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Goodyear announces $2.4 billion in tax, equity adjustments

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Goodyear Tire & Rubber Co. says it will take a one-time charge of $1.1 billion for the fourth quarter, and reduce its shareholders' equity by $1.3 billion.

In a statement released earlier today, Goodyear announced two major financial moves. One will impact its fourth-quarter and year-end 2002 financial results; the other will impact its balance sheet. The adjustments were discussed with its bank lenders and ratings agencies.

(Goodyear will release its 2002 financial statements following completion of the restructuring, refinancing and extension of its loan agreements, which are currently under discussion with the company's bank lenders.)

Here, in Goodyear's own phrasing, are the financial adjustments:

In accordance with the Statement of

Financial Accounting Standards No. 109, "Accounting for Income Taxes," the Goodyear

Tire & Rubber Co. today announced it will record a non-cash charge of $1.1 billion

($6.17 per share) for the fourth quarter of 2002 to establish a valuation allowance

against its net U.S. deferred tax assets.

In addition to this charge, the company's shareholders' equity at Dec. 31, 2002, will also be reduced by $1.3 billion to reflect an increase in its unfunded pension benefit obligations.

These non-cash adjustments will impact both tax expense and shareholders' equity on Goodyear's financial statements, but did not have a direct impact on the company's cash flow.

"SFAS No. 109 gives greater weight to previous cumulative losses than the outlook for future profitability when determining whether deferred tax assets can be used. This valuation allowance will be reviewed periodically and

can be reversed, partially or totally, when business results have sufficiently improved to support realization of these deferred tax assets," said Robert W. Tieken, Goodyear executive vice president and chief financial

officer.

"We do not believe this charge is a reflection of the long-term prospects of our business as we expect to accomplish a successful turnaround of our United States operations," he added.

The adjustments to shareholders' equity resulted in the company's net worth being below the level required by covenants in its bank loan

agreements.

Goodyear's bank lenders, however, have waived compliance with these covenants through April 4, 2003.

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