Bridgestone 2005 Annual Report Download

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Perpetual emotion
Annual report 2005

Table of contents

  • Page 1
    Perpetual emotion Annual report 2005

  • Page 2
    ... 70 72 73 Profile Sales by business segment and major products Financial highlights Message to our shareholders: Up another gear Review of operations Tires Japan The Americas Europe Other regions Diversified products Research and development (R&D) Corporate governance and compliance Corporate social...

  • Page 3
    ...the region-specific nature of tire usage, Bridgestone Group production and sales operations form a highly globalized network of companies focused on supplying local market needs. With over 123,000 employees, Bridgestone is a major employer in many parts of the world. Besides tires, which account for...

  • Page 4
    Bridgestone l The ultimate performance 02

  • Page 5
    ... summarized the company's mission as "serving society with superior quality." Supported by a wide-ranging and well-funded R&D program, Bridgestone's relentless pursuit of the highest quality has kept it at the forefront of innovation in tires and other rubber products. The development programs for...

  • Page 6
    ... of drivers and passengers. For instance, a structural design virtually eliminates the typical decline in grip over a tire's lifetime as it wears, while rubber foaming technology absorbs water on icy road surfaces resulting in a superior winter tires. Another area where Bridgestone is a leader is...

  • Page 7
    Bridgestone annual report 2005 05

  • Page 8
    ... core business, Bridgestone also develops and manufactures a diverse range of products based on advanced rubber and resin technologies. Originally an offshoot, the diversified products operations are now a major contributor to sales. Besides being the global leader in tires for earthmoving equipment...

  • Page 9
    Bridgestone annual report 2005 07

  • Page 10
    Bridgestone l Serving society with superior quality 08

  • Page 11
    ... golf and tennis goods. And Bridgestone is the leading bicycle brand in Japan. Bridgestone also sponsors various sports events such as the Bridgestone Open and the World Golf Championships Bridgestone Invitational at the Firestone Country Club in Akron, Ohio, U.S.A. Bridgestone annual report 2005...

  • Page 12
    Sales by business segment and major products Bridgestone Corporation and Subsidiaries Year ended December 31, 2005 20% 80% Tires Tires and Tubes For passenger cars, trucks, buses, construction and mining vehicles, commercial vehicles, agricultural machinery, aircraft, motorcycles and scooters, ...

  • Page 13
    ... goods • Golf balls • Golf clubs • Tennis shoes • Tennis rackets • Tennis balls • Golf swing diagnostic system Bicycles Other products Purebeta ceramic dummy wafers, holders, rings, heaters, electrodes and other items For semiconductor manufacturing Bridgestone annual report 2005...

  • Page 14
    ...able to debut with a report about a solid performance in 2005. Outlined below is a summary of the direction I plan to take as I guide Bridgestone over the next few years. Business review of 2005 In 2005 we benefited from higher demand for our products across Japan, the Americas, Europe and Asia. We...

  • Page 15
    ... with Ford Motor Company which resolved all financial claims between the two companies arising from Firestone's August 2000 voluntary safety recall and Ford's May 2001 tire replacement program. This drew a line under these problems, leaving our business in the Americas on a solid recovery track...

  • Page 16
    ... company. Building a dynamic and truly global management structure The tire business is a global industry with strong local characteristics, and this is true for both the original equipment and replacement tire markets. Our challenge today is to reform the management systems of the Bridgestone Group...

  • Page 17
    ... the importance of business strategy in our medium-term planning. Strategy formulation needs to incorporate the strategic vision of each division, and the plan needs to be reviewed on an annual basis. I believe that we can optimize management at the Bridgestone Group level better this way. Continued...

  • Page 18
    ... of rising raw material costs. Bridgestone worked to maximize sales momentum by introducing appealing new products worldwide, increasing marketing efforts and improving product mix. Strong demand in overseas markets also contributed to the sales growth. Japan Sales and operating income increased...

  • Page 19
    ..., Bridgestone Japan is poised for a successful 2006. The company plans to introduce a range of new tires to make the most of all market opportunities. While striving to maintain a high market share, Bridgestone aims to maximize profits through an improved product mix. Bridgestone annual report 2005...

  • Page 20
    ... the company's strategic distribution partners, which emphasize the Bridgestone and Firestone brands. Original equipment truck and bus tire sales increased due to the ongoing strength of the North American trucking industry. Toward the end of 2005, increased truck production was fuelled by "pre-buy...

  • Page 21
    ...with fleets and truck stops on the truck and bus side. BFNT's original equipment business is solid, and management has intentionally managed original equipment market share, focusing on fitments with an improved profit and product mix. Brand awareness of the Firestone brand is very high, with growth...

  • Page 22
    ... for Bridgestone brand tires. Constantly improving During the year, we invested in Technical Centre Rome (TCE) by expanding that facility through the addition of new testing machines and the latest tire building machinery in a pilot plant setting. The nearby New European Proving Ground was opened in...

  • Page 23
    ...our channel base in the replacement tire sector with increased numbers of company owned stores and expansion of the franchise networks, First Stop and Truckpoint. In the original equipment sector, BSEU worked to improve sales mix by introducing new products and expanding sales to large fleets. These...

  • Page 24
    ...market include enhancing the sales channel for replacement tires and introducing new products that exploit Bridgestone's competitive edge in technology and meet the demand growth. Bridgestone also seeks to expand its original equipment business in passenger car tires so as to establish a solid brand...

  • Page 25
    ... local research and development capabilities, Bridgestone also plans to establish a new proving ground in China, set to open in 2007. It will enable the swift production of original equipment and replacement tires for the Chinese market. This facility will also be utilized for local sales promotion...

  • Page 26
    ...Diversified products Bridgestone's diversified products segment consists of various products of the company's chemical and industrial business unit, the diversified products business of Bridgestone Americas, bicycles and sporting goods. In this segment, Bridgestone's operating income in fiscal 2005...

  • Page 27
    ... Bridgestone Americas The diversified products business in the Americas is made up primarily of roofing and building materials, industrial air springs, fibers and textiles, and synthetic rubber and polymers. Bridgestone Americas is the market leader in rubber roofing material, as well as air springs...

  • Page 28
    ... of new demand. These were complemented by sales promotion strategies to enhance spring demand, reinforce internet advertising and build a more sports oriented image. All three product strategies have developed in line with plans. Bridgestone released Angelino, the new safety-conscious bicycle for...

  • Page 29
    ... certain objectives to achieve in the coming year: to be number one in all price ranges of golf balls in Japan; to secure top market share in clubs in Japan; to boost profitability of sports supplies and expand into peripheral areas; to balance income and expenditure in the tennis business and work...

  • Page 30
    ... regional market needs. Major technical centers, including proving grounds, are located in Tokyo (Japan), Akron (USA) and Rome (Italy). Another major technical facility in Wuxi (China) is due to commence operations in mid-2006. Research and development expenditures for the Companies in 2005 totaled...

  • Page 31
    ..., a unique Bridgestone technology that has great potential in low-power rewritable electronic display modules, such as price tags. Research and development expenditure for the diversified products segment in 2005 totaled ¥14.2 billion ($121 million). Discussing possible new chemical products at the...

  • Page 32
    ...of its corporate social responsibility, these structures are reviewed and upgraded continually to aid mission fulfillment. Internal control mechanisms adopt a centralized structure based on regulations governing business policy administration and the extent of company and division duties. Separation...

  • Page 33
    ...force in Japan in April 2005. Privacy training and awareness programs are ongoing. General Meeting of Shareholders A Chief Risk-Management Officer, concurrently the Company's President, has ultimate responsibility for the Company's risk management system. A risk management committee answers directly...

  • Page 34
    ... (shareholders, customers, employees and local communities). The Companies must therefore aim to improve their performance from economic, social and environmental standpoints. Founders' philosophy In 2001, the Company formulated a new corporate philosophy known as "The Bridgestone Way" in...

  • Page 35
    ... are coordinated and managed on a regional basis in Japan, the Americas and Europe. The three regions hold an annual environmental conference to share information on eco-related topics and to discuss ways of accelerating the progress made at the global level. (2) Quality assurance activities The...

  • Page 36
    ... several in Europe and Africa, Brazil and China, running the campaign during 2005. In Japan, as part of its "tire safety project," the Company conducted safety education activities on "tire day" on April 8, 2006, for the third consecutive year. Also in the United States, Bridgestone Americas has...

  • Page 37
    ...) for use on emergency doctors' vehicles. Not only did this smooth the way for doctors heading to traffic accidents in areas requiring winter tires, it also contributed to the efforts to save the lives of many injured people. Other regions The Bekasi Plant in Indonesia is home to a technology-based...

  • Page 38
    ...% from Europe. An economic downturn in any of these regions could exert a significant adverse effect on the business results and financial position of the Companies. The core tire business accounts for approximately 80% of the Companies' net sales. In addition, operations in the diversified products...

  • Page 39
    ...financial position of the Companies. Management strives to minimize the risk of labor unrest by fostering good labor-management relations throughout global operations. Corporate and brand image The Companies strive to enhance their corporate and brand image consistently through their global business...

  • Page 40
    ... large corporate clients. The Companies strive to maintain profitability in the face of downward price pressures by continually seeking to reduce costs, raise productivity, enhance brand image, develop new markets, and launch new products that provide greater value to customers. However, management...

  • Page 41
    ...costs Pension-related costs and obligations are reliant on actuarial assumptions concerning a number of variables, including discount rates and the expected rates of investment return on pension assets. There could be a material impact on the operating results and financial position of the Companies...

  • Page 42
    ...translated at US$1 = ¥118.07, the prevailing exchange rate on December 31, 2005, solely for the convenience of readers. Financial disclosures by Bridgestone Corporation (the "Company") are in accordance with accounting principles generally accepted in Japan ("Japanese GAAP"). Results of operations...

  • Page 43
    ... of tires also increased. Precision components for office equipment rose significantly, contributing to sales growth in diversified products. In the Americas, sales increased 14%, to ¥1,158.0 billion ($9.8 billion), and due to efforts to address increasing raw material costs, operating income...

  • Page 44
    ... as Bridgestone Firestone North American Tire, LLC, a subsidiary which manufactures and sells tires in North America, agreed to pay the Ford Motor Company the amount to settle all outstanding financial issues associated with Firestone's August 2000 voluntary safety recall and Ford's May 2001 tire...

  • Page 45
    ... pension and liabilities for retirement benefits and a rise in the market value of equity holdings. The Company and certain domestic subsidiaries also made a new provision for environmental remediation of ¥5.9 billion ($50 million). Minority interests and shareholders' equity Minority interests...

  • Page 46
    ...-year summary Bridgestone Corporation and Subsidiaries Years ended December 31 2005 Net sales: Tires (net of inter-segment accounts) Diversified products (net of inter-segment accounts) Operating income Net income Net income per share (in yen): Basic Diluted Total assets Shareholders' equity Ratio...

  • Page 47
    ..., light truck, truck and bus tires in the Americas and in Europe. Tire exports from Japan are also expected to rise in volume terms. Reflecting knock-on effects of steep rises in raw material prices, management forecasts an 8% decline in operating income to ¥197.0 billion on 8% growth in sales to...

  • Page 48
    ... financial statements Consolidated Balance Sheets Bridgestone Corporation and Subsidiaries December 31, 2005 and 2004 Millions of yen Thousands of U.S. dollars (Note 2) Assets Current Assets: Cash and cash equivalents Notes and accounts receivable (Note 6), less allowance for doubtful accounts...

  • Page 49
    ... Capital surplus Retained earnings Net unrealized gain on available-for-sale securities Foreign currency translation adjustments Treasury stock-at cost, 51,748,263 shares in 2005 and 60,326,819 shares in 2004 (Note 18) Total Shareholders' Equity Total ¥ 2005 213,509 14,891 362,812 35,082 177,965...

  • Page 50
    ...Interest and dividend income Interest expense Foreign currency exchange loss Gains on sales of property, plant and equipment (Note 12) Insurance claims received (Note 12) Gains on return of substitutional portion of the governmental pension program (Note 7) Impairment losses on assets (Note 12) Loss...

  • Page 51
    Consolidated Statements of Shareholders' Equity Bridgestone Corporation and Subsidiaries Years ended December 31, 2005, 2004 and 2003 Thousands Outstanding number of shares of common stock Millions of yen Net unrealized gain on Retained available-for-sale earnings securities Foreign currency ...

  • Page 52
    ... retirement benefits Interest and dividend income Interest expense Gains on sales of property, plant and equipment Insurance claims received Impairment losses on assets Loss on fire incident Loss on provision for environmental remediation Loss related to voluntary tire replacement Change in assets...

  • Page 53
    ... maintenance and repairs, retail business and credit card management, as well as tire development, manufacturing and marketing. Diversified products include industrial products, chemical products, automotive components, construction materials, electronic equipment, bicycles and sporting goods. Note...

  • Page 54
    ... accounted for the liability for retirement benefits based on projected benefit obligations and plan assets at the balance sheet date. The transitional obligation is being amortized over ten years. The liability for retirement benefits to directors (members of the Board of Directors) and corporate...

  • Page 55
    ... into Japanese yen at the average annual exchange rate. (r) Derivatives and hedging activities The Companies use derivative financial instruments to manage their exposures to fluctuations in foreign currency exchange, interest rates and commodity prices. Foreign currency forward contracts, currency...

  • Page 56
    ... 2005 Finished products Work in process Raw materials and supplies Total ¥ 300,389 31,737 132,847 464,973 ¥ 2004 244,312 25,626 103,482 373,420 $ 2005 2,544,160 268,798 1,125,155 3,938,113 ¥ ¥ $ Note 5- Investments in securities Information regarding each category of available-for-sale...

  • Page 57
    ... Medium Term Notes due 2005-2006 with interest 0.0% at December 31, 2005 and interest ranging from 0.0% to 0.1% at December 31, 2004 Total ¥ 195,738 11,771 ¥ 2004 70,175 1,409 $ 2005 1,657,813 99,695 ¥ 6,000 213,509 ¥ 8,351 79,935 $ 50,818 1,808,326 Bridgestone annual report 2005 55

  • Page 58
    ...152 644,465 882,417 3,101,821 Company compensates banks for these lines of credit in the form of commitment fees, which were not material for the year ended December 31, 2005. Effective January 30, 2006, Bridgestone Americas Holding, Inc. ("BSAH") and its major subsidiaries in the U.S. entered into...

  • Page 59
    ... payment plans for employees, directors (members of the Board of Directors), and corporate auditors. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain...

  • Page 60
    ... and 2003 are set forth as follows: 2005 The Company and domestic subsidiaries Overseas subsidiaries 2004 2003 Discount rate Expected rate of return on plan assets Amortization period of prior service cost Recognized period of actuarial gain or loss Amortization period of transitional obligation...

  • Page 61
    ... market price of the Company's common stock traded in the Tokyo Stock Exchange during the month preceding the date of grant, or the closing market price on the date of grant. During the year ended December 31, 2005, 66 thousand, 7 thousand and 26 thousand shares which were granted at March 29, 2001...

  • Page 62
    ... as follows: Millions of yen Net income Thousands of shares Weighted-average shares Yen EPS U.S. dollars For the year ended December 31, 2005: Basic EPS Net income available to common shareholders Effect of dilutive securities Stock options Diluted EPS Net income for computation For the year ended...

  • Page 63
    ... related to voluntary tire replacement During the year ended December 31, 2005, a U.S. subsidiary and the Ford Motor Company ("Ford") reached a joint settlement of all outstanding financial issues associated with the August 2000 voluntary safety recall and Ford's May 2001 tire replacement program...

  • Page 64
    ... follows: 2005 Normal effective statutory tax rate Expenses not deductible for income tax purpose Lower income tax rates applicable to income in certain overseas countries Tax credit for research and development costs of domestic companies Change in valuation allowance for deferred tax assets Other...

  • Page 65
    ... price exposures that arise in the course of the Companies' business. Accordingly, the market risk in these derivatives is basically offset by opposite movements in the value of hedged assets or liabilities. Because the counterparties to these derivatives are limited to major international financial...

  • Page 66
    ...2005 Trade notes discounted Guarantees and similar items of bank borrowings Total ¥ ¥ 8,472 672 9,144 ¥ ¥ 2004 6,880 687 7,567 $ $ 2005 71,754 5,692 77,446 (b) Operating lease commitments The Companies lease certain land, machinery, vehicles, computer equipment, office space and other assets...

  • Page 67
    ...080,791 $ 33,963 $ 1,764,631 The major products and business of each industry segment are as follows: Tires: Tires and tubes, wheels and accessories, auto maintenance, etc. Diversified products: Chemical products, industrial products, sporting goods, bicycles, etc. Bridgestone annual report 2005 65

  • Page 68
    ...consolidated financial statements (b) Information by geographic segment Year ended December 31, 2005 Japan The Americas Europe Millions of yen Other Total Elimination or corporate Consolidated Net sales: External customers Inter-segment Total Operating expenses Operating income Identifiable assets...

  • Page 69
    ..., etc. Europe: Germany, United Kingdom, France, Italy, Spain, etc. Other: Asia Pacific, Middle East, Africa, etc. Note 17- Voluntary tire recall costs and legal liabilities Bridgestone Americas Holding, Inc. and/or certain of its subsidiaries (collectively, "BSA") are defendants in numerous product...

  • Page 70
    ... options to purchase 271 thousand shares of the Company's common stock by directors and selected employees of the Company. The exercise price is equal to the higher of either 1.05 times the monthly average closing market price of the Company's common stock traded in the Tokyo Stock Exchange in the...

  • Page 71
    Independent Auditors' Report To the Board of Directors of Bridgestone Corporation: We have audited the accompanying consolidated balance sheets of Bridgestone Corporation and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity, and...

  • Page 72
    ... Tyres Pty. Ltd. Bridgestone Europe NV/SA Bridgestone Aircraft Tire (Europe) S.A. Bridgestone Firestone do Brasil Industria e Comercio Ltda. Bridgestone Firestone Canada Inc. Bridgestone Firestone Chile, S.A. Bridgestone Off-the-Road Tire Latin America S.A. Bridgestone (China) Investment Co., Ltd...

  • Page 73
    ... and sale of tires BFS Diversified Products, LLC 100.0% US$1 Morgan Tire & Auto, Inc. 76.2% US$1 Bridgestone APM Company 100.0% US$15,000 Venezuela Bridgestone Aircraft Tire (USA), Inc. Bridgestone Firestone Venezolana C.A. 100.0% 100.0% US$1 Bs66,700 Bridgestone annual report 2005 71

  • Page 74
    ... Equipment Sales; Concurrently Director, Original Equipment Tire Sales Division Yukio Kanai Isao Kita Non-Executive Members Yasuo Asami Vice President and Senior Officer Responsible for Diversified Products Toru Tsuda Tire Development Asahiko Nishiyama Seconded to Bridgestone Americas Holding...

  • Page 75
    ... 1931 Employees 123,727 Independent Auditors Deloitte Touche Tohmatsu Technical Centers Bridgestone Corporation: Tokyo and Yokohama, Japan Bridgestone Americas: Akron, Ohio, U.S.A. Bridgestone Europe: Rome, Italy Consolidated Subsidiaries 440 companies Paid-in-Capital ¥126,354 million Shares...

  • Page 76
    10-1, Kyobashi 1-chome, Chuo-ku, Tokyo 104-8340, Japan www.bridgestone.co.jp April 2006 Printed in Japan with vegetable-based ink on recycled paper