Goodyear Tire & Rubber (GT) must overcome $3.7 billion in underfunded pensions plus $6.3 billion in debt ($1.1 billion of which is off-balance sheet) before investors could see any upside. Somewhat aggressive accounting for its "U.S." and "Non-U.S. Pensions" and "Other Post-Retirement Benefit" plans ("pensions") understates the gravity of pensions in the company's reported earnings. However, Goodyear has been very forthright in discussing the cash flow implications of its underfunded pensions.
Contrary to Delta Airlines (DAL) and other firms we contacted, Goodyear's IR department was quite willing to answer my questions about its pensions liabilities. (More on DAL's looming pensions issues.) The company's stated plans to pay down its off-balance sheet liabilities depend on a fairly positive long-term economic outlook.
I think management at Goodyear is well aware of its off-balance sheet issues and is taking steps to address them. However, if business headwinds persist, it simply may not have the cash flow required to overcome the pension liabilities. If business does not remain buoyant, I think Goodyear's earnings estimates will have to be lowered to reflect the looming pension liabilities.
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