The Goodyear Tire and Rubber Company

founded: 1898

Contact Information:

headquarters: 1144 e. market st. akron, oh 44316-0001 phone: (330)796-2121 fax: (330)792-2222 url: http://www.goodyear.com

OVERVIEW

The Goodyear Tire & Rubber Company is the number one U.S. tire maker. Its principal business is the development, manufacture, distribution, and sale of tires throughout the world. Eighty-six percent of the company's 1997 sales have been attributed to car and truck tires. The company also produces and sells a wide variety of other products made from rubber, chemicals, and plastics for the transportation industry including automotive and industrial belts and hoses, molded products, and foam cushioning accessories. In addition, Goodyear provides auto repairs and services through a network of nearly 1000 retail outlets.

Goodyear owns the longest U.S. crude oil pipeline, The All-American Pipeline, which carries oil from California to Texas. The pipeline is operated by Goodyear's Celeron subsidiary.

COMPANY FINANCES

Goodyear achieved strong financial performance in 1997 with income from operations improving for the seventh consecutive year. The company set a record that year for worldwide unit sales, growing twice the industry rate for that year, although revenues were basically flat. Eighty-five percent of Goodyear's revenues were derived from the sale of car and truck tires, while approximately 13 percent of sales came from the company's general products, and 0.9 percent came from oil transportation.

In a 52-week period in 1997, Goodyear stock ranged from a high of $71.30 to a low of $45.00. The company reported earnings per share of $4.71 for 1997. Shareholders received a 7 percent dividend increase, raising the annual dividend rate to $1.20, which was the highest ever. Goodyear's price-earnings ratio was 13.6.

Financial goals for the company are for profitable and sustainable growth and for "cost leadership." The company has set a goal of $20 billion in revenues by 2003.

ANALYSTS' OPINIONS

Analysts have mixed reviews of Goodyear's stock potential in the future. While both Standard & Poor's and Moody's predict a favorable forecast, the March 1998 Value Line Investment Survey ranked Goodyear shares a below-average choice for investing in the year ahead. According to Moody's, Goodyear's prospects are positive due to the company's reduction of operating costs and productivity enhancements, and the company's focus on growing its international operations adds to the positive outlook. Standard & Poor's rated Goodyear as among the most undervalued of the automotive suppliers. According to its stock reports, Goodyear is "less susceptible to deep cyclical downturns given its primary focus on the replacement market." The shares "make an attractive long-term holding" due to "a steadily strengthening balance sheet, a commitment to a healthy dividend payout, and a $600 million stock buyback program."

HISTORY

Founded in 1898 by Frank and Charles Seiberling, Goodyear was given its name in honor of Charles Goodyear, inventor of the vulcanization process. Goodyear was originally launched as a manufacturer and producer of bicycle and carriage tires. By 1916 the company capitalized on the automotive industry to become the world's largest tire manufacturer.

Looking to expand to foreign countries, the company sought and developed operations in Canada, Australia, Argentina, and the Dutch East Indies by the 1920s. Due to financial entanglements, the two Seiberlings were forced by investment bankers to leave the company. Paul Litchfield took over as the company's CEO in 1926, the year Goodyear was established as the world's largest rubber company.

By the 1930s Goodyear blimps were recognized by people nationwide. With expansion in mind once again, the company purchased Kelly-Springfield (a tire maker) in 1935, increased its number of company stores, and introduced synthetic rubber tires. The company became the U.S. industry leader for tire sales by 1966. Over the next three decades, Goodyear became a master at implementing new technologies, and even supplied the tires used in the Apollo 14 lunar landing in 1971.

The company scrambled to fight a takeover attempt by Sir James Goldsmith in 1986. Goodyear succeeded only after it obtained $1.7 billion by selling all of its businesses unrelated to tires and borrowing $4.7 billion from company stock.

More financial troubles befell the company in 1990 when the tire industry suffered worldwide. Recession, overcapacity, and price cutting added to Goodyear's deep wounds as it struggled through its first financially unsuccessful year since the Depression. The company hired Stanley Gault, the retired Rubbermaid CEO known for reviving that company's sales to $1.5 billion.

With Gault in the power seat, marketing procedures changed at Goodyear. Gault cut costs by laying off employees, closing plants, and reducing capital spending. The Goodyear Tire & Rubber Company became profitable once again by 1991, and Gault was chosen as 1992's CEO of the year by Financial World magazine.

Several purchases were made by the company in the mid- to late 1990s, increasing the company's global status. In 1994 Goodyear purchased a 60 percent interest in a Chinese automotive hose factory and a 75 percent interest in a Chinese tire factory (Dalian International Nordic Tire Co.). It also purchased 860 Penske Auto centers and more than 300 automotive centers from Montgomery Ward in 1996. That same year the company bought Poland's TC Debica, the country's leading tire manufacturer. Goodyear also introduced Infinitred that year, the only tire available with a lifetime warranty.

In 1997 Sumitomo Rubber Industries formed a strategic alliance with Goodyear, which enabled the companies to manufacture tires for each other in North America and Asia. In January 1997 Goodyear acquired a 60 percent interest in Contred, South Africa's largest manufacturer of tires, power transmissions, and conveyor belts, with 195 retail stores and 41 retreading plants. The remaining 40 percent stake in Contred was purchased by Goodyear for $59 million in March 1998.

STRATEGY

The Goodyear Tire & Rubber Company has faced several strategic shifts over the years. Under the leadership of Samir Gibara, who succeeded chairman Stanley Gault as CEO in 1996, the company has aimed to become number one or number two in each of its markets and to become the lowest-cost manufacturer among the three tire and rubber industry leaders. Some of the company's strategic shifts have included moving production to low-wage countries, incorporating more flexible work rules in the United States, striving to produce innovative products, broadening distribution, and increasing productivity.

Aiming to be ranked as the world's best tire and rubber company by the year 2000, the company has established new development teams to research future trends of the industry. For example, the New Products Development group was established in 1982 to research and predict what consumers would desire in the 1990s. Another group was formed to research and analyze the company's chief competitors. This team studied possible moves competitors would make in the future, such as mergers with other companies, which could affect Goodyear's marketability.

The Goodyear strategy is to improve its profitability by reducing its operating costs and enhancing productivity. Cost containment by the company has included a long-term labor agreement with the United Steel Workers Union and efforts to divest itself of its non-core businesses. The company is also lowering costs through reduction in selling, administrative, and general expenses. Productivity has been improved with the change to seven-day operations at most plants. Goodyear eventually expects to have all its global manufacturing facilities on seven-day work schedules.

Aggressive marketing and distribution strategies also are planned by the company. Goodyear has set a goal of 80 percent as its new product ratio by the year 2000. (The ratio in 1998 was 50 percent.) The introduction of innovative products in an expanded marketplace will help to boost market share.

Goodyear is also utilizing technology to improve quality and cost. In February 1998 the company unveiled a new manufacturing process called IMPACT, an acronym for Integrated Manufacturing Precision Assembled Cellular Technology. Goodyear claims this process is 43 percent more precise than today's production process and allows the company to produce tires 70 percent faster. Changes in tire size and construction can be made in mere minutes with this new process.

INFLUENCES

Goodyear faced highly competitive pricing conditions in the first quarter of 1997. Weak currencies in Asia also negatively influenced the company's financial picture. In April 1997 a strike of nine Goodyear Tire and Rubber Co. factories idled 12,500 workers in seven states for two weeks. The strike cost Goodyear more than $50 million.

CURRENT TRENDS

Goodyear has needed to cut costs due to wavering tire prices. Tire prices had dropped approximately 4.1 percent in 1997, and competitors like Bridgestone increased their global presence. Goodyear's CEO Samir Gibara reduced employment by 5,500 people and sold $90 million worth of assets.

Other profitable growth ingredients have included the company's current focus on innovative products. In North America, Europe, Latin America, and Asia, new products account for nearly 50 percent of tire sales. The company has also implemented new techniques to lessen the time it takes for a new product to get to the market. To do so, the company has expanded its funding in its research and development sectors.

Another focus of Goodyear's profitable growth strategy has been the increase of distribution sites worldwide. In North America, Goodyear's distribution grew by more than 10 percent in 1996. To meet demands, the company has been searching for new and more profitable retail methods, marketing programs, and telemarketing techniques.

FAST FACTS: About The Goodyear Tire and RubberCompany

Ownership: The Goodyear Tire and Rubber Company is a publicly owned company traded on the New York Stock Exchange. The stock is also listed on the Chicago Stock Exchange and The Pacific Exchange.

Ticker symbol: GT

Officers: Samir G. Gabira, Chmn., CEO & Pres., 58, 1997 salary $1,571,373; William J. Sharp, Pres., Global Support Operations, 57, 1997 salary $793,260; Robert W. Tieken, Exec. VP & CFO, 59, 1997 salary $682,849; Eugene R. Coller, Jr., Exec. VP, North American Tires, 60, 1997 salary $486,776

Employees: 95,000

Principal Subsidiary Companies: The Goodyear Tire & Rubber Company's chief subsidiaries include All American Pipeline Co.; Brad Ragan, Inc.; Celeron Gathering Co.; and The Kelly-Springfield Tire Co.

Chief Competitors: Goodyear's key competitors are: Bandag; Bridgestone; Continental AG; Cooper Tire & Rubber; Michelin; Pep Boys; Pirelli; and Whitman.

Consistent with the company's focus on profitable growth has been its purchases of other companies and business partnerships. The acquisition of Contred, which was completed in 1998, rounds out the company's re-entry into the South African tire market. An alliance with Sumitomo Rubber Industries Ltd. and its affiliates, Dunlop Tire Corp U.S., and OHTSU Tire and Rubber Co. Ltd. included agreements for marketing and distribution of each other's products and sharing worldwide test facilities. A joint venture with Sava, based in Slovenia in central Europe, will help the company expand its European tire and engineered products market, including hose, power transmission belts, and air springs. In North America, Goodyear purchased the Ultima Rubber Products Co. to extend its retread tire market. Finally, Goodyear made an offer for the shares it doesn't already own in Brad Ragan Inc., a producer and distributor of retread tires.

Tire customers have expressed a preference for purchasing tire systems, such as balanced tire and wheel assemblies; this preference replaces the desire for individual components like unmounted tires. To answer this trend, Goodyear is positioning tire mounting facilities close to its manufacturing sites in North America, Latin America, and Europe. Goodyear has invested in a new cellular technology plant and a wheel and tire assembly facility in Brazil, near a new General Motors auto plant for which it will be the sole supplier.

PRODUCTS

Goodyear manufactures and markets tires, belts, hoses, and other rubber products for the transportation industry and industrial and consumer markets around the globe. The company produces approximately 150 million tires of all types. Tires and related products include new tires, inner tubes, retreads, repair/maintenance items, and auto repair and service. Goodyear tires include models designed for all types of driving conditions and vehicles including passenger car radials, winter radials, Wrangler light truck radials, and Eagle performance radials.

For passenger cars, Goodyear recently introduced its Extended Mobility Technology (EMT) tires. These tires, called run-flat tires, allow motorists to safely drive at 55 miles-per-hour for up to 50 miles on a damaged tire until they can reach a repair shop. This EMT technology was incorporated on Goodyear's Eagle Aquasteel and Tracker brands in early 1998. Two of Goodyear's more popular passenger car tires are the Infinitred tire, available with a lifetime warranty, and Aquatred tire, for performance under wet driving conditions.

Goodyear's chemical division produces specialty polymer and rubber chemicals for the tire and rubber industry. Coating resins, hydrocarbon resins, and latex are made also. Goodyear rubber and chemicals are used in golf and tennis balls, shoes, automotive and industrial belts and hoses, sealers and paint, bandages and tape adhesives, carpeting, asphalt, housewares, latex gloves, and toys and novelties. Goodyear's chemical division is expanding with a $600 million investment for the production of polyisoprene and synthetic rubber.

Engineered products make up Goodyear's third division. Industrial hose, conveyor belts, air springs, shoe products, molded products, power transmission, and transportation products are produced by this division.

Goodyear's Celeron subsidiaries operate a crude oil pipeline system in the United States that extends 1225 miles from the California coast to central Texas. This system includes an offshore crude oil gathering pipeline in California and crude oil storage facilities.

CORPORATE CITIZENSHIP

Goodyear is a socially responsible corporation and is committed to several environmental and civic projects. The company has a variety of programs that address its focus on environmental accountability. Perhaps Goodyear's biggest challenge is scrap tires. Due to the way tires are manufactured, tire recycling is impossible. Unlike plastics, rubber cannot be returned to its original state for reuse in a new tire. However, scrap tires can be reused or converted to energy. Scrap rubber can be pulverized into powder as a filler in such products as door mats, asphalt, and carpet backing. Goodyear pioneered the use of whole tires as shore barriers, fish habitats, and highway barriers in the early 1970s.

CHRONOLOGY: Key Dates for The Goodyear Tire andRubber Company

1898:

Frank and Charles Seiberling found Goodyear in Akron, Ohio

1916:

Goodyear becomes the world's largest tire manufacturer

1926:

Goodyear becomes the world's largest rubber producer

1937:

The crash of the Hindenburg ends the dirigible industry for Goodyear

1945:

Goodyear begins establishing factories in foreign countries

1951:

Annual sales exceed $1 billion for the first time

1961:

Annual sales exceed $2 billion for the first time

1969:

Annual sales exceed $3 billion for the first time, the first rubber company to top $1, $2, and $3 billion in annual sales

1976:

Goodyear is the world's largest radial tire producer

1986:

Goodyear has to sell off most of its non-tire interests to survive an attempted takeover

1990:

The company suffers a financial loss for the first time since the Depression

1997:

Sumitomo Rubber and Goodyear form an alliance to manufacture tires for each other in North America and Asia

The company faces the seemingly insurmountable problem of huge stockpiles of whole and shredded tires. According to the company, its priority "is the immediate recycling and recovery of scrap tires through viable, non-subsidized markets." An additional challenge for the company is the annual replacement of 253 million worn out tires by consumers. Technological innovations that have doubled the lifespan of tires, along with improvements in retreading, have reduced the number of discarded tires. Goodyear is a leading advocate for the use of scrap tires as a fuel source to generate energy to run plants and supply electricity to homes.

As a corporate citizen, Goodyear also participates in several programs to help the disadvantaged. For example, more than 100 Goodyear employees partnered with Rockwell Automation to build a house for a needy family as part of the Habitat for Humanity program.

Goodyear contributes to communities in other ways. The Goodyear Highway Hero program honors truck drivers who exemplify heroism and courage by performing heroic acts or outstanding acts of humanitarianism. The University of Akron received a $3 million gift from Goodyear in 1997 to establish the Goodyear Chair of Intellectual Property in the School of Law and the Goodyear Global Scholarship Program in the College of Business Administration. Finally, Goodyear sponsors First Night Akron, one of more than 160 alcohol-free, family-orientated community New Year's Eve celebrations.

GLOBAL PRESENCE

Goodyear is truly a global organization and its brand name is universally recognized. The company markets its products in 185 countries and manufactures them in 80 plants in 27 countries. Approximately 1,000 retail stores are operated in the United States, which accounted for 54 percent of sales in 1996. Europe provided the second biggest market for Goodyear, with Latin America, Asia, and Canada rounding out its foreign operations. With an increased global focus, Goodyear's CEO Samir Gabira has emphasized the importance of acquisition and expansion in every market the company serves.

One fairly new market that appeals to many tire manufacturers is South Africa. Abandoning apartheid (the government policy of racial segregation), South Africa has become democratic. The strict apartheid policies had caused economic tensions and internal conflict in the country, forcing many companies to withdraw their investments in South African businesses. With a democratic government now in place, however, many companies have become eager to re-enter the South African marketplace. South Africa has a wealth of natural resources, an enthusiastic work force, and an increasingly appealing economy.

The Goodyear Tire & Rubber Company abandoned the South African market in 1989 due to apartheid pressures. Purchasing Tycon Pty. Ltd. in the late 1990s, Goodyear had become South Africa's biggest manufacturer of heavyweight conveyor belting and power transmission products. With this purchase, Goodyear also acquired Tredcor, a company with 41 tire retreading locations and 195 distribution facilities.

Another market of recent concern to Goodyear has been North America, where analysts have anticipated an increase in demand for the tire industry. North America has remained Goodyear's primary market, but the anticipated rise was not seen by 1997; research showed that demand in the market fell by 2 percent. Another disappointment for Goodyear has been the pricing struggles in Europe and Latin America, forcing the company to reduce its prices to remain competitive in these regions.

EMPLOYMENT

Goodyear's nearly 95,000 associates are employed in more than 80 plants in the United States and 27 other countries. More than 5,000 employees joined the company through four major acquisitions made in 1996. New hires to Goodyear can find employment at the Akron corporate headquarters or any of the company's worldwide facilities. The company is actively involved in college recruiting and posts current job openings on the Goodyear web site at http://www.goodyear.com/about/employ/jobs.html. In 1998 the company was hiring additional engineers and scientists to support its expanded product and process technology. Goodyear announced that it is adding 160 engineers and scientists at its technical facilities in Akron and Luxembourg and in its North American tire plants, bringing the total of new scientists, engineers, and professionals, including those joining the Training Squadron, to more than 200.

Racial, ethnic, and cultural diversity is actively pursued by the company. Goodyear attributes its establishment of new operations worldwide to its emphasis on diversity. Diversity and sensitivity awareness are part of Goodyear's associate training and education.

Company benefits include a comprehensive array of plans in the FlexChoice program. Some of these benefit plans include medical and prescription drug, dental, vision, long-term disability, and life and accident insurance. Many employees also enjoy a retirement plan, 401K savings plan, paid vacations and holidays, a tire purchase plan, tuition assistance, and a stock purchase plan.

According to The Value Line Investment Survey, among Goodyear's attempts at cost-cutting in an effort to improve company finances, was a 30 percent decrease in wages for new employees. Labor agreements reached during the year include continuous seven-day operations in all but one plant. Negotiations also succeeded in reaching an unprecedented six-year labor contract with the United Steelworkers of America.

Goodyear's centennial anniversary was in 1998. Plans for observing the centennial include plant "open houses" and family day activities for employees.

SOURCES OF INFORMATION

Bibliography

galuska, peter. "high pressure at goodyear." business week, 5 may 1997.

goodyear home page. 5 may 1998. available at http://www.goodyear.com.

"goodyear sets tentative deal with union." the new york times, 5 may 1997.

"goodyear tire & rubber co." hoover's handbook of american business. austin, tx: reference press, 1998.

moody's handbook of common stocks, winter 1997-98, new york: moody's investors service, inc., 1997.

narisetti, raju. "goodyear plans product improvements to bolster sales, and posts small profit." the wall street journal, 10 february 1998.

"remaining contred stake is bought for $59 million." the wall street journal, 3 march 1998.

rubber & plastics news. 4 may 1998. available at http://www.rubbernews.com.

standard & poor's stock reports - january 1998, new york: mcgraw hill, 1998.

the value line investment survey, 13 march 1998. new york: value line publishing, inc., 1998.

For an annual report:

contact: investor relations dept., 1144 e. market st., akron, oh, 44316-0001

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. goodyear's primary sics are:

2819 industrial and inorganic chemical manufacturing

3011 tire and inner tube manufacturing

3021 rubber and plastic footwear manufacturing

4613 refined petroleum pipelines