Goodyear Tire & Rubber Company — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This annual filing reports full-year results, not a standalone fourth-quarter income statement. Cooper Tire results are consolidated from its June 7, 2021 acquisition date.
Business context
Goodyear manufactures and sells tires and related products and services through the Americas, EMEA, and Asia Pacific segments. It acquired Cooper Tire for approximately $3.1 billion in cash and stock, adding Cooper’s brands, operations, and manufacturing capacity. Worldwide tire shipments rose 34.3% to 169.3 million units, reflecting Cooper’s inclusion and recovery from pandemic-related demand weakness.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $17.478 billion | $12.321 billion |
| Goodyear net income (loss) | $764 million | $(1.254) billion |
| Diluted earnings (loss) per share | $2.89 | $(5.35) |
| Segment operating income (loss) | $1.288 billion | $(14) million |
| Segment operating margin | 7.4% | (0.1)% |
| Cash provided by operating activities | $1.062 billion | $1.115 billion |
| Capital expenditures | $981 million | $647 million |
| Cash and cash equivalents at year-end | $1.088 billion | $1.539 billion |
Sales increased 41.9%, driven by Cooper’s $2.126 billion of post-acquisition sales, higher tire volumes, improved price and product mix, stronger related-business sales, and favorable currency translation. Cost of goods sold was 78.3% of sales, versus 83.9% in 2020, implying gross margins of approximately 21.7% and 16.1%, respectively. Price and product-mix improvement was a major earnings driver; higher raw-material costs and SG&A partly offset the gains.
Segment results improved across all regions: Americas operating income was $914 million (9.1% margin), EMEA $239 million (4.6%), and Asia Pacific $135 million (6.2%). EMEA moved from an operating loss in 2020 to a profit.
Operating cash flow less capital expenditures was approximately $81 million. Working capital used cash as the company rebuilt inventories and receivables; operating cash flow also reflected $197 million of rationalization payments. Debt, including finance leases, was approximately $7.4 billion at year-end; cash-adjusted debt was approximately $6.3 billion. Unused availability under credit agreements was $4.345 billion. The company reported compliance with applicable material debt covenants.
Material changes and unusual items
- The Cooper Tire acquisition contributed $2.126 billion of sales and $135 million of Goodyear net income from closing through year-end. Goodyear issued approximately 46.1 million shares, increasing year-end shares outstanding.
- Goodyear issued senior notes to fund the acquisition and refinance maturities, expanded its first-lien revolving facility to $2.75 billion with maturity in 2026, and repaid a $400 million second-lien term loan.
- FY2021 included $56 million of Cooper transaction and related costs and $110 million of expense from the acquisition-date inventory fair-value step-up. A severe U.S. winter storm reduced estimated 2021 earnings by approximately $54 million.
- Income tax benefit was $267 million on $513 million of pretax income. Discrete tax benefits included valuation-allowance reductions; a fourth-quarter intercompany intellectual-property sale generated approximately $1.5 billion of accelerated U.S. taxable income, with the related tax charge offset using existing tax assets. The benefit depends in part on future earnings and the ability to use deferred tax assets.
- No goodwill or indefinite-lived intangible impairment was recorded in 2021. In 2020, the company recorded $330 million of goodwill and other asset impairments, including $182 million for EMEA goodwill and $148 million related to TireHub.
Outlook, commentary, and risks
Management expected first-quarter 2022 volume to exceed the prior-year level, including Cooper Tire’s comparative volume. For the first half of 2022, it forecast raw-material cost increases of $700–$800 million, excluding Cooper Tire, while expecting price and product mix benefits to exceed those increases. It anticipated continued transportation, labor, energy, and training-cost pressures. For full-year 2022, the company expected $1.3–$1.4 billion of capital expenditures, approximately $300 million of working-capital investment, $450–$475 million of interest expense, and cash flow from operations less capital expenditures around breakeven.
Key risks include pandemic-related demand and operating disruption; supply-chain and logistics constraints; raw-material, energy, transport, and labor inflation; worker shortages and manufacturing inefficiencies; execution and synergy risks from the Cooper integration; intense competition; and substantial debt and borrowing-base or covenant constraints. A Goodyear U.S. labor agreement covering approximately 5,900 associates was due to expire in July 2022. The filing also identifies climate, environmental, regulatory, currency, cybersecurity, and international-operating risks.
Contingencies include approximately 38,200 pending asbestos claimants. Goodyear recorded $131 million of gross asbestos liabilities and a $77 million insurance receivable, while noting that excess losses could be material but could not be reasonably estimated. Total recorded product-liability and other-tort liabilities were $390 million. Management stated that other identified legal and environmental matters were not expected to have a material adverse effect based on available information.
Most important facts for investors to verify
- Whether Cooper integration delivers expected cost synergies, earnings contribution, and cash-flow benefits.
- Whether pricing and product mix can offset raw-material, transportation, energy, and labor inflation, particularly in 2022.
- Whether inventory rebuilding and planned capital spending are consistent with the breakeven 2022 operating-cash-flow-less-capex outlook.
- How much reported earnings and future cash taxes depend on tax-asset utilization and the unusual intellectual-property transaction.
- Debt maturities, refinancing access, revolving-facility borrowing-base availability, and covenant headroom.
- Developments in asbestos claims, insurance recoveries, labor negotiations, and Cooper Tire integration controls; Cooper was excluded from the 2021 internal-control assessment and audit scope, representing 14% of consolidated assets and 12% of sales.