The Securities and Exchange Commission wants to spank Goodyear over an accounting scandal, yet it's probably good news for the tire maker.
On the face of it, the official notice to Goodyear that the staff of the SEC plans to recommend civil or administrative action against the company and two former financial executives doesn't sound good. It could mean the firm will face fines because it overstated its earnings by $280 million in a period beginning in 1998.
Goodyear now gets its shot at responding to the SEC recommendation. In the end, the company could face no fines, miniscule fines or big fines, as well as a couple dozen shareholder lawsuits. Whatever the outcome, the cost is nothing the manufacturer can't weather.
The scandal broke at about the worst possible time for Goodyear. The company was wallowing in red ink, trying to reorganize its debt, fighting to hold market share. About the last thing it needed was an Enron/World-com/Haliburton-type accounting scandal.
It never came near those proportions, however. The company blamed the problem on bugs in a computer accounting system it had installed. And there seemed to be some book-cooking going on in Europe, for which some senior managersùnever namedùwere disciplined.
When the accounting scandal was disclosed, Wall Street frowned on the restatement and punished Goodyear with a drop in its stock value. The latest news took Goodyear's shares down 3.4 percent, not good, but not stunning.
The Goodyear today is vastly different from the Goodyear of the era when the inflated earnings were reported. Operationally, the company has turned the corner, reporting net profits for five consecutive quarters. Under the leadership of outsider Robert Keegan, the firm's North American Tire division has pulled out of the red; a contract with the union has assured labor peace; long-term debt has been refinanced; and successful product introductions have taken place.
There are many reasonsùenormous debt being the foremostùthat keep Goodyear on the critical list. But for the most part, it has overcome a series of lingering problems and mistakes. Concluding the SEC/restatement issue will help the firm distance itself from a troubled past and move on to a more promising future.