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51 MITSUBISHI MOTORS CORPORATION
(n) Appropriations (dispositions) of retained earnings (accumulated deficit)
Cash dividends, bonuses to directors and corporate auditors and other appropriations or dispositions of retained earnings (accumulated
deficit) are recorded in the financial year in which the appropriations (dispositions) are approved at a general meeting of the stockholders.
(o) Leases
Noncancelable lease transactions at MMC and its domestic consolidated subsidiaries are accounted for as operating leases regardless
of whether such leases are classified as operating or capital leases, except that lease agreements which stipulate the transfer of own-
ership of the leased property to the lessee are accounted for as capital leases.
Noncancelable lease transactions at the foreign subsidiaries except for operating leases are capitalized.
(p) Derivative financial instruments
MMC and its consolidated subsidiaries are exposed to risks arising from fluctuations in foreign currency exchange rates and interest
rates. In order to manage those risks, MMC and its consolidated subsidiaries enter into various derivative agreements including
forward foreign exchange contracts and interest rate swaps. Forward foreign exchange contracts are utilized to manage risks arising
from forecasted export of finished goods and related foreign currency receivables. Interest rate swaps are utilized to manage interest
rate risk for debts. MMC and its consolidated subsidiaries do not utilize derivatives for trading purposes.
Forward foreign exchange contracts related to forecasted export of finished goods are accounted for using deferral hedge ac-
counting. Deferral hedge accounting requires unrealized gains or losses to be deferred as liabilities or assets.
MMC and its consolidated subsidiaries have also developed a hedging policy to control various aspects of the derivative trans-
actions including authorization levels and transaction volumes. Based on this policy, MMC and its consolidated subsidiaries hedge,
within certain limits, the risks arising from changes in foreign currency exchange rates and interest rates. Forward foreign exchange
contracts are designated to hedge the exposure to variability in expected future cash flows completely.
Hedge effectiveness on interest rate swaps are evaluated by reviewing the gross changes in cash flows of hedging instruments
and hedged items for the hedged period. Interest rate swaps which meet the criteria for special hedge accounting are evaluated by
reviewing whether the conditions are met for applying the special hedge accounting instead of evaluating effectiveness, as permitted
by the accounting standard.
2. CHANGE IN ACCOUNTING POLICY
(a) Synchronization of fiscal year-end of overseas consolidated subsidiaries
To improve transparency and quality of disclosure, the fiscal year-end of overseas consolidated subsidiaries, which historically had been
December 31, was changed to synchronize with the fiscal year-end of MMC, March 31. In the year ended March, 2003, as part of this
change, Mitsubishi Motors Australia Ltd. and 11 other overseas subsidiaries formally changed their local fiscal year-end to March 31.
Mitsubishi Motors North America Inc., and 49 other overseas subsidiaries prepared their financial statements for consolidation purposes
for a period ended on March 31, 2003. Accordingly, operating results for the year ended March 31, 2003 included 15 months of opera-
tions for these 62 subsidiaries, whereas the operating results for the year ended March 31, 2002 consisted of 12 months.
The effect of this change was to increase net sales by ¥433,364 million ($3,605,358 thousand), decrease operating profit, gain
before income taxes and minority interests and net income by ¥10,030 million ($83,444 thousand), ¥24,920 million ($207,321 thou-
sand) and ¥6,486 million ($53,960 thousand) in the year ended March 31, 2003. Further, net cash provided by operating activities
increased by ¥39,495 million ($328,577 thousand), net cash provided by investing activities and net cash used in financing activities
decreased by ¥19,171 million ($159,493 thousand) and ¥23,151 million ($192,604 thousand), respectively. The effect of this change
on segment information is given in Note 14.