Because it likely won't have the profits necessary to qualify for certain tax credits, Goodyear on March 17 announced a non-cash charge of $1.1 billion, or $6.17 a share, for the fourth quarter 2002.
In addition to the charge, the Akron-based tire maker will reduce its shareholders' equity for 2002 by $1.3 billion to reflect an increase in its unfunded pension benefit obligations. In a statement, the tire maker said the reduction brought its net worth below the level required in its bank loan agreements. However, Goodyear's lenders have waived those covenants until April 4 as the tire maker tries to restructure, refinance and extend its loan agreements.
A Goodyear spokesman said the tire maker has not offered any guidance for its fourth-quarter and year-end 2002 earnings, which will be released once the talks with its lenders are complete. But before the March 17 announcement, analysts were expecting a 3-cent per-share loss for the fourth quarter and year. For the fourth quarter in 2001, Goodyear lost $44.5 million in its North American tire operations.
Goodyear said no cash is involved in the $1.1 billion charge, so the company is not expecting any operational impact.
``We do not believe this charge is a reflection of the long-term prospects of our business as we expect to accomplish a successful turnaround of our U.S. operations,'' said Robert W. Tieken, Goodyear's executive vice president and chief financial officer.
Goodyear's stock was trading at $4.17 per share by 3 p.m. March 18, up from the $4.07 it closed at on March 17.
Meanwhile, two investment agencies offered ratings for the $3.3 billion in credit facilities over which Goodyear is in discussions with its lenders.
Moody's Investors Service also downgraded the Akron-based tire maker's senior unsecured debt rating to B1 from Ba2. While that action gives the tire maker's lenders the right to terminate Goodyear's credit facilities, Goodyear said it does not expect lenders to exercise that right since they remain in discussions.
Goodyear also said it does not expect Moody's rating action to affect the availability of about $349 million in various European facilities, except for $105 million in its separate German program.
Moody's assigned a (P)Ba2 long-term debt rating to Goodyear's proposed senior secured credit facilities. S&P assigned ratings of BB+ and BB- for those facilities, though it affirmed the company's BB- corporate credit rating. Moody's said Goodyear's outlook is stable, while S&P said it is negative.
When the discussions with lenders are complete, Goodyear said it expects to have adequate liquidity to meet its financial obligations.
In an unrelated move meant to increase its financial flexibility, Goodyear is considering selling its chemical division and returning to its core business of tires. The division, which has annual sales of more than $750 million and employs about 1,400 workers, produces basic and high-performance polymers, antioxidants, latex and adhesive resins.