The accompanying consolidated financial statements have been prepared in accordance with accounting principles and practices generally accepted in Japan and compiled from the consolidated financial statements filed with the Minister of Finance as required by the Securities and Exchange Law of Japan and include certain additional financial information for the convenience of readers outside Japan. Consolidated statements of cash flows have been prepared for the purpose of inclusion in these consolidated financial statements, although such statements are not required in Japan.
Amounts of receivables, other current assets, and depreciation and amortization in the prior year's consolidated balance sheets and consolidated statements of cash flows have been reclassified to conform to the current year's presentation.
(b) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates
The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The financial statements of the Company's subsidiary in Mexico have been prepared based on general price-level accounting. The related revaluation adjustments to reflect the effect of inflation for the preparation of the accompanying consolidated financial statements are charged or credited to operations and directly reflected in retained earnings.
Investments in certain unconsolidated subsidiaries and significant affiliates (owned 20% to 50%) are stated at cost plus equity in their undistributed earnings. Consolidated net loss includes the Company's equity in the current net income or loss of such companies, after the elimination of unrealized intercompany profits.
Investments in unconsolidated subsidiaries and affiliates not accounted for by the equity method are carried at cost or less. Where there has been a permanent decline in the value of such investments, the Company has written down the investments.
Differences, not significant in amount, between the cost and the underlying net equity of investments in consolidated subsidiaries, and in unconsolidated subsidiaries and affiliates which are accounted for by the equity method, are charged or credited to income in the year of acquisition.
(c) Foreign currency translation
In accordance with a new accounting standard for foreign currency transactions, etc. announced by the Business Accounting Deliberation Council in May 1995, the Company has changed its method of accounting for the translation of the financial statements of its foreign consolidated subsidiaries. Effective April 1, 1995, the Company began translating the revenue and expense accounts of the foreign consolidated subsidiaries at the average rate of exchange in effect during the year except for those of the subsidiary in Mexico which were translated at the rate of exchange in effect at the balance sheet date. Except for shareholders' equity, the balance sheet accounts were translated into yen at the rate of exchange in effect at the balance sheet date. The components of shareholders' equity were translated at historical exchange rates.
Prior to April 1, 1995, the balance sheet accounts of the foreign consolidated subsidiaries were translated into yen at the rate of exchange in effect at the balance sheet date (except for inventories and related cost of sales, and property, plant and equipment and related depreciation, which were translated at the approximate rates of exchange at the respective dates of acquisition). Revenue and expense accounts (except for depreciation and cost of sales) were translated at the average rate of exchange in effect during the year. Net income or loss for the year and retained earnings or deficit at the end of the year of foreign subsidiaries were translated at the rate of exchange in effect at the balance sheet date.
The following pro forma amounts reflect significant statement of operations and balance sheet amounts as if the accounting change had been applied for the year ended March 31, 1995:
| Millions of yen | Thousands of U.S. dollars | |||||||
| Effect- increase (decrease) |
Pro forma amounts | Effect- increase (decrease) |
Pro forma amounts | |||||
| Statement of operations: Operating loss |
¥(47,710) | ¥(55,007) | $(450,094) | $(518,934) | ||||
| Translation adjustments | (46,249) | - | (436,311) | - | ||||
| Loss before income taxes and equity in earnings of unconsolidated subsidiaries and affiliates, etc. | (1,461) | (178,284) | (13,783) | (1,681,925) | ||||
| Net loss | (1,802) | (164,252) | (17,000) | (1,549,547) | ||||
| Balance sheet: Total current assets |
¥(8,784) | ¥2,824,035 | $(82,868) | $26,641,840 | ||||
| Property, plant and equipment, net | (217,928) | 3,122,946 | (2,055,925) | 29,461,755 | ||||
| Translation adjustments | (63,223) | 335,176 | (596,443) | 3,162,038 | ||||
| Total assets | (304,588) | 6,888,326 | (2,873,472) | 64,984,208 | ||||
| Long-term debt | (292,021) | 1,917,808 | (2,754,915) | 18,092,528 | ||||
| Retained earnings | 36,645 | 815,398 | 345,708 | 7,692,434 | ||||
| Total shareholders' equity | 36,645 | 1,465,710 | 345,708 | 13,827,453 | ||||
| Translation differences are presented as "translation adjustments" in the accompanying consolidated financial statements. | ||||||||
(d) Inventories
Inventories are stated principally at the lower of cost or market. The cost of finished products, work in process and purchased parts is determined primarily by the average method and the cost of raw materials and supplies is determined primarily by the last-in, first-out method.
(e) Short-term investments and investments in securities
Marketable securities are valued principally at the lower of cost or market, cost being determined by the moving average method, and investments in securities other than marketable securities are stated at cost determined by the moving average method.
(f) Property, plant and equipment and depreciation
Depreciation of property, plant and equipment is computed principally by the declining-balance method at rates based on the estimated useful lives of the respective assets. Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to income.
(g) Leases
Noncancelable lease transactions are primarily accounted for as operating leases (whether such leases are classified as operating leases or finance leases) except that lease agreements which stipulate the transfer of ownership of the leased assets are accounted for as finance leases.
(h) Retirement benefits
Employees of the Company are, under most circumstances, covered by the Company's retirement benefit plans. An employee who terminates employment with the Company at age 45 or more receives approximately 90% of such benefits in a lump-sum payment or by annuity payments from the pension plan and the remainder in a lump-sum payment from the unfunded retirement plan. Employees who terminate employment under other conditions are entitled to lump-sum payments from the unfunded retirement plan. Such retirement benefits are based on compensation at the time of termination, years of service and other factors.
Accrued retirement allowances are stated at the amount which would be required to be paid if all employees covered by the plans voluntarily terminated their employment at the balance sheet date, less the amounts expected to be covered by the pension plan, plus the unamortized balance of certain previously accumulated amounts as discussed below.
Costs with respect to the pension plan are funded at an amount determined actuarially. Prior service cost is funded over a period of 20 years and a portion of the liability which was transferred to the pension plan and which had previously been accumulated in accrued retirement allowances is being reversed to income over the same period.
(i) Income taxes
Income taxes are principally accounted for on an accrual basis. Deferred income taxes are not recognized by the Company and its domestic consolidated subsidiaries for timing differences between financial and tax reporting, except for those with respect to the elimination of unrealized intercompany profits and other adjustments for consolidation purposes. Foreign consolidated subsidiaries generally recognize deferred income taxes for such timing differences.
(j) Research and development costs
Research and development costs are charged to income when incurred.
(k) Revenue recognition
Revenue is generally recognized on sales of products at the time of shipment.
(l) Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriation of retained earnings with respect to a given financial year is made by resolution of the shareholders at a general meeting held subsequent to the close of such financial year. The accounts for that year do not, therefore, reflect such appropriation. See Note 16.
2. U.S. DOLLAR AMOUNTS
Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of ¥106 = $1, the approximate rate of exchange at March 31, 1996, has been used. The inclusion of such amounts is not intended to imply that yen amounts have been or could be readily converted, realized or settled in U.S. dollars at that or any other rate.
3. RECEIVABLES
Receivables at March 31, 1996 and 1995 consisted of the following:
| Millions of yen | Thousands of U.S. dollars |
||
| 1996 | 1995 | 1996 | |
|---|---|---|---|
| Notes and accounts receivable: Unconsolidated subsidiaries and affiliates |
¥127,389 | ¥124,280 | $1,201,783 |
| Other | 566,052 | 533,958 | 5,340,113 |
| 693,441 | 658,238 | 6,541,896 | |
| Finance receivables | 746,395 | 406,615 | 7,041,462 |
| Less allowance for doubtful receivables | (81,050) | (48,450) | (764,622) |
| ¥1,358,786 | ¥1,016,403 | $12,818,736 | |
Finance receivables principally represent receivables from customers on loans made by financing subsidiaries in connection with sales of automobiles.
4. INVENTORIES
Inventories at March 31, 1996 and 1995 were as follows:
| Millions of yen | Thousands of U.S. dollars |
||
| 1996 | 1995 | 1996 | |
|---|---|---|---|
| Finished products | ¥561,180 | ¥530,211 | $5,294,151 |
| Work in process and other | 156,511 | 160,669 | 1,476,519 |
| ¥717,691 | ¥690,880 | $6,770,670 | |
5. PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment at March 31, 1996 and 1995 were as follows:
| Millions of yen | Thousands of U.S. dollars |
||
| 1996 | 1995 | 1996 | |
|---|---|---|---|
| Land | ¥782,847 | ¥760,114 | $ 7,385,349 |
| Buildings and structures | 1,221,590 | 1,252,609 | 11,524,434 |
| Machinery and equipment | 3,965,708 | 4,110,467 | 37,412,340 |
| Construction in progress | 61,014 | 122,992 | 575,603 |
| ¥6,031,159 | ¥6,246,182 | $56,897,726 | |
Depreciation of property, plant and equipment for each of the three years in the period ended March 31, 1996 was as follows:
| Millions of yen | Thousands of U.S. dollars |
|||
| 1996 | 1995 | 1994 | 1996 | |
|---|---|---|---|---|
| ¥405,400 | ¥450,736 | ¥404,848 | $3,824,528 | |
6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
At March 31, 1996 and 1995, short-term borrowings and the current portion of long-term debt consisted of the following:
| Millions of yen | Thousands of U.S. dollars |
||
| 1996 | 1995 | 1996 | |
|---|---|---|---|
| Loans, principally from banks | ¥1,002,603 | ¥891,581 | $9,458,519 |
| Import bills payable | 164,666 | 194,785 | 1,553,453 |
| Commercial paper | 164,434 | 126,222 | 1,551,264 |
| Current portion of long-term debt | 467,707 | 509,038 | 4,412,330 |
| ¥1,799,410 | ¥1,721,626 | $16,975,566 | |
The annual interest rates applicable to short-term borrowings outstanding at March 31, 1996 and 1995 ranged principally from 0.6% to 8.0% and from 2.2% to 7.0%, respectively.
At March 31, 1996 and 1995, long-term debt consisted of the following:
| Millions of yen | Thousands of U.S. dollars |
||
| 1996 | 1995 | 1996 | |
|---|---|---|---|
| Debt with collateral: Loans from banks and other financial institutions due through 2019 at rates ranging from 0.9% to 8.5% |
¥312,565 | ¥385,633 | $2,948,726 |
| Debt without collateral: Loans from banks and other financial institutions due through 2026 at rates ranging from 0.7% to 11.7% |
999,836 | 998,708 | 9,432,415 |
| Bonds in ECUs and yen due through 2000 at rates ranging from 2.55% to 7.5% | 510,022 | 425,373 | 4,811,529 |
| Notes in U.S. dollars, Canadian dollars, Australian dollars, ECUs and yen due through 2000 at rates ranging from 6.0% to 11.9% | 70,822 | 123,291 | 668,132 |
| Dual currency yen/DM and yen/A$ notes due 1996 | 29,740 | 20,000 | 280,566 |
| Step-down coupon and zero coupon notes in yen and U.S. dollars due through 2000 | 35,451 | 44,794 | 334,443 |
| Floating rate notes in yen and U.S. dollars due through 1999 | 39,428 | 72,355 | 371,962 |
| Medium-term notes in U.S. dollars, yen and Canadian dollars due through 2002 at rates ranging from 6.08% to 9.05% | 30,028 | 44,376 | 283,283 |
| Euro medium-term notes in yen, U.S. dollars, ECUs and Australian dollars due through 2006 at rates ranging from 1.675% to 9.6% | 366,197 | 601,534 | 3,454,689 |
| 6.0% convertible bonds in pounds sterling due 1996 | - | 22 | - |
| 5.75% convertible bonds in U.S. dollars due 1998 | 30 | 38 | 283 |
| 1.6% convertible bonds in yen due 2003 | 2,692 | 2,743 | 25,396 |
| 2,396,811 | 2,718,867 | 22,611,424 | |
| Less current portion | 467,707 | 509,038 | 4,412,330 |
| ¥1,929,104 | ¥2,209,829 | $18,199,094 | |
Interest paid, including that portion recorded in cost of sales, for the years ended March 31, 1996, 1995 and 1994 amounted to ¥214,311 million ($2,021,802 thousand), ¥206,974 million and ¥211,063 million, respectively.
Convertible bonds, unless previously redeemed, are convertible into shares of common stock of the Company at various conversion prices as follows:
| Conversion price per share |
Conversion period | |
| 5.75% convertible bonds in U.S. dollars due 1998 | ¥636.40 | April 5, 1983 - |
| 1.6% convertible bonds in yen due 2003 | 732.00 | January 4, 1988 - |
At March 31, 1996, if all outstanding convertible bonds had been converted at the then current conversion prices, 3,724 thousand new shares would have been issuable.
The conversion price of each convertible bond is subject to adjustment in certain cases, which include stock splits. A sufficient number of shares of common stock is reserved for the conversion of all outstanding convertible bonds.
The maturities of long-term debt are as follows:
| Year ending March 31, | Millions of yen | Thousands of U.S. dollars |
| 1997 | ¥467,707 | $4,412,330 |
| 1998 | 455,266 | 4,294,962 |
| 1999 | 590,280 | 5,568,679 |
| 2000 and thereafter | 883,558 | 8,335,453 |
| ¥2,396,811 | $22,611,424 |
The assets pledged as collateral for short-term borrowings of ¥300,390 million ($2,833,868 thousand) and long-term debt of ¥210,910 million ($1,989,717 thousand) at March 31, 1996 were as follows:
| Millions of yen | Thousands of U.S. dollars |
|
| Cash | ¥250 | $2,358 |
| Notes receivable | 33,099 | 312,255 |
| Securities and investment securities | 13,436 | 126,755 |
| Property, plant and equipment, at net book value | 364,733 | 3,440,877 |
| Other | 991 | 9,349 |
| ¥412,509 | $3,891,594 |
In addition to the above, trade loans receivable and receivables relating to leased assets totaling ¥125,280 million ($1,181,887 thousand), which are not reflected in the accompanying consolidated balance sheets, were pledged as collateral for long-term debt of ¥106,047 million ($1,000,443 thousand) at March 31, 1996.
As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that collateral and guarantors for present and future indebtedness will be given upon request of the lending bank, with reasonable and probable cause, and that the bank shall have the right to offset cash deposits against any obligation that has become due or, in the event of default, against all obligations due to the bank. The Company has never been requested to provide additional collateral.
Certain of the agreements relating to long-term debt provide that the Company, if requested, be required to submit proposals for the appropriation of retained earnings and to report other significant matters to the lenders for their review and approval prior to presentation to the shareholders. No such requests to the Company have ever been made.
Notes and accounts payable at March 31, 1996 and 1995 consisted of the following:
| Millions of yen | Thousands of U.S. dollars |
||
| 1996 | 1995 | 1996 | |
|---|---|---|---|
| Notes and accounts payable: Unconsolidated subsidiaries and affiliates |
¥213,563 | ¥217,883 | $2,014,745 |
| Other | 531,728 | 513,305 | 5,016,302 |
| 745,291 | 731,188 | 7,031,047 | |
| Accrued expenses and other | 364,342 | 280,895 | 3,437,189 |
| ¥1,109,633 | ¥1,012,083 | $10,468,236 | |
The assets of the pension fund of the Company and its consolidated subsidiaries at December 31, 1995, the most recent valuation date, were ¥181,119 million ($1,708,670 thousand).
The components of "Other, net" in "Other income (expenses)" for each of the three years in the period ended March 31, 1996 were as follows:
| Millions of yen | Thousands of U.S. dollars |
|||
| 1996 | 1995 | 1994 | 1996 | |
|---|---|---|---|---|
| Dividend income | ¥5,256 | ¥5,698 | ¥6,779 | $49,585 |
| Net realized gain on sales of securities | 13,626 | 35,549 | 51,546 | 128,547 |
| Foreign exchange losses | (68,220) | (53,728) | (11,970) | (643,585) |
| Other | 30,498 | (3,755) | 5,739 | 287,718 |
| ¥(18,840) | ¥(16,236) | ¥52,094 | $(177,735) | |
Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax, inhabitants' taxes and enterprise tax, which, in the aggregate, resulted in statutory rates of approximately 51% for 1996 and 1995, and 52% for 1994. Income taxes of the foreign consolidated subsidiaries are based generally on the tax rates applicable in the countries of incorporation. The effective tax rates in the accompanying consolidated statements of operations differ from the statutory rates, primarily because of the effect of timing differences in the recognition of certain income and expenses for tax and financial reporting purposes, and the effects of permanently nondeductible expenses, tax credits for research and development expenditures, and foreign exchange gains and losses arising from the translation of the financial statements of the foreign consolidated subsidiaries.
The Company and its consolidated subsidiaries made income tax payments of ¥14,829 million ($139,896 thousand), ¥11,450 million and ¥9,117 million for the years ended March 31, 1996, 1995 and 1994, respectively.
In accordance with the provisions of the Commercial Code of Japan, the Company has provided a legal reserve as an appropriation of retained earnings. The legal reserve may be used to reduce a deficit or may be transferred to stated capital (common stock) through suitable shareholders' or directors' action but is not available for dividends.
Other changes in retained earnings for each of the three years in the period ended March 31, 1996 were as follows:
| Millions of yen | Thousands of U.S. dollars |
|||
| 1996 | 1995 | 1994 | 1996 | |
|---|---|---|---|---|
| Adjustments for revaluation of the accounts of the consolidated subsidiary in Mexico based on general price-level accounting (Note 1 (b)) |
¥7,868 | ¥66,889 | ¥198 | $74,227 |
| Adjustments of retained earnings at beginning of the year for inclusion in or exclusion from consolidation or the equity method of accounting for subsidiaries and affiliates, and certain other adjustments | 25,917 | 955 | (35,674) | 244,500 |
| ¥33,785 | ¥67,844 | ¥(35,476) | $318,727 | |
At March 31, 1996, the Company and its consolidated subsidiaries had the following contingent liabilities:
| Millions of yen | Thousands of U.S. dollars |
|
| As endorser of documentary export bills and trade notes receivable discounted with banks | ¥5,448 | $51,396 |
| As guarantor of employees' housing loans from banks and others | 225,986 | 2,131,944 |
| ¥231,434 | $2,183,340 |
Amounts per share of net loss are computed based on the weighted average number of shares of common stock outstanding during each year and amounts per share of net assets are computed based on the outstanding shares of common stock at each balance sheet date. Cash dividends per share represent the cash dividends proposed by the Board of Directors as applicable to the respective years, together with the interim cash dividends paid.
| Year ended March 31, | Yen | U.S. dollars | ||
| 1996 | 1995 | 1994 | 1996 | |
|---|---|---|---|---|
| Net loss | ¥(35.19) | ¥(66.09) | ¥(34.59) | $(0.332) |
| Cash dividends applicable to the year | 7.00 | 7.00 | 7.00 | 0.066 |
| March 31, | Yen | U.S. dollars | |
| 1996 | 1995 | 1996 | |
|---|---|---|---|
| Net assets | ¥539.90 | ¥568.74 | $5.093 |
Primary and fully diluted net loss per share for each of the three years in the period ended March 31, 1996 were the same as net loss per share divided by the weighted average number of shares of common stock outstanding during each year as shown above, since the effect of common stock equivalents and other convertible securities would have been antidilutive.
The Company and its consolidated subsidiaries are primarily engaged in the manufacture and sales of products in the automobile segment. These products, which are sold in Japan and overseas, principally North America and Europe, include passenger cars, buses and trucks as well as related components. As net sales, operating income (loss) and total assets from the automobile segment constituted more than 90% of the consolidated totals for the years ended March 31, 1996, 1995 and 1994, the disclosure of business segment information has been omitted.
Geographical segment information for the Company and its consolidated subsidiaries for the years ended March 31, 1996, 1995 and 1994 is as follows:
| Year ended March 31, 1996 | |||||
| Japan | Foreign | Total | Eliminations | Consolidated | |
| (Millions of yen) | |||||
| Sales to third parties | ¥3,425,643 | ¥2,613,464 | ¥6,039,107 | ¥- | ¥6,039,107 |
| Interarea sales and transfers | 1,078,558 | 54,668 | 1,133,226 | (1,133,226) | - |
| Total sales | 4,504,201 | 2,668,132 | 7,172,333 | (1,133,226) | 6,039,107 |
| Operating expenses | 4,444,021 | 2,703,479 | 7,147,500 | (1,151,628) | 5,995,872 |
| Operating income (loss) | ¥60,180 | ¥(35,347) | ¥24,833 | ¥18,402 | ¥43,235 |
| Total assets | ¥4,644,431 | ¥2,891,015 | ¥7,535,446 | ¥(443,852) | ¥7,091,594 |
| (Thousands of U.S. dollars) | |||||
| Sales to third parties | $32,317,387 | $24,655,321 | $56,972,708 | $- | $56,972,708 |
| Interarea sales and transfers | 10,175,075 | 515,736 | 10,690,811 | (10,690,811) | - |
| Total sales | 42,492,462 | 25,171,057 | 67,663,519 | (10,690,811) | 56,972,708 |
| Operating expenses | 41,924,726 | 25,504,519 | 67,429,245 | (10,864,414) | 56,564,831 |
| Operating income (loss) | $567,736 | $(333,462) | $234,274 | $173,603 | $407,877 |
| Total assets | $43,815,387 | $27,273,726 | $71,089,113 | $(4,187,283) | $66,901,830 |
| Year ended March 31, 1995 | |||||
| Japan | Foreign | Total | Eliminations | Consolidated | |
| (Millions of yen) | |||||
| Sales to third parties | ¥3,281,566 | ¥2,552,557 | ¥5,834,123 | ¥- | ¥5,834,123 |
| Interarea sales and transfers | 1,177,901 | 52,893 | 1,230,794 | (1,230,794) | - |
| Total sales | 4,459,467 | 2,605,450 | 7,064,917 | (1,230,794) | 5,834,123 |
| Operating expenses | 4,492,625 | 2,688,121 | 7,180,746 | (1,243,906) | 5,936,840 |
| Operating loss | ¥(33,158) | ¥(82,671) | ¥(115,829) | ¥13,112 | ¥(102,717) |
Had the accounting change discussed in Note 1 (c) been applied for the year ended March 31, 1995, the pro forma amount of operating loss from foreign operations would have been ¥34,961 million ($329,821 thousand), a decrease of ¥47,710 million ($450,094 thousand).
| Year ended March 31, 1994 | |||||
| Japan | Foreign | Total | Eliminations | Consolidated | |
| (Millions of yen) | |||||
| Sales to third parties | ¥3,325,564 | ¥2,475,293 | ¥5,800,857 | ¥- | ¥5,800,857 |
| Interarea sales and transfers | 1,150,276 | 10,398 | 1,160,674 | (1,160,674) | - |
| Total sales | ¥4,475,840 | ¥2,485,691 | ¥6,961,531 | ¥(1,160,674) | ¥5,800,857 |
Overseas sales, which include export sales of the Company and its domestic consolidated subsidiaries and sales (other than exports to Japan) of the foreign consolidated subsidiaries, totaled ¥2,911,169 million ($27,463,858 thousand), ¥2,895,204 million and ¥2,873,522 million, or 48.2%, 49.6% and 49.5% of the consolidated net sales for the years ended March 31, 1996, 1995 and 1994, respectively.
On June 27, 1996, at a meeting of the shareholders, the following appropriations of retained earnings were approved:
| Millions of yen | Thousands of U.S. dollars |
|
| Cash dividends (¥7.00 = $0.066 per share) | ¥17,589 | $165,934 |
| Transfer to legal reserve | 7 | 66 |
|
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