-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B+NcZNq8maM8vFtS92GrBo067mpDB0GOeC8e3wjb6G5Slo1xXwRGMz78Jz5GYt1I 48e43hHSFZ04CBne0v5vMQ== 0000950152-98-006010.txt : 19980717 0000950152-98-006010.hdr.sgml : 19980717 ACCESSION NUMBER: 0000950152-98-006010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980716 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOODYEAR TIRE & RUBBER CO /OH/ CENTRAL INDEX KEY: 0000042582 STANDARD INDUSTRIAL CLASSIFICATION: TIRES AND INNER TUBES [3011] IRS NUMBER: 340253240 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01927 FILM NUMBER: 98667608 BUSINESS ADDRESS: STREET 1: 1144 E MARKET ST CITY: AKRON STATE: OH ZIP: 44316 BUSINESS PHONE: 2167962121 MAIL ADDRESS: STREET 1: 1144 E MARKET ST CITY: AKRON STATE: OH ZIP: 44316 10-Q 1 THE GOODYEAR TIRE & RUBBER COMPANY 10-Q 1 ============================================================================== FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 COMMISSION FILE NUMBER: 1-1927 THE GOODYEAR TIRE & RUBBER COMPANY (Exact name of Registrant as specified in its charter) OHIO 34-0253240 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1144 EAST MARKET STREET, AKRON, OHIO 44316-0001 (Address of Principal Executive Offices) (Zip Code)
(330) 796-2121 (Registrant's Telephone Number, Including Area Code) ----------------------------------- Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ ______ ----------------------------------- Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Number of Shares of Common Stock, Without Par Value, Outstanding at June 30, 1998: 157,008,971 ============================================================================== 2 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Unaudited
(In millions, except per share) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 --------- --------- --------- --------- NET SALES $ 3,137.5 $ 3,289.9 $ 6,231.5 $ 6,498.6 Cost of Goods Sold 2,392.7 2,524.6 4,723.9 4,977.7 Selling, Administrative and General Expense 451.9 462.4 910.9 928.7 Asset Writedown and Other Rationalizations (29.7) -- (29.7) -- Interest Expense 34.0 32.5 64.3 63.5 Other (Income) and Expense 25.8 3.3 (28.2) 10.9 Foreign Currency Exchange (9.2) (3.1) (14.5) (6.2) Minority Interest in Net Income of Subsidiaries 7.1 11.7 15.9 23.2 ----------- ----------- ----------- ----------- Income from Continuing Operations before Income Taxes 264.9 258.5 588.9 500.8 United States and Foreign Taxes on Income 65.9 76.8 178.4 158.9 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS 199.0 181.7 410.5 341.9 Discontinued Operations -- 10.5 (34.7) 20.7 ----------- ----------- ----------- ----------- NET INCOME $ 199.0 $ 192.2 375.8 362.6 =========== =========== Retained Earnings at Beginning of Period 2,983.4 2,603.0 CASH DIVIDENDS (94.2) (87.6) ----------- ----------- Retained Earnings at End of Period $ 3,265.0 $ 2,878.0 =========== =========== PER SHARE OF COMMON STOCK - BASIC: INCOME FROM CONTINUING OPERATIONS $ 1.26 $ 1.17 $ 2.61 $ 2.19 Discontinued Operations -- 0.06 (0.22) 0.13 ----------- ----------- ----------- ----------- NET INCOME $ 1.26 $ 1.23 $ 2.39 $ 2.32 =========== =========== =========== =========== Average Shares Outstanding 157.2 155.8 157.0 156.1 PER SHARE OF COMMON STOCK - DILUTED: INCOME FROM CONTINUING OPERATIONS $ 1.25 $ 1.16 $ 2.58 $ 2.17 Discontinued Operations -- 0.06 (0.22) 0.13 ----------- ----------- ----------- ----------- NET INCOME $ 1.25 $ 1.22 $ 2.36 $ 2.30 =========== =========== =========== =========== Average Shares Outstanding 159.3 157.7 159.2 157.9 CASH DIVIDENDS PER SHARE $ 0.30 $ 0.28 $ 0.60 $ 0.56 =========== =========== =========== ===========
The accompanying notes are an integral part of this financial statement. - 1 - 3 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Unaudited (In millions)
JUNE 30, DECEMBER 31, 1998 1997 --------- -------- ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 182.8 $ 258.6 Accounts and notes receivable, less allowance (1998-$56.3, 1997-$49.5) 1,872.9 1,733.6 Inventories: Raw materials 392.3 307.0 Work in process 80.5 87.1 Finished product 1,691.0 1,441.1 ----------- ---------- 2,163.8 1,835.2 Prepaid expenses and other current assets 394.1 336.5 Net assets held for sale 393.7 -- ----------- ---------- TOTAL CURRENT ASSETS 5,007.3 4,163.9 Long Term Accounts and Notes Receivable 179.1 201.9 Investments in Affiliates, at equity 107.5 124.6 Other Assets 61.8 134.1 Deferred Charges 1,164.9 1,143.2 Properties and Plants, less accumulated depreciation (1998-$5,096.8, 1997-$5,084.3) 3,793.3 4,149.7 ----------- ---------- TOTAL ASSETS $ 10,313.9 $ 9,917.4 =========== ========== LIABILITIES: CURRENT LIABILITIES: Accounts payable - trade $ 999.6 $ 1,177.8 Compensation and benefits 745.4 782.7 Other current liabilities 368.2 421.8 United States and foreign taxes 331.5 362.0 Notes payable to banks 1,019.9 440.2 Long term debt due within one year 6.2 66.5 ----------- ---------- TOTAL CURRENT LIABILITIES 3,470.8 3,251.0 Compensation and Benefits 1,942.7 1,945.7 Long Term Debt 949.1 844.5 Other Long Term Liabilities 187.6 224.5 Minority Equity in Subsidiaries 186.4 256.2 ----------- ---------- TOTAL LIABILITIES 6,736.6 6,521.9 SHAREHOLDERS' EQUITY: Preferred Stock, no par value: Authorized 50.0 shares, unissued -- -- Common Stock, no par value: Authorized 300.0 shares Outstanding shares 157.0 (156.6 in 1997) after deducting 38.7 treasury shares (39.1 in 1997) 157.0 156.6 Capital Surplus 1,067.8 1,061.6 Retained Earnings 3,265.0 2,983.4 Accumulated Other Comprehensive Income (912.5) (806.1) ----------- ---------- TOTAL SHAREHOLDERS' EQUITY 3,577.3 3,395.5 ----------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,313.9 $ 9,917.4 =========== ==========
The accompanying notes are an integral part of this financial statement. - 2 - 4 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Unaudited
(In millions) Accumulated Other Comprehensive Income ----------------------- Common Capital Retained Foreign Minimum Total Stock Surplus Earnings Currency Pension Shareholders' Translation Liability Equity ------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1997 $ 156.6 $ 1,061.6 $ 2,983.4 $ (778.0) $ (28.1) $ 3,395.5 Comprehensive income for 1998: Net income 375.8 Foreign currency translation (105.0) Minimum pension liability (1.4) Total comprehensive income 269.4 Cash dividends (94.2) (94.2) Common stock acquired (0.3) (22.2) (22.5) Common stock issued 0.7 28.4 29.1 ------------------------------------------------------------------------ BALANCE AT JUNE 30, 1998 $ 157.0 $ 1,067.8 $ 3,265.0 $ (883.0) $ (29.5) $ 3,577.3 ========================================================================
The accompanying notes are an integral part of this financial statement. THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited
(In millions) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 ------- ------- ------- ------- NET INCOME $ 199.0 $ 192.2 $ 375.8 $ 362.6 Other comprehensive income, net of tax: Foreign currency translation adjustment (90.0) (19.1) (105.0) (37.8) Minimum pension liability adjustment 0.3 0.6 (1.4) 1.9 --------------------- --------------------- COMPREHENSIVE INCOME $ 109.3 $ 173.7 $ 269.4 $ 326.7 ===================== =====================
The accompanying notes are an integral part of this financial statement. - 3 - 5 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited
(In millions) SIX MONTHS ENDED JUNE 30, 1998 1997 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $ 375.8 $ 362.6 Adjustments to reconcile net income to cash flows from operating activities: Depreciation 230.4 228.8 Discontinued operations 49.5 -- Asset sales (61.1) -- Accounts and notes receivable (203.3) (279.4) Inventories (380.7) (72.6) Accounts payable-trade (116.1) (32.5) Other assets and liabilities (221.8) 41.8 --------- --------- Total adjustments (703.1) (113.9) --------- --------- TOTAL CASH FLOWS FROM OPERATING ACTIVITIES (327.3) 248.7 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (290.7) (230.7) Asset sales 73.5 -- Asset acquisitions (61.9) (85.0) Other transactions (26.3) (14.3) --------- --------- TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (305.4) (330.0) CASH FLOWS FROM FINANCING ACTIVITIES: Short term debt incurred 502.2 343.5 Short term debt paid (56.9) (70.5) Long term debt incurred 320.6 7.7 Long term debt paid (115.5) (72.8) Common stock issued 29.1 52.3 Common stock acquired (22.5) (78.4) Dividends paid (94.2) (87.6) --------- --------- TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 562.8 94.2 Effect of Exchange Rate Changes on Cash and Cash Equivalents (5.9) (10.7) --------- --------- Net Change in Cash and Cash Equivalents (75.8) 2.2 Cash and Cash Equivalents at Beginning of the Period 258.6 238.5 --------- --------- Cash and Cash Equivalents at End of the Period $ 182.8 $ 240.7 ========= =========
The accompanying notes are an integral part of this financial statement. - 4 - 6 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DISCONTINUED OPERATIONS On March 21, 1998 the Company reached an agreement to sell substantially all of the assets and liabilities of its oil transportation business segment to Plains All American Inc., a subsidiary of Plains Resources Inc. Proceeds from the sale are expected to be $422.2 million, which includes distributions to the Company prior to closing of approximately $25.1 million. The proceeds are subject to adjustment as provided in the Stock Purchase Agreement. The sale is expected to be completed in the third quarter of 1998. The principal assets of the Oil Transportation segment include the All American Pipeline System, a heated crude oil pipeline system consisting primarily of a 1,225 mile mainline segment extending from Gaviota, California, to McCamey, Texas and related terminal and storage facilities, and a crude oil gathering system located in California's San Joaquin Valley. The transaction was accounted for as a sale of discontinued operations, and accordingly, the accompanying financial information has been restated where required. The net assets held for sale are reported on the Consolidated Balance Sheet at net realizable value less estimated costs of disposal. Operating results and the loss on sale of discontinued operations follow:
(In millions, except per share) THREE SIX MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 ----------- -------- --------- ------------- NET SALES $ -- $ 25.6 $ 22.4 $ 50.1 ========== ========= ========= ============= Income before Income Taxes $ -- $ 16.5 $ 12.9 $ 32.4 United States Taxes on Income -- 6.0 4.7 11.7 ---------- --------- --------- ------------- Income from Discontinued Operations -- 10.5 8.2 20.7 Loss on Sale of Discontinued Operations, including estimated income from operations during the disposal period of $10.0 (net of tax of $24.1) -- -- (42.9) -- ---------- --------- --------- ------------- DISCONTINUED OPERATIONS $ -- $ 10.5 $ (34.7) $ 20.7 ========== ========= ========= ============= INCOME (LOSS) PER SHARE - BASIC: Income from Discontinued Operations $ -- $ .06 $ .05 $ .13 Loss on Sale of Discontinued Operations -- -- (.27) -- ---------- --------- --------- ------------- DISCONTINUED OPERATIONS $ -- $ .06 $ (.22) $ .13 ========== ========= ========= ============= INCOME (LOSS) PER SHARE - DILUTED: Income from Discontinued Operations $ -- $ .06 $ .05 $ .13 Loss on Sale of Discontinued Operations -- -- (.27) -- ---------- --------- --------- ------------- DISCONTINUED OPERATIONS $ -- $ .06 $ (.22) $ .13 ========== ========= ========= =============
- 5 - 7 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NON-CONSOLIDATED OPERATIONS - SOUTH PACIFIC TYRE In addition to its consolidated operations in the Asia region, the Company also owns a 50% interest in South Pacific Tyres Ltd (SPT), a partnership with Pacific Dunlop Ltd of Australia. SPT is the largest tire manufacturer, marketer and exporter in Australia and New Zealand. The Company is required to use the equity method to account for its interest in the results of operations and financial position of SPT. The following table presents sales and operating income of the Company's consolidated Asian operations and 100% of the operations of SPT:
(In millions) THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 -------------------------- --------------------------- Asia Asia Segment SPT Total Segment SPT Total ------- --- ----- ------- --- ----- NET SALES: 1998 $141.7 $162.1 $303.8 $279.2 $323.6 $602.8 1997 209.4 204.2 413.6 408.7 387.8 796.5 OPERATING INCOME: 1998 $ 15.9 $ 13.8 $ 29.7 $ 25.6 $ 23.0 $ 48.6 1997 22.8 20.3 43.1 50.3 35.1 85.4
ASSET WRITEDOWN AND OTHER RATIONALIZATIONS In the second quarter of 1998 the Company recorded income of $29.7 million resulting from favorable experience in implementation of the company's program to exit the Formula 1 racing series, and the reversal of certain reserves related to production rationalization in North America. OTHER (INCOME) AND EXPENSE Other (income) and expense in 1998 included a first quarter gain of $61.1 million on the sale of the Company's Calhoun, Georgia latex processing facility. The second quarter of 1998 included a charge of $17.4 million for the settlement of several related lawsuits involving employment matters in Latin America. SUPPLEMENTAL INFORMATION ABOUT NONCASH INVESTING ACTIVITIES In 1997 the Company acquired a 60% equity interest in a South African tire and industrial rubber products business, and assumed $29 million of debt. The remaining shares of the South African business were acquired for cash in 1998. PER SHARE OF COMMON STOCK Basic per share amounts have been computed based on the average number of common shares outstanding. Diluted per share amounts reflect the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options, computed using the treasury stock method. ADJUSTMENTS All adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of these unaudited interim periods have been included. RECLASSIFICATION Certain items previously reported in specific financial statement captions have been reclassified to conform with the 1998 presentation. -6- 8 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES SEGMENT INFORMATION Unaudited
(In millions) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 -------- -------- -------- -------- INDUSTRY SEGMENTS Sales to Unaffiliated Customers: Tires $ 2,421.8 $ 2,570.9 $ 4,870.6 $ 5,112.4 Related products and services 281.5 258.2 491.4 468.8 ---------- ---------- ---------- ---------- Total Tires 2,703.3 2,829.1 5,362.0 5,581.2 General products 434.2 460.8 869.5 917.4 ---------- ---------- ---------- ---------- NET SALES $ 3,137.5 $ 3,289.9 $ 6,231.5 $ 6,498.6 ========== ========== ========== ========== Income: Tires $ 270.7 $ 265.1 $ 549.9 $ 532.0 General products 53.3 58.5 163.2 104.8 ---------- ---------- ---------- ---------- OPERATING INCOME 324.0 323.6 713.1 636.8 Exclusions from operating income (59.1) (65.1) (124.2) (136.0) ---------- ---------- ---------- ---------- Income from continuing operations $ 264.9 $ 258.5 $ 588.9 $ 500.8 ========== ========== ========== ========== before income taxes GEOGRAPHIC SEGMENTS Sales to Unaffiliated Customers: United States $ 1,694.3 $ 1,694.8 $ 3,363.7 $ 3,382.5 Europe 767.8 805.3 1,501.4 1,569.8 Latin America 365.8 401.9 741.5 785.0 Asia 141.7 209.4 279.2 408.7 Canada 167.9 178.5 345.7 352.6 ---------- ---------- ---------- ---------- NET SALES $ 3,137.5 $ 3,289.9 $ 6,231.5 $ 6,498.6 ========== ========== ========== ========== Operating Income: United States $ 135.9 $ 123.0 $ 343.0 $ 249.4 Europe 108.4 91.7 198.5 171.3 Latin America 46.7 71.8 115.2 140.1 Asia 15.9 22.8 25.6 50.3 Canada 17.1 14.3 30.8 25.7 ---------- ---------- ---------- ---------- OPERATING INCOME $ 324.0 $ 323.6 $ 713.1 $ 636.8 ========== ========== ========== ==========
- 7 - 9 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- CONSOLIDATED - ------------ Sales in the second quarter of 1998 were $3.14 billion, decreasing 4.6% from $3.29 billion in the 1997 quarter. Net income in the second quarter of 1998 was $199.0 million or $1.25 per share-diluted, increasing 3.5% from net income in the 1997 quarter of $192.2 million or $1.22 per share-diluted. Basic net income per share was $1.26 and $1.23 in the 1998 and 1997 periods, respectively. Unless otherwise indicated, all per share amounts in this discussion refer to diluted earnings per share. In the six months, sales of $6.23 billion decreased 4.1% from $6.50 billion in 1997. Net income of $375.8 million ($2.36 per share) increased 3.6% from net income of $362.6 million ($2.30 per share) in the 1997 period. Worldwide tire unit sales in the second quarter rose 1.7% from 1997's levels. Domestic volume increased 2.4% and international unit sales increased 1.0%. In the mature markets of North America and Europe, replacement unit sales increased by 6.6% while original equipment volume decreased 2.8%. In the emerging markets of Latin America and Asia, replacement unit sales increased 1% and original equipment volume decreased 20.6 %. Unit sales in the first six months of 1998 increased 1.2 % from the 1997 period. Revenues decreased due primarily to the strengthening of the U.S. dollar versus currencies in Europe, Latin America and Asia, the impact of which is estimated by the Company to be $120 million and $245 million in the second quarter and six months, respectively. In addition, continued worldwide competitive pricing pressures, lower tire unit sales in Asia and lower unit sales of other automotive and industrial rubber products reduced revenues. Strikes in the U.S. against General Motors reduced revenues in the 1998 quarter. Revenues in future periods will be adversely affected as long as the strike continues, although the extent of revenue loss cannot be estimated at this time. The following table presents cost of goods sold (CGS) and selling, general and administrative expense (SAG) as a percent of sales: Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- CGS 76.3% 76.7% 75.8% 76.6% SAG 14.4 14.1 14.6 14.3 -8- 10 Cost of goods sold was favorably impacted in both 1998 periods by lower raw material costs, the effects of ongoing cost containment measures and improved productivity. Cost of goods sold was adversely affected in the second quarter by a tire recall charge of $5.0 million ($3.3 million after tax or $.02 per share). In addition, the Company estimates that the transition to seven-day operations at certain North American and European tire production facilities and the strike against General Motors reduced operating income in the 1998 quarter by approximately $25 million. The Company also estimates that the impact of changing exchange rates in Europe, latin America and Asia reduced operating income in the quarter and six months by $20 million and $35 million, respectively. Selling, administrative and general expense decreased in both 1998 periods due primarily to the effects of the Company's ongoing cost containment measures, but increased as a percent to sales due to lower revenues. Asset writedown and other rationalizations in the second quarter of 1998 included income of $29.7 million ($19.6 million after tax or $.12 per share) resulting from favorable experience in implementation of the Company's program to exit the Formula 1 racing series, and the reversal of certain reserves related to production rationalization in North America. Other income and expense in the 1998 second quarter included a charge of $17.4 million ($11.4 million after tax or $.07 per share) for the settlement of several related lawsuits involving employment matters in Latin America. The 1998 first quarter included a gain on the sale of the Calhoun, Georgia latex processing facility totaling $61.1 million ($37.9 million after tax or $.24 per share). Net income in the second quarter of 1998 benefited from a reduction in the Company's estimated annual effective tax rate resulting from lower U.S. taxes on foreign source income. On March 21, 1998 the Company reached an agreement to sell substantially all of the assets and liabilities of its oil transportation business segment. The net loss on the expected sale, including net income from operations during 1998, totaled $34.7 million or $.22 per share. This transaction has been accounted for as a sale of discontinued operations, and accordingly, the accompanying financial information has been restated where required. For further information, refer to the note to the financial statements, Discontinued Operations. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires all derivatives to be recognized at fair value as either assets or liabilities on the balance sheet. Any gain or loss resulting from changes in such fair value is required to be -9- 11 recognized in earnings to the extent the derivatives are not effective as hedges. SFAS 133 is effective for fiscal years beginning after June 15, 1999, and is effective for interim periods in the initial year of adoption. The Company has not yet determined the effect, if any, of the adoption of SFAS 133 on results of operations, financial position or liquidity. SEGMENT INFORMATION - ------------------- Segment operating income in the second quarter of 1998 was $324.0 million, compared to $323.6 million in the 1997 quarter. Segment operating margin rose to 10.3% of sales from 9.8% in the 1997 period. In the six months, segment operating income was $713.1 million, increasing 12.0% from $636.8 million in the 1997 period. Segment operating margin rose to 11.4% of sales from 9.8% in the 1997 period. Segment results in 1998 included the first quarter gain of $61.1 million on the sale of the Calhoun, Georgia latex processing facility, the second quarter gain resulting from the reversal of $29.7 million of accrued costs related to Formula 1 racing and production rationalization in North America, and a second quarter charge of $17.4 million related to the settlement of the lawsuits in Latin America. INDUSTRY SEGMENTS - ----------------- TIRES - ----- Sales in the second quarter of 1998 of $2.70 billion decreased 4.4% from $2.83 billion in the 1997 period. In the six months, sales of $5.36 billion decreased 3.9% from $5.58 billion in 1997. Revenues decreased in the quarter and six months despite higher unit sales in North America and Europe. Revenues were adversely impacted by the strengthening of the U.S. dollar versus currencies in Europe, Latin America and Asia, worldwide competitive pricing pressures and lower tire unit sales in Latin America and Asia. In addition, strikes in the U.S. against General Motors adversely affected revenues in the second quarter. The following table presents changes in Company tire unit sales compared to the 1997 period: Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- U.S. 2.4% 2.3% International 1.0 0.2 Worldwide 1.7 1.2 Tire segment operating income in the second quarter of 1998 was $270.7 million, increasing 2.1% from $265.1 million in the 1997 period. Operating margin rose to 10.0% of sales from 9.4%. -10- 12 In the six months, operating income of $549.9 million increased 3.4% from $532.0 million in 1997. Operating margin rose to 10.3% of sales from 9.5%. Operating income in both periods benefited from lower raw material costs, improved productivity and the effects of cost containment measures. Operating income in the second quarter of 1998 increased due primarily to the inclusion of an aggregate gain of $14.1 million resulting from the $29.7 million gain on the reversal of accrued Formula 1 and rationalization costs and $15.6 million of the charge for the settlement of the employment lawsuits in Latin America. Operating income in 1998 was reduced by unrecovered costs associated with North American rationalizations and modernizations incurred to be cost competitive, including the transition to seven-day operations at certain production facilities and the consolidation of warehouse operations. In addition, operating income in the 1998 quarter was reduced by a $5.0 million charge for the tire recall, and the impact of the strike against General Motors. GENERAL PRODUCTS - ---------------- Sales in the second quarter of 1998 of $434.2 million decreased 5.8% from $460.8 million in the 1997 period. Operating income in the second quarter of 1998 was $53.3 million, decreasing 8.9% from $58.5 million in the 1997 period. Operating margin decreased to 12.3% of sales from 12.7%. Operating income in the second quarter included a $1.8 million charge for the lawsuit settlement. In the six months, sales of $869.5 million decreased 5.2% from $917.4 million in 1997. Operating income of $163.2 million increased 55.7% from $104.8 million in 1997. Operating margin rose to 18.8% of sales from 11.4%. The 1998 six months included the gain of $61.1 million on the sale of the Calhoun, Georgia latex processing facility. Sales and operating income reflect the absence of the Jackson, Ohio automotive molded plastics plant, which was sold in the third quarter of 1997, and the Calhoun facility. Together these businesses accounted for sales and operating income of $30.8 million and $4.2 million, respectively, in the second quarter of 1997 and $58.5 million and $6.4 million, respectively, in the 1997 six months. Revenues in engineered products decreased in the quarter and six months due primarily to lower sales of certain automotive and industrial rubber products and the sale of the Jackson, Ohio automotive molded plastics plant in the third quarter of 1997. Operating income increased in the six months due to improved margins resulting from increased volume in North America and the effects of cost containment measures, but was lower in the second quarter due to lower worldwide sales volume. -11- 13 Sales and operating income in chemical products decreased in the quarter and sales were lower in the six months, reflecting reduced unit volume and lower selling prices. Operating income increased in the six months due to the gain on the sale of the Calhoun facility. GEOGRAPHIC SEGMENTS - ------------------- UNITED STATES - ------------- Sales in the second quarter of 1998 and 1997 were $1.69 billion. Operating income in the second quarter of 1998 was $135.9 million, increasing 10.5% from $123.0 million in the 1997 period. Operating margin increased to 8.0% of sales from 7.3%. In the six months, sales of $3.36 billion decreased slightly from $3.38 billion in 1997. Operating income of $343.0 million increased 37.5% from $249.4 million in 1997. Operating margin rose to 10.2% of sales from 7.4%. Operating income in 1998 included the first quarter gain of $61.1 million on the sale of the Calhoun, Georgia latex processing facility and the second quarter gain of $7.7 related to the reversal of accrued costs related to production rationalization. Tire unit sales increased in both 1998 periods. Revenues in the quarter and six months were flat as a result of competitive tire pricing pressures, reduced volume in chemical products, the strike against General Motors and the absence of the Jackson and Calhoun facilities. Operating income increased in both 1998 periods, reflecting lower raw material costs, improved productivity, and the effects of cost containment measures. Operating income in the 1998 second quarter was reduced by the previously mentioned costs for the tire recall and in the six months by costs associated with the transition to seven-day operations at certain production facilities. EUROPE - ------ Sales in the second quarter of 1998 of $767.8 million decreased 4.7% from $805.3 million in the 1997 period. Operating income in the second quarter of 1998 was $108.4 million, increasing 18.2% from $91.7 million in the 1997 period. Operating margin increased to 14.1% of sales from 11.4%. In the six months, sales of $1.50 billion decreased 4.4% from $1.57 billion in 1997. Operating income of $198.5 million increased 15.9% from $171.3 million in 1997. Operating margin rose to 13.2% of sales from 10.9%. Sales decreased in both 1998 periods due to the effects of currency translation and competitive pricing, although tire unit -12- 14 sales were higher. Operating income in both periods reflected improved mix, productivity improvements, lower raw material costs and the effects of cost containment measures. Operating income included a $15.1 million second quarter gain resulting from the settlement of Formula 1 obligations on terms more favorable than anticipated. LATIN AMERICA - ------------- Sales in the second quarter of 1998 of $365.8 million decreased 9.0% from $401.9 million in the 1997 period. Operating income in the second quarter of 1998 was $46.7 million, decreasing 35.0% from $71.8 million in the 1997 period. Operating margin decreased to 12.8% of sales from 17.9%. In the six months, sales of $741.5 million decreased 5.5% from $785.0 million in 1997. Operating income was $115.2 million, compared to $140.1 million in 1997. Operating margin decreased to 15.5% of sales from 17.8%. Operating income included the previously mentioned second quarter charge of $17.4 million for the anticipated settlement of employment-related lawsuits and a gain of $2.8 million resulting from the favorable settlement of Formula 1 obligations. Tire unit volume was higher in the six months, but sales and operating income decreased in both periods due to the effects of currency translations, competitive pricing pressures and lower sales of engineered products. ASIA - ---- Sales in the second quarter of 1998 were $141.7 million, compared to $209.4 million in the 1997 period. Operating income in the second quarter of 1998 was $15.9 million, compared to $22.8 million in the 1997 period. Operating margin increased to 11.2% of sales from 10.9%. In the six months, sales were $279.2 million, compared to $408.7 million in 1997. Operating income was $25.6 million, compared to $50.3 million in 1997. Operating margin decreased to 9.2% of sales from 12.3%. Sales and operating income decreased in both periods due primarily to the effects of currency translation and lower tire unit sales resulting from the economic downturn and competitive pricing conditions. Operating income in the quarter included a gain of $2.8 million resulting from the favorable settlement of Formula 1 obligations. Sales and operating income in Asia in future periods are likely to be adversely affected by unfavorable economic conditions in the region. Sales and operating income of the Asia segment reflect the results of the Company's majority-owned tire business and other -13- 15 operations in the region, principally the engineered products and natural rubber businesses. In addition, the Company owns a 50% interest in South Pacific Tyres Ltd. (SPT), the largest tire manufacturer, marketer and exporter in Australia and New Zealand. Results of operations of SPT are not reported in segment results, and are reflected in the Company's consolidated statement of income using the equity method. The following table presents the sales and operating income of the Company's Asian segment together with 100% of the sales and operating income of SPT: (In millions) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Net Sales: Asia Segment $141.7 $209.4 $279.2 $408.7 SPT 162.1 204.2 323.6 387.8 ------ ------ ------ ------ Total $303.8 $413.6 $602.8 $796.5 Operating Income: Asia Segment $ 15.9 $ 22.8 $ 25.6 $ 50.3 SPT 13.8 20.3 23.0 35.1 ------ ------ ------ ------ Total $ 29.7 $ 43.1 $ 48.6 $ 85.4 CANADA - ------ Sales in the second quarter of 1998 were $167.9 million, decreasing 6.0% from $178.5 million in the 1997 period. Operating income in the second quarter of 1998 was $17.1 million, compared to $14.3 million in the 1997 period. Operating margin increased to 10.3% of sales from 8.0%. In the six months, sales of $345.7 million decreased 2.0% from $352.6 million in 1997. Operating income was $30.8 million, increasing 19.7% from $25.7 million in 1997. Operating margin increased to 8.9% of sales from 7.3%. Sales decreased in the quarter and six months due primarily to lower sales of tires and engineered products resulting from the strike against General Motors and the effects of currency translations. Operating income increased in both 1998 periods due to lower raw material costs, the effects of ongoing cost containment measures and a second quarter gain of $1.3 million resulting from the favorable settlement of Formula 1 obligations. -14- 16 LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Net cash used in operating activities was $327.3 million during the first six months of 1998, as reported on the Consolidated Statement of Cash Flows. Working capital requirements increased for accounts receivable, inventories and payables. Net cash used in investing activities was $305.4 million during the first six months of 1998. Capital expenditures were $290.7 million, primarily for plant modernizations and expansions and new tire molds. (In millions) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Capital Expenditures $172.4 $136.3 $290.7 $230.7 Depreciation 116.1 117.0 230.4 228.8 Other investing activities included the Company's acquisition of the remaining minority shares of the tire and engineered products manufacturing and distribution subsidiary in South Africa and the sale of the Calhoun, Georgia latex processing facility. The decrease in minority equity in subsidiaries on the Consolidated Balance Sheet was due primarily to the South Africa stock acquisition. The decrease in property, plant and equipment and Other assets on the Consolidated Balance Sheet was due primarily to the reclassification of the net assets of the oil transportation segment to Net assets held for sale. Net cash provided by financing activities was $562.8 million during the first six months of 1998, which was used primarily to support the previously mentioned working capital requirements. (Dollars in millions) 6/30/98 12/31/97 6/30/97 ------- -------- ------- Consolidated Debt $1,975.1 $1,351.2 $1,614.7 Debt/Debt+Equity 35.6% 28.5% 31.6% During the first quarter of 1998, the Company issued domestic long term fixed rate debt totaling $250 million. During the second quarter of 1998, 345,000 shares of the Company's Common Stock were repurchased by the Company at an average cost of $65.35 per share. Substantial short term and long term credit sources are available to the Company globally under normal commercial practices. At June 30, 1998 the Company had short term uncommitted credit arrangements totaling $1.6 billion, of which $.6 billion were unused. The Company also had available long term credit arrangements at June 30, 1998 totaling $2.2 billion, of which $1.2 billion were unused. -15- 17 In July 1998, the Company's revolving credit facility agreements, consisting of a $900 million three year revolving credit facility and a $300 million 364-day revolving credit facility, were extended and reduced to a total facility of $1.0 billion. Each of the facility agreements are with 24 domestic and international banks. Effective July 13, 1998, the three year revolving credit facility agreement was extended to five years and reduced to $700 million and provides that the Company may borrow at any time until July 13, 2003, when the commitment terminates and any outstanding loans mature. No other terms of the facility were changed. The Company pays currently a commitment fee of 10 basis points on the entire amount of the commitment and would pay a usage fee of 20 basis points on amounts borrowed. The $300 million 364-day credit facility agreement was extended to permit the Company to borrow until July 12, 1999, on which date the facility commitment terminates, except as it may be extended on a bank by bank basis. If a bank does not extend its commitment if requested to do so, the Company may obtain from such bank a two year term loan up to the amount of such bank's commitment. The Company pays currently a commitment fee of 8 basis points on the entire amount of the commitment and would pay a usage fee of 22 basis points on amounts borrowed. There were no borrowings outstanding under these agreements at June 30, 1998. Funds generated by operations, together with funds available under existing credit arrangements, are expected to exceed the Company's currently anticipated funding requirements. The Company utilizes financial instruments in managing interest rate and currency exchange risks. Refer to the section entitled 'Quantitative and Qualitative Disclosures About Market Risk'. -16- 18 FORWARD-LOOKING INFORMATION - SAFE HARBOR STATEMENT --------------------------------------------------- Certain information set forth herein (other than historical data and information) may constitute forward-looking statements regarding events and trends which may affect the Company's future operating results and financial position. The words "estimate," "expect," "intend" and "project," as well as other words or expressions of similar meaning, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report. Such statements are based on current expectations, are inherently uncertain, are subject to risks and should be viewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors, including: changes in economic conditions in the various markets served by the Company's operations; increased competitive activity; fluctuations in the prices paid for raw materials and energy; changes in the monetary policies of various countries where the Company has significant operations; and other unanticipated events and conditions. It is not possible to foresee or identify all such factors. The Company makes no commitment to update any forward-looking statement, or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward-looking statement. -17- 19 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The Company actively manages its fixed and floating rate debt mix, within defined limitations, using refinancings and unleveraged interest rate swaps. The Company enters into fixed and floating interest rate swaps to alter its exposure to the impact of changing interest rates on consolidated results of operations and future cash outflows for interest. At June 30, 1998 the interest rate on 51% of the Company's debt was fixed by either the nature of the obligation or through such interest rate contracts. At June 30, 1998, the fair value of the Company's interest rate contracts amounted to a liability of $.7 million, compared to their carrying amount of a $.1 million liability. The Company estimates that a 10% decrease in variable market interest rates at June 30, 1998 would have changed the fair value of outstanding contracts to a $2.1 million liability at that date. Information about interest rate contracts in place at June 30, 1998 and related weighted average interest rates follow: (Dollars in millions) Fixed Rate Contracts --------- - Notional principal amount $100.0 - Pay fixed rate 6.17% - Receive variable LIBOR 5.74 - Average years to maturity 2.6 Three Months Ended Six Months Ended June 30, 1998 June 30, 1998 ------------------ --------------- Average rate paid 6.17% 6.62% Average rate received 5.76 5.77 A fixed rate contract with notional principal amount of $50 million matured in the first quarter of 1998. At June 30, 1998 the fair value of the Company's fixed rate debt amounted to a liability of $837.9 million, compared to its carrying amount of $809.3 million. The Company estimates that a 100 basis point decrease in market interest rates at June 30, 1998 would have changed the fair value of the Company's fixed rate debt to a liability of $894.0 million at that date. The sensitivity to changes in interest rates of the Company's fixed rate debt and interest rate contracts was determined with a valuation model based upon net modified duration analysis. In order to reduce the impact of changes in foreign exchange rates on consolidated results of operations and future foreign currency denominated cash flows, the Company was a party to various forward exchange contracts at June 30, 1998. These contracts reduce exposure to currency movements affecting existing foreign currency denominated assets, liabilities and firm commitments. The contract maturities match the maturities -18- 20 of the currency positions. The Company estimates that a 10% change in foreign exchange rates at June 30, 1998 would have changed the combined fair value of the contracts by $14.6 million at that date. Changes in the fair value of forward exchange contracts are substantially offset by changes in the fair value of the hedged positions. Information about foreign currency contracts in place at June 30, 1998 follows: Fair Value Contract Amount ---------- --------------- Buy currency: Swiss franc $208.4 $151.0 U.S. dollar 76.8 75.1 French franc 72.8 71.8 German mark 49.9 49.8 All other 9.6 9.2 ------ ------ $417.5 $356.9 Contract maturity: Swiss franc 10/00- 3/06 All other 7/98-12/98 Sell currency: Belgian franc $184.8 $187.3 French franc 124.6 124.3 German mark 59.1 62.8 British pound 12.7 12.5 Netherlands guilder 11.3 11.3 All other 18.1 18.6 ------ ------ $410.6 $416.8 Contract maturity: 7/98- 6/99 The sensitivity to changes in exchange rates of the Company's foreign currency positions was determined using current market pricing models. -19- 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to the Annual Report of The Goodyear Tire & Rubber Company (the "Company") on Form 10-K for the year ended December 31, 1997 (the "Annual Report"), wherein at Item 3, pages 13, 14, and 15, the Company reported certain legal proceedings. The Company reports the following developments in respect of two of the legal proceedings described at Item 3 of the Annual Report. (A) As reported at paragraph (A) of Item 3 of the Annual Report, since 1990 a series of 65 civil actions have been filed against the Company in the United States District Court for the District of Maryland relating to the development of lung disease, cancer and other diseases by former employees of The Kelly-Springfield Tire Company ("Kelly"), then a subsidiary of the Company, alleged to be the result of exposure to allegedly toxic substances while working at the Cumberland, Maryland, tire plant of Kelly. The plant was closed in 1987. The plaintiffs are seeking an aggregate of $650 million in compensatory damages and $6.46 billion in punitive damages. On March 5, 1997, the Court granted the Company's motion for summary judgment and issued an Order and Judgment dismissing all of these civil actions with prejudice. On April 7, 1997, the plaintiffs appealed the Order and Judgment to the United States Court of Appeals for the Fourth Circuit. On May 11, 1998, the United States Court of Appeals for the Fourth Circuit vacated the judgment of the District Court and remanded the case for further proceedings. The Company's motion for summary judgment on causation is pending with the District Court. (B) As reported at paragraph (E) of Item 3 of the Annual Report, in March of 1997 the Company filed a civil action, Goodyear v. Chiles Power Supply Inc., d/b/a Heatway Systems, in the United States District Court for the Northern District of Ohio seeking (i) to collect $2.3 million due for products sold to Heatway Systems and (ii) a declaratory judgment to the effect that the Company's obligations in respect of "Entran 2 hose" sold to Heatway Systems are limited by Registrant's standard written terms and conditions of sale. Heatway counterclaimed, alleging that, among other things, all Entran 2 hose sold to Heatway Systems was defective and that the Company misrepresented the properties and capabilities of Entran 2 hose. In June 1998, the Court granted the Company's motion for summary judgment as to its claim for $2.3 million due for hose purchased by Heatway Systems from the Company and found, among other things, that Heatway Systems may not assert any fraud claim against the Company in respect of substantially all of the hose sold to it. A trial is scheduled for October of 1998 to adjudicate the remaining claims of Heatway Systems. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of Registrant was held on April 6, 1998 (the "Annual Meeting"). Proxies for the Annual Meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Act"), there was no solicitation in opposition to - 20 - 22 the three nominees of the Board of Directors listed in the Proxy Statement of Registrant, dated February 26, 1998, for the Annual Meeting (the "Proxy Statement"), filed with the Securities and Exchange Commission, and said three nominees were elected. The following matters were acted upon by the shareholders of Registrant at the Annual Meeting, at which 138,459,282 shares of the Common Stock, without par value, of Registrant (the "Common Stock", the only class of voting securities of Registrant outstanding), or approximately 88.293 percent of the 156,817,956 shares of Common Stock outstanding and entitled to vote at the Annual Meeting, were present in person or by proxies: 1. ELECTION OF DIRECTORS. Three persons were nominated by the Board of Directors of Registrant for election as directors of Registrant. John G. Breen, William E. Butler and George H. Schofield were nominated as Class II directors, each to hold office for a three year term expiring at the 2001 Annual Meeting of Shareholders and until his successor shall have been duly elected and qualified. Each nominee was an incumbent director. No other person was nominated. Each nominee was elected. The votes cast for, or withheld or abstained with respect to, each nominee were as follows:
Shares of Common Shares of Common Stock Name of Director Stock Voted For Withheld or Abstained ---------------- --------------- --------------------- John G. Breen 132,310,090 6,149,192 William E. Butler 136,717,919 1,741,363 George H. Schofield 136,738,777 1,720,505
The eight directors whose terms of office continue after the Annual Meeting are: (A) Samir G. Gibara, William J. Hudson, Jr., William C. Turner and Martin D. Walker, whose terms expire in 1999; and (B) Thomas H. Cruikshank, Katherine G. Farley, Steven A. Minter and Agnar Pytte, whose terms expire in 2000. 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS. A resolution proposed by the Board of Directors of Registrant that the shareholders ratify the action of the Board of Directors in selecting and appointing Price Waterhouse LLP as independent accountants for Registrant for the year ending December 31, 1998 was submitted to, and voted upon by, the shareholders of Registrant. There were 137,698,197 shares of Common Stock voted in favor of, and 306,651 shares of Common Stock voted against, said resolution. The holders of 454,434 shares of Common Stock abstained. There were no "broker non-votes". The resolution, having received the affirmative vote of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Annual Meeting, was adopted and the appointment of Price Waterhouse LLP as the independent accountants for Registrant for 1998 was ratified by the shareholders. - 21 - 23 [The information set forth above in this Item 4 was also set forth at Item 4 of Part II of Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 1998.] ITEM 5. OTHER INFORMATION Any shareholder proposal submitted outside the processes of Rule 14a-8 under the Securities Exchange Act of 1934 for presentation to the Registrant's 1999 Annual Meeting of Shareholders will be considered untimely for purposes of Rules 14a-4 and 14a-5 if notice thereof if received by Registrant after January 11, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. See the Index of Exhibits at page E-1, which is by specific reference incorporated into and made a part of this Quarterly Report on Form 10-Q. (b) REPORTS ON FORM 8-K. No Current Report on Form 8-K was filed by The Goodyear Tire & Rubber Company during the quarter ended June 30, 1998. S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GOODYEAR TIRE & RUBBER COMPANY (Registrant) Date: July 16, 1998 By /s/ John W. Richardson ---------------------------------- John W Richardson, Vice President (Signing on behalf of Registrant as a duly authorized officer of Registrant and signing as the Principal Accounting Officer of Registrant.) - 22 - 24 THE GOODYEAR TIRE & RUBBER COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 INDEX OF EXHIBITS (1)
EXHIBIT EXHIBIT ------- ------- TABLE ITEM NO. * Description of Exhibit NUMBER PAGE ---------------- ----------------------------------------------- ------ ---- 3 ARTICLES OF INCORPORATION AND BY-LAWS ------------------------------------- (a) Certificate of Amended Articles of Incorporation of Registrant, dated December 20, 1954, and Certificate of Amendment to Amended Articles of Incorporation of Registrant, dated April 6, 1993, and Certificate of Amendment to Amended Articles of Incorporation of Registrant dated June 4, 1996, three documents comprising Registrant's Articles of Incorporation as amended (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). (b) Code of Regulations of The Goodyear Tire & Rubber Company, adopted November 22, 1955, as amended April 5, 1965, April 7, 1980, April 6, 1981 and April 13, 1987 (incorporated by reference, filed as Exhibit 4.1(B) to Registrant's Registration Statement on Form S-3, File No. 333-1995). 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES ` ------------------------------- (a) Conformed copy of Rights Agreement, dated as of June 4, 1996, between Registrant and First Chicago Trust Company of New York, rights Agent (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 1 to Registrant's Registration Statement on Form 8-A dated June 11, 1996 and as Exhibit 4(a) to Registrant's Current Report on Form 8-K dated June 4, 1996, File No. 1-1927).
- ---------- *Pursuant to Item 601 of Regulation S-K. E-1 25
EXHIBIT EXHIBIT ------- ------- TABLE ITEM NO. * Description of Exhibit NUMBER PAGE ---------------- ----------------------------------------------- ------ ---- 4 (b) Specimen nondenominational Certificate for shares of the Common Stock, Without Par Value, of Registrant; First Chicago Trust Company of New York as transfer agent and registrar (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-1927). (c) Conformed copy of Revolving Credit Facility Agreement, dated as of July 15, 1994, among Registrant, the Lenders named therein and Chemical Bank, as Agent (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit A to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, File No. 1-1927). (d) Conformed copy of Replacement and Restatement Agreement, dated as of July 15, 1996, among Registrant, the Lenders named therein and The Chase Manhattan Bank (formerly Chemical Bank), as Agent (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 4.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File 1-1927). (e) Conformed copy of First Amendment to Replacement and Restatement Agreement, dated as of March 31, 1997, among Registrant, the Lenders named therein and The Chase Manhattan Bank (formerly Chemical Bank), as Agent (incorporated by reference, filed as Exhibit 4.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File 1-1927). (f) Form of Indenture, dated as of March 15, 1996, between Registrant and Chemical Bank (now The Chase Manhattan Bank), as Trustee, as supplemented on December 3, 1996, March 11, 1998 and March 17, 1998 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
- ---------- *Pursuant to Item 601 of Regulation S-K. E-2 26
EXHIBIT EXHIBIT ------- ------- TABLE ITEM NO. * Description of Exhibit NUMBER PAGE ---------------- ----------------------------------------------- ------ ---- March 31, 1998, File 1-1927). 4 No instrument defining the rights of holders of long-term debt which relates to securities having an aggregate principal amount in excess of 10% of the consolidated assets of Registrant and its subsidiaries was entered into during the quarter ended June 30, 1998. In accordance with paragraph (iii) to Part 4 of Item 601 of Regulation S-K, agreements and instruments defining the rights of holders of certain items of long term debt entered into during the quarter ended June 30, 1998 which relate to securities having an aggregate principal amount less than 10% of the consolidated assets of Registrant and its Subsidiaries are not filed herewith. The Registrant hereby agrees to furnish a copy of any such agreements or instruments to the Securities and Exchange Commission upon request. 12 STATEMENT RE COMPUTATION OF RATIOS ------------------------ Statement setting forth the computation of 12 X-12-1 Ratio of Earnings to Fixed Charges. 27 FINANCIAL DATA SCHEDULE ----------------------- Financial Data Schedule (for quarter ended June 27 X-27-1 30, 1998).
- ---------- *Pursuant to Item 601 of Regulation S-K. E-3 EX-12 2 EXHIBIT 12 1 EXHIBIT 12 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)
6 MONTHS ENDED 6/30/98 1997 1996 1995 1994 1993 ------- ---- ---- ---- ---- ---- EARNINGS INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT $ 588.9 $ 743.3 $ 811.5 $ 869.8 $ 855.9 $ 797.4 OF ACCOUNTING CHANGES Add: Amortization of previously capitalized interest 5.6 11.0 11.6 11.7 10.2 10.1 Minority interest in net income of consolidated subsidiaries with fixed charges 16.4 45.1 45.9 30.1 16.9 19.0 Proportionate share of fixed charges of investees accounted for by the equity method 3.2 6.5 5.1 5.3 2.5 2.3 Proportionate share of net loss of investees accounted for by the equity method 0.5 0.1 2.7 0.5 0.2 0.3 --------- --------- ----------- ----------- ----------- ----------- Total additions 25.7 62.7 65.3 47.6 29.8 31.7 Deduct: Capitalized interest 2.4 6.2 5.4 5.1 5.7 5.0 Minority interest in net loss of consolidated subsidiaries 1.6 3.6 4.4 3.3 0.3 0.3 Undistributed proportionate share of net income of investees accounted for by the equity method -- -- -- 0.2 7.2 4.0 --------- --------- ----------- ----------- ----------- ----------- Total deductions 4.0 9.8 9.8 8.6 13.2 9.3 TOTAL EARNINGS $ 610.6 $ 796.2 $ 867.0 $ 908.8 $ 872.5 $ 819.8 ========= ========= =========== =========== =========== =========== FIXED CHARGES Interest expense $ 64.3 $ 119.5 $ 128.6 $ 135.0 $ 129.4 $ 162.4 Capitalized interest 2.4 6.2 5.4 5.1 5.7 5.0 Amortization of debt discount, premium or expense 3.6 0.1 0.3 0.4 0.7 0.4 Interest portion of rental expense 31.6 63.3 69.5 77.0 83.0 83.7 Proportionate share of fixed charges of investees accounted for by the equity method 3.2 6.5 5.1 5.3 2.5 2.3 --------- --------- ----------- ----------- ----------- ----------- TOTAL FIXED CHARGES $ 105.1 $ 195.6 $ 208.9 $ 222.8 $ 221.3 $ 253.8 ========= ========= =========== =========== =========== =========== TOTAL EARNINGS BEFORE FIXED CHARGES $ 715.7 $ 991.8 $ 1,075.9 $ 1,131.6 $ 1,093.8 $ 1,073.6 ========= ========= =========== =========== =========== =========== RATIO OF EARNINGS TO FIXED CHARGES 6.81 5.07 5.15 5.08 4.94 4.23
The years 1993-1997 have been restated to reflect the sale of the net assets of the oil transportation segment, which was accounted for as discontinued operations. X - 12 - 1 EX-27 3 EXHIBIT 27
5 This schedule contains summary financial information for The Goodyear Tire & Rubber Company and Subsidiaries extracted from the Consolidated Statement of Income and Retained Earnings and the Consolidated Balance Sheet and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 183 0 1,929 56 2,164 5,007 8,890 5,097 10,314 3,471 949 0 0 157 3,420 10,314 6,232 6,232 4,724 4,724 0 0 64 589 178 411 (35) 0 0 376 2.39 2.36
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