Calsonic Kansei Corporation and Consolidated Subsidiaries. Consolidated Financial Statements. March 31, 2011, 2010 and 2009

Transcription

1 Calsonic Kansei Corporation and Consolidated Subsidiaries Consolidated Financial Statements March 31, 2011, 2010 and 2009

2 Ell EnNsraYouNc Report of Independent Auditors The Board of Directors Calsonic Kansei Corporation We have audited the accompanying consolidated balance sheets of Calsonic Kansei Corporation and consolidated subsidiaries as of March 31,2011 and 2010, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the ttree years in the period ended March 31, 201 l, and consolidated statement of comprehensive income for the year ended March 31, 2011, all expressed in yen. These financial statements axe the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the s and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Calsonic Kansei Corporation and consolidated subsidiaries at March 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 3l,20ll in conformity with accounting principles generally accepted in Japan. Supp le me ntal I nfor mat io n As described in Note 2(d), effective April 1,2008, the Company and its foreign consolidated subsidiaries have adopted a new accounting standard "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements" (PITF No. l8). As described in Note 2(g), effective April 1, 2010, the Company and its domestic consolidated subsidiaries adopted the "Accounting Standard for Asset Retirement Obligations" (ASBJ Statement No. 18 issued on March 3 I, 2008) and the "Implementation Guidance on Accounting Standards for Asset Retirement Obligations" (ASBJ Guidance No. 2l issued on March 3l, 2008). The U.S. dollar s in the accompanying consolidated frnancial statements with respect to the year ended March 31, 2011 are presented solely for convenience. Our audit also included the translation ofyen s into U.S. dollar s and, in our opinion, such translation has been made on the basis described in Note 3. l member lnm ol Ernst & Younq cloball mited

3 Calsonic Kansei Corporation and Consolidated Subsidiaries Consolidated Balance Sheets March 31, 2011 and As of Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2011 (Note 3) Assets Current assets: Cash on hand and in banks (Notes 18 and 20) 14,789 14,069 $ 178,192 Trade receivables (Notes 6, 18 and 25) 111, ,416 1,342,957 Inventories (Note 4) 35,925 29, ,839 Deferred income taxes (Note 13) 4, ,903 Other current assets (Note 21) 18,386 15, ,526 Allowance for doubtful accounts (397) (575) (4,784) Total current assets 184, ,318 2,226,633 Property, plant and equipment, at cost: Buildings and structures 85,273 86,506 1,027,386 Machinery and equipment 186, ,360 2,243,103 Land 17,538 17, ,304 Construction in progress 3,794 3,175 45,717 Other 112, ,760 1,355, , ,621 4,883,488 Accumulated depreciation (293,185) (293,766) (3,532,360) Property, plant and equipment, net (Notes 6, 15 and 23) 112, ,855 1,351,128 Investments and other assets: Investments in securities (Notes 5, 18 and 19) ,225 Investments in affiliated companies (Note 18) 7,913 7,683 95,338 Deferred income taxes (Note 13) 2,225 1,328 26,807 Other (Note 5) 7,071 8,914 85,194 Total investments and other assets 17,809 18, ,567 Total assets 314, ,686 $ 3,792,329 2

4 As of Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2011 (Note 3) Liabilities and net assets Current liabilities: Current portion of long-term debt (Notes 6 and 18) $ 346 Short-term borrowings (Notes 6, 18 and 25) 45,721 54, ,860 Trade payables (Notes 18 and 25) 108, ,324 1,307,133 Income taxes payable (Note 13) 1, ,416 Accrued expenses (Note 25) 17,505 18, ,910 Accrued loss on plant restructuring ,242 Allowance for loss on disaster (Note 12) 489 5,897 Other current liabilities (Notes 15, 21 and 22) 12,449 12, ,994 Total current liabilities 186, ,039 2,249,801 Long-term liabilities: Long-term debt (Notes 6 and 18) Accrued retirement benefits: For employees (Note 7) 9,329 11, ,399 Accrued warranty costs 3,865 3,412 46,573 Deferred income taxes (Note 13) 1,866 3,424 22,485 Other long-term liabilities (Notes 15 and 22) 1,361 1,406 16,399 Total long-term liabilities 16,500 19, ,805 Net assets (Note 8): Common stock: Authorized 600,000,000 shares in 2010 and 2009 Issued 273,241,631 shares in 2010 and ,456 41, ,472 Capital surplus 59,638 59, ,532 Retained earnings 30,814 15, ,259 Treasury stock 5,270,155 shares in 2010 and 5,218,225 shares in 2009 (3,727) (3,712) (44,908) Total shareholders equity 128, ,599 1,544,355 Accumulated other comprehensive income: Net unrealized gain on securities Land revaluation of foreign subsidiaries ,532 Unfunded retirement benefit obligation of foreign subsidiaries (5,153) (5,270) (62,087) Foreign currency translation adjustments (21,482) (16,632) (258,821) Total accumulated other comprehensive income (26,316) (21,590) (317,064) Minority interests 9,663 8, ,431 Total net assets 111,528 99,815 1,343,722 Total liabilities and net assets 314, ,686 $3,792,329 See notes to consolidated financial statements. 3

5 Calsonic Kansei Corporation and Consolidated Subsidiaries Consolidated Statements of Operations For the years ended March 31, 2011, 2010 and For the years ended Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2009 Mar. 31, 2011 (Note 3) Net sales (Note 25) 748, , ,415 $9,015,056 Cost of sales (Notes 4, 9 and 25) 688, , ,222 8,299,947 Gross profit 59,354 30,999 25, ,109 Selling, general and administrative expenses (Note 9) 39,874 36,698 41, ,416 Operating income (loss) 19,479 (5,699) (16,755) 234,693 Non-operating income (expenses): Interest and dividend income ,514 Interest expense (Note 25) (243) (746) (1,257) (2,931) Foreign exchange gain (loss) (1,818) 212 (7,295) (21,913) Gain (loss) on sale or disposal of property, plant and equipment and other assets, net (Note 10) (411) 315 (32) (4,958) Equity in net gain (loss) of unconsolidated subsidiaries and affiliates (562) 7,053 Reversal of allowance for doubtful accounts Product warranty costs (Note 10) (64) (1,194) (380) (777) Impairment loss (Note 11) (746) (1,840) (109) (8,996) Loss on business restructuring of subsidiaries and affiliates (Note 10) (127) (2,801) Accrued loss on plant restructuring (389) (1,400) (4,694) Business structure reform expenses (Note 10) (813) (9,801) Loss on disaster (Notes 4 and 12) (1,812) (21,838) Loss on adoption of accounting standard for asset retirement obligations (Note 22) (565) (6,810) Other, net 270 (997) (966) (3,253) (5,647) (5,174) (12,592) (68,039) Income (loss) before income taxes and minority interests 13,832 (10,873) (29,347) 166,653 Income taxes (Note 13): Current (3,584) (2,052) (2,868) (43,192) Deferred 6,272 (467) (23,125) 75,568 2,687 (2,519) (25,993) 32,375 Income before minority interests 16,519 (13,392) (55,340) 199,028 Minority interests (920) (11,092) Net income (loss) 15,598 (13,281) (55,302) $ 187,936 (Yen) ( Net income (loss) per share: Basic (Note 17) (49.55) (206.33) $0.70 See notes to consolidated financial statements. 4

6 Calsonic Kansei Corporation and Consolidated Subsidiaries Consolidated Statement of Comprehensive Income For the year ended March 31, For the year ended Mar. 31, 2011 Mar. 31, 2011 (Note 3) Income before minority interests 16,519 $199,028 Other comprehensive income: Net unrealized gain on securities 0 0 Unfunded retirement benefit obligation of foreign subsidiaries 117 1,415 Foreign currency translation adjustments (4,750) (57,237) Share of other comprehensive income of companies accounted for by the equity-method (248) (2,991) Total other comprehensive income (Note 14): (4,880) (58,802) Comprehensive income 11,638 $140,225 Total comprehensive income attributable to: Shareholders of the Company 10,873 $131,003 Minority interests 765 $ 9,222 See notes to consolidated financial statements. 5

7 Calsonic Kansei Corporation and Consolidated Subsidiaries Consolidated Statements of Changes in Net Assets For the years ended March 31, 2011, 2010 and 2009 Common stock Capital surplus Retained earnings Treasury stock Net unrealized gain (loss) on securities Land revaluation of foreign subsidiaries Unfunded retirement benefit obligation of foreign subsidiaries Foreign currency translation adjustments Minority interests Total net assets Balance at March 31, ,456 59,638 86,394 (3,728) (4,019) (6,945) 12, ,874 Changes at the beginning of current year due to application of PITF No. 18 (302) (17) (45) (364) Net loss (55,302) (55,302) Cash dividends paid (2,010) (2,010) Purchase of treasury stock (15) (15) Disposal of treasury stock (19) Changes of scope of consolidation (260) (260) Net changes in items other than those in shareholders equity (98) (1,645) (9,901) (2,183) (13,827) Balance at March 31, ,456 59,638 28,501 (3,711) (45) 293 (5,664) (16,863) 10, ,109 Net loss (13,281) (13,281) Purchase of treasury stock (4) (4) Disposal of treasury stock (3) 3 0 Net changes in items other than those in shareholders equity (1,698) (1,009) Balance at March 31, ,456 59,638 15,217 (3,712) (5,270) (16,632) 8,806 99,815 Net income 15,598 15,598 Purchase of treasury stock (18) (18) Disposal of treasury stock (2) 3 1 Net changes in items other than those in shareholders equity (4,849) 857 (3,867) Balance at March 31, ,456 59,638 30,814 (3,727) (5,153) (21,482) 9, ,528 Common stock Capital surplus Retained earnings Treasury stock Net unrealized gain on securities Land revaluation of foreign subsidiaries Unfunded retirement benefit obligation of foreign subsidiaries Foreign currency translation adjustments Minority interests Total net assets (Note 3) Balance at March 31, 2010 $499,472 $718,532 $183,348 $(44,728) $228 $3,532 $(63,502) $(200,390) $106,098 $1,202,591 Net income 187, ,936 Purchase of treasury stock (227) (227) Disposal of treasury stock (25) Net changes in items other than those in shareholders equity 83 1,415 (58,431) 10,333 (46,599) Balance at March 31, 2011 $499,472 $718,532 $371,259 $(44,908) $312 $3,532 $(62,087) $(258,821) $116,431 $1,343,722 See notes to consolidated financial statements. 6

8 Calsonic Kansei Corporation and Consolidated Subsidiaries Consolidated Statements of Cash Flows For the years ended March 31, 2011, 2010 and For the years ended Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2009 Mar. 31, 2011 (Note 3) Cash flows from operating activities: Income (loss) before income taxes and minority interests 13,832 (10,873) (29,347) $ 166,653 Adjustments: Depreciation 22,146 25,776 28, ,824 Impairment loss 746 1, ,996 Allowance for doubtful accounts (217) (53) 353 (2,620) Accrued warranty costs 668 (296) 418 8,052 Accrued retirement benefits (2,224) (1,387) (1,904) (26,800) Interest and dividend income (291) (355) (809) (3,514) Interest expense ,257 2,931 Equity in net (gain) loss of unconsolidated subsidiaries and affiliates (585) (247) 562 (7,053) (Gain) loss on sale or disposal of property, plant and equipment, net 414 (372) 32 4,989 Gain on sale of subsidiary s business (451) Changes in assets and liabilities: Trade receivables (5,547) (40,866) 59,960 (66,839) Inventories (7,533) 6,299 1,373 (90,765) Trade payables 6,435 38,837 (63,691) 77,538 Other, net 4,176 4,177 5,832 50,321 Subtotal 32,263 23,226 2, ,713 Interest and dividends received ,131 Interest paid (254) (789) (1,257) (3,072) Income taxes paid (1,893) (1,805) (3,482) (22,810) Net cash provided by (used in) operating activities 30,540 21,131 (1,380) 367,962 Cash flows from investing activities: Purchases of property, plant and equipment (14,841) (15,499) (24,727) (178,814) Proceeds from sales of property, plant and equipment 772 1, ,308 Purchases of consolidated subsidiaries in securities (1,428) (566) (17,216) Purchases of investments in securities (15) (82) (836) (182) Gain on sale of subsidiary s business 451 Long-term loans made (5,599) (1,080) (4,300) (67,468) Collection of long-term loans 3,508 2,494 2,770 42,267 Other, net (1,297) (909) (1,555) (15,637) Net cash used in investing activities (18,902) (14,591) (27,281) (227,742) Cash flows from financing activities: Net changes in short-term borrowings (8,943) (2,582) 25,885 (107,753) Repayment of long-term debt (254) (369) (369) (3,070) Redemption of bonds (247) Cash dividends (2,010) Cash dividends paid to minority shareholders (40) (55) (205) (493) Net (increase) decrease in treasury stock (15) (3) 16 (188) Other, net (268) (171) (1,000) (3,237) Net cash (used in) provided by financing activities (9,523) (3,427) 22,317 (114,741) Effect of exchange rate changes on cash and cash equivalents (1,437) 209 (4,726) (17,321) Net increase (decrease) in cash and cash equivalents 676 3,322 (11,070) 8,156 Cash and cash equivalents at the beginning of the year 14,064 10,742 21, ,456 Change in cash and cash equivalents due to inclusion and exclusion of consolidated subsidiaries in the scope of consolidation 1 Cash and cash equivalents at the end of the year (Note 20) 14,741 14,064 10,742 $ 177,612 See notes to consolidated financial statements. 7

9 Calsonic Kansei Corporation and Consolidated Subsidiaries Notes to Consolidated Financial Statements March 31, Summary of Significant Accounting Policies (a) Basis of Presenting Consolidated Financial Statements Calsonic Kansei Corporation (the Company ) and its domestic subsidiaries maintain their accounting records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, and its foreign subsidiaries maintain their books of account in conformity with those of their countries of domicile. The accompanying consolidated financial statements have been prepared in accordance 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, and are compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Law of Japan. Certain items presented in the original financial statements have been reclassified and summarized for the convenience of readers outside Japan. In addition, certain s in the prior year s consolidated financial statements have been reclassified to conform to the current year s presentation. (b) Principles of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Affiliates The accompanying consolidated financial statements include the accounts of the Company and significant companies controlled directly or indirectly by the Company. Companies over which the Company exercises significant influence in terms of their operating and financial policies are included in the consolidated financial statements on an equity basis. Effective April 1, 2008, the Company adopted the Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements (PITF No. 18) and effective April 1, 2010, the Company adopted the Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for using Equity Method (PITF No. 24). In accordance with these PITF, the accompanying consolidated financial statements have been prepared by using the accounts of foreign consolidated subsidiaries and affiliates prepared in accordance with either International Financial Reporting Standards (IFRS) or accounting principles generally accepted in the United States as adjusted for certain items including goodwill, actuarial differences and capitalized development costs. See Note 2 (d) and (f). 8

10 1. Summary of Significant Accounting Policies (continued) (b) Principles of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Affiliates (continued) The consolidated financial statements as of March 31, 2011 include the accounts of Calsonic Kansei Corporation, TOKYO RADIATOR Mfg. Co., Ltd., CKP Corporation, Calsonic Kansei Utsunomiya Corporation, KS Engineering Co., Ltd., CKK Corporation, CKF Corporation, Calsonic Kansei North America, Inc., Calsonic Kansei Mexicana, S.A. de C.V., Calsonic Kansei Europe plc., Calsonic Kansei UK Limited, Calsonic Kansei China Holding Company, Calsonic Kansei Guangzhou Corporation, and other 18 subsidiaries. The unconsolidated subsidiaries have been excluded from consolidation because they do not have a significant effect on the consolidated financial statements in terms of their total assets, sales, net income or loss, retained earnings. Investments in N&P Chemical Industry Co., Ltd., Calsonic Kansei Iwate Corporation and other 5 unconsolidated subsidiaries, and Nissin Kogyo Co., Ltd., Siam Calsonic Co., Ltd., Yue Ki Industrial Co., Ltd. and other 6 associated companies are accounted for by the equity method. The equity method is not applied to account for the invests in WUXI TRS HEAT EXCHANGER CO.,LTD. and other 2 unconsolidated subsidiaries, and TR Asia Co., LTD.(associated company) because they do not have significant effect on the consolidated statements in terms of their total assets, sales, net income or loss, retained earnings. The fiscal years of subsidiaries are not necessarily the same as that of the Company. Accounts of subsidiaries, which have different fiscal years, have been adjusted for significant to properly reflect their financial position at March 31 of each year and the results of operations and cash flows for the years then ended. Calsonic Kansei Mexicana, S.A. de C.V., Calsonic Kansei Thailand Co., Ltd., Calsonic Kansei Guangzhou Corporation, and other 12 subsidiaries are consolidated using their financial statements as of their respective fiscal year end, which falls on December 31 and necessary adjustments are made to their financial statements to reflect any significant from January 1 to March 31. KS Engineering Co., Ltd. is consolidated using its financial statements as of its respective fiscal year end, which falls on February 28 and necessary adjustments are made to its financial statements to reflect any significant from March 1 to March 31. All significant intercompany balances and are eliminated in consolidation. Investments in subsidiaries and affiliates, which are not consolidated or accounted for by the equity method, are carried at cost or less. Where there has been a permanent decline in the value of such investments, the Company has written them down. Difference between the cost and the underlying net equity at fair value of investments in consolidated subsidiaries and in companies which are accounted for by the equity method (goodwill) have been amortized by the straight-line method over periods not exceeding 20 years. However, immaterial s of goodwill and negative goodwill are charged or credited to income in the year of acquisition. 9

11 1. Summary of Significant Accounting Policies (continued) (c) Foreign Currency Translation Receivables and payables denominated in foreign currencies are translated into yen at the rates of exchange in effect at the balance sheet date, and differences arising from the translation are included in the consolidated statements of operations. The balance sheet accounts of the foreign consolidated subsidiaries are translated into yen at the rates of exchange in effect at the balance sheet date, except for the components of net assets excluding minority interests which are translated at their historical exchange rates. Revenue and expense accounts are translated at the average rate of exchange in effect during the year. Differences arising from the translation are presented as foreign currency translation adjustments and minority interests in its consolidated financial statements. (d) Cash Equivalents Cash and cash equivalents consist of cash on hand, cash in banks which can be withdrawn at any time and short-term investments with a maturity of three months or less when purchased which can easily be converted to cash and are subject to little risk of change in value. (e) Financial Instruments (i) Securities Securities other than equity securities issued by subsidiaries and affiliates are classified into two categories: held-to-maturity or other securities. Held-to-maturity securities are carried at amortized cost. Marketable securities classified as other securities are carried at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, included directly 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. (ii) Derivatives and Hedge Accounting The Company and certain subsidiaries enter into forward foreign exchange contracts and other derivatives in order to manage the risk arising from adverse fluctuation in foreign exchange rates. Derivatives are carried at fair value, with any changes in unrealized gain or loss charged or credited to operations, except for those which meet the criteria for deferral hedge accounting under which unrealized gain or loss is deferred as a component of net assets. Hedging instruments are forward foreign exchange contracts. Hedged items are forecast sales denominated in foreign currencies. Foreign exchange risks are hedged within a certain range in accordance with the internal policies and procedures for risk management and authority regarding derivative which describes procedures, terms and conditions, transaction partners and risk reporting system of derivative. Hedge effectiveness is not assessed if the substantial terms and conditions of the hedging instruments and the hedged are the same. 10

12 1. Summary of Significant Accounting Policies (continued) (f) Inventories Inventories are stated principally at cost determined by the first-in, first-out method. The balance sheet s are determined by writing down the book value according to a decrease in profitability. See Note 2 (c). (g) Depreciation and Amortization Depreciation of property, plant and equipment (except for leased assets) is computed primarily by the straight-line method based on the estimated useful lives and the residual value determined by the Company. The estimated useful lives range from 3 to 50 years for buildings and structures and from 3 to 12 years for machinery, equipment and vehicles. Intangible assets (except for leased assets) are amortized by the straight-line method. Software for internal use is amortized by the straight-line method over the period of internal use (5 years). Depreciation of leased assets is computed primarily by the straight-line method based on either the estimated useful lives or the leased terms, and the residual value is either zero or the residual value determined by the Company. (h) Leases Noncancelable lease that transfer substantially all risks and rewards associated with the ownership of assets are accounted for as finance leases. All other lease are accounted for as operating leases and relating payments are charged to income as incurred. See Note 2 (1). (i) Allowance for Doubtful Accounts The allowance for doubtful receivables is provided at an determined based on the historical experience of bad debt with respect to ordinary receivables, plus an estimate of uncollectible s determined by reference to specific doubtful receivables from customers which are experiencing financial difficulties. (j) Accrued Warranty Costs Accrued warranty costs are provided to cover the cost of all services anticipated to be incurred during the entire warranty period based on past experience. 11

13 1. Summary of Significant Accounting Policies (continued) (k) Retirement Benefits Accrued retirement benefits for employees are provided mainly at an calculated based on the retirement benefit obligation and the fair value of the pension plan assets as of balance sheet dates, as adjusted for unrecognized actuarial gain or loss and unrecognized prior service cost. The retirement benefit obligation is attributed to each period by the straight-line method over the estimated years of service of the eligible employees. Actuarial gain and loss are amortized in the year following the year in which the gain or loss is recognized by the straight-line method over periods (principally 14 years) which are shorter than the average remaining years of service of the employees. Prior service cost is being amortized as incurred by the straight-line method over periods (principally 14 years) which are shorter than the average remaining years of service of the employees. See Note 2 (b) and (e). (l) Accrued Loss on Plant Restructuring Accrued loss on plant restructuring is provided to cover the estimated loss on plant restructuring, which mainly consists of relocation fees and redundancy costs at the Company and certain consolidated subsidiaries. (m) Allowance for Loss on Disaster Allowance for loss on disaster is provided to cover mainly estimated costs for restoration of the fixed assets damaged as a result of the Great East Japan Earthquake. (n) Income Taxes Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse. (o) Consumption Taxes Transactions subject to consumption taxes are recorded at s exclusive of consumption taxes. (p) Research and Development Costs Research and development costs are charged to income when incurred. 12

14 2. Accounting Changes (a) Until the year ended March 31, 2008, noncancelable lease entered into by certain domestic and foreign consolidated subsidiaries were accounted for as operating leases whether such leases were classified as operating or finance leases, except for lease agreements stipulating the transfer of ownership of the leased assets to the lessee which were accounted for as finance leases. Effective April 1, 2008, the Accounting Standard for Lease Transactions (Accounting Standards Board of Japan (ASBJ) Statement No. 13 originally issued by the First Committee of the Business Accounting Council on June 17, 1993 and revised by the ASBJ on March 30, 2007) and the Guidance on Accounting Standard for Lease Transactions (ASBJ Guideline No. 16 originally issued by the Accounting System Committee of the Japanese Institute of Certified Public Accountants on January 18, 1994 and revised by the ASBJ on March 30, 2007) have been applied. The above mentioned domestic and foreign subsidiaries changed their method of accounting for noncancelable lease which transfer substantially all risks and rewards associated with the ownership of assets, to account for them as finance leases instead of as operating leases. The effect of this change was immaterial for the year ended March 31, (b) Until the year ended March 31, 2008, CK-Engineering Co., Ltd. (CKE) accounted for its projected retirement benefit obligations by the simplified method. Effective April 1, 2008, CKE changed its method of accounting for projected retirement benefit obligations to the principle method due to an increase in the number of employees and to account for the estimated s more appropriately. The effect of this change was to decrease operating income (loss), and to increase income (loss) before income taxes and minority interests by 132 million for the year ended March 31, (c) Effective April 1, 2008, the Company and its domestic consolidated subsidiaries adopted Accounting Standard for Measurement of Inventories (ASBJ Statement No. 9 issued on July 5, 2006). Inventories are stated at cost determined principally by the first-in, first-out method. The balance sheet s are determined by writing down the book value according to a decrease in profitability. The effect of this change was immaterial for the year ended March 31, (d) Effective April 1, 2008, the Company and its foreign consolidated subsidiaries adopted Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements (Practical Issues Task Force (PITF) No. 18 issued on May 17, 2006), and made the necessary adjustments on the accompanying consolidated financial statements. The effect of the adoption of PITF No. 18 on the accompanying consolidated financial statements was to decrease operating income (loss), and income (loss) before income taxes and minority interests by 444 million for the year ended March 31, 2009; and to decrease total shareholders equity by 302 million, total accumulated other comprehensive income by 17 million, minority interests by 45 million, and total net assets by 364 million as of April 1, (e) Effective April 1, 2009, the Company and its domestic consolidated subsidiaries adopted Partial Amendments to Accounting Standard for Retirement Benefits Part 3 (ASBJ Statement No. 19 issued on July 31, 2008). There was no impact on the retirement benefit as of March 31, 2011 as a result of this change. 13

15 2. Accounting Changes (continued) (f) Effective from April 1, 2010, the Company and its consolidated subsidiaries applied the Accounting Standard for Equity Method of Accounting for Investments (ASBJ Statement No. 16 issued on March 10, 2008) and the Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method (ASBJ Practical Issue Task Force (PITF) No. 24 issued on March 10, 2008). There was no impact on the consolidated financial statements for the year ended March 31, (g) Effective from April 1, 2010, the Company and its domestic consolidated subsidiaries applied the Accounting Standard for Asset Retirement Obligations (ASBJ Statement No. 18 issued on March 31, 2008) and the Implementation Guidance on Accounting Standards for Asset Retirement Obligations (ASBJ Guidance No. 21 issued on March 31, 2008). The effect of this change was to decrease income before income taxes and minority interests by 565 million ($6,810 thousand) for the year ended March 31, The effect of this change on operating income and ordinary net income for the year ended March 31, 2011 was immaterial. 3. U.S. Dollar Amounts The translation of yen s into U.S. dollar s is included solely for convenience, as a matter of arithmetic computation only, at 83 = US$1.00, the exchange rate prevailing on March 31, This translation should not be construed as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate. 4. Inventories At March 31, 2011 and 2010, inventories consisted of the following: As of Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2011 Finished products 9,126 7,515 $109,962 Work in process 3,901 4,868 47,008 Raw materials and supplies 22,897 17, ,868 35,925 29,723 $432,839 14

16 4. Inventories (continued) The ending inventory balance represents after write-down of book value when their carrying s become unrecoverable. And for the year ended March 31, 2011 and 2010 respectively, the write-down (after offsetting the reversal of the prior year s write-down) which have been recognized are summarized as follows: For the years ended Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2011 Cost of sales (81) (784) $(976) Loss on disaster 13 $ Investments and Other Assets As of March 31, 2011 and 2010, goodwill included in Investments and other Assets, Other ed to 180 million ($2,168 thousand) and 235 million, respectively. Investments in unconsolidated subsidiaries and affiliates included in Investments in securities as of March 31, 2011 and 2010 ed to 7,913 million ($95,338 thousand) and 7,682 million, respectively. 6. Short-Term Borrowings and Long-Term Debt At March 31, 2011 and 2010, short-term borrowings, current portion of long-term debt and long-term debt consisted of the following: As of Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2011 Mar. 31, 2011 Average interest rate (%) Short-term borrowings 45,721 54,749 $550, Current portion of long-term debt $ Long-term debt (excluding current portion) $ Notes: The average interest rate represents the weighted-average rate applicable to the year-end balance. 15

17 6. Short-Term Borrowings and Long-Term Debt (continued) The aggregate annual maturities of long-term debt are summarized as follows: Year ending March 31, $ The assets pledged as collateral The assets pledged as collateral at March 31, 2011 and 2010 were as follows: As of Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2011 Trade receivables 110 $ Property, plant and equipment 1,440 2,531 $17,349 Related debts secured with the above assets at March 31, 2011 and 2010 were as follows: As of Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2011 Short-term borrowings $8,710 Long-term debt $1,289 16

18 7. Retirement Benefit Plan The Company and certain subsidiaries have both defined benefit plans and defined contribution plans, and certain subsidiaries have only defined benefit plans. The Company and domestic subsidiaries have employee pension fund plans, tax-qualified pension plans and lump-sum payment plans as defined benefit plans. As of April 1, 2010, certain domestic subsidiaries transferred a portion of the benefit obligations under the tax-qualified pension plans to defined contribution plans. The accrued retirement benefits as of March 31, 2011 and 2010 were analyzed as follows: As of Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2011 Retirement benefit obligations (69,616) (69,530) $(838,750) Plan assets at fair value 54,209 52, ,123 Unfunded retirement benefit obligations (15,407) (16,860) (185,626) Unrecognized actuarial differences 7,447 7,117 89,732 Unrecognized prior service cost (1,370) (1,733) (16,510) Accrued retirement benefits (9,329) (11,476) $(112,399) The components of retirement benefit expenses for the years ended March 31, 2011, 2010, and 2009 are outlined as follows: For the years ended Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2009 Mar. 31, 2011 Service cost 2,018 2,080 2,278 $ 24,322 Interest cost 2,327 2,392 2,704 28,036 Expected return on plan assets (2,353) (1,992) (2,570) (28,352) Amortization of unrecognized actuarial differences 598 1,422 1,134 7,215 Amortization of prior service cost (362) (347) (342) (4,370) Others, mainly the special benefits paid upon business restructuring 1,427 1, ,202 Retirement benefit expenses 3,656 4,750 3,973 44,054 Gain on transfer to defined contribution plans (22) Total 3,656 4,728 3,973 $ 44,054 The assumptions used in accounting for the above plans were as follows: As of Mar. 31, 2011 Mar. 31, 2010 Discount rate 2.10% 2.10% Expected rate of return on plan assets 3.00% 3.00% 17

19 8. Net Assets 1. Information of shares issued and outstanding / Treasury stock For the year ended March 31, 2011 Types of share Number of shares as of March 31, 2010 Increase Decrease shares) Number of shares as of March 31, 2011 Shares issued: Common stock 273, ,241 Treasury stock: Common stock (Notes 1 and 2) 5, ,270 Note 1. Treasury stock increased due to the purchase of fractional shares. Note 2. Treasury stock decreased due to the purchase claims of fractional shares. For the year ended March 31, 2010 Types of share Number of shares as of March 31, 2009 Increase Decrease shares) Number of shares as of March 31, 2010 Shares issued: Common stock 273, ,241 Treasury stock: Common stock (Notes 1 and 2) 5, ,218 Note 1. Treasury stock increased due to the purchase of fractional shares. Note 2. Treasury stock decreased due to the purchase claims of fractional shares. For the year ended March 31, 2009 Types of share Number of shares as of March 31, 2008 Increase Decrease shares) Number of shares as of March 31, 2009 Shares issued: Common stock 273, ,241 Treasury stock: Common stock (Notes 1 and 2) 5, ,205 Note 1. Treasury stock increased due to the purchase of fractional shares. Note 2. Treasury stock decreased due to the purchase claims of fractional shares. 18

20 8. Net Assets (continued) 2. Share subscription rights For the year ended March 31, 2011 There were no applicable items during the year ended March 31, For the year ended March 31, 2010 Company Parent company Description Euro-yen unsecured convertible bond with stock options shares to be issued Common stock Number of shares to be issued (in thousands) As of March 31, 2009 Increase Decrease As of March 31, 2010 Balance as of March 31, 2010 Balance as of March 31, 2010 U.S dollars) $ Total $ For the year ended March 31, 2009 Company Parent company Description Euro-yen unsecured convertible bond with stock options shares to be issued Common stock Number of shares to be issued (in thousands) As of March 31, 2008 Increase Decrease As of March 31, 2009 Balance as of March 31, Total

21 8. Net Assets (continued) 3. Dividends The Corporation Law of Japan provides that an equal to 10% of the to be distributed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve and the legal reserve equals 25% of the common stock account. Such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if certain conditions are met, but neither the capital reserve nor the legal reserve is available for distributions. (1) Dividends paid For the year ended March 31, 2011 No dividends were paid during the year ended March 31, For the year ended March 31, 2010 No dividends were paid during the year ended March 31, For the year ended March 31, 2009 Resolution shares Source of dividends Total dividends Dividends per share (Yen) Record date Effective date Annual general meeting of the shareholders on June 26, 2008 Common stock Retained earnings 1, March 31, 2008 June 27, 2008 Annual general meeting of the shareholders on November 7, 2008 Common stock Retained earnings 1, September 30, 2008 December 1, 2008 (2) Dividends with the record date in the year ended March 31, 2011, and the effective date in the year ending March 31, 2012 Resolution shares Source of dividends Total dividends Dividends per share (Yen) ( Record date Effective date Annual general meeting of the shareholders on June 24, 2011 Common stock Retained earnings 1,004 ($12,107) 3.75 ($0.04) March 31, 2011 June 27,

22 8. Net Assets (continued) 4. Stock options For the year ended March 31, 2011 Description of stock options Category and number of people to whom stock options are granted Type and number of shares 2003 Stock Options 2004 Stock Options 2005 Stock Options 9 directors, 103 officers, employees of the Company and 14 directors of subsidiaries Common stock 1,304,000 shares 9 directors, 148 officers, employees of the Company, and 15 directors and 1 employee of subsidiaries Common stock 1,954,000 shares 9 directors, 164 officers, employees of the Company, and 15 directors and 1 employee of subsidiaries Common stock 1,985,000 shares Grant date August 6, 2003 October 6, 2004 December 5, 2005 Vesting conditions Vesting period Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From August 6, 2003 to June 30, 2005 Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From October 6, 2004 to June 30, 2006 Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From December 5, 2005 to June 30, 2007 Exercise period From July 1, 2005 to June 30, 2010 From July 1, 2006 to June 30, 2011 From July 1, 2007 to June 30, 2012 Movement of stock options Share subscription rights which are not yet vested (shares): 2003 Stock Options 2004 Stock Options 2005 Stock Options As of March 31, 2010 Granted Forfeited Vested Balance of options not vested Share subscription rights which have already been vested (shares): As of March 31, ,066,000 1,667,000 1,716,000 Vested Exercised Forfeited 1,066,000 6,000 19,000 Balance of options not exercised 1,661,000 1,697,000 Exercise price (Yen) Average price per share upon exercise (Yen) Fair value per share at grant date (Yen) Exercise price (US dollar) Average price per share upon exercise (US dollar) Fair value per share at grant date (US dollar) 21

23 8. Net Assets (continued) For the year ended March 31, 2010 Description of stock options Category and number of people to whom stock options are granted Type and number of shares 2003 Stock Options 2004 Stock Options 2005 Stock Options 9 directors, 103 officers, employees of the Company and 14 directors of subsidiaries Common stock 1,304,000 shares 9 directors, 148 officers, employees of the Company, and 15 directors and 1 employee of subsidiaries Common stock 1,954,000 shares 9 directors, 164 officers, employees of the Company, and 15 directors and 1 employee of subsidiaries Common stock 1,985,000 shares Grant date August 6, 2003 October 6, 2004 December 5, 2005 Vesting conditions Vesting period Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From August 6, 2003 to June 30, 2005 Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From October 6, 2004 to June 30, 2006 Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From December 5, 2005 to June 30, 2007 Exercise period From July 1, 2005 to June 30, 2010 From July 1, 2006 to June 30, 2011 From July 1, 2007 to June 30, 2012 Movement of stock options Share subscription rights which are not yet vested (shares): 2003 Stock Options 2004 Stock Options 2005 Stock Options As of March 31, 2009 Granted Forfeited Vested Balance of options not vested Share subscription rights which have already been vested (shares): As of March 31, ,101,000 1,722,000 1,785,000 Vested Exercised Forfeited 35,000 55,000 69,000 Balance of options not exercised 1,066,000 1,667,000 1,716,000 Exercise price (Yen) Average price per share upon exercise (Yen) Fair value per share at grant date (Yen) 22

24 8. Net Assets (continued) For the year ended March 31, 2009 Description of stock options Category and number of people to whom stock options are granted Type and number of shares 2003 Stock Options 2004 Stock Options 2005 Stock Options 9 directors, 103 officers, employees of the Company and 14 directors of subsidiaries Common stock 1,304,000 shares 9 directors, 148 officers, employees of the Company, and 15 directors and 1 employee of subsidiaries Common stock 1,954,000 shares 9 directors, 164 officers, employees of the Company, and 15 directors and 1 employee of subsidiaries Common stock 1,985,000 shares Grant date August 6, 2003 October 6, 2004 December 5, 2005 Vesting conditions Vesting period Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From August 6, 2003 to June 30, 2005 Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From October 6, 2004 to June 30, 2006 Those who hold share subscription rights must remain employees or directors of the company, its subsidiaries, or affiliates until the beginning of the exercise period. From December 5, 2005 to June 30, 2007 Exercise period From July 1, 2005 to June 30, 2010 From July 1, 2006 to June 30, 2011 From July 1, 2007 to June 30, 2012 Movement of stock options Share subscription rights which are not yet vested (shares): 2003 Stock Options 2004 Stock Options 2005 Stock Options As of March 31, 2008 Granted Forfeited Vested Balance of options not vested Share subscription rights which have already been vested (shares): As of March 31, ,101,000 1,722,000 1,794,000 Vested Exercised Forfeited 9,000 Balance of options not exercised 1,101,000 1,722,000 1,785,000 Exercise price (Yen) Average price per share upon exercise (Yen) Fair value per share at grant date (Yen) 23

25 9. Selling, General and Administrative Expenses For the years ended Mar. 31, 2011 Mar. 31, 2010 Mar. 31, 2009 Mar. 31, 2011 Haulage expenses 2,249 1,923 2,324 $ 27,096 Provision for product warranties 2,059 2,193 4,085 24,807 Provision of allowance for doubtful accounts ,000 Salaries, allowances and bonuses 13,250 12,630 14, ,638 Provision for retirement benefits ,734 Provision for directors retirement benefits 114 Commission fee 6,304 5,794 6,520 75,951 Other 15,449 13,005 13, ,132 Total 39,874 36,698 41,948 $480,409 Research and development expenses included in selling, general and administrative expenses and manufacturing costs ed to 21,016 million ($253,204 thousand), 21,197 million and 27,579 million for the years ended March 31, 2011, 2010 and 2009, respectively. 10. Non-Operating Income (Expenses) The details of Gain (loss) on sale or disposal of property, plant and equipment and other assets, net were as follows: 1. Gain on sales of fixed assets for the years ended March 31, 2011, 2010 and 2009 were as follows: Gain on sale of fixed assets for the year ended March 31, 2011 primarily resulted from the sales of land in the of 81 million ($975 thousand), machinery and equipment in the of 69 million ($831 thousand) and tools, furniture and fixtures in the of 23 million ($277 thousand), respectively Gain on sale of fixed assets for the year ended March 31, 2010 primarily resulted from the sales of land in the of 88 million and buildings in the of 554 million, respectively. Gain on sale of fixed assets for the year ended March 31, 2009 primarily resulted from the sales of land in the of 196 million. 2. Loss on sales of fixed assets for the years ended March 31, 2011, 2010 and 2009 were as follows: Loss on sales of fixed assets for the year ended March 31, 2011 primarily resulted from the sales of machinery and equipment in the of 125 million ($1,506 thousand) and buildings in the of 69 million ($831 thousand), respectively. Loss on sales of fixed assets for the year ended March 31, 2010 primarily resulted from the sales of buildings in the of 17 million, machinery and equipment in the of 7 million and vehicles in the of 3 million, respectively. Loss on sales of fixed assets for the year ended March 31, 2009 primarily resulted from the sales of buildings in the of 12 million. 24

26 10. Non-Operating Income (Expenses) (continued) 3. Loss on disposal of fixed assets for the years ended March 31, 2011, 2010 and 2009 were as follows: Loss on disposal of fixed assets for the year ended March 31, 2011 primarily resulted from the disposal of machinery and equipment in the of 245 million ($2,951 thousand) and tools, furniture and fixtures in the of 106 million ($1,277 thousand) respectively. Loss on disposal of fixed assets for the year ended March 31, 2010 primarily resulted from the disposal of machinery and equipment in the of 285 million and buildings in the of 34 million, respectively. Loss on disposal of fixed assets for the year ended March 31, 2009 primarily resulted from the disposal of machinery and equipment in the of 207 million and tools, furniture and fixtures in the of 127 million, respectively. Product warranty costs is expected warranty cost for potential warranty claims related to automotive parts by product defects. Loss on business restructuring of subsidiaries and affiliates is associated with plant restructuring cost of Calsonic Kansei North America. Business structure reform expenses is associated with additional severance payment for early retired employees and others ed to 813 million ($9,801 thousand). 25

27 11. Loss on Impairment of Property, Plant and Equipment Property, plant and equipment are grouped based on the geographic segment categories designated for management control purposes. As far as idle assets for which no immediate use is expected and assets which are expected to be disposed of are concerned, whether the assets should be impaired is determined on an individual asset basis. The carrying values of these assets have been reduced to their respective net recoverable s and the resulting aggregate losses on impairment have been recognized in the accompanying consolidated statements of operations for the year ended March 31, 2011 in the of 746 million ($8,988 thousand). The recoverable s of the assets were calculated based on their net selling price at disposition. Details of the loss on impairment of property, plant and equipment for the years ended March 31, 2011 and 2010 are summarized as follows. Usage Type Location 2010 For the year ended March 31, 2011 Japan Idle assets and assets expected to be disposed of Buildings and structures, machinery and equipment etc. Aikawa-cho, Kanagawa prefecture Asia Idle assets and assets expected to be disposed of Machinery and equipment etc. Korea, Cheonan city China,Wuxi city Loss on impairment Loss on impairment $8,614 $373 Usage Type Location 2009 For the year ended March 31, 2010 Japan North America Europe Asia Idle assets and assets expected to be disposed of Land, buildings and structures, machinery and equipment etc. Aikawa-cho, Kanagawa prefecture Idle assets and assets expected to be disposed of Buildings and structures, machinery and equipment Idle assets and assets expected to be disposed of Machinery and equipment etc. Idle assets and assets expected to be disposed of Machinery and equipment etc. USA, Tennessee etc. UK, Camarthen etc. Korea, Cheonan city Loss on impairment 1,