• We initiated several restructuring actions;

• We successfully addressed many of the challenges posed by the General Motors and Chrysler bankruptcies;

• We issued $1.0 billion of 10.5% senior notes due 2016; and

• We made continued progress on the strategic initiatives announced in February 2009.

Two of our major OE customers, General Motors and Chrysler, filed for and emerged from bankruptcy since the beginning of the second quarter of 2009. The bankruptcy filings of these OE customers did not have a material effect on our liquidity or result in a write-off of accounts receivable.
In May 2009, we issued $1.0 billion aggregate principal amount of 10.5% senior notes due 2016 that were sold at a purchase price of 95.846% of the principal amount. The note sale generated net proceeds, after payment of underwriting discounts and offering expenses, of approximately $937 million and enhanced our liquidity position. During the first six months of 2009, our cash and cash equivalents increased from $1,894 million to $2,366 million, due primarily to the net proceeds from the note offering, which was partially offset by repayments of outstanding amounts under our European revolving credit facilities.

We have continued our efforts to address the challenging business environment that we are facing in 2009 by remaining focused on the strategic initiatives we announced in February 2009 which are aimed at strengthening our revenue, cost structure and cash flow, including:
• continuing our focus on consumer-driven product development and innovation by introducing more than 50 new tires globally, including several branded mid-tier product offerings. In the first six months of 2009, we introduced 42 new products, such as the Assurance FuelMax in North America and the EfficientGrip tire with Fuel Saving Technology in Europe;

• achieving our four-point cost savings plan target of $2.5 billion, by increasing our continuous improvement efforts, lowering our manufacturing costs, increasing purchasing savings, eliminating non-essential discretionary spending, and reducing overhead and development costs. We have achieved approximately $200 million of cost savings in the second quarter of 2009 and total savings over the life of the plan of over $2.1 billion. In association with this plan, we had personnel reductions of approximately 5,500 people in the first six months of 2009, achieving the target we announced in February 2009;

• reducing manufacturing capacity by 15 million to 25 million units over the next two years. We have announced planned manufacturing capacity reductions of approximately 8 million units (including the discontinuation of consumer tire production at one of our facilities in Amiens, France and the announced closing of our Las Pinas, Philippines plant);

• reducing inventory levels by over $500 million by the end of 2009 compared with 2008. We have achieved this goal and reduced inventories by $683 million from December 31, 2008 to June 30, 2009;

• adjusting planned capital expenditures to between $700 million and $800 million in 2009 from $1,049 million in 2008. Our capital expenditures plan is on target through the first six months of 2009; and

• pursuing additional non-core asset sales, including our decision to pursue offers for our European and Latin American farm tire business.

We met our inventory reduction goal through the combination of lower raw material costs and the implementation of an advantaged supply chain, primarily in North American Tire and EMEA, by improving demand forecasting, increasing production flexibility through shorter lead times and reduced production lot sizes, reducing the quantity of raw materials required to meet an improved demand forecast, changing the composition of our logistics network by closing and consolidating certain distribution warehouses, increasing local production and reducing longer lead time off-shore imports, and reducing in-transit inventory between our plants and regional distribution centers.
We have also implemented quarterly operating plans for 2009 for all of our businesses and functions to adapt to the challenges of the global economic environment.
We continued to experience declines in sales volume during the second quarter of 2009 due to reduced production at our OE customers in response to lower demand for new vehicles and weakness in demand for replacement tires. The decline in our sales volume and the resulting production cuts have resulted in additional under-absorbed fixed costs. We may also experience a future decline in sales volume due to a continued decline in new vehicle sales, the discontinuation or sale of certain OE brands, platforms or programs or continued weakness in demand for replacement tires, possibly resulting in additional under-absorbed fixed costs at our production facilities.
The industry environment remains challenging and will continue to significantly impact our performance in the third quarter of 2009. While the economic and industry environment make it difficult to provide a clear outlook for the industry, we expect demand to remain weak in the third quarter, similar to the environment experienced during the second quarter of 2009.
We expect raw material costs to decline by 15% to 20% in the third quarter of 2009 from the comparable 2008 period, with further reductions occurring in the fourth quarter of 2009.

against the U.S. dollar and euro, partially offset by the strengthening Turkish lira against both the U.S. dollar and euro, and the strengthening of the Brazilian real against the U.S. dollar.
For the second quarter of 2009, we recorded a tax benefit of $18 million on a loss before income taxes of $271 million. The income tax benefit was impacted favorably by a second quarter benefit of $19 million after minority interest or $0.08 per share primarily due to the settlement of our 1997 through 2003 Competent Authority claim between the United States and Canada. The difference between our effective tax rate and the U.S. statutory rate was primarily attributable to continuing to maintain a full valuation allowance against our net Federal and state deferred tax assets. For the second quarter of 2008, we recorded tax expense of $74 million on income before income taxes of $167 million.
Our losses in various taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against our net deferred tax assets. However, in certain foreign locations 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 $35 million.
Minority shareholders net (loss) income was $(32) million in the second quarter of 2009, a decrease of $50 million compared to $18 million in the second quarter of 2008. The decrease primarily relates to decreased earnings in our joint venture in Europe.
Rationalization Activity
During the second quarter of 2009, $136 million ($104 million after-tax and minority or $0.43 per share) of net charges were recorded compared to net charges of $87 million ($83 million after-tax and minority or $0.34 per share) in the second quarter of 2008. New charges of $141 million represent $132 million for plans initiated in 2009 and $9 million for plans initiated in 2008 and prior years. North American Tire initiated manufacturing headcount reductions at several facilities, including Union City, Tennessee, to meet lower production demand. Additional salaried headcount reductions were initiated at our corporate offices in Akron, Ohio and throughout EMEA. We also initiated the discontinuation of consumer tire production at one of our facilities in Amiens, France. Finally, Latin American Tire initiated manufacturing headcount reductions at each of its two facilities in Brazil.
Upon completion of the 2009 plans, we estimate that annual operating costs will be reduced by approximately $240 million ($205 million CGS and $35 million SAG). The savings realized in the second quarter of 2009 totaled approximately $24 million ($10 million CGS and $14 million SAG). Six Months Ended June 30, 2009 and 2008
Net sales in the first six months of 2009 were $7,479 million, decreasing $2,702 million or 26.5% from $10,181 million in the first six months of 2008. Goodyear net loss was $554 million, or $2.30 per share, in the first six months of 2009, compared to Goodyear net income of $222 million, or $0.91 per share, in the first six months of 2008.
Net sales in the first six months of 2009 were unfavorably impacted by decreased tire volume of $1,441 million, primarily in North American Tire and EMEA, foreign currency translation of $852 million, primarily in EMEA, and a decrease in other tire-related businesses' sales of $549 million, primarily in North American Tire's third party sales of chemical products. These were partially offset by improved price and product mix of $137 million, mainly in North American Tire.
Worldwide tire unit sales in the first six months of 2009 were 78.4 million units, a decrease of 17.4 million units, or 18.1% compared to the 2008 period. Replacement tire volume decreased 6.8 million units, or 9.9%, due to recessionary economic conditions in many parts of the world. OE tire volume also decreased 10.6 million units, or 38.0%, primarily in the consumer markets of North American Tire and EMEA due to recessionary economic conditions resulting in lower demand for new vehicles.
CGS in the first six months of 2009 was $6,572 million, a decrease of $1,585 million, or 19.4%, compared to $8,157 million in the first six months of 2008. CGS in the first six months of 2009 decreased due to lower tire volume of $1,173 million, primarily in North American Tire and EMEA, foreign currency translation of $736 million, primarily in EMEA, lower costs in other tire-related businesses of $446 million, primarily in North American Tire's cost of chemical products,

and product mix-related manufacturing cost decreases of $152 million. CGS also benefited from savings from rationalization plans of approximately $27 million. Partially offsetting these decreases were increased conversion costs of $484 million and higher raw material costs of $450 million. The higher conversion costs were caused primarily by under-absorbed fixed overhead costs of approximately $405 million due to lower production volume. The first six months of 2009 included asset write-offs and accelerated depreciation of $22 million ($22 million after-tax and minority or $0.09 per share), compared to $4 million ($4 million after-tax and minority or $0.02 per share) in the 2008 period. CGS in 2008 also included a gain of $12 million ($8 million after-tax and minority or $0.03 per share) related to the favorable settlement of an excise tax case in Latin American Tire. CGS as a percentage of sales increased to 87.9% in the first six months of 2009, compared to 80.1% in the 2008 period.
SAG was $1,147 million in the first six months of 2009, compared to $1,370 million in 2008, a decrease of $223 million or 16.3%. The decrease in SAG primarily was driven by favorable foreign currency translation of $127 million, lower advertising expenses of $42 million, savings from rationalization plans of $19 million, and reductions in discretionary spending of approximately $20 million. SAG as a percentage of sales increased to 15.3% in the first six months of 2009, compared to 13.5% in the 2008 period.
Interest expense was $143 million in the first six months of 2009, a decrease of $22 million compared to $165 million in the first six months of 2008. The decrease related primarily to lower weighted average interest rates in the first six months of 2009 compared to the first six months of 2008 partially offset by higher average debt levels.
Other (Income) and Expense was $62 million of expense in the first six months of 2009, compared to $28 million of income in the first six months of 2008. Net losses on asset sales were $40 million ($39 million after-tax and minority or $0.16 per share) in the first six months of 2009, compared to net gains on asset sales of $37 million ($34 million after-tax and minority or $0.14 per share) in the first six months of 2008, primarily related to the sale of certain properties in Akron, Ohio in 2009 and in Germany, Morocco, Argentina and New Zealand in 2008. Interest income decreased by $40 million primarily due to lower average cash balances and interest rates in 2009 compared to the prior year. Financing fees decreased by $41 million due primarily to $43 million ($43 million after-tax and minority or $0.18 per share) of charges in 2008 related to the redemption of $650 million of senior secured notes due 2011, of which $33 million related to cash premiums paid on the redemption and $10 million related to the write-off of deferred financing fees and unamortized discount.
During the first six months of 2009, we recorded net foreign currency exchange losses of $7 million primarily as a result of the effects of changing exchange rates for various currencies against the euro and U.S. dollar. Net foreign currency exchange losses were partially offset by the strengthening Brazilian real and euro against the U.S. dollar. During the first six months of 2008, we incurred $2 million of net foreign currency exchange losses primarily as a result of the strengthening Mexican peso and Brazilian real, both against the U.S. dollar, partially offset by the weakening of the Turkish lira against both the U.S. dollar and euro.
For the first six months of 2009 we recorded a tax benefit of $35 million on a loss before income taxes of $636 million. The income tax benefit was impacted favorably by a second quarter benefit of $18 million ($19 million after minority interest or $0.08 per share) related primarily to the settlement of our 1997 through 2003 Competent Authority claim between the United States and Canada and by $10 million ($9 million after minority interest or $0.04 per share) during the first quarter primarily due to an enacted tax law change. The difference between our effective tax rate and the U.S. statutory rate was primarily attributable to continuing to maintain a full valuation allowance against our net Federal and state deferred tax assets. For the first six months of 2008, we recorded tax expense of $151 million on income before income taxes of $417 million.
Minority shareholders net (loss) income was $(47) million in the first six months of 2009, a decrease of $91 million compared to $44 million in the first six months of 2008. The decrease primarily relates to decreased earnings in our joint venture in Europe.
Rationalization Activity
During the first six months of 2009, $191 million ($150 million after-tax and minority or $0.62 per share) of net charges were recorded compared to net charges of $100 million ($95 million after-tax and minority or $0.39 per share) in the first six months of 2008. New charges of $198 million represent $176 million for plans initiated in 2009 and $22 million for plans initiated in 2008 and prior years. The 2009 plans were related to actions throughout the Company. North American Tire initiated

manufacturing headcount reductions at several facilities, including Union City, Tennessee, Danville, Virginia and Topeka, Kansas, to meet lower production demand. Additional salaried headcount reductions were initiated at our corporate offices in Akron, Ohio, North American Tire and throughout EMEA. We also initiated the discontinuation of consumer tire production at one of our facilities in Amiens, France. Finally, Latin American Tire initiated manufacturing headcount reductions at each of its two facilities in Brazil.
The savings realized in the first six months of 2009 totaled approximately $46 million ($27 million CGS and $19 million SAG).
SEGMENT INFORMATION
Segment information reflects our strategic business units ("SBUs"), which are organized to meet customer requirements and global competition. Our businesses are segmented on a regional basis.
Results of operations are measured based on net sales to unaffiliated customers and segment operating income. Segment operating income is computed as follows: Net Sales less CGS (excluding certain accelerated depreciation and asset impairment charges) and SAG (including certain allocated corporate administrative expenses).
The percentage change in tire units is calculated based on the actual number of units sold.
Total segment operating income was $24 million in the second quarter of 2009, decreasing from $330 million in the second quarter of 2008. Total segment operating margin (total segment operating income divided by segment sales) in the second quarter of 2009 was 0.6%, compared to 6.3% in the second quarter of 2008.
Total segment operating loss was $152 million in the first six months of 2009, compared to income of $697 million in the first six months of 2008. Total segment operating margin in the first six months of 2009 was (2.0)%, compared to 6.8% in the first six months of 2008.
Management believes that total segment operating income is useful because it represents the aggregate value of income created by our SBUs and excludes items not directly related to the SBUs for performance evaluation purposes. Total segment operating income is the sum of the individual SBUs' segment operating income. Refer to the Note 10, Business Segments, for further information and for a reconciliation of total segment operating income to (Loss) Income before Income Taxes.
North American Tire

                                      Three Months Ended                                          Six Months Ended
                                           June 30,                                                   June 30,
                                                                  Percent                                                    Percent
(In millions)          2009           2008          Change        Change          2009           2008          Change        Change
Tire Units              14.8           18.3          (3.5 )        (19.4 )%        28.7           36.1          (7.4 )        (20.7 )%
Net Sales            $ 1,687        $ 2,130        $ (443 )        (20.8 )%     $ 3,231        $ 4,127        $ (896 )        (21.7 )%
Operating (Loss)
Income                   (91 )           24          (115 )                        (280 )           56          (336 )
Operating Margin        (5.4 )%         1.1 %                                      (8.7 )%         1.4 %

Three Months Ended June 30, 2009 and 2008 North American Tire unit sales in the second quarter of 2009 decreased 3.5 million units or 19.4% from the 2008 period. The decrease was due to a decline in replacement tire volume of 0.5 million units or 3.3% in consumer and 13.0% in commercial, due to continuing recessionary economic conditions, and a decline in OE tire volume of 3.1 million units or 55.2%, primarily in our consumer business due to reduced vehicle production.
Net sales decreased $443 million or 20.8% in the second quarter of 2009 from the 2008 period due primarily to decreased tire volume of $268 million, lower sales in other tire-related businesses of $226 million, primarily due to a reduction in the volume and price of third party sales of chemical products, and unfavorable foreign currency translation of $14 million. These decreases were partially offset by favorable price and product mix of $66 million.

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