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Perfection in Progress
Annual Report 2006

Table of contents

  • Page 1
    Perfection in Progress Annual Report 2006

  • Page 2
    ... in safety and performance Premium-quality tires with high added value Targeting expanding demand in growth market segments Review of Operations Tires Diversified Products Motorsports Activities Corporate Governance, Compliance and Risk Management Corporate Social Responsibility (CSR) Research and...

  • Page 3
    ... and rubber products. The parent company was established in 1931 in the small town of Kurume on the island of Kyushu in Japan. Today, the Bridgestone Group has manufacturing bases in 25 countries and sells products in over 150 countries worldwide. Tires accounted for about 80% of consolidated sales...

  • Page 4
    Sales by Business Segment and Major Products Bridgestone Corporation and Subsidiaries Year ended December 31, 2006 80% 20% Tires Tires and Tubes For passenger cars, trucks, buses, construction and mining vehicles, commercial vehicles, agricultural machinery, aircraft, motorcycles and scooters, ...

  • Page 5
    ... Tennis balls • Golf swing diagnostic system Electro-materials • Semiconductive rollers • Other semiconductive components Bicycles Other products Purebeta ceramic dummy wafers, holders, rings, heaters, electrodes and other items For semiconductor manufacturing Bridgestone Annual Report 2006...

  • Page 6
    .... More importantly, we generated much of the growth by improving the product and brand mix in all major markets, increasing our sales from high-value-added product lines. However, further increases in raw material costs offset growth, resulting in a negative overall impact on consolidated operating...

  • Page 7
    ...provides assistance to SBUs in certain specialized business areas. There are eight SBUs, which are the core operating units of the Bridgestone Group. Six are designated in view of geographic coverage: Japan tire, the Americas, Europe, China tire, Asia & Oceania tire and the Middle East & Africa tire...

  • Page 8
    ... (such as ultralarge radial tires for construction equipment and specialized radial tires for aircraft and motorcycles). We will focus upon these strategic product areas to achieve the final goal of "establishing the Bridgestone Group as the world's No. 1 tire and rubber company both in name and...

  • Page 9
    .... Details of specific CSR-related activities can be found in the Corporate Social Responsibility (CSR) section within this Annual Report. On the environmental front, we are developing eco-friendly products, such as tires that help to boost fuel economy. Besides producing benefits for the environment...

  • Page 10
    ... mark in fiscal 2006. Besides Japanese car manufacturers, The Bridgestone Group is now supplying these tires to automakers in Europe and North America for OE fitment to a range of high-performance models. To meet rising global demand for runflat tires in the original equipment market, manufacturing...

  • Page 11
    Bridgestone supplies runflat tires to automakers in Japan, Europe and North America for OE fitment to a range of highperformance models. Bridgestone Annual Report 2006 09

  • Page 12
    Premium-quality tires with high added value Low-profile truck and bus radials Truck and bus tires are a growth market in which Bridgestone possesses a number of competitive advantages. Low-profile radial tires are one type of value-added product that Bridgestone has been developing over many years ...

  • Page 13
    Bridgestone is a market leader in low-profile radial tires for trucks and buses by virtue of advanced technology and a reputation for reliable performance. Bridgestone Annual Report 2006 11

  • Page 14
    Bridgestone is supplying high-performance radial tires for next-generation commercial airliners such as the Airbus A380 and Boeing 787. 12

  • Page 15
    ... line. Bridgestone is focusing on expanding sales of these tires in Japan and other markets. Within the latest Battlax motorcycle tire line to be introduced in North America, Europe and Japan, the BT-021 is a unique, technologically advanced hybrid that combines all the benefits of a sport tire...

  • Page 16
    ... truck tires. In the original equipment market, Bridgestone focused on improving product mix by expanding sales of runflats and other high-performance tires. Sales of strategic product lines recorded steady growth, which contributed to an anticipated improvement in the sales mix. Higher fuel prices...

  • Page 17
    ... the Bridgestone Service Network, which provides round-the-clock tire repair services to registered customers using a dedicated call center. A strategy for profitable growth Safety, environmental performance and reasonable cost are the primary determinants of tire selection in the Japanese market...

  • Page 18
    ... performances in the diversified products, North American Tire and retail segments. The sales increases were due both to better brand and product mix and higher selling prices. BSAH sales were, however, somewhat below projections due to softening tire market conditions, slowing economies and high...

  • Page 19
    Bridgestone provides customers with high quality and a diverse range of services and products we anticipate a rebound in 2007 due to an improving economy. In order to take advantage of this market shift, BFNT will re-double its efforts to motivate and energize its replacement sales networks, ...

  • Page 20
    ... production volumes in Europe increased slightly compared with the previous year and regional car sales finished slightly higher than the year before. Bridgestone Europe NV/SA (BSEU) increased its share of the original equipment market, particularly in premium models. The truck and bus tire original...

  • Page 21
    ... of high-performance tire product lines to plants in Europe. The skills and resources of the Technical Centre in Rome are being upgraded to support this move. Retail channel development In line with the strategy to deliver greater value to the customer, BSEU is expanding the number of company-owned...

  • Page 22
    ...Taiwan. The Bridgestone brand is also a market leader in these countries in truck and bus radial tires and high-performance passenger car tires, products which can showcase the company's technical expertise and high quality. Major Bridgestone Group production sites in the region are located in India...

  • Page 23
    ... fresh sales growth via introductions of new products; and to offer customers greater value through the integration of peripheral services into a total value package. In the Middle East, booming economies and high levels of construction activity are driving growth in regional demand for tires...

  • Page 24
    ... in technologies are required is a common strategic theme throughout Bridgestone's tire business. The specialty segments of the tire market exemplify this trend. productivity and to improve selling price and mix. In 2006, sales of off-the-road radials posted positive year-over-year growth in volume...

  • Page 25
    ... developed markets such as Europe and the United States. In the road sports market, most new highperformance motorcycle models are now fitted with radial tires, a trend that is helping to drive demand within the replacement sector. In line with a global shift towards radial tires, Bridgestone plans...

  • Page 26
    Review of Operations l Diversified Products Establishing fresh growth through new products and unique technology The diversified products segment is comprised of a broad range of chemical and industrial products, the diversified products business of Bridgestone Americas, bicycles and sporting goods...

  • Page 27
    ... primarily consists of roofing and building materials, industrial air springs, fibers and textiles, natural rubber and polymers. In North America, BFS Diversified Products, LLC (BFDP) is a leading company in rubber roofing materials, as well as air springs. The building products market in the United...

  • Page 28
    ...compared with fiscal 2005. Unit sales price increases and strong growth in sales of high-priced electrically powered models added to these results, contributing to a strong overall performance. Business strategy and outlook BSC's aim is to increase sales and profits by improving the sales mix while...

  • Page 29
    ... line the top-selling golf ball in Japan in 2006. The range also garnered one of the prestigious annual Nikkei awards, which are presented for the best new products and services. Sporting goods Bridgestone Sports Co., Ltd. (BSP) is the leading company in Japan in sales of golf balls and golf clubs...

  • Page 30
    ... premier events, Bridgestone is involved in feeder series in Japan such as Formula Nippon and the All-Japan GT Championship, both of which have produced several F1 drivers. Bridgestone has also developed a reputation for high quality in the motorcycling sports world, supplying tires for global road...

  • Page 31
    MotoGP: In motorcycle racing, Bridgestone scored a memorable first win in a European round of the MotoGP FIM Road Racing World Championship. In 2006, riders on Bridgestone tires posted 11 podium finishes, including four victories - an outstanding achievement in only its fifth year in the category. ...

  • Page 32
    ... the broader mission. Corporate governance structures The Board of Directors is the senior body with the power to make top-level business decisions and to set policies and strategy for the Companies. Its actions are overseen by shareholders through the Annual General Meeting of Shareholders and are...

  • Page 33
    ..., division and major subsidiary. The Internal Auditing Office is also responsible for formulating annual internal auditing plans. Since May 2006, the internal controls of any of the Companies that make institutional change in line with the provisions of the Company Law of Japan, are subject to...

  • Page 34
    ...into force in Japan in April 2005. Privacy training for all employees and related awareness programs remain ongoing to address this important issue. Internal control systems development On May 1, 2006, in line with new legal provisions in Japan, the Board of Directors instituted an official Company...

  • Page 35
    ... fuel economy by commercial vehicles through reducing rolling resistance, have been extremely well received by customers. During 2006, Bridgestone began manufacturing tires using an improved eco-friendly compound. The new ECOPIA M891II series delivers even greater benefits in terms of improved fuel...

  • Page 36
    ... responsibility of tire manufacturers in the car industry to educate customers to better understand the importance of regular tire maintenance and promote the prevention of traffic accidents. In Japan, Bridgestone holds various seminars related to tire safety at company plants and automobile driving...

  • Page 37
    ... safety issues. In 2006, Bridgestone Firestone in the United States hosted 17 "Drive & Learn" educational events. Dealers and media from across the country had the opportunity to take advantage of this hands-on driving and tire testing experience. Other road safety initiatives Bridgestone companies...

  • Page 38
    ... is but one of the many activities Bridgestone carries out in Europe to encourage safe and responsible road use. For ten years now Bridgestone Spain has sponsored the Special Olympics Spain, a well-known international non-profit organization that aims to promote sports among children and adults with...

  • Page 39
    ... donate new and good second hand toys to children at Aids orphanages Habitat for Humanity' a volunteer activity by Bridgestone Americas' employees for their community Keep America Beautiful, the U.S.'s largest annual community improvement and beautification program Bridgestone Annual Report 2006...

  • Page 40
    ... market needs. The Companies (Bridgestone Corporation and its consolidated subsidiaries) conduct R&D activities on a global basis from the development of new materials, products and field engineering areas to the development of production technology. Major technical centers are located in Japan...

  • Page 41
    ... ensure the ball travels further than with clubs that have a high kickback head. New active drive design which enhances flying distance Research and development expenditure for the diversified products segment in 2006 totaled ¥15.2 billion ($128 million). Bridgestone Annual Report 2006 39

  • Page 42
    ..., exchange rates, share prices, and other economic variables in different countries and regions. In the fiscal year ended December 31, 2006, the consolidated sales split by geographic segment (for external customers only) was 44% from operations in the Americas, 30% from Japan and 14% from Europe...

  • Page 43
    ... region to the southwest of Tokyo, where the Companies' facilities include the Iwata plant, the manufacturing operations of Bridgestone Elastech Co., Ltd., and extensive sales and distribution facilities spanning both tire and diversified product operations. For operations in this region, management...

  • Page 44
    ...The Companies invest considerable resources in establishing and maintaining high quality standards for all the products that they manufacture and sell. Management is particularly sensitive to the importance of quality assurance in tires and other products intimately associated with human safety. The...

  • Page 45
    Financial Section The Bridgestone Corporation is referred to as the "Company," and the Company and its subsidiaries are referred to as the "Companies" in the second half of this Annual Report (pages 43-72). Bridgestone Annual Report 2006 43

  • Page 46
    ... worldwide and by improving product mix through increased sales of high-value-added product lines. The upgrading and expansion of strategic Bridgestone Group production sites around the world was also an important feature of the year. The consolidated net sales contribution from the core tires...

  • Page 47
    ...the original equipment sector generating much of the growth due to "pre-buy" activities by trucking fleet operators ahead of the introduction of new engine emission regulations. Sales also increased over fiscal 2005 in both diversified product and Latin American operations. Sales in Europe increased...

  • Page 48
    ...investments in securities. The Companies recorded losses in fiscal 2006 at the consolidated level as a restructuring charge of ¥21.7 billion ($183 million) relating to the announced closure of two tire plants in the Americas along with asset-impairment losses of ¥5.8 billion ($48 million). Overall...

  • Page 49
    ...935.0 40.0 40.1 41.6 38.6 Net return on assets (% of simple average of year-end total assets) FY 2006 3.0 2005 7.2 2004 5.0 2003 4.1 2002 2.0 2002 2003 2004 2005 2006 Bridgestone Annual Report 2006 1,128.6 1,221.8 Liabilities Current liabilities rose by ¥122.7 billion ($1,030 million...

  • Page 50
    ... 2006 Eleven-year summary Bridgestone Corporation and Subsidiaries Years ended December 31 149.1 2006 Net sales: Tires (net of inter-segment transactions) Diversified products (net of inter-segment transactions) Operating income Net income Net income per share (in yen): Basic Diluted Total assets...

  • Page 51
    ...in the truck and bus tires market. In Europe, management expects positive year-over-year growth in unit sales of passenger car, light truck, truck and bus tires. Management forecasts consolidated net sales in fiscal 2007 of ¥3,080 billion, an increase of 3% over fiscal 2006. In year-over-year terms...

  • Page 52
    Financial Section | Consolidated Financial Statements Consolidated Balance Sheets Bridgestone Corporation and Subsidiaries December 31, 2006 and 2005 Millions of yen Thousands of U.S. dollars (Note 2) Assets Current Assets: Cash and cash equivalents Notes and accounts receivable (Note 6), less ...

  • Page 53
    ... earnings Net unrealized gain on available-for-sale securities Deferred gain on derivative instruments Foreign currency translation adjustments Treasury stock-at cost, 32,945,108 shares in 2006 and 51,748,263 shares in 2005 Total Minority Interests Total Equity Total ¥ 2006 294,638 32,476 385,341...

  • Page 54
    Financial Section | Consolidated Financial Statements Consolidated Statements of Income Bridgestone Corporation and Subsidiaries Years ended December 31, 2006, 2005 and 2004 Millions of yen Thousands of U.S. dollars (Note 2) 2006 Net Sales (Note 16) Cost of Sales Gross profit Selling, General and ...

  • Page 55
    ...year Cash dividends Bonuses to directors Retirement of treasury stock Retirement benefit obligations Purchase of treasury stock, net of sales Net Change in the year Balance at December 31, 2006 See notes to consolidated financial statements... $ 358,416 $10,258,131 Bridgestone Annual Report 2006 53

  • Page 56
    ... Gains on sales of property, plant and equipment Gains on sales of investments in securities Impairment losses on assets Plant restructuring costs in the Americas Loss on provision for environmental remediation Loss related to voluntary tire replacement Change in assets and liabilities: Increase in...

  • Page 57
    ... 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 2- Basis of presenting consolidated financial statements...

  • Page 58
    ...Than Pensions." The Company's overseas subsidiaries in the Americas adopted SFAS No.158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements, No.87, 88, 106 and 132 (R)" for fiscal years ending on and after December 31, 2006. The effect...

  • Page 59
    ... 2006. The statement of shareholders' equity, which was previously voluntarily prepared in line with the international accounting practices, is now required under generally accepted accounting principles in Japan and has been renamed "the statement of changes in equity" from the current fiscal year...

  • Page 60
    ... shareholders meeting in Japan. On November 29, 2005, ASBJ issued a new accounting standard for bonuses to directors and corporate auditors, which is effective for fiscal years ending on or after May 1, 2006. This new standard requires Japanese companies that bonuses to directors and corporate...

  • Page 61
    ... ¥ 46,634 3,000 ¥ 229,694 27 ¥ (23) - ¥ 276,305 3,027 Thousands of U.S. dollars 2006 Cost Unrealized gains Unrealized losses Fair value Securities classified as: Available-for-sale: Equity securities Debt securities $ 421,560 25,187 $ 2,197,725 - $ (412) (25) $ 2,618,873 25,162...

  • Page 62
    ... Notes to Consolidated Financial Statements The carrying values of debt securities by contractual maturities for securities classified as available-for-sale at December 31, 2006 are as follows: Millions of yen Thousands of U.S. dollars Available-for-sale: Debt securities: Due 2007 Due 2008 to 2011...

  • Page 63
    ... Employees serving with the Company and its domestic subsidiaries are generally entitled to lump-sum payment at retirement and, in certain cases, annuity payments at retirement, provided by funded defined benefit pension plans based on the rate of pay at the time of termination, years of service...

  • Page 64
    ... statement of income for the year ended December 31,2005. The liability for employees' retirement benefits at December 31, 2006 and 2005 consist of the following: Millions of yen Thousands of U.S. dollars 2006 Projected benefit obligation Fair value of plan assets Unrecognized prior service cost...

  • Page 65
    ... any time during the fiscal year in addition to the yearend dividend upon resolution at the shareholders meeting. For Japanese companies that meet certain criteria such as; having the Board of Directors, having independent auditors, having the Board of Corporate Auditors, and the term of service of...

  • Page 66
    ... stock option plan which was approved at the general shareholders meeting provides options for purchases of the Company's common stock for the directors and selected employees of the Company. The date of approval at the general shareholders meeting, the number of grant options, exercise price and...

  • Page 67
    ...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 during the month preceding the date of grant, or the closing market price on the date of grant. During the year ended December 31, 2006, 40 thousand, 48 thousand...

  • Page 68
    ... certain asset group of diversified business due to worse performance caused by market price erosion, raw material price steep increase and others, and for certain asset group of tire business due to a significant decline in its assets' market value. Loss on provision for environmental remediation...

  • Page 69
    ... to income in certain consolidated subsidiaries Lower income tax rates applicable to income in certain overseas countries Tax credit for research and development costs of domestic companies Tax adjustment of overseas companies Change in valuation allowance for deferred tax assets Other-net Actual...

  • Page 70
    ... Section | Notes to Consolidated Financial Statements Thousands of U.S. dollars 2006 Contract amount Fair value Unrealized gains (losses) Foreign currency forward contracts: Sell: U.S. dollar Euro Australian dollar British pound Other Buy: U.S. dollar Japanese yen Other Currency swap contracts...

  • Page 71
    ...220,292 $ 48,476 $ 2,203,971 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 2006 69

  • Page 72
    ...Consolidated Financial Statements (b) Information by geographic segment Year ended December 31, 2006 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 73
    ... States, Canada, Mexico, Venezuela, Brazil, 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...

  • Page 74
    ... common stock by directors and selected employees of the Company. Under this stock option plan, the maximum number of options for directors is 130 thousand shares of the Company's common stock. The exercise price is equal to the higher of either 1.05 times the monthly average closing market price of...

  • Page 75
    ... and the related consolidated statements of income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2006, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to...

  • Page 76
    ...Bridgestone Firestone Argentina S.A.I.C. Bridgestone Australia Ltd. Bridgestone Earthmover 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 Off-the-Road Tire Latin...

  • Page 77
    .... Bridgestone Natural Rubber (Thailand) Co., Ltd. Brisa Bridgestone Sabanci Lastik Sanayi ve Ticaret A.S. Bridgestone U.K. Ltd. Bridgestone Industrial Ltd. Bridgestone Middle East & Africa FZE. Bridgestone Americas Holding, Inc. Bridgestone Firestone North American Tire, LLC BFS Retail & Commercial...

  • Page 78
    ... Bridgestone Americas Holding, Inc. Kiyoshi Nomura International Tire Business Operations Kazuhisa Nishigai Japan Tire Production Vice President and Officers Kaoru Fujioka Steel Cord Masaaki Tsuya Office of Group CEO, Human Resources and Corporate Communications; Concurrently Director, Internal...

  • Page 79
    ... 1931 Employees 126,326 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 441 companies Paid-in-Capital ¥126,354 million Shares...

  • Page 80
    10-1, Kyobashi 1-chome, Chuo-ku, Tokyo 104-8340, Japan www.bridgestone.co.jp May 2007 Printed in Japan with vegetable-based ink on recycled paper