<PAGE> 1
==============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact name of Registrant as specified in its charter)
OHIO 34-0253240
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1144 EAST MARKET STREET, AKRON, OHIO 44316-0001
(Address of Principal Executive Offices) (Zip Code)
(330) 796-2121
(Registrant's Telephone Number, Including Area Code)
-----------------------------------
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
-----------------------------------
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Number of Shares of Common Stock,
Without Par Value, Outstanding at September 30, 1998: 155,890,392
==============================================================================
<PAGE> 2
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Unaudited
<TABLE>
<CAPTION>
(In millions, except per share) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 3,191.7 $ 3,298.7 $ 9,423.2 $ 9,797.3
Cost of Goods Sold 2,469.8 2,536.3 7,193.7 7,514.0
Selling, Administrative and General Expense 471.5 465.8 1,382.4 1,394.5
Asset Writedown and Other Rationalizations -- -- (29.7) --
Interest Expense 41.4 28.4 105.7 91.9
Other (Income) and Expense (44.3) 7.3 (72.5) 18.2
Foreign Currency Exchange (0.3) (10.1) (14.8) (16.3)
Minority Interest in Net Income of Subsidiaries 9.7 11.9 25.6 35.1
--------- --------- --------- ---------
Income from Continuing Operations before Income Taxes 243.9 259.1 832.8 759.9
United States and Foreign Taxes on Income 58.9 74.3 237.3 233.2
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 185.0 184.8 595.5 526.7
Discontinued Operations -- 9.3 (34.7) 30.0
--------- --------- --------- ---------
NET INCOME $ 185.0 $ 194.1 560.8 556.7
========= =========
Retained Earnings at Beginning of Period 2,983.4 2,603.0
CASH DIVIDENDS (141.2) (131.3)
--------- ---------
Retained Earnings at End of Period $ 3,403.0 $ 3,028.4
========= =========
PER SHARE OF COMMON STOCK - BASIC:
INCOME FROM CONTINUING OPERATIONS $ 1.19 $ 1.18 $ 3.80 $ 3.37
Discontinued Operations -- 0.07 (0.22) 0.20
--------- --------- --------- ---------
NET INCOME $ 1.19 $ 1.25 $ 3.58 $ 3.57
========= ========= ========= =========
Average Shares Outstanding 156.4 156.2 156.8 156.1
PER SHARE OF COMMON STOCK - DILUTED:
INCOME FROM CONTINUING OPERATIONS $ 1.17 $ 1.16 $ 3.75 $ 3.33
Discontinued Operations -- 0.06 (0.22) 0.19
--------- --------- --------- ---------
NET INCOME $ 1.17 $ 1.22 $ 3.53 $ 3.52
========= ========= ========= =========
Average Shares Outstanding 157.8 158.3 158.7 158.0
CASH DIVIDENDS PER SHARE $ 0.30 $ 0.28 $ 0.90 $ 0.84
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 1 -
<PAGE> 3
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Unaudited
(In millions)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
ASSETS:
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 158.3 $ 258.6
Accounts and notes receivable,
less allowance (1998-$56.3, 1997-$49.5) 2,105.9 1,733.6
Inventories:
Raw materials 412.9 307.0
Work in process 90.4 87.1
Finished product 1,714.5 1,441.1
--------- ---------
2,217.8 1,835.2
Prepaid expenses and other current assets 417.9 336.5
--------- ---------
TOTAL CURRENT ASSETS 4,899.9 4,163.9
Long Term Accounts and Notes Receivable 188.7 201.9
Investments in Affiliates, at equity 100.5 124.6
Other Assets 83.7 134.1
Deferred Charges 1,348.2 1,143.2
Properties and Plants,
less accumulated depreciation (1998-$5,313.4, 1997-$5,084.3) 4,058.2 4,149.7
--------- ---------
TOTAL ASSETS $10,679.2 $ 9,917.4
========= =========
LIABILITIES:
CURRENT LIABILITIES:
Accounts payable - trade $ 999.0 $ 1,177.8
Compensation and benefits 783.0 782.7
Other current liabilities 339.6 421.8
United States and foreign taxes 377.5 362.0
Notes payable to banks 831.7 440.2
Long term debt due within one year 57.8 66.5
--------- ---------
TOTAL CURRENT LIABILITIES 3,388.6 3,251.0
Compensation and Benefits 1,972.3 1,945.7
Long Term Debt 1,279.6 844.5
Other Long Term Liabilities 174.3 224.5
Minority Equity in Subsidiaries 195.1 256.2
--------- ---------
TOTAL LIABILITIES 7,009.9 6,521.9
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value:
Authorized 50.0 shares, unissued -- --
Common Stock, no par value:
Authorized 300.0 shares
Outstanding shares 155.9 (156.6 in 1997)
after deducting 39.8 treasury shares (39.1 in 1997) 155.9 156.6
Capital Surplus 1,014.0 1,061.6
Retained Earnings 3,403.0 2,983.4
Accumulated Other Comprehensive Income (903.6) (806.1)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 3,669.3 3,395.5
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,679.2 $ 9,917.4
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 2 -
<PAGE> 4
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Unaudited
<TABLE>
<CAPTION>
(In millions) Accumulated Other
Comprehensive Income
------------------------------
Common Capital Retained Foreign Minimum Total
Stock Surplus Earnings Currency Pension Shareholders'
Translation Liability Equity
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ 156.6 $ 1,061.6 $ 2,983.4 $(778.0) $(28.1) $3,395.5
Comprehensive income for 1998:
Net income 560.8
Foreign currency translation (97.0)
Minimum pension liability (0.5)
Total comprehensive income 463.3
Cash dividends (141.2) (141.2)
Common stock acquired (1.5) (83.7) (85.2)
Common stock issued 0.8 36.1 36.9
-----------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 $ 155.9 $ 1,014.0 $ 3,403.0 $(875.0) $(28.6) $3,669.3
===================================================================================
</TABLE>
The accompanying notes are an integral part of this financial statement.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
<TABLE>
<CAPTION>
(In millions) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $ 185.0 $ 194.1 $ 560.8 $ 556.7
Other comprehensive income, net of tax:
Foreign currency translation adjustment 8.0 (124.2) (97.0) (162.0)
Minimum pension liability adjustment 0.9 1.2 (0.5) 3.1
------------------------ ------------------------
COMPREHENSIVE INCOME $ 193.9 $ 71.1 $ 463.3 $ 397.8
======================== ========================
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 3 -
<PAGE> 5
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
(In millions) NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME $ 560.8 $ 556.7
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation 351.8 343.6
Discontinued operations 49.5 --
Gain on asset sales (69.9) --
Change in operating assets and liabilities, net of asset acquisitions and
dispositions:
Accounts and notes receivable (326.2) (322.9)
Inventories (376.4) (51.9)
Accounts payable-trade (197.3) (49.2)
Other assets and liabilities (302.7) 57.7
---------- ----------
Total adjustments (871.2) (22.7)
---------- ----------
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES (310.4) 534.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (490.6) (377.6)
Asset sales 488.8 37.6
Asset acquisitions (197.1) (108.6)
Other transactions (87.5) 7.3
---------- ----------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (286.4) (441.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term debt incurred 543.6 369.4
Short term debt paid (59.8) (106.2)
Long term debt incurred 325.6 10.4
Long term debt paid (116.9) (216.5)
Common stock issued 36.9 73.6
Common stock acquired (85.2) (78.4)
Dividends paid (141.2) (131.3)
---------- ----------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 503.0 (79.0)
Effect of Exchange Rate Changes on Cash and Cash Equivalents (6.5) (25.5)
---------- ----------
Net Change in Cash and Cash Equivalents (100.3) (11.8)
Cash and Cash Equivalents at Beginning of the Period 258.6 238.5
---------- ----------
Cash and Cash Equivalents at End of the Period $ 158.3 $ 226.7
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement
- 4 -
<PAGE> 6
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DISCONTINUED OPERATIONS
- -----------------------
On July 30, 1998 the Company completed the sale of substantially all of the
assets and liabilities of its oil transportation business segment to Plains All
American Inc., a subsidiary of Plains Resources Inc. Proceeds from the sale were
$422.3 million, which included distributions to the Company prior to closing of
$25.1 million. The principal assets of the Oil Transportation segment included
the All American Pipeline System, a heated crude oil pipeline system consisting
primarily of a 1,225 mile mainline segment extending from Gaviota, California,
to McCamey, Texas and related terminal and storage facilities, and a crude oil
gathering system located in California's San Joaquin Valley.
The transaction was accounted for as a sale of discontinued operations, and
accordingly, the accompanying financial information has been restated where
required.
Operating results and the loss on sale of discontinued operations follow:
<TABLE>
<CAPTION>
(In millions, except per share) THREE NINE
MONTHS ENDED MONTHS ENDED
SEPT. 30, SEPT. 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ -- $ 23.5 $ 22.4 $ 73.6
========== ========== ========== ==========
Income before Income Taxes $ -- $ 14.5 $ 12.9 $ 46.9
United States Taxes on Income -- 5.2 4.7 16.9
---------- ---------- ---------- ----------
Income from Discontinued Operations -- 9.3 8.2 30.0
Loss on Sale of Discontinued Operations, including
income from operations during the disposal
period of $10.0 (net of tax of $24.1) -- -- (42.9) --
---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS $ -- $ 9.3 (34.7) $ 30.0
========== ========== ========== ==========
INCOME (LOSS) PER SHARE - BASIC:
Income from Discontinued Operations $ -- $ .07 $ .05 $ .20
Loss on Sale of Discontinued Operations -- -- (.27) --
---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS $ -- $ .07 $ (.22) $ .20
========== ========== ========== ==========
INCOME (LOSS) PER SHARE - DILUTED:
Income from Discontinued Operations $ -- $ .06 $ .05 $ .19
Loss on Sale of Discontinued Operations -- -- (.27) --
---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS $ -- $ .06 $ (.22) $ .19
========== ========== ========== ==========
</TABLE>
ASSET WRITEDOWN AND OTHER RATIONALIZATIONS
- ------------------------------------------
In the second quarter of 1998 the Company recorded income of $29.7 million
resulting from favorable experience in implementation of the company's program
to exit the Formula 1 racing series, and the reversal of certain reserves
related to production rationalization in North America.
- 5 -
<PAGE> 7
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NON-CONSOLIDATED OPERATIONS - SOUTH PACIFIC TYRE
- ------------------------------------------------
In addition to its consolidated operations in the Asia region, the Company
also owns a 50% interest in South Pacific Tyres Ltd (SPT), a partnership with
Pacific Dunlop Ltd of Australia. SPT is the largest tire manufacturer, marketer
and exporter in Australia and New Zealand. The Company is required to use the
equity method to account for its interest in the results of operations and
financial position of SPT.
The following table presents sales and operating income of the Company's
consolidated Asian operations and 100% of the operations of SPT:
<TABLE>
<CAPTION>
(In millions) THREE MONTHS ENDED SEPT. 30 NINE MONTHS ENDED SEPT. 30
--------------------------- --------------------------
Asia Asia
Segment SPT Total Segment SPT Total
------- --- ----- ------- --- -----
<S> <C> <C> <C> <C> <C> <C>
NET SALES:
1998 $146.8 $147.0 $293.8 $426.0 $470.6 $ 896.6
1997 201.6 180.3 381.9 610.3 568.1 1,178.4
OPERATING INCOME:
1998 $ 18.1 $ 12.1 $ 30.2 $ 43.7 $ 35.1 $ 78.8
1997 21.6 12.7 34.3 71.9 47.8 119.7
</TABLE>
OTHER (INCOME) AND EXPENSE
- --------------------------
Other (income) and expense in 1998 included a first quarter gain of $61.1
million on the sale of the Company's Calhoun, Georgia latex processing facility.
The second quarter of 1998 included a charge of $17.4 million for the settlement
of several related lawsuits involving employment matters in Latin America. The
third quarter of 1998 included gains totaling $53.2 million resulting from the
disposition of five distribution facilities in North America and the sale of
certain other real estate.
SUPPLEMENTAL INFORMATION ABOUT NONCASH INVESTING ACTIVITIES
- -----------------------------------------------------------
In the third quarter of 1998 the Company acquired a majority ownership
interest in an Indian tire manufacturer and assumed $103 million of debt. In
1997 the Company acquired a majority ownership interest in a South African tire
and industrial rubber products business and assumed $29 million of debt.
Information in the Consolidated Statement of Cash Flows is presented net of
the effects of these transactions.
PER SHARE OF COMMON STOCK
- -------------------------
Basic per share amounts have been computed based on the average number of
common shares outstanding. Diluted per share amounts reflect the increase in
average common shares outstanding that would result from the assumed exercise of
outstanding stock options, computed using the treasury stock method.
ADJUSTMENTS
- -----------
All adjustments, consisting of normal recurring adjustments, necessary for
a fair statement of the results of these unaudited interim periods have been
included.
RECLASSIFICATION
- -----------------
Certain items previously reported in specific financial statement captions
have been reclassified to conform with the 1998 presentation.
- 6 -
<PAGE> 8
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
Unaudited
<TABLE>
<CAPTION>
(In millions) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INDUSTRY SEGMENTS
- -----------------
Sales to Unaffiliated Customers:
Tires $ 2,560.9 $ 2,616.9 $ 7,431.5 $ 7,729.3
Related products and services 219.2 232.4 710.6 701.2
---------- ---------- ---------- ----------
Total Tires 2,780.1 2,849.3 8,142.1 8,430.5
General products 411.6 449.4 1,281.1 1,366.8
---------- ---------- ---------- ----------
NET SALES $ 3,191.7 $ 3,298.7 $ 9,423.2 $ 9,797.3
========== ========== ========== ==========
Income:
Tires $ 281.4 $ 264.0 $ 831.3 $ 796.0
General products 39.1 54.7 202.3 159.5
---------- ---------- ---------- ----------
OPERATING INCOME 320.5 318.7 1,033.6 955.5
Exclusions from operating income (76.6) (59.6) (200.8) (195.6)
---------- ---------- ---------- ----------
Income from continuing operations $ 243.9 $ 259.1 $ 832.8 $ 759.9
========== ========== ========== ==========
before income taxes
GEOGRAPHIC SEGMENTS
- -------------------
Sales to Unaffiliated Customers:
United States $ 1,742.1 $ 1,774.1 $ 5,105.8 $ 5,156.6
Europe 802.5 750.5 2,303.9 2,320.3
Latin America 337.3 403.2 1,078.8 1,188.2
Asia 146.8 201.6 426.0 610.3
Canada 163.0 169.3 508.7 521.9
---------- ---------- ---------- ----------
NET SALES $ 3,191.7 $ 3,298.7 $ 9,423.2 $ 9,797.3
========== ========== ========== ==========
Operating Income:
United States $ 156.3 $ 154.7 $ 499.3 $ 404.1
Europe 78.1 62.4 276.6 233.7
Latin America 52.4 65.4 167.6 205.5
Asia 18.1 21.6 43.7 71.9
Canada 15.6 14.6 46.4 40.3
---------- ---------- ---------- ----------
OPERATING INCOME $ 320.5 $ 318.7 $ 1,033.6 $ 955.5
========== ========== ========== ==========
</TABLE>
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<PAGE> 9
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
CONSOLIDATED
- ------------
INCOME STATEMENT
- ----------------
(All per share amounts are diluted)
Sales in the third quarter of 1998 were $3.19 billion, decreasing 3.2% from
$3.30 billion in the 1997 quarter. Income from continuing operations in the 1998
quarter was $185.0 million or $1.17 per share, compared to $184.8 million or
$1.16 per share in the 1997 period.
In the nine months, sales of $9.42 billion decreased 3.8% from $9.80
billion in 1997. Income from continuing operations was $595.5 million or $3.75
per share, increasing 13.1% from $526.7 million or $3.33 per share in 1997.
Net income in the quarter of $185.0 million or $1.17 per share decreased
4.7% from $194.1 million or $1.22 per share in the 1997 quarter. Net income in
the nine months of $560.8 million or $3.53 per share increased slightly from
$556.7 million or $3.52 per share in the 1997 period. Net income reflected the
discontinued operations of the oil transportation segment, as discussed below.
Worldwide tire unit sales in the third quarter rose 2.5% from 1997's
levels. Domestic volume increased 2.4% and international unit sales increased
2.6% in the 1998 quarter. Replacement unit sales were 6.3% higher than in the
1997 quarter. Original equipment unit sales decreased due primarily to adverse
economic conditions in Latin America and Asia. Unit sales in the first nine
months of 1998 increased 1.7% from the 1997 period, with domestic units up 2.3%
and international units up 1.0%.
Revenues decreased in the quarter and nine months due primarily to the
strengthening of the U.S. dollar versus international currencies. The Company
estimates that versus 1997, currency movements adversely affected revenues in
1998 by approximately $110 million in the third quarter and $385 million in the
nine months. In addition, revenues decreased due to continued worldwide
competitive pricing pressures, lower tire unit sales in Latin America and Asia,
lower unit sales of other automotive and industrial rubber products and strikes
in the U.S. against General Motors.
- 8 -
<PAGE> 10
Operating income was also reduced by the adverse affect of currency
movements versus 1997. The Company estimates the impact to be approximately $15
million in the quarter and $50 million in the nine months. In addition, the
transition to seven-day operations at certain North American tire production
facilities and the strike against General Motors reduced operating income.
The following table presents cost of goods sold (CGS) and selling, general
and administrative expense (SAG) as a percent of sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CGS 77.4% 76.9% 76.3% 76.7%
SAG 14.8 14.1 14.7 14.2
</TABLE>
Cost of goods sold was favorably impacted in both 1998 periods by lower raw
material costs, the effects of ongoing cost containment measures and improved
productivity. CGS was adversely affected by costs associated with the transition
to seven-day operations, and a second quarter tire recall charge of $5.0 million
($3.3 million after tax or $.02 per share).
SAG decreased in the nine months, but was higher in the quarter due in part
to acquisitions and costs associated with software reengineering. SAG increased
as a percent to sales in both 1998 periods due primarily to lower revenues.
Asset writedown and other rationalizations in the 1998 nine months
increased income by $29.7 million ($19.6 million after tax or $.12 per share).
This resulted from favorable experience in implementation of the Company's
program to exit the Formula 1 racing series and the reversal of certain reserves
related to production rationalization in North America.
Interest expense rose in 1998 due primarily to higher debt levels incurred
to fund acquisitions and support increased working capital levels.
Other income and expense in 1998 included third quarter gains on
dispositions of real estate totaling $53.2 million ($32.0 million after tax or
$.20 per share). In addition, 1998 included a first quarter gain on an asset
sale totaling $61.1 million ($37.9 million after tax or $.24 per share). The
1998 second quarter included a charge of $17.4 million ($11.4 million after tax
or $.07 per share) for the settlement of several related lawsuits involving
employment matters in Latin America. For further discussion, refer to the note
to the financial statements, Other (Income) and Expense.
- 9 -
<PAGE> 11
U.S. and foreign taxes on income in 1998 reflected a reduction in the
Company's estimated annual effective tax rate to 27.6%, as the Company continued
to benefit from strategies which allowed it to manage global cash flows and
minimize tax expense.
On July 30, 1998 the Company completed the sale of substantially all of the
assets and liabilities of its oil transportation business segment. The loss on
the sale, net of income from operations during 1998, totaled $34.7 million after
tax or $.22 per share. This transaction has been accounted for as a sale of
discontinued operations, and accordingly, the accompanying financial information
has been restated where required. For further information, refer to the note to
the financial statements, Discontinued Operations.
YEAR 2000
- ---------
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer program
that has date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a temporary inability to
process transactions or engage in normal manufacturing or other business
activities.
The Company, on a coordinated basis and with the assistance of IBM and
other consultants, is addressing the Year 2000 Issue. The Company has
inventoried and assessed all date sensitive information and transaction
processing computer systems and determined that a substantial portion of its
software must be modified or replaced. Plans have been developed and are being
implemented to correct and test all affected systems, with priorities assigned
based on the importance of the activity. The Company has identified the software
and hardware installations that will be necessary. All installations are
expected to be completed and tested by November 1999. The Company has also
inventoried its critical manufacturing and other operating systems that may be
date sensitive, including those that use embedded technology such as
micro-controllers and micro-processors. The Company anticipates that these
systems will be updated or replaced as necessary and tested by November 1999.
Modifying and testing the Company's information and transaction processing
systems is estimated to cost $80 million to $100 million, including the $16
million expended in 1997 and the $30 million expended during the first nine
months of 1998. The remaining $34 million to $54 million will be spent during
the balance of 1998 and throughout 1999 as the Company completes the
installation and testing of new or modified hardware and software. In addition,
updating or replacing and testing the Company's date sensitive manufacturing and
operating systems is expected to cost between $25 million and $30 million. All
Year 2000 costs have been and will be funded from operations.
- 10 -
<PAGE> 12
The Company, with the assistance of PricewaterhouseCoopers LLP and other
consultants, has also been engaged for several years in various business process
reengineering projects. Hardware and software purchased and installed in
connection with these projects will provide both Year 2000 readiness and
significant additional functionality. Certain of these projects have been
accelerated to facilitate Year 2000 compliance. The Company estimates that prior
to January 1, 2000 it will have spent approximately $180 million to $225 million
for hardware, software and consulting costs incurred in connection with such
projects, of which $90 million has been expended through September 30, 1998.
Substantially all of the hardware and software costs have been and will be
capitalized.
The Company has initiated formal communications with its significant
suppliers to determine the extent to which the Company may be vulnerable to
their failure to correct their own Year 2000 issues. The Company has not
received enough responses to its survey to make an accurate assessment of the
Year 2000 readiness of its suppliers. Failure of the Company's significant
trading partners to address Year 2000 issues could have a material adverse
effect on the Company's operations, although it is not possible at this time to
quantify the amount of business that might be lost or the costs that could be
incurred by the Company.
In addition, parts of the global infrastructure, including national banking
systems, electrical power, transportation facilities, communications and
governmental activities, may not be fully functional after 1999. Infrastructure
failures could significantly reduce the Company's ability to manufacture its
products at affected locations and its ability to serve its customers as
effectively as they are now being served. The Company is identifying elements of
the infrastructure that are critical to its operations and obtaining information
as to their expected Year 2000 readiness.
The Company is starting its contingency planning for critical operational
areas that might be affected by the Year 2000 Issue if compliance by the Company
is delayed. In early 1999, the Company will review the extent to which
contingency plans may be required for any third parties that fail to achieve
Year 2000 compliance. All necessary contingency plans are expected to be
completed by the fall of 1999, although in certain cases, especially
infrastructure failures, there may be no practical alternative course of action
available to the Company.
While the Company believes its efforts to address the Year 2000 Issue will
be successful in avoiding any material adverse effect on the Company's
operations or financial condition, it recognizes that failing to resolve Year
2000 Issues on a timely basis would, in a "most reasonably likely worst case
scenario", significantly limit its ability to manufacture and distribute its
products and process its daily business transactions for a period
- 11 -
<PAGE> 13
of time, especially if such failure is coupled with third party or
infrastructure failures. Similarly, the Company could be significantly affected
by the failure of one or more significant suppliers, customers or components of
the infrastructure to conduct their respective operations after 1999. Adverse
affects on the Company could include, among other things, business disruption,
increased costs, loss of business and other similar risks.
The foregoing discussion regarding Year 2000 project timing, effectiveness,
implementation and costs are based on management's current evaluation using
available information. Factors that might cause material changes include, but
are not limited to, the availability of key Year 2000 personnel, the readiness
of third parties, and the Company's ability to respond to unforeseen Year 2000
complications.
THE EURO
- --------
Effective January 1, 1999 member states of the European Economic and
Monetary Union will convert to a common currency known as the Euro.
Modifications to certain of the Company's information systems software were
required in connection with this conversion. The Company has completed these
modifications at a nominal cost, and does not anticipate that the conversion to
the Euro will have any significant operational impact. Additionally, the Company
does not expect the conversion to the Euro to have a material impact on results
of operations, financial position or liquidity of its European businesses.
NEW ACCOUNTING STANDARDS
- ------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 requires all derivatives to be recognized as
either assets or liabilities on the balance sheet and be measured at fair value.
Changes in such fair value are required to be recognized in earnings to the
extent the derivatives are not effective as hedges. SFAS 133 is effective for
fiscal years beginning after June 15, 1999, and is effective for interim periods
in the initial year of adoption. At the present time the Company is studying the
financial statement impact of the adoption of SFAS 133.
- 12 -
<PAGE> 14
SEGMENT INFORMATION
- -------------------
Segment operating income in the third quarter of 1998 was $320.5 million,
increasing slightly from $318.7 million in the 1997 quarter. Segment operating
margin rose to 10.0% of sales from 9.7% in the 1997 period.
Segment income in the 1998 third quarter included $53.2 million of gains on
asset sales. Gains were recorded totaling $34.5 million on the sale of five
warehouses in North America, $9.6 million on the sale of land in Asia, $3.6
million on the sale of land in Latin America and $5.5 million on the sale of the
Company's former blimp base in Houston, Texas.
In the nine months, segment operating income was $1.03 billion, increasing
8.2% from $955.5 million in the 1997 period. Segment operating margin rose to
11.0% of sales from 9.8% in the 1997 period.
In addition to the previously mentioned third quarter gains on asset sales
in 1998, a gain of $61.1 million on the sale of the Calhoun, Georgia latex
processing facility was recorded in the first quarter of 1998. Segment income in
1998 was also increased by the second quarter reversal of $29.7 million of
accrued costs related to Formula 1 racing and production rationalization in
North America, but was reduced by a second quarter charge of $17.4 million
related to the settlement of the lawsuits in Latin America.
INDUSTRY SEGMENTS
- -----------------
TIRES
- -----
Sales in the third quarter of 1998 of $2.78 billion decreased 2.4% from
$2.85 billion in the 1997 period. In the nine months, sales of $8.14 billion
decreased 3.4% from $8.43 billion in 1997.
Revenues decreased in the quarter and nine months due primarily to the
strengthening of the U.S. dollar versus international currencies, worldwide
competitive pricing pressures and lower tire unit sales in Latin America and
Asia. In addition, strikes in the U.S. against General Motors adversely affected
revenues in the third quarter.
The following table presents changes in Company tire unit sales compared to
the 1997 period:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
--------------------- -----------------
<S> <C> <C>
U.S. 2.4% 2.3%
International 2.6 1.0
Worldwide 2.5 1.7
</TABLE>
- 13 -
<PAGE> 15
Third quarter unit sales in the mature markets of North America and Europe
were 6.1% higher than the 1997 period, increasing 9.8% in the replacement market
while decreasing 3.0% in the original equipment market. Third quarter
replacement unit sales in the emerging markets of Latin America and Asia
decreased 7.8% from the 1997 period, and original equipment unit sales were 28%
lower.
Tire segment operating income in the third quarter of 1998 was $281.4
million, increasing 6.6% from $264.0 million in the 1997 period. Operating
margin rose to 10.1% of sales from 9.3%.
In the nine months, operating income of $831.3 million increased 4.4% from
$796.0 million in 1997. Operating margin rose to 10.2% of sales from 9.4%.
Operating income in both periods benefited from lower raw material costs,
improved productivity and the effects of cost containment measures. Operating
income increased in the quarter due primarily to the inclusion of gains on asset
sales totaling $52.2 million. The 1998 nine months also included gains of $29.7
million from the reversal of accrued Formula 1 and rationalization costs.
Operating income in 1998 was reduced by the effects of currency translations,
the transition to seven-day operations at certain production facilities, the
consolidation of warehouse operations and software reengineering costs. In
addition, operating income in 1998 was reduced by $15.6 million of the charge
for the settlement of the employment lawsuits in Latin America, a $5.0 million
charge for the tire recall, and the impact of the strike against General Motors.
GENERAL PRODUCTS
- ----------------
Sales in the third quarter of 1998 of $411.6 million decreased 8.4% from
$449.4 million in the 1997 period. Operating income in the third quarter of 1998
was $39.1 million, decreasing 28.4% from $54.7 million in the 1997 period.
Operating margin decreased to 9.5% of sales from 12.2%. Operating income in the
1998 quarter included a gain of $1.0 million from asset sales.
In the nine months, sales of $1.28 billion decreased 6.3% from $1.37
billion in 1997. Operating income of $202.3 million increased 26.9% from $159.5
million in 1997. Operating margin rose to 15.8% of sales from 11.7%. The 1998
nine months included the gain of $61.1 million on the sale of the Calhoun,
Georgia latex processing facility and a $1.8 million charge for the Latin
American lawsuit settlement.
Sales and operating income also reflect the absence of both the Jackson,
Ohio automotive molded plastics plant, which was sold in the third quarter of
1997, and the Calhoun facility. Together these businesses accounted for sales of
$14.1 million and operating income of $1.4 million in the third quarter of 1997.
In the 1997 nine months, these businesses accounted for sales of $72.2 million
- 14 -
<PAGE> 16
and operating income of $7.8 million.
Revenues in engineered products decreased in the quarter and nine months
due primarily to adverse economic conditions in Latin America. Operating income
was lower in both 1998 periods due to lower sales volume and competitive pricing
conditions.
Sales in chemical products decreased in the quarter and nine months, and
operating income was lower in the quarter. Chemical results reflected reduced
unit volume and competitive pricing conditions. Operating income increased in
the nine months due to the gain on the sale of the Calhoun facility.
GEOGRAPHIC SEGMENTS
- -------------------
UNITED STATES
- -------------
Sales in the third quarter of 1998 of $1.74 billion decreased 1.8% from
$1.77 billion in the 1997 period. Operating income in the third quarter of 1998
was $156.3 million, increasing 1.0% from $154.7 million in the 1997 period.
Operating margin increased to 9.0% of sales from 8.7%.
In the nine months, sales of $5.11 billion decreased 1.0% from $5.16
billion in 1997. Operating income of $499.3 million increased 23.6% from $404.1
million in 1997. Operating margin rose to 9.8% of sales from 7.8%.
Operating income in 1998 included the first quarter gain of $61.1 million
on the sale of the Calhoun, Georgia latex processing facility, $7.7 million of
the second quarter gain related to the reversal of accrued costs related to
production rationalization, and third quarter gains from asset sales totaling
$40.0 million.
Tire unit sales increased in both 1998 periods. Revenues in the quarter and
nine months decreased and operating income was adversely affected by competitive
tire pricing pressures, reduced volume in chemical products, the strike against
General Motors and the absence of the Jackson and Calhoun facilities. Operating
income in both 1998 periods increased due to gains on asset sales. Operating
income in 1998 benefited from lower raw material costs, improved productivity,
and the effects of cost containment measures. Operating income in the 1998 nine
months was reduced by the previously mentioned charge for the tire recall, costs
associated with the transition to seven-day operations at certain production
facilities and the effects of the strike against General Motors.
- 15 -
<PAGE> 17
EUROPE
- ------
Sales in the third quarter of 1998 of $802.5 million increased 6.9% from
$750.5 million in the 1997 period. Operating income in the third quarter of 1998
was $78.1 million, increasing 25.2% from $62.4 million in the 1997 period.
Operating margin increased to 9.7% of sales from 8.3%.
In the nine months, sales of $2.30 billion decreased 0.7% from $2.32
billion in 1997. Operating income of $276.6 million increased 18.4% from $233.7
million in 1997. Operating margin rose to 12.0% of sales from 10.1%.
Revenues increased in the quarter due primarily to higher tire unit sales
resulting in part from acquisitions made in 1998. Revenues were adversely
affected in both 1998 periods by the effects of currency translation and
competitive pricing. Operating income in both periods reflected higher tire unit
volume, productivity improvements, lower raw material costs and the effects of
cost containment measures. Operating income included a $15.1 million second
quarter gain resulting from favorable experience in implementation of the
Company's program to exit the Formula 1 racing series.
LATIN AMERICA
- -------------
Sales in the third quarter of 1998 of $337.3 million decreased 16.3% from
$403.2 million in the 1997 period. Operating income in the third quarter of 1998
was $52.4 million, decreasing 20.0% from $65.4 million in the 1997 period.
Operating margin decreased to 15.5% of sales from 16.2%.
In the nine months, sales of $1.08 billion decreased 9.2% from $1.19
billion in 1997. Operating income of $167.6 million decreased 18.5% from $205.5
million in 1997. Operating margin decreased to 15.5% of sales from 17.3%.
Operating income in 1998 included the third quarter gain of $3.6 million on
the sale of real estate, the second quarter charge of $17.4 million for the
anticipated settlement of employment-related lawsuits, and a second quarter gain
of $2.8 million resulting from the Formula 1 exit program.
Sales and operating income decreased in both 1998 periods due to lower unit
sales of tires and engineered products, the effects of currency translations and
competitive pricing pressures. Sales and operating income in Latin America in
future periods are likely to be adversely affected by the expected continuing
unfavorable economic conditions in the region.
- 16 -
<PAGE> 18
ASIA
- ----
Sales in the third quarter of 1998 were $146.8 million, decreasing 27.1%
from $201.6 million in the 1997 period. Operating income in the third quarter of
1998 was $18.1 million, decreasing 16.0% from $21.6 million in the 1997 period.
Operating margin increased to 12.3% of sales from 10.7%. Operating income in the
1998 third quarter included a gain on the sale of real estate totaling $9.6
million.
In the nine months sales were $426.0 million, decreasing 30.2% from $610.3
million in 1997. Operating income was $43.7 million, decreasing 39.2% from $71.9
million in 1997. Operating margin decreased to 10.3% of sales from 11.8%.
Operating income in the 1998 second quarter included a gain of $2.8 million
resulting from the Formula 1 exit program.
Sales and operating income were adversely affected in both 1998 periods by
the effects of currency translation and lower tire unit sales resulting from the
severe economic downturn in the region and competitive pricing conditions. Sales
and operating income in Asia in future periods are likely to be adversely
affected by the expected continuing unfavorable economic conditions in the
region.
Sales and operating income of the Asia segment reflect the results of the
Company's majority-owned tire business and other operations in the region,
principally the engineered products and natural rubber businesses. In addition,
the Company owns a 50% interest in South Pacific Tyres Ltd. (SPT), the largest
tire manufacturer, marketer and exporter in Australia and New Zealand. Results
of operations of SPT are not reported in segment results, and are reflected in
the Company's consolidated statement of income using the equity method.
The following table presents the sales and operating income of the
Company's Asian segment together with 100% of the sales and operating income of
SPT:
<TABLE>
<CAPTION>
(In millions) Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
---- ---- ---- -----
Net Sales:
<S> <C> <C> <C> <C>
Asia Segment $ 146.8 $ 201.6 $ 426.0 $ 610.3
SPT 147.0 180.3 470.6 568.1
---------- ---------- ---------- ----------
Total $ 293.8 $ 381.9 $ 896.6 $ 1,178.4
Operating Income:
Asia Segment $ 18.1 $ 21.6 $ 43.7 $ 71.9
SPT 12.1 12.7 35.1 47.8
---------- ---------- ---------- ----------
Total $ 30.2 $ 34.3 $ 78.8 $ 119.7
</TABLE>
- 17 -
<PAGE> 19
CANADA
- ------
Sales in the third quarter of 1998 were $163.0 million, decreasing 3.8%
from $169.3 million in the 1997 period. Operating income of $15.6 million in the
third quarter of 1998 increased 7.2% from $14.6 million in the 1997 period.
Operating margin increased to 9.6% of sales from 8.6%.
In the nine months, sales of $508.7 million decreased 2.5% from $521.9
million in 1997. Operating income was $46.4 million, increasing 15.2% from $40.3
million in 1997. Operating margin increased to 9.1% of sales from 7.7%.
Sales decreased in the quarter and nine months due primarily to the effects
of currency translations. Operating income increased in both 1998 periods due to
higher tire unit sales, lower raw material costs, the effects of ongoing cost
containment measures and a second quarter gain of $1.3 million resulting from
the lower than expected costs of the Formula 1 exit program.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash used in operating activities was $310.4 million during the first
nine months of 1998, as reported on the Consolidated Statement of Cash Flows.
Working capital requirements increased for accounts receivable, inventories and
payables.
Net cash used in investing activities was $286.4 million during the first
nine months of 1998. Capital expenditures were $490.6 million, primarily for
plant modernizations and expansions and new tire molds.
<TABLE>
<CAPTION>
(In millions) Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Capital Expenditures $ 199.9 $ 146.9 $ 490.6 $ 377.6
Depreciation 121.4 114.8 351.8 343.6
</TABLE>
Other investing activities in 1998 included the acquisition of a majority
interest in tire manufacturers in Slovenia, India and Japan and a tire and
engineered products manufacturing and distribution business in South Africa. In
addition, investing activities in 1998 included the divestitures of the oil
transportation segment, the Calhoun, Georgia latex processing facility,
distribution facilities in North America and other miscellaneous real estate.
The decrease in minority equity in subsidiaries on the Consolidated Balance
Sheet was due primarily to the Company's program to increase ownership in
certain subsidiaries. The decrease in property, plant and equipment and other
assets on the
- 18 -
<PAGE> 20
Consolidated Balance Sheet was due primarily to the sale of the net assets of
the oil transportation segment.
Net cash provided by financing activities was $503.0 million during the
first nine months of 1998, which was used primarily to support the previously
mentioned working capital requirements.
<TABLE>
<CAPTION>
(Dollars in millions) 9/30/98 12/31/97 9/30/97
-------- -------- --------
<S> <C> <C> <C>
Consolidated Debt $2,169.1 $1,351.2 $1,457.2
Debt/Debt+Equity 37.2% 28.5% 29.2%
</TABLE>
During the first quarter of 1998, the Company issued domestic long term
fixed rate debt totaling $250 million. In addition, the consolidation of the
Indian subsidiary increased debt by approximately $103 million.
During the first nine months of 1998, 1,500,000 shares of the Company's
Common Stock were repurchased by the Company at an average cost of $56.82 per
share.
Substantial short term and long term credit sources are available to the
Company globally under normal commercial practices. At September 30, 1998 the
Company had short term uncommitted credit arrangements totaling $1.7 billion, of
which $.6 billion were unused. The Company also had available long term credit
arrangements at September 30, 1998 totaling $2.1 billion, of which $1.0 billion
were unused.
In July 1998, the Company's revolving credit facility agreements,
consisting of a $900 million three year revolving credit facility and a $300
million 364-day revolving credit facility, were extended and reduced to a total
facility of $1.0 billion. Each of the facility agreements are with 24 domestic
and international banks. Effective July 13, 1998, the $900 million facility,
which would have matured on July 14, 2001, was reduced to $700 million and
extended to provide that the Company may borrow at any time until July 13, 2003,
when the commitment terminates and any outstanding loans mature. No other terms
of the facility were changed. The Company pays currently a commitment fee of 10
basis points on the entire amount of the commitment and would pay a usage fee of
20 basis points on amounts borrowed. The $300 million 364-day credit facility
agreement was extended to permit the Company to borrow until July 12, 1999, on
which date the facility commitment terminates, except as it may be extended on a
bank by bank basis. If a bank does not extend its commitment if requested to do
so, the Company may obtain from such bank a two year term loan up to the amount
of such bank's commitment. The Company pays currently a commitment fee of 8
basis points on the entire amount of the commitment and would pay a usage fee of
22 basis points on amounts borrowed. There were no borrowings outstanding under
these agreements at September 30, 1998.
- 19 -
<PAGE> 21
Funds generated by operations, together with funds available under existing
credit arrangements, are expected to exceed the Company's currently anticipated
funding requirements.
The Company utilizes financial instruments in managing interest rate and
currency exchange risks. Refer to the section entitled 'Quantitative and
Qualitative Disclosures About Market Risk'.
FORWARD-LOOKING INFORMATION - SAFE HARBOR STATEMENT
---------------------------------------------------
Certain information set forth herein (other than historical data and
information) may constitute forward-looking statements regarding events and
trends which may affect the Company's future operating results and financial
position. The words "estimate," "expect," "intend" and "project," as well as
other words or expressions of similar meaning, are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of this quarterly
report. Such statements are based on current expectations, are inherently
uncertain, are subject to risks and should be viewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including: changes in economic conditions in the
various markets served by the Company's operations; increased competitive
activity; fluctuations in the prices paid for raw materials and energy; changes
in the monetary policies of various countries where the Company has significant
operations; and other unanticipated events and conditions. It is not possible to
foresee or identify all such factors. The Company makes no commitment to update
any forward-looking statement, or to disclose any facts, events or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.
- 20 -
<PAGE> 22
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
INTEREST RATE RISK
- ------------------
The Company actively manages its fixed and floating rate debt mix, within
defined limitations, using refinancings and unleveraged interest rate swaps. The
Company enters into fixed and floating interest rate swaps to alter its exposure
to the impact of changing interest rates on consolidated results of operations
and future cash outflows for interest. At September 30, 1998 the interest rate
on 50% of the Company's debt was fixed by either the nature of the obligation or
through such interest rate contracts. At September 30, 1998, the fair value of
the Company's interest rate contracts amounted to a liability of $2.8 million,
compared to their carrying amount of a $.1 million liability. The Company
estimates that a 10% decrease in variable market interest rates at September 30,
1998 would have changed the fair value of outstanding contracts to a $4.1
million liability at that date.
Information about interest rate contracts in place at September 30, 1998
and related weighted average interest rates follow:
(Dollars in millions) Fixed Rate
Contracts
---------
- Notional principal amount $100.0
- Pay fixed rate 6.17%
- Receive variable LIBOR 5.73
- Average years to maturity 2.4
Three Months Ended Nine Months Ended
Sept. 30, 1998 Sept. 30, 1998
------------------- ----------------
Average rate paid 6.17% 6.47%
Average rate received 5.74 5.76
A fixed rate contract with notional principal amount of $50 million matured
in the first quarter of 1998.
At September 30, 1998 the fair value of the Company's fixed rate debt
amounted to a liability of $888.2 million, compared to its carrying amount of
$831.6 million. The Company estimates that a 100 basis point decrease in market
interest rates at September 30, 1998 would have changed the fair value of the
Company's fixed rate debt to a liability of $947.0 million at that date.
The sensitivity to changes in interest rates of the Company's fixed rate
debt and interest rate contracts was determined with a valuation model based
upon net modified duration analysis.
- 21 -
<PAGE> 23
FOREIGN CURRENCY RISK
- ---------------------
In order to reduce the impact of changes in foreign exchange rates on
consolidated results of operations and future foreign currency denominated cash
flows, the Company was a party to various forward exchange contracts at
September 30, 1998. These contracts reduce exposure to currency movements
affecting existing foreign currency denominated assets, liabilities and firm
commitments. The contract maturities match the maturities of the currency
positions. The Company estimates that a 10% change in foreign exchange rates at
September 30, 1998 would have changed the combined fair value of the contracts
by $3.2 million at that date. Changes in the fair value of forward exchange
contracts are substantially offset by changes in the fair value of the hedged
positions.
Information about foreign currency contracts in place at September 30, 1998
follows:
<TABLE>
<CAPTION>
Fair Value Contract Amount
---------- ---------------
<S> <C> <C>
Buy currency:
Swiss franc $229.0 $151.0
U.S. dollar 75.2 75.0
All other 35.2 34.9
------ ------
$339.4 $260.9
Contract maturity:
Swiss franc 10/00- 3/06
All other 10/98- 2/99
Sell currency:
Belgian franc $156.8 $151.5
French franc 70.9 70.6
Canadian dollar 36.2 35.9
Netherlands guilder 10.6 10.6
Swedish krona 11.6 11.7
All other 21.1 21.0
------ -------
$307.2 $301.3
Contract maturity: 10/98- 6/99
</TABLE>
The sensitivity to changes in exchange rates of the Company's foreign
currency positions was determined using current market pricing models.
- 22 -
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
Reference is made to the Annual Report of The Goodyear Tire & Rubber
Company (the "Company") on Form 10-K for the year ended December 31, 1997 (the
"Annual Report"), wherein at Item 3, pages 13, 14, and 15, the Company reported
certain legal proceedings, and to the Quarterly Report of the Company on Form
10-Q for the quarter ended June 30, 1998 (the "Second Quarter Report"), wherein
at Item 1 of Part II, page 20, the Company reported certain developments
regarding the legal proceedings described at paragraphs (A) and (E) of Item 3 of
the Annual Report. The Company reports the following developments in respect of
the legal proceedings described at paragraph (B) of Item 3 of the Annual Report.
On June 7, 1990, a civil action, Teresa Boggs, et al. v. Divested
Atomic Corporation, et al., was filed in the United States District Court for
the Southern District of Ohio by Teresa Boggs and certain other named
plaintiffs on behalf of themselves and a class comprised of certain other
persons who reside near the Portsmouth Uranium Enrichment Complex, a facility
owned by the United States Government as a part of the Department of Energy
("DOE") and located in Pike County, Ohio (the "Portsmouth DOE Plant"), against
Divested Atomic Corporation ("DAC", a wholly-owned subsidiary of the Company),
the Company and others. The plaintiffs allege that the past and present
operators of the Portsmouth DOE Plant (which includes Goodyear Atomic
Corporation, the corporate predecessor of DAC) contaminated certain nearby
areas with radioactive and other hazardous materials causing property damage
and emotional distress. The plaintiffs claim $300 million in compensatory
damages, $300 million in punitive damages and unspecified amounts for medical
monitoring and cleanup costs. In 1997, the trial court decertified the class
and on March 31, 1998, the trial court overruled the plaintiffs' "Renewed
Motions for Class Certification." Accordingly, the case is no longer a class
action. On June 8, 1998, a new civil action, Adkins, et al. v. Divested Atomic
Corporation, et al. (Case No. C2 98-595), was filed in the United States
District Court for the Southern District of Ohio, Eastern Division, on behalf
of approximately 276 persons who currently reside, or in the past resided, near
the Portsmouth DOE Plant against DAC, the Company and Martin Marietta Energy
Systems (presently known as Lockheed Martin Energy Systems, Inc. ("LMES")). The
plaintiffs allege, on behalf of themselves and a putative class of all persons
who were residents, property owners or lessees of property subject to windborne
particulates and water run off from the Portsmouth DOE Plant, that DAC (and,
therefore, the Company) and LMES in their operation of the Portsmouth DOE Plant
(i) negligently contaminated, and are strictly liable for contaminating, the
plaintiffs and their property with allegedly toxic substances, (ii) have in the
past maintained, and are continuing to maintain, a private nuisance, (iii) have
committed and continue to commit trespass, and (iv) violated the Comprehensive
Environmental Response, Compensation and Liability Act of 1980. The plaintiffs
are seeking $30 million in actual damages, $300 of punitive damages, costs,
expenses, attorney's fees and other unspecified legal and equitable remedies.
- 23 -
<PAGE> 25
ITEM 5. OTHER INFORMATION
- ------- -----------------
As reported in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, on March 21, 1998, Wingfoot Ventures Seven, Inc.,
a wholly-owned subsidiary of the Company ("WVS"), entered into a Stock Purchase
Agreement, dated as of March 15, 1998, with Plains Resources, Inc. and Plains
All American, Inc., whereunder WVS agreed to sell all of the capital stock of
All American Pipeline Company ("AAPL"), Celeron Gathering Corporation ("CGC")
and Celeron Trading & Transportation Company ("CT&T") to Plains All American,
Inc. The sale was subject to receipt of certain regulatory approvals. AAPL,
CGC and CT&T (the "Celeron Companies") engage in oil transportation and related
activities and, prior to the sale, owned the assets, and conducted
substantially all of the activities, of the Company's Oil Transportation
business segment.
On July 30, 1998, the sale of the Celeron Companies was completed. WVS
received cash proceeds from the sale aggregating approximately $422.3 million,
including the distribution of $25.1 million to WVS prior to the closing. In the
first quarter of 1998, the Company recorded a $34.7 million after tax loss in
connection with the sale transaction. During 1998, the Company has reported the
Celeron Companies as discontinued operations and discontinued its Oil
Transportation business segment. See "Discontinued Operations" in the Notes to
the Financial Statements set forth at page 5 of this Quarterly Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------- ---------------------------------
(a) EXHIBITS. See the Index of Exhibits at page E-1, which is by
specific reference incorporated into and made a part of this Quarterly Report on
Form 10-Q.
(b) REPORTS ON FORM 8-K. No Current Report on Form 8-K was filed by The
Goodyear Tire & Rubber Company during the quarter ended September 30, 1998.
S I G N A T U R E S
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.
THE GOODYEAR TIRE & RUBBER COMPANY
(Registrant)
Date: October 22, 1998 By /s/John W. Richardson
------------------------------------
John W. Richardson, Vice President
(Signing on behalf of Registrant as a
duly authorized officer of Registrant
and signing as the Principal
Accounting Officer of Registrant.)
- 24 -
<PAGE> 26
THE GOODYEAR TIRE & RUBBER COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX OF EXHIBITS (1)
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
------- -------
TABLE ITEM NO. * Description of Exhibit NUMBER PAGE
- --------------------- ----------------------------------------------- ------ ----
<S> <C> <C> <C>
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Certificate of Amended Articles of
Incorporation of Registrant, dated December 20,
1954, and Certificate of Amendment to Amended
Articles of Incorporation of Registrant, dated
April 6, 1993, and Certificate of Amendment to
Amended Articles of Incorporation of Registrant
dated June 4, 1996, three documents comprising
Registrant's Articles of Incorporation as
amended (incorporated by reference, filed with
the Securities and Exchange Commission as
Exhibit 3.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1996).
(b) Code of Regulations of The Goodyear Tire &
Rubber Company, adopted November 22, 1955, as
amended April 5, 1965, April 7, 1980, April 6,
1981 and April 13, 1987 (incorporated by
reference, filed as Exhibit 4.1(B) to
Registrant's Registration Statement on Form
S-3, File No. 333-1995).
4 INSTRUMENTS DEFINING
THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
-----------------------------------------------
(a) Conformed copy of Rights Agreement, dated
as of June 4, 1996, between Registrant and
First Chicago Trust Company of New York, rights
Agent (incorporated by reference, filed with
the Securities and Exchange Commission as
Exhibit 1 to Registrant's Registration
Statement on Form 8-A dated June 11, 1996 and
as Exhibit 4(a) to Registrant's Current Report
on Form 8-K dated June 4, 1996, File No.
1-1927).
</TABLE>
- ----------
*Pursuant to Item 601 of Regulation S-K.
E-1
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
------- -------
TABLE ITEM NO. * Description of Exhibit NUMBER PAGE
- --------------------- ----------------------------------------------- ------ ----
<S> <C> <C> <C>
4 (b) Specimen nondenominational Certificate for
shares of the Common Stock, Without Par Value,
of Registrant; First Chicago Trust Company of
New York as transfer agent and registrar
(incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit
4.3 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996,
File No. 1-1927).
(c) Conformed copy of Revolving Credit Facility
Agreement, dated as of July 15, 1994, among
Registrant, the Lenders named therein and
Chemical Bank, as Agent (incorporated by
reference, filed with the Securities and
Exchange Commission as Exhibit A to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994, File No.
1-1927).
(d) Conformed copy of Replacement and
Restatement Agreement, dated as of July 15,
1996, among Registrant, the Lenders named
therein and The Chase Manhattan Bank (formerly
Chemical Bank), as Agent (incorporated by
reference, filed with the Securities and
Exchange Commission as Exhibit 4.5 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, File 1-1927).
(e) Conformed copy of First Amendment to
Replacement and Restatement Agreement, dated as
of March 31, 1997, among Registrant, the
Lenders named therein and The Chase Manhattan
Bank (formerly Chemical Bank), as Agent
(incorporated by reference, filed as Exhibit
4.5 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, File
1-1927).
(f) Conformed copy of Second Replacement and 4 X-4-1
Restatement Agreement, dated as of July 13,
1998, among Registrant, the Lenders named
therein and The Chase Manhattan Bank, as Agent.
</TABLE>
- ----------
*Pursuant to Item 601 of Regulation S-K.
E-2
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
------- -------
TABLE ITEM NO. * Description of Exhibit NUMBER PAGE
- --------------------- ----------------------------------------------- ------ ----
<S> <C> <C> <C>
4 (g) Form of Indenture, dated as of March 15,
1996, between Registrant and Chemical Bank (now
The Chase Manhattan Bank), as Trustee, as
supplemented on December 3, 1996, March 11,
1998 and March 17, 1998 (incorporated by
reference, filed with the Securities and
Exchange Commission as Exhibit 4.1 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, File 1-1927).
No instrument defining the rights of holders of
long-term debt which relates to securities
having an aggregate principal amount in excess
of 10% of the consolidated assets of Registrant
and its subsidiaries was entered into during
the quarter ended September 30, 1998. In
accordance with paragraph (iii) to Part 4 of
Item 601 of Regulation S-K, agreements and
instruments defining the rights of holders of
certain items of long term debt entered into
during the quarter ended September 30, 1998
which relate to securities having an aggregate
principal amount less than 10% of the
consolidated assets of Registrant and its
Subsidiaries are not filed herewith. The
Registrant hereby agrees to furnish a copy of
any such agreements or instruments to the
Securities and Exchange Commission upon
request.
12 STATEMENT RE COMPUTATION
OF RATIOS
Statement setting forth the computation of 12 X-12-1
Ratio of Earnings to Fixed Charges.
27 FINANCIAL DATA SCHEDULE
Financial Data Schedule (for quarter ended 27 X-27-1
September 30, 1998).
</TABLE>
- ----------
*Pursuant to Item 601 of Regulation S-K.
E-3
<PAGE> 1
EXHIBIT 4
EXECUTION COPY
SECOND REPLACEMENT AND RESTATEMENT AGREEMENT,
dated as of July 13, 1998, among THE GOODYEAR TIRE &
RUBBER COMPANY, an Ohio corporation (the "Borrower"),
the undersigned lenders (the "Lenders") and THE CHASE
MANHATTAN BANK, a New York banking corporation, as
agent for the Lenders (in such capacity, the
"Agent").
WHEREAS, the parties hereto desire to replace and restate the
Revolving Credit Facility Agreement, dated as of July 15, 1994, among the
Borrower, the Lenders named therein and the Agent, as replaced and restated by
the Replacement and Restatement Agreement, dated July 15, 1996, as amended,
among the Borrower, the Lenders named therein and the Agent (the "Agreement") on
the terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the premises and
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree, on the terms and subject to the
conditions set forth herein, as follows:
1. Subject to the conditions set forth in Section 7, the
Agreement, including all schedules and exhibits thereto, is hereby replaced and
restated as of the date hereof in the form of a new agreement (the "New
Agreement") identical to the Agreement except as expressly provided herein, and
all rights and obligations of the Borrower, the Lenders and the Agent under the
Agreement (including accrued Fees) shall continue as rights and obligations of
such parties under the New Agreement, modified as expressly provided herein.
2. The New Agreement shall be dated as of July 13, 1998 (which
shall constitute the "date hereof" in respect of the New Agreement); the date
"July 15, 2001" in the definition of the term "Maturity Date" in Section 1.01 of
the Agreement is hereby deleted and replaced by inserting the date "July 13,
2003" in lieu thereof.
3. The definitions of "Facility Fee Percentage" and "Leverage
Ratio" in Section 1.01 of the Agreement are hereby reaffirmed to read as
follows:
""FACILITY FEE PERCENTAGE" shall mean, as at the date as of
which any determination in respect thereof is being or to be made, the
applicable percentage set forth below based upon the Leverage Ratio as
of the last day of the relevant fiscal quarter:
X-4-7
<PAGE> 2
2
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------ -----------------------------------------------
Leverage Ratio Facility Fee Percentage
-------------- -----------------------
------------------------------------------------ -----------------------------------------------
less than or equal to 25% 0.0750%
------------------------------------------------ -----------------------------------------------
greater than 25% but less than or equal to 40% 0.1000%
------------------------------------------------ -----------------------------------------------
greater than 40% but less than or equal to 55% 0.1250%
------------------------------------------------ -----------------------------------------------
greater than 55% 0.1500%
------------------------------------------------ -----------------------------------------------
</TABLE>
The Leverage Ratio shall be determined at the end of each calendar
quarter of Borrower and shall be effective in respect of the entire
next succeeding calendar quarter of Borrower. The Borrower shall
deliver a certificate setting forth the calculation of the leverage
ratio with respect to the end of each calendar quarter within 60 days
after the end of such calendar quarter."
""LEVERAGE RATIO" shall mean, as at the end of any fiscal
quarter in respect of which a determination thereof is being or to be
made, the quotient (expressed as a percentage) of (a) the sum of (i)
"notes payable to banks and overdrafts", plus (ii) "long term debt due
within one year", plus (iii) "long term debt and capital leases" (as
each such item is reported on the Consolidated balance sheet of the
Borrower and the Subsidiaries as at the end of such fiscal quarter),
plus (iv) the net proceeds from the sale of domestic accounts
receivable outstanding at the end of such fiscal quarter (determined in
a manner consistent with that used in preparing the Borrower's 1993
Annual Report on Form 10-K), DIVIDED BY (b) the sum of (i) Consolidated
Net Worth (without giving effect to the exclusion contained in clause
(ii) of the definition of the term "Consolidated Net Worth" and without
giving effect to the $499.3 million after-tax writedown of the
Borrower's Oil Transportation Segment assets in December of 1996), plus
(ii) the sum obtained pursuant to clause (a) above."
4. The table in the definition of "Spread" in Section 1.01 of
the Agreement is hereby reaffirmed to read as follows:
X-4-2
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------ -----------------------------------------------
"Leverage Ratio Spread
--------------- ------
------------------------------------------------ -----------------------------------------------
less than or equal to 25% 0.1500%
------------------------------------------------ -----------------------------------------------
greater than 25% but less than or equal to 40%
0.2000%
------------------------------------------------ -----------------------------------------------
greater than 40% but less than or equal to 55%
0.2500%
------------------------------------------------ -----------------------------------------------
greater than 55% 0.3000%"
------------------------------------------------ -----------------------------------------------
</TABLE>
5. Schedule 2.01 to the Agreement is hereby deleted and
replaced by Schedule 2.01 hereto.
6. The representations and warranties set forth in Article III
of the Agreement shall be deemed to have been repeated in the New Agreement on
and as of the date hereof, with all references therein to "this Agreement" being
deemed to refer to the New Agreement, which is the Agreement as modified by this
Second Replacement and Restatement Agreement.
7. The New Agreement shall become effective, as of the date
hereof, only upon the satisfaction of the following conditions:
(a) The Agent shall have received an opinion of counsel for
the Borrower, dated the date hereof, in the form attached as Exhibit B
to the Agreement, but with all references therein being to the New
Agreement.
(b) The Agent shall have received evidence reasonably
satisfactory to it of the Borrower's corporate power and authority to
enter into the New Agreement.
(c) The Agent shall have received counterparts of this Second
Replacement and Restatement Agreement executed on behalf of the
Borrower and each Lender.
8. This Second Replacement and Restatement Agreement may be
executed in two or more counterparts, any one of which need not contain the
signatures of more than one party, but all which taken together will constitute
one and the same agreement.
X-4-3
<PAGE> 4
9. THIS SECOND REPLACEMENT AND RESTATEMENT AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders
have caused this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
THE GOODYEAR TIRE & RUBBER COMPANY,
by
/s/Richard W. Hauman
-----------------------------------
Name: Richard W. Hauman
Title: Vice President and
Treasurer
THE CHASE MANHATTAN BANK,
individually and as Agent,
by
/s/ Julie S. Long
----------------------------------
Name: Julie S. Long
Title: Vice President
BANK OF AMERICA NT&SA, COMMERZBANK AG,
by by
/s/ Lynn W. Stetson /s/ Arne Jahn/William Binder
---------------------------------- ----------------------------------
Name: Lynn W. Stetson Name: Arne Jahn
Title: Managing Director Title: Assistant Treasurer
Name: William Binder
BANQUE NATIONALE DE PARIS, Title: Vice President
by THE SUMITOMO BANK LTD.,
/s/ Arnaud Collin du Bocage
-----------------------------------
Name: Arnaud Collin du Bocage by
Title: Executive Vice President /s/ Kazuyoshi Ogawa
& General Mgr. -----------------------------------
Name: Kazuyoshi Ogawa
Title: Joint General Manager
CIBC INC., FIRST NATIONAL BANK OF CHICAGO,
by by
/s/Stephanie E. Devane /s/ William J. McGaffrey
----------------------------------- ----------------------------------
Name: Stephanie E. Devane Name: William J. McGaffrey
Title: Executive Director Title: Vice President
CIBC Oppenheimer Corp.,
As Agent
X-4-4
<PAGE> 5
BANK OF TOKYO-MITSUBISHI, Trust THE INDUSTRIAL BANK OF JAPAN LTD.,
Company
by
by /s/ Walter R. Wolff
----------------------------------------
/s/ Friedrich N. Wilms Name: Walter R. Wolff
-----------------------------
Name: Friedrich N. Wilms Title: Joint General Manager
Title: Vice President
CITICORP USA, INC., NATIONSBANK, NA,
by by
/s/ Robert D. Wetrus /s/ Philip S. Durand
---------------------------- ---------------------------------------
Name: Robert D. Wetrus Name: Philip S. Durand
Title: Citicorp USA, Inc. Title: Vice President
Attorney-in-Fact
CREDIT SUISSE FIRST BOSTON, ROYAL BANK OF CANADA,
by by
/s/ David W. Kratovil /s/ Raymond S. Chang
---------------------------- --------------------------------------
Name: David W. Kratovil Name: Raymond S. Chang
Title: Director Title: Vice President
/s/ Chris T. Horgan SANWA BANK LTD.,
----------------------------
Name: Chris T. Horgan
Title: Vice President by
/s/ Kenneth C. Eichwald
----------------------------------------
CREDIT LYONNAIS, Name: Kenneth C. Eichwald
Title: First Vice President and
by Assistant General
/s/ Kent S. Davis Manager
----------------------------
Name: Kent S. Davis
Title: Vice President
DEUTSCHE BANK AG, NEW YORK BRANCH SOCIETE GENERALE,
AND/OR CAYMAN ISLAND BRANCH,
by
by /s/ Eric Bellaiche
---------------------------------------
/s/ Hans-Josef Thiele Name: Eric Bellaiche
----------------------------
Name: Hans-Josef Thiele Title: Director
Title: Director
/s/ Stephan A. Wiedemann
----------------------------
Name: Stephan A. Wiedemann
Title: Director
X-4-5
<PAGE> 6
ABN AMRO BANK, N.V., NORTHERN TRUST COMPANY,
by by
/s/ John M. Ellenwood/ /s/ Tracy J. Toulouse
------------------------------ ----------------------------------
David H. Hannah Name: Tracy J. Toulouse
-------------------------------
Name: John M. Ellenwood Title: Vice President
Title: Group Vice President
Name: David H. Hannah KEY BANK NATIONAL ASSOCIATION,
Title: Group Vice President
by
BARCLAYS BANK PLC, /s/ Daniel W. Lally
-----------------------------------
Name: Daniel W. Lally
by Title: Assistant Vice President
/s/ L. Peter Yetman
---------------------------------
Name: L. Peter Yetman
Title: Associate Director
THE DAI-ICHI KANGYO BANK LTD.,
by
/s/ Yunao Hiaita
---------------------------------
Name: Yunao Hiaita
Title: Vice President
DRESDNER BANK LUXEMBOURG S.A.,
by
/s/ K. Diederich
---------------------------------
Name: K. Diederich
Title: Manager Global Finance
/s/ M.C. Brunkhorst
---------------------------------
Name: M.C. Brunkhorst
Title: Officer Global Finance
NATIONAL CITY BANK,
by
/s/ Jeffrey C. Douglas
---------------------------------
Name: Jeffrey C. Douglas
Title: Vice President
X-4-6
<PAGE> 7
SCHEDULE 2.01
FIVE-YEAR FACILITY
<TABLE>
<CAPTION>
Contact Person
and Telephone
Name and Address and Telecopy Numbers Commitment
- ---------------- -------------------- ----------
of Lender
- ---------
<S> <C> <C>
The Chase Manhattan Bank David W. Fox $63,000,000
270 Park Avenue Tel: (212) 270-4449
New York, NY 10017 Fax: (212) 270-1340
Bank of America Illinois Lynn Stetson $28,000,000
231 South LaSalle Street Tel: (312) 828-6757
Chicago, IL 60697 Fax: (312) 987-0303
Banque Nationale de Paris Frederick Moryl $43,400,000
Rookery Bldg, 5th Floor Tel: (312) 977-2211
209 South LaSalle Street Fax: (312) 977-1380
Chicago, IL 60604
CIBC Inc. Stephanie E. DeVane $43,400,000
425 Lexington Avenue Tel: (212) 856-3727
New York, NY 10017 Fax: (212) 856-3991
Commerzbank AG Arne Jahn $43,400,000
311 South Wacker Drive Tel: (312) 408-6935
Suite 5800 Fax: (312) 435-1486
Chicago, IL 60606
The Sumitomo Bank Ltd. Robert Wehner $43,400,000
U.S. Corporate Department Tel: (212) 224-4122
277 Park Avenue Fax: (212) 593-9522
6th Floor
New York, NY 10172
First National Bank Paul Demelo $43,400,000
of Chicago Tel: (313) 225-2520
611 Woodward Avenue Fax: (313) 225-1212
Detroit, MI 48226
Bank of Tokyo-Mitsubishi Friedrich N. Wilms $28,000,000
1251 Avenue of the Tel: (212) 782-4341
Americas, 12th Floor Fax: (212) 782-6445
New York, NY 10020-1104
Citicorp USA, Inc. Brian Ike $28,000,000
399 Park Avenue Tel: (212) 559-7205
New York, NY 10043 Fax: (212) 826-2375
Credit Suisse First David Kratovil $28,000,000
Boston Tel: (212) 325-9155
11 Madison Avenue Fax: (212) 325-8309
20th Floor
New York, NY 10010-3629
</TABLE>
X-4-7
<PAGE> 8
<TABLE>
<CAPTION>
Contact Person
and Telephone
Name and Address and Telecopy Numbers Commitment
- ---------------- -------------------- ----------
of Lender
- ---------
<S> <C> <C>
Credit Lyonnais Kent Davis $28,000,000
227 W. Monroe Street Tel: (312) 220-7303
Suite 3800 Fax: (312) 641-0527
Chicago, IL 60606
Deutsche Bank AG, Hans-Josef Thiele $28,000,000
New York Branch and/or Tel: (212) 469-8649
Cayman Island Branch Fax: (212) 469-8212
31 West 52nd Street
New York, NY 10019
The Industrial Bank Steven Ryan $28,000,000
of Japan Ltd. Tel: (312) 855-6251
227 W. Monroe Street Fax: (312) 855-8200
Chicago, IL 60606
NationsBank, NA Jay Johnston $28,000,000
NC 1007-08-04 Tel: (704) 386-8335
100 N. Tryon Street Fax: (704) 386-1270
Charlotte, NC 28255-0086
Royal Bank of Canada Monica Stettler $28,000,000
Corporate Banking Tel: (312) 551-1629
One North Franklin Street Fax: (312) 551-0805
Suite 700
Chicago, IL 60606
Sanwa Bank Ltd. Kenneth Eichwald $17,500,000
10 South Wacker Drive Tel: (312) 368-3006
31st Floor Fax: (312) 346-6677
Chicago, IL 60606
Societe Generale Eric Bellaiche $28,000,000
181 W. Madison Street Tel: (312) 578-5015
Suite 3400 Fax: (312) 578-5099
Chicago, IL 60602
ABN AMRO Bank, N.V. John Ellenwood $17,500,000
135 South LaSalle Street Tel: (312) 904-2735
Suite 425 Fax: (312) 606-8425
Chicago, IL 60603
Barclays Bank Plc Peter Yetmen $17,500,000
222 Broadway, 10th Floor Tel: (212) 412-7683
New York, NY 10038 Fax: (212) 412-7590
The Dai-Ichi Kangyo Norman Fedder $17,500,000
Bank Ltd. Tel: (312) 715-6363
10 South Wacker Drive Fax: (312) 876-2011
26th Floor
Chicago, IL 60606
</TABLE>
X-4-8
<PAGE> 9
<TABLE>
<CAPTION>
Contact Person
and Telephone
Name and Address and Telecopy Numbers Commitment
- ---------------- -------------------- ----------
of Lender
- ---------
<S> <C> <C>
Dresdner Bank Klaus Diederich $17,500,000
Luxembourg S.A. Tel: 011-352-4760-447
26, rue du Marche'-aux- Fax: 011-352-4760-824
Herbes
L-2097 Luxembourg
Luxembourg
National City Bank Jeff Douglas $17,500,000
1900 East Ninth St. Tel: (216) 575-2836
Cleveland, OH 44114-3484 Fax: (216) 575-9396
Northern Trust Company Nicole Kidder $17,500,000
50 South LaSalle Street Tel: (312) 557-8205
Chicago, IL 60675 Fax: (312) 444-5055
Key Bank National Association Roderick MacDonald $17,500,000
127 Public Square Tel: (216) 689-4445
011-01-27-0606 Fax: (216) 689-4981
Cleveland, OH 44114-1306
Total $700,000,000
============
</TABLE>
X-4-9
<PAGE> 1
EXHIBIT 12
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
9 MONTHS TWELVE MONTHS ENDED
ENDED DECEMBER 31,
---------------------------------------------------------
9/30/98 1997 1996 1995 1994 1993
------- ---- ---- ---- ---- ----
EARNINGS
- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT $ 832.8 $ 743.3 $ 811.5 $ 869.8 $ 855.9 $ 797.4
OF ACCOUNTING CHANGES
Add:
Amortization of previously capitalized interest 8.1 11.0 11.6 11.7 10.2 10.1
Minority interest in net income of
consolidated subsidiaries with fixed charges 27.2 45.1 45.9 30.1 16.9 19.0
Proportionate share of fixed charges of investees
accounted for by the equity method 4.0 6.5 5.1 5.3 2.5 2.3
Proportionate share of net loss of investees
accounted for by the equity method 0.5 0.1 2.7 0.5 0.2 0.3
--------- --------- --------- --------- --------- ---------
Total additions 39.8 62.7 65.3 47.6 29.8 31.7
Deduct:
Capitalized interest 3.4 6.2 5.4 5.1 5.7 5.0
Minority interest in net loss of consolidated subsidiaries 2.2 3.6 4.4 3.3 0.3 0.3
Undistributed proportionate share of net income
of investees accounted for by the equity method -- -- -- 0.2 7.2 4.0
--------- --------- --------- --------- --------- ---------
Total deductions 5.6 9.8 9.8 8.6 13.2 9.3
TOTAL EARNINGS $ 867.0 $ 796.2 $ 867.0 $ 908.8 $ 872.5 $ 819.8
========= ========= ========= ========= ========= =========
FIXED CHARGES
- -------------
Interest expense $ 105.7 $ 119.5 $ 128.6 $ 135.0 $ 129.4 $ 162.4
Capitalized interest 3.4 6.2 5.4 5.1 5.7 5.0
Amortization of debt discount, premium or expense 5.3 0.1 0.3 0.4 0.7 0.4
Interest portion of rental expense 47.4 63.3 69.5 77.0 83.0 83.7
Proportionate share of fixed charges of investees
accounted for by the equity method 4.0 6.5 5.1 5.3 2.5 2.3
--------- --------- --------- --------- --------- ---------
TOTAL FIXED CHARGES $ 165.8 $ 195.6 $ 208.9 $ 222.8 $ 221.3 $ 253.8
========= ========= ========= ========= ========= =========
TOTAL EARNINGS BEFORE FIXED CHARGES $ 1,032.8 $ 991.8 $ 1,075.9 $ 1,131.6 $ 1,093.8 $ 1,073.6
========= ========= ========= ========= ========= =========
RATIO OF EARNINGS TO FIXED CHARGES 6.23 5.07 5.15 5.08 4.94 4.23
</TABLE>
The years 1993-1997 have been restated to reflect the sale of the net
assets of the oil transportation segment, which was accounted for as
discontinued operations.
X-12-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Ths schedule contains summary financial information for The Goodyear Tire &
Rubber Company and Susidairies extracted from the Consolidated Statement of
Income and Retained Earnings and the Consolidated Balance Sheet and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 158
<SECURITIES> 0
<RECEIVABLES> 2,162
<ALLOWANCES> 56
<INVENTORY> 2,218
<CURRENT-ASSETS> 4,900
<PP&E> 9,372
<DEPRECIATION> 5,314
<TOTAL-ASSETS> 10,679
<CURRENT-LIABILITIES> 3,389
<BONDS> 1,280
0
0
<COMMON> 156
<OTHER-SE> 3,513
<TOTAL-LIABILITY-AND-EQUITY> 10,679
<SALES> 9,423
<TOTAL-REVENUES> 9,423
<CGS> 7,194
<TOTAL-COSTS> 7,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> 833
<INCOME-TAX> 273
<INCOME-CONTINUING> 596
<DISCONTINUED> (35)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 561
<EPS-PRIMARY> 3.58
<EPS-DILUTED> 3.53
</TABLE>
