UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

    

For the quarterly period ended March 31, 2021

or

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-04329

COOPER TIRE & RUBBER COMPANY

(Exact name of registrant as specified in its charter)

Delaware	34-4297750
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

701 Lima Avenue, Findlay, Ohio 45840

(Address of principal executive offices)

(Zip code)

(419) 423-1321

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $1 par value per share	CTB	New York Stock Exchange
(Title of Each Class)	(Trading Symbol)	(Name of Each Exchange on which Registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer	☒		Accelerated filer	☐
Non-Accelerated Filer	☐	(Do not check if a smaller reporting company)	Smaller Reporting Company	☐
			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares outstanding of the registrant’s common stock as of April 30, 2021 was 50,523,922.

Part I.     FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollar amounts in thousands except per share amounts)
	Three Months Ended March 31,
	2021		2020
Net sales	$	655,827	$	531,694
Cost of products sold	546,860		475,781
Gross profit	108,967		55,913
Selling, general and administrative expense	71,189		51,211
Restructuring expense	—		10,930
Operating profit (loss)	37,778		(6,228)
Interest expense	(5,130)		(5,007)
Interest income	699		1,696
Other pension and postretirement benefit expense	(2,846)		(4,210)
Other non-operating income	133		1,773
Income (Loss) before income taxes	30,634		(11,976)
Income tax provision (benefit)	8,544		(659)
Net income (loss)	22,090		(11,317)
Net income attributable to noncontrolling shareholders' interests	31		274
Net income (loss) attributable to Cooper Tire & Rubber Company	$	22,059	$	(11,591)
Earnings (Loss) per share:
Basic	$	0.44	$	(0.23)
Diluted	0.43		(0.23)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollar amounts in thousands)
	Three Months Ended March 31,
	2021		2020
Net income (loss)	$	22,090	$	(11,317)
Other comprehensive (loss) income:
Cumulative currency translation adjustments	(12,188)		(37,794)
Currency loss charged to equity as part of acquisition of noncontrolling shareholder interest	—		(11,748)
Financial instruments:
Change in the fair value of derivatives, net of reclassifications	1,907		(4,111)
Income tax provision on derivative instruments	(471)		1,037
Financial instruments, net of tax	1,436		(3,074)
Postretirement benefit plans:
Amortization of actuarial loss	7,971		8,149
Amortization of prior service cost	429		236
Actuarial loss	—		(31,490)
Income tax impact on postretirement benefit plans	(1,722)		6,039
Foreign currency translation effect	(805)		4,708
Postretirement benefit plans, net of tax	5,873		(12,358)
Other comprehensive loss	(4,879)		(64,974)
Comprehensive income (loss)	17,211		(76,291)
Less: Comprehensive loss attributable to noncontrolling shareholders' interests	(295)		(270)
Comprehensive income (loss) attributable to Cooper Tire & Rubber Company	$	17,506	$	(76,021)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)
	(Unaudited)
	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	460,424	$	625,758
Notes receivable	13,174		9,076
Accounts receivable, less allowances of $10,701 at 2021 and $11,162 at 2020	541,596		506,305
Inventories:
Finished goods	324,187		264,785
Work in process	26,998		24,594
Raw materials and supplies	95,735		98,277
Total inventories	446,920		387,656
Other current assets	43,309		53,420
Total current assets	1,505,423		1,582,215
Property, plant and equipment:
Land and land improvements	57,874		57,941
Buildings	363,170		355,564
Machinery and equipment	2,171,897		2,154,000
Molds, cores and rings	268,361		266,671
Total property, plant and equipment	2,861,302		2,834,176
Less: Accumulated depreciation	1,778,603		1,756,552
Property, plant and equipment, net	1,082,699		1,077,624
Operating lease right-of-use assets, net of accumulated amortization of $48,514 at 2021 and $46,045 at 2020	102,313		91,884
Goodwill	18,851		18,851
Intangibles, net of accumulated amortization of $147,225 at 2021 and $143,097 at 2020	94,114		95,376
Restricted cash	60,309		967
Deferred income tax assets	28,030		30,572
Investment in joint venture	53,563		53,494
Other assets	11,780		20,590
Total assets	$	2,957,082	$	2,971,573

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)
	(Unaudited)
(Continued)	March 31, 2021		December 31, 2020
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	4,569	$	15,614
Accounts payable	337,147		297,578
Accrued liabilities	246,237		308,287
Income taxes payable	7,959		2,254
Current portion of long-term debt and finance leases	20,974		24,377
Total current liabilities	616,886		648,110
Long-term debt and finance leases	309,187		314,265
Noncurrent operating leases	81,419		71,391
Postretirement benefits other than pensions	220,204		221,395
Pension benefits	144,315		152,110
Other long-term liabilities	160,881		152,242
Deferred income tax liabilities	1,412		1,469
Equity:
Preferred stock, $1 par value; 5,000,000 shares authorized; none issued	—		—
Common stock, $1 par value; 300,000,000 shares authorized; 87,850,292 shares issued at 2021 and 2020	87,850		87,850
Capital in excess of par value	18,923		20,815
Retained earnings	2,663,214		2,646,567
Accumulated other comprehensive loss	(451,462)		(446,909)
Parent stockholders' equity before treasury stock	2,318,525		2,308,323
Less: Common shares in treasury at cost (37,327,627 at 2021 and 37,454,209 at 2020)	(917,144)		(919,424)
Total parent stockholders' equity	1,401,381		1,388,899
Noncontrolling shareholders' interests in consolidated subsidiaries	21,397		21,692
Total equity	1,422,778		1,410,591
Total liabilities and equity	$	2,957,082	$	2,971,573

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands)
	Three Months Ended March 31,
	2021		2020
Operating activities:
Net income (loss)	$	22,090	$	(11,317)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	41,518		37,807
Stock-based compensation	1,735		390
Change in LIFO inventory reserve	31,502		(8,563)
Amortization of unrecognized postretirement benefits	8,400		8,385
Changes in operating assets and liabilities:
Accounts and notes receivable	(40,796)		11,772
Inventories	(92,944)		(41,123)
Other current assets	(2,244)		(7,848)
Accounts payable	46,125		(20,422)
Accrued liabilities	(58,082)		(91,414)
Other items	2,516		7,964
Net cash used in operating activities	(40,180)		(114,369)
Investing activities:
Additions to property, plant and equipment and capitalized software	(57,489)		(54,827)
Proceeds from the sale of assets	5		65
Net cash used in investing activities	(57,484)		(54,762)
Financing activities:
Issuance of short-term debt	—		273,587
Repayment of short-term debt	—		(4,308)
Repayment of long-term debt and finance lease obligations	(9,920)		(2,594)
Acquisition of noncontrolling shareholder interest	—		(62,272)
Payments of employee taxes withheld from share-based awards	(2,144)		(910)
Payment of dividends to Cooper Tire & Rubber Company stockholders	(5,301)		(5,277)
Issuance of common shares related to stock-based compensation	813		177
Net cash (used in) provided by financing activities	(16,552)		198,403
Effects of exchange rate changes on cash	(3,618)		(875)
Net change in cash, cash equivalents and restricted cash	(117,834)		28,397
Cash, cash equivalents and restricted cash at beginning of period	649,505		413,125
Cash, cash equivalents and restricted cash at end of period	$	531,671	$	441,522
Cash and cash equivalents	$	460,424	$	433,362
Restricted cash included in Other current assets	10,938		6,669
Restricted cash	60,309		1,491
Total cash, cash equivalents and restricted cash	$	531,671	$	441,522

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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COOPER TIRE & RUBBER COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share amounts)

Note 1.     Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

There is typically a year-round demand for the Company's products, however, passenger car and light truck ("light vehicle") replacement tire sales are generally strongest during the third and fourth quarters of the year. Winter tires are sold principally during the months of May through November. Operating results for the three month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.

The Company consolidates into its financial statements the accounts of the Company, all wholly-owned subsidiaries, and any partially-owned subsidiary that the Company has the ability to control. Control generally equates to ownership percentage, whereby investments that are more than 50 percent owned are consolidated, investments in subsidiaries of 50 percent or less but greater than 20 percent are accounted for using the equity method, and investments in subsidiaries of 20 percent or less are measured at fair value or, if fair value is not readily available, at cost (less impairment, if any), adjusted for observable price changes in orderly transactions for the identical or a similar investment. The Company does not consolidate any entity for which it has a variable interest based solely on power to direct the activities and significant participation in the entity’s expected results that would not otherwise be consolidated based on control through voting interests. Further, the Company’s joint ventures are businesses established and maintained in connection with the Company’s operating strategy. All intercompany transactions and balances have been eliminated.

On January 24, 2020, the Company acquired the remaining 41.57 percent noncontrolling ownership interest in Corporacion de Occidente SA de CV ("COOCSA"), making COOCSA a wholly-owned subsidiary in the Americas Segment. In this transaction, the Company acquired the remaining outstanding voting common stock of COOCSA for a total cash price of $54,500. In addition, subsequent to the acquisition, payments of $15,984 were made to members of the prior joint venture workforce in connection with services rendered. In the first quarter of 2020, the Company incurred restructuring expense of $10,930 related to this transaction.

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Earnings per common share – Earnings per share is computed on the basis of the weighted average number of common shares outstanding each period. When applicable, diluted earnings per share includes the dilutive effect of stock options and other stock units. The following table sets forth the computation of basic and diluted earnings per share:

(Number of shares and dollar amounts in thousands except per share amounts)	Three Months Ended March 31,
	2021		2020
Numerator
Numerator for basic and diluted earnings per share - income (loss) available to common stockholders	$	22,059	$	(11,591)
Denominator
Denominator for basic earnings per share - weighted average shares outstanding	50,448		50,236
Effect of dilutive securities - stock options and other stock units	346		—
Denominator for diluted earnings per share - adjusted weighted average shares outstanding	50,794		50,236
Earnings (Loss) per share:
Basic	$	0.44	$	(0.23)
Diluted	0.43		(0.23)
Anti-dilutive shares excluded from computation of diluted loss per share	—		294

All options to purchase shares of the Company's common stock were included in the computation of diluted earnings per share at March 31, 2021. Anti-dilutive shares were excluded from the computation of loss per share at March 31, 2020, as the inclusion of such items would decrease loss per share.

Allowance for Credit Losses – The Company utilizes an expected loss methodology based on credit risk. The Company's policy includes the regular review of its outstanding accounts receivable portfolio to assess risk and likelihood of credit loss. This review includes consideration of potential credit loss over the asset's contractual life, along with historical experience, current conditions and forecasts based on management's judgment. The Company also performs periodic credit evaluations of customers’ financial conditions in order to assess credit worthiness and maintain appropriate credit limits.

Recent Accounting Pronouncements

Each change to U.S. GAAP is established by the Financial Accounting Standards Board (“FASB”) in the form of an accounting standards update (“ASU”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs.

Accounting Pronouncements – Recently adopted

Fair Value Measurement

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition related to reference rate reform. The amendments in this update were effective immediately for all entities. The adoption of this standard did not materially impact the Company's condensed consolidated financial statements.

Note 2. Merger Agreement

On February 22, 2021, the Company entered into an Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”) by and among the Company, The Goodyear Tire & Rubber Company ("Goodyear") and Vulcan Merger Sub Inc., a direct, wholly owned subsidiary of Goodyear (“Merger Sub”), pursuant to which, subject to the satisfaction or (to the extent permissible) waiver of the conditions set forth therein, Goodyear will acquire the Company by way of the merger of Merger Sub with and into the Company (the "Merger"), with the Company surviving such Merger as a wholly owned subsidiary of Goodyear. Under the terms of the Merger Agreement, at the effective time of the Merger, the Company’s 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 the Company’s common stock they own at the effective time (the “Merger Consideration”). Upon completion of the proposed Merger, it is expected that the Company’s stockholders will own approximately 16 percent and Goodyear stockholders will own approximately 84 percent of the combined company on a fully diluted basis. In addition, at the effective time of the Merger, as defined under the terms of the Merger Agreement, all outstanding restricted stock units and performance stock units of the

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Company will be converted into the right to receive the Merger Consideration, and the Company’s outstanding options will be converted into a right to receive a cash payment. The Company expects to complete the Merger in the second half of 2021. However, the transaction could close earlier, following and subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals. The Company’s stockholders approved the Merger on April 30, 2021, as disclosed on the Company's Form 8-K filed on April 30, 2021.

The Company is a party to a trust agreement which is intended to provide funding for benefits payable and other potential payments to directors, executive officers and certain other employees under various plans and agreements of the Company. The execution of the Merger Agreement constituted a “potential change in control” under such plans and agreements and as a result, the Company was required to fund the estimated value of the payments to be made to the beneficiaries into the trust agreement, determined in accordance with the funding requirements under the applicable plans and agreements. Subsequent to the Merger announcement, the Company deposited $58,812 with the trustee in connection with this funding obligation. At March 31, 2021, the Company had $60,309 deposited with the trustee and classified as Restricted cash on the Condensed Consolidated Balance Sheets.

During the first quarter of 2021, the Company incurred approximately $10,655 of expenses associated with the Merger. These expenses are recorded in Selling, general & administrative expenses on the Condensed Consolidated Statements of Operations. These expenses include $4,923 of advisory, legal and other professional fees, as well as an increase in mark to market costs of stock-based liabilities subsequent to the Merger announcement of $5,732. The mark to market cost represents the impact of the movement in the Company's closing stock price from the day prior to the Merger Agreement announcement as compared to the closing price of Company's stock on the day of the Merger Agreement announcement.

Note 3.     COVID-19

In March 2020, the World Health Organization categorized Coronavirus Disease 2019 ("COVID-19") as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The Company’s priorities during the COVID-19 pandemic have been protecting the health and safety of its employees, responsibilities to its broader communities, and commitments to its customers and other key stakeholders.

The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse accounting impacts on the Company’s first quarter 2020 or 2021 results of operations. Given the dynamic nature of the COVID-19 pandemic and related market conditions, the Company cannot reasonably estimate the period of time that these events will persist or the full extent of the impact they will have on the business. The Company continues to take actions designed to mitigate the adverse effects of this rapidly changing market environment.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The Company's payment of employer payroll taxes after enactment otherwise due in 2020 was delayed, with 50 percent due by December 31, 2021, and the remaining 50 percent by December 31, 2022. At March 31, 2021, the Company has deferred the remittance of $14,742 of employer taxes under the CARES Act. This liability is split evenly between the Company's Accrued liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets. The CARES Act has had no further impact on the Company’s condensed consolidated financial statements at March 31, 2021.

Note 4.     Revenue from Contracts with Customers

Accounting policy

Revenue is measured based on the consideration specified in a contract with a customer and excludes any sales incentives or rebates. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. This occurs with shipment or delivery, depending on the underlying terms with the customer. The transaction price will include estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. At the time of sale, the Company estimates provisions for different forms of variable consideration (discounts and rebates) based on historical experience, current conditions and contractual obligations, as applicable. Payment terms with customers vary by region and customer, but are generally 30-90 days. The Company does not have significant financing components or significant payment terms. Incidental items that are immaterial in the context of the contract are expensed as incurred.

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Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and not as a separate performance obligation. Therefore, such items are accrued upon recognition of revenue.

Nature of goods and services

The following is a description of principal activities, separated by reportable segments, from which the Company generates its revenue. See Note 14 - Business Segments for additional details on the Company's reportable segments.

The Company’s reportable segments have the following revenue characteristics:

•Americas Tire Operations - The Americas Tire Operations segment manufactures and markets passenger car and light truck tires. The segment also markets and distributes wheels and racing, motorcycle and truck and bus radial ("TBR") tires.

•International Tire Operations - The International Tire Operations segment manufactures and markets passenger car, light truck, motorcycle, racing and TBR tires and tire retread material for global markets.

Disaggregation of revenue

In the following tables, revenue is disaggregated by major market channel for the three months ended March 31, 2021 and 2020, respectively:

	Three Months Ended March 31, 2021
	Americas		International		Eliminations		Total
Light Vehicle (1)	$	489,446	$	97,984	$	(21,307)	$	566,123
Truck and bus radial	57,564		24,843		(24,556)		57,851
Other (2)	15,311		16,542		—		31,853
Net sales	$	562,321	$	139,369	$	(45,863)	$	655,827

	Three Months Ended March 31, 2020
	Americas		International		Eliminations		Total
Light Vehicle (1)	$	404,636	$	71,082	$	(10,714)	$	465,004
Truck and bus radial	41,004		17,309		(17,034)		41,279
Other (2)	11,415		13,996		—		25,411
Net sales	$	457,055	$	102,387	$	(27,748)	$	531,694

(1)Light vehicle includes passenger car and light truck tires

(2)Other includes motorcycle and racing tires, wheels, tire retread material, and other items

Contract liabilities

Contract liabilities relate to customer payments received in advance of shipment. As the Company does not generally have rights to consideration for work completed but not billed at the reporting date, the Company does not have any contract assets. Accounts receivable are not considered contract assets under the revenue standard as contract assets are conditioned upon the Company's future satisfaction of a performance obligation. Accounts receivable, in contrast, are unconditional rights to consideration.

Significant changes in the contract liabilities balance, included within the Company's Accrued liabilities on the Condensed Consolidated Balance Sheets, during the three months ended March 31, 2021 are as follows:

	Contract Liabilities
Contract liabilities at December 31, 2020	$	773
Increases to deferred revenue for cash received in advance from customers	2,213
Decreases due to recognition of deferred revenue	(711)
Contract liabilities at March 31, 2021	$	2,275

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Transaction price allocated to remaining performance obligations

For the three months ended March 31, 2021 and 2020, revenue recognized from performance obligations related to prior periods is not material.

Revenue expected to be recognized in any future period related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, is not material.

The Company applies the practical expedient in ASC 606 "Revenue from Contracts with Customers" and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

Note 5.     Inventories

The Company uses the last-in, last-out ("LIFO") method for substantially all U.S. inventories. The current cost of the U.S. inventories under the first-in, first-out ("FIFO") method was $392,595 and $310,141 at March 31, 2021 and December 31, 2020, respectively. These FIFO values have been reduced by approximately $108,753 and $77,251 at March 31, 2021 and December 31, 2020, respectively, to arrive at the LIFO value reported on the Condensed Consolidated Balance Sheets. The Company's remaining inventories have been valued under the FIFO method. All LIFO inventories are valued at the lower of cost or market. All other inventories are stated at the lower of cost or net realizable value.

Note 6.     Income taxes

For the three month period ended March 31, 2021, the Company recorded income tax expense of $8,544 (effective tax rate of 27.9 percent) compared to an income tax benefit of $659 (effective tax rate of 5.5 percent) for the same period in 2020. The Company's 2021 and 2020 three month period provisions for income tax are calculated using a forecasted multi-jurisdictional annual effective tax rate to determine a blended annual effective tax rate. The Company is subject to the U.S. federal statutory rate of 21 percent. The effective tax rate for the three month period ended March 31, 2021 was influenced by $4,923 of Merger-related costs which are not tax deductible, the projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded. The effective tax rate for the three month period ended March 31, 2020 was impacted by $4,361 of unrecognized tax benefit related to the tax deductibility of certain business expenses incurred during the quarter, the projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded.

The Company continues to maintain valuation allowances pursuant to ASC 740, “Accounting for Income Taxes,” against portions of its U.S. and non-U.S. deferred tax assets at March 31, 2021 as it cannot assure the future realization of the associated tax benefits prior to their reversal or expiration. In the U.S., the Company has offset its net operating loss carryforward deferred tax asset by a valuation allowance of $1,503. In addition, the Company has recorded valuation allowances of $33,841 related to non-U.S. net operating losses and other deferred tax assets for a total valuation allowance of $35,344. In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company will continue to reassess the possibility of releasing all or part of the valuation allowances currently in place when the associated deferred tax assets are deemed to be realizable. If the evidence suggests that deferred tax assets for these operations will more likely than not be able to be realized in the future, release of a portion or all of the valuation allowance in place for these entities could occur. Such release could materially impact the Company's effective tax rate in the period in which the release occurs.

The Company maintains an ASC 740-10, “Accounting for Uncertainty in Income Taxes,” liability for unrecognized tax benefits. At March 31, 2021, the liability, exclusive of penalty and interest, totals approximately $12,890. During the three month period ended March 31, 2021, an immaterial amount of interest expense was accrued.

The Company operates in multiple jurisdictions throughout the world and has effectively settled U.S. federal income tax examinations for tax years before 2017, state and local income tax examinations for tax years before 2015 (with limited exceptions), and income tax examinations in its major foreign taxing jurisdictions for tax years before 2015. Based upon the outcome of tax examinations, judicial proceedings, or expiration of statutes of limitations, it is possible that the ultimate resolution of the Company's unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities.

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Note 7.     Debt

On June 27, 2019, the Company amended its revolving credit facility ("Credit Facility") with a consortium of several banks to provide up to $700,000 and is set to expire in June 2024. Of this amended borrowing capacity, $200,000 was allocated to a Delayed Draw Term Loan A ("Term Loan A"), while the remaining $500,000 was allocated to the revolving credit facility. The Term Loan A funds were drawn in December 2019 and used primarily to pay for the unsecured notes which matured at that time. The Credit Facility also includes a $110,000 letter of credit sub-facility. The Company may elect, with lender consent, to increase the commitments under the Credit Facility or incur one or more tranches of term loans in an aggregate amount of up to $300,000 (or an unlimited increase if the Proforma Secured Net Leverage Ratio is less than 1.75x). The Company may elect to add certain foreign subsidiaries as additional borrowers under the Credit Facility, subject to the satisfaction of certain conditions.

On July 11, 2019, the Company entered into forward-starting interest rate swaps to effectively hedge the cash flow exposure associated with the Company's Term Loan A variable-rate borrowings. See Note 8 - Fair Value Measurement for further information.

The Company has an accounts receivable securitization facility ("A/R Facility") that provides up to $100,000 in funding capacity based on eligible receivables and expires in December 2022. Funding capacity under the A/R Facility may be drawn in cash or utilized for letters of credit. Pursuant to the terms of the A/R Facility, the Company sells substantially all trade receivables on an ongoing basis to Cooper Receivables LLC (“CRLLC”), its wholly-owned, bankruptcy-remote subsidiary, which then, from time to time, sells an undivided ownership interest in the purchased trade receivables, without recourse, to the purchasers party to the A/R Facility. The assets and liabilities of CRLLC are consolidated with the Company, and the A/R Facility is treated as a secured borrowing for accounting purposes. CRLLC's sole business consists of the purchase or acceptance of the trade receivables and related rights from the Company and the subsequent retransfer of or granting of a security interest in such receivables and related rights to the purchasers party to the A/R Facility. CRLLC is a separate legal entity with its own separate creditors who will be entitled, upon liquidation, to be satisfied from CRLLC’s assets prior to any assets or value in CRLLC becoming available to its equity holders. The assets of CRLLC are not available to pay creditors of the Company or the Company’s Affiliates.

The Company had no borrowings under the Credit Facility or the A/R Facility at March 31, 2021 or December 31, 2020. Amounts used to secure letters of credit totaled $18,030 at March 31, 2021 and $37,682 at December 31, 2020. The Company’s additional borrowing capacity, net of borrowings and amounts used to back letters of credit, and based on eligible collateral through use of its Credit Facility with its bank group and its accounts receivable securitization facility at March 31, 2021, was $569,570.

The Company’s consolidated operations in Asia have renewable unsecured credit lines that provide up to $67,515 of borrowings and do not contain financial covenants. The additional borrowing capacity on the Asian credit lines, based on eligible collateral and the short-term notes payable, totaled $62,946 at March 31, 2021.

On May 15, 2020, the Company entered into equipment financing arrangements in the amount of $31,538, of which $31,142 was advanced on May 15, 2020 and the remaining $396 was advanced on December 21, 2020. The equipment financings are secured by manufacturing equipment within the Company's U.S. operations and monthly amortized payments are made through maturity in 2025. The weighted average interest rate on the equipment financing arrangements is 3.05 percent and they contain no significant financial covenants.

On September 24, 2020, the Company entered into an aircraft lease agreement commencing in the first quarter of 2021. This new aircraft lease replaced the Company's existing aircraft lease, which expired in March, 2021. As part of this agreement, the Company signed an $11,000 promissory note that was discharged upon the lease commencement in the first quarter of 2021. This non-cash transaction was reflected as an increase to Other assets and Short-term borrowings at December 31, 2020, and was reclassified to Operating lease right-of-use asset and Operating lease liability upon lease commencement. The promissory note included interest at 1.65 percent and contained no significant financial covenants.

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The following is a summary of the Company's debt and finance leases as of March 31, 2021 and December 31, 2020.

		Principal Balance				Weighted Average Interest Rate	Principal Balance				Weighted Average Interest Rate
		Current		Long-Term			Current		Long-Term
	Maturity Date	March 31, 2021					December 31, 2020
Promissory Note	February 2021	$	—	$	—	—%	$	11,000	$	—	1.653%
Asia short term notes	Various maturities	4,569		—		3.915%	4,614		—		3.915%
		4,569		—			15,614		—
Term loan A	June 2024	13,750		171,250		3.220%	12,500		175,000		3.220%
Unsecured notes	March 2027	—		116,880		7.625%	—		116,880		7.625%
Equipment financing	May 2025	6,082		20,520		3.049%	6,037		22,058		3.049%
Finance leases and other	Various maturities	1,142		1,487		4.376%	5,840		1,332		1.509%
		20,974		310,137			24,377		315,270
Less: Unamortized debt issuance costs		—		950			—		1,005
		$	25,543	$	309,187		$	39,991	$	314,265

	Additional Credit Capacity at March 31, 2021
Credit Facility	$	500,000
Accounts receivable securitization facility	100,000
Asia short term notes	67,515
	667,515
Less, amounts used to secure letters of credit and other unavailable funds	34,999
	$	632,516

The Company’s revolving credit facilities contain restrictive covenants which limit or preclude certain actions based upon the measurement of certain financial covenant metrics. The covenants are structured such that the Company expects to have sufficient flexibility to conduct its operations. The Company was in compliance with all of its debt covenants as of March 31, 2021.

Note 8.     Fair Value Measurements

Derivative financial instruments are utilized by the Company to reduce foreign currency exchange risks. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into financial instruments for trading or speculative purposes. The derivative financial instruments include non-designated and cash flow hedges of foreign currency exposures. The change in values of the non-designated foreign currency hedges offset the exchange rate fluctuations related to assets and liabilities recorded on the Condensed Consolidated Balance Sheets. The cash flow hedges offset exchange rate fluctuations on the foreign currency-denominated intercompany loans and forecasted cash flows. The Company presently hedges exposures in various currencies, generally for transactions expected to occur within the next 12 months. Additionally, the Company utilizes cash flow hedges that hedge already recognized intercompany loans with maturities of up to one year. The notional amount of these foreign currency derivative instruments at March 31, 2021 and December 31, 2020 was $75,559 and $84,783, respectively. The counterparties to each of these agreements are major commercial banks.

The Company uses non-designated foreign currency forward contracts to hedge its net foreign currency monetary assets and liabilities primarily resulting from non-functional currency denominated receivables and payables of certain U.S. and foreign entities.

Foreign currency forward contracts are also used to hedge variable cash flows associated with forecasted sales and purchases denominated in currencies that are not the functional currency of certain entities. The fair value of these forward contracts is $(2,306) and $(2,291) as of March 31, 2021 and December 31, 2020. These contracts have maturities of less than twelve months

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pursuant to the Company’s policies and hedging practices. These contracts meet the criteria for and have been designated as cash flow hedges. Accordingly, the effective portion of the change in fair value of such forward contracts are recorded as a separate component of stockholders’ equity in the accompanying Condensed Consolidated Balance Sheets and are reclassified into earnings as the hedged transactions occur.

The Company utilizes cross-currency interest rate swaps to hedge the principal and interest repayment of some intercompany loans. The Company also utilizes designated foreign currency forward contracts to hedge the principal amounts of certain intercompany loans.  The fair value of these contracts is $(2,203) and $(2,345) at March 31, 2021 and December 31, 2020, respectively.  These contracts have maturities of up to one year and meet the criteria for and have been designated as cash flow hedges. Spot to spot changes are recorded in income and all other effective changes are recorded as a separate component of stockholders' equity. The Company assesses hedge effectiveness prospectively and retrospectively, based on regression of the change in foreign currency exchange rates. Time value of money is included in effectiveness testing.

On July 11, 2019, in order to hedge its Term Loan A variable rate debt, with an interest rate indexed to LIBOR plus 150 basis points, the Company entered into forward-starting interest rate swaps with effective dates of December 2, 2019 and termination dates of June 27, 2024. The initial notional amount of these swaps was $200,000, which decreases quarterly by varying amounts over the life of the swaps, in accordance with the Term Loan A repayment schedule. For the three months ending March 31, 2021, net payments have been made in the amount of $744. The net quarterly payments made for the three months ending March 31, 2020 were immaterial. The interest rate swaps effectively fix the variable interest rate component on the notional amount of these swaps at 1.720 percent. The fair value of these swaps is $(6,702) and $(8,602) at March 31, 2021 and December 31, 2020, respectively. The swaps qualify for hedge accounting and, therefore, changes in the fair value of the swaps have been recorded in accumulated other comprehensive income. The Company assesses hedge effectiveness prospectively and retrospectively, based on regression of the period to period change in swap and hedged item values.

The derivative instruments are subject to master netting arrangements with the counterparties to the contracts. The following table presents the location and amounts of derivative instrument fair values in the Condensed Consolidated Balance Sheets:

Assets/(liabilities)	March 31, 2021		December 31, 2020
Designated as hedging instruments:
Gross amounts recognized	$	(11,211)	$	(13,238)
Gross amounts offset	—		—
Net amounts	$	(11,211)	$	(13,238)
Not designated as hedging instruments:
Gross amounts recognized	$	(214)	$	(1,156)
Gross amounts offset	70		148
Net amounts	$	(144)	$	(1,008)
Net amounts presented:
Accrued liabilities	$	(7,543)	$	(8,591)
Other long-term liabilities	(3,812)		(5,655)

The following table presents the location and amount of gains and losses on derivative instruments designated as cash flow hedges in the Condensed Consolidated Statements of Operations:

	Three Months Ended March 31,
	2021		2020
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives	$	573	$	(3,601)
Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive Income (Loss) into Earnings
Net sales	$	(763)	$	180
Interest expense	(778)		(30)
Other non-operating income	207		360
	$	(1,334)	$	510

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The following table presents the location and amount of gains and losses on foreign exchange contract derivatives not designated as hedging instruments in the Condensed Consolidated Statements of Operations.

	Three Months Ended March 31,
	2021		2020
Other non-operating (expense) income	$	(913)	$	6,248

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within the different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded on the Condensed Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.

Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following.

a.Quoted prices for similar assets or liabilities in active markets;

b.Quoted prices for identical or similar assets or liabilities in non-active markets;

c.Pricing models whose inputs are observable for substantially the full term of the asset or liability; and

d.Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The valuation of foreign currency derivative instruments was determined using widely accepted valuation techniques. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including forward points. The Company incorporated credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as current credit ratings, to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2021 and December 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety were to be classified in Level 2 of the fair value hierarchy.

The valuation of stock-based liabilities was determined using the Company's stock price, and as a result, these liabilities are classified in Level 1 of the fair value hierarchy. The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Total Liabilities		Quoted Prices in Active Markets for Identical Assets Level (1)		Significant Other Observable Inputs Level (2)		Significant Unobservable Inputs Level (3)
Foreign Currency Derivatives	$	(4,653)	$	—	$	(4,653)	$	—
Interest Rate Swaps	(6,702)		—		(6,702)		—
Stock-based Liabilities	(25,756)		(25,756)		—		—

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	December 31, 2020
	Total Liabilities		Quoted Prices in Active Markets for Identical Assets Level (1)		Significant Other Observable Inputs Level (2)		Significant Unobservable Inputs Level (3)
Foreign Currency Derivatives	$	(5,644)	$	—	$	(5,644)	$	—
Interest Rate Swaps	(8,602)		—		(8,602)		—
Stock-based Liabilities	(18,712)		(18,712)		—		—

The fair value of Cash and cash equivalents, Notes receivable, restricted cash included in Other current assets and Other assets, Short-term borrowings and the Current portion of long-term debt and finance leases at March 31, 2021 and December 31, 2020 are equal to their corresponding carrying values as reported on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively.  Each of these classes of assets and liabilities is classified within Level 1 of the fair value hierarchy.

The fair value of Long-term debt and finance leases is $327,837 and $335,070 at March 31, 2021 and December 31, 2020, respectively, and is classified within Level 2 of the fair value hierarchy.  The value of Long-term debt and finance leases is $310,137 and $315,270 as reported in the Debt footnote as of March 31, 2021 and December 31, 2020, respectively.

Note 9.     Pensions and Postretirement Benefits Other than Pensions

The following tables disclose the amount of net periodic benefit costs for the three months ended March 31, 2021 and 2020 for the Company’s defined benefit plans and other postretirement benefits:

	Pension Benefits - Domestic
	Three Months Ended March 31,
	2021		2020
Components of net periodic benefit cost:
Service cost	$	2,745	$	2,497
Interest cost	6,595		8,308
Expected return on plan assets	(13,169)		(14,194)
Amortization of actuarial loss	6,978		7,221
Amortization of prior service cost	353		192
Net periodic benefit cost	$	3,502	$	4,024

	Pension Benefits - International
		Three Months Ended March 31,
		2021		2020
Components of net periodic benefit cost:
Interest cost		$	1,568	$	2,099
Expected return on plan assets		(1,890)		(2,218)
Amortization of actuarial loss		1,422		1,034
Amortization of prior service cost		76		66
Net periodic benefit cost		$	1,176	$	981

	Other Post Retirement Benefits
	Three Months Ended March 31,
	2021		2020
Components of net periodic benefit cost:
Service cost	$	372	$	360
Interest cost	1,342		1,830
Amortization of actuarial gain	(429)		(106)
Amortization of prior service credit	—		(22)
Net periodic benefit cost	$	1,285	$	2,062

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The Company has no minimum funding requirements for its domestic pension plans in 2021. As a result of the Merger, as well as due to tax planning considerations related to probable changes in U.S. tax law, the Company anticipates reducing its voluntary contributions to its domestic pension plans during 2021 as compared to the amount disclosed at December 31, 2020. During 2021, the Company expects to contribute between $8,000 and $28,000 to its domestic and international pension plans.

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Note 10.     Stockholders’ Equity

The following tables provide a quarterly reconciliation of the equity accounts attributable to Cooper Tire & Rubber Company and to the noncontrolling shareholders' interests for the year to date as of March 31, 2021 and 2020:

	Common Stock $1 Par Value		Capital in Excess of Par Value		Retained Earnings		Cumulative Other Comprehensive (Loss) Income		Common Shares in Treasury		Total Parent Stockholders’ Equity		Noncontrolling Shareholders’ Interests in Consolidated Subsidiary		Total Stockholders’ Equity
Balance at December 31, 2020	$	87,850	$	20,815	$	2,646,567	$	(446,909)	$	(919,424)	$	1,388,899	$	21,692	$	1,410,591
Net income	—		—		22,059		—		—		22,059		31		22,090
Other comprehensive loss	—		—		—		(4,553)		—		(4,553)		(326)		(4,879)
Stock compensation plans	—		(1,892)		(111)		—		2,280		277		—		277
Cash dividends - 0.105 per share	—		—		(5,301)		—		—		(5,301)		—		(5,301)
Balance at March 31, 2021	$	87,850	$	18,923	$	2,663,214	$	(451,462)	$	(917,144)	$	1,401,381	$	21,397	$	1,422,778

	Common Stock $1 Par Value		Capital in Excess of Par Value		Retained Earnings		Cumulative Other Comprehensive (Loss) Income		Common Shares in Treasury		Total Parent Stockholders’ Equity		Noncontrolling Shareholders’ Interests in Consolidated Subsidiary		Total Stockholders’ Equity
Balance at December 31, 2019	$	87,850	$	22,175	$	2,524,963	$	(447,580)	$	(922,783)	$	1,264,625	$	63,108	$	1,327,733
Net (loss) income	—		—		(11,591)		—		—		(11,591)		274		(11,317)
Other comprehensive loss, excluding currency loss charged to equity as part of acquisition of noncontrolling shareholder interest	—		—		—		(52,682)		—		(52,682)		(544)		(53,226)
Stock compensation plans	—		(1,235)		(43)		—		1,377		99		—		99
Cash dividends - 0.105 per share	—				(5,277)		—		—		(5,277)		—		(5,277)
Acquisition of noncontrolling shareholders' interest	—		(5,714)		—		(11,748)		—		$	(17,462)	(44,810)		(62,272)
Balance at March 31, 2020	$	87,850	$	15,226	$	2,508,052	$	(512,010)	$	(921,406)	$	1,177,712	$	18,028	$	1,195,740

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Note 11.     Changes in Accumulated Other Comprehensive (Loss) Income by Component

The following tables provide a quarterly reconciliation of each component of Accumulated other comprehensive (loss) income:

	Cumulative Translation Adjustment		Derivative Instruments		Post- retirement Benefits		Total
Ending Balance, December 31, 2020	$	(43,321)	$	(6,772)	$	(396,816)	$	(446,909)
Other comprehensive (loss) income before reclassifications	(11,862)		573		—		(11,289)
Foreign currency translation effect	—		—		(805)		(805)
Income tax effect	—		(99)		—		(99)
Amount reclassified from accumulated other comprehensive (loss) income
Cash flow hedges	—		1,334		—		1,334
Amortization of prior service cost	—		—		429		429
Amortization of actuarial losses	—		—		7,971		7,971
Income tax effect	—		(372)		(1,722)		(2,094)
Other comprehensive loss	(11,862)		1,436		5,873		(4,553)
Ending Balance, March 31, 2021	$	(55,183)	$	(5,336)	$	(390,943)	$	(451,462)

	Cumulative Translation Adjustment		Derivative Instruments		Post- retirement Benefits		Total
Ending Balance, December 31, 2019	$	(58,186)	$	(549)	$	(388,845)	$	(447,580)
Other comprehensive income (loss) before reclassifications	(48,998)		(3,601)		(31,490)		(84,089)
Foreign currency translation effect	—		—		4,708		4,708
Income tax effect	—		984		7,857		8,841
Amount reclassified from accumulated other comprehensive income (loss)
Cash flow hedges	—		(510)		—		(510)
Amortization of prior service credit	—		—		236		236
Amortization of actuarial losses	—		—		8,149		8,149
Income tax effect	—		53		(1,818)		(1,765)
Other comprehensive income (loss)	(48,998)		(3,074)		(12,358)		(64,430)
Ending Balance, March 31, 2020	$	(107,184)	$	(3,623)	$	(401,203)	$	(512,010)

Note 12.     Comprehensive Income (Loss) Attributable to Noncontrolling Shareholders’ Interests

The following table provides the details of the comprehensive income (loss) attributable to noncontrolling shareholders' interests:

	Three Months Ended March 31,
	2021		2020
Net income attributable to noncontrolling shareholders’ interests	$	31	$	274
Other comprehensive income (loss):
Currency translation adjustments	(326)		(544)
Comprehensive income (loss) attributable to noncontrolling shareholders’ interests	$	(295)	$	(270)

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Note 13.     Contingent Liabilities

Product Liability Claims

The Company is a defendant in various product liability claims brought in numerous jurisdictions in which individuals seek damages resulting from motor vehicle accidents allegedly caused by defective tires manufactured by the Company. Each of the product liability claims faced by the Company generally involves different types of tires and circumstances surrounding the accident such as different applications, vehicles, speeds, road conditions, weather conditions, driver error, tire repair and maintenance practices, service life conditions, as well as different jurisdictions and different injuries. In addition, in many of the Company’s product liability lawsuits the plaintiff alleges that his or her harm was caused by one or more co-defendants who acted independently of the Company. Accordingly, both the claims asserted and the resolutions of those claims have an enormous amount of variability. The aggregate amount of damages asserted at any point in time is not determinable since often times when claims are filed, the plaintiffs do not specify the amount of damages. Even when there is an amount alleged, at times the amount is wildly inflated and has no rational basis.

The fact that the Company is a defendant in product liability lawsuits is not surprising given the current litigation climate, which is largely confined to the United States. However, the fact that the Company is subject to claims does not indicate that there is a quality issue with the Company’s tires. The Company sells approximately 30 to 35 million passenger car, light truck, sport utility vehicle, TBR and motorcycle tires per year in North America. The Company estimates that approximately 300 million Company-produced tires made up of thousands of different specifications are still on the road in North America. While tire disablements do occur, it is the Company’s and the tire industry’s experience that the vast majority of tire failures relate to service-related conditions, which are entirely out of the Company’s control, such as failure to maintain proper tire pressure, improper maintenance, improper repairs, road hazard, and excessive speed.

The Company accrues costs for asserted product liability claims at the time a loss is probable and the amount of loss can be estimated. The Company believes the probability of loss can be established and the amount of loss can be estimated only after certain minimum information is available, including verification that Company-produced product was involved in the incident giving rise to the claim, the condition of the product purported to be involved in the claim, the nature of the incident giving rise to the claim and the extent of the purported injury or damages. In cases where such information is known, each product liability claim is evaluated based on its specific facts and circumstances. A judgment is then made to determine the requirement for establishment or revision of an accrual for any potential liability. Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. The liability often cannot be determined with precision until the claim is resolved.

Pursuant to ASC 450 "Contingencies," the Company accrues the minimum liability for each known claim when the estimated outcome is a range of probable loss and no one amount within that range is more likely than another. For such known claims, the Company accrues the minimum liability because the product liability claims faced by the Company are unique and widely variable, and accordingly, the resolutions of those claims have an enormous amount of variability. The costs have ranged from zero dollars to $33 million in one case with no average that is meaningful.

No specific accrual is made for individual unasserted claims or for premature claims, asserted claims where the minimum information needed to evaluate the probability of a liability is not yet known. However, an accrual is maintained for such claims based, in part, on management’s expectations for future litigation activity and the settled claims history maintained, including the historical number of claims and amount of settlements.

The Company periodically reviews its estimates and any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs. Because of the speculative nature of litigation in the U.S., the Company does not believe a meaningful aggregate range of reasonably possible loss for asserted and unasserted claims can be determined. While the Company believes its reserves are reasonably stated, it is possible an individual claim from time to time may result in an aberration from the norm and could have a material impact.

The time frame for the payment of a product liability claim is too variable to be meaningful. From the time a claim is filed to its ultimate disposition depends on the unique nature of the case, how it is resolved - claim dismissed, negotiated settlement, trial verdict or appeals process - and is highly dependent on jurisdiction, specific facts, the plaintiff’s attorney, the court’s docket and other factors. Given that some claims may be resolved in weeks and others may take five years or more, it is impossible to predict with any reasonable reliability the time frame over which the accrued amounts may be paid. However, the time frame from occurrence of the loss incident to reporting of the claim is monitored by the Company on an ongoing basis.

The Company regularly reviews the probable outcome of outstanding legal proceedings and the availability and limits of insurance coverage, and accrues for such legal proceedings at the time a loss is probable and the amount of the loss can be estimated. As part of its regular review, the Company monitors trends that may affect its ultimate liability and analyzes developments and variables likely to affect pending and anticipated claims against the Company and the reserves for such claims. The Company utilizes claims experience, as well as trends and developments in the litigation climate, in estimating its required accrual. Based on the Company's quarterly review, coupled with normal activity, including the addition of another quarter of self-

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insured incidents, settlements and changes in the amount of reserves, the Company increased its accrual to $99,291 at March 31, 2021, compared to $95,339 at December 31, 2020.

The addition of another three months of self-insured incidents through March 31, 2021 accounted for an increase of $6,761 in the Company's product liability reserve. Settlements, changes in the amount of reserves for cases where sufficient information is known to estimate a liability, and changes in assumptions, including the estimate of anticipated claims and settlement values, increased the liability by $91 at March 31, 2021. During the first quarter of 2021, the Company paid $2,900 to resolve cases and claims.

The Company’s product liability reserve balance at March 31, 2021 totaled $99,291 (the current portion of $18,398 is included in Accrued liabilities and the long-term portion is included in Other long-term liabilities on the Condensed Consolidated Balance Sheets), and the balance at December 31, 2020 totaled $95,339 (current portion of $18,337).

The product liability expense reported by the Company includes amortization of insurance premium costs, adjustments to settlement reserves and legal costs incurred in defending claims against the Company. Legal costs are expensed as incurred and product liability insurance premiums are amortized over coverage periods.

Product liability expenses are included in Cost of products sold in the Condensed Consolidated Statements of Operations. Product liability expense was as follows:

	Three Months Ended March 31,
	2021		2020
Product liability expense	$	9,818	$	11,548

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Note 14.     Business Segments

The Company has four segments under ASC 280, "Segments":

•North America, composed of the Company’s operations in the United States and Canada;

•Latin America, composed of the Company’s operations in Mexico, Central America and South America;

•Europe; and

•Asia.

North America and Latin America meet the criteria for aggregation in accordance with ASC 280, as they are similar in their production and distribution processes and exhibit similar economic characteristics. The aggregated North America and Latin America segments are presented as “Americas Tire Operations” in the segment disclosure. The Americas Tire Operations segment manufactures and markets passenger car and light truck tires, primarily for sale in the U.S. replacement market. The segment also has a manufacturing operation in Mexico, COOCSA, which supplies passenger car and light truck tires to the Mexican, North American, Central American and South American markets. On January 24, 2020, the Company acquired the remaining noncontrolling ownership interest in COOCSA, making COOCSA a wholly-owned subsidiary. The segment also markets and distributes wheels and racing, TBR and motorcycle tires. The racing and motorcycle tires are manufactured by the Company’s European segment and by others. TBR tires are sourced from China-based Qingdao Ge Rui Da Rubber Co., Ltd. ("GRT") and ACTR Company Limited ("ACTR"). TBR tires had also been sourced through off-take agreements with Prinx Chengshan (Shandong) Tire Company Ltd. ("PCT") and Sailun Vietnam through December 31, 2020.

Major distribution channels and customers include independent tire dealers, wholesale distributors, regional and national retail tire chains, large retail chains that sell tires as well as other automotive products, mass merchandisers and digital channels. The segment does not currently sell its products directly to end users, except through three Company-owned retail stores. The segment sells a limited number of tires to OEMs.

Both the Europe and Asia segments have been determined to be individually immaterial, as they do not meet the quantitative requirements for segment disclosure under ASC 280. In accordance with ASC 280, information about operating segments that are not reportable shall be combined and disclosed in an all other category separate from other reconciling items. As a result, these two segments have been combined in the segment operating results discussion. The results of the combined Europe and Asia segments are presented as “International Tire Operations.” The European operations include manufacturing operations in the U.K. and Serbia. The U.K. entity primarily manufactures and markets motorcycle and racing tires and tire retread material for domestic and global markets. The Serbian entity manufactures passenger car and light truck tires primarily for the European markets and for export to the North American segment. The Asian operations are located in the People’s Republic of China ("PRC") and Vietnam. Cooper Kunshan Tire, in the PRC, manufactures passenger car and light truck tires both for the Chinese domestic market and for export to markets outside of the PRC. GRT, a joint venture manufacturing facility located in the PRC, and ACTR, a joint venture manufacturing facility located in Vietnam, serve as global sources of TBR tire production for the Company. The segment also procured certain TBR tires under off-take agreements with PCT and Sailun Vietnam through December 31, 2020. The segment sells a majority of its tires in the replacement market, with a portion also sold to OEMs.

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The following table details segment financial information:

	Three Months Ended March 31,
	2021		2020
Net sales:
Americas Tire
External customers	$	554,300	$	449,486
Intercompany	8,021		7,569
	562,321		457,055
International Tire
External customers	101,527		82,207
Intercompany	37,842		20,180
	139,369		102,387
Eliminations	(45,863)		(27,748)
Consolidated net sales	$	655,827	$	531,694
Operating profit (loss):
Americas Tire	$	59,772	$	10,416
International Tire	3,207		(10,279)
Unallocated corporate charges	(23,032)		(6,951)
Eliminations	(2,169)		586
Consolidated operating profit (loss)	$	37,778	$	(6,228)
Interest expense	$	(5,130)	$	(5,007)
Interest income	699		1,696
Other pension and postretirement benefit expense	(2,846)		(4,210)
Other non-operating income	133		1,773
Income (Loss) before income taxes	$	30,634	$	(11,976)

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Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) presents information related to the consolidated results of the operations of the Company and information concerning the liquidity and capital resources of the Company. The Company's future results may differ materially from those indicated herein, for reasons including

those indicated under the forward-looking statements heading below.

Consolidated Results of Operations

(Dollar amounts in thousands except per share amounts)
	Three Months Ended March 31,
	2021		2020		Change
Net Sales
Americas Tire	$	562,321	$	457,055	$	105,266
International Tire	139,369		102,387		36,982
Eliminations	(45,863)		(27,748)		(18,115)
Net sales	655,827		531,694		124,133
Operating profit (loss):
Americas Tire	59,772		10,416		49,356
International Tire	3,207		(10,279)		13,486
Unallocated corporate charges	(23,032)		(6,951)		(16,081)
Eliminations	(2,169)		586		(2,755)
Operating profit	37,778		(6,228)		44,006
Interest expense	(5,130)		(5,007)		(123)
Interest income	699		1,696		(997)
Other pension and postretirement benefit expense	(2,846)		(4,210)		1,364
Other non-operating income	133		1,773		(1,640)
Income (Loss) before income taxes	30,634		(11,976)		42,610
Income tax provision (benefit)	8,544		(659)		9,203
Net income (loss)	22,090		(11,317)		33,407
Net income attributable to noncontrolling shareholders’ interests	31		274		(243)
Net income (loss) attributable to Cooper Tire & Rubber Company	$	22,059	$	(11,591)	$	33,650
Basic earnings (loss) per share	$	0.44	$	(0.23)	$	0.67
Diluted earnings (loss) per share	$	0.43	$	(0.23)	$	0.66

The Merger

On February 22, 2021, the Company entered into the Merger Agreement, pursuant to which, subject to the satisfaction or (to the extent permissible) waiver of the conditions set forth therein, Goodyear will acquire the Company by way of the merger of Merger Sub with and into the Company, with the Company surviving such Merger as a wholly owned subsidiary of Goodyear. Under the terms of the Merger Agreement, at the effective time of the Merger, the Company’s 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 the Company’s common stock they own at the effective time. Upon completion of the proposed Merger, it is expected that the Company’s stockholders will own approximately 16 percent and Goodyear stockholders will own approximately 84 percent of the combined company on a fully diluted basis.

The completion of the Merger is subject to the receipt of antitrust clearance in the United States. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and the rules promulgated thereunder, the Merger may not be completed until the Company and Goodyear have each filed notification and report forms with the United States Federal Trade Commission (“FTC”), and the Antitrust Division of the United States Department of Justice (“DOJ”), and

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the applicable waiting period (or any extension thereof) has expired or been terminated. The completion of the Merger is also subject to a number of foreign regulatory filings that will need to be completed.

The Company expects to complete the Merger in the second half of 2021. However, the transaction could close earlier, following and subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals. The Company’s stockholders approved the Merger on April 30, 2021.

COVID-19 Update

With the global outbreak of COVID-19 and the declaration of a pandemic by the World Health Organization on March 11, 2020, the Company temporarily shut down its China, U.S., Europe, and Mexico manufacturing plants for various periods of time through the first half of 2020. By the end of the second quarter, each of the Company's facilities were reopened.  

The Company’s priorities during the COVID-19 pandemic have been protecting the health and safety of its employees, responsibilities to its broader communities, and commitments to its customers and other key stakeholders. The Company has taken a variety of measures to protect the health and safety of employees, including prohibiting non-essential travel for all employees, modifying workspaces with acrylic dividers and touchless faucets, providing additional personal protective equipment and cleaning supplies, increasing cleaning protocols across all locations, transitioning to remote working arrangements for certain employees, emphasizing the importance of staying home when employees feel sick, implementing protocols to address actual and suspected COVID-19 cases and potential exposure, and enacting policies on face mask usage and appropriate social distancing at the Company's locations

The fundamentals of the Company remain strong, and the Company believes it has sufficient liquidity on hand to continue business operations during this volatile period. As disclosed in the Liquidity and Capital Resources section, the Company has total available liquidity of $1,093 million as of March 31, 2021, consisting of cash on hand and credit facilities. As a reaction to COVID-19, the Company took actions to preserve liquidity beginning late in the first quarter of 2020, including capital expenditure reductions, actions to improve working capital, reductions in discretionary spending and additional temporary cost actions. Based upon the Company's results and the effectiveness of these actions, such actions were gradually reversed throughout the second half of 2020.     

COVID-19 negatively impacted the Company's business in 2020 and also presented potential new risks to it. The Company began to see the impacts of COVID-19 on its Asian operations early in the first quarter, and in customer demand in late March in the Americas and Europe, which continued into the second quarter of 2020. The situation surrounding COVID-19 remains fluid and the potential for a continued material impact on the Company increases the longer the virus effects the level of economic activity in the United States and globally. In the future, the COVID-19 pandemic may cause additional reduced demand for the Company's products, including if it results in a recessionary global economic environment. It could also lead to volatility in consumer demand for or access to Company products, including due to government actions impacting the ability to produce and ship products or impacting consumers’ movements and access to the Company's products. The Company believes that over the long term, there will continue to be strong demand for the Company's products. However, the timing and extent of demand recovery in specific markets, the resumption of travel, and product demand trends caused by future economic trends are unclear. Accordingly, there may be heightened volatility in net sales and earnings during and subsequent to the duration of the COVID-19 pandemic. The Company's customers are also being impacted by the pandemic. The success of customers in addressing the issues and maintaining their operations, including their ability to remit timely payment, could impact consumer access to, and as a result, sales of the Company's products. In addition, the COVID-19 pandemic and the Company's and government responses to it have disrupted the Company's operations, and increased its costs, and may continue to do so.

The Company's ability to continue to operate and to mitigate the negative impacts of the pandemic will in part depend on the ability to protect its employees and supply chain. The Company has endeavored to follow recommended actions of government and health authorities to protect employees world-wide, with particular measures in place for those working in the Company's plants and distribution facilities. The Company intends to continue to work with government authorities and implement employee safety measures to ensure that it is able to continue manufacturing and distributing products during the COVID-19 pandemic. However, uncertainty resulting from the pandemic could result in an unforeseen disruption that could impact the results of operations. For additional information on risk factors that could impact the Company's results, refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q.

2021 versus 2020

Consolidated net sales for the first quarter of 2021 were $656 million compared with $532 million in the first quarter of 2020, an increase of $124 million. In 2021, the Company experienced higher unit volume of $88 million. The first quarter of 2020 was negatively impacted by the market slowdown caused by COVID-19. The Company also experienced favorable price and mix of $30 million and favorable foreign currency impact of $6 million in the first quarter of 2021 as compared to the first quarter of 2020.

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The Company recorded an operating profit of $38 million in the first quarter of 2021, compared to an operating loss of $6 million in 2020. The Company's 2021 operating profit benefited from $29 million of higher unit volume, $13 million of favorable price and mix, $3 million of decreased manufacturing costs and $2 million of lower product liability expense compared to the first quarter of 2020. The first quarter of 2020 unit volume was negatively impacted by the market slowdown caused by COVID-19, which also included production days lost due to plant shut downs as a result of the pandemic. The first quarter of 2021 included $7 million of lower raw material costs, with reduction in tariff costs as a result of the Company's sourcing strategy offsetting higher raw material costs. The first quarter of 2021 also included $20 million of higher selling, general and administrative expenses. The first quarter of 2020 included $11 million of restructuring costs within the Americas Tire Operations segment related to the Company's acquisition of the remaining noncontrolling interest in COOCSA. Other costs increased $1 million in the first quarter of 2021 compared to the first quarter of 2020.

The principal raw materials for the Company include natural rubber, synthetic rubber, carbon black, chemicals and steel reinforcement components. Approximately 70 percent of the Company’s raw materials are petroleum-based. Substantially all U.S. inventories have been valued using the LIFO method of inventory costing, which accelerates the impact to cost of goods sold from changes to raw material prices.

The Company strives to assure raw material and energy supply and to obtain the most favorable pricing possible. For natural rubber, natural gas and certain principal materials, procurement is managed through a combination of buying forward of production requirements and utilizing the spot market. For other principal materials, procurement arrangements include supply agreements that may contain formula-based pricing based on commodity indices, multi-year agreements or spot purchase contracts. While the Company uses these arrangements to satisfy normal manufacturing demands, the pricing volatility in these commodities contributes to the difficulty in managing the costs of raw materials.

Product liability expense related to normal claim activity decreased $2 million in the first quarter of 2021 compared to the first quarter of 2020. Insurance premium costs and legal costs related to product liability claims in the first quarter of 2021 were comparable to the first quarter of 2020. Additional information related to the Company’s accounting for product liability costs appears in the Notes to the Condensed Consolidated Financial Statements.

Selling, general, and administrative expenses were $71 million in the first quarter of 2021 (10.9 percent of net sales) and $51 million in the first quarter of 2020 (9.6 percent of net sales).

During the first quarter of 2021, the Company incurred approximately $10,655 of expenses associated with the Merger. These expenses are recorded in Selling, general & administrative expenses on the Condensed Consolidated Statements of Operations. These expenses include $4,923 of advisory, legal and other professional fees, as well as an increase in mark to market costs of stock-based liabilities subsequent to the Merger announcement of $5,732. The mark to market cost represents the impact of the movement in the Company's closing stock price from the day prior to the Merger Agreement announcement as compared to the closing price of Company's stock on the day of the Merger Agreement announcement.

In the first quarter of 2020, the Company recorded $11 million of restructuring expense in the Americas Tire Operations segment related to the Company's acquisition of the remaining noncontrolling ownership interest in COOCSA.

Interest expense was $5 million for the first quarter of each 2021 and 2020. Interest income was $1 million in the first quarter of 2021, which was a decrease from $2 million in the first quarter of 2020.

For the period ended March 31, 2021, other pension and postretirement benefit expense was $3 million as compared to $4 million for the period ended March 31, 2020. This decrease is primarily the result of the Company's improved funded status at December 31, 2020, as a result of favorable returns on plan assets in 2020, which improved the Company's funding position and lowered the actuarially determined expense for 2021 as compared to 2020.

Other non-operating income decreased $2 million in the first quarter of 2021 as compared to the first quarter of 2020. This decrease was primarily due to the impact of foreign currency forward contracts.

For the quarter ended March 31, 2021, the Company recorded income tax expense of $9 million (effective tax rate of 27.9 percent) compared to an income tax benefit of $1 million (effective tax rate of 5.5 percent) for the quarter ended March 31, 2020. The first quarter 2021 effective tax rate was influenced by $5 million of Merger-related costs which are not tax deductible, the projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded. The effective tax rate for the first quarter of 2020 was impacted by $4 million of unrecognized tax benefit related to the tax deductibility of certain business expenses incurred during the quarter, the projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded.

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Segment Operating Results

The Company has four segments under ASC 280:

•North America, composed of the Company’s operations in the U.S. and Canada;

•Latin America, composed of the Company’s operations in Mexico, Central America and South America;

•Europe; and

•Asia.

North America and Latin America meet the criteria for aggregation in accordance with ASC 280, as they are similar in their production and distribution processes and exhibit similar economic characteristics. The aggregated North America and Latin America segments are presented as “Americas Tire Operations” in the segment disclosure.

Both the Europe and Asia segments have been determined to be individually immaterial, as they do not meet the quantitative requirements for segment disclosure under ASC 280. In accordance with ASC 280, information about operating segments that are not reportable shall be combined and disclosed in an all other category separate from other reconciling items. As a result, these two segments have been combined in the segment operating results discussion. The results of the combined Europe and Asia segments are presented as “International Tire Operations” in the segment disclosure.

Americas Tire Operations Segment

(Dollar amounts in thousands)	Three Months Ended March 31,
	2021		Change	2020
Sales	$	562,321	23.0%	$	457,055
Operating profit	$	59,772	473.8%	$	10,416
Operating margin	10.6%		8.3 points	2.3%
Total unit sales change			13.6%
United States replacement market unit shipment changes:
Passenger tires
Segment			15.2%
USTMA members			12.0%
Total Industry			8.8%
Light truck tires
Segment			29.5%
USTMA members			24.6%
Total Industry			25.0%
Total light vehicle tires
Segment			18.4%
USTMA members			13.7%
Total Industry			10.9%

The source of this information is the United States Tire Manufactures Association ("USTMA") and internal sources.

Overview

The Americas Tire Operations segment manufactures and markets passenger car and light truck tires, primarily for sale in the U.S. replacement market. The segment also has a manufacturing operation in Mexico, COOCSA, which supplies passenger car and light truck tires to the Mexican, North American, Central American and South American markets. On January 24, 2020, the Company acquired the remaining noncontrolling ownership interest in COOCSA, making COOCSA a wholly-owned subsidiary. The segment also markets and distributes wheels and racing, TBR and motorcycle tires. The racing and motorcycle tires are manufactured by the Company’s European segment and by others. TBR tires are sourced from GRT and ACTR. TBR tires had also been sourced through off-take agreements with PCT and Sailun Vietnam through December 31, 2020.

Major distribution channels and customers include independent tire dealers, wholesale distributors, regional and national retail tire chains, large retail chains that sell tires as well as other automotive products, mass merchandisers and digital channels. The

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segment does not currently sell its products directly to end users, except through three Company-owned retail stores. The segment sells a limited number of tires to OEMs.

Sales

Net sales of the Americas Tire Operations segment increased from $457 million in the first quarter of 2020 to $562 million in the first quarter of 2021. In 2021, the segment experienced higher unit volume of $62 million, as well as favorable price and mix of $43 million. Unit shipments for the segment increased 13.6 percent in the first quarter of 2021 compared with the first quarter of 2020. In the U.S., the segment’s unit shipments of total light vehicle tires increased 18.4 percent in 2021 compared with the same period in 2020. This increase compares with a 13.7 percent increase in total light vehicle tire shipments experienced by USTMA members, and a 10.9 percent increase in total light vehicle tire shipments experienced for the total industry (including an estimate for non-USTMA members). In the first quarter of 2020, Americas Tire Operations volume, as well as that of the USTMA and total industry, were negatively impacted by reduced demand as a result of the COVID-19 pandemic.

Operating Profit

Operating profit for the segment increased from $10 million for the three months ended March 31, 2020 to $60 million for the three months ended March 31, 2021. Operating profit in the first quarter of 2021 included $22 million of higher unit volume, $15 million of favorable price and mix, $2 million of lower product liability expense and $1 million of favorable manufacturing costs compared to the first quarter of 2020. The first quarter of 2020 unit volume was negatively impacted by the market slowdown caused by COVID-19, which also included production days lost due to plant shut downs as a result of the pandemic. The first quarter of 2021 included $4 million of lower raw material costs, with reduction in tariff costs as a result of the Company's sourcing strategy offsetting higher raw material costs. The first quarter of 2021 also included $3 million of higher selling, general and administrative expenses and $2 million of higher other costs compared to the first quarter of 2020. Operating profit in the first quarter of 2020 also included $11 million of restructuring costs related to the Company's acquisition of the remaining noncontrolling ownership interest in COOCSA.

The segment utilizes an internal raw material index which is calculated based upon the underlying costs of the segment's key raw materials for the period and is utilized in comparing the cost of raw materials from period to period. The segment’s internally calculated raw material index of 153.6 for the quarter ended March 31, 2021 was an increase of 1.9 percent from the quarter ended March 31, 2020. The raw material index increased 6.1 percent from the quarter ended December 31, 2020.

International Tire Operations Segment

(Dollar amounts in thousands)	Three Months Ended March 31,
	2021		Change	2020
Sales	$	139,369	36.1%	$	102,387
Operating profit (loss)	$	3,207	n/m	$	(10,279)
Operating margin	2.3%		12.3 points	(10.0)%
Total unit sales change			47.2%

n/m - not meaningful

Overview

The International Tire Operations segment is the combination of the Europe and Asia operating segments. The European operations include manufacturing operations in the U.K. and Serbia. The U.K. entity primarily manufactures and markets motorcycle and racing tires and tire retread material for domestic and global markets. The Serbian entity manufactures passenger car and light truck tires primarily for the European markets and for export to the North American segment. The Asian operations are located in the PRC and Vietnam. Cooper Kunshan Tire, in the PRC, manufactures passenger car and light truck tires both for the Chinese domestic market and for export to markets outside of the PRC. GRT, a joint venture manufacturing facility located in the PRC, and ACTR, a joint venture manufacturing facility located in Vietnam, serve as global sources of TBR tire production for the Company. The segment also procured certain TBR tires under off-take agreements with PCT and Sailun Vietnam through December 31, 2020. The segment sells a majority of its tires in the replacement market, with a portion also sold to OEMs.

Sales

Net sales of the International Tire Operations segment were $139 million for the quarter ended March 31, 2021, compared to $102 million for the quarter ended March 31, 2020. The segment experienced $48 million of higher unit volume and $6 million of favorable foreign currency impact, partially offset by $17 million of unfavorable price and mix. Segment unit volume was up 47.2 percent compared to the first quarter of 2020. Demand in the first quarter of 2020 was negatively impacted by the COVID-19 pandemic.

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Operating Profit (Loss)

In the first quarter of 2021, the segment's operating profit of $3 million compared to an operating loss of $10 million in the first quarter of 2020. The segment experienced $7 million of higher unit volume, $3 million of lower raw material costs, as the segment utilizes the FIFO method of inventory valuation, $2 million of favorable manufacturing efficiencies and $2 million of favorable price and mix. The first quarter of 2020 unit volume was negatively impacted by the market slowdown caused by COVID-19, and also included production days lost due to plant shut downs as a result of the pandemic. Selling, general and administrative costs increased $1 million in the first quarter of 2021 compared to the first quarter of 2020.

Liquidity and Capital Resources

Sources and uses of cash in operating activities

Net cash used by operating activities was $40 million in the first quarter of 2021 compared to $114 million of net cash used by operating activities in the first quarter of 2020. The improvement in operating cash flows was partially driven by the Company's increased net income in 2021 of $22 million, as compared to a net loss of $11 million in 2020. Changes in operating assets and liabilities in 2021 used $145 million of net cash, as compared to the usage of $141 million in 2020. Lower sales volume and decreased production activity in the first quarter of 2020 as a result of the COVID-19 pandemic resulted in favorable movement in accounts and notes receivable and inventory in 2020. In the first quarter of 2021, movement in accounts and notes receivable was unfavorable due to increased sales volume, while the Company is building inventory to meet forecasted demand and replenishing its inventory on hand from depleted levels at December 31, 2020. The Company also experienced favorable movement in accounts payable in the first quarter of 2021 due to increased purchasing related to inventory, coupled with continuing capital spending. Non-cash items contributed $83 million of favorable cash flow movement in the first quarter of 2021, compared to $38 million contributed in the first quarter of 2020, with the Company experiencing growth in its LIFO reserve in the first quarter of 2021 as a result of the Company's growth in inventory from December 31, 2020.

Sources and uses of cash in investing activities

Net cash used in investing activities reflects capital expenditures of $57 million and $55 million in 2021 and 2020, respectively.

Sources and uses of cash in financing activities

In the first quarter of 2020, the Company had $269 million of net short term borrowings, as the Company utilized its revolving credit facility and accounts receivable securitization facility to increase cash on hand for working capital and general corporate purposes as it managed the impacts of the COVID-19 pandemic prior to repaying the borrowings in the third quarter of 2020. In the first quarter of 2021, the Company did not repay any of its net short-term debt at its Asian operations as compared to $4 million of such payments in the first quarter of 2020. In the first quarter of 2021, the Company repaid $10 million of long-term debt and finance lease obligations as compared to $3 million in the first quarter of 2020.

In the first quarter of 2020, the Company paid $62 million for the acquisition of the remaining noncontrolling ownership interest in COOCSA, as well as for services rendered by members of the joint venture workforce that were also shareholders of the non-controlling interest.

Dividends paid on the Company’s common shares were $5 million in the first quarter of both 2021 and 2020.

Available cash, credit facilities and contractual commitments

At March 31, 2021, the Company had cash and cash equivalents of $460 million. This does not include restricted cash of $71 million, which includes amounts in a trust to provide funding for benefits payable and other potential payments to directors, executive officers and certain other employees under various plans and agreements of the Company as a result of the Merger.

Domestically, the Company's Credit Facility with a consortium of several banks provides up to $700 million and expires in June 2024. Of this borrowing capacity, $200 million is allocated to the Term Loan A, while the remaining $500 million is allocated to a revolving credit facility. The Term Loan A was drawn in December 2019 primarily to pay for maturing unsecured notes. The Credit Facility also includes a $110 million letter of credit sub-facility.

The Company also has an accounts receivable securitization facility with a borrowing limit of up to $100 million, based on eligible receivables, which expires in December 2022.

At March 31, 2021, the Company has no borrowing drawn on its revolving credit facility or accounts receivable securitization facility. These credit facilities have been used to secure letters of credit of $18 million at March 31, 2021. The Company’s additional borrowing capacity under these facilities, net of amounts used to back letters of credit and based on available collateral at March 31, 2021, was $570 million. The Company’s revolving credit facilities contain restrictive covenants which limit or preclude certain actions based upon the measurement of certain financial covenant metrics. However, the covenants are structured such that the Company expects to have sufficient flexibility to conduct its operations. The Company was in compliance with all of its debt covenants as of March 31, 2021.

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The Company’s operations in Asia have annual renewable unsecured credit lines that provide up to $68 million of borrowings and do not contain significant financial covenants. The additional borrowing capacity on the Asian credit lines totaled $63 million at March 31, 2021.

The Company believes that its cash and cash equivalent balances, along with available cash from operating cash flows and credit facilities, will be adequate to fund its typical needs, including working capital requirements, projected capital expenditures, and dividend goals as it navigates the COVID-19 pandemic. The Company also believes it has access to additional funds from capital markets to fund potential strategic initiatives. Short-term borrowings at March 31, 2021 include $5 million of short-term notes of consolidated subsidiaries. The Company expects to refinance or pay the short-term notes within the next twelve months.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “anticipate,” “believe,” “could,” “design,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “imply,” “intend,” “may,” “objective,” “opportunity,” “outlook,” “plan,” “position,” “potential,” “predict,” “project,” “prospective,” “pursue,” “seek,” “should,” “strategy,” “target,” “will,” “would” or other similar expressions that convey the uncertainty of future events or outcomes. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements.

Forward-looking statements include, but are not limited to, statements that relate to, or statements that are subject to risks, contingencies or uncertainties that relate to:

•the ability to complete the proposed Merger of the Company and Goodyear on anticipated terms and timetable;

•the effect of restructuring or reorganization of business components;

•uncertainty and weaknesses in global economic conditions, including the impact of the ongoing coronavirus (COVID-19) pandemic, or similar public health crises, on the Company’s and Goodyear’s financial condition, operations, distribution channels, customers and suppliers, as well as potentially exacerbating other factors discussed herein;

•continued volatility in raw material and energy prices, including those of rubber, steel, petroleum-based products and natural gas or the unavailability of such raw materials or energy sources, which may impact the price-adjustment calculations under sales contracts;

•delays or disruptions in the supply chain resulting in increased costs or disruptions in operations;

•the ability to cost-effectively achieve planned production rates or levels;

•the ability to successfully identify and consummate any strategic investments or development projects;

•the outcome of any contractual disputes with customers, joint venture partners or any other litigation or arbitration;

•impacts of existing and increasing governmental regulation and related costs and liabilities, including failure to receive or maintain required operating and environmental permits, approvals, modifications or other authorization of, or from, any governmental or regulatory entity and costs related to implementing improvements to ensure compliance with regulatory changes;

•the ability to maintain adequate liquidity, level of indebtedness and the availability of capital could limit cash flow available to fund working capital, planned capital expenditures, acquisitions and other general corporate purposes or ongoing needs of the business;

•the ability to continue to pay cash dividends, and the amount and timing of any cash dividends;

•availability of capital and ability to maintain adequate liquidity;

•the impact of labor problems, including labor disruptions at the Company, its joint ventures, or at one or more of its large customers or suppliers;

•the ability of our customers, joint venture partners and third party service providers to meet their obligations on a timely basis or at all;

•adverse changes in interest rates and tax laws; and

•the potential existence of significant deficiencies or material weakness in our internal control over financial reporting.

We have based our forward-looking statements on our current expectations, estimates and projections about our industry and our partnership. We caution that these statements are not guarantees of future performance and you should not rely unduly on them, as they involve risks, uncertainties, and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. While our management considers these assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, our actual results may differ materially from the future performance that we have expressed or forecast in our forward-looking statements. Differences between actual results and any future performance suggested in our forward-looking statements could result from a variety of factors, including the following:

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•the failure to satisfy various other conditions to the closing of the transaction contemplated by the Merger Agreement;

•the failure to obtain governmental approvals of the transaction on the proposed terms and schedule, and any conditions imposed on the combined company in connection with consummation of the transaction;

•the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected;

•disruption from the proposed transaction making it more difficult to maintain relationships with customers, partners, employees or suppliers;

•the risk that the proposed transaction may be less accretive than expected, or may be dilutive, and that the combined company may fail to realize the benefits expected from the Merger;

•risks relating to any unforeseen liabilities of Goodyear or the Company;

•the volatility in raw material and energy prices, including those of rubber, steel, petroleum-based products and natural gas or the unavailability of such raw materials or energy sources;

•governmental regulation;

•changes to tariffs or trade agreements, or the imposition of new or increased tariffs or trade restrictions, imposed on tires, raw materials or manufacturing equipment which the Company uses, including changes related to tariffs on tires, raw materials and tire manufacturing equipment imported into the U.S. from China or other countries, as well as changes to trade agreements resulting from the United Kingdom's withdrawal from the European Union;

•future laws and regulations or the manner in which they are interpreted and enforced;

•the inability to obtain and/or renew permits necessary for the operations;

•existing and future indebtedness may limit cash flow available;

•operating expenses could increase significantly if the price of electrical power, fuel or other energy sources increases;

•changes in credit ratings issued by nationally recognized statistical rating organizations;

•risks involving the acts or omissions of our joint venture partners;

•natural disasters, weather conditions, disruption of energy, unanticipated geological conditions, equipment failures, and other unexpected events;

•a disruption in, or failure of our information technology systems, including those related to cybersecurity; failure of outside contractors and/or suppliers to perform;

•the cost and time to implement a strategic capital project may be greater than originally anticipated;

•reliance on estimates of recoverable reserves; and

•the risks that are described from time to time in Goodyear’s and the Company’s respective reports filed with the SEC.

We undertake no obligation to update any forward-looking statements except to the extent required by applicable law.

Item 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk at March 31, 2021 from those detailed in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2020.

Item 4.     CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the reports the Company files or submits as defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934 (“Exchange Act”), as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) to allow timely decisions regarding required disclosures.

The Company, under the supervision and with the participation of management, including the CEO and CFO, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as of March 31, 2021 (“Evaluation Date”)). Based on its initial evaluation, the Company's CEO and CFO concluded that its disclosure controls and procedures were effective as of the Evaluation Date.

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.     LEGAL PROCEEDINGS

The Company is a defendant in various judicial proceedings arising in the ordinary course of business. A significant portion of these proceedings are product liability cases in which individuals involved in motor vehicle accidents seek damages resulting from allegedly defective tires manufactured by the Company. After reviewing all of these proceedings, and taking into account all relevant factors concerning them, the Company does not believe that any liabilities resulting from these proceedings are reasonably likely to have a material adverse effect on its liquidity, financial condition or results of operations in excess of amounts recorded at March 31, 2021. In the future, such costs could have a materially greater impact on the consolidated results of operations and financial position of the Company than in the past.

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Item 1A.    RISK FACTORS

Some of the material risk factors related to the Company follow:

Risks related to the Merger

The consideration the Company’s stockholders will receive in the Merger is uncertain because the market price of Goodyear common stock will fluctuate.

Subject to the terms and conditions set forth in the Merger Agreement, upon consummation of the Merger, each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the Merger (other than dissenting shares, stock options, restricted stock units, performance stock units, treasury shares held by the Company and shares of the Company’s common stock owned directly or indirectly by the Company, Goodyear or Merger Sub) will be converted into the right to receive $41.75 per share in cash and 0.907 shares of Goodyear common stock (as well as cash in lieu of any fractional shares of Goodyear common stock and any dividends or distributions on the Goodyear common stock with a record date on or after the effective time of the Merger). The exchange ratio in the Merger is fixed, and there will be no adjustment to the consideration to be received by the Company’s stockholders in the Merger for changes in the market price of Goodyear common stock or the Company’s common stock prior to the completion of the Merger. The market value of Goodyear common stock may fluctuate prior to the closing of the transaction as a result of a variety of factors, including reactions from the financial markets to the Merger, general market and economic conditions, changes in Goodyear’s business, operations and prospects and regulatory considerations. Such factors are difficult to predict and in many cases may be beyond the Company’s control or Goodyear’s control. The actual value of the consideration to be received by the Company’s stockholders at the completion of the Merger will depend on the market value of the Goodyear common stock at that time. This market value may differ, possibly materially, from the market value of the Company’s shares of common stock at the time the Merger Agreement was entered into or at any other time.

The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.

The Merger Agreement contains a number of conditions that must be satisfied or waived in order to complete the Merger. Those conditions include, among others:

•the approval to list the shares of Goodyear common stock issuable in connection with the Merger on Nasdaq;

•the expiration or termination of the antitrust waiting period or the approval of regulatory agencies applicable to the Merger;

•the absence of any governmental order or law prohibiting the consummation of the Merger;

•the accuracy of Goodyear’s and the Company’s respective representations and warranties under the Merger Agreement (subject to the materiality standards set forth in the Merger Agreement);

•Goodyear’s and the Company’s performance of their respective obligations under the Merger Agreement in all material respects; and

•the absence of a material adverse effect on the Company or Goodyear (as described in the Merger Agreement).

The Company's stockholders approved the Merger on April 30, 2021. The other conditions to the closing of the Merger may not be fulfilled in a timely manner or at all, and, accordingly, the Merger may be delayed or may not be completed. In addition, if the Merger is not completed by November 22, 2021 (subject to the Company’s and Goodyear’s ability to extend the date to May 23, 2022, either Goodyear or the Company may choose not to proceed with the Merger. The parties can mutually decide to terminate the Merger Agreement at any time. In addition, Goodyear could determine that it is unwilling or unable to close the Merger.

The price of the Company’s common stock and the Company’s debt securities, as well as the Company’s financial results, may be negatively impacted if the Merger is not completed.

If the Merger is not completed for any reason, the Company’s business and financial results may be adversely affected, including as follows:

•the Company may experience negative reactions from the financial markets, including negative impacts on the market price of its common stock and debt securities;

•the manner in which customers, vendors, business partners and other third parties perceive the Company may be negatively impacted, which in turn could affect the Company’s ability to compete for new business or maintain existing business in the marketplace more broadly;

•the Company may experience negative reactions from employees and its joint venture partners, which may adversely affect, among other things, availability of TBR tires, productivity, employee turnover and occupational safety; and

•the Company have and will continue to expend significant time and resources that could otherwise have been spent on its existing businesses and the pursuit of other opportunities that could have been beneficial to the Company, and its ongoing business and financial results may be adversely affected.

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In addition to the above risks, if the Merger Agreement is terminated and the Company’s Board of Directors seeks an alternative transaction, the Company’s stockholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the Merger. If the Merger Agreement is terminated under specified circumstances, the Company also may be required to pay Goodyear a termination fee.

The Merger Agreement limits the Company’s ability to pursue alternatives to the Merger.

The Merger Agreement contains provisions that may discourage a third party from submitting an acquisition proposal to the Company that might result in greater value to the Company’s stockholders than the Merger, or may result in a potential competing acquirer proposing to pay a lower per share price to acquire the Company than it might otherwise have proposed to pay. These provisions include a general prohibition on the Company’s soliciting or, subject to certain exceptions relating to the exercise of fiduciary duties by the Company’s Board of Directors, entering into discussions with any third party regarding any acquisition proposal or offer for a competing transaction, and a termination fee that is payable to Goodyear if the Company terminates the Merger Agreement to accept a superior acquisition proposal.

While the Merger is pending, the Company may be exposed to a number of business uncertainties and related adverse effects on the Company’s business.

Uncertainty about the effect of the Merger on employees, suppliers and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s relationships with collectively bargained employees and the Company’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause suppliers, customers, partners and others that deal with the Company to seek to change the Company’s existing business relationships. In addition, the Merger Agreement restricts the Company from entering into certain corporate transactions and taking other specified actions without the consent of Goodyear, and generally requires the Company to continue its operations in the ordinary course, until completion of the Merger. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Merger.

The Merger-related costs may exceed the Company’s expectations.

The Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, including, among others, fees paid to financial, legal and accounting advisors, employee retention costs, severance and benefit costs and filing fees. Many of these costs will be borne by the Company even if the Merger is not completed and could have an adverse effect on the Company’s financial condition and operating results.

In connection with the Merger, the Company may lose management personnel and other employees, which could adversely impact the Company’s future business and operations.

The Company is dependent on the experience and industry knowledge of its officers and other employees to execute the Company’s business plans. The Company’s success depends in part upon its ability to retain management personnel and other employees. The Company’s current and prospective employees may experience uncertainty about their roles within the combined company following the Merger, which may have an adverse effect on the Company’s ability to attract or retain management and other personnel while the Merger is pending.

The Company and its directors have been and may continue to be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against public companies and their directors when companies enter into agreements for transactions similar to those contemplated by the Merger Agreement, and such lawsuits have been and may be brought against the Company and its directors in connection with the Merger Agreement. Even if the lawsuits are without merit, these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on the Company’s liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, which may adversely affect the Company’s business, financial position and results of operations.

The Merger may be less accretive than expected, or may be dilutive, and the combined company may fail to realize all of the anticipated benefits of the proposed Merger.

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The success of the proposed Merger will depend, in part, on the combined company’s ability to realize the anticipated benefits and cost savings from combining the Company’s and Goodyear’s businesses. The anticipated benefits and cost savings of the proposed Merger may not be realized fully or at all, may take longer to realize than expected, may require more non-recurring costs and expenditures to realize than expected or could have other adverse effects that the Company and Goodyear do not currently foresee. Some of the assumptions that the companies have made, such as with respect to anticipated operating synergies or the costs associated with realizing such synergies; significant long-term cash flow generation; and the benefits of the combined enterprise, may not be realized. The integration process may result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could also be potential unknown liabilities and unforeseen expenses associated with the Merger that were not discovered in the course of performing due diligence. Any of the foregoing factors could adversely affect the combined company’s business, financial position and results of operations.

Risks related to the Company's Operations

Impact of the ongoing COVID-19 pandemic, or similar public health crises, on the Company's operations, distribution channels, customers and suppliers.

From time to time, the Company may face risks related to public health threats or outbreaks of communicable diseases, such as COVID-19. The Company has global manufacturing facilities, distribution channels, suppliers and customers, and if a disease spreads sufficiently to cause a pandemic (or to cause the fear of a pandemic to rise) or governments regulate or restrict the flow of people, labor or products, the Company's financial condition, operations, suppliers, customers and distribution channels could be severely impacted.  Such a pandemic could also have an adverse impact on consumer demand and commodity prices. Any material changes in the Company's production supply or demand for products could materially and adversely affect the Company's results of operations and liquidity.

The ongoing COVID-19 pandemic has negatively impacted the global economy, disrupted financial markets and international trade, resulted in increased unemployment levels and significantly impacted global supply chains. The Company’s results may be adversely impacted by this economic disruption, including impacting tire unit volumes, sales, production, income and cash flow.  In addition, the Company’s ability to continue implementing important strategic initiatives and capital expenditures may be affected as it devotes time and other resources to responding to the impacts of the COVID-19 pandemic. In response to government mandates and health care advisories, the Company altered certain aspects of its operations, including the temporary idling of manufacturing facilities for various lengths of time. A portion of the Company's workforce has had to spend a significant amount of time working remotely, which may increase cybersecurity and data security risks, and disrupt internal controls and procedures.

Federal, state, local and foreign governments have implemented various mitigation measures, including travel restrictions, border closings, restrictions on public gatherings, shelter-in-place restrictions and limitations on business, and these measures change from time to time. Some of these actions could adversely impact the ability of Company employees, contractors, suppliers, customers, and other business partners to conduct business activities, and could ultimately do so for an indefinite period of time. This could have a material adverse effect on the Company’s results of operations, financial condition, and liquidity. In particular, the continued prevalence of COVID-19 and efforts to contain the virus could:

•continue to impact customers and customer demand for the Company's products;

•cause disruptions of the Company's workforce or operations;

•cause the Company to experience an increase in costs and credit risk as a result of the Company’s emergency measures, delayed payments from customers and uncollectable accounts;

•cause delays and disruptions in the supply chain resulting in disruptions in operations;

•result in temporary idling of facilities and the resulting costs to resume full operations;

•result in asset impairments or other charges;

•negatively impact the Company's liquidity position;

•limit the Company's access to funds under its existing credit facility and the capital markets;

•impact availability of qualified personnel; and

•cause other unpredictable events.

The situation surrounding COVID-19 remains fluid. In late 2020, vaccines for COVID-19 were approved by health agencies in certain countries in which the Company operates (including the U.S., U.K., Canada and Mexico) and began to be administered. However, initial quantities of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated,

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generally first to health care and other essential workers and next to those members of individual populations believed most susceptible to severe effects from COVID-19. The timing of full administration of the COVID-19 vaccines is uncertain at this time. For this reason, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. The extent to which the COVID-19 pandemic may impact the Company’s business, operating results, financial condition, or liquidity will depend on future developments, including the duration of the outbreak, travel restrictions, government mandated restrictions and regulations, business and workforce disruptions, impact on demand for Company products, and the effectiveness of actions taken to contain and treat the disease, including the efficacy of and ability to widely distribute vaccinations.

The impact of COVID-19 may also exacerbate other risks discussed herein, any of which could have a material effect on the Company. This situation is changing rapidly and additional impacts may arise that the Company is not aware of currently.

Pricing volatility for raw materials or commodities or an inadequate supply of key raw materials could result in increased costs and may significantly affect the Company’s profitability.

The pricing volatility for natural rubber, petroleum-based materials and other raw materials contributes to the difficulty in managing the costs of raw materials. Costs for certain raw materials used in the Company’s operations, including natural rubber, chemicals, carbon black, steel reinforcements and synthetic rubber remain highly volatile. Increasing costs for raw material will increase the Company’s production costs and affect its margins if the Company is unable to pass the higher production costs on to its customers in the form of price increases. Even if the Company is able to pass along these higher costs, its profitability may be adversely affected until it is able to do so. Decreasing costs for raw materials could also affect margins if the Company is unable to maintain its pricing structure due to the need to offer price reductions to remain competitive. Further, if the Company is unable to obtain adequate supplies of raw materials in a timely manner for any reason, including supply chain disruption, its operations could be interrupted or otherwise adversely affected.

Any interruption in the Company’s skilled workforce, or that of its suppliers or customers, including labor disruptions, could impair its operations and harm its earnings and results of operations.

The Company’s operations depend on maintaining a skilled workforce, including the use of third party labor outsourcing, and any interruption of its workforce due to shortages of skilled technical, production or professional workers, work disruptions, lost time due to illness, temporary idling of facilities, short-term furloughs, or other events could interrupt the Company’s operations and affect its operating results. Competition for these employees is intense and the Company could experience difficulty in hiring and retaining the personnel necessary to support its business. Further, a significant number of the Company’s employees are currently represented by unions. If the Company is unable to resolve any labor disputes or if there are work stoppages or other work disruptions at the Company or any of its suppliers or customers, the Company’s business and operating results could suffer.

If the Company is unable to attract and retain key personnel, its business could be materially adversely affected.

The Company’s business depends on the continued service of key members of its management. The loss of the services of a significant number of members of its management team could have a material adverse effect on its business. The Company’s future success will also depend on its ability to attract, retain and develop highly skilled personnel, such as engineering, marketing, information technology and senior management professionals. Competition for these employees is intense and the Company could experience difficulty in hiring and retaining the personnel necessary to support its business. If the Company does not succeed in retaining its current employees and attracting new high-quality employees, its business could be materially adversely affected. See also related comments under "In connection with the Merger, the Company may lose management personnel and other employees, which could adversely impact the Company's future business operations."

The Company’s industry is highly competitive, and the Company may not be able to compete effectively with lower-cost producers and larger competitors.

The tire industry is a highly competitive, global industry. Some of the Company’s competitors are larger companies with greater financial resources. Intense competitive activity in the replacement tire industry, including consolidation or other cooperation by and among the Company's competitors, has caused, and will continue to cause, pressures on the Company’s business, as well as pressure on certain of the Company's customers, suppliers or distribution network. As the Company increases its presence in the original equipment market, the demand for products by the OEM's will be impacted by automotive vehicle production. The Company’s ability to compete successfully will depend in part on its ability to balance capacity with demand, leverage global purchasing of raw materials, make required investments to improve productivity, eliminate redundancies and increase production at low-cost, high-quality supply sources. If the Company is unable to offset continued pressures, its sales, margins, operating results and market share could decline and the impact could become material on the Company’s earnings.

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The Company has and could in the future incur restructuring charges and other costs as it continues to execute actions in an effort to improve future profitability and competitiveness and may not achieve the anticipated savings and benefits from these actions.

The Company has and may in the future initiate restructuring actions designed to improve future profitability and competitiveness, and enhance the Company’s flexibility, including the outcome of the restructurings and related actions in Europe, the U.S. and at the Company's manufacturing facility in Mexico, as well as other current and potential future outcomes from the Company's ongoing region by region global footprint assessment. The Company may not realize anticipated savings or benefits from the Mexico purchase and restructuring, or other actions, in full or in part or within the time periods it expects. The Company is also subject to the risks of labor unrest, negative publicity and business disruption in connection with these actions. Failure to realize anticipated savings or benefits from the Company’s actions could have an adverse effect on the business and could result in potential unexpected costs or other impacts. Such restructuring actions and impairments or other charges, including pension obligations, could have a significant negative effect on the Company’s earnings or cash flows in the short-term.

If the price of energy sources increases, the Company’s operating expenses could increase significantly or the demand for the Company’s products could be affected.

The Company’s manufacturing facilities rely principally on natural gas, as well as electrical power and other energy sources. High demand and limited availability of natural gas and other energy sources can result in significant increases in energy costs increasing the Company’s operating expenses and transportation costs. Higher energy costs would increase the Company’s production costs and adversely affect its margins and results of operations. If the Company is unable to obtain adequate sources of energy, its operations could be interrupted.

In addition, fluctuations in the price of gasoline for consumers can affect driving and purchasing habits and impact demand for tires.

If assumptions used in developing the Company’s strategic plan are inaccurate or the Company is unable to execute its strategic plan effectively, its profitability and financial position could be negatively impacted.

The Company faces both general industry and Company-specific challenges. These include volatile raw material costs, increasing product complexity and pressure from competitors with greater resources or manufacturing in lower-cost regions. To address these challenges and position the Company for future success, the Company continues to execute its strategic plan.

The Company continually reviews and updates its business plans to achieve its goals and imperatives. There can be no assurance that the Company's strategic business plans will be successful. If the assumptions used in developing the Company’s business plans vary significantly from actual conditions, and the Company is not able to adapt in a timely manner, the Company’s sales, margins and profitability could be harmed. If the Company is unsuccessful in implementing the tactics necessary to execute its business plans, it may not be able to achieve or sustain future profitability, which could impair its ability to meet debt and other obligations and could otherwise negatively affect its operating results, financial condition and liquidity.

The Company may not be successful in executing and integrating investments and acquisitions into its operations, which could harm its results of operations and financial condition.

The Company routinely evaluates potential investments and acquisitions and may pursue additional investment and acquisition opportunities, some of which could be material to its business. These investments include the formation of the ACTR joint venture in Vietnam, the purchase of the remaining noncontrolling interest in the Company's Mexican manufacturing facility and investment in the Company's Serbian manufacturing facility. The Company cannot provide assurance whether it will be successful in pursuing, integrating, ramping up and operating any investment or acquisition opportunities or what the consequences of any investment or acquisition would be. The Company may encounter various risks in any investment or acquisition, including:

•the possible inability to integrate an acquired business into its operations;

•the possible failure to successfully ramp up and operate the business;

•diversion of management’s attention;

•loss of key management personnel;

•labor disruption, including as a result of the Company's purchase or restructuring activities;

•unanticipated problems or liabilities, including delays in completion of required capital expenditures and/or construction;

•potential asset impairment charges, due to inability to meet operating plans; and

•increased labor and regulatory compliance costs of acquired businesses.

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Some or all of those risks could impair the Company’s results of operations and impact its financial condition. The Company may finance any future investments or acquisitions from internally generated funds, bank borrowings, public offerings or private placements of equity or debt securities, or a combination of the foregoing. Investments and acquisitions may involve the expenditure of significant funds and management time.

Investments and acquisitions may also require the Company to increase its borrowings under its bank credit facilities or other debt instruments, or to seek new sources of liquidity. Increased borrowings would correspondingly increase the Company’s financial leverage, and could result in lower credit ratings and increased future borrowing costs. These risks could also reduce the Company’s flexibility to respond to changes in its industry or in general economic conditions.

In addition, the Company’s business plans call for growth. If the Company is unable to identify or execute on appropriate opportunities for acquisition, investment or growth, its business could be materially adversely affected.

There are risks associated with the Company’s global strategy, which includes using joint ventures and partially-owned subsidiaries.

The Company’s strategy includes the use of joint ventures, both as the majority and minority stockholder, and other partially-owned subsidiaries. These entities operate in countries outside of the U.S., are generally less well capitalized than the Company and bear risks similar to the risks of the Company. In addition, there are specific risks applicable to these subsidiaries and these risks, in turn, add potential risks to the Company. Such risks include greater risk of joint venture partners or other investors failing to meet their obligations under related stockholders’ agreements; conflicts with joint venture partners; the possibility of a joint venture partner taking valuable knowledge from the Company; and risk of being denied access to the capital markets, which could lead to resource demands on the Company in order to maintain or advance its strategy. The Company’s outstanding notes and primary credit facility contain cross default provisions in the event of certain defaults by the Company under other agreements with third parties. For further discussion of access to the capital markets, see also related comments under “The Company has a risk due to volatility of the capital and financial markets.”

The Company’s expenditures for pension and other postretirement obligations could be materially higher than it has predicted if its underlying assumptions prove to be incorrect.

The Company provides defined benefit and hybrid pension plan coverage to union and non-union U.S. employees and a contributory defined benefit plan in the U.K. The Company’s pension expense and its required contributions to its pension plans are directly affected by the value of plan assets, the projected and actual rates of return on plan assets and the actuarial assumptions the Company uses to measure its defined benefit pension plan obligations, including the discount rate at which future projected and accumulated pension obligations are discounted to a present value and the inflation rate. The Company could experience increased pension expense due to a combination of factors, including the decreased investment performance of its pension plan assets, decreases in the discount rate, changes in its assumptions relating to the expected return on plan assets, including changes necessitated by movements in the glide path whereby a target return-seeking allocation is followed based upon a given funded ratio level, updates to mortality tables, changes to participant behaviors, including an increase in the volume of lump-sum distributions out of the plans, and the impact of changes to the Company’s pension strategy. The Company could also experience increased other postretirement expense due to decreases in the discount rate, increases in the health care trend rate and changes in the health care environment.

In the event of declines in the market value of the Company’s pension assets or lower discount rates to measure the present value of pension and other postretirement benefit obligations, the Company could experience changes to its Condensed Consolidated Balance Sheet or significant cash requirements.

The realizability of deferred tax assets may affect the Company’s profitability and cash flows.

The Company has significant net deferred tax assets recorded on the balance sheet and determines at each reporting period whether or not a valuation allowance is necessary based upon the expected realizability of such deferred tax assets. In the U.S., the Company has recorded deferred tax assets, the largest of which relate to product liability, pension and other postretirement benefit obligations, partially offset by deferred tax liabilities, the most significant of which relates to accelerated depreciation. The Company’s non-U.S. deferred tax assets relate to pension, accrued expenses and net operating losses, and are partially offset by deferred tax liabilities related to accelerated depreciation. Based upon the Company’s assessment of the realizability of its net deferred tax assets, the Company maintains valuation allowances in the U.K. and China, as well as a small valuation allowance for the portion of its U.S. deferred tax assets primarily associated with a loss carryforward. In addition, the Company has recorded valuation allowances for deferred tax assets primarily associated with other non-U.S. net operating losses.

The Company’s assessment of the realizability of deferred tax assets is based in part on certain assumptions regarding future profitability, and potentially adverse business conditions could have a negative impact on the future realizability of the deferred tax assets and therefore impact the Company’s future operating results or financial position.

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Risks related to Information Technology, Research & Development and Intellectual Property

A disruption in, or failure of, the Company’s information technology systems, including those related to cybersecurity, could adversely affect the Company’s business operations and financial performance.

The Company relies on the accuracy, capacity and security of its information technology systems across all of its major business functions, including its research and development, manufacturing, sales, financial and administrative functions. While the Company maintains some of its critical information technology systems, it is also dependent on third parties to provide important information technology services relating to, among other things, human resources, electronic communications and certain finance functions. Additionally, the Company collects and stores sensitive data, including intellectual property, proprietary business information and the proprietary business information of its customers and suppliers, as well as personally identifiable information of the Company’s customers and employees, in data centers and on information technology networks.

In addition, the European Union’s General Data Protection Regulation (“GDPR”), which came into effect in May 2018, creates a range of new compliance obligations for companies that process personal data of European Union residents, and increases financial penalties for non-compliance. As a company that processes personal data of European Union residents, the Company bears the costs of compliance with the GDPR and is subject to the potential for fines and penalties in the event of a breach of the GDPR.

Aside from the European Union, other jurisdictions have enacted, or are considering, regulations regarding data privacy. The California Consumer Privacy Act ("CCPA"), which became effective in January 2020, and others that may be passed, introduce requirements with respect to personal information, and non-compliance with CCPA may result in liability through private actions and enforcement. Failure to comply with these current and future laws could result in significant penalties and could have a material adverse effect on the Company and results of operations.

Despite the security measures that the Company has implemented, including those related to cybersecurity, its systems could be breached or damaged by computer viruses, natural or man-made incidents or disasters or unauthorized physical or electronic access. Additionally, digital technologies may become more vulnerable and experience a higher rate of rapidly evolving cyberattacks in the environment of remote connectivity, which will continue to be an important aspect of the Company's operations. Furthermore, the Company may have little or no oversight with respect to security measures employed by third-party service providers, which may ultimately prove to be ineffective at countering threats. A system failure, accident or security breach could result in business disruption, theft of intellectual property, trade secrets or customer information and unauthorized access to personnel information. To the extent that any system failure, accident or security breach results in disruptions to the Company's operations or the theft, loss or disclosure of, or damage to, the Company's data or confidential information, the Company’s reputation, business, results of operations, cash flows and financial condition could be materially adversely affected. In addition, the Company may be required to incur significant costs to protect against and, if required, remediate the damage caused by such disruptions or system failures in the future.

If the Company fails to develop technologies, processes or products needed to keep up with rapidly evolving distribution channels and to support consumer and customer demand or, changes in consumer or customer behavior, it may lose significant market share or be unable to recover associated costs.

The Company’s tire sales, margins and profitability may be significantly impacted if it does not develop or have available technologies, processes, including distribution methods, or products that competitors may be developing and consumers or dealers or distributors are demanding. This includes, but is not limited to, changes in the design of and materials used to manufacture tires, changes in the types of tires consumers prefer and changes in the vehicles consumers are purchasing. Additionally, the Company is also impacted by changes in consumer brand perceptions and the way consumers buy tires and failure to effectively compete in various sales and marketing channels, including digital channels and mass merchandising outlets, could result in lost sales and negative impacts on the Company's earnings.

Technologies or processes may also be developed by competitors that better distribute tires to consumers, including through wholly-owned distributors, which could affect the Company’s customers, as well as impact the Company's implementation of its strategic plan.

An increase in consumer preference for car- and ride-sharing services, as opposed to automobile ownership, or other changes in consumer driving practices, including reduced driving caused by increases in remote working arrangements or a rise in consumer e-commerce activity levels, may result in a long term reduction in the number of vehicles per capita or in miles driven. Additionally, refreshing existing products and developing new products and technologies requires significant investment and capital expenditures, is technologically challenging and requires extensive testing and accurate anticipation of technological and market trends. If the Company fails to develop new products that are appealing to the Company's customers and consumers, or fails to develop products on time and within budgeted amounts, the Company may be unable to recover its product development and testing costs. If the Company cannot successfully use new production or equipment methodologies it invests in, it may also not be able to recover those costs.

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The Company may fail to successfully develop or implement information technologies or related systems, resulting in a significant competitive disadvantage.

Competing in the highly competitive tire industry can be impacted by the successful development of information technology. If the Company fails to successfully develop or implement information technology systems, it may be at a disadvantage to its competitors resulting in lost sales and negative impacts on the Company’s earnings.

The Company has implemented Enterprise Resource Planning systems in the United States and other locations. The Company has begun to invest in, and will also continue to evaluate. available options for integrating information technology solutions outside of the United States, which will require significant amounts of capital and human resources to deploy. These requirements may exceed Company projections. Throughout integration of the systems, there are also risks created to the Company’s ability to successfully and efficiently operate.

The Company may not be able to protect its intellectual property rights adequately.

The Company’s success depends in part upon its ability to use and protect its proprietary technology and other intellectual property, which generally covers various aspects in the design and manufacture of its products and processes. The Company owns and uses tradenames and trademarks worldwide. The Company relies upon a combination of trade secrets, nondisclosure and other contractual arrangements and patent, copyright and trademark laws to protect its intellectual property rights. The steps the Company takes in this regard may not be adequate to protect its intellectual property or to prevent or deter challenges or infringement or other violations of its intellectual property, and the Company may not be able to detect unauthorized use or take appropriate and timely steps to enforce its intellectual property rights.

In addition, the laws of some countries may not protect and enforce the Company’s intellectual property rights to the same extent as the laws of the U.S. Further, while the Company believes it has rights to use all intellectual property in the Company’s use, if the Company is found to infringe on the rights of others it could be adversely impacted.

Risks related to Litigation, Laws and Regulations

The Company’s results could be impacted by changes in tariffs, trade agreements or other trade restrictions imposed by the U.S. or other governments on imported tires, raw materials or equipment used in tire manufacturing.

The Company’s ability to competitively source and sell tires can be significantly impacted by changes in tariffs, changes or repeals of trade agreements, including the USMCA, as well as the U.K.'s exit from the European Union, or certain other international trade agreements, or other trade restrictions or retaliatory actions imposed by various governments. Other effects, including impacts on the price of tires, responsive actions from governments and the opportunity for competitors to establish a presence in markets where the Company participates, could also have significant impacts on the Company’s results.

Antidumping and countervailing duty investigations into certain passenger car and light truck tires imported from the PRC into the United States were initiated on July 14, 2014. The determinations announced in both investigations were affirmative and resulted in the imposition of significant additional duties from each. The rates are subject to review annually and a material change in the new rates could have a significant impact on the Company's results.

Antidumping and countervailing duty investigations into certain truck and bus tires imported from the PRC into the U.S. were initiated on January 29, 2016. On February 22, 2017, the International Trade Commission ("ITC") made a final determination that the U.S. market had not suffered material injury because of imports of truck and bus tires from the PRC. However, on November 1, 2018, the Court of International Trade ("CIT") remanded the case back to the ITC for reconsideration.  On January 30, 2019, the ITC reversed its earlier decision and made an affirmative determination of material injury. On February 15, 2019, the determination was published in the Federal Register and significant duties were imposed on Chinese truck and bus tire imports. The ITC’s re-determination, along with comments from the parties regarding the re-determination were filed with the CIT. The CIT affirmed the ITC re-determination on February 18, 2020.

Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, passenger, light truck and truck and bus tires, raw materials and tire-manufacturing equipment from the PRC imported into the U.S. became subject to additional 10 percent duties effective September 24, 2018. These increased to 25 percent effective May 10, 2019. Future changes to duty percentages, if any, are unknown at this time. Retaliatory duties on U.S. products have been implemented by China in response to these additional duties.

The imposition of additional duties or other trade restrictions in the U.S. or elsewhere on raw materials or tire-manufacturing equipment used by the Company or on certain tires imported from the PRC or other countries will result in higher costs and potentially lower margins, or in the case of finished goods, in those tires being diverted to other regions of the world, such as Europe, Latin America or elsewhere in Asia, which could materially harm the Company’s results of operations, financial condition and liquidity.

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The Company may be adversely affected by legal actions, including product liability claims which, if successful, could have a negative impact on its financial position, cash flows and results of operations.

The Company’s operations expose it to legal actions, including potential liability for personal injury or death as an alleged result of the failure of or conditions in the products that it designs, manufactures and sells. Specifically, the Company is a party to a number of product liability cases in which individuals involved in motor vehicle accidents seek damages resulting from allegedly defective tires that it manufactured. Product liability claims and lawsuits, including possible class action, may result in material losses in the future and cause the Company to incur significant litigation defense costs. The Company is largely self-insured against these claims. These claims and related reserves could have a significant effect on the Company’s financial position, cash flows and results of operations.

Periodically, the Company is also subject to audits, litigation or other commercial disputes and other legal proceedings relating to its business. Due to the inherent uncertainties of any litigation, commercial disputes or other legal proceedings, the Company cannot accurately predict their ultimate outcome, including the outcome of any related appeals. An unfavorable outcome could materially adversely impact the Company’s financial condition, cash flows and results of operations.

Compliance with legal and regulatory initiatives could increase the cost of operating the Company’s business.

The Company is subject to federal, state, local and foreign laws and regulations. Compliance with those laws now in effect, or that may be enacted, could require significant capital expenditures, increase the Company’s production costs and affect its earnings and results of operations. Periodic changes as the result of elections in the U.S. and worldwide make it difficult to predict the legislative and regulatory changes that may occur.

Several countries have or may implement labeling requirements for tires. This legislation could cause the Company’s products to be at a disadvantage in the marketplace resulting in a loss of market share or could otherwise impact the Company’s ability to distribute and sell its tires.

In addition, while the Company believes that its tires are free from design and manufacturing defects and comply with all applicable regulations and standards, it is possible that recalls of or other quality issues with the Company’s tires could occur in the future. A recall or other quality issue could harm the Company’s reputation, operating results and financial position.

The Company is also subject to legislation governing labor, environmental, privacy and data protection, occupational safety and health both in the U.S. and other countries. The related legislation can change over time making it more expensive for the Company to produce its products.

The Company could also, despite its best efforts to comply with these laws and regulations, be found liable and be subject to additional costs because of these laws and regulations.

Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of operations and cash flows.

The Company is subject to extensive tax liabilities, including federal and state income taxes and transactional taxes such as excise, sales and use, payroll, franchise, withholding and property taxes. New tax laws and regulations and changes in existing tax laws and regulations could result in increased expenditures by the Company for tax liabilities in the future and could materially and adversely impact the Company's financial condition, results of operations and cash flows.

Additionally, the Company’s income tax returns are subject to examination by federal, state and local tax authorities in the U.S. and tax authorities outside the U.S. Based upon the outcome of tax examinations, judicial proceedings, or expiration of statutes of limitations, it is possible that the ultimate resolution of these unrecognized tax benefits, including those related to tax planning strategies regarding the Company's structure, may result in a payment that is materially different from the current estimate of the tax liabilities. Such factors could have an adverse effect on the Company’s provision for income taxes and the cash outlays required to satisfy income tax obligations.

The impact of proposed new accounting standards may have a negative impact on the Company’s financial statements.

The Financial Accounting Standards Board is considering or has issued for future adoption several projects which may result in the modification of accounting standards affecting the Company. Any such changes could have a negative impact on the Company’s financial statements.

The Company is facing risks relating to healthcare legislation.

The Company is facing risks emanating from legislation in the U.S., including the Patient Protection and Affordable Care Act and the related Healthcare and Education Reconciliation Act, which are collectively referred to as healthcare legislation. The future of this major legislation and any potential replacement is not clear and may be impacted by the results of recent and future elections in the U.S. The ultimate cost and the potentially adverse impact to the Company and its employees cannot be quantified at this time.

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Environmental issues, including climate change, or legal, regulatory or market measures to address environmental issues, may negatively affect the Company's business and operations and cause it to incur significant costs.

The Company’s manufacturing facilities are subject to numerous federal, state, local and foreign laws and regulations designed to protect the environment, including increased government regulations to limit carbon dioxide and other greenhouse gas emissions as a result of concern over climate change, and the Company expects that additional requirements with respect to environmental matters will be imposed on it in the future.

There is also growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that issues related to such climate change have a negative effect on the Company's business, it may be subjected to decreased availability or less favorable pricing for certain raw materials, including natural rubber. Natural disasters and extreme weather conditions may also disrupt the productivity of the Company's facilities or the operation of its supply chain.

In addition, the Company has contractual indemnification obligations for environmental remediation costs and liabilities that may arise relating to certain divested operations. Material future expenditures may be necessary if compliance standards change, if material unknown conditions that require remediation are discovered, or if required remediation of known conditions becomes more extensive than expected. If the Company fails to comply with present and future environmental laws and regulations, it could be subject to future liabilities or the suspension of production, which could harm its business or results of operations. Environmental laws could also restrict the Company’s ability to expand its facilities or could require it to acquire costly equipment or to incur other significant expenses in connection with its manufacturing processes.

General risk factors

The Company is facing heightened risks due to the uncertain business environment.

Current global and regional economic conditions have affected demand for the Company’s products, create volatility in raw material costs and affect the availability and cost of credit. These conditions also affect the Company’s customers and suppliers as well as the ultimate consumer.

Deterioration in the global macroeconomic environment or in specific regions, including availability of transportation, work stoppages, port strikes, public health emergencies, social unrest, political upheavals or other factors, could impact the Company, its customers or its suppliers and, depending upon the severity and duration of these factors, the Company’s profitability and liquidity position could be negatively impacted.

The Company’s competitors may also change their actions as a result of changes to the business environment, which could result in increased price competition and discounts, resulting in lower margins or reduced sales volumes for the business.

The financial distress of one or more of the Company's major customers as a result of the current economic environment, or other factors, could impact the timeliness of customer payments and, ultimately, the collectability of accounts receivable, which could harm the Company's results of operations, financial condition and liquidity. In addition, the bankruptcy, restructuring, financial condition, consolidation or other cooperation of one or more of the Company’s major suppliers, as well as the strategic actions of competitors, could result in a reduction in purchases of the Company’s products or a supply disruption to its facilities, which could harm the Company’s results of operations, financial condition and liquidity.

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The Company conducts its manufacturing, sales and distribution operations on a worldwide basis and is subject to risks associated with doing business outside the U.S.

The Company has affiliate, subsidiary and joint venture operations worldwide, including in the U.S., Europe, Mexico, the PRC and Vietnam. The Company has a wholly-owned manufacturing entity, Cooper Kunshan Tire, and is the majority owner of GRT, both in the PRC. The Company also has COOCSA, a wholly-owned manufacturing entity in Mexico, after purchasing the remaining noncontrolling interest on January 24, 2020, and has established operations in Serbia and the U.K. Additionally, the Company has a joint venture in Vietnam which produces TBR tires. There are a number of risks in doing business abroad, including political and economic uncertainty, social unrest, sudden changes in laws and regulations, including those enacted in response to pandemics, ability to enforce existing or future contracts, shortages of trained labor and the uncertainties associated with entering into joint ventures or similar arrangements in foreign countries. These risks may impact the Company’s ability to expand its operations in different regions and otherwise achieve its objectives relating to its foreign operations, including utilizing these locations as suppliers to other markets. In addition, compliance with multiple and potentially conflicting foreign laws and regulations, import and export limitations and exchange controls is complex and expensive. For example, the Company could be adversely affected by violations of the Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials and, in some cases, other persons, for the purpose of obtaining or retaining business or obtaining another improper benefit. Violations of these laws and regulations could result in civil and criminal fines, penalties and sanctions against the Company, its officers or its employees, prohibitions on the conduct of the Company’s business and on its ability to offer products and services in one or more countries, and could also harm the Company’s reputation, business and results of operations. The Company’s foreign operations also subject it to the risks of international terrorism and hostilities and to foreign currency risks, including exchange rate fluctuations and limits on the repatriation of funds. See also related comments under "The Company’s results could be impacted by changes in tariffs, trade agreements or other trade restrictions imposed by the U.S. or other governments on imported tires, raw materials or equipment used in tire manufacturing", "There are risks associated with the Company’s global strategy, which includes using joint ventures and partially-owned subsidiaries" and "The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets or the Company’s business."

The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets or the Company’s business.

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. On January 23, 2020, the Withdrawal Act, after clearing all stages in the U.K. Parliament, received royal assent from the Queen. On December 24, 2020, the U.K. and the European Union announced an agreement on the EU-UK Trade and Cooperation Agreement ("EU-UK Agreement"). The trade deal was formally approved by the U.K. House of Commons on December 30, 2020 and by the European Union legislature on April 28, 2021. While the EU-UK Agreement moves to remove uncertainty and a significant amount of financial risk associated with the U.K.’s exit from the European Union, the Company is still assessing the agreement details and the related impact on the Company's U.K business and other operations. The new trading relationship between the U.K and the European Union will result in increased costs of goods imported into the U.K. from the European Union and exported from the U.K. into the European Union. The movement of goods between the U.K. and the European Union will continue to be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. Also, there will be additional costs related to goods that are deemed to originate outside of the U.K. or European Union, as well as Serbia, and for which the originating country has no trade agreement with the U.K.

These changes to the trading relationship between the U.K and European Union would likely result in increased cost of goods imported into and exported from the U.K. and may decrease the profitability of the Company's U.K. and other operations. Additional currency volatility could drive a weaker British pound, which increases the cost of goods imported into the U.K. operations and may decrease the profitability of the U.K. operations. A weaker British pound versus the U.S. dollar also causes local currency results of U.K. operations to be translated into fewer U.S. dollars during a reporting period. With a range of outcomes still possible, the impact from Brexit remains uncertain and will depend, in part, on the final outcome of tariff, trade, regulatory and other negotiations.

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The Company has a risk due to volatility of the capital and financial markets.

The Company periodically requires access to the capital and financial markets as a significant source of liquidity for maturing debt payments or working capital needs or investments in the business that it cannot satisfy by cash on hand or operating cash flows. Substantial volatility in world capital markets and the banking industry may make it difficult for the Company to access credit markets and to obtain financing or refinancing, as the case may be, on satisfactory terms or at all. In addition, various additional factors, including a deterioration of the Company’s credit ratings or its business or financial condition, could further impair its access to the capital markets and bank financings. Additionally, any inability to access the capital markets or bank financings, could require the Company to defer critical capital expenditures, reduce or not pay dividends, reduce spending in areas of strategic importance, suspend stock repurchases, sell important assets or, in extreme cases, seek protection from creditors. See also related comments under “There are risks associated with the Company’s global strategy, which includes using joint ventures and partially-owned subsidiaries.”

The Company’s operations in Asia have been or will be financed in part using multiple loans from several lenders to finance working capital needs. These loans are generally for terms of one year or less. Therefore, debt maturities occur frequently and access to the capital markets and bank financings is crucial to the Company’s ability to maintain sufficient liquidity to support its operations in Asia.

LIBOR reform, increases in interest rates or changes in credit ratings may negatively impact the Company.

Certain of the Company's variable rate debt, including its Credit Facility, currently use LIBOR as a benchmark for establishing the interest rate. LIBOR is the subject of recent proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments with respect to LIBOR cannot be entirely predicted but could result in an increase in the cost of variable rate debt. The interest rates on the Company's term loans and revolving credit facilities can vary based on the Company's credit ratings. The Company's policy is to manage interest rate risk by entering into both fixed and variable rate debt arrangements. Interest rate swaps are also used to minimize worldwide financing cost and to achieve a desired mix of fixed and variable rate debt. The Company utilizes derivative financial instruments to enhance its ability to manage risk, including interest rate exposures that exist as part of ongoing business operations. The Company does not enter into contracts for trading purposes, nor is it a party to any leveraged derivative instruments. The use of derivative financial instruments is monitored through regular communication with senior management and the utilization of written guidelines. However, the Company's use of these instruments may not effectively limit or eliminate exposure to changes in interest rates. Therefore, the Company cannot provide assurance that future credit rating or interest rate changes will not have a material negative impact on its business, financial position or operating results.

A failure in the Company's internal financial controls could adversely affect the Company's business operations and financial performance.

The Company's operations are highly dependent on an ability to process and monitor, on a daily basis, a very large number of transactions, across numerous locations and currencies. These transactions must adhere to the Company's internal financial control structure, as well as legal and regulatory standards. Compliance with these legal and reporting requirements can be challenging, including in the current environment of remote connectivity, and the Company could be subject to regulatory fines and penalties for failing to follow these rules or to report timely, accurate and complete information in accordance with such rules. As such requirements expand, compliance with these rules and regulations has become more challenging. As the Company's customer base and geographical reach expands, the volume, speed, frequency and complexity of transactions, especially electronic transactions, increases. Developing and maintaining the Company's internal financial controls becomes more challenging, and the risk of system or human error in connection with such transactions increases. The Company must continuously monitor these internal financial controls to support the Company's operations and respond to changes in regulations and markets. A failure in such internal financial controls could harm the Company’s reputation, operating results and financial position.

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The Company has been and may continue to be impacted by currency fluctuations, which may reduce reported results for the Company’s international operations and otherwise adversely affect the business.

Because the Company conducts transactions in various non-U.S. currencies, including the Euro, Canadian dollar, British pound sterling, Swiss franc, Swedish krona, Norwegian krone, Mexican peso, Columbian peso, Chinese yuan, Serbian dinar and Brazilian real, fluctuations in foreign currency exchange rates may impact the Company’s financial condition, results of operations and cash flows, despite currency hedging actions by the Company. The Company’s operating results are subject to the effects of fluctuations in the value of these currencies and fluctuations in the related currency exchange rates. As a result, the Company’s sales have historically been affected by, and may continue to be affected by, these fluctuations. Exchange rate movements between currencies in which the Company sells its products have been affected by and may continue to result in exchange losses that could materially affect results. During times of strength of the U.S. dollar, the reported revenues of the Company’s international operations will be reduced because local currencies will translate into fewer dollars. In addition, a strong U.S. dollar may increase the competitiveness of competitors based outside of the United States. As a result, continued strengthening of the U.S. dollar may have a material adverse effect on the Company’s financial condition, results of operations and cash flows. A weak U.S. dollar could increase the cost of goods imported into the Company's U.S. operations and other goods imported in U.S. dollars at other locations and may decrease the profitability of the Company's operations. As a result, continued weakening of the U.S. dollar may have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

Item 2.    ISSUER PURCHASES OF EQUITY SECURITIES

During the quarter ended March 31, 2021, the Company did not purchase any equity securities registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934.

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2021 through January 31, 2021	—		—	$	193,123
February 1, 2021 through February 28, 2021	—		—	193,123
March 1, 2021 through March 31, 2021	—		—	193,123
Total	—		—

On February 16, 2017, the Board of Directors increased the amount under and expanded the duration of the Company's existing share repurchase program (as amended, the "2017 Repurchase Program"). The 2017 Repurchase Program allowed the Company to repurchase up to $300,000,000, excluding commissions, of the Company’s common stock through December 31, 2019. The approximately $95,634,000 remaining authorization under the Company's existing share repurchase program as of February 16, 2017 was included in the $300,000,000 maximum amount authorized by the 2017 Repurchase Program. On December 3, 2019, the expiration of the 2017 Repurchase Program was extended to December 31, 2021. No other changes were made. The 2017 Repurchase Program does not obligate the Company to acquire any specific number of shares and can be suspended or discontinued at any time without notice. Under the 2017 Repurchase Program, shares can be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. All repurchases under the program listed above have been made using cash resources.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

COOPER TIRE & RUBBER COMPANY

/s/ Gerald C. Bialek

Gerald C. Bialek

Interim Chief Financial Officer,

Vice President and Treasurer

(Principal Financial Officer)

/s/ Mark A. Young

Mark A. Young

Vice President and Chief Accounting Officer

(Principal Accounting Officer)

May 3, 2021

(Date)

Item 6.    EXHIBITS

(a) Exhibits

2.1	Agreement and Plan of Merger, dated February 22, 2021 by and among Cooper Tire & Rubber Company, The Goodyear Tire & Rubber Company and Vulcan Merger Sub Inc., is incorporated by reference from Exhibit 2.1 of the Company’s Form 8-K dated February 21, 2021*
3.1	Restated Certificate of Incorporation, as amended and filed with the Secretary of State of Delaware on May 4, 2010, is incorporated herein by reference from Exhibit 3(i) of the Company’s Form 10-Q for the quarter ended March 31, 2010
3.2	Bylaws of the Company, as amended as of February 21, 2021, is incorporated by reference from Exhibit 3.1 of the Company’s Form 8-K dated February 24, 2021
(31.1)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(101.INS)	Inline XBRL Instance Document
(101.SCH)	Inline XBRL Taxonomy Extension Schema Document
(101.DEF)	Inline XBRL Taxonomy Extension Definition Linkbase Document
(101.CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase Document
(101.LAB)	Inline XBRL Taxonomy Extension Label Linkbase Document
(101.PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase Document
(104)	The cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Certain exhibits and schedules have been omitted and the Company agrees to furnish supplementally to the Commission a copy

of any omitted exhibits upon request.

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