate, we established a subsidy receivable to reflect the expected benefit to be received in the form of the difference between the essential and non-essential goods exchange rates. Throughout 2010, we periodically assessed our ability to realize the benefit of the subsidy receivable, and a substantial portion of purchases by our Venezuelan subsidiary had qualified and settled at the official exchange rate for essential goods. As a result of the elimination of the official subsidy exchange rate for essential goods, we recorded a foreign exchange loss of $24 million in the fourth quarter of 2010 related to the reversal of the subsidy receivable at December 31, 2010.
If in the future we convert bolivares fuertes at a rate other than the official exchange rate or the official exchange rate is revised, we may realize additional losses that would be recorded in the Statement of Operations. At December 31, 2011, we had bolivar fuerte denominated monetary assets of $317 million, which consisted primarily of $291 million of cash, $18 million of deferred tax assets and $8 million of accounts receivable, and bolivar fuerte denominated monetary liabilities of $152 million which consisted primarily of $92 million of intercompany payables, including $59 million of dividends, $24 million of accounts payable — trade, $15 million of compensation and benefits and $14 million of income taxes payable. At December 31, 2010, we had bolivar fuerte denominated monetary assets of $210 million, which consisted primarily of $188 million of cash, $18 million of deferred tax assets and $4 million of accounts receivable, and bolivar fuerte denominated monetary liabilities of $75 million which consisted primarily of $48 million of intercompany payables, including $31 million of dividends, $12 million of accounts payable — trade and $7 million of compensation and benefits. All monetary assets and liabilities were remeasured at 4.3 bolivares fuertes to the U.S. dollar at December 31, 2011 and 2010.
Goodyear Venezuela’s sales were 1.5% and 1.2% of our net sales for the twelve months ended December 31, 2011 and 2010, respectively. Goodyear Venezuela’s cost of goods sold was 1.2% and 0.9% of our cost of goods sold for the twelve months ended December 31, 2011 and 2010, respectively. Goodyear Venezuela’s sales are bolivar fuerte denominated and cost of goods sold are approximately 55% bolivar fuerte denominated and approximately 45% U.S. dollar-denominated. A further 10% decrease in the bolivar fuerte against the U.S. dollar would decrease Goodyear Venezuela’s sales and increase cost of goods sold by approximately $39 million and approximately $26 million, respectively, on an annual basis.
During the twelve months ended December 31, 2011, Goodyear Venezuela settled $91 million and $12 million, respectively, of U.S. dollar-denominated intercompany payables and accounts payable — trade. For the twelve months ended December 31, 2011, 92% of those payables were settled at the official exchange rate of 4.3 bolivares fuertes to the U.S. dollar and 8% were settled at the essential goods rate of 2.6 bolivar fuertes to the U.S. dollar. At December 31, 2011, settlements of U.S. dollar-denominated liabilities pending before the currency exchange board were $159 million, all of which are expected to settle at the official exchange rate of 4.3 bolivares fuertes to the U.S. dollar. At December 31, 2011, $81 million of the requested settlements were pending up to 180 days, less than $1 million were pending from 180 to 360 days and $78 million were pending over one year. Amounts pending up to 180 days include imported tires and raw materials of $43 million and dividends payable of $28 million, and amounts pending over one year include dividends payable of $31 million, imported tires of $17 million and intercompany charges for royalties of $17 million. Currency exchange controls in Venezuela continue to limit our ability to remit funds from Venezuela.
Goodyear Venezuela contributed a significant portion of Latin American Tire’s sales and operating income in 2011 and 2010. The devaluation of the Venezuelan bolivar fuerte against the U.S. dollar in January 2010 and weak economic conditions and operational disruptions in Venezuela adversely impacted Latin American Tire’s operating income in 2010. We continue to face operational challenges in Venezuela, including inflationary cost pressures, high absenteeism, and difficulties importing raw materials and finished goods. In response to conditions in Venezuela, we continue to evaluate the need to adjust prices for our products while remaining competitive and have taken steps to address our operational challenges, including securing necessary approvals for import licenses and increasing the local production of certain tires. Our pricing policies take into account factors such as fluctuations in raw material and other production costs, market demand and adherence to government price controls. For a discussion of the risks related to our international operations, including Venezuela, see “Item 1A. Risk Factors.”
We believe that our liquidity position is adequate to fund our operating and investing needs and debt maturities in 2012 and to provide us with flexibility to respond to further changes in the business environment. If market opportunities exist, we may choose to undertake additional financing actions in order to further enhance our liquidity position, which could include obtaining new bank debt or capital markets transactions. However, the challenges we face may cause a material reduction in our liquidity as a result of an adverse change in our cash flow from operations or our access to credit or other capital. See “Item 1A. Risk Factors” for a more detailed discussion of these challenges.

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Cash Position
At December 31, 2011, significant concentrations of cash and cash equivalents held by our international subsidiaries included the following amounts:
$793 million or 29% in Europe, Middle East and Africa, primarily Luxembourg and South Africa ($415 million or 21% at December 31, 2010),
$430 million or 16% in Asia, primarily China, Australia and India ($393 million or 20% at December 31, 2010), and
$527 million or 19% in Latin America, primarily Venezuela and Brazil ($368 million or 18% at December 31, 2010).

Operating Activities
Net cash provided by operations was $773 million in 2011, compared to $924 million in 2010 and $1,297 million in 2009. Operating cash flows in 2011 were favorably impacted by the improvement in earnings compared to 2010. Net cash used by working capital was $650 million in 2011, compared to net cash provided of $52 million and $1,081 million in 2010 and 2009, respectively. The increase in cash used for working capital in 2011 was due primarily to higher raw material costs and increased selling prices, while higher inventory units to support customer service levels and weaker industry sales in the fourth quarter, primarily in EMEA, also contributed.
Investing Activities
Net cash used in investing activities was $902 million in 2011, compared to $859 million in 2010 and $663 million in 2009. Capital expenditures were $1,043 million in 2011, compared to $944 million in 2010 and $746 million in 2009. Capital expenditures in 2011 increased from 2010 due primarily to the expansion of manufacturing capacity in China and Chile. Capital expenditures in 2010 and 2009 primarily related to projects targeted at increasing our capacity for high value-added tires, which were scaled back in 2009 due to the recessionary economic conditions. Investing cash flows in 2011 included cash inflows of $95 million from government grants related to the relocation and expansion of our manufacturing facility in China. Investing cash flows also reflect cash provided from the disposition of assets each year as a result of the realignment of operations under rationalization programs and the divestiture of non-core assets.
Financing Activities
Net cash provided by financing activities was $994 million in 2011, compared to $179 million in 2010 and net cash used of $654 million in 2009. Financing activities in 2011 included $484 million of net proceeds from the issuance of our mandatory convertible preferred stock and net borrowings of $562 million to fund working capital needs and capital expenditures. Included in these net borrowings were the issuance by GDTE of €250 million aggregate principal amount of 6.75% senior notes due 2019 and the redemption of $350 million in aggregate principal amount of our outstanding 10.5% senior notes due 2016.
Credit Sources
In aggregate, we had total credit arrangements of $8,129 million available at December 31, 2011, of which $2,544 million were unused, compared to $7,689 million available at December 31, 2010, of which $2,475 million were unused. At December 31, 2011, we had long term credit arrangements totaling $7,531 million, of which $2,202 million were unused, compared to $7,193 million and $2,217 million, respectively, at December 31, 2010. At December 31, 2011, we had short term committed and uncommitted credit arrangements totaling $598 million, of which $342 million were unused, compared to $496 million and $258 million, respectively, at December 31, 2010. The continued availability of the short term uncommitted arrangements is at the discretion of the relevant lender and may be terminated at any time.
See the Note to Consolidated Financial Statements, No. 15, Financing Arrangements and Derivative Financial Instruments for a discussion of the redemption of a portion of our 10.5% senior notes due 2016, the amendment and restatement of our European revolving credit facility and the issuance of €250 million of GDTE 6.75% senior notes due 2019. See the Note to Consolidated Financial Statements, No. 20, Mandatory Convertible Preferred Stock for a discussion of the issuance of our 5.875% mandatory convertible preferred stock.
Outstanding Notes
At December 31, 2011, we had $2,362 million of outstanding notes, compared to $2,371 million at December 31, 2010. For additional information on our outstanding notes, refer to the Note to Consolidated Financial Statements, No. 15, Financing Arrangements and Derivative Financial Instruments.

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$1.5 Billion Amended and Restated First Lien Revolving Credit Facility due 2013
Our $1.5 billion 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 this facility and our subsidiaries’ obligations under the related guarantees are secured by first priority security interests in various collateral. Availability under the facility is subject to a borrowing base, which is based on eligible accounts receivable and inventory of the parent company and certain of its U.S. and Canadian subsidiaries, after adjusting for customary factors that are subject to modification from time to time by the administrative agent and the majority lenders at their discretion (not to be exercised unreasonably). Modifications are based on the results of periodic collateral and borrowing base evaluations and appraisals. To the extent that our eligible accounts receivable and inventory decline, our borrowing base will decrease and the availability under the facility may decrease below $1.5 billion. In addition, if the amount of outstanding borrowings and letters of credit under the facility exceeds the borrowing base, we are required to prepay borrowings and/or cash collateralize letters of credit sufficient to eliminate the excess. As of December 31, 2011, our borrowing base was above the facility’s stated amount of $1.5 billion.
At December 31, 2011 and 2010, we had no borrowings outstanding and $407 million and $474 million, respectively, of letters of credit issued under the revolving credit facility.
$1.2 Billion Amended and Restated Second Lien Term Loan Facility due 2014
Our obligations under this 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 $1.5 billion first lien revolving credit facility. At December 31, 2011 and 2010, this facility was fully drawn.
€400 Million Amended and Restated Senior Secured European Revolving Credit Facility due 2016
Our amended and restated €400 million revolving credit facility consists of a €100 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (the “German borrower”) and a €300 million all-borrower tranche that is available to GDTE, the German borrower and certain of GDTE’s other subsidiaries. Up to €50 million in letters of credit are available for issuance under the all-borrower tranche. GDTE and certain of its subsidiaries in the United Kingdom, Luxembourg, France and Germany provide guarantees to support the facility. GDTE’s obligations under the facility and the obligations of its subsidiaries under the related guarantees are secured by security interests in a variety of collateral. Goodyear and its U.S. and Canadian subsidiaries that guarantee our U.S. senior secured credit facilities also provide unsecured guarantees to support the facility.
As of December 31, 2011 and 2010, there were no borrowings under the European revolving credit facility. Letters of credit issued under the all-borrower tranche totaled $8 million (€6 million) as of December 31, 2011 and $12 million (€9 million) as of December 31, 2010.
Each of our first lien revolving credit facility and our European revolving credit facility have 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 financial condition since December 31, 2006 under the first lien facility and December 31, 2010 under the European facility. Each of the facilities described above have customary defaults, including cross-defaults to material indebtedness of Goodyear and our subsidiaries. For a description of the collateral securing the above facilities as well as the covenants applicable to them, please refer to “Covenant Compliance” below and the Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments.
International Accounts Receivable Securitization Facilities (On-Balance Sheet)
GDTE and certain of its subsidiaries are parties to a pan-European accounts receivable securitization facility that provides up to €450 million of funding and expires in 2015. Utilization under this facility is based on current available receivable balances. The facility is subject to customary annual renewal of back-up liquidity commitments.
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. As of December 31, 2011 and 2010, the amount available and fully utilized under this program totaled $393 million (€303 million) and $319 million (€238 million), respectively. The program did 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 totaling $75 million and $72 million at December 31, 2011 and 2010, respectively.

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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 Notes payable and overdrafts.
Accounts Receivable Factoring Facilities (Off-Balance Sheet)
Various subsidiaries sold certain of their trade receivables under off-balance sheet programs during 2011 and 2010. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At December 31, 2011 and 2010, the gross amount of receivables sold was $190 million and $126 million, respectively.
Other Foreign Credit Facilities
Our Chinese subsidiary has two financing agreements in China. At December 31, 2011, these non-revolving credit facilities had total unused availability of 1.2 billion renminbi ($188 million) and can only be used to finance the relocation and expansion of our manufacturing facility in China. The facilities contain covenants relating to our Chinese subsidiary and have customary representations and warranties and defaults relating to our Chinese subsidiary’s ability to perform its obligations under the facilities. One of the facilities (with 1.1 billion renminbi of unused availability at December 31, 2011) matures in 2018 and principal amortization begins in 2015. There were $199 million and $99 million of borrowings outstanding under this facility at December 31, 2011 and 2010, respectively. The other facility (with 0.1 billion renminbi of unused availability at December 31, 2011) matures in 2019 and principal amortization begins in 2015. There were $190 million and $54 million of borrowings outstanding under this facility at December 31, 2011 and 2010, respectively. Restricted cash of $9 million and $8 million was related to funds obtained under these credit facilities at December 31, 2011 and 2010, respectively.
Covenant Compliance
Our amended and restated first lien revolving and second lien credit facilities and some of the indentures governing our notes contain certain covenants that, among other things, limit our ability to incur additional debt or issue redeemable preferred stock, make certain restricted payments or investments, incur liens, sell assets, incur restrictions on the ability of our subsidiaries to pay dividends to us, enter into affiliate transactions, engage in sale and leaseback transactions, and consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. These covenants are subject to significant exceptions and qualifications.
We have additional financial covenants in our first lien revolving and second lien credit facilities that are currently not applicable. We only become subject to these financial covenants when certain events occur. These financial covenants and related events are as follows:
We become subject to the financial covenant contained in our first lien revolving credit facility when the aggregate amount of our Parent Company and Guarantor subsidiaries cash and cash equivalents (“Available Cash”) plus our availability under our first lien revolving credit facility is less than $150 million. If this were to occur, our ratio of EBITDA to Consolidated Interest Expense may not be less than 2.0 to 1.0 for any period of four consecutive fiscal quarters. As of December 31, 2011, our availability under this facility of $1,093 million, plus our Available Cash of $1,024 million, totaled $2.1 billion, which is in excess of $150 million.
We become subject to a covenant contained in our second lien credit facility upon certain asset sales. The covenant provides that, before we use cash proceeds from certain asset sales to repay any junior lien, senior unsecured or subordinated indebtedness, we must first offer to prepay borrowings under the second lien credit facility unless our ratio of Consolidated Net Secured Indebtedness to EBITDA (Pro Forma Senior Secured Leverage Ratio) for any period of four consecutive fiscal quarters is equal to or less than 3.0 to 1.0.
In addition, our amended and restated European revolving credit facility contains non-financial covenants similar to the non-financial covenants in our first and second lien credit facilities that are described above and a financial covenant applicable only to GDTE and its subsidiaries. This financial covenant provides that we are not permitted to allow GDTE’s ratio of Consolidated Net J.V. Indebtedness to Consolidated European J.V. EBITDA for a period of four consecutive fiscal quarters to be greater than 3.0 to 1.0 at the end of any fiscal quarter. Consolidated Net J.V. Indebtedness is determined net of the sum of cash and cash equivalents in excess of $100 million held by GDTE and its subsidiaries, cash and cash equivalents in excess of $150 million held by the Parent Company and its U.S. subsidiaries and availability under our first lien revolving credit facility if the ratio of EBITDA to Consolidated Interest Expense described above is not applicable and the conditions to borrowing under the first lien revolving credit facility are met. Consolidated Net J.V. Indebtedness also excludes loans from other consolidated Goodyear entities. This financial covenant is also included in our pan-European accounts receivable securitization facility. At December 31, 2011, we were in compliance with this financial covenant.
Our amended and restated credit facilities also state that we may only incur additional debt or make restricted payments that are not otherwise expressly permitted if, after giving effect to the debt incurrence or the restricted payment, our ratio of EBITDA to Consolidated Interest Expense for the prior four fiscal quarters would exceed 2.0 to 1.0. Certain of our senior note indentures

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have substantially similar limitations on incurring debt and making restricted payments. Our credit facilities and indentures also permit the incurrence of additional debt through other provisions in those agreements without regard to our ability to satisfy the ratio-based incurrence test described above. We believe that these other provisions provide us with sufficient flexibility to incur additional debt necessary to meet our operating, investing and financing needs without regard to our ability to satisfy the ratio-based incurrence test.
There are no known future changes to, or new covenants in, any of our existing debt obligations other than as described above. Covenants could change based upon a refinancing or amendment of an existing facility, or additional covenants may be added in connection with the incurrence of new debt.
As of December 31, 2011, we were in compliance with the currently applicable material covenants imposed by our principal credit facilities and indentures.
The terms “Available Cash,” “EBITDA,” “Consolidated Interest Expense,” “Consolidated Net Secured Indebtedness,” “Pro Forma Senior Secured Leverage Ratio,” “Consolidated Net J.V. Indebtedness” and “Consolidated European J.V. EBITDA” have the meanings given them in the respective credit facilities.
Potential Future Financings
In addition to our previous financing activities, we may seek to undertake additional financing actions which could include restructuring bank debt or capital markets transactions, possibly including the issuance of additional debt or equity. Given the challenges that we face and the uncertainties of the market conditions, access to the capital markets cannot be assured.
Our future liquidity requirements may make it necessary for us to incur additional debt. However, a substantial portion of our assets are already subject to liens securing our indebtedness. As a result, we are limited in our ability to pledge our remaining assets as security for additional secured indebtedness. In addition, no assurance can be given as to our ability to raise additional unsecured debt.
Dividends
Under our primary credit facilities we are permitted to pay dividends on our common stock as long as no default will have occurred and be continuing, additional indebtedness can be incurred under the credit facilities following the payment, and certain financial tests are satisfied.

So long as any of our mandatory convertible preferred stock is outstanding, no dividend, except a dividend payable in shares of our common stock, or other shares ranking junior to the mandatory convertible preferred stock, may be paid or declared or any distribution be made on shares of our common stock unless all accrued and unpaid dividends on the then outstanding mandatory convertible preferred stock payable on all dividend payment dates occurring on or prior to the date of such action have been declared and paid or sufficient funds have been set aside for that payment.
Asset Dispositions
The restrictions on asset sales imposed by our material indebtedness have not affected our strategy of divesting non-core businesses, and those divestitures have not affected our ability to comply with those restrictions.


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COMMITMENTS AND CONTINGENT LIABILITIES
Contractual Obligations
The following table presents our contractual obligations and commitments to make future payments as of December 31, 2011:
 
Payment Due by Period as of December 31, 2011
(In millions)
Total
 
2012
 
2013
 
2014
 
2015
 
2016
 
Beyond 2016
Debt Obligations(1)
$
5,170

 
$
398

 
$
81

 
$
1,241

 
$
489

 
$
952

 
$
2,009

Capital Lease Obligations(2)
31

 
14

 
13

 
1

 
1

 
1

 
1

Interest Payments(3)
2,060

 
333

 
312

 
287

 
268

 
204

 
656

Operating Leases(4)
1,431

 
322

 
284

 
214

 
163

 
122

 
326

Pension Benefits(5)
3,002

 
600

 
613

 
763

 
563

 
463

 
NA

Other Postretirement Benefits(6)
425

 
54

 
49

 
46

 
44

 
41

 
191

Workers’ Compensation(7)
407

 
63

 
56

 
36

 
27

 
21

 
204

Binding Commitments(8)
4,432

 
2,590

 
727

 
525

 
511

 
44

 
35

Uncertain Income Tax Positions(9)
47

 
16

 
12

 
2

 
11

 

 
6

 
$
17,005

 
$
4,390

 
$
2,147

 
$
3,115

 
$
2,077

 
$
1,848

 
$
3,428

_______________________________________
(1)
Debt obligations include Notes payable and overdrafts.
(2)
The minimum lease payments for capital lease obligations are $51 million.
(3)
These amounts represent future interest payments related to our existing debt obligations and capital leases based on fixed and variable interest rates specified in the associated debt and lease agreements. Payments related to variable rate debt are based on the six-month LIBOR rate at December 31, 2011 plus the specified margin in the associated debt agreements for each period presented. The amounts provided relate only to existing debt obligations and do not assume the refinancing or replacement of such debt.
(4)
Operating lease obligations have not been reduced by minimum sublease rentals of $44 million, $38 million, $28 million, $21 million, $11 million and $21 million in each of the periods above, respectively, for a total of $163 million. Payments, net of minimum sublease rentals, total $1,268 million. The present value of the net operating lease payments is $971 million. The operating leases relate to, among other things, real estate, vehicles, data processing equipment and miscellaneous other assets. No asset is leased from any related party.
(5)
The obligation related to pension benefits is actuarially determined and is reflective of obligations as of December 31, 2011. Although subject to change, the amounts set forth in the table represent the midpoint of the range of our estimated minimum funding requirements for U.S. defined benefit pension plans under current ERISA law, including the election of funding relief as allowed by the Pension Relief Act; and the midpoint of the range of our expected contributions to our funded non-U.S. pension plans, plus expected cash funding of direct participant payments to our U.S. and non-U.S. pension plans.
The expected contributions for our U.S. plans are based upon a number of assumptions, including:
Projected Target Liability interest rate of 5.37% for 2012, 4.95% for 2013, 4.70% for 2014, 4.79% for 2015 and 4.91% for 2016, and
plan asset returns of 8.5% for 2012 and beyond.
Future contributions are also affected by other factors such as:
future interest rate levels,
the amount and timing of asset returns, and
how contributions in excess of the minimum requirements could impact the amount and timing of future contributions.
(6)
The payments presented above are expected payments for the next 10 years. The payments for other postretirement benefits reflect the estimated benefit payments of the plans using the provisions currently in effect. Under the relevant summary plan descriptions or plan documents we have the right to modify or terminate the plans. The obligation related to other postretirement benefits is actuarially determined on an annual basis. The estimated payments have been reduced

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to reflect the provisions of the Medicare Prescription Drug Improvement and Modernization Act of 2003.
(7)
The payments for workers’ compensation obligations are based upon recent historical payment patterns on claims. The present value of anticipated claims payments for workers’ compensation is $302 million.
(8)
Binding commitments are for raw materials, capital expenditures, utilities, and various other types of contracts. The obligations to purchase raw materials include supply contracts at both fixed and variable prices. Those with variable prices are based on index rates for those commodities at December 31, 2011.
(9)
These amounts primarily represent expected payments with interest for uncertain tax positions as of December 31, 2011. We have reflected them in the period in which we believe they will be ultimately settled based upon our experience with these matters.
Additional other long term liabilities include items such as general and product liabilities, environmental liabilities and miscellaneous other long term liabilities. These other liabilities are not contractual obligations by nature. We cannot, with any degree of reliability, determine the years in which these liabilities might ultimately be settled. Accordingly, these other long term liabilities are not included in the above table.
In addition, the following contingent contractual obligations, the amounts of which cannot be estimated, are not included in the table above:
The terms and conditions of our global alliance with SRI, as set forth in the global alliance agreements between SRI and us, provide for certain minority exit rights available to SRI upon the occurrence of certain events enumerated in the global alliance agreements, including certain bankruptcy events, changes in our control or breaches of the global alliance agreements. SRI’s exit rights, in the event of the occurrence of a triggering event and the subsequent exercise of SRI’s exit rights, could require us to make a substantial payment to acquire SRI’s minority interests in GDTE and GDTNA following the determination of the fair value of SRI’s interests. For further information regarding our global alliance with SRI, including the events that could trigger SRI’s exit rights, see “Item 1. Business. Description of Goodyear’s Business — Global Alliance.”
Pursuant to certain long term agreements, we will purchase varying amounts of certain raw materials and finished goods at agreed upon base prices that may be subject to periodic adjustments for changes in raw material costs and market price adjustments, or in quantities that may be subject to periodic adjustments for changes in our or our suppliers production levels.
We do not engage in the trading of commodity contracts or any related derivative contracts. We generally purchase raw materials and energy through short term, intermediate and long term supply contracts at fixed prices or at formula prices related to market prices or negotiated prices. We may, however, from time to time, enter into contracts to hedge our energy costs.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has:
made guarantees,
retained or held a contingent interest in transferred assets,
undertaken an obligation under certain derivative instruments, or
undertaken any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company.
We have entered into certain arrangements under which we have provided guarantees that are off-balance sheet arrangements. Those guarantees totaled approximately $105 million at December 31, 2011 and expire at various times through 2023. For further information about our guarantees, refer to the Note to the Consolidated Financial Statements No. 19, Commitments and Contingent Liabilities.

50


FORWARD-LOOKING INFORMATION — SAFE HARBOR STATEMENT
Certain information in this Form 10-K (other than historical data and information) may constitute forward-looking statements regarding events and trends that may affect our future operating results and financial position. The words “estimate,” “expect,” “intend” and “project,” as well as other words or expressions of similar meaning, are intended to identify forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-K. Such statements are based on current expectations and assumptions, are inherently uncertain, are subject to risks and should be viewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors, including:
if we do not achieve projected savings from various cost reduction initiatives or successfully implement other strategic initiatives our operating results, financial condition and liquidity may be materially adversely affected;
higher raw material and energy costs may materially adversely affect our operating results and financial condition;
our pension plans are significantly underfunded and further increases in the underfunded status of the plans could significantly increase the amount of our required contributions and pension expense;
we face significant global competition, increasingly from lower cost manufacturers, and our market share could decline;
deteriorating economic conditions in any of our major markets, or an inability to access capital markets or third-party financing when necessary, may materially adversely affect our operating results, financial condition and liquidity;
work stoppages, financial difficulties or supply disruptions at our major OE customers, dealers or suppliers could harm our business;
our capital expenditures may not be adequate to maintain our competitive position and may not be implemented in a timely or cost-effective manner;
if we experience a labor strike, work stoppage or other similar event our financial position, results of operations and liquidity could be materially adversely affected;
our long term ability to meet current obligations and to repay maturing indebtedness is dependent on our ability to access capital markets in the future and to improve our operating results;
we have a substantial amount of debt, which could restrict our growth, place us at a competitive disadvantage or otherwise materially adversely affect our financial health;
any failure to be in compliance with any material provision or covenant of our secured credit facilities could have a material adverse effect on our liquidity and our results of operations;
our international operations have certain risks that may materially adversely affect our operating results;
we have foreign currency translation and transaction risks that may materially adversely affect our operating results, financial condition and liquidity;
our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly;
we have substantial fixed costs and, as a result, our operating income fluctuates disproportionately with changes in our net sales;
we may incur significant costs in connection with product liability and other tort claims;
our reserves for product liability and other tort claims and our recorded insurance assets are subject to various uncertainties, the outcome of which may result in our actual costs being significantly higher than the amounts recorded;
we may be required to provide letters of credit or post cash collateral if we are subject to a significant adverse judgment or if we are unable to obtain surety bonds, which may have a material adverse effect on our liquidity;
we are subject to extensive government regulations that may materially adversely affect our operating results;
the terms and conditions of our global alliance with SRI provide for certain exit rights available to SRI upon the occurrence of certain events, which could require us to make a substantial payment to acquire SRI’s minority interests in GDTE and GDTNA following the determination of the fair value of those interests;
we may be adversely affected by any disruption in, or failure of, our information technology systems;
if we are unable to attract and retain key personnel, our business could be materially adversely affected; and
we may be impacted by economic and supply disruptions associated with events beyond our control, such as war, acts of terror, political unrest, public health concerns, labor disputes or natural disasters.
It is not possible to foresee or identify all such factors. We will not revise or update any forward-looking statement or disclose any facts, events or circumstances that occur after the date hereof that may affect the accuracy of any forward-looking statement.

51



ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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.
Commodity Price Risk
The raw materials costs to which our operations are principally exposed include the cost of natural rubber, synthetic rubber, carbon black, fabrics, steel cord and other petrochemical-based commodities. Approximately two-thirds of our raw materials are oil-based derivatives, the cost of which may be affected by fluctuations in the price of oil. We currently do not hedge commodity prices. We do, however, use various strategies to partially offset cost increases for raw materials, including centralizing purchases of raw materials through our global procurement organization in an effort to leverage our purchasing power, expanding our capabilities to substitute lower-cost raw materials and reducing the amount of natural rubber required in each tire.
Interest Rate Risk
We continuously monitor our fixed and floating rate debt mix. Within defined limitations, we manage the mix using refinancing. At December 31, 2011, 43% of our debt was at variable interest rates averaging 4.36% compared to 41% at an average rate of 3.72% at December 31, 2010.

The following table presents information about long term fixed rate debt, excluding capital leases, at December 31:

(In millions)
2011
 
2010
Carrying amount — liability
$2,843
 
$2,691
Fair value — liability
2,891
 
2,791
Pro forma fair value — liability
2,993
 
2,893

The pro forma information assumes a 100 basis point decrease in market interest rates at December 31 of each year, and reflects the estimated fair value of fixed rate debt outstanding at that date under that assumption. The sensitivity of our fixed rate debt to changes in interest rates was determined using current market pricing models.
Foreign Currency Exchange Risk
We enter into foreign currency contracts in order to reduce the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts reduce exposure to currency movements affecting existing foreign currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting primarily from trade receivables and payables, equipment acquisitions, intercompany loans and royalty agreements, and forecasted purchases and sales. Contracts hedging short-term trade receivables and payables normally have no hedging designation.
The following table presents foreign currency derivative information at December 31:

(In millions)
2011
 
2010
Fair value — asset (liability)
$31
 
$9
Pro forma decrease in fair value
(117)
 
(113)
Contract maturities
1/12 - 10/19
 
1/11 - 10/19

The pro forma decrease in fair value assumes a 10% adverse change in underlying foreign exchange rates at December 31 of each year, and reflects the estimated change in the fair value of positions outstanding at that date under that assumption. The sensitivity of our foreign currency positions to changes in exchange rates was determined using current market pricing models.

52


Fair values are recognized on the Consolidated Balance Sheets at December 31 as follows:

(In millions)
2011
 
2010
Asset (liability):
 
 
 
Accounts receivable
$37
 
$25
Other Assets
 
1
Other current liabilities
(5)
 
(17)
Other long term liabilities
(1)
 

For further information on foreign currency contracts, refer to the Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for a discussion of our management of counterparty risk.


53


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
 
 
55

56

Consolidated Financial Statements of The Goodyear Tire & Rubber Company:
 

57

58

59

63

64

117

Financial Statement Schedules:
 

The following consolidated financial statement schedules of The Goodyear Tire & Rubber Company are filed as part of this Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements of The Goodyear Tire & Rubber Company:
 
FS-2

FS-9


Schedules not listed above have been omitted since they are not applicable or are not required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

54


MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined under Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with appropriate authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2011 using the framework specified in Internal Control — Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2011.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is presented in this Annual Report on Form 10-K.

55


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Shareholders of The Goodyear Tire & Rubber Company
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Goodyear Tire & Rubber Company and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
 
 
 
PRICEWATERHOUSECOOPERS LLP
 
 
 
Cleveland, Ohio
 
February 14, 2012
 


56


THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

 
Year Ended December 31,
(In millions, except per share amounts)
2011
 
2010
 
2009
Net Sales
$
22,767

 
$
18,832

 
$
16,301

Cost of Goods Sold
18,821

 
15,452

 
13,676

Selling, Administrative and General Expense
2,822

 
2,630

 
2,404

Rationalizations (Note 2)
103

 
240

 
227

Interest Expense (Note 5)
330

 
316

 
311

Other Expense (Note 3)
73

 
186

 
40

Income (Loss) before Income Taxes
618

 
8

 
(357
)
United States and Foreign Taxes (Note 6)
201

 
172

 
7

Net Income (Loss)
417

 
(164
)
 
(364
)
Less: Minority Shareholders’ Net Income
74

 
52

 
11

Goodyear Net Income (Loss)
343

 
(216
)
 
(375
)
Less: Preferred Stock Dividends
22

 

 

Goodyear Net Income (Loss) available to Common Shareholders
$
321

 
$
(216
)
 
$
(375
)
Goodyear Net Income (Loss) available to Common Shareholders — Per Share of Common Stock
 

 
 

 
 

Basic
$
1.32

 
$
(0.89
)
 
$
(1.55
)
Weighted Average Shares Outstanding (Note 7)
244

 
242

 
241

Diluted
$
1.26

 
$
(0.89
)
 
$
(1.55
)
Weighted Average Shares Outstanding (Note 7)
271

 
242