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Notes to
Non-Consolidated Financial Statements
Years ended March 31, 1995 and 1994
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 and practices in Japan. The
accompanying non-consolidated financial statement have
been translated from the non-consolidated financial
statement 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 of
stockholders' equity and cash flow, have been made in the
accompanying non-consolidated financial statements to
facilitate understanding by foreign readers.
Certain reclassifications have been made in the accompanying
non-consolidated financial statement for the year ended
March 31, 1994 to conform to the presentation for 1995.
For convenience only, U.S. dollar amounts presented in the
accompanying non-consolidated financial statement have
been translated from Japanese yen at the rate of ¥89.35 to
US$1, the rate prevailing on March 31, 1995.
2.Summary of Accounting Policies
----------------------------------------------------------------------
(1) Reporting entity
The non-consolidated financial statement report only the
accounts of the Company.
(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 losses on
collection. 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.
(4) Marketable Securities and Investment in Securities
Listed equity securities included in both marketable securities
and investments in securities, except for certain equity
securities of subsidiaries and affiliates in which the
Company's ownership equals or exceeds 25 percent, are
stated at the lower of moving average cost or market value.
Other securities, including investments in subsidiaries and
affiliates, 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 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
Finished goods and work in process in one plant in the
Iron and Steel Sector and the Machinery Sector
.............................Specific identification
Others.........................................Average
(6) Depreciation of Plant and Equipment
Buildings and structures in all locations and machinery and
equipment located in the Kakogawa Works, the Kobe Works,
the Takasago Works, the Moka Plant, the Chofu Plant and the
Daian Plant are depreciated using the straight-line method
and all other machinery and equipment are depreciated using
the declining balance method over estimated useful lives.
(7) Long-term Construction Contracts
Sales and the related costs of certain long-term(over one
year) construction contracts are recognized by the percentage
of completion method.
(8) Research and Development Expenses
Expenses 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 a five-year
period.
(9) Income and Enterprise Taxes
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.
Long-term accrued income and enterprise taxes are
recognized in respect of the amortization of deferred income
as described in Note 2(13) below. Such income is recognized
for the purposes of taxation, 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, the reserve for loss from natural
disaster is estimated in the amount considered necessary as of
the end of the year.
(11) Employees' Retirement Benefits
Substantially all employees of the Company 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 the
case of involuntary retirement, the employee is entitled to a
greater payment than in the case of voluntary retirement.
Employees whose employment is terminated after the age
of 50 may elect to take part of their retirement benefits in the
from 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 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 and included in " other income
(expenses):Amortization of prior service costs of the pension
plan" in the non-consolidated statements of operations. The
net assets at book value of the non-contributory funded
pension plan amounted to ¥54,896 million at October 31,
1994.
(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
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 work takes 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 included in deferred
income in the non-consolidated balance sheets. The deferred
income is amortized over the life of the forward exchange
contracts. For the years ended March 31, 1995 and 1994,
amortization of such deferred income amounting to ¥909
million($10,173 thousand) and ¥2,137 million, respectively,
was included in "Other income(expenses):Other, net" in the
non-consolidated statements of operations.
If current and long-term receivables and payables
denominated in foreign currencies had been translated at the
current rate on March 31, 1995, a loss of ¥1,187 million
($13,285 thousand) would have been recognized.
(14) Leases
Finance leases which do not transfer ownership and do not
have bargain purchase provisions are accounted for in the
same manner as operating leases under generally accepted
accounting principles in Japan. Lease payments for such
leases for the year ended March 31, 1995 were ¥5,169 million
($57,851 thousand).
(15) Net Loss per 1,000 Shares
Computations of net loss per 1,000 shares are based on the
weighted average number of shares outstanding during the
year.
3.Market Value Information on Marketable
Securities (Unaudited)
----------------------------------------------------------------------
Market value information relating to marketable securities is
required to disclosed in the Securities Report filed with the
Ministry of Finance under the Securities and Exchange Law of
Japan. Such market value information dose not constitute any
part of the financial statements and related notes thereto and,
accordingly, is not subject to audit by the independent
auditors.
The following shows the unaudited market value and
unrealized gains and losses on securities held by the
Company at March 31, 1995 and 1994:
Thousands of
U.S.dollars
Millions of yen (Note 1) Millions of yen
============================== ========================== ========= ==========================
March 31,1995 March 31,1995 March 31,1994
------------------------------ -------------------------- --------- --------------------------
Balance Unreali- Unreali- Balance Unreali-
sheet Market zed qain zed gain sheet Market zed qain
amount value (loss) (loss) amount value (loss)
-------- -------- -------- --------- -------- -------- --------
Marketable securities:
corporate stocks............ ¥175,592 ¥207,639 ¥32,047 $358,668 ¥199,686 ¥273,762 ¥74,076
Bonds....................... 5 7 2 22 5 8 3
-------- -------- -------- --------- -------- -------- --------
175,597 207,646 32,049 358,690 199,691 273,770 74,079
-------- -------- -------- --------- -------- -------- --------
Investments in securities:
Corporate stocks............ 44,001 76,770 32,769 366,749 39,642 87,228 47,586
Other....................... - - - - 593 465 (128)
-------- -------- -------- --------- -------- -------- --------
44,001 76,770 32,769 366,749 40,235 87,693 47,458
-------- -------- -------- --------- -------- -------- --------
Total......................... ¥219,598 ¥284,416 ¥64,818 $725,439 ¥239,926 ¥361,463 ¥121,537
======== ======== ======== ========= ======== ======== ========
-------- -------- -------- --------- -------- -------- --------
These amounts do not include unlisted stocks. The
Company does not have any outstanding options or futures
transactions.
4.Short-Term Borrowings and Long-Term Debt
----------------------------------------------------------------------
Short-term borrowings at March 31, 1995 and 1994 consisted
of the following:
Thousands of
U.S.dollars
Million of yen (Note 1)
========================================================= ===================== ===========
1995 1994 1995
--------------------------------------------------------- ---------- ---------- -----------
Bank loans............................................... ¥239,286 ¥173,046 $2,678,075
Commercial paper......................................... 102,000 143,000 1,141,578
---------- ---------- -----------
¥341,286 ¥316,046 $3,819,653
========== ========== ===========
---------- ---------- -----------
Long-term Debt at March 31, 1995 and 1994 consisted of the
following:
Thousands of
U.S.dollars
Million of yen (Note 1)
========================================================= ===================== ===========
1995 1994 1995
--------------------------------------------------------- ---------- ---------- -----------
7.7% to 8.2% mortgage bonds, due 1995.................... ¥ 10,400 ¥ 27,600 $ 116,396
3.9% domestic mortgage bonds with warrants, due 1994..... - 50,000 -
4.875% U.S. dollar bonds with warrants, due 1994......... - 47,478 -
2.8% domestic bonds with warrants, due 1995.............. 50,000 50,000 559,597
4.5% U.S. dollar bonds with warrants, due 1996........... 48,626 48,626 544,219
Floating rate(Libor plus 0.2%) notes due 1996............ 20,000 20,000 223,839
2.65% to 7.1% yen bonds, due 1996 through 2003........... 370,000 310,000 4,141,018
Loans, principally from banks and insurance
companies, due serially through 2020................... 219,325 230,924 2,454,673
---------- ---------- -----------
718,351 784,628 8,039,742
Less current portion..................................... 91,348 146,982 1,022,361
---------- ---------- -----------
¥627,003 ¥637,646 $7,017,381
========== ========== ===========
---------- ---------- -----------
Mortgage bonds totaling ¥10,400 million($116,396
thousand) at March 31, 1995 were secured by enterprise
mortgages, which give the holders a security interest in all
assets subordinate to that of present or future secured
creditors but senior to that of general unsecured creditors.
================================================================================
A summary of the terms for exercise of the detachable warrants was as follows:
================================================================================
Warrants originally issued with 2.8% 4.5%
bonds bonds
------------- -------------
Exercise period: On and after Jul. 15, '91 Jul. 10, '91
To Jun. 16, '95 Jun. 12, '96
Exercise price, which is subject to adjustment in certain circumstances ¥531.0($5.94) ¥531.0($5.94)
The aggregate annual maturities of long-term debt were as follows:
Thousands of
Million U.S.dollars
Years ending March 31 of yen (Note 1)
==================================================================== ========== ===========
1996................................................................ ¥ 91,348 $1,022,361
1997................................................................ 119,069 1,332,613
1998................................................................ 106,178 1,188,338
1999 and thereafter................................................. 401,756 4,496,430
---------- -----------
¥718,351 $8,039,742
========== ===========
---------- -----------
At March 31, 1995 assets pledged as collateral for short-
term borrowings and long-term debt were as follows:
Thousands of
Million U.S.dollars
of yen (Note 1)
==================================================================== ========== ===========
Marketable securities, investment securities and investment in
subsidiaries and affiliates....................................... ¥13,479 $150,856
Plant and equipment-net of accumulated depreciation................. 36,426 407,678
---------- -----------
¥49,905 $558,534
========== ===========
---------- -----------
Secured short-term borrowings and long-term debt.................... ¥34,777 $389,222
---------- -----------
5.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 disbursement as an appro-
priation of retained earnings in each period shall be appro-
priated as a 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 stockholders or may be capitalized by a resolution of
the board of directors.
6.General Reserve
----------------------------------------------------------------------
The Special Taxation Measures Law of Japan permits the
Company to take certain reserves as tax deductions. Such
reserves, which are provided by appropriation of unappropr-
iated retained earnings and included in general reserve, are
deductible from taxable income, but must be restored to
taxable income in the future.
Such reserves at March 31, 1995 and 1994 were as follows:
Thousands of
U.S.dollars
Million of yen (Note 1)
========================================================= ===================== ===========
1995 1994 1995
--------------------------------------------------------- ---------- ---------- -----------
Reserve for replacement of properties.................... ¥30,616 ¥31,247 $342,652
Reserve for possible losses on overseas investments...... 187 327 2,093
Reserve for special depreciation......................... 188 237 2,104
---------- ---------- -----------
¥30,991 ¥31,811 $346,849
========== ========== ===========
---------- ---------- -----------
7.Sales to and Purchases from Subsidiaries and Affiliates
----------------------------------------------------------------------
Sales to and purchases from subsidiaries and Affiliates for the
years ended March 31, 1995 and 1994 were as follows:
Thousands of
U.S.dollars
Million of yen (Note 1)
========================================================= ===================== ===========
1995 1994 1995
--------------------------------------------------------- ---------- ---------- -----------
Sales.................................................... ¥414,765 ¥381,268 $4,642,026
Purchases................................................ 291,621 266,556 3,263,805
---------- ---------- -----------
8.Disaster Casualty Loss
----------------------------------------------------------------------
The Company suffered extensive damage to fixed assets and
incurred related cost of production stoppage and repairs in the
Great Hanshin Earthquake of January 17, 1995, as follows:
Thousands of
Million U.S.dollars
of yen (Note 1)
==================================================================== ========== ===========
Destroyed plant and equipment....................................... ¥ 5,149 $ 57,627
Repairs and removal of debris....................................... 6,972 78,030
Fixed costs during production stoppage.............................. 15,271 170,912
Provision for loss from natural disaster(Note 2(10))................ 31,700 354,785
Other related expenses.............................................. 5,052 56,542
---------- -----------
¥64,144 $717,896
========== ===========
---------- -----------
9.Contingent Liabilities
----------------------------------------------------------------------
At March 31, 1995 the Company was contingently liable as follows:
Thousands of
Million U.S.dollars
of yen (Note 1)
==================================================================== ========== ===========
Trade notes discounted.............................................. ¥66,526 $744,555
Guarantees of loans................................................. 4,104 45,932
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