It didn't take long for law firms to come out of the woodwork following Goodyear Tire & Rubber Co.'s announcement that accounting errors will force it to restate five years of financial results.
The adjustments, for fiscal years 1998-2002, are expected to decrease net income over the restatement period by up to $100 million, according to Goodyear, which made the announcement on Thursday.
Three firms have filed class action lawsuits in the United States District Court for the Northern District of Ohio. Two of the law firms -- Schiffrin & Barroway LLP, based in Bala Cynwyd, Pa., and Cauley Geller Bowman & Rudman LLP, based in Little Rock, Ark. -- filed for damages on behalf of anyone who purchased Goodyear common stock at any time from Oct. 22, 1998, through Oct. 22, 2003.
The third, Scott + Scott LLC, a law firm based in Colchester, Conn., filed a securities fraud class action suit in the same court against not only Goodyear but also Sam Gibara, former chairman, CEO and president; Bob Tieken, executive vice president and CFO; Bob Keegan, chairman, CEO and president; and Stephaine Bergeron, senior vice president, corporate financial operations. The suit was filed on behalf of those persons purchasing stock between March 26, 1999, and October 23, 2003.
Both Schiffrin & Barroway and Cauley Geller Bowman & Rudman sent out press releases with the complaint worded in exactly the same way. Here is what they alleged.
"The Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between October 22, 1998 and October 22, 2003, thereby artificially inflating the price of Goodyear's publicly traded securities.
"The Complaint alleges the statements were materially false and misleading because they failed to disclose and/or misrepresented the following adverse facts, among others: (1) that the company's implantation of an enterprise resource planning accounting system in 1999 caused Goodyear to materially overstate its net income and earnings by up to $100 million; (2) that the company's financial statements were not prepared in accordance with Generally Accepted Accounting Principles ("GAAP"); (3) that the company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the company; and (4) that as a result, the value of the company's net income and financial results were materially overstated at all relevant times."
Goodyear says the implementation of an enterprise resource planning accounting system in 1999 and errors in its inter-company billing systems are the primary causes of the accounting errors. They were found principally within the company's North American Tire and Engineered Products business units.
First- and second-quarter results for 2003 also will be affected, although the company said it expects the adjustments to improve its results because certain charges previously recognized during the first half now will be reflected in the restatement for prior years.
Goodyear also anticipates a reduction in shareholders' equity (as of June 30, 2003) of up to $120 million, $20 million of which relates to periods prior to 1998.
