249189

JPRS-JAR-84-01 1

17 July 1984

Japan Report

19980304138

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JPRS-JAR-84-011

17 July 1984

JAPAN REPORT

CONTENTS

ECONOMIC

Figures for 1984 Development Assistance Budget Reported

(APIKKU, Mar 84) ......................o.........

Overseas Production of Japanese Automobiles Updated

(SENTAKU, Feb 84) 10

Outline for 1984 Treasury Loans, Investments Reported

(Fumihiko Mizutani; FAINANSU, Mar 84) ................... 17

Hitachi, Oki Electric Financial Statements

(YUKA SHOKEN H0K0KUSH0 SORAN, Nos 15-1, 15-15, Aug 83 .... 41

Hitachi Ltd

Oki Electric Industry Co, Ltd

-a - [III - ASIA - 111]
ECONOMIC

FIGURES FOR 1984 DEVELOPMENT ASSISTANCE BUDGET REPORTED

Tokyo APIKKU in Japanese Mar 84 pp 8-11

[Text] ODA's Operating Budget Increases 33.8 Percent, Topping the

1-2 Trillion-Yen Mark

ODA General Account Budget and Operating Budget: 80 Percent of the

Increase in Operating Budget Is Earmarked for Capital Subscriptions and

Contributions to International Organizations.

Our government's fiscal 1984 general account budget for ODA [official

development assistance] has for the first time topped the 500-billion-yen

mark, reaching the sum of 528.1 billion yen. This is an increase of

9.7 percent over the 481.3 billion yen for the previous year.

Furthermore, as a result of the leveling-off in the general account

total expenditure in the vicinity of 50.6 trillion yen, the amount of the

ODA budget has exceeded 1 percent of the general account total expenditure.

Within the overall budget, wherein a 0.1 percent decline (a decline of 33.8

billion yen) in the general account expenditure is seen over the level of

previous year — the most restrictive budget since fiscal 1955 — the

aforementioned rate of increase in the ODA budget is far greater than

the increases in other budgetary items, including the 6.55-percent

increase in defense expenditure. It even exceeds the 8.9 percent increase

reflected in the ODA budget for the previous fiscal year.

Meanwhile, the operating budget (net base, excluding recovery funds) has

risen to 1.2952 trillion yen, or an increase of 33.8 percent over the

967.8 billion yen for the previous year, this is the first time it has

topped the 1 trillion-yen mark on a net basis. The rate of increase had

been moderate in past years: 5.8 percent in fiscal 1981, 6.0 percent in

fiscal 1982, and 2.8 percent in fiscal 1983. Now, in a sharp turnaround,

it has marked a substantial increase.

Incidentally, this is the first increase of more than 30 percent since the

31.4-percent increase of 10 years ago — fiscal 1984. As the operating

budget for fiscal 1974 was 431.8 billion yen, this means that the size

of the operating budget has just about trippled during these 10 years.
The biggest contributing factor to such a sharp increase in the operating

budget — aside from a large increase in the ODA general account budget,

which of course is a factor — is the 263.9 billion yen earmarked for

capital subscriptions and contributions to international development and

financial organizations, which is an increase of 207.7 percent [as

published] over the 127 billion yen of the previous year. This amount

is equivalent to no less than 80 percent of 327.4 billion yen — the total

amount of increase in the operating budget.

Due to the delay in the negotiations concerning capital increase, the

yearly total of Japan's capital subscriptions and contributions to

international development and financial organizations had continued to

decline for 3 consecutive years after it peaked at 209 billion yen in fiscal

1980; in fiscal 1983 it fell to a low of a 60-percent of the fiscal 1980

total. This was the main reason for the sluggish growth of the operating

budget. But with the negotiations over the International Development

Agency's (IDA, the Second World Bank) seventh capital increase and the

Asian Development Bank's (ADB) third general capital increase having

reached settlements, the estimated capital subscriptions and contributions

to these organizations have been appropriated in the budget, resulting in a

sharp increase in the operating budget.

A further point to be noted is that if the capital subscriptions and

contributions to international development and financial organizations are

excluded, all other aid items included in the operating budget show a

combined increase of a 7.6 percent over the previous year.

Summary of Assistance by Type — Operating Budget Shows a 64-Percent

Increase in Grants.

General Account

The bilateral assistance budget, which takes up about 90 percent of

the ODA general account budget, has risen to 461.5 billion yen — a 9.1

percent increase over the previous year.

Broadly the bilateral assistance budget is divided into a grant segment

(274.6 billion yen, a 6.7-percent increase over theprevious year) and a

loan segment (186.9 billion yen, a 12.7-percent increase over the previous

year). It is worth noting that in the loan segment, 180.9 billion yen

has been earmarked for items related to the Overseas Economic Cooperation

Fund, this amount represents a sharp increase of 13.1 percent over the

previous year.

This increase is due to the fact that, in addition to the 160 billion

yen (the same amount as the previous year) appropriated by the Ministry

of Finance for the Overseas Economic Cooperation Fund, this time the

Economic Planning Agency has newly appropriated 20.9 billion yen to be

used as subsidy funds to make up for the deficit.
Meanwhile, of the bilateral grant budget, the portion covering

gratuitous capital cooperation — consisting of the Foreign Ministryappropriated funds for economic development assistance and the Financy

Ministry-appropriated funds for KR [Kennedy Round] food assistance and

assistance for increased production of food — has been held down to 159.5

billion yen, which represents an increase of only 4.5 percent over the

previous year. Nevertheless, the economic development assistance fund that

takes up the bulk of the funds in this category has been increased by 7.6

percent to 106.5 billion yen, topping the 100-billion-yen mark for the

first time.

The budget for technological cooperation has been increased by 9.8

percent to 115.1 billion yen, and the portion — the bulk of the total —

earmarked for the Japan International Cooperation Agency (to be used for ODA

technological cooperation only) has been increased by 6.7 percent to 79.5

billion yen.

The multinational assistance portion, on the other hand, has been increased

by 14.7 percent to 66.5 billion yen, the bulk of which is earmarked for our

country's share and contribution to various UN organizations, 80 percent of

the total is a budget to be controlled by the Ministry of Foreign Affairs.

Operating Budget

The operating budget consists of 732.7 billion yen (an increase of 64

percent over the previous year) for grants and 682.8 billion yen (an

increase of 10.1 percent over the previous year) for loans. The sharp

increase in grants is noteworthy, the biggest contributing factor to this

is the 148.5-percent increase (an increase of 269.8 billion yen) over

the previous year in capital subscriptions and contributions to

international organizations.

In the fiscal 1984 budget, bilateral grants, which constitute the other

major item under the grant category and which have maintained a trend of a

10-percent annual increase since fiscal 1977, have been held down to a

increase of 6.1 percent — the first single-digit increase in 8 years —

as a result of the 1-percent decrease from the previous year level in the

assistance for increased production of food and of the technological

cooperation budget which has been held down to an 8.1 percent increase.

As for the loan segment, the ODA program portion of the overseas economic

cooperation funds, which take up the bulk of the loan segment, has been

increased 9.2 percent to 648 billion yen.

As a result of the factors noted above, the ratio between the grant

segment and the loan segment has shifted from 41.9 percent: 58.1 percent

the previous year to 51.8 percent: 48.2 percent on a gross basis to

include the reovery funds, and on a net basis from 46.2 percent: 53.8

percent the previous year to 56.6 percent: 43.4 percent. In each instance,

the weight of the grant segment has been increased.
The percentage of multinational assistance in the operating budget

(net base), which was 18.8 percent in fiscal 1983, has been doubled to

34.9 percent in fiscal 1984 — far exceeding the 30-percent mark.

Budget Makeup by Government Component -- 90 Percent Taken Up by Ministry

of Foreign Affairs and Ministry of Finance.

General Account

Over 90 percent of the ODA general account budget is taken up by two

ministries — Foreign Affairs and Finance. Basically this framework is

not changed for Fiscal 1984, either. But the Economic Planning Agency,

which has newly earmarked 20.9 billion yen as subsidy money for the Overseas

Economic Cooperation Fund, now has a 4-percent share of the budget. This

has resulted in a slight decrease in the Finance Ministry share to 41.4

percent (from 44.9 percent the previous year) and in the Foreign Affairs

Ministry share to 47.6 percent (from 48.3 percent the previous year).

Operating Budget

As in the case of the general account, 90 percent of the operating budget

is taken up by the two ministries — Finance and Foreign Affairs. But as

a result of significant growth — an increase of 42.5 percent — in the

Finance Ministry portion of the budget, which is responsible for nearly all

of the sharply increased capital subscriptions and contributions to

international development and financial institutions, the Finance Ministry

share of the budget is now 74.5 percent (compared to 69.9 percent the

previous year) and the Foreign Ministry share is 20.2 percent (compared

to 25.5 percent the previous year).

Foreign Ministry ODA General Account Budget — Rise of 8.1 Percent to

251.2 Billion Yen.

The Foreign Ministry's ODA general account budget is 251.2 billion yen,

which is an increase of 8.1 percent over the previous year. This amount

is equivalent to 66.3 percent of the Foreign Ministry's total budget (378.7

billion yen). Three item-categories alone — gratuitous capital cooperation,

subsidy and capital subscription to the Japan International Cooperation Agency,

and shares and contributions to international organizations ~ amount to

245.2 billion yen, taking up nearly all of the Foreign Ministry's ODA

general account.

Specifically, gratuitous capital cooperation (economic development

assistance) amounts to 106.5 billion yen, which reprsents an increase of

7.6 percent over the 99 billion yen of the previous year. The breakdown of

this is as follows: 93.9 billion yen (an increase of 7.7 billion yen over

the previous year) for general grants; 8.3 billion yen (an increase of

0.4 billion yen) for fisheries-related grants; 2.5 billion yen (a decrease

of 0.8 billion yen) for disaster-related grants; and 1.8 billion yen

(an increase of 0.2 billion yen) for cultural grants.
The ODA portion of the subsidy and capital subscription to the Japan

International Cooperation Agency amounts to 81.5 billion yen, an increase

of 6.8 percent over the previous year; thetotal amount including the

non-ODA portion is 82.4 billion yen — an increase of 7.0 percent over

the previous year. Specifically, with regard to the Youth Overseas

Cooperation Corps, a major item among the funding requests, the proposed

increase in the number of new members to be dispatched overseas by 150 to

a total of 650 has been approved as requested, and the remodeling cost of

the Hiroo Training Center has been approved, too. Further, the constructxon

cost for the Okinawa International Center has been approved in about the amount

requested. Also, the ASEAN youth invitation program has been approved

for 750 invitees during the year.

The shares and contributions to international organizations come to a

total of 85 billion yen, 1.3 percent more than the previous year. Of

this total, the ODA portion is 57.2 billion yen (an increase of 8.0

percent over the previous year). The principal contributions are: 14.5

billion yen (an increase of 5.0 percent) to the UN Development Program;

11 3 billion yen (a decrease of 1.7 percent) to the Office of the UN Hxgh

Commissioner for Refugees; and 9.5 billion yen (an increase of 4.9 percent)

to the UN Fund for poulation Activities.

[Table 1] Government ODA General Account Budget (Government Draft)

>&li?ODA-JSäält?S (RISHÖK) 21 !) (ma: mm

asfn 58#j£

4)fr « « $)»ift)g* kytt » sa ptovmw)

m O. 4,232

io)n -;s m #g m r

li) K R & m m

12)* ntsii

13)« « tö

14) B K

.*

ft » 16)

m ft as >s isa * * £ 17

a R is * * m m 18;

mft >i %m t> M a 19)

<n i& iß)

ii ra m

ft m M

20)

<F>

#21

f*22

R ifr ga % % a it 23l) 4.813

2,574

990

211

325

1,048

745

303

1,659

1,600

19

40

3) BS *P 59 5-

580

509

72

(ft1 W!£KA,*/:ä'iJnUra*1i±ftät-A'4J1f Ot,-ftL4U' 24)

4,616

2,746

1,065

185

345

I, 151

795

356

1,869

1,809

20

40_

665

548

118

5,281

383

172

75

A25

20

103

50

53

211

209

2

0

85

39

46

468

9. I

6.7

7.6

AI2. I

6.2

9.8

6.7

17.4

12.7

13. I

9.7

0.0

14.7

7.7

64.5

9.7

Key:

1. Unit: in 100 million yen

2. Fiscal 1983

3. Fiscal 1984

4. Amount budgeted

5. Government draft

6. Increase or decrease

7. Percentage of increase

8. Bilateral assistance

9. Grants

10. Economic development aid
11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

KR food assistance

Aid for increased food production

Technological cooperation

Japan International Cooperation AgencyOther

Loans

Overseas Economic Cooperation Fund

Japan International Cooperation Agency

Overseas Fisheries Cooperation Foundation

Multinational assistance

Portion controlled by Foreign Ministry

Other

ODA total

Note: Totals do not necessarily tally due to rounding off.

[Table 2] Foreign Ministry ODA General Account Budget (Government Draft)

*»ttODA-»Öit** (RßffiX)

2l)S*058$jf

1) (¥tt:ftR)

3) B§ *D 59 %.

4)?usi 3)s#« tfaimm\msm%\ mm

9)w m « * * a it

io)^m^oD^nmi

11)». i* m ± ta *

12)s Jgfö Alll

I 13)0E0DA£ir)

iS^M^roat-SilüH) 529

I (?$&«M±ft)lJ) (21)

3,591

2,324

3, 834 I

2,576

990

763

(770)

42

IS' Mtft'.'i ACif;*smnin«liftSt»!£.-f L t--55i

1,070

832

(838)

576

(24)

98

1

'17)

6.8

10.8

n

3,787 m2,512

8. I

9.0

(8.9)

8.8

(16.5)

135.3

1.065

815

(824)

572

(24)

60

195

188

75

52

(54)

42

( 4)

19

^T7

7.6

6.8

(7.0)

8.0

(16.9)

44.6

Key:

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

Unit: in 100 million yen

Fiscal 1983

Fiscal 1984

Amount budgeted

Amount requested

Percentage of increase

Government draft

Increase or decrease

Foreign Ministry's total budget

Foreign Ministry's total ODA budget

Gratuitous capital cooperation

Japan International Cooperation Agency

(Total including the non-ODA portion)

Shares and contributions to international organizations
15. (Portion of above earmarked for technological cooperation)

16. Other

17. Note: Totals do not necessarily tally due to rounding off.

ODA Operating Budget Makeup by Source of Revenue ~ The Government Bond

Share of the Budget Rises to 27.2 Percent.

The ODA operating budget is funded not only from the general account but

also from such other sources as the treasury investment and loan fund

and government bonds. In the budget makeup by source of revenue, it is

worth noting that the weight of government bonds has increased significantly

from 11.6 percent the previous years to 27.2 percent this year. This is due

to a sharp increase in the capital subscriptions and contributions, nearly

all of which are funded by means of government bonds, to international

development and financial institutions. The component ratio of the treasury

investment and loan fund has pretty much leveled off at 27.2 percent (27.9

percent the previous year); the share of the general account has dropped

to 37.3 percent (from 45.1 percent the previous year).

The Ratio of ODA Operating Budget to GNP -- Rising to 0.438 Percent

Since it first crossed the 0.3-percent mark by attaining a 0.317 percent

in fiscal 1974, the ratio of the ODA operating budget as a percentage of

gross national product (GNP) has continued to remain practically

unchanged, but in fiscal 1984 it reached 0.438 percent, which not only

greatly exceeded the previous year's 0.344 percent but topped the 0.4

percent mark for the first time. This percentage figure against GNP is,

however, based on a comparison with the nominal GNP figure cited in the

"Fiscal 1984 Economic Outlook and the Basic Posture for Economic

Operation," which is being prepared concurrently with the budget. It is

a planning figure; it does not mean that the actual performance will bear it

out.

Additionally, when compared with defense costs using the operating budget

as the basis, as a result of a far greater increase in the ODA operating

budget (33.8 percent) than in the defense budget (6.55 percent), the

ratio between the two has shifted from 35:100 the previous year to 44:100

this year; thus, the ratio of the ODA operating budget to the defense

budget has reached the highest level ever.

Finally, in view of the apparent confusion in some quarters in understanding

the ODA budget and the economic cooperation expenditure, a note of

explanation seems warranted.

The so-called ODA budget is a budgetary classification basically

corresponding to the ODA concept as defined by the Development Assistance

Committee (DAC), a suborgan of the Organization for Economic Cooperation

and Development (OECD). By contrast, the so-called economic cooperation

expenditure is the sum total of these expenses required for the execution

of various policies for economic cooperation as derived from a breakdown
by policy-based outlays (by major expense categories) of the general

account expenditure budget; it is a treasury expenditure item unique to

our country which goes back to the days prior to the introduction of the

concept known as the ODA budget. In short, the target items covered by

the economic cooperation expenditure mostly overlap with the ODA budget

but some items are outside the ODA category. Incidentally, earmarked for

fiscal 1984 economic cooperation expenditure is 543.9 billion yen, which

xs an increase of 7.9 percent over the previous year and 15.8 billion yen

more than the ODA general account budget of 528.1 billion yen.

[Table 3] ODA Operating Budget Summary Table (Provisional Tabulation)

>0DAmm^umm us**.

9)~i i

10) 2. H ffl i $

11) g is &§ « n f id

12) IStSSiSl

13) a f ts -h

14) * v> ft

15) ISS^roaji-fttb

16) a -I I? IS # F*1

17) S^PJftälM

2)flS fn 56 $ t:3)as « 57 $ s 4)BS

1) «ft: «R)

« 58 $ ig 5>SW59$gßlSf3

± ü

#ü'* 'Mit i i- Si i #W'$ i Mit I A ß i #y$ i «Sit: A

4,559

2,119

830

453

835

5.4

16.3

10.7

23.8

18.5

I i A 5. i

2. 440 i A 2. 5

444 : 7. 8

1,995 Ai.S

47.3!

18) <f tt 5,083

19) i§flg;StäÄS£ ' 4,763

20) S * $ m A ig fi I 80

14) * tO {fe 1 24Q

21) 'Jv It (fISi 9,642

4,704

2,372

920

496

956

0

2.332

504

1.828

3.2

11.9

10.8

9.6

14.4

A 4.4 ;

13.5 i

A 8.4

45.! 4, 468

2, 650 ]

990 j

536.:

I. 125

0^

1.818

547

1,270

A 5.0

11.7

7.6

7.9

17.7

: A22. I

8.5

A30. 5

41.9

22 )J§L

231

Hi I A 754

It 8.

9.4:

13.4

A52. 9 j

AI2.8!

: 7,327

2,811

1,065

530

1,216 .'

0 :

4,516

608

3. 909

52.7 5,563

5,275

50

238i

9.4

10.7,

A37. 5 j

A l.o!

54.2 6.204

5.883

70;

251 '

11.5

ll.5|

40.0!

5.3:

7.5; 100.0 10,267 1 6.5' 100. 0 i 10.671 3.9,

#t/$ ! Mit

64.0

6.1

7.6

A 1,0

148.5

II.0

207.7 •

i A 849 i A 993

5.8

24) ft G N P it (%)

25)

9,418 6.0

0.336 0.340 0.344

ft. WWi »,sr:»iBiUDfiii ;*,i\t,-£~t 11

58. I 6.828 , 10. I

i 6. 422 i 9. 2

j 50 j A28.6 ;

j 3561 41.9 1

100.0! 14, 155 i 32. 6

9. 678 i 2. 8

'AI.203!

12.952! 33.

0.438

51.8

100.0

Key:

1. Unit in 100 million yen

2. Fiscal 1981

3. Fiscal 1982

4. Fiscal 1983

5. Fiscal 1984 government draft

6. Amount

7. Rate of increase

8. Component ratio

9. Grants

10. Bilateral grants

11. Economic development aid

12. Aid for increase in food production
13. Technological cooperation

14. Other

15. Capital subscriptions and contributions to international organizations

16. UN and other agencies

17. International development and financial institutions

18. Loans

19. Overseas Economic Cooperation Fund

20. Export-Import Bank of Japan

21. Subtotal (operational scope)

22. Funds recovered

23. Total

24. Percentage of GNP

25. Totals do not necessarily tally due to rounding off.

9977

CSO: 4105/199
ECONOMIC

OVERSEAS PRODUCTION OF JAPANESE AUTOMOBILES UPDATED

Tokyo SENTAKU in Japanese Feb 84 pp 88-91

[Article discussing present status and planned strategies for Japenese

automobile manufactures in America] p

[Text] "Seven Barriers" to Onsite Production of Cars

Large Automakers Compete in America Over Management Capabilities

Four years have already passed since the Honda Motor Company became the

H^daÄr? T

manufaCturer t0

«mounce it was moving to America

Honda s Ohio factory was completed at the end of the year 2 years ago

This yetr'a'tw ^^ ^-f^ Rations, SO.OOo'cars «rercted. This year a two-line system identical to the one in Japan was installed

fairlv Lod°SCtl0n °J 15°'

000 CSrS annUSlly began'S

^

ce ifc now has a

that Irnlt *?, °, ^

production capability, Honda announced in January that production will double to 300,000 cars. <*""<**>

Honda certainly does not have a monopoly on onsite production in America

Six months after Honda, the Nissan Motor Company constructed a factory in

Smyrna Tennessee, for the manufacture of «nall'slze trucks. The stilt

a facilitvTtl0nS be§an ln/

Une °f laSt year

-

A decision on building

a facility for passenger vehicles also is expected the middle of this year.

The joint-production plan of the giant car manufacturers Toyota and General

Son at tS endroTw Pr°

Vlsional a

^

ova* ^ the Federal Trade Commis- sion at the end of last year. Besides renovation of the Fremont (California)

an workCwill\y haS hT

n

,

0rdered> Up°n 0ffiC±al a

PPrOVal in March Sova^

the alsemblv lit ^ ^^

the ^ °f haVlng the first car

tne assembly lme next spring. ^11 off

Three of the large car manufacturers who export to the United States-Tovota

ylTtLtollTZ'lTfalready exT

ded thelr operations to ^S«. ?hista'

year the spotlight is focusing on the activities of the Mitsubishi Motor

toZll y°

KOgJO

u; n°thsanies have already determined that "moving

givfSlin^l^held!- "

±S °nly a matt6r °f Wh

-

the C

°~*"

10
Of the eight car manufacturers who export to the United States, only three

do not plan to extend their operations to America at the present time: in

addition to Fuji Heavy Industries, these are the Suzuki Motor Company and

Isuzu Motors, which has a capital tieup with GM. However, these three

companies may be forced to move into America whether they want to or not

if the domestic content bill (a measure which requires car parts to be

supplied domestically) is put into effect in the American market»

The problem is whether [U.S.] approval of onsite production in America is

given or not.

The Fight on Enemy Territory Has Begun

The friction between the United States and Japan over car [exports] came to

the surface in January 1980. Although Honda had announced its plan to launch

operations in America, friction nevertheless came to a head because of the

sudden increase in Japanese car [imports] and UAW unemployment. Just at that

time, the head of the UAW, Frazer, was set to go to Japan. He met with

the heads of Toyota and Nissan and petitioned them directly about launching

operations in America. The minister of finance also prevailed upon the

companies to do so, but both rejected it as being "unprofitable."

whether companies can launch onsite production and make it profitable or not

depends on their management capabilities, but a simple comparison shows that

there would certainly be more profit in exporting finished cars than in

producing them in the United States. But since it was this steadfast policy

of exporting finished cars that caused the trouble in the first place, the

problem will not be resolved as long as this situation remains.

Viewed from its 90-year history, the American automobile industry was at

its zenith until the first oil shock. America was originally able to reach

its prominent place in the world not because industry rose simply due to an

abundance of natural resources, but because industries, such as the automobile industry used natural resources, like oil, and developed.

If the American automakers' height of prosperity is the first era [in

automotive history], then the second era can be called the golden age of

Japanese cars. Japanese automakers were able to carve out a firm foothold

in the U.S. market first of all because of their cars' meager gas consumption,

and [secondly] because they supplied cheap cars of good quality. Its technology for producing things has been excellent, but this was the first time

that Japan was recognized for turning out good-quality manufactured items.

However, the sudden increase in Japanese car [imports] put American manufacturers in a tight fix and, as a result, Japanese exports to America were

placed under voluntary restrictions. The restrictions have been renewed for

another year and will continue through 1984. But even if they are abolished

in 1985, Japanese manufactuers will not be able to export as freely as before.

The present atmosphere surrounding the automobile industry is one in which

"a certain number of cars will have to be produced in America in order to

sell there." The golden age for Japanese cars lasted only 10 years. Whether

11
it wants to or not, the Japanese automobile industry will have to proceed

with onsite production in order to survive. And onsite production does not

mean just assembly. Over the long term, production must include parts as well,

uZ^/rt^l T

k%?1

l

eaSt 10 yearS f°r Serious Production to become firmly established. The first round of the [U.S.]-Japan car war, which

revolved around sales, was an overwhelming victory for Japan. It was a fight

on Japanese soil, but the second round is a war on enemy territory. If the

Japanese manufactuers can transplant. Japanese-style management to America

and produce good-quality cars, they can attain the top spot in the world in

both name and reality. That battle has already begun.

Toyota Versus Nissan

It is one thing to talk about onsite production, but in the case of car

manufacturing, it is no easy task to carry out. To construct an assembly

facility that can turn out 200,000 cars annually costs at least $500 million,

tor a facility m which everything would be assembled from the engine on uo

the cost would be $1 billion. Furthermore, a lot of personnel Jould be "'

ttrtt IT llX aT

mbll Production

-

Th* ^ze of the facility would be much

tZTl I H f

e

°

r TV factories of the home appliance manufacturers who have extended operations to the United States.

Onsite production quite naturally is something on which the company is gambling its fate. One mistake, and its life would be extinguished at that point

Japanese car manufacturers must get through, at present, seven barriers in '

order for onsite production in American to succeed.

The first barrier is the UAW. The soul of Japanese management methods lies

in labor-management harmony. If possible, Japanese manufacturers would like

to get away from UAW involvement. Besides the fact that UAW wages are high

the chief reason is that they consider the quality of labor to be poor. '

stvlea,SF^t-Ni?

Sa

^'S?T°liCieS tOWard the UAW reP

rese*t a good contrast in style. First of all, Nissan, which decided to set up a U.S. factory for

small-size trucks, gave priority to choosing a place which was not only

close to its Mexican factory but also had no UAW influence. The place Nissan

finally chose, Smyrna, Tennessee, is close to Mexico. In addition, since

thTuAW^ lmP°r^

nt

car or car-related parts factories, it is outside

the UAW s sphere of influence.

The man Nissan put in charge of the Tennessee plant was Mr Runyon, former

vice president m charge of production at Ford, and its implanting Japanese

management techniques in the unorganized labor force. UAW head Frazer

criticized Nissan last June when he retired: "Nissan is obstructing UAW

organizing. At the present time, the UAW is not actively organizing, so

Nissan s aim has been successful for the moment.

Some People in theAmerican automobile industry, however, have pointed out

that the UAW cannot organize labor in the Smyrna plant because Nissan is

paying its workers the same high wages that UAW employees are getting no

more or less." It is paying high wages in order to avoid UAW high wfges"

12
At the present time, the UAW regards bringing Japanese enterprise to

America as the first consideration and is suppressing its organizing activities for this reason as well. Naturally, however, it is expected that

UAW organizing activities will pick up, once production gets into full stride.

On the other hand, Toyota will use an idle GM factory and hire former UAW

employees first. In the fall of last year, Mr Usury, labor advisor for the

[Toyota-GM] joint company and a former secretary of labor, concluded a

provisional contract between the UAW and the company involving labor-management relations. In exchange for recognizing the UAW as the official formal

representative of its employees, the company will adopt Toyota production

methods at the plant and freely alter the occupational categories.

The second barrier concerns how well Japanese management techniques are

established. Simply put, Japanese-style management is quality control [QC]

and productivity. Both the Honda Ohio plant and the Nissan Tennessee plant

are not bad as far as QC is concerned. This is because the middle-level

supervisors, who were hired onsite [in America], were called to Japan before

operations began and fully trained.

The problem will be when the two-line system is instituted and QC and productivity are set together. If these two elements do not prove out at the

same time, the quality of Japanese management techniques will not be displayed.

Which company—Toyota, which uses UAW personnel, or Nissan, which hired

unorganized—labor will establish Japanese management techniques faster? This

is another aspect of the Toyota-Nissan rivalry.

The third barrier is onsite production and supply of parts. When Honda and

Nissan established onsite production, they had all of the major parts, such

as engines and transmissions, sent from Japan. Onsite production means

assembly. Toyota will also begin just with assembly. [The companies] will

sooner or later run up against a barrier, however, by just conducting assembly

operations. This is because the tenor of the talk among American pundits

is that "the value that is added through assembly production only is low and

has no merit for America."

Duel Between Japanization and Americanization

An assembly production plant represents the "Japanization of the American

automobile industry." If this style takes root in America, the American

automobile industry will undoubtedly deteriorate. This trend toward "Japanization," in which a car is totally assembled from the parts on up, will

probably gather strength.

Honda realized this very quickly, and when it expanded its Ohio plant, it

announced its intention to construct new facilities for the production of

2- and 4-wheel-vehicle engines. The Ohio factory is geographically close to

the Motor City, Detroit, so it is relatively easy to supply Americanproduced parts. Nissan's Smyrna plant and Toyota's Fremont plant are both

far away, however. If they are compelled to equip their cars with Americanmade parts, Nissan and Toyota will have to promote cooperative subcontracting plants for small parts by themselves.

13
The fourth barrier is model changes. In Japan, the custom is to have a model

change of passenger vehicles once every 4 years. This is intricately

connected to Japan's unique car inspection system. [The car manufacturers]

have used this inspection system and the model change as a lever to promote

trading m old cars and buying new ones. The model change is not just a matter

of style; wholesale changes of things that are not readily visible, like the

powertram, are carried out. Because model changes are affected every 4 years

efficiency improves as a result. It can also be said that Japanese cars

have caught up with and passed European and American cars in terms of standards in a very short time.

American model changes are not as dramatic as Japan's. There are many cars

whose style has not changed in 10 years. As long as the Japanese custom

does not change, onsite production operations will have to respond in

similar manner, like it or not. In order to be in step with Japan for model

changes, the onsite plants in America will have to gear up 6 months earlier

than the domestic factories. The development system in Japan also will have

to be speeded up by 6 months.

The fifth barrier is the company-community relationship. The pitch given to

Japanese enterprises by each state has been aggressive. It is said that

every state except for Alaska and Hawaii invited Toyota and Nissan to set up

operations in their state. All of the states figured that car manufacturing

would be good for employment and would help in rehabilitating the area's

industries. This does not mean that the area would be happy if a big factory

were built. Naturally, there are limits. Production would have to be on

a scale that would not destroy the community.

In order to double its onsite production, Honda first thought about building

a second plant next to its original factory. It finally settled on expanding

the present facility because productivity would increase. But the matter of

employees was also involved in the decision.

The current number of employees at the Ohio plant is 1,400. When two-line

full operations begin in May, the number will rise to 1,700. Even if the

300,000-car-per-year production system were established by the end of 1986

this figure would increase by only 700 [as published] to 2,500 people. This

would be because the present work force can be used effectively. It would

not be the case, however, if a second plant were constructed in a place

separate from the present factory.

The reason why Honda is so unusually concerned about the question of employees

is because it can gather only about 2,000 people from the Columbus area

where the plant is located. If more people than that were needed, they

would have to come from outside the area. It is very clear that the pastoral

rural city would go to ruin if "strangers" were to come into the area. So

even when expanding the production facilities, Honda feels it can only

increase its work force by a number that is within the above-mentioned limit.

It the area community were to deteriorate, Honda would immediately begin

to hear "Honda, go home!"

14
The Last Barrier, Building a Marketing Network

Let's move on. The sixth barrier is the matter of shipping costs. Even

though it is smaller than America, Japan as well as its automobile industryhas become more and more sea-oriented. This is because half of its production is exports, so a location near the sea is an advantage.

Marine shipping costs are much cheaper than overland shipping costs. Quite

frankly, freight charges are such that it is much cheaper for Nissan to

ship cars by sea to Los Angeles from its Yokohama factory than it is for

American car manufacturers to ship them overland across the Rocky Mountains

from Detroit. The difference in price for American and Japanese small cars

is between $1,500 and $2,000. A large portion of that is due to the difference in freight costs.

In order to offset this freight charge differential, the American Big Three

[automakers] placed assembly plants in consumption centers—i.e., near big

cities. In recent years, however, they are again being concentrated in the

Detroit area. In its own way a plant located in an area of consumption is

an advantage. But as long as those plants are just for assembly production,

parts have to be brought in from Detroit. The Big Three returned to Detroitarea production because they deemed integrated production from parts to

assembly to be more efficient, despite the higher shipping costs.

If Toyota's Fremont plant and Nissan's Smyrna plant become a second and third

Detroit, they will adopt a policy similar to that of the Big Three. However,

there are no parts factories near the two plants. Under these circumstances,

both Fremont and Smyrna currently produce 200,000 cars a year and will be

able to turn out no more than 300,000, no matter how hard they try. The

Japanese car plants are only "dots" in the expanse of America. What is

important, however, is that they are on a "line."

The final barrier is the marketing network. Japanese automobile marketing

is tied to the manufacturer's string of dealers. In America, dealers are

completely independent of manufacturers in terms of capital and personnel.

In Japan there are 3,000 dealers, but in American, where demand is double

that of the Japanese market, there are 15,000 dealers. One-third of these

are combined dealers, selling Japanese cars and cars of one of the Big Three

automobile manufacturers.

Because of this, it is easy to increase the number of dealers. Increasing the

number of quality dealers, however, is unexpectedly difficult. Toyota and

Nissan have 1,000 dealers throughout America. Ten years ago, most of those

dealers were combined dealers, but now between two-thirds and three-fourths

of them are exclusive dealers. Of course, breach-of-contract penalties

can be collected if the number of cars that was agreed upon at the beginning

of the year are not supplied. Actually, with the shortage of cars, the

manufacturers have not been able to supply the contracted number of cars,

and there have been many charges of breach of contract.

15
Therefore, it is not easy to increase the number of dealers. Even though

production may be done onsite in America, the number must be increased in

accordance with the scale of the production base. The strong car manufacturers

are eager to build up a network of exclusive dealers, but this is an

unexpectedly difficult task.

These are the seven barriers. There are various problems with onsite

production, as we have seen up till now. However, unforeseen difficulties

will undoubtedly arise as well, once production begins. Resolving these

problems, one at a time, is tied to establishing roots in America. If after

10 years the question "Are Toyota and Nissan Japanese enterprises?" is asked,

then it can be said for the first time that Japan has won the U.S.-Japan car

war. Who will become the true champion in the U.S. market? This is first

a challenge of each company's ability.

12517

CSO: 4105/177

16
ECONOMIC

OUTLINE FOR 1984 TREASURY LOANS, INVESTMENTS REPORTED

Tokyo FAINANSU in Japanese March 1984 pp 13-23

[Article by Fumihiko Mizutani, chief of Capital First Division, Financial

Bureau, Ministry of Finance]

[Text] The fiscal 1984 treasury investment and loan

plan, which had been in the making as part of the fiscal

1984 budget formulation process, was finalized and submitted to the Cabinet Council on 25 January. Its total

amount is 21.1066 trillion yen, which constitutes an

increase of only 1.9 percent over fiscal 1983—the smallest

such increase in 26 years, no less. That is all the more

reason why the plan has turned out to be what it is:

in terms of management, the plan has gone to more extremes

than ever to ensure priority-based and effective allocation

of the limited fiscal resources; in terms of the sources

of funds, the plan reflects a keener interest in the

utilization of private-sector capital. What follows is an

explanation of the plan's outline.

I. Formulation of the Plan: Details and Background

1. Suppression of Demand

The treasury investment and loan (referred to hereafter as "treasury investment") program is comprised of the underwriting of government bonds by means

of Trust Fund Bureau funds, and capital operations conducted on the basis of

the treasury investment and loan plan (referred to hereafter as "treasury

investment plan").

With regard to the treasury investment plan, there were times when it was

possible to formulate a fairly flexible plan, owing to relatively favorable

growth in fiscal resources such as postal savings and pension funds. But

due to constraints in fiscal resources and various changes in the factors

pertaining to treasury investments, such as the underwriting of government

bonds, the plan's annual rate of growth over each preceding year has been

limited to a single digit since fiscal 1980—in fiscal 1983 the rate fell

to as low as 2.0 percent.

17
Likewise, with respect to fiscal 1984, in view of the unlikely prospect for

any increase in fiscal resources such as postal savings on the one hand,

and of the likely prospect for a growing demand on Trust Fund Bureau funds

for government-bond underwriting and for local financial measures that would

require large sums of money, it was expected that the treasury investment plan

for the year would have to be stricter than ever in its makeup. Furthermore,

this being the first such plan to be drawn up following the submission of the

final report by the Ad Hoc Commission on Administrative Reform, it was

believed essential to take into account the spirit of that report and

undertake a fundamental review of the operational activities and lending

targets of the treasury investment agencies, and to try harder than ever to

ensure that allocation of the funds would be based on prioritization and

effectiveness.

Meanwhile, on the budget side, an understanding was reached at the cabinet

meeting held on 12 July 1983 that in order to vigorously promote fiscal

reform, a lower ceiling—even stricter than the ceiling applied in the

previous year—had to be imposed on the estimate requests for the fiscal 1984

budget. Thus, when the budget is being prepared under a policy of constraint

that is more severe than ever before, it is only natural that no part of the

treasury investment plan can be treated in an easygoing manner.

Based on the background as described above, and also with a view toward facilitating smooth and efficient formulation of the treasury investment plan for

fiscal 1984, it was decided to appeal to various ministries and agencies of

the government to take a closer look at the details in submitting their

requests, and to exercise maximum restraint on the scope of the requests.

Of course, in the case of the treasury investment plan, unlike the case of

the budget, a uniform ceiling is not appropriate because of the diversity

in the nature of activities and the financial affairs of the target agencies

involved. Thus, the appeal had to be made separately to individual agencies.

The requests were submitted on 31 August. As a result of the understanding

and cooperation of those concerned, the amounts requested totaled 22.4142

trillion yen, which constituted an increase of 8.3 percent over the previous

year's programmed amount (20.7029 trillion yen) but an amount smaller than

the previous year's total request (22.4358 trillion yen). It turned out to

be the most constrained ever. (See Table 1)

2. Comprehensive Economic Policy and Supplementary Funding Actions

On 21 October 1983, the government decided on a comprehensive economic policy

which was "designed to maintain and expand the level of business activity

centered around domestic demand, to further ensure for the current fiscal

year a net economic growth of about 3.4 percent, as originally projected by

the government, and at the same time...to preserve and strengthen the free

trade structure, to build harmonious external economic relations, and to

contribute to the vitalization of the world economy. Under that policy,

several treasury investment-related actions were taken.

18
Table 1. Trends in Amounts Requested and Amounts Programmed Under Treasury

Investment and Loan Plans

mom®

(l)(ip-&:£SR, %) ——W —

Key:

<-3-)--

(2) I ^%

if Si

49

50

51

52

53

54

55

56

57

58

59

119,700

149,721

161,282

173,385

189,921

220, 592j

237,333;

224,736!

225,205;

224, 358s

224,142!

1* $

72.9

89.0

73.2

63.3;

51.5;

48. 2j

41.0:

23.6

15.6'

10. 6

:

8.3

79, 234]

93,100

106,190:

125,382'

148, 876J

168,327J

181,799|

194, 897;

202,888'

207,029!

211, 066:

14.4:

17. 5|

14. li

18.11

18.T

13.1!

8.01

7.2'

4.1

2.0'

1.9!

1. Units: hundreds of millions

of yen, and percent

2. Fiscal year

[1974, 1975 1984]

3. Amount requested

4. Amount programmed

5. Rate of Increase [in both

columns, the comparison is

made against the preceding

year's programmed amount]

a. As part of the addition—amounting to some 1.88 trillion yen—to the scope

of public investment activities, it was decided to and some 150 billion yen

to the operating expenses of the Japan Highway Public Corp. Excluding the

portion of the funds to be raised through borrowings from the private sector,

as a treasury investment action 35.4 billion yen was added to the sum to be

raised through government-guaranteed bonds during fiscal 1983.

b. With respect to the Housing Loan Corp, it was decided to focus primarily

on the private housing construction loans and to add 160,000 families C200

billion yen in funding scope) to the number of potential recipients of this

type of loan. As a treasury investment action designed to provide part of

the funds required for this purpose, the sum of 50 billion yen was added to

the fiscal 1983 funds of the Trust Fund Bureau.

c. With respect to the issuance of additional local .[municipal and prefectural] bonds related to the disaster reconstruction program, an appropriate action

will be taken pending determination of the required amount.

d. With regard to the Japan Development Bank, its lending ceiling was increased by 30 billion yen (the funding requirement for this is to be met with the

bank's own capital) in order to promote energy-related investments. In

the case of the Export-Import Bank of Japan, it was decided to facilitate an

expansion of importation of finished goods and to issue new loans to accommodate the capital requirements for that purpose.

19
e. With regard to interest rates, in accordance with the policy decision

to ensure flexible implementation of the financial policies and to promote

a general lowering of the interest level while carefully watching the internal

and external economic trends and the international monetary situation, "the

following series of actions has been taken: the official discount rate was

lowered by 0.5 percent (22 October 1983); the long-term prime rate was lowered

by 0.2 percent and the basic money rate of government-affiliated banking

institutions was also lowered (28 October 1983); the short-term prime rate

was lowered by 0.5 percent (11 November 1983); the interest rates on deposits

and sayings were lowered by 0.25 percent (4 January 1984); the Trust Fund

Bureau's deposit and accommodation rates were lowered by 0.2 percent and the

special rate of the government-affiliated banking institutions was also lowered

(1 February 1984).

3. Activities of the Ad Hoc Commission on Administrative Reforms

The Ad Hoc Commission on Administrative Reform, which was launched in March

1981 for the purpose of promoting administrative reform, has submitted five

reports to the government, the first of which was rendered in July 1981 and

the final one in March 1983. Upon receipt of each report, the government

reaffirmed its policy to promote such reforms. Suggestions concerning the

treasury investment activity, including separate propositions on how each of

the special-status corporations should be reformed, appear in the first report,

the third report (the basic report), and the fifth report (the final report).

To sum up, the commission suggested that treasury investment operations be

rationalized and that the treasury investment program reexamined with a view

to ensuring the relevance of the treasury investment functions through a

selective and effective allocation of limited funds, in conformity with the

changes in the social and economic conditions. Some of the suggestions had

already been taken in to account in the fiscal 1983 plan; some others are the

kinds of problems which should be dealt with in medium- and long-term perspectives. In any event, it is necessary to face up to these suggestions seriously

in the formulation of future plans.

Meanwhile, the Ad Hoc Council for Administrative Reform Promotion, which came

into being in June 1983 on the heels of the first Ad Hoc Commission as the

mechanism for promoting administrative reforms, presented to the government

on 22 December 1983—on the eve of the preparation of the fiscal 1984 budget—

the council's "views concerning the preparation of the fiscal 1984 budget

and the urgent questions related to administrative reform." With respect

to the treasury investment-related matters, the council included a suggestion

that the present integrated investment approach—through the use of the Trust

Fund Bureau funds—be maintained.

II. Outlook for Fiscal Resources for Treasury Investments and Loans

As shown in Table 2, the fiscal resources for treasury investments are comprised of such government funds as the industrial investment special account,

Trust Fund Bureau funds, and post-office life insurance funds, and of such

forms of utilizing private-sector funds as government-guaranteed bonds and

government-guaranteed borrowings.

20
(1) Recently, the industrial investment special account has become the

source of funds for capital subscriptions as part of the treasury investment

activity. For fiscal 1984, 4.8 billion yen, which is 400 million yen less than

in the previous year, is earmarked for this special account to meet the funding requirements for capital subscriptions to the Hokkaido and Tohoku Development Corp and the Okinawa Development Finance Corp. In addition, pursuant to

the "Fiscal Resources Guarantee Law of 1981," 15 billion yen (as against 16

billion yen in fiscal 1983) is programmed to be transferred into this special

account to meet some of the expenditures under the general account.

(2) The projected fiscal resouces for the Trust Fund Bureau funds, which

constitute the bulk (76.5 percent in fiscal 1984) of the fiscal resources

for treasury investments, amount to 18.9052 trillion yen, which is 230.1

billion yen less than the previous year (19.1353 trillion yen).

Specifically, in the case of postal savings, for example, they are in the

doldrums due to the effects of the financial conditions created by the recent

trend in individual disposable income and the development of new banking

instruments by private banking institutions. As a result, the target amount

of postal savings for fiscal 1984 as set by the Ministry of Posts and Telecommunications is 6.9 trillion yen, which is 1 trillion yen less than the

previous year (7.9 trillion yen). In the case of so-called pension funds

consisting of employees pensions and national pensions [for the self-employed],

due to a sharp increase in pension payments resulting from the increased number

of eligible recipients, it is expected that the new reserve (the surplus

insurance premium revenue after pension payments are made) going into the

two special accounts will amount to 3.85 trillion yen, which is 250 billion

yen less than the previous year (4.1 trillion yen). Because of such significant decreases in funds, although the recovery fund category (recovery from

existing operations and deposits from other special accounts) is expected to

amount to 8.1552 trillion yen which is an increase of 1.199 trillion yen over

the previous year (7.1353 trillion yen), the Trust Fund Bureau fund as a whole

had to be projected on the basis of a decrease of 230.1 billion yen from the

level of the previous year. Incidentally, the large increase in the recovery

fund over the previous year is due to the following: in the fiscal 1983 budget,

as part of the measures designed to ensure sufficient nontax revenue with which

to restore the fiscal resources devoted to making up the closing deficit of

the fiscal 1981 budget, it was necessary to take certain actions such as

drawing down on the reserve fund for subsidiary coins in the custody of

the Trust Fund Bureau; however, no such problems faced the fiscal 1984 budget.

(Note) With respect to postal savings, as was the case in fiscal 1982 and

1983, once again there was a request for a separate utilization. The idea

is that the Ministry of Posts and Telecommunications be allowed to utilize

independently a portion of the postal savings fund, which is currently being

utilized centrally as part of the Trust Fund Bureau fund. This issue was

not settled until the very last phase of the budget preparation, but the

consolidated utilization policy was preserved intact and the treasury investment plan was formulated on that basis.

21
Table 2. Fiscal 1984 Treasury Investments and Loans—Fiscal Resources

and Fund Allocation

%im. m^mm^%w%.<nwM• *£E#

(1) :*fö: ÜH, %)

(6)

E ft

(2)

58#:g

(4) (5) (3)

59 % m

(4) (5)

«SAi««B W $ igAScSS # *

1 S^SJS^UMt 52 A 137 A 72.5 48 A 4 A 7.7

2 «ffelffi^k 191,353 A 4,336 A 2.2 189,052 A 2,301 A 1.2

te (a) B fg » &

(b) ri:4¥^-iiR

79,000

41,000 A 2,000

0.0

A 4.7

69,000

38,500

A10.0O0

A 2,500

A 12.7|

A 6.i:

:A) (c) Is] JK & -$ 71,353 A 2,336 A 3.2 81, 552 10,199 14.3;

3 m « s & 23, 544 3,734 18.8 25, 866 2,322 9.9;

m

(d)Mt (.mm&)

(e) it jfr fib IE «

214,949

29,080

A 739

6,880

A 0.3

31.0

214,966

32,100

17

3,020

0,0;

10.4

27,500 5,300 23.9 29, 500 2,000 7.3

(f)ftlfJRlöiAr& 1,580 1,580 & Ü 2,600 1,020 64. 6}

£ (g) ft 244,029 6,141 2.6 247,066 3,037 1.2

:B) l I f 31 S 37,000 2,000 5.7 36,000 A 1,000 A 2.7

g 2 Btj&föi&fft+ii 207,029 4,141 2.0 211,066 4,037 1.9

(l) - K i S 163,822 4,741 3.0 163,859 37 0.0

® 3fi fr«£r« 101,521

27,813

34,488

3,337

1,492

A 88

3.4

5.7

A 0.3

99,695

29,583

34,581

A 1,826

1,770

93

A 1.8

6.4

0.3

(2) * # 43,207 A 600 A 1.4 47,207 4,000 9. 3

i

eft) r«r^j ttÄ^ÄÄ-aft&ff&g&ie-äUÄSf&äo (h)

Key:

1. Units: 100 million yen, and percent

2. Fiscal 1983

3. Fiscal 1984

4. Amount of increase or decrease [ö ]

5. Rate of increase [or decrease: <£ ]

6. Classification

A. Fiscal resources

1. Industrial Investment Special Account

2. Trust Fund Bureau Funds

Postal savings

Employees Pensions and National Pensions

Recovery funds

. Assets of Postal Life Insurance

d. Subtotal Cgovernment funds)

. Government-guaranteed bonds and government-guaranteed

borrowings

e. Government-guaranteed bonds

f. Government-guaranteed borrowings

g. Total

a,

b,

c,

[Key continued on following page]

22
[Key for Table 2 continued]

Key: _

(continuation of Key number 6, Classification)

B. Fund allocation

1. Underwriting of government bonds

2. Treasury investment and loan plan

1) General treasury investment

(1) Banks, finance corporations

(2) Public works implementation agencies

(.3) Other agencies

2) Local

h. (note) "Local" refers to local public authorities and

finance corporations of local public enterprises.

(3) In the category of postal life insurance assets, of the projected new

fiscal resources (reserves expected from new enrollments and recovery funds

from ongoing operations) for fiscal 1984 amounting to 3.5926 trillion yen,

1.006 billion yen is earmarked for loans to policy holders and for bank bonds

and industrial debentures, and the remaining 2.5866 trillion yen is expected

to be used as the fiscal resources for the treasury investment plan. This

amount represents an increase of 232.2 billion yen over the previous year

(2.3544 trillion yen).

(4) To sum up, the government funds consisting of the industrial investment

special account, the Trust Fund Bureau fund, and the assets of postal life

insurance total 21.4966 trillion yen, which is an increase of 1.7 billion yen

over the previous year (21.4949 trillion yen), indicating a picture of severe

constraint.

To augment such limited government funds as noted above, to ensure an appropriate scope of operation and lending activity by the treasury investment

agencies, and at the same time with a view to diversifying the capital procurement program of the treasury investment agencies, efforts are to be made

for maximum possible utilization of private-sector capital.

Specifically, during fiscal 1984, in consideration of the liquidity position

of the syndicate consortium underwriting government-guaranteed bonds, various

ways and means will be devised for nonsyndicate absorption of governmentguaranteed bonds, the volume of which was greatly increased during fiscal

1982 and 1983, and, at the same time, the government-guaranteed borrowings

arranged in fiscal 1983 for the Housing and Urban Areas Development Corporation and the Honshu-Shikoku Bridge Authority will be further expanded.

Though such diversification of the procurement of private-sector capital,

it is hoped that government-guaranteed bonds and borrowings will raise 3.21

trillion yen, which would be 302 billion yen more than in the previous, year

(2.908 trillion yen).

(5) This will bring the total fiscal resources for treasury investments in

fiscal 1984 up to 24.7066 trillion yen, which is an increase of 303.7 billion

yen, or 1.2 percent, over the previous year (24.4029 trillion yen).

23
Using these fiscal resources for treasury investments, the underwriting of

government bonds (Trust Fund Bureau fund) and capital operations based on

the treasury investment plan will be undertaken.

III. Underwriting of Government Bonds

The underwriting of government bonds using Trust Fund Bureau funds has always

been a matter to which careful attention has been paid in order to ensure

proper balance with the treasury investment plan, by taking into account

the comprehensive picture covering the fiscal resources status of the Trust

Fund Bureau, the capital requirements of the treasury investment agencies

and the market financial conditions. '

The same considerations have been applied to fiscal 1984 as well. Despite

the extremely tight picture with regard to fiscal resources, and although

Jififi^M? anOUat f 8°vernment bond ^sue (new bonds for fiscal resources)

is 665 billion yen less than in fiscal 1983, in order to facilitate the

smooth absorption of government bonds on the market, the amount to be underwritten by Trust Fund Bureau funds will be reduced by only 100 billion yen

to 3.6 trillion yen (3.7 trillion yen in fiscal 1983).

As a result, of the planned issue of government bonds totaling 12.68 trillion

yen in fiscal 1984, 6.8 trillion yen will be underwritten by ?he underwriJinJ

syndicate consortium, 3.6 trillion yen by Trust Fund Bureau funds, and the

remaining 2.28 trillion yen will be issued as medium-term fixed-rate government bonds to be offered for open-tender public subscription.

Thus the percentage share of the total planned issue of government bonds to

be underwritten by the Trust Fund Bureau funds will increase by 28.4 percent

0 7 percent over the 27.7-percent initial projection of the previous year. '

(See tables 3 and 4)

Table 3. Planned Issuance of Government Bonds in Fiscal 1984

(Key on following page)

ÜS3 8 59$SB4I£?T?£

* m Ok 59 äf.

CD

(]f3)5 ^ m m

d!4> g+

(l4j£- * A ft

(16) + m «

(17)1 m SB ?i

(18) lo *

(if) tT~

(s|>VirTi ^~\—^ j-^—

(10)10 *P « 64,000! ,-^. 57,210!!

I dukw) 5,790*:

j (15*PÄ) 4,45o!'

2,000! (12) 3,000-i

66,000J 70,450ji

30, 450 30,450

37,000, 37,000.;

133, 450, 137, 900.i

(C)-(A)

64,000;

4,000

68,000

22,800

36,000

2,000

2,000

A 7,650

A 1,0001

126,800 A 6,650!

24
(Key for Table 3 from previous page)

Key:

1. Unit: 100 million yen 11.

2. Fiscal year 12.

3. Fiscal 1983 13.

4. Fiscal 1984 14.

5. Initial plan (A) 15.

6. After revision and 16.

transfer (B) 17.

7. Initial plan (C)

8. Category 18.

9. To be underwritten by

syndicate consortium

19.

-0. 10-year bond

20-year bond

15-year bond

5-year discount government bond

Subtotal

Open-tender public subscription

Medium-term bond

To be underwritten by Trust Fund

Bureau funds

10-year bond

Total

Table 4. Trends in the Amount Underwritten by Trust Fund Bureau, the Amount

of Treasury Investment and Loan, and the Amount of Government Bond

Issued (Initial Plan)

mtm Ä#äfflgß?isss, .w&föüs, mm%'äwi<mm (M^tt®) (i)(*&: m, %)

E

(2

l

K<fe;ifflS$(3) | (4)

tct'aB» (A) I S (B)

5l¥ffi (ß)

52

53

54

55

56

57

58

59

mm® Co i *|||M CA/B) | *|!!!f* CA/C)

10,000

10,000

15,000

25.000

35,000

35,000

37,000

36,000

116,

135,

148,

183,

206,

229,

237,

244,

247,

190

382

876

327

799

029

066

72,750

84, 800

109, 850

152,700

142.700

122,700

104, 400

133,450

126,

Key:

1. Units: 100 million yen, and percent

2. Category

3. Amount of government bond underwritten by Trust Fund Bureau (A)

4. Treasury investment and loan (B)

5. Amount of goverment bonds issued (C)

6. The amount underwritten by Trust Fund Bureau in percent of treasury

investment and loan (A/B)

7. The amount underwritten by Trust Fund Bureau in percent of the

amount of government bonds issued (A/C)

8. Fiscal years 1976, 1977 1984

25
IV. Unique Features of the Treasury Investment and Loan Plan

What follows is an explanation of the unique features of the fiscal 1984

treasury investment and loan plan.

1. Constraints on the Plan's Scope

The

o,

t0^LamOUnt °f flSCal resources f

or treasury investments in fiscal 1984

is_24.7066 trillion yen, of which 3.6 trillion yen is earmarked for underwritxng of government bonds (Trust Fund Bureau fund) and 21.1066 trillion

yen is to be used as the fiscal resources for the treasury investment plan.

r%Hn^lng.^°

Pe °f the fiSCal 1984 tre

asury investment plan, amounting

to 21.1066 trillion yen, represents a increase of 3.7 billion yen or 1 9

percent, over the fiscal 1983 plan (20.7029 trillion yen).

Looking at the trend in the rate of growth in treasury investment plans

from fiscal 1959 through 1979 a high rate of growth in double digests continued, but in fiscal 1980 it fell to a single diget and thereafter kept on

?QooeaSiü8i

n e

ach successive year, until it reached 2.0 percent in fiscal

I \ So f

984 rate °f groWth'1>9 Percent, is lower than that of

riscal lyaj and is the lowest in 26 years—since fiscal 1958 (1.6 percent).

Dividing the treasury investment plan into two segments—one intended for

local public authorities (referred to hereafter as "local areas") and the

other for general treasury investment agencies (referred to hereafter treasury

investment agencies (referred to hereafter as "general treasury investments")

in fiscal 1984 a priority allocation of funds (an increase of 400 billion yen'

or 9.3 percent, over the previous year) has been made to local areas in order'

to facilitate the implementation of new local financial policy measures (to

be elaborated on later), resulting in an increase of but 3.7 billion yen

(0.0 percent), or "zero growth", in the general treasury investments. This

is the lowest growth in 30 years, since fiscal 1954 (minus 19.8 percent)

(See Table 5)

2. Priority Allocation of Funds

With the amount of the overall plan under constraint, the direction is to pay

closer attention to the allocation of funds on a priority basis, in accordance

with the needs from the policy standpoint.

In fiscal 1984, with a view to improving the people's standard of living and

facilitating improvements in the people's basic livelihood, special attention

is to be paid to ensuring appropriate levels of program activity and financing

for such sectors as highways, housing, medium and small businesses, economic

cooperation, resources, energy, etc. Also, in the area of local finances

the amount of government funds to be applied to local bonds will be greatly

increased so as to facilitate the smooth implementation of new local fiscal

measures.

26
Table 5. Trends in Treasury Investments and Loans and General Account

(Initial Plan)

msm »as»*atf-«4 (l)(#fö:{gR. %)

28

30

35

40

45

50

: 51

1 52

i 53

!54

j 55

I 56

! 57

| 58

! 59

3,228

3,219C

6,069(

16,206(

36,099C

97,300(

116,190(

135.382C

148,876C

183,327C

206,799C

229, 897C

237,888(

244,029C

247,066(

14.1)

13.9)

20.9)

16.2)

16.6)

19.4)

16.5)

10.0)

23.1)

12.8)

11.2)

3.5)

2.6)

1.2)

300C 0.0)

4.200C 0.0)

10,000(138.1)

10.000C 0.0)

(10>-cw

3,

3,

6,

16,

35,

93,

106,

125,

148.

15,00001? i^1^

25,000(66.7)1 181,

35i 000( 40.0)

35,000( 0.0)

37,000( 5.7)

36,000CA2.7)

228

219C 14.1)

069( 13. 9)

206C 20. 9)

799( 16.3)

100( 17. 5)

190( 14.1)

382C 18.1)

876( 18. 7)

327( 13.1)

799(

897(

888C

029 (

066C

8.0)

7.2)

4.1)

2.0)

1.9)

2,113

2,050( 20.

4,501C

12,302C 22.

29,373( 16.

74,797( 16.

88,485C 18.

101,872C 15.

117,421(15.

130,719( 11.

141,692(

153,390(.

159,081(

163,822(

163,859(

1,

1,

1,

3,

6,

18,

17,

23,

31,

37,

40,

41,

43,

43

4'

115

169( 3.9)

568( 31.8)

904( 17.4)j

426( 14.0)

303( 20.0)

705(A3. 3)

510( 32. 8)

455( 33. 8)

608( 19. 6)

107( 6.6)

507( 3.5)

8Ö7C 5.5)

, 207(A1.4)

,207( 9.3)

9,655 i

9, 915(A0. 8)|

15,697C 10.6)'.

36, 581C 12.4);

79,498( 18.0).

212,888( 24.5)'

242, 960C 14.1)'j

285,143C 17. 4)j,

342,950( 20.3)|

386,001( 12. 6)';

425,888( 10. 3)j

467,881( 9.9)|

496,808C 6.2)|

503,796( 1.4)!

506,272( 0.5)

33.4.

32. 5;

38.7;

44. i

45.4'

45.7!

47. 8J

47.5|

43.4;

47.5!

48. 6;

49. lj

47.9.

48.4.

48. 8

!

33.4

32.5!

38.7;

44. 3;

45.0,

43.7|

43.7

44.0

43.4

43.6

42.7

41.7

40.

41.1

41.7

(80 Hfctfj ftttä^&ÄEQ#Ät>'&^&*&U&«-c^?>= (12)

Key:

1. Units: 100 million yen, and percent

2. Fiscal years [1953, 1955, 1960, 1965, 1970, 1975 1984]

3. Treasury investments and loans (A)

4. Underwriting of government bonds (B)

5. Treasury investment and loan plan (C)

6. General treasury investments

7. Local areas

8. General account budget (D)

9. (Rate of growth)

10. (Total decrease)

11. (Total increase)

12. (Note) "Local areas" denotes local puhlic authorities and finance

corporations of local public enterprises.

Meanwhile, with regard to all treasury investment agencies, their program

details will be reviewed in a strict manner; for some agencies, taking into

account the progress status of their program activities and the trend in

their financial requirements, maximum effort will be made to curb their program and borrowing levels as well as their treasury investment level.

Dividing general treasury investments into three segments—banks and finance

corporations, public works implementation agencies, and other agencies—the

fiscal 1984 treasury investment amount of banks and finance corporations, the

27
so-called system financing institutions, is severely constrained to the point

where it is less than the previous year. This, one may say, is one of the

more notable of the unique features of the fiscal 1984 treasury investment

plan. (See Table 2)

Meanwhile, of a total of 48 agencies—excluding the two newly designated

as the target agencies of treasury investment—a comparison of their fiscal

1984 treasury investment amount against their fiscal 1983 amount shows that

21 agencies are receiving more in fiscal 1984 than in the previous year,

24 are receiving less (of these, one agency is receiving none in fiscal'l984)

and three are receiving the same amount. In this sense, this is a daringly '

modulated plan based on the actual need for funds on the part of each

agency.

Looking at the breakdown by purpose, fund allocated to those sectors directly

linked to improvements in the people standard of living (categories 1 through

6) make up 70 percent of the total, as was the ease in the previous year

(See Table 6)

Table 6. Breakdown by Purpose of the Fiscal 1984 Treasury Investment and

Loan Plan

Key:

mem 59#tttttt&Hxtra®fts8ijaa!

(

a

)(#fi:{tP3, %)

fp •

58^ & &

J

¥ m

*<& mKvc.

it] IdfW(, Q ) \

G

)

U) ffi sg 53,041 52,895: 25.1

(2) £ s ® m m. m 27,648 13.4 30,075 14.2

(3) n- & m *t 6,520 3.1 6,379 3.0

(4) £ m 7,830 3.8 7.771 3.7

! (5) * ^ äk i 39,422 19.0 39,683! 18.8

,(6) * # it m

(g) (i)M6) /> n9,630 4.7 10,348 4.9

144,091 69.6 147,151 69.7

(7) H±«£-i£»30B 3,325 1.6 3,791 1.8

(8) £ & 15, 837 7.6 17,117 8.1

o) m m m ® 19,246 9.3 18,876 8.9

!<w m m BS ig 5,114 2.5 5,000 2.4

;h) M~ao /> it 43,522 21.0 44,784 21.2

a« * # m m 6,262 3.0 6,203 3.0

M %s,-m$iW,D 13,154 6.4 12,928 6.1

±)-a ft" 1 207,029 100.0 211,066 100.0

b.

c.

d.

e.

f.

Units: 100 million yen, and

percent

Fiscal 1983

Fiscal 1984

Amount

Percentage distribution

Category

(1) Housing

Improvement of living

environment

Welfare

Education and culture

Medium and small businesses

Agriculture, forestry and

fisheries

Subtotal (1) -^ (6)

(.7) Conservation of national

land and disaster reconstruction

Highway

Transportation and communications

Regional development

h. Subtotal (7) rv(10)

(11) Basic industries

(12) Trade, economic cooperation

i. Total

(2)

(3)

(4)

(5)

(6)

g

(8)

(9)

(10)

28
3. Utilization of Private Sector Capital

As pointed out earlier, even with the effort to increase the amounts of

government-guaranteed bonds and government-guaranteed borrowings, the fiscal

resources for treasury investments will still be extremely tight. Nevertheless, it is essential to ensure that appropriate programs are carried out

smoothly; hence, some of the treasury investment agencies will be asked to

procure their own funds as much as possible through private loans and privatesector long-term borrowings. As a result, the procurement of private-sector

funds, including the aforementioned government-guaranteed bonds and government-guaranteed borrowings, by treasury investment agencies, excluding

local public authorities, will amount to 6.8926 trillion yen, which is 699.9

billion yen (11.3 percent) more than that of the previous year. This amount

is comparable with the amount of government bonds being underwritten by the

syndicate consortium—one can say it is an amount on a fair scale. (See

Table 7)

Meanwhile, with respect to the raising of funds abroad—i.e., floatation of

government-guaranteed foreign bonds—i.e., floatation of government-guaranteed

foreign bonds—keeping in mind the need for harmonious external economic

relations as well, the plan is to ensure a level of government guarantees up

to 603 billion yen, which is about 50 percent more than in the previous year

(409 billion yen).

Table 7. Utilization of Private-Sector Funds by Treasury Investment Agencies

(Initial Plan)

Key:

H7 3S ftm$H<DRHS&SE#a (i§tJ)ft®)

(lX*fö;®R- 20

n

(2) 9r

T31

a

—W—

ScBftSEftA^

(12) It

£S «f,(1^.

(Ti)

4N

(12)ft

£(16) It

-tXr

57 %-B

(38. 8)

22,200

_OQl

58 ^B

(23. 9)

27,500

-Gf

59 %-.

(7.3)

29,500

drti(ll](64.6)

1, 530 : 2,600

58

(38.7)

22,200

( 5.1)

21,559

(31.0) 1(10.4)

29,080 32,100

(1.7)

21,934

(5.3)

23,100

(50.3)

8,790

(24.2)

10,913

(25. 8)

13,726

(15.1)

30,349

( 8. 2) I (12.1)

32,847 36,826

(24.0)

52,549

(17.8)

61,927

(11. 3)

68, 926

(SO ( ) filt, *}fi*ß€#¥-ü;fc*,, (]_7)

2,000

1,020

3,020

1,166

2,813

3,979

6,999

2.

3.

4.

5.

6.

7.

9.

10.

11.

12.

13.

14.

15.

16.

17.

Units: 100 million yen,

and percent

Category

Fiscal 1982

Fiscal 1983

Fiscal 1984

Increase or decrease in

fiscal 1984 over fiscal 1983

Fiscal resources for treasury

investments

Government-guaranteed bonds

Government-guaranteed borrowings

Total decrease

Total increase

Subtotal

Self-procured funds

Private loans

Private-sector long-term

borrowings

Total

Note: Figures in parentheses

are rates of increase over

the previous year.

29
4. Implementation of the Ad Hoc Commission Report

With regard to the rationalization of treasury investment management and

the reexamination of treasury investment programs as called for in the report

of the Ad Hoc Commission on Administrative Reform, in accordance with the

New Administrative Reform Outline (24 May 1983) that mandated an effort for

their implementation in the formulation process of fiscal 1984 plans, the

fiscal 1984 treasury investment plan has been prepared in such a way as to

incorporate them as much as possible. What follows is a summary of the

steps taken in this context.

First, with respect to the rationalization of treasury investment management :

a. Centralized management by the Trust Fund Bureau was viewed as the most

rational approach from the standpoint of ensuring appropriate allocations and

timely, flexible and effective utilization of public funds; thus, the request

for separate management of postal savings and postal life insurance surplus

was denied, and the plan was drawn up firmly on the basis of centralized

management.

b. On the question of underwriting government bonds using Trust Fund Bureau

funds, in view of the tight fiscal resources picture, it was decided to underwrite to the maximum level possible.

c. Concerning the question of utilizing private-sector capital, various

measures have been incorporated, such as devising ways to diversify governmentguaranteed bonds, increasing government-guaranteed borrowings, increasing

private loans and private-sector borrowings through the efforts of treasury

investment agencies, and increasing the flotation level of governmentguarantted foreign bonds.

Next, with respect to the reexamination of treasury investment programs:

a. It is difficult to undertake the act of regrouping or consolidating

treasury investment agencies as part of the process of drawing up the plan,

but in terms of the number of treasury investment agencies, with a view toward

accommodating the need for structural rationalization and the demands of

the times, new entities such as Japan Scholarship Society and the Kansai

International Airport Co, Ltd (tentative name) will be added to the roster of

treasury investment agencies, while reductions will be sought in the Flood

Control Special Account and through the consolidation, effective January

1985, of the Medical Care Facilities Finance Corp and the Social Welfare

Promotion Association into a Social Welfare and Medical Care Corp. As a

result, the number of treasury investment agencies as of the end of fiscal

1984 will be same as the number (48 agencies) in fiscal 1983.

b. The program contents and lending targets of treasury investment agencies

have been reexamined closely, and on the basis of their actual requirement

for funds and the status of their program activities, maximum attention has

been paid toward optimizing their program and lending scope as well as the

level of their treasury investments.

30
c. As for new programs, only those will be approved that are truly necessary,

based on the needs arising from the progress or changes in economic society;

even in such cases, the "scrap and build" principle and the "sunset" approach

will be the guiding framework.

Additionally, as part of the reexamination of short-term loans to special

accounts, and as one of the new fiscal policy measures for local areas, a

step has been taken barring as a rule any new loan of Trust Fund Bureau

funds to the Special Account for Allotment of Local Allocation Tax in the

future.

(Note) Acting in the spirit of the report by the Ad Hoc Commission on Administrative Reform, the Japan Scholarship Society is reviewing its existing

interest-free loan program and, at the same time, has decided to newly

institute loans with interest. From the standpoint of treasury investment,

in view of the public nature of the scholarship program, a decision has

been made to designate the Japan Scholarship Society as a new target agency;

for fiscal 1984, 6.5 billion yen has been earmarked with which to fund loans,

with interest, to 20,000 students (for their first year) of universities and

junior colleges. The Kansai International Airport Co, Ltd, will be the

subject of discussion later.

5. Economic Management-Related Considerations

Reflecting the tight fiscal resources picture, both the budget and the treasury

investment programs have turned out to be constrained in their overall scope.

Nevertheless, in order to facilitate smooth economic management, various

considerations have been incorporated into the makeup of the treasury investment program. For example, for the public works implementation agencies,

including the four highway-related corporations, sufficient funding is to

be ensured to accommodate growth in construction costs, while encouraging

the aggressive utilization of private-sector funds. With respect to the

Housing Loan Corporation, the no-lottery system will continue to be maintained,

and the lending system will be improved. Likewise, in the case of the Small

Business Finance Corp, taking into account the recent trend in its capital

requirements, a sufficient lending level will be ensured for fiscal 1984

to enable it to adequately meet its capital requirements, even if there should

be a considerable upward surge.

Furthermore, for fiscal 1984, as has been done in the past, in order to ensure

timeliness and flexibility in the implementation of treasury investments

responsive to the changing economic conditions, a so-called flexibility clause

is built in that will enable increased funding of up to 50 percent over the

programmed amounts.

31
V. Outline of Key Policies Incorporated in the Treasury Investment and Loan

Plan

1. Housing Measures

In consideration of the strong need to improve the people's housing acquisition

and housing standards, and in order to facilitate steady implementation of

the housing construction 5-year plan, a sum of 5.2895 trillion yen, which is

roughly equivalent to one-fourth, of the total treasury investment plan, will

definitely be set aside for housing measures.

With respect to the Housing Loan Corporation, 500,000 families will be the

year's quota for housing loan recipients; they will be selected by a nonlottery system which will continue to be maintained; sufficient funds will

be ensured to meet the loan requirements for fiscal 1984. Also, the loan

system will be improved as follows: (a) in order to promote the formation

of quality housing stock, the loan limit on a large-model house (more than

135 square meters but less than 165 square meters) will be raised (from 6.8

million yen to 7.4 million yen in the case of a loan for a private dwelling

construction fund); (b) in order to encourage the construction of houses which

can be shared with elderly persons, the amount of extra loan for such houses

will be increased (from 600,000 yen to 700,000 yen, if an elderly person

is to share the house); (e) the amount of extra loan for a two-family dwelling will be increased (from 600,000 yen to 1.3 million yen); (d) the special

measure that had temporarily raised to 10 million yen or more the minimum

income level beyond which a person cannot quality for a preferential interest

rate on a loan (from 8 million yen or more under the original rule) will

be extended for another year through fiscal 1984.

With regard to the housing mortgage loans to be issued by the Pension Welfare

Service Public Corporation to the insured, 226,000 families will be assured

of such loans, and furthermore the lending system will be improved by steps

such as relaxing the eligibility requirements for the bonus for sharing a

home with a physically handicapped person.

With respect to the Housing and Urban Development Corporation, taking into

account the recent progress achieved in the program, the number of houses to

be built is set at 27,000 (30,000 houses in fiscal 1983). In order to

accommodate the diversified housing demands, a new housing supply system

(the so-called free-plan rental housing system) will be instituted whereby

the house structure may be leased while the interior finish may be conveyed.

Meanwhile, in the residential land development program, 750 hectares (750

hectares in fiscal 1983 as well) are earmarked for the beginning of new

development.

2. Small-Business Financing Measures

As part of the overall policy measures toward small businesses, a total of

3.9683 trillion yen, which is roughly equivalent to 20 percent of the treasury

investment plan, will be secured jointly by the People's Finance Corporation,

the Small Business Finance Corporation, and the Bank for Commerce and

Industrial Cooperatives—the so-called trio for small businesses—in order

to facilitate the smooth handling of the financing needs of small businesses.

32
As to the scope of general loans by the People's Finance Corporation and

the Small Business Finance Corporation (in the case of the former, loans for

operational improvement of small businesses are excluded), on the basis of

the recent trend in the demand for funds, an increase of 3 percent over the

previous year is projected. Separately, as to the scope of the unsecured

and unguaranteed loans by the People's Finance Corporation for operational

improvement of small businesses, a sum of 550 trillion yen—the same as in

the previous year—has been set aside. The outstanding loan balance of

the Bank for Commerce and Industrial Cooperatives will see a net increase of

9.1 percent, or 600 billion yen, over the balance for the previous year.

As for the system, both the People's Finance Corporation and the Small

Business Finance Corporation will begin to make special loans for the promotion of computerization, while the Small Business Finance Corp will also

institute special loans for the promotion of advanced technologies. Other

steps will be taken to improve the system—steps such as raising from 3.5

million to 4 million yen the lending limit on the equipment-funds portion

of operational improvement loans for small businesses.

3. Highway Improvement

In order to undertake the systematic improvement of toll roads to accommodate increasing transportation demands, the so-called four highway corporations—the Japan Highway Public Corporation, the Tokyo Expressway Public

Corporation, the Hanshin Superhighways Corporation, and the Hanshu-Shikoku

Bridge Authority—will aggressively utilize private-sector funds and will

maintain appropriate levels of operational scope; for their highway construction funds, 1.3239 trillion yen is projected; this is 100.6 billion yen

(8.2 percent) more than in the previous year.

The Japan Highway Public Corp has budgeted for construction funds the sum of

875 billion yen, which is 25 billion yen (2.9 percent) more than in the

previous year's budget. Of this sum, 790 billion yen, which is 20 billion

yen (2.6 percent) more than in the previous year, is earmarked for the construction of national vehicular expressways. As a result, it is expected

that in fiscal 1984 the length of expressways in service will increase by

120 kilometers, making the total 3,555 kilometers. As for general toll

roads, the construction of three routes is scheduled to begin, including

the Saisho Bypass (reconstruction).

With regard to the Tokyo Expressway Public Corp, the sum of 115 billion yen

is earmarked for construction funds: this is 10 billion yen (9.5 percent)

more than in the previous year. As a result, in fiscal 1984 expressways in

service are expected to increase by 12 kilometers, bringing the total to

173 kilometers. In addition, construction is scheduled to begin on the

new Capital Expressway No 12.

With regard to the Hanshin Superhighway Corporation, a construction budget of

77 billion yen is projected; this is 7 billion yen (10 percent) more than

in the previous year budget. No new roads are expected to be put into service

during fiscal 1984; the total length of in-service highways will remain

at 124 kilometers. Incidentally, construction is scheduled to begin on the

new Kobe Yamate Route (extension section).

33
The Honshu-Shikoku Bridge Authority, which is currently undertaking construction work limited to one route with four bridges, will continue to concentrate

on the Kojima-Sakaide Route in fiscal 1984. It has earmarked 256.9 billion

yen for construction funds, which is 58.6 billion yen (29.6 percent) more than

in the previous year.

4. Railroad Construction

With regard to the Japanese National Railways, taking into account various

factors such as its operating conditions, the report by the Ad Hoc Commission

on Administrative Reform, and the suggestions made by the National Railway

Reconstruction Inspection Committee, an early revision will be made to the

operational improvement plan, and even more vigorous efforts will be made

to rebuild its operation. Construction outlays will be limited as much as

possible to those urgent items such as safety enhancement-related security

and replacement investments and the Tohoku Shinkansen project, for which 566.4

billion yen has been programmed, or 139.6 billion yen (19.8 percent) less

than in the previous year. In terms of the related treasury investment,

1.456 trillion yen is programmed; this is 500 million yen less than in the

previous year.

With regard to construction funds for the Japan Railway Construction CorDoration, although the expenditures related to the Tsugaru Strait Line (the

Seikan Tunnel) and the Joetsu Shinkansen line will decline, there is need to

promote measures to cope with the transportation problems in major urban

areas. With that in mind, increased funding was deemed in order for the Keiyo

Line of the National Railways and for certain private lines; as a result*

190.5 billion yen is projected for this fiscal year; this is 1.4 billion yen

(0.7 percent) more than in the previous year.

In addition, with regard to the Shinkansen maintenance work, a survey fund of

1.36 billion yen each (entirely as government subsidy) and a construction

fund of 5 billion yen each (treasury investment and utilization bond) are

programmed for the National Railways and the Railway Construction Corporation,

but as for the construction fund, the degree and method of official aid and

regional defrayment will, as usual, first be coordinated before the actual

work is begun.

5. Airport Construction

The New Tokyo International Airport Corp will continue to undertake the

construction of airport facilities and the environmental protection measures,

for which 41 billion yen (51.3 billion yen in fiscal 1983) has been

programmed as operating funds.

In addition, in fiscal 1984, the Kansai International Airport Co, Ltd, which

is to be set up to handle the installation and management of the Kansai

international airport, will be designated as a treasury investment agency.

As for the construction of the Kansai international airport, the idea of the

Ministry of Transport is to build an international airport that can operate

around the clock off the coast of Senshu in Osaka Bay, with a total construction cost of some 1.8 trillion yen, in order to resolve the noise problem

34
of the existing Osaka International Airport and to adequately accommodate the

increasing air transport demand. For the moment, the plan is to invest

roughly 1 trillion yen to have the airport open in fiscal 1992 with one of the

runways completed.

Initially, the option of setting up a public corporation or using a "third

sector" was considered for the principal organization responsible for the

installation and management of the new airport. However, from the standpoint

of utilizing the private sector's vitality, it has been decided to establish

the Kansai International Airport Co, Ltd, as a special juridical person with

capital subscriptions by the government (Airport Improvement Special Account),

local public authorities, and the private sector.

The activities to be undertaken in fiscal 1984 by this company are those of a

preparatory nature, such as undertaking the preconstruction survey and investigations and filing applications for land reclamation; 17 billion yen is

programmed to fund these activities. The treasury investment (governmentguaranteed bonds) required for this phase is estimated at 7 billion yen.

6. Economic Cooperation

With a view to ensuring substantive economic cooperation in the spirit of

international harmony, so as to contribute to the economic and social progress

of developing countries, a loan-outlay level of 648 billion yen, which is

57 billion yen (9.6 percent) more than in the previous year, will be assured

out of the Overseas Economic Cooperation Fund. As for the treasury investment, taking into account the funds on hand and other factors, a sum of 379.8

billion yen is programmed, which is 89.4 billion yen (30.8 percent) more

than in the previous year.

With respect to the Export-Import Bank of Japan, care will be taken to ensure

that the funding will be adequate to accommodate the recent market trend

surrounding export-import financing, while paying attention to the need for

expansion of harmonious international trade; at the same time, in order to

facilitate the resources- and energy-related business operations abroad and

overseas investments by our country's industries, the allocation of funds

will be handled with a priority focus on the financing of imports and invest- /

ments. With these in mind, the bank is projecting a lending level of 1.341

trillion yen, which is 4 billion yen (0.3 percent) less than in the previous

year. Specifically for the financing of imports and investments, however,

the bank is ensuring a lending limit of 441 billion yen, which is 10.3

percent more than the 400 billion of the previous year. As for the treasury

investment, taking into account the funds on hand and other factors, 913

billion yen is programmed; this is 112 billion yen (10.9 percent) less than

in the previous year.

Meanwhile, reflecting the severe world economic conditions, the number of

countries rescheduling their debt payments has recently increased sharply.

Our country, too, has been coping with this situation in the context of debt

relief measures for those debt-laden nations. As a result, the insurance

payments out of the Export Insurance Special Account have increased dramatically. In order to meet the resulting demand for funds for the preservation of

35
Table 8. Summary of Fiscal 1984 Treasury Investment and Loan Plan of Major

Agencies

_I3J (Al

(1) ($fic: mm

| (2)« «

(6)!£ * * 1* &

(7)'^ £ ffi li * * E

'(8) tt^ • liSlfiÄ!

(9)!a: & ra £ E

(ip)5tH * X K & E

pi) *fflrasii&«&E

(1(29 * s * * '

i

(13i)H * ft £ & ffi & !

*i4j)+ '> & * & m s. m i

58 ^ s

(15;)B * El * IS

(16)H * fa ffi A *

(17!)® tt s fli as

C18J)* # i* * & ®

(19) (20) 1+

fir

ft

(21)* S & * I #

„^ « & m & st & *

(123)* ft

36,120

7,748

7,540

16,007

11,979

1,417

14,565

1,595

36,801

8,140

10,250

2,904

5,275

16,877

163,822

59^g

31,000

12,207

43,207

207,029

ill

35,618

7,782

7,512

17,410

13,084

1,680

14,560

1,678

37,230

8,180

9,130

3,798

5,150

15,811

163,859

F g(24)

, I Alffi (135msSl65m'«T)

nlft^ttsg (27)

ffifcl&gffisEg&gftMei (28)

F & (24)

mW&m%Mfim%t (29)

I i I (30)

SB« (30)

3t K © -(30)

X » g S (31)

5*=^tff»^. (32)

m ffi »(30)

W£gtt&& (33)

(35 !35) a R ä

+ '> &

iS x 4> &(36)

Ä # a «(37)

* ft ft *(37)

a fit ® '"""

m&

ffl

(58*PK)

510-fF

(26)6807:0 -

60^R -

10,434

30=fF •

750ha •

12,233 •

8,500 •

1,983

7,060 •

1,100 •

1,891 •

(34)22,670 •

21,750 :

5,500

11,340

13,450

5,910

7,250

* 500=fF : (40)

740^R '

130^R j

10,568 j

27=FF |

750ha J

13,239 j

8,750 j

2,569 !

5,664 |

1,350

1,905

23,350

22,400 |

6,000 j

11,524 j

13,410 j

6.480 !

7,050 I

35,000

12,207

47,207

211,066

Jfe2f «ftB (39)

Ä ft ii (37)

75,411

12,230

— 72,100

— 11,920

(41)

(41)

(40)

Key:

1. Unit: 100 million yen [unless otherwise noted]

2. Names of agencies

3. Fiscal 1983

4. Fiscal 1984

5. Remarks

6. Housing Loan Corp

7. Pension Welfare Service Public Corp

8. Housing and Urban Areas Development Corp

9. Four highway-related corporations

10. Japan Highway Public Corp

11. Honshu-Shikoku Bridge Authority

12. Japanese National Railways

13. Japan Railway Construction Corp

14. Three financing agencies for small businesses

[Key continued on following page]

36
[Key continued from previous page]

15. Japan Development Bank

16. Export-Import Bank of Japan

17. Overseas Economic Cooperation Fund

18. Agriculture, Forestry and Fisheries Finance Corp

19. Other

20. Subtotal

21. Local public authorities

22. Finance Corporation of Local Public Enterprise

23. Total

24. Number of households

25. Lending Unit

26. Private construction (over 135 square meters but less than

165 square meters)

27. Two-family dwelling

28. Scale of lending housing mortgage loans to the insured

29. Acreage to be developed newly as housing lots

30. Construction expenditures

31. Project expenditures

32. The portion for Tohoku Shinkansen

33. Scale of general loans

34. People's Finance Corp

35. Small Business Finance Corp

36. Central Bank for Commerce and Industrial Cooperatives

37. Lending level

38. Level of capital subscriptions and loans

39. Planned issuance of local bonds

40. Thousands of households

41. 10,000 yen

the liquidity positions of the special account, short-term advances (.so-called

advances of funds for the sake of liquidity position) totaling 114.4 billion

yen are to be made to that special account using Trust Fund Bureau funds

during fiscal 1984.

7. Resources and Energy Measures

In view of the importance of the energy problem confronting our country,

loans to energy-related businesses will continue to receive priority consideration.

The Japan Development Bank will continue to move toward an expansion of the

loan ceilings for atomic power, energy diversification and petroleum; for the

field of resources and energy as a whole, a lending level of 484 billion

yen is programmed; this is 9.5 billion yen (2 percent) more than in the

previous year.

As for the Japan Petroleum Development Corp, it will continue to invest in

and provide loans to the Joint Stockpiling Company in order to promote the

private-sector stockpiling of petroleum and liquefied petroleum gas (LPG).

In addition, private-sector funds will be utilized to finance the procurement of petroleum and LPG for stockpiling by the private sector—and thereby

to facilitate the national petroleum stockpiling program.

37
The Electric Power Development Co will continue its efforts to promote the

work of developing power resources—both coal-burning thermoelectric power

plants and hydroelectric power plants—in order to ensure a stable supply

of electric power.

8. Local Financial Measures

In the past, when a shortage of financial resources occurred in the local

fiscal administration, and advance (because such an advance is a short-term

loan, it is not figured into the treasury investment plan) was made to the

local Allocation Tax Special Account from Trust Fund Bureau funds to ensure

the availability of monies to take care of the total local allocation tax

as part of measures to make up for such a shortage.

But such reliance on the borrowings by the Local Allocation Tax Special

Account to take care of the distribution of allocation taxes to local public

authorities is problematical from the standpoint of the soundness of local

finances as well as from the standpoint of promoting local administrative and

financial reform. Furthermore, the outstanding balance of such borrowings

has already reached the vast sum of 1.5219 trillion yen, and the yearly

interest burden on it has reached the level of some 800 billion yen. In

view of this, in the preparation of the fiscal 1984 budget, some drastic

reform measures had to be devised against the local fiscal administration

from a medium-term standpoint—measures such as barring as a general rule any

new borrowing by the Local Allocation Tax Special Account from Trust Fund

Bureau funds in the future. These reform measures, summed up in the context

as related to treasury investments, are as follows:

a. Beginning in fiscal 1984 and thereafter, as a general rule there shall

not be any futher borrowings by the Local Allocation Tax Special Account from

Trust Fund Bureau funds.

b. As for the existing borrowings by the Local Allocation Tax Special

Account, the repayment procedure shall be changed: repayment shall be

deferred until fiscal 1990.

C. For the purpose of clearly establishing the respective repayment responsibility of the national government and the local authorities with regard

to existing borrowings by the Local Allocation Tax Special Account, the

national government share (.5.8278 trillion yen) shall be transferred to the

General Account effective 1 October 1984. The amount so transferred to

the General Account shall be treated, on the basis of realities of the

borrowing, as a long-term borrowing.

d. For the time being, as a local fiscal-resources measure in each fiscal

year, an exceptional case shall be devised for the handling of the distribution of local allocation taxes.

e. Temporary local special grants shall be abolished.

f. To the extent possible, construction local bonds shall be utilized.

38
As for the revenue-expenditure outlook in local finances for fiscal 1984,

even if expenditures in the local financial plan are sharply limited to a

mere 0.9-percent increase on a general expenditure basis, excluding national

debt service, a deficit of 1.51 trillion yen is still expected. To fill

this gap, instead of resorting to the usual method of arranging an advance to

the Local Allocation Tax Special Account from the Trust Fund Bureau fund,

304.9 billion yen will be raised by increasing the allocation tax and 1.2051

trillion yen will be raised through an increased issue of local construction

bonds (so-called fiscal resources countermeasure bonds).

Meanwhile, due to the constraints placed on expenditures of an investment

nature, the amount of the local bond plan is kept at 7.21 trillion yen, which

is 331.1 billion yen (4.4 percent) less than in the previous year. Included

therein is a fiscal resources countermeasure bond amounting to 1.2051 trillion

yen (1.3246 trillion yen in fiscal 1983).

As for the funds to accommodate local bonds, in order to facilitate smooth

local financial operations, an effort has been made to increase the share of

government funds despite the severe fiscal resources picture; as a result,

3.5 trillion yen has been programmed, which is 400 billion yen (12.9 percent)

more than in the previous year. In addition, 1.192 trillion yen (1.223

trillion yen in fiscal 1983) is earmarked for the same purpose out of the

funds of the Finance Corporation of Local Public Enterprises. Thus, in

the fiscal 1984 local bond plan, the combined share of the government funds

and the funds of the Finance Corporation of Local Public Enterprises in the

underwriting of local bonds is 65.1 percent, which represents as sharp

increase of 7.8 percent over the 57.3 percent in fiscal 1983.

In the fiscal 1984 local bond plan, while the plan's total amount has

decreased, in order to promote stable development of local communities, steps

have been taken to ensure the issuance in sufficient amounts of those local

bonds related to the comprehensive regional development program, the natural

disaster prevention program and remote areas and the population drain countermeasure program. At the same time, priority attention has been paid to the

improvement of such livelihood-related facilities as water supply and drainage, hospitals, and urban area rapid transit railways. Also, as before, for

the fiscal-resources countermeasure bonds involving those local jurisdictions

that are not necessarily strong in bond-flotation capacity, appropriate

steps will be taken such as using government funds to accommodate the entire

sum, as a general rule.

39
Table 9. Outline of Fiscal 1984 Local Bond Plan

Key:

3*93?

(2)

(2JjJfe*f

E#

59^Jt^ÄffiftiÜ©ffig

(3) (1) fffiÄj)

58 k m 59 ¥m

%

it

-£ o ffi

A.

±2}

£ It f^7J 50.011

$ V*s* 36-

765

*t fi(9] 13,246

£ It ft GlI^Ki) 25.400

ft- ffi -j ) 75,411

5 fl? ®(13&® ! 31,000

6 m ml4^© 12,230

R 19 $ S ^(15)32,181

^(15) 7,250

$(17) 1,029

S&13)23,902

3-

a m $ & it

m&im®+

^®/®(L9)

47,602 j

35, 551 I

12,051 !

24, 498 j

72,100 i

41.1

©/<£(20)57.3

35,000

11,920

25,180

7,250

1,070

16,860

48.5

65.1

c

tt « »

n ft » '<2<t

053,346

; 20,100

) 13,246

15,100

3,049

12,051

1. Units: 100 million yen, and percent

2. Category

3. Item

4. Fiscal 1983

5. Fiscal 1984

6. Local bond plan

7. Ordinary account bond

8. Regular portion

9. Financial measure portion

10. Other account bond (regular portion)

11. Total (A)

12. Classification of funds

13. Government funds (B)

14. Finance Corporation funds (C)

15. Private-sector funds

16. Public offerings on the market

17. Mutual aid

18. Private placement

19. Percentage of government funds (B)/(A)

20. Percentage of government and Finance Corporation funds (B) + (C)/(A)

21. Local financial measures

22. Fiscal resources shortage

23. Allocation tax measure

24. Local bond measure

9977

CSO: 4105/197

40
ECONOMIC

HITACHI, OKI ELECTRIC FINANCIAL STATEMENTS

Hitachi Ltd

Tokyo YUKA SHOKEN HOKOKUSHO SORAN in Japanese No 15-1, Aug 1983 pp 2-8

[Text] Hitachi Consolidated Financial Statement

Statement of Audit

Corporation: Hitachi Ltd

Chairman of the Board of Directors: Katsushige Mita

Audit Completion Date: 28 July 1983

Audit Office Address: Tokyo, Toshimaku, Higashiihebukuro, 1-chome 2828 ahan,

5-go

Audit Company Name: Muso Audit Corporation

Representative Partner:

Participating Firm Member: Yasumasa Fukase, CPA

Participating Firm Member: Takayoshi Saito, CPA

Audit Office Address: Tokyo, Minatoku, Akasaka, 7-chome, 1-han, 21-go

(Within the accounting offices of Peat, Marwick and Mitchell)

Audit Company Name: Irie CPA Office; Sadao Irie, CPA

Audit Office Address: Same as above

Audit Company Name: Akihiro Yamada, CPA

We, the above, in order to make an audit certification on the basis of Article

193:2 of the Securities and Exchange Law, conducted an audit of the consolidated

financial statement, which follows, of Hitachi Ltd for the consolidated account41
ing year from 1 April 1982 to 31 March 1983. To be precise, we examined the

consolidated balance sheet, the consolidated income statement, the consolidated

surplus account statement, and the statement of changes in consolidated financial position.

In conducting this audit, we followed accounting standards generally accepted

as fair and reasonable, and implemented accounting procedures that are common

practice.

The results of the audit show that the accounting principles and procedures

selected by this firm with respect to its consolidated financial statement

conformed to the standards of corporate accounting that are generally accepted

as fair and reasonable (see Note 1), and, with the exception of a change in

the method of conversion of the financial statements of its overseas subsidiaries

from the consolidated accounting year, were applied continuously according to

the identical standards of the previous consolidated accounting year. Moreover,

the method of displaying the consolidated financial statement conforms with

what is prescribed in Supplementary Provision 3 of "Regulations Concerning The

Terminology, Format and Drafting of the Consolidated Financial Statement"

(Ministry of Finance Ordinance Number 28, 1976).

Therefore, we acknowledge that the aforementioned consolidated financial statement accurately reflects the financial condition of Hitachi Ltd and its consolidated subsidiaries as of 31 March 1983, and the management results of the consolidated account year which ended on that day.

There are no interests between the company and ourselves that must be put on

record in accordance with the Certified Public Accountant Law.

Explanatory Notes

Note 1. Outline of Main Accounting Policies

(1) Consolidated Accounting Policies

This company drafted its consolidated accounting statements on the basis of

accounting principles generally recognized in the United States (Opinions of

the Accounting Principles Board, Standards of the Financial Accounting Standards Board, etc), and includes all the accounts of its chief subsidiaries.

Moreover, investment in non-consolidated subsidiaries and related firms is

evaluated by the equity method. Incidentally, segment information has not

been written up.

The individual financial statements in this company's consolidated financial

statement have been adjusted on the basis of accounting principles generally

accepted in the United States. The following are the main adjustments.

(A) With regard to 1981, the price fluctuation reserve and the overseas

investments loss reserve, which are recognized by the Special Taxation Measures

Law, are reversed.

42
Consolidated Balance Sheet (Unit: One million yen)

Item

Current Assets

Cash and Deposits

Negotiable Securities (Note 2)

Notes Receivable

(Notes 4, 5, 6)

Accounts Receivable

(Notes 5, 6)

Inventory (Note 3)

Other Current Assets

(Note 8)

Total Current Assets

Long-term Accounts Receivable and

Fixed Assets

Investments and Loans

Notes 2, 6)

Tangible Fixed Assets

Land

Buildings

Machinery and Fixtures

Construction in Progress

Accumulated Depreciation

Total Tangible Fixed Assets

Other Assets (Note 8)

Total Assets

Liability and Capital

Current Liabilities

Short-term Debt

Redeemable Fixed Liabilities

(Note 7)

Notes Payable (Note 6)

Accounts Payable (Note 6)

Accrued Expenses

Taxes Payable

advanced Received

Employees' Savings Deposits

Other Current Liabilities

Total Current Liability

Fixed Liabilities (Note 7)

Retirement Allowances

Total Liabilities

Minority Interest

Capital

Stock (Notes 9, 10)

Capital Reserve

Earned Legal Reserve

Earned Surplus (Note 11)

Exchange Conversion Adjustment

Total

Stock In Parent Firm Held By

Subsidiaries (Note 12)

Total Capital

Total Liabilities And Capital

31 March 1982

512,383

362,069

246,071

625,953

824,120

112,539

2,683,135

228,461

295,798

80,715

347,067

1,025,067

27,901

(819,238)

661,512

57,029

3,925,935

611,288

97,579

196,607

274,074

180,513

116,269

393,385

95,952

93,027

2,058,694

259,059

211,128

2,528,881

239,130

138,170

141,973

39,658

838,682

1,158,483

(559)

1,157,924

3,925,935

Percent

of Total

68.3

5.8

7.5

16.9

1.5

100.0

52.4

6.6

5.4

64.4

6.1

29.5

100.0

31 March 1983

437,513

406,322

250,271

646,332

854,616

135,694

2,730,748

235,613

316,258

87,079

402,378

1,232,777

26,636

(939,387)

809,483

67,120

4,159,222

610,909

65,017

207,063

275,009

200,601

118,815

411,375

99,329

114,698

2,102,816

261,403

233,705

2,597,924

264,814

140,111

152,842

42,676

964,986

(4,054)

1,296,561

(77)

1,296,484

4,159,222

Percent

of Total

65.6

5.7

7.6

19.5

1.6

100.0

50.5

6.3

5.6

62.4

6.4

31.2

100.0

43
Consolidated Income Statement (Unit: One million yen)

Item

31 March 1982 31 March 1983

Amount Percent

of Total

Amount Percent

of Total

Sales (Note 6)

Cost of Sales (Note 6)

Gross Margin

Selling And General Administrative

Expenses

Operating Income

Non-operating Income

Interest Earned

Dividends Received

Other Income (Note 6)

Total Non-operating Income

Non-operating Expenses

Interest Expenses And

Discount Charges

Casualty Losses (Note 6)

Total Non-operating Expenses

Pretax Profit

Tax Appropriation (Note 8)

Profit Prior To Minority

Interest Deduction

Mirority Interest

Net Income For Year

Earnings Per Share

Before Dilution

Fully Diluted |

3,684,439

2,685,628

100.0

72.9

3,943,667

2,880,393

100.0

73.0

998,811 27.1 1,063,274 27.0

677,637 18.4 722,703 18.4

321,174 8.7 340,571 8.6

86,383

5,265

24,978

116,626 3.2

90,330

5,463

27,413

123,206 3.2

88,400

7,183

2.6

83,866

2,389

95,583 86,255 2.2

342,217

178,853

9.3

4.9

377,522

199,064

9.6

5.1

163,364 4.4 178,458 4.5

26,272

137,092

0.7

3.7

27,919

150,539

0.7

3.8

50.19 yen

49.62 yen

53.40 yen

53.14 yen

Consolidated Surplus Account Statement (Unit: One million yen)

Earned Capital Earned Exchange

Item Surplus Reserve Legal

Reserve

Conversion

Adjustment

Outstanding Balance As Of

31 March 1981 734,200 80,586 37,819

Net Income For Year 137,092

Dividends (16,094)

Reversal of Legal Earned Surplus (2,167) 2,167

Increase Caused By Public Stock

Issue (Note 10) 26,226

Transfer By Convertible

Debenture Conversion (1,623) 18,740 (109)

Transfer By Stock Issue And Sale

Outstanding Balance As Of

(12,726) 16,421 (219)

31 March 1982 838,682 141,973 39,658

Effect At Beginning Of Period

Caused By Change Of Foreign

Currency Conversion Standard (1,045)

Net Income For Year 150,539

Dividends (20,750)

Reversal of Legal Earned Surplus (3,053) 3,053

Transfer By Convertible

Debenture Conversion (191) 9,533 (11)

Transfer By Stock Issue And Sale (241) 1,336 (24)

Exchange Conversion Adjustment

Outstanding Balance As Of

(3,009)

31 March 1983 964,986 152,842 42,676 (4,054)

44
Statement of Changes In Consolidated Financial Position (Unit: 1 million yen)

Item 31 March 1982 31 March 1983

Sources of Capital

Net Income for Year

Income Items Unrelated To Capital

Depreciation Expense

Accrued Retirement Allowances

Deferred Taxes

Amended Investment Income By Equity

Method

Minority Interest

Tangible Fixed Assets

Disposable Income

Total Capital Obtained From

Business Activities

Capital Increase By Parent Company

Public Offering

Proceeds From Sale Of Tangible

Fixed Assets

Debentures Issued

Subsidiaries' Capital Increase

Increase of Capital and Capital Reserve

By Converting Convertible Debentures

Increase Of Fixed Liabilities

Miscellaneous

Total

Uses of Capital

Acquisition of Tangible Fixed Assets

Dividends

Increase of Long-term Accounts

Receivable and Fixed Capital

Increase of Investments and Loans

Reduction of Fixed Liabilities

Retirement Pay Disbursed

Conversion of Convertible Debentures

Exchange Conversion Adjustment

Total

Increase of Used Capital

Analysis of Changes of Used Capital

Items

Increased and Decrease of Current Assets

Cash and Deposits and Securities

Notes Receivable and Accounts Receivable

Inventory Assets

Other Current Assets

Total

Increase and Decrease of Current

Liabilities

Short-term Loans and Redeemable

Fixed Liabilities

Notes Payable and Accounts Payable

Accrued Expenses

Taxes Payable

Advance Received

Employees' Savings Deposits and

Other Current Liabilities

Total

Increase of Used Capital

137,092

139,466

37,441

(9,350)

(17,188)

26,272

(1,376)

312,357

28,726

7,345

57,200

32,774

16,419

17,124

471,945

246,188

16,094

10,088

22,662

5,916

17,600

16,419

334,967

136,978

171,657

128,060

99,456

(29,022)

370,151

55,435

49,469

22,776

33,620

62,545

9,328

233,173

150,539

167,502

39,608

(8,079)

(16,918)

27,919

(2,365)

358,206

9,246

9,053

804

10,854

5,099

9,431

402,693

136.978

332,680

20,750

7,152

6,681

17,031

10,854

4,054

399,202

3,491

(30,617)

24,579

30,496

23,155

47,613

(32,941)

11,391

20,088

2,546

17,990

25,048

44,122

3,491

• .45
(B) The business tax, which is accounted for in the Operating Expenses Section

is placed under Tax Appropriations.

(C) Bonus payments to company officers, which was under distribution of profit,

is accounted for in Selling and General Administrative Expenses.

(D) Long-term foreign currency denominated debts and credits are converted

according to the exchange rate on the settlement date.

(2) Conversions of the Financial Statements of Overseas Subsidiaries

This company applied Standard 52 of the United States Financial Accounting

Standards Board from 1982 on. According to this standard, assets and liabilities

of overseas subsidiaries are converted according to the exchange rate on the

settlement date, and income and expense items are converted according to the

average exchange rate during the period.

The gain or loss that occurs because of the conversion of the financial statements of these overseas subsidiaries is not included in the income statement,

and is accounted for in the Exchange Conversion Adjustment line on the assets

side of the balance sheet. However, the effect that the adoption of this

accounting standard had on the net profit for 1982 was not major.

(3) Valuation Basis of Negotiable Securities

Marketable securities, which are accounted for in the securities and Investments

and Loans accounts, are valued at the lower of cost or market.

(4) Valuation Basis of Inventory Assets

Inventory assets are valued at the lowest of cost or market. The cost of goods

ordered is valued by the actual cost method; raw materials and other inventory

assets are valued by the moving average method. Incidentally, items that are

retained for over 1 year because a long manufacturing process is necessary have

their profit accounted for at the time of final shipment, as a general rule.

(5) Representation of Tangible Fixed Assets and Method of Depreciation

Tangible fixed assets are designated by the acquisition cost. Depreciation of

tangible fixed assets is determined by the declining balance method.

(6) Reserve for Retirement Allowances

The reserve of retirement allowances is based on retirement pay regulations,

and is accounted for by the retirement pay regulations, and is accounted for

by the retirement pay indemnity at the end of the accounting year.

(7) The amount of interest earned by Hitachi Credit (a stock corporation) was

included in sales in the past, but in view of its nature, was accounted for in

Non-operating Income (interest earned) as of 1982. Incidentally, the 1981

fiscal year was revised by the same standard.

(8) Earnings Per Share

Earnings per share are calculated by a sum of the average number of share of

stock issues and the number of shares of common stock held in convertible

securxties. Earnings per share after full dilution is calculated as if all

convertible debentures were converted at the beginning of the year.

46
Remarks 31 March 1982 31 March 1983

Note 2. Negotiable Securities

The price of the securities according

to the financial statement, their market

value, and the difference are as follows.

Marketable Securities Account

Value in Financial Statement 14,982 14,978

Market Value on Settlement Date

Difference

39,047 47,522

24,065 32,544

Investments and Loans Account

Value in Financial Statement 48,932 50,264

Market Value on Settlement Date

Difference

184,023 212.553

135,091 162,289

Note 3. Inventory Assets

The breakdown of inventory assets

as follows.

Manufactured Goods 177,912 178,170

Goods in Process and Semifinished Goods 559,466 592,632

Raw Materials

Total

86,742 83,814

824,120 854,616

Note 4. Notes Receivable Discount And Endorsed

Amount of Notes Receivable 121,659 116,637

Note 5. Bad Debt Allowance And Unearned Interest

Deducted 34,227 28,101

Note 6. Investments in Non-Consolidated Subsidiaries And Related Companies

The following are the chief financial

figures concerning non-consolidated

subsidiaries.

Liquid Assets 639,433 689,560

Other Assets

Total

240,744 296,265

880,177 985,825

Current Liabilities 622,222 674,762

Other Liabilities

Net Assets

Sales

135,943 162,133

122,012 148,930

1,877,775 2,049,455

Net Income for Year 18,459 21,421

The equity method profit of the non-consolidated subsidiaries and affiliated

companies and the dividents received from

non-consolidated subsidiaries and

affiliated companies are as follows.

Equity Method Profit (accounted for

as Other Income) 20,202 20,738

Dividends Received Within the Above 3,014 3,820

Incidentally, the sales credit, accounts

payable, and status of business with

respect to the non-consolidated subsidiaries and affiliated companies are

as follows.

Sales Credit 101,427 105,845.

Accounts Payable 40,607 47,246

Sales 684,340 694,545

Amount of Goods Purchased 480,241 555,773

47
Note 7. Fixed Liabilities

Secured Debentures

9th Series, Redeemable 1982-1984,

9.5% interest

10th Series, Redeemable 1982-1986,

8.8% Interest

Consolidated Subsidiary Issued

Debenture, Redeemable 1982-1988,

5.3-9.1% Interest

Unsecured Debentures

Consolidated Subsidiary Issued

Unsecured Debenture, Redeemable

1987, 5.62% Interest

Unsecured Convertible Debentures

2d Convertible Debenture Public

Domestic Series, Redeemable 1983,

5.4% Interest

2d Dollar Denominated Convertible

Debenture Public Series, Redeemable 1984, 6.25% Interest

3d Dollar Denominated Convertible

Debenture Public Series, Redeemable 1996, 5.77% Interest

Consolidated Subsidiary Issued

Convertible Debentures, Redeemable

1983-1997, 3.25-5.2% Interest

Loans

Secured, Repayment Date 1982-2012,

5.0-9.9% Interest

Unsecured, Repayment Date 1982-

2018, 5.25-17.06% Interest

Redeemed Portion of Above

Total

Anticipated Repayment of Fixed

Liabilities

Between 1 and 2 Years

Between 2 and 3 Years

Between 3 and

Between 4 and

Over 5 Years

Total

4 Years

5 Years

3,200

7,300

14,314

11,703

313

21,180

24,867

32,778

240,983

(97,579) .

259,059

60,503

35,629

28,591

39,418

94,918

259,059

2,750

6,400

14,769

5,804

23,749

23,012

27,418

222,518

(65,017)

261,403

44,390

56,638

29,250

44,944

86,181

261,403

In the secured debentures, the company's mortgage rights were set down on the

basis of the Mortgage of Stock Companies' Property Act.

The 2d Convertible Debenture Public Series was either redeemed or converted

by 31 January 1983.

The 3d Convertible Debenture Dollar Denominated Public Series can be redeemed

with a premium attached of 4.3 to 0.5 percent from 31 March 1984 to 30 March

1993, and can be redeemed at face value after that. Moreover, on every 31

March from31 March 1989 to 30 March 1995, 12.5 percent of the unredeemed balance

as of 31 January 1989 will be redeemed. However, after 1 February 1989, the

company can deduct the amount converted or optionally redeemed. This convertible debenture can convert to 43,149,000 shares of stock at the end of this

current period.

The following limitation on dividends are attached to this convertible

debenture:

"The company will not pay out dividends so as to cause the aggregate

dividends following the settlement year, which belong to the payment date of

this debenture, to exceed the addition of 30 billion yen and either an increased public offering or an issue of convertible debenture to the

accumulated consolidated net profit after the settlement year in question."

48
Note 8. Taxes

A periodic allocation of taxes

has been carried out, but deferred

taxes are listed in the following

items in the financial statements.

Other Current Assets

Other Assets

A breakdown of the Tax Appropriation item in the income statement

is as follows.

Present Year Portion

Deferred Portion

Total

Note 9.

Total Company Shares Issue

Total Shares Issued

Shares Issued By Conversion of

Convertible Debentures This Period

42,010

201,965

(23,112)

178,853

10 billion

shares

2,763,403,661

41,954.269

59,713

223,404

(24,240)

199,064

10 billion

shares

2,802,221,295

38,817.634

Note 10. Public Offerings Of Capital

On 31 March 1982, the company publicly issued 50 million shares of

common stock in the United States at the price of $2.45 per share.

Note 11. Treatment Of Income Distribution Item

The income distribution item, with the exception of bonus payments

to corporate officers, was drafted according the income disposition,

which was confirmed during the consolidated accounting year.

Total Of Parent Company

Stock Held By Subsidiaries

Major Contracts And Incidental Debt

Outstanding Orders For Plant

and Equipment

Outstanding Loan Suretyship Obligations

To Customers Of Hitachi Credit

Outstanding Suretyship Obligations

Other Than The Above

3,616,900

shares

41,954

203,540

132,409

500,000

shares

29,456

207,753

119,392

A number of lawsuits have been raised against this company and its

subsidiaries. The managers of this company believe that this will

not have a major impact on the consolidated financial statement,

even if debt occurs because of these lawsuits.

Note 15, Supplementary Explanation Of Income And Expenses

T

Research and Development Costs 159 828

Retirement Pay and Pension Liability 50^957

Borrowing Charges

Foreign Exchange Gain or Loss

(Accounted for in Nonoperating

Income)

33,937

1,174

(loss)

188,601

52,815

40,460

1,470

49
Oki Electric Industry Co, Ltd

Tokyo YUKA SHOKEN H0KOKUSH0 SORAN in Japanese No 15-15, Aug 1983 pp 2-11

[Text] Oki Electric Consolidated Financial Statement

Statement of Audit

Corporation: Oki Electric Industry Co, Ltd

Chairman of the Board of Directors: Nankai Hashimoto

Audit Completion Date: 25 July 1983

Audit Office Address: Tokyo, Dhuoku, Nihonbashi, 1-chome, 13-Ban, 1-go

Audit Company Name: Office of Tetsuzo Ota, Auditor

Representative Partner

Participating Firm Member: Matsukura, CPA

Participating Firm Member: (Matsukuni) Azuma, CPA

This auditor, in order to make an audit certification on the basis of Article

193:2 of the Securities and Exchange Law, conducted an audit of the consolidated financial statement, which follows, of Oki Electric Industry Co, Ltd for

the consolidated accounting year from 1 April 1982 to 31 March 1983. To be

precise, I examined the consolidated balance sheet, the consolidated income

statement, and the combined surplus account statement.

In conducting this audit, I followed accounting standards generally accepted as

fair and reasonable, and implemented accounting procedures that are common

practice.

The results of this audit show that the accounting principles and procedures

selected by this firm with respect to its consolidated financial statement

conformed to the standards of corporate accounting that are generally accepted

as fair and reasonable, and were applied continuously according to the identical

standards of the previous consolidated accounting year. Moreover, the method of

displaying the consolidated financial statement conforms with what is prescribed

in "Regulations Concerning The Terminology, Format and Drafting Of Consolidated

Financial Statements (Ministry of Finance Ordinance No 28, 1976)."

Therefore, I acknowledge that the aforementioned consolidated financial statement accurately reflects the financial condition of Oki Electric Industry Co,

Ltd as of 31 March 1983, and the management results of the consolidated accounting year which ended on that day.

There are no interests between the company and myself that must be put on record

in accordance with the Certified Public Accountant Law.

50
Consolidated Balance Sheet: (JMf 1 million yen)

I. Current Assets

1. Cash and Deposits

2. Notes Receivable and

Accounts Receivable

*1 *2

3. Notes Receivable and

Accounts Receivable of

Non-consolidated subsidiaries and Affiliated

Companies *1 *2

Negotiable Securities *2

Inventory Assets

Short-term Credits of

Non-consolidated Subsidiaries and Affiliated

Companies

Other Current Assets

8. Bad Debt Allowance

Total Current Assets

II. Fixed Assets

(1) Tangible Fixed Assets

4.

5.

6.

1.

2.

3.

A.

5.

6.

7.

Buildings and Structures

Machinery and Equipment

Tools, Furniture, Fixtures

Land

Construction in Progress

Other Tangible Fixed Assets

Depreciation Allowance

Total Tangible Fixed

Assets *2

(2) Intangible Fixed Assets

(3) Investments and Other

Assets

1. Investments in Negotiable

Securities *2

2. Shares of Non-consolidated

dated Subsidiaries and

Affiliated Companies *2

3. Investment in Non-consolidated Subsidiaries and

Affiliated Companies

A. Long-term Loans to Nonconsolidated Subsidiaries

and Affiliated Companies

5. Other Investments and

Other Assets

6. Bad Debt Allowance

Total Investments and

Other Assets

Total Fixed Assets

III. Deferred Assets

Total Assets

31 March 1982

Amount

28,933

53,200

3,082

5.23A

61,763

A,746

6,333

(997)

162,294

35,481

A0.383

3A.936

A, 288

5,447

661

(65,070)

56,126

199

9,045

5,931

47

3,580

6,208

(897)

23.91A

80,239

665

2A3.198

Percent

of Total

66.7

23.1

0.1

9.8

33.0

0.3

100.0

31 March 1983

Amount

38,068

61,061

5,115

16,369

67.A56

2,867

5,446

(925)

195,459

41,123

47,193

39,283

3,883

378

719

(72,377)

60,205

199

9,385

3,632

A6

5,223

7,730

(901)

25,118

85.52A

551

281,53A

Percent

of Total

69.4

21.4

0.1

8.9

30.4

0.2

100.0

51
(Liability Side)

I. Current Liabilities

1. Notes Payable and Accounts

Payable

2. Notes Payable and Accounts

Payable of Nonconsolidated

Subsidiaries and Affiliated

Companies

3. Short-term Debt

4. Accrued Expenses

5. Accrued Expenses of Nonconsolidated Subsidiaries

and Affiliated Companies

6. Advance Received

7. Corporate Tax Allowance

8. Business Tax Allowance

9. Employees' Bonus Allowance

10. Reserve For Compensation

For Completed Works

11. Special Account for Advanced

Depreciation of Fixed Assets

12. Other Current Liabilities

Total Current Liabilities

II. Fixed Liabilities

1. Debentures and Convertible

Debentures

2. Long-term Debt

3. Retirement Allowance

4. Computer Repurchase Loss

Reserve

5. Exhibition Allowance For

International Science and

Technology Exhibition

6. Other Fixed Liabilities

Total Fixed Liabilities

III. Special Reserve

1. Reserve for Price Fluctuation

2. Reserve for Overseas

Investment Losses

IV. Exchange Conversion Adjustment

V. Minority Interest

Total Liabilities

(Capital Side)

I. Capital

II. Capital Reserve

III. Earned Legal Reserve

IV. Other Surplus Funds

V. Treasury Stock

Total Capital

Total Liabilities and Capital

31 March 1982 31 March 1983

Amount

35,097

4,648

69,425

3,964

421

7,407

474

139

6,614

7

15,100

143,296

25,634

25,903

9,009

1,106

1,018

62,670

475

146

621

813

479

207,879

17,659

7,192

2,483

7,985

35,319

243,198

Percent

of Total

58.9

25.6

0.3

0.3

0.2

85.5

7.3

2.9

1.0

3.3

14.5

100.0

35,714

5,227

77,644

4,486

504

6,444

3,786

837

7,408

2,568

21,207

165,834

33,743

28,606

10,103

701

13

449

73,617

765

623

240,841

20,249

10,537

2,669

7,239

_£1)

40,693

281,534

Percent

of Total

58.9

26.1

0.3

0.2

85.5

7.2

3.7

1.0

2.6

14.5

100.0

52
Consolidated Income Statement And Combined Surplus Account Statement (Unit:

1 million yen)

Item

I.

II.

III.

Sales

Cost of Sales

Gross Margin

Selling Expenses and

General Administrative

Expenses *3

Operating Income

Nonoperating Income

31 March 1982

Amounts

V.

a.

1. Interest Earned 2 ,646

2. Interest Earned

from Nonconsolidated

Subsidiaries 601

3. Dividents Received 547

4. Exchange Gain or

Loss 579

5. Other Income 1 ,447

Nonoperating Expenses

1. Interest Expenses

and Discount Charges 9 321

2. Debenture Interest 1 814

3. Miscellaneous

Expensitures

Recurring Profit

3 320

Sp ^cial Profit

1. Fixed Asset Disposal 5 340

2. Sale of Invested

Securities 23

3. Insurance Gain or

Loss

4. Miscellaneous

4.

I'll. Special Losses

Fixed Asset Disposal

Fixed Asset Advancec

Depreciation Deduction

Bad Debt Loss of

Nonconsolidated Sub

sidiary Credits

Miscellaneous

Pretax Net Profit

for Period

i'HI. Special Reserves and

Reversals

1. Provision for Reserve for Price

Fluctuation

2. Reversal of Price

Fluctuation

3. Reserve and Reversal for Overseas

Losses

4. Reserve and Reversal for Overseas

Market Development

Pretax Profit

for Year

Corporation Tax and

Residential Tax

Minority Shareholdei

Gain or Loss

Profit i'»( itOie

263

5,336

2,619

80

74

19

242,839

177,294

65,545

47,859

17,686

5,820

14,455

9,051

5,363

8,298

6,116

96

6,212

2,347

(154)

% of

Sales

100.0

73.0

27.0

19.7

7.3

2.4

6.0

3.7

2.2

3.4

2.5

0.1

2.6

1.0

0.1

31 March 1983

Amounts

2,619

225

540

489

9,152

1,988

3,014

5,702

24

1,166

53

532

6,672

146

475

25

279,656

203,937

75,718

59,894

15,823

5,977

14.155

7,646

6,946

7,351

7,242

500

7,742

5,078

(150)

2,512

X of

Sales

100.0

72.9

27.1

21.4

5.7

2.1

5.1

2.7

2.5

2.6

2.6

0.2

2.8

1.8

0.1

0.9

53
1

31 March 1982 31 March 1983

iltem Amount % of

Sales

Amount % of

Sales

IX. Other Surplus Outstanding At Beginning of

Year 8,633 7,985

X. Other Surplus Increases

1. Increase Following

i Reduction of Consolidated Subsidiaries 2,093 2,093 120 120

XI. Other Surplus Losses

1. Reversal of Legal

Earned Surplus

2. Dividends

3. Bonus Pay to Officers

4. Reduction Following

Increase of Consolidated Subsidiaries

269

2,634

81

2,744 5,728

187

1,863

72

1,315 3,439

XII. Exchange Conversion

Adjustment (724) 59

XIII. Other Surplus Outstanding at End of

Year 7,985 7,239

54
Explanatory Notes

1. Items With Respect To Consolidated Accounting Policies

(1) Scope Of Consolidation

(A) 1 April 1981-31 March 1982 (hereafter called (A))

Out of 35 subsidiaries, 11 fall within the scope of consolidation. The other

24 are not included within the scope of consolidation. The other 24 are not

included within the scope of consolidation because in terms of gross assets

and sales, they are all quite small and unimportant.

Furthermore, because of the establishment of a new subsidiary and an increase

in the comparative importance of a subsidiary, Oki made Oki Electric Overseas

Corporation and another firm subject to consolidation this year. Oki Overseas

Electronics was excluded from consolidation because it became a liquidated

company.

Moreover, the total gross assets and sales of the nonconsolidated subsidiaries

is less than 10 percent of the consolidated gross assets and sales.

(B) 1 April 1982-31 March 1983 (hereafter called (B))

Out of 38 subsidiaries, 12 fall within the scope of consolidation. The other

26 are not included within the scope of consolidation because in terms of gross

assets and sales, they are all quite small and unimportant.

Moreover, the total gross assets and sales of the nonconsolidated subsidiaries

is less than 10 percent of the consolidated gross assets and sales.

(2) Application of the Equity Method

(A) In accordance with Supplementary Provision 2 of "Regulations Concerning

The Terminology, Format And Drafting Of Consolidated Financial Statements"

(Ministry of Finance Ordinance Number 28, 1976), investments in the 24 nonconsolidated subsidiaries and the 26 affiliated companies have been valued by

the actual cost method, and the equity method has not been applied. There are

eight major nonconsolidated subsidiaries, including Warabi Special Steel (Inc),

and three major affiliated companies, including Oki Cable.

(B) In accordance with Supplementary Provision 2 of "Regulations Concerning

The Terminology, Format And Drafting Of Consolidated Financial Statements"

(Ministry of Finance Ordinance No 28, 1976), investments in the 26 nonconsolidated subsidiaries and the 28 affiliated companies have been valued by the

actual cost method, and the equity method has not been applied. There are eight

major noncondolidated subsidiaries, including Miyazaki Oki Electric (Inc), and

three major affiliated companies, including Oki Cable.

55
(3) Business Fiscal Year of Consolidated Subsidiaries

(A) All of the consolidated subsidiaries have the same business fiscal year

as the parent company.

(B) All of the consolidated subsidiaries have the same business fiscal year

as the parent company.

(4) Accounting Standards

(A) (i) Valuation Basis of Major Assets

(a) Negotiable Securities (including Investments in Negotiable Securities)

These are valued at cost on the basis of the moving average method.

(b) Investment Assets

These are valued mainly at cost on the basis of the actual cost method.

(ii) Methods of Depreciation of Major Depreciating Assets

(a) Tangible fixed assets are depreciated by the declining balance method.

(b) Intangible fixed assets are depreciated by the straight line method.

(iii) Accounting Standards for Major Liability Allowances

(a) The employee bonus allowance is treated on the basis of the standard for

the year subject to the allowance, which is prescribed in the Corporation Tax

Law.

(b) The retirement pay allowance is treated on the basis of Article 55 of the

Corporation Tax Law (standard for limitations on accumulations).

(c) The business tax allowance is determined by the anticipated payment, which

is based on the provisions of the Local Taxes Act.

(d) The computer purchase loss reserve is calculated from the anticipated

amount to be lost from the purchase of computers.

(iv) Standard for Conversion of Japanese Currency of Major Foreign-Currency

Denominated Assets or Liabilities

Foreign Currency-Denominated Assets and Liabilities are handled in accordance

with the accounting standard for foreign currency denominated transactions.

Short-term cash credits and debts are converted at the foreign exchange market

rate at the settlement date. Long-term cash credits and debts are converted

at the foreign exchange market rate on the date of acquisition or the date

incurred.

56
(B) (i) Valuation Basis and Valuation Method of Major Assets

(a) Negotiable Securities (including Investments in Negotiable Securities)

These are valued at cost on the basis of the moving average method.

(b) Inventory Assets are valued mainly at cost on the basis of the actual cost

method.

(ii) Methods of Depreciation of Major Depreciating Assets

(a) Tangible fixed assets are depreciated by the straight line method.

(b) Intangible fixed assets are depreciated by the straight line method,

(iii) Accounting Standards for Major Allowances

(a) The bad debt allowance is determined by the legal limitation (legal provisional rate) based on the Corporation Tax Law, and the anticipated bad debt

loss to be incurred.

(b) The employee bonus allowance is treated on the basis of the standard

prescribed for the period subject to the allowance, which is prescribed in

the Corporation Tax Law.

(c) The business tax allowance is determined by anticipated payments on the

basis of the provisions of the Local Taxes Act.

(d) The retirement pay allowance is handled on the basis of Article 55 of

the Corporation Tax Law (standard for limitation on accumulation).

(e) The computer purchase loss reserve is calculated from the anticipated

amount to be lost from the purchase of computers.

(f) The Corporation Tax Allowance is the estimated payment for the Corporation

Tax.

(iv) Adjusted Pension and Suitable Retirement Pension

This company has adopted an adjusted annuity system separate from the retirement pay system. Pension assets as of 31 March 1982 totaled 14,738,000,000

yen. Out of this figure, 7,153,000 yen is a policy reserve prescribed in

Article 85:2 of the Welfare Pension Insurance Act.

Moreover, two of the consolidated companies have adopted a suitable retirement

pension system, and their pension assets of 1983 totaled 396,000,000 yen.

(5) Offsetting Elimination of the Investment Account and the Capital Account

(A) The offsetting elimination of the parent company investment account and

the subsidiary capital account is done according to a progressive method. The

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eliminated differential that arises as a result of offsetting elimination makes

up the consolidated adjustment account. The consolidated adjustment account is

treated as a very temporary gain or loss in the year it occurs.

(B) The offsetting elimination of the parent company investment account and

the subsidiary capital account is done according to a progressive method. The

eliminated differential that arises as a result of offsetting elimination makes

up the consolidated adjustment account. The consolidated adjustment account is

treated as a very temporary gain or loss in the year it occurs.

(6) Elimination of Unrealized Profits or Losses

(A) Unrealized profit or loss included in assets acquired from consolidated

subsidiaries that have minority shareholders is completely eliminated. The

portion corresponding to minority shareholder equity is made liable as minority

shareholder equity.

The elimination of unrealized profit or loss included in a depreciating asset,

as a general rule, is carried out by a revision of the depreciation expense.

(B) Unrealized profit or loss included in assets acquired from consolidated

subsidiaries that have minority shareholder is completely eliminated. The

portion corresponding to minority shareholder equity is made liable as minority

shareholder equity.

The elimination of unrealized profit or loss included in a depreciating asset,

as a general rule, is carried out by a revision of the depreciation expense.

(7) Conversion of the financial statement item of overseas consolidated subsidiaries

(A) The conversion into yen of the financial statement item on overseas consolidated subsidiaries is done according to the settlement date rate method.

(B) The conversion into yen of the financial statement item on overseas consolidated subsidiaries is done according to the settlement date rate method.

(8) Treatment of Net Profit Distribution Item

(A) The method for treating net profit distribution is done in accordance with

the method for carrying out a consolidated settlement based on the profit distribution confirmed in the consolidated accounting year. The earned legal

reserve of the consolidated subsidiaries is treated as other surplus from the

standpoint of consolidation. Moreover, an increase in equity of the parent

corporation because of capital in excess of par value, which occurs when capital

increases in a consolidated subsidiary by the allocation of shares to a third

party, is included in Other Reserves.

(B) The method for treating net profit distribution is done in accordance with

the method for carrying out a consolidated settlement based on the profit distribution confirmed in the consolidated accounting year. The earned legal re58
serve of the consolidated subsidiaries is treated as Other Surplus from the

standpoint of consolidation. Moreover, an increase in equity of the parent

corporation because of capital in excess of par value, which occurs when capital

increases in a consolidated subsidiary by the allocation of shares to a third

party, is included in _Other Reserves.

(9) Treatment of Periodic Appropriation of the Corporate Taxes

(A) Tax benefit accounting (treatment of periodic appropriation of corporate

taxes) is not applied.

(B) Tax benefit accounting (treatment of periodic appropriation of corporate

taxes) is not applied.

2. Change of Scope of Consolidation

(A) None

(B) Because of the increase of the relative importance of the subsidiary, the

Okidata Corporation comes under the scope of consolidation from this year on.

3. Explanatory Notes

(A) (1) *1

Discounted Notes Receivable 2,826,000,000 yen

Endorsed Amount of Notes Receivable 170,000,000 yen

(2) Suretyship 33,833,000,000 yen

(3) Among the assets of *2, the following are presented in the guarantees of

long-term debt and debentures.

Notes Receivable 47,000,000 yen

Negotiable Securities 5,146,000,000 yen

(Including investments in negotiable securities and shares in affiliated

companies)

Tangible Fixed Assets 22,745,000,000 yen

(B) (1) *1

Discounted Notes Receivable 2,611,000,000 yen

Endorsed Amount of Notes Receivable 81,000,000 yen

(2) Suretyship 34,990,000,000 yen

(3) Among the assets of *2, the following are presented in the guarantees of

long-term debt and debentures.

59
Notes Receivable 40,000,000 yen

Negotiable Securities 5,332,000,000 yen

(Including investments in negotiable securities and shares in affiliated

companies.)

(4) The overseas investments loss reserve, which was accounted for in the

liability section of the previous period's consolidated balance sheet (special

allowance) was disposed of at the end of that period according to the provisions of the Special Tax Measures Act. The remainder of 120 million yen was

transferred to other surplus in the capital side, on the basis of the provisions

in Supplementary Provision 4 of the "Ministry Ordinance Revising A Portion of

the Regulations Concerning the Terminology, Format and Drafting of the Consolidated Financial Statement" (Ministry of Finance Ordinance No 47, 1982).

(Consolidated Income and Combined Surplus Account Statements)

(A) *3 A rough proportion of selling expenses and general administrative expenses is 60 percent for selling expenses and 40 percent for general administrative expenses. The main itemized items are as follows.

Salaries and Wages 18,174,000,000 yen

Provision for Accrued Retirement Allowances 712,000,000 yen

Marginal Provision for Employee Bonuses 204,000,000 yen

Depreciation Expense 1,288,000,000 yen

Technology Research Expense 9,319,000,000 yen

Provision for Business Tax Allowance 684,000,000 yen

Construction Cost Transfer (11,512,000,000)yen

(B) *3 A rough proportion of selling expenses and general administrative expenses is 60 percent for selling expenses and 40 percent for general administrative expenses. The main itemized items are as follows.

Salaries and Wages 20,653,000,000 yen

Provision for Accrued Retirement Allowances 854,000,000 yen

Marginal Provision for Employee Bonuses 259,000,000 yen

Depreciation Expense 1,530,000,000 yen

Technology Research Expense 11,498,000,000 yen

Provision for Allowance for Exhibition at

International Science and Technology Exhibition 13,000,000 yen

Provision for Business Tax Allowance 1,294,000,000 yen

Construction Cost Transfer (11,940,000,000) yen

(Miscellaneous)

(A) (1) This company adopted an adjusted pension system separate from the

retirement pay system, and the total amount of pension assets as of 31 March

1981 was 12.5 billion yen. Out of this figure, 6,073,000,000 yen is a policy

reserve prescribed in Article 85:2 of the Welfare Pension Insurance Act.

60
Furthermore, two of the consolidated companies have adopted a suitable retirement annuity system, and their pension assets of 1982 totaled 366 million yen.

(2) Below is the conversion of foreign currency denominated long-term cash

credits and debts at the exchange rate at the date of settlement.

Credit Debt

Foreign Currency Amount $20,275,000 U.S. -

Balance Sheet Figure 4,654,000,000 yen

Amount in Yen When Converted

According to Exchange Rate

at Settlement Date 4,979,000,000 yen

Loss (325,000,000) yen

(B) None

(Per Share Information)

(A) None

(B) Net Assets Per Share 100.48 yen

Earnings Per Share 6.20 yen

(Note: Earnings per share is calculated according to the number of shares

issued by the end of the year, because there were shares converted from convertible debentures.

12259

CSO: 8129/1394 END

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