Years ended March 31, 1998 and 1997
1. Basis of
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
デュエルビッツ 登録onsolidated 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 statements of 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, 1997 to
conform to the presentation for 1998.
For convenience only, U.S. dollar amounts presented in the accompanying
consolidated financial statements have been translated from Japanese yen
at the rate of 132.10 yen to US, the rate prevailing on March 31,
1998.
2. Summary of
Accounting Policies |
(1) Consolidation
デュエルビッツ 登録onsolidated financial statements include the accounts of the
Company and its significant majority-owned subsidiaries (the "Group"). For
the year ended March 31, 1998, the accounts of 110 (109 in 1997)
subsidiaries have been included in デュエルビッツ 登録onsolidated 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 デュエルビッツ 登録onsolidated financial statements.
Investments in unconsolidated subsidiaries and 20 percent to 50 percent
owned affiliates, except for insignificant companies, are accounted for by
デュエルビッツ 登録quity method. For the year ended March 31, 1998, 49 (51 in 1997)
affiliates were accounted for by デュエルビッツ 登録quity method.
The difference, if considered significant, between デュエルビッツ 登録ost 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 デュエルビッツ 登録ompany's share of the net losses of an affiliate exceeds the
adjusted cost of the investment, デュエルビッツ 登録ompany discontinues applying the
equity method and the investment is reduced to zero. At March 31, 1998 and
1997, デュエルビッツ 登録ompany's share of such accumulated losses which were not
reflected in デュエルビッツ 登録arrying amount of investments were 609 million yen
(,610 thousand) and 306 million yen, respectively. (2) Cash
Equivalents
The Group 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 losses on collection. With respect to
デュエルビッツ 登録ompany 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 accounts of foreign
consolidated subsidiaries is determined by estimates of
management. (4) Marketable Securities and Investments in
Securities
Listed equity securities included in both marketable securities and
investments in securities, except for certain equity securities of
unconsolidated subsidiaries and affiliates, in which デュエルビッツ 登録ompany's
ownership equals or 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 Electronics 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 costs of certain long-term (over one year)
construction contracts of デュエルビッツ 登録ompany are recognized by the percentage of
completion method. (8) Research and Development Expenses
Expenses of デュエルビッツ 登録ompany 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 デュエルビッツ 登録ompany and its domestic
consolidated subsidiaries on the basis of taxable income. Income and
enterprise taxes indicate an aggregate statutory tax rate of approximately
52 percent. Enterprise tax is included in selling, general and
administrative expenses.
Deferred taxes relating to temporary differences between financial
accounting and tax reporting are recognized by certain foreign
consolidated subsidiaries and in respect of デュエルビッツ 登録limination of
intercompany profits and other tax effects resulting from
consolidation. (10) Employees' Retirement Benefits
Substantially all employees of デュエルビッツ 登録ompany 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 basis of
length of service, base salary at the date of retirement and cause of
retirement. In デュエルビッツ 登録ase of involuntary retirement, the employee is
entitled to a greater payment than in デュエルビッツ 登録ase of voluntary
retirement.
Employees of デュエルビッツ 登録ompany 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' years of 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.
デュエルビッツ 登録ompany'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' years of service
as at the balance sheet date. Certain foreign consolidated subsidiaries
also have retirement benefit plans covering eligible employees. (11)
Allowance for Special Repairs
Blast furnaces and hot blast stoves, including related machinery and
equipment, periodically require substantial component replacement and
repair. デュエルビッツ 登録stimated future costs of such work are provided for and
charged to income on a straight-line basis over 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. (12) Translation of Foreign
Currencies
Current receivables and payables denominated in foreign currencies are
translated at historical rates in accordance with Statement No. 55 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 デュエルビッツ 登録ontracted forward exchange rates
and the difference between the amount at デュエルビッツ 登録ontracted 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 デュエルビッツ 登録onsolidated balance sheets.
The deferred income is amortized over the life of the forward exchange
contracts.
Financial statements of consolidated foreign subsidiaries are
translated into Japanese yen at the year end rate except for share capital
accounts which are translated at historical rates and retained earnings
which are translated initially at the rate in effect at March 31, 1996 and
subsequently at the historical rate. (13) Leases
Finance leases which do not transfer ownership and do not have bargain
purchase provisions are accounted for in the same manner as operating
leases by デュエルビッツ 登録ompany and consolidated domestic subsidiaries. (14)
Net Income per 1,000 Shares
Computations of net income per 1,000 shares are based on the weighted
average number of shares outstanding during the year.
3. Differences
between Japanese Accounting Principles and International Accounting
Standards |
The accompanying consolidated financial statements of the Group are
prepared in conformity with accounting principles generally accepted in
Japan, which differ from International Accounting Standards ("IAS") with
respect to the Group as described below. IAS extant at January 1, 1998 and
effective with respect to the years ended March 31, 1998 and 1997 are used
for the purpose of this comparison. (1) Consolidation and デュエルビッツ 登録quity
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, デュエルビッツ 登録onsolidation 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 basis of amounts currently payable for each period. デュエルビッツ 登録ompany and
consolidated domestic subsidiaries do not recognize the tax effect of
temporary differences, except as indicated in Note 2(9). Therefore, this
policy is not in accordance with IAS 12 which requires that the tax
expense for a period be determined on the basis of tax effect
accounting.
It has not been practicable to quantify デュエルビッツ 登録ffect on net income of
this difference in accounting policy. (3) Leases
IAS 17 requires that finance leases be reflected in the lessee'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 in Japan 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 as operating leases.
For the years ended March 31, 1998 and 1997, デュエルビッツ 登録ompany had no finance
leases that were required to be capitalized.
It has not been practicable to quantify デュエルビッツ 登録ffect 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 デュエルビッツ 登録xchange 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.
デュエルビッツ 登録ffect of applying IAS 21 to the financial statements would be to
increase the loss before income taxes for the year ended March 31, 1998 by
approximately 900 million yen (,813 thousand) and decrease income before
income taxes for the year ended March 31, 1997 by approximately 500
million yen.
Financial statements of foreign subsidiaries are translated into
Japanese yen in the manner described in Note 2 (12). This translation
policy is not in accordance with IAS 21 which requires income and expenses
be translated at exchange rates at the dates of the
transactions. (5) Inventories
As noted in Note 2 (5), デュエルビッツ 登録ompany and consolidated domestic
subsidiaries value 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 デュエルビッツ 登録ost of certain inventories デュエルビッツ 登録ompany 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 デュエルビッツ 登録ffect 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 デュエルビッツ 登録xtent that
development costs are deferred on certain specified grounds. (7)
Employees' Retirement Benefits
Substantially all employees of デュエルビッツ 登録ompany and its domestic
consolidated subsidiaries are entitled to a lump-sum payment at the time
of retirement. デュエルビッツ 登録ompany provides for the liability in respect of
lump-sum retirement benefits at the present value of the unfunded portion
of the expected future retirement benefits attributable to eligible
employees' years of service as at the balance sheet date. デュエルビッツ 登録ompany'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' years of service as at the
balance sheet date.
Under IAS 19, pension costs are recognized and computed using a
particular actual approach known as the accrued benefit valuation method
or, alternatively, the projected benefit valuation method.
It has not been practicable to quantify デュエルビッツ 登録ffect on net income of
this difference in accounting policy. (8) Financial
Instruments
Market value information relating to marketable securities and
information relating to the nature, amounts, and unrealized gains and
losses on outstanding derivative transactions are required to be disclosed
in the non-consolidated financial statements in Japan. IAS 25 and 32
require disclosure, on a consolidated basis, for each class of financial
asset, financial liability, and equity instrument, information relating to
デュエルビッツ 登録xtent and nature, accounting policies and methods adopted, exposure
to interest rate and credit risk, and fair values.
Since the required disclosure information is not available on a
consolidated basis, デュエルビッツ 登録onsolidated financial statement disclosure is not
in accordance with IAS 25 and 32. |