Special Financial Report
Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 


 

FORM 20-F

 


 

(Mark One)

¨

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Special Financial Report Pursuant to Rule 15d-2 of the Securities Exchange Act of 1934, as Amended, reporting Financial Statements for the Fiscal Year Ended March 31, 2015

 

OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to            

 

OR

 

¨

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report

 


 

PANASONIC KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)

 

PANASONIC CORPORATION

(Translation of Registrant’s name into English)

 


 

Japan

(Jurisdiction of incorporation or organization)

 

1006, Oaza Kadoma, Kadoma-shi, Osaka 571-8501, Japan

(Address of principal executive offices)

 

Yukie Takakuwa, +81-6-6908-1121, takakuwa.yukie@jp.panasonic.com, address is same as above

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)]

 


 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

        Title of each class        


 

          Name of each exchange on which registered          


None   None

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

    Title of class    


Common Stock

 

Indicate the number of outstanding shares (excluding treasury stock) of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

     Outstanding as of

 

      Title of Class      


   March 31, 2015
(Japan Time)


     March 31, 2015
(New York Time)


 

Common Stock

     2,311,264,479            

American Depositary Shares, each representing 1 share of Common Stock

              21,848,266   

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x.

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x.

 

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨        Accelerated filer  ¨        Non-accelerated filer  x.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  x        International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨        Other  ¨

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17  ¨    Item 18  ¨

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x.

 

This form contains 83 pages.

 



Table of Contents

CONTENTS

 

     Page

 

Explanatory Note

     1   

Index of Consolidated Financial Statements of Panasonic Corporation and Subsidiaries

     2   

Index to Exhibits

     83   


Table of Contents

 

- 1 -

 

EXPLANATORY NOTE

 

We are filing this report on Form 20-F as a special report pursuant to Rule 15d-2 under the Securities Exchange Act of 1934. Rule 15d-2 under the Securities and Exchange Act of 1934 provides generally that if a foreign private issuer files a registration statement under the Securities Act of 1933, which does not contain certified financial statements for the company’s last full fiscal year, then the company must, within the later of 90 days after the effective date of the registration statement or six months following the end of the company’s latest full fiscal year, file a special financial report furnishing certified financial statements for the last full fiscal year.

 

Our registration statement on Form F-4 (Registration No. 333-203685), declared effective by the Securities and Exchange Commission on May 1, 2015, did not contain certified financial statements for the fiscal year ended March 31, 2015. In accordance with Rule 15d-2, this special report is filed under cover of Form 20-F and contains only financial statements for the fiscal year ended March 31, 2015.


Table of Contents

 

- 2 -

 

Index of Consolidated Financial Statements of Panasonic Corporation and Subsidiaries:

 

     Page

 

Report of Independent Registered Public Accounting Firm

     3   

Consolidated Balance Sheets as of March 31, 2015 and 2014

     4   

Consolidated Statements of Operations for the years ended March 31, 2015, 2014 and 2013

     6   

Consolidated Statements of Comprehensive Income (Loss) for the years ended March  31, 2015, 2014 and 2013

     7   

Consolidated Statements of Equity for the years ended March 31, 2015, 2014 and 2013

     8   

Consolidated Statements of Cash Flows for the years ended March 31, 2015, 2014 and 2013

     9   

Notes to Consolidated Financial Statements

     12   

Schedule for the years ended March 31, 2015, 2014 and 2013:

        

Schedule II Valuation and Qualifying Accounts and Reserves for the years ended March  31, 2015, 2014 and 20131

     81   

1 All other schedules are omitted as permitted by the rules and regulations of the Securities and Exchange Commission as the required information is presented in the consolidated financial statements or notes thereto, or the schedules are not applicable.


Table of Contents

 

- 3 -

 

Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Stockholders

Panasonic Corporation:

 

We have audited the accompanying consolidated balance sheets of Panasonic Corporation and subsidiaries (the “Company”) as of March 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended March 31, 2015. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Panasonic Corporation and subsidiaries as of March 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

 

/s/ KPMG AZSA LLC

 

Osaka, Japan

June 26, 2015


Table of Contents

 

- 4 -

 

PANASONIC CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 2015 and 2014

 

     Yen (millions)

 
     March 31

 

      Assets      


   2015

    2014

 

Current assets:

                

Cash and cash equivalents (Note 8)

     1,280,408        592,467   

Time deposits (Note 8)

     18,470        —     

Trade receivables (Note 16):

                

Related companies

     14,673        18,672   

Notes

     78,916        73,450   

Accounts

     923,452        939,787   

Allowance for doubtful receivables

     (24,947     (24,476
    


 


Net trade receivables

     992,094        1,007,433   
    


 


Inventories (Note 2)

     762,670        750,681   

Other current assets (Notes 6, 10 and 17)

     359,098        303,411   
    


 


Total current assets

     3,412,740        2,653,992   

Investments and advances:

                

Associated companies (Note 3)

     175,824        156,506   

Other investments and advances (Notes 4 and 8)

     137,845        115,298   
    


 


Total investments and advances

     313,669        271,804   
    


 


Property, plant and equipment (Notes 5 and 6):

                

Land

     268,658        283,305   

Buildings

     1,422,561        1,453,550   

Machinery and equipment

     2,776,617        2,728,925   

Construction in progress

     54,358        44,220   
    


 


       4,522,194        4,510,000   

Less accumulated depreciation

     3,147,363        3,084,551   
    


 


Net property, plant and equipment

     1,374,831        1,425,449   
    


 


Other assets:

                

Goodwill (Notes 7 and 21)

     457,103        473,377   

Intangible assets (Notes 5, 6, 7 and 21)

     172,898        203,591   

Other assets (Notes 9 and 10)

     225,706        184,781   
    


 


Total other assets

     855,707        861,749   
    


 


       5,956,947        5,212,994   
    


 



Table of Contents

 

- 5 -

 

PANASONIC CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets—(Continued)

March 31, 2015 and 2014

 

     Yen (millions)

 
     March 31,

 

      Liabilities and Equity      


   2015

    2014

 

Current liabilities:

                

Short-term debt, including current portion of long-term debt (Notes 5 and 8)

     260,531        84,738   

Trade payables:

                

Related companies

     55,500        43,525   

Notes

     236,958        200,355   

Accounts

     690,847        693,135   
    


 


Total trade payables

     983,305        937,015   
    


 


Accrued income taxes (Note 10)

     39,733        40,454   

Accrued payroll

     206,686        217,246   

Other accrued expenses (Notes 15 and 19)

     887,585        799,959   

Deposits and advances from customers

     79,277        75,520   

Employees’ deposits

     584        5,146   

Other current liabilities (Notes 9, 10 and 17)

     275,099        277,781   
    


 


Total current liabilities

     2,732,800        2,437,859   
    


 


Noncurrent liabilities:

                

Long-term debt (Notes 5 and 8)

     712,385        557,374   

Retirement and severance benefits (Note 9)

     332,661        430,701   

Other liabilities (Note 10)

     186,549        200,622   
    


 


Total noncurrent liabilities

     1,231,595        1,188,697   
    


 


Equity:

                

Panasonic Corporation shareholders’ equity:

                

Common stock (Note 12):

                

Authorized—4,950,000,000 shares

                

Issued—2,453,053,497 shares

     258,740        258,740   

Capital surplus (Notes 12 and 13)

     984,111        1,109,501   

Retained earnings (Note 12)

     1,021,241        878,742   

Accumulated other comprehensive income (loss) (Note 14):

                

Cumulative translation adjustments

     11,858        (167,219

Unrealized holding gains of available-for-sale securities (Note 4)

     14,285        6,027   

Unrealized gains (losses) of derivative instruments (Note 17)

     3,135        (237

Pension liability adjustments (Note 9)

     (222,529     (290,270
    


 


Total accumulated other comprehensive loss

     (193,251     (451,699
    


 


Treasury stock, at cost (Note 12):

                

141,789,018 shares as of March 31, 2015, 141,496,296 shares as of March 31, 2014

     (247,548     (247,132
    


 


Total Panasonic Corporation shareholders’ equity

     1,823,293        1,548,152   
    


 


Noncontrolling interests

     169,259        38,286   
    


 


Total equity

     1,992,552        1,586,438   

Commitments and contingent liabilities (Notes 5 and 19)

                
    


 


       5,956,947        5,212,994   
    


 



Table of Contents

 

- 6 -

 

PANASONIC CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended March 31, 2015, 2014 and 2013

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

    2014

    2013

 

Revenues, costs and expenses:

                        

Net sales:

                        

Related companies

     150,832        129,045        135,006   

Other

     7,564,205        7,607,496        7,168,039   
    


 


 


Total net sales

     7,715,037        7,736,541        7,303,045   

Cost of sales (Notes 14, 16, 17, and 19)

     (5,527,213     (5,638,869     (5,419,888

Selling, general and administrative expenses (Note 16 and 22)

     (1,805,911     (1,792,558     (1,722,221

Interest income

     14,975        10,632        9,326   

Dividends received

     1,466        1,992        3,686   

Other income (Notes 3, 4, 9, 14, 16 and 17)

     95,784        243,488        91,807   

Interest expense (Note 8)

     (17,566     (21,911     (25,601

Impairment losses of long-lived assets (Note 6)

     (40,032     (103,763     (138,138

Goodwill impairment (Note 7)

     (16,001     (8,069     (250,583

Other deductions (Notes 4, 6, 14, 15, 16 and 17)

     (238,083     (221,258     (249,819
    


 


 


Income (loss) before income taxes

     182,456        206,225        (398,386

Provision for income taxes (Note 10):

                        

Current

     106,107        92,817        66,532   

Deferred

     (108,088     (3,152     318,141   
    


 


 


       (1,981     89,665        384,673   

Equity in earnings of associated companies (Note 3)

     11,929        5,085        7,891   
    


 


 


Net income (loss)

     196,366        121,645        (775,168

Less net income (loss) attributable to noncontrolling interests

     16,881        1,203        (20,918
    


 


 


Net income (loss) attributable to Panasonic Corporation

     179,485        120,442        (754,250
    


 


 


     Yen

 

Net income (loss) attributable to Panasonic Corporation common shareholders per share (Note 11):

                        

Basic

     77.65        52.10        (326.28

Diluted

     77.64        —          —     


Table of Contents

 

- 7 -

 

PANASONIC CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

Years ended March 31, 2015, 2014 and 2013

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Net income (loss)

     196,366         121,645         (775,168
    


  


  


Other comprehensive income (loss), net of tax (Note 14):

                          

Translation adjustments

     193,690         136,633         198,287   

Unrealized holding gains (losses) of available-for-sale securities

     8,351         6,201         (13,416

Unrealized gains (losses) of derivative instruments

     3,445         4,300         (845

Pension liability adjustments

     68,027         38,551         (62,481
    


  


  


       273,513         185,685         121,545   
    


  


  


Comprehensive income (loss)

     469,879         307,330         (653,623
    


  


  


Less comprehensive income (loss) attributable to noncontrolling interests

     31,946         10,358         (6,299
    


  


  


Comprehensive income (loss) attributable to Panasonic Corporation

     437,933         296,972         (647,324
    


  


  



Table of Contents

 

- 8 -

 

PANASONIC CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Equity

Years ended March 31, 2015, 2014 and 2013

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

    2014

    2013

 

Common stock:

                        

Balance at beginning of period

     258,740        258,740        258,740   
    


 


 


Balance at end of period

     258,740        258,740        258,740   
    


 


 


Capital surplus:

                        

Balance at beginning of period

     1,109,501        1,110,686        1,117,530   

Equity transactions with noncontrolling interests and others (Note 13)

     (125,390     (1,185     (6,844
    


 


 


Balance at end of period

     984,111        1,109,501        1,110,686   
    


 


 


Retained earnings:

                        

Balance at beginning of period

     878,742        769,863        1,535,689   

Sale of treasury stock

     (1     (5     (17

Cash dividends to Panasonic Corporation stockholders (Note 12)

     (36,985     (11,558     (11,559

Net income (loss) attributable to Panasonic Corporation

     179,485        120,442        (754,250
    


 


 


Balance at end of period

     1,021,241        878,742        769,863   
    


 


 


Accumulated other comprehensive income (loss):

                        

Balance at beginning of period

     (451,699     (628,229     (735,155

Other comprehensive income, net of tax (Note 14)

     258,448        176,530        106,926   
    


 


 


Balance at end of period

     (193,251     (451,699     (628,229
    


 


 


Treasury stock (Note 12):

                        

Balance at beginning of period

     (247,132     (247,028     (247,018

Sale of treasury stock

     10        12        25   

Repurchase of common stock

     (426     (116     (35
    


 


 


Balance at end of period

     (247,548     (247,132     (247,028
    


 


 


Noncontrolling interests:

                        

Balance at beginning of period

     38,286        40,241        47,780   

Cash dividends paid to noncontrolling interests

     (22,244     (13,628     (10,549

Net income (loss) attributable to noncontrolling interests

     16,881        1,203        (20,918

Other comprehensive income, net of tax (Note 14)

     15,065        9,155        14,619   

Equity transactions with noncontrolling interests and others (Notes 13 and 21)

     121,271        1,315        9,309   
    


 


 


Balance at end of period

     169,259        38,286        40,241   
    


 


 



Table of Contents

 

- 9 -

 

PANASONIC CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended March 31, 2015, 2014 and 2013

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

    2014

    2013

 

Cash flows from operating activities (Note 16):

                        

Net income (loss)

     196,366        121,645        (775,168

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

                        

Depreciation and amortization

     286,528        331,083        339,367   

Net gains on sale of investments (Note 4)

     (8,261     (25,769     (29,125

Provision for doubtful receivables

     5,918        8,218        6,641   

Deferred income taxes (Note 10)

     (108,088     (3,152     318,141   

Write-down of investment securities (Note 4)

     1,023        142        4,017   

Impairment losses on long-lived assets and goodwill (Notes 6 and 7)

     56,033        111,832        388,721   

Cash effects of changes in, excluding acquisition:

                        

Trade receivables

     68,901        (34,882     128,088   

Inventories

     5,993        64,601        64,625   

Other current assets

     15,885        35,714        51,168   

Trade payables

     6,509        124,467        (68,282

Accrued income taxes

     (4,757     11,572        4,817   

Accrued expenses and other current liabilities

     52,106        32,875        (117,098

Retirement and severance benefits

     (40,634     (140,422     (8,811

Deposits and advances from customers

     2,232        1,363        3,247   

Other, net

     (44,291     (57,337     28,402   
    


 


 


Net cash provided by operating activities

     491,463        581,950        338,750   
    


 


 



Table of Contents

 

- 10 -

 

PANASONIC CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows—(Continued)

Years ended March 31, 2015, 2014 and 2013

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

    2014

    2013

 

Cash flows from investing activities (Note 16):

                        

Proceeds from disposals of investments and advances (Note 4)

     43,625        63,185        195,401   

Increase in investments and advances

     (19,647     (18,226     (4,144

Capital expenditures

     (224,162     (201,735     (320,168

Proceeds from disposals of property, plant and equipment

     80,168        53,321        146,562   

(Increase) decrease in time deposits, net

     (18,470     1,674        36,795   

Proceeds from sale of consolidated subsidiaries

     31,700        176,489        6,685   

Purchase of shares of newly consolidated subsidiaries, net of acquired companies’ cash and cash equivalents (Note 21)

     (6,340     (45,455     (3,383

Other, net

     (24,882     (17,125     (41,342
    


 


 


Net cash provided by (used in) investing activities

     (138,008     12,128        16,406   
    


 


 


Cash flows from financing activities (Note 16):

                        

Decrease in short-term debt with maturities of three months or less, net

     (28,379     (135,699     (25,168

Proceeds from short-term debt with maturities longer than three months

     15,106        11,469        433,820   

Repayments of short-term debt with maturities longer than three months

     (16,958     (35,163     (650,938

Proceeds from long-term debt

     402,248        —          648   

Repayments of long-term debt

     (46,031     (342,761     (226,320

Dividends paid to Panasonic Corporation shareholders (Note 12)

     (36,985     (11,558     (11,559

Dividends paid to noncontrolling interests

     (22,244     (13,628     (10,549

Repurchase of common stock (Note 12)

     (426     (116     (35

Sale of treasury stock (Note 12)

     9        7        8   

Purchase of noncontrolling interests

     (4,157     (4,025     (940

Other, net

     (4,568     (841     (25
    


 


 


Net cash provided by (used in) financing activities

     257,615        (532,315     (491,058
    


 


 



Table of Contents

 

- 11 -

 

PANASONIC CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows—(Continued)

Years ended March 31, 2015, 2014 and 2013

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Effect of exchange rate changes on cash and cash equivalents

     76,871         34,421         57,774   
    


  


  


Net increase (decrease) in cash and cash equivalents

     687,941         96,184         (78,128

Cash and cash equivalents at beginning of year

     592,467         496,283         574,411   
    


  


  


Cash and cash equivalents at end of year

     1,280,408         592,467         496,283   
    


  


  



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PANASONIC CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(1) Summary of Significant Accounting Policies

 

(a) Description of Business

 

Panasonic Corporation (hereinafter, the “Company,” including consolidated subsidiaries, unless the context otherwise requires) is one of the world’s leading producers of electronic and electric products. The Company currently offers a comprehensive range of products, systems and components for consumer, business and industrial use based on sophisticated electronics and precision technology, expanding to building materials and equipment, and housing business.

 

Sales by segment for the year ended March 31, 2015 were as follows: Appliances—22%, Eco Solutions—21%, AVC Networks—14%, Automotive & Industrial Systems—34%, and Other—9%. A sales breakdown for the year ended March 31, 2015 by geographical market was as follows: Japan—48%, North and South America—16%, Europe—9%, and Asia and Others—27%.

 

The Company is not dependent on a single supplier, and has no significant difficulty in obtaining raw materials from suppliers.

 

(b) Basis of Presentation of Consolidated Financial Statements

 

The Company and its domestic subsidiaries maintain their books of account in conformity with financial accounting standards of Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile.

 

The consolidated financial statements presented herein have been prepared in a manner that reflects adjustments which are necessary to conform with U.S. generally accepted accounting principles (U.S. GAAP).

 

(c) Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its majority-owned, controlled subsidiaries. The Company also consolidates entities in which controlling interest exists through variable interests in accordance with the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, “Consolidation.” All significant intercompany balances and transactions have been eliminated in consolidation. Investments in companies and joint ventures over which the Company has the ability to exercise significant influence (generally through a 20% to 50% voting interest) are included in “Investments and advances– Associated companies” in the consolidated balance sheets.


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(d) Revenue Recognition

 

The Company generates revenue principally through the sale of consumer and industrial products, equipment, and supplies. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, and title and risk of loss have been transferred to the customer or services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured.

 

Revenue from sales of products is generally recognized when the products are received by customers. Revenue from sales of certain products with customer acceptance provisions related to their functionality is recognized when the product is received by the customer and the specific criteria of the product functionality are successfully tested and demonstrated.

 

The Company enters into arrangements with multiple elements, which may include any combination of products or equipment, installation and maintenance. The Company allocates revenue to each element based on its relative selling price if such element meets the criteria for treatment as a separate unit of accounting as prescribed in the provisions of ASC 605, “Revenue Recognition.” Revenue from sales of products or equipment is generally recognized upon completion of installation or upon acceptance by customers if installation is not required. Maintenance revenue is recognized on a straight-line basis over the term of the maintenance agreement.

 

The Company’s policy is to accept product returns only in the case that the products are defective. The Company issues contractual product warranties under which it guarantees the performance of products delivered and services rendered for a certain period of time. A liability for the estimated product warranty related cost is established at the time revenue is recognized, and is included in “Other accrued expenses.” Estimates for accrued warranty cost are primarily based on historical experience and current information on repair cost.

 

Historically, the Company has made certain allowances related to sales to its consumer business distributors. Such allowances are generally provided to compensate the distributors for price adjustments due to a decline in the product’s value, and are classified as a reduction of revenue on the consolidated statements of operations. Estimated price adjustments are accrued when the related sales are recognized. The estimate is made based primarily on the historical experience and specific arrangements made with the distributors.

 

The Company also occasionally offers incentive programs to its distributors in the form of rebates. These rebates are accrued at the latter of the date at which the related revenue is recognized or the date at which the incentive is offered, and are recorded as reductions of sales in accordance with the provisions of ASC 605.

 

Taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of operations.

 

(e) Leases (See Note 5)

 

The Company accounts for leases in accordance with the provisions of ASC 840, “Leases.” Leases of assets under certain conditions are recorded as capital leases in property, plant and equipment in the consolidated balance sheets.


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(f) Inventories (See Note 2)

 

Finished goods and work in process are stated at the lower of cost (average) or market. Raw materials are stated at cost, principally on a first-in, first-out basis or average basis, not in excess of current replacement cost.

 

(g) Foreign Currency Translation (See Note 14)

 

Foreign currency financial statements are translated in accordance with the provisions of ASC 830, “Foreign Currency Matters,” under which all assets and liabilities are translated into yen at year-end rates and income and expense accounts are translated at weighted-average rates. Adjustments resulting from the translation of financial statements are reflected under the caption, “Accumulated other comprehensive income (loss),” a separate component of equity.

 

(h) Property, Plant and Equipment

 

Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment. Depreciation is computed primarily using the straight-line method based on the following estimated useful lives:

 

Buildings

     5 to 50 years   

Machinery and equipment

     2 to 10 years   

 

(i) Goodwill and Other Intangible Assets (See Notes 6 and 7)

 

Goodwill represents the excess of costs over the fair value of net assets of businesses acquired. The Company applies the provisions of ASC 350, “Intangibles—Goodwill and Other.” Goodwill and intangible assets determined to have an indefinite useful life are not amortized, and are instead reviewed for impairment at least annually based on an assessment of current estimated fair value. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform the second step of the impairment test (measurement). If the fair value of the reporting unit exceeds its carrying amount, the second step does not need to be performed. Under the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation in business combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using the guideline merged and acquired company method, guideline public company method, and a discounted cash flow analysis. The provisions of ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment based on an assessment of the undiscounted cash flows expected to be generated by the asset, whenever impairment indications are presented. An impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

(j) Investments and Advances (See Notes 3, 4 and 14)

 

Investments and advances primarily consist of investments in and advances to associated companies, cost method investments, available-for-sale securities, and long-term deposits. Cost method investments and long-term deposits are recorded at historical cost.


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The equity method is used to account for investments in associated companies in which the Company exerts significant influence over operating and financial policies, generally having a 20% to 50% voting interest, and corporate joint ventures. The Company also uses the equity method for certain investees if the minority shareholders have substantive participating rights. Under the equity method of accounting, investments are stated at their underlying net equity value after elimination of intercompany profits. The cost method is used when the Company does not have significant influence.

 

The excess of cost of the stock of the associated companies over the Company’s share of their net assets at the acquisition date, included in the equity investment balance, is recognized as equity method goodwill. Such equity method goodwill is not amortized and is instead tested for impairment as part of the equity method investment.

 

The Company accounts for debt and marketable equity securities in accordance with the provisions of ASC 320, “Investments—Debt and Equity Securities.”

 

The provisions of ASC 320 require that certain investments in debt and marketable equity securities be classified as held-to-maturity, trading, or available-for-sale securities. The Company classifies its existing marketable equity securities other than investments in associated companies and all debt securities as available-for-sale. Available-for-sale securities are carried at fair value with unrealized holding gains or losses included as a component of accumulated other comprehensive income (loss), net of applicable taxes.

 

Realized gains and losses are determined on the average cost method and reflected in earnings.

 

On a continuous basis, but no less frequently than at the end of each quarter, the Company evaluates the carrying amount of each of the investments in associated companies, cost method investments and available-for-sale securities for possible other-than-temporary impairment. Factors considered in assessing whether an indication of other-than-temporary impairment exists include the period of time the fair value has been below the carrying amount or cost basis of investment, financial condition and prospects of each investee, and other relevant factors.

 

Investments in associated companies, cost method investments and available-for-sale securities are reduced to fair value by a charge to earnings when impairment is considered to be other than temporary. Impairment is measured based on the amount by which the carrying amount or cost basis of the investment exceeds its fair value. Fair value is determined based on quoted market prices, discounted cash flows or other valuation techniques as appropriate.

 

(k) Allowance for Doubtful Receivables

 

An allowance for doubtful trade receivables and advances is provided at an amount calculated based on historical experience, while specific allowances for doubtful trade receivables and advances are provided for the estimated amounts considered to be uncollectible after reviewing individual collectibility.

 

(l) Income Taxes (See Note 10)

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards.


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Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the change in tax rate is enacted.

 

The Company accounts for uncertainty in tax positions in accordance with the provisions of ASC 740, “Income Taxes.” The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in “Provision for income taxes—Current” in the consolidated statements of operations.

 

(m) Advertising (See Note 16)

 

Advertising costs are expensed as incurred.

 

(n) Net Income (Loss) per Share (See Note 11)

 

The Company accounts for net income (loss) per share in accordance with the provisions of ASC 260, “Earnings Per Share.” This Codification Section establishes standards for computing net income (loss) per share and requires dual presentation of basic and diluted net income (loss) per share on the face of the statements of operations for all entities with complex capital structures.

 

Under the provisions of ASC 260, basic net income (loss) per share is computed based on the weighted-average number of common shares outstanding during each period, and diluted net income (loss) per share assumes the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock.

 

(o) Cash Equivalents

 

Cash equivalents include all highly liquid debt instruments purchased with a maturity of three months or less.

 

(p) Derivative Financial Instruments (See Notes 14 and 17)

 

Derivative financial instruments utilized by the Company are comprised principally of foreign exchange contracts, cross currency swaps and commodity futures used to hedge currency risk and commodity price risk.

 

The Company accounts for derivative instruments in accordance with the provisions of ASC 815, “Derivatives and Hedging.” On the date the derivative contract is entered into, the Company ordinarily designates the derivative as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair-value” hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash-flow” hedge), or a foreign-currency fair-value or cash-flow hedge (“foreign-currency” hedge). The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses, both at the hedge’s inception and on a quarterly basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.


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Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the hedged item that is attributable to the hedged risk, are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income (loss), until earnings are affected by the variability in cash flows of the designated hedged item. Changes in the fair value of derivatives that are highly effective as hedges and that are designated and qualify as foreign-currency hedges are recorded in either earnings or other comprehensive income (loss), depending on whether the hedge transaction is a fair-value hedge or a cash-flow hedge. The ineffective portion of the change in fair value of a derivative instrument that qualifies as a cash-flow hedge is reported in earnings.

 

(q) Impairment of Long-Lived Assets (See Note 6)

 

The Company accounts for impairment or disposition of long-lived assets in accordance with the provisions of ASC 360, “Property, Plant, and Equipment.” In accordance with the provisions of ASC 360, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds its fair value.

 

(r) Restructuring Charges (See Note 15)

 

The Company accounts for costs associated with exit or disposal activities in accordance with the provisions of ASC 420, “Exit or Disposal Cost Obligations.” Pursuant to the provisions of ASC 420, liabilities for restructuring costs are recognized when the liability is incurred, which may be subsequent to the date when the Company has committed to a restructuring plan.

 

(s) Segment Information (See Note 20)

 

The Company accounts for segment information in accordance with the provisions of ASC 280, “Segment Reporting.” Pursuant to the provisions of ASC 280, the segments are the components of the Company for which separate financial information is available that is evaluated regularly by the chief operating decision maker of the Company in deciding how to allocate resources and in assessing performance.


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(t) Fair Value Measurements (See Note 18)

 

The provisions of ASC 820, “Fair Value Measurements and Disclosures,” define fair value and establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:

 

Level 1

   

Quoted prices (unadjusted) in active markets for identical assets.

Level 2

   

Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3

   

Unobservable inputs for the asset or liability.

 

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

 

The Company maintains policies and procedures to value assets and liabilities using the best and most relevant data available. With regards to Level 3 valuations, the Company performs a variety of procedures to assess the reasonableness of the valuations quarterly or annually. These reviews are performed by the accounting section and approved by the President and the Chief Financial Officer of the Company. This detailed review may include the use of a third-party valuation firm.

 

(u) Retirement and Severance Benefits (See Note 9)

 

The Company accounts for the defined benefit pension plans and the lump-sum payment plans in accordance with the provisions of ASC 715, “Compensation-Retirement Benefits.” In accordance with the provisions, funded status of defined benefit pension plans (that is the balance of plan assets less benefit obligations) is recognized on the consolidated balance sheets and pension liability adjustments, net of tax, are recorded in the “Accumulated other comprehensive income (loss).”

 

Actuarial net gains and losses in excess of the corridor (10% of benefit obligations or fair value of plan assets, whichever is greater) are amortized over the average remaining service period of employees, except for the plan described as follows.

 

The Company and certain domestic subsidiaries made a transition from the defined benefit pension plan to a defined contribution pension plan, effective after the date of transition with respect to employees’ future service. Actuarial net gains and losses related to the defined benefit pension plan that are maintained for employees’ past service in excess of the corridor are amortized over the average remaining life expectancy of plan participants.

 

(v) Stock-Based Compensation (See Note 22)

 

The Company accounts for stock-based compensation in accordance with the provisions of ASC 718, “Compensation—Stock Compensation.” The provisions of ASC 718, address accounting and disclosure requirements with measurement of the cost of employee service using a fair-value-based method of accounting for stock-based employee compensation plans.


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(w) Use of Estimates

 

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions are used in the valuation and disclosure of revenue recognition, allowance for doubtful receivables, valuation of inventories, impairment of long-lived assets, impairment of goodwill, environmental liabilities, valuation of deferred tax assets, uncertain tax positions, employee retirement and severance benefit plans and assets acquired and liabilities assumed in business combinations.

 

(x) Subsequent Events

 

Management evaluated the subsequent events through June 26, 2015, the issuance date of the Company’s consolidated financial statements.

 

(y) Adoption of New Accounting Standards

 

On April 1, 2014, the Company adopted Accounting Standards Update (ASU) 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” ASU 2013-05, which amends ASC 830, “Foreign Currency Matters,” requires a cumulative translation adjustment, to be released into net income when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. The adoption of ASU 2013-05 did not have a material effect on the Company’s consolidated financial statements.

 

On April 1, 2014, the Company adopted ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 requires an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward for tax purposes, a similar tax loss, or a tax credit carryforward. The adoption of ASU 2013-11 did not have a material effect on the Company’s consolidated financial statements.

 

(2) Inventories

 

Inventories as of March 31, 2015 and 2014 are summarized as follows:

 

     Yen (millions)

 
     March 31,

 
     2015

     2014

 

Finished goods

     473,640         449,820   

Work in process

     121,183         128,323   

Raw materials

     167,847         172,538   
    


  


       762,670         750,681   
    


  



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(3) Investments in and Advances to, and Transactions with Associated Companies

 

The most significant associated companies among Panasonic Group are Sumitomo Mitsui Trust Panasonic Finance Co., Ltd. (SMTPFC), Panasonic Healthcare Holdings Co., Ltd. (PHCHD) and Socionext Inc. As of March 31, 2015, the Company has 15.1% of the voting rights in SMTPFC, 20.0% of the voting rights in PHCHD and 20.0% of the voting rights in Socionext Inc. The Company applies the equity method to account for its investments in SMTPFC as the Company holds significant influence over operating and financial policies of SMTPFC.

On March 31, 2014, Panasonic acquired 20.0% of the voting rights in PHCHD, a company affiliated with investment funds managed by Kohlberg Kravis Roberts & Co. L.P., making PHCHD an associated company accounted for under the equity method. In addition, on the same date, Panasonic sold all of the shares of Panasonic Healthcare Co., Ltd. (PHC), a consolidated subsidiary of Panasonic which manufactures and sells healthcare devices, to PHCHD, which resulted in a gain of 78,699 million yen in other income for the year ended March 31, 2014. By owning 20.0% of the voting rights in PHCHD, Panasonic will fulfill its responsibilities to its customers to a certain extent in respect of a business which is conducted under the brand name of Panasonic.

 

Certain financial information in respect of associated companies in aggregate as of March 31, 2015 and 2014, and for the years ended March 31, 2015, 2014 and 2013 is as follows:

 

     Yen (millions)

 
     2015

     2014

 

Current assets

     1,392,490         1,291,814   

Other assets

     417,394         372,151   
    


  


       1,809,884         1,663,965   

Current liabilities

     680,040         668,126   

Other liabilities

     542,026         494,400   
    


  


Net assets

     587,818         501,439   
    


  


Company’s equity in net assets

     167,878         145,115   

 

     Yen (millions)

 
     2015

     2014

     2013

 

Net sales

     861,995         828,452         856,307   

Gross profit

     208,378         186,299         172,443   

Net income

     41,891         26,031         25,521   

 

Purchases and dividends received from associated companies for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Purchases

     202,318         124,581         105,923   

Dividends received

     3,136         3,229         3,418   

 

Retained earnings include undistributed earnings of associated companies in the amount of 53,100 million yen and 49,166 million yen as of March 31, 2015 and 2014, respectively.

 

Investments in associated companies include marketable equity securities which have quoted market values as of March 31, 2015 and 2014 and its comparison with the related carrying amounts is as follows:

 

     Yen (millions)

 
     2015

     2014

 

Carrying amount

     3,635         24,293   

Market value

     5,604         37,992   


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(4) Investments in Securities

 

The Company classifies its existing marketable equity securities, other than investments in associated companies, and all debt securities as available-for-sale.

 

The cost, fair value, gross unrealized holding gains and gross unrealized holding losses of availanullble-for-sale securities included in other investments and advances as of March 31, 2015 and 2014 are as follows:

 

     Yen (millions)

 
     2015

 
     Cost

     Fair
value


     Gross
unrealized
holding
gains


     Gross
unrealized
holding
losses


 

Noncurrent:

                                   

Equity securities

     21,753         74,556         52,805         2   

Corporate and government bonds

     2,355         2,371         16         —     

Other debt securities

     2         2         —           —     
    


  


  


  


       24,110         76,929         52,821         2   
    


  


  


  


 

     Yen (millions)

 
     2014

 
     Cost

     Fair
value


     Gross
unrealized
holding
gains


     Gross
unrealized
holding
losses


 

Noncurrent:

                                   

Equity securities

     18,825         63,101         44,283         7   

Corporate and government bonds

     1,674         1,694         20         —     

Other debt securities

     16         16         —           —     
    


  


  


  


       20,515         64,811         44,303         7   
    


  


  


  



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Maturities of investments in available-for-sale securities as of March 31, 2015 and 2014 are as follows:

 

     Yen (millions)

 
     2015

     2014

 
     Cost

     Fair
value


     Cost

     Fair
value


 

Due after one year through five years

     2,357         2,373         1,377         1,381   

Due after five years through ten years

     —           —           313         329   

Equity securities

     21,753         74,556         18,825         63,101   
    


  


  


  


       24,110         76,929         20,515         64,811   
    


  


  


  


 

Proceeds from sale of available-for-sale securities for the years ended March 31, 2015, 2014 and 2013 were 11,185 million yen, 45,376 million yen and 144,139 million yen, respectively. The gross realized gains on sale of available-for-sale securities for the years ended March 31, 2015, 2014 and 2013 were 1,561 million yen, 23,734 million yen and 32,440 million yen, respectively. Gross realized losses for the years ended March 31, 2015, 2014 and 2013 were 5 million yen, zero and 2,734 million yen, respectively. The cost of securities sold in computing gross realized gains and losses is determined by the average cost method.

 

During the years ended March 31, 2015 and 2014, the Company did not incur a write-down for other-than-temporary impairment of available-for-sale securities. During the year ended March 31, 2013, the Company incurred a write-down of 4,000 million yen, for other-than-temporary impairment of available-for-sale securities, mainly reflecting the aggravated market condition of certain industries in Japan. The write-down is included in other deductions in the consolidated statements of operations.

 

Gross unrealized holding losses on investments in available-for-sale securities and the fair value of the related investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2015 and 2014 are as follows:

 

     Yen (millions)

 
     2015

 
     Less than 12 months

     12 months or more

     Total

 
     Fair
value


     Unrealized
losses


     Fair
value


     Unrealized
losses


     Fair
value


     Unrealized
losses


 

Equity securities

     491         2         —           —           491         2   
    


  


  


  


  


  


       491         2         —           —           491         2   
    


  


  


  


  


  



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     Yen (millions)

 
     2014

 
     Less than 12 months

     12 months or more

     Total

 
     Fair
value


     Unrealized
losses


     Fair
value


     Unrealized
losses


     Fair
value


     Unrealized
losses


 

Equity securities

     89         7         —           —           89         7   
    


  


  


  


  


  


       89         7         —           —           89         7   
    


  


  


  


  


  



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The gross unrealized loss position has been continuing for a relatively short period of time. Based on this and other relevant factors, management has determined that these investments are not considered other-than-temporarily impaired. The Company did not have investment securities that had been in a continuous loss position for twelve months or more as of March 31, 2015 and 2014.

 

The carrying amounts of the Company’s cost method investments totaled 21,877 million yen and 20,677 million yen as of March 31, 2015 and 2014, respectively. For substantially all such investments, the Company did not evaluate for impairment losses, as there were no significant events or changes that might have affected the fair value of investments were observed. A part of such investments was considered other-than-temporarily impaired and the Company recorded a write-down of 1,023 million yen, 142 million yen and 17 million yen for the years ended March 31, 2015, 2014 and 2013, respectively.


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(5) Leases

 

The Company has capital and operating leases for certain land, buildings, machinery and equipment, and finite-lived intangible assets with SMTPFC and other third parties.

 

During the years ended March 31, 2015 and 2014, proceeds from sale of assets subject to subsequent lease-back were not material to the Company. During the years ended March 31, 2013, the Company sold and leased back certain land, buildings, and machinery and equipment for 68,071 million yen. The base lease term ranges up to ten years. The resulting leases are being accounted for as operating leases or capital leases.

 

The Company has options to purchase certain leased assets, mainly leased machinery and equipment, or to terminate the leases and guarantee a specified value of the leased assets, subject to certain conditions, during or at the end of the lease term. With respect to leased land and buildings, there are no future commitments, obligations, provisions, or circumstances that require or result in the Company’s continuing involvement.

 

As of March 31, 2015 and 2014, the gross book value of land, buildings, machinery and equipment, and finite-lived intangible assets under capital leases, including the above-mentioned sale-leaseback transactions was 35,488 million yen and 32,257 million yen, and the related accumulated amortization recorded was 15,063 million yen and 12,878 million yen, respectively.

 

Rental expenses for operating leases, including the above-mentioned sale-leaseback transactions were 39,331 million yen, 41,536 million yen and 41,297 million yen for the years ended March 31, 2015, 2014 and 2013, respectively.

 

Future minimum lease payments under non-cancelable capital leases and operating leases as of March 31, 2015 are as follows:

 

     Yen (millions)

 
Year ending March 31    Capital
leases


     Operating
leases


 

2016

     9,665         31,013   

2017

     9,094         16,303   

2018

     8,425         6,758   

2019

     7,787         5,413   

2020

     5,695         4,436   

Thereafter

     2,079         12,325   
    


  


Total minimum lease payments

     42,745         76,248   
             


Less amount representing interest

     2,566            
    


        

Present value of net minimum lease payments

     40,179            

Less current portion

     8,857            
    


        

Long-term capital lease obligations

     31,322            
    


        


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(6) Long-Lived Assets

 

The Company periodically reviews the recorded value of its long-lived assets to determine if the future cash flows to be derived from these assets or related asset group will be sufficient to recover the remaining recorded asset values. Impairment losses are not charged to segment profit. Impairment losses by segment for the years ended March 31 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Appliances

     3,801         6,681         6   

Eco Solutions

     5,275         7,117         76,995   

AVC Networks

     3,876         25,563         5,984   

Automotive & Industrial Systems

     22,556         56,632         50,722   

Other

     4,364         6,424         3,010   

Assets which are not allocated to any operating segments

     160         1,346         1,421   
    


  


  


Consolidated total

     40,032         103,763         138,138   
    


  


  


 

The Company recorded impairment losses of 22,556 million yen for the year ended March 31, 2015 for certain machinery of manufacturing facilities and other assets related to certain device businesses in “Automotive & Industrial Systems” segment. As a result of downturn in profitability due to decline in demand, the Company estimated that the carrying amounts would not be recoverable through future cash flows. The fair value of machinery was mainly determined through an appraisal based on the repurchase cost.

 

The Company recorded impairment losses for the year ended March 31, 2014 for certain machinery related to domestic flat TV manufacturing facilities in “AVC Networks” segment and “Automotive & Industrial Systems” segment. As a result of continuous substantial decline of product prices, the Company estimated that the carrying amounts would not be recoverable through future cash flows based on of the Company’s mid-term financial forecast of the business. The fair value was mainly determined through an appraisal based on the repurchase cost.

 

The Company recorded impairment losses for the year ended March 31, 2014 for certain machinery of domestic and foreign manufacturing facilities related to the resin-based multi-layer printed circuit board business, and thin and high density interposer business among the printed circuit board business in “Automotive & Industrial Systems” segment. As a result of the decision to discontinue these businesses, the Company estimated that the carrying amounts would not be recoverable through future cash flows. The fair value of machinery was mainly determined through an appraisal based on the repurchase cost.

 

The Company recorded impairment losses for the year ended March 31, 2014 for certain land, buildings, and machinery related to domestic and foreign semiconductor business in “Automotive & Industrial Systems” segment. As a result of the decline in market demand and per unit selling price, the Company estimated that the carrying amounts would not be recoverable through future cash flows through the business restructuring activities. The fair value was mainly determined through an appraisal based on the repurchase cost.

 

The Company classified certain buildings and other assets related to a domestic flat TV manufacturing plant as assets held for sale in accordance with the provision of ASC 360. These assets are included in other current assets in the consolidated balance sheet as of March 31, 2014. Furthermore, the Company recognized a loss of 31,412 million yen regarding these assets as the carrying amount was higher than fair value less cost to sell. This loss is included in other deductions in the consolidated statement of operations for the year ended March 31, 2014.


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The Company recorded impairment losses for the year ended March 31, 2013 for certain machinery and finite-lived intangible assets, such as patents and know-how and trademark, related to solar battery business in “Eco Solutions” segment. 73,894 million yen of impairment losses related to finite-lived intangible assets. As a result of the continuous substantial decline of product prices, the Company revised its strategies for sales and investment and estimated that the carrying amounts would not be recoverable through future cash flows. The fair value of finite-lived intangible assets was mainly determined based on the excess earnings method and the relief-from-royalty method. The fair value of machinery was determined through an appraisal based on the repurchase cost.

 

The Company recorded impairment losses for the year ended March 31, 2013 for certain land, buildings, machinery and finite-lived intangible assets, such as patents and know-how, related to consumer lithium-ion battery business in “Automotive & Industrial Systems” segment. 13,658 million yen of impairment losses were related to finite-lived intangible assets. As a result of the continuous substantial decline of product prices, the Company revised its strategies for sales and investment and estimated that the carrying amounts would not be recoverable through future cash flows. The fair value of finite-lived intangible assets was mainly determined based on the excess earnings method and the relief-from-royalty method. The fair value of land, buildings and machinery was determined through an appraisal based on the repurchase cost.

 

The Company classified certain buildings related to a domestic flat TV manufacturing plant as assets held for sale in accordance with the provisions of ASC 360. These assets are included in other current assets in the consolidated balance sheet as of March 31, 2013. Furthermore, the Company recognized a loss of 39,874 million yen regarding these assets as the carrying amount was higher than fair value less cost to sell. This loss is included in other deductions in the consolidated statement of operations for the year ended March 31, 2013.


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(7) Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill by segment for the years ended March 31, 2015 and 2014 are as follows:

 

     Yen (millions)

 
     Appliances

    Eco
Solutions


    AVC
Networks


    Automotive
& Industrial
Systems


    Other

    Total

 

Balance as of March 31, 2013:

                                                

Goodwill

     40,951        183,582        254,537        459,669        58,482        997,221   

Accumulated impairment losses

     (3,745     (72,197     (168,356     (240,777     —          (485,075
    


 


 


 


 


 


       37,206        111,385        86,181        218,892        58,482        512,146   
    


 


 


 


 


 


Goodwill acquired during the year

     —          23,145        —          —          —          23,145   

Goodwill impaired during the year

     —          —          —          (8,069     —          (8,069

Goodwill disposed of during the year

     —          —          —          —          (54,200     (54,200

Translation adjustments

     —          355        —          —          —          355   
    


 


 


 


 


 


Balance as of March 31, 2014:

                                                

Goodwill

     40,951        207,082        254,537        459,669        4,282        966,521   

Accumulated impairment losses

     (3,745     (72,197     (168,356     (248,846     —          (493,144
    


 


 


 


 


 


       37,206        134,885        86,181        210,823        4,282        473,377   
    


 


 


 


 


 


Goodwill acquired during the year

     —          22        5,181        —          —          5,203   

Goodwill impaired during the year

     —          —          (8,415     (7,586     —          (16,001

Goodwill disposed of during the year and others

     2,171        —          (3,499     (3,214     (3,204     (7,746

Translation adjustments

     —          2,270        —          —          —          2,270   
    


 


 


 


 


 


Balance as of March 31, 2015:

                                                

Goodwill

     43,122        209,374        256,219        456,455        1,078        966,248   

Accumulated impairment losses

     (3,745     (72,197     (176,771     (256,432     —          (509,145
    


 


 


 


 


 


       39,377        137,177        79,448        200,023        1,078        457,103   
    


 


 


 


 


 



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The carrying amount of goodwill by segment shown above is the total amount of goodwill allocated to reporting units for impairment test by segment and the allocation does not agree with that used for internal management purposes.

 

The Company recorded impairment losses of 8,415 million yen for the year ended March 31, 2015 related to goodwill of certain businesses in “AVC Networks” segments. The Company also recorded impairment losses of 7,586 million yen for the year ended March 31, 2015 related to goodwill of certain device business in “Automotive & Industrial Systems” segments. These impairments were due to a downturn in profitability of each business and the fair value was determined mainly based on the discounted cash flow method.

 

Goodwill related to “Other” segment decreased mainly as a result of disposition of the healthcare business in the year ended March 31, 2014.

 

The Company recorded impairment losses of 72,197 million yen for the year ended March 31, 2013 related to goodwill of solar battery business in “Eco Solutions” segment. This impairment was due to the continuous substantial decline of product prices and reversal of strategies for sales and investments which resulted in a decrease in the estimated fair value of the reporting unit. The fair value was determined based on the combination of discounted cash flow method, guideline public company method and guideline transaction method.

 

The Company recorded impairment losses of 91,007 million yen for the year ended March 31, 2013 related to goodwill of mobile phone business in “AVC Networks” segment. This impairment was due to the decline in market share in Japan and the revision of the overseas development strategy which resulted in a decrease in the estimated fair value of the reporting unit. The fair value was determined based on the combination of discounted cash flow method, guideline public company method and guideline transaction method.

 

The Company recorded impairment losses of 74,574 million yen for the year ended March 31, 2013 related to goodwill of consumer lithium-ion battery business in “Automotive & Industrial Systems” segment. This impairment was due to the continuous substantial decline of product prices and reversal of strategies for sales and investment which resulted in a decrease in the estimated fair value of the reporting unit. The fair value was determined based on the combination of discounted cash flow method, guideline public company method and guideline transaction method.

 

The Company recorded impairment losses of 12,805 million yen for the year ended March 31, 2013 related to certain businesses in “Automotive & Industrial Systems” segment. These impairments were due to a downturn in profitability and the fair values were mainly determined based on the combination of discounted cash flow method and guideline public company method.


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Intangible assets, excluding goodwill, as of March 31, 2015 and 2014 are as follows:

 

     Yen (millions)

 
     2015

     2014

 
     Gross
carrying
amount


     Accumulated
amortization


     Gross
carrying
amount


     Accumulated
amortization


 

Finite-lived intangible assets:

                                   

Patents and know-how

     143,464         90,107         171,320         99,091   

Software

     340,844         287,781         320,435         266,967   

Other

     94,270         40,730         100,798         37,021   
    


  


  


  


       578,578         418,618         592,553         403,079   
    


  


  


  


 

     Yen (millions)

 
     2015

     2014

 

Indefinite-lived intangible assets

     12,938         14,117   

 

Aggregate amortization expense for finite-lived intangible assets for the years ended March 31, 2015, 2014 and 2013 was 44,129 million yen, 51,994 million yen and 61,373 million yen, respectively. Estimated amortization expense for the next five years is as follows:

 

Year ending March 31    Yen (millions)

 

2016

     34,181   

2017

     27,994   

2018

     21,802   

2019

     14,838   

2020

     9,493   

 

There were no impairment losses of indefinite-lived intangible assets for the years ended March 31, 2015, 2014 and 2013. Impairment losses of finite-lived intangible assets are included in impairment losses of long-lived assets discussed in Note 6.


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(8) Long-term Debt and Short-term Borrowings

 

Long-term debt as of March 31, 2015 and 2014 is set forth below:

 

     Yen (millions)

 
     2015

     2014

 

Unsecured Straight bond, due 2014, interest 2.02% *1

     —           31,769   

Unsecured Straight bond, due 2015, interest 1.66% *2

     40,000         39,999   

Unsecured Straight bond, due 2016, interest 0.752%

     200,000         200,000   

Unsecured Straight bond, due 2018, interest 1.081%

     150,000         150,000   

Unsecured Straight bond, due 2019, interest 2.05%

     100,000         100,000   

Unsecured Straight bond, due 2019, interest 1.593% *2

     30,000         30,000   

Unsecured Straight bond, due 2020, interest 0.387%

     220,000         —     

Unsecured Straight bond, due 2022, interest 0.568%

     80,000         —     

Unsecured Straight bond, due 2025, interest 0.934%

     100,000         —     

Unsecured bank loans, due 2014 - 2016, effective interest 4.6% for the year ended March 31, 2015 and 4.0% for the year ended March 31, 2014

     1,236         1,821   

Secured bank loans by subsidiaries, due 2015 - 2020, effective interest 1.68% for the year ended March 31, 2015 and 1.76% for the year ended March 31, 2014

     614         825   

Capital lease obligations

     40,179         44,541   
    


  


       962,029         598,955   

Less current portion

     249,644         41,581   
    


  


       712,385         557,374   
    


  


 

  *1

Bond originally issued by SANYO Electric Co., Ltd. (SANYO) was transferred to the Company during the year ended March 31, 2012.

  *2

Bonds originally issued by Panasonic Electric Works Co., Ltd. (PEW) were transferred to the Company during the year ended March 31, 2012.

 

The aggregate annual maturities of long-term debt after March 31, 2015 are as follows:

 

Year ending March 31    Yen (millions)

 

2016

     249,644   

2017

     9,154   

2018

     158,127   

2019

     107,605   

2020

     255,521   

2021 and thereafter

     181,978   

 

As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that security and guarantees for future and present indebtedness will be given upon request of the bank, and that the bank shall have the right, when the obligations become due, or in the event of their default, to offset cash deposits against such obligations due to the bank. As of March 31, 2015 and 2014, loans subject to such general agreements amounted to 614 million yen and 825 million yen, respectively.

 

Each of the loan agreements grants the lender the right to request additional security or mortgages on certain assets. As of March 31, 2015 and 2014, investments and advances with a book value of 1,531 million yen and 1,754 million yen, respectively, were pledged as collateral by subsidiaries for secured loans from banks.

 

The weighted-average interest rate on short-term debt outstanding as of March 31, 2015 and 2014 was 8.3% and 7.6%, respectively.


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(9) Retirement and Severance Benefits

 

The Company and certain subsidiaries have contributory, funded benefit pension plans covering substantially all employees who meet eligibility requirements. Benefits under the plans are primarily based on the combination of years of service and compensation.

 

In addition to the plans described above, upon retirement or termination of employment for reasons other than dismissal, employees are entitled to lump-sum payments based on the current rate of pay and length of service. If the termination is involuntary or caused by death, the severance payment is greater than in the case of voluntary termination. The lump-sum payment plans are not funded.

 

Effective April 1, 2002, the Company and some of the subsidiaries amended their benefit pension plans by introducing a “point-based benefits system,” and changing their lump-sum payment plans to cash balance pension plans. Under the point-based benefits system, benefits are calculated based on accumulated points allocated to employees each year according to their job classification and years of service. Under the cash balance pension plans, each participant has an account which is credited yearly based on the current rate of pay and market-related interest rate.

 

Effective July 1, 2013, the Company and certain domestic subsidiaries decided to make a transition from the defined benefit pension plan to a defined contribution pension plan with respect to employees’ future service. Under the provision of ASC 715, upon this transition, any decrease in projected benefit obligations (PBO) due to plan amendments in the past remaining in pension liability adjustments under accumulated other comprehensive income (loss) is required to be immediately recognized in earnings. Accordingly, the Company recognized a curtailment gain of 79,762 million yen in other income in the consolidated statement of operations for the year ended March 31, 2014.


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Reconciliations of beginning and ending balances of the benefit obligations of the contributory, funded benefit pension plans, the unfunded lump-sum payment plans, and the cash balance pension plans, and the fair value of the plan assets as of March 31, 2015 and 2014 are as follows:

 

     Yen (millions)

 
     2015

     2014

 

Change in benefit obligations:

                 

Benefit obligations at beginning of year

     2,330,507         2,461,033   

Service cost

     16,553         26,570   

Interest cost

     38,164         40,103   

Prior service benefit

     (3,519      644   

Actuarial loss (gain)

     91,068         (32,151

Benefits paid

     (126,088      (120,589

Effect of sale of consolidated subsidiaries

     (7,870      (41,389

Foreign currency translation

     11,652         16,859   

Curtailments, settlements and other

     (6,062      (20,573
    


  


Benefit obligations at end of year

     2,344,405         2,330,507   
    


  


Change in plan assets:

                 

Fair value of plan assets at beginning of year

     1,907,726         1,842,631   

Actual return on plan assets

     187,308         107,350   

Employer contributions

     57,987         97,170   

Benefits paid

     (120,239      (112,922

Effect of sale of consolidated subsidiaries

     (5,348      (35,198

Foreign currency translation

     8,044         13,356   

Curtailments, settlements and other

     (4,989      (4,661
    


  


Fair value of plan assets at end of year

     2,030,489         1,907,726   
    


  


Funded status

     (313,916      (422,781
    


  


 

The accumulated benefit obligation for the pension plans was 2,294,738 million yen and 2,267,561 million yen as of March 31, 2015 and 2014, respectively.


Table of Contents

 

- 34 -

 

The projected benefit obligations and the fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets, and the accumulated benefit obligations and the fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets as of March 31, 2015 and 2014 are as follows:

 

     Yen (millions)

 
     2015

     2014

 

Plans with projected benefit obligations in excess of plan assets:

                 

Projected benefit obligations

     2,183,899         2,173,332   

Fair value of plan assets

     1,848,497         1,739,314   

Plans with accumulated benefit obligations in excess of plan assets:

                 

Accumulated benefit obligations

     2,147,556         2,125,670   

Fair value of plan assets

     1,848,497         1,739,314   

 

Accounts recognized in the consolidated balance sheets as of March 31, 2015 and 2014 consist of:

 

     Yen (millions)

 
     2015

     2014

 

Other assets

     21,486         11,237   

Other current liabilities

     (2,741      (3,317

Retirement and severance benefits

     (332,661      (430,701
    


  


       (313,916      (422,781
    


  


 

Amounts recognized in accumulated other comprehensive income (loss) as of March 31, 2015 and 2014 consist of:

 

     Yen (millions)

 
     2015

     2014

 

Prior service benefit

     (13,946      (14,551

Actuarial loss

     420,583         489,951   
    


  


         406,637           475,400   
    


  



Table of Contents

 

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Net periodic benefit cost for the contributory, funded benefit pension plans, the unfunded lump-sum payment plans, and the cash balance pension plans of the Company for the years ended March 31, 2015, 2014 and 2013 consists of the following components:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Service cost—benefits earned during the year

     16,553         26,570         55,123   

Interest cost on projected benefit obligation

     38,164         40,103         51,621   

Expected return on plan assets

     (53,104      (50,593      (53,764

Amortization of prior service benefit

     (4,124      (4,520      (22,458

Recognized actuarial loss

     16,836         21,341         30,335   

Losses (gains) on curtailments and settlements

     8,323         (77,938      2,209   
    


  


  


Net periodic benefit cost

     22,648         (45,037      63,066   
    


  


  



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- 36 -

 

The estimated prior service benefit and actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost for the year ending March 31, 2016 are gains of 4,396 million yen and losses of 23,114 million yen, respectively.

 

Weighted-average assumptions used to determine benefit obligations as of March 31, 2015 and 2014 are as follows:

 

     2015

    2014

 

Discount rate

     1.3     1.6

Rate of compensation increase

     4.0     2.8

 

Weighted-average assumptions used to determine net periodic benefit cost for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     2015

    2014

    2013

 

Discount rate

     1.6     1.6     2.2

Expected return on plan assets

     2.7     2.7     3.1

Rate of compensation increase

     2.8     1.7     1.8

 

The expected return on plan assets is determined based on the portfolio as a whole and not on the sum of the returns on individual asset categories, considering long-term historical returns, asset allocation, and future estimates of long-term investment returns.

 

Each plan of the Company has a different investment policy, which is designed to ensure sufficient plan assets are available to provide future payments of pension benefits to the eligible plan participants and is individually monitored for compliance and appropriateness on an on-going basis. Considering the expected long-term rate of return on plan assets, each plan of the Company establishes a “basic” portfolio comprised of the optimal combination of equity securities and debt securities. Plan assets are invested in individual equity and debt securities using the guidelines of the “basic” portfolio in order to generate a total return that will satisfy the expected return on a mid-term to long-term basis. The Company evaluates the difference between expected return and actual return of invested plan assets on an annual basis to determine if such differences necessitate a revision in the formulation of the “basic” portfolio. The Company revises the “basic” portfolio when and to the extent considered necessary to achieve the expected long-term rate of return on plan assets.

 

The Company’s pension plan assets allocation is approximately 25% for equity securities, approximately 50% for debt securities, and approximately 25% for other investments, primarily in life insurance company general accounts.

 

For the Company’s major defined benefit pension plans, equity investments are mainly investments in listed equity securities, broadly in Japanese equity, developed international equity and emerging markets. The investments in debt securities are comprised primarily of government, municipal, and corporate bonds. The Company mainly chooses debt securities with rating above BBB, high liquidity and appropriate repayment, and has appropriately diversified the investments by sector and geography. As for investments in life insurance company general accounts, the contracts with the insurance companies include a guaranteed interest rate and return of capital. Other investments include fund-of-funds investment, equity long/short hedge funds investment and private equity investment. Fund-of-funds investment and equity long/short hedge funds investment are primarily invested in listed equity securities with trading frequency and a stable return, while private equity investment is diversified products with low correlation.


Table of Contents

 

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The fair values of the Company’s pension plan assets as of March 31, 2015, by asset category are as follows:

 

     Yen (millions)

 
     Level 1

     Level 2

     Level 3

     Total

 

Cash and cash equivalents

     97,301         —           —           97,301   

Equity securities:

                                   

Japanese companies

     23,513         —           —           23,513   

Foreign companies

     59,391         —           —           59,391   

Commingled funds (a)

     —           425,552         —           425,552   

Debt securities:

                                   

Government and Municipal bonds

     56,651         —           —           56,651   

Corporate bonds

     —           14,212         —           14,212   

Commingled funds (b)

     —           916,009         —           916,009   

Life insurance company general accounts

     —           310,894         —           310,894   

Other (c)

     —           116,949         10,017         126,966   
    


  


  


  


Total

     236,856         1,783,616         10,017         2,030,489   
    


  


  


  


 

The fair values of the Company’s pension plan assets as of March 31, 2014, by asset category are as follows:

 

     Yen (millions)

 
     Level 1

     Level 2

     Level 3

     Total

 

Cash and cash equivalents

     92,408         —           —           92,408   

Equity securities:

                                   

Japanese companies

     40,800         —           —           40,800   

Foreign companies

     56,650         —           —           56,650   

Commingled funds (a)

     —           360,772         —           360,772   

Debt securities:

                                   

Government and Municipal bonds

     67,857         —           —           67,857   

Corporate bonds

     —           10,611         —           10,611   

Commingled funds (b)

     —           866,270         —           866,270   

Life insurance company general accounts

     —           274,639         —           274,639   

Other (c)

     —           121,521         16,198         137,719   
    


  


  


  


Total

     257,715         1,633,813         16,198         1,907,726   
    


  


  


  


 

  (a)

These funds invest mainly in listed equity securities, approximately 60% Japanese companies and 40% foreign companies.

  (b)

These funds primarily invest in Japanese government bonds and foreign government bonds.

  (c)

Other investments primarily include fund-of-funds investment, equity long/short hedge funds investment, private equity investment and collateralized loan obligation investment.


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The three levels of the fair value hierarchy are discussed in Note 18.

 

Level 1 assets are comprised principally of equity securities and government and municipal bonds, which are valued using unadjusted quoted market price in active markets with sufficient volume and frequency of transactions.

 

Level 2 assets are comprised principally of commingled funds, which are valued at their net asset values that are calculated by the fund and have daily liquidity, corporate bonds, which are valued based on quoted prices for identical assets in markets that are not active, and life insurance company general accounts, which are valued at conversion value. Fund-of-funds investment and hedge funds investment that use equity long/short strategies, which primarily invest in listed equity securities and debt securities, are valued based on net asset value.

 

Level 3 assets are comprised principally of collateralized loan obligation investment and private equity investment, which are valued based on prices and other relevant information such as similar market transactions and latest financial information available.

 

A reconciliation of the beginning and ending balances of level 3 assets as of March 31, 2015 and 2014 is as follows:

 

     Yen (millions)

 
     Collateralized loan
obligation


     Private equity

     Total

 

Balance as of April 1, 2013

     7,374         11,392         18,766   

Realized gains (losses)

     2,350         111         2,461   

Unrealized gains (losses) relating to assets held

     (491      (96      (587

Purchases, sales, issuances and settlements, net

     (1,438      (2,033      (3,471

Transfers out of Level 3

     (863      (108      (971
    


  


  


Balance as of March 31, 2014

     6,932         9,266         16,198   
    


  


  


Realized gains (losses)

     (2,286      962         (1,324

Unrealized gains (losses) relating to assets held

     2,472         190         2,662   

Purchases, sales, issuances and settlements, net

     (6,522      (614      (7,136

Transfers out of Level 3

     (111      (272      (383
    


  


  


Balance as of March 31, 2015

     485         9,532         10,017   
    


  


  


 

The Company expects to contribute 37,276 million yen to its defined benefit plans for the year ending March 31, 2016.

 

The benefits expected to be paid from the defined pension plans for each of the years ending March 31, 2016 through 2020 are 119,107 million yen, 116,608 million yen, 118,896 million yen, 120,325 million yen and 119,483 million yen, respectively. The aggregate benefits expected to be paid in the five year period for the years ending March 31, 2021 through 2025 are 606,524 million yen. The expected benefits to be paid are based on the same assumptions used to measure the Company’s benefit obligation as of March 31, 2015 including estimated future employee service.

 

The amount of cost recognized for the Company’s and certain subsidiaries’ contributions to the defined contribution plans for the years ended March 31, 2015 and 2014 were 29,478 million yen and 23,450 million yen, respectively.


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(10) Income Taxes

 

Income (loss) before income taxes and income taxes for the years ended March 31, 2015, 2014 and 2013 are summarized as follows:

 

     Yen (millions)

 
     Domestic

     Foreign

     Total

 

For the year ended March 31, 2015

                          

Income before income taxes

     2,795         179,661         182,456   

Income taxes:

                          

Current

     30,494         75,613         106,107   

Deferred

     (109,174      1,086         (108,088
    


  


  


Total income taxes

     (78,680      76,699         (1,981
    


  


  


For the year ended March 31, 2014

                          

Income before income taxes

     56,792         149,433         206,225   

Income taxes:

                          

Current

     35,305         57,512         92,817   

Deferred

     2,998         (6,150      (3,152
    


  


  


Total income taxes

     38,303         51,362         89,665   
    


  


  


For the year ended March 31, 2013

                          

Income (loss) before income taxes

     (450,544      52,158         (398,386

Income taxes:

                          

Current

     29,970         36,562         66,532   

Deferred

     311,882         6,259         318,141   
    


  


  


Total income taxes

     341,852         42,821         384,673   
    


  


  


 

The Company and its subsidiaries in Japan are subject to a National corporate tax of 25.50%, an Inhabitant tax of approximately 20.1% (applied to a National corporate tax) varying by local jurisdiction, and a deductible Enterprise tax of approximately 7.4% varying by local jurisdiction, which, in aggregate, resulted in a combined statutory tax rate in Japan of approximately 35.4% for the year ended March 31, 2015.

 

The Company and its subsidiaries in Japan are subject to a National corporate tax of 28.05%, an Inhabitant tax of approximately 20.2% (applied to a National corporate tax) varying by local jurisdiction, and a deductible Enterprise tax of approximately 7.4% varying by local jurisdiction, which, in aggregate, resulted in a combined statutory tax rate in Japan of approximately 37.8% for the years ended March 31, 2014 and 2013.


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The effective tax rates for the years ended March 31, 2015, 2014 and 2013 differ from the combined statutory tax rates for the following reasons:

 

     2015

    2014

    2013

 

Combined statutory tax rate

     35.4     37.8     (37.8 )% 

Lower tax rates of overseas subsidiaries

     (11.7     (9.1     (0.8

Expenses not deductible for tax purposes

     2.8        1.3        0.6   

Change in valuation allowance allocated to income tax expenses :

                        

—Foreign tax credit carryforwards

     8.2        5.7        3.5   

—Change in judgement and others

     (57.1     7.1        106.3   

Tax effects on outside basis difference in subsidiaries

     4.1        (1.8     (0.6

Goodwill impairment

     5.3        1.5        23.8   

Effect of enacted changes in Japanese tax laws and rates

     13.3        —          —     

Other

     (1.4     1.0        1.6   
    


 


 


Effective tax rate

     (1.1 )%      43.5     96.6
    


 


 


 

During the year ended March 31, 2015, changes in Japanese corporate tax law and statutory tax rates to be applied to taxable income from the following years were enacted in Japan, where the statutory tax rate will be reduced to 32.1%, as well as net operating loss deduction limit will be reduced from the current 80% to 50% of taxable income both in two steps by 2018. Income taxes for the year ended March 31, 2015 included the effect to deferred tax assets and liabilities which resulted from the change of the aforementioned tax rates and a reduction in the net operating loss deduction limit for net operating loss.

 

During the year ended March 31, 2012, changes in Japanese corporate tax law and statutory tax rates to be applied to taxable income from the following years in two steps were enacted in Japan. During the year ended March 31, 2014, Japanese corporate tax law which changed the applicable fiscal year of the second reductions in rates was enacted. Income taxes for the year ended March 31, 2014 included the effect to deferred tax assets and liabilities which resulted from the change of the aforementioned tax rates. This effect resulted in an expense which was not material to the Company.

 

Included in provision for income taxes for the year ended March 31, 2015 was an income tax benefit associated with decreases in valuation allowance on deferred tax assets of 130,159 million yen in Panasonic Corporation. This change in the judgment is primarily a result of new positive evidence based on the improvement in its profitability in recent years and expectations for future years, reflecting the Company’s successful implementation of business restructurings, eliminating a number of unprofitable businesses and shifting its resources to key target areas and markets with future growth potential. The Company’s conclusion that it is more likely than not that 130,159 million of gross deferred tax assets net of valuation allowance will be realized is based, among other things, on management’s estimate of future taxable income, which is based on internal projections that consider historical performance, multiple internal scenarios and assumptions, as well as external data that management believes is reasonable. If events are identified that affect the Company’s ability to utilize its deferred tax assets, the analysis will be updated to determine if any adjustments to the valuation allowance are required. If actual results differ significantly from the current estimates of future taxable income, the deferred tax assets may need to be reduced in the near term. Conversely, better than expected results and continued positive results and trends could result in further reversal of the deferred tax valuation allowance. Adjustment to the beginning-of-the-year balance of valuation allowances as a result of change in judgment for Panasonic Corporation as well as for a certain domestic subsidiary for the year ended March 31, 2015 was 130,939 million yen.

 

The tax benefit of net operating loss carryforwards recognized for the years ended March 31, 2015, 2014 and 2013 were 21,824 million yen, 69,937 million yen and 29,779 million yen, respectively.


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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of March 31, 2015 and 2014 are presented below:

 

     Yen (millions)

 
     2015

     2014

 

Deferred tax assets:

                 

Inventory valuation

     85,301         84,452   

Expenses accrued for financial statement purposes but not currently included in taxable income

     221,166         216,429   

Property, plant and equipment

     178,370         201,226   

Retirement and severance benefits

     117,877         156,401   

Tax loss carryforwards

     660,861         778,933   

Other

     140,509         143,947   
    


  


Total gross deferred tax assets

     1,404,084         1,581,388   

Less valuation allowance

     1,085,573         1,367,498   
    


  


Net deferred tax assets

     318,511         213,890   
    


  


Deferred tax liabilities:

                 

Net unrealized holding gains of available-for-sale securities

     (15,728      (14,385

Intangible assets

     (27,008      (40,817

Other

     (38,607      (44,010
    


  


Total gross deferred tax liabilities

     (81,343      (99,212
    


  


Net deferred tax assets

     237,168         114,678   
    


  


 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and loss carryforwards become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences and loss carryforwards, net of the existing valuation allowances as of March 31, 2015 and 2014.

 

The net change in total valuation allowance for the years ended March 31, 2015, 2014 and 2013 was a decrease of 281,925 million yen, of which a decrease due to the expiration of tax loss carryfowards amounted to 79,878 million yen and change in tax rate and law amounted to 99,311 million yen, a decrease of 65,582 million yen, of which a decrease due to the expiration of tax loss carryfowards amounted to 95,412 million yen, and an increase of 403,255 million yen, respectively.

 

As of March 31, 2015, the Company had, for income tax purposes, net operating loss carryforwards of approximately 2,233,341 million yen, of which 2,081,792 million yen expire from the year ending March 31, 2016 through 2024 and the remaining balance will expire thereafter or do not expire. As of March 31, 2015, the Company had, for income tax purposes, tax credit carryforwards of approximately 37,785 million yen, which expire within the years ending March 31, 2016 through 2018.


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- 42 -

 

Net deferred tax assets and liabilities as of March 31, 2015 and 2014 are reflected in the accompanying consolidated balance sheets under the following captions:

 

     Yen (millions)

 
     2015

     2014

 

Other current assets

     142,603         88,052   

Other assets

     149,363         125,086   

Other current liabilities

     (3,871      (9,067

Other liabilities

     (50,927      (89,393
    


  


Net deferred tax assets

     237,168         114,678   
    


  


 

The Company has not recognized a deferred tax liability for temporary differences associated with investments in foreign subsidiaries and foreign corporate joint ventures of 811,686 million yen as of March 31, 2015, because the related earnings are not planned to remit to the parent and are to be indefinitely reinvested. A deferred tax liability will be recognized when the Company no longer plans to indefinitely reinvest undistributed earnings, and current tax will be incurred upon distribution from or sale of subsidiaries. The calculation of related unrecognized deferred tax liability is not practicable.

 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended March 31, 2015, 2014 and 2013 is as follows:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Balance at beginning of year

     (14,618      (15,126      (15,311

Increase related to prior year tax positions

     (7,843      (3,036      (678

Decrease related to prior year tax positions

     1,744         2,081         3,529   

Increase related to current year tax positions

     (3,663      (2,720      (2,138

Change in consolidated subsidiaries

     —           3,390         —     

Lapse of statute of limitations

     2,888         —           —     

Settlements

     2,469         1,599         50   

Translation adjustments

     (1,298      (806      (578
    


  


  


Balance at end of year

     (20,321      (14,618      (15,126
    


  


  


 

As of March 31, 2015, 2014 and 2013, the total amount of unrecognized tax benefits are 18,741 million yen, 13,527 million yen and 14,675 million yen, respectively, that if recognized, would reduce the effective tax rate. The Company has accrued interests and penalties related to unrecognized tax benefits and the amount of interest and penalties included in provision for income taxes and cumulative amount accrued were not material as of and for the years ended March 31, 2015, 2014 and 2013.

 

The Company files income tax returns in Japan and various foreign tax jurisdictions. There are a number of subsidiaries which operate within each of the Company’s major jurisdictions resulting in a range of open tax years. The open tax years for Panasonic Corporation are for the year ended March 31, 2014 and thereafter. The open tax years for the significant subsidiaries in the United States of America, which is the other major tax jurisdiction besides Japan, are for the year ended March 31, 2012 and thereafter.


Table of Contents

 

- 43 -

 

(11) Net Income (Loss) Attributable to Panasonic Corporation Common Shareholders per Share

 

A reconciliation of the numerators and denominators of the basic and diluted net income (loss) attributable to Panasonic Corporation common shareholders per share computation for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Net income (loss) attributable to Panasonic Corporation common shareholders

     179,485         120,442         (754,250
     Number of shares

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Average common shares outstanding

     2,311,472,371         2,311,618,296         2,311,683,353   

Dilutive effect:

                          

Stock options

     139,101                     
    


                 

Diluted common shares outstanding

     2,311,611,472                     
    


                 
     Yen

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Net income (loss) attributable to Panasonic Corporation common shareholders per share:

                          

Basic

     77.65         52.10         (326.28

Diluted

     77.64         —           —     

 

Diluted net income attributable to Panasonic Corporation common shareholders per share for the years ended March 31, 2014 and 2013 have been omitted because the Company did not have potentially dilutive common shares that were outstanding for the periods.


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- 44 -

 

(12) Stockholders’ Equity

 

The Company may repurchase its common stock from the market pursuant to the Company Law of Japan. For the years ended March 31, 2015, 2014 and 2013, respectively, 298,329 shares, 108,780 shares and 57,369 shares were repurchased.

 

The Company sold 5,607 shares, 6,858 shares and 14,291 shares of its treasury stock for the years ended March 31, 2015, 2014 and 2013, respectively.

 

The Company Law of Japan provides that an amount equal to 10% of cash dividends be appropriated as a capital reserve or legal reserve until the aggregated amount of capital reserve and legal reserve equals 25% of stated capital. The capital reserve and legal reserve are not available for dividends but may be transferred to capital surplus or retained earnings or stated capital upon approval at the shareholders’ meeting.

 

Cash dividends and transfers to the legal reserve charged to retained earnings during the years ended March 31, 2015, 2014 and 2013 represent dividends paid out during the periods and related appropriation to the legal reserve. Cash dividends per share paid during the years ended March 31, 2015, 2014 and 2013 amounted to 16.00 yen, 5.00 yen and 5.00 yen, respectively. The accompanying consolidated financial statements do not include any provisions for the year-end dividend of 10.00 yen per share, totaling approximately 23,113 million yen in respect of the year ended March 31, 2015 approved by the board of directors in April 2015.

 

In accordance with the Company Law of Japan, there are certain restrictions on payment of dividends in connection with the treasury stock repurchased. As a result of restrictions on the treasury stock repurchased, retained earnings of 247,807 million yen as of March 31, 2015 were restricted as to the payment of cash dividends.


Table of Contents

 

- 45 -

 

(13) Equity Transactions with Noncontrolling Interests

 

Net income (loss) attributable to Panasonic Corporation and transfers (to) from noncontrolling interests for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Net income (loss) attributable to Panasonic Corporation common shareholders

     179,485         120,442         (754,250

Transfers (to) from noncontrolling interests:

                          

Decrease in capital surplus for purchase of additional shares in consolidated subsidiaries

     (125,610      (1,185      (6,844
    


  


  


Total

     (125,610      (1,185      (6,844
    


  


  


Net income (loss) attributable to Panasonic Corporation and transfers (to) from noncontrolling interests

     53,875         119,257         (761,094
    


  


  


 

The Company purchased additional shares of Panasonic Plasma Display Co., Ltd. and other subsidiaries during the year ended March 31, 2015.


Table of Contents

 

- 46 -

 

(14) Other Comprehensive Income (Loss)

 

Components of other comprehensive income (loss) for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     Translation
adjustments


    Unrealized
holding
gains

(losses)  of
available-
for-sale
securities


    Unrealized
holding
gains
(losses) of
derivative
instruments


    Pension
liability
adjustments


    Total

 

Accumulated other comprehensive income (loss)—Balance as of April 1, 2012

     (482,168     13,283        (3,728     (262,542     (735,155

Arising during the period:

                                        

Pre-tax amount

     195,825        4,131        13,922        (72,417     141,461   

Income tax (expense) benefit

     —          (1,508     (2,900     909        (3,499
    


 


 


 


 


Net-of-tax amount

     195,825        2,623        11,022        (71,508     137,962   
    


 


 


 


 


Reclassification adjustment for (gains) losses included in net income:

                                        

Pre-tax amount

     2,462        (25,706     (12,953     10,605        (25,592

Income tax (expense) benefit

     —          9,667        1,086        (1,578     9,175   
    


 


 


 


 


Net-of-tax amount

     2,462        (16,039     (11,867     9,027        (16,417
    


 


 


 


 


Other comprehensive income (loss), net of tax

     198,287        (13,416     (845     (62,481     121,545   

Other comprehensive income (loss) attributable to noncontrolling interests, net-of-tax amount

     13,134        85        —          1,400        14,619   
    


 


 


 


 


Accumulated other comprehensive income (loss)—Balance as of March 31, 2013

     (297,015     (218     (4,573     (326,423     (628,229

Arising during the period:

                                        

Pre-tax amount

     139,689        45,347        (7,781     113,379        290,634   

Income tax (expense) benefit

     —          (16,793     501        (16,758     (33,050
    


 


 


 


 


Net-of-tax amount

     139,689        28,554        (7,280     96,621        257,584   
    


 


 


 


 


Reclassification adjustment for (gains) losses included in net income:

                                        

Pre-tax amount

     (3,056     (35,937     12,120        (61,117     (87,990

Income tax (expense) benefit

     —          13,584        (540     3,047        16,091   
    


 


 


 


 


Net-of-tax amount

     (3,056     (22,353     11,580        (58,070     (71,899
    


 


 


 


 



Table of Contents

 

- 47 -

 

     Yen (millions)

 
     Translation
adjustments


    Unrealized
holding

gains
(losses) of
available-

for-sale
securities


    Unrealized
holding
gains
(losses) of
derivative
instruments


    Pension
liability
adjustments


    Total

 

Other comprehensive income (loss), net of tax

     136,633        6,201        4,300        38,551        185,685   

Other comprehensive income (loss) attributable to noncontrolling interests, net-of-tax amount

     6,837        (44     (36     2,398        9,155   
    


 


 


 


 


Accumulated other comprehensive income (loss)—Balance as of March 31, 2014

     (167,219     6,027        (237     (290,270     (451,699

Arising during the period:

                                        

Pre-tax amount

     190,233        12,952        9,614        47,728        260,527   

Income tax (expense) benefit

     —          (3,598     (2,727     (433     (6,758
    


 


 


 


 


Net-of-tax amount

     190,233        9,354        6,887        47,295        253,769   
    


 


 


 


 


Reclassification adjustment for (gains) losses included in net income:

                                        

Pre-tax amount

     3,457        (1,554     (5,567     21,035        17,371   

Income tax (expense) benefit

     —          551        2,125        (303     2,373   
    


 


 


 


 


Net-of-tax amount

     3,457        (1,003     (3,442     20,732        19,744   
    


 


 


 


 


Other comprehensive income (loss), net of tax

     193,690        8,351        3,445        68,027        273,513   

Other comprehensive income (loss) attributable to noncontrolling interests, net-of-tax amount

     14,613        93        73        286        15,065   
    


 


 


 


 


Accumulated other comprehensive income (loss)—Balance as of March 31, 2015

     11,858        14,285        3,135        (222,529     (193,251
    


 


 


 


 



Table of Contents

 

- 48 -

 

Pre-tax amount of reclassification adjustment for (gains) losses included in net income (loss) in the table above is included in the following in the consolidated statement of operations.

 

Translation adjustments—Other income (deductions)

Unrealized holding gains (losses) of available-for-sale securities—Other income (deductions)

Unrealized holding gains (losses) of derivative instruments

Foreign exchange contract—Other income (deductions)

Commodity derivatives—Cost of sales

Pension liability adjustments—Net periodic pension cost (See Note 9)

 

Pre-tax amount of reclassification adjustment for (gains) losses included in net income (loss) relating to foreign exchange contract is 6,204 million yen, (9,732) million yen and 10,765 million yen, for the years ended March 31, 2015, 2014 and 2013, respectively. Pre-tax amount of reclassification adjustment for (gains) losses included in net income (loss) relating to commodity derivatives is (637) million yen, (2,388) million yen and 2,188 million yen, for the years ended March 31, 2015, 2014 and 2013, respectively.


Table of Contents

 

- 49 -

 

A breakdown of arising during the period and reclassification adjustment for (gains) losses included in net income (loss) relating to pension liability adjustments for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     2015

 
     Prior
service
benefit


     Actuarial
gain
(loss)


     Total

 

Arising during the period:

                          

Pre-tax amount

     3,519         44,209         47,728   

Income tax (expense) benefit

     —           (433      (433
    


  


  


Net-of-tax amount

     3,519         43,776         47,295   
    


  


  


Reclassification adjustment for (gains) losses included in net income (loss) :

                          

Pre-tax amount

     (4,124      25,159         21,035   

Income tax (expense) benefit

     1,417         (1,720      (303
    


  


  


Net-of-tax amount

     (2,707      23,439         20,732   
    


  


  


     Yen (millions)

 
     2014

 
     Prior
service
benefit


     Actuarial
gain
(loss)


     Total

 

Arising during the period:

                          

Pre-tax amount

     (644      114,023         113,379   

Income tax (expense) benefit

     228         (16,986      (16,758
    


  


  


Net-of-tax amount

     (416      97,037         96,621   
    


  


  


Reclassification adjustment for (gains) losses included in net income (loss) :

                          

Pre-tax amount

     (84,282      23,165         (61,117

Income tax (expense) benefit

     4,842         (1,795      3,047   
    


  


  


Net-of-tax amount

     (79,440      21,370         (58,070
    


  


  



Table of Contents

 

- 50 -

 

     Yen (millions)

 
     2013

 
     Prior
service
benefit


     Actuarial
gain
(loss)


     Total

 

Arising during the period:

                          

Pre-tax amount

     (860      (71,557      (72,417

Income tax (expense) benefit

     304         605         909   
    


  


  


Net-of-tax amount

     (556      (70,952      (71,508
    


  


  


Reclassification adjustment for (gains) losses included in net income (loss) :

                          

Pre-tax amount

     (22,458      33,063         10,605   

Income tax (expense) benefit

     5,359         (6,937      (1,578
    


  


  


Net-of-tax amount

     (17,099      26,126         9,027   
    


  


  



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(15) Restructuring Charges

 

In connection with the reorganization of the Company’s operations, the Company has incurred certain restructuring charges. Components and related amounts of the restructuring charges, before the related tax effects, for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Expenses associated with the implementation of early retirement programs:

                          

Domestic

     9,055         25,451         32,441   

Overseas

     7,362         6,583         5,996   
    


  


  


Total

     16,417         32,034         38,437   

Expenses associated with the closure and integration of locations

     14,906         32,100         40,788   
    


  


  


Total restructuring charges

      31,323          64,134             79,225   
    


  


  


 

These restructuring charges are included in other deductions in the consolidated statements of operations.

 

The Company has provided early retirement programs to those employees voluntarily leaving the Company. The accrued early retirement programs are recognized when the employees accept the offer and the amount can be reasonably estimated. Expenses associated with the closure and integration of locations include amounts such as moving expenses of facilities and costs to terminate leasing contracts incurred at domestic and overseas manufacturing plants and sales offices. An analysis of the accrued restructuring charges for the years ended March 31, 2015, 2014 and 2013 is as follows:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Balance at beginning of year

     28,860         45,889         70,942   

New charges

     31,323         64,134         79,225   

Cash payments or otherwise settled

     (50,088      (81,163      (104,278
    


  


  


Balance at end of year

     10,095         28,860         45,889   
    


  


  


 

The restructuring activities are generally insignificant on an individual activity basis and are short term in nature and are generally completed within one year of initiation. The total amount of costs expected to be incurred in connection with the activity are generally not materially different from the respective restructuring charges as disclosed below except as indicated otherwise. Furthermore, the amounts of restructuring costs incurred, subsequent to the fiscal year end, for the initiation of any given restructuring activity are not significant except as indicated otherwise.


Table of Contents

 

- 52 -

 

     Yen (millions)

 
     Expenses associated
with the
implementation of
early retirement
programs


     Expenses
associated with
the closure and
integration of
locations


     Total restructuring
charges


 

Appliances

     3,074         2,717         5,791   

Eco Solutions

     1,396         87         1,483   

AVC Networks

     2,761         6,852         9,613   

Automotive & Industrial Systems

     4,497         4,211         8,708   

Other

     3,142         86         3,228   

Restructuring charges which are not attributable to any reportable segments

     1,547         953         2,500   
    


  


  


Consolidated total

     16,417         14,906         31,323   
    


  


  


 

Appliances

Appliances segment restructured its operations to improve efficiency mainly in overseas.

 

Eco Solutions

Eco Solutions segment restructured its operations to improve efficiency mainly in overseas.

 

AVC Networks

AVC Networks segment restructured its operations for selection and concentration of its businesses mainly in Japan.

 

Automotive & Industrial Systems

Automotive & Industrial Systems segment restructured its operations to improve cost competitiveness through selection and concentration of business mainly in Japan.

 

Other

Other segment restructured its operations to improve efficiency mainly in Japan.

 

Restructuring charges which are not attributable to any reportable segments were mainly for restructuring activities to accelerate integration of the organization at corporate headquarters.

 

The following table represents ending liability balance for the year ended March 31, 2015 and 2014 by segment:

 

     Yen (millions)

 
     2015

     2014

 

Appliances

     769         230   

Eco Solutions

     1,124         987   

AVC Networks

     6,999         677   

Automotive & Industrial Systems

     764         21,236   

Other

     28         1,138   

Liabilities which are not attributable to any reportable segments

     411         4,592   
    


  


Balance at end of year

     10,095         28,860   
    


  



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- 53 -

 

The following table represents restructuring activities for the year ended March 31, 2014 by segment:

 

     Yen (millions)

 
     Expenses associated
with the
implementation of
early retirement
programs


     Expenses
associated with
the closure and
integration of
locations


     Total restructuring
charges


 

Appliances

     1,281         1,696         2,977   

Eco Solutions

     1,918         1,635         3,553   

AVC Networks

     1,202         8,170         9,372   

Automotive & Industrial Systems

     14,152         15,581         29,733   

Other

     10,444         2,428         12,872   

Restructuring charges which are not attributable to any reportable segments

     3,037         2,590         5,627   
    


  


  


Consolidated total

     32,034         32,100         64,134   
    


  


  


 

Appliances

Appliances segment restructured its operations to improve efficiency in Japan and overseas.

 

Eco Solutions

Eco Solutions segment restructured its operations to improve efficiency in Japan and overseas.

 

AVC Networks

AVC Networks segment restructured its operations for selection and concentration of its businesses mainly in Japan.

 

Automotive & Industrial Systems

Automotive & Industrial Systems segment restructured its operations to improve cost competitiveness through selection and concentration of business mainly in Japan.

 

Other

Other segment restructured its operations to improve efficiency and cost effectiveness mainly in Japan.

 

Restructuring charges which are not attributable to any reportable segments were mainly for restructuring activities to accelerate integration of the organization at corporate headquarters.

 

The following table represents ending liability balance for the year ended March 31, 2014 and 2013 by segment:

 

     Yen (millions)

 
     2014

     2013

 

Appliances

     230         298   

Eco Solutions

     987         700   

AVC Networks

     677         38,112   

Automotive & Industrial Systems

     21,236         3,070   

Other

     1,138         3,709   

Liabilities which are not attributable to any reportable segments

     4,592         —     
    


  


Balance at end of year

     28,860         45,889   
    


  



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AVC Networks

The beginning liability balance amounting to 36,165 million yen was in connection with the restructuring activity of domestic plasma display panel fifth factory of Panasonic Plasma Display Co., Ltd., a subsidiary of the Company. This was all paid or otherwise settled during the fiscal year. There was no additional restructuring charge incurred for the year ended March 31, 2014.

 

Other

The beginning liability balance amounting to 113 million yen was in connection with the restructuring activity of SANYO’s semiconductor business. This was all paid or otherwise settled during the fiscal year. There was no additional restructuring charge incurred for the year ended March 31, 2014.

 

The following table represents restructuring activities for the year ended March 31, 2013 by segment:

 

     Yen (millions)

 
     Expenses associated
with the
implementation of
early retirement
programs


     Expenses
associated with
the closure and
integration of
locations


     Total restructuring
charges


 

Appliances

     699         2,558         3,257   

Eco Solutions

     938         598         1,536   

AVC Networks

     16,965         7,303         24,268   

Automotive & Industrial Systems

     3,750         6,922         10,672   

Other

     9,949         23,407         33,356   

Restructuring charges which are not attributable to any reportable segments

     6,136         —           6,136   
    


  


  


Consolidated total

     38,437         40,788         79,225   
    


  


  


 

Appliances

Appliances segment restructured its operations to improve efficiency mainly in Japan.

 

Eco Solutions

Eco Solutions segment restructured its operations to improve efficiency in Japan and overseas.

 

AVC Networks

AVC Networks segment restructured its operations to improve cost competitiveness through selection and concentration of business in Japan and overseas.

 

Automotive & Industrial Systems

Automotive & Industrial Systems segment restructured its operations to improve efficiency and cost effectiveness mainly in Japan.

 

Other

Other segment restructured its operations for selection and concentration of its businesses in Japan and overseas.

 

Restructuring charges which are not attributable to any reportable segments were for restructuring activities to accelerate integration of the organization at corporate headquarters.


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- 55 -

 

The following table represents ending liability balance as of March 31, 2013 and 2012 by segment:

 

     Yen (millions)

 
     2013

     2012

 

Appliances

     298         59   

Eco Solutions

     700         342   

AVC Networks

     38,112         45,861   

Automotive & Industrial Systems

     3,070         1,119   

Other

     3,709         23,119   

Liabilities which are not attributable to any reportable segments

     —           442   
    


  


Balance at end of year

     45,889         70,942   
    


  


 

AVC Networks

The total amount expected to be incurred in connection with the restructuring activity of domestic plasma display panel fifth factory of Panasonic Plasma Display Co., Ltd., a subsidiary of the Company amounted to 54,370 million yen as of March 31, 2013. The beginning liability balance amounted to 45,819 million yen and additional restructuring charges incurred of 3,287 million yen and costs paid or otherwise settled of 12,941 million yen during the fiscal year. The ending liability balance amounted to 36,165 million yen.

 

Other

The total amount expected to be incurred in connection with the restructuring activity of SANYO’s semiconductor business amounted to 45,749 million yen as of March 31, 2013. The beginning liability balance amounted to 3,644 million yen and additional restructuring charges incurred of 1,579 million yen and costs paid or otherwise settled of 5,110 million yen during the fiscal year. The ending liability balance amounted to 113 million yen.


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- 56 -

 

(16) Supplementary Information to the Statements of Operations and Cash Flows

 

Research and development costs, advertising costs, shipping and handling costs and depreciation charged to income for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Research and development costs

     457,250         478,817         502,223   

Advertising costs

     98,195         105,091         114,826   

Shipping and handling costs

     159,115         147,597         139,392   

Depreciation

     242,149         278,792         277,582   

 

Shipping and handling costs are included in selling, general and administrative expenses in the consolidated statements of operations.

 

The components included in other deductions for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Expenses related to litigation

     59,173         9,711         5,527   

Expenses associated with discontinuation or voluntary recall of products

     52,254         40,122         25,512   

Restructuring charges

     31,323         64,134         79,225   

Loss on disposal of long-lived assets

     18,592         58,304         64,522   

Loss on divestitures of non-core business

     14,659         —           9,792   

Loss on curtailments and settlements

     8,323         —           2,209   

Reclassification adjustment for losses associated with translation adjustments

     3,457         —           2,300   

Write-down of investment securities

     1,023         142         4,017   

Depreciation associated with idle production capacity

     412         1,166         5,211   

Loss on sale of investment securities

     42         2,480         6,813   

Environmental remediation costs for equipment with polychlorinated biphenyls

     —           13,841         —     

Net foreign exchange loss

     —           6,324         14,050   

Other

     48,825         25,034         30,641   
    


  


  


Total other deductions

     238,083         221,258         249,819   
    


  


  


 

Net foreign exchange gains included in other income for the year ended March 31, 2015 is 10,802 million yen.


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- 57 -

 

During the years ended March 31, 2015, 2014 and 2013, the Company sold, without recourse, trade receivables and others of 772,811 million yen, 617,456 million yen and 642,220 million yen to independent third parties for proceeds of 771,881 million yen, 613,956 million yen and 637,183 million yen, and recorded losses on sale of trade receivables of 930 million yen, 3,500 million yen and 5,037 million yen, respectively. During the years ended March 31, 2015, 2014 and 2013, the Company sold, with recourse, trade receivables of 469,763 million yen, 501,193 million yen and 421,681 million yen to independent third parties for proceeds of 469,368 million yen, 500,656 million yen and 421,145 million yen, and recorded losses on sale of trade receivables of 395 million yen, 537 million yen and 536 million yen, respectively. These losses are included in selling, general and administrative expenses and other deductions. The Company is responsible for servicing most of the receivables. The amounts of trade receivables sold to independent third parties which have not been collected as of March 31, 2015 and 2014 are 158,337 million yen and 130,143 million yen, respectively. These receivables had been derecognized as of March 31, 2015 and 2014. Included in trade notes receivable and trade accounts receivable as of March 31, 2015 are amounts of 49,628 million yen without recourse and 37,204 million yen with recourse scheduled to be sold to independent third parties. The sale of trade receivables was accounted for under the provision of ASC 860, “Transfers and Servicing,” which provides accounting and reporting standards for transfer and servicing of financial assets and extinguishments of liabilities.

 

A gain of 27,874 million yen from sales of certain businesses are included in other income for the year ended March 31, 2015.

 

For the year ended March 31, 2014, the Company’s management and labor unions agreed to reduce the employee’s bonuses. As a result of the agreements, the Company and certain domestic subsidiaries reversed accrued employee’s bonus expenses, included in accrued payroll in the consolidated balance sheet as of March 31, 2013. This revision is regarded as a change in accounting estimate. Accordingly, the amounts of Income before income taxes increased by 20,133 million yen, and net income attributable to Panasonic Corporation increased by 18,448 million yen for the year ended March 31, 2014. In addition, basic net income attributable to Panasonic Corporation common shareholders per share increased by 7.98 yen. Diluted net income attributable to Panasonic Corporation common shareholders per share is not provided because the Company did not have potential dilutive common shares.

 

A gain of 12,199 million yen from stocks contributed to an employee retirement benefit trust are included in other income for the year ended March 31, 2014.

 

Net gain from insurance recovery related to the flooding in Thailand included in other income for the year ended March 31, 2013 amounted to 7,966 million yen which was net of loss of 503 million yen incurred due to the flooding.

 

Interest expenses and income taxes paid, and noncash investing and financing activities for the years ended March 31, 2015, 2014 and 2013 are as follows:

 

     Yen (millions)

 
     2015

     2014

     2013

 

Cash paid:

                          

Interest

     20,049         20,362         25,244   

Income taxes

     110,864         81,245         61,715   

Noncash investing and financing activities:

                          

Capital leases

     6,528         6,179         4,684   


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(17) Derivatives and Hedging Activities

 

The Company operates internationally, giving rise to significant exposure to market risks arising from changes in foreign exchange rates, and commodity prices. The Company assesses these risks by continually monitoring changes in these exposures and by evaluating hedging opportunities. Derivative financial instruments utilized by the Company to hedge these risks are comprised principally of foreign exchange contracts, cross currency swaps and commodity derivatives. The Company does not hold or issue derivative financial instruments for trading purpose.

 

Amounts included in accumulated other comprehensive income (loss) as of March 31, 2015 are expected to be recognized in earnings principally over the next twelve months. The maximum term over which the Company is hedging exposures to the variability of cash flows for foreign currency exchange risk is approximately five months.

 

The Company is exposed to credit risk in the event of non-performance by counterparties to the derivative contracts, but such risk is considered mitigated by the high credit rating of the counterparties.

 

The contract amounts of foreign exchange contracts, cross currency swaps, and commodity futures as of March 31, 2015 and 2014 are as follows:

 

     Yen (millions)

 
     2015

     2014

 

Foreign exchange contracts

     368,657         856,774   

Cross currency swaps

     30,875         29,810   

Commodity futures

     954,984         858,139   


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- 59 -

 

The fair values of derivative instruments as of March 31, 2015 are as follows:

 

   

Yen (millions)


 
   

Asset derivatives


   

Liability derivatives


 
   

Consolidated balance

sheet location


  Fair
value


   

Consolidated balance

sheet location


  Fair
value


 

Derivatives designated as hedging instruments under ASC 815:

                       

Foreign exchange contracts

  Other current assets     2,132      Other current liabilities     242   

Commodity futures

  Other current assets     8      Other current liabilities     938   
       


     


Total derivatives designated as hedging instruments under ASC 815

        2,140            1,180   
       


     


Derivatives not designated as hedging instruments under ASC 815:

                       

Foreign exchange contracts

  Other current assets     3,688      Other current liabilities     3,129   

Cross currency swaps

  Other current assets     141      Other current liabilities     629   

Commodity futures

  Other current assets     8,073      Other current liabilities     14,340   
       


     


Total derivatives not designated as hedging instruments under ASC 815

        11,902            18,098   
       


     


Total derivatives

        14,042            19,278   
       


     


 

Regarding derivative assets and liabilities as of March 31, 2015, gross amounts offset in the consolidated balance sheet were 3,329 million yen and gross amounts subject to master netting agreements but not offset in the consolidated balance sheet were 7,915 million yen.


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- 60 -

 

The fair values of derivative instruments as of March 31, 2014 are as follows:

 

   

Yen (millions)


 
   

Asset derivatives


   

Liability derivatives


 
   

Consolidated balance

sheet location


  Fair
value


   

Consolidated balance

sheet location


  Fair
value

 

Derivatives designated as hedging instruments under ASC 815:

                       

Foreign exchange contracts

  Other current assets     520      Other current liabilities     758   

Commodity futures

  Other current assets     34      Other current liabilities     291   
       


     


Total derivatives designated as hedging instruments under ASC 815

        554            1,049   
       


     


Derivatives not designated as hedging instruments under ASC 815:

                       

Foreign exchange contracts

  Other current assets     4,125      Other current liabilities     1,813   

Cross currency swaps

  Other current assets     335          —     

Commodity futures

  Other current assets     4,238      Other current liabilities     9,767   
       


     


Total derivatives not designated as hedging instruments under ASC 815

        8,698            11,580   
       


     


Total derivatives

        9,252            12,629   
       


     


 

Regarding derivative assets and liabilities as of March 31, 2014, gross amounts offset in the consolidated balance sheet were 3,371 million yen and gross amounts subject to master netting agreements but not offset in the consolidated balance sheet were 3,521 million yen.


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- 61 -

 

The effect of derivative instruments on the consolidated statement of operations for the year ended March 31, 2015 is as follows:

 

Derivatives designated as hedging instruments under ASC 815:

 

Cash flow hedging relationships:

 

Yen (millions)


 

Derivatives


   Amount of gain (loss)
recognized in OCI
derivative (effective
portion)


   

Amount of gain reclassified from accumulated OCI
into operations (effective portion)


 
    

Location of gain (loss)
recognized in operations


   Amount of gain (loss)

 

Foreign exchange contracts

     10,081      Other income (deductions)      6,204   

Commodity futures

     (467   Cost of sales      (637
    


      


Total

     9,614             5,567   
    


      


 

1,102 million yen of fair value changes relating to ineffective portion of cash flow hedge and fair value changes relating to amounts excluded from hedge effectiveness testing recognized on foreign exchange contracts are included in other deductions.

 

Derivatives not designated as hedging instruments under ASC 815:

 

Derivatives


  

Amount of gain (loss) recognized in operations on  derivative


 
  

Location of gain (loss)
recognized in operations


   Amount of gain (loss)

 

Foreign exchange contracts

   Other income (deductions)      (13,070

Cross currency swaps

   Other income (deductions)      (1,045

Commodity futures

   Cost of sales      (1,301
         


Total

          (15,416
         



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- 62 -

 

The effect of derivative instruments on the consolidated statement of operations for the year ended March 31, 2014 is as follows:

 

Derivatives designated as hedging instruments under ASC 815:

 

Cash flow hedging relationships:

 

Yen (millions)


 

Derivatives


   Amount of gain (loss)
recognized in OCI
derivative (effective
portion)


   

Amount of gain reclassified from accumulated OCI
into operations (effective  portion)


 
    

Location of gain
(loss) recognized in

operations


   Amount of gain (loss)

 

Foreign exchange contracts

     (5,880   Other income (deductions)      (9,732

Commodity futures

     (1,901   Cost of sales      (2,388
    


      


Total

     (7,781          (12,120
    


      


 

605 million yen of fair value changes relating to ineffective portion of cash flow hedge and fair value changes relating to amounts excluded from hedge effectiveness testing recognized on foreign exchange contracts are included in other deductions. 907 million yen of fair value changes recognized on commodity futures were reclassified from accumulated other comprehensive income into the consolidated statement of operations as a result of the discontinuance of a cash flow hedge were included in cost of sales.


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- 63 -

 

Fair value hedging relationships:

 

Derivatives from fair value hedging relationships did not have a material effect on consolidated statement of operations.

 

Derivatives not designated as hedging instruments under ASC 815:

 

Derivatives


  

Amount of gain (loss) recognized in operations on derivative


 
  

Location of gain (loss)

recognized in operations


   Amount of gain (loss)

 

Foreign exchange contracts

   Other income (deductions)      11,679   

Cross currency swaps

   Other income (deductions)      519   

Commodity futures

   Cost of sales      (427
         


Total

          11,771   
         


 

The effect of derivative instruments on the consolidated statement of operations for the year ended March 31, 2013 is as follows:

 

Derivatives designated as hedging instruments under ASC 815:

 

Cash flow hedging relationships:

 

Yen (millions)


 

Derivatives


   Amount of gain
(loss) recognized in
OCI derivative
(effective portion)


   

Amount of gain reclassified from accumulated OCI
into operations (effective portion)


 
    

Location of gain (loss)
recognized in operations


   Amount of gain (loss)

 

Foreign exchange contracts

     13,960      Other income (deductions)      10,765   

Commodity futures

     (38   Cost of sales      2,188   
    


      


Total

     13,922             12,953   
    


      


 

566 million yen of fair value changes relating to ineffective portion of cash flow hedge and fair value changes relating to amounts excluded from hedge effectiveness testing recognized on foreign exchange contracts are included in other deductions.

 

Fair value hedging relationships:

 

Derivatives from fair value hedging relationships did not have a material effect on consolidated statement of operations.


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Derivatives not designated as hedging instruments under ASC 815:

 

Derivatives


  

Amount of gain (loss) recognized in operations on derivative


 
  

Location of gain (loss)

recognized in operations


   Amount of gain (loss)

 

Foreign exchange contracts

   Other income (deductions)      2,949   

Cross currency swaps

   Other income (deductions)      (488

Commodity futures

   Cost of sales      (784
         


Total

          1,677   
         



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(18) Fair Value

 

ASC 820, “Fair Value Measurements and Disclosures” defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:

 

Level 1

   

Quoted prices (unadjusted) in active markets for identical assets.

Level 2

   

Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3

   

Unobservable inputs for the asset or liability.

 

The following table represents assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2015 and 2014:

 

     Yen (millions)

 
     March 31, 2015

 
     Level 1

     Level 2

     Level 3

     Total

 

Assets:

                                   

Available-for-sale securities:

                                   

Equity securities

     74,556         —           —           74,556   

Corporate and government bonds

     —           2,371         —           2,371   

Other debt securities

     —           2         —           2   
    


  


  


  


Total available-for-sale securities

     74,556         2,373         —           76,929   
    


  


  


  


Derivatives:

                                   

Foreign exchange contracts

     —           5,820         —           5,820   

Cross currency swaps

     —           141         —           141   

Commodity futures

     7,487         594         —           8,081   
    


  


  


  


Total derivatives

     7,487         6,555         —           14,042   
    


  


  


  


Liabilities:

                                   

Derivatives:

                                   

Foreign exchange contracts

     —           3,371         —           3,371   

Cross currency swaps

     —           629         —           629   

Commodity futures

     11,193         4,085         —           15,278   
    


  


  


  


Total derivatives

     11,193         8,085         —           19,278   
    


  


  


  



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     Yen (millions)

 
     March 31, 2014

 
     Level 1

     Level 2

     Level 3

     Total

 

Assets:

                                   

Available-for-sale securities:

                                   

Equity securities

     63,101         —           —           63,101   

Corporate and government bonds

     —           1,694         —           1,694   

Other debt securities

     —           16         —           16   
    


  


  


  


Total available-for-sale securities

     63,101         1,710         —           64,811   
    


  


  


  


Derivatives:

                                   

Foreign exchange contracts

     —           4,645         —           4,645   

Cross currency swaps

     —           335         —           335   

Commodity futures

     2,935         1,337         —           4,272   
    


  


  


  


Total derivatives

     2,935         6,317         —           9,252   
    


  


  


  


Liabilities:

                                   

Derivatives:

                                   

Foreign exchange contracts

     —           2,571         —           2,571   

Commodity futures

     8,000         2,058         —           10,058   
    


  


  


  


Total derivatives

     8,000         4,629         —           12,629   
    


  


  


  



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The Company’s existing marketable equity securities and commodity futures are included in Level 1, which are valued using an unadjusted quoted market price in active markets with sufficient volume and frequency of transactions.

 

Level 2 available-for-sale securities include all debt securities, which are valued using inputs other than quoted prices that are observable. Level 2 derivatives including foreign exchange contracts, cross currency swaps and commodity futures are valued using quotes obtained from brokers, which are periodically validated by pricing models using observable market inputs, such as foreign currency exchange rates and market prices for commodity futures.

 

The following table presents assets and liabilities that are measured at fair value on a nonrecurring basis for the years ended March 31, 2015 and 2014;

 

     Yen (millions)

 
     Year ended March 31, 2015

 
     Total  gains
(losses)

     Fair value

 
        Level 1

     Level 2

     Level 3

     Total

 

Assets:

                                            

Long-lived assets

     (40,032      —           —           93,337         93,337   

Goodwill

     (16,001      —           —           9,402         9,402   

 

     Yen (millions)

 
     Year ended March 31, 2014

 
     Total gains
(losses)


     Fair value

 
        Level 1

     Level 2

     Level 3

     Total

 

Assets:

                                            

Long-lived assets

     (135,175      —           —           121,463         121,463   

Goodwill

     (8,069      —           —           0         0   

 

During the year ended March 31, 2015, the Company classified all of the assets described above in Level 3 as the Company used unobservable inputs to value these assets when recognizing losses related to the assets. The fair value for the major assets was measured primarily through an appraisal based on the repurchase cost and discounted cash flow method.

 

During the year ended March 31, 2014, the Company classified all of the assets described above in Level 3 as the Company used unobservable inputs to value these assets when recognizing losses related to the assets. The fair value for the major assets was measured primarily through an appraisal based on the repurchase cost.


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The following table presents significant unobservable inputs used to measure fair value on a nonrecurring basis categorized as Level 3 for the years ended March 31, 2015 and 2014:

 

     Yen (millions)

     Year ended March 31, 2015

     Fair value

     Valuation
technique

   Unobservable
inputs

  

Range


Assets:

                       

Long-lived assets

     93,337       Repurchase cost
    method
   Residual value
    ratio
   0.1%-63.1%

Goodwill

     9,402       Discounted cash

    flow method

   Weighted average
    cost of capital
   8.4%-12.0%
     Yen (millions)

     Year ended March 31, 2014

     Fair value

     Valuation
technique

   Unobservable
inputs

  

Range


Assets:

                       

Long-lived assets

     121,463       Repurchase cost
    method
   Residual value

    ratio

   0.0%-99.4%


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The fair value of financial instrument

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

 

Available-for-sale securities

The carrying amount is equal to the fair value which is estimated based on quoted market prices or other observable inputs. The fair value is also described in Note 4.

 

Long-term debt, including current portion

The fair value of long-term debt is estimated based on quoted market prices or the present value of future cash flows using appropriate current discount rates. The Company classified long-term debt in Level 2.

 

Derivative financial instruments

The fair value of derivative financial instruments is estimated based on unadjusted market prices or quotes obtained from brokers, which are periodically validated by pricing models using observable inactive market inputs. The fair value is equal to the carrying amount and also described in Note 17.


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Advances

The fair value of advances is estimated based on the present value of future cash flows using appropriate current discount rates. The Company classified advances in Level 2. The following table excludes advances for which carrying amount approximates fair value.

 

Financial instruments other than those listed above (such as Cash and cash equivalents, Time deposits, Trade receivables, Short-term debt, Trade payables and Accrued expenses)

 

The carrying amount approximates fair value because of the short maturity of these instruments. The following table excludes these financial instruments.

 

     Yen (millions)

 
     March 31, 2015

     March 31, 2014

 
     Carrying
amount


     Fair
value


     Carrying
amount


     Fair
value


 

Non-derivatives:

                                   

Assets:

                                   

Available-for-sale securities

     76,929         76,929         64,811         64,811   

Liabilities:

                                   

Long-term debt, including current portion

     962,029         974,671         598,955         615,816   

Derivatives:

                                   

Assets:

                                   

Foreign exchange contracts

     5,820         5,820         4,645         4,645   

Cross currency swaps

     141         141         335         335   

Commodity futures

     8,081         8,081         4,272         4,272   

Liabilities:

                                   

Foreign exchange contracts

     3,371         3,371         2,571         2,571   

Cross currency swaps

     629         629         —           —     

Commodity futures

     15,278         15,278         10,058         10,058   

 

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.


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(19) Commitments and Contingent Liabilities

 

The Company provides guarantees to third parties mainly on bank loans provided to associated companies and customers. The guarantees are made to enhance their credit. For each guarantee provided, the Company is required to perform under the guarantee if the guaranteed party defaults on a payment. Also, as discussed in Note 16, the Company sold certain trade receivables to independent third parties, some of which are with recourse. If the collectibility of those receivables with recourse becomes doubtful, the Company is obligated to assume the liabilities. As of March 31, 2015, the maximum amount of undiscounted payments the Company would have to make in the event of default was 23,280 million yen. The carrying amount of the liabilities recognized for the Company’s obligations as a guarantor under those guarantees as of March 31, 2015 was immaterial.

 

As discussed in Note 5, in connection with the sale and leaseback of certain machinery and equipment, the Company guarantees a specific value of the leased assets. For each guarantee provided, the Company is required to perform under the guarantee if certain conditions are met during or at the end of the lease term. As of March 31, 2015, the maximum amount of undiscounted payments the Company would have to make in the event that these conditions are met was 2,850 million yen. The carrying amount of the liabilities recognized for the Company’s obligations as a guarantor under those guarantees as of March 31, 2015 was immaterial.

 

The Company issues contractual product warranties under which it generally guarantees the performance of products delivered and services rendered for a certain period or term. The change in accrued warranty costs for the years ended March 31, 2015 and 2014 is summarized as follows:

 

     Yen (millions)

 
     2015

     2014

 

Balance at beginning of year

     56,576         50,855   

Liabilities accrued for warranties issued

     26,606         31,818   

Warranty claims paid

     (27,859      (26,624

Changes in liabilities for pre-existing warranties, including expirations

     93         527   
    


  


Balance at end of year

     55,416         56,576   
    


  


 

As of March 31, 2015, commitments outstanding for the purchase of property, plant and equipment, including the estimated amount based on capital investment agreements, were approximately 36,585 million yen. Certain subsidiaries are under contracts to purchase specific raw materials until 2020. As of March 31, 2015, commitments outstanding for this contract were approximately 72,238 million yen. A loss of 16,732 million yen under this contract was recorded for the year ended March 31, 2014. The corresponding loss is included in cost of sales.

 

Liabilities for environmental remediation costs are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. In January 2003, the Company announced that disposed electric equipment that contained polychlorinated biphenyls (PCB equipment) might be buried in the ground of its four manufacturing facilities and one former manufacturing facility. The applicable laws require that PCB equipment be appropriately maintained and disposed of by March 31, 2027. As of March 31, 2015, the Company has accrued estimated total cost of 16,890 million yen for necessary actions such as investigating whether the PCB equipment is buried at the facilities, including excavations, maintaining and disposing the PCB equipment that is already discovered, and soil remediation. While it represents management’s best estimate of the cost, the payments are not considered to be fixed and reliably determinable.


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The Company and certain subsidiaries are under the term of leasehold interest contracts for the land which domestic factories reside on and have obligations for restitution on departure. The asset retirement obligations cannot be reasonably estimated because the durations of use of the leased land are not specified and there are no plans to undertake relocation in the future. Therefore the Company did not recognize asset retirement obligations.

 

The Company and certain of its subsidiaries are subject to a number of legal proceedings including civil litigations related to trade, tax, products or intellectual properties, or governmental investigations. The Company has been dealing with the various litigations and investigations. Depending upon the outcome of these different proceedings, the Company and certain of its subsidiaries may be subject to an uncertain amount of fines, and accordingly the Company has accrued for certain probable and reasonable estimated amounts for the fines.

 

Since November 2007, the Company and MT Picture Display Co., Ltd. (MTPD), a subsidiary of the Company, have been subjected to investigations by government authorities, including the Japan Fair Trade Commission, the U.S. Department of Justice and the European Commission, in respect of alleged antitrust violations relating to cathode ray tubes (CRTs). For the year ended March 31, 2010, the Japan Fair Trade Commission issued a cease and desist order against MTPD and assessed a fine against its three subsidiaries in South East Asia, but each named company filed for a hearing to challenge the orders which is currently subject to proceedings. Since June 2012, the Company and Sanyo Electric Co., Ltd., a subsidiary of the Company, have been subjected to investigations by the European Commission, in respect of alleged antitrust violations relating to the rechargeable battery. Other than those above, there are a number of legal actions against the Company and certain subsidiaries. Management is of the opinion that damages, if any, resulting from these actions, will not have a material effect on the Company’s consolidated financial statements.

 

The ability to predict the outcome of these actions and proceedings is difficult to assess given that certain of the investigations and legal proceedings are still at an early stage, present novel legal theories, involve a large number of parties or taking place in jurisdictions outside of Japan where the laws are complex or unclear. Accordingly, the Company is unable to estimate the losses or range of losses for the actions and proceedings where there is only a reasonable possibility that a loss exceeding amounts already recognized may have been incurred.


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(20) Segment Information

 

In accordance with the provisions of ASC 280, “Segment Reporting,” the segments reported below are the components of the Company for which separate financial information is available that is evaluated regularly by the chief operating decision maker of the Company in deciding how to allocate resources and in assessing performance.

 

“Appliances” is comprised of development, manufacture and sales of consumer electronics (such as flat panel TVs, refrigerators, washing machines, personal-care products, microwave ovens, home audio equipment, video equipment, vacuum cleaners, rice cookers), air-conditioners (such as room air-conditioners, large-sized air-conditioners), cold chain (such as showcases), devices (such as electric motors, compressors, fuel cells) and bicycle related products.

 

“Eco Solutions” is comprised of development, manufacture and sales of products such as lighting fixtures, lamps, wiring devices, solar photovoltaic systems, water-related products, interior furnishing materials, ventilation and air-conditioning equipment, air purifiers, and nursing-care-related products.

 

“AVC Networks” is comprised of development, manufacture and sales of products such as aircraft in-flight entertainment systems, PCs, projectors, digital cameras, mobile phones, surveillance cameras, fixed phones and faxes, and social infrastructure systems equipment.

 

“Automotive & Industrial Systems” is comprised of development, manufacture and sales of automotive related products (such as car-use-multimedia-related equipment, electrical components), industrial related devices (such as lithium-ion batteries, storage batteries, dry batteries, electronic components, electronic materials, automation controls, semiconductors, LCD panels, optical devices) and manufacturing related systems (such as electronic-component-mounting machines, welding equipment).

 

“Other” consists of PanaHome Corporation and others.


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Information by segment for the years ended March 31, 2015, 2014 and 2013 is shown in the tables below:

 

By Business Segment:

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Sales:

                          

Appliances:

                          

Customers

     1,490,919         1,497,485         1,478,626   

Intersegment

     278,748         279,931         255,926   
    


  


  


Total

     1,769,667         1,777,416         1,734,552   

Eco Solutions:

                          

Customers

     1,400,833         1,404,799         1,246,162   

Intersegment

     265,194         269,636         261,351   
    


  


  


Total

     1,666,027         1,674,435         1,507,513   

AVC Networks:

                          

Customers

     1,097,973         1,045,144         1,032,157   

Intersegment

     56,304         107,378         155,045   
    


  


  


Total

     1,154,277         1,152,522         1,187,202   

Automotive & Industrial Systems:

                          

Customers

     2,620,809         2,563,709         2,338,966   

Intersegment

     161,728         158,085         202,540   
    


  


  


Total

     2,782,537         2,721,794         2,541,506   

Other:

                          

Customers

     627,877         714,530         717,412   

Intersegment

     136,599         176,760         199,462   
    


  


  


Total

     764,476         891,290         916,874   

Eliminations and Adjustments:

                          

Customers

     476,626         510,874         489,722   

Intersegment

     (898,573      (991,790      (1,074,324
    


  


  


Total

     (421,947      (480,916      (584,602
    


  


  


Consolidated total

     7,715,037         7,736,541         7,303,045   
    


  


  



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     Yen (millions)

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Segment profit:

                          

Appliances

     40,515         29,509         43,485   

Eco Solutions

     95,255         92,106         60,296   

AVC Networks

     51,785         35,707         32,687   

Automotive & Industrial Systems

     105,677         69,150         179   

Other

     14,557         24,345         7,426   

Eliminations and Adjustments

     74,124         54,297         16,863   
    


  


  


Total segment profit

     381,913         305,114         160,936   
    


  


  


Interest income

     14,975         10,632         9,326   

Dividends received

     1,466         1,992         3,686   

Other income

     95,784         243,488         91,807   

Interest expense

     (17,566      (21,911      (25,601

Impairment losses of long-lived assets

     (40,032      (103,763      (138,138

Goodwill impairment

     (16,001      (8,069      (250,583

Other deductions

     (238,083      (221,258      (249,819
    


  


  


Consolidated income (loss) before income taxes

     182,456         206,225         (398,386
    


  


  



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     Yen (millions)

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Identifiable assets:

                          

Appliances

     931,137         955,463         922,581   

Eco Solutions

     1,196,652         1,220,782         1,096,171   

AVC Networks

     815,646         668,828         781,583   

Automotive & Industrial Systems

     1,818,441         1,749,003         1,725,751   

Other

     593,671         629,179         718,014   

Eliminations and Adjustments

     601,400         (10,261      153,712   
    


  


  


Consolidated total

     5,956,947         5,212,994         5,397,812   
    


  


  


Depreciation (including intangibles other than goodwill):

                          

Appliances

     53,355         53,928         47,628   

Eco Solutions

     49,007         49,708         47,137   

AVC Networks

     27,572         40,592         40,304   

Automotive & Industrial Systems

     114,292         123,375         130,949   

Other

     9,761         17,972         21,034   

Eliminations and Adjustments

     32,339         45,211         51,903   
    


  


  


Consolidated total

     286,326         330,786         338,955   
    


  


  


Capital investment (including intangibles other than goodwill):

                          

Appliances

     47,075         37,586         62,697   

Eco Solutions

     38,892         46,902         58,733   

AVC Networks

     25,687         22,611         41,373   

Automotive & Industrial Systems

     111,006         94,594         136,482   

Other

     11,606         15,240         18,781   

Eliminations and Adjustments

     19,344         22,194         24,647   
    


  


  


Consolidated total

     253,610         239,127         342,713   
    


  


  



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The figures in “Eliminations and Adjustments” include revenues and expenses which are not attributable to any reportable segments for the purpose of evaluating operating results of each segment, consolidation adjustments, and eliminations of intersegment transactions.

 

Adjustments to segment sales to Customers for the years ended March 31, 2015, 2014 and 2013 mainly include price differences of 611,706 million yen, 642,832 million yen and 592,893 million yen, respectively, between sales prices to external customers and the internal sales prices adopted for performance measurement purposes for the sales of consumer products through sales departments. Adjustments also include the sales of certain associated companies under the equity method, amounting to a deduction of 98,684 million yen, 105,815 million yen and 96,225 million yen, respectively, included in segment sales solely for the purpose of assessing segment performance.

 

Adjustments to segment profit for the years ended March 31, 2015, 2014 and 2013 mainly include 55,305 million yen, 14,568 million yen, and (17,210) million yen, respectively, of profit and (loss) of corporate headquarters and sales departments of consumer products which are not allocated to any reportable segments. The adjustments also include 18,819 million yen, 39,729 million yen and 34,073 million yen of consolidation adjustments, respectively, mainly related to amortization of finite-lived intangible assets recognized upon business combinations and other differences in accounting standards.

 

Assets which are not attributable to any reportable segments include those which are attributable to sales departments of consumer products, goodwill controlled by corporate headquarters, and intangible assets recognized upon business combinations.

 

Capital investment consists of purchases of property, plant and equipment, and intangibles on an accrual basis.


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- 78 -

 

By Geographical Area:

 

Sales attributed to countries based upon the customers’ location and property, plant and equipment are as follows:

 

     Yen (millions)

 
     Year ended March 31,

 
     2015

     2014

     2013

 

Sales:

                          

Japan

     3,692,018         3,897,934         3,790,392   

North and South America

     1,218,070         1,134,658         1,022,278   

Europe

     729,420         740,269         665,863   

Asia and Others

     2,075,529         1,963,680         1,824,512   
    


  


  


Consolidated total

     7,715,037         7,736,541         7,303,045   
    


  


  


United States included in North and South America

     1,052,048         967,551         866,048   

China included in Asia and Others

     1,034,760         994,852         940,804   

Property, plant and equipment:

                          

Japan

     888,301         936,487         1,153,080   

North and South America

     52,341         47,382         44,067   

Europe

     33,552         40,191         37,622   

Asia and Others

     400,637         401,389         440,659   
    


  


  


Consolidated total

     1,374,831         1,425,449         1,675,428   
    


  


  


 

There are no individually material countries which should be separately disclosed in North and South America, Europe, and Asia and Others, except for the United States of America and China on sales.

 

Transfers between business segments or geographic segments are made at arms-length prices. There are no sales to a single external major customer for the years ended March 31, 2015, 2014 and 2013.


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(21) Acquisition

 

On February 28, 2014, the Company acquired 90% of outstanding shares of Viko Electric Co., Ltd. (VIKO) and accordingly, has a controlling interest in VIKO from the acquisition date.

 

VIKO is in the business of manufacturing and sales of electrical and materials, such as wiring devices, low voltage switchgears, smart meters and building automation system. As a result of this acquisition, by utilizing VIKO’s management resources, such as its strong brand awareness, sales channels, and “C-Type” wiring devices and technologies, using Turkey as the base, the Company expects expansion in the sales of wiring devices and other product ranges as well as electrical equipment and materials produced by the Company, such as lighting devices and fans, not only in Turkey, but in the Middle East, CIS and African markets. In addition, by introducing new products by making use of the Company’s product competitiveness and development capabilities, and by making improvements in productivity through sharing manufacturing know-how with VIKO, the Company will create synergies with VIKO and is aiming for further expansion of the business.

 

The fair value of the consideration paid for the controlling interest of VIKO and the noncontrolling interests as of the acquisition date is as follows:

 

       Yen (millions)  

 

Fair value of consideration:

        

Cash

     47,510   

Fair value of noncontrolling interests

     3,771   
    


Total

     51,281   
    


 

The fair value of noncontrolling interests was estimated based on the acquisition consideration taking into consideration a control premium. Acquisition-related cost was not material.

 

Assets acquired and liabilities assumed as of the acquisition date were as follows:

 

       Yen (millions)  

 

Cash and cash equivalents

     131   

Goodwill

     23,145   

Intangible assets

     30,295   

Other assets

     11,701   
    


Total assets acquired

     65,272   
    


Deferred tax liabilities

     5,963   

Other liabilities

     8,028   
    


Total liabilities assumed

     13,991   
    


Total net assets acquired

     51,281   
    


 

Intangible assets of 20,188 million yen are subject to amortization, which include a dealer network of 17,629 million yen with a 13-year useful life. Intangible assets of 10,107 million yen are not subject to amortization, all of which relates to trade name.

 

The goodwill represents the future expansion of the Company from new revenue streams arising from the acquisition of VIKO and synergies with the existing Company’s businesses. The total amount of goodwill is included in “Eco Solutions” segment, and is not deductible for tax purpose.

 

Net sales and income before income taxes of VIKO that are included in the consolidated statements of operations for the year ended March 31, 2014 are not material.

 

Pro forma information has been omitted as the amounts are not material.


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(22) Stock-Based Compensation

 

On July 31, 2014, the Company approved to grant stock acquisition rights as an incentive stock-based compensation plan to the directors of Panasonic, the executive officers and certain other officers who are responsible for business operations. Subsequently on August 22, 2014, the Company granted stock acquisition rights to acquire 208,800 shares of common stock at a grant date fair value of 1,054 yen. The stock acquisition rights are fully vested on grant date and have a 30 years exercisable period from August 23, 2014 to August 22, 2044. During the period when stock acquisition rights may be exercised, the holder can exercise the rights on the day following the date on which such holder loses the status as the director, the executive officer or any status equivalent thereto.

 

The stock-based compensation expense for these stock acquisition rights for the year ended March 31, 2015, was 220 million yen included in selling, general and administrative expenses in the consolidated statements of operations. The income tax benefit related to the stock-based compensation expense during the year ended March 31, 2015, was not material.

 

The fair value of stock acquisition rights granted on grant date and used to recognize compensation expense for the year ended March 31, 2015, was estimated using the Black-Scholes option-pricing model with the following assumptions:

 

     2015

 

Stock price

     1,235.5  yen 

Exercise price

     1  yen 

Expected term

     15  years 

Risk-free interest date

     0.95

Expected volatility

     35.17

Expected dividends

     1.05

 

A summary of the activities regarding the stock acquisition rights as of and for the year ended March 31, 2015, is presented below:

 

     Shares

     Weighted-average
exercise price  (Yen)

     Weighted-average
remaining  contractual
term (Year)


     Aggregate
intrinsic value
(Million yen)


 

Outstanding at March 31, 2014

     —           —                       

Granted

     208,800         1                     

Exercised

     —           —                       

Forfeited/Expired

     —           —                       
    


                          

Outstanding at March 31, 2015

     208,800         1         29.05         329   
    


  


  


  


Exercisable at March 31, 2015

     2,400         1         4.58         4   
    


  


  


  


 

As of March 31, 2015, all outstanding stock acquisition rights were vested with no exercises of the stock acquisition rights during the year ended March 31, 2015.


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Schedule II

 

PANASONIC CORPORATION

AND SUBSIDIARIES

 

Valuation and Qualifying Accounts and Reserves

(In millions of yen)

 

Years ended March 31, 2015, 2014 and 2013

 

            Add

     Deduct

     Add
(deduct)


        
     Balance at
beginning
of period


     Charged
to
income

     Bad Debts
written

off

     Reversal

     Cumulative
translation
adjustments


     Balance at
end of
period


 

Allowance for doubtful receivables:

                                                     

2015

     24,476         5,918         1,975         5,631         2,159         24,947   

2014

     23,398         8,218         4,126         4,231         1,217         24,476   

2013

     26,604         6,641         6,092         6,254         2,499         23,398   


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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

            

PANASONIC CORPORATION


             (Registrant)

Date: June 26, 2015

      

By

 

/s/    Yukie Takakuwa


             Yukie Takakuwa
             Attorney-in-Fact
            

General Manager of Disclosure &

Investor Relations Office

             Panasonic Corporation


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Index to Exhibits

 

Documents filed as exhibits to this annual report are as follows:

 

  12.1      

Certification of the principal executive officer of the Company required by Rule 13a-14(a)

  12.2      

Certification of the principal financial officer of the Company required by Rule 13a-14(a)

  13.1      

Certification required by Rule 13a-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code