Bridgestone 2002 Annual Report Download - page 33

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to directors and corporate auditors upon retirement are subject to
approval at the general shareholders’ meeting.
FOREIGN SUBSIDIARIES
The funded defined benefit pension plans for the employees of cer-
tain foreign subsidiaries are accounted for in accordance with
SFAS No.87, “Employers’ Accounting for Pensions,” while the
postretirement benefits other than pensions for all health care and
life insurance benefit plans are accounted for in accordance with
SFAS No.106, “Employers’ Accounting for Postretirement
Benefits Other Than Pensions.” SFAS No.106 requires the accrual
of retiree postretirement benefits during the active service period of
the employee. Other foreign subsidiaries have defined contribution
pension plans or severance indemnity plans which substantially
cover all of their employees.
(k) Leases
Finance leases are capitalized, and the present value of the related
payments is recorded as a liability. Amortization of capitalized
leased assets is computed substantially by the declining-balance
method at rates based on the term of the lease.
(l) Revenue recognition
Sales are recognized when products are shipped or when services
are rendered to customers.
(m) Income taxes
The provision for income taxes is computed based on income before
income taxes included in the consolidated statements of income.
The asset and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax
bases of assets and liabilities. Deferred income taxes are measured
by applying currently enacted tax laws to the temporary differ-
ences. A valuation allowance is provided for any portion of the
deferred tax assets where it is considered more likely than not that
they will not be realized.
(n) Bonuses to directors
Bonuses to directors are subject to approval at the general share-
holders’ meeting and are accounted for by an appropriation of
retained earnings for the year in which the approval and payments
are made in accordance with the Japanese Commercial Code (the
“Code”).
(o) Appropriations of retained earnings
Appropriations of retained earnings are reflected in the consolidat-
ed financial statements for the following year after approval by the
shareholders in accordance with the Code.
(p) Foreign currency transactions
Prior to January 1, 2001, the Company and its domestic sub-
sidiaries translated short-term receivables and payables denomi-
nated in foreign currencies into Japanese yen at the current
exchange rates at each balance sheet date, while long-term receiv-
ables and payables denominated in foreign currencies were trans-
lated at historical rates.
Effective January 1, 2001, the Company and its domestic sub-
sidiaries adopted a revised accounting standard for foreign curren-
cy transactions. In accordance with the revised standard, all
short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese
yen at the exchange rates at the balance sheet date. The foreign
exchange gains and losses from translation are recognized in
income to the extent that they are not hedged by foreign exchange
forward contracts or currency option contracts. The adoption of the
revised standard did not have a material effect on the Company’s
consolidated financial position and results of operations.
(q) Foreign currency financial statements
The balance sheet accounts of foreign subsidiaries are translated
into Japanese yen at the current exchange rate as of the balance
sheet date except for shareholders’ equity, which is translated at
the historical rate. Differences arising from such translation are
shown as foreign currency translation adjustments in a separate
component of shareholders’ equity. Revenue and expense accounts
of foreign subsidiaries are translated 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 exchange, interest rates and
commodity prices. Foreign currency forward contracts, currency
option contracts and currency swap contracts are utilized by the
Companies to reduce foreign exchange risks. Interest rate swaps
are utilized by the Companies to reduce interest rate risks. Also,
commodity futures contracts are utilized by the Companies to
reduce commodity price risks. The Companies do not enter into
derivatives for trading or speculative purposes.
Effective January 1, 2001, the Company and its domestic sub-
sidiaries adopted a new accounting standard for derivative financial
instruments and a revised accounting standard for foreign currency
transactions. These standards require that: (i) all derivatives be
recognized as either assets or liabilities and measured at fair value,
and gains or losses on derivative transactions be recognized in
income; and (ii) gains or losses on derivatives be deferred until
maturity of the hedged transactions for derivatives used for hedging
purposes, if derivatives qualify for hedge accounting because of
high correlation and effectiveness between the hedging instruments
and the hedged items. In addition, under these standards, two
accounting models for derivative transactions designated as hedg-
ing of foreign exchange exposure associated with a forecasted
transaction are permitted, which are: (i) gains or losses on deriva-
tive instruments shall be recognized as either assets or liabilities;
or (ii) hedged items shall be translated at the contract rates in
derivative instruments. The adoption of the new accounting stan-
dards for derivative financial instruments and the revised account-
ing standard for foreign currency transactions did not have a