NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by The Goodyear Tire & Rubber Company (the “Company,” “Goodyear,” “we,” “us” or “our”) in accordance with Securities and Exchange Commission rules and regulations and generally accepted accounting principles in the United States of America ("US GAAP") 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 US GAAP 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, 2013 (the “ 2013 Form 10-K”).

We are a party to shareholder agreements concerning certain of our less-than-wholly-owned consolidated subsidiaries. Under the terms of certain of these agreements, the minority shareholders have the right to require us to purchase their ownership interests in the respective subsidiaries if there is a change in control of Goodyear, a bankruptcy of Goodyear, or other circumstances. Accordingly, we have reported the minority equity in those subsidiaries outside of shareholders’ equity.

Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2014 .

Recently Issued Accounting Standards

In August 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update with new guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management must evaluate whether it is probable that known conditions or events, considered in the aggregate, would raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. If such conditions or events are identified, the standard requires management's mitigation plans to alleviate the doubt or a statement of the substantial doubt about the entity’s ability to continue as a going concern to be disclosed in the financial statements. The standards update is effective for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. The adoption of this standards update is not expected to impact our consolidated financial statements.

In May 2014, the FASB issued an accounting standards update with new guidance on recognizing revenue from contracts with customers. The standards update outlines a single comprehensive model for entities to utilize to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that will be received in exchange for the goods and services. Additional disclosures will also be required to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standards update is effective for fiscal years beginning after December 15, 2016, and early adoption is not permitted. We are currently evaluating the impact of adopting this standards update on our consolidated financial statements.

In April 2014, the FASB issued an accounting standards update providing new guidance on the requirements for reporting a discontinued operation. The standards update allows only those disposals representing a strategic shift in operations with a major effect on the entity's operations and financial results to be reported as a discontinued operation. It also allows companies to have significant continuing involvement and continuing cash flows with the discontinued operations. Additional disclosures are also required for discontinued operations and individually material disposal transactions that do not meet the definition of a discontinued operation. The standards update is effective for fiscal years beginning after December 15, 2014. We will adopt this standards update, as required, beginning with the first quarter of 2015. The adoption of this standards update affects presentation only and, as such, is not expected to have a material impact on our consolidated financial statements.

Recently Adopted Accounting Standards

Effective January 1, 2014, we adopted an accounting standards update requiring the presentation of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. This net presentation is required unless a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset to settle any additional income tax that would result from the disallowance of the unrecognized tax benefit. The adoption of this standards update did not have a material impact on our consolidated financial statements.

Effective January 1, 2014, we adopted an accounting standards update providing guidance with respect to the release of cumulative translation adjustments into net income when a parent sells either a part or all of its investment in a foreign entity. The standards update also requires the release of cumulative translation adjustments when a company no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, and provides guidance for the acquisition in stages of a controlling interest in a foreign entity. The adoption of this standards update did not impact our consolidated financial statements.

Effective January 1, 2014, we adopted an accounting standards update requiring an entity to record obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The adoption of this standards update did not impact our consolidated financial statements.

Reclassifications and Adjustments

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

Significant rationalization actions initiated in 2014 consisted primarily of manufacturing headcount reductions related to Europe, Middle East and Africa's ("EMEA") plans to improve operating efficiency. In addition, EMEA, Latin America and Asia Pacific also initiated plans to reduce selling, administrative and general ("SAG") headcount.

The accrual balance of $149 million at September 30, 2014 is expected to be substantially utilized within the next 12 months and includes $103 million related to the plan to exit the farm tire business in EMEA and the closure of one of our manufacturing facilities in Amiens, France.

Substantially all of the new charges for the three and nine months ended September 30, 2014 and 2013 related to future cash outflows. Net prior year plan charges for the three months ended September 30, 2014 of $7 million include a net credit of $(2) million primarily related to associate severance and idle plant costs related to the closure of one of our manufacturing facilities in Amiens, France, resulting from the impact of changes in tax laws and revised estimates. Net prior year plan charges for the nine months ended September 30, 2014 of $ 62 million include charges of $ 63 million for associate severance and idle plant costs, partially offset by a pension curtailment gain of $22 million , related to the closure of one of our manufacturing facilities in Amiens, France. Net charges for the nine months ended September 30, 2014 included reversals of $5 million , and net charges for the three and nine months ended September 30, 2013 included reversals of $4 million and $11 million , respectively, for actions no longer needed for their originally intended purposes.

Approximately 200 associates will be released under plans initiated in 2014 , of which approximately 100 associates have been released as of September 30, 2014 . In the first nine months of 2014, approximately 1,400 associates were released under plans initiated in prior years, primarily related to the plan to exit the farm tire business in EMEA and the closure of one of our manufacturing facilities in Amiens, France. In total, approximately 400 associates remain to be released under rationalization plans. At September 30, 2014, approximately 600 former associates of the closed Amiens, France manufacturing facility have asserted wrongful termination or other claims against us.  We are currently unable to estimate the number and amount of the claims that may ultimately be asserted against us, but intend to vigorously defend any such claims.

Accelerated depreciation charges for the three and nine months ended September 30, 2014 related to property and equipment in one of our manufacturing facilities in the U.K. Accelerated depreciation charges for the three and nine months ended September 30, 2013 related primarily to property and equipment in one of our manufacturing facilities in Amiens, France. Accelerated depreciation charges for all periods were recorded in cost of goods sold (“CGS”).

Net foreign currency exchange losses in the three months ended September 30, 2014 were $31 million , primarily in Venezuela, compared to net gains of $2 million in the three months ended September 30, 2013 . Net foreign currency exchange losses in the three months ended September 30, 2014 included a net remeasurement loss of $5 million in Venezuela resulting from the derecognition of a portion of the subsidy receivable established on January 24, 2014, as discussed below, and a reduction of $7 million of foreign currency exchange losses previously recorded as part of the $157 million first quarter 2014 Venezuelan remeasurement loss. As described in Note 4, Income Taxes, in the third quarter of 2014 we established valuation allowances on the net deferred tax assets of our Venezuelan and Brazilian subsidiaries, and accordingly, reduced $7 million of previously recorded foreign currency exchange losses related to deferred tax assets of our Venezuelan subsidiary. Net losses in the nine months ended September 30, 2014 and 2013 were $182 million and $116 million , respectively, which included net remeasurement losses of $155 million and $115 million , respectively, resulting from devaluations of the Venezuelan bolivar fuerte against the U.S. dollar. Foreign currency exchange also reflects net gains and losses resulting from the effect of exchange rate changes on various foreign currency transactions worldwide.

Effective February 13, 2013, Venezuela's official exchange rate changed from 4.3 to 6.3 bolivares fuertes to the U.S. dollar for substantially all goods. Effective January 24, 2014, Venezuela’s exchange rate applicable to the settlement of certain transactions, including payments of dividends and royalties, changed to an auction-based floating rate, the Complementary System of Foreign Currency Administration (“SICAD I”) rate, which was 11.4 and 12.0 bolivares fuertes to the U.S. dollar at January 24, 2014 and September 30, 2014, respectively. The official exchange rate for imports of essential goods, such as certain raw materials needed for the production of tires, remained at 6.3 bolivares fuertes to the U.S. dollar; however, the previously existing subsidy exchange rate of 4.3 bolivares fuertes to the U.S. dollar was eliminated and, accordingly, we derecognized $11 million of previously recognized subsidy receivables as part of the first quarter $157 million remeasurement loss.

We are required to remeasure our bolivar-denominated monetary assets and liabilities at the rate expected to be available for future dividend remittances by our Venezuelan subsidiary. We expect that future remittances of dividends by our Venezuelan subsidiary would be transacted at the SICAD I rate and, therefore, in 2014 we have recorded a net remeasurement loss of $155 million , including a first quarter loss of $157 million using the SICAD I rate. All bolivar-denominated monetary assets and liabilities were remeasured at 12.0 and 6.3 bolivares fuertes to the U.S. dollar at September 30, 2014 and December 31, 2013, respectively.

We also recorded a subsidy receivable at January 24, 2014 of $50 million related to certain U.S. dollar-denominated payables that are expected to be settled at the official exchange rate of 6.3 bolivares fuertes to the U.S. dollar for essential goods, based on ongoing approvals for importation of such goods. Effective September 9, 2014, the official exchange rate for settling purchases of certain finished goods changed from 6.3 bolivares fuertes to the U.S. dollar to the SICAD I rate and, accordingly, in the third quarter of 2014, we derecognized $5 million of the subsidy receivable, which is included in the net remeasurement loss of $155 million for the nine months ended September 30, 2014. At September 30, 2014, the subsidy receivable was $44 million . A portion of this subsidy will reduce cost of goods sold in periods when the related inventory is sold.

Royalty income in the nine months ended September 30, 2014 was $27 million , compared to $39 million in the nine months ended September 30, 2013. Royalty income in 2013 included a one-time royalty of $8 million related to chemical operations. Royalty income is derived primarily from licensing arrangements related to divested businesses.

Interest income in the nine months ended September 30, 2014 was $23 million , compared to interest income of $18 million in the nine months ended September 30, 2013. Interest income in 2014 included $9 million earned on the settlement of indirect tax claims in Latin America.

Miscellaneous expense in the three and nine months ended September 30, 2014 included charges of $3 million and $20 million , respectively, and in the three and nine months ended September 30, 2013 included charges of $1 million and $6 million , respectively, for labor claims related to a previously closed facility in EMEA. Miscellaneous expense in the three and nine months ended September 30, 2014 also included a charge of $16 million related to a government investigation involving our compliance with the U.S. Foreign Corrupt Practices Act in certain countries in Africa.

Also included in Other Expense are financing fees and financial instruments expense consisting of the amortization of deferred financing fees, commitment fees and charges incurred in connection with financing transactions; and general and product liability — discontinued products expense which includes charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries.

NOTE 4. INCOME TAXES

For the three months ended September 30, 2014 , we recorded tax expense of $100 million on income before income taxes of $299 million . For the nine months ended September 30, 2014 , we recorded tax expense of $168 million on income before income taxes of $561 million . Income tax expense for both the three and nine months ended September 30, 2014 was unfavorably impacted by $47 million of discrete tax adjustments, including $37 million to establish valuation allowances on the net deferred tax assets of our Venezuelan and Brazilian subsidiaries, due to continuing operating losses and currency devaluations in Venezuela, as well as $11 million due to a recently enacted law change in Chile. For the three months ended September 30, 2013, we recorded tax expense of $54 million on income before income taxes of $249 million . For the nine months ended September 30, 2013, we recorded tax expense of $136 million on income before income taxes of $555 million . Income tax expense for the nine months ended September 30, 2013 was favorably impacted by $5 million due primarily to newly enacted law changes.

We record taxes based on overall estimated annual effective tax rates. In addition to the discrete items noted above, the differences between our effective tax rate and the U.S. statutory rate in both years were primarily attributable to the full valuation allowance on our U.S. and certain foreign deferred tax assets. In 2013, the difference between our effective tax rate and the U.S. statutory rate was also attributable to charges that are not deductible for tax purposes related to the devaluation of the bolivar fuerte in Venezuela.

At January 1, 2014, our valuation allowance on our U.S. deferred tax assets was approximately $2,400 million . Each reporting period we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Through 2012 our history of U.S. operating losses limited the weight we could apply to other subjective evidence such as our projections for future profitability. Recent positive evidence includes our profitable U.S. results for the last seven quarters and full funding of our hourly U.S. pension plans in January 2014, which eliminates volatility in Other Comprehensive Income. This recent positive evidence provides us the opportunity to apply greater significance to our projections in assessing the need for a valuation allowance. We believe it is reasonably possible that sufficient positive evidence will exist during the remainder of 2014 to release all or a significant portion of our valuation allowance on our U.S. deferred tax assets.

Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets. However, it is reasonably possible that sufficient positive evidence required to release all, or a portion, of certain valuation allowances will exist within the next twelve months. This may result in a reduction of the valuation allowance by up to $105 million .

At January 1, 2014 , we had unrecognized tax benefits of $88 million that if recognized, would have a favorable impact on our tax expense of $78 million . We had accrued interest of $16 million as of January 1, 2014 . If not favorably settled, $32 million of the unrecognized tax benefits and all of the accrued interest would require the use of our cash. It is reasonably possible that our total amount of unrecognized tax benefits may change during the next twelve months. However, we do not expect these changes to have a significant impact on our financial position or results of operations.

Generally, years from 2008 onward are still open to examination by foreign taxing authorities. We are open to examination in Germany from 2006 onward and in the United States for 2013.

Weighted average shares outstanding - diluted for the three and nine months ended September 30, 2014 excludes approximately 3 million and 2 million equivalent shares, respectively, and for the three and nine months ended September 30, 2013 excludes approximately 4 million and 5 million equivalent shares, respectively, related to options with exercise prices greater than the average market price of our common shares (i.e., “underwater” options).

On April 1, 2014, all outstanding shares of mandatory convertible preferred stock automatically converted into 27,573,735 shares of common stock, net of fractional shares, at a conversion rate of 2.7574 shares of common stock per share of preferred stock.

Substantially all of the pension curtailment charges of $33 million for the nine months ended September 30, 2014 noted above related to our North America strategic business unit ("SBU"); however, such costs were not included in North America segment operating income for purposes of management's assessment of SBU operating performance. In addition, rationalizations, as described in Note 2, Costs Associated with Rationalization Programs; net (gains) losses on asset sales; and asset write-offs and accelerated depreciation are not (credited) charged to the SBUs for performance evaluation purposes, but were attributable to the SBUs as follows:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(In millions)	2014				2013				2014				2013
Rationalizations:
North America	$	—			$	1			$	(1	)		$	8
Europe, Middle East and Africa	11				9				69				15
Latin America	2				2				3				4
Asia Pacific	2				9				9				14
Total Segment Rationalizations	$	15			$	21			$	80			$	41
Net (Gains) Losses on Asset Sales:
North America	$	—			$	(2	)		$	(1	)		$	(4	)
Europe, Middle East and Africa	7				—				7				2
Asia Pacific	—				(1		)		—				(4		)
Total Segment Asset Sales	$	7			$	(3	)		$	6			$	(6	)
Corporate	—				—				(2		)		—
	$	7			$	(3	)		$	4			$	(6	)