Attached files
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EX-99.1 - EX-99.1 - GOODYEAR TIRE & RUBBER CO /OH/ | d24073dex991.htm |
EX-23.1 - EX-23.1 - GOODYEAR TIRE & RUBBER CO /OH/ | d24073dex231.htm |
8-K - 8-K - GOODYEAR TIRE & RUBBER CO /OH/ | d24073d8k.htm |
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On February 22, 2021, Goodyear entered into the merger agreement along with Cooper Tire and Merger Sub, a direct, wholly owned subsidiary of Goodyear, pursuant to which, subject to the satisfaction or (to the extent permitted by applicable law) waiver of the conditions set forth therein, Goodyear will acquire Cooper Tire by way of the merger of Merger Sub with and into Cooper Tire, with Cooper Tire surviving the merger as a wholly owned subsidiary of Goodyear. Under the terms of the merger agreement, at the effective time of the merger, Cooper Tire stockholders will be entitled to receive $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 (subject to potential adjustment as described in the merger agreement). Goodyear expects to complete the merger in the second half of 2021, subject to the satisfaction or (to the extent permitted by applicable law) waiver of customary closing conditions, including receipt of required regulatory approvals and the approval of Cooper Tire stockholders.
The following unaudited pro forma condensed combined financial statements (pro forma combined statements) give effect to the merger on a combined basis. The unaudited pro forma combined statement of operations (pro forma statement of operations) gives effect to the merger as if it had occurred on January 1, 2020 and combines the audited consolidated statement of operations of Goodyear and Cooper Tire for the fiscal year ended December 31, 2020. The unaudited pro forma combined balance sheet (pro forma balance sheet) gives effect to the merger as if it had occurred on December 31, 2020 and combines the audited consolidated balance sheet of Goodyear as of December 31, 2020 with Cooper Tires audited consolidated balance sheet as of December 31, 2020. These statements and related notes, collectively referred to as pro forma financial information, have been prepared in accordance with Article 11 of Regulation S-X and have been derived from, and should be read in conjunction with, the accompanying notes to the pro forma combined financial statements and the historical consolidated financial statements and accompanying notes thereto on Form 10-K for the year ended December 31, 2020 for both Goodyear and Cooper Tire.
The pro forma financial information has been prepared using the acquisition method of accounting in accordance with Accounting Standard Codification (ASC) 805, Business Combinations which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date with limited exceptions.
The historical consolidated financial information of Goodyear and Cooper Tire has been adjusted in the pro forma combined statements to give effect to pro forma events, including the merger and related financing. The pro forma combined statements should be read in conjunction with the accompanying notes and do not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies or any other synergies that may result from the merger, including income tax synergies.
The statements and related notes are being provided for illustrative purposes only and do not purport to represent what Goodyears actual results of operations or financial position would have been had the merger been completed on the dates indicated, nor are they necessarily indicative of Goodyears future results of operations or financial position for any future period following the merger. Goodyear has completed a preliminary purchase price allocation to provide an estimate of the fair values associated with certain of Cooper Tires assets and liabilities acquired (discussed in the notes below). A final determination of the fair value of Cooper Tires assets and liabilities, including intangible assets with both indefinite or finite lives, will be based on Cooper Tires actual assets and liabilities at closing. As the fair value analysis has not been finalized, any changes in the fair value of the net assets acquired as compared with the information shown in the pro forma combined statements may change the amount of the allocation of the total purchase consideration to goodwill and other assets and liabilities and may impact Goodyears statement of operations. The final purchase consideration allocation may be materially different than the preliminary purchase consideration allocation presented in the pro forma combined statements.
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The accounting adjustments for the acquisition consist of those necessary to account for the acquisition and are based upon available information and certain assumptions that Goodyear believes are reasonable under the circumstances. The assumptions underlying the adjustments are described in greater detail in the accompanying notes to the pro forma combined statements. In many cases, the assumptions were based on preliminary information and estimates.
Separately, Goodyear obtained a commitment letter for a senior unsecured 364-day bridge term loan facility totaling approximately $2.3 billion. For purposes of the pro forma combined statements, Goodyear has assumed that $1,450 million will be drawn on the bridge loan facility to finance the merger at an interest rate of LIBOR plus 3.5%. The commitment letter specifies that the LIBOR rate used to determine the overall interest rate shall not be less than 0.50%. The adjustments related to the issuance of this debt, the estimated repayment of Cooper Tire debt using existing Cooper Tire cash, as well as the funding of the Cooper Tire rabbi trust are shown in a separate column as Other Adjustments. Although Goodyear intends to replace the bridge loan facility with other long term financing arrangements, the terms of those arrangements cannot be determined at this time and are thus not referenced in these pro forma combined statements.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
(In millions, except per share amounts) |
Goodyear (As Reported) |
Cooper Tire (As Reported) |
Reclassification Adjustments |
Note | Transaction Adjustments |
Note | Other Adjustments |
Note | Combined Pro Forma |
Note | ||||||||||||||||||||||||||||||
Net Sales |
$ | 12,321 | $ | 2,521 | $ | | $ | (24 | ) | 5 | (a) | $ | | $ | 14,818 | |||||||||||||||||||||||||
Cost of Goods Sold |
10,337 | 2,033 | 4 | 3 | (a) | 114 | 5 | (b) | | 12,488 | ||||||||||||||||||||||||||||||
Selling, Administrative and General Expense |
2,192 | 245 | (4 | ) | 3 | (a) | 74 | 5 | (c) | | 2,507 | |||||||||||||||||||||||||||||
Goodwill and Other Asset Impairments |
330 | | | | | 330 | ||||||||||||||||||||||||||||||||||
Rationalizations |
159 | | 12 | 3 | (b) | | | 171 | ||||||||||||||||||||||||||||||||
Restructuring Expense |
| 12 | (12 | ) | 3 | (b) | | | | |||||||||||||||||||||||||||||||
Interest Expense |
324 | 23 | | (4 | ) | 5 | (d) | 58 | 7 | (e) | 401 | |||||||||||||||||||||||||||||
Interest Income |
| (4 | ) | 4 | 3 | (c) | | | | |||||||||||||||||||||||||||||||
Other Pension and Postretirement Benefit Expense |
| 25 | (25 | ) | 3 | (c) | | | | |||||||||||||||||||||||||||||||
Other (Income) Expense |
119 | (4 | ) | 21 | 3 | (c) | 71 | 5 | (e) | 10 | 7 | (e) | 217 | |||||||||||||||||||||||||||
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Income (Loss) before Income Taxes |
(1,140 | ) | 191 | | (279 | ) | (68 | ) | (1,296 | ) | ||||||||||||||||||||||||||||||
United States and Foreign Tax Expense (Benefit) |
110 | 47 | | (59 | ) | 5 | (f) | (16 | ) | 7 | (e) | 82 | ||||||||||||||||||||||||||||
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Net Income (Loss) |
(1,250 | ) | 144 | | (220 | ) | (52 | ) | (1,378 | ) | ||||||||||||||||||||||||||||||
Less: Minority Shareholders Net Income |
4 | 1 | | | | 5 | ||||||||||||||||||||||||||||||||||
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Company Net Income (Loss) |
$ | (1,254 | ) | $ | 143 | $ | | $ | (220 | ) | $ | (52 | ) | $ | (1,383 | ) | ||||||||||||||||||||||||
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Goodyear Net Income (Loss) Per Share of Common Stock |
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Basic |
$ | (5.35 | ) | $ | (4.94 | ) | 5 | (g) | ||||||||||||||||||||||||||||||||
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Weighted Average Shares Outstanding |
234 | 46 | 4 | 280 | ||||||||||||||||||||||||||||||||||||
Diluted |
$ | (5.35 | ) | $ | (4.94 | ) | 5 | (g) | ||||||||||||||||||||||||||||||||
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Weighted Average Shares Outstanding |
234 | 46 | 4 | 280 |
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 2020 | ||||||||||||||||||||||||||||||||||||
(In millions) | Goodyear (As Reported) |
Cooper Tire (As Reported) |
Reclassification Adjustments |
Note | Transaction Adjustments |
Note | Other Adjustments |
Note | Combined Pro Forma |
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Assets: |
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Current Assets: |
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Cash and Cash Equivalents |
$ | 1,539 | $ | 626 | $ | | $ | (2,233 | ) | 6 | (a) | $ | 1,185 | 7 | (a) | $ | 1,117 | |||||||||||||||||||
Accounts Receivable |
1,691 | 506 | 9 | 3 | (d) | (3 | ) | 6 | (b) | | 2,203 | |||||||||||||||||||||||||
Notes Receivable |
| 9 | (9 | ) | 3 | (d) | | | | |||||||||||||||||||||||||||
Inventories |
2,153 | 388 | | 170 | 6 | (c) | | 2,711 | ||||||||||||||||||||||||||||
Prepaid Expenses and Other Current Assets |
237 | 53 | | (23 | ) | 6 | (d) | 59 | 7 | (b) | 326 | |||||||||||||||||||||||||
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Total Current Assets |
5,620 | 1,582 | | (2,089 | ) | 1,244 | 6,357 | |||||||||||||||||||||||||||||
Goodwill |
408 | 19 | | 468 | 6 | (e) | | 895 | ||||||||||||||||||||||||||||
Intangible Assets |
135 | 95 | | 900 | 6 | (f) | | 1,130 | ||||||||||||||||||||||||||||
Deferred Income Taxes |
1,467 | 31 | | (314 | ) | 6 | (g) | | 1,184 | |||||||||||||||||||||||||||
Investment in Joint Venture |
| 53 | (53 | ) | 3 | (e) | | | | |||||||||||||||||||||||||||
Other Assets |
952 | 22 | 83 | 3 | (e)(k) | | | 1,057 | ||||||||||||||||||||||||||||
Operating Lease Right-of-Use Assets |
851 | 92 | | | | 943 | ||||||||||||||||||||||||||||||
Property, Plant and Equipment |
7,073 | 1,078 | | 333 | 6 | (h) | | 8,484 | ||||||||||||||||||||||||||||
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Total Assets |
$ | 16,506 | $ | 2,972 | $ | 30 | $ | (702 | ) | $ | 1,244 | $ | 20,050 | |||||||||||||||||||||||
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Liabilities: |
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Current Liabilities: |
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Accounts Payable Trade |
$ | 2,945 | $ | 298 | $ | | $ | (3 | ) | 6 | (b) | $ | | $ | 3,240 | |||||||||||||||||||||
Accrued Liabilities |
| 308 | (308 | ) | 3 | (f)(h)(i) | | | | |||||||||||||||||||||||||||
Income Taxes Payable |
| 2 | (2 | ) | 3 | (g) | | | | |||||||||||||||||||||||||||
Compensation and Benefits |
540 | | 95 | 3 | (f) | 2 | 6 | (i) | | 637 | ||||||||||||||||||||||||||
Other Current Liabilities |
865 | | 192 | 3 | (g)(h) | | (9 | ) | 7 | (c) | 1,048 | |||||||||||||||||||||||||
Notes Payable and Overdrafts |
406 | | 16 | 3 | (j) | | (11 | ) | 7 | (d) | 411 | |||||||||||||||||||||||||
Short Term Borrowings |
| 16 | (16 | ) | 3 | (j) | | | | |||||||||||||||||||||||||||
Operating Lease Liabilities due Within One Year |
198 | | 23 | 3 | (i) | | | 221 | ||||||||||||||||||||||||||||
Long Term Debt and Finance Leases due Within One Year |
152 | 24 | | | 1,438 | 7 | (d) | 1,614 | ||||||||||||||||||||||||||||
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Total Current Liabilities |
5,106 | 648 | | (1 | ) | 1,418 | 7,171 | |||||||||||||||||||||||||||||
Operating Lease Liabilities |
684 | 71 | | | | 755 | ||||||||||||||||||||||||||||||
Long Term Debt and Finance Leases |
5,432 | 314 | | 20 | 6 | (j) | (174 | ) | 7 | (d) | 5,592 | |||||||||||||||||||||||||
Compensation and Benefits |
1,470 | | 404 | 3 | (k) | (15 | ) | 6 | (k) | | 1,859 | |||||||||||||||||||||||||
Postretirement Benefits Other than Pensions |
| 222 | (222 | ) | 3 | (k) | | | | |||||||||||||||||||||||||||
Pension Benefits |
| 152 | (152 | ) | 3 | (e)(k) | | | | |||||||||||||||||||||||||||
Deferred Income Taxes |
84 | 1 | | | | 85 | ||||||||||||||||||||||||||||||
Other Long Term Liabilities |
471 | 153 | | | | 624 | ||||||||||||||||||||||||||||||
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Total Liabilities |
13,247 | 1,561 | 30 | 4 | 1,244 | 16,086 | ||||||||||||||||||||||||||||||
Commitments and Contingent Liabilities |
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Shareholders Equity: |
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Company Shareholders Equity: |
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Common Stock |
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Outstanding shares |
233 | 87 | | (41 | ) | 6 | (l) | | 279 | |||||||||||||||||||||||||||
Capital Surplus |
2,171 | 21 | | 722 | 6 | (l) | | 2,914 | ||||||||||||||||||||||||||||
Retained Earnings |
4,809 | 2,647 | | (2,731 | ) | 6 | (l) | | 4,725 | |||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss |
(4,135 | ) | (447 | ) | | 447 | 6 | (l) | | (4,135 | ) | |||||||||||||||||||||||||
Common Shares in Treasury at Cost |
| (919 | ) | | 919 | 6 | (l) | | | |||||||||||||||||||||||||||
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Company Shareholders Equity |
3,078 | 1,389 | | (684 | ) | | 3,783 | |||||||||||||||||||||||||||||
Minority Shareholders Equity Nonredeemable |
181 | 22 | | (22 | ) | 6 | (l) | | 181 | |||||||||||||||||||||||||||
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Total Shareholders Equity |
3,259 | 1,411 | | (706 | ) | | 3,964 | |||||||||||||||||||||||||||||
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Total Liabilities and Shareholders Equity |
$ | 16,506 | $ | 2,972 | $ | 30 | $ | (702 | ) | $ | 1,244 | $ | 20,050 | |||||||||||||||||||||||
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(In millions except for per share data, unless indicated otherwise)
Note 1. DESCRIPTION OF THE MERGER
On February 22, 2021, Goodyear entered into the merger agreement along with Cooper Tire and Merger Sub, a direct, wholly owned subsidiary of Goodyear, pursuant to which, subject to the satisfaction or (to the extent permitted by applicable law) waiver of the conditions set forth therein, Goodyear will acquire Cooper Tire by way of the merger of Merger Sub with and into Cooper Tire, with Cooper Tire surviving the merger as a wholly owned subsidiary of Goodyear. Under the terms of the merger agreement, at the effective time of the merger, Cooper Tire stockholders will be entitled to receive $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 (subject to potential adjustment as described in the merger agreement). Goodyear expects to complete the merger in the second half of 2021, subject to the satisfaction or (to the extent permitted by applicable law) waiver of customary closing conditions, including receipt of required regulatory approvals and the approval of Cooper Tire stockholders.
Note 2. BASIS OF PRESENTATION
The pro forma financial information has been prepared in accordance with Article 11 of Regulation S-X and has been compiled from historical consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) and should be read in conjunction with the Form 10-K for the year ended December 31, 2020 for each of Goodyear and Cooper Tire. This pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the combined companys financial position or results of operations actually would have been had the merger been completed as of the dates indicated. In addition, this pro forma financial information does not purport to project the future financial position or operating results of the combined company.
The pro forma financial information has been prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date with limited exceptions. The acquisition method of accounting uses the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures (ASC 820).
ASC 820 defines fair value, establishes the framework for measuring fair value for any asset acquired or liability assumed under GAAP, and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measurements. Fair value is defined in ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements can be highly subjective, and it is possible the application of reasonable judgement could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances.
Acquisition accounting is dependent upon certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments included herein are preliminary and have been presented solely for the purpose of providing the pro forma financial information and will be revised as additional information becomes available and as additional analyses are performed. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of judgment in determining the appropriate assumptions and estimates. Differences between preliminary estimates and the final acquisition accounting will occur and could have a material impact on the accompanying pro forma financial information and the combined companys future results of operations and financial position. Certain amounts from the historical financial statements of Cooper Tire were reclassified to conform the presentation to that of Goodyear (see Note 3).
The total estimated purchase price has been measured using the closing market price of Goodyear common stock as of March 26, 2021 (the most practicable date used for preparation of the pro forma financial information). The
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final purchase price will be measured at the closing date of the merger. This will result in a per share equity value that is different from that assumed for purposes of preparing the pro forma financial information.
The pro forma financial information does not reflect any of the following:
| cost savings, |
| operating synergies, |
| revenue enhancements, |
| costs to combine the operations of Goodyear and Cooper Tire, or |
| realization of certain income tax synergies and benefits. |
Realization of certain income tax benefits that the combined company may achieve as a result of the merger are dependent on new sources of future taxable income, including potential tax planning.
The pro forma financial information has been compiled using Goodyears historical information and accounting policies and combining the assets and liabilities of Cooper Tire at their respective estimated fair values. The accounting policies of Cooper Tire may vary materially from those of Goodyear. During preparation of the pro forma financial information, Goodyears management has performed a preliminary analysis to identify where material differences in accounting policies may occur. Goodyears management will conduct a final review of Cooper Tires accounting policies in order to determine if further differences in accounting policies require adjustment or reclassification of Cooper Tires results of operations, assets or liabilities to conform to Goodyears accounting policies and classifications. As a result of this review, Goodyears management may identify differences that, when adjusted or reclassified, have a material impact on this pro forma financial information.
Note 3. PRO FORMA RECLASSIFICATION ADJUSTMENTS
Certain reclassifications have been recorded to Cooper Tires historical financial statements to conform to Goodyears presentation, as follows:
(a) | Cost of Goods Sold reclassification of product liability (benefit) in the amount of $4 million from Cost of Goods Sold to Selling, Administrative and General Expense. |
(b) | Rationalizations reclassification from Restructuring Expense in the amount of $12 million to Rationalizations. |
(c) | Other (Income) Expense reclassification from Interest Income in the amount of $4 million and from Other Pension and Postretirement Benefit Expense in the amount of $25 million to Other (Income) Expense in the amount of $21 million. |
(d) | Accounts Receivable reclassification of bank secured notes with maturities of six months or less in the amount of $9 million from Notes Receivable to Accounts Receivable. |
(e) | Other Assets reclassification from Investment in Joint Venture in the amount of $53 million and from Pension Benefits in the amount of $30 million to Other Assets. Pension Benefits amount of $30 million relates to a domestic pension plan with plan assets in excess of projected benefit obligations. |
(f) | Current Compensation and Benefits reclassification of payroll and employee benefits and other post-retirement benefits in the amount of $95 million from Accrued Liabilities to Compensation and Benefits. |
(g) | Income Taxes Payable reclassification from Income Taxes Payable in the amount of $2 million to Other Current Liabilities. |
(h) | Other Current Liabilities reclassification from Accrued Liabilities in the amount of $190 million to Other Current Liabilities. |
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(i) | Operating Lease Liabilities due Within One Year reclassification of operating lease liabilities in the amount of $23 million from Accrued Liabilities to Operating Lease Liabilities due Within One Year. |
(j) | Notes Payable and Overdrafts reclassification from Short Term Borrowings in the amount of $16 million to Notes Payable and Overdrafts. |
(k) | Non-Current Compensation and Benefits reclassification from Postretirement Benefits Other than Pensions in the amount of $222 million and from Pension Benefits in the amount of $182 million to Compensation and Benefits net of the $30 million reclassified to Other Assets. |
Note 4. ESTIMATED PURCHASE PRICE CONSIDERATION AND PRELIMINARY ALLOCATION
Estimated Merger Consideration
The estimated merger consideration for the purpose of this pro forma financial information is $2.9 billion.
The calculation of the estimated merger consideration is as follows:
(In millions, except share and per share amounts) | Shares | Per Share | Total | |||||||||
Estimated cash paid for Cooper Tire Shares(1) |
$ | 2,122 | ||||||||||
Estimated shares of Goodyear Common Stock issued to Cooper Tire Stockholders(2) |
46,090,256 | $ | 17.12 | 789 | ||||||||
Estimated cash paid for other Cooper Tire incentive compensation awards(3) |
34 | |||||||||||
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Preliminary estimated merger consideration |
$ | 2,945 | ||||||||||
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(1) | The cash component of the estimated 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 Tires 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 to be converted include Cooper Tire restricted stock units and Cooper Tire performance stock units. These Cooper Tire equity-based awards will be canceled and each share equivalent unit will be 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 March 26, 2021 |
50,522,665 | |||||||||||
Shares issuable pursuant to conversion of share units outstanding under Cooper Tire equity-based compensation plans |
293,494 | |||||||||||
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Cooper Tire Shares |
50,816,159 | $ | 41.75 | $ | 2,122 |
(2) | The stock consideration component of the estimated merger consideration is computed based on 100% of the Cooper Tire Shares being exchanged for shares of Goodyear common stock at an exchange ratio of 0.907 to one. |
(In millions, except share and per share amounts) | Shares | Exchange Ratio |
Total | |||||||||
Cooper Tire Shares |
50,816,159 | 0.907 | 46,090,256 |
(3) | Estimated cash consideration for the settlement of outstanding Cooper Tire stock options, which will not convert to outstanding shares of Cooper Tire common stock, as well as Cooper Tire performance cash units and Cooper Tire notional deferred stock units, all of which will be cancelled and assumed to be paid out at or near the closing date of the merger. |
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Preliminary Purchase Price Allocation
Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of Cooper Tire are recognized and measured at fair value. The allocation is dependent upon certain valuation and other studies that have not yet been completed. Accordingly, the pro forma purchase price allocation is subject to further adjustments as additional information becomes available and as additional analyses and final valuations are completed, and these adjustment could be material.
The following table sets forth a preliminary allocation of the estimated merger consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of Cooper Tire based on Cooper Tires audited consolidated balance sheet as of December 31, 2020, as reclassified; with the excess recorded to goodwill:
(In millions) | ||||
Cash and Cash Equivalents(a) |
$ | 361 | ||
Accounts Receivable |
515 | |||
Inventories(b) |
558 | |||
Prepaid Expenses and Other Current Assets(c) |
112 | |||
Property, Plant and Equipment, net(d) |
1,411 | |||
Goodwill |
487 | |||
Intangible Assets(e) |
995 | |||
Other Non-Current Assets(f) |
197 | |||
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4,636 | ||||
Accounts PayableTrade |
(298 | ) | ||
Other Current Liabilities |
(206 | ) | ||
Current and Non-Current Compensation and Benefits(g) |
(486 | ) | ||
Current and Non-Current Debt, Finance Leases and Notes Payable and Overdrafts(h) |
(177 | ) | ||
Deferred Tax Liabilities, net(i) |
(300 | ) | ||
Other Non-current Liabilities |
(224 | ) | ||
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(1,691 | ) | |||
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Estimated Merger Consideration(j) |
$ | 2,945 | ||
|
|
(a) | Cash and Cash Equivalents |
Cooper Tire plans to pay off debt totaling $197 million, fund their rabbi trust by $59 million and settle interest rate swaps of $9 million using cash on hand prior to the close of the merger.
(b) | Inventories |
Adjustments to inventory totaling $170 million are comprised of $77 million to adjust LIFO inventory to a current cost basis and $93 million to step-up inventory to estimated fair value. Goodyear has eliminated the LIFO reserve on Cooper Tires U.S. inventories as Goodyear determines the value of its inventory using the first-in, first-out or the average cost method.
To estimate the fair value of inventory, Goodyear considered the components of Cooper Tires inventory, as well as estimates of selling prices and selling and distribution costs that were based on Cooper Tires historical experience.
(c) | Prepaid Expenses and Other Current Assets |
Includes Cooper Tires historical prepaid expenses and other current asset balances of $53 million adjusted for the contributions to the rabbi trust totaling $59 million.
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(d) | Property, Plant and Equipment |
Fair value adjustments to property, plant and equipment totaling $333 million are comprised of increasing Cooper Tires historical property, plant and equipment net book value of $1,078 million to the preliminary estimate of the fair value of property, plant and equipment acquired of $1,411 million. This estimate is based on other comparable acquisitions and historical experience, and expectations as to the duration of time Goodyear expects to realize benefits from those assets, as Goodyear does not yet have sufficient information as to the condition of Cooper Tires fixed assets.
(e) | Intangible Assets |
The estimated fair values of identifiable intangible assets to be 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 Goodyears historical experience and expectations as to the duration of time Goodyear expects to realize benefits from those assets. These estimated fair values are considered preliminary and are subject to change upon completion of the final valuation. Changes in fair value of the acquired intangible assets may be material. The estimated fair value of the identifiable intangible assets, their estimated useful lives and valuation methodology are as follows:
(In millions) | Fair value | Useful life | Valuation method | |||||||||
Trade names (indefinite-lived) |
$ | 305 | N/A | Relief-from-royalty | ||||||||
Trade names (definite-lived) |
25 | 5-10 | Relief-from-royalty | |||||||||
Customer relationships |
620 | 10-15 | Multi-period excess earnings | |||||||||
Developed technology |
45 | 5-10 | Relief-from-royalty | |||||||||
|
|
|||||||||||
$ | 995 | |||||||||||
|
|
(f) | Other Non-Current Assets |
Other Non-Current Assets consists of Investment in Joint Venture of $53 million, Other Assets of $22 million, Operating Lease Right-of-Use Assets of $92 million and Pension Benefits of $30 million.
(g) | Current and Non-Current Compensation and Benefits |
Includes Cooper Tires historical compensation and benefits, increases in unfunded pension obligations of $4 million and accrued wages of $6 million for lump sum payments. This is partially offset by a $23 million reduction of the liability of certain long term incentive awards and deferred compensation accrued at December 31, 2020. Refer to Notes 6(i) and 6(k) for further information.
(h) | Current and Non-Current Debt, Finance Leases and Notes Payable and Overdrafts |
The fair value estimates of Cooper Tires existing debt that will be assumed in the merger totals $177 million, excluding the amount of debt Cooper Tire plans to pay off using cash on hand prior to the close of the merger totaling $197 million and including the fair market value adjustment of $20 million. Refer to Note 7(d) for further information.
(i) | Deferred Tax Liabilities, net |
Includes Cooper Tires historical deferred tax assets of $31 million and liabilities of ($1) million and the transaction adjustment of ($330) million as described in Note 6(g).
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(j) | Total estimated merger consideration |
The final estimated merger consideration could significantly differ from the amounts presented in the pro forma financial information due to movements in the price of Goodyear common stock up to the closing date of the merger. A sensitivity analysis related to the fluctuation in the price of Goodyear common stock was performed to assess the impact a hypothetical change of 15% on the closing price of Goodyear common stock at March 26, 2021 would have on the estimated merger consideration and goodwill as of the closing date of the merger and is summarized as follows:
(In millions, except per share amounts) | Share Price | Estimated Merger Consideration |
Goodwill | |||||||||
Increase of 15% |
$ | 19.69 | $ | 3,386 | $ | 560 | ||||||
Decrease of 15% |
14.55 | 2,503 | 414 |
Note 5. PRO FORMA STATEMENT OF OPERATIONS TRANSACTION ADJUSTMENTS
The pro forma financial information has been prepared using Cooper Tires publicly available financial statements and disclosures, as well as certain assumptions made by Goodyear. Estimates of the fair value of assets acquired and liabilities assumed are described in Note 4. For information on adjustments not included in the pro forma financial information, see Note 8.
(a) | Net Sales Reflects the adjustment for certain product sales between Goodyear and Cooper Tire which would be eliminated in consolidation. |
(b) | Cost of Goods Sold |
(In millions) | Transaction Adjustments |
|||
Elimination of Net Sales between Goodyear and Cooper Tire |
$ | (24 | ) | |
Elimination of Cooper Tires historical depreciation on Property, Plant and Equipment |
(131 | ) | ||
Estimated depreciation for acquired Property, Plant and Equipment |
166 | |||
Elimination of change in LIFO reserve |
10 | |||
Additional expense related to step-up of inventory |
93 | |||
|
|
|||
Total pro forma adjustment to Cost of Goods Sold |
$ | 114 | ||
|
|
(c) | Selling, Administrative and General Expense |
(In millions) | Transaction Adjustments |
|||
Elimination of Cooper Tires historical depreciation on Property, Plant and Equipment |
$ | (7 | ) | |
Estimated depreciation for acquired Property, Plant and Equipment |
9 | |||
Elimination of Cooper Tires historical Intangible Asset amortization |
(21 | ) | ||
Estimated amortization for acquired Intangible Assets |
64 | |||
Executive severance and employee retention |
29 | |||
|
|
|||
Total pro forma adjustment to Selling, Administrative and General Expense |
$ | 74 | ||
|
|
The depreciation expense related to Property, Plant and Equipment and the amortization expense related to Intangibles Assets acquired is based on estimated fair value amortized over the respective estimated
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remaining useful lives. Executive severance and employee retention reflects the estimated expense related to the change-in-control provisions associated with the executive severance plan and retention benefits anticipated as a result of the merger. Goodyear believes the fair value of accounts receivable acquired will be fully collected within the first year therefore no reserve for current expected credit losses has been reflected in the pro forma statement of operations.
(d) | Interest Expense |
(In millions) | Transaction Adjustments |
|||
Elimination of Cooper Tires historical Interest Expense on debt not assumed |
$ | (7 | ) | |
Amortization of fair value adjustment on Cooper Tire debt |
3 | |||
|
|
|||
Total pro forma adjustment to Interest Expense |
$ | (4 | ) | |
|
|
(e) | Other (Income) Expense |
Acquisition-related transaction costs of $71 million include investment banker, advisory, legal, valuation, and other professional fees.
(f) | United States and Foreign Tax Expense |
This adjustment reflects the income tax expense/benefit effects of the transaction-related adjustments based on applicable statutory tax rates. The tax rates used for this pro forma financial information are an estimate, and therefore, the blended rate will likely vary from the actual effective rate in periods subsequent to the completion of the merger. A pro forma blended statutory tax rate of 24.0% was used in determining the tax impact of certain pro forma adjustments. This rate was estimated using the statutory income tax rate for Goodyear and Cooper Tire, weighted based on respective income (loss) before income taxes. The adjusted statutory income tax rate for Goodyear and Cooper Tire is based on the U.S statutory income tax rate of 21%, plus 3% related to the tax rate impact of state and local income taxes and income taxes of non-U.S. operations. Income tax has not been calculated on approximately $34 million of transaction costs that are estimated to be capitalizable for income tax purposes.
(g) | Company Net Income (Loss) Per Common Share |
Pro forma net income (loss) per common share for the year ended December 31, 2020, has been calculated based on the estimated weighted-average number of common shares outstanding on a pro forma basis, as described below. The pro forma weighted-average shares outstanding have been calculated as if the acquisition-related shares had been issued and outstanding and outstanding Cooper Tire shares canceled as of January 1, 2020. For additional information on the calculation of acquisition-related shares, see Note 4.
Year ended December 31, 2020 |
||||||||
(In millions, except share and per share amounts) | Goodyear (as reported) |
Pro forma combined |
||||||
Net loss attributable to common shareholders |
$ | (1,254 | ) | $ | (1,383 | ) | ||
Weighted-average number of common shares outstandingdiluted |
234 | 280 | ||||||
Less Dilutive effect of stock options and restricted awards(1) |
| | ||||||
|
|
|
|
|||||
Weighted-average number of common shares outstandingbasic |
234 | 280 | ||||||
|
|
|
|
|||||
Loss per common share |
||||||||
Diluted |
$ | (5.35 | ) | $ | (4.94 | ) | ||
Basic |
(5.35 | ) | (4.94 | ) |
(1) | Due to the Goodyear net loss, dilutive securities were not included as they would be anti-dilutive. |
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Note 6. PRO FORMA BALANCE SHEET TRANSACTION ADJUSTMENTS
The pro forma financial information has been prepared using Cooper Tires publicly available financial statements and disclosures, as well as certain assumptions made by Goodyear. Estimates of the fair value of assets acquired and liabilities assumed are described in Note 4. For information on adjustments not included in the pro forma combined statements, see Note 8.
(a) | Cash and Cash Equivalents |
(In millions) | December 31, 2020 | |||
Cash component of Merger consideration (Note 4) |
$ | (2,156 | ) | |
Cash paid for transaction expenses (1) |
(71 | ) | ||
Cash paid for employee retention |
(6 | ) | ||
|
|
|||
Total pro forma adjustment to Cash and Cash equivalents |
$ | (2,233 | ) | |
|
|
(1) | Acquisition-related transaction costs, such as investment banker, advisory, legal, valuation and other professional fees are not included as a component of consideration transferred but are expensed as incurred. |
(b) | Accounts Receivable and Accounts Payable-Trade |
Reflects the elimination of $3 million between Accounts Receivable and Accounts Payable for amounts due to and due from Goodyear and Cooper Tire which would be eliminated in consolidation.
(c) | Inventories |
Reflects the preliminary purchase accounting adjustment for inventories based on the acquisition method of accounting. Goodyear has eliminated the LIFO reserve on Cooper Tires U.S. inventories as Goodyear determines the value of its inventory using the first-in, first-out or the average cost method.
(In millions) | December 31, 2020 | |||
Eliminate LIFO reserve |
$ | 77 | ||
Estimated fair value adjustment |
93 | |||
|
|
|||
Total adjustments to Inventory |
$ | 170 | ||
|
|
(d) | Prepaid Expenses and Other Current Assets |
Reflects the estimated amount paid from the rabbi trust at or near the assumed closing related to the change-in-control provisions associated with the executive severance plan.
(e) | Goodwill |
Reflects the elimination of Cooper Tires historical goodwill and the capitalization of the preliminary goodwill for the estimated merger consideration in excess of the estimated fair value of net assets acquired. Refer to Note 4 for additional information on the goodwill expected to be recognized.
(In millions) | December 31, 2020 | |||
Elimination of Cooper Tires historical Goodwill |
$ | (19 | ) | |
Preliminary Goodwill in connection with the merger |
487 | |||
|
|
|||
Total adjustments to Goodwill |
$ | 468 | ||
|
|
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(f) | Intangible Assets |
Reflects the preliminary purchase accounting adjustment for estimated intangibles based on the acquisition method of accounting. Refer to Note 4 for additional information on the estimated acquired intangible assets expected to be recognized.
(In millions) | December 31, 2020 | |||
Elimination of Cooper Tires historical Intangible Assets |
$ | (95 | ) | |
Estimated fair value of acquired Intangible Assets |
995 | |||
|
|
|||
Total adjustments to Intangible Assets |
$ | 900 | ||
|
|
(g) | Deferred Income Taxes |
This adjustment reflects the deferred tax assets and deferred tax liabilities resulting from the pro forma fair value adjustments of the acquired assets and assumed liabilities based on the applicable statutory tax rates for the U.S. and non-U.S. locations associated with the respective purchase price allocation and transaction related expenses. The originating net deferred tax liability is primarily related to the preliminary purchase price allocation associated with the acquired intangible assets.
December 31, 2020 | ||||||||
(In millions) |
24% Blended Statutory Tax Rate |
|||||||
Total adjustments to Inventory |
$ | 170 | ||||||
Total adjustments to Intangible Assets |
900 | |||||||
Total adjustments to Property, Plant and Equipment |
333 | |||||||
Total adjustments to Current Compensation and Benefits |
(2 | ) | ||||||
Total adjustments to Long Term Debt and Finances Leases |
(20 | ) | ||||||
Total adjustments to Non Current Compensation and Benefits |
(8 | ) | ||||||
|
|
|||||||
Taxable purchase allocation adjustments |
$ | 1,373 | $ | 330 | ||||
Transactions costs |
$ | (71 | ) | |||||
Capitalizable portion of transaction costs |
34 | |||||||
Executive severance and employee retention |
(29 | ) | ||||||
|
|
|||||||
$ | (66 | ) | (16 | ) | ||||
|
|
|||||||
Adjustments to Deferred Income Taxes |
$ | 314 | ||||||
|
|
(h) | Property, Plant and Equipment |
Reflects the preliminary purchase accounting adjustment for Property, Plant and Equipment based on the acquisition method of accounting. Refer to Note 4 for additional information on the estimated fair value of the Property, Plant and Equipment expected to be recognized.
(In millions) | December 31, 2020 | |||
Elimination of Cooper Tires Property, Plant and Equipment carrying value |
$ | (1,078 | ) | |
Property, Plant and Equipment fair value |
1,411 | |||
|
|
|||
Adjustments to Property, Plant and Equipment |
$ | 333 | ||
|
|
13
(i) | Current Compensation and Benefits |
Adjustments totaling $2 million reflect the preliminary estimated increase in accrued wages from annual lump sums to be paid to active employees represented by the United Steelworkers (USW) at certain manufacturing locations of Cooper Tire, as required by the applicable existing agreements between the USW and Cooper Tire.
(j) | Long Term Debt and Finance Leases |
Total adjustments of $20 million have been recorded in relation to Cooper Tires existing debt that will be assumed by Goodyear in the merger to adjust the assumed debt to fair market value.
(k) | Non-Current Compensation and Benefits |
Adjustments totaling $15 million reflect a $23 million reduction in the liability of certain long term incentive awards and deferred compensation accrued at December 31, 2020. This is partially offset by increases in unfunded pension obligations as a result of increases to pension benefit multipliers of $4 million and accrued wages from future annual lump sums to be paid to active employees represented by the USW at certain manufacturing locations of Cooper Tire of $4 million, both as required by the applicable existing agreements between the USW and Cooper Tire.
(l) | Shareholders Equity |
Total Cooper Tire common stock outstanding was exchanged for Goodyear common stock at an exchange ratio of 0.907 to one, which totaled 46.1 million shares at March 26, 2021, the estimated fair value of which is $789 million, based on Goodyears per share closing price as of March 26, 2021, or $17.12 per share. The following depicts the equity value consideration of $789 million offset by the elimination of Cooper Tire equity balances.
(In millions) | Transaction Adjustments |
Total | ||||||
Issuance of Goodyear common stock based on exchange ratio of 0.907 per share (no par value) |
$ | 46 | ||||||
Eliminate Cooper Tires historical common stock |
(87 | ) | ||||||
|
|
|||||||
Common stock transaction adjustment |
$ | (41 | ) | |||||
Record Capital Surplus related to fair value of share consideration paid |
743 | |||||||
Eliminate Cooper Tires historical capital surplus |
(21 | ) | ||||||
|
|
|||||||
Capital surplus transaction adjustment |
722 | |||||||
Eliminate Cooper Tires historical treasury stock |
919 | |||||||
|
|
|||||||
Treasury stock transaction adjustment |
919 | |||||||
Record executive severance and employee retention, net of tax |
(22 | ) | ||||||
Record estimated other transaction related costs, net of tax |
(62 | ) | ||||||
Eliminate Cooper Tires historical retained earnings |
(2,647 | ) | ||||||
|
|
|||||||
Retained earnings transaction adjustments |
(2,731 | ) | ||||||
Eliminate Cooper Tires historical accumulated other comprehensive loss |
447 | |||||||
|
|
|||||||
Accumulated other comprehensive loss transaction adjustment |
447 | |||||||
Eliminate Cooper Tires historical nonredeemable shareholders equity |
$ | (22 | ) | |||||
|
|
|||||||
Nonredeemable shareholders equity transaction adjustment |
(22 | ) | ||||||
|
|
|||||||
Shareholders equity transaction adjustments |
$ | (706 | ) | |||||
|
|
14
Note 7. OTHER ADJUSTMENTS
Other adjustments consist of transactions anticipated to occur related to the merger but outside of the merger transaction as follows:
(a) | Cash and Cash Equivalents |
(In millions) | December 31, 2020 | |||
Cash borrowed under the bridge loan facility |
$ | 1,450 | ||
Termination of interest rate swap arrangements for Cooper Tire debt not assumed |
(9 | ) | ||
Cooper Tire rabbi trust funding |
(59 | ) | ||
Repayment of Cooper Tire outstanding debt not assumed |
(197 | ) | ||
|
|
|||
Total pro forma adjustment to Cash and Cash Equivalents |
$ | 1,185 | ||
|
|
(b) | Prepaid Expenses and Other Current Assets |
Cooper Tire is a party to a trust agreement, which is intended to provide funding for benefits payable to directors, executive officers and certain other employees under several Cooper Tire plans and agreements. The execution of the merger agreement constituted a potential change in control under such plans and agreements and, as a result, Cooper Tire was required to fund shortly after the execution of the merger agreement the estimated value of the payments to be made to the beneficiaries under the trust agreement, determined in accordance with the funding requirements under the applicable plans and agreements.
(c) | Other Current Liabilities |
Termination of interest rate swap arrangements in the amount of $9 million related to Cooper Tires outstanding long term debt not assumed.
(d) | Notes Payable and Overdrafts, Long Term Debt and Finance Leases due Within One Year and Long Term Debt and Finance Leases |
Bridge Financing
Goodyear obtained a commitment letter for a senior unsecured 364-day bridge term loan facility of up to approximately $2.3 billion. Goodyear has assumed that $1,450 million will be drawn on the bridge loan facility to finance the merger for purposes of the pro forma financial information. This debt obligation is classified as current based on its terms with long term financing anticipated to replace the bridge loan facility. There can be no assurance that the long term financing will be obtained prior to the completion of the merger and the terms of the long term financing are uncertain at this time. The total amount assumed to be drawn represents the cash component of the merger consideration (Note 4) less use of cash on hand.
Repayment of Cooper Tires outstanding debt not assumed
(In millions) | December 31, 2020 | |||
Elimination of Cooper Tires Notes Payable and Overdrafts |
$ | (11 | ) | |
Elimination of Cooper Tires Current Portion of Long Term Debt |
(12 | ) | ||
Elimination of certain of Cooper Tires Long Term Debt |
(174 | ) | ||
|
|
|||
Elimination of Cooper Tires existing debt |
$ | (197 | ) | |
|
|
15
(e) | Interest Expense / Other (Income) Expense and United States and Foreign Tax Expense |
The adjustment to record pro forma interest expense of $58 million is based on the assumption that the bridge loan was obtained on January 1, 2020. The interest rate assumed on this loan facility is 4%, which is comprised of the twelve-month LIBOR floor of 0.5% plus 350 basis points, as described in the terms of the commitment letter. The LIBOR floor was used to determine the overall interest rate as the actual twelve-month LIBOR rate was 0.28075% at March 26, 2021.
The interest that Goodyear will ultimately pay once long term financing is obtained may vary materially from what is assumed in the pro forma financial information and will be based on the contractual terms of the long term financing.
From a sensitivity analysis perspective, if the twelve-month LIBOR rate used in determining interest expense associated with the bridge loan were to increase or decrease by 12.5 basis points it would not impact the interest expense for the year ended December 31, 2020 as the adjusted LIBOR rate of 0.40575% to 0.15575% is below the floor of 0.5%, respectively.
Other (Income) Expense includes amortization of deferred financing fees related to the bridge loan facility of $10 million.
A tax rate of 24.0% was used in relation to interest expense and other expense associated with the bridge loan facility as this debt will reside in the U.S.
Note 8. UNADJUSTED PRO FORMA BALANCES
Legal and environmental contingencies
At this time, Goodyear does not have sufficient information as to the details of Cooper Tires legal proceedings, product liability claims, environmental matters and other such information to make a reasonable preliminary estimate of fair value. The valuation effort could require intimate knowledge of complex legal matters and associated defense strategies. Therefore, no adjustment has been recorded to modify the current book value as determined by Cooper Tire.
16