AKRON, Ohio (Aug. 22, 2008) — The Voluntary Employees' Beneficiary Association trust proposed by Goodyear and the United Steelworkers union has been approved by U.S. District Court Judge John R. Adams, the tire maker announced Aug. 22.
Under the terms of the settlement agreement, Goodyear will make a $1 billion cash contribution to the VEBA, which will provide health care benefits to the company's current and future USW retirees. The one-time contribution will be made initially from existing cash reserves and available credit lines, the Akron-based firm said.
Gaining court approval for the VEBA is a “win-win” for Goodyear and its USW employees and retirees, company Chairman Robert J. Keegan said. “This agreement both protects retiree benefits for years to come and removes a significant legacy obligation from our North American business,” he said.
Goodyear's obligations for providing USW retiree health care will be transferred to the VEBA. Creation of the VEBA will result in annual legacy cost savings of about $100 million a year and an approximate $130 million annual improvement in cash flow for the company compared to 2007.
Once the required legal process is complete, Goodyear will eliminate about $1.2 billion of liabilities for current and future post-employment health care benefits from its balance sheet, the company said. The tire maker expects no significant gain or loss at settlement.
It is anticipated that the legal process will be complete by the end of the third quarter of 2008 provided no appeals are filed. Savings attributable to the agreement are expected to begin impacting Goodyear's results in the fourth quarter of 2008.
The VEBA settlement reflects the terms of the agreement made between Goodyear and the USW during their 2006 contract negotiations. More than 12,000 workers at 16 unionized Goodyear plants had gone on strike in October 2006 and stayed out for 86 days.