<PAGE> 1
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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 JUNE 30, 1998
COMMISSION FILE NUMBER: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
(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 June 30, 1998: 157,008,971
==============================================================================
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 3,137.5 $ 3,289.9 $ 6,231.5 $ 6,498.6
Cost of Goods Sold 2,392.7 2,524.6 4,723.9 4,977.7
Selling, Administrative and General Expense 451.9 462.4 910.9 928.7
Asset Writedown and Other Rationalizations (29.7) -- (29.7) --
Interest Expense 34.0 32.5 64.3 63.5
Other (Income) and Expense 25.8 3.3 (28.2) 10.9
Foreign Currency Exchange (9.2) (3.1) (14.5) (6.2)
Minority Interest in Net Income of Subsidiaries 7.1 11.7 15.9 23.2
----------- ----------- ----------- -----------
Income from Continuing Operations before Income Taxes 264.9 258.5 588.9 500.8
United States and Foreign Taxes on Income 65.9 76.8 178.4 158.9
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 199.0 181.7 410.5 341.9
Discontinued Operations -- 10.5 (34.7) 20.7
----------- ----------- ----------- -----------
NET INCOME $ 199.0 $ 192.2 375.8 362.6
=========== ===========
Retained Earnings at Beginning of Period 2,983.4 2,603.0
CASH DIVIDENDS (94.2) (87.6)
----------- -----------
Retained Earnings at End of Period $ 3,265.0 $ 2,878.0
=========== ===========
PER SHARE OF COMMON STOCK - BASIC:
INCOME FROM CONTINUING OPERATIONS $ 1.26 $ 1.17 $ 2.61 $ 2.19
Discontinued Operations -- 0.06 (0.22) 0.13
----------- ----------- ----------- -----------
NET INCOME $ 1.26 $ 1.23 $ 2.39 $ 2.32
=========== =========== =========== ===========
Average Shares Outstanding 157.2 155.8 157.0 156.1
PER SHARE OF COMMON STOCK - DILUTED:
INCOME FROM CONTINUING OPERATIONS $ 1.25 $ 1.16 $ 2.58 $ 2.17
Discontinued Operations -- 0.06 (0.22) 0.13
----------- ----------- ----------- -----------
NET INCOME $ 1.25 $ 1.22 $ 2.36 $ 2.30
=========== =========== =========== ===========
Average Shares Outstanding 159.3 157.7 159.2 157.9
CASH DIVIDENDS PER SHARE $ 0.30 $ 0.28 $ 0.60 $ 0.56
=========== =========== =========== ===========
</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>
JUNE 30, DECEMBER 31,
1998 1997
--------- --------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 182.8 $ 258.6
Accounts and notes receivable,
less allowance (1998-$56.3, 1997-$49.5) 1,872.9 1,733.6
Inventories:
Raw materials 392.3 307.0
Work in process 80.5 87.1
Finished product 1,691.0 1,441.1
----------- ----------
2,163.8 1,835.2
Prepaid expenses and other current assets 394.1 336.5
Net assets held for sale 393.7 --
----------- ----------
TOTAL CURRENT ASSETS 5,007.3 4,163.9
Long Term Accounts and Notes Receivable 179.1 201.9
Investments in Affiliates, at equity 107.5 124.6
Other Assets 61.8 134.1
Deferred Charges 1,164.9 1,143.2
Properties and Plants,
less accumulated depreciation (1998-$5,096.8, 1997-$5,084.3) 3,793.3 4,149.7
----------- ----------
TOTAL ASSETS $ 10,313.9 $ 9,917.4
=========== ==========
LIABILITIES:
CURRENT LIABILITIES:
Accounts payable - trade $ 999.6 $ 1,177.8
Compensation and benefits 745.4 782.7
Other current liabilities 368.2 421.8
United States and foreign taxes 331.5 362.0
Notes payable to banks 1,019.9 440.2
Long term debt due within one year 6.2 66.5
----------- ----------
TOTAL CURRENT LIABILITIES 3,470.8 3,251.0
Compensation and Benefits 1,942.7 1,945.7
Long Term Debt 949.1 844.5
Other Long Term Liabilities 187.6 224.5
Minority Equity in Subsidiaries 186.4 256.2
----------- ----------
TOTAL LIABILITIES 6,736.6 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 157.0 (156.6 in 1997)
after deducting 38.7 treasury shares (39.1 in 1997) 157.0 156.6
Capital Surplus 1,067.8 1,061.6
Retained Earnings 3,265.0 2,983.4
Accumulated Other Comprehensive Income (912.5) (806.1)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 3,577.3 3,395.5
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,313.9 $ 9,917.4
=========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
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<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 375.8
Foreign currency translation (105.0)
Minimum pension liability (1.4)
Total comprehensive income 269.4
Cash dividends (94.2) (94.2)
Common stock acquired (0.3) (22.2) (22.5)
Common stock issued 0.7 28.4 29.1
------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $ 157.0 $ 1,067.8 $ 3,265.0 $ (883.0) $ (29.5) $ 3,577.3
========================================================================
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET INCOME $ 199.0 $ 192.2 $ 375.8 $ 362.6
Other comprehensive income, net of tax:
Foreign currency translation adjustment (90.0) (19.1) (105.0) (37.8)
Minimum pension liability adjustment 0.3 0.6 (1.4) 1.9
--------------------- ---------------------
COMPREHENSIVE INCOME $ 109.3 $ 173.7 $ 269.4 $ 326.7
===================== =====================
</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) SIX MONTHS ENDED
JUNE 30,
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 375.8 $ 362.6
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation 230.4 228.8
Discontinued operations 49.5 --
Asset sales (61.1) --
Accounts and notes receivable (203.3) (279.4)
Inventories (380.7) (72.6)
Accounts payable-trade (116.1) (32.5)
Other assets and liabilities (221.8) 41.8
--------- ---------
Total adjustments (703.1) (113.9)
--------- ---------
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES (327.3) 248.7
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (290.7) (230.7)
Asset sales 73.5 --
Asset acquisitions (61.9) (85.0)
Other transactions (26.3) (14.3)
--------- ---------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (305.4) (330.0)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term debt incurred 502.2 343.5
Short term debt paid (56.9) (70.5)
Long term debt incurred 320.6 7.7
Long term debt paid (115.5) (72.8)
Common stock issued 29.1 52.3
Common stock acquired (22.5) (78.4)
Dividends paid (94.2) (87.6)
--------- ---------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 562.8 94.2
Effect of Exchange Rate Changes on Cash and Cash Equivalents (5.9) (10.7)
--------- ---------
Net Change in Cash and Cash Equivalents (75.8) 2.2
Cash and Cash Equivalents at Beginning of the Period 258.6 238.5
--------- ---------
Cash and Cash Equivalents at End of the Period $ 182.8 $ 240.7
========= =========
</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 March 21, 1998 the Company reached an agreement to sell 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 are expected to be $422.2 million, which includes distributions to the
Company prior to closing of approximately $25.1 million. The proceeds are
subject to adjustment as provided in the Stock Purchase Agreement. The sale is
expected to be completed in the third quarter of 1998. The principal assets of
the Oil Transportation segment include 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. The net assets held for sale are reported on the Consolidated Balance
Sheet at net realizable value less estimated costs of disposal.
Operating results and the loss on sale of discontinued operations follow:
<TABLE>
<CAPTION>
(In millions, except per share) THREE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- -------- --------- -------------
<S> <C> <C> <C> <C>
NET SALES $ -- $ 25.6 $ 22.4 $ 50.1
========== ========= ========= =============
Income before Income Taxes $ -- $ 16.5 $ 12.9 $ 32.4
United States Taxes on Income -- 6.0 4.7 11.7
---------- --------- --------- -------------
Income from Discontinued Operations -- 10.5 8.2 20.7
Loss on Sale of Discontinued Operations, including
estimated income from operations during the
disposal period of $10.0 (net of tax of $24.1) -- -- (42.9) --
---------- --------- --------- -------------
DISCONTINUED OPERATIONS $ -- $ 10.5 $ (34.7) $ 20.7
========== ========= ========= =============
INCOME (LOSS) PER SHARE - BASIC:
Income from Discontinued Operations $ -- $ .06 $ .05 $ .13
Loss on Sale of Discontinued Operations -- -- (.27) --
---------- --------- --------- -------------
DISCONTINUED OPERATIONS $ -- $ .06 $ (.22) $ .13
========== ========= ========= =============
INCOME (LOSS) PER SHARE - DILUTED:
Income from Discontinued Operations $ -- $ .06 $ .05 $ .13
Loss on Sale of Discontinued Operations -- -- (.27) --
---------- --------- --------- -------------
DISCONTINUED OPERATIONS $ -- $ .06 $ (.22) $ .13
========== ========= ========= =============
</TABLE>
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<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 JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ---------------------------
Asia Asia
Segment SPT Total Segment SPT Total
------- --- ----- ------- --- -----
<S> <C> <C> <C> <C> <C> <C>
NET SALES:
1998 $141.7 $162.1 $303.8 $279.2 $323.6 $602.8
1997 209.4 204.2 413.6 408.7 387.8 796.5
OPERATING INCOME:
1998 $ 15.9 $ 13.8 $ 29.7 $ 25.6 $ 23.0 $ 48.6
1997 22.8 20.3 43.1 50.3 35.1 85.4
</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.
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.
SUPPLEMENTAL INFORMATION ABOUT NONCASH INVESTING ACTIVITIES
In 1997 the Company acquired a 60% equity interest in a South African tire
and industrial rubber products business, and assumed $29 million of debt. The
remaining shares of the South African business were acquired for cash in 1998.
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INDUSTRY SEGMENTS
Sales to Unaffiliated Customers:
Tires $ 2,421.8 $ 2,570.9 $ 4,870.6 $ 5,112.4
Related products and services 281.5 258.2 491.4 468.8
---------- ---------- ---------- ----------
Total Tires 2,703.3 2,829.1 5,362.0 5,581.2
General products 434.2 460.8 869.5 917.4
---------- ---------- ---------- ----------
NET SALES $ 3,137.5 $ 3,289.9 $ 6,231.5 $ 6,498.6
========== ========== ========== ==========
Income:
Tires $ 270.7 $ 265.1 $ 549.9 $ 532.0
General products 53.3 58.5 163.2 104.8
---------- ---------- ---------- ----------
OPERATING INCOME 324.0 323.6 713.1 636.8
Exclusions from operating income (59.1) (65.1) (124.2) (136.0)
---------- ---------- ---------- ----------
Income from continuing operations $ 264.9 $ 258.5 $ 588.9 $ 500.8
========== ========== ========== ==========
before income taxes
GEOGRAPHIC SEGMENTS
Sales to Unaffiliated Customers:
United States $ 1,694.3 $ 1,694.8 $ 3,363.7 $ 3,382.5
Europe 767.8 805.3 1,501.4 1,569.8
Latin America 365.8 401.9 741.5 785.0
Asia 141.7 209.4 279.2 408.7
Canada 167.9 178.5 345.7 352.6
---------- ---------- ---------- ----------
NET SALES $ 3,137.5 $ 3,289.9 $ 6,231.5 $ 6,498.6
========== ========== ========== ==========
Operating Income:
United States $ 135.9 $ 123.0 $ 343.0 $ 249.4
Europe 108.4 91.7 198.5 171.3
Latin America 46.7 71.8 115.2 140.1
Asia 15.9 22.8 25.6 50.3
Canada 17.1 14.3 30.8 25.7
---------- ---------- ---------- ----------
OPERATING INCOME $ 324.0 $ 323.6 $ 713.1 $ 636.8
========== ========== ========== ==========
</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
- ------------
Sales in the second quarter of 1998 were $3.14 billion, decreasing 4.6%
from $3.29 billion in the 1997 quarter. Net income in the second quarter of 1998
was $199.0 million or $1.25 per share-diluted, increasing 3.5% from net income
in the 1997 quarter of $192.2 million or $1.22 per share-diluted. Basic net
income per share was $1.26 and $1.23 in the 1998 and 1997 periods, respectively.
Unless otherwise indicated, all per share amounts in this discussion refer to
diluted earnings per share.
In the six months, sales of $6.23 billion decreased 4.1% from $6.50 billion
in 1997. Net income of $375.8 million ($2.36 per share) increased 3.6% from net
income of $362.6 million ($2.30 per share) in the 1997 period.
Worldwide tire unit sales in the second quarter rose 1.7% from 1997's
levels. Domestic volume increased 2.4% and international unit sales increased
1.0%. In the mature markets of North America and Europe, replacement unit sales
increased by 6.6% while original equipment volume decreased 2.8%. In the
emerging markets of Latin America and Asia, replacement unit sales increased 1%
and original equipment volume decreased 20.6 %. Unit sales in the first six
months of 1998 increased 1.2 % from the 1997 period. Revenues decreased due
primarily to the strengthening of the U.S. dollar versus currencies in Europe,
Latin America and Asia, the impact of which is estimated by the Company to be
$120 million and $245 million in the second quarter and six months,
respectively. In addition, continued worldwide competitive pricing pressures,
lower tire unit sales in Asia and lower unit sales of other automotive and
industrial rubber products reduced revenues. Strikes in the U.S. against General
Motors reduced revenues in the 1998 quarter. Revenues in future periods will be
adversely affected as long as the strike continues, although the extent of
revenue loss cannot be estimated at this time.
The following table presents cost of goods sold (CGS) and selling, general
and administrative expense (SAG) as a percent of sales:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
CGS 76.3% 76.7% 75.8% 76.6%
SAG 14.4 14.1 14.6 14.3
-8-
<PAGE> 10
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. Cost of goods sold was adversely affected in the second quarter by
a tire recall charge of $5.0 million ($3.3 million after tax or $.02 per share).
In addition, the Company estimates that the transition to seven-day operations
at certain North American and European tire production facilities and the strike
against General Motors reduced operating income in the 1998 quarter by
approximately $25 million. The Company also estimates that the impact of
changing exchange rates in Europe, latin America and Asia reduced operating
income in the quarter and six months by $20 million and $35 million,
respectively.
Selling, administrative and general expense decreased in both 1998 periods
due primarily to the effects of the Company's ongoing cost containment measures,
but increased as a percent to sales due to lower revenues.
Asset writedown and other rationalizations in the second quarter of 1998
included income of $29.7 million ($19.6 million after tax or $.12 per share)
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.
Other income and expense in 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. The 1998
first quarter included a gain on the sale of the Calhoun, Georgia latex
processing facility totaling $61.1 million ($37.9 million after tax or $.24 per
share).
Net income in the second quarter of 1998 benefited from a reduction in the
Company's estimated annual effective tax rate resulting from lower U.S. taxes on
foreign source income.
On March 21, 1998 the Company reached an agreement to sell substantially
all of the assets and liabilities of its oil transportation business segment.
The net loss on the expected sale, including net income from operations during
1998, totaled $34.7 million 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.
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 at
fair value as either assets or liabilities on the balance sheet. Any gain or
loss resulting from changes in such fair value is required to be
-9-
<PAGE> 11
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. The
Company has not yet determined the effect, if any, of the adoption of SFAS 133
on results of operations, financial position or liquidity.
SEGMENT INFORMATION
- -------------------
Segment operating income in the second quarter of 1998 was $324.0 million,
compared to $323.6 million in the 1997 quarter. Segment operating margin rose to
10.3% of sales from 9.8% in the 1997 period.
In the six months, segment operating income was $713.1 million, increasing
12.0% from $636.8 million in the 1997 period. Segment operating margin rose to
11.4% of sales from 9.8% in the 1997 period.
Segment results in 1998 included the first quarter gain of $61.1 million on
the sale of the Calhoun, Georgia latex processing facility, the second quarter
gain resulting from the reversal of $29.7 million of accrued costs related to
Formula 1 racing and production rationalization in North America, and a second
quarter charge of $17.4 million related to the settlement of the lawsuits in
Latin America.
INDUSTRY SEGMENTS
- -----------------
TIRES
- -----
Sales in the second quarter of 1998 of $2.70 billion decreased 4.4% from
$2.83 billion in the 1997 period. In the six months, sales of $5.36 billion
decreased 3.9% from $5.58 billion in 1997.
Revenues decreased in the quarter and six months despite higher unit sales
in North America and Europe. Revenues were adversely impacted by the
strengthening of the U.S. dollar versus currencies in Europe, Latin America and
Asia, 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 second quarter.
The following table presents changes in Company tire unit sales compared to
the 1997 period:
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
U.S. 2.4% 2.3%
International 1.0 0.2
Worldwide 1.7 1.2
Tire segment operating income in the second quarter of 1998 was $270.7
million, increasing 2.1% from $265.1 million in the 1997 period. Operating
margin rose to 10.0% of sales from 9.4%.
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<PAGE> 12
In the six months, operating income of $549.9 million increased 3.4% from
$532.0 million in 1997. Operating margin rose to 10.3% of sales from 9.5%.
Operating income in both periods benefited from lower raw material costs,
improved productivity and the effects of cost containment measures. Operating
income in the second quarter of 1998 increased due primarily to the inclusion of
an aggregate gain of $14.1 million resulting from the $29.7 million gain on the
reversal of accrued Formula 1 and rationalization costs and $15.6 million of the
charge for the settlement of the employment lawsuits in Latin America. Operating
income in 1998 was reduced by unrecovered costs associated with North American
rationalizations and modernizations incurred to be cost competitive, including
the transition to seven-day operations at certain production facilities and the
consolidation of warehouse operations. In addition, operating income in the 1998
quarter was reduced by a $5.0 million charge for the tire recall, and the impact
of the strike against General Motors.
GENERAL PRODUCTS
- ----------------
Sales in the second quarter of 1998 of $434.2 million decreased 5.8% from
$460.8 million in the 1997 period. Operating income in the second quarter of
1998 was $53.3 million, decreasing 8.9% from $58.5 million in the 1997 period.
Operating margin decreased to 12.3% of sales from 12.7%. Operating income in the
second quarter included a $1.8 million charge for the lawsuit settlement.
In the six months, sales of $869.5 million decreased 5.2% from $917.4
million in 1997. Operating income of $163.2 million increased 55.7% from $104.8
million in 1997. Operating margin rose to 18.8% of sales from 11.4%. The 1998
six months included the gain of $61.1 million on the sale of the Calhoun,
Georgia latex processing facility.
Sales and operating income reflect the absence of 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 and
operating income of $30.8 million and $4.2 million, respectively, in the second
quarter of 1997 and $58.5 million and $6.4 million, respectively, in the 1997
six months.
Revenues in engineered products decreased in the quarter and six months due
primarily to lower sales of certain automotive and industrial rubber products
and the sale of the Jackson, Ohio automotive molded plastics plant in the third
quarter of 1997. Operating income increased in the six months due to improved
margins resulting from increased volume in North America and the effects of cost
containment measures, but was lower in the second quarter due to lower worldwide
sales volume.
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<PAGE> 13
Sales and operating income in chemical products decreased in the quarter
and sales were lower in the six months, reflecting reduced unit volume and lower
selling prices. Operating income increased in the six months due to the gain on
the sale of the Calhoun facility.
GEOGRAPHIC SEGMENTS
- -------------------
UNITED STATES
- -------------
Sales in the second quarter of 1998 and 1997 were $1.69 billion. Operating
income in the second quarter of 1998 was $135.9 million, increasing 10.5% from
$123.0 million in the 1997 period. Operating margin increased to 8.0% of sales
from 7.3%.
In the six months, sales of $3.36 billion decreased slightly from $3.38
billion in 1997. Operating income of $343.0 million increased 37.5% from $249.4
million in 1997. Operating margin rose to 10.2% of sales from 7.4%.
Operating income in 1998 included the first quarter gain of $61.1 million
on the sale of the Calhoun, Georgia latex processing facility and the second
quarter gain of $7.7 related to the reversal of accrued costs related to
production rationalization.
Tire unit sales increased in both 1998 periods. Revenues in the quarter and
six months were flat as a result of 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 increased in both 1998
periods, reflecting lower raw material costs, improved productivity, and the
effects of cost containment measures. Operating income in the 1998 second
quarter was reduced by the previously mentioned costs for the tire recall and in
the six months by costs associated with the transition to seven-day operations
at certain production facilities.
EUROPE
- ------
Sales in the second quarter of 1998 of $767.8 million decreased 4.7% from
$805.3 million in the 1997 period. Operating income in the second quarter of
1998 was $108.4 million, increasing 18.2% from $91.7 million in the 1997 period.
Operating margin increased to 14.1% of sales from 11.4%.
In the six months, sales of $1.50 billion decreased 4.4% from $1.57 billion
in 1997. Operating income of $198.5 million increased 15.9% from $171.3 million
in 1997. Operating margin rose to 13.2% of sales from 10.9%.
Sales decreased in both 1998 periods due to the effects of currency
translation and competitive pricing, although tire unit
-12-
<PAGE> 14
sales were higher. Operating income in both periods reflected improved mix,
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 the settlement of Formula 1 obligations on terms more
favorable than anticipated.
LATIN AMERICA
- -------------
Sales in the second quarter of 1998 of $365.8 million decreased 9.0% from
$401.9 million in the 1997 period. Operating income in the second quarter of
1998 was $46.7 million, decreasing 35.0% from $71.8 million in the 1997 period.
Operating margin decreased to 12.8% of sales from 17.9%.
In the six months, sales of $741.5 million decreased 5.5% from $785.0
million in 1997. Operating income was $115.2 million, compared to $140.1 million
in 1997. Operating margin decreased to 15.5% of sales from 17.8%.
Operating income included the previously mentioned second quarter charge of
$17.4 million for the anticipated settlement of employment-related lawsuits and
a gain of $2.8 million resulting from the favorable settlement of Formula 1
obligations.
Tire unit volume was higher in the six months, but sales and operating
income decreased in both periods due to the effects of currency translations,
competitive pricing pressures and lower sales of engineered products.
ASIA
- ----
Sales in the second quarter of 1998 were $141.7 million, compared to $209.4
million in the 1997 period. Operating income in the second quarter of 1998 was
$15.9 million, compared to $22.8 million in the 1997 period.
Operating margin increased to 11.2% of sales from 10.9%.
In the six months, sales were $279.2 million, compared to $408.7 million in
1997. Operating income was $25.6 million, compared to $50.3 million in 1997.
Operating margin decreased to 9.2% of sales from 12.3%.
Sales and operating income decreased in both periods due primarily to the
effects of currency translation and lower tire unit sales resulting from the
economic downturn and competitive pricing conditions. Operating income in the
quarter included a gain of $2.8 million resulting from the favorable settlement
of Formula 1 obligations. Sales and operating income in Asia in future periods
are likely to be adversely affected by 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
-13-
<PAGE> 15
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:
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Net Sales:
Asia Segment $141.7 $209.4 $279.2 $408.7
SPT 162.1 204.2 323.6 387.8
------ ------ ------ ------
Total $303.8 $413.6 $602.8 $796.5
Operating Income:
Asia Segment $ 15.9 $ 22.8 $ 25.6 $ 50.3
SPT 13.8 20.3 23.0 35.1
------ ------ ------ ------
Total $ 29.7 $ 43.1 $ 48.6 $ 85.4
CANADA
- ------
Sales in the second quarter of 1998 were $167.9 million, decreasing 6.0%
from $178.5 million in the 1997 period. Operating income in the second quarter
of 1998 was $17.1 million, compared to $14.3 million in the 1997 period.
Operating margin increased to 10.3% of sales from 8.0%.
In the six months, sales of $345.7 million decreased 2.0% from $352.6
million in 1997. Operating income was $30.8 million, increasing 19.7% from $25.7
million in 1997. Operating margin increased to 8.9% of sales from 7.3%.
Sales decreased in the quarter and six months due primarily to lower sales
of tires and engineered products resulting from the strike against General
Motors and the effects of currency translations. Operating income increased in
both 1998 periods due to lower raw material costs, the effects of ongoing cost
containment measures and a second quarter gain of $1.3 million resulting from
the favorable settlement of Formula 1 obligations.
-14-
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash used in operating activities was $327.3 million during the first
six 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 $305.4 million during the first
six months of 1998. Capital expenditures were $290.7 million, primarily for
plant modernizations and expansions and new tire molds.
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Capital Expenditures $172.4 $136.3 $290.7 $230.7
Depreciation 116.1 117.0 230.4 228.8
Other investing activities included the Company's acquisition of the
remaining minority shares of the tire and engineered products manufacturing and
distribution subsidiary in South Africa and the sale of the Calhoun, Georgia
latex processing facility. The decrease in minority equity in subsidiaries on
the Consolidated Balance Sheet was due primarily to the South Africa stock
acquisition. The decrease in property, plant and equipment and Other assets on
the Consolidated Balance Sheet was due primarily to the reclassification of the
net assets of the oil transportation segment to Net assets held for sale.
Net cash provided by financing activities was $562.8 million during the
first six months of 1998, which was used primarily to support the previously
mentioned working capital requirements.
(Dollars in millions) 6/30/98 12/31/97 6/30/97
------- -------- -------
Consolidated Debt $1,975.1 $1,351.2 $1,614.7
Debt/Debt+Equity 35.6% 28.5% 31.6%
During the first quarter of 1998, the Company issued domestic long term
fixed rate debt totaling $250 million. During the second quarter of 1998,
345,000 shares of the Company's Common Stock were repurchased by the Company at
an average cost of $65.35 per share.
Substantial short term and long term credit sources are available to the
Company globally under normal commercial practices. At June 30, 1998 the Company
had short term uncommitted credit arrangements totaling $1.6 billion, of which
$.6 billion were unused. The Company also had available long term credit
arrangements at June 30, 1998 totaling $2.2 billion, of which $1.2 billion were
unused.
-15-
<PAGE> 17
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 three year revolving
credit facility agreement was extended to five years and reduced to $700 million
and provides 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 June 30, 1998.
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'.
-16-
<PAGE> 18
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.
-17-
<PAGE> 19
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 June 30, 1998 the interest rate on 51%
of the Company's debt was fixed by either the nature of the obligation or
through such interest rate contracts. At June 30, 1998, the fair value of the
Company's interest rate contracts amounted to a liability of $.7 million,
compared to their carrying amount of a $.1 million liability. The Company
estimates that a 10% decrease in variable market interest rates at June 30, 1998
would have changed the fair value of outstanding contracts to a $2.1 million
liability at that date.
Information about interest rate contracts in place at June 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 5.74
- Average years to maturity 2.6
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------ ---------------
Average rate paid 6.17% 6.62%
Average rate received 5.76 5.77
A fixed rate contract with notional principal amount of $50 million matured
in the first quarter of 1998.
At June 30, 1998 the fair value of the Company's fixed rate debt amounted
to a liability of $837.9 million, compared to its carrying amount of $809.3
million. The Company estimates that a 100 basis point decrease in market
interest rates at June 30, 1998 would have changed the fair value of the
Company's fixed rate debt to a liability of $894.0 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.
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 June 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
-18-
<PAGE> 20
of the currency positions. The Company estimates that a 10% change in foreign
exchange rates at June 30, 1998 would have changed the combined fair value of
the contracts by $14.6 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 June 30, 1998
follows:
Fair Value Contract Amount
---------- ---------------
Buy currency:
Swiss franc $208.4 $151.0
U.S. dollar 76.8 75.1
French franc 72.8 71.8
German mark 49.9 49.8
All other 9.6 9.2
------ ------
$417.5 $356.9
Contract maturity:
Swiss franc 10/00- 3/06
All other 7/98-12/98
Sell currency:
Belgian franc $184.8 $187.3
French franc 124.6 124.3
German mark 59.1 62.8
British pound 12.7 12.5
Netherlands guilder 11.3 11.3
All other 18.1 18.6
------ ------
$410.6 $416.8
Contract maturity: 7/98- 6/99
The sensitivity to changes in exchange rates of the Company's foreign
currency positions was determined using current market pricing models.
-19-
<PAGE> 21
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. The Company reports the following developments in
respect of two of the legal proceedings described at Item 3 of the Annual
Report.
(A) As reported at paragraph (A) of Item 3 of the Annual Report, since
1990 a series of 65 civil actions have been filed against the Company in the
United States District Court for the District of Maryland relating to the
development of lung disease, cancer and other diseases by former employees of
The Kelly-Springfield Tire Company ("Kelly"), then a subsidiary of the Company,
alleged to be the result of exposure to allegedly toxic substances while working
at the Cumberland, Maryland, tire plant of Kelly. The plant was closed in 1987.
The plaintiffs are seeking an aggregate of $650 million in compensatory damages
and $6.46 billion in punitive damages. On March 5, 1997, the Court granted the
Company's motion for summary judgment and issued an Order and Judgment
dismissing all of these civil actions with prejudice. On April 7, 1997, the
plaintiffs appealed the Order and Judgment to the United States Court of Appeals
for the Fourth Circuit. On May 11, 1998, the United States Court of Appeals for
the Fourth Circuit vacated the judgment of the District Court and remanded the
case for further proceedings. The Company's motion for summary judgment on
causation is pending with the District Court.
(B) As reported at paragraph (E) of Item 3 of the Annual Report, in
March of 1997 the Company filed a civil action, Goodyear v. Chiles Power Supply
Inc., d/b/a Heatway Systems, in the United States District Court for the
Northern District of Ohio seeking (i) to collect $2.3 million due for products
sold to Heatway Systems and (ii) a declaratory judgment to the effect that the
Company's obligations in respect of "Entran 2 hose" sold to Heatway Systems are
limited by Registrant's standard written terms and conditions of sale. Heatway
counterclaimed, alleging that, among other things, all Entran 2 hose sold to
Heatway Systems was defective and that the Company misrepresented the properties
and capabilities of Entran 2 hose. In June 1998, the Court granted the Company's
motion for summary judgment as to its claim for $2.3 million due for hose
purchased by Heatway Systems from the Company and found, among other things,
that Heatway Systems may not assert any fraud claim against the Company in
respect of substantially all of the hose sold to it. A trial is scheduled for
October of 1998 to adjudicate the remaining claims of Heatway Systems.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Registrant was held on April 6,
1998 (the "Annual Meeting"). Proxies for the Annual Meeting were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Act"), there was no solicitation in opposition to
- 20 -
<PAGE> 22
the three nominees of the Board of Directors listed in the Proxy Statement of
Registrant, dated February 26, 1998, for the Annual Meeting (the "Proxy
Statement"), filed with the Securities and Exchange Commission, and said three
nominees were elected.
The following matters were acted upon by the shareholders of Registrant
at the Annual Meeting, at which 138,459,282 shares of the Common Stock, without
par value, of Registrant (the "Common Stock", the only class of voting
securities of Registrant outstanding), or approximately 88.293 percent of the
156,817,956 shares of Common Stock outstanding and entitled to vote at the
Annual Meeting, were present in person or by proxies:
1. ELECTION OF DIRECTORS. Three persons were nominated by the Board of
Directors of Registrant for election as directors of Registrant. John G. Breen,
William E. Butler and George H. Schofield were nominated as Class II directors,
each to hold office for a three year term expiring at the 2001 Annual Meeting of
Shareholders and until his successor shall have been duly elected and qualified.
Each nominee was an incumbent director. No other person was nominated. Each
nominee was elected. The votes cast for, or withheld or abstained with respect
to, each nominee were as follows:
<TABLE>
<CAPTION>
Shares of Common Shares of Common Stock
Name of Director Stock Voted For Withheld or Abstained
---------------- --------------- ---------------------
<S> <C> <C>
John G. Breen 132,310,090 6,149,192
William E. Butler 136,717,919 1,741,363
George H. Schofield 136,738,777 1,720,505
</TABLE>
The eight directors whose terms of office continue after the Annual Meeting are:
(A) Samir G. Gibara, William J. Hudson, Jr., William C. Turner and Martin D.
Walker, whose terms expire in 1999; and (B) Thomas H. Cruikshank, Katherine G.
Farley, Steven A. Minter and Agnar Pytte, whose terms expire in 2000.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS. A resolution
proposed by the Board of Directors of Registrant that the shareholders ratify
the action of the Board of Directors in selecting and appointing Price
Waterhouse LLP as independent accountants for Registrant for the year ending
December 31, 1998 was submitted to, and voted upon by, the shareholders of
Registrant. There were 137,698,197 shares of Common Stock voted in favor of, and
306,651 shares of Common Stock voted against, said resolution. The holders of
454,434 shares of Common Stock abstained. There were no "broker non-votes". The
resolution, having received the affirmative vote of the holders of a majority of
the shares of Common Stock outstanding and entitled to vote at the Annual
Meeting, was adopted and the appointment of Price Waterhouse LLP as the
independent accountants for Registrant for 1998 was ratified by the
shareholders.
- 21 -
<PAGE> 23
[The information set forth above in this Item 4 was also set forth at Item 4 of
Part II of Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended March 31, 1998.]
ITEM 5. OTHER INFORMATION
Any shareholder proposal submitted outside the processes of Rule 14a-8
under the Securities Exchange Act of 1934 for presentation to the Registrant's
1999 Annual Meeting of Shareholders will be considered untimely for purposes of
Rules 14a-4 and 14a-5 if notice thereof if received by Registrant after January
11, 1999.
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 June 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: July 16, 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.)
- 22 -
<PAGE> 24
THE GOODYEAR TIRE & RUBBER COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 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 June 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> 25
<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) 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
</TABLE>
- ----------
*Pursuant to Item 601 of Regulation S-K.
E-2
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
------- -------
TABLE ITEM NO. * Description of Exhibit NUMBER PAGE
---------------- ----------------------------------------------- ------ ----
<S> <C> <C> <C>
March 31, 1998, File 1-1927).
4 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 June 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 June 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 June 27 X-27-1
30, 1998).
</TABLE>
- ----------
*Pursuant to Item 601 of Regulation S-K.
E-3
<PAGE> 1
EXHIBIT 12
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
6 MONTHS
ENDED
6/30/98 1997 1996 1995 1994 1993
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT $ 588.9 $ 743.3 $ 811.5 $ 869.8 $ 855.9 $ 797.4
OF ACCOUNTING CHANGES
Add:
Amortization of previously capitalized interest 5.6 11.0 11.6 11.7 10.2 10.1
Minority interest in net income of
consolidated subsidiaries with fixed charges 16.4 45.1 45.9 30.1 16.9 19.0
Proportionate share of fixed charges of investees
accounted for by the equity method 3.2 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 25.7 62.7 65.3 47.6 29.8 31.7
Deduct:
Capitalized interest 2.4 6.2 5.4 5.1 5.7 5.0
Minority interest in net loss of consolidated subsidiaries 1.6 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 4.0 9.8 9.8 8.6 13.2 9.3
TOTAL EARNINGS $ 610.6 $ 796.2 $ 867.0 $ 908.8 $ 872.5 $ 819.8
========= ========= =========== =========== =========== ===========
FIXED CHARGES
Interest expense $ 64.3 $ 119.5 $ 128.6 $ 135.0 $ 129.4 $ 162.4
Capitalized interest 2.4 6.2 5.4 5.1 5.7 5.0
Amortization of debt discount, premium or expense 3.6 0.1 0.3 0.4 0.7 0.4
Interest portion of rental expense 31.6 63.3 69.5 77.0 83.0 83.7
Proportionate share of fixed charges of investees
accounted for by the equity method 3.2 6.5 5.1 5.3 2.5 2.3
--------- --------- ----------- ----------- ----------- -----------
TOTAL FIXED CHARGES $ 105.1 $ 195.6 $ 208.9 $ 222.8 $ 221.3 $ 253.8
========= ========= =========== =========== =========== ===========
TOTAL EARNINGS BEFORE FIXED CHARGES $ 715.7 $ 991.8 $ 1,075.9 $ 1,131.6 $ 1,093.8 $ 1,073.6
========= ========= =========== =========== =========== ===========
RATIO OF EARNINGS TO FIXED CHARGES 6.81 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>
This schedule contains summary financial information for The Goodyear Tire &
Rubber Company and Subsidiaries 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 183
<SECURITIES> 0
<RECEIVABLES> 1,929
<ALLOWANCES> 56
<INVENTORY> 2,164
<CURRENT-ASSETS> 5,007
<PP&E> 8,890
<DEPRECIATION> 5,097
<TOTAL-ASSETS> 10,314
<CURRENT-LIABILITIES> 3,471
<BONDS> 949
0
0
<COMMON> 157
<OTHER-SE> 3,420
<TOTAL-LIABILITY-AND-EQUITY> 10,314
<SALES> 6,232
<TOTAL-REVENUES> 6,232
<CGS> 4,724
<TOTAL-COSTS> 4,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 589
<INCOME-TAX> 178
<INCOME-CONTINUING> 411
<DISCONTINUED> (35)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 376
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 2.36
</TABLE>
