Isuzu 2007 Annual Report Download - page 26

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Isuzu Motors Limited Annual Report 2007
Financial Section
F. Taxes
Isuzu’s net tax expense in fiscal 2006 including corporate income
taxes, municipal taxes, and business taxes as well as deferred corporate
income taxes was ¥15,447 million. In fiscal 2007, the net tax expense
was ¥7,819 million, reflecting a large reduction in deferred income taxes.
G. Minority interests
Minority interests consist primarily of profits returned to the minor-
ity shareholders of Isuzu’s locally incorporated subsidiaries in the ASEAN
region and North America and its Japanese parts manufacturers.
Minority interests in fiscal 2007 increased to ¥7,270 million, compared
to ¥5,222 million in fiscal 2006.
H. Net profit
Net profit in fiscal 2007 was ¥92,394 million, an increase of ¥33,438
million from the previous year. Earnings per share came to ¥64.83 and
fully diluted earnings per share to ¥51.54.
3. Financial condition
A. Cash flow
Isuzu generated consolidated-basis cash and cash equivalents (“net
cash”) of ¥140,363 million in fiscal 2007, up ¥33,868 million from the
previous year. Despite aggressive capital investment and repayments of
interest-bearing debt, net cash increased significantly as a result of the
¥114,478 million cash flow provided by operating activities in the face
of record-setting profits.
Cash flow from operating activities
Net cash provided by operating activities increased 38.8% to
¥114,478 million, growing by ¥32,030 million compared to fiscal 2006
due to an increase in net profit before tax and other adjustments, a
reduction in inventory, and increases in dividends received from equity-
method affiliates.
Cash flow from investing activities
Net cash used in investing activities increased 60.2% to ¥33,760 mil-
lion, reflecting an aggressive program of capital investment in Japan
and Thailand designed to lay the groundwork for future growth under
the Mid-term Business Plan. As a result, expenditures associated with
fixed asset purchases increased ¥13,034 million from the previous year
to ¥49,340 million.
Cash flow from financing activities
Net cash used in financing activities decreased 49.6% to ¥49,128
million. In fiscal 2006, Isuzu repaid a significant amount of interest-
bearing debt and redeemed the entire ¥40,000 million balances on
a previous convertible bond issue before maturity. Although net cash
used in fiscal 2007 fell ¥48,365 million compared to the previous year,
Isuzu continued to pay off interest-bearing debt by utilizing cash flow
provided by operating activities.
B. Assets
As of March 31, 2007, combined consolidated assets totaled
¥1,232,181 million, an increase of ¥63,484 million from the previous year.
The main factors contributing to this increase were cash and de-
posits (up ¥25,494 million from ¥108,642 million to ¥134,136 million),
notes and accounts receivable (up ¥19,713 million from ¥252,441 mil-
lion to ¥272,154 million), tangible fixed assets (up ¥16,231 million from
¥474,264 million to ¥490,495 million), and investment securities (up
¥10,012 million from ¥95,229 million to ¥105,241 million). The increase
in cash and deposits is primarily attributable to cash flow from operat-
ing activities, while the increase in notes and accounts receivable is pri-
marily due to an increase in accounts receivable at Isuzu and its locally
incorporated subsidiaries in the ASEAN region. The increase in tangible
fixed assets is primarily due to capital investment, and the increase in in-
vestment securities to equity method income.
Long-term loans receivable decreased significantly (down ¥11,249
million from ¥15,404 million to ¥4,155 million), primarily due to eq-
uity method affiliates settling loans extended to them by the parent
company.
C. Liabilities
Total liabilities at March 31, 2007 decreased ¥54,410 million from
the previous year to ¥843,119 million. Interest-bearing liabilities (total
of short-term borrowing, corporate bonds, and long-term borrowing)
decreased ¥52,432 million from ¥349,659 million to ¥297,227 million.
We continued to use net cash provided by operating activities to repay
Group borrowing, particularly its own.
D. Capital
Capital (excluding minority shareholders’ equity) grew ¥97,693 mil-
lion in fiscal 2007 to ¥342,043 million.
The primary causes of this increase were net profit of ¥92,394 mil-
lion in fiscal 2007 and an improvement in the foreign exchange adjust-
ment account due to the weakening of the Japanese yen against major
currencies.
As a result, Isuzu’s equity ratio improved 6.9 percentage points from
a year earlier to 27.8%.
The acquisition as treasury stock of outstanding Class III preferred
stock and Class IV preferred stock that had been issued as part of
Isuzu’s financial reconstruction program was approved by the 105th
Shareholders’ Meeting and the Board of Directors, both meeting on
June 28, 2007. This measure will eliminate all remaining preferred stock,
signaling the completion of the reconstruction process in both name
and reality.
Risks
There are certain risks that could have a significant impact on our
earnings results, financial condition, and other information contained in
the annual securities report, or share prices, and these risks are outlined
below. (The following information includes forward-looking statements
that reflect the judgment of management as of June 28, 2007.)
1. Economic situation/supply and demand trends in Isuzu’s
major markets
Vehicles account for an important portion of the Isuzu Group’s
worldwide operating revenue, and demand for these vehicles is
affected by the economic situation in the various countries and regions
where Isuzu sells vehicles. Therefore, economic recession and an en-
suing decline in demand in the Group’s major markets—Japan, North
America, and other Asian countries—could have a negative impact on
the Group’s performance and financial position. Price competition also
entails the risk of price fluctuation for Isuzu products.
2. Interest rate fluctuations
The Isuzu Group has tightened its cash flow management and con-
tinues to concentrate on shrinking interest-bearing debt. In fiscal 2007
Isuzu allocated profit from business operations and other funds to
the reduction of interest-bearing debt, the balance of which stood at
¥297,227 million at the end of the year, a reduction of ¥52,432 million
from the previous year. The Group remains vulnerable to the risk of
higher interest payments having a negative impact on its performance
and financial position should market rates rise sharply.