Contingent liabilities

Twelve purported consumer commercial class actions (one of which consolidates five previous actions) are presently pending against the Company in various state and federal courts. . . In the purported class actions, the named plaintiffs are requesting. . . various forms of monetary relief, including punitive damages, as a result of the Company’s having manufactured and sold allegedly defective Steel Belted Radial 500 and other steel belted radial passenger tires.

. . . In addition to the class actions, there are several thousand individual claims pending against the Company for damages allegedly connected with steel belted radial passenger tires. . .

. . . The Company is a defendant in a purported class action which seeks, among other things, recovery for losses by stockholders who purchased the Company’s common stock between December 1975 and July 1978 by reason of the decline in market price for such stock alleged to result from the Company’s alleged failure to make proper disclosure of, among other things, the steel belted radial passenger tire situation.

In March 1979, the United States brought an action seeking recovery against the Company in the amount of approximately $62 million by reason of alleged illegal gold trading activity in Switzerland.

Following a federal grand jury investigation into the Company’s incomes taxes, the Company entered into a plea agreement in July 1979 under which the Company pleaded guilty to two counts charging the inclusion in its taxable income for 1972 and 1973 amounts that had been generated in prior years: the courts imposed a total fine of ten thousand dollars on the Company by reason of its plea. A civil tax audit by the Internal Revenue Service is currently in progress covering some of the same matters investigated by the grand jury as well as other matters. The government may assess substantial tax, interest and penalties in connection with the matters under investigation.

The Securities and Exchange Commission is conducting an investigation of the adequacy of the Company’s disclosures in earlier years concerning the Steel Belted Radial 500 tire. . .

. . . The Company has various other contingent liabilities, some of which are for substantial amounts, arising out of suits, investigations and claims related to other aspects of the conduct of its business. . .

. . . Increased uncertainties have developed during the past year with regard to some of the contingencies identified in this note. Because of the existing uncertainties, the eventual outcome of these contingencies cannot be predicted, and the ultimate liability with respect to them cannot be reasonably estimated. Since the minimum potential liability for a substantial portion of the claims and suits described in this note cannot be reasonably estimated, no liability for them has been recorded in the financial statements. Management believes, however, that the disposition of these contingencies could well be very costly. Although the Company’s management, including its General Counsel, believes it is unlikely that the ultimate outcome of these contingencies will have a material adverse effect on the Company’s consolidated financial position, such a consequence is possible if substantial punitive or other damages are awarded in one or more of the cases involved.

Report of independent certified public accountants

To the Stockholders and Board of Directors,

The Firestone Tire & Rubber Company:

We have examined the balance sheets of The Firestone Tire & Rubber Company and consolidated subsidiaries at October 31, 1979 and 1978, and the related statements of income, stockholders’ equity, and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

As set forth in Note 16 to the financial statements, the Company is a party to various legal and other actions. These actions claim substantial amounts as a result of alleged tire defects and other matters. The ultimate liability resulting from these matters cannot be reasonably estimated. In our report dated December 18, 1978, our opinion on the financial statements for the year ended October 31, 1978, was unqualified. However, due to the increased uncertainties that developed during the year ended October 31, 1979, with respect to these matters, our present opinion on the financial statements for the year ended October 31, 1978, as presented herein, is different from that expressed in our previous report.

In our opinion, subject to the effects on the financial statements of adjustments that might have been required had the outcome of the matters referred to in the preceding paragraph been known, the financial statements referred to above present fairly the financial position of The Firestone Tire & Rubber Company and consolidated subsidiaries at October 31, 1979 and 1978, and the results of their operations and the changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.