<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT No. 2
To
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 796-2121
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
-------------------- -----------------------------
Common Stock, Without Par Value New York Stock Exchange
Preferred Stock Purchase Rights Chicago Stock Exchange
Pacific Exchange
------------------------------------
The Registrant hereby amends and restates in their entirety the following
items, financial statements, exhibits or other portions of its Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 (as
heretofore amended by Form 10-K/A, Amendment No. 1 to Form 10-K, dated
November 10, 1998) as set forth in the pages attached hereto:
Part II, Items 7 and 8
Part IV, Item 14 and the related Index of Exhibits
Exhibit 23.3
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The Goodyear Tire & Rubber Company (the "Company"), by this Form 10-K/A,
Amendment No. 2 to Form 10-K, hereby: (1) amends and restates in its entirety
Item 7 of Part II of the Annual Report on Form 10-K of the Company for the year
ended December 31, 1997, as heretofore amended by Form 10-K/A, Amendment No. 1
to Form 10-K for the year ended December 31, 1997) dated November 10, 1998 (the
"1997 Annual Report"); (2) amends and restates in its entirety Item 8 of Part II
of the 1997 Annual Report; (3) amends and restates in its entirety Item 14 of
Part IV of the 1997 Annual Report; and (4) adds a new Exhibit 23.2 to the 1997
Annual Report. Each such amended Item of, and the Exhibit to, the 1997 Annual
Report is attached to this Amendment No. 2.
EXPLANATORY NOTE TO AMENDMENT NO. 2 TO 1997 ANNUAL REPORT ON FORM 10-K
This Form 10-K/A, Amendment No. 2 to the 1997 Annual Report (the
"Amendment"), includes: (i) the cover page and this page 2 of this Amendment;
(ii) Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," of Part II of the 1997 Annual Report (pages numbered 22
through 30A, inclusive, which follow this page 2); (iii) Item 8, "Financial
Statements and Supplementary Data", of Part II of the 1997 Annual Report (pages
numbered 32 through 53, inclusive, which follow page 30A); (iv) Item 14,
"Exhibits, Financial Statement Schedule, and Reports on Form 8-K," of Part IV of
the 1997 Annual Report (at pages numbered 55 and 56, which follow page 53) and
the related Index of Exhibits (at pages numbered X-1 through X-6, inclusive);
and (v) a new Exhibit 23.2, "Consent of Independent Accounts," (at page
X-23.3-1). The 1997 Annual Report as amended by this Amendment is herein
referred to as the "Amended 1997 Annual Report."
In this Amendment, the Company amends Item 8 of Part II by expanding Note
2, "Rationalizations," to its financial statements to include additional
information and by providing additional information at Note 17, "Business
Segments", to its financial statements. The Company also amends Item 7 of the
1997 Annual Report to report addition information concerning its rationalization
plans and an enhanced explanation of net corporate expenses. A new Consent of
Independent Accountants is attached as Exhibit 23.3 to the Amended 1997 Annual
Report.
In accordance with Rule 12b-5 under the Securities Exchange Act of 1934,
Items 7 and 8 of Part II, Item 14 of Part IV and the related Index of Exhibits,
and Exhibit 23.3 to the 1997 Annual Report added by this Amendment are set
forth in their entirety on the following pages: (i) Item 7 at pages numbered 22
through 30A, inclusive; (ii) Item 8 at pages numbered 32 through 53, inclusive;
(iv) Item 14 of Part IV at pages numbered 55 and 56 and X-1 through X-6,
inclusive. Exhibit 23.3 is also filed as a part of this Amendment.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 2 to Annual Report on Form 10-K
for the year ended December 31, 1997 to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GOODYEAR TIRE & RUBBER COMPANY
(Registrant)
Date:March 18, 1999 By /s/ JOHN W. RICHARDSON
------------------------------------
John W. Richardson, Vice President
(Signing on behalf of Registrant as a duly
authorized officer of Registrant and as
the Principal Accounting Officer of Registrant.)
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[This Page Intentionally Left Blank]
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONSOLIDATED
NET SALES
Sales in 1997 were $13.07 billion, compared to $12.99 billion in 1996 and
$13.04 billion in 1995.
Net income in 1997 was $558.7 million or $3.58 per share-basic, compared
to $101.7 million or $.66 per share-basic in 1996 and $611.0 million or $4.02
per share-basic in 1995. Diluted earnings per share were $3.53, $.65 and $3.97
in 1997, 1996 and 1995, respectively. All subsequent per share amounts in this
discussion refer to basic earnings per share.
Net income in 1997 included net after-tax charges of $176.3 million or
$1.13 per share for rationalizations of manufacturing and other activities, as
discussed below. Net income in 1996 included net after-tax charges of $573.0
million or $3.69 per share related to the writedown of the All American Pipeline
System and related assets and other rationalization actions.
Worldwide tire unit sales in 1997 were 5.0% higher than 1996 and 10.7%
higher than 1995. Unit sales of other automotive and industrial rubber products
were higher in both 1997 and 1996. Tire unit sales in 1997 rose on increased
replacement volume in all regions and higher original equipment volume in North
America, Europe and Latin America. In 1996, tire unit sales rose on higher
volume in Europe and Asia, although original equipment volume decreased in North
America and Latin America.
Revenues in 1997 were favorably impacted by higher tire unit sales and the
acquisition of manufacturing and distribution operations in South Africa, but
decreased due primarily to continued worldwide competitive pricing pressures and
the adverse effect of currency translations on international results. Revenues
in 1996 decreased despite higher tire unit sales, due primarily to continued
competitive pricing pressures worldwide and the strengthening of the U.S. dollar
in 1996 versus various foreign currencies.
COST OF GOODS SOLD
Cost of goods sold in 1997 was 76.7% of sales, compared to 76.8% in 1996
and 76.9% in 1995. Raw material costs in 1997 decreased from 1996's level, which
was also lower than the level reached in 1995. Worldwide raw material costs are
not expected to increase significantly in 1998. Labor costs increased in both
1997 and 1996, due in part to U.S. wage agreements which provided for wage and
benefit improvements. Manufacturing costs were adversely affected in 1997 by a
19-day strike against the Company by the United Steel Workers of America,
A.F.L.-C.I.O.-C.L.C. (USWA) at 10 U.S. tire and engineered products
manufacturing facilities. Costs in 1996 reflected lower levels of capacity
utilization resulting from reductions in production schedules in North America
and Europe to align inventory with market requirements. Manufacturing costs in
both 1997 and 1996 benefited from efficiencies achieved as a result of ongoing
cost containment measures.
The Company's research and development expenditures, all of which were
included in cost of sales, were $384.1 million, $374.5 million and $369.3
million in 1997, 1996 and 1995, respectively. Research and development
expenditures in 1998 are expected to approximate $410 million.
SAG
Selling, administrative and general expense (SAG) in 1997 was 14.4% of
sales, compared to 14.5% in 1996 and 14.8% in 1995. SAG in 1997 was adversely
affected by the acquisition of
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the South African subsidiary, but benefited in 1997 and 1996 from lower
employment levels in the U.S. which reduced compensation and benefit costs, and
the favorable impact of ongoing worldwide cost containment measures.
RATIONALIZATIONS AND OTHER ACTIONS
1997. As a result of continued competitive conditions in the markets
served by the Company, a number of rationalization actions were approved in 1997
to reduce costs and focus on the core businesses. In connection with the 1997
program, obligations under certain leases and other contracts were accrued,
other assets were written off and over 3,000 associates have been or will be
released. The approval of these actions resulted in a fourth quarter 1997 charge
of $265.2 million ($176.3 million after tax or $1.13 per share), of which $52.5
million related to non-cash writeoffs and $212.7 million related to future cash
outflows, primarily for associate severance costs. The balance of this provision
was $201.9 million at December 31, 1997.
The Company recorded a charge of $146.1 million in respect of the 1997
program for the release of more than 3,000 associates around the world. At
December 31, 1997, approximately 450 associates had been released at a total
cost of $25.3 million. The balance of this provision was $89.1 million at
December 31, 1997.
Optimizations, downsizing, consolidation and withdrawal costs, other than
associate-related costs, of $119.1 million were recorded, of which $6.3 million
were incurred through December 31, 1997. The actions consisted of the withdrawal
of support of Formula 1 racing, downsizing and closure actions at four United
States production facilities, the consolidation of the Kelly-Springfield
division into the Company's headquarters, the consolidation of distribution
facilities in North America from 40 to 18, the consolidation of commercial tire
outlets and the realignment of certain production. The costs include the
writeoff of buildings and equipment, lease cancellation and non-cancellable
lease costs and the cost of fulfillment of certain contracts. At December 31,
1997, the balance of the provision for these costs was $112.8 million.
Annual pretax savings of approximately $200 million are expected when the
1997 program has been fully implemented. The actions are anticipated to be
substantially completed during 1998-1999.
1996. As part of a rationalization plan the Company recorded fourth
quarter 1996 charges totaling $148.5 million ($95.3 million after tax of $.61)
related to worldwide workforce reductions, consolidation of operations and the
closing of manufacturing facilities. The balance of this provision was $49.6
million and $110 million at December 31, 1997 and 1996, respectively.
The Company recorded $113.3 million for the release of approximately 2,800
associates around the world. At December 31, 1997, approximately 2,300
associates had been released at a cost of approximately $85.8 million. The
balance of this provision at December 31, 1997 and 1996 was $27.5 million and
$85.6 million, respectively.
Rationalization costs, other than for associate-related costs, of $35.2
million were recorded, of which $13.1 million were incurred through December 31,
1997. These costs related to discontinuing the production of polyvinylchloride
(PVC) at the Niagara Falls chemical manufacturing facility, the closure of
certain Canadian retail stores, production rationalization activities at
international locations, primarily the closure of the Greece tire manufacturing
facility, and rationalization of production at various tire plants in the United
States. The costs recorded and incurred related primarily to the writeoff of
equipment and noncancellable leases. The balance of these provisions was $22.1
million and $24.4 million at December 31, 1997 and 1996, respectively.
Annual pretax savings of approximately $110 million are expected when the
1996 program has been fully implemented. The actions are anticipated to be
substantially completed during 1998.
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Assets Sales. The Company also recorded gains in 1996 totaling $42.3
million which were not attributable to any segment, resulting from the sale of a
business property in Asia and a portion of an investment in an Asian rubber
plantation. The net gains recorded by the Company were $32.1 million ($21.6
million after tax or $.14 per share), which amount reflected the loss recorded
with respect to the anticipated sale of a manufacturing facility in the United
States.
For further information, refer to the note to the financial statements
Note 2, Rationalizations.
FOREIGN CURRENCY EXCHANGE
Foreign currency exchange increased pretax income by $34.1 million in
1997, compared to pretax charges of $7.4 million in 1996 and $17.4 million in
1995. The improvement in 1997 and 1996 was due primarily to the Company's
currency exposure management strategies, primarily related to the impact of the
strengthening of the U.S. dollar versus various European and Asian currencies.
INCOME TAXES
The Company's effective tax rate was 28.0%, 29.6% and 32.5% in 1997, 1996
and 1995, respectively. Net income in 1997 and 1996 benefited from lower U.S.
taxes on foreign source income. For further information, refer to the note to
the financial statements No. 15, Income Taxes.
DISCONTINUED OPERATIONS
On March 21, 1998 the Company agreed to sell 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, which was recorded in the first quarter of 1998. This
transaction has been accounted for as a sale of discontinued operations, and
accordingly, the accompanying financial information has been restated where
required. The sale was completed on July 30, 1998. For further information,
refer to the note to the financial statements No. 20, 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. The remaining $64 million to $84 million will be spent
during 1998 and 1999 as the Company com-
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pletes 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.
The Company, with the assistance of 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, including the $23 million spent
during 1997. 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 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.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related
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Information." The standard defines a segment as a component of an enterprise
about which separate financial information is available and which is regularly
evaluated by the chief operating officer. This standard requires financial
information about segments to be reported on the basis that is used internally
for evaluating segment performance. Upon the Company's adoption of SFAS 131, the
reported segments of the Company will be more reflective of its strategic
business unit organizational structure. SFAS 131 is effective for fiscal years
beginning after December 15, 1997 and requires segment disclosures in interim
periods beginning in the second year after adoption. The Company has not yet
determined the effect, if any, on consolidated segment operating income
resulting from the adoption of this standard.
SEGMENT INFORMATION
Segment operating income was $988.6 million, $1,056.2 million and $1,165.8
million and segment operating margin was 7.6%, 8.1% and 8.9% of sales in 1997,
1996 and 1995, respectively. Segment operating income in 1997 was reduced by the
previously mentioned charges of $265.2 million related to rationalizations in
manufacturing and other areas. Segment operating income in 1996 was reduced by
the previously mentioned charges of $158.7 million related to workforce
reductions, consolidation of operations and the closure and sale of
manufacturing facilities.
INDUSTRY SEGMENTS
TIRES
Sales in 1997 were $11.27 billion, compared to $11.20 billion in 1996 and
$11.26 billion in 1995.
Unit sales increased in 1997 in both the original equipment and
replacement markets in North America and all international regions. Revenues in
1997 were adversely affected by worldwide competitive pricing pressures and the
effects of currency translation on international results. Sales in 1997 also
reflected reduced demand in the U.S.
resulting from strikes against certain vehicle production facilities.
Revenues decreased in 1996 despite higher tire unit sales, due primarily
to reduced unit sales to original equipment vehicle manufacturers in North
America and Latin America, competitive pricing pressures worldwide and
unfavorable translation due to the strengthening of the U.S. dollar versus
various foreign currencies. Additionally, revenues in 1996 were adversely
affected by lower sales in natural rubber operations due to lower market prices,
and lower service and other sales at Company-owned retail outlets.
The following table presents changes in Company tire unit sales:
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
----------------------------------------------------------------------
<S> <C> <C>
U.S. 1.9% (.7)%
International 8.2 12.6
Worldwide 5.0 5.4
----------------------------------------------------------------------
</TABLE>
Operating income in 1997 of $780.4 million decreased 12.6% from $893.3
million in 1996 and 22.0% from $1,000.2 million in 1995. Operating income in
1997 and 1996 was reduced by rationalization charges of $259.2 million and
$131.9 million, respectively.
Operating income in 1997 reflected lower raw material costs and the
effects of ongoing cost containment measures, but was adversely affected by
increased costs resulting from the previously mentioned strike against the
Company. Operating income in 1996 was favorably impacted by higher tire unit
sales, lower raw material costs and lower SAG, but was adversely affected by
lower revenues and increased costs resulting from lower levels of capacity
utilization to reduce inventory.
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GENERAL PRODUCTS
Sales in 1997 were $1.80 billion, compared to $1.78 billion in both 1996
and 1995.
Sales in engineered products increased in 1997 and 1996 on higher unit
volume of automotive and industrial rubber products resulting in part from
acquisitions of manufacturing and distribution operations. Sales in chemical
products decreased in 1997 and 1996 due to lower selling prices and reduced
volume.
Operating income in 1997 of $208.2 million increased 27.8% from $162.9
million in 1996 and 25.7% from $165.6 million in 1995. Operating income in 1997
and 1996 was reduced by rationalization charges of $6.0 million and $26.8
million, respectively.
Operating income in engineered products increased in 1997 and 1996 due
primarily to higher unit volume, improved productivity and ongoing cost
containment measures. Engineered products operating income in 1997 and 1996 was
reduced by rationalization charges of $6.0 million and $15.2 million,
respectively. Operating income in chemical products increased in 1997 due
primarily to lower manufacturing costs and a more favorable product mix.
Chemical operating income in 1996 was favorably impacted by lower raw material
prices, but decreased due primarily to $11.6 million of rationalization charges.
The Company reached an agreement in principle in January of 1998 to sell
its Calhoun, Georgia latex processing facility. The sale of this facility is not
expected to have a material effect on the Company's financial position, results
of operations or liquidity. A gain is expected to be recorded upon completion of
the sale.
GEOGRAPHIC SEGMENTS
U.S. OPERATIONS
U.S. sales in 1997 were $6.83 billion, decreasing slightly from $6.88
billion in 1996 and 4.1% from $7.12 billion in 1995.
Unit sales of tires and engineered products in the U.S. were higher in
1997, although revenues were adversely affected by competitive pricing
pressures, reduced volume in chemical products and the previously mentioned
strikes against certain vehicle production facilities. Sales decreased in 1996
due primarily to reduced unit sales to original equipment vehicle manufacturers,
competitive tire pricing pressures in the replacement market and lower sales of
chemical products.
Operating income was $435.4 million in 1997, compared to $393.1 million in
1996 and $488.6 million in 1995. Operating income in 1997 was reduced by
rationalization charges of $113.6 million. Operating income in 1996 included
$89.7 million of rationalization charges.
Operating income in 1997 reflected lower raw material costs, lower SAG and
the effects of ongoing cost containment measures. Operating income in 1996 was
adversely affected by lower original equipment tire unit sales and pricing
pressures in the replacement tire market, but was favorably impacted by improved
volume in engineered products, lower raw material costs and lower SAG.
INTERNATIONAL OPERATIONS
International sales in 1997 were $6.24 billion, increasing 2.3% from $6.10
billion in 1996 and 5.4% from $5.92 billion in 1995. International operating
income in 1997 was $553.2 million, decreasing 16.6% from $663.1 million in 1996
and 18.3% from $677.2 million in 1995. Operating income in 1997 and 1996 was
reduced by rationalization charges of $151.6 million and $69.0 million,
respectively.
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EUROPE
In Europe, sales in 1997 of $3.16 billion increased 3.3% from $3.06
billion in 1996 and 10.9% from $2.85 billion in 1995. Operating income in 1997
was $214.9 million, decreasing 28.8% from $302.0 million in 1996 and 32.3% from
$317.2 million in 1995. Operating income in 1997 and 1996 was reduced by
rationalization charges of $95.1 million and $29.4 million, respectively.
Sales in Europe increased in 1997 on higher unit sales, and results were
favorably impacted by the acquisition of a majority interest in tire and
engineered products manufacturing and distribution operations in South Africa.
Sales increased in 1996 due primarily to higher tire unit sales and the
acquisition of a majority ownership interest in a tire manufacturing facility in
Poland. Sales in both 1997 and 1996 were adversely affected by competitive
pricing pressures and the strengthening of the U.S. dollar versus European
currencies.
Operating income in Europe in 1997 decreased due primarily to the
previously mentioned rationalization charges, competitive pricing pressures and
the effects of currency translation. Operating income also decreased in 1996 due
to the previously mentioned rationalization charges, but was favorably affected
by increased revenues, lower raw material costs, and productivity improvements.
LATIN AMERICA
In Latin America, sales in 1997 were $1.58 billion, compared to $1.53
billion in 1996 and $1.54 billion in 1995. Operating income in 1997 was $224.2
million, decreasing 8.8% from $246.0 million in 1996 and 6.1% from $238.8
million in 1995. Operating income in 1997 and 1996 was reduced by
rationalization charges of $44.5 million and $24.0 million, respectively, and in
1996 also included costs totaling $6.5 million related to improvements in
manufacturing efficiencies.
Sales in Latin America increased in 1997 on higher unit sales of tires and
engineered products. Sales decreased slightly in 1996, reflecting competitive
pricing pressures and unchanged tire unit sales.
Operating income in Latin America benefited in both 1997 and 1996 from
lower raw material costs, improved productivity and the effects of ongoing cost
containment measures.
ASIA
In Asia, sales in 1997 of $772.7 million decreased 8.6% from $845.4
million in 1996 and 7.3% from $833.2 million in 1995. Operating income in Asia
in 1997 was $65.3 million, decreasing 34.3% from $99.3 million in 1996 and 27.5%
from $90.1 million in 1995. Operating income in 1997 was reduced by
rationalization charges of $8.0 million.
Sales and operating income in Asia in 1997 reflected higher tire unit
sales, but decreased due primarily to the devaluation of Asian currencies versus
the U.S. dollar, severe economic turmoil and competitive pricing conditions in
many countries in the region and lower results in natural rubber operations.
Sales and operating income in Asia in future periods may be adversely affected
by continued devaluation of local currencies versus the U.S. dollar and economic
turmoil in the region. Operating income in 1997 was favorably impacted by lower
raw material costs and the effects of ongoing cost containment measures. Sales
increased in 1996 due primarily to higher tire unit sales, and operating income
rose on lower raw material costs and improved productivity.
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.
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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) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales:
Asia Segment $ 772.7 $ 845.4 $ 833.2
SPT 744.2 814.1 743.7
------------ ------------ ------------
Total $ 1,516.9 $ 1,659.5 $ 1,576.9
</TABLE>
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating Income:
Asia Segment $ 65.3 $ 99.3 $ 90.1
SPT 63.5 75.8 71.5
------------ ------------ ------------
Total $ 128.8 $ 175.1 $ 161.6
</TABLE>
CANADA
In Canada, sales in 1997 of $725.8 million increased 8.3% from $670.2
million in 1996 and 5.7% from $686.5 million in 1995. Operating income for 1997
was $48.8 million, compared to $15.8 million in 1996 and $31.1 million in 1995.
Operating income in 1997 and 1996 was reduced by rationalization charges of $4.0
million and $13.8 million, respectively.
Sales and operating income in Canada increased in 1997 on higher unit
sales of tires and engineered products and lower raw material costs and SAG.
Sales and operating income in 1996 decreased on lower tire unit sales volume.
For further information relating to industry and geographic segments,
refer to the note to the financial statements No. 17, Business Segments.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Working Capital -- Cash provided by operating activities increased to
$1,052.4 million in 1997 from $856.6 million in 1996, reflecting in part the
favorable effects of the Company's ongoing cost containment measures. Operating
cash flows were used primarily for capital expenditures and debt retirement, as
discussed below. Working capital requirements during 1997 increased for accounts
receivable and inventories, resulting from higher unit sales of tires and other
automotive and industrial rubber products. The Company has fixed the cost of
certain raw materials in future periods, which is anticipated to result in
reduced volatility in working capital requirements.
Pensions -- The Company's domestic pension funding practice since 1993 has
been to fund, from operations, amounts in excess of the requirements of federal
laws and regulations. During the five years ended December 31, 1997 the Company
funded a total of $689.3 million, and the major domestic pension plans were
fully funded at that date.
For further discussion of pensions, refer to the note to the financial
statements No. 11, Pensions.
INVESTING ACTIVITIES
Cash used in investing activities was $788.6 million during 1997. Capital
expenditures were $699.0 million, of which amount $322.9 million was used on
projects to increase capacity and improve productivity and the balance was used
for tire molds and various other projects. Capital expenditures are expected to
approximate $700-$800 million in 1998. At December 31, 1997, the Company had
binding commitments for land, buildings and equipment of $137.2 million.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Capital Expenditures $ 699.0 $ 617.5 $ 615.6
Depreciation 453.9 419.9 394.2
---------- ---------- ----------
</TABLE>
Other investing activities in 1997 included acquisitions of majority
ownership interests in tire and engineered products manufacturing and
distribution operations in South Africa, retread-
29
<PAGE> 12
ing operations in the U.S. and engineered products manufacturing operations in
Slovenia and Venezuela. Investing activities also included the sale of the
Jackson, Ohio automotive trim plant and natural rubber operations in Guatemala.
FINANCING ACTIVITIES
Cash used in financing activities was $205.8 million during 1997. Debt
levels decreased, reflecting in part the increased cash provided by operating
activities. Cash was used in 1997 for the redemption of all $118.4 million of
the Company's 10.26% promissory notes and the repurchase of common shares of the
Company, as discussed below.
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Consolidated Debt $ 1,351.2 $ 1,376.7 $ 1,546.7
---------- ---------- ----------
Debt/Debt+Equity 28.5% 29.6% 32.0%
---------- ---------- ----------
</TABLE>
At December 31, 1997, the fair value of the Company's fixed rate debt
amounted to a liability of $595.8 million, compared to its carrying amount of
$571.3 million. The Company estimates that a 100 basis point decrease in market
interest rates at December 31, 1997 would have changed the fair value of the
Company's fixed rate debt to a liability of $626.8 million at that date.
Interest Rate Management -- 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. Fixed rate swaps are used to reduce the Company's risk of increased
interest costs during periods of rising interest rates. Floating rate swaps are
used to convert the fixed rates of long term borrowings into short term variable
rates. Interest rate swap contracts are thus used by the Company to separate
interest rate risk management from the debt funding decision. At December 31,
1997 and 1996, the interest rate on 62% of the Company's debt was fixed by
either the nature of the obligation or through the interest rate contracts. At
December 31, 1997, the fair value of the Company's interest rate contracts
amounted to a liability of $.8 million, compared to their carrying amount of a
$.5 million liability. The Company estimates that a 10% decrease in variable
market interest rates at December 31, 1997 would have changed the fair value of
outstanding contracts to a $2.2 million liability 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.
Foreign Currency Exchange Management -- 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 foreign currency forward exchange contracts at December 31, 1997. 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 December 31, 1997 would have
changed the fair value of the contracts by $15.0 million. Changes in the fair
value of forward exchange contracts are substantially offset by changes in the
fair value of the hedged positions.
The sensitivity to changes in exchange rates of the Company's foreign
currency positions was determined using current market pricing models.
CREDIT SOURCES
Substantial short term and long term credit sources are available to the
Company globally under normal commercial practices. At December 31, 1997, there
were worldwide credit sources totaling $3.42 billion, of which $2.07 billion
were unused. In addition, the Company
30
<PAGE> 13
maintains a commercial paper program, whereunder the Company may have
outstanding up to $550 million at any time.
Included in the Company's credit sources are two credit facility
agreements with 28 domestic and international banks, consisting of a $900
million four year revolving credit facility and a $300 million 364-day revolving
credit facility. The $900 million four year revolving credit facility agreement
provides that the Company may borrow at any time until July 15, 2001, when the
commitment terminates and any outstanding loans mature. The Company pays a
commitment fee ranging from 7.5 to 15 basis points on the entire amount of the
commitment and a usage fee of 15 to 30 basis points on amounts borrowed. The
$300 million 364-day credit facility agreement provides that the Company may
borrow until July 13, 1998, 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 December 31,
1997.
OTHER FINANCING ACTIVITIES
Throughout 1997, the Company sold certain domestic accounts receivable
under continuous sale programs whereby, as these receivables were collected, new
receivables were sold. Under these agreements, undivided interests in designated
receivable pools are sold to purchasers with recourse limited to the receivables
purchased. At December 31, 1997 and 1996, the outstanding balance of receivables
sold under these agreements amounted to $550 million.
The Board of Directors of the Company approved a three-year share
repurchase program in 1997, whereunder the Company may acquire up to $600
million of outstanding Common Stock of the Company. The program is designed to
give the Company better flexibility in funding future acquisitions and to
optimize shareholder value. During 1997, 1,478,200 shares were repurchased under
this program at an average cost of $53.06.
For further discussion of financing activities, refer to the note to the
financial statements No. 7, Financing Arrangements and Financial Instruments.
Funds generated by operations, together with funds available under
existing credit arrangements, are expected to exceed the Company's currently
anticipated cash requirements.
30A
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX
CONSOLIDATED FINANCIAL STATEMENTS--FINANCIAL STATEMENT SCHEDULES
<TABLE>
PAGE
----
<S> <C>
Report of Independent Accountants .................................... 32
Consolidated Statement of Income -- years ended
December 31, 1997, 1996 and 1995 .................................... 33
Consolidated Balance Sheet-- December 31, 1997 and 1996 .............. 34
Consolidated Statement of Shareholders' Equity -- years ended
December 31, 1997, 1996 and 1995 .................................... 35
Consolidated Statement of Cash Flows -- years ended
December 31, 1997, 1996 and 1995 .................................... 36
Notes to Financial Statements ........................................ 37
Supplementary Data (unaudited)
Financial Statement Schedules ........................................ FS-1
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Goodyear Tire & Rubber Company
In our opinion, the consolidated financial statements listed in the index
on this page present fairly, in all material respects, the financial position of
The Goodyear Tire & Rubber Company and Subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Cleveland, Ohio
February 2, 1998
except for Note 20, as to which the date is
November 10, 1998
32
<PAGE> 15
Consolidated Statement of Income
<TABLE>
<CAPTION>
(Dollars in millions, except per share)
Year Ended December 31, 1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Sales $ 13,065.3 $ 12,985.7 $ 13,039.2
================ ================ ================
Cost of Goods Sold 10,015.6 9,968.9 10,027.7
Selling, Administrative and General Expense 1,886.7 1,887.2 1,932.1
Rationalizations (Note 2) 265.2 116.4 --
Interest Expense (Note 13) 119.5 128.6 135.0
Other (Income) and Expense (Note 3) 24.5 22.6 21.0
Foreign Currency Exchange (34.1) 7.4 17.4
Minority Interest in Net Income of Subsidiaries 44.6 43.1 36.2
---------------- ---------------- ----------------
Income from Continuing Operations before Income Taxes 743.3 811.5 869.8
United States and Foreign Taxes on Income (Note 15) 220.9 253.0 294.6
Income From Continuing Operations $ 522.4 $ 558.5 $ 575.2
================ ================ ================
Discontinued Operations (Note 20) 36.3 (456.8) 35.8
Net Income $ 558.7 $ 101.7 $ 611.0
================ ================ ================
Per Share of Common Stock - Basic:
Income from Continuing Operations $ 3.34 $ 3.60 $ 3.78
Discontinued Operations .24 (2.94) .24
Net Income $ 3.58 $ .66 $ 4.02
================ ================ ================
Average Shares Outstanding 156,225,112 155,051,802 152,118,861
Per Share of Common Stock - Diluted:
Income from Continuing Operations $ 3.30 $ 3.56 $ 3.74
Discontinued Operations .23 (2.91) .23
Net Income $ 3.53 $ .65 $ 3.97
================ ================ ================
Average Shares Outstanding 158,169,534 156,778,058 153,949,022
</TABLE>
The accompanying notes are an integral part of this financial statement.
33
<PAGE> 16
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Dollars in millions)
December 31, 1997 1996
---------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 258.6 $ 238.5
Accounts and notes receivable (Note 4) 1,733.6 1,706.0
Inventories (Note 5) 1,835.2 1,774.2
Prepaid expenses and other current assets 336.5 306.3
Total Current Assets 4,163.9 4,025.0
========== ==========
Long Term Accounts and Notes Receivable 190.4 216.2
Investments in Affiliates, at equity 124.6 140.3
Other Assets 145.6 163.0
Deferred Charges 1,143.2 1,059.4
Properties and Plants (Note 6) 4,149.7 4,067.9
Total Assets $ 9,917.4 $ 9,671.8
========== ==========
Liabilities
Current Liabilities:
Accounts payable-- trade $ 1,177.8 $ 1,096.7
Compensation and benefits 782.7 742.5
Other current liabilities 421.8 300.4
United States and foreign taxes 362.0 382.1
Notes payable to banks (Note 7) 440.2 218.1
Long term debt due within one year 66.5 26.4
Total Current Liabilities 3,251.0 2,766.2
========== ==========
Compensation and Benefits 1,945.7 1,988.1
Long Term Debt (Note 7) 844.5 1,132.2
Other Long Term Liabilities 224.5 264.9
Minority Equity in Subsidiaries 256.2 241.3
Total Liabilities 6,521.9 6,392.7
========== ==========
Shareholders' Equity Preferred Stock, no par value:
Authorized, 50,000,000 shares, unissued -- --
Common Stock, no par value:
Authorized, 300,000,000 shares
Outstanding shares, 156,588,783 (156,049,974 in 1996) 156.6 156.1
Capital Surplus 1,061.6 1,059.4
Retained Earnings 2,983.4 2,603.0
Accumulated Other Comprehensive Income (806.1) (539.4)
Total Shareholders' Equity 3,395.5 3,279.1
========== ==========
Total Liabilities and Shareholders' Equity $ 9,917.4 $ 9,671.8
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
34
<PAGE> 17
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
------------------------------ Capital Retained
(Dollars in millions, except per share) Shares Amount Surplus Earnings
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994
(after deducting 44,271,227 treasury shares) 151,407,285 $ 151.4 $ 918.5 $ 2,194.5
============= ============= ============= =============
Comprehensive income:
Net income for 1995 611.0
Foreign currency translation
Minimum pension liability (net of tax of $6.6)
Total comprehensive income
Cash dividends 1995-- $.95 per share (144.5)
Common stock issued from treasury:
Dividend Reinvestment and
Stock Purchase Plan 105,028 .1 4.2
Stock compensation plans 2,011,998 2.0 52.5
------------- ------------- ------------- -------------
Balance at December 31, 1995
(after deducting 42,154,357 treasury shares) 153,524,311 153.5 975.2 2,661.0
============= ============= ============= =============
Comprehensive income:
Net income for 1996 101.7
Foreign currency translation
Minimum pension liability (net of tax of $4.1)
Total comprehensive income
Cash dividends 1996-- $1.03 per share (159.7)
Common stock issued from treasury:
Dividend Reinvestment and
Stock Purchase Plan 91,310 .1 4.3
Stock compensation plans 2,434,353 2.5 79.9
------------- ------------- ------------- -------------
Balance at December 31, 1996
(after deducting 39,628,694 treasury shares) 156,049,974 156.1 1,059.4 2,603.0
============= ============= ============= =============
Comprehensive income:
Net income for 1997 558.7
Foreign currency translation
Minimum pension liability (net of tax of $1.6)
Total comprehensive income
Cash dividends 1997-- $1.14 per share (178.3)
Common stock acquired (1,478,200) (1.5) (76.9)
Common stock issued from treasury:
Dividend Reinvestment and
Stock Purchase Plan 56,399 .1 3.1
Stock compensation plans 1,960,610 1.9 76.0
------------- ------------- ------------- -------------
Balance at December 31, 1997
(after deducting 39,089,885 156,588,783 $ 156.6 $ 1,061.6 $ 2,983.4
============= ============= ============= =============
<CAPTION>
Accumulated Other
Comprehensive Income
------------------------------
Foreign Minimum Total
Currency Pension Shareholders'
(Dollars in millions, except per share) Translation Liability Equity
------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994
(after deducting 44,271,227 treasury shares) $ (421.7) $ (39.5) $ 2,803.2
============= ============= =============
Comprehensive income:
Net income for 1995
Foreign currency translation (60.0)
Minimum pension liability (net of tax of $6.6) 13.2
Total comprehensive income 564.2
Cash dividends 1995-- $.95 per share (144.5)
Common stock issued from treasury:
Dividend Reinvestment and
Stock Purchase Plan 4.3
Stock compensation plans 54.5
------------- ------------- -------------
Balance at December 31, 1995
(after deducting 42,154,357 treasury shares) (481.7) (26.3) 3,281.7
============= ============= =============
Comprehensive income:
Net income for 1996
Foreign currency translation (26.7)
Minimum pension liability (net of tax of $4.1) (4.7)
Total comprehensive income 70.3
Cash dividends 1996-- $1.03 per share (159.7)
Common stock issued from treasury:
Dividend Reinvestment and
Stock Purchase Plan 4.4
Stock compensation plans 82.4
------------- ------------- -------------
Balance at December 31, 1996
(after deducting 39,628,694 treasury shares) (508.4) (31.0) 3,279.1
============= ============= =============
Comprehensive income:
Net income for 1997
Foreign currency translation (269.6)
Minimum pension liability (net of tax of $1.6) 2.9
Total comprehensive income 292.0
Cash dividends 1997-- $1.14 per share (178.3)
Common stock acquired (78.4)
Common stock issued from treasury:
Dividend Reinvestment and
Stock Purchase Plan 3.2
Stock compensation plans 77.9
------------- ------------- -------------
Balance at December 31, 1997
(after deducting 39,089,885 $ (778.0) $ (28.1) $ 3,395.5
============= ============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
35
<PAGE> 18
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Dollars in millions)
Year Ended December 31, 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 558.7 $ 101.7 $ 611.0
============ ============ ============
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation 453.9 419.9 394.2
Deferred tax provision (15.2) 39.5 73.9
Discontinued Operations -- 499.3 --
Rationalizations and other provisions 233.6 110.0 --
Asset sales (5.8) (32.1) --
Accounts and notes receivable (101.7) (106.2) (84.4)
Inventories (107.1) (5.5) (344.3)
Accounts payable-- trade 115.4 (66.3) 159.5
Domestic pension funding (43.0) (72.8) (252.5)
Other assets and liabilities (36.4) (30.9) 54.7
------------ ------------ ------------
Total adjustments 493.7 754.9 1.1
Total cash flows from operating activities 1,052.4 856.6 612.1
============ ============ ============
Cash Flows from Investing Activities:
Capital expenditures (699.0) (617.5) (615.6)
Short term securities acquired (38.6) (97.2) (30.6)
Short term securities redeemed 40.8 86.2 41.4
Asset dispositions 37.6 45.9 8.9
Asset acquisitions (127.1) (99.8) (52.8)
Other transactions (2.3) 32.4 5.4
Total cash flows from investing activities (788.6) (650.0) (643.3)
============ ============ ============
Cash Flows from Financing Activities:
Short term debt incurred 298.8 195.5 542.3
Short term debt paid (150.5) (606.6) (414.3)
Long term debt incurred 39.2 312.4 141.5
Long term debt paid (217.7) (35.2) (101.0)
Common stock issued 81.1 86.8 58.8
Common stock acquired (78.4) -- --
Dividends paid (178.3) (159.7) (144.5)
Total cash flows from financing activities (205.8) (206.8) 82.8
============ ============ ============
Effect of Exchange Rate Changes on Cash and Cash Equivalents (37.9) (29.6) (34.2)
------------ ------------ ------------
Net Change in Cash and Cash Equivalents 20.1 (29.8) 17.4
Cash and Cash Equivalents at Beginning of the Period 238.5 268.3 250.9
Cash and Cash Equivalents at End of the Period $ 258.6 $ 238.5 $ 268.3
============ ============ ============
</TABLE>
Information about Noncash Investing Activities--In the first quarter of 1997 the
Company acquired a 60% equity interest in a South African tire and industrial
rubber products business, and assumed $29 million of debt under the terms of the
purchase agreement. In the first quarter of 1996, the Company increased its
ownership of a Polish tire manufacturer from 32.7% to 50.8% by purchasing
original issue shares of this tire manufacturer. This investment, which had been
accounted for using the equity method, is now accounted for as a consolidated
subsidiary. Information in the Consolidated Statement of Cash Flows is presented
net of the effects of these transactions.
The accompanying notes are an integral part of this financial statement.
36
<PAGE> 19
Notes to Financial Statements
NOTE 1. ACCOUNTING POLICIES
A summary of the significant accounting policies used in the preparation of the
accompanying financial statements follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. All significant intercompany transactions have been eliminated.
The Company's investments in 20% to 50% owned companies in which it has
the ability to exercise significant influence over operating and financial
policies are accounted for using the equity method. Accordingly, the Company's
share of the earnings of these companies is included in consolidated net income.
Investments in other companies are carried at cost.
REVENUE RECOGNITION
Substantially all revenues are recognized when finished products are shipped to
unaffiliated customers or services have been rendered, with appropriate
provision for uncollectible accounts. In conformance with oil industry practice,
revenues resulting from sales of crude oil purchased from third parties are
recognized net of the related acquisition costs.
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash and cash equivalents include cash on hand and in the bank as well as all
short term securities held for the primary purpose of general liquidity. Such
securities normally mature within three months from the date of acquisition.
Cash flows associated with items intended as hedges of identifiable transactions
or events are classified in the same category as the cash flows from the items
being hedged.
INVENTORY PRICING
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for a significant portion of domestic
inventories and the first-in, first-out (FIFO) method or average cost method for
other inventories. Refer to Note 5.
PROPERTIES AND PLANTS
Properties and plants are stated at cost, with the exception
of the All American Pipeline System and related assets, which are stated at fair
value as of December 31, 1996. Depreciation is computed using the straight line
method. Accelerated depreciation is used for income tax purposes, where
permitted. Refer to Note 6.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instrument contracts are utilized by the Company to manage
interest rate and foreign exchange risks. The Company has established a control
environment which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. Company policy prohibits holding or issuing derivative financial
instruments for trading purposes.
To qualify for hedge accounting, the contracts must meet defined
correlation and effectiveness criteria, be designated as hedges and result in
cash flows and financial statement effects which substantially offset those of
the position being hedged. Amounts receivable or payable under derivative
financial instrument contracts, when recognized, are reported on the
Consolidated Balance Sheet as both current and long term receivables or
liabilities.
Interest Rate Contracts -- The differentials to be received or paid are
recognized in income over the life of the contracts as adjustments to Interest
Expense.
Foreign Exchange Contracts -- As exchange rates change, gains and
losses on contracts designated as hedges of existing assets and liabilities are
recognized in income as Foreign Currency Exchange, while gains and losses on
contracts designated as hedges of net investments in foreign subsidiaries are
recognized in Shareholders' Equity as Foreign Currency Translation Adjustment.
Gains and losses on contracts designated as hedges of identifiable foreign
currency firm commitments are not recognized until included in the measurement
of the related foreign currency transaction.
Gains and losses on terminations of hedge contracts are recognized as
Other (Income) and Expense when terminated in conjunction with the termination
of the hedged position, or to the extent that such position remains outstanding,
deferred as Prepaid Expenses or Deferred Charges and amortized to Interest
Expense or Foreign Currency Exchange over the remaining life of that position.
Derivative financial instruments that the Company temporarily continues to hold
after the early termination of a hedged position, or that otherwise no longer
qualify for hedge accounting, are marked-to-market, with gains and losses
recognized in income as Other (Income) and Expense. Refer to Note 7.
STOCK-BASED COMPENSATION
Compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. Compensation cost for stock
appreciation rights and performance equity units is recorded annually based on
the quoted market price of the Company's stock at the end of the period. Refer
to Note 9.
ADVERTISING COSTS
Costs incurred for producing and communicating advertising are generally
expensed when incurred. Costs incurred under the Company's domestic cooperative
advertising program with dealers and franchisees are recorded subsequent to the
first time the advertising takes place, as related revenues are recognized.
Refer to Note 14.
INCOME TAXES
Income taxes are recognized during the year in which transactions enter into the
determination of financial statement income, with deferred taxes being provided
for temporary differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. Refer to
Note 15.
ENVIRONMENTAL CLEANUP MATTERS
The Company expenses environmental expenditures
37
<PAGE> 20
Notes to Financial Statements
(CONTINUED)
related to existing conditions resulting from past or current operations and
from which no current or future benefit is discernible. Expenditures which
extend the life of the related property or mitigate or prevent future
environmental contamination are capitalized. The Company determines its
liability on a site by site basis and records a liability at the time when it is
probable and can be reasonably estimated. The Company's estimated liability is
reduced to reflect the anticipated participation of other potentially
responsible parties in those instances where it is probable that such parties
are legally responsible and financially capable of paying their respective
shares of the relevant costs. The estimated liability of the Company is not
discounted or reduced for possible recoveries from insurance carriers. Refer to
Note 18.
FOREIGN CURRENCY TRANSLATION
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses. Where the local currency is the functional currency,
translation adjustments are recorded as a separate component of Shareholders'
Equity. Where the U.S. dollar is the functional currency, translation
adjustments are recorded in income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and related
notes to financial statements. Changes in such estimates may affect amounts
reported in future periods.
PER SHARE OF COMMON STOCK
Basic earnings per share has been computed based on the average number of common
shares outstanding. Diluted earnings per share reflects the increase in average
common shares outstanding that would result from the assumed exercise of
outstanding stock options, calculated using the treasury stock method. All
earnings per share amounts in these notes to financial statements are basic
earnings per share.
RECLASSIFICATION
Certain items previously reported in specific financial statement captions have
been reclassified to conform with the 1997 presentation.
NOTE 2. RATIONALIZATIONS
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Rationalizations
and other provisions $ 265.2 $ 148.5 $ --
Asset sales -- (32.1) --
$ 265.2 $ 116.4 $ --
========== ========== ==========
</TABLE>
1997
Rationalizations and Other Provisions -- As a result of continued competitive
conditions in the markets served by the Company, a number of rationalization
actions were approved in 1997 to reduce costs and focus on the core tire and
general products businesses. These actions, the timing of which resulted in part
from the finalization of labor contract negotiations in the United States,
included the optimization, downsizing or consolidation of certain production
facilities, consolidation of distribution operations and withdrawal of support
from the worldwide Formula 1 racing series. In connection with these actions,
obligations under certain leases and other contracts were accrued, other assets
were written off and over 3,000 associates have been or will be released. A
charge of $265.2 million ($176.3 million after tax or $1.13 per share) was
recorded in the fourth quarter of 1997, of which $52.5 million related to
non-cash writeoffs and $212.7 million related to future cash outflows, primarily
for associate severance costs. The balance of these provisions on the
Consolidated Balance Sheet was $201.9 million at December 31, 1997.
The Company recorded a charge of $146.1 million for the release of more
than 3,000 associates around the world. Of this amount, $31.7 million, resulting
from related pension curtailments, was recorded as a pension liability.
Approximately 60 percent of the associates to be released under the plan are or
were hourly associates at manufacturing and distribution locations, primarily in
the United States. The balance of the associates to be released are salaried
associates in various managerial, sales, supervisory and staff positions
scheduled for elimination under the plan, primarily at operations in Europe and
the United States. At December 31, 1997, approximately 450 associates, primarily
salaried associates in Europe, had been released at a total cost of $25.3
million. The balance of this provision was $89.1 million at December 31, 1997.
Optimization, downsizing, consolidation and withdrawal costs, other
than associate-related cost, were recorded, and were incurred through December
31, 1997, as follows:
<TABLE>
<CAPTION>
(In millions) Recorded Incurred
---------- ----------
<S> <C> <C>
Withdrawal of support of the Formula 1
racing series $ 63.4 $ 6.3
Plant downsizing and closure activities 23.0 --
Kelly-Springfield consolidation 12.9 --
Consolidation of North American
distribution facilities 12.3 --
Commercial tire outlet consolidation 4.7 --
Product realignments 2.8 --
$ 119.1 $ 6.3
========== ==========
</TABLE>
Withdrawal costs associated with Formula 1 racing relate to the fulfillment of
contracts with various racing teams, the writeoff of equipment and other assets
no longer needed and estimated operating costs for the 1998 racing season. Plant
downsizing and closure activities relate to four production facilities in the
United States. Costs associated with downsizing and closure are for the writeoff
of buildings and equipment and for lease cancellation costs. The
Kelly-Springfield consolidation involves the integration of the
38
<PAGE> 21
Notes to Financial Statements
(CONTINUED)
Kelly-Springfield tire division located in Cumberland, Maryland, into the
Company's Akron, Ohio, world headquarters, the cost of which relates to
noncancellable leases and the writeoff of equipment. The consolidation of
distribution facilities in North America from 40 to 18 resulted in lease
cancellation costs associated with the anticipated closure of these facilities.
The commercial tire outlet consolidation involves the writeoff of equipment and
lease cancellation costs relating to the planned closing of approximately 30
locations. The cost associated with production realignments involves the
writeoff of equipment due to consolidation of production. At December 31, 1997,
the balance of the provision for these costs was $112.8 million.
The actions are anticipated to be substantially completed during
1998-1999.
1996
Rationalizations and other provisions -- As part of a rationalization
plan the Company recorded charges totaling $148.5 million ($95.3 million after
tax or $.62 per share) related to worldwide workforce reductions, consolidation
of operations and the closing of manufacturing facilities. The remaining balance
of these provisions totaled $49.6 million and $110.0 million at December 31,
1997 and 1996, respectively.
The Company recorded $113.3 million for the release of approximately
2,800 associates around the world. Approximately 50 percent of the associates to
be released in accordance with the plan are or were hourly associates at
manufacturing and warehouse locations, primarily in Latin America and the United
States. The balance of the associates are or were salaried associates in various
managerial, sales, supervisory and staff positions eliminated, primarily at
locations in Europe and the United States. At December 31, 1997, approximately
2,300 associates, primarily hourly associates in the United States, Latin
America and Europe, had been released at a cost of approximately $85.8 million.
The balance of this provision was $27.5 million and $85.6 million at December
31, 1997 and 1996, respectively.
Rationalization costs, other than for associate-related costs, were
recorded, and were incurred through December 31, 1997, as follows:
<TABLE>
<CAPTION>
(In millions) Recorded Incurred
---------- ----------
<S> <C> <C>
Discontinuance of PVC production $ 10.6 $ 1.3
Canadian retail store closures 9.0 3.8
International production rationalization. 8.5 3.7
North American Tire production
rationalization 7.1 4.3
$ 35.2 $ 13.1
========== ==========
</TABLE>
The costs related to discontinuing the production of polyvinylchloride (PVC) at
the Niagara Falls chemical manufacturing facility was for the writeoff of
equipment. The costs relating to the closure of certain Canadian retail stores
relate primarily to noncancellable leases. Production rationalization plans at
international locations, primarily the closure of the Greece tire manufacturing
facility, relate to the writeoff and disposal of equipment. The North American
Tire business unit rationalized production at various tire plants in the United
States. The costs recorded and incurred related primarily to the writeoff of
equipment and noncancellable leases. The balance of these provisions was $22.1
million and $24.4 million at December 31, 1997 and 1996, respectively.
The action are anticipated to be substantially completed during 1998.
Asset sales -- During 1996 the Company recorded net gains totaling
$32.1 million ($21.6 million after tax or $.14 per share) related to the sale of
business property in Asia, a portion of an investment in an Asian plantation and
the loss on the anticipated sale of a U.S. manufacturing facility.
NOTE 3. OTHER (INCOME) AND EXPENSE
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest income $ (23.0) $ (28.5) $ (27.3)
Financing fees and
financial instruments 41.4 39.7 48.3
Miscellaneous 6.1 11.4 --
$ 24.5 $ 22.6 $ 21.0
========== ========== ==========
</TABLE>
Interest income consists of amounts earned on deposits, primarily from funds
invested in time deposits in Latin America and Europe, pending remittance or
reinvestment in the region.
Financing fees and financial instruments consists primarily of fees
paid under the Company's domestic accounts receivable continuous sale programs.
Refer to Note 4.
NOTE 4. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
<CAPTION>
(In millions) 1997 1996
---------- ----------
<S> <C> <C>
Accounts and notes receivable $ 1,783.1 $ 1,764.1
Allowance for doubtful accounts (49.5) (58.1)
$ 1,733.6 $ 1,706.0
========== ==========
</TABLE>
Throughout the year, the Company sold certain domestic accounts receivable under
a continuous sale program. Under the program, undivided interests in designated
receivable pools were sold to the purchaser with recourse limited to the
receivables purchased. At December 31, 1997 and 1996, the level of net proceeds
from sales under the program was $550 million. The balance of the uncollected
portion of receivables sold under that and other agreements was $576.2 million
and $569.9 million at December 31, 1997 and 1996, respectively. Fees paid by the
Company under these agreements are based on certain variable market rate indices
and are recorded as Other (Income) and Expense.
39
<PAGE> 22
Notes to Financial Statements
(CONTINUED)
NOTE 5. INVENTORIES
<TABLE>
<CAPTION>
(In millions) 1997 1996
---------- ----------
<S> <C> <C>
Raw materials $ 307.0 $ 288.4
Work in process 87.1 77.2
Finished product 1,441.1 1,408.6
$ 1,835.2 $ 1,774.2
========== ==========
</TABLE>
The cost of inventories using the last-in, first-out (LIFO) method
(approximately 37.6% of consolidated inventories in 1997 and 1996) was less than
the approximate current cost of inventories by $380.3 million at December 31,
1997 and $406.9 million at December 31, 1996.
NOTE 6.PROPERTIES AND PLANTS
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------------
Capital Capital
(In millions) Owned Leases Total Owned Leases Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Properties and plants, at cost:
Land and improvements $ 293.1 $ 3.7 $ 296.8 $ 308.2 $ 3.7 $ 311.9
Buildings and improvements 1,347.5 33.4 1,380.9 1,331.5 37.3 1,368.8
Machinery and equipment 6,442.4 49.8 6,492.2 6,251.4 58.8 6,310.2
Pipeline 504.3 -- 504.3 503.1 -- 503.1
Construction in progress 559.8 -- 559.8 509.7 -- 509.7
9,147.1 86.9 9,234.0 8,903.9 99.8 9,003.7
========== ========== ========== ========== ========== ==========
Accumulated depreciation (5,013.8) (70.5) (5,084.3) (4,856.0) (79.8) (4,935.8)
$ 4,133.3 $ 16.4 $ 4,149.7 $ 4,047.9 $ 20.0 $ 4,067.9
========== ========== ========== ========== ========== ==========
</TABLE>
The weighted average useful lives of property used in arriving at the annual
amount of depreciation provided are as follows: buildings and improvements, 18
years; machinery and equipment, 11 years.
NOTE 7. FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS
SHORT TERM DEBT AND FINANCING ARRANGEMENTS
At December 31, 1997, the Company had short term uncommitted credit arrangements
totaling $1.45 billion, of which $.86 billion were unused. These arrangements
are available to the Company or certain of its international subsidiaries
through various international banks at quoted market interest rates. There are
no commitment fees or compensating balances associated with these arrangements.
In addition, the Company maintains a commercial paper program, whereunder the
Company may have up to $550 million at any one time outstanding. No commercial
paper was outstanding at December 31, 1997.
A short term credit facility agreement is available whereunder the
Company may from time to time borrow and have outstanding until December 31,
1998 up to U.S. $50 million at any one time with an international bank. Under
the terms of the agreement, the Company may repay U.S. dollar borrowings in
either U.S. dollars or a predetermined equivalent amount of certain available
European currencies. Borrowings are discounted at rates equivalent to 12.5 basis
points over a three month reserve adjusted LIBOR. A commitment fee of 8 basis
points is paid on the $50 million commitment (whether or not borrowed). There
were no borrowings outstanding under this agreement at December 31, 1997. The
average amount outstanding under a similar agreement during 1997 was $40.9
million.
The Company had outstanding short term debt amounting to $589.2 million
at December 31, 1997. Domestic short term debt represented $178.0 million of
this total with a weighted average interest rate of 6.03% at December 31, 1997.
The remaining $411.2 million was short term debt of international subsidiaries
with a weighted average interest rate of 7.29% at December 31, 1997. Of these
debt obligations, which by their terms are due within one year, $149.0 million
were classified as long term at December 31, 1997. Such obligations are
supported by the availability under the revolving credit agreements discussed on
the following page, and it is the Company's intent to maintain them as long
term.
40
<PAGE> 23
Notes to Financial Statements
(CONTINUED)
LONG TERM DEBT AND FINANCING ARRANGEMENTS
At December 31, 1997, the Company had long term credit arrangements totaling
$1.97 billion, of which $1.21 billion were unused.
The following table presents long term debt at December 31:
<TABLE>
<CAPTION>
(In millions) 1997 1996
---------- ----------
<S> <C> <C>
Promissory notes:
12.15% due 1998-2000 $ -- $ 10.0
10.26% due 1999 -- 118.4
Swiss franc bonds:
5.375% due 2000 115.2 124.0
5.375% due 2006 108.6 116.8
6 5/8% Notes due 2006 249.1 249.0
Bank term loans due 1998-2001 182.2 218.0
Other domestic and international debt 243.6 308.5
---------- ----------
898.7 1,144.7
Capital lease obligations 12.3 13.9
---------- ----------
911.0 1,158.6
Less portion due within one year 66.5 26.4
$ 844.5 $ 1,132.2
========== ==========
</TABLE>
At December 31, 1997, the fair value of the Company's long term fixed rate debt
amounted to $595.8 million, compared to its carrying amount of $571.3 million
($687.5 million and $657.2 million, respectively, at December 31, 1996). The
difference was attributable primarily to the Swiss franc bonds in 1997 and the
promissory notes and the Swiss franc bonds in 1996. The fair value was estimated
using quoted market prices or discounted future cash flows. The fair value of
the Company's variable rate debt approximated its carrying amount at December
31, 1997 and 1996.
The 6 5/8% Notes due 2006 have a face amount of $250 million and are
reported net of unamortized discount.
The bank term loans due 1998 through 2001 are comprised of a $30
million agreement bearing interest at 6.5% and various other agreements which
provide for interest at floating rates based upon LIBOR plus or minus a fixed
spread. The weighted average rate in effect under the terms of the floating rate
agreements at December 31, 1997 was 5.97%. Of these agreements, one $50 million
agreement allows the bank to convert the loan to a stated fixed interest rate of
6.55% at annual dates prior to maturity in 2001.
The Company is a party to two revolving credit facility agreements,
each with 28 domestic and international banks, consisting of a $900 million four
year revolving credit facility and a $300 million 364-day revolving credit
facility. The $900 million four year credit facility agreement provides that the
Company may borrow at any time until July 15, 2001, when the commitment
terminates and any outstanding loans mature. The Company pays a commitment fee
ranging from 7.5 to 15 basis points on the entire amount of the commitment
(whether or not borrowed) and a usage fee on amounts borrowed (other than on a
competitive bid or prime rate basis) ranging from 15 to 30 basis points. These
fees may fluctuate within these ranges quarterly based upon the Company's
performance as measured by defined ranges of leverage. During 1997 commitment
and usage fees were 10 and 20 basis points, respectively. The $300 million
364-day credit facility agreement provides that the Company may borrow until
July 13, 1998, 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 a
commitment fee of 8 basis points on the entire amount of the commitment (whether
or not borrowed) and a usage fee of 22 basis points on amounts borrowed (other
than on a competitive bid or prime rate basis). Under both the four year and the
364-day credit facility agreements, the Company may obtain loans bearing
interest at reserve adjusted LIBOR or a defined certificate of deposit rate,
plus in each case the applicable usage fee. In addition, the Company may obtain
loans based on the prime rate or at a rate determined on a competitive bid
basis. The facility agreements each contain certain covenants which, among other
things, require the Company to maintain at the end of each fiscal quarter a
minimum consolidated net worth and a defined minimum interest coverage ratio and
establishes a limit on the aggregate amount of consolidated debt the Company and
its subsidiaries may incur. There were no borrowings outstanding under these
agreements at December 31, 1997.
Other domestic and international debt consisted of the previously
mentioned reclassified short term bank borrowings, current maturities of long
term debt totaling $5.8 million and other floating and fixed rate Deutschemark
and U.S. dollar bank term loans maturing in 1998-2002, with a weighted average
interest rate of 6.76% at December 31, 1997.
41
<PAGE> 24
Notes to Financial Statements
(CONTINUED)
The Company actively manages its fixed and floating rate debt mix,
within defined limitations, using refinancings and unleveraged interest rate
swaps. The Company will enter 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. Fixed rate swaps
are used to reduce the Company's risk of increased interest costs during periods
of rising interest rates. Floating rate swaps are used to convert the fixed
rates of long term borrowings into short term variable rates. Interest rate
swaps contracts are thus used by the Company to separate interest rate risk
management from the debt funding decision. At December 31, 1997 and 1996, the
interest rate on 62% of the Company's debt was fixed by either the nature of the
obligation or through the interest rate contracts. Floating rate contracts with
notional principal amounts of $110 million were sold to retain the above
mentioned 62% fixed/floating ratio.
Contract information and weighted average interest rates follow:
<TABLE>
<CAPTION>
December 31, December 31,
(Dollars in millions) 1996 Matured Sold 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed rate swap contracts:
Notional principal amount $ 275.0 $ 125.0 -- $ 150.0
Pay fixed rate 8.00% 9.00% -- 7.16%
Receive variable LIBOR 5.63 5.65 -- 5.80
Average years to maturity 1.87 2.15
Fair value:(unfavorable) $ (3.0) $ (.8)
Carrying amount: (liability) (1.2) (.5)
Floating rate swap contracts:
Notional principal amount $ 110.0 -- $ 110.0 --
Pay variable LIBOR 5.57% -- 5.75% --
Receive fixed rate 6.24 -- 6.24 --
Average years to maturity 6.67 --
Fair value: (unfavorable) $ (.9) --
Carrying amount: asset 1.0 --
---------- ---------- ---------- ----------
</TABLE>
Current market pricing models were used to estimate the fair values of
interest rate swap contracts.
Weighted average information during the years 1997, 1996 and 1995
follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Fixed rate contracts:
Pay fixed rate 7.46% 8.85% 8.95%
Receive variable LIBOR 5.74 5.66 6.23
Notional principal $ 191 $ 244 $ 416
Floating rate contracts:
Pay variable LIBOR 5.63% 5.52% 6.06%
Receive fixed rate 6.24 6.41 6.69
Notional principal $ 66 $ 144 $ 50
---------- ---------- ----------
</TABLE>
The annual aggregate maturities of long term debt and capital leases for the
five years subsequent to 1997 are presented below. Maturities of debt supported
by the availability of the revolving credit agreements have been reported on the
basis that the commitments to lend under these agreements will be terminated
effective at the end of their current terms.
<TABLE>
<CAPTION>
(In millions) 1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Debt incurred under or supported
by revolving credit agreements $ -- $ -- $ -- $ 155.0 $ --
Other 66.5 30.2 206.3 58.8 1.9
$ 66.5 $ 30.2 $ 206.3 $ 213.8 $ 1.9
========== ========== ========== ========== ==========
</TABLE>
Refer to Note 8, Leased Assets for additional information on capital lease
obligations.
42
<PAGE> 25
Notes to Financial Statements
(CONTINUED)
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
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 December
31, 1997 and 1996. These contracts reduce exposure to currency movements
affecting existing foreign currency denominated assets, liabilities and firm
commitments resulting primarily from trade receivables and payables, equipment
acquisitions, intercompany loans and the Company's Swiss franc debt, including
the annual coupon payments. The carrying amounts of these contracts (excluding
the Swiss franc contracts) totaled $2.5 million and $14.7 million at December
31, 1997 and 1996, respectively, and were recorded in Accounts and Notes
Receivable. The carrying amounts of the Swiss franc contracts totaled $76.0
million and $93.0 million at December 31, 1997 and 1996, respectively, and were
recorded in Long Term Accounts and Notes Receivable.
A summary of forward exchange contracts in place at December 31
follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- ------------------------
Fair Contract Fair Contract
(In millions) Value Amount Value Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Buy currency:
Swiss franc $ 218.2 $ 151.0 $ 238.9 $ 151.0
U.S. dollar 61.4 60.7 44.4 44.5
German mark 96.4 96.4 -- --
British pound 16.6 16.6 -- --
All other 27.7 28.5 35.9 36.5
$ 420.3 $ 353.2 $ 319.2 $ 232.0
========== ========== ========== ==========
Contract maturity:
Swiss franc 10/00 - 3/06 10/00 - 3/06
All other 1/98 - 12/98 1/97 - 7/97
----------------------- -----------------------
Sell currency:
Belgian franc $ 212.4 $ 215.3 $ 231.5 $ 243.4
German mark 121.6 121.6 136.5 140.4
British pound 30.9 30.8 -- --
U.S. dollar -- -- 33.4 33.4
All other 82.9 84.0 92.8 92.4
$ 447.8 $ 451.7 $ 494.2 $ 509.6
========== ========== ========== ==========
Contract maturity 1/98 - 12/98 1/97 - 7/97
----------------------- -----------------------
</TABLE>
Current market pricing models were used to estimate the fair values of foreign
currency forward contracts. The contract maturities match the maturities of the
currency positions. The fair value of these contracts and the related currency
positions are subject to offsetting market risk resulting from foreign currency
exchange rate volatility.
The counterparties to the Company's interest rate swap, currency
exchange and forward exchange contracts are substantial and creditworthy
multinational commercial banks or other financial institutions which are
recognized market makers. Neither the risks of counterparty nonperformance nor
the economic consequences of counterparty nonperformance associated with these
contracts are considered by the Company to be material.
NOTE 8. LEASED ASSETS
NET RENTAL EXPENSE CHARGED TO INCOME FOLLOWS:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Gross rental expense $ 244.3 $ 256.4 $ 278.8
Sublease rental income (53.5) (49.6) (49.1)
$ 190.8 $ 206.8 $ 229.7
========== ========== ==========
</TABLE>
The Company enters into capital and operating leases primarily for its vehicles,
data processing equipment and its wholesale and retail distribution facilities
under varying terms and conditions, including the Company's sublease of some of
its domestic retail distribution network to independent dealers. Many of the
leases provide that the Company will pay taxes assessed against leased property
and the cost of insurance and maintenance.
While substantially all subleases and some operating leases are
cancelable for periods beyond 1998, management expects that in the normal course
of its business nearly all of its independent dealer distribution network will
be actively operated. As leases and subleases for existing locations expire, the
Company would normally expect to renew the leases or substitute another more
favorable retail location.
Estimated minimum future lease payments, net of anticipated sublease
revenue, follow:
<TABLE>
<CAPTION>
Capital Operating Sublease
(In millions) Leases Leases Revenue
--------------------------
<S> <C> <C> <C>
1998 $ 2.2 $147.4 $ 43.8
1999 2.3 125.8 36.5
2000 2.0 100.2 27.8
2001 2.6 65.6 18.8
2002 1.8 53.1 11.9
2003 and thereafter 9.8 183.0 20.1
$ 20.7 $675.1 $158.9
====== ====== ======
Present value of net
minimum lease payments $ 11.5 $532.2
====== ====== ======
</TABLE>
43
<PAGE> 26
Notes to Financial Statements
(CONTINUED)
NOTE 9. STOCK COMPENSATION PLANS
The Company's 1987 Employee Stock Option Plan, the 1989 Goodyear Performance and
Equity Incentive Plan and the 1997 Performance Incentive Plan of The Goodyear
Tire & Rubber Company provide for the granting of stock options and stock
appreciation rights (SARs). For options granted in tandem with SARs, the
exercise of a SAR cancels the stock option; conversely, the exercise of the
stock option cancels the SAR. The 1987 Plan terminated on April 10, 1989, and
the 1989 Plan terminated on April 14, 1997, except with respect to grants and
awards then outstanding.
The 1997 Plan empowers, and the 1989 Plan authorized, the Company to
grant from time to time to officers and other key employees of the Company and
subsidiaries restricted stock, performance grants and other stock-based awards
authorized by the Compensation Committee of the Board of Directors, which
administers the 1997 Plan. The 1997 Plan will expire by its terms on December
31, 2001, except with respect to grants and awards then outstanding.
Stock options and related SARs granted during 1997 generally have a
maximum term of ten years and vest pro rata over four years. Performance units
(PUs) granted during 1997 are based on cumulative net income per share of the
Company's Common Stock over a three year performance period ending December 31,
2000. To the extent earned, 50% of the PUs will be paid in cash (subject to
deferral under certain circumstances) and 50% will be automatically deferred for
at least 5 years in the form of units, each equivalent to a share of the
Company's Common Stock and payable in cash, shares of the Company's Common Stock
or a combination thereof at the election of the participant. Assuming that there
will be full utilization of the shares of the Company's Common Stock available
for awards during the term of the 1997 Plan, 15,000,000 shares of the Company's
Common Stock would be available for issuance pursuant to grants and awards made
through December 31, 2001.
Stock-based compensation activity for the years 1997, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------------------
Shares SARs Shares SARs Shares SARs
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 8,277,689 1,052,799 7,327,626 793,371 7,749,660 782,446
Options granted 1,919,325 375,967 3,388,041 538,780 1,731,725 229,200
Options without SARs exercised (1,759,202) -- (2,212,106) -- (1,857,190) --
Options with SARs exercised (189,805) (189,805) (189,359) (189,359) (86,325) (86,325)
SARs exercised (38,968) (38,968) (82,700) (82,700) (62,950) (62,950)
Options without SARs expired (35,080) -- (25,113) -- (49,100) --
Options with SARs expired (9,745) (9,745) (7,293) (7,293) (4,700) (4,700)
SARs expired -- -- -- -- (900) (64,300)
Restricted stock granted -- -- -- -- 10,000 --
Restricted stock issued -- -- -- -- (10,000) --
Performance equity units granted 111,788 -- 148,650 -- 8,963 --
Performance equity shares issued (26,619) -- (43,753) -- (64,591) --
Performance equity units cancelled (23,239) -- (26,304) -- (36,966) --
Outstanding at December 31 8,226,144 1,190,248 8,277,689 1,052,799 7,327,626 793,371
============ ============ ============ ============ ============ ============
Exercisable at December 31 3,019,753 331,713 3,733,699 361,963 5,033,729 482,296
============ ============ ============ ============ ============ ============
Available for grant at December 31 13,008,945 1,055,957 2,908,914
============ ============ ============ ============ ============ ============
</TABLE>
Weighted average option exercise price information for the years 1997, 1996 and
1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding at January 1 $ 40.22 $ 33.96 $ 31.34
Granted during the year 63.50 47.05 34.75
Exercised during the year 36.04 31.27 29.71
Outstanding at December 31 46.86 40.22 33.96
Exercisable at December 31 38.51 35.25 32.30
------------ ------------ ------------
</TABLE>
Significant option groups outstanding at December 31, 1997 and related weighted
average price and life information follows:
<TABLE>
<CAPTION>
Grant Date Options Outstanding Options Exercisable Exercise Price Remaining Life (Years)
---------- ------------------- ------------------- -------------- ----------------------
<S> <C> <C> <C> <C>
12/2/97 1,895,925 -- $63.50 10
12/3/96 1,697,703 439,003 50.00 9
1/9/96 1,429,407 345,883 44.00 8
1/4/95 1,034,672 406,521 34.75 7
1/4/94 772,750 772,750 44.25 6
All other 1,038,787 1,003,735 28.62 4
--------- --------- -------- ------
</TABLE>
44
<PAGE> 27
Notes to Financial Statements
(CONTINUED)
Options in the 'All other' category were outstanding at prices ranging from
$11.25 to $52.50. All options and SARs were granted at an exercise price equal
to the fair market value of the Company's common stock at the date of grant.
Weighted average fair values at date of grant for grants in 1997, 1996
and 1995 follow:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Options $ 22.03 $ 18.58 $ 17.17
Performance equity units 63.50 47.02 34.75
---------- ---------- ----------
</TABLE>
The above fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate 5.82% 5.69% 7.80%
Volatility 25.6 33.6 43.0
Dividend yield 1.68 1.65 2.34
---------- ---------- ----------
</TABLE>
The fair value of performance equity units at date of grant was equal to the
market value of the Company's common stock at that date.
Stock-based compensation costs reduced income as follows:
<TABLE>
<CAPTION>
(In millions, except per share) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Pretax income $ 10.2 $ 6.8 $ 8.7
Net income 6.1 4.1 5.2
Net income per share .04 .03 .03
---------- ---------- ----------
</TABLE>
The following table presents the pro forma reduction in income that would have
been recorded had the fair values of options granted in each year been
recognized as compensation expense on a straight line basis over the vesting
period of the grant. The pro forma effect on income is not representative of the
pro forma effect on income in future years because it does not take into
consideration grants made prior to 1995.
<TABLE>
<CAPTION>
(In millions, except per share) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Pretax income $ 18.6 $ 12.5 $ 6.0
Net income 15.9 10.7 5.2
Net income per share .10 .07 .03
-------- -------- --------
</TABLE>
NOTE 10. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company and its subsidiaries provide substantially all domestic associates
and associates at certain international subsidiaries with health care and life
insurance benefits upon retirement. The life insurance and certain health care
benefits are provided by insurance companies through premiums based on expected
benefits to be paid during the year. Substantial portions of the health care
benefits for domestic retirees are not insured and are paid by the Company.
Net periodic benefit cost follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period $ 22.0 $ 22.9 $ 21.2
Interest cost 154.3 155.0 152.5
Net amortization 1.9 5.0 (1.7)
$ 178.2 $ 182.9 $ 172.0
========== ========== ==========
</TABLE>
The following table sets forth the funded status and amounts recognized on the
Company's Consolidated Balance Sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(In millions) 1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Retirees $ (1,309.2) $ (1,303.4)
Vested active plan participants (515.3) (516.4)
Other active plan participants (257.4) (259.1)
---------- ----------
Accumulated benefit obligation
in excess of plan assets (2,081.9) (2,078.9)
Unrecognized net loss 312.0 286.2
Unrecognized prior service cost (38.7) 6.1
Accrued benefit cost recognized
on the Consolidated Balance Sheet $ (1,808.6) $ (1,786.6)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------------------- ---------------------
Assumptions: U.S. International U.S. International
---- ------------- ----- -------------
<S> <C> <C> <C> <C>
Discount rate 7.5% 5.0% - 15.0% 7.75% 5.0% - 8.5%
Rate of increase
in compensation
levels 4.0 2.5 - 14.0 4.5 2.5 - 5.75
---- ------------- ----- -------------
</TABLE>
An 8% annual rate of increase in the cost of health care benefits for retirees
under age 65 and a 5.75% annual rate of increase for retirees 65 years and older
is assumed in 1998. These rates gradually decrease to 5% in 2010 and remain at
that level thereafter. To illustrate the significance of a 1% increase in the
assumed health care cost trend, the accumulated benefit obligation would
increase by $22.9 million at December 31, 1997, and the aggregate service and
interest cost by $2.7 million for the year then ended.
45
<PAGE> 28
Notes to Financial Statements
(CONTINUED)
NOTE 11. PENSIONS
The Company and its subsidiaries provide substantially all associates with
pension benefits. The principal domestic hourly plan provides benefits based on
length of service. The principal domestic plans covering salaried associates
provide benefits based on career average earnings formulas. Associates making
voluntary contributions to these plans receive higher benefits. Other plans
provide benefits similar to the principal domestic plans as well as termination
indemnity plans at certain international subsidiaries.
The Company's domestic funding practice since 1993 has been to fund
amounts in excess of the requirements of Federal laws and regulations. During
the five years ended December 31, 1997, the Company funded $689.3 million to its
domestic pension plans, which were fully funded at that date.
Net periodic pension cost follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 96.9 $ 92.4 $ 82.9
Interest cost on projected benefit obligations 252.5 236.7 220.6
Actual return on plan assets (563.6) (399.6) (424.0)
Net amortization and deferrals 349.3 206.1 276.6
$ 135.1 $ 135.6 $ 156.1
========== ========== ==========
</TABLE>
The following table sets forth the funded status and amounts recognized on the
Company's Consolidated Balance Sheet at December 31, 1997 and 1996. At the end
of 1997 and 1996, assets exceeded accumulated benefits in certain plans and
accumulated benefits exceeded assets in others. Plan assets are invested
primarily in common stocks and fixed income securities.
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(In millions) Benefits Exceed Assets Benefits Exceed Assets
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (2,860.5) $ (213.1) $ (2,463.6) $ (225.7)
========== ========== ========== ==========
Accumulated benefit obligation $ (3,142.0) $ (258.9) $ (2,709.4) $ (270.6)
========== ========== ========== ==========
Projected benefit obligation $ (3,272.7) $ (323.7) $ (2,838.8) $ (340.0)
Plan assets 3,506.5 60.8 3,021.4 60.8
---------- ---------- ---------- ----------
Projected benefit obligation less than
(in excess of) plan assets 233.8 (262.9) 182.6 (279.2)
Unrecognized net (gain) loss (106.3) 82.1 (1.6) 79.2
Unrecognized prior service cost 377.7 1.7 344.6 (.6)
Unrecognized net (asset) obligation at transition (5.4) 16.3 (7.3) 21.7
Adjustment required to recognize minimum liability -- (50.9) -- (55.0)
Pension asset (liability) recognized on the
Consolidated Balance Sheet $ 499.8 $ (213.7) $ 518.3 $ (233.9)
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------------------------
Assumptions: U.S. International U.S. International U.S. International
------ -------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.5 % 3.0 % -12.0 % 7.75 % 3.0 % -12.0 % 7.75 % 3.0 % -12.0 %
Rate of increase in
compensation levels 4.0 0 -10.5 4.5 0 -10.5 4.5 0 -10.5
Expected long term rate
of return on plan assets 9.5 4.0 -12.0 9.0 5.0 -12.0 9.0 5.0 -12.0
------ ------------- ------- ------------ ------- ------------
</TABLE>
During 1997, the Company recognized curtailment losses of $19.5 million as part
of a charge for rationalizations and other
provisions.
Refer to Note 2.
For plans that are not fully funded, the Company is required to offset
the adjustment required to recognize minimum liability on the Consolidated
Balance Sheet with an intangible asset, up to the amount of unrecognized prior
service cost plus unrecognized obligations at transition that remain at December
31 of each year. Liability amounts in excess of these two items are offset by a
separate reduction in Shareholders' Equity, net of tax. Accordingly,
Shareholders' Equity was reduced by $28.1 million at December 31, 1997, compared
to $31.0 million at December 31, 1996.
Certain international subsidiaries maintain unfunded plans consistent
with local practices and requirements and at December 31, 1997, these plans
accounted for $71.6 million of the Company's accumulated benefit obligation,
$80.9 million of its projected benefit obligation and $23.0 million of its
minimum pension liability adjustment ($76.6 million, $88.2 million and $23.4
million, respectively, at December 31, 1996).
46
<PAGE> 29
Notes to Financial Statements
(CONTINUED)
NOTE 12. SAVINGS PLANS
Substantially all domestic associates are eligible to participate in one of the
Company's six savings plans. Under these plans associates elect to contribute a
percentage of their pay. In 1997, most plans provided for the Company's matching
of these contributions (up to a maximum of 6% of the associate's annual pay or,
if less, $9,500) at the rate of 50%. Company contributions were $40.6 million,
$38.0 million and $38.2 million for 1997, 1996 and 1995, respectively.
NOTE 13. INTEREST EXPENSE
Interest expense includes interest and amortization of debt discount and expense
less amounts capitalized as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest expense before
capitalization $ 125.7 $ 134.0 $ 140.1
Less capitalized interest 6.2 5.4 5.1
$ 119.5 $ 128.6 $ 135.0
========== ========== ==========
</TABLE>
The Company made cash payments for interest in 1997, 1996 and 1995 of $131.7
million, $141.0 million and $136.4 million, respectively.
NOTE 14. ADVERTISING COSTS
Advertising costs for 1997, 1996 and 1995 were $244.1 million, $249.8 million
and $246.7 million, respectively.
NOTE 15. INCOME TAXES
The components of Income before Income Taxes, adjusted for Minority Interest in
Net Income of Subsidiaries, follow:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
U.S. $ 142.2 $ 120.2 $ 215.4
Foreign 601.1 691.3 654.4
---------- ---------- ----------
743.3 811.5 869.8
Minority Interest in Net
Income of Subsidiaries 44.6 43.1 36.2
$ 787.9 $ 854.6 $ 906.0
========== ========== ==========
</TABLE>
A reconciliation of Federal income taxes at the U.S. statutory rate to income
taxes provided follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Federal income tax
at the statutory rate of 35% $ 275.8 $ 299.1 $ 317.1
Adjustment for foreign income
taxed at different rates (31.3) (23.7) (21.3)
Other (23.6) (22.4) (1.2)
United States and Europe
Taxes on Income $ 220.9 $ 253.0 $ 294.6
========== ========== ==========
Effective tax rate 28.0% 29.6% 32.5%
========== ========== ==========
</TABLE>
The components of the provision for income taxes by taxing jurisdiction
follow:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 23.0 $ (22.1) $ 6.0
Foreign income and
withholding taxes 212.6 230.4 219.3
State .5 5.2 (4.6)
---------- ---------- ----------
236.1 213.5 220.7
Deferred:
Federal (20.6) 23.9 35.7
Foreign 7.4 20.3 32.9
State (2.0) (4.7) 5.3
---------- ---------- ----------
(15.2) 39.5 73.9
United States and
Foreign Taxes on
Income $ 220.9 $ 253.0 $ 294.6
========== ========== ==========
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax assets
and liabilities at December 31, 1997 and 1996 follow:
<TABLE>
<CAPTION>
(In millions) 1997 1996
---------- ----------
<S> <C> <C>
Postretirement benefits other
than pensions $ 704.9 $ 700.4
Rationalizations and other provisions 108.0 31.6
Accrued environmental liabilities 30.1 38.2
General and product liability 49.6 56.5
Alternative minimum tax credit
carryforwards 63.2 55.0
Operating loss carryforwards 22.5 19.8
Workers' compensation 52.1 54.8
Vacation and sick pay 70.8 73.0
Other 34.6 95.0
---------- ----------
1,135.8 1,124.3
Valuation allowance (15.8) (21.4)
---------- ----------
Total deferred tax assets 1,120.0 1,102.9
Total deferred tax liabilities -- depreciation (452.8) (445.6)
-- pensions (181.6) (184.8)
Total deferred taxes $ 485.6 $ 472.5
========== ==========
</TABLE>
The Company made net cash payments for income taxes in 1997, 1996 and 1995 of
$262.6 million, $238.5 million and $243.8 million, respectively.
No provision for Federal income tax or foreign withholding tax on
retained earnings of international subsidiaries of $1,540.0 million is required
because this amount has been or will be reinvested in properties and plants and
working capital. It is not practicable to calculate the deferred taxes
associated with the remittance of these investments.
NOTE 16. RESEARCH AND DEVELOPMENT
Research and development costs for 1997, 1996 and 1995 were $384.1 million,
$374.5 million and $369.3 million, respectively.
47
<PAGE> 30
Notes to Financial Statements
(CONTINUED)
NOTE 17. BUSINESS SEGMENTS
The Tires segment is the principal industry segment, which involves the
development, manufacture, distribution and sale of tires and related products in
original equipment and replacement markets throughout most regions of the world.
Related products and services include tubes, retreads, automotive repair
services and merchandise purchased for resale.
The General products segment involves the manufacture and sale of
various engineered rubber and chemical products throughout most regions of the
world, principally in the U.S., Latin America and Europe. These products include
belts, hose, molded and extruded rubber products, tank tracks, organic chemicals
used in rubber and plastic processing, synthetic rubber, rubber latices and
other products.
The Oil transportation segment was sold during 1998. Refer to Note 20.
Operating income for each industry and geographic segment consists of
total revenues less applicable costs and expenses. Transfers between industry
segments were not material. Inter-geographic sales were at cost plus a
negotiated mark up.
Portions of the items described in Note 2, Rationalizations were
charged to the operating income of both the industry and geographic segments in
1997 and 1996 as follows:
<TABLE>
<CAPTION>
Industry Segments General
(In millions) Tires Products Total
---------- ---------- ----------
<S> <C> <C> <C>
1997
Rationalizations and other provisions $ 259.2 $ 6.0 $ 265.2
========== ========== ==========
1996
---------- ---------- ----------
Rationalizations and other provisions $ 131.9 $ 16.6 $ 148.5
Asset sales -- 10.2 10.2
$ 131.9 $ 26.8 $ 158.7
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Geographic Segments United Latin
(In millions) States Europe America Asia Canada Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1997
Rationalizations and other provisions $ 113.6 $ 95.1 $ 44.5 $ 8.0 $ 4.0 $ 265.2
========== ========== ========== ========== ========== ==========
1996
---------- ---------- ---------- ---------- ---------- ----------
Rationalizations and other provisions $ 79.5 $ 29.4 $ 24.0 $ 1.8 $ 13.8 $ 148.5
Asset sales 10.2 -- -- -- -- 10.2
$ 89.7 $ 29.4 $ 24.0 $ 1.8 $ 13.8 $ 158.7
========== ========== ========== ========== ========== ==========
</TABLE>
The following items have been excluded from the determination of operating
income: interest expense, foreign currency exchange, equity in net income of
affiliates, minority interest in net income of subsidiaries, corporate revenues
and expenses and income taxes. Corporate revenues and expenses were those items
not identifiable with the operations of a segment. Corporate revenues were
primarily from the sale of miscellaneous assets. Corporate expenses were
primarily central administrative expenses. Corporate expenses in 1996 were
reduced by gains totaling $42.3 million before tax resulting from the sales of
assets not attributable to any segment or segments.
Identifiable assets of industry and geographic segments represent those
assets that were associated with the operations of each segment. Corporate
assets consist of cash and cash equivalents, prepaid expenses and other current
assets, long term accounts and notes receivable, deferred charges and other
assets. At December 31, 1997, $122.0 million or 45.2% ($99.8 million or 39.3% at
December 31, 1996) of the Company's cash, cash equivalents and short term
securities were concentrated in Latin America, primarily Brazil and $33.1
million or 12.2% ($64.6 million or 25.5% at December 31, 1996) were concentrated
in Asia.
Dividends received by the Company and domestic subsidiaries from its
international operations for 1997, 1996 and 1995 were $323.3 million, $158.7
million and $139.0 million, respectively.
48
<PAGE> 31
Notes to Financial Statements
(CONTINUED)
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales to Unaffiliated Customers
Tires $ 10,357.7 $ 10,211.0 $ 10,104.5
Related products and services 911.6 993.3 1,157.8
------------ ------------ ------------
Total Tires 11,269.3 11,204.3 11,262.3
General products 1,796.0 1,781.4 1,776.9
Total Net Sales $ 13,065.3 $ 12,985.7 $ 13,039.2
============ ============ ============
Income
Tires $ 780.4 $ 893.3 $ 1,000.2
General products 208.2 162.9 165.6
$ 988.6 $ 1,056.2 $ 1,165.8
============ ============ ============
Interest expense (119.5) (128.6) (135.0)
Foreign currency exchange 34.1 (7.4) (17.4)
Equity in net income of affiliates 18.7 19.1 19.0
Minority interest in net income of subsidiaries (44.6) (43.1) (36.2)
Corporate revenues and expenses (134.0) (84.7) (126.4)
Income from Continuing Operations
Before Income Taxes $ 743.3 $ 811.5 $ 869.8
============ ============ ============
Assets
Tires $ 6,413.5 $ 6,270.6 $ 6,050.8
General products 848.4 815.1 791.7
Discontinued Operations 561.8 605.6 1,356.3
Identifiable Assets 7,823.7 7,691.3 8,198.8
============ ============ ============
Corporate assets 1,969.1 1,840.2 1,407.0
Investments in affiliates, at equity 124.6 140.3 183.8
Total Assets $ 9,917.4 $ 9,671.8 $ 9,789.6
============ ============ ============
Capital Expenditures
Tires $ 581.6 $ 500.6 $ 494.5
General products 115.2 112.9 116.4
Discontinued Operations 2.2 4.0 4.7
Total Capital Expenditures $ 699.0 $ 617.5 $ 615.6
============ ============ ============
Depreciation
Tires $ 384.0 $ 356.0 $ 334.3
General products 69.9 63.9 59.9
Total Depreciation $ 453.9 $ 419.9 $ 394.2
============ ============ ============
</TABLE>
49
<PAGE> 32
Notes to Financial Statements
(CONTINUED)
GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales to Unaffiliated Customers
United States $ 6,831.0 $ 6,882.8 $ 7,122.9
Europe 3,160.8 3,059.8 2,853.7
Latin America 1,575.0 1,527.5 1,542.9
Asia 772.7 845.4 833.2
Canada 725.8 670.2 686.5
Total Net Sales $ 13,065.3 $ 12,985.7 $ 13,039.2
============ ============ ============
Inter-Geographic Sales
United States $ 345.5 $ 359.3 $ 408.4
Europe 109.2 59.2 90.1
Latin America 158.0 170.2 172.5
Asia 542.0 674.1 815.9
Canada 325.0 316.8 297.3
Total Inter-Geographic Sales $ 1,479.7 $ 1,579.6 $ 1,784.2
============ ============ ============
Revenue
United States $ 7,176.5 $ 7,242.1 $ 7,531.3
Europe 3,270.0 3,119.0 2,943.8
Latin America 1,733.0 1,697.7 1,715.4
Asia 1,314.7 1,519.5 1,649.1
Canada 1,050.8 987.0 983.8
Adjustments and eliminations (1,479.7) (1,579.6) (1,784.2)
Total Revenue $ 13,065.3 $ 12,985.7 $ 13,039.2
============ ============ ============
Operating Income
United States $ 435.4 $ 393.1 $ 488.6
Europe 214.9 302.0 317.2
Latin America 224.2 246.0 238.8
Asia 65.3 99.3 90.1
Canada 48.8 15.8 31.1
Total Operating Income $ 988.6 $ 1,056.2 $ 1,165.8
============ ============ ============
Assets
United States $ 3,992.9 $ 3,915.6 $ 4,703.6
Europe 1,943.6 1,800.0 1,719.9
Latin America 849.5 765.1 683.0
Asia 524.8 688.6 576.9
Canada 512.9 522.0 515.4
Identifiable Assets 7,823.7 7,691.3 8,198.8
============ ============ ============
Corporate assets 1,969.1 1,840.2 1,407.0
Investments in affiliates, at equity 124.6 140.3 183.8
Total Assets $ 9,917.4 $ 9,671.8 $ 9,789.6
============ ============ ============
</TABLE>
50
<PAGE> 33
Notes to Financial Statements
(CONTINUED)
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 unaudited sales and operating
income of SPT:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales:
Asia Segment $ 772.7 $ 845.4 $ 833.2
SPT (unaudited) 744.2 814.1 743.7
Total (unaudited) $ 1,516.9 $ 1,659.5 $ 1,576.9
============ ============ ============
Operating Income:
Asia Segment $ 65.3 $ 99.3 $ 90.1
SPT (unaudited) 63.5 75.8 71.5
Total (unaudited) $ 128.8 $ 175.1 $ 161.6
============ ============ ============
</TABLE>
NOTE 18. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1997, the Company had binding commitments for investments in
land, buildings and equipment of $137.2 million and off-balance-sheet financial
guarantees written of $83.6 million.
At December 31, 1997, the Company had recorded liabilities aggregating
$71.2 million for anticipated costs, including legal and consulting fees, site
studies, the design and implementation of remediation plans, post-remediation
monitoring and related activities, related to various environmental matters,
primarily the remediation of numerous waste disposal sites and certain
properties sold by the Company. The amount of the Company's ultimate liability
in respect of these matters may be affected by several uncertainties, primarily
the ultimate cost of required remediation and the extent to which other
responsible parties contribute, and is expected to be paid over several years.
Refer to Note 1, Accounting Policies, Environmental Cleanup Matters for
additional information.
At December 31, 1997, the Company had recorded liabilities aggregating
$125.5 million for potential product liability and other tort claims, including
related legal fees expected to be incurred, presently asserted against the
Company. The amount recorded was determined on the basis of an assessment of
potential liability using an analysis of pending claims, historical experience
and current trends. The Company has concluded that in respect of any of the
above described liabilities, it is not reasonably possible that it would incur a
loss exceeding the amount already recognized with respect thereto which would
materially affect the Company's financial condition, results of operations or
liquidity.
The Company is a party to several related lawsuits involving employment
matters. There exists a reasonable possibility that the Company will not prevail
in these cases. Although sufficient uncertainties exist in these cases to
prevent the Company from determining the amount of its liability, if any, the
ultimate exposure is not expected to exceed $90 million at December 31, 1997.
Various other legal actions, claims and governmental investigations and
proceedings covering a wide range of matters are pending against the Company and
its subsidiaries. Management, after reviewing available information relating to
such matters and consulting with the Company's General Counsel, has determined
with respect to each such matter either that it is not reasonably possible that
the Company has incurred liability in respect thereof or that any liability
ultimately incurred will not exceed the amount, if any, recorded at December 31,
1997 in respect thereof which would be material relative to the consolidated
financial position, results of operations or liquidity of the Company. However,
in the event of an unanticipated adverse final determination in respect of
certain matters, the Company's consolidated net income for the period in which
such determination occurs could be materially affected.
51
<PAGE> 34
NOTE 19. PREFERRED STOCK PURCHASE RIGHTS PLAN
In June 1996, the Company authorized 7,000,000 shares of Series B Preferred
Stock ("Series B Preferred") issuable only upon the exercise of rights
("Rights") issued under the Preferred Stock Purchase Rights Plan adopted on, and
set forth in the Rights Agreement dated, June 4, 1996. Each share of Series B
Preferred issued would be non-redeemable, non-voting and entitled to (i)
cumulative quarterly dividends equal to the greater of $25.00 or, subject to
adjustment, 100 times the per year amount of dividends declared on Goodyear
Common Stock ("the Common Stock") during the preceding quarter and (ii) a
liquidation preference.
Under the Rights Plan, each shareholder of record on July 29, 1996
received a dividend of one Right per share of the Common Stock. Each Right, when
exercisable, will entitle the registered holder thereof to purchase from the
Company one one-hundredth of a share of Series B Preferred Stock at a price of
$250 (the "Purchase Price"), subject to adjustment. The Rights will expire on
July 29, 2006, unless earlier redeemed at $.001 per Right. The Rights will be
exercisable only in the event that an acquiring person or group purchases, or
makes -- or announces its intention to make -- a tender offer for, 15% or more
of the Common Stock. In the event that any acquiring person or group acquires
15% or more of the Common Stock, each Right will entitle the holder to purchase
that number of shares of Common Stock (or in certain circumstances, other
securities, cash or property) which at the time of such transaction would have a
market value of two times the Purchase Price.
If the Company is acquired or a sale or transfer of 50% or more of the
Company's assets or earnings power is made after the Rights become exercisable,
each Right (except those held by an acquiring person or group) will entitle the
holder to purchase common stock of the acquiring entity having a market value
then equal to two times the Purchase Price. In addition, when exercisable the
Rights under certain circumstances may be exchanged by the Company at the ratio
of one share of Common Stock (or the equivalent thereof in other securities,
property or cash) per Right, subject to adjustment.
The Rights Plan replaced the rights plan adopted in 1986, whereunder
rights to purchase Series A $10.00 Preferred Stock were issued and expired
without being exercisable on July 28, 1996.
NOTE 20 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 has been accounted for as a sale of discontinued
operations, and accordingly, the accompanying financial information has been
restated where required.
Operating results of discontinued operations follow:
<TABLE>
<CAPTION>
(In millions, except per share) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $ 89.8 $ 127.1 $ 126.7
============ ============ ============
Income (loss) before Income
Taxes $ 56.7 $ (689.2) $ 56.0
United States Taxes on Income 20.4 (232.4) 20.2
Discontinued Operations $ 36.3 $ (456.8) $ 35.8
============ ============ ============
Income (Loss) Per Share - Basic $ .24 $ (2.94) $ .24
Diluted $ .23 $ (2.91) $ .23
============ ============ ============
</TABLE>
In December 1996, industry developments occurred indicating that the
quantities of off-shore California, onshore California and Alaska North Slope
crude oil expected to be tendered in the future to the All American Pipeline
System and related assets (the System) for transportation would be below prior
estimates and that volumes of crude oil expected to be tendered to the System
for transportation to markets outside of California in the future would be
significantly lower than previously anticipated. As a result management
determined that the future cash flows expected to be generated by the System
would be less that its carrying value. In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Company reduced the
carrying value of the System to $420 million, determined using the present value
of expected future cash flows from the System, and recorded a charge of $755.6
million ($499.3 million after tax or $3.21 per share).
52
<PAGE> 35
Supplementary Data
(unaudited)
QUARTERLY DATA AND MARKET PRICE INFORMATION
<TABLE>
<CAPTION>
(In millions, except per share)
Quarter
-------------------------------------------------------------------------
1997 First Second Third Fourth Year
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 3,208.7 $ 3,289.9 $ 3,298.7 $ 3,268.0 $ 13,065.3
Gross Profit 755.6 765.3 762.4 766.4 3,049.7
Net Income $ 170.4 $ 192.2 $ 194.1 $ 2.0 $ 558.7
================ ================ ================ ================ ================
Net Income Per Share - Basic $ 1.09 $ 1.23 $ 1.25 $ .01 $ 3.58
================ ================ ================ ================ ================
- Diluted $ 1.08 $ 1.22 $ 1.22 $ .01 $ 3.53
================ ================ ================ ================ ================
Average Shares Outstanding
-- Basic 156.4 155.8 156.2 156.5 156.2
-- Diluted 158.0 157.7 158.3 158.6 158.2
Price Range of Common Stock:*
High $ 55 7/8 $ 63 3/8 $ 69 3/4 $ 71 1/4 $ 71 1/4
Low 50 5/8 49 1/4 60 5/8 58 5/8 49 1/4
Dividends Per Share .28 .28 .28 .30 1.14
================ ================ ================ ================ ================
</TABLE>
The 1997 fourth quarter included a net after-tax charge of $176.3 million or
$1.13 per share-basic for rationalizations.
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------------
1996 First Second Third Fourth Year
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 3,213.6 $ 3,295.2 $ 3,237.1 $ 3,239.8 $ 12,985.7
Gross Profit 746.6 775.6 742.8 751.8 3,016.8
Net Income (Loss) $ 151.9 $ 187.9 $ 170.2 $ (408.2) $ 101.7
============ ============ ============ ============ ============
Net Income (Loss) Per Share
-- Basic $ .98 $ 1.22 $ 1.09 $ (2.63) $ .66
============ ============ ============ ============ ============
-- Diluted $ .97 $ 1.20 $ 1.09 $ (2.63) $ .65
============ ============ ============ ============ ============
Average Shares Outstanding
-- Basic 154.3 155.1 155.3 155.7 155.1
-- Diluted 156.2 157.1 156.7 155.7 156.8
Price Range of Common Stock:*
High $ 53 $ 53 $ 49 1/8 $ 52 1/4 $ 53
Low 42 3/4 46 7/8 41 1/2 43 1/8 41 1/2
Dividends Per Share .25 .25 .25 .28 1.03
============ ============ ============ ============ ============
</TABLE>
The 1996 fourth quarter included a net after-tax charge of $572.2 million or
$3.68 per share-basic for the writedown of the
All American Pipeline System and related assets and other rationalizations.
*New York Stock Exchange - Composite Transactions
53
<PAGE> 36
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
A. LIST OF DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS: See Index on page 32 of this Annual Report.
2. FINANCIAL STATEMENT SCHEDULES: See Index To Financial Statement
Schedules attached to this Annual Report at page FS-1. The Financial
Statement Schedule at page FS-1 is by specific reference hereby
incorporated into and made a part of this Annual Report.
3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K: See the
Index of Exhibits at pages X-1 through X-6, inclusive, which is by
specific reference hereby incorporated into and made a part of this
Annual Report. The following exhibits, each listed in the Index of
Exhibits, are or relate to compensation plans and arrangements of
Registrant:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED AS EXHIBIT
-------- ------------- ------------------
<S> <C> <C>
10(a) 1997 Performance Incentive Plan of The 10.1 to Form 10-Q for
Goodyear Tire & Rubber Company the quarter ended
(the "1997 Plan") June 30, 1997
10(b) 1989 Goodyear Performance and Equity A to Form 10-Q for
Incentive Plan ("1989 Plan") quarter ended March 31, 1989
10(c) Forms of Stock Option Grant Agreements 10.1 to this Annual
under the 1997 Plan in respect of Stock Report on Form 10-K
Options and SARs granted December 2, 1997
10(d) Performance Recognition Plan 10.1 to Form 10-K for
adopted as of January 1, 1996 year ended December 31, 1995
10(e) Form of Performance Grant Agreement 10.2 to this Annual Report
under 1997 Plan dated December 2, 1997 on Form 10-K
10(f) Forms of Stock Option Grant Agreements 10.3 to Form 10-K for year
under 1989 Plan in respect of options and ended December 31, 1996
SARs granted December 3, 1996
10(g) Form of Stock Option Grant Agreement under 1989 G to Form 10-K for year
Plan in respect of options granted ended December 31, 1993
January 4, 1994
10(h) 1987 Employees' Stock Option Plan B to Form 10-Q for quarter ended
March 31, 1987
10(i) Form of Performance Equity Grant 10.2 to Form 10-K for year
Agreement for 1994 under 1989 Plan ended December 31, 1996
(as amended December 3, 1996)
10(j) Goodyear Supplementary Pension Plan A to Form 10-Q for
(as amended) quarter ended March 31, 1990
10(k) Form of Performance Equity Grant 10.4 to Form 10-K for year
Agreement for 1995 under 1989 Plan ended December 31, 1996
(as amended December 3, 1996)
10(l) Goodyear Employee Severance Plan A-II to Form 10-K for year ended
December 31, 1988
</TABLE>
55
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED AS EXHIBIT
-------- ------------- ------------------
<S> <C> <C>
10(m) Forms of Stock Option Grant Agreements 10.3 to Form 10-K for year
under 1989 Plan in respect of options and ended December 31, 1995
SARs granted January 9, 1996
10(n) Form of Performance Equity Grant 10.5 to Form 10-K for year
Agreement for 1996 under 1989 Plan ended December 31, 1996
(as amended December 3, 1996)
10(o) Form of Performance Equity Grant 10.6 to Form 10-K for year
Agreement for 1997 under 1989 Plan ended December 31, 1996
10(p) Forms of Stock Option Grant Agreements G to Form 10-K for year
under 1989 Plan in respect of options and ended December 31, 1994
SARs granted January 4, 1995
10(r) Deferred Compensation Plan for Executives B to Form 10-Q for quarter ended
September 30, 1994
10(s) 1994 Restricted Stock Award Plan for B to Form 10-Q for
Non-employee Directors quarter ended June 30, 1994
10(t) Outside Directors' Equity 10.3 to this Annual Report
Participation Plan (as amended) on Form 10-K
</TABLE>
B. REPORTS ON FORM 8-K:
No Current Report on Form 8-K was filed by Registrant with the Securities
and Exchange Commission during the quarter ended December 31, 1997.
56
<PAGE> 38
THE GOODYEAR TIRE & RUBBER COMPANY
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1997
INDEX OF EXHIBITS(1)
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Certificate of Amended Articles of Incorporation of The
Goodyear Tire & Rubber Company, dated December 20, 1954, and
Certificate of Amendment to Amended Articles of Incorporation
of The Goodyear Tire & Rubber Company, 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 through March 5, 1998 (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, File No. 1-1927).
(b) Code of Regulations of The Goodyear Tire & Rubber Company,
adopted November 22, 1955, and amended April 5, 1965, April 7,
1980, April 6, 1981 and April 13, 1987 (incorporated by
reference, filed with the Securities and Exchange Commission
as Exhibit 4.1(B) to Registrant's Registration Statement on
Form S-3, File No. 333-1955).
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).
(b) Specimen nondenominational Certificate for shares of the
Common Stock, Without Par Value, of the Registrant; one
certificate, 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).
</TABLE>
- ---------------
(1) See Part IV, Item 14, Part A.3.
(2) Pursuant to Item 601 of Regulation S-K.
X-1
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
4 (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, relating to the Revolving Credit Facility Agreement
dated as of July 15, 1994 among Registrant, the Lenders named
therein and Chemical Bank (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 No. 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 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, 1997, File No. 1-1927).
(f) Form of Indenture, dated as of March 15, 1996, between 4.1(3) X-4-1
Registrant and Chemical Bank (now The Chase Manhattan Bank),
as Trustee, as supplemented.
(g) Form of 6-5/8% Note Due 2006, dated December 9, 1996, issued
by Registrant in aggregate principal of $250,000,000
(incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit 4.1 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, File
No, 1-1927).
Information concerning Goodyear's long-term debt is set forth
at Note 7, captioned "Financing Arrangements and Financial
Instruments", at the sub-caption "Long Term Debt and Financing
Arrangements", in the Financial Statements set forth at Item 8
of this Annual Report and is incorporated herein by specific
reference. In accordance with paragraph (iii) to Part 4 of
Item 601 of Regulation S-K, the agreements and instruments
defining the rights of holders of long term debt of Registrant
in respect of which the total amount of securities authorized
thereunder does not exceed 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
agreement or instrument to the Securities and Exchange
Commission upon request.
</TABLE>
- ---------------
(2) Pursuant to Item 601 of Regulation S-K.
(3) Previously filed with Annual Report on Form 10-K for year ended December
31, 1997.
X-2
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
10 MATERIAL CONTRACTS
(a) 1997 Performance Incentive Plan of The Goodyear Tire & Rubber
Company, as adopted by the Board of Directors on February 4,
1997, and approved by shareholders on April 14, 1997
(incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, File
No. 1-1927).
(b) 1989 Goodyear Performance and Equity Incentive Plan of
Registrant, as adopted by the Board of Directors of Registrant
on December 6, 1988, and approved by the shareholders of
Registrant on April 10, 1989 (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 March 31, 1989, File No. 1-1927).
(c) Forms of Stock Option Grant Agreements in respect of options 10.1(3) X-10.1-1
granted December 2, 1997 under the 1997 Performance Incentive
Plan of Registrant: Part I, form of Grant Agreement for
Incentive Stock Options; Part II, form of Grant Agreement for
Non-Qualified Stock Options; and Part III, form of Grant
Agreement for Non-Qualified Stock Options and tandem Stock
Appreciation Rights.
(d) Performance Recognition Plan of Registrant adopted effective
January 1, 1996 (incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 1-1927).
(e) Form of Performance Unit Grant Agreement in respect of grants 10.2(3) X-10.2-1
made on December 2, 1997 in respect of 1998 under the 1997
Performance Incentive Plan of Registrant.
(f) Forms of Stock Option Grant Agreements in respect of options
and SARs granted December 3, 1996 under the 1989 Goodyear
Performance and Equity Incentive Plan; Part I, form of
Agreement for Incentive Stock Options, Part II, form of
Agreement for Non-Qualified Stock Options, and Part III, form
of Agreement for Non-Qualified Stock Options and Tandem Stock
Appreciation Rights (incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit 10.3 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-1927).
(g) Form of Stock Option Grant Agreement under the 1989 Goodyear
Performance and Equity Incentive Plan in respect of options
granted January 4, 1994 (incorporated by reference, filed with
the Securities and Exchange Commission as Exhibit G to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-1927).
</TABLE>
- ---------------
(2) Pursuant to Item 601 of Regulation S-K.
(3) Previously filed with Annual Report on Form 10-K for year ended December
31, 1997.
X-3
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
10 (h) 1987 Employees' Stock Option Plan of Registrant (incorporated
by reference, filed with the Securities and Exchange
Commission as Exhibit B to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1987, File No.
1-1927).
(i) Form of Performance Equity Grant Agreement in respect of
grants made on January 4, 1994 under the 1989 Goodyear
Performance and Equity Incentive Plan, as amended December 3,
1996 (incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit 10.2 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, File
No. 1-1927).
(j) Goodyear Supplementary Pension Plan, as amended May 1, 1990
(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 March 31, 1990, File
No. 1-1927).
(k) Form of Performance Equity Grant Agreement in respect of
grants made on December 6, 1994 in respect of 1995 under the
1989 Goodyear Performance and Equity Incentive Plan, as
amended December 3, 1996 (incorporated by reference, filed
with the Securities and Exchange Commission as Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-1927).
(l) Goodyear Employee Severance Plan, as adopted by the Board of
Directors of Registrant on February 14, 1989 (incorporated by
reference, filed with the Securities and Exchange Commission
as Exhibit A-II to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988, File No. 1-1927).
(m) Forms of Stock Option Grant Agreement granted January 9, 1996
under the 1989 Goodyear Performance and Equity Incentive Plan;
Part I, Form of Agreement for Incentive Stock Options, Part
II, Form of Agreement for Non-qualified Stock Options, and
Part III, Form of Agreement for Non-qualified Stock Options
and tandem Stock Appreciation Rights (incorporated by
reference, filed with the Securities and Exchange Commission
as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 1-1927).
(n) Form of Performance Equity Grant Agreement in respect of
grants made January 9, 1996 under the 1989 Goodyear
Performance and Equity Incentive Plan, as amended December 3,
1996 (incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit 10.5 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, File
No. 1-1927).
</TABLE>
- ---------------
(2) Pursuant to Item 601 of Regulation S-K.
X-4
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
10 (o) Form of Performance Equity Grant Agreement in respect of
grants made on December 3, 1996 in respect of 1997 under the
1989 Goodyear Performance and Equity Incentive Plan
(incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit 10.6 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, File
No. 1-1927).
(p) Forms of Stock Option Grant Agreements in respect of options
and SARs granted January 4, 1995 under the 1989 Goodyear
Performance and Equity Incentive Plan; Part I, form of
Agreement for Incentive Stock Options, Part II, form of
Agreement for Non-Qualified Stock Options, and Part III, form
of Agreement for Non-Qualified Stock Options and tandem Stock
Appreciation Rights (incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit G to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 1-1927).
(q) Conformed copy of Consolidated Receivables Sale Agreement
[$550,000,000 Facility], dated as of November 15, 1996, among
Registrant, Asset Securitization Cooperative Corporation and
Canadian Imperial Bank of Commerce (incorporated by reference,
field with the Securities and Exchange Commission as Exhibit
10.7 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 File No. 1-1927).
(r) The Goodyear Tire & Rubber Company Deferred Compensation Plan
for Executives, as adopted effective October 4, 1994
(incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit B to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994,
File No. 1-1927).
(s) 1994 Restricted Stock Award Plan for nonemployee Directors of
Registrant, as adopted effective June 1, 1994 (incorporated by
reference, filed with the Securities and Exchange Commission
as Exhibit B to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, File No. 1-1927).
(t) Outside Directors' Equity Participation Plan, as adopted
February 2, 1996 and amended February 3, 1998. 10.3(3) X-10.3-1
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
(a) Statement setting forth the Computation of Earnings 11(3) X-11-1
Per Share.
</TABLE>
- ---------------
(2) Pursuant to Item 601 of Regulation S-K.
(3) Previously filed with Annual Report on Form 10-K for year ended December
31,1997.
X-5
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
12 STATEMENT RE COMPUTATION OF RATIOS.
(a) Statement setting forth the Computation of Ratio of 12(4) X-12-1
Earnings to Fixed Charges.
21 SUBSIDIARIES
(a) List of subsidiaries of Registrant at March 5, 1998. 21(3) X-21-1
23 CONSENTS OF EXPERTS AND COUNSEL
(a) Consent of Price Waterhouse LLP, independent accoun- 23(3) X-23-1
tants, to incorporation by reference of their report set forth on page
32 of this Annual Report in certain Registration Statements on Forms S-3
and S-8.
(b) Consent of PricewaterhouseCoopers LLP, independent 23.2(4) X-23.2-1
accountants, to incorporation by reference in certain
Registration Statements on Forms S-3 and S-8 of their report
set forth on page 32 of this Annual Report as amended by Form
10-K/A, Amendment No. 1 to Form 10-K for the year ended
December 31, 1997, dated November 10, 1998.
(c) Consent of PricewaterhouseCoopers LLP, independent 23.3(5) X-23.3-1
accountants, to incorporation by reference in certain
Registration Statements on Forms S-3 and S-8 of their report
set forth on page 32 of the Annual Report, as amended by Form
10-K/A, Amendment No. 1, dated November 10, 1998 and by Form
10-K/A, Amendment No. 2 to Form 10-K for the year ended
December 31, 1997, dated March 18, 1999.
24 POWER OF ATTORNEY
(a) Power of Attorney, dated December 2, 1997, authorizing 24(3) X-24-1
Robert W. Tieken, C. Thomas Harvie, John W. Richardson,
Richard W. Hauman, James Boyazis, or any one or more of them,
to sign this Annual Report on behalf of certain directors of
Registrant.
27 FINANCIAL DATA SCHEDULE 27(4) X-27-1
99 ADDITIONAL EXHIBITS
(a) Registrant's definitive Proxy Statement dated February 26, 1998
(portions incorporated by reference, filed with the Securities
and Exchange Commission, File No. 1-1927).
</TABLE>
- ---------------
(2) Pursuant to Item 601 of Regulation S-K.
(3) Previously filed with Annual Report on Form 10-K for year ended December
31, 1997.
(4) Previously filed with Form 10-K/A, Amendment No.1, to Form 10-K for the
year ended December 31, 1997.
(5) Filed with this Form 10-K/A, Amendment No. 2. to Form 10-K
X-6
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 333-1955 and
33-8111) and in the Registration Statements on Forms S-8 (Nos. 333-2993,
33-65187, 33-65185, 33-65183, 33-65181, 33-31530, 33-17963, 2-79437 and 2-47905)
of The Goodyear Tire & Rubber Company of our report dated February 2, 1998,
except as to Note 20, which is dated November 10, 1998, appearing on page 32 of
this Form 10-K/A, Amendment No. 2 to the Annual Report on Form 10-K of The
Goodyear Tire & Rubber Company for the year ended December 31, 1997.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Cleveland, Ohio
March 18, 1999
X-23.3-1
