ANNUAL REPORT
2008
Financial and Operating Highlights ... 1
Message from the President ... 2
10th Interim Operational Policies ... 3
Showa’s Technology ... 4
Review of Operations ... 6
Showa’s Global Network ... 8
Topics ... 10
Contents
Profile
Forward-looking statements:
Forward-looking statements made in this annual
report concerning performance or business
strategies have been determined according to
assumptions and beliefs based on information
available at the time and contain elements of risk
and uncertainty.
Financial Section ... 12
Corporate Information ... 30
Board of Directors and Corporate Auditors ... 31
Corporate Data ... 31
Showa Corporation manufactures and markets high-precision components for motor vehicles
including shock absorbers, steering systems and drive train products for automobiles, and
motorcycles, as well as components for outboard marine engines. The company is one of the
leading manufacturers of shock absorbers for automobiles and motorcycles in the world today.
Established in 1938 the company began motor vehicle parts production in 1946. In 1970 the
company became affiliated with Honda Motor Co., Ltd., a leader of automobiles and motorcycles
manufacturing of the world today. When merged with Seiki Giken Kogyo Co., Ltd., a power
steering products manufacturer, the company was renamed “Showa Corporation” in 1993.
In 1964 Showa’s shares were listed on second section of Tokyo Stock Exchange (TSE), then in
1985 the company shares were upgraded to first section of TSE.
Headquartered in Gyoda City, Saitama Pref., Japan, Showa operates five manufacturing plants,
three research & development facilities and two affiliated manufacturers within Japan.
The company’s global business operation, a network of twenty-seven manufacturing facilities
that includes twelve consolidated subsidiaries, spreads over 12 nations including Japan. (*)
Showa Corporation’s business activities revolve around customer satisfaction, as emphasized
by the company principle “To meet customer needs with highest quality and most competitive
product.” Furthermore, at Showa, we strive to maintain our forward-looking stance and continue
to encourage technological, operational and administrative innovation.
Environmental preservation for the benefit of future generation is a great concern and a
continuing theme at Showa Corporation. We actively support a range of environmental
preservation initiatives through our product offerings and corporate activities.
Showa Corporation and its global affiliates embrace the company
’
s business philosophy
described above. The company and its affiliates strive to expand their business providing more
benefits to our customers and shareholders as well as to the communities and societies where we
operate.
1
Financial and Operating Highlights
SHOWA CORPORATION and Consolidated Subsidiaries Years ended 31st March, 2007 and 2008
• Throughout this report, U.S. dollar amounts have been translated from Japanese yen solely for the convenience of the reader at the rate of ¥100.19=U.S.$1.00, the exchange rate prevailing at 31st March, 2008.
• The breakdown by geographic area is based on the degree of proximity to the geographic region. • Major countries or regions that fall under a category other than “Japan” are following:
North America: United States, Canada Europe: Spain, U.K.
Southeast Asia: Thailand, Indonesia, Malaysia, Vietnam Others: South America, China, India, Pakistan, Taiwan
*Figures exclude the intra-group transactions.
Financial Highlights
Millions of yen
Thousands of
U.S. dollars
2007
2008
2008
Net sales
¥ 261,897
¥ 283,370
$ 2,828,330
Operating income
17,698
13,663
136,379
Income before income taxes and minority interests
16,137
13,549
135,236
Net income
9,083
6,597
65,845
Cash dividends paid during the period
1,519
2,127
18,026
Total assets
170,042
187,778
1,874,220
Shareholders’ equity
110,740
117,127
1,169,054
Depreciation and amortisation
7,107
8,732
87,163
Capital expenditures
17,400
21,975
219,333
Per share amounts:
Yen
U.S. dollars
Net income (basic)
¥
119.56
¥ 86.84
$
0.86
Cash dividends
24.00
28.00
0.27
Shareholders’ equity
1,285.76
1,330.96
13.28
Operating Highlights
NET SAlES BY BUSINESS SEGMENTS
Millions of yen
Thousands of
U.S. dollars
2007
2008
2008
Motor vehicle parts
¥ 255,985
¥278,195
$ 2,776,679
Others
5,911
5,174
51,651
Total
¥ 261,896
¥283,370
$ 2,828,330
NET SAlES BY GEOGRAPHICAl AREAS*
Millions of yen
Thousands of
U.S. dollars
2007
2008
2008
Japan
¥ 105,056
¥108,864
$ 1,086,583
North America
80,104
80,802
806,492
Europe
18,628
21,333
212,928
Southeast Asia
27,826
30,947
308,888
Others
30,280
41,422
413,437
2
Message from the President
We are pleased to present this summary of our
consolidated results for the 100th term (from April 1, 2007
to March 31, 2008) as follows.
looking at the operating environment that surrounded
the Showa Group (hereinafter, “the Group”) during the
fiscal year under review, the economies of the United
States and other developed nations continued to slow,
influenced by factors such as the subprime housing loan
crisis in the United States and the appreciation of crude
oil and raw material prices. As a consequence, automobile
markets in these economies flagged. In Japan, a steady
business recovery gradually lost steam, resulting in a
year-on-year decline in the number of cars sold in the domestic
market. Meanwhile, generally favorable economic growth
was recorded in China, Brazil and Southeast Asia, and
automobile demand in these markets strengthened. In this
operating environment, we took steps to establish a
production infrastructure by starting mass production at
its new operating bases in China, India and Thailand, and
by stepping up operational restructuring in North
America. In addition, we instituted measures to expand
and upgrade its production and procurement systems—
which tap into its worldwide network of production
facilities—and to bolster its global quality control system.
As a result of these initiatives, consolidated net sales
for the fiscal year under review rose 8.2% from the
previous fiscal year, to ¥283,370 million, backed by
growth in demand attributable to strong market
conditions in Brazil and China, and also reflecting
favorable foreign exchange rates.
Moving on to income, consolidated operating income
fell 22.8% year on year, to ¥13,663 million, owing to
greater production infrastructure establishment costs,
including expenses for launching mass production at new
bases, and start-up expenses for increasing production
and responding to new car models, and greater expenses
for transferring production items between bases.
Consolidated ordinary income fell 24.0% year on year, to
¥14,254 million, and consolidated net income declined
27.4% year on year, to ¥6,597 million.
Showa chose to set year-end dividends for the fiscal
year under review at ¥14 per share, the same amount it
had paid in the previous fiscal year. As a result, the
Company’s annual dividends for the fiscal year under
review totaled ¥28 per share, including interim dividends
of ¥14 per share.
In the automotive industry, business growth is set to
continue in Asia, centering on China, and South America.
Meanwhile, operating conditions in the United States,
Europe and Japan are likely to remain challenging,
reflecting local economies. Operating conditions for the
Group, including trends in crude oil and raw materials
prices, the effects of currency exchange rates, and
concern over the entry of Chinese manufacturers into
markets around the globe, will remain difficult. There is
no room for complacency.
Recognizing this, we are resolved to push forward
with measures to bolster quality, technology and
production, and to improve its operating infrastructure,
while responding flexibly to the demands of customers
worldwide.
We ask our shareholders for their continued support
in the years to come.
June 2008
Message from the President
Kazuto Iiyama
3
10th Interim Operational Policies
(From April 1, 2008 to March 31, 2011)
The Showa Group (hereinafter “the Group”) has established a medium-term business plan for the period from April 2008 to
March 2011. In the plan, the Group adopted a number of basic policies. Namely, we seek to establish the corporate
foundations for the future by achieving world-class quality and technologies, accompanied by workplace restructuring to
facilitate human resource development. We will take action based on the following five basic strategies, to achieve the targets
set in the medium-term business plan:
1
Production base restructuring
Anticipating further operational expansion worldwide, the Group is continuing to expand its operations to meet customer
demand. Showa will seek to restructure its production infrastructure, to develop optimal production systems on a global scale
and a system in which its facilities worldwide complement each other. With these initiatives, we aim to meet customer needs
with greater flexibility, and, at the same time, develop an efficient production system that takes advantage of the Group’s
collective strength.
2
Realization of world-class quality
The Group consists of functional parts manufacturers. As such, its survival depends on product quality and the customer
confidence deriving from that quality. To maintain and increase customer confidence around the world, Showa will continue
with its comprehensive commitment to improving quality. As part of this commitment, we trace problems back to the product
origins, including early development stages and material selection, and take full action to establish a global quality control
method compliant with the characteristics of bases around the globe.
3
Refining world-leading technological capabilities
Showa aspires to develop innovative new mechanisms by expanding and upgrading its basic research, which is directed at
improving the functions of its family of products, by initiating joint product development involving R&D departments, and by
improving simulation technologies to study the influences of product specifications on finished vehicles. At the same time, we
will aim to strengthen technologies that contribute to innovations in development processes and production lines.
4
Taking corporate value to the highest level in the industry
Showa will take aggressive action to improve its operating revenue, ranging from steady improvements in manufacturing
basics, including the development of an efficient production system that completely eliminates practices that are impossible,
irregular or wasteful, to dramatic efficiency improvements through technical innovation. We aim to raise its corporate value to
the highest level in the industry by fulfilling its corporate social responsibilities, including global corporate governance
reinforcement, in addition to taking steps to obligations to improve revenue and ensure consistent product supply.
5
Development of a corporate culture for personnel training
The teamwork of employees in a broad array of assigned roles, including those who control the quality of parts and products
and those who develop products and production facilities, in addition to those who engage in production itself, is essential for
the stable production of competitive products. For this reason, and with a renewed awareness that “individuals” are the original
foundation for companies, Showa will review its human resources systems—including its management and education
4
Showa’s Technology
Automotive Components
1. Shock Absorbers
3. Propeller Shafts
2. Steering Systems
Pump
HPS
4. Differential Gears
EPS
Among the automobile components, great impor tance is placed on
the performance and reliability of steering systems. In addition to
accurately transmitting the driver’s steering operations to the
automobile, the steering system is the man/machine interface
delivering information on running conditions from the automobile
to the driver. “Power Steering system” refer to a component added
to assist steering efforts and provide drivers with comfortable
maneu ver ability. Power Steering systems are classified into
hydraulic power steering system (HPS), which uses the engine’s
power as a drive source, and electric power steering system (EPS),
utilizing the vehicle’s battery. Showa has a full line of power
steering models.
Shock absorbers are critical products that
determine an automobile’s character, not only by
improving ride quality but also by functioning to
control the attitude and stability of the automobile
body. Because of their superior performance and
quality, Showa brand shock absorbers have
earned the satisfaction of customers around the
world. Showa has many years of experience with
strut modules, and is also working on suspension
modules combined with peripheral components.
The role of a differential mechanism
is to absorb the difference in rotation
between the right and left wheels
that occurs when an automobile is
cornering. These products demand
durability, transmission efficiency,
and quiet operation. Showa’s
differ-ential gears achieve weight reduction
while exhibiting highperformance,
from subcompact cars to SUVs.
5
5. Gas Springs
2. Drive Unit Products
Motorcycle Components
Power Trim and Tilt Units
Gas springs assist the opening and
closing of automobile engine
compart ment hoods and rear
gates, by using gas reaction force.
They are also equipped with
speed-adjustment devices that
enable operators to open and
close the hood and trunk at
opti-mal speed. To answer diverse
needs, Showa develops a variety
of products.
Power trim and tilt units can actively
change the outboard engine angle, and
provide the following three functions.
The trim function provides good screw
efficiency and steady cruising by
adjust ing the angle of the outboard
engine while running. The tilt function
enables owners to prevent outboard
engine damage from shellfish
adhe-sions, by raising the outboard engine
above the water’s surface when
moored. When driftwood or other
objects strike the outboard engine
while under way, shocks are absorbed,
helping to prevent damage to the
outboard engine and boat.
Outboard Engine Components
Rear cushion
The rear cushion is attached to the
rear fork directly or through a link.
By con trolling the attitude and energy
absor ption of the motorcycle body, the
rear cushion improves the ability of
the rear wheel to follow road contours.
For motorcycle and ATV drive unit
products, Showa has achieved lighter
weights through analysis of functions,
shapes, and materials, while
main-taining excellent durability,
trans-mission efficiency, and quiet
operation.
1. Shock Absorbers
Showa motorcycle shock absorbers
are used extensively in various
motorcycle races around the world.
From racing machines to scooters, we
put our technology and experience to
excellent use to meet a wide variety
of performance needs.
Front fork
6
Review of Operations
Breakdown of our consolidated net sales
By product, net sales of motorcycle components
increased 3.6% from the previous fiscal year, to 86,250
million yen. Net sales for automobile components grew
11.1% year on year, to 191,950 million yen.
Net sales of other products, most of which are
motorboat components, declined 12.5% year on year, to
5,170 million yen.
By destination, net sales of motorcycle components
for Japan plummeted, mainly because of lower domestic
sales. In contrast, net sales of automobile components
for Japan, centering on power steering systems, rose
domestically. As a result, total net sales for Japan rose
2.8% year on year, to 102,340 million yen.
In North America, net sales declined on a local
currency basis for both the United States and Canada.
However, total net sales for North America increased
0.8% year on year, to 80,870 million yen, because of
the weakening of the yen.
In South America, net sales of motorcycle
components and automobile components for Brazil
increased, thanks to favorable customer conditions. For
the region, net sales rose at an impressive year-on-year
rate of 37.1%, to reach 26,290 million yen, assisted in
part by the yen’s weakening against local currencies.
In Europe, net sales were higher for both
automobile components for Britain and motorcycle
components for Spain. Again, because of the yen’s
depreciation, net sales for the region climbed 16.9%
year on year, to 21,720 million yen.
In Southeast Asia, net sales remained unchanged for
motorcycle and automobile components for Thailand.
Meanwhile, net sales for Indonesia increased, the result
of a market recovery. Total net sales for Southeast Asia
expanded sharply at a year-on-year rate of 13.6%, to
32,020 million yen, attributable to increased demand
for motorcycle components and automobile
components, and the weaker yen.
By product By customer’s location
0 100 200 300 0 100 200 300
’07 ’08 ’07 ’08
261.8 Other 5.9 Motorcycle components 83.2 261.8 80.2 18.5 44.3 99.5 Automotive components 172.7 19.1 283.3 5.2 191.9 86.2 283.3 80.8 26.2 21.7 52.1 102.3 0 50 100 150 200 By product 0 50 100 150 200 ’08 ’08 ’07 ’07
By customer’s location
172.7
Drive train products 22.1 Power steering systems 70.8 Shock absorbers 55.6 Others 24.1 172.7 68.6 69.5 11.2 21.6 EPS 28.5 1.5 191.9 25.6 84.2 59.2 22.8 38.6 191.9 70.4 76.2 13.3 29.5 2.4
In China, net sales of motorcycle components
increased slightly. However, total sales for the region
climbed 24.3% year on year, to 16,300 million yen, the
result of a substantial rise in sales of automobile
components.
Net sales for other regions declined 24.8% from the
previous fiscal year, to 3,830 million yen.
Sales of motorcycle components
By product, net sales grew 4.5% year on year, to
84,440 million yen for shock absorbers. By contrast,
net sales of drive unit parts declined 24.9% year on
year, to 1,810 million yen. As a result, total net sales of
motorcycle components grew 3.6% year on year, to
86,250 million yen.
By destination, net sales for Japan declined 15.5%
year on year, to 21,300 million yen, owing primarily to
a fall in sales domestically.
Net sales for North America fell 5.4% year on year,
to 10,260 million yen, influenced by the strike at a
major manufacturer.
Net sales for South America rose substantially at a
year-on-year rate of 35.6%, to 23,860 million yen,
because of increased demand from Honda, which was
performing strongly, and the effects of favorable
currency exchange rates.
Net sales for Europe grew slightly on a local
currency basis. On a yen basis, however, net sales for
the region expanded 14.9% from the previous fiscal
year, due in part to the effects of the yen’s depreciation
against local currencies.
In Southeast Asia, net sales for Thailand rose 0.6%
year on year, in spite of flagging markets and the
impact of fuel price increases. Net sales for Indonesia
grew 3.6% year on year, as the market recovered from
its contraction in the previous year. Total net sales for
the region rose 1.5% year on year, to 20,750 million
yen, again reflecting in part the weaker yen.
Net sales for China declined 19.6% from the
previous fiscal year, to 370 million yen.
Automotive components
(Billions of yen)Fiscal 2008 Results
7
Net sales for other regions fell 5.3% year on year, to
1,340 million yen.
Sales of automobile components
Total net sales for automobile components
increased 11.1% from the previous fiscal year, to
191,950 million yen. By product, net sales for shock
absorbers grew 6.5% year on year, to 59,230 million
yen. Net sales for power steering systems also climbed
18.9% year on year, to 84,240 million yen. Among
power steering systems, net sales of Electrical Power
Steering systems jumped 35.2% year on year, to 38,640
million yen.
Net sales of drive train parts increased, led by a
surge in demand for propeller shafts, sales of which
rose 15.8% year on year, to 25,630 million yen.
Suspensions sub-assembled in Canada and brake
components manufactured in Britain accounted for
nearly all net sales achieved by other products, which
declined 5.4% year on year, to 22,850 million yen.
By destination, net sales of shock absorbers for
Japan rose slightly, and net sales of power steering
systems and drive unit parts for Japan increased. As a
result, net sales for Japan climbed 9.6% from the
previous fiscal year, to 76,250 million yen.
In North America, net sales of shock absorbers for
the United States fell. We also posted a decline in net
sales of power steering systems for the United States,
attributable to the partial transfer of Hydraulic Power
Steering (HPS) pump production to Canada.
Meanwhile, net sales for Canada increased, as the
effects of the HPS pump production transfer and
greater sales achieved by drive unit parts more than
offset weaker demand for sub-assembled suspensions.
As a result, net sales for North America dropped
slightly on a local currency basis. On a yen basis,
however, net sales for the region expanded 2.6% year
on year, to 70,420 million yen, influenced by the
weaker exchange value of the yen.
Real net sales, excluding the effects of foreign
exchange, fell 1.8% year on year for shock absorbers
0 25 50 75 100 25 50 75 100 By product 0
By customer’s location
’08 ’08 ’07 ’07 Shock absorbers 80.8 83.2 83.2 10.8 7.2 22.3 25.2 Drive train products 2.4 17.5 86.2 10.2 8.3 22.4 21.3 23.8 86.2 84.4 1.8 0 2 4 6 8 0 2 4 6 8 By product ’08 ’08 Others 0.0 ’07 ’07
By customer’s location
5.9 5.9 4.7 0.7 0.4 Others 1.6 Boats 4.2 5.1 1.0 4.1 5.1 4.7 0.1 0.1
for the United States, and dipped 0.9% for power
steering systems for the United States. Real net sales
declined 13.6% year on year for sub-assembled
suspensions for Canada, and rose 19.6% for drive units
for Canada. These results caused real net sales for
North America to plunge 1.6% from the previous fiscal
year.
Net sales for South America surged 54.7% year on
year, to 2,430 million yen.
Net sales for Europe increased 8.6% year on year on
a local currency basis, supported by stronger demand
for power steering systems and shock absorbers. On a
yen basis, net sales for the region rose 18.7% year on
year, to 13,350 million yen, including an increase
attributable to a weaker yen.
In Southeast Asia, net sales for Thailand plunged,
owing to lower EPS sales attributable to the weaker
Thai market for compact passenger cars, and a decline
in CKD exports to other countries in the region.
Meanwhile, net sales for Indonesia grew 116.8%
year on year, the result of a market recovery from a
decline in the previous year. Net sales for the region
climbed 45.1% year on year, to 11,180 million yen,
influenced by the Indonesian growth and the weaker
yen.
Net sales for China increased 26.5% year on year, to
15,920 million yen, thanks to higher net sales of shock
absorbers and power steering systems, which resulted
mainly from growth in automobile demand, and the
effects of a weaker yen.
Net sales for other regions soared 72.3% year on
year, to 2,400 million yen.
In other products, net sales declined 2.6% year on
year, to 4,120 million yen for motorboat components.
Net sales of facilities and the like also plunged 37.2%
year on year, to 1,050 million yen. These results caused
net sales of other products to slip 12.5% from the
previous fiscal year, to 5,170 million yen.
Motorcycle components
(Billions of yen)Other
(Billions of yen)South America North America Europe
’06 ’07 ’08
’06 ’07
’08
’06 ’07
’08
Other
Motorcycle Components
Automotive Components
Sales by Products
2008
¥283,370
Million
Shock absorbers
Shock absorbers Shock
absorbers
Gas springs Shock absorbers
Shock
absorbers Steering gearsfor HPS
Steering gears for EPS Steering gears
for EPS
Gas springs
Shock absorbers
Shock absorbers
Gas springs
Shock absorbers
Shock absorbers
Shock absorbers
Shock absorbers Steering gears
for EPS
Steering gears for HPS
Pumps for HPS
for EPS for HPS Steering gears Shock
absorbers
Steering gears
Steering gears for EPS
Pumps for HPS Gear Housing
Rack
Valve Unit
Cylinder Hypoid gear set for HPS
Steering gears Pumps for HPS
NISSIN SHOWA UK LTD.
AMERICAN SHOWA INC. Los Angeles Office
SHOWA CANADA INC. SHANGHAI SHOWA
AUTO PARTS CO., LTD.
P.T.SHOWA INDONESIA MANUFACTURING
SHOWA AUTOPARTS (THAILAND) CO., LTD. HONDA ATLAS CARS
PAKISTAN LTD.
CHENGDU NINGJIANG SHOWA AUTOPARTS CO., LTD.
ATLAS HONDA LTD.
GUANGZHOU SHOWA AUTOPARTS CO,. LTD.
MACHINO AUTO-PARTS CO., LTD.
SUMMIT SHOWA MANUFACTURING CO., LTD.
ARMSTRONG AUTO PARTS SDN. BHD. MUNJAL SHOWA LTD.
DAELIM MOTOR CO., LTD.
SHOWA EUROPE, S.A.
SHOWA INDIA PVT. LTD.
KAI FA INDUSTRY CO., LTD.
AMERICAN SHOWA INC. Sunbury Plant & Head Office
SHOWA DO BRASIL LTDA.
AMERICAN SHOWA INC. Blanchester Plant
SHOWA INDUSTRIA E COMERCIO LTDA. GUANGZHOU SHOWA AUTOPARTS
CO., LTD. WUHAN PLANT
8
’06 ’07
’08
’06 ’07
’08
’06 ’07
’08
SOUTHEAST ASIA
Southeast asia South America China
Sales By Region
Japan
North America Europe
2008
¥283,370
Million
Shock absorbers
Shock absorbers
Shock absorbers Propeller shafts Front and rear
suspension modules
Steering gears for EPS
Steering gears for HPS Pumps for HPS Pumps for
HPS
NISSIN SHOWA UK LTD.
AMERICAN SHOWA INC. Los Angeles Office
SHOWA CANADA INC. SHANGHAI SHOWA
AUTO PARTS CO., LTD.
P.T.SHOWA INDONESIA MANUFACTURING
SHOWA AUTOPARTS (THAILAND) CO., LTD. HONDA ATLAS CARS
PAKISTAN LTD.
CHENGDU NINGJIANG SHOWA AUTOPARTS CO., LTD.
ATLAS HONDA LTD.
GUANGZHOU SHOWA AUTOPARTS CO,. LTD.
MACHINO AUTO-PARTS CO., LTD.
SUMMIT SHOWA MANUFACTURING CO., LTD.
ARMSTRONG AUTO PARTS SDN. BHD. MUNJAL SHOWA LTD.
DAELIM MOTOR CO., LTD.
SHOWA EUROPE, S.A.
SHOWA INDIA PVT. LTD.
KAI FA INDUSTRY CO., LTD.
AMERICAN SHOWA INC. Sunbury Plant & Head Office
SHOWA DO BRASIL LTDA.
AMERICAN SHOWA INC. Blanchester Plant
SHOWA INDUSTRIA E COMERCIO LTDA. GUANGZHOU SHOWA AUTOPARTS
CO., LTD. WUHAN PLANT
Production Base Showa Corporation
Major Technical Collaboration
Showa Group Automotive components
Motorcycle components Other
9
Valve Unit Gear
Housing
Rack
Shock absorbers
Rear cushion
Hypoid gear set Cylinder
Front and rear suspension
modules Shock
absorbers
Steering gears for EPS
Pumps for HPS Steering gears
for HPS
Propeller shafts
Automobile products
Motorcycle products
Gas springs
10
1. New Shock Absorber (Front Fork) Developed
Showa has successfully developed a new type of shock
absorber for motorcycles. Most existing motorcycles
have cartridge shock absorbers. They are built with a
dual structure, in which the dampers for generating
damping force are separately housed. In the new shock
absorber called Big Piston Frontfork, or BPF for short, a
larger-diameter piston inside a slide pipe constituting
part of the front fork directly slides to function as a
damper. This design enables greater damping force and
facilitates smooth piston operation from the start to the
full bottom position. The new front fork therefore
moderates its posture change when reducing speed and
improves body stability.
Already used in a number of races, the BPF is
demonstrating its strengths on circuit courses. In the
future, we will develop a mass production model for
general motorcycles, to provide motorcycling fans with
a safe and enjoyable ride.
2. Showa Exhibits at the 40th Motor Show
The 40th Tokyo Motor Show ran for 17 days from
October 26 to November 11 at Makuhari Messe in
Chiba. Adopting as its theme
The thrill of driving, the
fun of cruising,
we took part in the show as an
exhibitor and displayed 22 products in an exhibition
booth decorated in red, white and gray. Items on
display included:
— A new motorcycle shock absorber designed to
directly slide the piston inside the slide pipe to deliver
high damping force and ensure smooth operation
— Formula 1 dampers with an extensive track record,
which achieve high levels of technology and reliability
— A concept damper for the Civic Type R offering
excellent and sporty driving performance
In addition, the booth was equipped with a section
that enabled visitors to experience a steering feel with
the electric power steering system in a real all-terrain
vehicle (ATV).
To introduce our products and technologies to a
wide audience, we also displayed products with
impressive safety and environmental features, such as
— A propeller shaft with a crash stroke of at least 100
mm to help improve shock absorption
— Pinion shafts for differential gears with
environmentally friendly surface treatment with
combined plasma nitration, maintaining
seizure-resistant surface characteristics comparable with
conventional models.
3. Global Expansion of Power Steering Systems
Growing environmental awareness is likely to lead to
an increase in demand for environmentally friendly
electric power steering (EPS) systems. As our customers
are shifting from hydraulic power steering (HPS)
systems to EPS models, EPS demand is set to grow
worldwide. Given that the increasing demand will
prompt an expansion of overseas production in the
Showa Group, Showa’s operations in Japan need to
achieve new technological advances and quality
refinement.
At present, we operate the power steering business
for HPS/EPS at nine sites in seven countries. The
Gotemba Plant in Japan lies at the heart of this
business. To meet the needs of our worldwide
customers, our facilities in Japan must take the lead in
strengthening collaboration within Showa and in
boosting our overall capabilities, and also must prepare
themselves to serve as mother factories and to establish
our production infrastructure.
To build a global production structure going forward,
it is now necessary to assign different manufacturing
functions to separate plants after giving overall
consideration to production capacity, technical levels
and investment effects at individual overseas bases.
Topics
Cartridge
Conventional
type
New type
Pressurized diameter of the piston: 39.6 mm (12.3 cm2)
Pressurized diameter of the piston: 20 mm (3.14 cm2)
11
To manufacture EPS systems, integrated production
covering all processes from processing to assembling
will be handled in locations with large production
volumes, namely, Japan, North America and China.
Meanwhile, plants in Europe, South America and the
rest of Asia will deal with the assembling process alone.
The processing of major components will be done
mainly in Japan, where we can best meet the
demanding technical requirements.
To better facilitate production activities at different
sites, we will upgrade the functions of the Gotemba
Plant at the heart of the power steering business as
well as those of the power steering development team
to boost their support for individual plants. We will
therefore be striving to gain a foothold for global
production.
4. New Plant Built for Electric Power Steering Systems
As part of its global expansion initiative, Showa will
construct a new plant with an approximate total floor
area of 23,000 square meters on a site of nearly 70,000
square meters adjacent to its Gotemba Plant. It will be
our seventh plant in Japan, following the completion of
Saitama Second Plant last year. The new production
base is designed to be a clean model plant specializing
in EPS systems, while the existing plant will engage
solely in component production and assembly for HPS
systems.
The new plant will aim to form closer ties between
development and production, to create production
technologies ensuring high quality and high precision,
and to manufacture EPS systems that have a strong
competitive edge. It will address these challenges to
gain know-how and then to establish EPS technologies
by introducing that know-how to overseas plants. In
parallel with that, we will introduce structural reforms
to reinforce the production foundations of our mother
factory, namely the Gotemba Plant. In so doing, we will
seek to build an efficient production structure and to
bolster the mother functions of the plant.
Following these initiatives, the Gotemba Plant will
perform its mother functions for global operations of
the power steering business dealing with both HPS and
EPS systems. Operations at the new plant will start in
December 2008.
Worldwide Expansion of Power
Steering System Production
12
Financial Section
Consolidated Financial Review ... 13
(Unaudited and Not Reviewed)
Consolidated Balance Sheets ... 16
Consolidated Statements of Income ... 18
Consolidated Statements of Changes in Net Assets .. 19
Consolidated Statements of Cash Flows ... 20
Notes to Consolidated Financial Statements ... 21
13
Consolidated Financial Review
Overview
Business results
1) Overview for the fiscal year under review
The Showa Group sought to expand and
upgrade its production infrastructure to better
meet customer needs. We have realized this
with initiatives to facilitate a mass production
launch at new operational bases in China, India
and Thailand and elsewhere, as demand for
automobiles grew in China and other Asian
mar-kets, and sales expanded favorably for its major
customers. At the same time, we have moved
forward with operational restructuring in North
America. In addition, the Group worked to
improve its procurement activities, which take
advantage of operational bases distributed
worldwide, and proceeded with global initiatives
to bolster our quality control organization.
Consolidated net sales for the fiscal year
under review increased 8.2% from the previous
fiscal year, to ¥283,370 million, reflecting sales
growth attributable to strong market conditions
in Brazil and China, and foreign exchange
con-version. Consolidated operating income
dropped 22.8% year on year, to ¥13,663 million,
owing to production infrastructure expansion
costs, including expenses for launching mass
production at new bases, start-up expenses for
increasing production and responding to new
car models, and expenses for transferring
pro-duction items between bases. Consolidated
ordinary income plunged 24.0% year on year, to
¥14,254 million, and consolidated net income
declined 27.4% year on year, to ¥6,597 million.
2) Results for the fiscal year under review by
business segment
(1) Motor vehicle parts
(Japan)
Net sales dropped for motorcycle
compo-nents, as a result of an export decline caused
by market deterioration and advances in local
production. However, net sales increased for
automobile components centering on power
steering systems, thanks in part to the effects
of new car models. As a result, net sales for
Japan increased.
(North America)
Net sales for our U.S. subsidiary declined,
with lower sales of large motorcycles and a
weakening of the automobile market as the
underlying factors. The Canadian subsidiary
experienced sales growth attributable to sales
of hydraulic pumps, with its production
trans-ferred from the U.S. subsidiary, and sales of
propeller shafts with increased customer
out-put of four-wheel-drive cars. However, net
sales of sub-assembled suspensions fell in
our Canadian subsidiary, owing to production
transfers for certain car models carried out by
customers and a revision of the
customer-supplied parts costs. Consequently, total net
sales for the Canadian subsidiary showed
almost no change from the previous fiscal
y e a r. D r i v e n b y t h e e ff e c t s o f f o re i g n
exchange conversion, however, net sales for
the subsidiary increased on a yen basis.
50 100 150 200 250 300
’04 ’05 ’06 Net Sales
(Billions of yen)
219.5 ’07 250.4 261.8 ’08 233.5 283.3 0 0 2 4 6 8 10 12 14 0 20 40 60 80 100 120 140
(Billions of yen) (Yen)
101.0
121.0 119.5
137.5
’04 ’05 Net Income/
Net Income per Share
Net Income Net Income per Share 7.5 9.1 ’06 ’07 10.4 9.0 ’08 6.5 86.84 0 50 100 150 200
(Billions of yen) (Yen)
0 400 800 1,200 1,600 Total Assets Shareholders’ Equity Shareholders’ Equity per Share ’04 ’05
Total Assets/ Shareholders’ Equity/
Shareholders’ Equity per Share
14
(Europe)
Net sales increased for the British
subsid-iary, thanks to the effects of new car model,
releases drove demand up for power steering
systems and other automobile components.
The Spanish subsidiary experienced a sales
decline for existing motorcycle models,
how-ever, overall number for motorcycle parts
increased due to aggressive activities for
expanding sales. As a result, net sales
remained almost unchanged for motorcycle
shock absorbers manufactured by the
sub-sidiary. Influenced by foreign exchange
con-version, net sales for the Spanish subsidiary
increased on a yen basis.
(Southeast Asia)
Our Indonesian subsidiary posted higher
net sales, driven by greater exports of shock
absorbers for automobiles and the sale of
gearparts, production of which got underway.
Net sales fell sharply for the subsidiary in
Thailand on weaker results for motorcycle
shock absorbers and power steering systems
attributable to factors such as sluggish
mar-ket conditions. However, the subsidiary’s net
sales grew on a yen basis, due to the effects
of foreign exchange conversion.
(Other regions)
Net sales climbed sharply for our operation
in Brazil, led by increased sales of shock
absorbers for motorcycles owing to strong
market conditions. Net sales also achieved
substantial growth in China, where the
boom-ing automobile market drove sales of shock
absorbers and power steering systems.
As a result of the developments stated
above, net sales for the motor vehicle parts
segment rose 8.7% from the previous fiscal
year, to ¥278,195 million. Operating income
for this segment fell 21.5% year on year, to
¥13,006 million.
(2) Other segments
Net sales for other segments decreased
12.5% from the previous fiscal year, to ¥5,174
million. Operating income for the other
seg-ments declined 41.9% year on year, to ¥657
million.
3) Business forecasts for the next fiscal year
The subprime housing loan issue is having a
growing effect on business conditions in the
United States. The deflationary spiral in the
United States is anticipated to gather
momen-tum as a result. The European economy is also
showing more signs of weakening. Asia,
center-ing on China, is predicted to remain on a growth
path overall. However, concern that the
slow-down in the United States and other regions will
have repercussions for Asia cannot be
eliminat-ed. Moreover, the economic downtur n is
expected to continue in Japan. There is concern
that deceleration becomes an underlying trend
for the global economy overall.
In the automotive industry, business expansion
is likely to continue in Asia, centering on China,
0 3 6 9 12 18 15 Capital Expenditures Depreciation and Amortisation ’04 ’05 ’06
Capital Expenditures/ Depreciation and Amortisation
(Billions of yen)
6.4 6.1 8.7 ’07 6.7 11.7 ’08 17.4 5.2 7.1 20.1 4.9 6.6 0 2 4 6 8 10
’04 ’05 ’06 R&D Expenses
(Billions of yen)
7.8 ’07 7.4 ’08 6.9 7.1 12.2 13.2 0 3 6 9 12 15
’04 ’05 ’06 Return on Equity
(%)
’07 ’08 13.0
9.8
15
and South America. Meanwhile, operating
con-ditions in the United States, Europe and Japan
are anticipated to remain difficult, reflecting
busi-ness trends. Changing busibusi-ness conditions,
including trends in crude oil and raw material
prices, the effects of currency exchange, and
concern about the entry of Chinese
manufactur-ers into global markets, do not allow for
opti-mism.
In this operating environment, the Showa
Group believes it must take greater advantage
of the Group
’
s collective strength to make its
products more competitive in quality and cost in
markets around the globe.
The Group seeks to achieve the target set out
in its medium-term business plan
—
namely,
achieving world-class quality and
technolo-gies
—
by taking action to bolster the operating
foundations and improve corporate culture on a
global scale. These measures include initiatives
to raise quality and production efficiency, which
trace problems back to product origins through
reviews of material properties and
manufactur-ing processes, and activities for steppmanufactur-ing up
mutually complementary relations in production
items between overseas bases, undertaken
simultaneously with the reinforcement of mother
plant functions in Japan.
The Group forecasts consolidated results for
the next fiscal year (from April 1, 2008 to March
31, 2009) as set out below. These forecasts are
based on factors that include fluctuations in the
assumed exchange rate, higher raw material
prices, expansion and improvement of
opera-tional bases in Japan and overseas, and greater
expenditures on measures aimed at bolstering
our operating foundations.
Consolidated net sales
¥282,000 million
(down 0.5% year on year)
Consolidated operating income
¥9,300 million
(down 31.9% year on year)
Consolidated ordinary income
¥9,700 million
(down 32.0% year on year)
Consolidated net income
¥3,200 million
(down 51.5% year on year)
The forecasts presented above are based on
average exchange rates for the full term of ¥101
per dollar and ¥152 per euro.
Challenges ahead
The Group is operating in an environment of
increasingly fierce competition, characterized by
risks and uncertainties, including demand trends
at major automobile markets in Japan and
coun-tries in North America, South America, Europe and
Asia, fluctuations in currency exchange rates,
changes in prices of crude oil, raw materials and
other items, and the introduction of new legal
restrictions and tax systems.
16
SHOWA CORPORATION and Consolidated Subsidiaries 31st March, 2007 and 2008
Consolidated Balance Sheets
Millions of yen U.S. dollars (Note 3)Thousands of
ASSETS
2007 2008 2008Current assets:
Cash on hand and in banks (Note 9)
¥ 21,121
¥ 19,272
$ 192,356
Notes and accounts receivable:
Trade (Note 16)
40,230
46,536
464,481
Unconsolidated subsidiaries and affiliates
1,107
644
6,436
Less allowance for doubtful receivables
(110)
(111)
(1,116)
Securities (Notes 4, 6 and 9)
6,100
7,600
75,855
Inventories (Note 5)
22,612
24,971
249,237
Deferred tax assets (Note 8)
3,009
2,939
29,342
Other
2,050
2,805
28,002
Total current assets
96,122
104,658
1,044,596
Property, plant and equipment, at cost:
Land
6,867
7,467
74,536
Buildings and structures
27,518
31,159
311,000
Machinery, vehicles and equipment
111,980
129,625
1,293,799
Construction in progress
9,628
7,887
78,725
155,994
176,140
1,758,063
Less accumulated depreciation
(102,547)
(107,529)
(1,073,256)
Property, plant and equipment, net
53,447
68,610
684,806
Investments and other assets:
Investments in unconsolidated subsidiaries and affiliates
4,729
3,553
35,471
Other investments in securities (Notes 6 and 16)
11,727
8,381
83,659
Long-term loans receivable
1,846
182
1,826
Deferred tax assets (Note 8)
11
11
112
Other
793
1,028
10,265
Total investments and other assets
19,109
13,158
131,335
Other assets
1,364
1,350
13,482
17 Millions of yen U.S. dollars (Note 3)Thousands of
LIABILITIES AND NET ASSETS
2007 2008 2008Current liabilities:
Short-term borrowings (Notes 7 and 9)
¥ 3,690
¥
10,339
$
103,195
Notes and accounts payable:
Trade
38,307
44,867
447,824
Construction
870
965
9,640
Unconsolidated subsidiaries and affiliates
15
8
86
Other
3
3
35
Accrued income taxes (Note 8)
1,232
1,100
10,984
Accrual for warranty expenses
1,893
1,239
12,373
Other
5,985
6,567
65,550
Total current liabilities
51,999
65,092
649,690
Long-term liabilities:
Accrued retirement benefits (Note 13)
3,557
3,391
33,851
Deferred tax liabilities (Note 8)
2,576
963
9,618
Accrual for warranty expenses
692
750
7,491
Other
475
452
4,514
Total long-term liabilities
7,302
5,558
55,475
Net assets
(Note 15):
Shareholders
’
equity:
Common stock, no par value:
Authorised: 180,000,000 shares
Issued:
31st March, 2007
—
76,020,019 shares
12,698
—
—
31st March, 2008
—
76,020,019 shares
—
12,698
126,746
Capital surplus
13,558
13,558
135,330
Retained earnings
66,376
70,784
706,500
Less treasury stock, at cost
(50)
(51)
(518)
Total shareholders
’
equity
92,583
96,989
968,057
Valuation and translation adjustments:
Net unrealised holding gains on securities
6,080
4,069
40,614
Unrealised (losses) gains on derivative instruments, net
(14)
14
145
Translation adjustments, net
(967)
38
385
Total valuation and translation adjustments
5,097
4,122
41,146
Minority interests
13,059
16,015
159,850
Total net assets
110,740
117,127
1,169,054
Contingent liabilities (Note 10)
Total liabilities and net assets
¥ 170,042
¥ 187,778
$
1,874,220
18
SHOWA CORPORATION and Consolidated Subsidiaries Year ended 31st March, 2007 and 2008
Consolidated Statements of Income
Millions of yen U.S. dollars (Note 3)Thousands of
2007 2008 2008
Net sales (Note 16)
¥ 261,897
¥ 283,370
$ 2,828,330
Cost of sales
221,918
243,918
2,434,561
Gross profit
39,978
39,451
393,769
Selling, general and administrative expenses (Note 11)
22,279
25,787
257,389
Operating income
17,698
13,663
136,379
Other income (expenses):
Interest and dividend income
904
1,095
10,938
Interest expense
(187)
(266)
(2,664)
Exchange loss, net
(226)
(460)
(4,953)
Loss on sale and disposal of property, plant and equipment, net
(345)
(292)
(2,921)
Impairment loss on property, plant and equipment (Note 19)
—
(24)
(243)
Equity in earnings of affiliates
327
354
3,541
Provision for the specifically identified warranty claim
(1,716)
(388)
(3,872)
Royalty expenses applicable to the prior periods
(567)
—
—
Other, net
250
(132)
(1,324)
(1,561)
(114)
(1,142)
Income before income taxes and minority interests
16,137
13,549
135,236
Income taxes (Note 8):
Current
4,374
3,822
38,148
Deferred
(619)
(238)
(2,381)
3,754
3,583
35,767
Minority interests
(3,299)
(3,368)
(33,623)
Net income (Note 14)
¥ 9,083
¥ 6,597
$
65,845
19 SHOWA CORPORATION and Consolidated Subsidiaries
Year ended 31st March, 2007 and 2008
Consolidated Statements of Changes in Net Assets
Shareholders’ equity Valuation and translation adjustments
Number of shares issued
Common stock, no
par value surplusCapital Retainedearnings Less treasury
stock, at cost
Net unrealised
holding gains on securities
Unrealised (losses) gains on derivatives instruments,
net
Translation adjustments,
net interestsMinority net assetsTotal
(Thousands) (Millions of yen)
Balance at 31st March, 2006 76,020 ¥12,698 ¥13,558 ¥58,812 ¥(48) ¥5,501 ¥ — ¥ (2,696) ¥ 9,989 ¥ 97,815
Cash dividends paid — — — (1,519) — — — — — (1,519)
Net income — — — 9,083 — — — — — 9,083
Purchases of treasury stock — — — — (1) — — — — (1)
Net changes of item other
than shareholders’ equity — — — — — 578 (14) 1,728 3,070 5,362
Balance at 31st March, 2007 76,020 12,698 13,558 66,376 (50) 6,080 (14) (967) 13,059 110,740
Cash dividends paid — — — (2,127) — — — — — (2,127)
Net income — — — 6,597 — — — — — 6,597
Decrease due to inclusion of
subsidiaries in consolidation (62) (62)
Purchases of treasury stock — — — — (1) — — — — (1)
Net changes of item other
than shareholders’ equity — — — — — (2,010) 29 1,006 2,955 1,980
Balance at 31st March, 2008 76,020 ¥12,698 ¥13,558 ¥70,784 ¥(51) ¥4,069 ¥14 ¥ 38 ¥16,015 ¥117,127
Shareholders’ equity Valuation and translation adjustments
Number of shares issued
Common stock, no
par value surplusCapital Retainedearnings Less treasury
stock, at cost
Net unrealised
holding gains on securities
Unrealised (losses) gains on derivatives instruments,
net
Translation adjustments,
net interestsMinority net assetsTotal
(Thousands) (Thousands of U.S. dollars)(Note 3)
Balance at 31st March, 2007 76,020 $126,746 $135,330 $662,505 $(506) $60,685 $(148) $ (9,661) $130,351 $1,105,304
Cash dividends paid — — — (21,231) — — — — — (21,231)
Net income — — — 65,845 — — — — — 65,845
Decrease due to inclusion of
subsidiaries in consolidation (619) (619)
Purchases of treasury stock — — — — (12) — — — — (12)
Net changes of item other
than shareholders’ equity — — — — — (20,071) 293 10,047 29,498 19,768
Balance at 31st March, 2008 76,020 $126,746 $135,330 $706,500 $(518) $40,614 $ 145 $ 385 $159,850 $1,169,054
20
SHOWA CORPORATION and Consolidated Subsidiaries Year ended 31st March, 2007 and 2008
Consolidated Statements of Cash Flows
Millions of yen U.S. dollars (Note 3)Thousands of
2007 2008 2008
Cash flows from operating activities
Income before income taxes and minority interests
¥16,137
¥13,549
$135,236
Depreciation and amortisation
7,107
8,732
87,163
Increase (decrease) in allowance for doubtful receivable
12
(6)
(68)
Impairment loss on property, plant and equipment
—
24
243
Increase (decrease) in accrual for warranty expenses
1,171
(580)
(5,794)
Decrease in accrued retirement benefits
(92)
(148)
(1,482)
Equity in earnings of affiliates
(327)
(354)
(3,541)
Loss on sale and disposal of property, plant and equipment, net
345
292
2,921
Increase in trade receivables
(2,977)
(4,609)
(46,007)
Decrease (increase) in inventories
780
(2,003)
(20,001)
Increase in trade payables
1,087
5,010
50,013
Other, net
(6,044)
(4,166)
(41,589)
Net cash provided by operating activities
17,201
15,739
157,095
Cash flows from investing activities
Increase in time deposit
(2,441)
(2,147)
(21,439)
Purchases of property, plant and equipment
(14,477)
(21,273)
(212,327)
Proceeds from sale of property, plant and equipment
46
24
239
Purchases of other investments in securities
(7)
(3)
(31)
Increase in investments in affiliates
(4,220)
(184)
(1,836)
Increase in long-term loans receivable
(1,535)
—
—
Other, net
(71)
(214)
(2,144)
Net cash used in investing activities
(22,707)
(23,799)
(237,539)
Cash flows from financing activities
Increase in short-term borrowings
31
6,498
64,857
Issuance of stock of consolidated subsidiary
882
—
—
Cash dividends
(1,518)
(2,125)
(21,213)
Cash dividends to minority shareholders
(591)
(845)
(8,437)
Other, net
(6)
(1)
(12)
Net cash (used in) provided by financing activities
(1,202)
3,526
35,193
Effect of exchange rate changes on cash and cash equivalents
(52)
236
2,363
Net decrease in cash and cash equivalents
(6,759)
(4,296)
(42,885)
Cash and cash equivalents at beginning of year
31,287
24,527
244,809
Increase in cash and cash equivalents due to inclusion of subsidiaries in
consolidation
—
1,205
12,031
Cash and cash equivalents at end of year (Note 9)
¥24,527
¥21,436
$213,955
Supplemental disclosures of cash flow information
Cash paid for:
Interest
¥
196
¥
261
$ 2,612
Income taxes
5,630
4,265
42,575
21
1. Basis of Preparation
Showa Corporation (the “Company”) and its domestic subsid-iaries maintain their accounting records in accordance with accounting principles generally accepted in Japan, and foreign subsidiaries of the Company maintain their books of account in conformity with those of their countries of domicile. The accompanying consolidated financial statements have been compiled from the consolidated financial statements prepared by the Company as required under the Financial Instruments and Exchange Law of Japan and, therefore, have been pre-pared in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards.
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 addi-tional information solely for the convenience of readers outside Japan.
As permitted by the Financial Instruments and Exchange Law of Japan, amounts of less than one million yen have been omitted. Consequently, the totals shown in the accompanying consolidated 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 consolidated finan-cial statements have been reclassified to conform to the current year’s presentation.
2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company’s 12 and 14 domestic and foreign subsidiaries for the years ended 31st March, 2007 and 2008, respectively. All significant inter-company balances and transactions have been eliminated in consolidation.
Investments in 3 affiliates are accounted for by the equity method with appropriate adjustments for inter-company profits and dividends.
The Company does not consolidate nor apply the equity method with respect to the Company’s one of the subsidiaries, as the Company determined the subsidiary to be insignificant to total assets, sales, net income and retained earnings of the accompanying consolidated financial statements.
The excess of cost over underlying net assets at fair value at the date of acquisition is amortised over the following period on a straight-line basis or fully charged to income as incurred if the amount is immaterial:
Showa do Brasil Ltda. 20 years
Other an estimated useful period not exceeding 20 years (b) Foreign Currency Translation
The revenue and expense accounts of the foreign subsidiaries are translated into yen at the average rate of exchange in effect during the year. Except for shareholders’ equity, the bal-ance sheet accounts are translated at the rate of exchange in effect at the balance sheet date. The components of share-holders’ equity are translated at their historical exchange rates. Translation adjustments are presented as a component of val-uation and translation adjustments and minority interests. (c) Securities
Securities other than equity securities issued by subsidiaries and affiliates are classified into three categories; trading, held-to-maturity or other securities. Trading securities are carried at fair value and held-to-maturity securities are carried at amor-tised cost. Marketable securities classified as other securities are carried at fair value with changes in unrealised holding SHOWA CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
gains or losses, net of the applicable income taxes, directly included in net assets. 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 are principally stated at cost deter-mined by the weighted average method, while inventories held by the consolidated subsidiaries are principally stated at the lower of cost or market determined by the first in, first out method or the weighted average method.
(e) Property, Plant and Equipment and Depreciation Property, plant and equipment is stated at cost. Depreciation of buildings of the Company, acquired on or after 1st April, 2007 is computed by straight-line method and depreciation of the other property, plant and equipment of the Company is computed by declining-balance method. Domestic consolidat-ed subsidiaries of the Company adopt the declining-balance method, while the straight-line method is principally applied to property, plant and equipment of foreign subsidiaries.
Changes in Method of Accounting
(i) Prior to the year ended 31st March, 2007, the Company had adopted declining-balance method for depreciation of buildings. On 1st April, 2007, the Company changed its method of depreciation for buildings, acquired on or after 1st April, 2007, to straight-line method.
During the year ended 31st March, 2008, the Company made a significant investment to build a plant in Gyoda, Saitama, which was completed in the first half year, and also decided in the second half year to construct a large-sized new plant in Gotemba, Shizuoka. As a result, the total amount of those actual and expected investments in buildings exceeded the Company’s book value of buildings at the beginning of the year ended 31st March, 2008. In addition, the new plant in Gotemba is expect-ed only to manufacture electric power steering parts and to be constantly used over a long period of time. Under this situation, the Company reassessed expense allocation and changed its method of depre-ciation of aforementioned buildings.
This change was made because the Company expects to constantly recover these investments over a long period of time and better reflect how the assets are expected to be used over time based on the above reassessment, and as a result, it better allocates the cost of depreciation.
In addition, since buildings acquired on or prior to 31st March, 2007 have continuously incurred large amount of repairing expenses due to aging and since their economic values have declined, these buildings continued to be depreciated using the declining-balance method, in order to better allocate the costs of depreciation.
(ii) Effective 1st April, 2007, the Company and its domestic consolidated subsidiaries have changed their method of depreciation based on an amend-ment to Corporation Tax Law of Japan for property, plant and equipment acquired on or after 1st April, 2007, except for buildings of the Company.
