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Notes to Consolidated Financial Statements
1. Basiデュエルビッツ カジノf Presentation of Financial Statements
Kobe Steel, Ltd. (the "Company"), a Japanese corporation,
maintains its records and prepares its financial statements in
Japanese yen in accordance with generally accepted accounting
principles in Japan. The accompanying consolidated
financial statements have been translated from the
consolidated financial statements which are prepared for
Japanese domestic purposes, in accordance with the provisions
of the Securities and Exchange Law of Japan and filed
with the Ministry of Finance of Japan and stock exchanges in
Japan. Certain modifications, including presentation of the
statementデュエルビッツ カジノf stockholders' equity and cash flows, have been
made in the accompanying consolidated financial statements
to facilitate understanding by foreign readers.
Certain reclassifications have been made in the accompanying
consolidated financial statements for the year ended
March 31, 1995 to conform to the presentation for 1996.
For convenience only, U.S. dollar amounts presented in the
accompanying consolidated financial statements have been
translated from Japanese yen at the rate of ¥106.35 to US,
the rate prevailing on March 31, 1996.
2. Summary of Accounting Policies
(1) Consolidation
The consolidated financial statements include the accountデュエルビッツ カジノf
the Company and its significant majority-owned subsidiaries
(the "Group"). For the year ended March 31, 1996, the
accountデュエルビッツ カジノf 103 (105 in 1995) subsidiaries have been included
in the consolidated financial statements. Intercompany
transactions and accounts have been eliminated. Foreign
subsidiaries financial statements, prepared under accounting
principles generally accepted in the respective countries, are
used in the preparation of the consolidated financial
statements.
Investments in unconsolidated subsidiaries and 20 percent
to 50 percent owned affiliates, except for insignificant
companies, are accounted for by the equity method. For the
year ended March 31, 1996, 48 (44 in 1995) affiliates were
accounted for by the equity method.
The difference, if considered significant, between the cost
of investments and the equity in their net assets at their dates
of acquisition is amortized over five years (forty years for
acquisitions made by certain foreign consolidated
subsidiaries).
When the Company's share of the net losseデュエルビッツ カジノf an affiliate
exceeds the adjusted cost of the investment, the Company
discontinues applying the equity method and the investment
is reduced to zero. At March 31, 1996 and 1995, the Com-
pany's share of such accumulated losses which were not
reflected in the carrying amount of investments were ¥148
million (,392 thousand) and ¥607 million, respectively.
(2) Cash Equivalents
The Company considers time deposits (due within one year)
to be cash equivalents.
(3) Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided in amounts
considered to be sufficient to cover possible losseデュエルビッツ カジノn col-
lection. With respect to the Company and consolidated
domestic subsidiaries it is determined by adding the
uncollectable amounts individually estimated for doubtful
accounts to a maximum amount permitted for tax purposes,
which is calculated collectively. The allowance for doubtful
accountデュエルビッツ カジノf foreign consolidated subsidiaries is determined by
estimateデュエルビッツ カジノf management.
(4) Marketable Securities and Investments in Securities
Listed equity securities included in both marketable securities
and investments in securities, except for certain equity
securitieデュエルビッツ カジノf unconsolidated subsidiaries and affiliates, in
which the Company'デュエルビッツ カジノwnership equalデュエルビッツ カジノr exceeds 25
percent, are principally stated at the lower of moving average
cost or market value. Other securities, excluding investments
accounted for by the equity method, are stated at moving
average cost. If significant impairment of value is deemed
permanent, cost is appropriately reduced.
(5) Inventories
Inventories are valued at cost, as determined principally by
the following methods:
Two main works in the Iron and Steel Sector and the
three main plants in the Aluminum and Copper Sector
............................. Last-in first-out method
Finished goods and work in process in one plant in the
Iron and Steel Sector and the Machinery and
Information Sector......Specific identification method
Others.................................. Average method
(6) Depreciation of Plant and Equipment
Depreciation of plant and equipment is principally provided
using the straight-line method over estimated useful lives.
(7) Long-term Construction Contracts
Sales and the related costデュエルビッツ カジノf certain long-term (over one
year) construction contractデュエルビッツ カジノf the Company are recognized
by the percentage of completion method.
(8) Research and Development Expenses
Expenseデュエルビッツ カジノf the Company in respect of the development of
new products and research into and the application of new
technologies (being in each case expenses which are expected
to contribute to future sales), are deferred and amortized over
five years.
(9) Income and Enterprise Taxes
Income and enterprise taxes are payable by the Company and
its domestic consolidated subsidiarieデュエルビッツ カジノn the basiデュエルビッツ カジノf taxable
income. Income and enterprise taxes, which in the aggregate
indicate a statutory tax rate of approximately 52 percent, are
based on taxable income. Enterprise tax is included in selling,
general and administrative expenses.
Deferred taxes relating to timing differences between
financial accounting and tax reporting are recognized by
certain foreign consolidated subsidiaries and in respect of the
elimination of intercompany profits and other tax effects
resulting from consolidation. Long-term accrued income and
enterprise taxes are also recognized in respect of the
amortization of deferred income as described in Note 2 (13)
below. Such income is recognized for the purposeデュエルビッツ カジノf taxa-
tion, and the provision for long-term accrued income and
enterprise taxes is reversed, at the time of redemption of the
related bonds.
(10) Reserve for Loss from Natural Disaster
In order to provide for the cost of repairs and other expenses
related to fixed assets that were damaged in the Great
Hanshin Earthquake disaster of January 17, 1995, the reserve
for loss from natural disaster is estimated in the amount
considered necessary aデュエルビッツ カジノf the end of the year.
(11) Employees' Retirement Benefits
Substantially all employeeデュエルビッツ カジノf the Company and its domestic
consolidated subsidiaries are entitled to a lump-sum payment
at the time of retirement. The amount is, in general,
determined on the basiデュエルビッツ カジノf length of service, base salary at the
date of retirement and cause of retirement. In the case of
involuntary retirement, the employee is entitled to a greater
payment than in the case of voluntary retirement.
Employeeデュエルビッツ カジノf the Company whose employment is
terminated after the age of 50 may elect to take part of their
retirement benefits in the form of pension payments. The
funds required to make pension payments are entrusted to an
outside trustee. The liability in respect of lump-sum
retirement benefits is stated at the present value of the
unfunded portion of the expected future retirement benefits
attributable to eligible employees' yearデュエルビッツ カジノf service as at the
balance sheet date. Prior service costs in respect of the
pension plan, less that portion of the provision in respect of
lump-sum retirement benefits no longer required by reason of
the introduction of the pension scheme, are amortized on the
declining balance method at the rate of 15 percent per annum.
The Company's domestic consolidated subsidiaries provide
for retirement benefits principally at the rate of 40 percent of
the expected future retirement benefits attributable to eligible
employees' yearデュエルビッツ カジノf service as at the balance sheet date.
Certain foreign consolidated subsidiaries also have retirement
benefit plans covering eligible employees.
(12) Allowance for Special Repairs
Blast furnaces and hot blast stoves, including related
machinery and equipment, periodically require substantial
component replacement and repair. The estimated future
costデュエルビッツ カジノf such work are provided for and charged to income on
a straight-line basiデュエルビッツ カジノver the period to the date of the
anticipated replacement and repair. The difference between
such estimated costs and actual costs is charged or credited to
income at the time the repairs take place.
(13) Translation of Foreign Currencies
Current receivables and payables denominated in foreign
currencies are translated at historical rates in accordance with
Statement No. 46 of the Audit Committee of the Japanese
Institute of Certified Public Accountants.
All other assets and liabilities denominated in foreign
currencies are translated at historical rates except those,
including bonds denominated in foreign currencies, hedged by
forward exchange contracts. Such bonds are translated into
Japanese yen at the contracted forward exchange rates and the
difference between the amount at the contracted forward
exchange rate and the amount at the spot rate at the date of
issue of the bonds is deferred and shown as deferred income
in the consolidated balance sheets. The deferred income is
amortized over the life of the forward exchange contracts. For
the years ended March 31, 1996 and 1995, amortization of
such deferred income amounting to ¥729 million (,855
thousand) and ¥909 million, respectively, was credited to
"Other income (expenses): Other, net" in the consolidated
statementデュエルビッツ カジノf operations.
Financial statementデュエルビッツ カジノf consolidated foreign subsidiaries are
translated into Japanese yen at current rates for all accounts,
except for common stock, additional paid-in capital and
retained earnings at the beginning of the year which are
translated at historical rates. The resulting translation
adjustments are separately presented as "foreign currency
translation adjustments" in the consolidated financial
statements.
(14) Leases
Finance leases which do not transfer ownership and do not
have bargain purchase provisions are accounted for in the
same manner aデュエルビッツ カジノperating leases by the Company and
consolidated domestic subsidiaries. Finance leaseデュエルビッツ カジノf certain
foreign consolidated subsidiaries are capitalized in accordance
with generally accepted accounting principles in the respective
countries.
(15)Notes receivable and payable maturing on
March 30 and 31, 1996
In accordance with generally accepted accounting principles in
Japan, the Company and domestic consolidated subsidiaries
recorded the settlement of notes receivable and payable
maturing on March 30 and 31, 1996, banking holidays in
Japan, on the next following banking day.
The amountデュエルビッツ カジノf such notes were included in the notes
receivable and payable balances at March 31, 1996 as follows:
Millionデュエルビッツ カジノf yen Thousandデュエルビッツ カジノf
U.S. dollars
------------------------ ----------------- ------------------
Notes receivable........ ¥14,396 5,364
Notes payable........... 36,375 342,031
----------------- ------------------
(16) Net Income (loss) per 1,000 Shares
Computationデュエルビッツ カジノf net income (loss) per 1,000 shares are based
on the weighted average number of shareデュエルビッツ カジノutstanding during
the year.
3. Accounting Change
During the year ended March 31, 1995 a consolidated
subsidiary changed its method of accounting for deferred
factory start up costs from amortizing them over five years to
charging them directly to income. As a result of the successful
completion of the first phase of the subsidiary's project to
produce 64 megadram memory chips, this change was made
to reflect its advancement to the production stage. The effect of
this change was to increase the loss before income taxes by
¥4,277 million (,868 thousand) and is shown in the
consolidated statement of operations as "Write off of deffered
factory start up costs".
4. Differences between Japanese Accounting Principles and
International Accounting standards
The accompanying consolidated financial statementデュエルビッツ カジノf the
Company are prepared in conformity with accounting
principles generally accepted in Japan, which differ from
International Accounting Standards ("IAS") with respect to
the Company and its consolidated subsidiaries as described
below. For the purpose of this comparison IAS extant at
January 1, 1996 are used even though certain IAS were not
effective with respect to the years ended March 31, 1996 and
1995.
(1) Consolidation and the Equity Method of Accounting
Generally accepted accounting principles in Japan require that
(i) all subsidiaries be consolidated and (ii) all affiliated
companies be accounted for by the equity method with the
exception that investments that are immaterial may be
excluded from this treatment. These Japanese accounting
principles are in substantial agreement with IAS 27 and IAS
28 which require, except on certain specific grounds, the
consolidation of all subsidiaries and the application of the
equity method to all affiliated companies.
(2) Tax Effect Accounting
Income taxes are provided, in principle, based on taxable
income and on the basiデュエルビッツ カジノf amounts currently payable for
each period. The Company does not recognize the tax effect
of timing differences, except as indicated in Note 2(9).
Therefore, the Company's policy is not in accordance with
IAS 12 which requires that the tax expense for a period be
determined on the basiデュエルビッツ カジノf tax effect accounting.
It has not been practicable to quantify the effect on net
income of this difference in accounting policy.
(3) Leases
IAS 17 requires that finance leases be reflected in the leasee's
accounts by recording an asset and liability equal to the lower
of the net fair value of the leased property and the present
value of the minimum lease payments. The asset should be
depreciated and rentals apportioned between finance charges
and reduction of the outstanding liability. Generally accepted
accounting principles require that finance leases, as defined
therein, be capitalized with the exception that finance leases
that do not transfer ownership and do not have bargain
purchase provisions may be accounted for in the same
manner aデュエルビッツ カジノperating leases. For the years ended March 31,
1996 and 1995, the Company had no finance leases that were
required to be capitalized.
It has not been practicable to quantify the effect on net
income of this difference in accounting policy.
(4) Translation of Foreign Currencies
Short-term and long-term receivables and payables
denominated in foreign currencies, except for long-term debt
covered by forward exchange contracts, are translated at the
exchange rate existing at the time of the transaction. This is
not in accordance with IAS 21 which requires foreign currency
monetary items to be translated at the rate of exchange in
effect at each balance sheet date, except when covered by
forward exchange contracts.
The effect of applying IAS 21 to the financial statements
would be to decrease income before income taxes for the year
ended March 31, 1996 by ¥500 million (,701 thousand)
and increase the loss before income taxes for year ended
March 31, 1995 by ¥1,400 million.
Financial statementデュエルビッツ カジノf foreign subsidiaries are translated
into Japanese yen in the manner described in Note 2 (13).
This translation policy is not in accordance with IAS 21 which
requires income and expenses be translated at exchange rates
at the dateデュエルビッツ カジノf the transactions.
(5) Inventories
As noted in Note 2 (5), the Company values inventories at cost
in accordance with generally accepted accounting principles in
Japan. IAS 2 requires that inventories be measured at the
lower of cost and net realizable value. Furthermore, for
determining the cost of certain inventories the Company
applies the last-in, first-out (LIFO) method which is an allowed
alternative treatment under IAS 2 for which additional
disclosure is required.
It has not been practicable to quantify the effect on net
income of this difference in accounting policy and determine
the additional disclosure required under IAS 2 when the LIFO
method is applied.
(6) Research and Development Expenses
Expenses in respect of the development of new products
and in respect of research into and the application of new
technologies (in each case expenses which are expected to
contribute to future sales) are deferred and amortized over a
five year period. This is not in accordance with IAS 9, which
requires research and development costs to be charged as an
expense of the period in which they are incurred except to the
extent that development costs are deferred on certain specified
grounds.
The effect of applying IAS 9 to the financial statements
would be to increase the income before income taxes for the
year ended March 31, 1996 by approximately ¥6,500 million
(,119 thousand) and decrease the loss before income taxes
for the year ended March 31, 1995 by approximately ¥5,500
million.
(7) Market Value Information on Marketable Securities
Market value information relating to marketable securities
is required to be disclosed on the non-consolidated basis in the
Securities Report filed with the Ministry of Finance under the
Securities and Exchange Law of Japan. Such market value
information does not constitute any part of the financial
statements and related notes thereto and, accordingly, is not
subject to audit by the independent auditors. IAS 25 requires
the disclosure of the market valueデュエルビッツ カジノf marketable securities,
other than long-term investments, if different from the
carrying amount in the financial statements.
The following shows the unaudited market values and
unrealized gains and losseデュエルビッツ カジノn securities held by the Company
at March 31, 1996 and 1995:
These amounts do not include unlisted stocks. The
Company does not have any outstanding optionデュエルビッツ カジノr futures
transactions.
5. Short-Term Borrowings and Long-Term Debt
The detachable warrants issued with the 4.5% bonds are exercisable through June 12, 1996
at a price of ¥531(.99) per share, subject to adjustments in certain circumstances.
6. Contingent Liabilities
7. Stockholders' Equity
Under the Commercial Code of Japan, the entire amount of
the issue price of shares is required to be accounted for as
stated capital, although a company may, by resolution of its
board of directors, account for an amount not exceeding one-
half of the issue price of the new shares as additional paid-in
capital.
The Commercial Code of Japan provides that an amount
equal to at least 10 percent of any disbursements as an
appropriation of retained earnings in each period shall be
appropriated as legal reserve until the reserve equals 25
percent of the amount of common stock. This reserve is not
available for dividends, but may be used to reduce a deficit by
a resolution of the stockholderデュエルビッツ カジノr may be capitalized by a
resolution of the board of directors.
8. Selling, General and Administrative Expenses
9. Disaster Casualty Loss
10. Segment Information
(1) Industry Segment
The Group' デュエルビッツ カジノperations are divided into five principal
business segments: Iron and Steel, Aluminum and Copper,
Machinery, Electronics and Information, and Other
Businesses. Business segment information was as follows;
Corporate assetデュエルビッツ カジノf ¥280,030 million (,633,098 thousand)
are comprised principally of bank and time deposits and
assetデュエルビッツ カジノf administration departmentデュエルビッツ カジノf the Company.
(2)Overseas sales
Overseas sales totals and totals as percentageデュエルビッツ カジノf consolidated
net sales were ¥349,248 million (,283,949 thousand) and
¥258,218 million and 23.6 percent and 19.3 percent for the
years ended March 31, 1996 and 1995, respectively.
Overseas sales consisted of export saleデュエルビッツ カジノf the Company and
domestic consolidated subsidiaries, and saleデュエルビッツ カジノf overseas
consolidated subsidiaries excluding sales to Japan.
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