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DCR Upgrades Goodyear Tire to 'A-'

6 May 1998

DCR Upgrades Goodyear Tire to 'A-'

    CHICAGO, May 6 -- Duff & Phelps Credit Rating Co. (DCR) has
raised the debt rating of The Goodyear Tire & Rubber Company (Goodyear).
Goodyear's senior, unsecured debt has been upgraded to 'A-' (Single-A-Minus)
from 'BBB+' (Triple-B-Plus), and its commercial paper has been upgraded to
'D-1-' (D-One-Minus) from 'D-2' (D-Two).  Approximately $1.7 billion of debt
is affected.
    The upgrades reflect the multiyear improvement in credit measures
resulting from Goodyear's efforts to contain costs through improved plant
productivity and tightly controlled selling, general and administrative
expense levels. Goodyear should be able to maintain this cost momentum, as it
has just begun to move remaining North American plants to continuous seven-day
operations and it continues to streamline and rationalize its distribution and
retail operations and integrate global manufacturing operations.
    The company's improved cost structure and increasing geographic
diversification have reduced the cyclical sensitivity of its domestic tire
business.  While a recession in the North American market, which still
accounts for roughly 55 percent of Goodyear's sales, would result in a
significant drop in auto production and heightened pricing pressure on tire
makers, DCR anticipates that Goodyear could complete the bulk of its capital
spending initiatives with, at worst, minor increases in debt.
    Goodyear has a strong market position in the global tire industry, and
geographic diversification has improved as the company has pursued growth with
modest acquisitions and minority interest buy-outs in Central Europe, Asia and
Latin America.  Additional acquisitions are also possible as Goodyear pursues
opportunities to expand its specialty tires, engineered products and chemicals
businesses.  Changing fundamentals of the tire industry may trigger further
consolidation.
    The company is expected to maintain or enhance its position in the
industry with new product and process technologies that will enhance product
quality and significantly improve cost productivity.  These technologies will
require several years and significant capital investment to implement
throughout its production systems.
    Current sales and income levels are generating moderate free cash flow
after capital spending and dividends ($175 million in 1997), and the announced
divestiture of its Celeron pipeline is expected to close in the third quarter
for cash proceeds of $420 million.  Even with higher capital spending expected
going forward for new technology and additional chemicals capacity, Goodyear
will possess substantial available funding for strategic investments while
maintaining current credit quality.  Although Goodyear has authorized the
repurchase of more than $500 million of stock, share repurchases are only
expected to be utilized to offset earnings dilution from future options
exercise.
    Goodyear's financial strategy continues to target balance-sheet debt to
debt plus equity at roughly 30 percent, with potential temporary fluctuations
for acquisitions.  While Goodyear's balance-sheet debt to
capitalization ratio at December 31, 1997 and March 31, 1998 was 27.0 and 31.5
percent, respectively, the ratings also recognize the significant off-balance-
sheet operating leases and sold receivables, which push these ratios up to
40.0 and 42.8 percent, respectively. Recent finacings have helped to improve
the debt profile.

SOURCE  Duff & Phelps Credit Rating Co.