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ANNUAL REPORT 2002
Year ended March 31, 2002
POWER TO CHANGE
The Second Year of the Turnaround

Table of contents

  • Page 1
    POWER TO CHANGE The Second Year of the Turnaround ANNUAL REPORT 2002 Year ended March 31, 2002

  • Page 2
    CON TENTS Financial Highlights To Our Shareholders Special Feature-Management Talks Interview With Rolf Eckrodt Design Car Alliances North America Domestic Sales Network Truck & Bus Key Points of the Turnaround Plan Board of Directors New Products Quality Technology Environment Operational Review ...

  • Page 3
    ...Mitsubishi Motors Corporation and Consolidated Subsidiaries In millions of yen In thousands of U.S. dollars FY2001 For the year: Net sales Operating profit (loss) Loss before income taxes and minority interests Net income (loss) At year-end: Total assets Total stockholders' equity Per share data...

  • Page 4
    ... last year, in fiscal 2001 we posted operating income of ¥40.2 billion ($302 million). Both passenger car and commercial vehicle operations were profitable at the operating level in all overseas markets- with Results for year ended March 2002 Mitsubishi Motors Corporation (MMC) is profitable again...

  • Page 5
    ... new cars in Japan that will reflect the new Mitsubishi identity and image- S " pirited Cars for Spirited People." This will help drive sales forward in our core markets. The runaway success of our EK-WAGON in Japan in the mini car segment suggests we are on the right track. Our aim for fiscal 2002...

  • Page 6
    ... all results, serving as a model for other companies. MMC today is developing a more open atmosphere. In the past, the company tended to behave more as a closed shop. I think I have helped to open it up, which is of benefit to everybody- employees, customers and shareholders alike. In the past, our...

  • Page 7
    ...mini car in Japan, which was launched after the October 2001 Tokyo Motor Show and sold over 100,000 units by May 2002, much more than we had projected. The same approach is also reaping rewards in the U.S. market, where we have the brand with the broadest appeal, particularly among younger customers...

  • Page 8
    ... It' s all about helping, supporting and developing people. I think this is best accomplished by using the target-setting process, which establishes concrete goals within a clear framework of overall aims. Vertical dialogue and exchange of information throughout the company are vitally important, so...

  • Page 9
    ...We will continue this U.S. success story, as well as the one we have in Asian markets, such as Taiwan, Malaysia and China. And we will repair our business in Europe and Japan, where we are restructuring our distribution channels and promoting our new brand image. The Turnaround is firmly on track. 7

  • Page 10
    ... the new design ethos, a compact car. In 2003, we will roll out more new models to fill out the lineup. We have a very talented design team from Japan and many other countries, and I feel confident we are making rapid progress. Our design studios in Japan, Europe, the U.S., and Australia are more...

  • Page 11
    ... public debut at The 35th Tokyo Motor Show 2001. It instantly attracted interest from both within Japan and overseas to MMC's new design ethos. Featuring the same full-time 4WD system as MMC's WRC (World Rally Championship) car, the LANCER EVOLUTION VII, as well as a profile that exudes a feeling of...

  • Page 12
    ... commonality in the cars we develop together, there is no question of merging brands. The agreed policy is to keep the MMC brand fully independent. Our objective is to differentiate models for the needs of local business units in different markets so that we avoid any sales cannibalization. In terms...

  • Page 13
    ... cars to be sold in North America. We plan to introduce new models based on this platform as early as 2003. One final area of collaboration is the global engine alliance, which also includes Hyundai Motor of South Korea. This will design, develop and produce advanced, in-line four-cylinder engines...

  • Page 14
    ... strong potential to build from our current market share of 1.9%. Our distribution and vehicle financing systems also changed to reinforce the new brand image. Besides expanding the number of distributors, we upgraded our U.S. dealer network to provide higher service quality. All our dealers in the...

  • Page 15
    ...to make cars in the U.S. to better cater to American tastes. In our new setup, sales operations provide customer feedback to design and production teams to improve product development. Better training and internal communication have driven this part of the transformation. Training has helped deliver...

  • Page 16
    ...earnings structure of our sales companies, which have been overly dependent on new car sales. We plan to shift the balance toward the steadier income streams provided by comprehensive service provision, including second-hand vehicles, customer service, parts, insurance and credit finance. This means...

  • Page 17
    ... various sales companies and pilot schemes from around Japan, analyzing the results to identify and codify profit improvement tools and related expertise. We have incorporated all these methods into a manual. Regional managers and field sales consultants are all being trained using this manual and...

  • Page 18
    ... with DC offers the scope for several avenues of progress. First, we are now using DC sales channels in Europe, where they replaced the role previously played by Volvo, and in South Africa- in both cases for the sale of CANTER trucks. Second, we have upgraded the quality of our commercial vehicle...

  • Page 19
    ... companies. The main challenge now is to merge back-office operations and use IT to integrate our management, customer service and sales support systems better. This will help us undertake more strategic marketing activities to boost sales. On the product side, we recently completed a full model...

  • Page 20
    ...THE TURNAROUND PLAN 2001 TURNAROUND PLAN ...of 9,100 people 5,050 FY01 FY03 (%) 28.0 18.0 PRODUCTION CAPACITY REDUCTION FY2003 (initial target): 20% FY2003 (revised target...FY2002: Operating profit margin of 2.5% FY2003: Operating profit margin of 4.5% 2.5 Operating profit margin of 1.3% 1.3 ...

  • Page 21
    ... Midorikawa, Eiji Iwakuni MEMBERS OF THE BOARD Takashi Sonobe Chairman of the Board Chief Business Ethics Officer Steven A. Torok Executive Vice President International Car Operations Group Headquarters Masanori Tani Senior Vice President Global Production Headquarters Rolf Eckrodt President...

  • Page 22
    ... was guided from the concept sketch stage by the results of mini car user surveys conducted around Japan. Second, development of the vehicle using computer graphics-based 3-D digital-data modeling resulted in dramatic improvements in the quality of the design as many problems could be solved prior...

  • Page 23
    .... The early anticipation and commercialization of light-duty truck user needs through a longstanding technical development program has helped to garner a strong base of support over the years. Awareness of the CANTER brand has grown, first in Japan and later in overseas markets, based on its high...

  • Page 24
    ... and of the products that it supplies to markets around the world. As a management tool, the system is used to supervise and control the entire process from the earliest design and development stages of a new vehicle to the point where it is finally put into commercial production. It is a continuous...

  • Page 25
    ... evaluation are coded like the lights of a traffic signal- green, amber, and red. In the event of a red light, the project is frozen pending the production of a specific recovery plan. The entire process is transparent, and all related departments can view project status and share information online...

  • Page 26
    ... designed to improve the safety and environmental features of its products. New PAJERO (Paris-Dakar Rally specifications) The new-specification PAJERO, introduced by MMC in 2000, performed superbly in the past three Paris-Dakar rallies, becoming Champion of the Year in 2001 and 2002 after securing...

  • Page 27
    ... safety information and ease the burden of vehicle operation. MMC is one of the earliest to work on commercializing such ASV-2 technologies within the Mitsubishi FUSO lineup of trucks and buses. MMC has tackled both these requirements at once through the development of a hybrid no-step bus, AERO...

  • Page 28
    ...vehicles, since 2000, MMC has also included such data in its sales catalogs. The company plans to continue its policy of active disclosure of environmental information through the Internet, press releases and other media. Recycling Establishment of department to promote recycling In part to respond...

  • Page 29
    ... March 1997. The company achieved this target in the year ended March 2002- four years ahead of schedule. MMC has eliminated the use of components containing lead in radiators and fuel tanks, and has also introduced models fitted with newly developed lead-free valve sheets. Since March 2001, all new...

  • Page 30
    ... that stipulates performance specifications for products with lower environmental impact. As of June 30, 2002, 6 MMC models (14 versions) conformed to these eco-purchasing stipulations. By March 2004, MMC aims for 70% of all of its vehicles sold in Japan (on a unit basis) to be designated as low...

  • Page 31
    ... distinctive, spirited new models, and also made strenuous efforts to sharpen the customer focus of its sales and service network. Demand for mini cars continued to grow strongly in Japan in a persistently deflationary economic environment. In June 2001, MMC launched the AIRTREK, a novel type of...

  • Page 32
    ... sporty image. In May 2002, MMC released several upgraded models within the LANCER series, as well as new versions of the CHARIOT GRANDIS and DION minivans. The new additions to the LANCER series comprised new versions of the LANCER CEDIA WAGON and LANCER CEDIA, plus two special limited editions...

  • Page 33
    ... brand profile, sales of MMC vehicles grew steadily during the year. Boosted by the launch of models such as the new LANCER, the MONTERO, and the ECLIPSE SPYDER, Mitsubishi Motor Sales of America, Inc. (MMSA) posted sales up 2.5% to 322,000 units. The OUT- LANDER (marketed as the AIRTREK in Japan...

  • Page 34
    ... pickup truck, although sales of LANCER models rose. PHILIPPINES Depressed by the economic downturn, total auto sales in the Philippines fell 8.1% to 75,000 units. Mitsubishi Motors Philippines Corporation, MMC' s local sales company, posted sales up 7.1% to 16,000 vehicles. INDONESIA Reflecting...

  • Page 35
    ... with a share of 30.5%, roughly on a par with the previous year. In February 2002, MMC launched the upgraded range of FUSO FIGHTER medium-duty trucks. The new range complies with Japanese noise/vibration regulations that came into force in 2001, and all models feature air suspension and ABS braking...

  • Page 36
    ... broad user base spanning many parts of the world. In 1996, production of these small trucks also commenced in Portugal. DC sales channels began marketing CANTER trucks in Europe in 2001. Also in June, hybrid HEV large public service buses, the first in Japan, began running on city bus routes. These...

  • Page 37
    ...,242 Notes: 1. U.S. dollar amounts in this annual report are translated from yen, for convenience only, at the rate of ¥133.25=U.S.$1, the exchange rate prevailing on March 29, 2002. 2. Fully diluted net income per share for the years ended March 31, 1998, 2000 and 2001 is not available due to the...

  • Page 38
    MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATIONAL REVIEW In fiscal 2001, ended March 31, 2002, Mitsubishi Motors Corporation (MMC) recorded consolidated net sales of ¥3,200.7 billion. MMC reported operating profit of ¥40.2 billion and net income of ¥11.3 billion, its first profit since the year ...

  • Page 39
    ... is divided into the Passenger Car and Truck & Bus divisions. In fiscal 2001, MMC sold 1,304,000 passenger cars, down 2.3% because of lower sales in Japan. Despite the beneficial effect of the yen's depreciation, sales in the Passenger Car Division drifted 1.5% lower to ¥2,520.0 billion. But...

  • Page 40
    ... Motor Sales of America, Inc. (MMSA) and Mitsubishi Motor Manufacturing of America, Inc. (MMMA) and other factors. This was offset partly by a ¥50.7 billion decrease in net property, plant and equipment due mainly to the sale of land. (Liabilities) Current liabilities increased ¥111.5 billion...

  • Page 41
    ... the operating assets of trade notes and accounts receivable and inventories. Investing activities used net cash of ¥4.9 billion. This was attributable in part to funds used for the purchase of property, plant and equipment exceeding cash inflows from sales. Consequently, free cash flows were ¥87...

  • Page 42
    ... SHEETS Mitsubishi Motors Corporation and Consolidated Subsidiaries March 31, 2002 and 2001 (In millions of yen) (In thousands of U.S. dollars) (Note 4) 2002 Assets Current assets: Cash and cash equivalents Trade notes and accounts receivable (Notes 5 and 9) Inventories (Note 6) Short-term loans...

  • Page 43
    ...220,000,000 shares Issued: 1,470,163,624 shares Capital surplus Deficit Unrealized holding gain on securities Translation adjustments Treasury stock Total stockholders' equity Contingent liabilities (Note 10) Total liabilities, minority interests and stockholders' equity 2002 2001 ¥ 497,524 758...

  • Page 44
    ...Mitsubishi Motors Corporation and Consolidated Subsidiaries Years ended March 31, 2002 and 2001 (In millions of yen) 2002 2001 (In thousands of U.S. dollars) (Note 4) 2002 Net sales Cost of sales Reversal of deferred profit on installment sales...Note 4) Per share of common stock: Net income (loss):...

  • Page 45
    ... STATEMENTS OF STOCKHOLDERS' EQUITY Mitsubishi Motors Corporation and Consolidated Subsidiaries Years ended March 31, 2002 and 2001 (In millions of yen) 2002 2001 (In thousands of U.S. dollars) (Note 4) 2002 Common stock: Balance at beginning of year Issuance of common stock Balance at end of...

  • Page 46
    ...Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Decrease in investment in securities Loans made Collection of loans receivable Changes in scope of consolidation Other Net cash used...stock Other Net cash used in financing activities Effect of exchange...(112,...

  • Page 47
    ... Accounting Policies (a) Basis of presentation Mitsubishi Motors Corporation ("MMC") and its domestic consolidated subsidiaries maintain their books of account in conformity with the financial accounting standards of Japan, and its foreign subsidiaries, in conformity with those of their countries of...

  • Page 48
    ...line method within 10 to 22 years and 10 to 18 years for the years ended March 31, 2002 and 2001, respectively, which is within the estimated average remaining service years of the employees. Certain directors and corporate... the rate of exchange in effect on the balance sheet date of each subsidiary;...

  • Page 49
    ... for the year ended March 31, 2001. Cash dividends per share represent cash dividends declared and paid in each respective year. (l) Appropriations (dispositions) of retained earnings (deficit) Cash dividends, bonuses to directors and corporate auditors and other appropriations or dispositions of...

  • Page 50
    ...Segment Information." 3. New Accounting Standards (a) Accounting for sales incentives In May 2000, the Emerging Issues Task Force reached a final consensus on EITF 00-14, "Accounting for Certain Sales Incentives." EITF 00-14 requires that the cost of incentives be recognized at the date of sale and...

  • Page 51
    ... accounting standard for foreign currency transactions became effective April 1, 2000. As a result of translating the long-term foreign loans receivable using the foreign exchange rate at the balance sheet date, foreign exchange loss and loss before income taxes and minority interests increased...

  • Page 52
    ... March 31, 2002 and 2001 were as follows: (In millions of yen) 2002 Carrying amount Estimated fair value Net unrealized gain Carrying amount 2001 Estimated fair value Net unrealized gain March 31, Held-to-maturity securities: Securities with market value Securities without market value Total held...

  • Page 53
    (In millions of yen) 2002 Acquisition cost Carrying amount Net unrealized gain Acquisition cost 2001 Carrying amount Net unrealized gain March 31, Other securities: Securities with market value Securities without market value Total other securities ¥56,483 8,317 ¥64,800 ¥116,423 8,317 ¥124,740...

  • Page 54
    ... of yen) March 31, 2002 2001 (In thousands of U.S. dollars) 2002 Loans, principally from banks and insurance companies due through 2022 at rates averaged 2.8% in 2002 and 3.8% in 2001: Secured Unsecured 2.15% bonds due 2001 1.9% bonds due 2001 2.25% bonds due 2002 2.4% bonds due 2003 2.7% bonds...

  • Page 55
    ...-term debt is mainly due to Dutch State and Volvo Car Corporation. The maturities of noninterest bearing long-term debt are summarized...debt and guarantees at March 31, 2002 and 2001 were as follows: (In millions of yen) March 31, 2002 2001 (In thousands of U.S. dollars) 2002 Trade notes receivable ...

  • Page 56
    ... of yen) Year ended March 31, 2002 2001 (In thousands of U.S. dollars) 2002 Gain on sales of investments in securities Gain (loss) on sales and disposal of property, plant and equipment and intangible assets Equity in income of affiliates Foreign exchange (loss) gain Restructuring expense or...

  • Page 57
    ... and liabilities at March 31, 2002 and 2001 are included in the consolidated balance sheets as follows: (In millions of yen) Year ended March 31, 2002 2001 (In thousands of U.S. dollars) 2002 Current assets Investments and other assets Other current liabilities Other liabilities Net deferred tax...

  • Page 58
    ...information for MMC and its consolidated subsidiaries for the years ended March 31, 2002 and 2001 are summarized as follows: (In millions of yen) Year ended March 31, 2002 2001 (In thousands of U.S. dollars) 2002 Net sales: Automobiles Financial services... Financial services Total Corporate and ...

  • Page 59
    ... The geographical segment information for MMC and its consolidated subsidiaries for the years ended March 31, 2002 and 2001 are summarized as follows: (In millions of yen) Year ended March 31, 2002 2001 (In thousands of U.S. dollars) 2002 Net sales: Japan North America Europe Asia Other areas...

  • Page 60
    ... (other than exports to Japan) of the foreign consolidated subsidiaries for the years ended March 31, 2002 and 2001 are summarized as follows: (In millions of yen) Year ended March 31, 2002 2001 (In thousands of U.S. dollars) 2002 Overseas sales: North America Europe Asia Other areas Total ¥ 891...

  • Page 61
    accounted for as hedges, outstanding at March 31, 2002 and 2001: (In millions of yen) 2002 March 31, Notional amount Fair value Unrealized gain (loss) Notional amount 2001 Fair value Unrealized gain (loss) Forward foreign exchange contracts: Sell: US$ Euro £ stg Buy: US$ Euro Total 46,115 3,471 ¥...

  • Page 62
    ...68,332 million ($512,811 thousand) and ¥76,751 million, respectively. For the years ended March 31, 2002 and 2001, lease payments for finance lease transactions, except for agreements which stipulate the transfer of title of the assets to the lessee, amounted to ¥24,546 million ($184,210 thousand...

  • Page 63
    ... Japanese government in accordance with the Welfare Pension Insurance Law of Japan. These contributory and noncontributory plans are funded in accordance with the funding requirements set forth in the applicable government regulations. The discount rate was 2.5% for MMC and its domestic consolidated...

  • Page 64
    ...744 million for directors and corporate auditors of MMC and its domestic consolidated subsidiaries at March 31, 2002 and 2001, respectively. (In millions of yen) Year ended March 31, 2002 2001 (In thousands of U.S. dollars) 2002 Service cost Interest cost Expected return on plan assets Amortization...

  • Page 65
    REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Mitsubishi Motors Corporation We have audited the consolidated balance sheets of Mitsubishi Motors Corporation and consolidated subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of ...

  • Page 66
    ... (Engines & Transmissions) 2-1, Kosunacho, Kosei-cho, Koga-gun, Shiga 520-3212, Japan Telephone: +81-748-75-3131 í Truck & Bus b Tokyo Plant-Kawasaki (Assembly) 10, Okura-cho, Nakahara-ku, Kawasaki, Kanagawa 211-8522, Japan Telephone: +81-44-587-2000 b Tokyo Plant-Nakatsu (Cogwheel-related parts...

  • Page 67
    ... Techno-Service Co., Ltd. Mitsubishi Automotive Engineering Co., Ltd. Mitsubishi Automotive Logistics Co., Ltd. Mitsubishi Auto Credit-Lease Corporation MMC IT Solutions Co., Ltd. Ralliart Inc. Tokyo Chuo Mitsubishi Motor Sales Co. Kinki Mitsubishi Motor Sales Co. Tokyo Mitsubishi Fuso Sales Co...

  • Page 68
    ... 25, 2002) DATE OF ESTABLISHMENT April 22, 1970 SECURITIES TRADED All stock exchanges in Japan: Tokyo, Osaka, Nagoya, Kyoto, Fukuoka and Sapporo PAID IN CAPITAL ¥252,201,223,000 COMMON STOCK Issued and outstanding: 1,470,163,624 shares TRANSFER AGENT AND REGISTER The Mitsubishi Trust & Banking...

  • Page 69

  • Page 70
    5-33-8, Shiba, Minato-ku, Tokyo 108-8410, Japan IR Office Tel: +81-3-5232-7176 Fax: +81-3-5232-7978 http://www.mitsubishi-motors.co.jp Printed on recycled paper