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

THE GOODYEAR TIRE & RUBBER COMPANY

(Exact Name of Registrant as Specified in Its Charter)

Ohio		34-0253240
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1144 East Market Street, Akron, Ohio (Address of Principal Executive Offices)		44316-0001 (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                    No þ

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, 2008:		241,141,416

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In millions, except per share amounts)		2008				2007				2008				2007
NET SALES		$	5,239			$	4,921			$	10,181			$	9,420
Cost of Goods Sold			4,196				3,967				8,157				7,708
Selling, Administrative and General Expense			735				692				1,370				1,355
Rationalizations (Note 2)			87				7				100				22
Interest Expense			76				120				165				245
Other (Income) and Expense (Note 3)			(22	)			39				(28	)			19
Income from Continuing Operations before Income Taxes and Minority Interest			167				96				417				71
United States and Foreign Taxes			74				51				151				114
Minority Interest			18				16				44				38
Income (Loss) from Continuing Operations			75				29				222				(81	)
Discontinued Operations			—				27				—				(37	)
NET INCOME (LOSS)		$	75			$	56			$	222			$	(118	)
Income (Loss) Per Share — Basic
Income (Loss) from Continuing Operations		$	0.31			$	0.15			$	0.92			$	(0.43	)
Discontinued Operations			—				0.13				—				(0.20	)
Net Income (Loss) Per Share — Basic		$	0.31			$	0.28			$	0.92			$	(0.63	)
Weighted Average Shares Outstanding (Note 4)			241				196				240				188
Income (Loss) Per Share — Diluted
Income (Loss) from Continuing Operations		$	0.31			$	0.14			$	0.91			$	(0.43	)
Discontinued Operations			—				0.12				—				(0.20	)
Net Income (Loss) Per Share — Diluted		$	0.31			$	0.26			$	0.91			$	(0.63	)
Weighted Average Shares Outstanding (Note 4)			243				231				244				188

The accompanying notes are an integral part of these consolidated financial statements.

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

		June 30,				December 31,
(In millions)		2008				2007
Assets:
Current Assets:
Cash and Cash Equivalents		$	2,069			$	3,463
Restricted Cash			181				191
Accounts Receivable, less Allowance — $93 ($88 in 2007)			3,630				3,103
Inventories:
Raw Materials			675				591
Work in Process			153				147
Finished Products			3,105				2,426
			3,933				3,164
Prepaid Expenses and Other Current Assets			292				251
Total Current Assets			10,105				10,172
Goodwill			784				713
Intangible Assets			165				167
Deferred Income Tax			76				83
Other Assets			436				458
Property, Plant and Equipment less Accumulated Depreciation — $8,730 ($8,329 in 2007)			5,928				5,598
Total Assets		$	17,494			$	17,191
Liabilities:
Current Liabilities:
Accounts Payable-Trade		$	2,787			$	2,422
Compensation and Benefits			930				897
Other Current Liabilities			812				753
United States and Foreign Taxes			235				196
Notes Payable and Overdrafts (Note 7)			300				225
Long Term Debt and Capital Leases due within one year (Note 7)			101				171
Total Current Liabilities			5,165				4,664
Long Term Debt and Capital Leases (Note 7)			3,668				4,329
Compensation and Benefits			3,245				3,404
Deferred and Other Noncurrent Income Taxes			305				274
Other Long Term Liabilities			657				667
Minority Equity in Subsidiaries			1,101				1,003
Total Liabilities			14,141				14,341
Commitments and Contingent Liabilities (Note 10)
Shareholders’ Equity:
Preferred Stock, no par value:
Authorized, 50 shares, unissued			—				—
Common Stock, no par value:
Authorized, 450 shares, Outstanding shares – 241 (240 in 2007) after deducting 10 treasury shares (10 in 2007)			241				240
Capital Surplus			2,694				2,660
Retained Earnings			1,824				1,602
Accumulated Other Comprehensive Loss			(1,406	)			(1,652	)
Total Shareholders’ Equity			3,353				2,850
Total Liabilities and Shareholders’ Equity		$	17,494			$	17,191

The accompanying notes are an integral part of these consolidated financial statements.

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In millions)		2008				2007				2008				2007
Net Income (Loss)		$	75			$	56			$	222			$	(118	)
Other Comprehensive Income (Loss):
Defined benefit plans:
Prior service credit from plan amendment during period			—				—				—				501
Less: Minority interest			—				—				—				(3	)
Amortization of prior service cost and unrecognized gains and losses included in net periodic benefit cost			32				41				65				97
Less: Taxes			(2	)			(6	)			(3	)			(13	)
Minority interest			(2	)			(3	)			(4	)			(6	)
(Increase) decrease in net actuarial losses			(3	)			(12	)			(3	)			20
Less: Minority interest			—				3				—				2
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements and divestitures			1				—				1				133
			26				23				56				731
Foreign currency translation gain			11				102				197				146
Unrealized investment gain (loss)			(2	)			4				(7	)			(3	)
Comprehensive Income		$	110			$	185			$	468			$	756

The accompanying notes are an integral part of these consolidated financial statements.

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

		Six Months Ended
		June 30,
(In millions)		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)		$	222			$	(118	)
Less: Discontinued operations			—				(37	)
Income (Loss) from Continuing Operations			222				(81	)
Adjustments to reconcile income (loss) from continuing operations to cash flows from operating activities:
Depreciation and amortization			318				300
Amortization and write-off of debt issuance costs			19				33
Deferred tax provision			13				(4	)
Net rationalization charges (Note 2)			100				22
Net gains on asset sales			(37	)			(19	)
Fire loss expense			2				12
Minority interest and equity earnings			45				38
Pension contributions and direct payments			(162	)			(265	)
Rationalization payments			(28	)			(44	)
Insurance recoveries			9				—
Changes in operating assets and liabilities, net of asset acquisitions and dispositions:
Accounts receivable			(398	)			(505	)
Inventories			(684	)			(271	)
Accounts payable — trade			361				134
Compensation and benefits			58				220
Other assets and liabilities			(53	)			(83	)
TOTAL OPERATING CASH FLOWS FROM CONTINUING OPERATIONS			(215	)			(513	)
Discontinued operations			—				5
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES			(215	)			(508	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(476	)			(227	)
Asset dispositions			40				33
Asset acquisitions (Note 5)			(46	)			—
Decrease in restricted cash			10				23
TOTAL INVESTING CASH FLOWS FROM CONTINUING OPERATIONS			(472	)			(171	)
Discontinued operations			—				(25	)
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES			(472	)			(196	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term debt and overdrafts incurred			60				39
Short term debt and overdrafts paid			(30	)			(57	)
Long term debt incurred			3				374
Long term debt paid			(787	)			(2,141	)
Debt issuance costs			—				(17	)
Common stock issued			5				940
Dividends paid to minority shareholders			(2	)			(9	)
Other transactions			6				—
TOTAL FINANCING CASH FLOWS FROM CONTINUING OPERATIONS			(745	)			(871	)
Discontinued operations			—				(12	)
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES			(745	)			(883	)
Net Change in Cash of Discontinued Operations			—				32
Effect of exchange rate changes on cash and cash equivalents			38				21
Net Change in Cash and Cash Equivalents			(1,394	)			(1,534	)
Cash and Cash Equivalents at Beginning of the Period			3,463				3,862
Cash and Cash Equivalents at End of the Period		$	2,069			$	2,328

The accompanying notes are an integral part of these consolidated financial statements.

THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES

NOTE 1. ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by The Goodyear Tire & Rubber Company (“Goodyear”, “we”, “us” or “our”) in accordance with Securities and Exchange Commission rules and regulations and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007 (the “2007 Form 10-K”).

       Operating results for the three and six month periods ended June 30, 2008 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2008.

       During the first quarter of 2008, we formed a new strategic business unit, Europe, Middle East and Africa Tire (“EMEA”), by combining our former European Union Tire and Eastern Europe, Middle East and Africa Tire business units and have aligned the external presentation of results with the current management and operating structure. Prior periods have been restated for this change.

       The results of operations, financial position and cash flows of our former Engineered Products business, which was previously a reportable operating segment and was sold July 31, 2007, have been reported as discontinued operations for all periods presented. Unless otherwise indicated, all disclosures in the notes to the unaudited interim consolidated financial statements relate to our continuing operations.

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition and disclosure purposes under generally accepted accounting principles. SFAS No. 157 requires the fair value of an asset or liability to be based on market-based measures which will reflect the credit risk of the company. SFAS No. 157 also expanded disclosure requirements to include the methods and assumptions used to measure fair value and the effect of fair value measures on earnings. The adoption of SFAS No. 157 effective January 1, 2008 did not have a material impact on our consolidated financial statements.

Valuation Hierarchy

SFAS No. 157 establishes a three-level hierarchy for fair value measurements. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

	•		Level 1 — Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
	•		Level 2 — Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	•		Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement. Valuation methodologies used for assets and liabilities measured at fair value are as follows.

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

Investments

Where quoted prices are available in an active market, investments are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, fair values are estimated using quoted prices of securities with similar characteristics or inputs other than quoted prices that are observable for the security, and would be classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities would be classified within Level 3 of the valuation hierarchy.

Derivative Financial Instruments

Exchange-traded derivative financial instruments that are valued using quoted prices would be classified within Level 1 of the valuation hierarchy. Derivative financial instruments valued using internally-developed models that use as their basis readily observable market parameters are classified within Level 2 of the valuation hierarchy. Derivative financial instruments that are valued based upon models with significant unobservable market parameters, and that are normally traded less actively, would be classified within Level 3 of the valuation hierarchy.

     Refer to Note 6 for the presentation of assets and liabilities recorded at fair value in the Consolidated Balance Sheets.

     In February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157.” The FSP defers the provisions of SFAS No. 157 with respect to nonfinancial assets and nonfinancial liabilities that are measured at fair value on a nonrecurring basis subsequent to initial recognition until fiscal years beginning after November 15, 2008. Items in this classification include goodwill, asset retirement obligations, rationalization accruals, intangible assets with indefinite lives, guarantees and certain other items. We are evaluating our methods used in making those measurements and assessing the impact that these provisions may have on our consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits a company to choose to measure many financial instruments and other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing a company with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. A company reports unrealized gains and losses in earnings at each subsequent reporting date on items for which the fair value option has been elected. We did not elect the fair value measurement option for any of our existing financial instruments other than those that are already being measured at fair value. As such, the adoption of SFAS No. 159 effective January 1, 2008 did not have a material impact on our consolidated financial statements.

Reclassifications

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations” (“SFAS No. 141 (R)”), replacing SFAS No. 141, “Business Combinations” (“SFAS No. 141”), and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 141(R) retains the fundamental requirements of SFAS No. 141, broadens its scope by applying the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses, and requires, among other things, that assets acquired and liabilities assumed be measured at fair value as of the acquisition date, that liabilities related to contingent consideration be recognized at the acquisition date and remeasured at fair value in each subsequent reporting period, that acquisition-related costs be expensed as incurred, and that income be recognized if the fair value of the net assets acquired exceeds the fair value of the consideration transferred. SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests (i.e., minority interests) in a subsidiary, including changes in a parent’s ownership interest in a subsidiary and requires, among other things, that noncontrolling interests in subsidiaries be classified as a separate component of equity. Except for the presentation and disclosure requirements of SFAS No. 160, which are to be applied retrospectively for all periods presented, SFAS No. 141 (R) and SFAS No. 160 are to be applied prospectively in financial statements issued for fiscal years

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

beginning after December 15, 2008. We are currently assessing the impact SFAS No. 141 (R) and SFAS No. 160 will have on our consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 requires companies with derivative instruments to disclose information that would enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. The new requirements apply to derivative instruments and nonderivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS No. 133. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008; however, early application is encouraged. We plan to adopt SFAS No. 161 in the first quarter of 2009 and will be reporting the required disclosures in our Form 10-Q for the period ending March 31, 2009.

     In April 2008, the FASB issued Staff Position FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). The FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The intent of the FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under other accounting principles generally accepted in the United States of America. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The guidance for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date. Certain disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date.

     In May 2008, the FASB issued Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). The FSP specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The FSP is to be applied retrospectively. In July 2004, we issued $350 million of 4% convertible senior notes due 2034, and subsequently exchanged $346 million of those notes for common stock and a cash payment in December 2007. The remaining $4 million of notes were converted into common stock in May 2008. We are currently assessing the impact that FSP APB 14-1 will have on our consolidated financial statements.

NOTE 2. COSTS ASSOCIATED WITH RATIONALIZATION PROGRAMS

To maintain global competitiveness, we have implemented rationalization actions over the past several years for the purpose of reducing excess and high-cost manufacturing capacity and to reduce associate headcount. As part of that strategy, in the second quarter of 2008, we announced plans to close our Somerton, Australia manufacturing facility by December 31, 2008. As a result, we recorded $72 million of charges primarily for employee severance related to the closure in our second quarter 2008 results. In addition, we completed discussions with employee unions related to our Amiens, France tire plants and as a result have increased our previously recorded rationalization reserve for employee severance by $7 million in the second quarter of 2008. The net rationalization charges included in Income (Loss) from Continuing Operations before Income Taxes and Minority Interest are as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In millions)		2008				2007				2008				2007
New charges		$	87			$	11			$	101			$	28
Reversals			—				(4	)			(1	)			(6	)
		$	87			$	7			$	100			$	22

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

The following table shows the reconciliation of our liability between periods:

		Associate-				Other Than
(In millions)		Related Costs				Associate-Related Costs				Total
Balance at December 31, 2007		$	56			$	6			$	62
First quarter charges			4				10				14
Incurred			(12	)			(7	)			(19	)
Reversed to the statement of operations			(1	)			—				(1	)
Balance at March 31, 2008		$	47			$	9			$	56
Second quarter charges			85				2				87
Incurred			(9	)			(2	)			(11	)
Balance at June 30, 2008		$	123			$	9			$	132

During the second quarter of 2008, $87 million ($83 million after-tax or $0.34 per share) of net charges were recorded. New charges of $87 million represent $76 million for plans initiated in 2008 and $11 million for plans initiated in 2007 and prior years. New charges for the 2008 plans include $75 million related to associate severance costs and $1 million primarily for other exit costs and non-cancelable lease costs. These amounts include $75 million related to future cash outflows and $1 million for non-cash pension curtailments. New charges for the 2007 and prior year plans include $10 million related to associate severance costs and $1 million primarily for other exit costs and non-cancelable lease costs. These amounts include $11 million related to future cash outflows.

     For the first six months of 2008, $100 million ($95 million after-tax or $0.39 per share) of net charges were recorded. New charges of $101 million were comprised of $78 million for plans initiated in 2008 and $23 million for plans initiated in 2007 and prior years. New charges for the 2008 plans include $77 million related to associate severance costs and $1 million primarily for other exit costs and non-cancelable lease costs. These amounts include $77 million related to future cash outflows and $1 million for non-cash pension curtailments. The $23 million of new charges for 2007 and prior year plans consist of $12 million of associate-related costs and $11 million primarily for other exit costs and non-cancelable lease costs. These amounts include $19 million related to future cash outflows and $4 million for other non-cash exit costs. The first six months of 2008 includes the reversal of $1 million of reserves for actions no longer needed for their originally-intended purposes. Approximately 700 associates will be released under programs initiated in 2008, most of whom will be released within the next 12 months.

     The accrual balance of $132 million at June 30, 2008 includes approximately $9 million related to long-term non-cancelable lease costs and approximately $123 million of associate-related costs that are expected to be substantially utilized within the next twelve months.

     Accelerated depreciation charges of $4 million were recorded as Cost of Goods Sold in the three and six months ended June 30, 2008, respectively, related to our plan to close our Somerton, Australia tire manufacturing facility. Accelerated depreciation charges of $8 million and $25 million were recorded as Cost of Goods Sold in the three and six months ended June 30, 2007, respectively, for fixed assets that were taken out of service primarily in connection with the elimination of tire production at our Valleyfield, Quebec and Tyler, Texas tire plants.

     During the second quarter of 2007, $7 million ($7 million after-tax or $0.03 per share) of net charges were recorded. New charges of $11 million for plans initiated in 2006 were recorded and include $3 million of associate severance costs and $8 million primarily for other exit costs and non-cancelable lease costs. The second quarter of 2007 includes the reversal of $4 million of reserves for rationalization actions no longer needed for their originally-intended purposes.

     For the first six months of 2007, $22 million ($21 million after-tax or $0.11 per share) of net charges were recorded. New charges of $28 million were comprised of $5 million for plans initiated in 2007 and $23 million for plans initiated in 2006. New charges of $5 million for the 2007 plans related to associate severance costs. The $23 million of new charges for 2006 plans consist of $7 million of associate-related costs and $16 million primarily for other exit costs and non-cancelable lease costs. The first six months of 2007 includes the reversal of $6 million of reserves for actions no longer needed for their originally-intended purposes. Approximately 700 associates remain to be released under programs initiated in 2007 and prior years.

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

NOTE 3. OTHER (INCOME) AND EXPENSE

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In millions)		2008				2007				2008				2007
Net gains on asset sales		$	(4	)		$	(10	)		$	(37	)		$	(19	)
Interest income			(18	)			(26	)			(47	)			(56	)
Financing fees			9				56				62				67
Insurance fire loss expense			—				5				2				12
Foreign currency exchange			(6	)			12				2				14
General & product liability - discontinued products (Note 10)			1				4				6				8
Equity in earnings of affiliates			—				(1	)			—				(3	)
Miscellaneous			(4	)			(1	)			(16	)			(4	)
		$	(22	)		$	39			$	(28	)		$	19

Other (Income) and Expense was $22 million of income in the second quarter of 2008, compared to $39 million of expense in the second quarter of 2007. Net gains on asset sales were $4 million and $10 million in the 2008 and 2007 periods, respectively, related primarily to the sale of properties in Germany in 2008 and Canada in 2007. Interest income decreased by $8 million due primarily to lower cash balances. Financing fees decreased by $47 million due primarily to the inclusion in the 2007 period of charges totaling $47 million related to refinancing activities and debt redemption. Fire loss expense in 2007 included expenses related to a fire at our tire manufacturing facility in Thailand. The impact of foreign currency exchange improved by $18 million due primarily to the effect of changing exchange rates on foreign currency denominated transactions in Chile and Colombia. Miscellaneous items include royalties from licensing arrangements related to divested businesses, including recognition of deferred income from a trademark licensing agreement related to our Engineered Products business that was divested in the third quarter of 2007.

     Other (Income) and Expense was $28 million of income in the first six months of 2008, compared to $19 million of expense in the first six months of 2007. Net gains on asset sales were $37 million in 2008 and $19 million in 2007, related primarily to the sale of properties in Germany, Morocco, Argentina and New Zealand in 2008 and Canada and Australia in 2007. Interest income decreased by $9 million due primarily to lower cash balances. Financing fees included charges of $43 million and $47 million in the first six months of 2008 and 2007, respectively, related to refinancing activities and debt redemption. Fire loss expense in 2007 included expenses related to a fire at our tire manufacturing facility in Thailand. The impact of foreign currency exchange improved by $12 million due primarily to the impact of changing exchange rates on foreign currency denominated transactions in Chile, Colombia and Turkey. Miscellaneous items include royalties from licensing arrangements related to divested businesses, including recognition of deferred income from a trademark licensing agreement related to our Engineered Products business that was divested in the third quarter of 2007.

NOTE 4. PER SHARE OF COMMON STOCK

Basic earnings per share are computed based on the weighted average number of common shares outstanding.

     There were contingent conversion features included in the indenture governing our $350 million 4% convertible senior notes due 2034 (the “convertible notes”), issued on July 2, 2004. On December 10, 2007, $346 million of convertible notes were exchanged for approximately 28.7 million shares of Goodyear common stock plus a cash payment. During the second quarter of 2008, the remaining $4 million of convertible notes were converted into approximately 0.3 million shares of Goodyear common stock.

     The following table presents the number of incremental weighted average shares used in computing diluted per share amounts:

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In millions)		2008				2007				2008				2007
Average shares outstanding — basic			241				196				240				188
4% Convertible Senior Notes due 2034			—				29				—				—
Stock Options and other dilutive securities			2				6				4				—
Average shares outstanding — diluted			243				231				244				188

Weighted average shares outstanding — diluted for the six months ended June 30, 2007, excluded approximately 29 million contingently issuable shares as their inclusion would have been anti-dilutive due to the net loss for that period. Also, approximately 11 million equivalent shares for the six months ended June 30, 2007 related to options with exercise prices less than the average market price of our common shares (i.e. “in-the-money” options) were excluded as their inclusion would have been anti-dilutive because of the net loss for that period.

     Additionally, weighted average shares outstanding — diluted excluded approximately 9 million equivalent shares for the three and six months ended June 30, 2008, respectively, and excluded approximately 5 million and 7 million equivalent shares for the three and six months ended June 30, 2007, respectively, related to options with exercise prices greater than the average market price of our common shares (i.e. “underwater” options).

     The following table presents the computation of adjusted income (loss) from continuing operations and adjusted income (loss) used in computing income (loss) from continuing operations - per share diluted and Net Income (Loss) Per Share — Diluted, respectively. The computation of adjusted income (loss) from continuing operations assumes that after-tax interest costs incurred on the convertible notes would have been avoided had the convertible notes been converted as of April 1 for the three months ended June 30, 2007. Adjusted income (loss) for the six months ended June 30, 2007 did not include the after-tax interest costs as the convertible notes were anti-dilutive due to the loss from continuing operations. Adjusted income (loss) for the three and six months ended June 30, 2008 does not include the after-tax interest costs as substantially all of the convertible notes were exchanged in December 2007.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In millions)		2008				2007				2008				2007
Income (Loss) from continuing operations		$	75			$	29			$	222			$	(81	)
After-tax impact of 4% Convertible Senior Notes due 2034			—				4				—				—
Adjusted Income (Loss) from continuing operations			75				33				222				(81	)
Discontinued Operations			—				27				—				(37	)
Adjusted Income (Loss)		$	75			$	60			$	222			$	(118	)

NOTE 5. INVESTMENTS

Investments

In March 2008, we acquired an additional 6.12% ownership interest in our tire manufacturing subsidiary in Poland by purchasing outstanding shares held by minority shareholders for $46 million. As a result of the acquisition, we recorded goodwill totaling $28 million.

Statement of Cash Flows

Cash flows from investing activities in the first six months of 2008 exclude $98 million of capital expenditures that remain unpaid and accrued for at June 30, 2008.

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

NOTE 6. FAIR VALUE MEASUREMENTS

The following table presents information about assets and liabilities recorded at fair value at June 30, 2008 on the Consolidated Balance Sheet:

						Quoted Prices in
		Total Carrying				Active Markets for
		Value in the				Identical				Significant Other				Significant
		Consolidated				Assets/Liabilities				Observable Inputs				Unobservable Inputs
(In millions)		Balance Sheet				(Level 1)				(Level 2)				(Level 3)
Assets:
Investments		$	43			$	43			$	—			$	—
Derivative Financial Instruments			15				—				5				10
Total Assets at Fair Value		$	58			$	43			$	5			$	10
Liabilities:
Derivative Financial Instruments		$	16			$	—			$	16			$	—
Total Liabilities at Fair Value		$	16			$	—			$	16			$	—

Derivative financial instrument valuations classified as Level 3 include an embedded currency derivative in long-dated operating leases. The valuation is based on an extrapolation of forward rates to the assumed expiration of the leases. Other (Income) and Expense in the three and six months ended June 30, 2008 included a gain of $2 million and $4 million, respectively, resulting from the change in the fair value of the embedded derivative.

The following table presents supplemental fair value information about long term fixed rate debt, including capital leases, at June 30, 2008 and December 31, 2007.

		June 30,				December 31,
(In millions)		2008				2007
Carrying amount — liability		$	1,529			$	2,074
Fair value — liability			1,525				2,172

The fair value was estimated using quoted market prices or discounted future cash flows. At June 30, 2008, the fair value approximated the carrying value. The fair value exceeded the carrying amount at December 31, 2007 due primarily to lower market interest rates.

The following table presents supplemental fair value information about long term variable rate debt at June 30, 2008 and December 31, 2007.

		June 30,				December 31,
(In millions)		2008				2007
Carrying amount — liability		$	2,540			$	2,651
Fair value — liability			2,427				2,594

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

The fair value was estimated using quoted market prices or discounted future cash flows. At June 30, 2008, the carrying amount of our variable rate debt exceeds the fair value due to the tighter U.S. credit markets. The fair value of our variable rate debt at December 31, 2007 approximated its carrying amount.

NOTE 7. FINANCING ARRANGEMENTS

At June 30, 2008, we had total credit arrangements totaling $6,838 million, of which $2,278 million were unused, compared to $7,392 million and $2,169 million, respectively, at December 31, 2007.

Notes Payable and Overdrafts, Long Term Debt and Capital Leases due Within One Year and Short Term Financing Arrangements

At June 30, 2008, we had short term committed and uncommitted credit arrangements totaling $611 million, of which $311 million was unused, compared to $564 million and $339 million, respectively, at December 31, 2007. These arrangements are available primarily to certain of our international subsidiaries through various banks at quoted market interest rates. There are no commitment fees associated with these arrangements.

     The following table presents amounts due within one year:

		June 30,				December 31,
(In millions)		2008				2007
Notes payable and overdrafts		$	300			$	225
Weighted average interest rate			7.36	%			6.90	%
Long term debt and capital leases due within one year:
6 3/8% due 2008		$	—			$	100
Other (including capital leases)			101				71
		$	101			$	171
Weighted average interest rate			5.75	%			6.57	%
Total obligations due within one year		$	401			$	396

Long Term Debt and Capital Leases and Financing Arrangements

At June 30, 2008, we had long term credit arrangements totaling $6,227 million, of which $1,967 million were unused, compared to $6,828 million and $1,830 million, respectively, at December 31, 2007.

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

     The following table presents long term debt and capital leases, net of unamortized discounts, and interest rates:

		June 30, 2008								December 31, 2007
						Interest								Interest
(In millions)		Amount				Rate				Amount				Rate
Notes:
6 3/8% due 2008		$	—				—			$	100				6 3/8	%
Floating rate notes due 2009			498				6.68	%			497				8.66	%
7 6/7% due 2011			650				7 6/7	%			650				7 6/7	%
8.625% due 2011			325				8.625	%			325				8.625	%
Floating rate notes due 2011			—				—				200				13.71	%
11% due 2011			—				—				449				11.25	%
9% due 2015			260				9	%			260				9	%
7% due 2028			149				7	%			149				7	%
4% Convertible Senior Notes due 2034			—				—				4				4	%
Bank term loans:
$1.2 billion second lien term loan facility due 2014			1,200				4.54	%			1,200				6.43	%
Pan-European accounts receivable facility due 2009			434				5.69	%			403				5.75	%
Other domestic and international debt(1)			215				8.10	%			223				7.65	%
			3,731								4,460
Capital lease obligations			38								40
			3,769								4,500
Less portion due within one year			(101	)							(171	)
		$	3,668							$	4,329

NOTES

On March 3, 2008, we redeemed $450 million in aggregate principal amount of our 11% senior secured notes due 2011 at a redemption price of 105.5% of the principal amount thereof and $200 million in aggregate principal amount of our senior secured floating rate notes due 2011 at a redemption price of 104% of the principal amount thereof, plus in each case accrued and unpaid interest to the redemption date.

     On March 17, 2008, we repaid our $100 million 6 3/8% senior notes at their maturity.

     During the second quarter of 2008, the remaining $4 million of convertible notes were converted into approximately 0.3 million shares of Goodyear common stock.

CREDIT FACILITIES

$1.5 Billion Amended and Restated First Lien Revolving Credit Facility due 2013

On April 20, 2007, we amended and restated our first lien revolving credit facility. This facility is available in the form of loans or letters of credit, with letter of credit availability limited to $800 million. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries’ obligations under the related guarantees are secured by first priority security interests in a variety of collateral.

     At June 30, 2008, there were no borrowings and $517 million of letters of credit issued under the revolving credit facility. At December 31, 2007, there were no borrowings and $526 million of letters of credit issued under the revolving credit facility.

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

$1.2 Billion Amended and Restated Second Lien Term Loan Facility due 2014

On April 20, 2007, we amended and restated our second lien term loan facility. Our obligations under this facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second priority security interests in the same collateral securing the $1.5 billion first lien revolving credit facility. At June 30, 2008 and December 31, 2007, this facility was fully drawn.

€505 Million Amended and Restated Senior Secured European Revolving Credit Facilities due 2012

On April 20, 2007, we amended and restated our facilities, which now consist of a €350 million European revolving credit facility, with a €50 million letter of credit sublimit, and a €155 million German revolving credit facility. Goodyear and its subsidiaries that guarantee our U.S. facilities provide unsecured guarantees to support the European revolving credit facilities. Goodyear Dunlop Tires Europe B.V. (“GDTE”) and certain of its subsidiaries in the United Kingdom, Luxembourg, France and Germany also provide guarantees. GDTE’s obligations under the facilities and the obligations of its subsidiaries under the related guarantees are secured by first priority security interests in a variety of collateral. As of June 30, 2008 and December 31, 2007, there were $12 million of letters of credit issued and no borrowings under the European revolving credit facility. As of June 30, 2008 and December 31, 2007, there were no borrowings under the German revolving credit facility.

International Accounts Receivable Securitization Facilities (On-Balance Sheet)

     GDTE and certain of its subsidiaries are party to a five-year pan-European accounts receivable securitization facility. The facility provides €275 million of funding and is subject to customary annual renewal of back-up liquidity commitments.

     The facility involves the twice-monthly sale of substantially all of the trade accounts receivable of certain GDTE subsidiaries to a bankruptcy-remote French company controlled by one of the liquidity banks in the facility. These subsidiaries retained servicing responsibilities.

     As of June 30, 2008 and December 31, 2007, the amount available and fully utilized under this program totaled $434 million and $403 million, respectively. The program did not qualify for sale accounting pursuant to the provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and accordingly, this amount is included in Long-term debt and capital leases.

     In addition to the pan-European accounts receivable securitization facility discussed above, subsidiaries in Australia have accounts receivable securitization programs totaling $85 million and $78 million at June 30, 2008 and December 31, 2007, respectively. These amounts are included in Notes payable and overdrafts.

     For a description of the collateral securing the facilities described above as well as the covenants applicable to them, please refer to the Note to Consolidated Financial Statements No. 11, Financing Arrangements and Derivative Financial Instruments, in our 2007 Form 10-K.

On July 23, 2008, certain of our European subsidiaries amended and restated the pan-European accounts receivable securitization facility. The amendments increased the funding capacity of the facility from €275 million to €450 million and extended the expiration date from 2009 to 2015. The facility will continue to be subject to customary annual renewal of back-up liquidity commitments.

     The amended facility involves an ongoing daily sale of substantially all of the trade accounts receivable of certain GDTE subsidiaries to a bankruptcy-remote French company controlled by one of the liquidity banks in the facility. It is an event of default under the amended facility if the ratio of GDTE’s consolidated net indebtedness to its consolidated EBITDA is greater that 3.0 to 1.0. This financial covenant will automatically be amended to conform to the European credit facilities upon any amendment of such covenant in the European credit facilities. The defined terms used for this financial covenant are substantially similar to those included in the European credit facilities.

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

Debt Maturities

Updates as of June 30, 2008 to our debt maturities as disclosed in our 2007 Form 10-K are provided below and reflect the redemption of our $650 million senior secured notes due 2011 as well as the maturity and repayment of our $100 million 6 3/8% notes. The updated information does not reflect the July 23, 2008, amendments to our pan-European accounts receivable securitization facility.

		Twelve Months Ending December 31,
(In millions)		2008				2009				2010				2011				2012
Domestic		$	4			$	500			$	3			$	977			$	3
International			67				465				16				2				59
		$	71			$	965			$	19			$	979			$	62

NOTE 8. STOCK COMPENSATION PLANS

Our Board of Directors granted 1.4 million stock options and 1.0 million performance share units during the first quarter of 2008 under our 2005 Performance Plan. The 2005 Performance Plan expired on April 26, 2008. The weighted average exercise price per share and weighted average fair value per share of these stock options was $26.74 and $13.35, respectively. The expected term was estimated using the simplified method, as historical data was not sufficient to provide a reasonable estimate. We estimated the fair values using the following assumptions in our Black-Scholes model:

Expected term: 6.25 years
Interest rate: 3.21%
Volatility: 47.0%
Dividend yield: Nil

Additionally, we also granted 0.1 million reload options during the first six months of 2008.

     We recognized stock-based compensation expense of $1 million ($3 million after-tax) and $8 million ($10 million after-tax) during the three and six months ended June 30, 2008, respectively. As of June 30, 2008, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $66 million and is expected to be recognized over the remaining vesting period of the respective grants, through June 30, 2012. During the three and six months ended June 30, 2007 we recognized stock-based compensation expense of $21 million ($20 million after-tax) and $36 million ($33 million after-tax), respectively.

     On April 8, 2008, our shareholders approved the adoption of our 2008 Performance Plan. The 2008 Performance Plan, which replaces the 2005 Performance Plan, expires on April 8, 2018, and permits the grant of stock options and stock appreciation rights and the making of restricted stock or restricted stock unit grants, performance grants, other stock-based grants and awards, and cash-based grants and awards to employees and directors of the Company. A maximum of 8 million shares of our common stock may be issued under the 2008 Performance Plan. Any shares of common stock that are subject to awards of stock options or stock appreciation rights will be counted as one share for each share granted for purposes of the aggregate share limit and any shares of common stock that are subject to any other awards will be counted as 1.61 shares for each share granted for purposes of the aggregate share limit.

NOTE 9. PENSION, SAVINGS AND OTHER POSTRETIREMENT BENEFIT PLANS

We provide employees with defined benefit pension or defined contribution savings plans. In addition, we provide substantially all domestic employees and employees at certain non-U.S. subsidiaries with health care benefits upon retirement. We also provide certain domestic employees with life insurance benefits upon retirement.

     As announced in 2007, we will freeze our U.S. salaried pension plans effective December 31, 2008 and will implement improvements to our defined contribution savings plan effective January 1, 2009. As a result of these actions, we recognized a curtailment charge of $64 million during the first quarter of 2007. In 2007, we also announced changes to our U.S. salaried other postretirement benefit plans effective January 1, 2008, including increasing the amounts that salaried retirees contribute toward the cost of their medical benefits, redesigning retiree medical benefit plans to minimize the cost impact on premiums, and discontinuing company-paid life insurance for retirees.

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

     In 2007, we announced an agreement to sell our Engineered Products business, which resulted in the recognition of curtailment and termination charges for both pensions and other post retirement benefit plans during the first quarter of 2007 of $72 million and a curtailment gain of $43 million for the salaried other postretirement benefit plan during the third quarter of 2007 upon completion of the sale. These amounts were included in Discontinued Operations. Under the terms of the Purchase and Sale Agreement for Engineered Products, we retained our obligations for pension and other postretirement benefits under our U.S. plans for Engineered Products’ existing retirees and employees eligible to retire as of July 31, 2007. Obligations for benefits under certain non-U.S. plans were not retained. For 2007, a portion of U.S. net periodic cost for active employees of Engineered Products, and net periodic cost for certain non-U.S. plans was included in Discontinued Operations.

     Pension cost follows:

						U.S.								U.S.
						Three Months Ended								Six Months Ended
						June 30,								June 30,
(In millions)						2008				2007				2008				2007
Service cost — benefits earned during the period						$	18			$	21			$	36			$	44
Interest cost on projected benefit obligation							79				78				158				155
Expected return on plan assets							(93	)			(86	)			(186	)			(172	)
Amortization of:			- prior service cost				9				9				18				22
			- net losses				11				14				22				29
Net periodic pension cost							24				36				48				78
Curtailments/settlements							1				—				1				64
Total pension cost						$	25			$	36			$	49			$	142

						Non-U.S.								Non-U.S.
						Three Months Ended								Six Months Ended
						June 30,								June 30,
(In millions)						2008				2007				2008				2007
Service cost — benefits earned during the period						$	10			$	12			$	19			$	21
Interest cost on projected benefit obligation							42				38				85				74
Expected return on plan assets							(38	)			(33	)			(75	)			(64	)
Amortization of:			- prior service cost				—				—				1				1
			- net losses				14				19				27				38
Net periodic pension cost							28				36				57				70
Curtailments/settlements							1				—				1				—
Total pension cost						$	29			$	36			$	58			$	70

We expect to contribute approximately $300 million to $350 million to our funded U.S. and non-U.S. pension plans in 2008. For the three and six months ended June 30, 2008, we contributed $45 million and $84 million, respectively, to our non-U.S. plans and for the three and six months ended June 30, 2008, we contributed $53 million to our U.S. plans.

     Substantially all employees in the U.S. and employees of certain non-U.S. locations are eligible to participate in a defined contribution savings plan. The expenses recognized for our contributions to these plans for the three months ended June 30, 2008 and 2007 were $9 million and $7 million, respectively, and $18 million and $15 million for the six months ended June 30, 2008 and 2007, respectively.

     The Medicare Prescription Drug Improvement and Modernization Act provides plan sponsors a federal subsidy for certain qualifying prescription drug benefits covered under the sponsor’s postretirement health care plans. Our postretirement benefit costs are presented net of this subsidy.

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

Postretirement benefit cost follows:

						Three Months Ended								Six Months Ended
						June 30,								June 30,
(In millions)						2008				2007				2008				2007
Service cost — benefits earned during the period						$	3			$	4			$	6			$	9
Interest cost on projected benefit obligation							26				26				52				57
Amortization of: - prior service cost							(3	)			(4	)			(6	)			1
		- net losses					2				3				4				6
Net periodic postretirement benefit cost						$	28			$	29			$	56			$	73

NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES

At June 30, 2008, we had binding commitments for raw materials and investments in land, buildings and equipment of approximately $1,764 million, and off-balance-sheet financial guarantees written and other commitments totaling $38 million. In addition, we have other contractual commitments, the amounts of which cannot be estimated, pursuant to certain long-term agreements under which we shall purchase minimum amounts of various raw materials at agreed upon base prices that are subject to periodic adjustments for changes in raw material costs and market price adjustments, or in quantities that are subject to periodic adjustments for changes in our production levels.

Environmental Matters

We have recorded liabilities totaling $43 million and $46 million at June 30, 2008 and December 31, 2007, respectively, for anticipated costs related to various environmental matters, primarily the remediation of numerous waste disposal sites and certain properties sold by us. Of these amounts, $9 million and $11 million were included in Other Current Liabilities at June 30, 2008 and December 31, 2007, respectively. The costs include legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring and related activities and will be paid over several years. The amount of our ultimate liability in respect of these matters may be affected by several uncertainties, primarily the ultimate cost of required remediation and the extent to which other responsible parties contribute.

Workers’ Compensation

We have recorded liabilities, on a discounted basis, totaling $283 million and $276 million for anticipated costs related to workers’ compensation at June 30, 2008 and December 31, 2007, respectively. Of these amounts, $80 million and $86 million were included in Current Liabilities as part of Compensation and Benefits at June 30, 2008 and December 31, 2007, respectively. The costs include an estimate of expected settlements on pending claims, defense costs and a provision for claims incurred but not reported. These estimates are based on our assessment of potential liability using an analysis of available information with respect to pending claims, historical experience, and current cost trends. The amount of our ultimate liability in respect of these matters may differ from these estimates.

General and Product Liability and Other Litigation

We have recorded liabilities totaling $454 million and $467 million, including related legal fees expected to be incurred, for potential product liability and other tort claims presently asserted against us, at June 30, 2008 and December 31, 2007, respectively. Of these amounts, $269 million and $270 million were included in Other Current Liabilities at June 30, 2008 and December 31, 2007, respectively. The amounts recorded were estimated on the basis of an assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and, where available, recent and current trends. We have recorded insurance receivables for potential product liability and other tort claims of $69 million and $71 million at June 30, 2008 and December 31, 2007, respectively. Of these amounts, $6 million and $8 million were included in Current Assets as part of Accounts Receivable at June 30, 2008 and December 31, 2007, respectively. We have restricted cash of $167 million and $172 million at June 30, 2008 and December 31, 2007, respectively, to fund certain of these liabilities.

Asbestos. We are a defendant in numerous lawsuits alleging various asbestos-related personal injuries purported to result from alleged exposure to certain asbestos products manufactured by us or present in certain of our facilities. Typically, these lawsuits have been brought against multiple defendants in state and Federal courts. To date, we have disposed of

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

approximately 50,000 claims by defending and obtaining the dismissal thereof or by entering into a settlement. The sum of our accrued asbestos-related liability and gross payments to date, including legal costs, totaled approximately $304 million through June 30, 2008 and $297 million through December 31, 2007.

     A summary of approximate asbestos claims activity in recent years follows. Because claims are often filed and disposed of by dismissal or settlement in large numbers, the amount and timing of settlements and the number of open claims during a particular period can fluctuate significantly from period to period.

		Six Months Ended				Year Ended
(Dollars in millions)		June 30, 2008				December 31, 2007
Pending claims, beginning of period			117,400				124,000
New claims filed			2,400				2,400
Claims settled/dismissed			(1,300	)			(9,000	)
Pending claims, end of period			118,500				117,400
Payments (1)		$	9			$	22

We engaged an independent asbestos valuation firm, Bates White, LLC (“Bates”), to review our existing reserves for pending claims, provide a reasonable estimate of the liability associated with unasserted asbestos claims, and determine our receivables from probable insurance recoveries.

     We had recorded liabilities for both asserted and unasserted claims, inclusive of defense costs, totaling $124 million and $127 million at June 30, 2008 and at December 31, 2007, respectively. The portion of the liability associated with unasserted asbestos claims was $74 million and $76 million at June 30, 2008 and December 31, 2007, respectively. Our liability with respect to asserted claims and related defense costs was $50 million at June 30, 2008 and $51 million at December 31, 2007. At June 30, 2008, we estimate that it is reasonably possible that our gross liabilities could exceed our recorded reserve by up to $35 million, approximately 50% of which would be recoverable by our accessible policy limits.

     Based upon a model employed by Bates, as of June 30, 2008 and as of December 31, 2007, (i) we had recorded a receivable related to asbestos claims of $69 million and $71 million, respectively, and (ii) we expect that approximately 50% of asbestos claim related losses would be recoverable up to our accessible policy limits through the period covered by the estimated liability. The receivable recorded consists of an amount we expect to collect under coverage-in-place agreements with certain primary carriers as well as an amount we believe is probable of recovery from certain of our excess coverage insurance carriers. Of this amount, $6 million and $8 million were included in Current Assets as part of Accounts Receivable at June 30, 2008 and December 31, 2007, respectively.

     We believe that at June 30, 2008, we had at least $180 million in aggregate limits of excess level policies potentially applicable to indemnity payments for asbestos products claims, in addition to limits of available primary insurance policies. Some of these excess policies provide for payment of defense costs in addition to indemnity limits. A portion of the availability of the excess level policies is included in the $69 million insurance receivable recorded at June 30, 2008. We also had approximately $15 million in aggregate limits for products claims, as well as coverage for premise claims on a per occurrence basis and defense costs available with our primary insurance carriers through coverage-in-place agreements at June 30, 2008.

Heatway (Entran II). We have entered into a court approved amended settlement agreement that was intended to address the claims arising out of a number of Federal, state and Canadian actions filed against us involving a rubber hose product used in hydronic radiant heating systems, known as Entran II. We had recorded liabilities related to Entran II claims totaling $189 million at June 30, 2008 and $193 million at December 31, 2007. We have made cash contributions to the settlement fund totaling $130 million through 2007 and will make additional contributions of $20 million in 2008. In addition to these annual payments, we previously contributed approximately $174 million received from insurance contributions to the settlement fund pursuant to the terms of the settlement agreement. We do not expect to receive any additional insurance reimbursements for Entran II related matters. We expect that, except for liabilities associated with actions in which we have received adverse judgments and sites that have opted-out of the amended settlement, our liability with respect to Entran II matters has been addressed by the amended settlement.

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

Other Actions. We are currently a party to various claims and legal proceedings in addition to those noted above. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an injunction prohibiting us from selling one or more products. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or future periods.

Tax Matters

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained when challenged by the taxing authorities. We derecognize tax benefits when, based on new information, we determine that it is no longer more likely than not that our position will be sustained. To the extent we prevail in matters for which liabilities have been established, or determine we need to derecognize tax benefits recorded in prior periods, or that we are required to pay amounts in excess of our liabilities, our effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash and result in an increase in our effective tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution.

VEBA Litigation

On December 28, 2006, members of the United Steelworkers (“USW”) ratified the terms of a new master labor agreement ending a strike that began on October 5, 2006. In connection with the master labor agreement, we also entered into a memorandum of understanding with the USW regarding the establishment of an independent Voluntary Employees’ Beneficiary Association (“VEBA”) intended to provide healthcare benefits for current and future USW retirees. The establishment of the VEBA is conditioned upon District Court approval of a settlement of a declaratory judgment action. On July 3, 2007, the USW and several retirees filed a required class action lawsuit regarding the establishment of the VEBA in the U.S. District Court for the Northern District of Ohio. On October 29, 2007, the parties filed the signed settlement agreement with the District Court, and on December 14, 2007, the District Court preliminarily approved the settlement agreement and established the date for a fairness hearing regarding the settlement. We have committed to contribute $1 billion to the VEBA. We plan to make our contributions to the VEBA entirely in cash following the District Court’s approval of the settlement. In the event that the VEBA is not approved by the District Court (or if the approval of the District Court is subsequently reversed), the master labor agreement may be terminated by either us or the USW, and negotiations may be reopened on the entirety of the master labor agreement.

Guarantees

We are a party to various agreements under which we have undertaken obligations resulting from the issuance of certain guarantees. Guarantees have been issued on behalf of certain of our affiliates and customers. Normally there is no separate premium received by us as consideration for the issuance of guarantees. Our performance under these guarantees would normally be triggered by the occurrence of one or more events as provided in the specific agreements. Collateral and recourse provisions available to us under these agreements were not significant.

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

NOTE 11. BUSINESS SEGMENTS

In the first quarter of 2008, we formed a new strategic business unit, Europe, Middle East and Africa Tire by combining our former European Union Tire and Eastern Europe, Middle East and Africa Tire business units. Prior year amounts have been restated for this change. As a result, we now operate our business through four operating segments representing our regional tire businesses: North American Tire; Europe, Middle East and Africa Tire; Latin American Tire; and Asia Pacific Tire.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In millions)		2008				2007				2008				2007
Sales:
North American Tire		$	2,130			$	2,276			$	4,127			$	4,293
Europe, Middle East and Africa Tire			2,024				1,759				3,974				3,447
Latin American Tire			572				458				1,102				868
Asia Pacific Tire			513				428				978				812
Net Sales		$	5,239			$	4,921			$	10,181			$	9,420
Segment Operating Income:
North American Tire		$	24			$	53			$	56			$	33
Europe, Middle East and Africa Tire			151				126				323				265
Latin American Tire			103				90				217				168
Asia Pacific Tire			52				41				101				70
Total Segment Operating Income			330				310				697				536
Rationalizations			(87	)			(7	)			(100	)			(22	)
Accelerated depreciation			(4	)			(8	)			(4	)			(25	)
Interest expense			(76	)			(120	)			(165	)			(245	)
Corporate incentive and stock based compensation plans			(11	)			(26	)			(15	)			(42	)
Intercompany profit elimination			(4	)			4				(13	)			(13	)
Curtailment			—				—				—				(64	)
Retained net expenses of discontinued operations			—				(9	)			—				(16	)
Other income and (expense)			22				(39	)			28				(19	)
Other			(3	)			(9	)			(11	)			(19	)
Income from Continuing Operations before Income Taxes and Minority Interest		$	167			$	96			$	417			$	71

Rationalizations, as described in Note 2, Costs Associated with Rationalization Programs, and Asset Sales, as described in Note 3, Other (Income) and Expense, are not charged (credited) to the strategic business units (“SBUs”) for performance evaluation purposes, but were attributable to the SBUs as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
(In millions)		2008				2007				2008				2007
Rationalizations:
North American Tire		$	2			$	4			$	11			$	10
Europe, Middle East and Africa Tire			12				2				17				7
Latin American Tire			1				—				—				2
Asia Pacific Tire			72				—				72				—
Total Segment Rationalizations			87				6				100				19
Corporate			—				1				—				3
		$	87			$	7			$	100			$	22
Asset Sales (gain) / loss:
North American Tire		$	(1	)		$	(8	)		$	(1	)		$	(8	)
Europe, Middle East and Africa Tire			(3	)			(1	)			(21	)			(2	)
Latin American Tire			—				(1	)			(5	)			(2	)
Asia Pacific Tire			—				—				(10	)			(7	)
Total Segment Asset Sales (gain) / loss		$	(4	)		$	(10	)		$	(37	)		$	(19	)

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

NOTE 12. INCOME TAXES

For the second quarter of 2008, we recorded tax expense of $74 million on income from continuing operations before income taxes and minority interest of $167 million. We record taxes based on overall estimated annual effective tax rates. Due to our projected marginal profitability in the United States, the estimated annual U.S. effective tax rate is subject to wide variability requiring us to record our U.S. taxes on a discrete item basis for the second quarter of 2008. For the second quarter of 2007, we recorded tax expense of $51 million on income from continuing operations before income taxes and minority interest of $96 million. Included in tax expense for the second quarter of 2007 was a net tax benefit of $11 million ($0.05 per share) related to prior periods. The out-of-period adjustment, in 2007, related to our correction of the inflation adjustment on equity of our subsidiary in Colombia as a permanent tax benefit rather than as a temporary tax benefit dating back as far as 1992, with no individual year being significantly affected.

     Our losses in certain foreign locations in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against our net deferred tax assets in these foreign locations. However, it is reasonably possible that sufficient positive evidence required to release all, or a portion, of these valuation allowances within the next 12 months will exist, resulting in one-time tax benefits of up to $100 million ($85 million, net of minority interest).

     At January 1, 2008, we had unrecognized tax benefits of $174 million that if recognized, would have a favorable impact on our tax expense of $162 million. We report interest and penalties as income taxes and have accrued interest of $11 million as of January 1, 2008. We agreed to an audit assessment during the second quarter of 2008, which reduced the unrecognized tax benefits by $7 million and accrued interest by $2 million. If not favorably settled, $52 million of the remaining unrecognized tax benefits and $9 million of accrued interest would require the use of cash.

     Generally, years beginning after 2002 are still open to examination by foreign taxing authorities, including several major taxing jurisdictions. In Germany, we are open to examination from 1998 onward. In the United States, we are open to examination from 2004 forward. We are also involved in a United States/Canada Competent Authority resolution process that deals with transactions between our operations in these countries from 1997 through 2003. This proceeding is expected to be concluded within the next 18 months.

     It is expected that the amount of unrecognized tax benefits will also change for other reasons in the next 12 months; however, we do not expect that change to have a significant impact on our financial position or results of operations.

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

NOTE 13. CONSOLIDATING FINANCIAL INFORMATION

Certain of our subsidiaries have guaranteed Goodyear’s obligations under the $260 million outstanding principal amount of 9% senior notes due 2015 and the $825 million outstanding principal amount of senior notes (consisting of $325 million outstanding principal amount of 8.625% senior notes due 2011 and $500 million outstanding principal amount of senior floating rate notes due 2009) (collectively, the “notes”). The following presents the condensed consolidating financial information separately for:

(i)		The Goodyear Tire & Rubber Company (the “Parent Company”), the issuer of the guaranteed obligations;
(ii)		Guarantor subsidiaries, on a combined basis, as specified in the indentures related to Goodyear’s obligations under the notes;
(iii)		Non-guarantor subsidiaries, on a combined basis;
(iv)		Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate the investments in our subsidiaries, and (c) record consolidating entries; and
(v)		The Goodyear Tire & Rubber Company and Subsidiaries on a consolidated basis.

     Each guarantor subsidiary is 100% owned by the Parent Company at the date of each balance sheet presented. The notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and Guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation.

     Certain non-guarantor subsidiaries of the Parent Company are restricted from remitting funds to it by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or restrictions in credit agreements or other debt instruments of those subsidiaries. Cash flows resulting from short-term cash advances between operating entities are included in Cash Flows from Operating Activities.

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

		Consolidating Balance Sheet
		June 30, 2008
										Non-				Consolidating
		Parent				Guarantor				Guarantor				Entries and
(In millions)		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets:
Current Assets:
Cash and Cash Equivalents		$	1,034			$	60			$	975			$	—			$	2,069
Restricted Cash			173				—				8				—				181
Accounts Receivable			920				201				2,509				—				3,630
Accounts Receivable from Affiliates			—				902				—				(902	)			—
Inventories			1,721				310				1,976				(74	)			3,933
Prepaid Expenses and Other Current Assets			105				18				168				1				292
Total Current Assets			3,953				1,491				5,636				(975	)			10,105
Goodwill			—				25				512				247				784
Intangible Assets			110				12				55				(12	)			165
Deferred Income Tax			—				16				76				(16	)			76
Other Assets			195				52				189				—				436
Investments in Subsidiaries			5,228				678				3,378				(9,284	)			—
Property, Plant and Equipment			2,042				216				3,658				12				5,928
Total Assets		$	11,528			$	2,490			$	13,504			$	(10,028	)		$	17,494
Liabilities:
Current Liabilities:
Accounts Payable-Trade		$	671			$	78			$	2,038			$	—			$	2,787
Accounts Payable to Affiliates			879				—				23				(902	)			—
Compensation and Benefits			517				34				379				—				930
Other Current Liabilities			454				14				344				—				812
United States and Foreign Taxes			57				20				166				(8	)			235
Notes Payable and Overdrafts			—				—				300				—				300
Long Term Debt and Capital Leases due within one year			2				—				99				—				101
Total Current Liabilities			2,580				146				3,349				(910	)			5,165
Long Term Debt and Capital Leases			3,097				—				571				—				3,668
Compensation and Benefits			1,936				219				1,090				—				3,245
Deferred and Other Noncurrent Income Taxes			79				23				214				(11	)			305
Other Long Term Liabilities			483				40				134				—				657
Minority Equity in Subsidiaries			—				—				853				248				1,101
Total Liabilities			8,175				428				6,211				(673	)			14,141
Commitments and Contingent Liabilities
Shareholders’ Equity:
Preferred Stock			—				—				—				—				—
Common Stock			241				617				4,549				(5,166	)			241
Capital Surplus			2,694				5				786				(791	)			2,694
Retained Earnings			1,824				1,688				2,564				(4,252	)			1,824
Accumulated Other Comprehensive Loss			(1,406	)			(248	)			(606	)			854				(1,406	)
Total Shareholders’ Equity			3,353				2,062				7,293				(9,355	)			3,353
Total Liabilities and Shareholders’ Equity		$	11,528			$	2,490			$	13,504			$	(10,028	)		$	17,494