Goodyear Tire & Rubber Company — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Goodyear manufactures and sells tires and related products and services through Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific. Results include Cooper Tire for all of 2022, versus only from its June 7, 2021 acquisition date in 2021, limiting comparability.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $20.805 billion | $17.478 billion |
| Goodyear net income | $202 million | $764 million |
| Diluted earnings per share | $0.71 | $2.89 |
| Total segment operating income | $1.276 billion | $1.288 billion |
| Segment operating margin | 6.1% | 7.4% |
| Cash provided by operating activities | $521 million | $1.062 billion |
| Capital expenditures | $1.061 billion | $981 million |
| Cash and cash equivalents at year-end | $1.227 billion | $1.088 billion |
- Sales rose 19.0%, supported by price and product mix, Cooper Tire’s full-year contribution, and higher tire shipments; unfavorable currency translation reduced sales by $1.114 billion.
- Tire unit shipments increased 9.0% to 184.5 million. Price and product-mix gains of $2.556 billion helped offset $1.885 billion in higher raw-material costs.
- Inflation and other cost pressures added approximately $890 million year over year, including transportation and energy costs. Cost of goods sold increased to 81.5% of sales from 78.3%.
- Net income declined substantially, principally due to higher taxes, interest expense and rationalization charges. FY2021 included $409 million of discrete tax benefits; FY2022 reported $190 million of tax expense on $399 million of pretax income.
- Segment results diverged: Americas operating income increased to $1.094 billion (8.6% margin) from $914 million; EMEA fell to $61 million (1.1%) from $239 million; Asia Pacific declined to $121 million (5.1%) from $135 million.
- Operating cash flow fell $541 million, including $689 million of cash used for working capital. Year-end inventory increased to $4.571 billion from $3.594 billion.
- Goodyear reported approximately $7.9 billion of debt, including finance leases, and $4.035 billion of unused availability under credit agreements, down from $4.345 billion. No cash dividends were paid in 2022.
Outlook, material changes and risks
- Management expected soft tire-industry conditions to continue into Q1 2023, with total volume approximately 5% below Q1 2022. EMEA segment operating income was expected to approach breakeven in Q1 and recover toward recent historical levels by midyear.
- For 2023, Goodyear expected raw-material costs to increase approximately $200 million year over year, capital expenditures of about $1.0 billion, working capital to provide about $100 million of operating cash flow, and rationalization payments of about $100 million. It also anticipated approximately $500 million of interest expense, $200 million of income-tax payments excluding one-time items, and $25–$50 million of funded pension contributions.
- Production was reduced in Q4 2022 by approximately 3.5 million tire units versus Q4 2021; management planned a similar reduction in Q1 2023. Pricing and mix, cost savings and workforce actions are intended to offset cost pressures, but execution and demand remain uncertain.
- Restructuring includes a planned global salaried-staff reduction of about 500 positions, with estimated pretax charges of $55 million and quarterly run-rate savings of approximately $15 million beginning Q2 2023. The Melksham, U.K. plant closure carries estimated charges of $80–$90 million. 2022 rationalization charges were $129 million.
- Key risks include inflation and volatile raw-material, energy and freight costs; economic and tire-market weakness; labor tightness and expiring union agreements; currency movements; supply disruptions and the Ukraine conflict; Cooper Tire integration; substantial debt, interest-rate exposure and financing covenants; and environmental, regulatory, tax and litigation exposures.
- Asbestos litigation involved approximately 37,200 pending claimants at year-end. The company recorded $125 million of gross asbestos liabilities and a $70 million insurance receivable; it cautioned that additional losses could be material but could not be reasonably estimated. Total recorded liabilities for product liability and other tort claims, including asbestos, were $412 million.
- Deferred-tax-asset realization is a significant judgment. The auditor identified valuation of U.S. deferred tax assets related to foreign tax credits as a critical audit matter. Goodyear reported approximately $230 million of such credits and approximately $1.0 billion of valuation allowances against foreign net deferred tax assets.
- Management and the auditor concluded internal control over financial reporting was effective at December 31, 2022. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether pricing and product mix continue to offset raw-material and broader inflation, particularly in EMEA.
- Whether working-capital needs, inventory levels and operating cash flow improve sufficiently to fund capital spending and debt service.
- Debt maturities, borrowing-base availability and covenant headroom if sales or eligible receivables and inventory weaken.
- Delivery of expected restructuring savings, closure costs and Cooper Tire integration benefits.
- Assumptions supporting realization of U.S. deferred tax assets and foreign tax credits, and any changes in valuation allowances.
- Developments in asbestos claims, insurance recoveries and other contingent liabilities.