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GT Goodyear Tire & Rubber

Filed: 6 Aug 21, 11:47am

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2021

Commission File Number: 1-1927

THE GOODYEAR TIRE & RUBBER COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

Ohio

 

34-0253240

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

200 Innovation Way, Akron, Ohio

 

44316-0001

(Address of Principal Executive Offices)

 

(Zip Code)

 

(330796-2121

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, Without Par Value

 

GT

 

The Nasdaq Stock Market LLC

 

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.

YesNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YesNo

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Number of Shares of Common Stock,

Without Par Value, Outstanding at July 31, 2021:

 

281,192,923

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

ITEM 4. CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

ITEM 1A. RISK FACTORS

EX-10.1

EX-10.2

EX-22.1

EX-31.1

EX-31.2

EX-32.1

EX-101.INS INSTANCE DOCUMENT

EX-101.SCH SCHEMA DOCUMENT

EX-101.CAL CALCULATION LINKBASE DOCUMENT

EX-101.DEF DEFINITION LINKBASE DOCUMENT

EX-101.LAB LABELS LINKBASE DOCUMENT

EX-101.PRE PRESENTATION LINKBASE DOCUMENT

EX-104

 

 

 

 


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions, except per share amounts)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Sales (Note 3)

 

$

3,979

 

 

$

2,144

 

 

$

7,490

 

 

$

5,200

 

Cost of Goods Sold

 

 

3,078

 

 

 

2,216

 

 

 

5,829

 

 

 

4,768

 

Selling, Administrative and General Expense

 

 

658

 

 

 

451

 

 

 

1,222

 

 

 

1,032

 

Goodwill and Other Asset Impairments

 

 

0

 

 

 

148

 

 

 

0

 

 

 

330

 

Rationalizations (Note 4)

 

 

18

 

 

 

99

 

 

 

68

 

 

 

108

 

Interest Expense

 

 

97

 

 

 

85

 

 

 

176

 

 

 

158

 

Other (Income) Expense (Note 5)

 

 

30

 

 

 

34

 

 

 

64

 

 

 

61

 

Income (Loss) before Income Taxes

 

 

98

 

 

 

(889

)

 

 

131

 

 

 

(1,257

)

United States and Foreign Tax Expense (Benefit) (Note 6)

 

 

27

 

 

 

(186

)

 

 

42

 

 

 

63

 

Net Income (Loss)

 

 

71

 

 

 

(703

)

 

 

89

 

 

 

(1,320

)

Less: Minority Shareholders’ Net Income (Loss)

 

 

4

 

 

 

(7

)

 

 

10

 

 

 

(5

)

Goodyear Net Income (Loss)

 

$

67

 

 

$

(696

)

 

$

79

 

 

$

(1,315

)

Goodyear Net Income (Loss) — Per Share of Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.27

 

 

$

(2.97

)

 

$

0.33

 

 

$

(5.62

)

Weighted Average Shares Outstanding (Note 7)

 

 

244

 

 

 

234

 

 

 

239

 

 

 

234

 

Diluted

 

$

0.27

 

 

$

(2.97

)

 

$

0.32

 

 

$

(5.62

)

Weighted Average Shares Outstanding (Note 7)

 

 

247

 

 

 

234

 

 

 

242

 

 

 

234

 

The accompanying notes are an integral part of these consolidated financial statements.

1


Table of Contents

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Income (Loss)

 

$

71

 

 

$

(703

)

 

$

89

 

 

$

(1,320

)

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax of $2 and $1 in 2021 ($4 and ($4) in 2020)

 

 

33

 

 

 

(7

)

 

 

(6

)

 

 

(232

)

Unrealized gain from securities, net of tax of $0 and $0 in 2021 ($0 and $0 in 2020)

 

 

8

 

 

 

0

 

 

 

8

 

 

 

0

 

Defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost and unrecognized gains and losses included in total benefit cost, net of tax of $8 and $17 in 2021 ($8 and $17 in 2020)

 

 

26

 

 

 

28

 

 

 

53

 

 

 

55

 

Decrease/(increase) in net actuarial losses, net of tax of $2 and $5 in 2021 (($2) and ($2) in 2020)

 

 

7

 

 

 

(8

)

 

 

16

 

 

 

(9

)

Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements and divestitures, net of tax of $4 and $4 in 2021 ($0 and ($1) in 2020)

 

 

15

 

 

 

1

 

 

 

15

 

 

 

0

 

Deferred derivative gains (losses), net of tax of $0 and $0 in 2021 (($4) and $1 in 2020)

 

 

(1

)

 

 

1

 

 

 

0

 

 

 

19

 

Reclassification adjustment for amounts recognized in income, net of tax of $0 and $0 in 2021 ($0 and $0 in 2020)

 

 

0

 

 

 

(4

)

 

 

(2

)

 

 

(8

)

Other Comprehensive Income (Loss)

 

 

88

 

 

 

11

 

 

 

84

 

 

 

(175

)

Comprehensive Income (Loss)

 

 

159

 

 

 

(692

)

 

 

173

 

 

 

(1,495

)

Less: Comprehensive Income (Loss) Attributable to Minority Shareholders

 

 

3

 

 

 

(7

)

 

 

2

 

 

 

(14

)

Goodyear Comprehensive Income (Loss)

 

$

156

 

 

$

(685

)

 

$

171

 

 

$

(1,481

)

The accompanying notes are an integral part of these consolidated financial statements.

2


Table of Contents

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

(In millions, except share data)

 

2021

 

 

2020

 

Assets:

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

1,030

 

 

$

1,539

 

Accounts Receivable, less Allowance — $141 ($150 in 2020)

 

 

2,819

 

 

 

1,691

 

Inventories:

 

 

 

 

 

 

Raw Materials

 

 

782

 

 

 

517

 

Work in Process

 

 

174

 

 

 

143

 

Finished Products

 

 

2,358

 

 

 

1,493

 

 

 

3,314

 

 

 

2,153

 

Prepaid Expenses and Other Current Assets

 

 

356

 

 

 

237

 

Total Current Assets

 

 

7,519

 

 

 

5,620

 

Goodwill

 

 

874

 

 

 

408

 

Intangible Assets

 

 

1,216

 

 

 

135

 

Deferred Income Taxes (Note 6)

 

 

1,170

 

 

 

1,467

 

Other Assets

 

 

1,079

 

 

 

952

 

Operating Lease Right-of-Use Assets

 

 

1,025

 

 

 

851

 

Property, Plant and Equipment, less Accumulated Depreciation — $11,192 ($10,991 in 2020)

 

 

8,297

 

 

 

7,073

 

Total Assets

 

$

21,180

 

 

$

16,506

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts Payable — Trade

 

$

3,858

 

 

$

2,945

 

Compensation and Benefits (Notes 11 and 12)

 

 

687

 

 

 

540

 

Other Current Liabilities

 

 

849

 

 

 

865

 

Notes Payable and Overdrafts (Note 9)

 

 

459

 

 

 

406

 

Operating Lease Liabilities due Within One Year

 

 

215

 

 

 

198

 

Long Term Debt and Finance Leases due Within One Year (Note 9)

 

 

535

 

 

 

152

 

Total Current Liabilities

 

 

6,603

 

 

 

5,106

 

Operating Lease Liabilities

 

 

843

 

 

 

684

 

Long Term Debt and Finance Leases (Note 9)

 

 

6,978

 

 

 

5,432

 

Compensation and Benefits (Notes 11 and 12)

 

 

1,677

 

 

 

1,470

 

Deferred Income Taxes (Note 6)

 

 

97

 

 

 

84

 

Other Long Term Liabilities

 

 

571

 

 

 

471

 

Total Liabilities

 

 

16,769

 

 

 

13,247

 

Commitments and Contingent Liabilities (Note 13)

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

Goodyear Shareholders’ Equity:

 

 

 

 

 

 

Common Stock, no par value:

 

 

 

 

 

 

Authorized, 450 million shares, Outstanding shares — 281 million in 2021
(
233 million in 2020)

 

 

281

 

 

 

233

 

Capital Surplus

 

 

3,086

 

 

 

2,171

 

Retained Earnings

 

 

4,888

 

 

 

4,809

 

Accumulated Other Comprehensive Loss

 

 

(4,043

)

 

 

(4,135

)

Goodyear Shareholders’ Equity

 

 

4,212

 

 

 

3,078

 

Minority Shareholders’ Equity — Nonredeemable

 

 

199

 

 

 

181

 

Total Shareholders’ Equity

 

 

4,411

 

 

 

3,259

 

Total Liabilities and Shareholders’ Equity

 

$

21,180

 

 

$

16,506

 

The accompanying notes are an integral part of these consolidated financial statements.

3


Table of Contents

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Minority

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Goodyear

 

 

Shareholders'

 

 

Total

 

 

 

Common Stock

 

 

Capital

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

Equity — Non-

 

 

Shareholders'

 

(Dollars in millions, except per share amounts)

 

Shares

 

 

Amount

 

 

Surplus

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Redeemable

 

 

Equity

 

Balance at December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(after deducting 45,243,329 common treasury shares)

 

 

233,220,098

 

 

$

233

 

 

$

2,171

 

 

$

4,809

 

 

$

(4,135

)

 

$

3,078

 

 

$

181

 

 

$

3,259

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

 

 

6

 

 

 

18

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

 

 

(7

)

 

 

(4

)

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

(1

)

 

 

14

 

Stock-based compensation plans

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Common stock issued from treasury

 

 

1,759,931

 

 

 

2

 

 

 

7

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Balance at March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(after deducting 43,483,398 common treasury shares)

 

 

234,980,029

 

 

$

235

 

 

$

2,182

 

 

$

4,821

 

 

$

(4,132

)

 

$

3,106

 

 

$

180

 

 

$

3,286

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

67

 

 

 

 

 

 

67

 

 

 

4

 

 

 

71

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89

 

 

 

89

 

 

 

(1

)

 

 

88

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

156

 

 

 

3

 

 

 

159

 

Common stock issued

 

 

45,824,480

 

 

 

46

 

 

 

892

 

 

 

 

 

 

 

 

 

938

 

 

 

 

 

 

938

 

Stock-based compensation plans

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

Common stock issued from treasury

 

 

387,763

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Acquisition of Cooper Tire's minority interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

21

 

Balance at June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(after deducting 43,095,635 common treasury shares)

 

 

281,192,272

 

 

$

281

 

 

$

3,086

 

 

$

4,888

 

 

$

(4,043

)

 

$

4,212

 

 

$

199

 

 

$

4,411

 

There were no dividends declared or paid during the three and six months ended June 30, 2021.

The accompanying notes are an integral part of these consolidated financial statements.

 

4


Table of Contents

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Minority

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Goodyear

 

 

Shareholders'

 

 

Total

 

 

 

Common Stock

 

 

Capital

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

Equity — Non-

 

 

Shareholders'

 

(Dollars in millions, except per share amounts)

 

Shares

 

 

Amount

 

 

Surplus

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Redeemable

 

 

Equity

 

Balance at December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(after deducting 45,813,109 common treasury shares)

 

 

232,650,318

 

 

$

233

 

 

$

2,141

 

 

$

6,113

 

 

$

(4,136

)

 

$

4,351

 

 

$

194

 

 

$

4,545

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(619

)

 

 

 

 

 

(619

)

 

 

2

 

 

 

(617

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(177

)

 

 

(177

)

 

 

(9

)

 

 

(186

)

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(796

)

 

 

(7

)

 

 

(803

)

Adoption of new accounting standards update

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Stock-based compensation plans

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

(38

)

 

 

 

 

 

(38

)

Common stock issued from treasury

 

 

347,232

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Balance at March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(after deducting 45,465,877 common treasury shares)

 

 

232,997,550

 

 

$

233

 

 

$

2,146

 

 

$

5,444

 

 

$

(4,313

)

 

$

3,510

 

 

$

187

 

 

$

3,697

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(696

)

 

 

 

 

 

(696

)

 

 

(7

)

 

 

(703

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

11

 

 

 

 

 

 

11

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(685

)

 

 

(7

)

 

 

(692

)

Stock-based compensation plans

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Common stock issued from treasury

 

 

13,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(after deducting 45,452,865 common treasury shares)

 

 

233,010,562

 

 

$

233

 

 

$

2,154

 

 

$

4,748

 

 

$

(4,302

)

 

$

2,833

 

 

$

180

 

 

$

3,013

 

 

We declared and paid cash dividends of $0.00 and $0.16 per share for the three and six months ended June 30, 2020.

The accompanying notes are an integral part of these consolidated financial statements.

5


Table of Contents

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net Income (Loss)

 

$

89

 

 

$

(1,320

)

Adjustments to Reconcile Net Income (Loss) to Cash Flows from Operating Activities:

 

 

 

 

 

 

Depreciation and Amortization

 

 

405

 

 

 

472

 

Amortization and Write-Off of Debt Issuance Costs

 

 

9

 

 

 

6

 

Amortization of Inventory Fair Value Adjustment Related to the Cooper Tire Acquisition (Note 2)

 

 

38

 

 

 

0

 

Transaction and Other Costs Related to the Cooper Tire Acquisition (Note 2)

 

 

55

 

 

 

 

Cash Payments for Transaction and Other Costs Related to the Cooper Tire Acquisition

 

 

(33

)

 

 

 

Goodwill and Other Asset Impairments

 

 

0

 

 

 

330

 

Provision for Deferred Income Taxes (Note 6)

 

 

(66

)

 

 

58

 

Net Pension Curtailments and Settlements

 

 

19

 

 

 

3

 

Net Rationalization Charges (Note 4)

 

 

68

 

 

 

108

 

Rationalization Payments

 

 

(123

)

 

 

(101

)

Net (Gains) Losses on Asset Sales (Note 5)

 

 

0

 

 

 

2

 

Operating Lease Expense

 

 

143

 

 

 

142

 

Operating Lease Payments

 

 

(133

)

 

 

(130

)

Pension Contributions and Direct Payments

 

 

(22

)

 

 

(33

)

Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions:

 

 

 

 

 

 

Accounts Receivable

 

 

(545

)

 

 

36

 

Inventories

 

 

(542

)

 

 

304

 

Accounts Payable — Trade

 

 

547

 

 

 

(860

)

Compensation and Benefits

 

 

90

 

 

 

(11

)

Other Current Liabilities

 

 

(42

)

 

 

29

 

Other Assets and Liabilities

 

 

(28

)

 

 

145

 

Total Cash Flows from Operating Activities

 

 

(71

)

 

 

(820

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

Acquisition of Cooper Tire, net of cash and restricted cash acquired (Note 2)

 

 

(1,856

)

 

 

0

 

Capital Expenditures

 

 

(385

)

 

 

(363

)

Short Term Securities Acquired

 

 

(57

)

 

 

(30

)

Short Term Securities Redeemed

 

 

58

 

 

 

46

 

Notes Receivable

 

 

(7

)

 

 

(35

)

Other Transactions

 

 

14

 

 

 

(8

)

Total Cash Flows from Investing Activities

 

 

(2,233

)

 

 

(390

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Short Term Debt and Overdrafts Incurred

 

 

522

 

 

 

928

 

Short Term Debt and Overdrafts Paid

 

 

(446

)

 

 

(521

)

Long Term Debt Incurred

 

 

4,855

 

 

 

4,886

 

Long Term Debt Paid

 

 

(3,042

)

 

 

(3,879

)

Common Stock Issued

 

 

9

 

 

 

0

 

Common Stock Dividends Paid (Note 14)

 

 

0

 

 

 

(37

)

Transactions with Minority Interests in Subsidiaries

 

 

(5

)

 

 

0

 

Debt Related Costs and Other Transactions

 

 

(73

)

 

 

(53

)

Total Cash Flows from Financing Activities

 

 

1,820

 

 

 

1,324

 

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash

 

 

(6

)

 

 

(50

)

Net Change in Cash, Cash Equivalents and Restricted Cash

 

 

(490

)

 

 

64

 

Cash, Cash Equivalents and Restricted Cash at Beginning of the Period

 

 

1,624

 

 

 

974

 

Cash, Cash Equivalents and Restricted Cash at End of the Period

 

$

1,134

 

 

$

1,038

 

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by The Goodyear Tire & Rubber Company (the “Company,” “Goodyear,” “we,” “us” or “our”) in accordance with Securities and Exchange Commission (“SEC”) rules and regulations and generally accepted accounting principles in the United States of America ("U.S. GAAP") and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2021.

On June 7, 2021 (the “Closing Date”), we completed the previously announced acquisition of Cooper Tire & Rubber Company (“Cooper Tire”), pursuant to the terms of the Agreement and Plan of Merger, dated as of February 22, 2021 (the “Merger Agreement”), by and among Goodyear, Vulcan Merger Sub Inc., a direct, wholly owned subsidiary of Goodyear (“Merger Sub”), and Cooper Tire.  On the Closing Date, Merger Sub merged with and into Cooper Tire, with Cooper Tire surviving the merger and becoming a wholly owned subsidiary of Goodyear (the “Merger”). As a result of the Merger, Cooper Tire, along with its subsidiaries, became subsidiaries of Goodyear. For further information about the Merger, refer to Note to the Consolidated Financial Statements No. 2, Cooper Tire Acquisition.

Recently Adopted Accounting Standards

Effective January 2021, we adopted an accounting standards update which eliminates differences in practice among fair value accounting for investments in equity securities, equity method investments and certain derivative instruments. The adoption of this standards update did not have a material impact on our consolidated financial statements.

Acquisitions

We include the results of operations of the businesses in which we acquire a controlling financial interest in our consolidated financial statements beginning as of the acquisition date. On the acquisition date, we recognize, separate from goodwill, the assets acquired, including separately identifiable intangible assets, and the liabilities assumed at their fair values. The excess of the consideration transferred over the fair values assigned to the net identifiable assets and liabilities assumed of the acquired business is recognized as goodwill. Transaction costs are recognized separately from the acquisition and are expensed as incurred.

Principles of Consolidation

The consolidated financial statements include the accounts of all legal entities in which we hold a controlling financial interest. A controlling financial interest generally arises from our ownership of a majority of the voting shares of our subsidiaries. We would also hold a controlling financial interest in variable interest entities if we are considered to be the primary beneficiary. Investments in companies in which we do not own a majority interest and we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. Investments in other companies are primarily carried at cost. All intercompany balances and transactions have been eliminated in consolidation.

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Table of Contents

Restricted Cash

The following table provides a reconciliation of Cash, Cash Equivalents and Restricted Cash as reported within the Consolidated Statements of Cash Flows:

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

Cash and Cash Equivalents

 

$

1,030

 

 

$

1,006

 

Restricted Cash(1)

 

 

104

 

 

 

32

 

Total Cash, Cash Equivalents and Restricted Cash

 

$

1,134

 

 

$

1,038

 

(1) Includes Cooper Tire restricted cash of $50 million at June 30, 2021.

Restricted Cash primarily represents amounts required to be set aside in relation to (i) change-in-control provisions of certain Cooper Tire compensation plans and (ii) accounts receivable factoring programs. The restrictions lapse as the compensation payments are made or when cash from factored accounts receivable is remitted to the purchaser of those receivables, respectively. At June 30, 2021, $86 million and $18 million were recorded in Prepaid Expenses and Other Current Assets and Other Assets in the Consolidated Balance Sheets, respectively. At June 30, 2020, $32 million was included in Prepaid Expenses and Other Current Assets.

Reclassifications and Adjustments

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation. In the second quarter of 2021, we recorded an out of period adjustment of $8 million of income related to accrued freight charges in Americas. Additionally, in the first quarter of 2021, we recorded out of period adjustments totaling $20 million of expense, primarily related to the valuation of inventory in Americas. The adjustments relate to the years, and interim periods therein, of 2016 to 2020. The adjustments did not have a material effect on any of the periods impacted. 

NOTE 2. COOPER TIRE ACQUISITION

On June 7, 2021, we completed our acquisition of all of the outstanding shares of common stock of Cooper Tire pursuant to the terms of the Merger Agreement. Cooper Tire’s results of operations have been included in our consolidated financial statements since the Closing Date. Cooper Tire stockholders received $41.75 per share in cash and a fixed exchange ratio of 0.907 shares of Goodyear common stock per share of Cooper Tire common stock (the "Merger Consideration") as consideration pursuant to the terms of the Merger Agreement, which amounted to approximately $3.1 billion. The acquisition will expand Goodyear’s product offering by combining two portfolios of complementary brands.

We used the net proceeds from the issuance of new senior notes with an aggregate principal amount of $1.45 billion, together with cash on hand and borrowings under our first lien revolving credit facility, to finance the acquisition of Cooper Tire and related transaction costs. For further information regarding the new senior notes and the first lien revolving credit facility, refer to Note to the Consolidated Financial Statements No. 9, Financing Arrangements and Derivative Financial Instruments.

The calculation of the Merger Consideration is as follows:

(In millions, except share and per share amounts)

 

Shares

 

 

Per Share (4)

 

 

Total

 

Cash paid for Cooper Tire Shares(1)

 

 

 

 

 

 

 

$

2,121

 

Cash paid for other Cooper Tire incentive compensation awards(2)

 

 

 

 

 

 

 

 

34

 

Cash component of the Merger Consideration

 

 

 

 

 

 

 

$

2,155

 

Shares of Goodyear Common Stock issued to Cooper Tire Stockholders(3)

 

 

46,060,349

 

 

$

20.46

 

 

 

942

 

Merger Consideration

 

 

 

 

 

 

 

$

3,097

 

 

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Table of Contents

(1)
The cash component of the Merger Consideration is computed based on 100% of the outstanding shares of Cooper Tire common stock, including shares issuable pursuant to the conversion of certain equity-based awards outstanding under Cooper Tire’s equity-based incentive compensation plans (“Cooper Tire Shares”), being exchanged, in part, for the per share cash amount of $41.75. Awards outstanding under Cooper Tire equity-based incentive compensation plans that were converted include Cooper Tire restricted stock units and Cooper Tire performance stock units. These Cooper Tire equity-based awards were canceled and each share equivalent unit was converted, as appropriate, into the Merger Consideration.

(In millions, except share and per share amounts)

 

Shares

 

 

Per Share

 

 

Total

 

Shares of Cooper Tire Common Stock outstanding as of the Closing Date

 

 

50,523,922

 

 

 

 

 

 

 

Shares issuable pursuant to conversion of share units outstanding
     under Cooper Tire equity-based compensation plans

 

 

269,238

 

 

 

 

 

 

 

Cooper Tire Shares

 

 

50,793,160

 

 

$

41.75

 

 

$

2,121

 

(2)
Cash consideration for the settlement of outstanding Cooper Tire stock options, Cooper Tire performance cash units and Cooper Tire notional deferred stock units, all of which were cancelled at the Closing Date and paid in cash.
(3)
The stock component of the Merger Consideration is computed based on a fixed exchange ratio of 0.907 shares of Goodyear common stock per Cooper Tire Share being exchanged. Shares issued of 46,060,349 are comprised of 45,824,480 of newly issued shares and 235,869 of shares issued from treasury.

 

 

Shares

 

 

Exchange
Ratio

 

 

Total

 

Cooper Tire Shares

 

 

50,793,160

 

 

 

 

 

 

 

Less: Cooper Tire Shares settled in cash(5)

 

 

9,975

 

 

 

 

 

 

 

 

 

50,783,185

 

 

 

0.907

 

 

 

46,060,349

 

(4)
Represents the closing market price of our common stock as of June 4, 2021, the last trading day prior to the Closing Date.
(5)
Represents fractional and certain other shares that were settled in cash.

The following table presents supplemental cash flow information related to the acquisition of Cooper Tire:

(In millions)

 

 

 

Cash component of the Merger Consideration

 

$

2,155

 

Less:

 

 

 

Cash acquired

 

 

231

 

Restricted cash acquired

 

 

68

 

Acquisition of Cooper Tire, net of cash and restricted cash acquired

 

$

1,856

 

The Consolidated Statements of Cash Flows are presented net of the stock component of the Merger Consideration, which represents a non-cash transaction.

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Table of Contents

The Merger Consideration was allocated on a preliminary basis as of the Closing Date. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of Cooper Tire are recognized and measured at fair value. The determination of the fair values of certain assets acquired, including Inventories, Property, Plant and Equipment, Goodwill, Intangible Assets, and Deferred Income Taxes, is dependent upon completion of further fair value analysis by the Company. The determination of the fair values of certain liabilities assumed is dependent upon completion of certain actuarial and other valuations and studies. Given the complex nature of the related valuations and analyses to be completed and the timing of the acquisition, the preliminary purchase price allocation is subject to change. The final valuation of assets acquired and liabilities assumed may be materially different from the estimated values shown below.

The following table sets forth the preliminary allocation of the Merger Consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of Cooper Tire, with the excess recorded to Goodwill:

(In millions)

 

As of June 7, 2021

 

Cash and Cash Equivalents

 

$

231

 

Accounts Receivable

 

 

621

 

Inventories

 

 

693

 

Property, Plant and Equipment

 

 

1,372

 

Goodwill

 

 

475

 

Intangible Assets

 

 

1,086

 

Other Assets

 

 

362

 

 

 

4,840

 

 

 

 

Accounts Payable — Trade

 

 

464

 

Compensation and Benefits

 

 

386

 

Debt, Finance Leases and Notes Payable and Overdrafts

 

 

151

 

Deferred Tax Liabilities, net

 

 

347

 

Other Liabilities

 

 

374

 

Minority Equity

 

 

21

 

 

 

1,743

 

Merger Consideration

 

$

3,097

 

The estimated value of Inventory includes adjustments totaling $230 million, comprised of $121 million to adjust inventory valued on a last-in, first-out ("LIFO") basis to a current cost basis and $109 million to step-up inventory to estimated fair value. The fair value step-up will amortize to Cost of Goods Sold ("CGS") as the related inventory is sold, which negatively impacted the second quarter of 2021 by $38 million. We have eliminated the LIFO reserve on Cooper Tire’s U.S. inventories as we predominately determine the value of our inventory using the first-in, first-out ("FIFO") method. To estimate the fair value of inventory, we considered the components of Cooper Tire’s inventory, as well as estimates of selling prices and selling and distribution costs that were based on Cooper Tire’s historical experience.

The estimated value of Property, Plant and Equipment includes adjustments totaling $175 million to increase the net book value of $1,197 million to the preliminary fair value estimate of $1,372 million. This estimate is based on other comparable acquisitions and historical experience, and preliminary expectations as to the duration of time we expect to realize benefits from those assets, as we do not yet have sufficient information as to the underlying condition of Cooper Tire’s fixed assets.

The estimated fair values of identifiable intangible assets acquired were prepared using an income valuation approach, which requires a forecast of expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method. The estimated useful lives are based on our historical experience and expectations as to the duration of time we expect to realize benefits from those assets. The estimated fair values of the identifiable intangible assets acquired, their estimated useful lives and the related valuation methodology are as follows:

(In millions)

 

Preliminary
Fair Value

 

 

Range of
Useful Lives

 

Valuation Methodology

Trade names (indefinite-lived)

 

$

310

 

 

 N/A

 

Relief-from-royalty

Trade names (definite-lived)

 

 

40

 

 

13-15 years

 

Relief-from-royalty

Customer relationships

 

 

730

 

 

7-16 years

 

Multi-period excess earnings

Non-compete and other

 

 

6

 

 

 

 

 

 

$

1,086

 

 

 

 

 

 

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Table of Contents

At the Closing Date, all of the calculated Goodwill of $475 million was allocated to our Americas segment. The goodwill consists of expected future economic benefits that will arise from expected future product sales, operating efficiencies and other synergies that may result from the Merger, including income tax synergies, and is not deductible for tax purposes.

Net sales and earnings related to Cooper Tire’s operations that have been included in our Consolidated Statements of Operations for the period from the Closing Date through June 30, 2021 are as follows:

(In millions)

 

 

 

Net Sales

 

$

256

 

Income (Loss) before Income Taxes

 

 

(20

)

Goodyear Net Income (Loss)

 

 

(6

)

During the three and six months ended June 30, 2021, we incurred transaction and other costs in connection with the Merger totaling $48 million and $55 million, respectively, including $10 million for a commitment fee related to a bridge term loan facility that was not utilized to finance the transaction and $6 million related to the post-combination settlement of certain Cooper Tire incentive compensation awards during the second quarter of 2021. In the three and six months ended June 30, 2021, $42 million and $49 million of these costs, respectively, are included in Other (Income) Expense, with the remainder included in CGS and Selling, Administrative and General Expense ("SAG") in our Consolidated Statements of Operations.

Pro forma financial information

The following table summarizes, on a pro forma basis, the combined results of operations of Goodyear and Cooper Tire as though the acquisition and the related financing had occurred as of January 1, 2020. The pro forma results are not necessarily indicative of either the actual consolidated results had the acquisition of Cooper Tire occurred on January 1, 2020, nor are they indicative of future consolidated operating results.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Sales

 

$

4,563

 

 

$

2,655

 

 

$

8,744

 

 

$

6,253

 

Income (Loss) before Income Taxes

 

 

232

 

 

 

(957

)

 

 

320

 

 

 

(1,638

)

Goodyear Net Income (Loss)

 

 

167

 

 

 

(748

)

 

 

220

 

 

 

(1,612

)

These pro forma amounts have been calculated after applying Goodyear’s accounting policies and making certain adjustments, which primarily include: (i) depreciation adjustments relating to fair value step-ups to property, plant and equipment; (ii) amortization adjustments relating to fair value estimates of acquired intangible assets; (iii) incremental interest expense associated with the $1.45 billion senior note issuance and additional borrowings under our first lien revolving credit facility used, in part, to fund the acquisition, related debt issuance costs, and fair value adjustments related to Cooper Tire's debt; (iv) CGS adjustments relating to fair value step-ups to inventory and the change from LIFO to FIFO; (v) executive severance and stock-based compensation that was accelerated and settled on the Closing Date; and (vi) transaction related costs of both Goodyear and Cooper Tire.

NOTE 3. NET SALES

The following tables show disaggregated net sales from contracts with customers by major source:

 

 

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

Europe, Middle East

 

 

 

 

 

 

 

(In millions)

 

Americas

 

 

and Africa

 

 

Asia Pacific

 

 

Total

 

Tire unit sales

 

$

1,777

 

 

$

1,085

 

 

$

455

 

 

$

3,317

 

Other tire and related sales

 

 

170

 

 

 

114

 

 

 

22

 

 

 

306

 

Retail services and service related sales

 

 

155

 

 

 

29

 

 

 

15

 

 

 

199

 

Chemical sales

 

 

149

 

 

 

0

 

 

 

0

 

 

 

149

 

Other

 

 

5

 

 

 

2

 

 

 

1

 

 

 

8

 

Net Sales by reportable segment

 

$

2,256

 

 

$

1,230

 

 

$

493

 

 

$

3,979

 

 

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Table of Contents

 

 

 

Three Months Ended June 30, 2020

 

 

 

 

 

 

Europe, Middle East

 

 

 

 

 

 

 

(In millions)

 

Americas

 

 

and Africa

 

 

Asia Pacific

 

 

Total

 

Tire unit sales

 

$

835

 

 

$

595

 

 

$

304

 

 

$

1,734

 

Other tire and related sales

 

 

118

 

 

 

63

 

 

 

14

 

 

 

195

 

Retail services and service related sales

 

 

128

 

 

 

17

 

 

 

16

 

 

 

161

 

Chemical sales

 

 

49

 

 

 

0

 

 

 

0

 

 

 

49

 

Other

 

 

4

 

 

 

1

 

 

 

0

 

 

 

5

 

Net Sales by reportable segment

 

$

1,134

 

 

$

676

 

 

$

334

 

 

$

2,144

 

 

 

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

Europe, Middle East

 

 

 

 

 

 

 

(In millions)

 

Americas

 

 

and Africa

 

 

Asia Pacific

 

 

Total

 

Tire unit sales

 

$

3,171

 

 

$

2,207

 

 

$

909

 

 

$

6,287

 

Other tire and related sales

 

 

310

 

 

 

193

 

 

 

44

 

 

 

547

 

Retail services and service related sales

 

 

291

 

 

 

57

 

 

 

31

 

 

 

379

 

Chemical sales

 

 

262

 

 

 

0

 

 

 

0

 

 

 

262

 

Other

 

 

9

 

 

 

4

 

 

 

2

 

 

 

15

 

Net Sales by reportable segment

 

$

4,043

 

 

$

2,461

 

 

$

986

 

 

$

7,490

 

 

 

 

Six Months Ended June 30, 2020

 

 

 

 

 

 

Europe, Middle East

 

 

 

 

 

 

 

(In millions)

 

Americas

 

 

and Africa

 

 

Asia Pacific

 

 

Total

 

Tire unit sales

 

$

2,141

 

 

$

1,499

 

 

$

647

 

 

$

4,287

 

Other tire and related sales

 

 

260

 

 

 

135

 

 

 

46

 

 

 

441

 

Retail services and service related sales

 

 

261

 

 

 

35

 

 

 

28

 

 

 

324

 

Chemical sales

 

 

140

 

 

 

0

 

 

 

0

 

 

 

140

 

Other

 

 

5

 

 

 

2

 

 

 

1

 

 

 

8

 

Net Sales by reportable segment

 

$

2,807

 

 

$

1,671

 

 

$

722

 

 

$

5,200

 

 

Tire unit sales consist of consumer, commercial, farm and off-the-road tire sales, including the sale of new Company-branded tires through Company-owned retail channels. Other tire and related sales consist of aviation, race and motorcycle tire sales, retread sales and other tire related sales. Sales of tires in this category are not included in reported tire unit information. Retail services and service related sales consist of automotive services performed for customers through our Company-owned retail channels, and includes service related products. Chemical sales relate to the sale of synthetic rubber and other chemicals to third parties, and exclude intercompany sales. Other sales include items such as franchise fees and ancillary tire parts.

When we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract, we record deferred revenue, which represents a contract liability. Deferred revenue included in Other Current Liabilities in the Consolidated Balance Sheets totaled $24 million and $23 million at June 30, 2021 and December 31, 2020, respectively. Deferred revenue included in Other Long Term Liabilities in the Consolidated Balance Sheets totaled $21 million and $27 million at June 30, 2021 and December 31, 2020, respectively. We recognize deferred revenue after we have transferred control of the goods or services to the customer and all revenue recognition criteria are met.

The following table presents the balance of deferred revenue related to contracts with customers, and changes during the six months ended June 30, 2021:

 

 

 

 

(In millions)

 

 

 

Balance at December 31, 2020

 

$

50

 

Revenue deferred during period

 

 

71

 

Revenue recognized during period

 

 

(76

)

Impact of foreign currency translation

 

 

0

 

Balance at June 30, 2021

 

$

45

 

 

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Table of Contents

NOTE 4. COSTS ASSOCIATED WITH RATIONALIZATION PROGRAMS

In order to maintain our global competitiveness, we have implemented rationalization actions over the past several years to reduce high-cost and excess manufacturing capacity and operating and administrative costs.

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

 

 

Associate-

 

 

 

 

 

 

 

(In millions)

 

Related Costs

 

 

Other Costs

 

 

Total

 

Balance at December 31, 2020

 

$

200

 

 

$

0

 

 

$

200

 

2021 Charges

 

 

48

 

 

 

20

 

 

 

68

 

Incurred, net of foreign currency translation of $(5) million and $0 million, respectively

 

 

(108

)

 

 

(20

)

 

 

(128

)

Reversed to the Statement of Operations

 

 

0

 

 

 

0

 

 

 

0

 

Balance at June 30, 2021

 

$

140

 

 

$

0

 

 

$

140

 

During the first quarter of 2021, we approved a plan primarily designed to reduce SAG in Europe, Middle East and Africa (“EMEA”). We have $19 million accrued related to this plan at June 30, 2021, which is expected to be substantially paid through 2021.

During the first quarter of 2021, we increased by $32 million the estimated total cost of our previously announced plan to permanently close our Gadsden, Alabama tire manufacturing facility (“Gadsden”), primarily to reflect our decision to transfer additional machinery and equipment from Gadsden to other tire manufacturing facilities. We have $22 million accrued at June 30, 2021 related to this plan, which is expected to be substantially paid through 2021. In addition, we increased by $8 million and $29 million in the second quarter and first half of 2021, respectively, the estimated total cost of our previously announced plan to modernize 2 of our tire manufacturing facilities in Germany, primarily to increase expected associate severance costs based on actual payout history to date and the mix of associates electing lump sum vs. annuity settlements. We have $53 million accrued at June 30, 2021 related to this plan, which is expected to be substantially paid through 2022.

The remainder of the accrual balance at June 30, 2021 is expected to be substantially utilized in the next 12 months and includes $12 million related to global plans to reduce SAG headcount, $8 million related to plans to reduce manufacturing headcount and improve operating efficiency in EMEA, $6 million related to the closed Amiens, France tire manufacturing facility, and $5 million related to a plan primarily to offer voluntary buy-outs to certain associates at Gadsden. 

The following table shows net rationalization charges included in Income (Loss) before Income Taxes:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Current Year Plans

 

 

 

 

 

 

 

 

 

 

 

 

Associate Severance and Other Related Costs

 

$

0

 

 

$

64

 

 

$

20

 

 

$

66

 

Benefit Plan Curtailments/Settlements/Termination Benefits

 

 

0

 

 

 

5

 

 

 

0

 

 

 

5

 

Other Exit Costs

 

 

0

 

 

 

2

 

 

 

0

 

 

 

2

 

Current Year Plans - Net Charges

 

$

0

 

 

$

71

 

 

$

20

 

 

$

73

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior Year Plans

 

 

 

 

 

 

 

 

 

 

 

 

Associate Severance and Other Related Costs

 

$

8

 

 

$

27

 

 

$

28

 

 

$

33

 

Benefit Plan Curtailments/Settlements/Termination Benefits

 

 

0

 

 

 

 

 

 

0

 

 

 

(4

)

Other Exit Costs

 

 

10

 

 

 

1

 

 

 

20

 

 

 

6

 

Prior Year Plans - Net Charges

 

 

18

 

 

 

28

 

 

 

48

 

 

 

35

 

Total Net Charges

 

$

18

 

 

$

99

 

 

$

68

 

 

$

108

 

Asset Write-off and Accelerated Depreciation Charges(1)

 

$

0

 

 

$

86

 

 

$

0

 

 

$

90

 

(1)
Asset write-off and accelerated depreciation charges for the three and six months ended June 30, 2020 are primarily related to the permanent closure of Gadsden.

Substantially all of the new charges for the three and six months ended June 30, 2021 and 2020 related to future cash outflows. Net current year plan charges for the six months ended June 30, 2021 primarily related to a plan to reduce SAG headcount in EMEA. Net current year plan charges for the three and six months ended June 30, 2020 primarily related to the permanent closure of Gadsden, including a $5 million termination benefits charge for one of our defined benefit pension plans.

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Net prior year plan charges for the three and six months ended June 30, 2021 included $7 million and $21 million, respectively, related to the modernization of two of our tire manufacturing facilities in Germany, $9 million and $17 million, respectively, related to Gadsden, and $2 million and $8 million, respectively, related to various plans to reduce manufacturing headcount and improve operating efficiency in EMEA. Net prior year plan charges for the three and six months ended June 30, 2020 included $25 million related to additional termination benefits for associates at the closed Amiens, France manufacturing facility. Refer to Note to the Consolidated Financial Statements No. 13, Commitments and Contingent Liabilities. In addition, net prior year plan charges for the six months ended June 30, 2020 included $6 million related to the plan to modernize two of our tire manufacturing facilities in Germany and $4 million related to the plan primarily to offer voluntary buy-outs to certain associates at Gadsden. Net prior year plan charges for the six months ended June 30, 2020 also included a curtailment credit of $4 million for a postretirement benefit plan related to the exit of employees under an approved rationalization plan.

Ongoing rationalization plans had approximately $740 million in charges incurred prior to 2021 and approximately $70 million is expected to be incurred in future periods.

Approximately 60 associates will be released under new plans initiated in 2021. In the first six months of 2021, approximately 200 associates were released under plans initiated in prior years. Approximately 300 associates remain to be released under all ongoing rationalization plans.

NOTE 5. OTHER (INCOME) EXPENSE

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Non-service related pension and other postretirement benefits cost

 

$

32

 

 

$

25

 

 

$

49

 

 

$

51

 

Interest income on a favorable indirect tax ruling in Brazil

 

 

(48

)

 

 

0

 

 

 

(48

)

 

 

0

 

Financing fees and financial instruments expense

 

 

17

 

 

 

5

 

 

 

25

 

 

 

12

 

Net foreign currency exchange (gains) losses

 

 

0

 

 

 

4

 

 

 

10

 

 

 

3

 

General and product liability expense - discontinued products

 

 

2

 

 

 

2

 

 

 

3

 

 

 

4

 

Royalty income

 

 

(5

)

 

 

(4

)

 

 

(10

)

 

 

(9

)

Net (gains) losses on asset sales

 

 

0

 

 

 

3

 

 

 

0

 

 

 

2

 

Interest income

 

 

(5

)

 

 

(3

)

 

 

(11

)

 

 

(6

)

Transaction costs

 

 

32

 

 

 

0

 

 

 

39

 

 

 

0

 

Miscellaneous (income) expense

 

 

5

 

 

 

2

 

 

 

7

 

 

 

4

 

 

$

30

 

 

$

34

 

 

$

64

 

 

$

61

 

Non-service related pension and other postretirement benefits cost consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost, as well as curtailments and settlements which are not related to rationalization plans. For further information, refer to Note to the Consolidated Financial Statements No. 11, Pension, Savings and Other Postretirement Benefit Plans.

We, along with other companies, have previously filed various claims with the Brazilian tax authorities challenging the legality of the government's calculation of certain indirect taxes dating back to 2001. During the second quarter of 2021, the Brazilian Supreme Court rendered a final ruling that was favorable to companies on the remaining open aspects of these claims. As a result of this ruling, we recorded a gain in CGS of $69 million and related interest income of $48 million in Other (Income) Expense.

Financing fees and financial instruments expense consists of commitment fees and charges incurred in connection with financing transactions. Financing fees and financial instruments expense for the three and six months ended June 30, 2021 include a $10 million charge for a commitment fee on a bridge term loan facility related to the Cooper Tire acquisition that was not utilized and was terminated upon the closing of the transaction.

Net foreign currency exchange (gains) losses include $7 million of expense in the first quarter of 2021 related to the out of period adjustments discussed in Note to the Consolidated Financial Statements No. 1, Accounting Policies.

Transaction costs include legal, consulting and other expenses incurred by us in connection with the Cooper Tire acquisition.

Other (Income) Expense also includes general and product liability expense - discontinued products, which consists of charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries; royalty income which is derived primarily from licensing arrangements; net (gains) and losses on asset sales; and interest income.

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NOTE 6. INCOME TAXES

For the second quarter of 2021, we recorded income tax expense of $27 million on income before income taxes of $98 million. For the first six months of 2021, we recorded income tax expense of $42 million on income before income taxes of $131 million. Income tax expense for the three and six months ended June 30, 2021 includes net discrete benefits of $32 million and $29 million, respectively, primarily related to adjusting our deferred tax assets in England for an enacted increase in the tax rate, partially offset by net discrete charges for various items, including the settlement of a tax audit in Poland.

For the second quarter of 2020, we recorded an income tax benefit of $186 million on a loss before income taxes of $889 million. For the first six months of 2020, we recorded income tax expense of $63 million on a loss before income taxes of $1,257 million. Income tax expense (benefit) for the three and six months ended June 30, 2020 includes net discrete charges of $2 million and $293 million, respectively, primarily related to the establishment of a $295 million valuation allowance on certain deferred tax assets for foreign tax credits during the first quarter of 2020.

We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three and six months ended June 30, 2021 primarily relates to the tax on a favorable indirect tax ruling in Brazil, losses in foreign jurisdictions in which no tax benefits are recorded, and the discrete items noted above. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three and six months ended June 30, 2020 primarily relates to the discrete items noted above, a non-cash goodwill impairment charge of $182 million, and forecasted losses for the full year in foreign jurisdictions in which 0 tax benefits are recorded, which were accentuated during 2020 by business interruptions resulting from the COVID-19 pandemic.

We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. We give operating results during the most recent three-year period a significant weight in our analysis. We typically only consider forecasts of future profitability when positive cumulative operating results exist in the most recent three-year period. We perform scheduling exercises to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We consider tax planning strategies available to accelerate taxable amounts if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized.

At June 30, 2021 and December 31, 2020, we had approximately $800 million and $1.2 billion of U.S. federal, state and local net deferred tax assets, respectively, net of valuation allowances totaling $368 million primarily for foreign tax credits with limited lives. At June 30, 2021, approximately $500 million of these U.S. net deferred tax assets have unlimited lives and approximately $300 million have limited lives and expire between 2025 and 2041. The decrease in our U.S. net deferred tax assets from December 31, 2020 primarily reflects the establishment of deferred tax liabilities for the tax impacts of certain fair value and other purchase accounting adjustments related to the Cooper Tire acquisition. In the U.S., we have a cumulative loss for the three-year period ending June 30, 2021. However, as the three-year cumulative loss in the U.S. is driven by business disruptions created by the COVID-19 pandemic, primarily in 2020, we also considered other objectively verifiable information in assessing our ability to utilize our net deferred tax assets, including recent favorable recovery trends in the tire industry and our tire volume as well as expected continued improvement. In addition, the Cooper Tire acquisition is expected to generate incremental domestic earnings and provide opportunities for cost and other operating synergies to further improve our U.S. profitability. These favorable trends, together with tax planning strategies, may provide sufficient objectively verifiable information to reverse a portion or all of our U.S. valuation allowances for foreign tax credits within the next twelve months.

At June 30, 2021 and December 31, 2020, our U.S. net deferred tax assets included $150 million and $133 million, respectively, of foreign tax credits with limited lives, net of valuation allowances of $328 million, generated primarily from the receipt of foreign dividends. Our earnings and forecasts of future profitability, taking into consideration recent trends, along with three significant sources of foreign income provide us sufficient positive evidence that we will be able to utilize our remaining foreign tax credits that expire between 2025 and 2031. Our sources of foreign income are (1) 100% of our domestic profitability can be re-characterized as foreign source income under current U.S. tax law to the extent domestic losses have offset foreign source income in prior years, (2) annual net foreign source income, exclusive of dividends, primarily from royalties, and (3) tax planning strategies, including capitalizing research and development costs, accelerating income on cross border transactions, including sales of inventory or raw materials to our subsidiaries, and reducing U.S. interest expense by, for example, reducing intercompany loans through repatriating current year earnings of foreign subsidiaries, all of which would increase our domestic profitability.

We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our foreign tax credits. As noted above, these forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of the COVID-19 pandemic, on our profitability, as well as the impact of tax planning strategies.

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Table of Contents

Macroeconomic factors, including the impact of the COVID-19 pandemic, possess a high degree of volatility and can significantly impact our profitability. As such, there is a risk that future earnings will not be sufficient to fully utilize our U.S. net deferred tax assets, including our remaining foreign tax credits. However, we believe our forecasts of future profitability along with the three significant sources of foreign income described above provide us sufficient positive, objectively verifiable evidence to conclude that it is more likely than not that, at June 30, 2021, our U.S. net deferred tax assets, including our foreign tax credits, net of valuation allowances, will be fully utilized.

At June 30, 2021 and December 31, 2020, we had approximately $1.4 billion and $1.3 billion of foreign deferred tax assets, and valuation allowances of $1.1 billion. Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of these net foreign deferred tax assets. Most notably, in Luxembourg, we maintain a valuation allowance of approximately $933 million on all of our net deferred tax assets. Each reporting period, we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release valuation allowances having a significant impact on our financial position or results of operations will exist within the next twelve months.

For the six months ended June 30, 2021, changes to our unrecognized tax benefits did not, and for the full year of 2021 are not expected to, have a significant impact on our financial position or results of operations.

We are open to examination in the United States for 2020 and in Germany from 2018 onward. Cooper Tire, our newly acquired wholly owned subsidiary, is open to examination in the United States from 2017 onward. Generally, for our remaining tax jurisdictions, years from 2016 onward are still open to examination.

NOTE 7. EARNINGS PER SHARE

Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are calculated to reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock.

Basic and diluted earnings per common share are calculated as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions, except per share amounts)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Earnings (loss) per share — basic:

 

 

 

 

 

 

 

 

 

 

 

 

Goodyear net income (loss)

 

$

67

 

 

$

(696

)

 

$

79

 

 

$

(1,315

)

Weighted average shares outstanding

 

 

244

 

 

 

234

 

 

 

239

 

 

 

234

 

Earnings (loss) per common share — basic

 

$

0.27

 

 

$

(2.97

)

 

$

0.33

 

 

$

(5.62

)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share — diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Goodyear net income (loss)

 

$

67

 

 

$

(696

)

 

$

79

 

 

$

(1,315

)

Weighted average shares outstanding

 

 

244

 

 

 

234

 

 

 

239

 

 

 

234

 

Dilutive effect of stock options and other dilutive securities

 

 

3

 

 

 

0

 

 

 

3

 

 

 

0

 

Weighted average shares outstanding — diluted

 

 

247

 

 

 

234

 

 

 

242

 

 

 

234

 

Earnings (loss) per common share — diluted

 

$

0.27

 

 

$

(2.97

)

 

$

0.32

 

 

$

(5.62

)

 

Weighted average shares outstanding — diluted for the three and six months ended June 30, 2021 excludes approximately 2 million equivalent shares related to options with exercise prices greater than the average market price of our common shares (i.e., "underwater" options). Weighted average shares outstanding — diluted for the three and six months ended June 30, 2020 excludes approximately 9 million equivalent shares related to underwater options. At June 30, 2020, there were 0 options with exercise prices less than the average market price of our common shares (i.e., “in-the-money” options).

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Table of Contents

NOTE 8. BUSINESS SEGMENTS

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

2,256

 

 

$

1,134

 

 

$

4,043

 

 

$

2,807

 

Europe, Middle East and Africa

 

 

1,230

 

 

 

676

 

 

 

2,461

 

 

 

1,671

 

Asia Pacific

 

 

493

 

 

 

334

 

 

 

986

 

 

 

722

 

Net Sales

 

$

3,979

 

 

$

2,144

 

 

$

7,490

 

 

$

5,200

 

Segment Operating Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

233

 

 

$

(287

)

 

$

347

 

 

$

(287

)

Europe, Middle East and Africa

 

 

43

 

 

 

(110

)

 

 

117

 

 

 

(163

)

Asia Pacific

 

 

23

 

 

 

(34

)

 

 

61

 

 

 

(28

)

Total Segment Operating Income (Loss)

 

$

299

 

 

$

(431

)

 

$

525

 

 

$

(478

)

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill and other asset impairments

 

$

0

 

 

$

148

 

 

$

0

 

 

$

330

 

Rationalizations (Note 4)

 

 

18

 

 

 

99

 

 

 

68

 

 

 

108

 

Interest expense

 

 

97

 

 

 

85

 

 

 

176

 

 

 

158

 

Other (income) expense (Note 5)

 

 

30

 

 

 

34

 

 

 

64

 

 

 

61

 

Asset write-offs and accelerated depreciation (Note 4)

 

 

0

 

 

 

86

 

 

 

0

 

 

 

90

 

Corporate incentive compensation plans

 

 

24

 

 

 

7

 

 

 

33

 

 

 

10

 

Retained expenses of divested operations

 

 

4

 

 

 

1

 

 

 

7

 

 

 

3

 

Other

 

 

28

 

 

 

(2

)

 

 

46

 

 

 

19

 

Income (Loss) before Income Taxes

 

$

98

 

 

$

(889

)

 

$

131

 

 

$

(1,257

)

 

Goodwill and other asset impairments; rationalizations, as described in Note to the Consolidated Financial Statements No. 4, Costs Associated with Rationalization Programs; net (gains) losses on asset sales, as described in Note to the Consolidated Financial Statements No. 5, Other (Income) Expense; and asset write-offs and accelerated depreciation were not charged to the strategic business units ("SBUs") for performance evaluation purposes but were attributable to the SBUs as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Goodwill and Other Asset Impairments:

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

0

 

 

$

148

 

 

$

0

 

 

$

148

 

Europe, Middle East and Africa

 

 

0

 

 

 

0

 

 

 

0

 

 

 

182

 

Total Segment Goodwill and Other Asset Impairments

 

$

0

 

 

$

148

 

 

$

0

 

 

$

330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rationalizations:

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

8

 

 

$

69

 

 

$

18

 

 

$

72

 

Europe, Middle East and Africa

 

 

7

 

 

 

30

 

 

 

44

 

 

 

36

 

Total Segment Rationalizations

 

$

15

 

 

$

99

 

 

$

62

 

 

$

108

 

Corporate

 

 

3

 

 

 

0

 

 

 

6

 

 

 

0

 

 

$

18

 

 

$

99

 

 

$

68

 

 

$

108

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (Gains) Losses on Asset Sales:

 

 

 

 

 

 

 

 

 

 

 

 

Europe, Middle East and Africa

 

$

0

 

 

$

3

 

 

$

0

 

 

$

2

 

Total Segment Net (Gains) Losses on Asset Sales

 

$

0

 

 

$

3

 

 

$

0

 

 

$

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Write-offs and Accelerated Depreciation:

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

0

 

 

$

86

 

 

$

0

 

 

$

89

 

Europe, Middle East and Africa

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1

 

Total Segment Asset Write-offs and Accelerated Depreciation

 

$

0

 

 

$

86

 

 

$

0

 

 

$

90

 

 

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Table of Contents

The following table presents segment assets:

 

 

 

June 30,

 

 

December 31,

 

(In millions)

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

Americas

 

$

9,902

 

 

$

6,666

 

Europe, Middle East and Africa

 

 

5,366

 

 

 

4,825

 

Asia Pacific

 

 

3,143

 

 

 

2,725

 

Total Segment Assets

 

 

18,411

 

 

 

14,216

 

Corporate(1)

 

 

2,769

 

 

 

2,290

 

 

$

21,180

 

 

$

16,506

 

(1)
Corporate includes substantially all of our U.S. net deferred tax assets.

The increases from December 31, 2020 were driven by the acquisition of Cooper Tire.

NOTE 9. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS

At June 30, 2021, we had total credit arrangements of $11,951 million, of which $4,112 million were unused. At that date, 23% of our debt was at variable interest rates averaging 2.98%.

Notes Payable and Overdrafts, Long Term Debt and Finance Leases due Within One Year and Short Term Financing Arrangements

At June 30, 2021, we had short term committed and uncommitted credit arrangements totaling $968 million, of which $479 million were unused. These arrangements are available primarily to certain of our foreign subsidiaries through various banks at quoted market interest rates.

The following table presents amounts due within one year:

 

 

 

June 30,

 

 

December 31,

 

(In millions)

 

2021

 

 

2020

 

Chinese credit facilities

 

$

96

 

 

$

163

 

Other foreign and domestic debt

 

 

363

 

 

 

243

 

Notes Payable and Overdrafts

 

$

459

 

 

$

406

 

Weighted average interest rate

 

 

4.05

%

 

 

4.52

%

 

 

 

 

 

 

Chinese credit facilities

 

$

90

 

 

$

13

 

Other foreign and domestic debt (including finance leases)

 

 

445

 

 

 

139

 

Long Term Debt and Finance Leases due Within One Year

 

$

535

 

 

$

152

 

Weighted average interest rate

 

 

3.29

%

 

 

4.43

%

Total obligations due within one year

 

$

994

 

 

$

558

 

 

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Table of Contents

Long Term Debt and Finance Leases and Financing Arrangements

At June 30, 2021, we had long term credit arrangements totaling $10,983 million, of which $3,633 million were unused.

The following table presents long term debt and finance leases, net of unamortized discounts, and interest rates:

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

(In millions)

 

Amount

 

 

Rate

 

 

Amount

 

 

Rate

 

Notes:

 

 

 

 

 

 

 

 

 

 

 

 

5.125% due 2023

 

$

0

 

 

 

 

 

$

1,000

 

 

 

 

3.75% Euro Notes due 2023

 

 

297

 

 

 

 

 

 

307

 

 

 

 

9.5% due 2025

 

 

803

 

 

 

 

 

 

803

 

 

 

 

5% due 2026

 

 

900

 

 

 

 

 

 

900

 

 

 

 

4.875% due 2027

 

 

700

 

 

 

 

 

 

700

 

 

 

 

7.625% due 2027

 

 

136

 

 

 

 

 

 

0

 

 

 

 

7% due 2028

 

 

150

 

 

 

 

 

 

150

 

 

 

 

5% due 2029

 

 

850

 

 

 

 

 

 

0

 

 

 

 

5.25% due April 2031

 

 

550

 

 

 

 

 

 

0

 

 

 

 

5.25% due July 2031

 

 

600

 

 

 

 

 

 

0

 

 

 

 

5.625% due 2033

 

 

450

 

 

 

 

 

 

0

 

 

 

 

Credit Facilities:

 

 

 

 

 

 

 

 

 

 

 

 

First lien revolving credit facility due 2026

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Second lien term loan facility due 2025

 

 

400

 

 

 

2.09

%

 

 

400

 

 

 

2.15

%

European revolving credit facility due 2024

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Pan-European accounts receivable facility

 

 

246

 

 

 

1.15

%

 

 

291

 

 

 

1.18

%

Mexican credit facility

 

 

200

 

 

 

1.82

%

 

 

152

 

 

 

1.87

%

Chinese credit facilities

 

 

314

 

 

 

4.34

%

 

 

212

 

 

 

4.49

%

Other foreign and domestic debt(1)

 

 

712

 

 

 

3.03

%

 

 

451

 

 

 

3.22

%

 

 

7,308

 

 

 

 

 

 

5,366

 

 

 

 

Unamortized deferred financing fees

 

 

(54

)

 

 

 

 

 

(32

)

 

 

 

 

 

7,254

 

 

 

 

 

 

5,334

 

 

 

 

Finance lease obligations(2)

 

 

259

 

 

 

 

 

 

250

 

 

 

 

 

 

7,513

 

 

 

 

 

 

5,584

 

 

 

 

Less portion due within one year

 

 

(535

)

 

 

 

 

 

(152

)

 

 

 

 

$

6,978

 

 

 

 

 

$

5,432

 

 

 

 

(1)
Interest rates are weighted average interest rates primarily related to various foreign credit facilities with customary terms and conditions.
(2)
Includes non-cash financing additions of $10 million during the six month period ended June 30, 2021.

NOTES

At June 30, 2021, we had $5,436 million of outstanding notes, compared to $3,860 million at December 31, 2020. The increase from December 31, 2020 was primarily due to the issuance of $1.45 billion of senior notes to fund a portion of the acquisition of Cooper Tire.

$550 million 5.25% Senior Notes due April 2031 and $450 million 5.625% Senior Notes due 2033

On April 6, 2021, we issued $550 million in aggregate principal amount of 5.25% senior notes due 2031 and $450 million in aggregate principal amount of 5.625% senior notes due 2033. The proceeds from these notes, together with cash and cash equivalents, were used to redeem our existing $1.0 billion 5.125% senior notes due 2023 in May 2021. These notes were sold at 100% of the principal amount and will mature on April 30, 2031 and 2033, respectively. These notes are unsecured senior obligations and are guaranteed by our U.S. and Canadian subsidiaries that also guarantee our obligations under our U.S. senior secured credit facilities described below.

We have the option to redeem these notes, in whole or in part, at any time prior to their maturity. If we elect to redeem these notes prior to three months before their maturity date, we will pay a redemption price equal to the greater of 100% of the principal amount of the notes redeemed and the sum of the present values of the remaining scheduled payments on the notes redeemed, discounted using a defined treasury rate plus 50 basis points, plus in each case accrued and unpaid interest to the redemption date. If we elect to redeem these notes on or after three months before their maturity date, we will pay a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest to the redemption date.

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The terms of the indenture for these notes, among other things, limit our ability and the ability of certain of our subsidiaries to (i) incur certain liens, (ii) engage in sale and leaseback transactions, and (iii) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. These covenants are subject to significant exceptions and qualifications.

$1.0 billion 5.125% Senior Notes due 2023

On May 6, 2021, we repaid in full our $1.0 billion 5.125% senior notes due 2023 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest to the redemption date.

$850 million 5% Senior Notes due 2029 and $600 million 5.25% Senior Notes due July 2031

On May 18, 2021, we issued $850 million in aggregate principal amount of 5% senior notes due 2029 and $600 million in aggregate principal amount of 5.25% senior notes due 2031. The net proceeds from these notes, together with cash and cash equivalents and borrowings under our first lien revolving credit facility, were used to fund the cash portion of the consideration for the acquisition of Cooper Tire and related transaction costs. These notes were sold at 100% of the principal amount and will mature on July 15, 2029 and 2031, respectively. These notes are unsecured senior obligations and are guaranteed by our U.S. and Canadian subsidiaries that also guarantee our obligations under our U.S. senior secured credit facilities described below.

We have the option to redeem these notes, in whole or in part, at any time prior to their maturity. If we elect to redeem these notes prior to three months before their maturity date, we will pay a redemption price equal to the greater of 100% of the principal amount of the notes redeemed and the sum of the present values of the remaining scheduled payments on the notes redeemed, discounted using a defined treasury rate plus 50 basis points, plus in each case accrued and unpaid interest to the redemption date. If we elect to redeem these notes on or after three months before their maturity date, we will pay a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest to the redemption date.

The terms of the indenture for these notes, among other things, limit our ability and the ability of certain of our subsidiaries to (i) incur certain liens, (ii) engage in sale and leaseback transactions, and (iii) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. These covenants are subject to significant exceptions and qualifications.

$136 million 7.625% Senior Notes due 2027 of Cooper Tire

Following the Cooper Tire acquisition, $117 million in aggregate principal amount of Cooper Tire's 7.625% senior notes due 2027 remain outstanding. These notes also include a $19 million fair value step-up, which will be amortized to interest expense over the remaining life of the notes. These notes will mature on March 15, 2027 and are unsecured senior obligations of Cooper Tire. These notes are not redeemable prior to maturity.

The terms of the indenture for these notes, among other things, limit the ability of Cooper Tire and certain of its subsidiaries to (i) incur certain liens, (ii) enter into certain sale/leaseback transactions and (iii) consolidate, merge, sell or otherwise dispose of all or substantially all of their assets. These covenants are subject to significant exceptions and qualifications.

CREDIT FACILITIES

$2.75 billion Amended and Restated First Lien Revolving Credit Facility due 2026

On June 7, 2021, we amended and restated our $2.0 billion first lien revolving credit facility.  Changes to the facility include extending the maturity to June 8, 2026, increasing the amount of the facility to $2.75 billion, and including Cooper Tire's accounts receivable and inventory in the borrowing base for the facility.  The interest rate for loans under the facility decreased by 50 basis points to LIBOR plus 125 basis points, based on our current liquidity as described below.

Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit.  Up to $800 million in letters of credit and $50 million of swingline loans are available for issuance under the facility.  Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million.

Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries, including, as of July 2, 2021, Cooper Tire and certain of its subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. 

Availability under the facility is subject to a borrowing base, which is based on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks in an amount not to exceed $400 million, (iii) the value of eligible machinery and equipment, and (iv) certain cash in an amount not to exceed $275 million.  To the extent that our eligible accounts receivable, inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.75 billion.  As of June 30, 2021, our borrowing base, and therefore our availability, under this facility was $423 million below the facility's stated amount of $2.75 billion.

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The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2020. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.

If Available Cash (as defined in the facility) plus the availability under the facility is greater than $750 million, amounts drawn under the facility will bear interest, at our option, at (i) 125 basis points over LIBOR or (ii) 25 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). If Available Cash plus the availability under the facility is equal to or less than $750 million, then amounts drawn under the facility will bear interest, at our option, at (i) 150 basis points over LIBOR or (ii) 50 basis points over an alternative base rate. Undrawn amounts under the facility will be subject to an annual commitment fee of 25 basis points.

At June 30, 2021, we had 0 borrowings and $19 million of letters of credit issued under the revolving credit facility. At December 31, 2020, we had 0 borrowings and $11 million of letters of credit issued under the revolving credit facility.

Amended and Restated Second Lien Term Loan Facility due 2025

Our amended and restated second lien term loan facility matures on March 7, 2025. The term loan bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). In addition, if the Total Leverage Ratio is equal to or less than 1.25 to 1.00, we have the option to further reduce the spreads described above by 25 basis points. "Total Leverage Ratio" has the meaning given it in the facility.

Our obligations under our second lien term loan facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries, including, as of July 2, 2021, Cooper Tire and certain of its subsidiaries, and are secured by second priority security interests in the same collateral securing the $2.75 billion first lien revolving credit facility.

At both June 30, 2021 and December 31, 2020, the amount outstanding under this facility was $400 million.

800 million Amended and Restated Senior Secured European Revolving Credit Facility due 2024

Our amended and restated European revolving credit facility consists of (i) a €180 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €620 million all-borrower tranche that is available to Goodyear Europe B.V. (“GEBV”), GDTG and Goodyear Dunlop Tires Operations S.A. Up to €175 million of swingline loans and €75 million in letters of credit are available for issuance under the all-borrower tranche. Amounts drawn under this facility will bear interest at LIBOR plus 150 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 150 basis points for loans denominated in euros, and undrawn amounts under the facility are subject to an annual commitment fee of 25 basis points.

GEBV and certain of its subsidiaries in the United Kingdom, Luxembourg, France and Germany provide guarantees to support the facility. The German guarantors secure the German tranche on a first-lien basis and the all-borrower tranche on a second-lien basis. GEBV and its other subsidiaries that provide guarantees secure the all-borrower tranche on a first-lien basis and generally do not provide collateral support for the German tranche. The Company and its U.S. and Canadian subsidiaries that guarantee our U.S. senior secured credit facilities described above also provide unsecured guarantees in support of the facility.

The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2018. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.

At both June 30, 2021 and December 31, 2020, there were 0 borrowings and 0 letters of credit outstanding under the European revolving credit facility.

Accounts Receivable Securitization Facilities (On-Balance Sheet)

GEBV and certain other of our European subsidiaries are parties to a pan-European accounts receivable securitization facility that expires in 2023. The terms of the facility provide the flexibility to designate annually the maximum amount of funding available under the facility in an amount of not less than €30 million and not more than €450 million. For the period from October 16, 2020 through October 18, 2021, the designated maximum amount of the facility is €280 million.

The facility involves the ongoing daily sale of substantially all of the trade accounts receivable of certain GEBV subsidiaries. These subsidiaries retain servicing responsibilities. Utilization under this facility is based on eligible receivable balances.

The funding commitments under the facility will expire upon the earliest to occur of: (a) September 26, 2023, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility

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according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events similar to the events of default under our senior secured credit facilities; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 18, 2021.

At June 30, 2021, the amounts available and utilized under this program totaled $246 million (€207 million). At December 31, 2020, the amounts available and utilized under this program totaled $291 million (€237 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Finance Leases.

For a description of the collateral securing the credit facilities described above as well as the covenants applicable to them, refer to Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2020 Form 10-K.

Accounts Receivable Factoring Facilities (Off-Balance Sheet)

We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At June 30, 2021, the gross amount of receivables sold was $518 million, compared to $451 million at December 31, 2020. The increase from December 31, 2020 is primarily due to the addition of Cooper Tire's off-balance sheet factoring programs.

Other Foreign Credit Facilities

A Mexican subsidiary and a U.S. subsidiary have a revolving credit facility in Mexico. At June 30, 2021, the amounts available and utilized under this facility were $200 million. At December 31, 2020, the amounts available and utilized under this facility were $200 million and $152 million, respectively. The facility ultimately matures in 2022, has covenants relating to the Mexican and U.S. subsidiary, and has customary representations and warranties and defaults relating to the Mexican and U.S. subsidiary’s ability to perform its respective obligations under the facility.

A Chinese subsidiary has several financing arrangements in China. At June 30, 2021 and December 31, 2020, the amounts available under these facilities were $931 million and $981 million, respectively. At June 30, 2021, the amount utilized under these facilities was $410 million, of which $96 million represented notes payable and $314 million represented long term debt. At June 30, 2021, $90 million of the long term debt was due within a year. At December 31, 2020, the amount utilized under these facilities was $375 million, of which $163 million represented notes payable and $212 million represented long term debt. At December 31, 2020, $13 million of the long term debt was due within a year. The facilities contain covenants relating to the Chinese subsidiary and have customary representations and warranties and defaults relating to the Chinese subsidiary’s ability to perform its obligations under the facilities. Certain of the facilities can only be used to finance the expansion of our manufacturing facility in China and, at June 30, 2021 and December 31, 2020, the unused amounts available under these facilities were $89 million and $99 million, respectively. Following the Cooper Tire acquisition, two of Cooper Tire's Chinese credit facilities remain outstanding. The amount available under these facilities was $29 million and they were not utilized as of June 30, 2021.

DERIVATIVE FINANCIAL INSTRUMENTS

We utilize derivative financial instrument contracts and nonderivative instruments to manage interest rate, foreign exchange and commodity price risks. We have established a control environment that includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes.

Foreign Currency Contracts

We enter into foreign currency contracts in order to manage the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts may be used to reduce exposure to currency movements affecting existing foreign currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting primarily from trade purchases and sales, equipment acquisitions, intercompany loans and royalty agreements. Contracts hedging short term trade receivables and payables normally have no hedging designation.

The following table presents the fair values for foreign currency hedge contracts that do not meet the criteria to be accounted for as cash flow hedging instruments:

 

 

 

June 30,

 

 

December 31,

 

(In millions)

 

2021

 

 

2020

 

Fair Values — Current asset (liability):

 

 

 

 

 

 

Accounts receivable

 

$

21

 

 

$

1

 

Other current liabilities

 

 

(4

)

 

 

(27

)

 

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At June 30, 2021 and December 31, 2020, these outstanding foreign currency derivatives had notional amounts of $1,335 million and $1,664 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction losses on derivatives of $14 million and net transaction gains on derivatives of $41 million for the three and six months ended June 30, 2021, respectively. Other (Income) Expense included net transaction losses on derivatives of $41 million and $3 million for the three and six months ended June 30, 2020, respectively. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures.

The following table presents fair values for foreign currency hedge contracts that meet the criteria to be accounted for as cash flow hedging instruments:

 

 

 

June 30,

 

 

December 31,

 

(In millions)

 

2021

 

 

2020

 

Fair Values — Current asset (liability):

 

 

 

 

 

 

Other current liabilities

 

$

(2

)

 

$

(7

)

 

At June 30, 2021 and December 31, 2020, these outstanding foreign currency derivatives had notional amounts of $48 million and $50 million, respectively, and primarily related to U.S. dollar denominated intercompany transactions. Based on our current forecasts, including the expected ongoing impacts of the COVID-19 pandemic, we believe that it is probable that the underlying hedge transactions will occur within an appropriate time frame in order to continue to qualify for cash flow hedge accounting treatment.

We enter into master netting agreements with counterparties. The amounts eligible for offset under the master netting agreements are not material and we have elected a gross presentation of foreign currency contracts in the Consolidated Balance Sheets.

The following table presents the classification of changes in fair values of foreign currency contracts that meet the criteria to be accounted for as cash flow hedging instruments (before tax and minority):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Amount of gains (losses) deferred to Accumulated Other Comprehensive Loss ("AOCL")

 

$

(1

)

 

$

(3

)

 

$

0

 

 

$

20

 

Reclassification adjustment for amounts recognized in CGS

 

 

0

 

 

 

(4

)

 

 

(2

)

 

 

(8

)

 

The estimated net amount of deferred gains at June 30, 2021 that are expected to be reclassified to earnings within the next twelve months is $1 million.

The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that were recognized market makers at the time we entered into those contracts. We seek to control our credit exposure to these counterparties by diversifying across multiple counterparties, by setting counterparty credit limits based on long term credit ratings and other indicators of counterparty credit risk such as credit default swap spreads, and by monitoring the financial strength of these counterparties on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to counterparties in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a counterparty. However, the inability of a counterparty to fulfill its contractual obligations to us could have a material adverse effect on our liquidity, financial position or results of operations in the period in which it occurs.

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NOTE 10. FAIR VALUE MEASUREMENTS

The following table presents information about assets and liabilities recorded at fair value on the Consolidated Balance Sheets at June 30, 2021 and December 31, 2020:

 

 

 

Total Carrying Value
   in the
   Consolidated
   Balance Sheets

 

 

Quoted Prices in Active
   Markets for Identical
   Assets/Liabilities
   (Level 1)

 

 

Significant Other
Observable Inputs
(Level 2)

 

 

Significant
   Unobservable
   Inputs
   (Level 3)

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

$

20

 

 

$

11

 

 

$

20

 

 

$

11

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

Foreign Exchange Contracts

 

 

21

 

 

 

1

 

 

 

0

 

 

 

0

 

 

 

21

 

 

 

1

 

 

 

0

 

 

 

0

 

Total Assets at Fair Value

 

$

41

 

 

$

12

 

 

$

20

 

 

$

11

 

 

$

21

 

 

$

1

 

 

$

0

 

 

$

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

$

6

 

 

$

34

 

 

$

0

 

 

$

0

 

 

$

6

 

 

$

34

 

 

$

0

 

 

$

0

 

Total Liabilities at Fair Value

 

$

6

 

 

$

34

 

 

$

0

 

 

$

0

 

 

$

6

 

 

$

34

 

 

$

0

 

 

$

0

 

 

The following table presents supplemental fair value information about long term fixed rate and variable rate debt, excluding finance leases, at June 30, 2021 and December 31, 2020:

 

 

 

June 30,

 

 

December 31,

 

(In millions)

 

2021

 

 

2020

 

Fixed Rate Debt:(1)

 

 

 

 

 

 

Carrying amount — liability

 

$

5,632

 

 

$

4,094

 

Fair value — liability

 

 

5,924

 

 

 

4,283

 

 

 

 

 

 

 

Variable Rate Debt:(1)

 

 

 

 

 

 

Carrying amount — liability

 

$

1,622

 

 

$

1,240

 

Fair value — liability

 

 

1,617

 

 

 

1,197

 

(1)
Excludes Notes Payable and Overdrafts of $459 million and $406 million at June 30, 2021 and December 31, 2020, respectively, of which $282 million and $227 million, respectively, are at fixed rates and $177 million and $179 million, respectively, are at variable rates. The carrying value of Notes Payable and Overdrafts approximates fair value due to the short term nature of the facilities.

Long term debt with fair values of $6,070 million and $4,391 million at June 30, 2021 and December 31, 2020, respectively, were estimated using quoted Level 1 market prices. The carrying value of the remaining long term debt approximates fair value since the terms of financing agreements are similar to terms that could be obtained under current lending conditions.

NOTE 11. PENSION, SAVINGS AND OTHER POSTRETIREMENT BENEFIT PLANS

We provide employees with defined benefit pension or defined contribution savings plans.

Defined benefit pension cost follows:

 

 

 

U.S.

 

 

U.S.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

2

 

 

$

1

 

 

$

3

 

 

$

2

 

Interest cost

 

 

22

 

 

 

32

 

 

 

42

 

 

 

65

 

Expected return on plan assets

 

 

(46

)

 

 

(48

)

 

 

(88

)

 

 

(97

)

Amortization of net losses

 

 

26

 

 

 

28

 

 

 

54

 

 

 

55

 

Net periodic pension cost

 

$

4

 

 

$

13

 

 

$

11

 

 

$

25

 

Net curtailments/settlements/termination benefits

 

 

19

 

 

 

6

 

 

 

19

 

 

 

7

 

Total defined benefit pension cost

 

$

23

 

 

$

19

 

 

$

30

 

 

$

32

 

 

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Table of Contents

 

 

 

Non-U.S.

 

 

Non-U.S.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

8

 

 

$

7

 

 

$

15

 

 

$

14

 

Interest cost

 

 

11

 

 

 

14

 

 

 

22

 

 

 

28

 

Expected return on plan assets

 

 

(12

)

 

 

(13

)

 

 

(22

)

 

 

(27

)

Amortization of prior service cost

 

 

1

 

 

 

0

 

 

 

1

 

 

 

1

 

Amortization of net losses

 

 

9

 

 

 

9

 

 

 

17

 

 

 

19

 

Net periodic pension cost

 

$

17

 

 

$

17

 

 

$

33

 

 

$

35

 

Net curtailments/settlements/termination benefits

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1

 

Total defined benefit pension cost

 

$

17

 

 

$

17

 

 

$

33

 

 

$

36

 

 

The net funded (unfunded) status of Cooper Tire's defined benefit pension plans at the Closing Date was $12 million and $(62) million for their U.S. plans and non-U.S. plans, respectively. The net unfunded status of Cooper Tire's U.S. other postretirement benefits plan at the Closing Date was $(215) million.

Service cost is recorded in CGS or SAG. Other components of net periodic pension cost are recorded in Other (Income) Expense. Net curtailments, settlements and termination benefits are recorded in Other (Income) Expense or Rationalizations if related to a rationalization plan.

In the second quarter and first six months of 2021, pension settlement charges of $19 million were recorded in Other (Income) Expense.

In the second quarter and first six months of 2020, pension settlement charges of $1 million and $3 million, respectively, were recorded in Other (Income) Expense and a pension termination benefits charge of $5 million was recorded in Rationalizations, related to the exit of employees under an approved rationalization plan.

We also provide certain U.S. employees and employees at certain non-U.S. subsidiaries with health care benefits or life insurance benefits upon retirement. Other postretirement benefits expense for the three months ended June 30, 2021 and 2020 was $1 million and $2 million, respectively. Other postretirement benefits expense (credit) for the six months ended June 30, 2021 and 2020 was $3 million and $(1) million, respectively. The six months ended June 30, 2020 included a curtailment credit of $4 million in Rationalizations, related to the exit of employees under an approved rationalization plan.

We expect to contribute $50 million to $75 million to our funded pension plans in 2021. For the three and six months ended June 30, 2021, we contributed $5 million and $7 million, respectively, to our non-U.S. plans.

The expense recognized for our contributions to defined contribution savings plans for the three months ended June 30, 2021 and 2020 was $27 million and $20 million, respectively, and for the six months ended June 30, 2021 and 2020 was $55 million and $50 million, respectively.

 

NOTE 12. STOCK COMPENSATION PLANS

Our Board of Directors granted 0.6 million restricted stock units and 0.1 million performance share units during the six months ended June 30, 2021 under our stock compensation plans. We measure the fair value of grants of restricted stock units and performance share units based primarily on the closing market price of a share of our common stock on the date of the grant, modified as appropriate to take into account the features of such grants. The weighted average fair value per share was $16.34 for restricted stock units and $19.21 for performance share units granted during the six months ended June 30, 2021.

We recognized stock-based compensation expense of $7 million and $11 million during the three and six months ended June 30, 2021, respectively. At June 30, 2021, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $26 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of 2024. We recognized stock-based compensation expense of $8 million and $14 million during the three and six months ended June 30, 2020, respectively.

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NOTE 13. COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

We have recorded liabilities totaling $71 million and $64 million at June 30, 2021 and December 31, 2020, respectively, for anticipated costs related to various environmental matters, primarily the remediation of numerous waste disposal sites and certain properties sold by us. Of these amounts, $21 million and $16 million were included in Other Current Liabilities at June 30, 2021 and December 31, 2020, respectively. The costs include legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring and related activities, and will be paid over several years. The amount of our ultimate liability in respect of these matters may be affected by several uncertainties, primarily the ultimate cost of required remediation and the extent to which other responsible parties contribute. We have limited potential insurance coverage for future environmental claims.

Since many of the remediation activities related to environmental matters vary substantially in duration and cost from site to site and the associated costs for each vary depending on the mix of unique site characteristics, in some cases we cannot reasonably estimate a range of possible losses. Although it is not possible to estimate with certainty the outcome of all of our environmental matters, management believes that potential losses in excess of current reserves for environmental matters, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.

Workers’ Compensation

We have recorded liabilities, on a discounted basis, totaling $202 million and $196 million for anticipated costs related to workers’ compensation at June 30, 2021 and December 31, 2020, respectively. Of these amounts, $34 million and $29 million were included in Current Liabilities as part of Compensation and Benefits at June 30, 2021 and December 31, 2020, respectively. 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. At June 30, 2021 and December 31, 2020, the liability was discounted using a risk-free rate of return. At June 30, 2021, we estimate that it is reasonably possible that the liability could exceed our recorded amounts by approximately $25 million.

General and Product Liability and Other Litigation

We have recorded liabilities totaling $395 million and $285 million, including related legal fees expected to be incurred, for potential product liability and other tort claims, including asbestos claims, at June 30, 2021 and December 31, 2020, respectively. The increase from December 31, 2020 was primarily due to the acquisition of Cooper Tire. Of these amounts, $56 million and $38 million were included in Other Current Liabilities at June 30, 2021 and December 31, 2020, respectively. The amounts recorded were estimated based on an assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and, where available, recent and current trends. Based upon that assessment, at June 30, 2021, we do not believe that estimated reasonably possible losses associated with general and product liability claims in excess of the amounts recorded will have a material adverse effect on our financial position, cash flows or results of operations. However, the amount of our ultimate liability in respect of these matters may differ from these estimates.

We have recorded an indemnification asset within Accounts Receivable of $1 million and within Other Assets of $23 million for Sumitomo Rubber Industries, Ltd.'s ("SRI") obligation to indemnify us for certain product liability claims related to products manufactured by a formerly consolidated joint venture entity, subject to certain caps and restrictions.

Asbestos. 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 state and federal courts. To date, we have disposed of approximately 154,900 claims by defending, obtaining the dismissal thereof, or entering into a settlement. The sum of our accrued asbestos-related liability and gross payments to date, including legal costs, by us and our insurers totaled approximately $568 million through June 30, 2021 and $563 million through December 31, 2020.

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A summary of recent approximate asbestos claims activity follows. Because claims are often filed and disposed of by dismissal or settlement in large numbers, the amount and timing of settlements and the number of open claims during a particular period can fluctuate significantly.

 

 

 

Six Months Ended

 

 

Year Ended

 

(Dollars in millions)

 

June 30, 2021

 

 

December 31, 2020

 

Pending claims, beginning of period

 

 

38,700

 

 

 

39,600

 

New claims filed

 

 

500

 

 

 

1,100

 

Claims settled/dismissed

 

 

(700

)

 

 

(2,000

)

Pending claims, end of period

 

 

38,500

 

 

 

38,700

 

Payments(1)

 

$

7

 

 

$

13

 

(1)
Represents cash payments made during the period by us and our insurers on asbestos litigation defense and claim resolution.

We periodically, and at least annually, review our existing reserves for pending claims, including a reasonable estimate of the liability associated with unasserted asbestos claims, and estimate our receivables from probable insurance recoveries. We recorded gross liabilities for both asserted and unasserted claims, inclusive of defense costs, totaling $147 million and $149 million at June 30, 2021 and December 31, 2020, respectively. In determining the estimate of our asbestos liability, we evaluated claims over the next ten-year period. Due to the difficulties in making these estimates, analysis based on new data and/or a change in circumstances arising in the future may result in an increase in the recorded obligation, and that increase could be significant.

We maintain certain primary and excess insurance coverage under coverage-in-place agreements, and also have additional excess liability insurance with respect to asbestos liabilities. After consultation with our outside legal counsel and giving consideration to agreements with certain of our insurance carriers, the financial viability and legal obligations of our insurance carriers and other relevant factors, we determine an amount we expect is probable of recovery from such carriers. 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.

We recorded an insurance receivable related to asbestos claims of $88 million and $90 million at June 30, 2021 and December 31, 2020, respectively. We expect that approximately 60% of asbestos claim related losses would be recoverable through insurance during the ten-year period covered by the estimated liability. Of these amounts, $13 million was included in Current Assets as part of Accounts Receivable at both June 30, 2021 and December 31, 2020. The recorded receivable consists of an amount we expect to collect under coverage-in-place agreements with certain primary and excess insurance carriers as well as an amount we believe is probable of recovery from certain of our other excess insurance carriers.

We believe that, at December 31, 2020, we had approximately $550 million in excess level policy limits applicable to indemnity and defense costs for asbestos products claims under coverage-in-place agreements.  We also had additional unsettled excess level policy limits potentially applicable to such costs.  In addition, we had coverage under certain primary policies for indemnity and defense costs for asbestos products claims under remaining aggregate limits pursuant to a coverage-in-place agreement, as well as coverage for indemnity and defense costs for asbestos premises claims pursuant to coverage-in-place agreements.

With respect to both asserted and unasserted claims, it is reasonably possible that we may incur a material amount of cost in excess of the current reserve; however, such amounts cannot be reasonably estimated. Coverage under insurance policies is subject to varying characteristics of asbestos claims including, but not limited to, the type of claim (premise vs. product exposure), alleged date of first exposure to our products or premises and disease alleged. Recoveries may also be limited by insurer insolvencies or financial difficulties. Depending upon the nature of these characteristics or events, as well as the resolution of certain legal issues, some portion of the insurance may not be accessible by us.

Amiens Labor Claims

Approximately 850 former employees of the closed Amiens, France manufacturing facility have asserted wrongful termination or other claims totaling approximately €140 million ($166 million) against Goodyear France SAS. On May 28, 2020, Goodyear France SAS received a judgment from the labor court with respect to approximately 790 of these former employees. As a result of this ruling and settlement discussions to resolve these claims and other similar claims, we recognized €27 million ($30 million), primarily in 2020, for estimated additional termination benefits. During the first quarter of 2021, we reached settlement agreements with substantially all of the former employees and are filing appropriate proceedings with the labor court to conclude the related legal proceedings.  We will continue to defend ourselves against any remaining claims and any additional claims that may be asserted against us.

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Other Actions

We are currently a party to various claims, indirect tax assessments and legal proceedings in addition to those noted above. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations.

Our recorded liabilities and estimates of reasonably possible losses for the contingent liabilities described above are based on our assessment of potential liability using the information available to us at the time and, where applicable, any past experience and recent and current trends with respect to similar matters. Our contingent liabilities are subject to inherent uncertainties, and unfavorable judicial or administrative decisions could occur which we did not anticipate. Such an unfavorable decision could include monetary damages, fines or other penalties or an injunction prohibiting us from taking certain actions or selling certain products. If such an unfavorable decision were to occur, it could result in a material adverse impact on our financial position and results of operations in the period in which the decision occurs, or in future periods.

Tax Matters

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 income 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 income 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, our results of operations and effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash, and lead to recognition of expense to the extent the settlement amount exceeds recorded liabilities and, in the case of an income tax settlement, result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction of expense to the extent the settlement amount is lower than recorded liabilities and, in the case of an income tax settlement, would result in a reduction in our effective tax rate in the period of resolution.

While the Company applies consistent transfer pricing policies and practices globally, supports transfer prices through economic studies, seeks advance pricing agreements and joint audits to the extent possible and believes its transfer prices to be appropriate, such transfer prices, and related interpretations of tax laws, are occasionally challenged by various taxing authorities globally. We have received various tax assessments challenging our interpretations of applicable tax laws in various jurisdictions. Although we believe we have complied with applicable tax laws, have strong positions and defenses and have historically been successful in defending such claims, our results of operations could be materially adversely affected in the case we are unsuccessful in the defense of existing or future claims.

Guarantees

We have off-balance sheet financial guarantees and other commitments totaling $85 million and $73 million at June 30, 2021 and December 31, 2020, respectively. We issue guarantees to financial institutions or other entities on behalf of certain of our affiliates, lessors or customers. We generally do not require collateral in connection with the issuance of these guarantees.

In 2017, we issued a guarantee of approximately PLN165 million ($43 million) in connection with an indirect tax assessment in EMEA. This guarantee amount was subsequently increased to PLN181 million ($48 million). We have concluded our performance under this guarantee is not probable and, therefore, have not recorded a liability for this guarantee. In 2015, as a result of the dissolution of the global alliance with SRI, we issued a guarantee of $46 million to an insurance company related to SRI's obligation to pay certain outstanding workers' compensation claims of a formerly consolidated joint venture entity. As of June 30, 2021, this guarantee amount has been reduced to $23 million. We have concluded the probability of our performance to be remote and, therefore, have not recorded a liability for this guarantee. While there is no fixed duration of this guarantee, we expect the amount of this guarantee to continue to decrease over time as the formerly consolidated joint venture entity pays its outstanding claims. If our performance under these guarantees is triggered by non-payment or another specified event, we would be obligated to make payment to the financial institution or the other entity, and would typically have recourse to the affiliate, lessor, customer, or SRI. Except for the workers' compensation guarantee described above, the guarantees expire at various times

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through 2021. We are unable to estimate the extent to which our affiliates’, lessors’, customers’, or SRI's assets would be adequate to recover any payments made by us under the related guarantees.

NOTE 14. CAPITAL STOCK

Dividends

In the first six months of 2020, we paid cash dividends of $37 million on our common stock, all of which was paid in the first quarter of 2020. This amount excludes dividends earned on stock-based compensation plans of approximately $1 million. On April 16, 2020, we announced that we have suspended the quarterly dividend on our common stock.

Common Stock Repurchases

We may repurchase shares delivered to us by employees as payment for the exercise price of stock options and the withholding taxes due upon the exercise of stock options or the vesting or payment of stock awards. During the first six months of 2021, we did 0t repurchase any shares from employees.

Cooper Tire Acquisition

In connection with the acquisition of Cooper Tire, we issued 46,060,349 shares of common stock. Refer to Note to the Consolidated Financial Statements No. 2, Cooper Tire Acquisition.

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NOTE 15. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present changes in AOCL, by component, for the six months ended June 30, 2021 and 2020, after tax and minority interest.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions) Income (Loss)

 

Foreign
Currency
Translation
Adjustment

 

 

Unrealized Gains (Losses) from Securities

 

 

Unrecognized
Net Actuarial
Losses and
Prior Service
Costs

 

 

Deferred
Derivative
Gains (Losses)

 

 

Total

 

Balance at December 31, 2020

 

$

(1,284

)

 

$

0

 

 

$

(2,856

)

 

$

5

 

 

$

(4,135

)

Other comprehensive income (loss) before
reclassifications

 

 

2

 

 

 

8

 

 

 

16

 

 

 

0

 

 

 

26

 

Amounts reclassified from accumulated other comprehensive loss

 

 

0

 

 

 

 

 

 

68

 

 

 

(2

)

 

 

66

 

Balance at June 30, 2021

 

$

(1,282

)

 

$

8

 

 

$

(2,772

)

 

$

3

 

 

$

(4,043

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions) Income (Loss)

 

Foreign
Currency
Translation
Adjustment

 

 

Unrecognized
Net Actuarial
Losses and
Prior Service
Costs

 

 

Deferred
Derivative
Gains (Losses)

 

 

Total

 

Balance at December 31, 2019

 

$

(1,156

)

 

$

(2,983

)

 

$

3

 

 

$

(4,136

)

Other comprehensive income (loss) before
reclassifications

 

 

(223

)

 

 

(9

)

 

 

19

 

 

 

(213

)

Amounts reclassified from accumulated other
comprehensive loss

 

 

0

 

 

 

55

 

 

 

(8

)

 

 

47

 

Balance at June 30, 2020

 

$

(1,379

)

 

$

(2,937

)

 

$

14

 

 

$

(4,302

)

 

The following table presents reclassifications out of AOCL:

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In millions) (Income) Expense

 

Amount Reclassified

 

 

Amount Reclassified

 

 

Affected Line Item in the Consolidated

Component of AOCL

 

from AOCL

 

 

from AOCL

 

 

Statements of Operations

Amortization of prior service cost and
unrecognized gains and losses

 

$

34

 

 

$

36

 

 

$

70

 

 

$

72

 

 

Other (Income) Expense

Immediate recognition of prior service cost
and unrecognized gains and losses due to
curtailments, settlements and divestitures

 

 

19

 

 

 

1

 

 

 

19

 

 

 

(1

)

 

Other (Income) Expense / Rationalizations

Unrecognized net actuarial losses and
prior service costs, before tax

 

 

53

 

 

 

37

 

 

 

89

 

 

 

71

 

 

 

Tax effect

 

 

(12

)

 

 

(8

)

 

 

(21

)

 

 

(16

)

 

United States and Foreign Taxes

Net of tax

 

$

41

 

 

$

29

 

 

$

68

 

 

$

55

 

 

Goodyear Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred derivative (gains) losses, before tax

 

$

0

 

 

$

(4

)

 

$

(2

)

 

$

(8

)

 

Cost of Goods Sold

Tax effect

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

United States and Foreign Taxes

Net of tax

 

$

0

 

 

$

(4

)

 

$

(2

)

 

$

(8

)

 

Goodyear Net Income (Loss)

Total reclassifications

 

$

41

 

 

$

25

 

 

$

66

 

 

$

47

 

 

Goodyear Net Income (Loss)

 

The following table presents the details of comprehensive income (loss) attributable to minority shareholders:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In millions)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Income (Loss) Attributable to Minority Shareholders

 

$

4

 

 

$

(7

)

 

$

10

 

 

$

(5

)

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(1

)

 

 

0

 

 

 

(8

)

 

 

(9

)

Comprehensive Income (Loss) Attributable to Minority Shareholders

 

$

3

 

 

$

(7

)

 

$

2

 

 

$

(14

)

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

All per share amounts are diluted and refer to Goodyear net income (loss).

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 55 manufacturing facilities in 23 countries, including the United States. We operate our business through three operating segments representing our regional tire businesses: Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific.

Cooper Tire Acquisition

On June 7, 2021 (the "Closing Date"), we completed our previously announced acquisition of Cooper Tire & Rubber Company (“Cooper Tire”) pursuant to the terms of the Agreement and Plan of Merger, dated February 22, 2021 (the “Merger Agreement”), by and among Goodyear, Vulcan Merger Sub Inc., a direct, wholly owned subsidiary of Goodyear (“Merger Sub”) and Cooper Tire.  Goodyear acquired Cooper Tire by way of the merger of Merger Sub with and into Cooper Tire (the “Merger”), with Cooper Tire surviving the Merger as a wholly owned subsidiary of Goodyear.  In accordance with the terms of the Merger Agreement, upon closing of the transaction, Cooper Tire stockholders received $41.75 per share in cash and a fixed exchange ratio of 0.907 shares of Goodyear common stock per share of Cooper Tire common stock (the "Merger Consideration").  The cash portion of the Merger Consideration totaled $2,155 million and the stockholders of Cooper Tire received 46.1 million shares of Goodyear common stock valued at $942 million, based on the closing market price of Goodyear common stock on the last trading day prior to the Closing Date. For further information, refer to Note to the Consolidated Financial Statements No. 2, Cooper Tire Acquisition.

The descriptions of, and references to, the Merger Agreement included in this Quarterly Report on Form 10-Q are qualified in their entirety by the full text of the Merger Agreement, which is attached as Exhibit 2.1 to our Current Report on Form 8-K filed on February 25, 2021.

On May 18, 2021, we issued $850 million in aggregate principal amount of 5% senior notes due 2029 and $600 million in aggregate principal amount of 5.25% senior notes due July 2031. The net proceeds from these notes, together with cash and cash equivalents and borrowings under our first lien revolving credit facility, were used to fund the cash portion of the Merger Consideration and related transaction costs.

On June 7, 2021, we amended and restated our $2.0 billion first lien revolving credit facility.  Changes to the facility include extending the maturity to June 8, 2026 and increasing the amount of the facility to $2.75 billion.  The interest rate for loans under the facility decreased by 50 basis points to LIBOR plus 125 basis points.

The results of Cooper Tire’s operations have been included in our consolidated financial statements since the Closing Date.

Transaction and other costs related to the acquisition of Cooper Tire totaled $48 million and $55 million during the three and six months ended June 30, 2021, respectively. For the three months ended June 30, 2021, $42 million ($35 million after-tax and minority) of these costs were included in Other (Income) Expense and $6 million ($4 million after-tax and minority) were included in Cost of Goods Sold ("CGS") and Selling, Administrative and General Expense ("SAG"). For the six months ended June 30, 2021, $49 million ($41 million after-tax and minority) of these costs were included in Other (Income) Expense and $6 million ($4 million after-tax and minority) were included in CGS and SAG.

The Merger Consideration was allocated on a provisional basis to the estimated fair value of the assets acquired and liabilities assumed from Cooper Tire as of the Closing Date. Certain of these fair value estimates, including those related to Inventories, Property, Plant and Equipment, Goodwill, Intangible Assets and Deferred Income Taxes, are preliminary and subject to change as management completes further analyses and studies. For further information, refer to Note to the Consolidated Financial Statements No. 2, Cooper Tire Acquisition, and "Critical Accounting Policies".

Results of Operations

During the second quarter and first half of 2021, our operating results significantly improved compared to 2020, as the overall negative impacts of the COVID-19 pandemic on tire industry demand, auto production, miles driven and our tire volume moderated and continued to improve, compared to the severe global economic disruption experienced throughout much of 2020, particularly in the first half of the year. 

Nonetheless, our results for the second quarter and first half of 2021 continued to be negatively influenced by the macroeconomic effects of the ongoing pandemic.  Our global businesses are experiencing varying stages of recovery, as national and local efforts in many countries to contain the spread of COVID-19, including renewed stay-at-home orders, continue to impact economic conditions, with some sectors of the global economy, such as the airline and travel industries, experiencing a more profound

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continuing impact. Increased demand for consumer products and supply chain disruptions as a result of the pandemic and other global events, has led to higher costs for certain raw materials and shortages of certain automobile parts, such as semiconductors, which has affected OE manufacturers’ ability to produce consumer and commercial vehicles consistently. 

Most of our global tire manufacturing facilities are operating at or near full capacity to meet current demand, as well as to increase the level of our finished goods inventory as we continue to restock in order to fulfill anticipated demand for the remainder of the year.  Our decisions to change production levels in the future will be based on an evaluation of market demand signals, inventory and supply levels, as well as the ability to continue to safeguard the health of our associates.

We continue to monitor the pandemic on a local basis, taking actions to protect the health and wellbeing of our associates, customers and communities, which remain our top priority. We also continue to follow guidance from the Centers for Disease Control and Prevention, which include preventative measures at our facilities as appropriate, including limiting visitor access and business travel, remote and hybrid working, social distancing practices and frequent disinfection.

In addition, during the first quarter of 2021, a severe winter storm in the U.S. caused temporary shutdowns of three of our chemical facilities, limited production at three tire manufacturing facilities, and impacted more than 170 consumer and commercial retail locations. We estimate that the negative impact on our earnings, primarily in Americas, for the three and six months ended June 30, 2021 was approximately $27 million ($22 million after-tax and minority) and $50 million ($40 million after-tax and minority), respectively.

Our results for the second quarter of 2021 include an 84.3% increase in tire unit shipments compared to 2020, reflecting the pandemic-related recovery noted above, as well as the addition of Cooper Tire's operating results since the Closing Date. In the second quarter of 2021, we realized approximately $86 million of cost savings, including a favorable indirect tax ruling in Brazil of $69 million, which exceeded the impact of general inflation.

Net sales in the second quarter of 2021 were $3,979 million, compared to $2,144 million in the second quarter of 2020. Net sales increased in the second quarter of 2021 primarily due to higher global tire volume, the addition of Cooper Tire's net sales of $256 million, higher sales in other tire-related businesses, primarily in Americas and EMEA, and favorable foreign currency translation.

In the second quarter of 2021, Goodyear net income was $67 million, or $0.27 per share, compared to a net loss of $696 million, or $2.97 per share, in the second quarter of 2020. The favorable change in Goodyear net income (loss) was primarily due to higher segment operating income, a decrease in other asset impairment charges and lower rationalization expense, partially offset by higher income tax expense.

Our total segment operating income for the second quarter of 2021 was $299 million, compared to an operating loss of $431 million in the second quarter of 2020. The $730 million favorable change was primarily due to lower conversion costs of $283 million, higher global tire volume of $268 million, improvements in price and product mix of $176 million, primarily in Americas and EMEA, higher earnings in other tire-related businesses of $94 million, driven by increased third-party chemical sales in Americas and increased global aviation tire sales, and a favorable indirect tax ruling in Brazil of $69 million. These improvements in segment operating income were partially offset by higher SAG of $115 million and higher raw material costs of $30 million, primarily in Americas and EMEA. Total segment operating income for the second quarter of 2021 includes an operating loss of $16 million related to Cooper Tire, including the negative impact of purchase accounting adjustments. Refer to “Results of Operations — Segment Information” for additional information.

Net sales in the first six months of 2021 were $7,490 million, compared to $5,200 million in the first six months of 2020. Net sales increased in the first six months of 2021 primarily due to higher global tire volume, the addition of Cooper Tire's net sales of $256 million, higher sales in other tire-related businesses, primarily in Americas and EMEA, and favorable foreign currency translation, primarily in EMEA and Asia Pacific.

In the first six months of 2021, Goodyear net income was $79 million, or $0.32 per share, compared to a net loss of $1,315 million, or $5.62 per share, in the first six months of 2020. The favorable change in Goodyear net income (loss) was primarily due to higher segment operating income, a decrease in goodwill and other asset impairment charges and lower rationalization expense.

Our total segment operating income for the first six months of 2021 was $525 million, compared to an operating loss of $478 million in the first six months of 2020. The $1,003 million favorable change was primarily due to lower conversion costs of $358 million, higher global tire volume of $335 million, improvements in price and product mix of $251 million, primarily in Americas and EMEA, higher earnings in other tire-related businesses of $92 million, driven by increased third-party chemical and retail sales in Americas, as well as increased global aviation sales, and a favorable indirect tax ruling in Brazil of $69 million. These improvements in segment operating income were partially offset by higher SAG of $81 million and higher raw material costs of $15 million, primarily in Americas. Total segment operating income for the first six months of 2021 includes an operating loss

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of $16 million related to Cooper Tire, including the negative impact of purchase accounting adjustments. Refer to "Results of Operations — Segment Information" for additional information.

Liquidity

At June 30, 2021, we had $1,030 million of cash and cash equivalents as well as $4,112 million of unused availability under our various credit agreements, compared to $1,539 million and $3,881 million, respectively, at December 31, 2020. Cash and cash equivalents decreased by $509 million from December 31, 2020 primarily due to payment of the $1,856 million cash portion of the Merger Consideration, net of cash and restricted cash acquired. In addition, capital expenditures were $385 million and cash used for operating activities was $71 million in the first six months of 2021. These uses of cash were partially offset by net borrowings of $1,889 million. Cash used for operating activities reflects cash used for working capital of $540 million and rationalization payments of $123 million. Cash used for operating activities also reflects net income for the period of $89 million, which includes non-cash charges for depreciation and amortization of $405 million. Refer to "Liquidity and Capital Resources" for additional information.

On April 6, 2021, we completed a public offering of $550 million in aggregate principal amount of 5.25% senior notes due April 2031 and $450 million in aggregate principal amount of 5.625% senior notes due 2033.  Net proceeds from these offerings, together with cash and cash equivalents, were used to redeem our $1.0 billion 5.125% senior notes due 2023 on May 6, 2021 at a price of 100% of the principal amount, plus accrued and unpaid interest to the redemption date.

Outlook

During the third quarter of 2021, we expect our production to be at or near pre-pandemic levels to meet anticipated demand for the remainder of this year and as we continue building our inventory to meet future demand. Including the impact of Cooper Tire, we expect to reinvest $300 million to $500 million in working capital during 2021.

While markets have recovered considerably, we continue to face uncertainty in many countries around the globe as governments continue to implement, or are considering implementing, measures to slow the pandemic that have the potential to reduce economic activity and mobility. In addition, OE manufacturers have experienced shortages of certain automobile parts, such as semiconductors, which has limited automobile production globally. Also, our ability to ship products, particularly to locations where we do not have manufacturing, will continue to be impacted by disruptions that are ongoing in global logistics. In this environment, we expect industry volume in the third quarter of 2021 to continue to be below 2019 levels, although improving somewhat versus the first half of 2021.

For the full year of 2021, based on current spot prices, we expect our raw material costs to increase $425 million to $475 million, including the benefit of raw material cost saving measures. This expectation excludes raw material cost increases in Cooper Tire’s business, which we acquired on June 7th, as the incremental impact of Cooper Tire’s results on our segment operating income will be reported through the second quarter of 2022. Natural and synthetic rubber prices and other commodity prices historically have been volatile, and this estimate could change significantly based on fluctuations in the cost of these and other key raw materials and foreign exchange rates. We are continuing to focus on price and product mix, to substitute lower cost materials where possible, to work to identify additional substitution opportunities, to reduce the amount of material required in each tire, and to pursue alternative raw materials. We expect the benefits of price and product mix will exceed the impact of higher raw material costs in the third quarter of 2021.  

Our results for the second half of 2021 will be impacted by the amortization of purchase accounting adjustments of approximately $100 million, with approximately $85 million impacting the third quarter of 2021 based on the preliminary allocation of the Merger Consideration.

Refer to “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 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” in this Quarterly Report on Form 10-Q for a discussion of our use of forward-looking statements.

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RESULTS OF OPERATIONS

CONSOLIDATED

Three months ended June 30, 2021 and 2020

Net sales in the second quarter of 2021 were $3,979 million, increasing $1,835 million, or 85.6%, from $2,144 million in the second quarter of 2020. Goodyear net income was $67 million, or $0.27 per share, in the second quarter of 2021, compared to a net loss of $696 million, or $2.97 per share, in the second quarter of 2020.

Net sales increased in the second quarter of 2021, primarily due to higher global tire volume of $1,294 million, the addition of Cooper Tire's net sales of $256 million, higher sales in other tire-related businesses of $226 million, driven by increased third-party chemical and retail sales in Americas, as well as increased global aviation sales, and favorable foreign currency translation of $113 million, primarily in EMEA and Asia Pacific.

Worldwide tire unit sales in the second quarter of 2021 were 37.5 million units, increasing 17.1 million units, or 84.3%, from 20.4 million units in the second quarter of 2020. Replacement tire volume increased globally by 12.9 million units, or 78.2%. OE tire volume increased globally by 4.2 million units, or 109.0%.

CGS in the second quarter of 2021 was $3,078 million, increasing $862 million, or 38.9%, from $2,216 million in the second quarter of 2020. CGS increased primarily due to higher global tire volume of $1,026 million, the addition of Cooper Tire's CGS of $235 million, which includes $38 million ($29 million after-tax and minority) of amortization related to a fair value adjustment to their Closing Date inventory that was acquired by Goodyear, higher costs in other tire-related businesses of $132 million, driven by higher third-party chemical sales in Americas, foreign currency translation of $84 million, primarily in EMEA and Asia Pacific, and higher raw material costs of $30 million, primarily in Americas and EMEA. These increases were partially offset by lower conversion costs of $283 million, primarily due to favorable overhead absorption as a result of higher global factory utilization and savings from rationalization plans, lower costs related to product mix of $229 million, primarily in Americas, and a favorable indirect tax ruling in Brazil of $69 million ($45 million after-tax and minority) related to prior periods.

CGS in the second quarter of 2021 and 2020 included pension expense of $5 million and $4 million, respectively. CGS in the second quarter of 2020 included accelerated depreciation of $86 million ($65 million after-tax and minority), primarily related to the permanent closure of our Gadsden, Alabama manufacturing facility (“Gadsden"). CGS in the second quarter of 2021 included incremental savings from rationalization plans of $25 million, primarily in Americas, compared to $28 million in 2020. CGS was 77.4% of sales in the second quarter of 2021 compared to 103.4% in the second quarter of 2020.

SAG in the second quarter of 2021 was $658 million, increasing $207 million, or 45.9%, from $451 million in the second quarter of 2020. SAG increased primarily due to higher wages and benefits of $74 million, higher advertising expense of $32 million and higher third-party contracting costs of $17 million, all relating to pandemic-related actions taken in 2020, the addition of Cooper Tire's SAG of $42 million, and foreign currency translation of $25 million, primarily in EMEA and Asia Pacific.

SAG in the second quarter of 2021 and 2020 included pension expense of $5 million and $4 million, respectively. SAG in the second quarter of 2021 included incremental savings from rationalization plans of $3 million, compared to $1 million in 2020. SAG was 16.5% of sales in the second quarter of 2021, compared to 21.0% in the second quarter of 2020.

In the second quarter of 2020, we recorded a non-cash impairment charge of $148 million ($113 million after-tax and minority) related to TireHub.

We recorded net rationalization charges of $18 million ($16 million after-tax and minority) in the second quarter of 2021 and $99 million ($76 million after-tax and minority) in the second quarter of 2020. Net rationalization charges in the second quarter of 2021 primarily related to the permanent closure of Gadsden and the plan to modernize two of our tire manufacturing facilities in Germany. Net rationalization charges in the second quarter of 2020 primarily related to the permanent closure of Gadsden and additional termination benefits for associates at the closed Amiens, France facility. For further information, refer to Note to the Consolidated Financial Statements No. 4, Costs Associated with Rationalization Programs.

Interest expense in the second quarter of 2021 was $97 million, increasing $12 million, or 14.1%, from $85 million in the second quarter of 2020. The average interest rate was 5.51% in the second quarter of 2021 compared to 5.04% in the second quarter of 2020. The average debt balance was $7,037 million in the second quarter of 2021 compared to $6,753 million in the second quarter of 2020. Interest expense in the second quarter of 2021 included a $5 million ($4 million after-tax and minority) charge related to the redemption of our existing $1.0 billion 5.125% senior notes due 2023.

Other (Income) Expense in the second quarter of 2021 was $30 million of expense, compared to $34 million of expense in the second quarter of 2020. Other (Income) Expense for the three months ended June 30, 2021 includes $48 million ($32 million after-tax and minority) of interest income related to the favorable indirect tax ruling in Brazil, $42 million of transaction and other costs related to the acquisition of Cooper Tire, and pension settlement charges of $19 million ($14 million after-tax and

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minority). Other (Income) Expense in the second quarter of 2020 included net losses on asset sales of $3 million ($3 million after-tax and minority). The remainder of the change in Other (Income) Expense between the second quarter of 2021 and 2020 was driven by a decrease in the other components of non-service related pension and other postretirement benefits cost, primarily as a result of lower interest cost from decreases in discount rates.

For the second quarter of 2021, we recorded income tax expense of $27 million on income before income taxes of $98 million. Income tax expense for the three months ended June 30, 2021 includes a net discrete benefit of $32 million ($32 million after minority interest), primarily related to adjusting our deferred tax assets in England for an enacted increase in the tax rate, partially offset by a net discrete charge for various items, including the settlement of a tax audit in Poland.

In the second quarter of 2020, we recorded a tax benefit of $186 million on a loss before income taxes of $889 million. Income tax benefit for the three months ended June 30, 2020 includes a net discrete charge of $2 million ($2 million after minority interest).

For further information regarding income taxes, refer to Note to the Consolidated Financial Statements No. 6, Income Taxes.

Minority shareholders’ net income in the second quarter of 2021 was $4 million, compared to a net loss of $7 million in 2020.

Six Months Ended June 30, 2021 and 2020

Net sales in the first six months of 2021 were $7,490 million, increasing $2,290 million, or 44.0%, from $5,200 million in the first six months of 2020. Goodyear net income was $79 million, or $0.32 per share, in the first six months of 2021, compared to a net loss of $1,315 million, or $5.62 per share, in the first six months of 2020.

Net sales increased in the first six months of 2021, primarily due to higher global tire volume of $1,578 million, the addition of Cooper Tire's net sales of $256 million, higher sales in other tire-related businesses of $253 million, driven by increased third-party chemical, retread and retail sales in Americas, and favorable foreign currency translation of $154 million, primarily in EMEA and Asia Pacific.

Worldwide tire unit sales in the first six months of 2021 were 72.5 million units, increasing 20.8 million units, or 40.3%, from 51.7 million units in the first six months of 2020. Replacement tire volume increased globally by 16.1 million units, or 40.9%. OE tire volume increased globally by 4.7 million units, or 38.7%.

CGS in the first six months of 2021 was $5,829 million, increasing $1,061 million, or 22.3%, from $4,768 million in the first six months of 2020. CGS increased primarily due to higher global tire volume of $1,243 million, the addition of Cooper Tire's CGS of $235 million, which includes $38 million ($29 million after-tax and minority) of amortization related to a fair value adjustment to their Closing Date inventory that was acquired by Goodyear, higher costs in other tire-related businesses of $161 million, driven by higher third-party chemical and retread sales in Americas, foreign currency translation of $113 million, primarily in EMEA and Asia Pacific, and higher raw material costs of $15 million, primarily in Americas. These increases were partially offset by lower conversion costs of $358 million, primarily due to favorable overhead absorption as a result of higher global factory utilization and savings from rationalization plans, lower costs related to product mix of $202 million, primarily in Americas and Asia Pacific, partially offset by EMEA, a favorable indirect tax ruling in Brazil of $69 million, of which $66 million ($43 million after-tax and minority) related to prior years, and $26 million of pandemic-related work in process inventory write-offs in 2020, primarily in Americas and EMEA.

CGS in the first six months of 2021 and 2020 included pension expense of $9 million and $8 million, respectively. CGS in the first six months of 2020 included accelerated depreciation of $90 million ($69 million after-tax and minority), primarily related to the permanent closure of Gadsden. CGS in the first six months of 2021 included incremental savings from rationalization plans of $57 million, primarily in Americas, compared to $28 million in 2020. CGS was 77.8% of sales in the first six months of 2021 compared to 91.7% in the first six months of 2020.

SAG in the first six months of 2021 was $1,222 million, increasing $190 million, or 18.4%, from $1,032 million in the first six months of 2020. SAG increased primarily due to higher wages and benefits of $78 million and higher advertising expense of $25 million, both relating to pandemic-related actions taken in 2020, the addition of Cooper Tire's SAG of $42 million and foreign currency translation of $41 million, primarily in EMEA and Asia Pacific.

SAG in the first six months of 2021 and 2020 included pension expense of $9 million and $8 million, respectively. SAG in the first six months of 2021 included incremental savings from rationalization plans of $5 million, compared to $2 million in 2020. SAG was 16.3% of sales in the first six months of 2021, compared to 19.8% in the first six months of 2020.

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In the first six months of 2020, we recorded a non-cash impairment charge of $182 million ($178 million after-tax and minority) related to goodwill of our EMEA reporting unit and a $148 million non-cash impairment charge ($113 million after-tax and minority) related to our investment in TireHub.

We recorded net rationalization charges of $68 million ($61 million after-tax and minority) in the first six months of 2021 and $108 million ($83 million after-tax and minority) in the first six months of 2020. Net rationalization charges in the first six months of 2021 primarily related to the plan to modernize two of our manufacturing facilities in Germany, a plan to reduce SAG headcount in EMEA, and the permanent closure of Gadsden. Net rationalization charges in the first six months of 2020 primarily related to the permanent closure of Gadsden and additional termination benefits for associates at the closed Amiens, France manufacturing facility. For further information, refer to Note to the Consolidated Financial Statements No. 4, Costs Associated with Rationalization Programs.

Interest expense in the first six months of 2021 was $176 million, increasing $18 million, or 11.4%, from $158 million in the first six months of 2020. The average interest rate was 5.38% in the first six months of 2021 compared to 4.92% in the first six months of 2020. The average debt balance was $6,542 million in the first six months of 2021 compared to $6,423 million in the first six months of 2020. Interest expense in the first six months of 2021 included a $5 million ($4 million after-tax and minority) charge related to the redemption of our existing $1.0 billion 5.125% senior notes due 2023.

Other (Income) Expense in the first six months of 2021 was $64 million of expense, compared to $61 million of expense in the first six months of 2020. Other (Income) Expense for the six months ended June 30, 2021 includes $48 million ($32 million after-tax and minority) of interest income related to the favorable indirect tax ruling in Brazil, $49 million of transaction and other costs related to the acquisition of Cooper Tire and pension settlement charges of $19 million ($14 million after-tax and minority). Other (Income) Expense in the first six months of 2021 also includes an out of period adjustment of $7 million ($7 million after-tax and minority) of expense related to foreign currency exchange in Americas. Other (Income) Expense in the first six months of 2020 included pension settlement charges of $3 million ($2 million after-tax and minority) and net losses on asset sales of $2 million ($2 million after-tax and minority). The remainder of the change in Other (Income) Expense between the first six months of 2021 and 2020 was driven by a decrease in the other components of non-service related pension and other postretirement benefits cost, primarily as a result of lower interest cost from decreases in discount rates.

For the first six months of 2021, we recorded income tax expense of $42 million on income before income taxes of $131 million. Income tax expense for the six months ended June 30, 2021 includes a net discrete benefit of $29 million ($29 million after minority interest), primarily related to adjusting our deferred tax assets in England for an enacted increase in the tax rate, partially offset by a net discrete charge for various items, including the settlement of a tax audit in Poland.

In the first six months of 2020, we recorded income tax expense of $63 million on a loss before income taxes of $1,257 million. Income tax expense for the six months ended June 30, 2020 includes a net discrete charge of $293 million ($293 million after minority interest), primarily related to the establishment of a $295 million valuation allowance on certain deferred tax assets for foreign tax credits during the first quarter of 2020.

We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory rate of 21% for the six months ended June 30, 2021 primarily relates to the tax on a favorable indirect tax ruling in Brazil, losses in foreign jurisdictions in which no tax benefits are recorded, and the discrete items noted above. The difference between our effective tax rate and the U.S. statutory rate of 21% for the six months ended June 30, 2020 primarily relates to the discrete items noted above, a first quarter non-cash goodwill impairment charge of $182 million, and forecasted losses for the full year in foreign jurisdictions in which no tax benefits are recorded, which were accentuated during 2020 by business interruptions resulting from the COVID-19 pandemic.

At June 30, 2021 and December 31, 2020, we had approximately $800 million and $1.2 billion of U.S. federal, state and local net deferred tax assets, respectively, net of valuation allowances totaling $368 million primarily for foreign tax credits with limited lives. At June 30, 2021, approximately $500 million of these U.S. net deferred tax assets have unlimited lives and approximately $300 million have limited lives and expire between 2025 and 2041. The decrease in our U.S. net deferred tax assets from December 31, 2020 primarily reflects the establishment of deferred tax liabilities for the tax impacts of certain fair value and other purchase accounting adjustments related to the Cooper Tire acquisition. In the U.S., we have a cumulative loss for the three-year period ending June 30, 2021. However, as the three-year cumulative loss in the U.S. is driven by business disruptions created by the COVID-19 pandemic, primarily in 2020, we also considered other objectively verifiable information in assessing our ability to utilize our net deferred tax assets, including recent favorable recovery trends in the tire industry and our tire volume as well as expected continued improvement. In addition, the Cooper Tire acquisition is expected to generate incremental domestic earnings and provide opportunities for cost and other operating synergies to further improve our U.S. profitability. These favorable trends, together with tax planning strategies, may provide sufficient objectively verifiable information to reverse a portion or all of our U.S. valuation allowances for foreign tax credits within the next twelve months. 

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At June 30, 2021 and December 31, 2020, our U.S. net deferred tax assets included $150 million and $133 million, respectively, of foreign tax credits with limited lives, net of valuation allowances of $328 million, generated primarily from the receipt of foreign dividends. Our earnings and forecasts of future profitability, taking into consideration recent trends, along with three significant sources of foreign income provide us sufficient positive evidence that we will be able to utilize our remaining foreign tax credits that expire between 2025 and 2031. Our sources of foreign income are (1) 100% of our domestic profitability can be re-characterized as foreign source income under current U.S. tax law to the extent domestic losses have offset foreign source income in prior years, (2) annual net foreign source income, exclusive of dividends, primarily from royalties, and (3) tax planning strategies, including capitalizing research and development costs, accelerating income on cross border transactions, including sales of inventory or raw materials to our subsidiaries, and reducing U.S. interest expense by, for example, reducing intercompany loans through repatriating current year earnings of foreign subsidiaries, all of which would increase our domestic profitability.

We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our foreign tax credits. As noted above, these forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of the COVID-19 pandemic, on our profitability, as well as the impact of tax planning strategies. Macroeconomic factors, including the impact of the COVID-19 pandemic, possess a high degree of volatility and can significantly impact our profitability. As such, there is a risk that future earnings will not be sufficient to fully utilize our U.S. net deferred tax assets, including our remaining foreign tax credits. However, we believe our forecasts of future profitability along with the three significant sources of foreign income described above provide us sufficient positive, objectively verifiable evidence to conclude that it is more likely than not that, at June 30, 2021, our U.S. net deferred tax assets, including our foreign tax credits, net of valuation allowances, will be fully utilized.

At June 30, 2021 and December 31, 2020, we had approximately $1.4 billion and $1.3 billion of foreign deferred tax assets, and valuation allowances of $1.1 billion. Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of these net foreign deferred tax assets. Most notably, in Luxembourg, we maintain a valuation allowance of approximately $933 million on all of our net deferred tax assets. Each reporting period, we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release valuation allowances having a significant impact on our financial position or results of operations will exist within the next twelve months.

For further information regarding income taxes and the realizability of our deferred tax assets, including our foreign tax credits, refer to Note to the Consolidated Financial Statements No. 6, Income Taxes.

Minority shareholders’ net income in the first six months of 2021 was $10 million, compared to a net loss of $5 million in 2020.

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, goodwill and other asset impairment charges, and certain other items.

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 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.

Total segment operating income for the second quarter of 2021 was $299 million, a favorable change of $730 million from total segment operating loss of $431 million in the second quarter of 2020. Total segment operating margin (segment operating income divided by segment sales) in the second quarter of 2021 was 7.5% compared to (20.1)% in the second quarter of 2020. Total segment operating income for the first six months of 2021 was $525 million, a favorable change of $1,003 million from total segment operating loss of $478 million in the first six months of 2020. Total segment operating margin in the first six months of 2021 was 7.0% compared to (9.2)% in the first six months of 2020.

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Americas

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2021

 

 

2020

 

 

Change

 

 

Percent
Change

 

 

2021

 

 

2020

 

 

Change

 

 

Percent
Change

 

Tire Units

 

 

19.0

 

 

 

8.5

 

 

 

10.5

 

 

 

125.1

%

 

 

34.5

 

 

 

23.0

 

 

 

11.5

 

 

 

50.5

%

Net Sales

 

$

2,256

 

 

$

1,134

 

 

$

1,122

 

 

 

98.9

%

 

$

4,043

 

 

$

2,807

 

 

$

1,236

 

 

 

44.0

%

Operating Income (Loss)

 

 

233

 

 

 

(287

)

 

 

520

 

 

N/M

 

 

 

347

 

 

 

(287

)

 

 

634

 

 

N/M

 

Operating Margin

 

 

10.3

%

 

 

(25.3

)%

 

 

 

 

 

 

 

 

8.6

%

 

 

(10.2

)%

 

 

 

 

 

 

Three Months Ended June 30, 2021 and 2020

Americas unit sales in the second quarter of 2021 increased 10.5 million units, or 125.1%, to 19.0 million units. Replacement tire volume increased 8.6 million units, or 119.6%, and OE tire volume increased 1.9 million units, or 155.4%, primarily in our consumer business in the United States and Brazil, driven by continued recovery from the economic impacts of the COVID-19 pandemic and the addition of Cooper Tire's units. Consumer OE volume continued to be negatively affected by impacts to vehicle production driven by global supply chain disruptions and shortages of key manufacturing components, including semiconductors.

Net sales in the second quarter of 2021 were $2,256 million, increasing $1,122 million, or 98.9%, from $1,134 million in the second quarter of 2020. The increase in net sales was driven by higher volume of $791 million, the addition of Cooper Tire's net sales of $223 million, higher sales in other tire-related businesses of $176 million, primarily due to an increase in third-party sales of chemical products and higher retail and retread sales, and favorable foreign currency translation of $17 million, primarily related to the Canadian dollar. These increases were partially offset by unfavorable price and product mix of $85 million, primarily due to lower proportionate sales of commercial tires. In the first quarter of 2021, a severe winter storm in the U.S. had a significant impact to our operations, including temporarily shutting down three chemical facilities, curtailing production at three tire plants, and impacting more than 170 consumer and commercial retail locations, which we estimate negatively impacted Americas second quarter net sales by approximately $11 million.

Operating income in the second quarter of 2021 was $233 million, a change of $520 million, from an operating loss of $287 million in the second quarter of 2020. The favorable change in operating income (loss) was due to lower conversion costs of $181 million, primarily due to favorable overhead absorption as a result of higher factory utilization, higher tire volume of $134 million, improvements in price and product mix of $127 million, which more than offset higher raw material costs of $15 million, higher earnings in other tire-related businesses of $73 million, primarily due to an increase in third-party sales of chemical products and higher retail and aviation sales, a favorable indirect tax ruling in Brazil of $69 million, and a favorable out of period adjustment of $8 million ($6 million after-tax and minority) related to accrued freight charges. These increases were partially offset by higher SAG of $53 million, primarily related to higher wages and benefits and increased advertising, both relating to pandemic-related actions taken in 2020. Conversion costs and SAG include incremental savings from rationalization plans of $25 million and $2 million, respectively, primarily related to Gadsden. Price and product mix includes TireHub equity income of $3 million in 2021 while 2020 includes losses of $14 million. We estimate the severe winter storm in the U.S. as well as a national strike in Colombia negatively impacted Americas operating income for the second quarter of 2021 by approximately $24 million and $4 million ($4 million after-tax and minority), respectively. Segment operating income in the second quarter of 2021 includes an operating loss of $14 million related to Cooper Tire, including the negative impact of purchase accounting adjustments.

Operating income in the second quarter of 2021 excluded rationalization charges of $8 million, primarily related to the permanent closure of Gadsden. Operating loss in the second quarter of 2020 excluded the TireHub non-cash impairment charge of $148 million, as well as asset write-offs and accelerated depreciation of $86 million and rationalization charges of $69 million, primarily related to Gadsden.

Six Months Ended June 30, 2021 and 2020

Americas unit sales in the first six months of 2021 increased 11.5 million units, or 50.5%, to 34.5 million units. Replacement tire volume increased 9.8 million units, or 54.2%, and OE tire volume increased 1.7 million units, or 36.6%, primarily in our consumer business in the United States and Brazil, driven by recovery from the economic impacts of the COVID-19 pandemic and the addition of Cooper Tire's units. Consumer OE volume continued to be negatively affected by impacts to vehicle production driven by global supply chain disruptions and shortages of key manufacturing components, including semiconductors.

Net sales in the first six months of 2021 were $4,043 million, increasing $1,236 million, or 44.0%, from $2,807 million in the first six months of 2020. The increase in net sales was driven by higher volume of $879 million, the addition of Cooper Tire's net sales of $223 million and higher sales in other tire-related businesses of $202 million, primarily due to an increase in third-party sales of chemical products and higher retail and retread sales. These increases were partially offset by unfavorable price and product mix of $50 million, primarily due to lower proportionate sales of commercial tires, and unfavorable foreign currency

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translation of $19 million, primarily related to the Brazilian real partially offset by favorability in the Canadian dollar. We estimate that the severe winter storm in the U.S. negatively impacted Americas net sales for the first six months of 2021 by approximately $35 million.

Operating income in the first six months of 2021 was $347 million, a change of $634 million, from an operating loss of $287 million in the first six months of 2020. The favorable change in operating income (loss) was due to lower conversion costs of $207 million, primarily due to favorable overhead absorption as a result of higher factory utilization, higher tire volume of $154 million, improvements in price and product mix of $170 million, which more than offset higher raw material costs of $22 million, higher earnings in other tire-related businesses of $77 million, primarily due to an increase in third-party sales of chemical products and higher retail and aviation sales, a favorable indirect tax ruling in Brazil of $69 million, and $13 million of pandemic-related work in process inventory write-offs in 2020. These increases were partially offset by higher SAG of $29 million, primarily related to higher wages and benefits and increased advertising, both relating to pandemic-related actions taken in 2020, and the net impact of out of period adjustments totaling $6 million ($6 million after-tax and minority) of expense primarily related to inventory and accrued freight charges. Conversion costs and SAG include incremental savings from rationalization plans of $54 million and $4 million, respectively, primarily related to Gadsden. Price and product mix includes TireHub equity income of $1 million in the first six months of 2021 and losses of $26 million in the first six months of 2020. We estimate the severe winter storm in the U.S. as well as a national strike in Colombia negatively impacted Americas operating income for the first six months of 2021 by approximately $41 million and $4 million ($4 million after-tax and minority), respectively. Segment operating income for the first six months of 2021 includes an operating loss of $14 million related to Cooper Tire, including the negative impact of purchase accounting adjustments.

Operating income in the first six months of 2021 excluded rationalization charges of $18 million, primarily related to the permanent closure of Gadsden. Operating loss in the first six months of 2020 excluded the TireHub non-cash impairment charge of $148 million, as well as asset write-offs and accelerated depreciation of $89 million and rationalization charges of $72 million, primarily related to Gadsden.

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Europe, Middle East and Africa

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2021

 

 

2020

 

 

Change

 

 

Percent
Change

 

 

2021

 

 

2020

 

 

Change

 

 

Percent
Change

 

Tire Units

 

 

12.0

 

 

 

7.3

 

 

 

4.7

 

 

 

62.7

%

 

 

24.7

 

 

 

18.9

 

 

 

5.8

 

 

 

30.5

%

Net Sales

 

$

1,230

 

 

$

676

 

 

$

554

 

 

 

82.0

%

 

$

2,461

 

 

$

1,671

 

 

$

790

 

 

 

47.3

%

Operating Income (Loss)

 

 

43

 

 

 

(110

)

 

 

153

 

 

N/M

 

 

 

117

 

 

 

(163

)

 

 

280

 

 

N/M

 

Operating Margin

 

 

3.5

%

 

 

(16.3

)%

 

 

 

 

 

 

 

 

4.8

%

 

 

(9.8

)%

 

 

 

 

 

 

Three Months Ended June 30, 2021 and 2020

Europe, Middle East and Africa unit sales in the second quarter of 2021 increased 4.7 million units, or 62.7%, to 12.0 million units. Replacement tire volume increased 3.2 million units, or 51.7%, primarily in our consumer business, reflecting increased industry demand due to continued recovery from the economic impacts of the COVID-19 pandemic and the recovery of some volume lost in 2020 as a result of our ongoing initiative to align distribution in Europe. OE tire volume increased 1.5 million units, or 111.6%, reflecting increased industry demand due to recovery from the economic impacts of the COVID-19 pandemic and share gains driven by new consumer fitments.

Net sales in the second quarter of 2021 were $1,230 million, increasing $554 million, or 82.0%, from $676 million in the second quarter of 2020. Net sales increased primarily due to higher volume of $397 million, favorable foreign currency translation of $65 million, driven by a stronger euro, higher sales in other tire-related businesses of $44 million, driven by growth in our Fleet Solutions business and increased motorcycle and racing tire sales, improvements in price and product mix of $31 million and the addition of Cooper Tire's net sales of $18 million.

Operating income in the second quarter of 2021 was $43 million, a change of $153 million, from an operating loss of $110 million in the second quarter of 2020. The favorable change in operating income (loss) was primarily due to higher volume of $106 million, lower conversion costs of $71 million, primarily due to favorable overhead absorption as a result of higher factory utilization, and improvements in price and product mix of $39 million. These increases were partially offset by higher SAG of $47 million, primarily related to higher wages and benefits and higher advertising expenses, both relating to pandemic-related actions taken in 2020, and higher raw material costs of $14 million. SAG includes incremental savings from rationalization plans of $1 million. 

Operating income in the second quarter of 2021 excluded net rationalization charges of $7 million. Operating loss in the second quarter of 2020 excluded net rationalization charges of $30 million and net losses on asset sales of $3 million.

Six Months Ended June 30, 2021 and 2020

Europe, Middle East and Africa unit sales in the first six months of 2021 increased 5.8 million units, or 30.5%, to 24.7 million units. Replacement tire volume increased 4.1 million units, or 28.0%, primarily in our consumer business, reflecting increased industry demand due to continued recovery from the economic impacts of the COVID-19 pandemic and the recovery of some volume lost in 2020 as a result of our ongoing initiative to align distribution in Europe. OE tire volume increased 1.7 million units, or 38.9%, reflecting share gains driven by new consumer fitments.

Net sales in the first six months of 2021 were $2,461 million, increasing $790 million, or 47.3%, from $1,671 million in the first six months of 2020. Net sales increased primarily due to higher volume of $493 million, favorable foreign currency translation of $119 million, driven by the strengthening of the euro, improvements in price and product mix of $109 million, higher sales in other tire-related businesses of $52 million, primarily due to growth in our Fleet Solutions business and increased motorcycle and racing tire sales, and the addition of Cooper Tire's net sales of $18 million.

Operating income in the first six months of 2021 was $117 million, a change of $280 million, from an operating loss of $163 million in the first six months of 2020. The favorable change in operating income (loss) was primarily due to higher volume of $130 million, lower conversion costs of $108 million, primarily due to favorable overhead absorption as a result of higher factory utilization, improvements in price and product mix of $71 million and $12 million of pandemic-related work in process inventory write-offs in 2020. These increases were partially offset by higher SAG of $32 million, primarily related to higher wages and benefits and higher advertising expenses, both relating to pandemic-related actions taken in 2020. Conversion costs and SAG include incremental savings from rationalization plans of $3 million and $1 million, respectively.

Operating income in the first six months of 2021 excluded net rationalization charges of $44 million. Operating loss in the first six months of 2020 excluded a non-cash goodwill impairment charge of $182 million, net rationalization charges of $36 million, net losses on asset sales of $2 million and accelerated depreciation of $1 million.

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Asia Pacific

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2021

 

 

2020

 

 

Change

 

 

Percent
Change

 

 

2021

 

 

2020

 

 

Change

 

 

Percent
Change

 

Tire Units

 

 

6.5

 

 

 

4.6

 

 

 

1.9

 

 

 

43.1

%

 

 

13.3

 

 

 

9.8

 

 

 

3.5

 

 

 

35.7

%

Net Sales

 

$

493

 

 

$

334

 

 

$

159

 

 

 

47.6

%

 

$

986

 

 

$

722

 

 

$

264

 

 

 

36.6

%

Operating Income (Loss)

 

 

23

 

 

 

(34

)

 

 

57

 

 

N/M

 

 

 

61

 

 

 

(28

)

 

 

89

 

 

N/M

 

Operating Margin

 

 

4.7

%

 

 

(10.2

)%

 

 

 

 

 

 

 

 

6.2

%

 

 

(3.9

)%

 

 

 

 

 

 

Three Months Ended June 30, 2021 and 2020

Asia Pacific unit sales in the second quarter of 2021 increased 1.9 million units, or 43.1%, to 6.5 million units. Replacement tire volume increased 1.1 million units, or 34.7%. OE tire volume increased 0.8 million units, or 62.6%, primarily in our consumer business in India. These increases were primarily due to continued recovery from the economic impacts of the COVID-19 pandemic.

Net sales in the second quarter of 2021 were $493 million, increasing $159 million, or 47.6%, from $334 million in the second quarter of 2020. Net sales increased primarily due to higher volume of $106 million, favorable foreign currency translation of $31 million, primarily related to the strengthening of the Australian dollar and Chinese yuan, and the addition of Cooper Tire's net sales of $15 million.

Operating income in the second quarter of 2021 was $23 million, a change of $57 million, from an operating loss of $34 million in the second quarter of 2020. The favorable change in operating income (loss) was primarily due to lower conversion costs of $31 million, primarily due to favorable overhead absorption as a result of higher factory utilization, higher volume of $28 million, favorable price and product mix of $10 million, and higher earnings in other tire-related businesses of $8 million, primarily due to higher aviation sales. These increases were partially offset by higher SAG of $15 million, primarily related to higher wages and benefits and higher advertising expense, both relating to pandemic-related actions taken in 2020.

Six Months Ended June 30, 2021 and 2020

Asia Pacific unit sales in the first six months of 2021 increased 3.5 million units, or 35.7%, to 13.3 million units. Replacement tire volume increased 2.2 million units, or 32.8%. OE tire volume increased 1.3 million units, or 41.6%, primarily in our consumer business in India. These increases were primarily due to continued recovery from the economic impacts of the COVID-19 pandemic.

Net sales in the first six months of 2021 were $986 million, increasing $264 million, or 36.6%, from $722 million in the first six months of 2020. Net sales increased primarily due to higher volume of $206 million, favorable foreign currency translation of $54 million, primarily related to the strengthening of the Australian dollar and Chinese yuan, and the addition of Cooper Tire's net sales of $15 million. These increases were partially offset by unfavorable price and product mix of $10 million.

Operating income in the first six months of 2021 was $61 million, a change of $89 million, from an operating loss of $28 million in the first six months of 2020. The favorable change in operating income (loss) was primarily due to higher volume of $51 million, lower conversion costs of $43 million, primarily due to favorable overhead absorption as a result of higher factory utilization, favorable price and product mix of $10 million, and lower raw material costs of $4 million. These increases were partially offset by higher SAG of $20 million, primarily related to higher advertising expense and higher wages and benefits, both relating to pandemic-related actions taken in 2020.

LIQUIDITY AND CAPITAL RESOURCES

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.

In 2021, we completed several financing actions to provide funding for the acquisition of Cooper Tire and to improve our debt maturity profile.

On April 6, 2021, we issued $550 million of 5.25% senior notes due April 2031 and $450 million of 5.625% senior notes due 2033. The net proceeds from these notes, together with cash and cash equivalents, were used to redeem our existing $1.0 billion 5.125% senior notes due 2023 on May 6, 2021 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest to the redemption date.

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On May 18, 2021, we issued $850 million of 5% senior notes due 2029 and $600 million of 5.25% senior notes due July 2031. The net proceeds from these notes, together with cash and cash equivalents and borrowings under our first lien revolving credit facility, were used to fund the cash portion of the Merger Consideration and related transaction costs.

On June 7, 2021, we amended and restated our $2.0 billion first lien revolving credit facility.  Changes to the facility include extending the maturity to June 8, 2026, increasing the amount of the facility to $2.75 billion, and including Cooper Tire's accounts receivable and inventory in the borrowing base for the facility. The interest rate for loans under the facility decreased by 50 basis points to LIBOR plus 125 basis points.

Following the Cooper Tire acquisition, $117 million in aggregate principal amount of Cooper Tire's 7.625% senior notes due 2027 remain outstanding. These notes also include a $19 million fair value step-up, which will be amortized to interest expense over the remaining life of the notes.

At June 30, 2021, we had $1,030 million in cash and cash equivalents, compared to $1,539 million at December 31, 2020. For the six months ended June 30, 2021, net cash used by operating activities was $71 million, reflecting cash used for working capital of $540 million and rationalization payments of $123 million. Net cash used for operating activities also reflects net income for the period of $89 million, which includes non-cash charges for depreciation and amortization of $405 million. Net cash used by investing activities was $2,233 million, primarily representing the $1,856 million cash portion of the Merger Consideration, net of cash and restricted cash acquired, related to the Cooper Tire acquisition, as well as capital expenditures of $385 million. Cash provided by financing activities was $1,820 million, primarily due to net borrowings of $1,889 million.

At June 30, 2021, we had $4,112 million of unused availability under our various credit agreements, compared to $3,881 million at December 31, 2020. The table below presents unused availability under our credit facilities at those dates:

 

(In millions)

 

June 30,
2021

 

 

December 31,
2020

 

First lien revolving credit facility

 

$

2,308

 

 

$

1,535

 

European revolving credit facility

 

 

951

 

 

 

982

 

Chinese credit facilities

 

 

349

 

 

 

297

 

Mexican credit facilities

 

 

 

 

 

48

 

Other foreign and domestic debt

 

 

25

 

 

 

380

 

Short term credit arrangements

 

 

479

 

 

 

639

 

 

$

4,112

 

 

$

3,881

 

 

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 condition or results of operations in the period in which it occurs.

The borrowing base under our first lien revolving credit facility is dependent, in significant part, on our eligible accounts receivable and inventory. Overall, our inventory levels have declined as a result of the impacts of the COVID-19 pandemic. A decline in our borrowing base reduces our availability under the first lien revolving credit facility. Additionally, the amounts available to us from our pan-European accounts receivable securitization facility and other accounts receivable factoring programs have declined due to the decline in our accounts receivable as a result of the impacts of the COVID-19 pandemic on our sales.

We expect our 2021 cash flow needs to include capital expenditures of approximately $1.0 billion. We also expect interest expense to be $400 million to $425 million; rationalization payments to be approximately $225 million; income tax payments to be $125 million to $150 million, excluding one-time items; and contributions to our funded pension plans to be $50 million to $75 million. We expect working capital to be a use of cash for the full year of 2021 of $300 million to $500 million.

We are continuing to actively monitor our liquidity and intend to operate our business in a way that allows us to address our cash flow needs with our existing cash and available credit if they cannot be funded by cash generated from operating or other financing activities. We believe that our liquidity position is adequate to fund our operating and investing needs and debt maturities for the next twelve months and to provide us with the ability to respond to further changes in the business environment.

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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, South Africa, Serbia and Argentina, 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, South African, Serbian and Argentinian subsidiaries, which are subject to such requirements or limitations to be integral to our liquidity or our ability to service our debt and operational requirements. At June 30, 2021, approximately $990 million of net assets, including approximately $170 million of cash and cash equivalents, were subject to such requirements. The requirements we must comply with to transfer funds out of China, South Africa, Serbia and Argentina have not adversely impacted our ability to make transfers out of those countries.

Operating Activities

Net cash used by operating activities was $71 million in the first six months of 2021, compared to net cash used by operating activities of $820 million in the first six months of 2020.

The $749 million improvement in net cash used by operating activities was primarily due to an increase in operating income from our SBUs of $1,003 million. This improvement to cash flows from operating activities was partially offset by (i) year-over-year changes in balance sheet accounts for Compensation and Benefits, Other Current Liabilities and Other Assets and Liabilities totaling $143 million, driven by prior year cost actions, payroll tax deferrals and other pandemic-related impacts to our 2020 balance sheet, (ii) an increase in cash income tax payments of $63 million, primarily as a result of higher earnings in 2021 and the receipt of certain tax refunds in 2020, (iii) cash paid for transaction and other costs related to the Cooper Tire acquisition of $33 million, (iv) a $22 million increase in cash used for rationalization payments, and (v) a net increase in cash used for working capital of $20 million.

The net increase in cash used for working capital reflects increases in cash used for Inventory of $846 million and Accounts Receivable of $581 million, largely offset by an increase in cash provided by Accounts Payable – Trade of $1,407 million. These changes were driven by our continued recovery from the impacts of the COVID-19 pandemic, which include higher sales volume and an increase in finished goods inventory as we continue to restock in order to meet anticipated 2021 demand.

Investing Activities

Net cash used by investing activities was $2,233 million in the first six months of 2021, compared to $390 million in the first six months of 2020. Net cash used by investing activities in the first six months of 2021 includes the payment of the $1,856 million cash portion of the Merger Consideration, net of cash and restricted cash acquired, related to the Cooper Tire acquisition. Capital expenditures were $385 million in the first six months of 2021, compared to $363 million in the first six months of 2020. Beyond expenditures required to sustain our facilities, capital expenditures in 2021 and 2020 primarily related to investments in additional 17-inch and above capacity around the world.

Financing Activities

Net cash provided by financing activities was $1,820 million in the first six months of 2021, compared to net cash provided by financing activities of $1,324 million in the first six months of 2020. Financing activities in the first six months of 2021 included net borrowings of $1,889 million, which were partially offset by debt-related costs and other financing transactions of $73 million. Financing activities in 2020 included net borrowings of $1,414 million, which were partially offset by debt-related costs and other financing transactions of $53 million and dividends on our common stock of $37 million.

Credit Sources

In aggregate, we had total credit arrangements of $11,951 million available at June 30, 2021, of which $4,112 million were unused, compared to $9,707 million available at December 31, 2020, of which $3,881 million were unused. At June 30, 2021, we had long term credit arrangements totaling $10,983 million, of which $3,633 million were unused, compared to $8,632 million and $3,242 million, respectively, at December 31, 2020. At June 30, 2021, we had short term committed and uncommitted credit arrangements totaling $968 million, of which $479 million were unused, compared to $1,075 million and $639 million, respectively, at December 31, 2020. The continued availability of the short term uncommitted arrangements is at the discretion of the relevant lender and may be terminated at any time.

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Outstanding Notes

At June 30, 2021, we had $5,436 million of outstanding notes compared to $3,860 million at December 31, 2020. The increase from December 31, 2020 was primarily due to the issuance of $1.45 billion of senior notes to fund a portion of the acquisition of Cooper Tire.

$2.75 billion Amended and Restated First Lien Revolving Credit Facility due 2026

On June 7, 2021, we amended and restated our $2.0 billion first lien revolving credit facility.  Changes to the facility include extending the maturity to June 8, 2026, increasing the amount of the facility to $2.75 billion, and including Cooper Tire's accounts receivable and inventory in the borrowing base for the facility.  The interest rate for loans under the facility decreased by 50 basis points to LIBOR plus 125 basis points, based on our current liquidity as described below.

Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit.  Up to $800 million in letters of credit and $50 million of swingline loans are available for issuance under the facility.  Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million.

Availability under the facility is subject to a borrowing base, which is based on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks in an amount not to exceed $400 million, (iii) the value of eligible machinery and equipment, and (iv) certain cash in an amount not to exceed $275 million.  To the extent that our eligible accounts receivable, inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.75 billion.  As of June 30, 2021, our borrowing base, and therefore our availability, under this facility was $423 million below the facility's stated amount of $2.75 billion.

If Available Cash (as defined in the facility) plus the availability under the facility is greater than $750 million, amounts drawn under the facility will bear interest, at our option, at (i) 125 basis points over LIBOR or (ii) 25 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). If Available Cash plus the availability under the facility is equal to or less than $750 million, then amounts drawn under the facility will bear interest, at our option, at (i) 150 basis points over LIBOR or (ii) 50 basis points over an alternative base rate. Undrawn amounts under the facility will be subject to an annual commitment fee of 25 basis points.

At June 30, 2021, we had no borrowings and $19 million of letters of credit issued under the revolving credit facility. At December 31, 2020, we had no borrowings and $11 million of letters of credit issued under the revolving credit facility.

At June 30, 2021, we had $321 million in letters of credit issued under bilateral letter of credit agreements.

Amended and Restated Second Lien Term Loan Facility due 2025

Our amended and restated second lien term loan facility matures on March 7, 2025. The term loan bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). In addition, if the Total Leverage Ratio is equal to or less than 1.25 to 1.00, we have the option to further reduce the spreads described above by 25 basis points. "Total Leverage Ratio" has the meaning given it in the facility.

At both June 30, 2021 and December 31, 2020, the amount outstanding under this facility was $400 million.

€800 million Amended and Restated Senior Secured European Revolving Credit Facility due 2024

Our amended and restated European revolving credit facility consists of (i) a €180 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €620 million all-borrower tranche that is available to Goodyear Europe B.V. (“GEBV”), GDTG and Goodyear Dunlop Tires Operations S.A. Up to €175 million of swingline loans and €75 million in letters of credit are available for issuance under the all-borrower tranche. Amounts drawn under this facility will bear interest at LIBOR plus 150 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 150 basis points for loans denominated in euros, and undrawn amounts under the facility are subject to an annual commitment fee of 25 basis points. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to €200 million.

At both June 30, 2021 and December 31, 2020, there were no borrowings and no letters of credit outstanding under the European revolving credit facility.

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

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respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2020 under the first lien facility and December 31, 2018 under the European facility.

Accounts Receivable Securitization Facilities (On-Balance Sheet)

GEBV and certain other of our European subsidiaries are parties to a pan-European accounts receivable securitization facility that expires in 2023. The terms of the facility provide the flexibility to designate annually the maximum amount of funding available under the facility in an amount of not less than €30 million and not more than €450 million. For the period from October 18, 2018 through October 15, 2020, the designated maximum amount of the facility was €320 million. For the period from October 16, 2020 through October 18, 2021, the designated maximum amount of the facility is €280 million.

The facility involves the ongoing daily sale of substantially all of the trade accounts receivable of certain GEBV subsidiaries. These subsidiaries retain servicing responsibilities. Utilization under this facility is based on eligible receivable balances.

The funding commitments under the facility will expire upon the earliest to occur of: (a) September 26, 2023, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events similar to the events of default under our senior secured credit facilities; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 18, 2021.

At June 30, 2021, the amounts available and utilized under this program totaled $246 million (€207 million). At December 31, 2020, the amounts available and utilized under this program totaled $291 million (€237 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Finance Leases.

Accounts Receivable Factoring Facilities (Off-Balance Sheet)

We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At June 30, 2021, the gross amount of receivables sold was $518 million, compared to $451 million at December 31, 2020. The increase from December 31, 2020 is primarily due to the addition of Cooper Tire's off-balance sheet factoring programs.

Supplier Financing

We have entered into payment processing agreements with several financial institutions. Under these agreements, the financial institution acts as our paying agent with respect to accounts payable due to our suppliers. These agreements also allow our suppliers to sell their receivables to the financial institutions at the sole discretion of both the supplier and the financial institution on terms that are negotiated between them. We are not always notified when our suppliers sell receivables under these programs. Our obligations to our suppliers, including the amounts due and scheduled payment dates, are not impacted by our suppliers' decisions to sell their receivables under the programs. Agreements for such financing programs totaled up to $500 million at June 30, 2021 and December 31, 2020.

Further Information

On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR (“IBA”), confirmed its previously announced plans to cease publication of USD LIBOR on December 31, 2021 for only the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. In addition, the IBA will also cease publication of all tenors of euro, Swiss franc, Japanese yen and British pound LIBOR on December 31, 2021. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee that has been convened by the Federal Reserve Board and the Federal Reserve Bank of New York to encourage market participants’ use of the Secured Overnight Financing Rate, known as SOFR. Additionally, the International Swaps and Derivatives Association, Inc. launched a consultation on technical issues related to new benchmark fallbacks for derivative contracts that reference certain interbank offered rates, including LIBOR. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR or any establishment of alternative reference rates in the United States, the United Kingdom, the European Union or elsewhere on the global capital markets. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could have adverse impacts on floating rate obligations, loans, deposits, derivatives and other financial instruments that currently use LIBOR as a benchmark rate. We have identified and evaluated our financing obligations and other contracts that refer to LIBOR and expect to be able to transition those obligations and contracts to an alternative reference rate upon the discontinuation of LIBOR. Our amended and restated first lien revolving credit facility, our second lien term loan facility and our European revolving credit facility, which constitute the most significant of our LIBOR-based debt obligations, contain “fallback” provisions that address the potential discontinuation of LIBOR and facilitate the adoption of an alternate rate of interest. We have not issued any long term floating rate notes. Our amended and restated first lien revolving credit facility and second lien term loan facility also contain express provisions for the use, at our option, of an alternative base rate (the higher of

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(a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). We do not believe that the discontinuation of LIBOR, or its replacement with an alternative reference rate or rates, will have a material impact on our results of operations, financial position or liquidity.

For a further description of the terms of our outstanding notes, first lien revolving credit facility, second lien term loan facility, European revolving credit facility and pan-European accounts receivable securitization facility, refer to Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2020 Form 10‑K and Note to the Consolidated Financial Statements No. 9, Financing Arrangements and Derivative Financial Instruments, in this Form 10-Q.

Covenant Compliance

Our first 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, pay dividends, repurchase shares or make certain other restricted payments or investments, incur liens, sell assets, incur restrictions on the ability of our subsidiaries to pay dividends or to make other payments 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. Our first and second lien credit facilities and the indentures governing our notes also have customary defaults, including cross-defaults to material indebtedness of Goodyear and its subsidiaries.

We have additional financial covenants in our first 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 (The Goodyear Tire & Rubber Company) and guarantor subsidiaries cash and cash equivalents (“Available Cash”) plus our availability under our first lien revolving credit facility is less than $275 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 the most recent period of four consecutive fiscal quarters. As of June 30, 2021, our unused availability under this facility of $2,308 million, plus our Available Cash of $176 million, totaled $2,484 million, which is in excess of $275 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 use such cash proceeds 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 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 GEBV and its subsidiaries. This financial covenant provides that we are not permitted to allow GEBV’s ratio of Consolidated Net GEBV Indebtedness to Consolidated GEBV 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 GEBV Indebtedness is determined net of the sum of cash and cash equivalents in excess of $100 million held by GEBV 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 GEBV Indebtedness also excludes loans from other consolidated Goodyear entities. This financial covenant is also included in our pan-European accounts receivable securitization facility. At June 30, 2021, we were in compliance with this financial covenant.

Our 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 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.

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.

At June 30, 2021, we were in compliance with the currently applicable material covenants imposed by our principal credit facilities and indentures.

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The terms “Available Cash,” “EBITDA,” “Consolidated Interest Expense,” “Consolidated Net Secured Indebtedness,” “Pro Forma Senior Secured Leverage Ratio,” “Consolidated Net GEBV Indebtedness” and “Consolidated GEBV EBITDA” have the meanings given them in the respective credit facilities.

Potential Future Financings

In addition to the financing activities described above, 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 inherent uncertainty of market conditions, access to the capital markets cannot be assured.

Our future liquidity requirements will 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 and Common Stock Repurchase Program

Under our primary credit facilities and some of our note indentures, we are permitted to pay dividends on and repurchase our capital stock (which constitute restricted payments) as long as no default will have occurred and be continuing, additional indebtedness can be incurred under the credit facilities or indentures following the payment, and certain financial tests are satisfied.

In the first six months of 2020, we paid cash dividends of $37 million on our common stock, all of which was paid in the first quarter of 2020. This amount excludes dividends earned on stock-based compensation plans of approximately $1 million. On April 16, 2020, we announced that we have suspended the quarterly dividend on our common stock.

From time to time, we repurchase shares of our common stock under programs approved by the Board of Directors. During the first six months of 2021, we did not repurchase any shares of our common stock under such programs.

The restrictions imposed by our credit facilities and indentures are not expected to affect our ability to pay dividends or repurchase our capital stock in the future.

Asset Dispositions

The restrictions on asset sales imposed by our material indebtedness have not affected our ability to divest non-core businesses, and those divestitures have not affected our ability to comply with those restrictions.

Supplemental Guarantor Financial Information

Certain of our subsidiaries, which are listed on Exhibit 22.1 to this Quarterly Report on Form 10-Q and are generally holding or operating companies, have guaranteed our obligations under the $800 million outstanding principal amount of 9.5% senior notes due 2025, the $900 million outstanding principal amount of 5% senior notes due 2026, the $700 million outstanding principal amount of 4.875% senior notes due 2027, the $850 million outstanding principal amount of 5% senior notes due 2029, the $550 million outstanding principal amount of 5.25% senior notes due April 2031, the $600 million outstanding principal amount of 5.25% senior notes due July 2031 and the $450 million outstanding principal amount of 5.625% senior notes due 2033 (collectively, the “Notes”).

The Notes have been issued by The Goodyear Tire & Rubber Company (the “Parent Company”) and are its senior unsecured obligations. The Notes rank equally in right of payment with all of our existing and future senior unsecured obligations and senior to any of our future subordinated indebtedness. The Notes are effectively subordinated to our existing and future secured indebtedness to the extent of the assets securing that indebtedness. The Notes are fully and unconditionally guaranteed on a joint and several basis by each of our wholly-owned U.S. and Canadian subsidiaries that also guarantee our obligations under certain of our senior secured credit facilities (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees are senior unsecured obligations of the Subsidiary Guarantors and rank equally in right of payment with all existing and future senior unsecured obligations of our Subsidiary Guarantors. The Guarantees are effectively subordinated to existing and future secured indebtedness of the Subsidiary Guarantors to the extent of the assets securing that indebtedness.

The Notes are structurally subordinated to all of the existing and future debt and other liabilities, including trade payables, of our subsidiaries that do not guarantee the Notes (the “Non-Guarantor Subsidiaries”). The Non-Guarantor Subsidiaries will have no obligation, contingent or otherwise, to pay amounts due under the Notes or to make funds available to pay those amounts. Certain Non-Guarantor Subsidiaries are limited in their ability to remit funds to us by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or limitations in credit agreements or other debt instruments of those subsidiaries.

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The Subsidiary Guarantors, as primary obligors and not merely as sureties, jointly and severally irrevocably and unconditionally guarantee on a senior unsecured basis the performance and full and punctual payment when due of all obligations of the Parent Company under the Notes and the related indentures, whether for payment of principal of or interest on the Notes, expenses, indemnification or otherwise. The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.

Although the Guarantees provide the holders of Notes with a direct unsecured claim against the assets of the Subsidiary Guarantors, under U.S. federal bankruptcy law and comparable provisions of U.S. state fraudulent transfer laws, in certain circumstances a court could cancel a Guarantee and order the return of any payments made thereunder to the Subsidiary Guarantor or to a fund for the benefit of its creditors.

A court might take these actions if it found, among other things, that when the Subsidiary Guarantors incurred the debt evidenced by their Guarantee (i) they received less than reasonably equivalent value or fair consideration for the incurrence of the debt and (ii) any one of the following conditions was satisfied:

the Subsidiary Guarantor was insolvent or rendered insolvent by reason of the incurrence;
the Subsidiary Guarantor was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
the Subsidiary Guarantor intended to incur, or believed (or reasonably should have believed) that it would incur, debts beyond its ability to pay as those debts matured.

In applying the above factors, a court would likely find that a Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for its Guarantee, except to the extent that it benefited directly or indirectly from the issuance of the Notes. The determination of whether a guarantor was or was not rendered “insolvent” when it entered into its guarantee will vary depending on the law of the jurisdiction being applied. Generally, an entity would be considered insolvent if the sum of its debts (including contingent or unliquidated debts) is greater than all of its assets at a fair valuation or if the present fair salable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts, including contingent or unliquidated debts, as they mature.

Under Canadian federal bankruptcy and insolvency laws and comparable provincial laws on preferences, fraudulent conveyances or other challengeable or voidable transactions, the Guarantees could be challenged as a preference, fraudulent conveyance, transfer at undervalue or other challengeable or voidable transaction. The test to be applied varies among the different pieces of legislation, but as a general matter these types of challenges may arise in circumstances where:

such action was intended to defeat, hinder, delay, defraud or prejudice creditors or others;
such action was taken within a specified period of time prior to the commencement of proceedings under Canadian bankruptcy, insolvency or restructuring legislation in respect of a Subsidiary Guarantor, the consideration received by the Subsidiary Guarantor was conspicuously less than the fair market value of the consideration given, and the Subsidiary Guarantor was insolvent or rendered insolvent by such action and (in some circumstances, or) such action was intended to defraud, defeat or delay a creditor;
such action was taken within a specified period of time prior to the commencement of proceedings under Canadian bankruptcy, insolvency or restructuring legislation in respect of a Subsidiary Guarantor and such action was taken, or is deemed to have been taken, with a view to giving a creditor a preference over other creditors or, in some circumstances, had the effect of giving a creditor a preference over other creditors; or
a Subsidiary Guarantor is found to have acted in a manner that was oppressive, unfairly prejudicial to or unfairly disregarded the interests of any shareholder, creditor, director, officer or other interested party.

In addition, in certain insolvency proceedings a Canadian court may subordinate claims in respect of the Guarantees to other claims against a Subsidiary Guarantor under the principle of equitable subordination if the court determines that (1) the holder of Notes engaged in some type of inequitable or improper conduct, (2) the inequitable or improper conduct resulted in injury to other creditors or conferred an unfair advantage upon the holder of Notes and (3) equitable subordination is not inconsistent with the provisions of the relevant solvency statute.

If a court canceled a Guarantee, the holders of Notes would no longer have a claim against that Subsidiary Guarantor or its assets.

Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor without rendering the Guarantee, as it relates to that Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.

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Each Subsidiary Guarantor is a consolidated subsidiary of the Parent Company at the date of each balance sheet presented. The following tables present summarized financial information for the Parent Company and the Subsidiary Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) equity in earnings from and investments in any Non-Guarantor Subsidiary.

 

 

Summarized Balance Sheets

 

(In millions)

 

June 30,
2021

 

 

December 31,
2020

 

Total Current Assets(1)

 

$

4,139

 

 

$

4,662

 

Total Non-Current Assets

 

 

5,451

 

 

 

5,426

 

 

 

 

 

 

 

Total Current Liabilities

 

$

2,160

 

 

$

1,960

 

Total Non-Current Liabilities

 

 

8,893

 

 

 

7,538

 

(1)
Includes receivables due from Non-Guarantor Subsidiaries of $1,836 million and $2,428 million as of June 30, 2021 and December 31, 2020, respectively.

 

 

Summarized Statements of Operations

 

(In millions)

 

Six Months Ended
June 30, 2021

 

 

Year Ended
December 31, 2020

 

Net Sales

 

$

3,577

 

 

$

6,114

 

Cost of Goods Sold

 

 

2,834

 

 

 

5,277

 

Selling, Administrative and General Expense

 

 

573

 

 

 

1,094

 

Goodwill and Other Asset Impairments

 

 

 

 

 

148

 

Rationalizations

 

 

18

 

 

 

95

 

Interest Expense

 

 

144

 

 

 

257

 

Other (Income) Expense

 

 

53

 

 

 

(58

)

Income (Loss) before Income Taxes(2)

 

$

(45

)

 

$

(699

)

 

 

 

 

 

 

Net Income (Loss)

 

$

(51

)

 

$

(806

)

Goodyear Net Income (Loss)

 

$

(51

)

 

$

(806

)

(2)
Includes income from intercompany transactions with Non-Guarantor Subsidiaries of $235 million for the six months ended June 30, 2021, primarily from royalties, intercompany product sales, dividends and interest, and $527 million for the year ended December 31, 2020, primarily from royalties, dividends, interest and intercompany product sales.

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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.

Acquisitions. We allocate the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess value of the purchase price for an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will impact the determination of future operating results. We use a variety of information sources to determine the fair value of acquired assets and liabilities including: third-party appraisers for the values and lives of property, identifiable intangibles and inventories; and actuaries and other third-party specialists for defined benefit pension plans, workers' compensation and general and product liabilities. Goodwill is assigned to reporting units as of the date of the related acquisition. If goodwill is assigned to more than one reporting unit, we utilize a method that is consistent with the manner in which the amount of goodwill in a business combination is determined. Transaction costs related to the acquisition of a business are expensed as incurred.

We estimate the fair value of acquired customer relationships using the multi-period excess earnings method. Fair value is estimated as the present value of the benefits anticipated from ownership of the asset, in excess of the returns required on the investment in contributory assets which are necessary to realize those benefits. The intangible asset’s estimated earnings are determined as the residual earnings after quantifying estimated earnings from contributory assets. Assumptions used in these calculations are considered from a market participant perspective and include revenue growth rates, estimated earnings, contributory asset charges, customer attrition rates and discount rates.

We estimate the fair value of trade names (definite and indefinite) using the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the assets. Assumed royalty rates are applied to projected revenue for the remaining useful lives of the assets to estimate the royalty savings. Assumptions used in the determination of the fair value of a trade name include revenue growth rates, the royalty rate and the discount rate.

While we use our best estimates and assumptions, fair value estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement period are recorded in the consolidated statement of operations.

Future changes in the judgments, assumptions and estimates that are used in our acquisition valuations and intangible asset and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies" in our 2020 Form 10-K for a discussion of our other critical accounting policies, including those related to pensions and other postretirement benefits, workers' compensation, general and product liability and other litigation, and recoverability of goodwill.

FORWARD-LOOKING INFORMATION — SAFE HARBOR STATEMENT

Certain information in this Form 10-Q (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 Quarterly Report on Form 10-Q. 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:

our future results of operations, financial condition and liquidity are expected to be adversely impacted by the COVID-19 pandemic, and that impact may be material;
there are risks and uncertainties regarding our acquisition of Cooper Tire and our ability to achieve the expected benefits of such acquisition;
delays or disruptions in our supply chain could result in increased costs or disruptions in our operations;

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if we do not successfully implement our strategic initiatives, our operating results, financial condition and liquidity may be materially adversely affected;
we face significant global competition 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;
raw material and energy costs may materially adversely affect our operating results and financial condition;
if we experience a labor strike, work stoppage or other similar event at the Company or its joint ventures, our business, results of operations, financial condition and liquidity could be materially adversely affected;
our international operations have certain risks that may materially adversely affect our operating results, financial condition and liquidity;
we have foreign currency translation and transaction risks that may materially adversely affect our operating results, financial condition and liquidity;
our long term ability to meet our obligations, to repay maturing indebtedness or to implement strategic initiatives may be dependent on our ability to access capital markets in the future and to improve our operating results;
financial difficulties, work stoppages, supply disruptions or economic conditions affecting 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;
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 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;
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 our contingent liabilities and tax matters;
our reserves for contingent liabilities 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 are subject to extensive government regulations that may materially adversely affect our operating results;
we may be adversely affected by any disruption in, or failure of, our information technology systems due to computer viruses, unauthorized access, cyber-attack, natural disasters or other similar disruptions;
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.

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ITEM 3. 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 material 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 petroleum-based, 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 material 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 June 30, 2021, 23% of our debt was at variable interest rates averaging 2.98%.

The following table presents information about long term fixed rate debt, excluding finance leases, at June 30, 2021:

 

(In millions)

 

 

 

Carrying amount — liability

 

$

5,632

 

Fair value — liability

 

 

5,924

 

Pro forma fair value — liability

 

 

6,180

 

 

The pro forma information assumes a 100 basis point decrease in market interest rates at June 30, 2021, 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 purchases and sales, equipment acquisitions, intercompany loans and royalty agreements. Contracts hedging short term trade receivables and payables normally have no hedging designation.

The following table presents net foreign currency contract information at June 30, 2021:

 

(In millions)

 

 

 

Fair value — asset (liability)

 

$

15

 

Pro forma decrease in fair value

 

 

(119

)

Contract maturities

 

 7/21-6/22

 

 

The pro forma decrease in fair value assumes a 10% adverse change in underlying foreign exchange rates at June 30, 2021, and reflects the estimated change in the fair value of contracts 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.

Fair values are recognized on the Consolidated Balance Sheet at June 30, 2021 as follows:

 

(In millions)

 

 

 

Current asset (liability):

 

 

 

Accounts receivable

 

$

21

 

Other current liabilities

 

 

(6

)

 

For further information on foreign currency contracts, refer to Note to the Consolidated Financial Statements No. 9, Financing Arrangements and Derivative Financial Instruments. Refer to “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.

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ITEM 4. CONTROLS AND PROCEDURES.

Management’s Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” which, consistent with Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, we define to mean controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of June 30, 2021 (the end of the period covered by this Quarterly Report on Form 10-Q).

Changes in Internal Control Over Financial Reporting

On June 7, 2021, we completed the acquisition of Cooper Tire, which operated under its own set of systems and internal controls. Subsequent to the acquisition, we began the process of integrating certain of Cooper Tire's processes to our internal control over financial reporting environment. This integration will continue during the first year of the business combination.

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Asbestos Litigation

As reported in our Form 10-K for the year ended December 31, 2020, we were one of numerous defendants in legal proceedings in certain state and federal courts involving approximately 38,700 claimants relating to their alleged exposure to materials containing asbestos in products allegedly manufactured by us or asbestos materials present in our facilities. During the first six months of 2021, approximately 500 new claims were filed against us and approximately 700 were settled or dismissed. The amounts expended on asbestos defense and claim resolution by us and our insurers during the first six months of 2021 was $7 million. At June 30, 2021, there were approximately 38,500 asbestos claims pending against us. The plaintiffs are seeking unspecified actual and punitive damages and other relief. Refer to Note to the Consolidated Financial Statements No. 13, Commitments and Contingent Liabilities, for additional information on asbestos litigation.

Shareholder Derivative Litigation

On October 24, 2018, a purported shareholder of the Company filed a derivative action on behalf of the Company in the Court of Common Pleas for Summit County, Ohio against certain of our directors, our chief executive officer, and certain former officers and directors. The complaint also names the Company as a nominal defendant. The lawsuit alleges, among other things, breach of fiduciary duties, waste of corporate assets and fraudulent concealment in connection with certain G159 tires manufactured by us from 1996 until 2003. The lawsuit seeks unspecified monetary damages, an award of attorney’s fees and expenses, and other legal and equitable relief. On September 25, 2020, the Court of Common Pleas dismissed the derivative action and the purported shareholder has appealed that dismissal.  On June 30, 2021, the Ohio Court of Appeals for the Ninth Judicial District reversed the trial court’s judgment and remanded the case for further proceedings.

Litigation Relating to the Cooper Tire Merger

On March 19, 2021, a purported Cooper Tire stockholder filed an action against Cooper Tire and the members of the Cooper Tire Board of Directors (the “Cooper Tire Board”), captioned Stein v. Cooper Tire & Rubber Company, et al., No. 1:21-cv-00407, in the United States District Court for the District of Delaware (the “Stein action”). On March 25, 2021, a purported Cooper Tire stockholder filed an action against Cooper Tire and the members of the Cooper Tire Board, captioned Miles v. Cooper Tire & Rubber Company, et al., No. 2:21-cv-06762, in the United States District Court for the District of New Jersey (the “Miles action”). On March 26, 2021, a purported Cooper Tire stockholder filed an action against Cooper Tire, the members of the Cooper Tire Board, Goodyear and Merger Sub, captioned Griffin v. Cooper Tire & Rubber Company, et al., No. 1:21-cv-00452, in the United States District Court for the District of Delaware (the “Griffin action”). On April 5, 2021, a purported Cooper Tire stockholder filed an action against Cooper Tire and the members of the Cooper Tire Board, captioned Rosenfeld Family Foundation v. Cooper Tire & Rubber Company, et al., No. 1:21-cv-00497, in the United States District Court for the District of Delaware (the “Rosenfeld action”). On April 6, 2021, a purported Cooper Tire stockholder filed an action against Cooper Tire and the members of the Cooper Tire Board, captioned Parshall v. Cooper Tire & Rubber Company, et al., No. 1:21-cv-00504, in the United States District Court for the District of Delaware (the “Parshall action,” and together with the Stein action, the Miles action, the Griffin action and the Rosenfeld action, the “Stockholder actions”). The Stockholder actions generally allege that Cooper Tire and its directors violated the federal securities laws, including Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, by issuing a materially incomplete and misleading registration statement on Form S-4. The Stockholder actions seek, among other things, to enjoin the transactions contemplated by the Merger Agreement and an award of attorneys’ fees and expenses.

All of the Stockholder actions have been voluntarily dismissed by the respective plaintiffs.

Reference is made to Item 3 of Part I of our 2020 Form 10-K and to Item 1 of Part II of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 for additional discussion of legal proceedings.

ITEM 1A. RISK FACTORS.

Refer to “Item 1A. Risk Factors” in our 2020 Form 10-K and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 for a discussion of our risk factors.

ITEM 6. EXHIBITS.

Refer to the Index of Exhibits, which is by specific reference incorporated into and made a part of this Quarterly Report on Form 10-Q.

 

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THE GOODYEAR TIRE & RUBBER COMPANY

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2021

INDEX OF EXHIBITS

 

 

 

 

 

 

 

Exhibit

Table

Item

No.

 

Description of Exhibit

 

Exhibit

Number

 

 

 

 

 

4

 

Instruments Defining the Rights of Security Holders, Including Indentures

 

 

 

 

 

 

 

(a)

 

Tenth Supplemental Indenture, dated as of May 18, 2021, among the Company, the Subsidiary Guarantors party thereto and Wells Fargo Bank, N.A., as Trustee, in respect of the Company’s 5% Senior Notes due 2029 (incorporated by reference, filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed May 18, 2021, File No. 1-1927).

 

 

 

 

 

 

 

(b)

 

Eleventh Supplemental Indenture, dated as of May 18, 2021, among the Company, the Subsidiary Guarantors party thereto and Wells Fargo Bank, N.A., as Trustee, in respect of the Company’s 5.25% Senior Notes due July 2031 (incorporated by reference, filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed May 18, 2021, File No. 1-1927).

 

 

 

 

 

 

 

(c)

 

Registration Rights Agreement with respect to the Company’s 5% Senior Notes due 2029, dated as of May 18, 2021, among the Company, the Subsidiary Guarantors and J.P. Morgan Securities LLC (incorporated by reference, filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K, filed May 18, 2021, File No. 1-1927).

 

 

 

 

 

 

 

(d)

 

Registration Rights Agreement with respect to the Company’s 5.25% Senior Notes due July 2031, dated as of May 18, 2021, among the Company, the Subsidiary Guarantors and J.P. Morgan Securities LLC (incorporated by reference, filed as Exhibit 4.7 to the Company’s Current Report on Form 8-K, filed May 18, 2021, File No. 1-1927).

 

 

 

 

 

 

 

(e)

 

Indenture, dated as of March 17, 1997, between Cooper Tire & Rubber Company and The Chase Manhattan Bank, as Trustee (incorporated by reference, filed as Exhibit 4.1 to Cooper Tire & Rubber Company’s Registration Statement on Form S-3, filed October 15, 1999, File No. 001-04329).

 

 

 

 

 

 

 

10

 

Material Contracts

 

 

 

 

 

 

 

(a)

 

Retention Agreement, dated May 24, 2021, between the Company and Darren R. Wells (incorporated by reference, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed May 27, 2021, File No. 1-1927).

 

 

 

 

 

 

 

(b)

 

Retention Agreement, dated May 24, 2021, between the Company and Richard J. Kramer (incorporated by reference, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed May 27, 2021, File No. 1-1927).

 

 

 

 

 

 

 

(c)

 

Retention Agreement, dated May 24, 2021, between the Company and Stephen R. McClellan (incorporated by reference, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed May 27, 2021, File No. 1-1927).

 

 

 

 

 

 

 

(d)

 

Amended and Restated First Lien Credit Agreement, dated as of June 7, 2021, among the Company, the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.*

 

10.1

 

 

 

 

 

(e)

 

Reaffirmation of First Lien Guarantee and Collateral Agreement, dated as of June 7, 2021, among the Company, the subsidiaries of the Company identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.*

 

10.2

 

 

 

 

 

 

 

*  Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table of contents

Exhibit

Table

Item

No.

 

 

 

 

Description of Exhibit

 

 

 

Exhibit

Number

 

 

 

 

 

22

 

Subsidiary Guarantors of Guaranteed Securities

 

 

 

 

 

 

 

(a)

 

List of Subsidiary Guarantors.

 

22.1

 

 

 

 

 

31

 

Rule 13a-14(a) Certifications

 

 

 

 

 

 

 

(a)

 

Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

 

31.1

 

 

 

 

 

(b)

 

Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

 

31.2

 

 

 

 

 

32

 

Section 1350 Certifications

 

 

 

 

 

 

 

(a)

 

Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.

 

32.1

 

 

 

 

 

101

 

Interactive Data Files

 

 

 

 

 

 

 

 

 

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

101.INS

 

 

 

 

 

 

 

Inline XBRL Taxonomy Extension Schema Document.

 

101.SCH

 

 

 

 

 

 

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

101.CAL

 

 

 

 

 

 

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

101.DEF

 

 

 

 

 

 

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

101.LAB

 

 

 

 

 

 

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

101.PRE

 

 

 

 

 

104

 

Cover Page Interactive Data File 

 

 

 

 

 

 

 

 

 

The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included as Exhibit 101).

 

 

 

 

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Table of contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

THE GOODYEAR TIRE & RUBBER COMPANY

 

 

(Registrant)

 

 

 

 

Date:

August 6, 2021

By

 /s/  EVAN M. SCOCOS

 

 

Evan M. Scocos, Vice President and Controller (Signing on behalf of the Registrant as a duly authorized officer of the Registrant and signing as the Principal Accounting Officer of the Registrant.)

 

57