Costs Associated with Rationalization Programs

In order to maintain our global competitiveness, we have implemented rationalization actions over the past several years to reduce excess and high-cost manufacturing capacity and to reduce associate headcount. The net rationalization charges included in Income before Income Taxes are as follows:



(In millions)	2012			2011			2010
New charges	$	178		$	106		$	261
Reversals	(3		)	(3		)	(21		)
	$	175		$	103		$	240

The following table presents the roll-forward of the liability balance between periods:



(In millions)	Associate-related Costs			Other Costs			Total
Balance at December 31, 2009	$	120		$	25		$	145
2010 charges	237			24			261
Incurred	(129		)	(26		)	(155		)
Reversed to the Statement of Operations	(16		)	(5		)	(21		)
Balance at December 31, 2010	$	212		$	18		$	230
2011 charges	60			46			106
Incurred	(104		)	(45		)	(149		)
Reversed to the Statement of Operations	(2		)	(1		)	(3		)
Balance at December 31, 2011	$	166		$	18		$	184
2012 charges	142			36			178
Incurred	(77		)	(30		)	(107		)
Reversed to the Statement of Operations	(2		)	(1		)	(3		)
Balance at December 31, 2012	$	229		$	23		$	252

Rationalization actions initiated in 2012 consisted primarily of Europe, Middle East and Africa Tire's (“EMEA”) plan to exit the farm tire business and discontinue farm tire production at one of our facilities in Amiens, France, which would result in the full closure of that facility. Charges of $74 million were recorded in the fourth quarter of 2012 related to these activities. In addition, North American Tire initiated manufacturing headcount reductions at several facilities and also reduced SAG expenses through headcount reductions. Asia Pacific Tire also initiated plans relating to the closure of several retail facilities in Australia and New Zealand. Other rationalization actions in 2012 related to plans to reduce manufacturing and SAG expenses through headcount reductions in all of our strategic business units.

During 2012, net rationalization charges of $175 million were recorded. New charges of $178 million were comprised of $142 million for plans initiated in 2012, consisting of $126 million for associate severance and other related costs and $16 million for other exit and non-cancelable lease costs, and $36 million for plans initiated in prior years, consisting of $16 million for associate severance and other related costs and $20 million for other exit and non-cancelable lease costs. These amounts include $176 million related to future cash outflows and $2 million for pension settlements, curtailments and termination benefits. The net charges in 2012 also included the reversal of $3 million of reserves for actions no longer needed for their originally-intended purposes. Approximately 2,200 associates will be released under 2012 plans of which 1,000 were released in 2012. In total, approximately 1,800 associates remain to be released under rationalization plans, including approximately 1,200 associates related to the announced plan to exit the farm tire business and close one of our facilities in Amiens, France.

The accrual balance of $252 million at December 31, 2012 consists of $229 million for associate severance costs that are expected to be substantially utilized within the next twelve months and $23 million primarily for long term non-cancelable lease costs. At December 31, 2012, $170 million of the accrual balance relates to plans associated with the announced closure of one of our facilities in Amiens, France, and $21 million relates to the closure of our Union City, Tennessee manufacturing facility (“Union City”).

Asset write-offs and accelerated depreciation charges of $20 million were recorded in CGS in 2012 and were related primarily to property and equipment in our Dalian, China manufacturing facility, which ceased production in the third quarter of 2012.

In 2011, EMEA and Asia Pacific Tire initiated plans to reduce manufacturing, selling, administrative and general expenses through headcount reductions. In addition, Asia Pacific Tire initiated a plan related to the relocation of its manufacturing facility in Dalian, China to Pulandian, China.

During 2011, net rationalization charges of $103 million were recorded. New charges of $106 million were comprised of $25 million for plans initiated in 2011, consisting of $19 million for associate severance and other related costs and $6 million for other exit and non-cancelable lease costs, and $81 million for plans initiated in prior years, consisting of $41 million of associate severance and other related costs and $40 million for other exit and non-cancelable lease costs, primarily related to the closure of Union City in July 2011. These amounts include $104 million related to future cash outflows and $2 million for pension settlements, curtailments and other termination benefits. The net charges in 2011 also included the reversal of $3 million of reserves for actions no longer needed for their originally-intended purposes. Approximately 500 associates were to be released under 2011 plans, all of which were released by December 31, 2012.

Asset write-offs and accelerated depreciation charges of $50 million were recorded in CGS in 2011 and were related primarily to property and equipment in Union City.

In 2010, North American Tire initiated plans to close Union City to reduce high-cost manufacturing capacity and to consolidate several warehouses to further improve its supply chain. EMEA recognized increased costs related to the announced discontinuation of consumer tire production at one of our facilities in Amiens, France. Asia Pacific Tire initiated and substantially completed the closure of a manufacturing facility in Taipei, Taiwan.

During 2010, net rationalization charges of $240 million were recorded. New charges of $261 million were comprised of $195 million for plans initiated in 2010, consisting of $191 million of associate severance and other related costs and $4 million for other exit and non-cancelable lease costs, and $66 million for plans initiated in 2009, consisting of $46 million of associate severance and other related costs and $20 million for other exit and non-cancelable lease costs. These amounts include $177 million related to future cash outflows and $84 million for other non-cash exit costs, substantially all of which were for pension settlements, curtailments and other termination benefits. The net charges in 2010 also included the reversal of $21 million of reserves for actions no longer needed for their originally-intended purposes. Approximately 2,200 associates were to be released under 2010 plans, all of which were released by December 31, 2011.

Asset write-offs and accelerated depreciation charges of $15 million were recorded in CGS in 2010 and were related primarily to the closure of our Taiwan facility.