Form 6-K

 

 

FORM 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Quarterly Consolidated Financial Statements for the three-month period ended September 30, 2009

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of November 16, 2009

Commission File Number 09929

 

 

Mitsui & Co., Ltd.

(Translation of registrant’s name into English)

2-1, Ohtemachi 1-chome Chiyoda-ku, Tokyo 100-0004 Japan

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F      X                Form 40-F              

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):             

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):             

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes                          No      X    

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-            

 

 

 


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 16, 2009

 

MITSUI & CO., LTD.
By:  

/s/ Junichi Matsumoto

Name:   Junichi Matsumoto
Title:  

Executive Vice President

Chief Financial Officer


Quarterly Consolidated Financial Statements

for the three-month period ended September 30, 2009

English translation of quarterly consolidated financial statements for the three-month period ended September 30, 2009, which were prepared in accordance with U.S. GAAP and filed as part of the Quarterly Securities Report with the Director of the Kanto Local Finance Bureau of the Ministry of Finance of Japan on November 13, 2009.

LOGO


Financial Highlights

Mitsui & Co., Ltd. and subsidiaries

As of or for the Periods Ended September 30, 2009 and 2008 and as of or for the Year Ended March 31, 2009

 

    Billions of Yen  
    Six-month
period ended
September 30, 2009
    Six-month
period ended
September 30, 2008
    Three-month
period ended
September 30, 2009
  Three-month
period ended
September 30, 2008
  As of or for
the Year ended
March 31, 2009
 

For the Period and the Year:

         

Revenues

  ¥ 2,007      ¥ 3,333      ¥ 1,027   ¥ 1,807   ¥ 5,535   

Gross Profit

  ¥ 345      ¥ 629      ¥ 178   ¥ 354   ¥ 1,016   

Operating Income*2

  ¥ 76      ¥ 311      ¥ 42   ¥ 188   ¥ 395   

Equity in Earnings of Associated Companies—Net

  ¥ 56      ¥ 120      ¥ 25   ¥ 58   ¥ 120   

Net Income Attributable to Mitsui & Co., Ltd

  ¥ 73      ¥ 241      ¥ 16   ¥ 137   ¥ 178   

Net Cash Provided by Operating Activities

  ¥ 329      ¥ 69      ¥ —     ¥ —     ¥ 583   

Net Cash Used in Investing Activities

  ¥ (40   ¥ (192   ¥ —     ¥ —     ¥ (291

At Period-End and Year-End:

         

Total Assets

  ¥ —        ¥ —        ¥ 8,295   ¥ 9,718   ¥ 8,364   

Total Mitsui & Co., Ltd. Shareholders’ Equity

  ¥ —        ¥ —        ¥ 2,076   ¥ 2,232   ¥ 1,882   

Total Equity

  ¥ —        ¥ —        ¥ 2,305   ¥ 2,491   ¥ 2,111   

Cash and Cash Equivalents

  ¥ —        ¥ —        ¥ 1,385   ¥ 805   ¥ 1,148   

Long-term Debt, Less Current Maturities

  ¥ —        ¥ —        ¥ 2,866   ¥ 2,862   ¥ 2,841   
    Yen  

Amounts per Share:

         

Net Income Attributable to Mitsui & Co., Ltd.:

         

Basic

  ¥ 39.98      ¥ 132.24      ¥ 8.51   ¥ 75.51   ¥ 97.59   

Diluted

  ¥ 39.91      ¥ 131.79      ¥ 8.50   ¥ 75.31   ¥ 97.32   

Total Mitsui & Co., Ltd. Shareholders’ Equity

  ¥ —        ¥ —        ¥ 1,137.71   ¥ 1,225.84   ¥ 1,033.22   

 

*1. The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America.
*2. Operating income is comprised of our (a) gross profit, (b)selling, general and administrative expenses and (c) provision for doubtful receivables, as presented in the Statements of Consolidated Income.
*3. The consolidated financial statements have been adjusted due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10-65, “Transition Related to FASB Statement No.160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” which was formerly Statement of Financial Accounting Standards (“SFAS”) No. 160.
*4. Tax effects on investments in associated companies which were formerly included in “Equity in Earnings of Associated Companies—Net” are included in “Income Taxes” for the six-month period ended September 30, 2009 and the three-month period ended September 30, 2009. Amounts for the six-month period ended September 30, 2008, the three-month period ended September 30, 2008 and the year ended March 31, 2009 have been reclassified to conform to the current period presentation.

 

- 1 -


Consolidated Balance Sheets

Mitsui & Co., Ltd. and subsidiaries

September 30, 2009 and March 31, 2009

 

     Millions of Yen  
     September 30,
2009
    March 31,
2009
 

ASSETS

    

Current Assets:

    

Cash and cash equivalents ( Notes 1, 3 and 12)

   ¥ 1,385,371      ¥ 1,147,809   

Time deposits

     4,422        5,645   

Marketable securities ( Notes 1, 3 and 12)

     5,626        18,097   

Trade receivables :

    

Notes and loans, less unearned interest

     265,145        298,677   

Accounts

     1,370,920        1,412,022   

Associated companies

     157,192        169,115   

Allowance for doubtful receivables ( Note 1)

     (18,439     (18,165

Inventories ( Notes 1 and 9)

     529,367        592,530   

Advance payments to suppliers

     98,531        98,772   

Deferred tax assets—current ( Note 1)

     42,651        29,969   

Derivative assets ( Notes 1, 10 and 12)

     191,963        329,897   

Other current assets

     248,002        334,769   
                

Total current assets

     4,280,751        4,419,137   
                

Investments and Non-current Receivables ( Note 1):

    

Investments in and advances to associated companies ( Notes 3, 6 and 12)

     1,314,602        1,275,490   

Other investments ( Notes 3 and 12)

     1,006,735        957,219   

Non-current receivables, less unearned interest ( Notes 10 and 12)

     462,276        486,412   

Allowance for doubtful receivables

     (54,579     (51,883

Property leased to others—at cost, less accumulated depreciation

     206,609        199,204   
                

Total investments and non-current receivables

     2,935,643        2,866,442   
                

Property and Equipment—at Cost ( Note 1):

    

Land, land improvements and timberlands

     162,230        165,249   

Buildings, including leasehold improvements

     366,752        344,392   

Equipment and fixtures

     901,143        867,323   

Mineral rights

     154,223        154,246   

Vessels

     32,754        35,754   

Projects in progress

     160,042        153,923   
                

Total

     1,777,144        1,720,887   

Accumulated depreciation

     (822,121     (774,597
                

Net property and equipment

     955,023        946,290   
                

Intangible Assets, less Accumulated Amortization ( Note 1)

     92,000        96,505   
                

Deferred Tax Assets—Non-current ( Note 1)

     17,678        21,011   
                

Other Assets

     13,879        14,858   
                

Total

   ¥ 8,294,974      ¥ 8,364,243   
                

See notes to consolidated financial statements.

 

- 2 -


     Millions of Yen  
     September 30,
2009
    March 31,
2009
 

LIABILITIES AND SHAREHOLDER’S EQUITY

    

Current Liabilities:

    

Short-term debt

   ¥ 312,886      ¥ 454,059   

Current maturities of long-term debt ( Note 10)

     397,061        373,197   

Trade payables:

    

Notes and acceptances

     37,660        51,048   

Accounts

     1,259,047        1,292,520   

Associated companies

     34,026        39,243   

Accrued expenses:

    

Income taxes ( Note 1)

     36,830        46,576   

Interest

     18,078        20,504   

Other

     64,442        89,704   

Advances from customers

     127,873        132,116   

Derivative liabilities ( Notes 1, 10 and 12)

     94,496        180,533   

Other current liabilities ( Notes 1 and 8)

     91,163        112,990   
                

Total current liabilities

     2,473,562        2,792,490   
                

Long-term Debt, less Current Maturities ( Note 10)

     2,866,363        2,841,301   
                

Accrued Pension Costs and Liability for Severance

    

Indemnities ( Note 1)

     33,362        33,814   
                

Deferred Tax Liabilities—Non-current ( Note 1)

     299,780        256,085   
                

Other Long-Term Liabilities ( Notes 1, 8, 10 and 12)

     316,555        329,107   
                

Contingent Liabilities ( Note 8)

    

Equity:

    

Mitsui & Co., Ltd. Shareholders’ equity ( Note 1)

    

Common stock—no par value

     341,482        339,627   

Authorized, 2,500,000,000 shares;

    

issued, 1,829,153,527 in 2009. 9 and 1,824,928,240 shares in 2009. 3

    

Capital surplus

     434,825        434,188   

Retained earnings:

    

Appropriated for legal reserve

     53,651        48,806   

Unappropriated

     1,554,189        1,486,201   

Accumulated other comprehensive income (loss) ( Note 1):

    

Unrealized holding gains and losses on available-for-sale securities ( Note 3)

     101,193        44,263   

Foreign currency translation adjustments

     (333,920     (384,618

Defined benefit pension plans

     (64,798     (68,683

Net unrealized gains and losses on derivatives ( Note 10)

     (4,177     (12,459
                

Total accumulated other comprehensive income (loss)

     (301,702     (421,497
                

Treasury stock, at cost: 4,320,375 in 2009. 9 and 3,770,220 shares in 2009. 3

     (6,306     (5,662
                

Total Mitsui & Co., Ltd. shareholders’ equity

     2,076,139        1,881,663   
                

Noncontrolling interests ( Note 1)

     229,213        229,783   
                

Total equity

     2,305,352        2,111,446   
                

Total

   ¥ 8,294,974      ¥ 8,364,243   
                

 

- 3 -


Statements of Consolidated Income

Mitsui & Co., Ltd. and subsidiaries

For the Six-Month Periods Ended September 30, 2009 and 2008

 

 

     Millions of Yen  
     Six-Month
Period Ended
September 30, 2009
   Six-Month
Period Ended
September 30, 2008
 

Revenues ( Notes 1, 10 and 12):

     

Sales of products

   ¥ 1,746,236    ¥ 2,944,856   

Sales of services

     184,482      284,094   

Other sales

     76,249      103,675   
               

Total revenues

     2,006,967      3,332,625   

          [

 

 

Total Trading Transactions ( Notes 1 and 6)

Six-month period ended September 30, 2009 ¥ 5,355,872 million

Six-month period ended September 30, 2008 ¥ 8,973,117 million

  ]

Cost of Revenues ( Notes 1, 10 and 12)

    

Cost of products sold

     1,565,420        2,572,265   

Cost of services sold

     64,056        85,945   

Cost of other sales

     32,866        45,728   
                

Total cost of revenues

     1,662,342        2,703,938   
                

Gross Profit

     344,625        628,687   
                

Other Expenses (Income):

  

Selling, general and administrative ( Notes 1 and 4)

     264,627        312,101   

Provision for doubtful receivables ( Note 1)

     4,472        5,786   

Interest income ( Notes 1 and 10)

     (16,310     (23,703

Interest expense ( Notes 1 and 10)

     25,764        42,073   

Dividend income

     (17,956     (38,906

Gain on sales of securities—net ( Notes 1 and 3)

     (3,766     (18,467

Loss on write-down of securities ( Notes 1, 3 and 12)

     18,751        24,746   

Gain on disposal or sales of property and equipment—net

     (755     (5,160

Impairment loss of long-lived assets ( Notes 1 and 12)

     1,430        1,133   

Impairment loss of goodwill ( Notes 1 and 12)

     3,108        —     

Other expense—net ( Notes 8 and 10)

     9,480        18,896   
                

Total other expenses

     288,845        318,499   
                

Income before Income Taxes and Equity in Earnings

     55,780        310,188   
                

Income Taxes ( Note 1):

     34,405        158,582   
                

Income before Equity in Earnings

     21,375        151,606   

Equity in Earnings of Associated Companies—Net ( Notes 1 and 12)

     56,014        119,657   
                

Net Income before Attribution of Noncontrolling Interests ( Note 1)

     77,389        271,263   

Net Income Attributable to Noncontrolling Interests ( Note 1)

     (4,554     (30,715
                

Net Income Attributable to Mitsui & Co., Ltd. ( Note 1)

   ¥ 72,835      ¥ 240,548   
                
     Yen  
     Six-Month
Period Ended

September 30, 2009
    Six-Month
Period Ended

September 30, 2008
 

Net Income Attributable to Mitsui & Co., Ltd. per Share ( Notes 1 and 5):

  

Basic

   ¥ 39.98      ¥ 132.24   
                

Diluted

   ¥ 39.91      ¥ 131.79   
                

See notes to consolidated financial statements.

 

- 4 -


For the Three-Month Periods Ended September 30, 2009 and 2008

 

     Millions of Yen  
     Three-Month
Period Ended
September 30, 2009
   Three-Month
Period Ended
September 30, 2008
 

Revenues ( Notes 1, 10 and 12):

     

Sales of products

   ¥ 890,231    ¥ 1,597,935   

Sales of services

     93,754      145,819   

Other sales

     42,782      63,000   
               

Total revenues

     1,026,767      1,806,754   

          [

 

 

Total Trading Transactions ( Notes 1 and 6)

Three-month period ended September 30, 2009 ¥ 2,729,537 million

Three-month period ended September 30, 2008 ¥ 4,685,220 million

  ]      

Cost of Revenues ( Notes 1, 10 and 12)

  

Cost of products sold

     798,890        1,383,396   

Cost of services sold

     33,398        43,376   

Cost of other sales

     16,569        26,275   
                

Total cost of revenues

     848,857        1,453,047   
                

Gross Profit

     177,910        353,707   
                

Other Expenses (Income):

  

Selling, general and administrative ( Notes 1 and 4)

     131,845        161,383   

Provision for doubtful receivables ( Note 1)

     3,660        4,789   

Interest income ( Notes 1 and 10)

     (7,848     (13,011

Interest expense ( Notes 1 and 10)

     10,809        22,384   

Dividend income

     (7,717     (14,290

Gain on sales of securities - net ( Notes 1 and 3)

     (1,546     (12,055

Loss on write-down of securities ( Notes 1, 3 and 12)

     15,963        14,118   

Gain on disposal or sales of property and equipment - net

     (494     (2,932

Impairment loss of long-lived assets ( Notes 1 and 12)

     999        660   

Impairment loss of goodwill ( Notes 1 and 12)

     3,108        —     

Other expense - net ( Notes 8 and 10)

     10,094        7,732   
                

Total other expenses

     158,873        168,778   
                

Income before Income Taxes and Equity in Earnings

     19,037        184,929   
                

Income Taxes ( Notes 1 and 7):

     30,686        87,986   
                

(Loss) Income before Equity in Earnings

     (11,649     96,943   

Equity in Earnings of Associated Companies—Net ( Notes 1 and 12)

     25,192        57,590   
                

Net Income before Attribution of Noncontrolling Interests ( Note 1)

     13,543        154,533   

Net Loss (Income) Attributable to Noncontrolling Interests ( Note 1)

     1,970        (17,069
                

Net Income Attributable to Mitsui & Co., Ltd. ( Note 1)

   ¥ 15,513      ¥ 137,464   
                
     Yen  
     Three-Month
Period Ended
September 30, 2009
    Three-Month
Period Ended
September 30, 2008
 

Net Income Attributable to Mitsui & Co., Ltd. per Share ( Notes 1 and 5):

  

Basic

   ¥ 8.51      ¥ 75.51   
                

Diluted

   ¥ 8.50      ¥ 75.31   
                

See notes to consolidated financial statements.

 

- 5 -


Statements of Consolidated Shareholders’ Equity

Mitsui & Co., Ltd. and subsidiaries

For the Six-Month Periods Ended September 30, 2009 and 2008

 

     Millions of Yen  
     Six-Month
Period Ended
September 30, 2009
    Six-Month
Period Ended
September 30, 2008
 

Common Stock:

    

Balance at beginning of period

    

Shares issued: 2009.09—1,824,928,240 shares; 2008.09—1,820,183,809 shares

   ¥ 339,627      ¥ 337,544   

Common stock issued upon conversion of bonds

    

Shares issued: 2009.09—4,225,287 shares; 2008.09—4,728,465 shares

     1,855        2,076   
                

Balance at end of period

    

Shares issued: 2009.09—1,829,153,527 shares; 2008.09—1,824,912,274 shares

   ¥ 341,482      ¥ 339,620   
                

Capital Surplus:

    

Balance at beginning of period

   ¥ 434,188      ¥ 432,245   

Conversion of bonds

     1,850        2,069   

Gains on sales of treasury stock

     —          101   

Other

     (1,213     —     
                

Balance at end of period

   ¥ 434,825      ¥ 434,415   
                

Retained Earnings:

    

Appropriated for Legal Reserve:

    

Balance at beginning of period

   ¥ 48,806      ¥ 47,463   

Transfer from unappropriated retained earnings

     4,845        7,320   
                

Balance at end of period

   ¥ 53,651      ¥ 54,783   
                

Unappropriated:

    

Balance at beginning of period

   ¥ 1,486,201      ¥ 1,397,313   

Net income attributable to Mitsui & Co., Ltd. ( Note 1)

     72,835        240,548   

Cash dividends paid to Mitsui & Co., Ltd. shareholders

     —          (41,788

Transfer to retained earnings appropriated for legal reserve

     (4,845     (7,320

Losses on sales of treasury stock

     (2     —     
                

Balance at end of period

   ¥ 1,554,189      ¥ 1,588,753   
                

Accumulated Other Comprehensive Income (Loss) (After Income Tax Effect) ( Note 1):

    

Balance at beginning of period

   ¥ (421,497   ¥ (25,775

Unrealized holding gains (losses) on available-for-sale securities ( Note 3)

     56,930        (52,364

Foreign currency translation adjustments

     50,698        (82,791

Defined benefit pension plans

     3,885        1,436   

Net unrealized gains (losses) on derivatives ( Note 10)

     8,282        (19,724
                

Balance at end of period

   ¥ (301,702   ¥ (179,218
                

Treasury Stock, at Cost:

    

Balance at beginning of period

   ¥ (5,662   ¥ (5,130

Purchases of treasury stock

     (650     (1,262

Sales of treasury stock

     6        283   
                

Balance at end of period

   ¥ (6,306   ¥ (6,109
                

Total Mitsui & Co., Ltd. shareholders’ equity

   ¥ 2,076,139      ¥ 2,232,244   
                

 

- 6 -


Statements of Consolidated Shareholders’ Equity—(Continued)

Mitsui & Co., Ltd. and subsidiaries

For the Six-Month Periods Ended September 30, 2009 and 2008

 

     Millions of Yen  
     Six-Month
Period Ended
September 30, 2009
    Six-Month
Period Ended
September 30, 2008
 

Noncontrolling Interests ( Note 1):

    

Balance at beginning of period

   ¥ 229,783      ¥ 243,976   

Dividends paid to noncontrolling interest shareholders

     (7,642     (9,382

Net income attributable to noncontrolling interests

     4,554        30,715   

Unrealized holding gains (losses) on available-for-sale securities (after income tax effect) ( Note 3)

     4,446        (11,728

Foreign currency translation adjustments (after income tax effect)

     (1,796     (2,184

Defined benefit pension plans (after income tax effect)

     (6     —     

Net unrealized losses on derivatives (after income tax effect) ( Note 10)

     (71     (714

Other

     (55     8,268   
                

Balance at end of period

   ¥ 229,213      ¥ 258,951   
                

Total Equity:

    

Balance at beginning of period

   ¥ 2,111,446      ¥ 2,427,636   

Conversion of bonds

     3,705        4,145   

(Losses) gains on sales of treasury stock

     (2     101   

Net income before attribution of noncontrolling interests

     77,389        271,263   

Cash dividends paid to Mitsui & Co., Ltd. Shareholders

     —          (41,788

Dividends paid to noncontrolling interest shareholders

     (7,642     (9,382

Unrealized holding gains (losses) on available-for-sale securities (after income tax effect) ( Note 3)

     61,376        (64,092

Foreign currency translation adjustments (after income tax effect)

     48,902        (84,975

Defined benefit pension plans (after income tax effect)

     3,879        1,436   

Net unrealized gains (losses) on derivatives (after income tax effect) ( Note 10)

     8,211        (20,438

Sales and purchases of treasury stock

     (644     (979

Other

     (1,268     8,268   
                

Balance at end of period

   ¥ 2,305,352      ¥ 2,491,195   
                

Comprehensive Income :

    

Net income before attribution of noncontrolling interests ( Note 1)

   ¥ 77,389      ¥ 271,263   
                

Other comprehensive income (after income tax effect) ( Note 1):

    

Unrealized holding gains (losses) on available-for-sale securities ( Note 3)

     61,376        (64,092

Foreign currency translation adjustments

     48,902        (84,975

Defined benefit pension plans

     3,879        1,436   

Net unrealized gains (losses) on derivatives ( Note 10)

     8,211        (20,438
                

Comprehensive income before attribution of noncontrolling interests ( Note 1)

     199,757        103,194   

Comprehensive income attributable to noncontrolling interests ( Note 1)

     (7,127     (16,089
                

Comprehensive income attributable to Mitsui & Co., Ltd. ( Note 1)

   ¥ 192,630      ¥ 87,105   
                

See notes to consolidated financial statements.

 

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Statements of Consolidated Cash Flows

Mitsui & Co., Ltd. and subsidiaries

For the Six-Month Periods ended September 30, 2009, 2008

 

     Millions of Yen  
     Six-Month
Period ended
September 30, 2009
    Six-Month
Period ended
September 30, 2008
 

Operating Activities:

    

Net income before attribution of noncontrolling interests ( Note 1)

   ¥ 77,389      ¥ 271,263   

Adjustments to reconcile net income before attribution of noncontrolling interests to net cash provided by operating activities:

    

Depreciation and amortization

     70,808        70,594   

Pension and severance costs, less payments

     6,149        3,331   

Provision for doubtful receivables

     4,472        5,786   

Gain on sales of securities - net

     (3,766     (18,467

Loss on write-down of securities

     18,751        24,746   

Gain on disposal or sales of property and equipment - net

     (755     (5,160

Impairment loss of long-lived assets

     1,430        1,133   

Impairment loss of goodwill

     3,108        —     

Deferred income taxes

     (11,350     20,298   

Equity in earnings of associated companies, less dividends received

     (4,441     (58,320

Changes in operating assets and liabilities:

    

Decrease (increase) in trade receivables

     107,302        (4,761

Decrease (increase) in inventories

     53,033        (90,483

Decrease in trade payables

     (62,883     (15,358

Decrease in accrued expenses

     (37,659     (8,972

Decrease (increase) in advance payments to suppliers

     3,774        (91,123

(Decrease) increase in advances from customers

     (18,736     97,536   

Decrease (increase) in derivative assets

     104,039        (34,264

Decrease in derivative liabilities

     (45,599     (50,324

Decrease in other current assets - income tax receivables

     57,995        2,271   

Other - net

     5,728        (50,243
                

Net cash provided by operating activities

     328,789        69,483   
                

Investing Activities:

    

Net decrease in time deposits

     1,217        2,660   

Investments in and advances to associated companies

     (25,816     (138,971

Sales of investments in and collection of advances to associated companies

     23,705        43,642   

Acquisitions of other investments

     (15,716     (42,593

Proceeds from sales of other investments

     48,496        58,438   

Increase in long-term loan receivables

     (35,140     (45,573

Collection of long-term loan receivables

     38,576        41,117   

Additions to property leased to others and property and equipment

     (87,288     (135,456

Proceeds from sales of property leased to others and property and equipment

     12,253        26,411   

Acquisitions of subsidiaries, net cash acquired

     —          (1,208
                

Net cash used in investing activities

     (39,713     (191,533
                

Financing Activities :

    

Net (decrease) increase in short-term debt

     (139,653     92,571   

Proceeds from long-term debt

     320,470        133,350   

Repayments of long-term debt

     (230,384     (142,497

Purchases of treasury stock - net

     (16     (880

Payments of cash dividends and others

     (8,189     (49,395
                

Net cash (used in) provided by financing activities

     (57,772     33,149   
                

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     6,258        (5,165
                

Net Increase (Decrease) in Cash and Cash Equivalents

     237,562        (94,066
                

Cash and Cash Equivalents at Beginning of Period

     1,147,809        899,264   
                

Cash and Cash Equivalents at End of Period

   ¥ 1,385,371      ¥ 805,198   
                

See notes to consolidated financial statements.

 

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1. BASIS OF FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

I. BASIS OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements are stated in Japanese yen, the currency of the country in which Mitsui & Co., Ltd. (the “Company”) is incorporated and principally operates.

The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”). Effect has been given in the consolidated financial statements to adjustments which have not been entered in Mitsui & Co., Ltd. and subsidiaries’ (collectively, the “companies”) general books of account maintained principally in accordance with accounting practices prevailing in the countries of incorporation. Major adjustments include those relating to accounting for derivative instruments and hedging activities, accounting for certain investments including non-monetary exchange of investments and effects of changes in foreign currency exchange rates on foreign-currency-denominated available-for-sale debt securities, accounting for warrants, accounting for pension costs and severance indemnities, recognition of installment sales on the accrual basis of accounting, accounting for business combinations, accounting for goodwill and other intangible assets, accounting for asset retirement obligations, accounting for consolidation of variable interest entities, accounting for leasing, accounting for stock issuance costs, and accounting for uncertainty in income taxes.

Effective July 1, 2009, the companies adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or collectively “The Codification”) 105, “Generally Accepted Accounting Principles,” which was formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, and the accompanying consolidated financial statements are presented in accordance with the Codification. The companies have also included some references to superseded U.S. accounting standards for better guidance for users of the consolidated financial statements.

Total trading transactions, as presented in the accompanying Statements of Consolidated Income, are voluntary disclosures as permitted by ASC 605-45, “Revenue Recognition—Principal Agent Considerations,” which was formerly FASB Emerging Issues Task Force Issue (“EITF”) No. 99-19, and represent the gross transaction volume or the aggregate nominal value of the sales contracts in which the companies act as principal and transactions in which the companies serve as agent. Total trading transactions should not be construed as equivalent to, or a substitute or a proxy for, revenues, or as an indicator of the companies’ operating performance, liquidity or cash flows generated by operating, investing or financing activities. The companies have included the gross transaction volume information because similar Japanese trading companies have generally used it as an industry benchmark. As such, management believes that total trading transactions are a useful supplement to the results of operations information for users of the consolidated financial statements.

II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of the Company, its majority-owned domestic and foreign subsidiaries, the variable interest entities (“VIEs”) where the Company or one of its subsidiaries is a primary beneficiary, and its proportionate share of the assets, liabilities, revenues and expenses of certain of its oil and gas producing, and mining unincorporated joint ventures in which the companies own an undivided interest in the assets, and pursuant to the joint venture agreements, are severally liable for their share of each liability. The VIEs are defined by ASC 810, “Consolidation,” which was formerly FASB Interpretation (“FIN”) No. 46 (revised December 2003).

The difference between the cost of investments in VIEs which are not a business and the equity in the fair value of the net assets at the dates of acquisition is accounted for as an extraordinary gain or loss while the excess of the cost of investments in other subsidiaries that meet the definition of a business over the equity in the fair value of the net assets at the dates of acquisition is accounted for as goodwill.

Certain subsidiaries with a second-quarter-end on or after June 30, but prior to the parent company’s second-quarter-end of September 30, are included on the basis of the subsidiaries’ respective second-quarter-ends.

 

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Foreign currency translation

The assets and liabilities of foreign subsidiaries and associated companies are translated into Japanese yen at the respective period-end exchange rates. All income and expense accounts are translated at average rates of exchange. The resulting translation adjustments are included in accumulated other comprehensive income (loss).

Monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at period-end exchange rates with the resulting gains and losses recognized in earnings.

Cash equivalents

Cash equivalents are defined as short-term (original maturities of three months or less), highly liquid investments which are readily convertible into cash and have no significant risk of change in value including certificates of deposit, time deposits, financing bills and commercial papers with original maturities of three months or less.

Allowance for doubtful receivables

An impairment loss for a specific loan deemed to be impaired is measured based on the present value of expected cash flows discounted at the loan’s original effective interest rate or the fair value of the collateral if the loan is collateral dependent.

An allowance for doubtful receivables is recorded for all receivables not defined as specific loan based primarily upon the companies’ credit loss experiences and an evaluation of potential losses in the receivables.

Inventories

Inventories, consisting mainly of commodities and materials for resale, are stated at the lower of cost, principally on a specific-identification basis, or market.

Derivative instruments and hedging activities

In accordance with ASC 815, “Derivatives and Hedging,” which was formerly SFAS No. 133, all derivative instruments are recognized and measured at fair value as either assets or liabilities in the Consolidated Balance Sheets. The accounting for changes in the fair value depends on the intended use of the derivative instruments and their resulting hedge designation.

The companies enter into derivative commodity instruments, such as future, forward, option and swap contracts, as a means of hedging the exposure to changes in the fair value of inventories and unrecognized firm commitments and the exposure to variability in the expected future cash flows from forecasted transactions, principally for non-ferrous metals, crude oil and agricultural products.

Changes in the fair value of derivative commodity instruments, designated and effective as fair value hedges, are recognized in sales of products or cost of products sold as offsets to changes in the fair value of the hedged items. Changes in the fair value of derivative commodity instruments, designated and effective as cash flow hedges, are initially recorded as other comprehensive income and reclassified into earnings as sales of products or cost of products sold when the hedged transactions affect earnings. Changes in the fair value of the ineffective portion are recognized in sales of products or cost of products sold immediately.

 

- 10 -


Changes in the fair value of derivative commodity instruments, for which hedge requirements are not met under ASC 815, are currently recognized in sales of products or cost of products sold without any offsetting changes in the fair value of the hedged items.

The Company and certain subsidiaries also enter into agreements for derivative commodity instruments as a part of their trading activities. These derivative instruments are marked to market and gains or losses resulting from these contracts are reported in other sales.

Changes in the fair value of all open positions of precious metals traded in terminal (future) markets are recognized in other sales in order to reflect the fair value of commodity trading transactions consisting of inventories, unrecognized firm commitments and derivative commodity instruments as a whole.

The companies enter into derivative financial instruments such as interest rate swap agreements, foreign exchange forward contracts, currency swap agreements, and interest rate and currency swap agreements as a means of hedging their interest rate and foreign exchange exposure.

Changes in the fair value of interest rate swap agreements, designated and effective as fair value hedges for changes in the fair value of fixed-rate financial assets or liabilities attributable to changes in the designated benchmark interest rate, are recognized in interest income and expense as offsets to changes in the fair value of hedged items. Changes in the fair value of interest rate swap agreements, designated and effective as cash flow hedges for changes in the cash flows of floating-rate financial assets or liabilities attributable to changes in the designated benchmark interest rate, are initially recorded in other comprehensive income and reclassified into earnings as interest income and expense when the hedged transactions affect earnings. Changes in the fair value of the ineffective portion are recognized in interest income and expense immediately.

Changes in the fair value of foreign exchange forward contracts and currency swap agreements, designated and effective as cash flow hedges for changes in the cash flows of foreign-currency-denominated assets or liabilities, unrecognized firm commitments and forecasted transactions attributable to changes in the related foreign currency exchange rate, are initially recorded in other comprehensive income and reclassified into earnings as foreign exchange gains or losses when the hedged transactions affect earnings. Changes in the fair value of the ineffective portion are recognized in foreign exchange gains or losses immediately.

Changes in the fair value of interest rate and currency swap agreements, designated and effective as fair value hedges or cash flow hedges for changes in the fair values or cash flows of foreign-currency-denominated assets or liabilities attributable to changes in the designated benchmark interest rate or the related foreign currency exchange rate are recorded as either earnings or other comprehensive income depending on the treatment of foreign currency hedges as fair value hedges or cash flow hedges.

Changes in the fair value of derivative financial instruments, for which hedge requirements are not met under ASC 815, are currently recognized in interest income and expense for interest rate swap agreements and in foreign exchange gains or losses for foreign exchange forward contracts, currency swap agreements and interest rate and currency swap agreements.

The Company and certain subsidiaries also enter into agreements for certain derivative financial instruments as a part of their trading activities. These derivative instruments are marked to market and the related gains or losses are reported in other sales.

The companies use derivative instruments and non-derivative financial instruments in order to reduce the foreign currency exposure in the net investment in a foreign operation. The foreign currency transaction gains or losses on these instruments, designated as and effective as hedging instruments, are deferred and recorded as foreign currency translation adjustments within other comprehensive income to the extent they are effective as hedge. These amounts are only recognized in income upon the complete or partial sale of the related investment or the complete liquidation of the investment.

For the Statements of Consolidated Cash Flows, cash flows from derivative commodity instruments and derivative financial instruments that qualify for hedge accounting are included in the same category as the items being hedged.

 

- 11 -


Debt and marketable equity securities

The companies classify debt and marketable equity securities, at acquisition, into one of three categories: held-to-maturity, available-for-sale or trading.

Securities are classified as trading securities and carried at fair value only if the companies possess those securities for the purpose of purchase and sale. Unrealized holding gains and losses are included in net income attributable to Mitsui & Co., Ltd.

Debt securities are classified as held-to-maturity and measured at amortized cost in the Consolidated Balance Sheets only if the companies have the positive intent and ability to hold those securities to maturity. Premiums and discounts amortized in the period are included in interest income.

Debt and marketable equity securities other than those classified as trading or held-to-maturity securities are classified as available-for-sale securities and carried at fair value with related unrealized holding gains and losses reported in accumulated other comprehensive income (loss) in shareholders’ equity on a net-of-tax basis.

For other than a temporary decline in the value of debt and marketable equity securities below their cost or amortized cost, the investment is reduced to its fair value, which becomes the new cost basis of the investment. The amount of the reduction is reported as a loss for the year in which such determination is made. Various factors, such as the extent which the cost exceeds the market value, the duration of the market decline, the financial condition and near-term prospects of the issuer, and the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value, are reviewed to judge whether the decline is other than temporary.

The cost of debt and marketable securities sold is determined based on the moving-average cost method.

Non-marketable equity securities

Non-marketable equity securities are carried at cost. When other than a temporary decline in the value of such securities below their cost occurs, the investment is reduced to its fair value and an impairment loss is recognized. Various factors, such as the financial condition and near-term prospects of the issuer, are reviewed to judge whether it is other than temporary.

The cost of non-marketable equity securities sold is determined based on the moving-average cost method.

Investments in associated companies

Investments in associated companies (20% to 50%-owned corporate investees, corporate joint ventures, and less than 20%-owned corporate investees over which the companies have the ability to exercise significant influence) and noncontrolling investments in general partnerships, limited partnerships and limited liability companies are accounted for under the equity method, after appropriate adjustments for intercompany profits and dividends. The differences between the cost of such investments and the companies’ equity in the underlying fair value of the net assets of associated companies at the dates of acquisition are recognized as equity method goodwill.

For other than a temporary decline in the value of investments in associated companies below the carrying amount, the investment is reduced to its fair value and an impairment loss is recognized.

 

- 12 -


Leasing

The companies are engaged in lease financing consisting of direct financing leases and leveraged leases, and in operating leases of properties. For direct financing leases, unearned income is amortized to income over the lease term at a constant periodic rate of return on the net investment. Income on leveraged leases is recognized over the life of the lease at a constant rate of return on the positive net investment. Initial direct costs are deferred and amortized using the interest method over the lease period. Operating lease income is recognized as other sales over the term of underlying leases on a straight-line basis.

The companies are also lessees of various assets. Rental expenses on operating leases are recognized over the respective lease terms using the straight-line method.

Property and equipment

Property and equipment are stated at cost.

Depreciation of property and equipment (including property leased to others) is computed principally under the declining-balance method for assets located in Japan and under the straight-line method for assets located outside Japan, using rates based upon the estimated useful lives of the related property and equipment. Mineral rights are amortized over their respective estimated useful lives using the straight-line method or the unit-of-production method.

Leasehold improvements are amortized over the lesser of the useful life of the improvement or the term of the underlying lease.

Significant renewals and additions are capitalized at cost. Maintenance and repairs, and minor renewals and betterments are charged to expense as incurred.

Impairment of long-lived assets

Long-lived assets to be held and used or to be disposed of other than by sale are reviewed, by using undiscounted future cash flows, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flow is less than the carrying amount of the asset, an impairment loss is recognized. Such impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. Long-lived assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell.

Business combinations

In accordance with ASC 805, “Business Combinations,” which was formerly SFAS No. 141 (revised 2007), the acquisition method of accounting which requires the measurement of the fair value of whole acquired company included noncontrolling interests is used for all business combinations from April 1, 2009. The companies separately recognize and report acquired intangible assets as goodwill or other intangible assets. Any excess of fair value of acquired net assets over cost arising from a business combination is recognized as a gain on a bargain purchase.

Goodwill and other intangible assets

Goodwill is not amortized but tested for impairment annually or more frequently if impairment indicators arise. Identifiable intangible assets with a finite useful life are amortized over their respective estimated useful lives and reviewed for impairment in accordance with ASC 360, “Property, Plant, and Equipment,” which was formerly SFAS No. 144. Any identifiable intangible asset determined to have an indefinite useful life is not amortized, but instead tested for impairment in accordance with ASC 350, “Intangibles—Goodwill and Others,” which was formerly SFAS. 142, until its useful life is determined to be no longer indefinite.

Equity method goodwill is reviewed for impairment as part of an other than temporary decline in the value of investments in associated companies below the carrying amount in accordance with ASC 323, “Investments—Equity Method and Joint Ventures,” which was formerly Accounting Principles Board Opinion No. 18.

 

- 13 -


Oil and gas producing activities

Oil and gas exploration and development costs are accounted for using the successful efforts method of accounting. The costs of acquiring properties, costs of drilling and equipping exploratory wells, and costs of development wells and related plant and equipment are capitalized, and amortized using the unit-of-production method. Exploratory well costs are expensed, if economically recoverable reserves are not found. Other exploration costs, such as geological and geophysical costs, are expensed as incurred.

In accordance with ASC 360, proved properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the proved properties are determined to be impaired, an impairment loss is recognized based on the fair value. Unproved properties are assessed annually for impairment in accordance with ASC 932-360-35-11, “Extractive Activities—Oil and Gas—Property, Plant, and Equipment—Subsequent Measurement—Unproved Properties,” which was formerly SFAS No. 19, with any impairment charged to expense. The companies make a comprehensive evaluation and record impairment of unproved property based on undiscounted future net cash flow approach, as well as taking into consideration various factors, such as remaining mining rights periods, examples of sales and purchase in neighboring areas, drilling results and seismic interpretations.

Mining operations

Mining exploration costs are expensed as incurred until the mining project has been established as commercially viable by a final feasibility study. Once established as commercially viable, costs are capitalized as development costs and are amortized using either the unit-of-production method or straight-line method based on the proven and probable reserves.

In open pit mining operations, it is necessary to remove overburden and other waste materials to access mineral deposits. The costs of removing waste materials are referred to as “stripping costs.” During the development of a mine, before production commences, such costs are generally capitalized as part of the development costs. Removal of waste materials continues during the production stage of the mine. Such post-production stripping costs are variable production costs to be considered a component of mineral inventory costs and are recognized as a component of costs of products sold in the same period as the related revenues from the sales of the minerals. Depending on the configuration of the mineral deposits, the post-production stripping costs could lead to a lower of cost or market inventory adjustment.

Asset retirement obligations

The companies record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the companies capitalize the related cost by increasing the carrying amount of the long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.

 

- 14 -


Pension and severance indemnities plans

The company and certain subsidiaries have defined benefit pension plans and severance indemnities plans covering substantially all employees other than directors. The costs of defined benefit pension plans and severance indemnities plans are accrued based on amounts determined using actuarial methods. The company and certain subsidiaries recognize the overfunded or underfunded status of a defined benefit plan as an asset or liability in the statement of financial position. In addition, the company and certain subsidiaries have defined contribution pension plans. The costs of defined contribution pension plans are charged to expenses when incurred.

Guarantees

In accordance with ASC 460, “Guarantees,” which was formerly FIN No. 45, the companies recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken for the guarantee.

Revenue recognition

The companies recognize revenues when they are realized or realizable and earned. Revenues are realized or realizable and earned when the companies have persuasive evidence of an arrangement, the goods have been delivered or the services have been rendered to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. In addition to this general policy, the following are specific revenue recognition policies:

Sales of products

Sales of products include the sales of various products as a principal in the transactions, the manufacture and sale of a wide variety of products such as metals, chemicals, foods and general consumer merchandise, the development of natural resources such as coal, iron ore, oil and gas, and the development and sale of real estate. The companies recognize those revenues at the time the delivery conditions agreed with customers are met. These conditions are usually considered to have been met when the goods are received by the customer, the title to the warehouse receipts is transferred, or the implementation testing is duly completed.

For long-term construction contracts such as railroad projects, depending on the nature of the contract, revenues are accounted for by the percentage-of-completion method if estimates of costs to complete and extent of progress toward completion of long-term contracts are reasonably dependable, otherwise the companies use the completed contract method.

The Company and certain subsidiaries enter into buy/sell arrangements, mainly relating to transactions of crude oil and petroleum products. Under buy/sell arrangements, which are entered into primarily to optimize supply or demand requirements, the Company and certain subsidiaries agree to buy (sell) a specific quality and quantity of commodities to be delivered at a specific location and/or time while agreeing to sell (buy) the same quality and quantity of the commodities at a different location and/or time to the same counterparty. The buy/sell arrangements are reported on a net basis in the Statements of Consolidated Income.

Sales of services

Sales of services include the revenues from trading margins and commissions related to various trading transactions in which the companies act as a principal or an agent. Specifically, the companies charge a commission for the performance of various services such as logistic and warehouse services, information and communication services, and technical support. For some back-to-back sales and purchase transactions of products, the companies act as a principal and record the net amount of sales and purchase prices as revenues. The companies also facilitate conclusion of the contracts between manufacturers and customers and deliveries for the products between suppliers and customers. Revenues from service related businesses are recorded as revenues when the contracted services are rendered to third-party customers pursuant to the agreements.

Other sales

Other sales principally include the revenues from leasing activities of real estate, rolling stock, ocean transport vessels, equipment and others, the revenues from derivative commodity instruments and derivative financial instruments held for trading purposes, and the revenues from external consumer financing.

 

- 15 -


Research and development expenses

Research and development costs are charged to expenses when incurred.

Advertising expenses

Advertising costs are charged to expenses when incurred.

Income taxes

Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes and tax loss carryforwards. These deferred taxes are measured using the currently enacted tax rates in effect for the year in which the temporary differences or tax loss carryforwards are expected to reverse. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.

In accordance with ASC 740, “Income Taxes,” which was formerly FIN48, the companies recognize and measure uncertainty in income taxes. Interests and penalties incurred in relation to income taxes are reported in current income taxes in the Statements of Consolidated Income.

Net income attributable to Mitsui & Co., Ltd. per share

Basic net income attributable to Mitsui & Co., Ltd. per share is computed by dividing net income attributable to Mitsui & Co., Ltd. by the weighted-average number of common shares outstanding for the period. Diluted net income attributable to Mitsui & Co., Ltd. per share reflects the potential dilution as a result of issuance of shares upon conversion of the companies’ convertible bonds.

Subsequent events

The Company has evaluated subsequent events through November 13, 2009.

III. RECLASSIFICATION

Tax effects on investments in associated companies which were formerly included in “Equity in Earnings of Associated Companies—Net (After Income Tax Effect)” are included in “Income Taxes” for the six-month period ended September 30, 2009 and the three-month period ended September 30, 2009. At the same time, the line item “Equity in Earnings of Associated Companies—Net (After Income Tax Effect)” has been changed to “Equity in Earnings of Associated Companies—Net.” Amounts for the six-month period ended September 30, 2008 and the three-month period ended September 30, 2008 have been reclassified to conform to the current period presentation.

The consolidated financial statements have been adjusted due to the adoption of ASC 810-10-65, “Transition Related to FASB Statement No.160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No.51,” which was formerly SFAS No.160.

 

- 16 -


IV. DISCONTINUED OPERATIONS

The companies have the policy of presenting the results of discontinued operations (including operations of a subsidiary that either has been disposed of or is classified as held for sale) as a separate line item in the Statements of Consolidated Income under income from discontinued operations—net (after income tax effect).

The figures of discontinued operations during the three-month periods ended September 30, 2008 and 2009 were immaterial to the companies’ financial position and results of operations, and as a result, were not reclassified in the Consolidated Financial Statements as of September 30, 2008 and 2009, respectively.

V. NEW ACCOUNTING STANDARDS

FASB Accounting Standards Codification

Effective July 1, 2009, the companies adopted ASC 105, “Generally Accepted Accounting Principles,” which was formerly SFAS No. 168.

ASC 105 defines the FASB Accounting Standards Codification (“The Codification”) as the single source of authoritative accounting principles. Rules and interpretive releases issued by the U.S. Securities and Exchange Commission (the “SEC”) are also sources of authoritative accounting principles for SEC registrants. The Codification reorganizes existing U.S. accounting standards by topic, and supersedes all existing U.S. accounting standards.

The adoption of this topic had no impact on the companies’ financial position and results of operations.

Fair value measurements

Effective April 1, 2009, the companies adopted ASC 820, “Fair Value Measurements and Disclosures,” which was formerly SFAS No. 157, for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis.

ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

Effective April 1, 2009, the companies also adopted the new provisions in ASC 820, which was formerly FASB Staff Position No. FAS 157-4. These provisions provide guidance for determining whether a market that was formerly active has become inactive and a transaction is not orderly in order to apply the fair value measurement provisions of ASC 820.

The effect of the adoption of this topic on the companies’ financial position and results of operations was immaterial.

Business combinations

Effective April 1, 2009, the companies adopted ASC 805, “Business Combinations,” which was formerly SFAS No. 141 (revised 2007).

ASC 805 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in the business combination or a gain from a bargain purchase. ASC 805 also requires disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

Effective April 1, 2009, the companies also adopted the new provisions in ASC 805-20, “Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest,” which require an asset or liability arising from a contingency in a business combination to be recognized at fair value if fair value can be reasonably determined.

The effect of the adoption of this topic on the companies’ financial position and results of operations was immaterial.

 

- 17 -


Noncontrolling interests in consolidated financial statements

Effective April 1, 2009, the companies adopted ASC 810-10-65, “Consolidation—Transition Related to FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.”

ASC 810-10-65 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.

As a result of the adoption of this section, noncontrolling interests, which were previously referred to as minority interests and classified between liabilities and shareholders’ equity on the Consolidated Balance Sheet, are included as a separate component of total equity. In addition, the items on the Statement of Consolidated Income, the Statement of Consolidated Shareholders’ Equity and the Statement of Consolidated Cash Flows have been adjusted accordingly. The companies have also retrospectively applied the presentation and disclosure provisions of this section, and have made reclassifications and format changes on the Consolidated Balance Sheet as of March 31, 2009, and the Statement of Consolidated Income, the Statement of Consolidated Shareholders’ Equity and the Statement of Consolidated Cash Flows for the period ended September 30, 2008.

Subsequent events

Effective April 1, 2009, the companies adopted ASC 855, “Subsequent Events,” which was formerly SFAS No. 165.

ASC 855 establishes general accounting and disclosure standards for events and transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Entities are required to disclose the date through which subsequent events and transactions were evaluated, as well as whether that date is the date financial statements were issued or the date the financial statements were available to be issued.

The adoption of this topic had no impact on the companies’ financial position and results of operations.

Recognition and presentation of other-than-temporary impairments

Effective April 1, 2009, the companies adopted ASC 320-10-65, “Investments—Debt and Equity Securities—Overall—Transition Related to FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.”

ASC 320-10-65 requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the noncredit component in other comprehensive income when the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security prior to recovery. This section also expands the disclosure requirements for other-than-temporary impairments on debt and equity securities.

The effect of the adoption of this section on the companies’ financial position and results of operations was immaterial.

 

- 18 -


2. BUSINESS COMBINATIONS

For the six-month period ended September 30, 2009

The business combinations which were completed during the six-month period ended September 30, 2009 were immaterial.

For the six-month period ended September 30, 2008

The following is the primary business combination, which was completed during the six-month period ended September 30, 2008.

Moeco Thai Oil Development Co., Ltd.

Mitsui Oil & Exploration Co., Ltd. (“MOECO”), a 54.6% owned subsidiary of the Company as of September 30, 2009, agreed with the Ministry of Economy, Trade and Industry of Japan to acquire an additional 50% ownership interest in Moeco Thai Oil Development Co., Ltd. (“MOT”) for ¥9,000 million on June 30, 2008 as a result of the successful bid at general public bidding on June 13, 2008. After satisfying the closing conditions, MOECO completed the acquisition process on July 15, 2008. Since MOECO’s ownership of voting shares of MOT increased to 80%, MOT, which had been previously accounted for under the equity method, became a subsidiary of MOECO. Subsequently, MOECO agreed with Toyo Engineering Corporation, a 23% owned associated company of the Company accounted for under the equity method as of September 30, 2009, to sell 10% of ownership interests in MOT on August 11, 2008. MOECO completed the sale of the interests on September 25, 2008 and MOECO’s ownership of voting shares of MOT decreased to 70%.

MOT has 5% interest in the Block B12/27 in the Gulf of Thailand and is engaged in natural gas and condensate exploration, development and production projects. The Company positions its energy businesses as a significant strategic business sector and continues to strengthen its revenue base by acquiring new oil and natural gas assets and replacing its reserves in wider areas including Southeast Asia in addition to the Middle East, Sakhalin and Oceania areas. This acquisition of a controlling interest in MOT is consistent with the Company’s core strategy.

The purchase price was determined based on the expected future cash flows MOT will generate. The consolidated financial statements for the six-month period ended September 30, 2008 include the operating result of MOT as a subsidiary from the date of acquisition.

Pro forma results of operations for the above business combination have not been presented because the effects were not material to the consolidated financial statements.

 

- 19 -


3. MARKETABLE SECURITIES AND OTHER INVESTMENTS

Debt and marketable equity securities

At September 30 and March 31, 2009, the fair value and gross unrealized holding gains and losses on available-for-sale securities and the amortized cost, fair value and gross unrealized holding gains and losses on held-to-maturity debt securities were as follows:

Such gross unrealized gains and losses do not include those attributable to noncontrolling interests.

 

     Millions of Yen  
          Unrealized holding gains (losses)  
     Fair value    Gains    Losses     Net  

September 30, 2009:

          

Available-for-sale:

          

Marketable equity securities

   ¥ 457,325    ¥ 171,638    ¥ (2,560   ¥ 169,078   

Debt securities, consisting principally of preferred stock that must be redeemed

     82,796      20      (6,561     (6,541
                              

March 31, 2009:

          

Available-for-sale:

          

Marketable equity securities

   ¥ 398,676    ¥ 112,381    ¥ (20,780   ¥ 91,601   

Debt securities, consisting principally of preferred stock that must be redeemed and convertible debt

     86,788      19      (16,001     (15,982
                              

 

     Millions of Yen
          Unrealized holding gains (losses)
     Amortized
cost
   Fair value    Gains    Losses    Net

September 30, 2009:

              

Held-to-maturity debt securities, consisting principally of preferred stock that must be redeemed

   ¥ 1,349    ¥ 1,349    ¥ 0    —      ¥ 0
                                

March 31, 2009:

              

Held-to-maturity debt securities, consisting principally of preferred stock that must be redeemed

   ¥ 2,656    ¥ 2,656    ¥ 0    —      ¥ 0
                                

At March 31, 2009, the carrying amounts of available-for-sale securities, with original maturities of three months or less, and included in cash and cash equivalents in the Consolidated Balance Sheets were ¥1,498 million. The companies did not have such carrying amounts at September 30, 2009.

 

- 20 -


At September 30 and March 31, 2009, the fair value and gross unrealized holding losses on available-for-sale securities, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss positions, were as follows:

 

     Millions of Yen  
     Less than 12 months     12 months or more  
     Fair value    Unrealized
holding losses
    Fair value    Unrealized
holding losses
 

September 30, 2009:

          

Available-for-sale:

          

Marketable equity securities

   ¥ 21,680    ¥ (2,560     —        —     

Debt securities, consisting principally of preferred stock that must be redeemed

     361      (25   ¥ 71,520    ¥ (6,536
                              

Total

   ¥ 22,041    ¥ (2,585   ¥ 71,520      (6,536
                              

March 31, 2009:

          

Available-for-sale:

          

Marketable equity securities

   ¥ 71,166    ¥ (20,780     —        —     

Debt securities, consisting principally of preferred stock that must be redeemed

     63,033      (16,001     —        —     
                              

Total

   ¥ 134,199    ¥ (36,781     —        —     
                              

The companies’ investments in available-for-sale securities in an unrealized holding loss position consisted primarily of marketable equity securities and preferred stock that must be redeemed. The unrealized losses on marketable equity securities were due principally to a temporary decline in the stock market. The companies evaluated the near-term prospects of the issuer of the equity securities in relation to the severity and duration of impairment. Based on that evaluation and the companies’ ability and intent to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the companies did not consider these investments to be other-than-temporarily impaired at September 30, 2009.

The unrealized losses on preferred stock that must be redeemed were due to a devaluation of foreign currencies against the yen in the foreign exchange market. The companies evaluated the prospects of the foreign exchange market for the period of maturity of the stock. Based on that evaluation, the companies did not consider these investments to be other-than-temporarily impaired at September 30, 2009.

For the six-month periods ended September 30, 2009 and 2008, losses of ¥15,482 million and ¥21,875 million, respectively, were recognized on write-downs of available-for-sale securities to reflect the decline in market value considered to be other-than-temporary.

For the three-month periods ended September 30, 2009 and 2008, losses of ¥15,378 million and ¥12,980 million, respectively, were recognized on write-downs of available-for-sale securities to reflect the decline in market value considered to be other-than-temporary.

 

- 21 -


The portion of net trading gains and losses for the six-month periods that relates to trading securities still held at September 30, 2009 and 2008 were as follows:

 

     Millions of Yen  
     September 30,
2009
    September 30,
2008
 

Net trading losses

   ¥ (12   ¥ (18
                

The portion of net trading gains and losses for the three-month periods that relates to trading securities still held at September 30, 2009 and 2008 were as follows:

 

     Millions of Yen  
     September 30,
2009
    September 30,
2008
 

Net trading losses

   ¥ (10   ¥ (5
                

The proceeds from sales of available-for-sale securities and the gross realized gains and losses on those sales for the six-month periods ended September 30, 2009 and 2008 are shown below:

 

     Millions of Yen  
     September 30,
2009
    September 30,
2008
 

Proceeds from sales

   ¥ 9,503      ¥ 11,610   
                

Gross realized gains

   ¥ 4,058        4,142   

Gross realized losses

     (4     (120
                

Net trading gains

   ¥ 4,054      ¥ 4,022   
                

The proceeds from sales of available-for-sale securities and the gross realized gains and losses on those sales for the three-month periods ended September 30, 2009 and 2008 are shown below:

 

     Millions of Yen  
     September 30,
2009
    September 30,
2008
 

Proceeds from sales

   ¥ 7,368      ¥ 6,182   
                

Gross realized gains

   ¥ 3,346      ¥ 2,314   

Gross realized losses

     (2     (19
                

Net trading gains

   ¥ 3,344      ¥ 2,295   
                

Debt securities classified as available-for-sale and held-to-maturity at September 30, 2009 mature as follows:

 

     Millions of Yen
     Available-for-sale    Held-to-maturity
     Amortized cost    Aggregate fair value    Amortized cost    Aggregate fair value

Contractual maturities:

           

Within 1 year

   ¥ 4,767    ¥ 4,742    ¥ 1,235    ¥ 1,235

After 1 year through 5 years

     51,329      47,092      114      114

After 5 years through 10 years

     33,241      30,962      —        —  

After 10 years

     —        —        —        —  
                           

Total

   ¥ 89,337    ¥ 82,796    ¥ 1,349    ¥ 1,349
                           

The actual maturities may differ from the contractual maturities shown above because certain issuers may have the right to redeem debt securities before their maturity.

 

- 22 -


Investments other than debt and marketable equity securities

Investments other than investments in debt and marketable equity securities consisted primarily of non-marketable equity securities and non-current time deposits and amounted to ¥541,653 million and ¥550,809 million at September 30 and March 31, 2009, respectively. The estimation of the corresponding fair values at those dates was not practicable, as the fair value for all the individual non-marketable securities held by the companies was not readily determinable at each balance sheet date.

Investments in non-marketable equity securities are carried at cost; however, if the fair value of an investment has declined and such decline is judged to be other-than-temporary, the investment is written down to its estimated fair value.

Losses on write-downs of these investment securities recognized to reflect the declines in fair value considered to be other-than-temporary were ¥3,270 million and ¥2,872 million, for the six-month periods ended September 30, 2009 and 2008, respectively.

Losses on write-downs of these investment securities recognized to reflect the declines in fair value considered to be other-than-temporary were ¥586 million and ¥1,139 million, for the three-month periods ended September 30, 2009 and 2008, respectively.

The aggregate carrying amount of the companies’ non-marketable equity securities accounted for under the cost method totaled ¥491,312 million and ¥499,924 million at September 30 and March 31, 2009, respectively.

4. PENSION COSTS AND SEVERANCE INDEMNITIES

Net periodic pension costs of the companies’ defined benefit pension plans for the six-month period ended September 30, 2009 and three-month period ended September 30, 2009 included the following components:

 

     Millions of Yen  
     Six-month
period ended

September 30, 2009
 

Service cost - benefits earned during the period

   ¥ 4,499   

Interest cost on projected benefit obligation

     3,156   

Expected return on plan assets

     (3,932

Amortization of prior service cost

     (16

Amortization of net actuarial loss

     6,360   
        

Net periodic pension costs

   ¥ 10,067   
        

 

     Millions of Yen  
     Three-month
period ended

September 30, 2009
 

Service cost - benefits earned during the period

   ¥ 2,065   

Interest cost on projected benefit obligation

     1,574   

Expected return on plan assets

     (1,967

Amortization of prior service cost

     0   

Amortization of net actuarial loss

     3,182   
        

Net periodic pension costs

   ¥ 4,854   
        

 

- 23 -


5. NET INCOME ATTRIBUTABLE TO MITSUI & CO., LTD. PER SHARE

The following is a reconciliation of basic net income attributable to Mitsui & Co., Ltd. per share to diluted net income attributable to Mitsui & Co., Ltd. per share for the six-month and three-month periods ended September 30, 2009 and 2008:

 

     Six-Month Period Ended
September 30, 2009
   Six-Month Period Ended
September 30, 2008
     Net income
(numerator)
    Shares
(denominator)
   Per share
amount
   Net income
(numerator)
    Shares
(denominator)
   Per share
amount
     Millions of
Yen
    In Thousands    Yen    Millions of
Yen
    In Thousands    Yen

Basic Net Income Attributable to Mitsui & Co., Ltd. per Share:

               

Net income available to common shareholders

   ¥ 72,835      1,821,650    ¥ 39.98    ¥ 240,548      1,819,012    ¥ 132.24
                       

Effect of Dilutive Securities:

               

Japanese yen convertible bonds

     1      3,441         14      6,043   

Adjustments of effect of dilutive securities of associated companies

     (1           (31     
                               

Diluted Net Income Attributable to Mitsui & Co., Ltd. per Share:

               

Net income available to common shareholders after effect of dilutive securities

   ¥ 72,835      1,825,091    ¥ 39.91    ¥ 240,531      1,825,055    ¥ 131.79
                                       

 

     Three-Month Period Ended
September 30, 2009
   Three-Month Period Ended
September 30, 2008
     Net income
(numerator)
    Shares
(denominator)
   Per share
amount
   Net income
(numerator)
    Shares
(denominator)
   Per share
amount
     Millions of
Yen
    In Thousands    Yen    Millions of
Yen
    In Thousands    Yen

Basic Net Income Attributable to Mitsui & Co., Ltd. per Share:

               

Net income available to common shareholders

   ¥ 15,513      1,822,211    ¥ 8.51    ¥ 137,464      1,820,361    ¥ 75.51
                       

Effect of Dilutive Securities:

               

Japanese yen convertible bonds

     1      2,698         5      4,535   

Adjustments of effect of dilutive securities of associated companies

     (1           (31     
                               

Diluted Net Income Attributable to Mitsui & Co., Ltd. per Share:

               

Net income available to common shareholders after effect of dilutive securities

   ¥ 15,513      1,824,909    ¥ 8.50    ¥ 137,438      1,824,896    ¥ 75.31
                                       

 

- 24 -


6. SEGMENT INFORMATION

 

    Millions of Yen

Six-month period ended September 30, 2009 :

  Iron &
Steel

Products
    Mineral &
Metal
Resources
  Machinery &
Infrastructure
Projects
  Chemical   Energy   Foods &
Retail
    Consumer
Service & IT
    Logistics &
Financial
Markets

Total trading transactions:

  ¥ 465,357      ¥ 332,913   ¥ 665,027   ¥ 806,762   ¥ 959,129   ¥ 909,801      ¥ 210,937      ¥ 74,737
                                                     

Gross profit

  ¥ 16,855      ¥ 32,243   ¥ 44,093   ¥ 33,746   ¥ 68,774   ¥ 42,460      ¥ 26,457      ¥ 24,739
                                                     

Operating income (loss)

  ¥ (561   ¥ 24,475   ¥ 4,883   ¥ 8,454   ¥ 41,636   ¥ 11,627      ¥ (6,434   ¥ 10,652
                                                     

Equity in earnings (losses) of associated companies

  ¥ 1,732      ¥ 14,458   ¥ 18,407   ¥ 84   ¥ 14,884   ¥ 4,869      ¥ (3,911   ¥ 2,659
                                                     

Net income (loss) attributable to Mitsui & Co., Ltd.

  ¥ 1,542      ¥ 31,798   ¥ 19,813   ¥ 5,189   ¥ 30,984   ¥ (6,496   ¥ (5,420   ¥ 1,073
                                                     

Total assets at September 30, 2009

  ¥ 432,845      ¥ 820,607   ¥ 1,336,337   ¥ 552,667   ¥ 1,473,932   ¥ 609,792      ¥ 534,433      ¥ 401,798
                                                     

Investments in and advances to associated companies at September 30, 2009

  ¥ 22,895      ¥ 424,317   ¥ 316,440   ¥ 30,525   ¥ 161,942   ¥ 84,863      ¥ 103,290      ¥ 21,660
                                                     

Depreciation and amortization

  ¥ 1,472      ¥ 4,829   ¥ 4,573   ¥ 3,635   ¥ 37,430   ¥ 2,967      ¥ 2,572      ¥ 1,805
                                                     

Additions to property leased to others and property and equipment

  ¥ 1,120      ¥ 17,482   ¥ 18,671   ¥ 4,456   ¥ 28,125   ¥ 2,766      ¥ 1,899      ¥ 879
                                                     

 

    Millions of Yen

Six-month period ended September 30, 2009 :

  Americas     Europe,
the Middle East

and Africa
    Asia Pacific   Total   All Other     Adjustments
and
Eliminations
    Consolidated
Total

Total trading transactions:

  ¥ 516,825      ¥ 213,538      ¥ 199,608   ¥ 5,354,634   ¥ 1,241      ¥ (3   ¥ 5,355,872
                                                 

Gross profit

  ¥ 33,286      ¥ 7,729      ¥ 13,494   ¥ 343,876   ¥ 351      ¥ 398      ¥ 344,625
                                                 

Operating income (loss)

  ¥ 2,948      ¥ (3,163   ¥ 1,953   ¥ 96,470   ¥ (2,432   ¥ (18,512   ¥ 75,526
                                                 

Equity in earnings (losses) of associated companies

  ¥ 84      ¥ 625      ¥ 1,980   ¥ 55,871   ¥ —        ¥ 143      ¥ 56,014
                                                 

Net income (loss) attributable to Mitsui & Co., Ltd.

  ¥ (5,588   ¥ (1,038   ¥ 13,494   ¥ 85,351   ¥ 1,144      ¥ (13,660   ¥ 72,835
                                                 

Total assets at September 30, 2009

  ¥ 491,653      ¥ 156,884      ¥ 264,453   ¥ 7,075,401   ¥ 2,838,098      ¥ (1,618,525   ¥ 8,294,974
                                                 

Investments in and advances to associated companies at September 30, 2009

  ¥ 26,593      ¥ 15,349      ¥ 83,438   ¥ 1,291,312   ¥ 582      ¥ 22,708      ¥ 1,314,602
                                                 

Depreciation and amortization

  ¥ 4,599      ¥ 453      ¥ 331   ¥ 64,666   ¥ 319      ¥ 5,823      ¥ 70,808
                                                 

Additions to property leased to others and property and equipment

  ¥ 5,966      ¥ 410      ¥ 369   ¥ 82,143   ¥ 203      ¥ 4,942      ¥ 87,288
                                                 

 

- 25 -


    Millions of Yen  

Six-month period ended September 30, 2008
(As Restated) :

  Iron &
Steel

Products
  Mineral &
Metal
Resources
  Machinery &
Infrastructure
Projects
  Chemical   Energy   Foods &
Retail
  Consumer
Service & IT
    Logistics &
Financial
Markets
 

Total trading transactions:

  ¥ 846,356   ¥ 818,746   ¥ 1,070,013   ¥ 1,380,433   ¥ 1,648,071   ¥ 1,040,358   ¥ 479,885      ¥ 107,605   
                                                   

Gross profit

  ¥ 34,324   ¥ 91,769   ¥ 62,138   ¥ 55,070   ¥ 167,126   ¥ 42,056   ¥ 46,139      ¥ 34,234   
                                                   

Operating income (loss)

  ¥ 16,553   ¥ 84,254   ¥ 14,700   ¥ 26,951   ¥ 138,465   ¥ 10,505   ¥ (2,446   ¥ 14,198   
                                                   

Equity in earnings (losses) of associated companies

  ¥ 3,701   ¥ 77,886   ¥ 10,476   ¥ 6,028   ¥ 20,722   ¥ 1,578   ¥ 2,320      ¥ (6,073
                                                   

Net income (loss) attributable to Mitsui & Co., Ltd.

  ¥ 9,285   ¥ 91,962   ¥ 17,131   ¥ 3,971   ¥ 83,103   ¥ 5,357   ¥ (4,691   ¥ 1,214   
                                                   

Total assets at September 30, 2008

  ¥ 686,868   ¥ 1,001,520   ¥ 1,535,186   ¥ 845,918   ¥ 1,782,007   ¥ 702,599   ¥ 697,407      ¥ 623,750   
                                                   

Investments in and advances to associated companies at September 30, 2008

  ¥ 26,970   ¥ 479,330   ¥ 375,110   ¥ 43,765   ¥ 139,211   ¥ 70,858   ¥ 118,993      ¥ 23,187   
                                                   

Depreciation and amortization

  ¥ 1,077   ¥ 3,758   ¥ 5,019   ¥ 4,542   ¥ 37,407   ¥ 3,184   ¥ 3,049      ¥ 1,886   
                                                   

Additions to property leased to others and property and equipment

  ¥ 3,671   ¥ 24,160   ¥ 20,887   ¥ 4,666   ¥ 48,569   ¥ 3,206   ¥ 3,301      ¥ 1,075   
                                                   

 

    Millions of Yen

Six-month period ended September 30, 2008
(As Restated) :

  Americas   Europe,
the Middle East
and Africa
    Asia Pacific   Total   All Other     Adjustments
and
Eliminations
    Consolidated
Total

Total trading transactions:

  ¥ 1,000,735   ¥ 258,875      ¥ 320,059   ¥ 8,971,136   ¥ 1,748      ¥ 233      ¥ 8,973,117
                                               

Gross profit

  ¥ 65,199   ¥ 12,851      ¥ 17,204   ¥ 628,110   ¥ 2,807      ¥ (2,230   ¥ 628,687
                                               

Operating income (loss)

  ¥ 26,657   ¥ (229   ¥ 3,387   ¥ 332,995   ¥ (95   ¥ (22,100   ¥ 310,800
                                               

Equity in earnings (losses) of associated companies

  ¥ 3,155   ¥ (286   ¥ 168   ¥ 119,675   ¥ 38      ¥ (56   ¥ 119,657
                                               

Net income (loss) attributable to Mitsui & Co., Ltd.

  ¥ 13,927   ¥ 2,944      ¥ 24,388   ¥ 248,591   ¥ 3,571      ¥ (11,614   ¥ 240,548
                                               

Total assets at September 30, 2008

  ¥ 726,863   ¥ 278,820      ¥ 273,937   ¥ 9,154,875   ¥ 2,918,584      ¥ (2,355,659   ¥ 9,717,800
                                               

Investments in and advances to associated companies at September 30, 2008

  ¥ 44,983   ¥ 24,840      ¥ 57,784   ¥ 1,405,031   ¥ 2,614      ¥ 15,489      ¥ 1,423,134
                                               

Depreciation and amortization

  ¥ 5,272   ¥ 653      ¥ 386   ¥ 66,233   ¥ 364      ¥ 3,997      ¥ 70,594
                                               

Additions to property leased to others and property and equipment

  ¥ 7,837   ¥ 12,883      ¥ 420   ¥ 130,675   ¥ 211      ¥ 4,570      ¥ 135,456
                                               

 

- 26 -


    Millions of Yen

Three-month period ended September 30, 2009 :

  Iron &
Steel

Products
    Mineral &
Metal
Resources
  Machinery &
Infrastructure
Projects
  Chemical   Energy   Foods &
Retail
    Consumer
Service & IT
    Logistics &
Financial
Markets

Total trading transactions:

  ¥ 240,364      ¥ 175,830   ¥ 338,888   ¥ 412,214   ¥ 504,788   ¥ 456,537      ¥ 114,687      ¥ 43,631
                                                     

Gross profit

  ¥ 8,083      ¥ 18,066   ¥ 22,123   ¥ 14,952   ¥ 34,254   ¥ 20,312      ¥ 14,657      ¥ 14,860
                                                     

Operating income (loss)

  ¥ (1,313   ¥ 14,088   ¥ 1,087   ¥ 1,934   ¥ 20,429   ¥ 4,753      ¥ (2,024   ¥ 7,888
                                                     

Equity in earnings (losses) of associated companies

  ¥ 359      ¥ 7,007   ¥ 10,096   ¥ 340   ¥ 6,830   ¥ 2,422      ¥ (4,882   ¥ 1,671
                                                     

Net income (loss) attributable to Mitsui & Co., Ltd.

  ¥ 127      ¥ 12,125   ¥ 6,769   ¥ 610   ¥ 15,154   ¥ (11,408   ¥ (5,499   ¥ 1,038
                                                     

Total assets at September 30, 2009

  ¥ 432,845      ¥ 820,607   ¥ 1,336,337   ¥ 552,667   ¥ 1,473,932   ¥ 609,792      ¥ 534,433      ¥ 401,798
                                                     

Investments in and advances to associated companies at September 30, 2009

  ¥ 22,895      ¥ 424,317   ¥ 316,440   ¥ 30,525   ¥ 161,942   ¥ 84,863      ¥ 103,290      ¥ 21,660
                                                     

Depreciation and amortization

  ¥ 748      ¥ 2,432   ¥ 2,295   ¥ 1,705   ¥ 17,773   ¥ 1,480      ¥ 1,427      ¥ 883
                                                     

Additions to property leased to others and property and equipment

  ¥ 599      ¥ 8,657   ¥ 7,054   ¥ 3,041   ¥ 12,689   ¥ 1,348      ¥ 959      ¥ 380
                                                     

 

    Millions of Yen

Three-month period ended September 30, 2009 :

  Americas     Europe,
the Middle East
and Africa
    Asia
Pacific
  Total   All Other     Adjustments
and
Eliminations
    Consolidated
Total

Total trading transactions:

  ¥ 248,394      ¥ 114,249      ¥ 79,293   ¥ 2,728,875   ¥ 667      ¥ (5   ¥ 2,729,537
                                                 

Gross profit

  ¥ 19,642      ¥ 4,270      ¥ 6,771   ¥ 177,990   ¥ (235   ¥ 155      ¥ 177,910
                                                 

Operating income (loss)

  ¥ 4,566      ¥ (1,818   ¥ 1,065   ¥ 50,655   ¥ (1,383   ¥ (6,867   ¥ 42,405
                                                 

Equity in earnings (losses) of associated companies

  ¥ 160      ¥ 148      ¥ 1,070   ¥ 25,221   ¥ —        ¥ (29   ¥ 25,192
                                                 

Net income (loss) attributable to Mitsui & Co., Ltd.

  ¥ (3,013   ¥ (1,001   ¥ 6,062   ¥ 20,964   ¥ 1,387      ¥ (6,838   ¥ 15,513
                                                 

Total assets at September 30, 2009

  ¥ 491,653      ¥ 156,884      ¥ 264,453   ¥ 7,075,401   ¥ 2,838,098      ¥ (1,618,525   ¥ 8,294,974
                                                 

Investments in and advances to associated companies at September 30, 2009

  ¥ 26,593      ¥ 15,349      ¥ 83,438   ¥ 1,291,312   ¥ 582      ¥ 22,708      ¥ 1,314,602
                                                 

Depreciation and amortization

  ¥ 2,276      ¥ 222      ¥ 160   ¥ 31,401   ¥ 189      ¥ 2,924      ¥ 34,514
                                                 

Additions to property leased to others and property and equipment

  ¥ 2,842      ¥ 145      ¥ 163   ¥ 37,877   ¥ 82      ¥ 3,125      ¥ 41,084
                                                 

 

- 27 -


    Millions of Yen  

Three-month period ended September 30, 2008
(As Restated) :

  Iron &
Steel

Products
  Mineral &
Metal
Resources
  Machinery &
Infrastructure
Projects
    Chemical   Energy   Foods &
Retail
  Consumer
Service & IT
    Logistics &
Financial
Markets
 

Total trading transactions:

  ¥ 456,634   ¥ 416,254   ¥ 534,783      ¥ 697,828   ¥ 906,405   ¥ 520,272   ¥ 255,259      ¥ 59,338   
                                                     

Gross profit

  ¥ 16,658   ¥ 50,772   ¥ 33,943      ¥ 27,587   ¥ 92,099   ¥ 22,388   ¥ 26,344      ¥ 19,930   
                                                     

Operating income (loss)

  ¥ 7,598   ¥ 46,515   ¥ 8,740      ¥ 13,475   ¥ 74,848   ¥ 6,500   ¥ 2,715      ¥ 8,259   
                                                     

Equity in earnings (losses) of associated companies

  ¥ 2,415   ¥ 47,950   ¥ (4,320   ¥ 2,138   ¥ 10,576   ¥ 391   ¥ 1,375      ¥ (3,319
                                                     

Net income (loss) attributable to Mitsui & Co., Ltd.

  ¥ 3,492   ¥ 55,590   ¥ 1,238      ¥ 2,498   ¥ 52,531   ¥ 2,186   ¥ (2,568   ¥ (1,683
                                                     

Total assets at September 30, 2008

  ¥ 686,868   ¥ 1,001,520   ¥ 1,535,186      ¥ 845,918   ¥ 1,782,007   ¥ 702,599   ¥ 697,407      ¥ 623,750   
                                                     

Investments in and advances to associated companies at September 30, 2008

  ¥ 26,970   ¥ 479,330   ¥ 375,110      ¥ 43,765   ¥ 139,211   ¥ 70,858   ¥ 118,993      ¥ 23,187   
                                                     

Depreciation and amortization

  ¥ 508   ¥ 1,871   ¥ 2,242      ¥ 2,402   ¥ 20,158   ¥ 1,598   ¥ 1,466      ¥ 913   
                                                     

Additions to property leased to others and property and equipment

  ¥ 1,084   ¥ 10,917   ¥ 6,565      ¥ 2,957   ¥ 27,887   ¥ 2,215   ¥ 1,904      ¥ 496   
                                                     

 

    Millions of Yen

Three-month period ended September 30, 2008
(As Restated) :

  Americas   Europe,
the Middle East
and Africa
    Asia Pacific     Total   All Other     Adjustments
and
Eliminations
    Consolidated
Total

Total trading transactions:

  ¥ 542,294   ¥ 136,715      ¥ 158,468      ¥ 4,684,250   ¥ 732      ¥ 238      ¥ 4,685,220
                                                 

Gross profit

  ¥ 45,971   ¥ 8,876      ¥ 9,456      ¥ 354,024   ¥ 1,302      ¥ (1,619   ¥ 353,707
                                                 

Operating income (loss)

  ¥ 25,487   ¥ 2,132      ¥ 1,855      ¥ 198,124   ¥ (177   ¥ (10,412   ¥ 187,535
                                                 

Equity in earnings (losses) of associated companies

  ¥ 1,271   ¥ (802   ¥ (85   ¥ 57,590   ¥ 24      ¥ (24   ¥ 57,590
                                                 

Net income (loss) attributable to Mitsui & Co., Ltd.

  ¥ 11,841   ¥ 2,565      ¥ 12,808      ¥ 140,498   ¥ 1,799      ¥ (4,833   ¥ 137,464
                                                 

Total assets at September 30, 2008

  ¥ 726,863   ¥ 278,820      ¥ 273,937      ¥ 9,154,875   ¥ 2,918,584      ¥ (2,355,659   ¥ 9,717,800
                                                 

Investments in and advances to associated companies at September 30, 2008

  ¥ 44,983   ¥ 24,840      ¥ 57,784      ¥ 1,405,031   ¥ 2,614      ¥ 15,489      ¥ 1,423,134
                                                 

Depreciation and amortization

  ¥ 2,607   ¥ 263      ¥ 251      ¥ 34,279   ¥ 141      ¥ 1,679      ¥ 36,099
                                                 

Additions to property leased to others and property and equipment

  ¥ 3,776   ¥ 12,110      ¥ 282      ¥ 70,193   ¥ 122      ¥ 2,680      ¥ 72,995
                                                 

 

- 28 -


Notes:

(1) “All Other” includes business activities which primarily provide services, such as financing services and operations services to external customers and/or to the companies and associated companies. Total assets of “All Other” at September 30, 2009 and 2008 consisted primarily of cash and cash equivalents and time deposits related to financing activities, and assets of certain subsidiaries related to the above services.
(2) Net income (loss) attributable to Mitsui & Co., Ltd. of “Adjustments and Eliminations” includes income and expense items that are not allocated to specific reportable operating segments, such as certain expenses of the corporate departments, and eliminations of intersegment transactions.

Net loss attributable to Mitsui & Co., Ltd. of “Adjustments and Eliminations” for the six-month period ended September 30, 2009 includes (a) ¥8,949 million in general and administrative expenses of the corporate departments excluding pension costs, (b) a charge of ¥3,247 million for pension related items, and (c) a charge of ¥3,081 million related to tax items including adjustments of difference between actual tax rate and intercompany tax rate, and so on (all amounts are after income tax effects).

Net loss attributable to Mitsui & Co., Ltd. of “Adjustments and Eliminations” for the six-month period ended September 30, 2008 includes (a) ¥10,387 million in general and administrative expenses of the corporate departments excluding pension costs, (b) a charge of ¥2,382 million for pension related items, and (c) a charge of ¥1,192 million related to tax items including adjustments of difference between actual tax rate and intercompany tax rate, and so on (all amounts are after income tax effects).

Net loss attributable to Mitsui & Co., Ltd. of “Adjustments and Eliminations” for the three-month period ended September 30, 2009 includes (a) ¥3,860 million in general and administrative expenses of the corporate departments excluding pension costs, (b) a charge of ¥1,529 million for pension related items, and (c) a charge of ¥2,506 million related to tax items including adjustments of difference between actual tax rate and intercompany tax rate, and so on (all amounts are after income tax effects).

Net loss attributable to Mitsui & Co., Ltd. of “Adjustments and Eliminations” for the three-month period ended September 30, 2008 includes (a) ¥4,474 million in general and administrative expenses of the corporate departments excluding pension costs, (b) a charge of ¥1,247 million for pension related items, and (c) a charge of ¥663 million related to tax items including adjustments of difference between actual tax rate and intercompany tax rate, and so on (all amounts are after income tax effects).

(3) Transfers between operating segments are made at cost plus a markup.
(4) Operating income (loss) reflects the companies’ (a) gross profit, (b) selling, general and administrative expenses, and (c) provision for doubtful receivables, as presented in the Statements of Consolidated Income.
(5) Effective for the three-month period ended September 30, 2009, Mitsui & Co. Financial Services (Australia) which was formerly operating under “Asia Pacific” segment, was transferred to “All Other” with the aim to optimize the in-house banking operation. In accordance with this change, “All Other” in operating segment information for the six-month period and the three-month period ended September 30, 2009 includes the information of Mitsui & Co. Financial Services (Australia). Also the operating segment information for the six-month period and the three-month period ended September 30, 2008 has been restated to conform to the current period presentation.

7. INCOME TAXES

The effective tax rates were 161.2% and 47.6% for the three-month periods ended September 30, 2009 and 2008, respectively. The increase in the effective tax rate was mostly due to the increase in the ratio of income tax effect recorded for equity in earnings of associated companies against “Income before Income Taxes and Equity in Earnings,” as well as the establishment of valuation allowances for the deferred tax assets recorded for impairment losses on securities.

 

- 29 -


8. CONTINGENT LIABILITIES

I. GUARANTEES

The table below summarizes the companies’ guarantees as defined in ASC460, “Guarantees,” at September 30 and March 31, 2009. The maximum potential amount of future payments represents the amounts without consideration of possible recoveries under recourse provisions or from collateral held or pledged that the companies could be obliged to pay if there were defaults by guaranteed parties or there were changes in an underlying which would cause triggering events under market value guarantees and indemnification contracts. Such amounts bear no relationship to the anticipated losses on these guarantees and indemnifications, and they greatly exceed anticipated losses.

The companies evaluate risks involved for each guarantee in an internal screening procedure before issuing a guaranty and regularly monitor outstanding positions and record adequate allowance to cover losses expected from probable performance under these agreements. The companies believe that the likelihood to perform guarantees which will materially affect the consolidated financial position, results of operations, or cash flows of the companies is remote at September 30, 2009.

 

     Millions of Yen
     Expire
within
1 year
   Expire
after
1 year
   Total
amount
outstanding
   Recourse
provisions/
collateral
   Maximum
potential

amount of
future
payments
   Carrying
amount of
liabilities
   Expire
no later
than

September 30, 2009:

                    

Type of guarantees:

                    

Financial guarantees:

                    

Guarantees for third parties

   ¥ 93,765    ¥ 47,986    ¥ 141,751    ¥ 28,111    ¥ 177,977    ¥ 949    2040

Guarantees for associated companies

     7,415      59,014      66,429      6,036      93,557      2,930    2045

Guarantees to financial institutions for employees’ housing loans

     —        5,845      5,845      —        5,845      —      2034
                                              

Total

   ¥ 101,180    ¥ 112,845    ¥ 214,025    ¥ 34,147    ¥ 277,379    ¥ 3,879   
                                              

Performance guarantees

   ¥ 1,401    ¥ 5,569    ¥ 6,970    ¥ 3,342    ¥ 7,300      —      2013
                                              

Market value guarantees:

                    

Obligation to repurchase bills of exchange

   ¥ 43,162      —      ¥ 43,162    ¥ 40,271    ¥ 43,162      —      2010

Minimum purchase price guarantees

     —      ¥ 8,207      8,207      —        8,207    ¥ 270    2014

Residual value guarantees of leased assets

     1,267      8,046      9,313      —        9,313      —      2013
                                              

Total

   ¥ 44,429    ¥ 16,253    ¥ 60,682    ¥ 40,271    ¥ 60,682    ¥ 270   
                                              

Derivative instruments

   ¥ 16,077    ¥ 3,842    ¥ 19,919      —      ¥ 19,919    ¥ 2,485   
                                              

 

- 30 -


 

     Millions of Yen
     Expire
within
1 year
   Expire
after
1 year
   Total
amount
outstanding
   Recourse
provisions/
collateral
   Maximum
potential

amount of
future
payments
   Carrying
amount of
liabilities
   Expire
no later
than

March 31, 2009:

                    

Type of guarantees:

                    

Financial guarantees:

                    

Guarantees for third parties

   ¥ 32,091    ¥ 101,428    ¥ 133,519    ¥ 27,854    ¥ 188,036    ¥ 1,322    2040

Guarantees for associated companies

     9,889      64,137      74,026      7,023      127,528      2,998    2045

Guarantees to financial institutions for employees’ housing loans

     —        6,493      6,493      —        6,493      —      2033
                                              

Total

   ¥ 41,980    ¥ 172,058    ¥ 214,038    ¥ 34,877    ¥ 322,057    ¥ 4,320   
                                              

Performance guarantees

   ¥ 1,402    ¥ 9,928    ¥ 11,330    ¥ 3,653    ¥ 11,330    ¥ 22    2013
                                              

Market value guarantees:

                    

Obligation to repurchase bills of exchange

   ¥ 35,979    ¥ 612    ¥ 36,591    ¥ 30,660    ¥ 36,591      —      2010

Minimum purchase price guarantees

     —        8,936      8,936      —        8,936    ¥ 357    2014
                                              

Total

   ¥ 35,979    ¥ 9,548    ¥ 45,527    ¥ 30,660    ¥ 45,527    ¥ 357   
                                              

Derivative instruments

   ¥ 28,569    ¥ 5,401    ¥ 33,970      —      ¥ 33,970    ¥ 5,231   
                                              

(1) Financial guarantees

The companies provide various types of guarantees to the benefit of third parties and related parties principally to enhance their credit standings, and would be required to execute payments if a guaranteed party failed to fulfill its obligation with respect to a borrowing or trade payable.

Categories of financial guarantees are as follows:

Guarantees for third parties

The companies guarantee, severally or jointly with others, indebtedness of certain customers and suppliers in the furtherance of their trading activities.

Guarantees for associated companies

The companies, severally or jointly with others, issue guarantees for associated companies for the purpose of furtherance of their trading activities and credit enhancement of associated companies.

Guarantees to financial institutions for employees’ housing loans

As a part of the benefits program for its employees, the Company issues guarantees to financial institutions for employees’ housing loans. The maximum duration of the guarantees is 25 years. The Company obtains a mortgage on the employees’ assets, if necessary.

 

- 31 -


(2) Performance guarantees

Main items of performance guarantees are contractual guarantees of Toyo Engineering Corporation and other companies regarding plant construction contracts executed under the name of the guaranteed parties in the Middle East and other regions. The Company has pledged bank guarantees and performance bonds to the project owners, and in case that Toyo Engineering Corporation failed to fulfill the contractual obligation, the project owners would execute bank guarantees and performance bonds to claim compensation for damages. A certain performance bond ceased to be pledged at September 30, 2009.

In the furtherance of its trading activities, a certain subsidiary has issued guarantees for the performance of contracts to a customer. The subsidiary would be required to make payment if a guaranteed party failed to fulfill its obligation, however it is not practicable to determine the maximum potential amount of future payment and the amount is not represented since the amount to be compensated is not specified in those guarantees. No liability is recorded since the companies believe that the likelihood of those guarantees to be performed is considered to be remote at September 30 and March 31, 2009.

(3) Market value guarantees

Obligation to repurchase bills of exchange

In connection with export transactions, the Company issues bills of exchange, some of which are discounted by its negotiating banks. If a customer failed to fulfill its obligation with respect to the bills, the Company would be obligated to repurchase the bills based on the banking transaction agreement. The maximum potential amount of future payments is represented by the aggregate par value of the bills discounted by the banks, and the recourse provisions and collateral are represented by the amount backed by letters of credit from the issuing banks of the customers.

Minimum purchase price guarantees

To support financing activities of a partner of the joint venture which owns interests in oil & gas producing fields, a certain subsidiary has committed to bid a certain amount in the sale of the partner’s stock by the bank which provides finance for the partner if the partner defaulted. The Company provides marketing services of aircraft for domestic and overseas airline companies, and as a part of such businesses, the Company issues market value guarantees on the aircraft for certain customers.

Residual Value guarantees of leased assets

As lessees in operating lease contracts, a certain subsidiary has issued residual value guarantees on the leased locomotives. On the date of expiration of operating lease contracts, in case of sales of those leased locomotives to the third party, the subsidiary will be responsible for making up any shortfall between an actual sales price and the guaranteed price for sales of those leased locomotives to the third party.

 

- 32 -


(4) Derivative instruments

Certain derivative contracts, including written put options and credit default swaps, meet the accounting definition of guarantees under ASC460, “Guarantees,” when it is probable that the counterparties have underlying assets or liabilities related to the derivative contracts.

The companies consider the business relationship with counterparties and other circumstances in deciding whether it is probable that the counterparties have underlying assets or liabilities, and did not include the derivative contracts with certain financial institutions and traders.

ASC460, “Guarantees,” does not require disclosure about derivative contracts if such contracts permit or require net settlement and the companies have no basis for concluding that it is probable that the counterparties have underlying assets or liabilities.

The companies have written put options as a part of their various derivative transactions related to energy, non-ferrous metals, precious metals and grain. The aggregation of notional amounts computed based on the strike prices and quantities of written options are disclosed as the total amount outstanding and the maximum potential amount of future payments. The carrying amount of liabilities is represented by the fair value of such written options recorded in the consolidated financial statements.

The companies manage the market and credit risks on these derivative instruments by monitoring fair values against loss limits and credit lines, and generally the maximum potential amount of future payments as stated above greatly overstates the companies’ exposure to market and credit risks.

(5) Indemnification contracts

Indemnification for cargo delivery

The companies issued Discharging Letter of Indemnification (“DLOI”) to shipping companies for international trading activities. The maximum potential amount of future payments can not be estimated since the amount to be compensated is not specified in DLOI. No liability is recorded since the companies believe that there is little likelihood to incur any loss from DLOI.

Joint obligation under membership agreement in commodity exchanges

The companies are members of major commodity exchanges in Japan and overseas. In connection with these memberships, the companies provide guarantees to the exchanges. Under the membership agreements, if a member becomes unable to satisfy its obligations to the exchange, the other members would be required to meet such shortfalls apportioned among the non-defaulting members in a prescribed manner. The companies’ maximum potential amount of future payments related to these joint obligations is not quantifiable, however no liability is recorded since the companies believe that there is little likelihood to be required to make any payments under these obligations.

 

- 33 -


(6) Product warranties

Certain subsidiaries provide warranties, in relation to their sales of products, including residential houses and automobiles, for the performance of such products during specified warranty periods, and they are responsible for repair or payments of compensation against the claims by the customers regarding defects in performance or function. Estimated warranty costs are accrued at the time the products are sold based on the historical claim experiences.

Mitsui Bussan House-Techno, Inc., a 100% subsidiary engaged in the custom-made house building business, exited from the business due to the downturn of the business environment caused by declining demand, however, the companies retained the obligation for the future maintenance service, because Bussan Housing Maintenance Co., Ltd. a 100% subsidiary, inherited the obligation of periodical inspection and maintenance service for a certain period after the completion.

A tabular reconciliation of changes in the estimated liabilities for the product warranties for the six-month periods ended September 30, 2009 and 2008 are as follows:

 

     Millions of Yen  
     September 30, 2009     September 30, 2008  

Balance at beginning of the period

   ¥ 6,534      ¥ 7,639   

Payments made in cash or in kind

     (67     (668

Accrual for warranties issued during the period

     431        1,045   

Changes in accrual related to pre-existing warranties

     (499     (523
                

Balance at end of the period

   ¥ 6,399      ¥ 7,493   
                

II. LITIGATION

Various claims and legal actions are pending against the companies in respect of contractual obligations and other matters arising out of the conduct of the companies’ business. Appropriate provision has been recorded for the estimated loss on claims and legal actions. In the opinion of management, any additional liabilities will not materially affect the consolidated financial position, results of operations, or cash flows of the Company.

 

- 34 -


9. VARIABLE INTEREST ENTITIES

The companies are involved with VIEs which mainly engage in leasing and financing activities within the Machinery & Infrastructure Projects, Energy and Logistics & Financial Markets Segments.

When evaluating whether the companies are the primary beneficiary of a VIE and must therefore consolidate the VIE, we perform a qualitative analysis that considers the design of the VIE, the nature of the companies’ involvement and the variable interests held by other parties. If that evaluation is inconclusive as to which party absorbs a majority of the VIE’s expected losses or residual returns, a quantitative analysis is performed to determine who is the primary beneficiary.

Consolidated Variable Interest Entities

The VIEs that have been consolidated by the companies in accordance with ASC810, “Consolidation,” are described by groups aggregated by similar characteristics of risks and rewards of each VIE as follows (excluding consolidated VIEs where the companies also hold a majority of the voting interests in the entity unless the activities of the VIE are primarily related to securitizations, other forms of asset-backed financings, or single-lessee leasing arrangements):

As lessees in lease contracts concluded with a lessor that has been established for those lease contracts in Europe, certain subsidiaries have issued residual value guarantees of the leased vessels. On the date of expiration of lease contracts, such subsidiaries will either purchase the leased assets at a fixed price or be responsible for making up any shortfall between the actual sales price and the guaranteed value. The lessor of the leased vessels is a VIE (“Leasing VIE”), and the companies have consolidated the lessor as the primary beneficiary. The lessor is financed mainly by bank borrowings.

In addition, the companies hold senior investment securities without voting rights of VIEs whose operations are real estate development (“Real estate development VIEs”), as of September 30 and March 31, 2009. The companies also hold a majority of the voting interest in a VIE whose primary activity is chartering a vessel, which is a single-lessee leasing arrangement (“Vessel chartering VIE”), as of September 30 and March 31, 2009. These VIEs are financed mainly by issuance of bond, issuance of stock including preferred securities, a combination of these, or borrowings.

The total assets of the Leasing VIE as of September 30 and March 31, 2009 are ¥10,921 million and ¥11,900 million, respectively; the total assets of the Real estate development VIEs as of September 30 and March 31, 2009 are ¥5,143 million and ¥4,943 million, respectively; and the total assets of the Vessel chartering VIE as of September 30 and March 31, 2009 are ¥3,305 million and ¥3,682 million, respectively.

 

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The consolidated real estate which includes land and buildings was pledged as collateral for Real estate development VIEs’ long-term debt and was classified as real estate for sale, included in inventories in the Consolidated Balance Sheets, and the carrying amounts as of March 31, 2009 were ¥4,745 million. The consolidated Real estate development VIEs do not pledge any of their assets as collateral as of September 30, 2009.

The companies did not provide any financial or other support to the VIEs that they were not previously contractually obligated to provide for the six-month period ended September 30, 2009 and for the year ended March 31, 2009.

The creditors or beneficial interest holders of the consolidated VIEs do not have recourse to the general credit of the companies, except for the aforementioned residual value guarantees of the Leasing VIE.

The companies held beneficial interests without voting rights of VIEs whose operations are investment management (“Investment management VIEs”), as of March 31, 2009. The total assets of the Investment management VIEs as of March 31, 2009 were ¥6,371 million. The Investment management VIEs which the companies consolidated as of March 31, 2009 ceased to be consolidated during the six-month period ended September 30, 2009 due to the companies’ withdrawal of interest in the VIEs. The effect on the companies’ consolidated financial statements for the six-month period ended September 30, 2009 was immaterial.

Non-consolidated Variable Interest Entities

The VIEs that are not consolidated because the companies are not the primary beneficiary, but in which the companies have significant variable interests, are described as follows:

The companies are involved with and have significant variable interests in a number of VIEs that have been established to finance crude oil and LNG producing plants and equipment or to finance subordinated debts by providing guarantees or subordinated loans to the VIEs. Those VIEs provide financing for customers located principally in Latin America, Middle East, and Southeast Asia in the form of leases and loans. These entities are financed mainly by bank borrowings and issuance of stock including preferred securities.

The total assets of the VIEs and the companies’ maximum exposure to loss as of September 30, 2009 are ¥1,669,762 million and ¥112,542 million, respectively. The total assets of the VIEs and the companies’ maximum exposure to loss as of March 31, 2009 were ¥1,728,170 million and ¥123,871 million, respectively. The total assets of the VIEs reflect the most current information available to the companies.

The amount of maximum exposure to loss represents a loss that the companies could incur from the variability in value of the leased assets, from financial difficulties of the customers or from other causes without consideration of possible recoveries through insurance and the like. In addition, the amount bears no relation to the loss anticipated to be incurred from the companies’ involvement with the VIEs and is considered to greatly exceed the anticipated loss.

The companies did not provide any financial or other support to the VIEs that they were not previously contractually obligated to provide for the six-month period ended September 30, 2009 and for the year ended March 31, 2009.

 

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10. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The companies are exposed to market risks related to foreign currency exchange rates, interest rates and commodity prices in the ordinary course of business.

In order to offset or reduce these risks, the companies use derivative instruments, such as foreign exchange forward contracts, currency swap agreements, interest rate swap agreements, commodity future, forward, option and swap contracts, to hedge the exposure to changes in the fair value or expected future cash flows of recognized assets and liabilities, unrecognized firm commitments or forecasted transactions. The companies also use non-derivative financial instruments, such as foreign-currency-denominated debt, to hedge the foreign currency exposure in the net investment in a foreign operation.

The notional amounts of the companies’ derivative instruments as of September 30 and March 31, 2009 were as follows:

 

     Billions of Yen
     September 30 , 2009    March 31 , 2009

Foreign exchange contracts

   ¥ 2,242    ¥ 3,207

Interest rate contracts

     2,289      1,927

Other contracts

     4      23
             

Total derivative notional amounts

   ¥ 4,535    ¥ 5,157
             

Commodity derivative contracts, among others, mainly consist of oil and natural gas commodity options, commodity swaps, and commodity futures held by a subsidiary in Europe. The notional amount of commodity derivative contracts held by the subsidiary was ¥28,428 billion and ¥48,883 billion as of September 30 and March 31, 2009, respectively.

Foreign currency exchange rate risk hedging activities

The companies use derivative instruments, such as foreign exchange forward contracts, currency swap agreements and interest rate and currency swap agreements, to fix the expected future cash flows from foreign-currency-denominated receivables and payables resulting from selling and purchasing activities in currencies other than the local currency and long-term financing transactions as part of the companies’ global operations in many countries. The companies also use non-derivative financial instruments, such as foreign-currency-denominated debt, in order to hedge the foreign currency exposure in the net investment in a foreign operation.

 

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Interest rate risk hedging activities

The companies use interest rate swap agreements and interest rate and currency swap agreements to diversify the sources of fund raising, reduce fund-raising costs, fix the expected future cash flows from long-term financial assets and liabilities with floating interest rates and reduce the exposure to changes in the fair value of long-term financial assets and liabilities with fixed interest rates.

Commodity price risk hedging activities

The companies use derivative instruments, such as commodity future, forward, option and swap contracts, to reduce the exposure to changes in the fair value of inventories and unrecognized firm commitments and to fix the expected future cash flows from forecasted transactions in marketable commodities, such as non-ferrous metals, crude oil and agricultural products.

Risk management policy

The companies have strictly separated the trading sections from the sections that record the results and positions of derivative instruments and are responsible for cash settlement and account confirmation with counterparties. Risk management sections classify the derivative transactions into trading transactions and hedging transactions. The distinction between trading and hedging transactions is strictly managed by affirming the correspondence with the hedged items for transactions for hedging purposes. Furthermore, these risk management sections comprehensively monitor, evaluate and analyze the positions of derivative instruments and report the results periodically to the Company’s executive officers in charge of risk management. Based on these reports, the executive officers assess derivative instruments and the market risks surrounding these instruments, and establish the companies’ risk management policy regarding derivative instruments.

 

- 38 -


Fair value hedges

Changes in the fair value of derivative instruments designated as hedging the exposure to changes in the fair value of recognized assets or liabilities or unrecognized firm commitments are recorded in earnings together with changes in the fair value of the corresponding hedged items attributable to the hedged risks.

The net gain or loss recognized in earnings representing the amount of the hedges’ ineffectiveness and the component of the derivative instruments’ gain or loss excluded from the assessment of hedge effectiveness were immaterial for the six-month and three-month periods ended September 30, 2009.

The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge was immaterial for the six-month periods ended September 30, 2009.

The companies include the gain and loss on the hedged items in the same line item as the offsetting loss or gain on the derivative instruments designated as hedging instruments.

The following table presents the gain/(loss) on hedged items and derivative instruments designated and qualifying in fair value hedge included within the statement of consolidated income for the six-month and three-month periods ended September 30, 2009:

 

Six-Month Period Ended September 30, 2009

   Millions of Yen

Income statement location

   Hedged items    Gain (loss) on
hedged items
   

Hedging instruments

   Gain (loss) on
hedging instruments

Interest expense

   Long-term debt    ¥ (4,420   Interest rate contracts and foreign exchange contracts    ¥  4,439

Other expense - net

   Long-term debt      (3,104   Foreign exchange contracts      4,098
                    

Total

      ¥ (7,524 )       ¥ 8,537
                    

Three-Month Period Ended September 30, 2009

   Millions of Yen

Income statement location

   Hedged items    Gain (loss) on
hedged items
   

Hedging instruments

   Gain (loss) on
hedging instruments

Interest expense

   Long-term debt    ¥ (3,705   Interest rate contracts and foreign exchange contracts    ¥ 3,672

Other expense - net

   Long-term debt      (2,467   Foreign exchange contracts      3,621
                    

Total

      ¥ (6,172 )       ¥ 7,293
                    

 

- 39 -


Cash flow hedges

Changes in the fair value of foreign exchange forward contracts, currency swap agreements and interest rate and currency swap agreements designated as hedging instruments to hedge the exposure to variability in expected future cash flows of recognized assets or liabilities, unrecognized firm commitments and forecasted transactions denominated in foreign currencies are initially recorded as other comprehensive income (“OCI”) to the extent they are effective. The amounts in accumulated other comprehensive income (“AOCI”) are reclassified into earnings when earnings are affected by the hedged items.

Changes in the fair value of interest rate swap agreements designated as hedging instruments to reduce the exposure to variability in expected future cash flows of floating-rate financial assets and liabilities are initially recorded as OCI to the extent they are effective. The amounts in AOCI are reclassified into earnings as interest income and expense when earnings are affected by the hedged items.

Changes in the fair value of commodity forward and swap contracts designated as hedging instruments to hedge the exposure to variability in expected future cash flows of the marketable commodities are initially recorded as OCI to the extent they are effective.

The amounts in AOCI are reclassified into earnings as sales of products or cost of products sold when earnings are affected by the hedged transactions.

The ineffective portion of the hedging instruments’ gain or loss and the component of the derivative instruments’ gain or loss excluded from the assessment of hedge effectiveness are reported in earnings immediately. If the hedged forecasted transaction will not occur by the end of the originally specified time period, gain or loss on the hedging instrument reported in AOCI is reclassified into earnings. These amounts were immaterial for the six-month and three-month periods ended September 30, 2009.

The estimated net amount of the existing gains or losses in AOCI at September 30, 2009 that is expected to be reclassified into earnings within the next 12 months is a net gain of ¥4,648 million.

The maximum length of time over which the companies are hedging their exposure to the variability in expected future cash flows for forecasted transactions (excluding those forecasted transactions related to the payment of variable interest on existing financial instruments) is 19 months. Foreign exchange forward contracts are used as hedging instruments for the forecasted transactions.

Hedges of the net investment in a foreign operation

The foreign currency transaction gain or loss on the derivative instrument and the non-derivative financial instrument that is designated as, and is effective as, hedging instruments to hedge the foreign currency exposure of a net investment in a foreign operation is recorded as foreign currency translation adjustments within OCI to the extent it is effective as a hedge.

Derivative instruments for trading purposes and risk management policy

The Company and certain subsidiaries use derivative instruments such as foreign exchange forward contracts, interest rate swap agreements and commodity future, forward, swap and option contracts for trading purposes. The Company’s executive officers in charge of risk management have set strict position and loss limits for these instruments. Independent back offices and middle offices strictly separated from trading sections (front offices) monitor, evaluate and analyze the position of trading transactions and market risks. Those results are periodically reported to the executive officers. Among others, VaR (Value at Risk: Statistical measure of the potential maximum loss in the fair value of a portfolio resulting from adverse market movements in the underlying risk factors such as foreign currency exchange rates, interest rates and commodity prices, over a defined period, within a certain confidence level) is used to measure the market risks of derivative instruments for trading purposes.

 

- 40 -


The following table presents the fair value of derivative instruments included within the Consolidated Balance Sheets as of September 30 and March 31, 2009:

Derivative instruments designated as hedging instruments under ASC No. 815 “Accounting for Derivative Instruments and Hedging Activities”

 

    

Millions of Yen

Derivative instruments

  

Balance sheet
location

   September 30, 2009    March 31, 2009   

Balance sheet location

   September 30, 2009    March 31, 2009
      Fair value    Fair value       Fair value    Fair value

Foreign exchange contracts

   Derivative assets    ¥ 14,183    ¥ 8,276    Derivative liabilities    ¥ 1,998    ¥ 2,669
   Non-current receivables, less unearned interest      17,280      13,960    Other Long-Term Liabilities      3,457      1,865

Interest rate contracts

   Derivative assets      763      537    Derivative liabilities      285      766
   Non-current receivables, less unearned interest      26,129      25,600    Other Long-Term Liabilities      5,737      7,762

Commodity contracts

   Derivative assets      1,073      5,611    Derivative liabilities      387      1,814
   Non-current receivables, less unearned interest      —        —      Other Long-Term Liabilities      485      —  
                                 

Total

      ¥ 59,428    ¥ 53,984       ¥ 12,349    ¥ 14,876
                                 

Derivative instruments not designated as hedging instruments under ASC No. 815 “Accounting for Derivative Instruments and Hedging Activities”

 

    

Millions of Yen

Derivative instruments

  

Balance sheet
location

   September 30, 2009    March 31, 2009   

Balance sheet location

   September 30, 2009    March 31, 2009
      Fair value    Fair value       Fair value    Fair value

Foreign exchange contracts

   Derivative assets    ¥ 27,984    ¥ 32,032    Derivative liabilities    ¥ 31,633    ¥ 43,513
   Non-current receivables, less unearned interest      17,864      8,361    Other Long-Term Liabilities      23,216      12,003

Interest rate contracts

   Derivative assets      1,648      246    Derivative liabilities      2,939      119
   Non-current receivables, less unearned interest      7,240      583    Other Long-Term Liabilities      8,474      2,700

Commodity contracts

   Derivative assets      1,447,197      4,380,103    Derivative liabilities      1,390,707      4,350,322
   Non-current receivables, less unearned interest      978,671      1,381,968    Other Long-Term Liabilities      981,579      1,374,221

Credit contracts

   Derivative assets      6      —      Derivative liabilities      —        221
   Non-current receivables, less unearned interest      —        —      Other Long-Term Liabilities      2      —  
                                 

Total

      ¥ 2,480,610    ¥ 5,803,293       ¥ 2,438,550    ¥ 5,783,099
                                 

“The above balance sheet caption “Non-current receivables, less unearned interest” has been corrected due to immaterial error in the prior year end.

 

- 41 -


Non-derivative designated as hedging instruments under ASC No. 815 “Accounting for Derivative Instruments and Hedging Activities”

 

    

Millions of Yen

Hedging instruments

  

Balance sheet location

   September 30, 2009    March 31, 2009
      Carrying
amount
   Carrying
amount

Foreign-currency-denominated debt

   Current maturities of long-term debt    ¥ 50,087    ¥ 12,782
   Long-term Debt, less Current Maturities      85,827      77,670
                

Total

      ¥ 135,914    ¥ 90,452
                

The following tables present the amount affecting the Statements of Consolidated Income for the three-month and six-month periods ended September 30, 2009:

Derivative instruments in ASC No. 815 fair value hedging relationships

 

Six-Month Period Ended September 30, 2009

  

Millions of Yen

Derivative instruments

  

Location of gain (loss) recognized in

income of derivative instruments

   Amount of gain (loss)
recognized in income on
derivative instruments

Foreign exchange contracts

   Interest expense    ¥ 1,045
   Other expense (income) - net      4,098

Interest rate contracts

   Interest expense      3,394
         

Total

      ¥ 8,537
         

Three-Month Period Ended September 30, 2009

  

Millions of Yen

Derivative instruments

  

Location of gain (loss) recognized in

income of derivative instruments

   Amount of gain (loss)
recognized in income on
derivative instruments

Foreign exchange contracts

   Interest expense    ¥ 470
   Other expense (income) - net      3,621

Interest rate contracts

   Interest expense      3,202
         

Total

      ¥ 7,293
         

 

- 42 -


Derivative instruments in ASC No. 815 cash flow relationships

 

     Millions of Yen  

Six-Month Period Ended

September 30, 2009

   Effective portion    

Ineffective portion and amount

excluded from effective testing

 

Derivative instruments

   Amount of gain (loss)
recognized in OCI on
derivative instruments
   

Location of gain (loss)

reclassified from

AOCI into income

   Amount of gain (loss)
reclassified from
AOCI into income
   

Location of gain (loss)

recognized in income on

derivative instruments

   Amount of gain (loss)
recognized in income on

derivative instruments
 

Foreign exchange contracts

   ¥ 8,832      Sales of products    ¥ 5,476        
     Other expense (income) - net      (3,544     

Interest rate contracts

     Interest expense      (259     

Commodity contracts

     (1,089   Sales of products      4,293      Sales of products    ¥ 118   
                              
     Cost of products sold      (38     
                              
Total    ¥ 7,743         ¥ 5,928         ¥ 118   
                              
     Millions of Yen  

Three-Month Period Ended

September 30, 2009

   Effective portion    

Ineffective portion and amount

excluded from effective testing

 

Derivative instruments

   Amount of gain (loss)
recognized in OCI on
derivative instruments
   

Location of gain (loss)
reclassified from

AOCI into income

   Amount of gain (loss)
reclassified from
AOCI into income
   

Location of gain (loss)
recognized in income on
derivative instruments

   Amount of gain (loss)
recognized in income on
derivative instruments
 
Foreign exchange contracts    ¥ (940   Sales of products    ¥ 4,081        
     Cost of services sold      182        
     Other expense (income) - net      (4,886     

Interest rate contracts

     Interest expense      185        

Commodity contracts

     (461   Sales of products      4,235      Sales of products    ¥ 118   
                              
     Cost of products sold      (2,194   Cost of products sold      (228
                              
Total    ¥ (1,401      ¥ 1,603         ¥ (110
                              

 

- 43 -


Derivative instruments and hedging instruments in ASC No. 815 net investment hedging relationships

 

     Millions of Yen  

Six-Month Period Ended

September 30, 2009

   Effective portion    

Ineffective portion and amount

excluded from effective testing

 

Derivative instruments

   Amount of gain (loss)
recognized in OCI on
derivative instruments
  

Location of gain (loss)
reclassified from

AOCI into income

   Amount of gain (loss)
reclassified from
AOCI into income
   

Location of gain (loss)
recognized in income on
derivative instruments

   Amount of gain (loss)
recognized in income on

derivative instruments
 

Foreign exchange contracts

   ¥ 4,755    Other expense (income) - net    ¥ (201   Interest expense    ¥ (187

Foreign-currency-denominated debt

     10,685         Other expense (income) - net      (332
                             

Total

   ¥ 15,440       ¥ (201      ¥ (519
                             
     Millions of Yen  

Three-Month Period Ended

September 30, 2009

   Effective portion    

Ineffective portion and amount

excluded from effective testing

 

Derivative instruments

   Amount of gain (loss)
recognized in OCI on
derivative instruments
  

Location of gain (loss)
reclassified from

AOCI into income

   Amount of gain (loss)
reclassified from
AOCI into income
   

Location of gain (loss)
recognized in income on
derivative instruments

   Amount of gain (loss)
recognized in income on
derivative instruments
 

Foreign exchange contracts

   ¥ 1,301         Interest expense    ¥ (187

Foreign-currency-denominated debt

     8,903         Other expense (income) - net      (367
                             

Total

   ¥ 10,204            ¥ (554
                             

 

- 44 -


Derivative instruments not designated as hedging instruments under ASC No. 815

 

Six-Month Period Ended September 30, 2009

  

Millions of Yen

 

Derivative instruments

  

Location of gain (loss) recognized in

income of derivative instruments

   Amount of gain (loss)
recognized in income on
derivative instruments
 
Foreign exchange contracts    Other sales    ¥ 1,682   
   Cost of products sold      (800
   Interest income      88   
   Interest expense      (296
   Other expense (income) - net      (14,245