IE 11 is not supported. For an optimal experience visit our site on another browser.

Goodyear shares drop on accounting woes

The Akron, Ohio-based company said late Wednesday it will not be able to file an amended 2002 annual report until a review is complete, forcing it to miss a year-end deadline for raising new capital.
/ Source: Reuters

Shares of Goodyear Tire & Rubber Co. fell 5 percent on Thursday after North America's top tire maker reported it had found more accounting problems, this time in Europe.

The Akron, Ohio-based company said late Wednesday it will not be able to file an amended 2002 annual report until a review is complete, forcing it to miss a year-end deadline for raising new capital.

Goodyear is required to sell $250 million in debt and $75 million in equity under the terms of its new three-year labor contract with the United Steelworkers of America. The union has the right to strike otherwise.

The USWA said Wednesday it plans to monitor the situation and won't act "precipitously."

Analysts said a strike is unlikely.

"No issue here," wrote UBS analyst Saul Rubin in a research note. "The union is aware a strike could have a very damaging impact on the company."

Analysts said the bigger issue is that Goodyear's delay means it will miss an opportunity to sell debt to a receptive market. The high-yield market has done well recently as signs of economic growth have prompted investors to get back in that market.

"Even if the current review has few material financial consequences, there is no certainty that the window of opportunity to do a deal will remain open for much longer," Rubin wrote.

Scott Lee, a debt analyst with Fitch Ratings, said the company may get a second chance to sell the debt, but may have to pay investors a higher interest rate as a result.

"There's just been a litany of things that keeps their tires spinning in place," he said of Goodyear.

Lee and others noted the latest disclosure of accounting problems, following an announcement in October, hurts investor confidence. Goodyear is restating results for periods dating back to 1998 because of mistakes made in North America when it switched to a computerized accounting system in 1999.

"While we would estimate the magnitude of this new problem to be much less than the $89 million already discovered in North America, it exacerbates the lack of confidence one has in the numbers this company has reported," wrote Saul Ludwig, an analyst with McDonald Investments.

Ludwig, who lowered his rating on Goodyear to "underweight" from "hold" on Thursday, said the delay in filing an amended 2002 annual report may affect how soon Goodyear can report fourth-quarter results and file an annual report for 2003.

"At this point, we do not know if a 2003 10K will be required before commencing the capital raising endeavors," he wrote.

Ludwig said the company remains in a difficult position despite plant restructuring, layoffs, benefit changes and other money-saving moves.

"Goodyear will likely be a consumer of cash next year as capital spending, severance payments, working capital and pension payments exceed net income and depreciation," he wrote.

Rubin said he believes the company needs to tap the capital markets soon in order to run operations effectively. The analyst, who recently upgraded Goodyear on the premise that a sizable bond offering would give it a boost, said his rating and price target are under review.

The company's shares were down 38 cents or 5.2 percent at $6.98 on the New York Stock Exchange near midday on Thursday. The stock had fallen 12 percent initially, to a low of $6.48.