Contents
Showa Corporation manufactures and markets high-precision components for transport vehicles, including shock absorbers, power steering and drive-train system components for motor vehicles. The Company is the world’s leading maker of shock absorbers for automobiles and motorcycles.
Established in 1938, the Company began production of automotive parts in 1946, and in 1970 it became an affiliate of Honda Motor Co., Ltd., a leading manufacturer of automobiles and motorcycles. The Company was renamed Showa Corporation in 1993, when it merged with Seiki Giken Kogyo Co., Ltd., a power steering manufacturer. Showa was listed on the Second Section of the Tokyo Stock Exchange (TSE) in 1964 and on the TSE First Section in 1985.
Headquartered in Saitama Prefecture, Showa has established a domestic manufacturing base comprising five plants, three research and development laboratories and one consolidated subsidiary. The Company’s global business network comprises 30 operational bases in Japan and 16 other nations, including six consolidated subsidiaries overseas.
Showa Corporation’s business activities revolve around customer satisfaction, as shown by its credo “Responding to customer needs by providing the highest-quality products and best production.” At the same time, the Company strives to maintain its forward-looking stance and encourage continuing innovation in technology and corporate management.
Showa Corporation is equally concerned about environmental preservation for the benefit of future generations. To this end, it actively supports a range of environmental initiatives, especially in its product offerings and corporate activities.
Showa Corporation and its Group members in 16 nations around the globe embrace wholeheartedly the Company’s business philosophy described above, and the entire Showa Group is working all-out to expand its business, with the goal of bringing more benefits to its customers and shareholders, as well as to the communities and society in which it operates.
1 Financial and Operating Highlights 8 Showa’s Technology
5 Showa at a Glance 11 Financial Section
6 Mutually Complementary Parts 28 Corporate Network
2 Message from the President 10 Geographical Region Highlights
Profile
1 Financial and Operating Highlights SHOWA CORPORATION and Consolidated Subsidiaries
Financial and Operating Highlights
Years ended 31st March, 2001 and 2002
Thousands of
Millions of yen U.S. dollars
(except where noted) (except where noted)
2001 2002 2002
Net sales ... ¥154,726 ¥177,373 $1,331,129
Operating income... 7,867 12,012 90,146
Income before income taxes and minority interests... 5,810 11,546 86,649
Net income ... 3,329 6,788 50,941
Cash dividends paid during the period... 546 705 5,290
Total assets ... 97,164 105,259 789,936
Shareholders’ equity ... 42,718 53,914 404,607
Depreciation and amortisation ... 6,706 6,867 51,534
Capital expenditures ... 5,697 6,341 47,587
Per share amounts: Yen U.S. dollars
Net income (basic) ... ¥ 48.72 ¥ 94.49 $ 0.70
Net income (diluted) ... 43.07 89.38 0.67
Cash dividends ... 9.00 10.00 0.07
Net assets ... 625.09 741.62 5.56
Throughout this report, U.S. dollars amounts represent translation of Japanese yen, for convenience only, at the rate of ¥133.25=U.S.$1. The breakdown by geographic area is based on the degree of proximity to the geographic area.
• Major countries or areas that fall under a category other than “Japan” are the following: North America: United States, Canada
Others: Europe, South America, Southeast Asia
Financial Highlights
Thousands of
Millions of yen U.S. dollars
BUSINESS SEGMENTS 2001 2002 2002
Motor vehicle parts... ¥149,216 ¥ 172,348 $1,293,418 Other ... 5,509 5,025 37,711 Total ... ¥154,726 ¥ 177,373 $1,331,129
Thousands of
Millions of yen U.S. dollars
GEOGRAPHICAL AREAS 2001 2002 2002
Japan ... ¥ 89,915 ¥ 93,730 $ 703,414 North America ... 48,344 63,212 474,386 Others ... 16,466 20,430 153,320 Total ... ¥154,726 ¥ 177,373 $1,331,129
Message from the President
Medium-term Goal
Rapidly enhance product competitiveness, to build a sound foundation for a leading global company
Strategic Orientation
Establish a leading position in cost-competitiveness
Achieve and maintain the highest quality ranking
Gather the resources necessary for an integrated system manufacturer of chassis
Promote overseas business in scale and profit
Behavioral Guideline
Bolster synergetic strength, powered by open and wide-ranging communications
Target the maximum efficiency of all assets (human, physical and financial)
Utilize speed and action to attain global standards
Masahide Matsushima
PresidentBusiness Overview
Review of Fiscal 2002
D u r i n g t h e t e r m u n d e r r e v i e w , e n d e d 3 1 s t M a r c h , 2 0 0 2 , t h e Japanese economy showed signs of bottoming out. Some industries and export segments improved in response to widespread inventory adjustment and favorable foreign exchange trends. Nevertheless, the nation’s economy still remained depressed. Deflationary trends intensified with further deterioration in the labor market, sluggish consumer spending, and a decline in corporate investment. Sales of motor vehicle parts, our major business area, stagnated, after d o m e s t i c a n d e x p o r t s a l e s o f a u t o m o b i l e s a n d m o t o r c y c l e s decreased resulting in a decline in the overall production of both automobiles and motorcycles.
In this operating environment, the Showa Group boosted its sales. This was due mainly to a steady growth in sales at our major customers and favorable exchange rate of the yen. These sound sales also reflected the Group’s successful implementation of vari-ous programs. Specifically, the Group pushed forward a structural shop floor reform aimed to streamline productivity and accelerating cost reductions to bolster product competitiveness. The Group also accelerated programs for the globalization of production and procurement.
As a result of our efforts, our company achieved the following operating performance during the term. On the non-consolidated basis, sales increased 6.5% from the previous term, to ¥113,919 million (US$854 million). Operating income also went up 44.4% to ¥7,570 million (US$56 million). Net income, however, dipped 0.2% from the previous term, to ¥2,625 million (US$19 million) due mainly to an extraordinary loss of ¥1,827 million (US$13 million) recorded as a write-off of investment in a subsidiary’s shares f o l l o w i n g d e t e r i o r a t i o n i n p e r f o r m a n c e a t t h e c o n s o l i d a t e d subsidiary Showa Europe S.A.
Our company paid an annual dividend of ¥10.0 (US$0.07) per share including ¥5.0 (US$0.03) of the interim dividend.
Consolidated net sales increased 14.6% from the previous term, to ¥177,373 million (US$1,331 million) and operating income grew 52.7% to ¥12,012 million (US$90 million). Net income rose a sharp 103.9% to ¥6,788 million (US$50 million). In fact, sales as well as income during the term showed the best performance ever recorded by the Group.
Outlook for Fiscal 2003
Turning to the outlook for fiscal 2003, while we expect some signs of recovery in U.S. economy and corporate sectors, the Japanese economy will most likely remain in a prolonged downturn.
Under the unpredictable outlook of the automobile industry, both in Japan and North America, component manufacturers are required to implement and operate a system that reduces costs and enhances global supply chain network. These changes are in step with new procurement policies fostered by vehicle manufacturers. Consequently, increasingly intense competition will result in a harsh management environment.
Under these circumstances, our company will strive to enhance product competitiveness by improving R&D capabilities and cost-competitiveness to respond to customers’ needs. Furthermore, as a maker of comprehensive systems that exerts its collective strength worldwide, our company will promote the implementation of an enhanced procurement and production system with special empha-sis on mutual supply and local procurement. More specifically, we will push ahead with the following measures in each geographical region to strengthen our management base and to improve business performance:
Execution of Business Programs
In Japan, as a part of our integral program to increase in-house pro-duction and to consolidate domestic propro-duction bases, aluminum casting facilities at the Gotemba Plant will be moved to the Asaba Plant during 2002 to integrate the aluminum casting operation.
3
4
Facilities for producing power steering components at our
sub-sidiary Showa Seiko Co., Ltd. will be moved to and controlled by
our Gotemba Plant to streamline the production process of power
steering.
The head office and factories of Showa Seiko Co., Ltd. will be
transferred to within the premises of our Hadano Plant to establish
an integrated manufacturing system for producing automotive
components such as A/T spools.
Plant facilities for propeller shafts owned by Mitsubishi Motors
were acquired by Showa and were transferred to the Nagoya Plant.
As part of our initiative to increase in-house operation, new
facilities for plastic molding used for automotive components will
be installed at our Nagoya Plant. The reorganization of production
bases in Japan will enhance production efficiency and consequently
improve the competitiveness of our products.
In North America, our Canadian subsidiary began integrated
manufacturing of propeller shafts in the spring of 2002. The new
production lines are expected to help the Group to establish a
glob-al complementary system to supply propeller shafts, as the second
production base after our Nagoya Plant.
Our U.S. subsidiary will implement measures to make
produc-tion systems more robust and efficient with the aim of expanding
production in the future. This company is the core of foreign
opera-tions, and we are striving to strengthen the management base and to
improve profitability.
With regard to the European market, our company posted
eval-uation losses on shares of its Spanish subsidiary during the term
under review. Comprehensive programs to reshape the company’s
operational structure are being implemented, focusing its business
on shock absorbers for medium and large motorcycles in response
to a prolonged downturn in the small motorcycle market, as an
example.
In the United Kingdom, we completed integrated manufacturing
production lines for shock absorbers for automobiles during the
term under review. This plant will help us to make a production
structure that is not susceptible to foreign exchange fluctuation.
In the Asian market, there is a large, growing demand for
motorcycles and OEM are markedly increasing production. We are
optimistic about increasing production capacity to meet this
demand.
I n C h i n a , a p l a n t f o r m a n u f a c t u r i n g g a s s p r i n g s w a s
established in an export-processing zone in Shanghai. We plan to
transfer production facilities of gas springs from the Nagoya Plant
to the new plant for a full production line. Most of the components
will be procured locally. This plant aims to supply its products to
w o r l d w i d e m a r k e t s . I n a d d i t i o n , a n e w p r o c u r e m e n t c e n t e r ,
established in China at roughly the same time, will start procuring
and supplying components to various regions as a component
supply base.
T o t h i s e n d , w e a r e p u s h i n g a h e a d w i t h c o m p r e h e n s i v e
programs to improve the business performance of operations
worldwide.
Thank you for your continued support.
Masahide Matsushima President
Others North America
Japan Showa Corporation,
in Japan Other
Motor vehicle parts
Showa at a Glance
Outboard engine parts
Industrial machines
Shock absorbers for automobiles
Shock absorbers for motorcycles
Steering systems
Propeller shafts
Gas springs
Automatic transmission parts
Differential gears
Steering dampers
Other driving unit parts for automobiles and motorcycles
Power trim and tilt units for outboard engines
Cylinders
Pumps and motors
Various types of hydraulic cylinders
Office equipment parts Gas springs
Manufacturing machine facilities Manufacturing machine facilities
Business segment Major products
Shock absorbers for automobiles and motorcycles, steering systems, propeller shafts, gas springs, automatic transmission parts, differential gears, other driving unit parts for automobiles and motorcycles, power trim and tilt units for outboard engines, cylinders, pumps and motors, various types of hydraulic cylinders, manufacturing machine facilities, sintered parts, cushions for motorcycles
Area Major products
5 Showa at a Glance
Corresponding Segments and Products
Corresponding Areas and Products
U.S.A. Shock absorbers for automobile and motorcycles, steering systems
Canada Shock absorbers for automobiles, propeller shafts
Thailand Shock absorbers for automobiles and motorcycles Indonesia Shock absorbers for automobiles and motorcycles
Brazil Shock absorbers for motorcycles
6 Mutually Complementary Parts
Complete bottom tubes, gas springs and press parts for automobiles from Thailand to Indonesia
Fork pipes, springs and rods for motorcycles from Indonesia to Malaysia Propeller shafts for
automobiles from Canada to the U.K.
Rods for motorcycles from Indonesia to Spain
Rear cushions for motorcycles from Indonesia to Spain
Fork and sheet pipes for motorcycles from China to Spain
Complete bottom tubes, gas springs and press parts for automobiles from Thailand to Pakistan
Mutually Complementary Parts
7 Mutually Complementary Parts Complete bottom tubes, gas
springs and press parts for automobiles from Thailand to Malaysia
Fork pipes for motorcycles from China to Vietnam
Framework for mutually complementary parts supply (as of 2002) Framework for mutually complementary parts supply
Production base
Fork pipes Sheet pipes Rear cushions
Springs Rods for Motorcycles Propeller shafts
Complete bottom tubes Gas springs
8 Showa Technology
Showa’s Technology
AUTOMOBILES
Power steering
Power train
Variable displacement pump for hydraulic power steering
This revolutionary pump saves a high percentage of energy at the interlocking stage.
Pinion-assist electric power steering system (center-take-off type)
Developed for high-strength reduction gear and mini-high output motor applications in small vehicles. The CTO (center-take-off type) contributes to the car space saving.
Lightweight propeller shaft Weight reduction has been achieved while enhancing
strength, durability and quality.
Damper for cart racing Setup possible for all road conditions utilizing
Showa’s original three-way adjustment system.
Hypoid gear set (face hob cutting)
Reduction in noise and vibration levels as well as processing costs through face hob cutting have been achieved.
Category Product-by-product description Product name Description
Introducing Parts for Four-Wheeled Automobiles/Motor Vehicles
Gas springs
Aluminum gas spring Reduction in body weight achieved through the use of
aluminum.
High-reaction force-type gas spring Improvements in weight reduction and high-reaction
force have been achieved through the use of pipe rods.
Shock absorbers Remanufactured power steering
Remanufactured pump for hydraulic power steering
Remanufactured gear for hydraulic power steering
9 Showa Technology MOTORCYCLES Shock absorbers
Category Product-by-product description Product name Description
Road race suspension
Lightweight, high-rigidity inverted-type front forks and one-piece piggyback-type rear cushions provide improved response from road to driver.
Motocross suspension
This high-rigidity inverted free piston-type front fork gives both a soft feel and toughness.
10 Geographical Region Highlights
Geographical Region Highlights
Full-Scale Start toward Worldwide Optimum Production
Topics
■Expanded el ectri c power steeri ng product l i ne.
■Devel oped and pl aced automobi l e shock absorbers combi ni ng ri de qual i ty and dri vabi l i ty onto the market.
■Devel oped and pl aced a rear cushi on wi th stroke- dependent dampi ng force for motorcycl es onto the market.
Business Pr oject Developm ent s
■Integrated al umi num casti ng faci l i ti es from the Gotemba Pl ant to the Asaba Pl ant.
■Transferred power steeri ng parts producti on from our subsi di ary, Showa Sei ko Co., Ltd., to Showa’s Gotemba Pl ant.
■Rel ocated Showa Sei ko Co., Ltd. to our Hadano Pl ant, and establ i shed a framework for the i ntegrated producti on of A/ T spool s, etc.
■Transfer of producti on of M i tsubi shi M otors Corporati on’s propel l er shaft to our Nagoya Pl ant.
■Introducti on of pl asti c mol di ng faci l i ti es to the Nagoya Pl ant.
Japan
Topics
■Commenced propel l er shaft producti on i n Canada.
■Increased production in the United States due to improved sales conditions to our major customers.
Business Pr oject Developm ent s
■Commenced i ntegrated producti on of propel l er shafts i n Canada.
■Strengthened profi t- earni ng status due to i mprovements i n i n- house manufacturi ng of our U.S. subsi di ary.
Nor t h Am er ica
Topics
■Impl ementati on of wri te- offs of i nvestments i n our Spani sh subsi di ary due to deteri orati on i n busi ness resul ts.
■Increased producti on of el ectri c power steeri ng and shock absorbers for automobi l es i n the Uni ted Ki ngdom.
Business Pr oject Developm ent s
■Impl ementati on of restructuri ng pl an through an overhaul of the producti on i tems of our Spani sh subsi di ary.
■Commenced i ntegrated producti on of shock absorbers for automobi l es i n the Uni ted Ki ngdom.
Eur ope
Topics
■Establ i shed a new producti on and procurement base i n Shanghai , Chi na (schedul ed for 2002).
■Increased producti on of shock absorbers for automobi l es and motorcycl es i n Indonesi a and Thai l and.
Business Pr oject Developm ent s
■Schedul ed to commence producti on of power steeri ng i n Chi na and Thai l and from 2003.
■Schedul ed to commence producti on of gas spri ngs i n Chi na from 2003.
■Impl ementati on of the uti l i zati on of Asi a, wi th Chi na as i ts base, as the suppl y base of parts to Japan, Europe and Ameri ca.
Contents
12 Consolidated Financial Review
18 Consolidated Statements of Income
19 Consolidated Statements of Shareholders’ Equity 16 Consolidated Balance Sheets
20 Consolidated Statements of Cash Flows
27 Report of Independent Certified Public Accountants on the Consolidated Financial Statements
21 Notes to Consolidated Financial Statements
Financial Section
SHOWA CORPORATION and Consolidated Subsidiaries
Consolidated Financial Review
Year ended 31st March, 2002
Overview
Net Sales
Showa’s consolidated net sales for fiscal 2002, ended 31st March, 2002 totaled
¥177,373 million (US$1,331 million), up 14.6% from the previous term.
Operating Income
Consolidated operating income for the term grew a significant 52.7% from the
previous term, to ¥12,012 million (US$90 million) due to a combination of sales
increase and cost reduction achieved mainly by Showa in Japan and our subsidiary
in the United States.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses for the year rose 11.8% from the previous year to ¥16,843 million
(US$126 million) and accounted for 9.5% of net sales. SG&A expenses for the term
included R&D expenses of ¥5,477 million (US$41 million).
R&D Activities
As a manufacturer of high-precision components for transport vehicles, the Showa
Group (Showa and its consolidated subsidiaries) focuses on enhancing its product
development capabilities. In this way, it can respond to social needs quickly and
accurately by drawing on cutting-edge technologies in electronics and
miniaturization.
The Group’s R&D activities, centered on automotive components, are
undertaken mainly by Showa’s R&D Division. R&D expenses for the fiscal year
totaled ¥6,861 million (US$51 million).
The following is a summary of R&D activities for each business segment
during the term.
Motor Vehicle Parts
Following the expansion into a pinion-assist electric power steering system that
realizes both superior fuel performance and a compact and lightweight size, the
Group recently introduced “end-take-off type,” for new automobile models as a
follow-up to “center-take-off type” thus widening the range of electric power
steering products. Another product the Group unveiled was a shock absorber for
automobiles that employed a special technological feature to ensure a comfortable
ride and driving stability.
In the motorcycle parts segment, the Group marketed a rear cushion with
stroke-dependent damping force.
R&D expenses in the motor vehicle parts segment amounted to ¥6,653 million
(US$49 million).
180 (Billions of yen)
135 90 45 0 ’98 144.2 ’99 133.4 ’00 133.7 ’01 154.7 ’02 177.3 120 100 (Billions of yen)
80
60
40
20
0
’98 ’99 ’00 ’01
95.3 36.2 95.4 37.6 96.0 40.4 97.1 42.7 ’02 105.2 53.9 750 625 (Yen) 500 375 250 125 0 530.8 551.0 592.0 625.0 741.6 10 (Billions of yen)
8
6
4
2
0
’98 ’99 ’00 ’01
3.2 2.0 2.3 3.3 ’02 6.7 (Yen) 100 80 60 40 20 0 48.1 30.3 34.4 48.7 94.4 Net Sales Net Income/
Net Income per Common Share
Total Assets/ Shareholders’ Equity/
Shareholders’ Equity per Common Share
Net Income
Net Income per Common Share
Shareholders’ Equity per Common Share Total Assets
Shareholders’ Equity
Other
R&D expenses for other products totaled ¥208 million (US$1 million).
R&D Expenses by Business Segment
Income before Income Taxes and Minority Interests
Consolidated income before income taxes and minority interests for fiscal 2002totaled ¥11,546 million (US$86 million), up 98.7% from the previous term.
Equity in Earnings of Affiliates
The Group’s equity in earnings of affiliates for the fiscal year rose 72.5% from the
previous year to ¥346 million (US$2 million). The increase was mainly due to the
addition of Nissin Showa UK Ltd. as a company for which the equity method of
accounting was adopted, in light of the significant role it plays in the Showa Group.
Net Income
Net income for the term went up 103.9% from the previous term to ¥6,788 million
(US$50 million).
Cash Flows
Consolidated cash and cash equivalents (hereafter, “cash”) at the fiscal year-end
totaled ¥10,193 million (US$76 million), up ¥2,534 million (US$19 million), or
33.1%, from the previous fiscal year-end, compared to income before income
taxes and minority interests of ¥11,546 million (US$86 million), depreciation and
amortisation of ¥6,867 million (US$51 million), purchases of property, plant and
equipment of ¥6,463 million (US$48 million) and a decrease in long-term
borrowings of ¥1,029 million (US$7 million).
Net cash provided by operating activities fell ¥257 million (US$1 million), or
2.2%, to ¥11,709 million (US$87 million). Although there was an increase in
income before income taxes and minority interests, which was supported by a
solid growth in sales and cost reduction, the decrease in payables brought about
this slight decline.
Net cash used in investing activities fell ¥2,650 million (US$19 million), or
28.8%, to ¥6,565 million (US$49 million). Even though property, plant, and
equipment were newly purchased, acquisition costs were reduced because of
efficient capital investment.
Net cash used in financing activities decreased ¥3,257 million (US$24
million), or 54.7%, to ¥2,702 million (US$20 million). This decline
was attributable to the fact that although there was a decrease in
long-term borrowings, the redemption of convertible bonds fell compared with the
previous year.
Millions of yen
2001 2002
Motor vehicle parts ... ¥5,840 ¥6,653
Other... 192 208
Total ... ¥6,033 ¥6,861
7.5 (Billions of yen)
6.0 4.5 3.0 1.5 0 ’98 5.1 ’99 5.6 ’00 6.1 ’01 6.0 6.8 ’02 14 (Percent) 10 12 8 6 4 2 0
’98 ’99 ’00 ’01
9.5 5.6 6.0 8.0 14.0 ’02 10 (Billions of yen)
8
6
4
2
0
’98 ’99 ’00 ’01 ’02
9.6 7.4 6.77.1 5.3 6.9 5.6 6.7 6.3 6.8 R&D Expenses Capital Expenditures/
Depreciation Return on Equity
Capital Expenditures Depreciation Note: From the fiscal year beginning April 1, 2000, the above
totals include sales and administrative expenses related to R&D expenses.
Capital Expenditures
Capital investment by the Showa Group totaled ¥6,341 million (US$47 million)
and was primarily used for production facilities for automotive components.
In the motor vehicle parts segment, Showa’s capital expenditures were mainly
used to expand the production capacity of electric power steering models in
production facilities and to change the specifications of shock absorbers for
automobiles. American Showa Inc. undertook capital investment in processing
lines for power steering models and production facilities for shock absorbers for
automobiles. Showa do Brasil Ltda., our Brazilian consolidated subsidiary,
invested in facilities to raise production capacity of shock absorbers for
motorcycles. The combined total of capital investment for motor vehicle parts
reached ¥6,152 million (US$46 million).
Funds required for capital investment were provided from the Group’s own
funds as well as from borrowings.
Production capacity was not affect by the dismantling or sales of production
facilities.
Capital Expenditures by Business Segment
Segment Information
Business Segment
Motor Vehicle Parts
Japan
In the motor vehicle parts segment, sales of automotive components increased,
with our sound sales driven by the brisk sales of recreation vehicles (RVs) of our
major domestic customers as well as an extensive growth in export of electric
power steering systems and shock absorbers, mainly to the United Kingdom. The
motorcycle parts business suffered a drop in sales of shock absorbers and
components for buggy cars.
North America
In the automotive components segment in North America, American Showa Inc.
boosted sales of shock absorbers and power steering parts, in response to brisk
sales enjoyed by the our major customers. Sales by our Canadian subsidiary also
rose dramatically, supported by a sharp jump in sales of suspension modules.
In the motorcycle components segment, our U.S. subsidiary recorded
substantial growth in sales of shock absorbers, as their primary customers
continued to enjoy healthy sales. This sound growth was partly attributable to
increased local procurement during the term.
Others
In other areas, a sharp rise in demand enabled our subsidiaries in Indonesia and
Thailand to post increased sales of shock absorber for automobiles and
motorcycles. Our Brazilian subsidiary, manufacturing motorcycle shock absorbers,
also posted higher sales than the previous year. Our subsidiary in Spain showed
overall growth supported by steady sales of shock absorbers for large-sized
motorcycles, in spite of shrinking demand in Europe for small-sized motorcycles
and subsequent sluggish sales of their shock absorbers.
As a result, net sales in the motor vehicle parts segment increased 15.5%
from the previous term, to ¥172,348 million (US$1,293 million). Operating income
surged 53.5% to ¥11,227 million (US$84 million), as a result of a combination of
sales increase and cost reduction achieved mainly by Showa Corp. in Japan and
our subsidiary in the United States.
Other
With the production increases of our customers in the United Kingdom as a
backdrop, export to our U.K. affiliate of facilities for manufacturing automobile
components expanded. However, sales of outboard engine components for foreign
markets continued to decline, leading the overall sales drop in this segment from
the previous year.
As a result, net sales dropped 8.8%, to ¥5,025 million (US$37 million), but
operating income went up 41.8%, to ¥785 million (US$5 million).
Marine products, classified as an independent segment in the previous term,
recorded net sales of ¥3,674 million (US$27 million), operating income of ¥663
million (US$4 million) and total assets of ¥2,571 million (US$19 million). Since
these figures were comparatively small, figures for marine products were included
in other products in the term under review. The comparison with the previous term
described above is based on the new classification.
Millions of yen
2001 2002
Motor vehicle parts ... ¥5,571 ¥6,152 Other... 116 182 Total ... ¥5,687 ¥6,335 Eliminations or corporate ... 9 6 Consolidated ... ¥5,697 ¥6,341
Net Sales and Operating Income by Business Segment
[Reference] Non-Consolidated Net Sales
by Business Segment
Geographical Segment
Japan
Sales of automotive components rose, in response to buoyant sales of RVs in the
domestic market and a marked increase in the export of electric power steering
systems and shock absorbers mainly to the United Kingdom. However, in the
motorcycle components segment, sales of shock absorbers and components for
buggy cars declined. With regard to other, although export of facilities for
manufacturing automobile components expanded because of production increases
of our major customer in the United Kingdom, sales of outboard engine
components for foreign markets continued to decline, leading to an overall sales
drop from the previous year.
As a result, net sales in Japan for the term increased 5.9% from the previous
term, to ¥112,612 million (US$845 million) and operating income rose 43.8% to
¥7,637 million (US$57 million).
North America
American Showa Inc. enjoyed an expansion in sales of automotive components,
such as power steering parts and shock absorbers supported by healthy sales
recorded by its primary customers. Our Canadian subsidiary also saw sales of
automotive components rise as a result of a substantial increase in sales of
suspension modules. In the motorcycle component segment, American Showa
Inc., recorded a sharp rise in sales of shock absorbers, as a result of its major
customers continuing to post strong sales and further development of the local
procurement system.
As a result, net sales in North America advanced 30.7% to ¥63,428 million
(US$476 million) and operating income sharply surged 111.3% to ¥3,488 million
(US$26 million).
Others
A sharp rise in demand benefited our subsidiaries in Indonesia and Thailand,
which boosted their sales of shock absorbers for automobiles and motorcycles.
Our Brazilian subsidiary also increased sales of motorcycle shock absorbers,
thanks to a strong demand for motorcycles. Our subsidiary in Spain showed an
overall growth in sales supported by a steady demand for shock absorbers for
large-sized motorcycles, in spite of shrinking demand in Europe for small-sized
motorcycles and subsequent sluggish sales of their shock absorbers.
As a result, net sales in other regions for the term rose 22.9% to ¥20,786
million (US$155 million) and operating income also expanded 22.3% to ¥1,757
million (US$13 million).
Net Sales and Operating Income
by Geographical Segment
Millions of yen2001 2002
Automotive components ... ¥067,488 ¥072,497 Motorcycle components... 34,339 34,920 Motor vehicle parts ... ¥101,827 ¥107,418 Other components ... 5,158 6,501 Total... ¥106,985 ¥113,919
Millions of yen
2001 2002
Operating Operating
Net sales income Net sales income
Japan ... ¥106,366 ¥5,310 ¥112,612 ¥07,637 North America... 48,536 1,650 63,428 3,488 Others ... 16,910 1,436 20,786 1,757 Total ... ¥171,812 ¥8,397 ¥196,827 ¥12,883 Elimination or
corporate... (17,086) (530) (19,453) (870) Consolidated... ¥154,726 ¥7,867 ¥177,373 ¥12,012
Millions of yen
2001 2002
Operating Operating
Net sales income Net sales income
Motor vehicle parts ... ¥149,216 ¥7,313 ¥172,348 ¥11,227 Other... 5,509 553 5,025 785 Total ... ¥154,726 ¥7,867 ¥177,373 ¥12,012
15
SHOWA CORPORATION and Consolidated Subsidiaries
Consolidated Balance Sheets
31st March, 2001 and 2002
Thousands of Millions of yen U.S. dollars (Note 3)
ASSETS 2001 2002 2002
Current assets:
Cash on hand and in banks (Note 8)... ¥007,713 ¥010,193 $(076,495 Notes and accounts receivable:
Trade ... 18,214 17,995 135,046 Unconsolidated subsidiaries and affiliates... 11,178 13,795 103,527 Allowance for doubtful receivables ... (304) (46) (345) Inventories (Note 4) ... 11,684 13,230 99,287 Deferred tax assets (Note 7) ... 1,682 2,261 16,968 Prepaid expenses and other current assets ... 904 687 5,155 Total current assets... 51,074 58,117 436,150
Investments and long-term advances:
Investments in unconsolidated subsidiaries and affiliates ... 8,573 9,462 71,009 Other investments in securities (Note 5) ... 1,462 1,308 9,816 Deferred tax assets (Note 7) ... 120 15 112 Long-term prepaid expenses... 51 54 405 Excess of cost over net assets acquired ... 72 36 270 Other investments ... 1,050 1,158 8,690 Total investments and long-term advances... 11,331 12,034 90,311
Property, plant and equipment, at cost:
Land (Note 6)... 4,047 4,145 31,106 Buildings and structures ... 21,124 22,091 165,786 Machinery, vehicles and equipment ... 82,801 89,108 668,727 Construction in progress... 802 1,166 8,750
108,776 116,511 874,378
Accumulated depreciation ... (74,060) (81,483) (611,504) Property, plant and equipment, net ... 34,715 35,027 262,866
Other assets ... 42 80 600 Total assets ... ¥097,164 ¥105,259 $(789,936
Thousands of Millions of yen U.S. dollars (Note 3)
LIABILITIES AND SHAREHOLDERS’ EQUITY 2001 2002 2002
Current liabilities:
Short-term borrowings (Note 6) ... ¥03,608 ¥003,283 $024,637 Current portion of long-term debt (Note 6) ... 1,024 1,048 7,864 Notes and accounts payable:
Trade ... 25,044 23,568 176,870 Construction... 608 710 5,328 Unconsolidated subsidiaries and affiliates... 749 1,103 8,277 Other... 553 1,554 11,662 Accrued income taxes (Note 7) ... 1,817 2,770 20,787 Accrued expenses and other current liabilities ... 4,244 4,464 33,500 Total current liabilities... 37,649 38,503 288,953
Long-term liabilities:
Long-term debt (Note 6) ... 9,016 5,340 40,075 Accrued retirement benefits (Note 10)... 1,046 1,719 12,900 Deferred tax liabilities (Note 7) ... 733 469 3,519 Other... 3,293 1,922 14,424 Total long-term liabilities... 14,090 9,451 70,926
Minority interests ... 2,705 3,390 25,440
Shareholders’ equity:
Common stock, ¥50 par value in 2001 and no par value in 2002: Authorised: 180,000,000 shares
Issued:
31st March, 2001 — 68,340,302 shares... 10,341 — — 31st March, 2002 — 72,703,032 shares... — 11,680 87,654 Capital surplus... 11,216 12,547 94,161 Retained earnings ... 21,643 27,660 207,579 Net unrealised holding gain on securities... 3,167 3,378 25,350 Translation adjustments ... (3,649) (1,346) (10,101) Less treasury stock, at cost ... (0) (3) (22) Total shareholders’ equity ... 42,718 53,914 404,607 Total liabilities and shareholders’ equity... ¥97,164 ¥105,259 $789,936
See accompanying notes to consolidated financial statements.
17
SHOWA CORPORATION and Consolidated Subsidiaries
Consolidated Statements of Income
Years ended 31st March, 2001 and 2002
Thousands of Millions of yen U.S. dollars (Note 3)
2001 2002 2002
Net sales (Note 12) ... ¥154,726 ¥177,373 $1,331,129 Cost of sales... 131,787 148,517 1,114,574 Gross profit... 22,938 28,856 216,555
Selling, general and administrative expenses ... 15,071 16,843 126,401 Operating income ... 7,867 12,012 90,146
Other income (expenses):
Interest and dividend income... 279 284 2,131 Interest expense ... (759) (517) (3,879) Exchange loss ... (535) (103) (772) Loss on sale and disposal of property, plant and equipment ... (320) (105) (787) Equity in earnings of affiliates... 200 346 2,596 Write-off of investments in unconsolidated subsidiaries and affiliates... (614) — — Other, net... (306) (369) (2,769)
(2,056) (465) (3,489)
Income before income taxes and minority interests ... 5,810 11,546 86,649
Income taxes (Note 7):
Current... 3,383 4,878 36,607 Deferred... (1,495) (828) (6,213)
1,888 4,050 30,393
Minority interests ... (592) (707) (5,305) Net income (Note 11) ... ¥003,329 ¥006,788 $0,050,941
See accompanying notes to consolidated financial statements.
SHOWA CORPORATION and Consolidated Subsidiaries
Consolidated Statements of Shareholders’ Equity
Years ended 31st March, 2001 and 2002
Thousands of Millions of yen U.S. dollars (Note 3)
2001 2002 2002
Common stock:
Beginning of year ... ¥10,341 ¥10,341 $ 77,606 Add:
Conversion of convertible bonds ... — 1,339 10,048 End of year ... ¥10,341 ¥11,680 $ 87,654
Capital surplus:
Beginning of year ... ¥11,216 ¥11,216 $ 84,172 Add:
Conversion of convertible bonds ... — 1,330 9,981 End of year ... ¥11,216 ¥12,547 $ 94,161
Retained earnings:
Beginning of year ... ¥18,905 ¥21,643 $162,424 Add:
Net income ... 3,329 6,788 50,941 Deduct:
Cash dividends paid ... 546 705 5,290 Bonuses to directors and statutory auditors ... 44 48 360 Adjustments for inclusion in the equity method ... — 18 135 End of year ... ¥21,643 ¥27,660 $207,579
Net unrealised holding gain on securities:
Beginning of year ... ¥ — ¥03,167 $ 23,767 Net change during the year ... 3,167 210 1,575 End of year ... ¥03,167 ¥3,378 $ 25,350
Translation adjustments:
Beginning of year ... ¥ — ¥ (3,649) $ (27,384) Net change during the year ... (3,649) 2,302 17,275 End of year ... ¥ (3,649) ¥ (1,346) $ (10,101)
Treasury stock, at cost:
Beginning of year ... ¥ (0) ¥ (0) $ (0) Net change during the year ... (0) (3) (22) End of year ... ¥ (0) ¥ (3) $ (22)
See accompanying notes to consolidated financial statements.
19
SHOWA CORPORATION and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Years ended 31st March, 2001 and 2002
Thousands of Millions of yen U.S. dollars (Note 3)
2001 2002 2002
Cash flows from operating activities:
Income before income taxes and minority interests ... ¥05,810 ¥11,546 $(86,649 Depreciation and amortisation... 6,706 6,867 51,534 Amortisation of excess of cost over net assets acquired ... 60 36 270 Increase (decrease) in allowance for doubtful receivable ... 216 (261) (1,958) Increase in accrued retirement benefits ... 440 673 5,050 Write-off of investments in unconsolidated subsidiaries and affiliates ... 614 — — Exchange loss, net ... 439 263 1,973 Equity in earnings of affiliates, less dividends ... (200) (346) (2,596) Loss on sale and disposal of property, plant and equipment ... 320 105 787 Increase in trade receivables ... (5,171) (1,384) (10,386) Increase in inventories ... (529) (550) (4,127) Increase (decrease) in trade payables ... 4,886 (2,309) (17,328) Other, net ... (1,627) (2,929) (21,981) Net cash provided by operating activities... 11,966 11,709 87,872
Cash flows from investing activities:
Purchases of property, plant and equipment... (9,089) (6,463) (48,502) Proceeds from sale of property, plant and equipment... 42 107 803 Purchases of other investments in securities ... (85) (141) (1,058) (Increase) decrease in loans receivable... (29) 25 187 Other, net ... (55) (93) (697) Net cash used in investing activities... (9,215) (6,565) (49,268)
Cash flows from financing activities:
Increase (decrease) in short-term borrowings... 24 (878) (6,589) Decrease in long-term borrowings ... (1,998) (1,029) (7,722) Redemption of convertible bonds... (3,366) — — Cash dividends... (546) (705) (5,290) Cash dividends to minority shareholders ... (72) (84) (630) Other, net ... — (3) (22) Net cash used in financing activities ... (5,959) (2,702) (20,277)
Effect of exchange rate changes on cash and cash equivalents ... (44) 92 690 Net (decrease) increase in cash and cash equivalents... (3,252) 2,534 19,016 Cash and cash equivalents at beginning of year... 10,911 7,658 57,470 Cash and cash equivalents at end of year (Note 8) ... ¥07,658 ¥10,193 $(76,495
Supplemental disclosures of cash flow information: Cash paid for:
Interest... ¥00,758 ¥00,526 $(03,947 Income taxes ... 2,471 3,795 28,480
See accompanying notes to consolidated financial statements.
1. Basis of Preparation
SHOWA CORPORATION (the “Company”) and its domestic subsidiaries maintain their accounting records in accordance with accounting principles and practices generally accepted and applied in Japan, and foreign subsidiaries of the Company maintain their books of account in conformity with those of their countries of domicile. The accompany-ing consolidated financial statements have been compiled from the consolidated financial statements prepared by the Company as required under the Securities and Exchange Law of Japan and, therefore, have been prepared in conformity with accounting principles and practices generally accepted and applied in Japan, which may differ in certain material respects from accounting principles and practices generally accepted in countries and jurisdictions other than Japan.
In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information.
As permitted by the Securities and Exchange Law of Japan, amounts of less than one million yen have been omitted. Consequently, the totals shown in the accompanying con-solidated financial statements (both in yen and U.S. dollars) do not necessarily agree with the sums of the individual amounts.
Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year’s presentation.
2. Summary of Significant Accounting Policies
(a) Basis of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Affiliates
The accompanying consolidated financial statements include the accounts of the Company and companies controlled directly or indirectly by the Company. Companies over which the Company exercises significant influence in terms of their operating and financial poli-cies have been included in the consolidated financial statements on an equity basis. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in subsidiaries and affiliates which are not consolidated or 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.
The excess of cost over underlying net assets at fair value at the date of acquisition is amortised over a period of five years on a straight-line basis.
(b) Foreign Currency Translation
The revenue and expense accounts of the foreign consolidated subsidiaries are translated into yen at the average rate of exchange in effect during the year. Except for shareholders’ equity, the balance sheet accounts are translated at the rate of exchange in effect at the bal-ance sheet date. The components of shareholders’ equity are translated at their historical exchange rates.
Due to a change effective the year ended 31st March, 2001 in the regulations relating to the presentation of translation adjustments, translation adjustments have been pre-sented as a component of shareholders’ equity and minority interests in consolidated sub-sidiaries (instead of as a component of assets and liabilities) in its consolidated financial statements.
(c) Investments in Securities
A new accounting standard for financial instruments, which became effective 1st April, 2000, requires that securities other than those of subsidiaries and affiliates be classified into three categories; trading, held-to-maturity or other securities. Under the new standard, trading securities are carried at fair value and held-to-maturity securities are carried at amortised cost. Marketable securities classified as other securities are carried at fair value
with changes in unrealised holding gain or loss, net of the applicable income taxes, directly included in shareholders’ equity. Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average method. (d) Inventories
Inventories of the Company and its consolidated subsidiaries are principally stated at cost determined by the average method.
(e) Property, Plant and Equipment and Depreciation
Property, plant and equipment is stated at cost. Depreciation of property, plant and equip-ment of the Company and its consolidated subsidiaries is computed principally by the declining-balance method.
(f) Research and Development Costs
Research and development costs are charged to income as incurred.
Included in manufacturing costs and general and administrative expenses was ¥6,033 million and ¥6,861 million ($51,489 thousand) of research and development costs for the years ended 31st March, 2001 and 2002, respectively.
(g) Leases
Non-cancelable leases of the Company and its domestic consolidated subsidiary are accounted for as operating leases (whether such leases are classified as operating or finance leases) except for lease agreements stipulating the transfer of ownership of the leased assets to the lessee which are accounted for as finance leases. However, leases of the foreign consolidated subsidiaries are generally classified and accounted for as either finance leases or operating leases.
(h) Retirement Benefits
In accordance with a new accounting standard for employees’ retirement benefits which became effective 1st April, 2000, accrued retirement benefits for employees of the Company and its domestic consolidated subsidiary as of 31st March, 2001 and 2002 have been provided principally at an amount calculated based on the retirement benefit obliga-tion and the fair value of the pension plan assets as of the balance sheet date, as adjusted for the unrecognised net retirement benefit obligation at transition, unrecognised actuarial gain or loss and unrecognised prior service cost. The retirement benefit obligation has been attributed to each period by the straight-line method over the estimated years of service of the eligible employees.
Net retirement benefit obligation at transition is being amortised principally over 15 years. Prior service cost is being amortised as incurred by the straight-line method over 15 years which are shorter than the average remaining years of service of the employees. Actuarial gain or loss is being amortised in the year following the year in which the gain or loss is recognised by the declining-balance method over 15 years which are shorter than the average remaining years of service of the employees.
In addition, directors and statutory auditors of the Company and of certain consoli-dated subsidiaries are customarily entitled to lump-sum payments under their respective unfunded retirement allowances plans. The provisions for retirement allowances for these officers have been made at an estimated amount.
(i) Derivative Financial Instruments
The Company and certain consolidated subsidiaries have used forward foreign exchange contracts and interest rate and currency swap agreements in order solely to hedge against risks of adverse fluctuations in foreign currency exchange rates and interest rates. The Company and consolidated subsidiaries do not enter into such financial instruments for trading or speculative purposes.
In accordance with a new accounting standard for financial instruments which became effective 1st April, 2000, derivatives are carried at fair value, with any changes in unrealised gain or loss charged or credited to operations, except for those which meet the SHOWA CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
21
criteria for deferral hedge accounting under which unrealised gain or loss is deferred as an asset or a liability.
(j) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities, and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse.
(k) 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 to be held subsequent to the close of such financial year. The amounts for that year do not, therefore, reflect such appropriations.
3. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for the conve-nience of readers outside Japan and has been made, as a matter of arithmetic computation only, at the rate of ¥133.25 = U.S.$1.00, the exchange rate prevailing at 31st March, 2002. The translation should not be construed as a representation that yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.
4. Inventories
Inventories consisted of the following:
Thousands of Millions of yen U.S. dollars
31st March, 2001 2002 2002
Finished goods ... ¥02,304 ¥02,302 $17,275 Work in process ... 2,010 2,097 15,737 Raw materials and supplies... 7,370 8,830 66,266 ¥11,684 ¥13,230 $99,287
5. Securities
Information regarding marketable securities classified as other securities as of 31st March, 2001 and 2002 are as follows:
Millions of yen
Unrealised 31st March, 2001 Acquisition cost Carrying value gain (loss)
Securities whose carrying value exceeds their acquisition cost:
Stocks ... ¥1,158 ¥6,779 ¥5,621 Debt securities ... — — — Other ... — — — Subtotal... 1,158 6,779 5,621
Securities whose acquisition cost exceeds their carrying value:
Stocks ... 323 267 (56) Debt securities ... — — — Other ... — — — Subtotal... 323 267 (56) Total... ¥1,481 ¥7,046 ¥5,564
Millions of yen
Unrealised
31st March, 2002 Acquisition cost Carrying value gain (loss) Securities whose carrying
value exceeds their acquisition cost:
Stocks ... ¥1,010 ¥6,931 ¥5,921 Debt securities ... — — — Other ... — — — Subtotal... 1,010 6,931 5,921
Securities whose acquisition cost exceeds their carrying value:
Stocks ... 281 281 — Debt securities ... — — — Other ... — — — Subtotal... 281 281 — Total... ¥1,291 ¥7,212 ¥5,921
Thousands of U.S. dollars Unrealised
31st March, 2002 Acquisition cost Carrying value gain (loss) Securities whose carrying
value exceeds their acquisition cost:
Stocks ... $7,579 $52,015 $44,435 Debt securities ... — — — Other ... — — — Subtotal... 7,579 52,015 44,435
Securities whose acquisition cost exceeds their carrying value:
Stocks ... 2,108 2,108 — Debt securities ... — — — Other ... — — — Subtotal... 2,108 2,108 — Total... $9,688 $54,123 $44,435
6. Short-Term Borrowings and Long-Term Debt
Short-term borrowings are unsecured with average interest rates of 5.67 per cent. for 2001 and 3.99 per cent. for 2002.
Long-term debt consisted of the following:
Thousands of Millions of yen U.S. dollars
31st March, 2001 2002 2002
Bonds without collateral: 0.5 per cent. convertible
bonds due 2004 ... ¥04,700 ¥(2,030 $15,234 Secured loans from
local government ... 323 243 1,823 Unsecured loans
from banks ... 5,016 4,114 30,874
10,040 6,388 47,939
Current portion... (1,024) (1,048) (7,864) ¥09,016 ¥(5,340 $40,075
The 0.5 per cent. convertible bonds, unless previously redeemed, are convertible at any time up to and including 24th March, 2004, into shares of common stock of the Company at the option of the holders at a conversion price of ¥612, per share, at 31st March, 2001 and 2002.
At 31st March, 2002, if all the outstanding convertible bonds had been converted at the then current conversion price, 3,316 thousand new shares would have been issued. Under the provisions of the issue, the conversion price is subject to adjustment in certain cases which include stock splits.
The annual maturities of long-term debt subsequent to 31st March, 2002 are sum-marised as follows:
Thousands of Year ending 31st March, Millions of yen U.S. dollars
2003 ... ¥1,048 $07,864 2004 ... 4,734 35,527 2005 ... 445 3,339 2006 ... 160 1,200 ¥6,388 $47,939
The Company’s assets pledged as collateral for long-term debt at 31st March, 2001 and 2002 were as follows:
Thousands of Millions of yen U.S. dollars
31st March, 2001 2002 2002
Land ... ¥542 ¥542 $4,067
7. Income Taxes
Income taxes applicable to the Company and its domestic consolidated subsidiary com-prised corporation tax, enterprise tax and inhabitants’ taxes which, in the aggregate, resulted in a statutory tax rate of 41.6 per cent. for both 2001 and 2002. Income taxes of the foreign consolidated subsidiaries are based generally on the tax rates applicable in their countries of incorporation.
The effective tax rates reflected in the consolidated statements of income for the years ended 31st March, 2001 and 2002 differ from the statutory tax rate for the following reasons:
2001 2002
Statutory tax rate... 41.6)% 41.6)% Effect of:
Expenses not deductible for income
tax purposes... 2.8)% 0.6)%
Different tax rates applied to
foreign subsidiaries ... (7.9)% (5.3)%
Foreign tax credits... (3.5)% (1.8)%
Other, net ... (0.5)% 0.0)%
Effective tax rates... 32.5)% 35.1)%
The significant components of deferred tax assets and liabilities as of 31st March, 2001 and 2002 were as follows:
Thousands of Millions of yen U.S. dollars
2001 2002 2002
Deferred tax assets:
Accrued bonuses ... ¥(0,524 ¥(0,704 $(05,283 Accrued enterprise tax ... 157 239 1,793 Deferred tax assets
recognised by foreign
subsidiaries ... 983 874 6,559 Accrued retirement benefits .... 382 755 5,666 Write-off of investments in
unconsolidated subsidiaries
and affiliates... — 255 1,913 Unrealised profit... 390 495 3,714 Net operating loss
carryforwards ... 798 623 4,675 Other ... 1,450 1,545 11,594 Total gross deferred tax assets ... 4,685 5,494 41,230 Valuation allowance... (798) (623) (4,675) Total deferred tax assets ... 3,887 4,871 36,555
Deferred tax liabilities: Deferred tax liabilities
recognised by foreign
subsidiaries ... (530) (593) (4,450) Net unrealised holding gain
on securities... (2,256) (2,406) (18,056) Other ... (30) (64) (480) Total deferred tax liabilities ... (2,817) (3,064) (22,994) Net deferred tax assets... ¥(1,069 ¥(1,806 $(13,553
8. Supplementary Cash Flow Information
a) Cash Equivalents in the Consolidated Statements of Cash Flows
The Company and consolidated subsidiaries consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
b) Cash and Cash Equivalents
Cash on hand and in banks reported in the consolidated balance sheets and cash and cash equivalents reported in the consolidated statements of cash flows are reconciled as follows:
Thousands of Millions of yen U.S. dollars
31st March, 2001 2002 2002
Cash on hand and in banks reported in the consolidated
balance sheets... ¥7,713 ¥10,193 $76,495 Time deposits with a maturity
of more than three months... (54) — —
Cash and cash equivalents reported in the consolidated
statements of cash flows ... ¥7,658 ¥10,193 $76,495
9. Leases
The following pro forma amounts represent the acquisition costs, accumulated deprecia-tion and net book value of leased assets, which would have been reflected in the consoli-dated balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases:
23
Thousands of Millions of yen U.S. dollars
31st March, 2001 2002 2002
Acquisition costs:
Equipment... ¥3,121 ¥3,023 $22,686 Other assets... 308 319 2,393
¥3,429 ¥3,343 $25,088
Accumulated depreciation:
Equipment... ¥2,412 ¥2,378 $17,846 Other assets... 206 237 1,778
¥2,618 ¥2,616 $19,632
Net book value:
Equipment... ¥0,709 ¥0,644 $04,833 Other assets... 101 82 615 ¥0,811 ¥0,727 $05,455
Lease payments relating to finance leases accounted for as operating leases amounted to ¥435 million and ¥382 million ($2,866 thousand) for the years ended 31st March, 2001 and 2002, respectively, which were equal to the depreciation expense of the leased assets computed by the straight-line method over the respective lease terms.
Future minimum lease payments subsequent to 31st March, 2002 for finance leases accounted for as operating leases are summarised as follows:
Thousands of Year ending 31st March, Millions of yen U.S. dollars
2003 ... ¥303 $2,273 2004 and thereafter ... 424 3,181
¥727 $5,455
10. Retirement Benefit Plans
The Company has defined benefit pension plans, i.e., a welfare pension fund plan, a tax-qualified pension plan and a lump-sum payment plan, covering substantially all employ-ees who are entitled to lump-sum or annuity payments, the amounts of which are deter-mined by reference to their basic rates of pay, length of service, and the conditions under which termination occurs. Its domestic consolidated subsidiary has a tax-qualified pen-sion plan as a defined benefit penpen-sion plan. Certain foreign consolidated subsidiaries have defined contribution plans in addition to their defined benefit plans.
The following table sets forth the funded and accrued status of the plans, and the amounts recognised in the consolidated balance sheets as of 31st March, 2001 and 2002 for the Company’s and its consolidated subsidiaries’ defined benefit plans:
Thousands of Millions of yen U.S. dollars
31st March, 2001 2002 2002
Retirement benefit obligation ... ¥(23,787) ¥(28,407) $(213,185) Plan assets at fair value... 14,248 14,880 111,669 Unfunded retirement
benefit obligation... (9,539) (13,526) (101,508) Unrecognised net retirement
benefit obligation at transition ... 7,721 7,170 53,808 Unrecognised actuarial loss... 1,822 5,605 42,063 Unrecognised prior service
cost (credit) ... (877) (818) (6,138) Prepaid pension expenses ... 173 150 1,125 Accrued retirement benefits... ¥ (1,046) ¥ (1,719) $ (12,900)
The government-sponsored portion of the benefits under the welfare pension fund plans has been included in the amounts shown in the above table.
The components of retirement benefit expenses for the years ended 31st March, 2001 and 2002 are outlined as follows:
Thousands of Millions of yen U.S. dollars
Year ended 31st March, 2001 2002 2002
Service cost ... ¥1,605 ¥1,526 $11,452 Interest cost ... 680 713 5,350 Expected return on plan assets ... (564) (569) (4,270) Amortisation of net retirement
benefit obligation at transition ... 551 551 4,135 Amortisation of actuarial loss... — 258 1,936 Amortisation of prior
service cost... (9) (59) (442) Total... ¥2,262 ¥2,421 $18,168
The assumptions used in accounting for the above plans are as follows:
2001 2002
Discount rates ... 3.0% Primarily 2.5% Rates of expected return on plan assets ... 4.0% Primarily 4.0%
11. Amounts Per Share
Yen U.S. dollars
Year ended 31st March, 2001 2002 2002
Net income:
Basic ... ¥48.72 ¥94.49 $0.70 Diluted... 43.07 89.38 0.67 Cash dividends ... 9.00 10.00 0.07
Yen U.S. dollars
31st March, 2001 2002 2002
Net assets... ¥625.09 ¥741.62 $5.56
The computation of basic net income per share is based on the weighted average number of shares of common stock outstanding during each year. Diluted net income per share is computed based on the weighted average number of shares of common stock out-standing during each year after giving effect to the dilutive potential of the shares of the common stock to be issued upon the conversion of convertible bonds.
Cash dividends per share represent the cash dividends declared as applicable to the respective years together with the interim cash dividends paid.
Net assets per share are based on the number of shares outstanding at the respective balance sheet dates.
12. Related Party Transactions
The Company is a 33.8 per cent.-owned affiliate of Honda Motor Co., Ltd. (Honda). Consolidated net sales included those to Honda in the amounts of ¥57,792 million and ¥59,780 million ($488,630 thousand) for the years ended 31st March, 2001 and 2002, respectively.
The terms of transactions referred to above were negotiated and have been deter-mined on an arm’s-length basis.
13. Segment Information
The Company and consolidated subsidiaries are primarily engaged in the manufacture and sale of products in Japan and overseas, in one major segment: the motor vehicle parts segment. Effective 1st April, 2001, the Company has included the “Marine Products” segment in the “Other” segment because such segment became immaterial. In this connection, the Company restated the previously reported business segment information for the year ended 31st March, 2001.
The business and geographical segment information for the Company and consolidated subsidiaries for the years ended 31st March, 2001 and 2002 is outlined as follows:
Business segments
Year ended 31st March, 2001 Millions of yen
Eliminations
Motor vehicle parts Other Total or corporate Consolidated
I. Sales and operating income
Sales to third parties ... ¥149,216 ¥5,509 ¥154,726 ¥ — ¥154,726 Intergroup sales and transfers ... — — — — — Total sales... 149,216 5,509 154,726 — 154,726 Operating expenses... 141,903 4,955 146,859 — 146,859 Operating income... ¥007,313 ¥0,553 ¥0,7,867 ¥ — ¥007,867
II. Assets, depreciation and capital expenditures
Total assets... ¥079,341 ¥2,615 ¥,81,957 ¥15,206 ¥097,164 Depreciation... 6,319 372 6,691 14 6,706 Capital expenditures ... 5,571 116 5,687 9 5,697
Year ended 31st March, 2002 Millions of yen
Eliminations
Motor vehicle parts Other Total or corporate Consolidated
I. Sales and operating income
Sales to third parties ... ¥172,348 ¥5,025 ¥177,373 ¥ — ¥177,373 Intergroup sales and transfers ... — — — — — Total sales... 172,348 5,025 177,373 — 177,373 Operating expenses... 161,121 4,240 165,361 — 165,361 Operating income... ¥011,227 ¥0,785 ¥012,012 ¥ — ¥012,012 II. Assets, depreciation and capital expenditures
Total assets... ¥082,926 ¥3,467 ¥086,394 ¥18,865 ¥105,259 Depreciation... 6,552 301 6,854 12 6,867 Capital expenditures ... 6,152 182 6,335 6 6,341
Year ended 31st March, 2002 Thousands of U.S. dollars
Eliminations
Motor vehicle parts Other Total or corporate Consolidated
I. Sales and operating income
Sales to third parties ... $1,293,418 $37,711 $1,331,129 $ — $1,331,129 Intergroup sales and transfers ... — — — — — Total sales... 1,293,418 37,711 1,331,129 — 1,331,129 Operating expenses... 1,209,163 31,819 1,240,983 — 1,240,983 Operating income... $00,84,255 $05,891 $0,090,146 $ — $00,90,146 II. Assets, depreciation and capital expenditures
Total assets... $0,622,333 $26,018 $0,648,360 $141,575 $0,789,936 Depreciation... 49,170 2,258 51,437 90 51,534 Capital expenditures ... 46,168 1,365 47,542 45 47,587
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