TOKYO - U.S. tiremaker Firestone will take a $1.61 billion special charge in 2001 and will need a $1.3 billion injection from Japanese parent Bridgestone Corp. to overcome huge debts following its massive tire recalls, Bridgestone said Tuesday.
But Bridgestone said a restructuring at embattled Firestone announced Monday would bring tax benefits that could cushion some of the pain, adding that it expected its group net earnings for calendar 2001 to be 80 percent higher than earlier forecast.
"The capital infusion will help reduce a part of Firestone's interest-bearing debt and fortify the company's financial position," Bridgestone President Shigeo Watanabe said.
The U.S. unit, Bridgestone/Firestone Americas Holding Inc., hit by a $570 million extraordinary loss in the first half, is expected to take an additional charge of $285 million for lawsuits in the second half, Bridgestone said. That is expected to result in a net loss of $1.66 billion for the year.
On Monday, Firestone unveiled a corporate structure to pare back its long-term financing rates and focus more on its core business as it wades through a sea of lawsuits linked to deadly accidents involving its tires and Ford Explorer vehicles.
Federal regulators have linked Firestone tires and Ford Motor Co. Explorers to 271 deaths and more than 800 injuries from rollover accidents. A class-action lawsuit against Firestone for non-injury claims was certified last week.
Bridgestone forecast its group net profit would be 18 billion yen ($145 million) for 2001, up from an August forecast of 10 billion yen and barely changed from net earnings of 17.7 billion yen last year.
But it revised down group current profit, which is before tax and extraordinary items, by 28 percent to 76 billion yen -- a 39 percent drop from 2000.
"We have seen an impact on sales following our voluntary product recall and the attacks on the United States in September," Watanabe said in a news conference.
Firestone estimated it will have 2001 sales of $7.4 billion, down from $7.5 billion a year earlier.
As part of the U.S. restructuring, Bridgestone transferred its Firestone shares to a new U.S. holding company, a move that delivered a hefty tax benefit, Bridgestone said.
Bridgestone/Firestone's special loss also includes loss of $675 million to write down assets, a $50 million charge to close its Decatur, Illinois plant and $25 million for its tire replacement program, the Japanese parent said.
Bridgestone shares fell as much as 3.5 percent on the gloomier outlook for U.S. sales before recovering to close down 0.38 percent at 1,301 yen. The benchmark Nikkei average ended up 0.79 percent.
Firestone back in black?
Watanabe said reorganization and charges taken by Firestone, along with the capital injection from Bridgestone, would bring about a quicker-than-expected turnaround and put Firestone in the black for the 2002 calendar year after two years of losses.
Michael Gorey, vice president and controller of Bridgestone/Firestone, said the charges were aimed at strengthening Firestone's position. "While we are extremely disappointed that our company has incurred these losses, we know that taking these one-time charges this year puts us squarely on the road to recovery for 2002," Gorey said in a statement.
Watanabe had previously said Firestone would return to profitability in the second half of 2002.
"The company has become a leaner, more efficient organization, and the provisions for litigation-related costs have cleared away doubts about contingent liabilities," he said.
Bridgestone will use the $1.3 billion capital injection to cut Firestone's interest-bearing debt to $1.4 billion from the current $2.7 billion, the company said.
But the restructuring is not expected to have any impact on the various lawsuits Firestone faces because of tread separation on its tires, mostly on Ford's best-selling Explorer sport-utility, a Firestone official said.
Ford and Firestone have blamed each other for the accidents, and the acrimony led Firestone to sever the companies' nearly 100-year-old relationship earlier this year.
But speculation of a mending in ties has swirled since William Clay Ford Jr. took over the reins of Ford Motor in October, with the two companies holding high-level talks in November.
Watanabe on Tuesday would not comment on the substance of the company's contacts with Ford, but said Bridgestone had no reason to not respond if Ford was willing to negotiate.
Additional reporting by Akiko Mori, Yuka Obayashi in Tokyo and Karen Padley in Chicago.