Bridgestone 2002 Annual Report Download - page 50

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The significant differences between Japanese GAAP and U.S.
GAAP that would apply to the Companies are as follows:
(a) Employers’ accounting for pensions
Under Japanese GAAP, accrued pension and liability for retirement
benefits, with certain minor exceptions, resulting from companies’
defined benefit pension plans have been determined based on the
projected benefit obligation and plan assets at the balance sheet
date. Net periodic pension costs are attributed to each year of an
employee’s service by the periodical straight-line basis that attri-
butes the same amount of the pension benefits to each year of ser-
vice. Unrecognized actuarial net gain or loss that has not been
recognized as a part of net periodic pension cost is amortized with-
in the average remaining service years of the employees. Under
U.S. GAAP, such liability and costs are determined in accordance
with SFAS No.87.
(b) Business combinations
Under Japanese GAAP, the Company accounted for business com-
binations using the pooling of interests method. Had the business
combination been accounted for in accordance with U.S. GAAP, it
shall be accounted for using the purchase method.
(c) Functional currency in highly inflationary economies
Under U.S. GAAP, the financial statements of a foreign entity in a
highly inflationary economy shall be remeasured as if the functional
currency were the reporting currency. Accordingly, the financial
statements of those entities shall be remeasured into the reporting
currency. Such remeasurement is not permissible under Japanese
GAAP.
(d) Amortization/impairment of goodwill
Effective January 1, 1997, certain foreign subsidiaries changed the
amortization period of certain goodwill from 40 to 5 years.
The cumulative effect of the change of ¥98,872 million was treated
retroactively by a charge to income in 1997. U.S. GAAP continues
to require that goodwill be amortized over its estimated useful life,
not to exceed 40 years.
In 2001, U.S. GAAP required impairment of certain goodwill in
accordance with SFAS No.121. Under Japanese GAAP, the good-
will had already been amortized fully in 1997.
Under U.S. GAAP, on January 1, 2002, the Companies adopted
SFAS No.142, “Goodwill and Other Intangible Assets,” which
eliminates amortization of goodwill and certain other intangible
assets, but requires annual testing for impairment (comparison of
estimated fair value to carrying value). Upon adoption, as a result
of the transitional impairment test, certain foreign subsidiaries ini-
tially recognized an impairment loss of ¥15,519 million ($129,433
thousand) as the cumulative effect of a change in accounting prin-
ciple under U.S. GAAP. Under Japanese GAAP, the goodwill had
already been amortized fully in 1997.
The Company’s amortization expense of goodwill would have
been ¥8,134 million ($67,840 thousand) and the decrease in net
income would have been ¥7,385 million ($61,593 thousand) for
the year ended December 31, 2002, if the Company had not adopt-
ed SFAS No.142.
(e) Impairment of long-lived assets
U.S. GAAP requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impair-
ment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing
the review for recoverability, the entity should estimate the future
cash flows expected to result from the use of the asset and its even-
tual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carry-
ing amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Such recognition
and measurement of the impairment of long-lived assets to be held
and used are not permissible under Japanese GAAP.
(f) Derivative instruments and hedging activities
Under U.S. GAAP, all derivatives are recognized as either assets or
liabilities in the statement of financial position and measured at
fair value, and those instruments qualify for hedge accounting if
certain conditions are met. As to the forecasted transactions involv-
ing a parent company’s interest in consolidated subsidiaries, the
transactions are not eligible for designation as a hedged transac-
tion, whereas such transactions shall be eligible for designation as
a hedged transaction under Japanese GAAP.
Under Japanese GAAP, hedged items can be translated at the
contract rates in derivative instruments for derivative transactions
designated as hedging of foreign exchange exposure associated with
a forecasted transaction. In addition, interest rate swaps which
qualify for hedge accounting and meet specific matching criteria
are not remeasured at market value, but the differential paid or
received under the swap agreements is recognized and included in
interest expenses or income. Such accounting treatment is not per-
missible under U.S. GAAP.
(g) Other adjustments
Other adjustments include inventory valuation, capitalization of
leased assets, capitalization of interests and other items.
In addition, major reclassification differences are as follows:
(h) Free share distributions
As permitted by the Code prior to April 1, 1991, the Company had
made free share distributions which were accounted for by a trans-
fer from additional paid-in capital to common stock or without any
transfers in the capital accounts. Companies in the U.S. issuing
shares in similar transactions would be required to account for
them as stock dividends. Had the distributions been accounted for
in the manner adopted by the U.S. companies, ¥239,111 million
($1,994,254 thousand) would have been transferred from retained
earnings to appropriate capital accounts at December 31, 2002
and 2001.