Fitch Lowers Goodyear's Ratings

    CHICAGO--Aug. 7, 2001--Fitch has lowered the senior unsecured debt rating of The Goodyear Tire & Rubber Company (Goodyear) from 'BBB+' to 'BBB' and commercial paper rating from `F2' to `F3'. The Rating Outlook is changed from Stable to Negative.
    The rating change reflects weaker operating cash flows, additional planned production cuts related to working capital management initiatives and the current debt levels which are not expected to come down significantly in the near term. While it is encouraging to see price increase realization and better product mix related to a nascent `flight to quality' trend translating into an increased revenue per tire in the core North American tire operation, planned production cuts have hurt overall operating margins and the production cuts are expected to continue through the balance of the year.
    Through the first six months of 2001, Goodyear had a working capital requirement of $375 million (not including the $300 million of accounts receivable securitization in the second quarter), contributing to a net negative cash flow from operations. With the intent focus of the company on working capital management, Fitch expects that working capital levels will improve, but the balance of the year is not expected to generate meaningful amounts of positive cash flow for much debt reduction for the year.
    Operating shortfalls have led to a higher than anticipated 3.7 times (x) debt-to-EBITDA leverage for the 12 months ended June 30, 2001 while EBITDA/interest slipped to 2.9x for the same time. Goodyear had $3.8 billion of balance sheet debt at June 30, 2001. Fitch expects that these credit measures will be flat to moderately weaker going forward with operating performance tempered by a lack of strong volume upturn in Goodyear's core tire operations. The Negative Rating Outlook recognizes the risk of potential tire volume weakness during the balance of the year and its implications for the company's operating margin.
    Goodyear is one of the world's three-largest tire manufacturers, along with Bridgestone and Michelin. Its share of the worldwide market for automotive, truck and farm tires had been gaining over the past several years with 23% in 2000, 20% in 1999, and 19% in 1998. Current developing trend in the replacement tire market towards more premium tire brands away from lower margin value brands (flight to quality) will certainly be a positive for Goodyear longer term if the trend continues. Additionally, with Goodyear acquiring control of the Dunlop brand operations in North America and Europe in the 1999 broadening of its alliance with Sumitomo Rubber, Goodyear continues to have the leading tire unit share (30%) in North and Latin America, while the addition of Dunlop propels Goodyear into second place share (22-24%) in Europe behind leader Michelin. Along with tire manufacturing and retailing (88% of Goodyear's total sales), engineered products such as hoses and belts for automotive and industrial uses are 8% and outside sales of rubber and chemicals are 4%.