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Cooper Tire Acquisition | 3 Months Ended
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Mar. 31, 2022
Cooper Tire |
Business Acquisition [Line Items] |
Cooper Tire Acquisition | NOTE 2. COOPER TIRE ACQUISITION On June 7, 2021 (the "Closing Date"), we completed our acquisition of Cooper Tire for cash and stock consideration totaling approximately $3.1 billion (the "Merger Consideration"). Under the acquisition method of accounting, the Merger Consideration is allocated, as of the Closing Date, to the identifiable assets acquired and liabilities assumed of Cooper Tire, which are recognized and measured at fair value based on management’s estimates, available information and supportable assumptions that management considers reasonable. Certain of these fair value estimates, including those related to Property, Plant and Equipment, certain liabilities and Goodwill, are preliminary and dependent upon management completing further analyses and studies. Given the complex nature of the related valuations and analyses to be completed, 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. Since the initial measurement of the identified assets acquired and liabilities assumed during the second quarter of 2021, progress continues to be made in completing certain of our additional valuations and analyses. Principle changes since the initial measurement include (i) decreasing the value attributed to customer relationships primarily to reflect updated assumptions related to customer attrition rates, (ii) updating the value attributed to trade names to reflect our long-term view of how each acquired brand fits into the overall product portfolio of the combined company and the appropriate royalty rate to value each acquired brand based on expected profitability, (iii) decreasing the value attributed to Property, Plant and Equipment primarily to reflect updated assumptions related to the estimated economic value of certain underlying assets, (iv) decreasing the value attributed to pension and other postretirement benefit liabilities primarily to reflect updated plan population data, (v) increasing the value attributed to a liability for environmental matters primarily to reflect updated estimated lifecycle remediation cost data, and (vi) a reclassification between Accounts Receivable and Accounts Payable to conform to Goodyear's classification of customer rebate and discount program liabilities. These adjustments were recorded net of adjustments to Deferred Tax Liabilities with the corresponding offset recorded to Goodwill, as applicable. No significant measurement period changes were recorded during the first quarter of 2022. The following table sets forth cumulative measurement period changes since the Closing Date, as well as the updated and initial preliminary allocation of the Merger Consideration to the estimated fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of Cooper Tire, with the excess recorded to Goodwill as of the Closing Date:
(In millions) |  | Updated Purchase Price Allocation |  |  | Cumulative Measurement Period Changes |  |  | Initial Purchase Price Allocation |
Cash and Cash Equivalents |  | $ | 231 |  |  | $ | — |  |  | $ | 231 |
Accounts Receivable |  |  | 540 |  |  |  | (81 | ) |  |  | 621 |
Inventories |  |  | 695 |  |  |  | 2 |  |  |  | 693 |
Property, Plant and Equipment |  |  | 1,348 |  |  |  | (24 | ) |  |  | 1,372 |
Goodwill |  |  | 625 |  |  |  | 150 |  |  |  | 475 |
Intangible Assets |  |  | 926 |  |  |  | (160 | ) |  |  | 1,086 |
Other Assets |  |  | 357 |  |  |  | (5 | ) |  |  | 362 |
|  |  | 4,722 |  |  |  | (118 | ) |  |  | 4,840 |
Accounts Payable — Trade |  |  | 381 |  |  |  | (83 | ) |  |  | 464 |
Compensation and Benefits |  |  | 356 |  |  |  | (30 | ) |  |  | 386 |
Debt, Finance Leases and Notes Payable and Overdrafts |  |  | 151 |  |  |  | — |  |  |  | 151 |
Deferred Tax Liabilities, net |  |  | 290 |  |  |  | (57 | ) |  |  | 347 |
Other Liabilities |  |  | 426 |  |  |  | 52 |  |  |  | 374 |
Minority Equity |  |  | 21 |  |  |  | — |  |  |  | 21 |
|  |  | 1,625 |  |  |  | (118 | ) |  |  | 1,743 |
Merger Consideration |  | $ | 3,097 |  |  | $ | — |  |  | $ | 3,097 |
The estimated value of Inventory includes adjustments totaling $232 million, comprised of $122 million primarily to adjust inventory valued on a last-in, first-out ("LIFO") basis to a current cost basis and $110 million to step-up inventory to estimated fair value. The fair value step-up was fully amortized to Cost of Goods Sold ("CGS") in 2021 as the related inventory was sold. 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 $138 million to increase the net book value of $1,210 million to the preliminary fair value estimate of $1,348 million. This estimate is based on a combination of cost and market approaches, including appraisals, and preliminary expectations as to the duration of time we expect to realize benefits from those 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 weighted average estimated useful lives and the related valuation methodology are as follows:
(In millions, except years) |  | Updated Fair Value |  |  | Cumulative Measurement Period Changes |  |  | Initial Fair Value |  |  | Weighted Average Useful Lives |  | Valuation Methodology
Trade names (indefinite-lived) |  | $ | 560 |  |  | $ | 250 |  |  | $ | 310 |  |  | N/A |  | Relief-from-royalty
Trade names (definite-lived) |  |  | 10 |  |  |  | (30 | ) |  |  | 40 |  |  | 14 years |  | Relief-from-royalty
Customer relationships |  |  | 350 |  |  |  | (380 | ) |  |  | 730 |  |  | 12 years |  | Multi-period excess earnings
Non-compete and other |  |  | 6 |  |  |  | — |  |  |  | 6 |  |  | 2 years |  | Discounted cash flow
|  | $ | 926 |  |  | $ | (160 | ) |  | $ | 1,086 |  |  |  |  |
At the Closing Date, all of the calculated Goodwill of $625 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 acquisition, including income tax synergies, and is not deductible for tax purposes. Net sales and CGS related to Cooper Tire’s operations that have been included in our Consolidated Statements of Operations for the three months ended March 31, 2022 are $869 million and $719 million, respectively. As a result of our ongoing integration efforts, particularly as it relates to administrative functions and financing activities, we did not present stand-alone Income before Income Taxes or Net Income for Cooper Tire for the three months ended March 31, 2022. During the three months ended March 31, 2021, we incurred transaction and other costs related to the acquisition of $8 million, which were included in Other (Income) Expense. Pro forma financial information The following table summarizes, on a pro forma basis, the combined results of operations of Goodyear and Cooper Tire for the three months ended March 31, 2021, 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.
(In millions) |  | Three Months Ended March 31, 2021 |
Net Sales |  | $ | 4,181 |
Income before Income Taxes |  |  | 100 |
Goodyear Net Income |  |  | 63 |
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 the change from LIFO to FIFO; (v) fair value adjustments for certain Cooper Tire stock-based compensation; and (vi) transaction related costs of both Goodyear and Cooper Tire.

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