Venezuela's recent decision to devalue its currency and implement a two-tier exchange rate structure could force Goodyear to take a charge against earnings in the first quarter of as much as $150 million.
Venezuela on Jan. 8 devalued its currency, the bolivar fuerte, to 4.3 per U.S. dollar from 2.15, Goodyear said, except for goods deemed by the government as essential, which carry a rate of 2.6 per dollar.
Some tires and raw materials that Goodyear imports into the country have been classified as essential while others have not, the Akron-based company said.
The charge, equal to 62 cents a share, is related to a remeasurement of the firm's balance sheet, net of tax, Goodyear said. The company had roughly $370 million in cash on hand at year-end in Venezuela denominated in bolivar fuerte.
Depending on what goods are classified as essential, the charge may be less, Goodyear said.
The devaluation and management's ability to deal with it will impact C.A. Goodyear de Venezuela's operations going forward, as will additional actions by the Venezuelan government, economic conditions theresuch as inflation and consumer spendingand the availability of raw materials, utilities and energy, Goodyear said.
We have a strong business in Venezuela with an outstanding and experienced leadership team that is focused on managing through the changes taking place in the Venezuelan market, said Goodyear Chairman and CEO Robert Keegan.
Separately, Venezuela was recently designated hyper-inflationary effective Jan. 1, and as a result all its future foreign currency fluctuations will be recorded in income, Goodyear said.
C.A. Goodyear de Venezuela operates a passenger and light truck tire plant in Valencia, with 500 employees. Sales for the company are not available, but Goodyear was on track to report about $1.7 billion in sales in Latin America in 2009, based on the firm's financials through nine months.
The Valencia plant is one of six factories Goodyear operates in South America, which were on track though nine months to produce about 19 million units last year.
Bridgestone Corp. and Pirelli & C. S.p.A. also have tire manufacturing subsidiaries in Venezuela that potentially could be impacted. A spokesperson for Bridgestone Americas Inc. said it's too soon to say what effect the changes will have on its subsidiary there, Bridgestone Venezolana C.A., while Pirelli said it doesn't comment on the financial affairs of individual subsidiaries.
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