Goodyear Tire & Rubber Co. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Goodyear manufactures and sells tires and related products and services through its Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific segments. The year’s results were materially affected by COVID-19 disruptions.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $12.321 billion | $14.745 billion |
| Goodyear net income (loss) | $(1.254) billion | $(311) million |
| Diluted earnings (loss) per share | $(5.35) | $(1.33) |
| Gross profit | $1.984 billion | $3.143 billion |
| Operating cash flow | $1.115 billion | $1.207 billion |
| Capital expenditures | $647 million | $770 million |
| Cash and cash equivalents at year-end | $1.539 billion | $908 million |
| Debt and finance leases at year-end | $5.990 billion | $5.315 billion |
| Unused availability under credit agreements | $3.881 billion | $3.554 billion |
Gross margin was approximately 16.1%, down from 21.3%; cost of goods sold rose to 83.9% of sales from 78.7%. Total segment operating loss was $14 million, versus segment operating income of $945 million; segment operating margin was (0.1)% versus 6.4%.
Fourth-quarter 2020 sales were $3.656 billion, gross profit was $862 million, and Goodyear net income was $63 million, or $0.27 per diluted share. The comparable 2019 quarter had sales of $3.713 billion, gross profit of $810 million, and a Goodyear net loss of $392 million, or $1.68 per share.
Operating cash flow included $871 million of cash provided by working capital, principally reflecting lower inventory. The cash increase also reflected $250 million of net borrowings; investing cash outflow was $667 million. At year-end, total debt and finance leases were approximately $6.0 billion, including $1.4 billion of variable-rate debt. The company reported compliance with applicable material debt covenants.
Material changes versus 2019
- Sales fell 16.4%, primarily because worldwide tire units declined 18.9%, from 155.3 million to 126.0 million. Replacement units fell 17.4% and OE units fell 23.1%.
- Goodyear’s net loss widened by $943 million. Segment operating results decreased by $959 million, reflecting lower volume, higher factory conversion costs and weaker other tire-related businesses.
- Improvements in price and product mix of $402 million partly offset lower volume and unfavorable currency translation. Foreign currency translation reduced sales by $233 million.
- Reported results included $330 million of non-cash goodwill and other asset impairment charges: $182 million for EMEA goodwill and $148 million for the TireHub investment. Rationalization charges were $159 million.
- Income tax expense was $110 million despite a pretax loss of $1.140 billion. A $295 million valuation allowance on certain foreign tax credits was a major discrete tax charge.
- Year-end cash increased by $631 million, while debt and finance leases increased by $675 million. The quarterly common dividend was suspended in April; $0.16 per share was paid for the year, compared with $0.64 in 2019.
Outlook, management commentary and risks
- Management said tire demand recovered faster than expected in the second half of 2020, but flagged continuing uncertainty from COVID-19. It expected first-quarter 2021 volume to remain below 2019 levels and production to be approximately 3 million units above first-quarter 2020.
- For 2021, management expected a $450–$500 million working-capital cash use, approximately $850 million of capital expenditures, $125–$175 million of higher raw-material costs, $350–$375 million of interest expense, approximately $175 million of rationalization payments, and $125–$150 million of income-tax payments. These are expectations, not earnings guidance.
- The company extended its $2.0 billion first-lien revolving credit facility to April 2025 and issued $800 million of 9.5% senior notes due 2025. The facility’s borrowing base was below its stated commitment, and its availability depends partly on eligible receivables and inventory.
- Goodyear permanently closed its Gadsden, Alabama plant. It estimated total pretax plan charges of $280–$295 million, including $170–$180 million in cash charges, and approximately $130 million of annual savings in 2021 versus 2019.
- Key risks include continued pandemic effects on demand, production and supply chains; substantial debt and covenant or borrowing-base constraints; volatile raw-material prices and foreign exchange; competition and execution of strategic initiatives; labor negotiations; and contingent legal, environmental and tax exposures.
- Contingencies include approximately 38,700 pending asbestos claimants, with a $149 million gross recorded asbestos liability and a $90 million related insurance receivable. Approximately 850 former Amiens employees asserted claims totaling about €140 million; Goodyear accrued approximately €27 million for estimated additional termination benefits and appealed the labor-court ruling.
Important facts for investors to verify
- Whether the demand recovery and factory utilization can sustain improved volume and margins, particularly in EMEA and the Americas.
- Whether the 2021 working-capital, capital-spending, raw-material-cost and cash-payment expectations are met without weakening liquidity.
- Debt maturities, interest costs, revolving-credit borrowing-base availability and continued covenant compliance.
- The realization of deferred tax assets and potential for further valuation allowances or impairment charges.
- Developments in asbestos and Amiens claims, insurance recoveries, and environmental and other contingent liabilities.