in october 1978 a provision for tire recall of 234 0 million 147 4 million after inc 600800

Provision for tire recall and related costs

In October 1978, a provision for tire recall of $234.0 million ($147.4 million after income taxes) was charged against income. The provision represented management’s estimate of the cost of fulfilling the company’s obligations under the agreement with the National Highway Traffic Safety Administration and the Company’s program of cash refunds to those customers who had received an adjustment on tires that would otherwise have been subject to recall and free replacement.

In October 1979, based on experience to date and anticipated future charges, the 1978 provision was reduced. Management also determined that the provision should be broadened to include $30.8 million of other related costs which were not considered for inclusion in the original provision. The net effect of the above was to reduce the provision by $46.9 million, for which no provision for income taxes was required because of the use of 1978 foreign tax credits of $20.8 million.

It should be recognized that the number of tires still to be returned and the other costs yet to be incurred may vary from management’s estimates. Any additional adjustments required by such variance will be reflected in income in the future.

The activity in the accrued liability for tire recall and related costs for 1979 and 1978 follows: