Goodyear Tire & Rubber Co. restated earnings by $84.7 million for periods going back as far as 1998, and announced that the Securities and Exchange Commission has launched an informal inquiry into the company's revisions.
Last month the company announced that it would restate its earnings back to 1998, primarily due to the implementation of an enterprise resource planning (ERP) system in 1999 and errors in intercompany billing systems.
"During the third quarter of 2003, the company identified additional adjustments arising from the account reconciliations and was advised by its independent accountants, PricewaterhouseCoopers LLP, that these issues resulted in a material weakness in internal controls that required strengthening procedures for account reconciliation, internal reporting and monitoring," the company said on Thursday.
Goodyear said that the restatements can be broken down into four categories:
Account reconciliations that include items previously not identified or recorded, resulting from the failure to either reconcile accounts or to resolve certain reconciliation issues in a timely manner. The most significant adjustments in this category relate to certain reconciliations for accounts receivable, inventories, fixed assets, intercompany accounts, prepaid expenses, and accounts payables-trade.
These adjustments were associated with the integration of a new ERP system into the company's accounting processes beginning in 1999, and resulted in a decrease to income before tax of $89.2 million.
Out-of-period adjustments that include items previously identified but deemed to be immaterial and items recorded in the period in which management identified the error or in a subsequent period. These adjustments change the timing of income and expense items that were previously recognized. The result was a decrease to income before tax of $1.4 million.
Chemical Products segment amounts include those identified as a result of a stand-alone audit of a portion of the Chemical Products business segment. In connection with the restatement, the amounts that were previously recorded in 2002 but that related to years prior to 2002 were reflected in the appropriate periods.
The most significant adjustments in this category relate to the timing of the recognition of the actual cost of inventories and the fair-value adjustment of a hedge for natural gas.
Tax adjustments include an additional federal and state valuation allowance of $30.2 million, which was required to be recognized in 2002, the period in which the company previously provided for its valuation adjustments, as a result of the restatement adjustments. The remaining amounts relate to the correction of errors in the computation of deferred tax assets and liabilities.
Goodyear stated that its audit committee commissioned an independent investigation by an outside law firm, which resulted in no finding of fraud or intentional misconduct relating to the account reconciliation issues that led to the restatement. The company added that it is cooperating fully with the SEC and has provided requested information as expeditiously as possible.
SEC Adopts New Rules for Nominating Committees
The Securities and Exchange Commission has adopted new rules intended to improve disclosure about the nominating committee processes of public companies and the ways investors may communicate with company directors.
The new standards require companies to disclose:
- Whether they have a separate nominating committee, or the reasons why they don't, and who determines nominees for director.
- Whether members of the nominating committee satisfy independence requirements.
- Their process for identifying and evaluating candidates to be nominated as directors.
- Whether they pay a third party to assist in the process of identifying and evaluating candidates.
- Minimum qualifications and standards that companies seek for director nominees.
- Whether they consider candidates for director nominees recommended by shareholders and, if so, the process for considering them.
- Whether a company has rejected candidates put forward by large, long-term investors or groups of investors.
The new disclosure standards also require companies to disclose significant, new information regarding shareholder communications with directors, including:
- Whether companies have a process for communications by shareholders to directors, or the reasons why they don't.
- The procedures for those communications.
- Whether such communications are screened and, if so, by what process.
- The company's policy regarding director attendance at annual meetings and the number of directors that attended the prior year's annual meeting.
The new rules go into effect 30 days after their publication in the Federal Register.
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