The accompanying consolidated financial statements include the accounts of the Company and significant companies, over which the Company has power of control through majori-ty voting rights or existence of certain conditions evidencing control by the Company. Investments in non-consolidated affiliates, over which the Company has the ability to exercise significant influence over operating and financial policies of
the investees, are accounted by the equity method.
In accordance with the revised Accounting Principles for Consolidated Financial Statements effective from the year ended March 31, 2000, a company which is substantially controlled by the Company is considered a subsidiary and included in the consolidation. In the prior years, only majori-ty-owned subsidiaries were consolidated.
The consolidated financial statements include the accounts of the Company and its fourteen (ten in 2000) significant subsidiaries. Inter-company transactions and accounts have been eliminated in the consolidation.
Two affiliates are accounted for by the equity method.
Investments in non-consolidated subsidiaries and affili-ates are stated at cost.
The difference between the cost of investments and equity in their net assets at the date of acquisition is charged or credited to income in the first year of consolidation.
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attrib-utable to minority shareholders, are evaluated using the fair value at the time the Company acquired control of the respective subsidiaries.
Statements of cash flows
In preparing the consolidated statements of cash flows, cash on hand, readily available deposits and short-term highly liquid investments with maturities of not exceeding three months at the time of purchase are considered to be cash and cash equivalents.
Securities and fund trust investments
Prior to April 1, 2000, listed securities included in mar-ketable securities and investments in securities are stated at the lower of moving average cost or market value. Other securities, including equity investments in unconsolidated subsidiaries and affiliates, are stated at moving average cost. Commencing with the year ended March 31, 1999, the Company records recoveries of write-downs of securities in accordance with a revision in the Corporation Tax Law. As provided in “ Accounting for Specified Money Trusts and Designated Fund Trusts” issued by the Japanese Institute of Certified Public Accountants, the Company and its consoli-dated subsidiaries adopted the basket cost method for stat-ing fund trust investments for the year ended March 31, 1999. From the year ended March 31, 2000, the Company and its consolidated subsidiaries adopted the lower of bas-ket cost or marbas-ket method to reflect the marbas-ket price of securities in the balance sheet to strengthen the Company’s financial condition. The change resulted in a decrease in
Derivatives and hedge accounting
The new accounting standard for financial instruments, effective from the year ended March 31, 2001, requires companies to state derivative financial instruments at fair value and to recognize changes in the fair value as gains or losses unless derivative financial instruments are used for hedging purposes.
Allowance for doubtful receivables
In the year ended March 31, 2000, the allowance for doubt-ful receivables was provided to cover possible losses on collection. It was determined by adding individually estimat-ed uncollectable amounts to an amount calculatestimat-ed by a for-mula as permitted by the Corporation Tax Law of Japan with respect to the remaining receivables.
Effective April 1, 2000, the Company adopted the new accounting standard for financial instruments and provided the allowance for doubtful accounts in the following manner.
For receivables from insolvent customers, who are undergo-ing bankruptcy or other collection proceedundergo-ings or in similar financial condition, the allowance for doubtful accounts is provided based on the evaluation of each customer’s finan-cial condition and the estimation of recoverable amounts due to the existence of security interests of guarantees. For other receivables, the allowance for doubtful accounts is provided based on the Company’s actual rate of collection losses in the past.
Inventories
Inventories are principally stated at cost, cost being deter-mined using the first-in, first-out method.
Depreciation and amortization
Property, plant and equipment are carried at cost. Depreciation is computed primarily using the declining-balance method for domestic companies and the straight-line method for an overseas subsidiary. In accordance with revisions of the Corporation Tax Law, buildings acquired after March 31, 1998 are depreciated using the straight-line method.
Amortization of intangible assets is computed by the straight-line method over periods prescribed primarily by Japanese tax law.
With respect to leased property and equipment, depreci-ation is provided on the straight-line method over lease periods.
Software costs
In accordance with the provisional rule of the JICPA’s Accounting Committee Report No. 12 “ Practical Guidance for Accounting for Research and Development Costs, etc.” , the Company and its consolidated subsidiaries included income before income taxes of ¥346 million for the year
ended March 31, 2000.
Effective April 1, 2000, the Companies adopted the new Japanese accounting standard for financial instruments (“ Opinion Concerning Establishment of Accounting Standard for Financial Instruments” issued by the Business Accounting Deliberation Council on January 22, 1999).
Upon applying the new accounting standard, all compa-nies are required to examine the intent of holding each security and classify those securities as (a) securities held for trading purposes (hereafter, “ trading securities” ), (b) debt securities intended to be held to maturity (hereafter, “ held-to-maturity debt securities” ), (c) equity securities issued by subsidiaries and affiliated companies, and (d) for all other securities that are not classified in any of the above cate-gories (hereafter, “ available-for-sale securities” ).
Trading securities are stated at fair market value. Gains and losses realized on disposal and unrealized gains and losses from market value fluctuations are recognized as gains or losses in the period of the change. Held-to-maturity debt securities are stated at amortized cost. Equity securi-ties issued by subsidiaries and affiliated companies which are not consolidated or accounted for using the equity method are stated at moving-average cost. Available-for-sale secu-rities with available fair market values are stated at fair mar-ket value. Unrealized gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate component of shareholders’ equity. Realized gains and losses on the sale of such securities are computed using moving-average cost.
Debt securities with no available fair market value are stated at amortized cost, net of the amount considered not collectible. Other securities with no available fair market value are stated at moving-average cost.
If the market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and affiliated companies, and available-for-sale securities declines significantly, such securities are stated at fair mar-ket value and the difference between fair marmar-ket value and the carrying amount is recognized as a loss in the period of the decline. If the fair market value of equity securities issued by unconsolidated subsidiaries and affiliated compa-nies not on the equity method is not readily available, such securities should be written down to net asset value with a corresponding charge in the income statement in the event net asset value declines significantly. In these cases, such fair market value or the net asset value will be the carrying amount of the securities at the beginning of the next year.
software in intangible assets and depreciates internal use software using the straight-line method over the estimated useful lives (five years).
Research and development expenses
The Company charges research and development expenses to income as incurred. Research and development expens-es amounted to ¥1,240 million and ¥1,656 million ($13,366 thousand) for the year ended March 31, 2000 and 2001, respectively.
Income taxes
The provision for income taxes is based on income for financial statement purposes. Deferred income taxes are recognized for the temporary differences between financial and tax reporting purposes. Income taxes comprise corpo-ration tax, enterprise tax, and prefectural and municipal inhabitants’ taxes.
Effective April 1, 1999, the Company adopted the new accounting standard for income taxes based on the asset and liability approach in accordance with the change of rules for consolidated financial statements under the Securities and Exchange Law. Prior years’ financial state-ments have not been restated.
The amount of deferred income taxes attributable to the net tax effects of the temporary differences at April 1,1999 is reflected as an adjustment to the retained earnings brought forward from the previous year.
Bonuses
The Company follows the general Japanese practice of pay-ing bonuses to employees in July and December. Accrued employees’ bonuses at the balance sheet date are calculat-ed bascalculat-ed upon management’s estimate of annual amounts.
Directors’ and statutory auditors’ bonuses, which are sub-ject to approval at the general meeting of shareholders, are accounted for as an appropriation of retained earnings.
Severance and retirement benefits (a) Employees
The Company and domestic consolidated subsidiaries pro-vide three kinds of post-employment benefit plans, unfund-ed lump-sum payment plans, a fundunfund-ed contributory pension plan, and a funded non-contributory pension plan, under which all eligible employees are entitled to benefits based on the level of wages and salaries at the time of retirement or termination, length of service and certain other factors.
The liability for employees’ retirement benefits for the year ended March 31, 1999 was stated at the amount which would be required if all employees covered by the unfunded
lump-sum plan voluntarily terminated their employment as of the balance sheet date, less the amount covered by the funded non-contributory pension plan. The liability for employees’ retirement benefits for the year ended March 31, 2000 is stated at the total of the amount which would be required if all employees covered by the retirement benefit plans voluntarily terminated their employment as of the bal-ance sheet date, plus an amount unfunded by the pension plan (present value of estimated future retirement benefits less the fair value of pension assets). This change was made to more appropriately account for retirement benefits and pension plans. This change resulted in a decrease in income before income taxes of ¥9,145 million for the year ended March 31, 2000.
Effective April 1, 2000, the Companies adopted the new accounting standard, “ Opinion on Setting Accounting Standard for Employees’ Severance and Pension Benefits” , issued by the Business Accounting Deliberation Council on June 16, 1998 (the “ New Accounting Standard” ).
Under the New Accounting Standard, the liabilities and expenses for severance and retirement benefits are deter-mined based on the amounts actuarially calculated using certain assumptions.
The Company and domestic consolidated subsidiaries provided for employees’ severance and retirement benefits at March 31, 2001 based on the estimated amounts of pro-jected benefit obligation and the fair value of the plan assets at that date.
The excess of the projected benefit obligation over the total of the fair value of pension assets as of April 1, 2000 and the liabilities for severance and retirement benefits recorded as of April 1, 2000 (the “ net transition obligation” ) amounted to ¥286 million ($2,308 thousand), all of which was recognized as an expense at April 1, 2000. Actuarial gains and losses are recognized as expenses using the straight-line method over the average of the estimated remaining service life commencing with the following period.
As a result of the adoption of the new accounting stan-dard, in the year ended March 31, 2001, income before income taxes decreased by ¥405 million ($3,269 thousand) compared with what would have been recorded under the previous accounting standard.
(b) Directors and statutory auditors
Directors and statutory auditors are not covered by these plans. However, liabilities for retirement benefits include amounts equal to management’s estimate of the amount payable to the Company’s (but not the consolidated
sub-Foreign currency translation
Short-term receivables and payables denominated in for-eign currencies are translated into Japanese yen at the year-end rates. Prior to April 1, 2000, long-term receivables and payable denominated in foreign currencies were trans-lated at historical rates.
Effective April 1, 2000, the Company and its consolidated subsidiaries adopted the revised accounting standard for foreign currency translation, “ Opinion Concerning Revision of Accounting Standard for Foreign Currency Translation” , issued by the Business Accounting Deliberation Council on October 22, 1999 (the “ Revised Accounting Standard” ).
Under the Revised Accounting Standard, long-term receiv-ables and payreceiv-ables denominated in foreign currencies are also translated into Japanese yen at the year-end rate. The effect on the consolidated income statement of adopting the Revised Accounting Standard was immaterial.
Financial statements of a consolidated overseas sub-sidiary are translated into Japanese yen at the year-end rate, except shareholders’ equity accounts that are translat-ed at historical rates.
Accounting for leases
Finance leases which do not transfer ownership and do not have bargain purchase provisions are accounted for in the same manner as operating leases under Japanese GAAP.
Reclassifications
Certain prior year amounts have been reclassified to conform to 2001 presentation. These changes had no impact on pre-viously reported results of operations or shareholders’ equity.
Net income per share
The computations of net income per share of common stock are based on the weighted-average number of shares outstanding during each period.
Dilutive net income per share is calculated assuming con-version of all dilutive convertible bonds at the beginning of the year.
Additional information
As a result of adopting the new accounting standard for financial instruments, income before income taxes decreased by ¥220 million ($1,776 thousand). Also, based on the exami-nation of the intent of holding each security upon application of the new accounting standard on April 1, 2000, held-to-maturity debt securities and available-for-sale securities
maturing within one year from the balance sheet date are included in current assets, and other securities are included in investments and non-current receivables. As a result, at April 1, 2000, securities in current assets decreased by
¥8,274 million ($66,780 thousand) and investment securities increased by the same amount compared with what would have been reported under the previous accounting policy.
3. MARKET VALUE INFORMATION ON SECURITIES