GOODYEAR TIRE & RUBBER CO /OH/ - FORM 8-K - EX-99.1

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8-K - FORM 8-K - GOODYEAR TIRE & RUBBER CO /OH/	d191832d8k.htm

Exhibit 99.1

The Goodyear Tire & Rubber Company

Unaudited Pro Forma Consolidated Financial Information

On October 1, 2015, The Goodyear Tire & Rubber Company (the “Company”) completed the previously announced dissolution of its global alliance with Sumitomo Rubber Industries, Ltd. (“SRI”) in accordance with the terms and conditions set forth in the Framework Agreement, dated as of June 4, 2015 (the “Agreement”), by and between the Company and SRI.

Pursuant to the Agreement, the Company has sold to SRI its 75% interest in Goodyear Dunlop Tires North America, Ltd. (“GDTNA”), 25% interest in Dunlop Goodyear Tires Ltd. (“DGT”) and the Huntsville, Alabama test track used by GDTNA. Accordingly, the Company will no longer have any remaining ownership interests in GDTNA, DGT, or the Huntsville, Alabama test track. Additionally, the Company will liquidate and distribute the remaining assets and liabilities of a company that coordinated and disseminated both commercialized tire technology and non-commercialized technology among the Company and SRI, the joint ventures and their respective affiliates (the “Technology JV”), and of a global purchasing company (the “Purchasing JV”) to the Company and SRI in accordance with their ownership interests in the Technology JV and the Purchasing JV, respectively. GDTNA, DGT, the Huntsville, Alabama test track, the Technology JV, and the Purchasing JV are collectively referred to as the “deconsolidated interests.” In addition, the Company acquired from SRI its 75% interest in Nippon Goodyear Ltd. (“NGY”) and 25% interest in Goodyear Dunlop Tires Europe B.V. (“GDTE”) (collectively, the “acquired interests”). Accordingly, Goodyear will have full ownership interests in NGY and GDTE.

The unaudited pro forma consolidated financial statements provided are based on the consolidated financial statements of the Company and its consolidated subsidiaries, and are adjusted to reflect the deconsolidated interests and acquired interests in the manner noted below. The accompanying unaudited pro forma consolidated financial information includes:

•

an unaudited pro forma consolidated balance sheet as of June 30, 2015, adjusted to reflect the deconsolidated interests and acquired interests referenced above as if the deconsolidation and acquisitions had occurred on June 30, 2015;

•

unaudited pro forma consolidated statements of operations for the fiscal year ended December 31, 2014 and for the six months ended June 30, 2015, adjusted to reflect the deconsolidated interests referenced above as if the deconsolidation had occurred on January 1, 2014; and

•

notes to the unaudited pro forma consolidated financial information.

The acquired interests do not meet the significance criteria to be included in the pro forma financial information. However, the Company has elected to include the acquired interests solely in the unaudited pro forma balance sheet to reflect the complete exchange of consideration attributable to both the deconsolidated interests and acquired interests. The unaudited pro forma consolidated financial statements are estimates provided for illustrative purposes only and, therefore, are not necessarily indicative of the financial position or results of operations that might have been achieved had the events described in Item 2.01 of the Form 8-K to which this exhibit is attached occurred as of an earlier date, nor are they indicative of the financial position or results of operations that may occur in the future. The pro forma adjustments, including the fair value allocation of the overall transaction, the purchase price allocation of NGY, and the overall net gain reflected in the pro forma consolidated balance sheet, are based on preliminary estimates of fair value. The final fair value estimates may vary based on final appraisals, valuations and analyses of the fair value of the deconsolidated interests, acquired interests, and other transactions included within the Agreement. While such adjustments include estimates that are subject to change, the Company believes such adjustments are appropriate and directly attributable to the deconsolidated interests and acquired interests.

The unaudited pro forma consolidated financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015.

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of June 30, 2015


(In millions)	Historical Goodyear			(a)	Historical Deconsolidated Interests				Acquired Interests			(f)	Historical Goodyear, adjusted for Deconsolidated Interests and Acquired Interests			Transaction Consideration					Transaction Adjustments				Goodyear Pro Forma
Assets
Current Assets:
Cash and Cash Equivalents	$	1,638			$	—			$	—			$	1,638		$	(271	)	(i	)	$	—			$	1,367
Accounts Receivable		2,476				—				36				2,512			—					—				2,512
Inventories		2,545				—				33				2,578			—					—				2,578
Deferred Income Taxes		579				—				—				579			—					—				579
Assets Held for Sale		218				(218	)	(b)		—				—			—					—				—
Prepaid Expenses and Other Current Assets		239				—				—				239			—					—				239

Total Current Assets		7,695				(218	)			69				7,546			(271	)				—				7,275
Goodwill		563				—				21				584			—					—				584
Intangible Assets		132				—				24				156			—					8		(j)		164
Deferred Income Taxes		1,572				—				—				1,572			—					(44	)	(k)		1,528
Other Assets		744				—				2				746			—					59		(l)		805
Property, Plant and Equipment, less Accumulated Depreciation		6,810				—				9				6,819			—					—				6,819

Total Assets	$	17,516			$	(218	)		$	125			$	17,423		$	(271	)			$	23			$	17,175

Liabilities
Current Liabilities:
Accounts Payable-Trade	$	2,602			$	—			$	26			$	2,628		$	—				$	—			$	2,628
Compensation and Benefits		675				—				—				675			—					—				675
Liabilities Held for Sale		203				(203	)	(b)		—				—			—					—				—
Other Current Liabilities		904				—				23				927			—					6		(m)		933
Notes Payable and Overdrafts		36				—				—				36			—					—				36
Long Term Debt and Capital Leases due Within One Year		321				—				—				321			—					—				321

Total Current Liabilities		4,741				(203	)			49				4,587			—					6				4,593
Long Term Debt and Capital Leases		5,746				—				—				5,746			—					53		(n)		5,799
Compensation and Benefits		1,452				—				—				1,452			—					—				1,452
Deferred and Other Noncurrent Income Taxes		186				—				9				195			—					—				195
Other Long Term Liabilities		626				—				7				633			—					59		(l)		692

Total Liabilities		12,751				(203	)			65				12,613			—					118				12,731
Commitments and Contingent Liabilities		—				—				—				—			—					—				—
Minority Shareholders’ Equity		569				(64	)	(c)		(505	)	(g)		—			—					—				—
Shareholders’ Equity:
Goodyear Shareholders’ Equity:
Common Stock, no par value:		269				—				—				269			—					—				269
Capital Surplus		3,117				—				128		(g)		3,245			—					—				3,245
Retained Earnings		4,727				(141	)	(d)		537		(d)		5,123			(271	)	(d	)		(82	)	(d)		4,770
Accumulated Other Comprehensive Loss		(4,143	)			190		(e)		(100	)	(h)		(4,053	)		—					(13	)	(k)		(4,066	)

Goodyear Shareholders’ Equity		3,970				49				565				4,584			(271	)				(95	)			4,218
Minority Shareholders’ Equity — Nonredeemable		226				—				—				226			—					—				226
Total Shareholders’ Equity		4,196				49				565				4,810			(271	)				(95	)			4,444

Total Liabilities and Shareholders’ Equity	$	17,516			$	(218	)		$	125			$	17,423		$	(271	)			$	23			$	17,175

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2014


(In millions, except per share amounts)	Historical Goodyear			(o)	Historical Deconsolidated Interests		(p)	Historical Goodyear less Deconsolidated Interests			Transaction Adjustments					Goodyear Pro Forma
Net Sales	$	18,138			$	254		$	17,884		$	99		(q	)	$	17,983
Cost of Goods Sold		13,906				158			13,748			109		(q	)		13,857
Selling, Administrative and General Expense		2,720				30			2,690			—					2,690
Rationalizations		95				—			95			—					95
Interest Expense		428				—			428			—					428
Other Expense		302				—			302			—					302

Income Before Income Taxes		687				66			621			(10	)				611
United States and Foreign Tax (Benefit) Expense		(1,834	)			—			(1,834	)		(17	)	(r	)		(1,851	)

Net Income		2,521				66			2,455			7					2,462
Less: Minority Shareholders’ Net Income		69				12			57			—					57

Goodyear Net Income		2,452				54			2,398			7					2,405
Less: Preferred Stock Dividends		7				—			7			—					7

Goodyear Net Income available to Common Shareholders	$	2,445			$	54		$	2,391		$	7				$	2,398

Goodyear Net Income available to Common Shareholders - Per Share of Common Stock
Basic	$	9.13														$	8.95

Weighted Average Shares Outstanding		268															268
Diluted	$	8.78														$	8.59

Weighted Average Shares Outstanding		279															279

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Six Months Ended June 30, 2015


(In millions, except per share amounts)	Historical Goodyear			(o)	Historical Deconsolidated Interests		(p)	Historical Goodyear less Deconsolidated Interests			Transaction Adjustments					Goodyear Pro Forma
Net Sales	$	8,196			$	135		$	8,061		$	44		(q	)	$	8,105
Cost of Goods Sold		6,093				87			6,006			49		(q	)		6,055
Selling, Administrative and General Expense		1,256				13			1,243			—					1,243
Rationalizations		62				—			62			—					62
Interest Expense		209				—			209			—					209
Other Expense		(111	)			—			(111	)		—					(111	)

Income Before Income Taxes		687				35			652			(5	)				647
United States and Foreign Tax (Benefit) Expense		243				—			243			(9	)	(r	)		234

Net Income		444				35			409			4					413
Less: Minority Shareholders’ Net Income		28				8			20			—					20

Goodyear Net Income		416				27			389			4					393
Less: Preferred Stock Dividends		—				—			—			—					—

Goodyear Net Income available to Common Shareholders	$	416			$	27		$	389		$	4				$	393

Goodyear Net Income available to Common Shareholders - Per Share of Common Stock
Basic	$	1.54														$	1.46

Weighted Average Shares Outstanding		270															270
Diluted	$	1.52														$	1.43

Weighted Average Shares Outstanding		274															274

The Goodyear Tire & Rubber Company

Notes to the Unaudited Pro Forma Consolidated Financial Statements

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma consolidated financial information:

Adjustments to the pro forma consolidated balance sheet:

(a)

Represents the consolidated balance sheet of the Company and its consolidated subsidiaries as of June 30, 2015, as originally filed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015.

(b)

Reflects the deconsolidation of the deconsolidated interests at their carrying amounts as of June 30, 2015.

(c)

Reflects the redeemable minority equity in GDTNA.

(d)

The net impact to retained earnings of $43 million reflects the estimated net gain on the transaction primarily resulting from the sale of the deconsolidated interests and the fair value of the rights acquired by SRI from the Company to sell Dunlop-brand tires in those countries that were previously non-exclusive under the global alliance. The estimated gain included in the pro forma consolidated balance sheet as of June 30, 2015 is a preliminary estimate. The final net gain on the transaction will be based upon the net book values of the deconsolidated interests as of October 1, 2015, the closing date of the dissolution of the global alliance, and therefore will differ from this estimate. Additionally, the final net gain will be determined when the Company has completed the detailed valuations for the deconsolidated interests, the acquired interests, and other related transactions. The final net gain could differ materially from this preliminary estimate due to changes in the determined fair value for each of these components. The unaudited consolidated pro forma statements of operations do not include the estimated gain on deconsolidation as this gain would not have a continuing impact due to its non-recurring nature.

(e)

Reflects pension-related losses and cumulative translation adjustments related to GDTNA and DGT that were recorded in the consolidated statement of other comprehensive income. These reclassification adjustments from accumulated other comprehensive loss are included in the determination of the estimated net gain on the transaction.

(f)

Reflects the estimated allocation of fair value of assets and liabilities, and the related income tax impacts of the acquired interests as of June 30, 2015. Additional intangible assets primarily relate to the reacquired exclusive rights to distribute Goodyear and Kelly brand products in Japan. The final allocation will be determined based on the fair value of tangible assets, identifiable intangible assets and liabilities as of the acquisition date. Accordingly, the final allocation, including the preliminary estimates of fair value, may be materially different from the pro forma information provided.

(g)

The redeemable minority equity in GDTE was eliminated. The excess of the fair value estimate over the redeemable minority equity book value (excluding minority accumulated other comprehensive loss) was recorded in capital surplus.

(h)

Primarily reflects pension-related losses related to the historical minority interest of GDTE that were reclassified into accumulated other comprehensive loss.

(i)

Reflects the total net consideration of $271 million paid by the Company to SRI upon the closure of the transaction.

(j)

Represents additional intangible assets recorded for the royalty free right to Dunlop-related trademarks for tire-related businesses in North America excluding that related to motorcycles and for Japanese-owned vehicle manufacturers in North America.

(k)

Primarily represents the tax effects of the deconsolidation of GDTNA including derecognition of net deferred tax assets of the Company.

(l)

General and product liabilities of $59 million are included in the $203 million of liabilities held for sale at June 30, 2015 related to the deconsolidated interests. Under the terms of the Agreement, the Company will retain general and product liabilities, which will be reimbursed by SRI under certain circumstances, thus we have established an indemnification asset of $59 million related to the retained liability.

(m)

Represents accrued estimated transaction costs and accrued taxes.

(n)

Represents the estimated fair value of a promissory note of $56 million payable to GDTNA with a maturity date of three years from the date of the dissolution, at an interest rate of LIBOR plus 0.1%, delivered by the Company upon closing.

Adjustments to the pro forma consolidated statements of operations:

(o)

Represents the consolidated statement of operations of the Company and its consolidated subsidiaries for the year ended December 31, 2014, as originally filed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and for the six months ended June 30, 2015, as originally filed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015.

(p)

Represents the sales and results of operations of the deconsolidated interests that did not arise from intercompany transactions with the Company, for the fiscal year ended December 31, 2014 and the six months ended June 30, 2015, respectively. Intercompany transactions between the Company and its consolidated subsidiaries and the deconsolidated interests were eliminated in consolidation from the consolidated statement of operations of the Company referenced in footnote (o) above.

(q)

Represents sales and the related cost of sales for transactions between the Company and its consolidated subsidiaries and GDTNA that were previously eliminated as intercompany transactions for the fiscal year ended December 31, 2014 and the six months ended June 30, 2015, respectively, that are expected to continue on a recurring basis after the deconsolidation of GDTNA and will be recorded as sales to unrelated parties.

(r)

Represents the net incremental tax benefit from lower income before income taxes as a result of the sale of the Company’s interest in GDTNA that will be recurring after the deconsolidation of GDTNA, partially offset by higher tax expense from incremental income as a result of the sales in note (q) above.

GOODYEAR TIRE & RUBBER CO /OH/ - FORM 8-K - EX-99.1 - October 1, 2015

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