Goodyear
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The Goodyear Tire & Rubber Company is an American tire manufacturer. Goodyear manufactures tires for automobiles, commercial trucks, light trucks, motorcycles, airplanes, farm equipment and heavy earth-mover machinery.

Goodyear - 10-Q quarterly report FY


Text size:
1
==============================================================================



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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)


(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, 1997: 155,974,736


==============================================================================
2

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Unaudited


<TABLE>
<CAPTION>
(In millions, except per share)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 3,315.5 $ 3,329.5 $ 6,548.7 $ 6,575.0

Cost of Goods Sold 2,532.8 2,534.3 4,993.8 5,015.5
Selling, Administrative and General Expense 463.3 463.4 930.3 934.4
Interest Expense 32.5 35.4 63.5 67.4
Other (Income) Expense 3.3 6.9 10.9 20.9
Foreign Currency Exchange (3.1) 4.7 (6.2) 6.6
Minority Interest in Net Income of Subsidiaries 11.7 11.3 23.2 23.2
--------- --------- --------- ---------
Income before Income Taxes 275.0 273.5 533.2 507.0
United States and Foreign Taxes on Income 82.8 85.6 170.6 167.3
--------- --------- --------- ---------
NET INCOME $ 192.2 $ 187.9 362.6 339.7
========= =========
Retained Earnings at Beginning of Period 2,603.0 2,661.0

CASH DIVIDENDS (87.6) (77.4)
--------- ---------
Retained Earnings at End of Period $ 2,878.0 $ 2,923.3
========= =========


PER SHARE OF COMMON STOCK:

NET INCOME $ 1.23 $ 1.22 $ 2.32 $ 2.20
========= ========= ========= =========

CASH DIVIDENDS $ 0.28 $ 0.25 $ 0.56 $ 0.50
========= ========= ========= =========

Average Shares Outstanding 155.8 155.1 156.1 154.6
</TABLE>

The accompanying notes are an integral part of this financial statement.





-1-
3

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Unaudited
<TABLE>
<CAPTION>

(Dollars in millions)
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 240.7 $ 238.5
Accounts and notes receivable,
less allowance (1997-$54.1, 1996-$58.1) 1,985.3 1,706.0
Inventories:
Raw materials 311.3 288.4
Work in process 80.2 77.2
Finished product 1,481.1 1,408.6
--------- ---------
1,872.6 1,774.2
Prepaid expenses and other current assets 314.6 306.3
--------- ---------
Total Current Assets 4,413.2 4,025.0

Investments in Affiliates, at equity 125.5 140.3
Long Term Accounts and Notes Receivable 192.8 216.2
Deferred Charges 1,166.0 1,059.4
Other Assets 178.0 163.0
Properties and Plants,
less accumulated depreciation (1997-$5,031.7, 1996-$4,935.8) 4,075.2 4,067.9
--------- ---------
TOTAL ASSETS $10,150.7 $ 9,671.8
========= =========
LIABILITIES:
Current Liabilities:
Accounts payable - trade $ 1,111.9 $ 1,096.7
Compensation and benefits 757.6 742.5
Other current liabilities 290.7 300.4
United States and foreign taxes 411.3 382.1
Notes payable to banks 497.0 218.1
Long term debt due within one year 33.5 26.4
--------- ---------
Total Current Liabilities 3,102.0 2,766.2

Compensation and Benefits 1,955.7 1,988.1
Long Term Debt 1,084.2 1,132.2
Other Long Term Liabilities 234.6 264.9
Minority Equity in Subsidiaries 282.1 241.3
--------- ---------
TOTAL LIABILITIES 6,658.6 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 155,974,736 (156,049,974 in 1996)
after deducting 39,703,932 treasury shares (39,628,694 in 1996) 156.0 156.1
Capital Surplus 1,033.4 1,059.4
Retained Earnings 2,878.0 2,603.0
Foreign Currency Translation and Other Adjustments (575.3) (539.4)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 3,492.1 3,279.1
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,150.7 $ 9,671.8
========= =========
</TABLE>

The accompanying notes are an integral part of this financial statement.

- 2 -
4

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited

<TABLE>
<CAPTION>

(In millions) Six Months Ended
June 30,
1997 1996
------ ------

<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income $362.6 $339.7
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation 237.4 226.0
Accounts and notes receivable (279.4) (425.4)
Inventories (72.6) (187.0)
Accounts payable-trade (32.5) (114.3)
Other assets and liabilities 33.2 98.0
------ ------
Total adjustments (113.9) (402.7)
------ ------
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES 248.7 (63.0)


CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures (230.7) (267.9)
Other transactions (99.3) (75.0)
------ ------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (330.0) (342.9)


CASH FLOWS FROM FINANCING ACTIVITIES:

Short term debt incurred 343.5 595.2
Short term debt paid (70.5) (102.8)
Long term debt incurred 7.7 6.3
Long term debt paid (72.8) (33.2)
Common stock issued 52.3 53.7
Common stock purchased (78.4) --
Dividends paid (87.6) (77.4)
------ ------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 94.2 441.8

Effect of Exchange Rate Changes on Cash and Cash Equivalents (10.7) (25.5)
------ ------
Net Change in Cash and Cash Equivalents 2.2 10.4

Cash and Cash Equivalents at Beginning of the Period 238.5 268.3
------ ------
Cash and Cash Equivalents at End of the Period $240.7 $278.7
====== ======

</TABLE>

The accompanying notes are an integral part of this financial statement.

-3-
5

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED OPERATIONS - SOUTH PACIFIC TYRE
- ------------------------------------------------

In addition to its consolidated operations in the Asia region, the Company
also owns a 50% interest in South Pacific Tyres Ltd (SPT), a partnership with
Pacific Dunlop Ltd of Australia. SPT is the largest tire manufacturer, marketer
and exporter in Australia and New Zealand. The Company is required to use the
equity method to account for its interest in the results of operations and
financial position of SPT.

The following table presents sales and operating income of the Company's
consolidated Asian operations and 100% of the operations of SPT:
<TABLE>
<CAPTION>
(In millions) THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------

Asia Asia
Segment SPT Total Segment SPT Total
------- --- ----- ------- --- -----
<S> <C> <C> <C> <C> <C> <C>
NET SALES:

1997 $209.4 $204.2 $413.6 $408.7 $387.8 $796.5
1996 215.2 209.1 424.3 418.2 402.9 821.1

OPERATING PROFIT:

1997 $ 22.8 $ 20.3 $ 43.1 $ 50.3 $ 35.1 $ 85.4
1996 25.7 21.5 47.2 51.2 39.0 90.2
</TABLE>


SUPPLEMENTAL 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.

PER SHARE OF COMMON STOCK
- -------------------------

Per share amounts have been computed based on the average number of common
shares outstanding.

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 1997 presentation.

- 4 -
6
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
Unaudited
<TABLE>
<CAPTION>


(In millions) Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------

INDUSTRY SEGMENTS
- -----------------
<S> <C> <C> <C> <C>
Sales to Unaffiliated Customers:
Tires $2,570.9 $2,549.8 $5,112.4 $5,090.0
Related products and services 258.2 279.2 468.8 512.8
-------- -------- -------- --------
Total Tires 2,829.1 2,829.0 5,581.2 5,602.8
General Products 460.8 466.2 917.4 906.0
Oil Transportation 25.6 34.3 50.1 66.2
-------- -------- -------- --------
NET SALES $3,315.5 $3,329.5 $6,548.7 $6,575.0
======== ======== ======== ========

Income:
Tires $ 265.1 $ 248.4 $ 532.0 $ 500.8
General Products 58.5 51.3 104.8 93.0
Oil Transportation 15.6 18.7 31.4 35.4
-------- -------- -------- --------
OPERATING INCOME 339.2 318.4 668.2 629.2

Exclusions from operating income (64.2) (44.9) (135.0) (122.2)
-------- -------- -------- --------
Income before Income Taxes $ 275.0 $ 273.5 $ 533.2 $ 507.0
======== ======== ======== ========


GEOGRAPHIC SEGMENTS
- -------------------

Sales to Unaffiliated Customers:
United States $1,720.4 $1,788.1 $3,432.6 $3,518.8
Europe 805.3 766.2 1,569.8 1,530.0
Latin America 401.9 390.4 785.0 771.8
Asia 209.4 215.2 408.7 418.2
Canada 178.5 169.6 352.6 336.2
-------- -------- -------- --------
NET SALES $3,315.5 $3,329.5 $6,548.7 $6,575.0
======== ======== ======== ========


Income:
United States $ 138.6 $ 131.8 $ 280.8 $ 260.3
Europe 91.7 87.3 171.3 166.7
Latin America 71.8 67.2 140.1 138.4
Asia 22.8 25.7 50.3 51.2
Canada 14.3 6.4 25.7 12.6
-------- -------- -------- --------
OPERATING INCOME $ 339.2 $ 318.4 $ 668.2 $ 629.2
======== ======== ======== ========
</TABLE>

- 5 -
7

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 1997 were $3.32 billion, compared to $3.33
billion in the 1996 quarter. Net income in the quarter was $192.2 million ($1.23
per share), increasing 2.3% from net income of $187.9 million ($1.22 per share)
in 1996.

In the six months, sales were $6.55 billion, compared to $6.57 billion in
1996. Net income of $362.6 million ($2.32 per share) increased 6.7% from net
income of $339.7 million ($2.20 per share) in the 1996 period.

Worldwide tire unit sales in the second quarter and six months increased
4.4% and 4.0%, respectively, from 1996's levels, and unit sales of other
automotive and industrial rubber products were higher in both periods. Worldwide
original equipment volume increased significantly in both periods, although
replacement volume and pricing remained soft. Revenues in both periods reflected
continued worldwide competitive pricing pressures, a shift in sales mix towards
original equipment tires and the strengthening of the U.S. dollar in 1997 versus
European and Asian currencies. In addition, results were adversely affected by a
strike against the Company by the United Steel Workers of America,
A.F.L.-C.I.O.-C.L.C. (USWA), as discussed below, and other strikes against
various U.S. original equipment manufacturers. Competitive pricing pressures are
expected to continue throughout 1997.

Cost of goods sold in the second quarter of 1997 increased to 76.4% of
sales from 76.1% in the 1996 quarter, and was 76.3% of sales in the first six
months of 1997 and 1996. Both 1997 periods benefited from lower raw material
costs and the effects of currency translation compared to the prior year. Costs
in 1997 were adversely affected by an 18-day strike against the Company by the
USWA at 10 U.S. tire and engineered products manufacturing facilities, which
costs were not fully recovered through productivity gains.


-6-
8

Other (income) and expense in the first six months of 1997 decreased versus
last year's six months due primarily to the inclusion in the 1996 period of a
$6.5 million charge related to improvements in manufacturing efficiencies in
Brazil. In addition, the second quarter of 1996 included a net pretax gain of
$1.6 million, comprised of charges totaling $31.2 million related to
rationalizations and other provisions and a gain of $32.8 million on the sale of
business property in Asia.

Foreign currency exchange expense was lower in the six months due primarily
to the favorable impact of the strengthening of the U.S. dollar on the Company's
net currency exposures. Net income in the second quarter and six months also
benefited from a lower effective tax rate compared to the 1996 periods.

SEGMENT INFORMATION
- -------------------

Segment operating income in the second quarter of 1997 was $339.2 million,
increasing 6.5% from $318.4 million in the 1996 quarter. Segment operating
margin rose to 10.2% of sales from 9.6% in the 1996 period.

In the six months, segment operating income was $668.2 million, increasing
6.2% from $629.2 million in the 1996 period. Segment operating margin rose to
10.2% of sales from 9.6% in the 1996 six months.

INDUSTRY SEGMENTS
- -----------------
<TABLE>
<CAPTION>

Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Segment Contribution
to Consolidated Sales:

Tires 85.3% 85.0% 85.2% 85.2%
General Products 13.9 14.0 14.0 13.8
Oil Transportation .8 1.0 .8 1.0

Segment Operating Margin:

Tires 9.4% 8.8% 9.5% 8.9%
General Products 12.7 11.0 11.4 10.3
Oil Transportation 60.9 54.5 62.7 53.5

Consolidated 10.2 9.6 10.2 9.6

</TABLE>

- 7 -
9



TIRES
- -----

Sales in the second quarter of 1997 of $2.83 billion were flat compared to
the 1996 period. In the six months, sales of $5.58 billion decreased slightly
from $5.60 billion in 1996.

Unit sales in both the quarter and six months increased in all
international regions, and were higher in the U.S. in the six months. Revenues
reflected worldwide competitive pricing pressures, a shift in worldwide unit
sales mix towards original equipment tires, the strengthening of the U.S. dollar
versus currencies in Europe and Asia and reduced demand in the U.S. resulting
from strikes against original equipment manufacturers.

The following table presents changes in tire unit sales:

Increase (Decrease) in Company Tire Unit Sales-1997 vs. 1996
------------------------------------------------------------
<TABLE>
<CAPTION>

Second Quarter Six Months
-------------- ----------
<S> <C> <C>
U.S. (.8)% 1.2%
International 9.8 6.8
Worldwide 4.4 4.0
</TABLE>

Tire segment operating income in the second quarter of 1997 was $265.1
million, increasing 6.7% from $248.4 million in the 1996 period. In the six
months, operating income of $532.0 million increased 6.2% from $500.8 million in
1996.

Operating income in both the quarter and six months reflected lower raw
material costs, but was adversely affected by increased costs and lower revenues
resulting from the previously discussed strike against the Company. Operating
income in the 1996 quarter and six months was reduced by charges totaling $26.9
million and $32.5 million, respectively, related to rationalizations and other
provisions and improvements in manufacturing efficiencies.

GENERAL PRODUCTS
- ----------------

Sales in the second quarter of 1997 were $460.8 million, decreasing 1.1%
from $466.2 million in the 1996 period. In the six months, sales of $917.4
million increased 1.3% from $906.0 million in 1996.

Sales increased in the quarter and six months in engineered products on
higher unit volume of automotive and industrial rubber products. Sales in
chemical products decreased in both periods due to lower selling prices and
reduced volume.

- 8 -
10

Operating income in the second quarter was $58.5 million, increasing 14.2%
from $51.3 million in the 1996 period. In the six months, operating income of
$104.8 million increased 12.7% from $93.0 million in 1996.

Operating income increased in the quarter and six months in engineered
products due to lower raw material costs and ongoing cost containment measures.
Chemical operating income increased in both periods due primarily to lower
manufacturing costs and a more favorable product mix.

Operating income in the 1996 quarter and six months was reduced by charges
totaling $4.3 million and $5.2 million, respectively, related to
rationalizations and other provisions and improvements in manufacturing
efficiencies.

OIL TRANSPORTATION
- ------------------

Sales in the second quarter of 1997 were $25.6 million, decreasing 25.4%
from $34.3 million in the 1996 period. In the six months, sales were $50.1
million, decreasing 24.4% from $66.2 million in 1996.

Operating income in the second quarter was $15.6 million, decreasing 16.7%
from $18.7 million in the 1996 period. In the six months, operating income was
$31.4 million, decreasing 11.4% from $35.4 million in 1996.

Sales and operating income decreased in the quarter and six months due
primarily to lower throughput and reduced spreads in purchasing, selling and
exchanging activities. Margins were favorably impacted by lower depreciation
expense resulting from the writedown of the All American Pipeline System and
related assets in the fourth quarter of 1996.

- 9 -
11

GEOGRAPHIC SEGMENTS
- -------------------
<TABLE>
<CAPTION>

Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>

Segment Contribution
to Consolidated Sales:

United States 51.9% 53.7% 52.4% 53.5%
Europe 24.3 23.0 24.0 23.3
Latin America 12.1 11.7 12.0 11.7
Asia 6.3 6.5 6.2 6.4
Canada 5.4 5.1 5.4 5.1

Segment Operating Margin:

United States 8.1% 7.4% 8.2% 7.4%
Europe 11.4 11.4 10.9 10.9
Latin America 17.9 17.2 17.8 17.9
Asia 10.9 11.9 12.3 12.2
Canada 8.0 3.8 7.3 3.7

Consolidated 10.2 9.6 10.2 9.6
</TABLE>

In the United States, sales in the second quarter of 1997 were $1.72
billion, decreasing 3.8% from $1.79 billion in the 1996 period. In the six
months, sales of $3.43 billion decreased 2.4% from $3.52 billion in 1996.

Unit sales of tires and engineered products in the U.S. decreased in the
quarter but were higher in the six months. Revenues decreased in both periods
due primarily to competitive tire pricing pressures, reduced volume in chemical
products, lower revenues in oil transportation operations and the effects of the
strike against the Company and strikes against U.S. original equipment
manufacturers.

U.S. operating income in the second quarter of 1997 was $138.6 million,
increasing 5.3% from $131.8 million in the 1996 period. In the six months,
operating income of $280.8 million increased 7.9% from $260.3 million in 1996.

Operating income in the quarter and six months reflected lower raw material
costs, lower SAG and the effects of cost containment measures, but was adversely
affected in both periods by the previously mentioned strikes. Operating income
in both the 1996 quarter and six months was reduced by charges totaling $12.6
million related to rationalizations and other provisions.

In Europe, sales in the second quarter of 1997 were $805.3 million,
increasing 5.1% from $766.2 million in the 1996 period. In the six months, sales
of $1.57 billion increased 2.6% from $1.53 billion in 1996.

- 10 -
12

Second quarter operating income in Europe was $91.7 million, increasing
5.0% from $87.3 million in the 1996 period. In the six months, operating income
of $171.3 million increased 2.7% from $166.7 million in 1996. Operating income
in both the second quarter and six months of 1996 was reduced by a $15.0 million
charge related to rationalizations and other provisions.

Sales and operating income in Europe were favorably impacted in both 1997
periods by the acquisition of a majority interest in tire and engineered
products manufacturing and distribution operations in South Africa. Revenues
were adversely affected by currency translation and competitive pricing
pressures. Operating income benefited from lower raw material costs and
productivity improvements.

In Latin America, sales in the second quarter of 1997 were $401.9 million,
increasing 3.0% from $390.4 million in the 1996 period. In the six months, sales
of $785.0 million increased 1.7% from $771.8 million in 1996.

Second quarter operating income in Latin America was $71.8 million,
increasing 6.7% from $67.2 million in the 1996 period. In the six months,
operating income of $140.1 million increased 1.2% from $138.4 million in 1996.
Operating income in the 1996 quarter and six months was reduced by charges
totaling $3.6 million and $10.1 million, respectively, related to
rationalizations and other provisions and improvements in manufacturing
efficiencies.

Sales and operating income in Latin America were favorably impacted in the
quarter and six months by higher unit sales of tires and engineered products,
lower raw material costs and the effects of ongoing cost containment measures.
Results were adversely affected by competitive pricing pressures.

In Asia, sales in the second quarter of 1997 were $209.4 million,
decreasing 2.7% from $215.2 million in the 1996 period. In the six months, sales
of $408.7 million decreased 2.3% from $418.2 million in 1996.

Second quarter operating income in Asia was $22.8 million, decreasing 11.6%
from $25.7 million in the 1996 period. In the six months, operating income of
$50.3 million decreased 1.9% from $51.2 million in 1996.

Tire unit sales in Asia increased and operating income in the Asian tire
business was higher in both the second quarter and six months, reflecting lower
raw material costs and the effects of cost containment and productivity measures
on manufacturing costs and SAG. Sales and operating income in the segment
decreased in both periods due primarily to the strengthening of the U.S. dollar
versus Asian currencies and lower results in natural rubber operations.

- 11 -
13

Sales and operating income of the Asia segment reflect the results of the
Company's majority-owned tire business and other operations in the region,
principally the engineered products and natural rubber businesses. In addition,
the Company owns a 50% interest in South Pacific Tyres Ltd (SPT), the largest
tire manufacturer, marketer and exporter in Australia and New Zealand. Results
of operations of SPT are not reported in segment results, and are reflected in
the Company's consolidated statement of income using the equity method.

The following table presents the sales and operating income of the
Company's Asian segment together with 100% of the sales and operating income of
SPT:
<TABLE>
<CAPTION>

(In millions) Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales:

Asia Segment $ 209.4 $ 215.2 $ 408.7 $ 418.2
SPT 204.2 209.1 387.8 402.9
-------- -------- -------- --------
Total $ 413.6 $ 424.3 $ 796.5 $ 821.1

Operating Income:

Asia Segment $ 22.8 $ 25.7 $ 50.3 $ 51.2
SPT 20.3 21.5 35.1 39.0
-------- -------- -------- --------
Total $ 43.1 $ 47.2 $ 85.4 $ 90.2
</TABLE>

In Canada, sales in the second quarter of 1997 were $178.5 million,
increasing 5.3% from $169.6 million in the 1996 period. In the six months, sales
of $352.6 million increased 4.9% from $336.2 million in 1996.

Second quarter operating income in Canada was $14.3 million, compared to
$6.4 million in the 1996 period. In the six months, operating income of $25.7
million increased from $12.6 million in 1996.

Sales and operating income in Canada increased in both periods, reflecting
higher unit sales of tires and engineered products due in part to the USWA
strike in the U.S., and lower raw material costs.

- 12-
14

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Net cash provided by operating activities was $248.7 million during the
first six months of 1997, as reported on the Consolidated Statement of Cash
Flows. Working capital requirements increased for accounts receivable and
inventories, yet remained significantly lower than requirements in 1996.

Net cash used in investing activities was $330.0 million during the first
six months of 1997. Capital expenditures were $230.7 million, primarily for
plant modernizations and expansions and new tire molds, and are expected to
total $675 million in 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 1997 1996 1997 1996
---- ---- ---- ----

<S> <C> <C> <C> <C>
Capital Expenditures $ 136.3 $ 140.0 $ 230.7 $ 267.9
Depreciation 121.3 114.4 237.4 226.0
</TABLE>

Other investing activities included the Company's first quarter acquisition
of a majority ownership interest in tire and engineered products manufacturing
and distribution operations in South Africa.

Net cash provided by financing activities was $94.2 million during the
first six months of 1997.

(Dollars in millions) 6/30/97 12/31/96 6/30/96
------- -------- -------

Consolidated Debt $1,614.7 $1,376.7 $1,995.6
Debt/Debt+Equity 31.6% 29.6% 35.9%

During the second quarter of 1997, 478,200 shares of Common Stock of the
Company were repurchased under the Company's $600 million three-year repurchase
program, at an average cost of $51.93. At June 30, 1997, 1,478,200 shares have
been repurchased under the February 1997 plan at an average cost of $53.06.

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. At June 30, 1997 the interest rate on
53% of the Company's debt was fixed by either the nature of the obligation or
through the interest rate swaps.

- 13 -
15

Interest rate swaps in place and related weighted average interest rates
follow:
<TABLE>
<CAPTION>
(Dollars in millions) Fixed Rate Floating Rate
Contracts Contracts
---------- --------------
June 30, 1997:
<S> <C> <C>
- - Notional principal amount $ 150.0 $ 110.0
- - Pay fixed rate 7.16% --
- - Receive variable LIBOR 5.87 --
- - Pay variable LIBOR -- 5.75%
- - Receive fixed rate -- 6.24
- - Average years to maturity 2.7 6.2
- - Fair value: favorable (unfavorable) $ (0.2) $ 1.3
- - Carrying amount: asset (liability) (0.5) 1.0

Second quarter - Rate paid 7.52% 5.64%
- Rate received 5.72 6.24
Six months - Rate paid 7.75 5.61
- Rate received 5.67 6.24

</TABLE>

Fixed rate contracts with notional principal amounts totaling $100 million
matured in the second quarter of 1997.

Substantial short term and long term credit sources are available to the
Company globally under normal commercial practices. At June 30, 1997 the Company
had short term uncommitted credit arrangements totaling $1.53 billion, of which
$789 million were unused. The Company also had available long term credit
arrangements at June 30, 1997 totaling $2.07 billion, of which $1.2 billion were
unused.

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,
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 future
value of these contracts and the related currency positions are subject to
offsetting market risk resulting from foreign currency exchange rate volatility.

Funds generated by operations, together with funds available under existing
credit arrangements, are expected to be sufficient to meet currently anticipated
funding requirements.

- 14 -
16

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 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 raw material and energy prices; 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.

- 15 -
17

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, 1996 (the
"Annual Report"), wherein at Item 3, pages 13, 14, 15, and 16, the Company
reported certain legal proceedings. The Company reports the following
developments in respect of one of the legal proceedings described at Item 3 of
the Annual Report.

As reported at paragraph (C) of Item 3 of the Annual Report, in
September of 1990, a civil action, Eastman Kodak Company, et al. v. Goodyear, et
al. (No. CIV-2-90-221), was filed by Eastman in the United States District Court
for the Eastern District of Tennessee, Northeastern Division, whereunder Eastman
alleged infringement of a patent, which expired in December of 1994, in respect
of certain processes used in the manufacture of polyester resin on ten
production lines at the Pt. Pleasant, West Virginia polyester resin plant owned
and operated by the Company until December 18, 1992, when it was sold to Shell
Oil Company. Eastman sought monetary damages trebled for alleged willfulness,
interest and costs. The Company counterclaimed against Eastman alleging, among
other things, antitrust law violations, which counterclaims were dismissed by
the trial court. The trial court also ruled that the patent did not cover the
processes used in eight of the plant's production lines and, therefore,
dismissed all infringement claims except with respect to two of the plant's
production lines. On April 28, 1995, a jury rendered a verdict finding liability
and assessing damages, having decided that the Company and Shell had infringed
the patent in the operation of said two production lines but that such
infringement was not willful. A judgment of $12,000,000, plus prejudgment and
postjudgment interest thereon (approximately $8,500,000 through June 30, 1997)
and court costs, was entered against the Company. The Company and Eastman
appealed to the Court of Appeals, Federal Circuit, which affirmed the decisions
of the trial court on May 26, 1997, except that the Company's tort claim was
reinstated. On June 3, 1997, the Company petitioned the Court of Appeals for
Rehearing In Banc, which appeal was denied on July 2, 1997. The Company is in
the process of determining whether to appeal to the United States Supreme Court,
pursue the tort claim in the District Court, or both, or to terminate its
defense of this action. Review of this civil action by the Supreme Court would
be at its discretion.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------

The Annual Meeting of Shareholders of the Company was held on April 14,
1997 (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 the four nominees of the
Board of Directors listed in the Proxy Statement of the Company, dated February
26, 1997, for the Annual Meeting (the "Proxy Statement"), filed with the
Securities and Exchange Commission, and said four nominees were elected.

The following matters were acted upon by the shareholders of the
Company at the Annual Meeting, at which 135,627,556 shares of the Common Stock,
without par value, of the Company (the


-16-
18

"Common Stock", the only class of voting securities of the Company outstanding),
or approximately 86.456 percent of the 156,873,882 shares of Common Stock
outstanding and entitled to vote at the Annual Meeting, were present in person
or by proxies:

1. ELECTION OF DIRECTORS. Four persons were nominated by the Board of
Directors of Registrant for election as directors of the Company. Thomas H.
Cruikshank, Steven A. Minter and Agnar Pytte were nominated as Class III
directors, each to hold office for a three year term expiring at the Company's
2000 Annual Meeting of Shareholders and until his successor shall have been duly
elected and qualified. Gertrude G. Michelson was nominated as a Class II
director, to hold office for a one year term expiring at the Company's 1998
Annual Meeting of Shareholders and until her successor shall have been duly
elected and qualified. Each nominee was an incumbent director. No other person
was nominated. Each nominee was elected. The votes cast for, or withheld or
abstained with respect to, each nominee were as follows:
<TABLE>
<CAPTION>

Shares of Common Shares of Common Stock
Name of Director Stock Voted For Withheld or Abstained
---------------- --------------- ---------------------

Class III Directors
-------------------

<S> <C> <C>
Thomas H. Cruikshank 129,194,455 6,433,101
Steven A. Minter 129,210,107 6,417,449
Agnar Pytte 129,176,681 6,450,875

Class II Director
-----------------

Gertrude G. Michelson 129,165,497 6,462,059
</TABLE>

The seven directors whose terms of office continue after the Annual Meeting are:
(A) John G. Breen, William E. Butler, George H. Schofield, whose terms expire in
1998; and (B) Samir G. Gibara, William J. Hudson, Jr., William C. Turner and
Martin D. Walker, whose terms expire in 1999.

2. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS. A resolution
proposed by the Board of Directors of the Company that the shareholders ratify
the action of the Board of Directors in selecting and appointing Price
Waterhouse LLP as independent accountants for the Company for the year ending
December 31, 1997 was submitted to, and voted upon by, the shareholders of
Registrant. There were 134,921,695 shares of Common Stock voted in favor of, and
322,429 shares of Common Stock voted against, said resolution. The holders of
383,432 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 the Company for 1997 was ratified by the
shareholders. The resolution and related information are set forth under the
caption "Ratification of Appointment of Independent Accountants" at page 7 of
the Proxy Statement.

3. APPROVAL OF ADOPTION OF 1997 PERFORMANCE INCENTIVE PLAN. A
resolution proposed by



-17-
19

the Board of Directors of the Company that the shareholders approve the 1997
Performance Incentive Plan of The Goodyear Tire & Rubber Company (the "Plan"),
which had been adopted by the Board of Directors on February 4, 1997 subject to
shareholder approval, was submitted to, and voted upon by, the shareholders of
the Company at the Annual Meeting. The Plan provides, among other things, for
the granting of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock grants and awards, performance grants and
awards and other stock-based grants and awards relating to or in respect of
shares of the Common Stock of the Company to employees of the Company and its
subsidiaries. There were 84,952,669 votes case in favor of, and 35,449,889 votes
cast against, said resolution. The holders of 4,553,815 shares of Common Stock
abstained and there were "broker non-votes" in respect of 10,671,183 shares of
Common Stock. Accordingly, the resolution received the affirmative vote of the
holders of a majority of the Common Stock outstanding and entitled to vote at
the Annual Meeting and, therefore, the resolution was adopted and the Plan was
approved by the shareholders. The resolution and information relating to the
Plan are set forth at pages 7 through 12, inclusive, of the Proxy Statement. The
Plan is set forth in its entirety as Appendix A to, at pages A-1 through A-12
of, the Proxy Statement. A copy of the Plan as adopted by the Board of Directors
and approved by the Shareholders is filed with this Quarterly Report as Exhibit
10.1 and incorporated herein by specific reference.

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, 1997.

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 22, 1997 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.)


-18-
20

THE GOODYEAR TIRE & RUBBER COMPANY

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997

INDEX OF EXHIBITS (1)
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
------- -------
TABLE ITEM NO. Description of Exhibit NUMBER PAGE
-------------- ---------------------- -----------
<S> <C> <C>
3 ARTICLES OF INCORPORATION AND BY-LAWS
--------------------------------------
Certificate of Amended Articles of Incorporation of Registrant, 3.1
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).

Code of Regulations of The Goodyear Tire & Rubber Company, 3.2
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
-------------------------------------------------------------------
Conformed copy of Rights Agreement, dated as of June 4, 1996, 4.1
between Registrant and First Chicago Trust Company of New York,
rights Agent (incorporated by reference, filed 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).


</TABLE>

- ------------------------
- - Pursuant to Item 601 of Regulation S-K.

E-1
21
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
------- -------
TABLE ITEM NO. Description of Exhibit NUMBER PAGE
-------------- ---------------------- -----------
<S> <C> <C>
Specimen nondenominational Certificate for shares of the Common 4.2
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).

Conformed copy of Revolving Credit Facility Agreement, dated as 4.3
of July 15, 1994, among Registrant, the Lenders named therein and
Chemical Bank, as Agent (incorporated by reference, filed as
Exhibit A to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, File No. 1-1927).

Conformed copy of Replacement and Restatement Agreement, dated as 4.4
of July 15, 1996, among Registrant, the Lenders named therein and
The Chase Manhattan Bank (formerly Chemical Bank), as Agent
(incorporated by reference, file as Exhibit 4.5 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996, File 1-1927).

Conformed copy of First Amendment to Replacement and Restatement 4.5 X-4.5-1
Agreement, dated as of March 31, 1997, among Registrant, the
Lenders named therein and The Chase Manhattan Bank (formerly
Chemical Bank), as Agent.
</TABLE>



- -------------------
- -Pursuant to Item 601 of Regulation S-K.

E-2
22
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
------- -------
TABLE ITEM NO. Description of Exhibit NUMBER PAGE
-------------- ---------------------- -----------
<S> <C> <C>
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, 1997. In accordance with paragraph
(iii) to Part 4 of Item 601 of Regulation S-K,
agreements and instruments defining the rights of
holders of long term debt entered into during the
quarter ended June 30, 1997 which relate to
securities having an aggregate principal amount less
than 10% of the consolidated assets of Registrant and
its Subsidiaries (other than the agreement set forth
at Exhibit 4.5 to this Quarterly Report) 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.

10 MATERIAL CONTRACTS
------------------
1997 Performance Incentive Plan of The Goodyear Tire & Rubber 10.1 X-10.1-1
Company, as adopted by the Board of Directors of Registrant on
February 4, 1997 and approved by the shareholders of Registrant
on April 14, 1997.


11 STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
---------------------------

Statement setting forth the computation of Per Share Earnings. 11 X-11-1


12 STATEMENT RE COMPUTATION
OF RATIOS
------------------------

Statement setting forth the computation of Ratio of Earnings to 12 X-12-1
Fixed Charges.


27 FINANCIAL DATA SCHEDULE 27 X-27-1
-----------------------





</TABLE>
E-3