• Our net sales and tire unit sales increased compared to the second quarter of 2009;

• We completed a new four-year master labor contract with the United Steelworkers ("USW"); and

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

On September 18, 2009, members of the USW ratified a new four-year master labor contract with Goodyear. The new contract enhances the competitiveness of our USW-represented tire plants through improvements in productivity, wage and benefit savings and added flexibility. These changes are expected to provide us with cost savings of approximately $215 million over the term of the contract. Combined with savings realized through pre-bargain agreements to reduce staffing levels at five U.S. plants, we expect to realize approximately $555 million in total savings over the term of the agreements.
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 nine months of 2009, we achieved our full year goal and

introduced 57 new products, such as the Assurance FuelMax in North America and the EfficientGrip tire with Fuel Saving Technology in Europe, including 15 new product introductions in the third quarter of 2009;

• 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 $195 million of cost savings in the third quarter of 2009 and total savings over the life of the plan of nearly $2.3 billion. In association with this plan, we had personnel reductions of approximately 5,800 people in the first nine months of 2009, including 300 in the third quarter. We achieved the personnel reduction target of 5,000 people that we announced in February 2009 in the second quarter;

• reducing manufacturing capacity by 15 million to 25 million units by February 2011. We have announced planned manufacturing capacity reductions of approximately 8 million units in the first nine months of 2009 (including the discontinuation of consumer tire production at one of our facilities in Amiens, France and the closing of our Las Pinas, Philippines plant);

• reducing inventory levels by over $500 million by the end of 2009 compared with 2008. We exceeded this goal in the second quarter of 2009 and have reduced inventories by $1,049 million from December 31, 2008 to September 30, 2009, including $366 million in the third quarter of 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 nine 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 exceeded 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 third quarter of 2009 compared to the third quarter of 2008 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 impact our performance in the fourth quarter of 2009. While the economic and industry environment make it difficult to provide a clear outlook for the industry, we expect demand in the fourth quarter to be down modestly from the third quarter of 2009. However, we expect that seasonal trends resulting in lower unit sales, reduced activity in our other tire-related businesses, higher raw material costs, under-absorbed fixed costs associated with unfavorable mix between commercial and consumer, and the timing of recognition of manufacturing costs resulting from third quarter production cuts could adversely impact the results of our North American Tire segment in the fourth quarter of 2009 compared to the third quarter of 2009.
We expect raw material costs to decline by 20% to 25% in the fourth quarter of 2009 from the comparable 2008 period.

decreased by $9 million due primarily to lower average interest rates in 2009 compared to the prior year. We liquidated our subsidiary in Guatemala in the third quarter of 2009 and recognized a loss of $18 million ($18 million after-tax and minority or $0.08 per share) primarily due to the recognition of accumulated foreign currency translation losses. The 2008 period also included expense of $5 million ($5 million after-tax and minority or $0.02 per share) related to the exit of our Moroccan business.
For the third quarter of 2009, we recorded tax expense of $38 million on income before income taxes of $140 million. For the third quarter of 2008, we recorded tax expense of $66 million on income before income taxes of $118 million. Our income tax expense or benefit is allocated among operations and items charged or credited directly to shareholders' equity. Pursuant to this allocation requirement, for the three months ended September 30, 2009, a $28 million ($0.11 per share) non-cash tax benefit has been allocated to the loss from our U.S. operations, with offsetting tax expense allocated to items, primarily attributable to employee benefits, charged directly to shareholders' equity. This allocation requirement may continue to create significant non-cash volatility in our tax expense from operations. Income tax expense for the third quarter of 2009 was also impacted unfavorably by a charge of $6 million after minority ($0.03 per share), related to various discrete adjustments. Included in tax expense for the third quarter of 2008 was a net tax charge for discrete items of $10 million ($6 million net of minority or $0.02 per share), related primarily to tax return adjustments for our German operations.
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.
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 $30 million.
Minority shareholders' net income was $30 million in the third quarter of 2009, an increase of $9 million compared to $21 million in the third quarter of 2008. The increase primarily relates to an adjustment of $9 million ($0.04 per share) to correct minority shareholders' net income (loss) and Goodyear net income (loss) for the six months ended June 30, 2009. Of this amount, $1 million ($0.01 per share) related to the first quarter of 2009 and $8 million ($0.03 per share) related to the second quarter of 2009. There was no impact to Goodyear net income (loss) and to minority shareholders' net income (loss) for the nine months ended September 30, 2009.
Nine Months Ended September 30, 2009 and 2008 Net sales in the first nine months of 2009 were $11,864 million, decreasing $3,489 million, or 22.7%, from $15,353 million in the first nine months of 2008. Goodyear net loss was $482 million, or $2.00 per share, in the first nine months of 2009, compared to Goodyear net income of $253 million, or $1.04 per share, in the first nine months of 2008.
Net sales in the first nine months of 2009 were unfavorably impacted by decreased tire volume of $1,717 million, primarily in North American Tire and EMEA, foreign currency translation of $1,011 million, primarily in EMEA, and a decrease in other tire-related businesses sales of $828 million, primarily in North American Tire's third party sales of chemical products. These were partially offset by improved price and product mix of $64 million, mainly in North American Tire.
Worldwide tire unit sales in the first nine months of 2009 were 123.4 million units, a decrease of 20.6 million units, or 14.3%, compared to the 2008 period. Replacement tire volume decreased 8.1 million units, or 7.8%, due to recessionary economic conditions in many parts of the world. OE tire volume also decreased 12.5 million units, or 31.0%, 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 nine months of 2009 was $10,095 million, a decrease of $2,378 million, or 19.1%, compared to $12,473 million in the first nine months of 2008. CGS in the first nine months of 2009 decreased due to lower tire volume of $1,385 million, primarily in North American Tire and EMEA, foreign currency translation of $861 million, primarily in EMEA, lower costs in other tire-related businesses of $687 million, primarily in North American Tire's cost of chemical products, and product mix-related manufacturing cost decreases of $211 million. CGS also benefited from savings from

rationalization plans of approximately $57 million. Partially offsetting these decreases were increased conversion costs of $597 million and higher raw material costs of $243 million. The higher conversion costs were caused primarily by under-absorbed fixed overhead costs of approximately $514 million due to lower production volume. The first nine months of 2009 included asset write-offs and accelerated depreciation of $40 million ($35 million after-tax and minority or $0.15 per share), compared to $17 million ($17 million after-tax and minority or $0.07 per share) in the 2008 period and 2009 expenses of $5 million ($5 million after-tax and minority or $0.02 per share) related to our new labor contract with the USW. CGS as a percentage of sales increased to 85.1% in the first nine months of 2009, compared to 81.2% in the 2008 period.
SAG was $1,764 million in the first nine months of 2009, compared to $1,997 million in 2008, a decrease of $233 million or 11.7%. The decrease in SAG primarily was driven by favorable foreign currency translation of $149 million, lower advertising expenses of $50 million and savings from rationalization plans of $30 million. SAG as a percentage of sales increased to 14.9% in the first nine months of 2009, compared to 13.0% in the 2008 period.
Rationalizations included net charges of $207 million ($165 million after-tax and minority or $0.68 per share) in the first nine months of 2009 compared to net charges of $134 million ($128 million after-tax and minority or $0.53 per share) in the first nine months of 2008. New charges of $221 million represent $188 million for plans initiated in 2009 and $33 million for plans initiated in 2008 and prior years. 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, in 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. Upon completion of the 2009 plans, we estimate that annual operating costs will be reduced by approximately $250 million ($210 million CGS and $40 million SAG). The savings realized in the first nine months of 2009 totaled approximately $87 million ($57 million CGS and $30 million SAG).
Interest expense was $228 million in the first nine months of 2009, a decrease of $10 million compared to $238 million in the first nine months of 2008. The decrease related primarily to lower weighted average interest rates in the first nine months of 2009 compared to the first nine months of 2008 partially offset by higher average debt levels.
Other (Income) and Expense was $66 million of expense in the first nine months of 2009, compared to $24 million of income in the first nine months of 2008. Net losses on asset sales were $33 million ($32 million after-tax and minority or $0.13 per share) in the first nine months of 2009, compared to net gains on asset sales of $41 million ($37 million after-tax and minority or $0.15 per share) in the first nine months of 2008, primarily related to the sale of certain properties in Akron, Ohio, Luxembourg and Australia in 2009 and in England, Germany, Morocco, Argentina and New Zealand in 2008. Interest income decreased by $49 million primarily due to lower average cash balances and interest rates in 2009 compared to the prior year. Financing fees decreased by $42 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. We liquidated our subsidiary in Guatemala in 2009 and recognized a loss of $18 million ($18 million after-tax and minority or $0.08 per share) primarily due to the recognition of accumulated foreign currency translation losses.
For the first nine months of 2009 we recorded tax expense of $3 million on a loss before income taxes of $496 million. For the first nine months of 2008, we recorded tax expense of $217 million on income before income taxes of $535 million. Our income tax expense or benefit is allocated among operations and items charged or credited directly to shareholders' equity. Pursuant to this allocation requirement, for the nine months ended September 30, 2009, a $36 million ($0.15 per share) non-cash tax benefit has been allocated to the loss from our U.S. operations, with offsetting tax expense allocated to items, primarily attributable to employee benefits, charged directly to shareholders' equity. Income tax expense for the first nine months of 2009 also was impacted favorably by $21 million ($22 million net of minority or $0.09 per share) primarily related to a second quarter benefit resulting from the settlement of our 1997 through 2003 Competent Authority claim between the United States and Canada. Included in tax expense for the first nine months of 2008 was a net tax charge for discrete items of $10 million ($6 million net of minority or $0.02 per share), related primarily to return-related adjustments for our German operations.
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.

Minority shareholders net loss was $17 million in the first nine months of 2009, a decrease of $82 million compared to net income of $65 million in the first nine months of 2008. The decrease primarily relates to decreased earnings in our joint venture in Europe.
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 includes transfers to other SBUs. Segment operating income is computed as follows: Net Sales less CGS (excluding asset write-off and accelerated depreciation charges) and SAG (including certain allocated corporate administrative expenses). Segment operating income also includes equity in earnings of most affiliates. Segment operating income does not include rationalization charges (credits), asset sales and certain other items.
The percentage change in tire units is calculated based on the actual number of units sold.
Total segment operating income was $275 million in the third quarter of 2009, increasing from $266 million in the third quarter of 2008. Total segment operating margin (total segment operating income divided by segment sales) in the third quarter of 2009 was 6.3%, compared to 5.1% in the third quarter of 2008.
In the first nine months of 2009, total segment operating income was $123 million, decreasing from $963 million in the first nine months of 2008. Total segment operating margin in the first nine months of 2009 was 1.0%, compared to 6.3% in 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 SBU performance. Total segment operating income is the sum of the individual SBUs' segment operating income. Refer to Note 10, Business Segments, for further information and for a reconciliation of total segment operating income to Income (Loss) before Income Taxes. North American Tire

                                      Three Months Ended                                           Nine Months Ended
                                         September 30,                                               September 30,
                                                                  Percent                                                      Percent
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