In the fiscal year ended March 31, 1994, the company adopted, effective April 1, 1993, SFAS No. 109, "Accounting for Income Taxes." The cumulative effect as of April 1, 1993 of the accounting change resulting from adoption of SFAS No. 109 was to decrease net income by 1,603 million yen or 1.04 yen per share.
The components of income tax expense are as follows:
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In thousands of
In millions of yen U.S. dollars
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Year ended March 31 1994 1995 1996 1996
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Current ............................................................ Y 32,339 Y 62,165 Y 108,254 $ 1,011,719
Deferred ........................................................... (6,808) (10,717) (31,878) (297,925)
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Y 25,531 Y 51,448 Y 76,376 $ 713,794
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The company is subject to a number of different income taxes which, in the aggregate, indicate a normal statutory tax rate in Japan of approximately 51 percent for the years ended March 31, 1994, 1995 and 1996. A reconciliation between the reported total income tax expense and the amount computed by multiplying the income before tax by the applicable normal statutory income tax rate is as follows:
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In thousands of
In millions of yen U.S. dollars
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Year ended March 31 1994 1995 1996 1996
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Current "expected" tax expense ..................................... Y 12,807 Y 38,109 Y 77,172 $ 721,234
Increase (decrease) in taxes resulting from:
a) Changes in valuation allowance ................................ 13,511 8,387 (16,068) (150,168)
b) Non-deductible expense for tax purposes ....................... 3,724 4,087 4,126 38,561
c) Amortization of discount on bonds with warrants ............... 1,646 786 ----- -----
d) International tax rate differences ............................ 224 240 5,096 47,626
e) Other ......................................................... (6,381) (161) 6,050 56,541
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Actual total income tax expenses ................................... Y 25,531 Y 51,448 Y 76,376 $ 713,794
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The significant components of deferred tax assets and liabilities at March 31, 1995 and 1996 are as follows:
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In thousands of
In millions of yen U.S. dollars
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March 31 1995 1996 1996
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Deferred tax assets:
Intercompany profit on inventories and tangible fixed assets
between consolidated companies .................................................. Y 40,365 Y 42,074 $ 393,215
Accrued pension and severance costs ............................................... 42,944 50,893 475,636
Other accruals--Noncurrent ........................................................ 27,627 30,692 286,841
Loss carryforwards ................................................................ 97,493 78,211 730,944
Other ............................................................................. 33,496 78,042 729,364
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241,925 279,912 2,616,000
Less--Valuation allowance ......................................................... 120,840 97,781 913,841
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Total ........................................................................... Y 121,085 Y 182,131 $1,702,159
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Deferred tax liabilities:
Tax deductible reserve ............................................................ Y 31,442 Y 39,428 $ 368,486
Tax on undistributed earnings ..................................................... 8,648 13,140 122,804
Other ............................................................................. 7,161 21,246 198,561
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Y 47,251 Y 73,814 $ 689,851
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The valuation allowance is primarily related to deferred tax assets of certain consolidated subsidiaries with operating loss carryforwards which are not expected to be realized. The net changes in the total valuation allowance for the years ended March 31, 1995 and 1996 were an increase of 7,276 million yen and a decrease of 29,460 million yen ($275,327 thousand), respectively. Of the changes in valuation allowance, the amounts attributable to the release of the beginning-of-the-year balance due to favorable developments in the subsequent year for the years ended March 31, 1995 and 1996 were decreases of 1,926 million yen and 14,470 million yen ($135,234 thousand), respectively.
At March 31, 1996, for tax return purposes, tax loss carryforwards of consolidated subsidiaries amounted to approximately 163,960 million yen ($1,532,336 thousand) and will expire primarily during the period from 1997 through 2001 and in 2007 and 2008. Realization is dependent on the consolidated subsidiaries generating sufficient taxable income prior to expiration of the tax loss carryforward. Although the realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
