power to change · approach. second, we need to overhaul our quality control processes. third, we...

POWER TO CHANGEAnnual Report 2001Year ended March 31, 2001

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Forward-Looking StatementsThis annual report contains forward-looking statements about Mitsubishi MotorsCorporation’s plans, strategies, beliefs and performance that are not historicalfacts. These forward-looking statements are based on current expectations,estimates, forecasts and projections about the industries in which MitsubishiMotors Corporation operates, management’s beliefs and assumptions made bymanagement. As the expectations, estimates, forecasts and projections are subjectto a number of risks, uncertainties and assumptions, they may cause actual resultsto differ materially from those projected. Mitsubishi Motors Corporation, there-fore, wishes to caution readers not to place undue reliance on forward-lookingstatements. Furthermore, Mitsubishi Motors Corporation undertakes no obliga-tion to update any forward-looking statements as a result of new information,future events or other developments.

CONTENTS

Financial Highlights 1President’s Message 2Special Feature—The Turnaround Plan

Interview With Takashi Sonobe, Rolf Eckrodt and Takashi Usami 4Key Points of The Turnaround Plan 22

Board of Directors 23Environment 24Technology 28New Products 32Operational Review 34

Financial SectionFive-Year Summary 41Management’s Discussion and Analysis 42Consolidated Balance Sheets 46Consolidated Statements of Operations 48Consolidated Statements of Stockholders’ Equity 49Consolidated Statements of Cash Flows 50Notes to Consolidated Financial Statements 51Report of Independent Certified Public Accountants 65

Corporate SectionOffices and Works 66The MMC Group of Companies 67Corporate Information 68

三菱自動車AR01[表紙] Page 3

MITSUBISHI MOTORS CORPORATION Annual Report 2001 [1]

97 98 99 00 010

1,000

2,000

3,000

4,000(¥ billion)

97 98 99 00 010

1,000

2,000

3,000

4,000(¥ billion)

97 98 99 00 01–100

–50

0

50(¥ billion)

NET SALES OPERATING INCOME(LOSS)

NET INCOME (LOSS) TOTAL ASSETS

97 98 99 00 01–300

–150

–100

–50

50

0

(¥ billion)

FINANCIAL HIGHLIGHTSMitsubishi Motors Corporation and Consolidated SubsidiariesYears ended March 31

In thousands ofIn millions of yen U.S. dollars

2001 2000 2001

For the year:Net sales ¥3,276,716 ¥3,334,974 $26,446,457Operating income (loss) (73,865) 22,473 (596,166)Loss before income taxes and minority interests (407,289) (12,651) (3,287,240)Net loss (278,139) (23,331) (2,244,867)

At year-end:Total assets ¥2,981,668 ¥2,784,119 $24,065,117Total stockholders’ equity 256,068 347,363 2,066,731

Per share data (yen and U.S. dollars):Net loss:

Basic ¥ (232.77) ¥ (24.87) $ (1.88)Diluted – – –

Cash dividends – – –

Note: U.S. dollar amounts in this annual report are translated from yen, for convenience only, at the rate of ¥123.90=U.S.$1, the exchangerate prevailing on March 31, 2001.

[2] MITSUBISHI MOTORS CORPORATION Annual Report 2001

PRESIDENT’S MESSAGE

Fiscal 2000, ended March 31, 2001, was a tumultu-

ous year for Mitsubishi Motors Corporation (MMC).

A large recall badly dented our brand image and

highlighted the need for deep-seated structural

change. Since my appointment as CEO in November

2000, we have initiated a radical restructuring

program in full cooperation with our strategic alli-

ance partner, DaimlerChrysler (DC). This promises

to transform our company over the next three years.

In this letter, I want to outline the nature of the

changes taking place at MMC.

Results for year ended March 2001

Although wholesale shipment volumes increased by

5% to 1.85 million units, price discounting on passen-

ger car models contributed to a 1.7% fall in consoli-

dated net sales to ¥3,276.7 billion ($26,446 million).

As a result of price erosion and the problems created

by the large-scale vehicle recall we recorded an oper-

ating loss of ¥73.9 billion ($596 million). While our US

operations more than doubled profits, losses in

Europe were compounded by the weak euro. On the

positive side, our Truck & Bus operations returned to

the black, posting operating income of ¥9.4 billion

($759 million), compared with an operating loss of

¥6.2 billion in fiscal 1999.

Our net loss increased, from ¥23.3 billion in fiscal

1999, to ¥278.1 billion ($2,245 million) in fiscal 2000.

This loss included restructuring charges totaling

¥105.8 billion ($854 million), an extraordinary loss of

¥50.7 billion ($409 million) related to maintenance

and recall expenses, and a one-off charge of ¥128.4

billion ($1,036 million) for writing off a pension

fund shortfall following the adoption of new

accounting rules.

MMC undergoing dramatic change

These losses represent the depth of the valley. We

are acutely aware of the need for fundamental

change at MMC. Three key aspects characterize this

process. First, we must change our production-

oriented mindset to a customer-centric marketing

approach. Second, we need to overhaul our quality

control processes. Third, we must realize we are in

business to make profits from satisfying customers,

not just to make well-engineered vehicles. These

changes entail a revolution in our corporate culture.

From the bottom to the top, MMC is now a company

committed to a turnaround that will get us back on

track. We are fully committed to our target of break-

ing even this fiscal year on a consolidated basis and

to achieving operating income margins of 2.5% and

4.5% in fiscal 2002 and 2003, respectively.

The specific operational details of the changes

required are formulated in the Turnaround Plan,

which was hatched in early 2001. To lower expenses,

we will implement material cost savings of 15% by

the end of fiscal 2003, cut production capacity, and

reduce headcount. Already, we have announced the

closure of our Oye Plant and capacity reduction at

our Mizushima Plant.

The implementation of these and other changes

will be facilitated by our new organizational struc-

ture that clarifies responsibility and personal

accountability, allows for a fast information flow via

fewer management layers, and facilitates the delega-

tion of decision-making to operative levels. Among

other changes, we reduced the number of directors

to 25% of the previous level, replaced 60% of execu-

tive management, and plan to abolish the Advisory

System within two years. In addition, by creating glo-

bally integrated offices for procurement, production,

R&D, marketing, IT and control we have assured a

clearly integrated focus for our various operations.

To boost sales revenues, we are taking various

steps to revolutionize the quality and design of our

products and customer service. We have introduced

the Quality Check Gate system developed by DC. This

will ensure that the quality problems that have

troubled us in the past will not recur with our new

“…MMC is now a company committed to a turnaroundthat will get us back on track.”“... MMC is now a company committed to a turnaround thatwill get us back on track.”


products. We have significantly boosted R&D spend-

ing and completely reorganized our design operations.

With DC, we are building a new product portfolio

characterized by an exciting new brand identity.

These two halves of the equation add up to a

comprehensive re-engineering of all the business

processes involved in the entire value chain, from

product portfolio planning, design and development,

through production, to sales and marketing and

finally after-sales service.

Open communication, solid commitments

We are changing the way we deal with our suppli-

ers, dealers and other business partners. Based on a

new, open-book communication policy, we have

invited suppliers to become partners in our develop-

ment processes. Using this approach combined with

global sourcing, we can reduce material costs

through innovative cooperation, rather than con-

stant cost-cutting.

The key to successful execution of The Turnaround

is our people. Managers and their departments have

embraced the new plan, and they are personally

responsible for overseeing and delivering progress,

which has been mapped out in steady, achievable

portions. We will monitor progress month by month.

I have established a dual-COO structure in which

Rolf Eckrodt heads up Passenger Car operations and

Takashi Usami leads our Truck & Bus operations.

Together, we are leading the company. I believe we

make a good team.

Global partners

In April 2001, DC strengthened their alliance with us,

buying out AB Volvo’s 3.3% share to raise their equity

stake to 37.3%. This represents a significant cement-

ing of our partnership, extending our strategic tie-up

with DC to a full-fledged global alliance covering

the Passenger Car and Truck & Bus businesses. By

combining the strengths of the two companies we

will create an ideal platform for a real and funda-

mental change of MMC.

This alliance provides us with valuable resources

and many opportunities to ensure our survival and

to expedite the process of becoming a strong global

player. First, we are absorbing quality systems and

value-chain expertise developed by DC, a company

that has a similar engineering-based heritage to

ourselves. Second, the alliance provides us with the

potential for enhanced cost savings and product

design and development through platform and

component sharing. Finally, we have acquired expe-

rienced leadership from DC in the form of Mr.

Eckrodt and his team, all of whom now work for

MMC in Japan.

We are under no illusions: we have a mountain to

climb. But I believe we have the power to change

through the support of many committed people in

engineering our revival. I believe MMC has a bright

future within the strategic alliance with DC as a

global player in both Passenger Car and Truck & Bus

operations. I hope all our shareholders will also lend

us their support.

August 2001

Takashi Sonobe

President & CEO

Rolf Eckrodt Takashi Sonobe Takashi Usami


Q1.

Why is there a need for the Turnaround Plan?

Q2.

What is the main thrust of the plan?

[S] Takashi Sonobe, President & CEO

[E] Rolf Eckrodt, Executive Vice President & COO (Passenger Car)

[U] Takashi Usami, Executive Vice President & COO (Truck & Bus)

INTERVIEW


SPECIAL FEATURE—The Turnaround Plan


“... we need to reinvent the entire MMC culture and

convince our customers that MMC has changed

for the better.”

Takashi SonobePresident & CEO


A1.[S] In the past, MMC has tried several times to renew itself by new manage-

ment plans with only limited success. We did not really manage to change from a

reactive, engineering-driven mentality to a proactive, market-oriented company. On

top of this, the recall in 2000 clearly damaged our credibility. Hence we need to reinvent

the entire MMC culture and convince our customers that MMC has changed for the

better. We needed a major roadmap for a fundamental change.

At the same time, we started our strategic alliance with DC in 2000. This provided

us with a great opportunity for implementing real changes at MMC. Combining our

existing strengths with the management experience of our new partner enabled us to

come up with a real blueprint for a new MMC, which we started to implement in April

of this year.

A2.[E] The Turnaround Plan is based on three main pillars: cost reduction, process

optimization, and new products and markets. The first step is, of course, cost-cutting,

an indispensable measure that stands at the beginning of every restructuring effort.

Second, we will optimize the entire value chain. This comprises, among others, the

implementation of value analysis to our transactions with suppliers and dealers, a

new quality management system and strict control on a company-wide basis. Finally,

however, there will be no turnaround without new and exciting products. We are

developing such vehicles under the leadership of our new chief designer from DC to

create a stronger MMC brand in the future. In addition, to raise sales volumes of

new models, we will also enter new markets like Mexico and Canada.


Q3.

What measures are you taking to regain the trustof your customers in light of the recent recall?



A3.[S] Our task is to change MMC in three basic respects. First, we must reinforce

compliance with laws and regulations. Second, we must ensure our products consis-

tently meet quality standards that instill confidence. Third, we must ensure all our

dealerships, salespeople and mechanics provide high-quality service to customers. To

achieve these aims, we have (1) brought in new management, (2) introduced the

Quality Check Gate system used by DC, and (3) are getting MMC dealerships to have

a closer, more individual interface with customers to raise customer satisfaction. The

idea is to make all these changes in our quality control and quality assurance pro-

cesses thorough and systematic. We also have a new, strict “open-book” policy, so

that we make our management policies transparent and openly communicate to the

public how we have changed and how we have raised our quality. By doing these

things, we will restore the faith of our customers in our products.

A3.[E] To repair trust, it is essential that we take responsibility. We are transform-

ing our internal processes to bring in quality assurance systems and ensure that people

understand what is expected of them and have the spirit, willingness and means to

take the necessary responsibility for quality, at all levels of the company. Then we can

build trust. Lastly, we will create the image of a winning company.

MMC has many strengths, including excellent engineers, innovative engine designs,

a global manufacturing base, technically excellent products as demonstrated by

victories at the Paris-Dakar Rally and World Rally Championship, and a sporty image.

It’s the overall system that needs to be fixed. We need a proactive marketing approach,

a new brand positioning strategy, correct processes, and even more creativity and

innovation in product development. The alliance with DC will also help. We are work-

ing hard to motivate our workforce.

Our role as leaders is to provide the direction for The Turnaround. We are here to

create a completely new company. One aspect of this is redefining our brand image

and then designing our vehicles, so we have new products from a new company with

a new future. On the customer service side, we are seriously engaging in a dialogue

with actual customers to identify the type of product they will buy tomorrow. It’s a

totally different approach.


Q4.

What measures are you taking to restore the trustof the financial community—your shareholdersand investors—in the wake of your net loss of¥278.1 billion ($2,245 million)?



A4.[E] We have formulated the Turnaround Plan. This plan is about changing

processes. In terms of production, we are reducing technical overcapacity while also

planning to restore production volumes over time with the products and the ideas we

now have in the pipeline. We aim to rebuild the MMC brand by positioning it as a

premium brand. Discounts are not the answer.

The Turnaround is based on a process that is backed up by a specially introduced

database that enables us to evaluate all the possibilities. And having thought every-

thing out, we are now explaining this plan to all our people to gain their support. We

are committed to breaking even on a consolidated basis in fiscal 2001. Over the past

few months we have replaced 60% of our executive management. We have closed one

plant and will shut down a part of another plant to rightsize our capacity. We have

addressed the problems and we have communicated the Turnaround Plan to all our

staff, in detail. We have a plan and a system in place to achieve our goals. All the MMC

people realize what the problem is and their role in solving it.

We plan to work with our suppliers, undertaking a review of material costs based

on a value analysis, and we will encourage them under a new type of partnership to

present ideas that can be incorporated into new designs. Global sourcing, which MMC

did not do in the past, offers huge potential for cost savings. Finally, we will benefit

from the DC alliance in areas like purchasing and development.

Our core business is the development and marketing of cars, with a value chain that

stretches from parts procurement, through design and development. The value chain

also features a state-of-the-art production system, including final assembly, and an

intelligent sales business, including after-sales services. We will be a service cham-

pion, with the product as only one part of a value chain whose object is to treat the

customer well.

A4.[S] The difference with this plan is that we have made it very explicit that this

is a new process. The communication has been very open, and we have openly laid

out in detail the steps we need to take to make this plan work. If everyone is prepared

to take responsibility for implementing the planned steps according to the plan sched-

ule, and they take those steps, then we will be able to see the progress we are making.

Once people succeed with their individual targets, and once they see that these pro-

cesses are working and that we are on track, I believe they will gain confidence that

will be the source of energy to drive our company to realize the plan. In other words,

through a combination of our employees taking individual responsibility, and through

an integrated system that builds in cooperation with our suppliers and dealers, I believe

we can show to the financial community that MMC is moving along the trajectory of

this plan back into profit.


“I’m here for our future success... There’s a strong

common goal for us.”

Rolf EckrodtExecutive Vice President & COO

(Passenger Car Division)


Are the synergies you expect from the DC-MMC alliance factored into the TurnaroundPlan’s targets?

Given plant closures and lay-offs are antici-pated, how are you communicating thesechanges to the workforce? How do you plan togain their complete confidence in MMC’s future?

What direction do you intend to take in termsof products and market positioning? What hasMMC got in the pipeline?

[12] MITSUBISHI MOTORS CORPORATION Annual Report 2001[12] MITSUBISHI MOTORS CORPORATION Annual Report 2001

Q5.

Q6.

Q7.


A7.[E] The plan seeks to break even by March 2002 on a consolidated basis, and

to achieve a 2.5% operating income margin in the year ending March 2003 and a 4.5%

operating income margin in the year after that. No alliance synergy effects or poten-

tial have been factored into these targets.

A5.[E] We are consulting with everybody, from the shop floor workers all the way

up. We also have strong follow-up teams who are going to the different sets of players

to communicate with them and let them know whether they are in line with the

progress required or not. With the unions, I feel we now have an understanding that

is firmly based on mutual trust.

A6.[E] We will launch two new passenger cars this year, one at the end of June

and a minicar at the end of October. In addition, we will showcase some concept cars

at the Tokyo Motor Show later this year. By the end of June, we put together a com-

plete new product development program. The alliance will be instrumental in spawn-

ing different products, exciting designs and new technologies. We plan to launch a

few new products this year and next year. At the end of 2002, we plan to launch the

new Z-Car, which will be the first result of the DC-MMC alliance. MMC will work with

DC in a number of areas, including innovative designs, product segments and the co-

sharing of standardized and modularized parts, components, platforms and systems.

By 2004, all MMC products will benefit from the standardization, modularization and

platform use that will come out of the alliance. Our range of US products, for example,

will be totally renewed.



Q8.

After the end of the AB Volvo alliance, do youstill plan to spin off the Truck & Bus Division?

Q9.

The Turnaround will depend to a large extenton your leadership. How is your working rela-tionship developing?



A9.[E] We have a good respect for each other. It fits. For both of us, it’s not a

complicated proposition: we both want The Turnaround to be a success. We’re not

working here for the next step in our professional lives. For me, it’s extremely easy;

I’m here for our future success. I want a success story. There’s a strong common

goal for us.

We see each other at eight o’clock in the morning, and we talk about the day—how

we handle issues, or what we think about things. We do that every day.

A9.[S] My experience of being in the United States for ten years, during which

time I myself presided over a turnaround, taught me a lot about different cultural

perspectives. If you have a common goal and a solid basis of mutual understanding

and trust between you, I believe you can accomplish many things together. Mr. Eckrodt

can operate in and manage different cultures. And now he’s come over to MMC and

we’re working well together as a team, with a clear mutual understanding of our roles

and capabilities. When others in MMC see that we’re working together for the same

goal, this boosts our effectiveness as leaders.

A8.[S] Trucks under the Canter brand name that are made by Mitsubishi Trucks

Europe and currently sold through AB Volvo sales channels will be sold through DC

sales channels by the end of this November. There is also potential for joint develop-

ment projects in mid-sized trucks with DC.

We have essentially gone back to the drawing board to see whether, depending on

the progress made in the ongoing alliance project discussions, it makes sense to spin

off the Truck & Bus Division.



Q10.

What role do Mitsubishi Group Companies haveto play in The Turnaround?

Q11.

What are the key factors for the success ofThe Turnaround?



A10.[S] They are strong supporters of our business, but we are under no obliga-

tion to order from them if their tenders are not competitive. In equity terms, DC is the

leading shareholder with over 37% and the Mitsubishi Group companies combined

have a stake of over 34%.

A11.[E] Unless we inspire and manage our people, there’s no point talking about

potential, measures and actions. At the end of the day, it’s the people that count.

A11.[S] It’s our people.



Q12.

The Truck & Bus Division moved back into the

black in fiscal 2000. Can it be assumed from this

result that your division’s turnaround is complete?



“... MMC is exploring all possible avenues under its new

alliance with DC, such as how we can harness winning

synergies and in which areas we can work together

most effectively.”

Takashi UsamiExecutive Vice President & COO

(Truck & Bus Division)


A12.[U] No. We believe the first phase is complete, but we still have more to do.

Domestic sales of trucks and buses are currently hovering around the 220,000-unit mark, nearly half the 400,000 units sold in fiscal 1996. Moreover, exportdemand suffered a sharp drop from approximately 400,000 units in fiscal 1997 toless than 300,000 units in fiscal 1999. This was primarily the result of a slump indemand throughout Asia following the currency crises that plagued the region.Demand is expected to remain sluggish for some time.

Amid the challenges of this environment, domestic shipments and exports of MMC-

brand trucks and buses declined from 225,000 units in fiscal 1996 to 146,000 units in

fiscal 1998, forcing the Truck & Bus Division into the red.

To reverse the situation, the division implemented measures under the RM2001

and Heart-Beat 21 (HB21) reform programs. Results have been significant and encour-

aging, with the division finally returning to profitability in fiscal 2000.

The key points in our reform effort were as follows:

• Sale of the Maruko Plant and consolidation of production lines, in addition to con-

solidation of the Maruko Plant’s R&D operation with the Kitsuregawa Laboratory

• Closure of the small-truck production line at the Nakatsu Plant (reducing the total

number of truck production lines from five to four), and consolidation of the Nakatsu

engine production line with the Kawasaki Plant (reducing the total number of engine

production lines from four to three)

• Closure of the casting line at the Kawasaki Plant and integration of the subsidiary

operating the Kawasaki Plant with Mitsubishi Automotive Techno-Metal

• A 14% reduction in the number of employees in the Truck & Bus Division

The aforementioned efforts lowered the break-even point from 205,000 units in fiscal

1997 to 149,000 units in fiscal 2000 (including overseas PPC*).

We have also integrated sales companies, reducing the number from 45 to 30 as a

means of promoting efficiency throughout our sales channels.

Measures such as these enabled us to return to profitability in fiscal 2000.


A return to the black, however, does not by itself constitute a complete turnaround.

We shall deem our operations to have fully turned around only when we put in place

a system that will maintain profitability for years to come. In that sense we have only

completed the first phase in a greater worldwide effort. To remain profitable we must

actively introduce new products and promote research and development with regard

to environmentally-friendly technologies.

Doing so requires a strategic alliance of truly global scale. Currently, MMC is explor-

ing all possible avenues under its new alliance with DC, such as how we can harness

winning synergies and in which areas we can work together most effectively. Priority

has therefore been given to the establishment of a joint marketing system in Europe

for the Canter truck series to ensure a smooth transition from AB Volvo’s sales

channel to DC’s by the end of November, and to the joint development of mid-sized

trucks. Moreover, the two companies are discussing possible collaboration in many

other areas.

Regarding the spin-off of the Truck & Bus Division, which has been involved in the

review process since last year, we will not seek separation with blind abandonment of

the issues involved. Together with DC we will examine optimal business models for

Truck & Bus operations as we discuss collaborative projects.

* PPC (Production Parts and Components)

Of the KD (knocked down) assemblies exported overseas, those valued at less than

60% of their corresponding fully assembled vehicles are classified as PPC.


1. Material Costs: Reduction of 15% by FY 2003

Reduction of 60/130/150 billion yen in FY 2001/02/03

2. Fixed Costs: Reduction of 40/45/55 billion yen in FY 2001/02/03

3. Headcount: Reduction by 14%, or about 9,500 people by FY 2003

5,050 of 9,500 people by FY 2001

4. Production Capacity: Reduction of 28% in Japan by FY 2002

5. Business Focus: Concentration on core business activities

6. Capital Investment: FY 2001 140 billion yen (277% of FY 2000)

7. Business Targets: FY 2001 Break even on consolidated basis (net income)

FY 2002 Operating income margin of 2.5%

FY 2003 Operating income margin of 4.5%

KEY POINTS OF THETURNAROUND PLAN



BOARD OF DIRECTORS

From left to right: Junji Midorikawa, Steven A. Torok, Rolf Eckrodt, Takashi Sonobe, Masanori Tani,

Takashi Usami, Hiroshi Yajima and Ulrich W. Walker

MEMBERS OF THE BOARD

Takashi SonobePresidentChief Executive Officer

Rolf EckrodtExecutive Vice PresidentChief Operating Officer

Takashi UsamiExecutive Vice PresidentChief Operating Officer

Steven A. TorokSenior Vice PresidentExecutive GM of InternationalCar Operations Headquarters

Ulrich W. WalkerSenior Vice PresidentExecutive GM of Car Research & Development/Marketing Headquarters

Junji MidorikawaSenior Vice PresidentChief Financial Officer

Hiroshi YajimaSenior Vice PresidentExecutive GM of Corporate Affairs & Strategy Office

Masanori TaniSenior Vice PresidentExecutive GM of Car Production Headquarters

(As of June 26, 2001)


As an automobile manufacturer, MMC’s corporate activities

are closely linked to environmental issues. MMC is stead-

fast in its commitment to adhering to best environmental

practices and is constantly looking for ways to reduce the

environmental impact of its activities and products.

ENVIRONMENT

MMC is steadily improving the fuel con-

sumption efficiency of its passenger cars.

MEASURES TO PREVENT GLOBALWARMINGContinuous improvements in fueleconomyWith successive new model introduc-tions, MMC is steadily improving thefuel consumption efficiency of its pas-senger cars ahead of the adoption ofnew standards (applicable to gasoline-powered vehicles from 2010 and diesel-powered vehicles from 2005) set downin legislation passed in Japan to pro-mote energy saving. The new LANCERCEDIA sedan and station wagon mod-els launched during fiscal 2000 fea-tured substantially improved fuelconsumption efficiency, despite thevehicles themselves being larger thanprevious models.

GDI + Turbo engineIn July 2000, MMC launched the PAJEROio 5-door Turbo model. This car is pow-ered by a turbocharged version of theGDI (gasoline direct injection) engine,which generates a high response withsuperior fuel economy. By injectinggasoline directly into the cylinder, GDIengines achieve smooth, ultra-leancombustion. This results not only inlower fuel consumption, but also in a

range of other benefits such as superiorstarting and torque characteristics,better engine response, and anti-knocking effects. The GDI Turbo enginetakes advantage of anti-knocking toproduce higher low-end torque withoutany deterioration in fuel economy.

CVT (continuously variabletransmission)MMC has developed a small, light-weight transmission that can continu-ously match gear ratio to engine torque.This CVT was introduced in theLANCER CEDIA sedan model in May2000 and the LANCER CEDIA stationwagon in November 2000. The DINGOmodel launched in February 2001 alsofeatured CVT. Combined with the GDIengine, the system provides integratedpowertrain management, resulting inultra-smooth shifting together with lowfuel consumption.

Direct-injection diesel enginesAs a result of their superior fuel con-sumption and high durability, MMChas been putting direct-injection dieselengines in trucks and buses for sometime. In passenger cars, MMC has devel-oped this technology by switching fromindirect injection to direct injection.This promises to improve fuel consump-tion and reduce exhaust emissions.


The use of lighter materials and computer-

aided design techniques…are contributing

to reductions in vehicle weight.

Vehicle weight reductionThe use of lighter materials andcomputer-aided design techniques,which have helped to rationalize bodystructures, integrate components anddevelop modularized parts, are con-tributing to reductions in vehicleweight. Despite weight increases dueto more spacious cabins and enhancedsafety features, the new LANCER CEDIAsedan and station wagon models

launched in fiscal 2000 were only mini-mally heavier than previous models.This was the result of using lighter,high-tensile steel and steel plates ofvariable thickness. The incorporationof SWS (smart wiring system) andstructural modifications to parts alsohelped keep weight down. In the rangeof truck models that went on sale in

fiscal 2000, reductions in the weight ofthe engine, cab and chassis helped tooffset increases accompanying changesrequired for compliance with JapaneseLong-term Emission Regulations.

Reductions in aerodynamic dragMMC continues to incorporate the re-sults of research into aerodynamic dragthrough wind-tunnel testing andcomputer-based analysis to improvethe aerodynamic performance of newmodels.

MEASURES TO PREVENT AIRPOLLUTIONGasoline exhaust emissionsTo reduce exhaust emissions fromgasoline-powered engines, MMC isworking to improve the design and/orperformance of engine components,the structure, precious metals andpositioning of catalytic converters, aswell as engine control.


All MMC truck and bus engines have now been fitted with

EGR (exhaust gas re-circulation) systems that further aid

in the cleaning of emissions.

Diesel exhaust emissionsWith trucks and buses, MMC is intro-ducing advanced proprietary combus-tion technology and common-rail fuelinjection systems to reduce exhaustemissions and improve fuel consump-tion. Most of MMC’s truck and busengines have now been fitted with EGRsystems that further aid in the clean-ing of emissions. To gain further reduc-tions in exhaust emissions, MMC iscontinuing R&D into improved combus-tion chamber and fuel injection designs,NOx catalysts, and other advancedtechnologies such as DPF (diesel par-ticulate filters).

MEASURES TO REDUCEENVIRONMENTAL IMPACTTo reduce their impact on the environ-ment, MMC passenger cars are fittedwith many specially designed lead-freecomponents. Such components includeradiator cores, fuel tanks, and harnessand hose parts. In fiscal 2000, MMC in-troduced new models fitted with lead-free valve sheets. In trucks, MMC hassuccessfully developed heater coresmade out of aluminum to furtherreduce the use of lead. In addition, all

new models launched by MMC duringfiscal 2000 are virtually free of othertoxic heavy metals such as mercuryand cadmium.

DEVELOPMENT OF CLEAN-ENERGYVEHICLESLPG trucksTrucks powered by LPG (liquefiedpetroleum gas) emit less NOx thandiesel-powered counterparts—and noblack smoke. MMC markets a range ofthe CANTER trucks featuring LPG-powered engines with payload capaci-ties ranging from 1.5 to 3.0 tons.

CNG vehiclesVehicles powered by CNG (compressednatural gas) emit considerably lesscarbon dioxide than gasoline-poweredcounterparts and, do not produce blacksmoke, unlike diesel-powered vehicles.This makes them a viable clean-energycandidate for the future. MMC is devel-oping a range of CNG vehicles, fromsmall commercial trucks to large busesand other vehicles.

Hybrid electric vehiclesMMC is engaged in the development ofhybrid vehicles that comprise a gasolineengine with an electric motor poweredby a generator. Such vehicles are capableof producing very low emissions withlarge improvements in fuel economy.

In fiscal 2000, MMC announced thatit had developed a hybrid powertrain

MMC is engaged in the development of

hybrid vehicles...capable of producing very

low emissions with large improvements in

fuel economy.


system for large-sized public servicebuses in which electricity is generatedby the engine and the motor providesthe main motive force. Plans call for atrial run of the bus in fiscal 2002.

FCEVs (fuel cell electric vehicles)FCEVs operate using electricity derivedfrom the electrolytic reaction of hydro-gen and oxygen in a specially designedfuel cell. Energy efficiency with thisprocess is much higher than with con-ventional fuel combustion. Moreover,since the only product of the fuel-cell

reaction is water, FCEVs generate verylow levels of pollution. They are widelyexpected to be a popular type of clean-energy vehicle in the future. In fiscal2000, MMC created and tested a proto-type FCEV, which is the product of joint

development with Mitsubishi HeavyIndustries, Ltd. In addition, MMC aimsto commercialize FCEVs in the futurewith the help of DC, which has sophis-ticated technological capabilities inthis area.

Towards zero landfillwaste emissionsIn view of the projected future scarcityof usable landfill sites in Japan and else-where, MMC is taking steps to reducethe amount of waste sent to landfillsby developing production processesthat minimize the amount of wastegenerated and through greater recy-cling and reuse of resources. The finalaim is that of zero waste emissions,which means the generation of zero netwaste sent to landfill. MMC has set adate of the end of fiscal 2001 for theachievement of this company-widegoal. The Nagoya and Kyoto plantsachieved zero waste emissions a yearahead of this target.

MMC is promoting policies such as restric-

tion of waste amounts, reduction of vehicle

weights and increased parts recycling.


Mitsubishi ASV-2Since 1996, MMC has been an activeparticipant in the second ASV(advanced safety vehicle) project spon-sored by the Japanese Ministry ofTransport (now the Ministry of Land,Infrastructure and Transport). This

participation has spawned three pas-senger cars with advanced safetyfeatures (the ITS-ASV, the High-Mobility ASV, and the IntelligentCruise Control 21 ASV) and one ASV-2truck model. Together, these newmodels showcase a range of practicalsafety technologies designed for thedemands of modern driving. These fallprincipally into three categories: activesafety technologies designed to pre-vent accidents; passive safety tech-nologies intended to maximize safetyin the event of an accident; and ITS(intelligent transport system) tech-nologies designed for a wide range ofdrivers, including senior citizens.

(1) ITS-ASVThe ITS-ASV uses various sensors andinformation and communication sys-tems to ascertain road conditions andprovide the driver with suitable feed-back through audio or visual signals.It is also fitted with a number of

systems that provide supplementaryassistance to the driver to avoid acci-dents if trouble arises.

(2) High-Mobility ASVIncorporating the latest universal utilitydesign concepts, MMC’s High-MobilityASV is fitted with novel driving func-tional arrangements and advancedcontrol systems to allow drivers tooperate it regardless of physical capa-bilities or level of driving skill.

(3) Intelligent Cruise Control 21 ASVThis is a specialist prototype test vehiclefor an intelligent cruise control demon-stration run sponsored jointly by theMinistry of Transport and the Ministryof Construction. The vehicle systemcommunicates with road-fitted devicesto provide warning information andassistance to the driver.

(4) Mitsubishi ASV-2 TruckIn view of the size of the impact causedby large vehicles in accidents, thisvehicle is fitted with a variety of activesafety technologies, as well as intelli-gent cruise control.

Hybrid no-step large busModern urban transport systems facetwo important demands that are becom-ing increasingly acute over time. First,there are calls from society for trans-port systems to have a reduced impacton the environment. Second, the systems

TECHNOLOGY

MMC has a proud history of technological innovation. The

following topics underscore how MMC is continuing to set

the standard in technological excellence.

MMC’s participation in the second ASV

project has spawned three passenger cars

with advanced safety features.


must cope with increasing numbers ofsenior citizens, creating a need forgreater accessibility. MMC has tackledboth these requirements at oncethrough the development of a hybridno-step bus. This combines the lowpollution and superior fuel economy ofa lightweight, compact hybrid power-train within a HEV (hybrid electricvehicle) with increased ease of acces-sibility (no-step buses can vary theirground clearance so that the entrance

to the bus is much lower when it isstopped, thereby allowing passengersto enter or exit the vehicle withouthaving to negotiate a step).

To produce a low-pollution vehiclethat could be used nationwide withoutthe need for any new infrastructure,MMC based the HEV powertrain arounda diesel engine that was modified to

reduce exhaust emissions, fuel con-sumption and noise—all by consider-able amounts. The design of the buswas also rationalized to maximizecabin floor area and make the vehicleas practical for passengers as possible.

The bus utilizes a hybrid powertrainthat incorporates a diesel engine andan electric motor arranged in series.One advantage of this design is that itmaximizes the free space created bythe layout. The motor provides themain motive force, while the engine isused to drive a generator that feedspower to the motor. Electronic controlof the battery level regulates the oper-ation of the generator, with the resultthat the engine and the generator areautomatically switched off whenbattery power is sufficiently high.During braking, the motor is run inreverse to provide top-up power for thebattery. This regenerative brakingmechanism helps to raise the energyefficiency of the system substantially,allowing for a much smaller size of

MMC’s hybrid no-step bus meets

the demands of modern urban

transport systems.


In 1987, MMC introduced one of the first vehicles to be

fitted with a high-performance 4WD system.

engine. During normal operation, theengine is designed to run at a fixed,low speed. This in turn reduces noiseand vibration, both internally andexternally.

The role of the diesel engine in theHEV powertrain design utilized in thisvehicle is simply to generate electricpower for the motor. Since it is not con-nected directly to the drive axle, theengine can therefore be run highly effi-ciently at a constant low speed. Thishelps to minimize its exhaust emis-sions. In addition, when the vehicle isstopped or is moving off from a start,the engine is not used and the vehicleruns solely on electric power. This allows

the exhaust emissions of the engine tobe precisely matched to fuel economy,making the vehicle compliant withstringent new Japanese Short-termEmission Regulations governing NOxand particulate matter.

High-performance 4WD vehicledevelopmentThe general aim of 4WD systems is toshare the load across all four tiresequally. This role is important as anactive safety technology since extract-ing the best performance from each

tire helps to improve driveability,while also allowing anybody to drivethe vehicle safely. In 1987, MMC intro-duced one of the first vehicles to befitted with a high-performance 4WDsystem, which featured a center differ-ential connected to a VCU (viscouscoupling unit).

Since then, MMC has developed anumber of other high-performance4WD systems. In one variety, an elec-tronically controlled center differentialallows the vehicle to vary from full4WD to a partial front-wheel drivesystem with a front-rear power split of30:70. Other systems feature AYC(active yaw control), in which the cor-nering abilities of the vehicle aregreatly enhanced through direct elec-tronic control of the yaw moment at alltimes via a combination of rear-wheeldrive and monitoring of the braking dif-ferential between the two rear wheels.

In motor sports, particularly in ral-lying, 4WD vehicles became the normsince they were the best systems fortransmitting power from high-performance powertrains to the roadsurface. Yet most systems featuredonly a VCU with a mechanical LSD(limited slip differential), a combina-tion that frequently failed to deal withthe constantly changing peculiaritiesof rallying terrain. This fact left muchroom for improvement to boost thecompetitiveness of rallying vehicles.

Since rolling out its first 4WD system,

MMC has developed a number of other

high-performance 4WD systems.


MMC has bridged this performancegap by the replacement of VCU-fittedsystems with 4WD powertrains basedon ASD (active slip differential) and afully electronic clutch. This systemallows for the slip differential to be ac-tively controlled, thereby maintainingthe optimal combination of steeringcontrol and driving performance atall times.

The next challenge for MMC is tocombine the advantages of ASD andAYC in a single, fully integrated, com-puter-controlled 4WD system thatpromises to deliver improved corneringperformance, higher accelerationaround bends and greater operatingstability than has been possible witheither system employed in isolation.


AIRTREK: THE SMART ALL-ROUNDERNEW-GENERATION CROSSOVER RVMMC launched the AIRTREK*1, a new-generation crossover recreation vehicle,on June 20, 2001. Powered by 2.4-literGDI or 2.0-liter ECI-Multi engines driv-ing either front or all four wheels, theAIRTREK is the first new model to belaunched under The Turnaround.Developed to a “creating flexible spaceand all-round performance” concept,the AIRTREK is distinguished by thefollowing features:

The AIRTREK is the first new model to be launched

under The Turnaround.

NEW PRODUCTS

• “Flexible interior space” that guaran-tees roomy and relaxing comfortwhether driving around town or outand about on longer journeys;

• All-round driving performance thatbrings strain-free motoring pleasureon- and off-road;

• Innovative styling that visuallyprojects the flexible space and all-round performance of the newmodel.This concept has created a new-

generation crossover RV that sportslevels of all-round performance


surpassing that of any RV on the roadtoday. The AIRTREK lays claim to aunique position in its category as itbrings together the friendly driveabilityand peppy around-town performanceoffered by minivans and station wagons,and the go-anywhere off-road per-formance potential of a SUV (sportsutility vehicle).

*1 Coined from Air and Trek to express the idea offootloose, adventure-filled motoring pleasure.

AERO NOSTEP MIDI:BARRIER-FREE MEDIUM-SIZED BUSMMC’s AERO NOSTEP MIDI bus com-plies with size reduction regulations forurban community buses and linebuses. The AERO NOSTEP MIDI adoptsa new vehicle layout, which realizes anultra-low floor and a wide and flat floorsurface. This bus also offers excellentpassenger control, seating comfort andother passenger-friendly measuressuch as a wheelchair area and slopepanel for easy wheelchair access.

The AERO NOSTEP MIDI adopts a new

vehicle layout, which realizes an ultra-low

floor and a wide and flat floor surface.


ALLIANCE WITH DCMMC reached an agreement in March2000 with DaimlerChrysler (DC), one ofthe world’s premier passenger carmanufacturers, regarding the forma-tion of a strategic alliance. The purposeof this equity-based and operative part-nership is to ensure cooperative effortsthroughout the activities of the twocompanies, encompassing the develop-ment, production and marketing ofpassenger cars. DC acquired a 34%stake in MMC through a private place-ment of new shares. The alliance willcreate the dynamic mechanism neededto motivate global collaboration, includ-ing joint production and marketing inEurope by MMC and DC with regardto the joint development of a new, stra-tegic small car.

In April 2001, MMC further agreed toa change in the alliance’s strategicpartner in Truck & Bus operations fromAB Volvo to DC, which raised its equity

interest in MMC from 34% to 37.3%.Currently, MMC is working to expandits business in the passenger car andtruck and bus markets with DC as itsexclusive partner.

PASSENGER CARJAPANFiscal 2000 brought steady growth indomestic and export sales, such condi-tions having been stimulated by numer-ous launches of new models by variousautomotive manufacturers. In additionto the introduction of new and uniquemodels, in October 2000 MMC launcheda free-inspection campaign for all itspassenger cars dubbed the MitsubishiSafety Support Program. The programwas designed to strengthen and improveMMC’s marketing and service system,thereby providing a greater degree ofcustomer care.

The key MMC models introducedduring fiscal 2000 are as follows:

The LANCER CEDIA, launched in May2000, and the LANCER CEDIA WAGON,released the following November, adopta new-generation powertrain com-prised of MMC’s proprietary GDI(gasoline direct injection) engine andCVT (continuously variable transmis-sion), achieving excellent fuel economyand smooth but responsive perfor-mance. Moreover, the new LANCERCEDIA models offer spacious interiorsand user-friendly features.

OPERATIONAL REVIEW


The GDI-CVT powertrain, as found inthe LANCER CEDIA and the LANCERCEDIA WAGON, delivers integratedcontrol through the use of key featuresinherent in the powertrain itself, namelyhighly accurate torque control, a widepower band and low fuel consumption.The results are significantly less energyloss, 10% greater fuel economy ascompared with the previous GDI engine(automatic transmission models), out-standing acceleration, and smoothresponse with nearly imperceptiblegear changes.

The HEARTY RUN SERIES vehicles forthe physically challenged was expanded,as well. The series now includes theTOPPO BJ, which is equipped with amovable front passenger seat, and thenew DELICA VAN fitted with a wheel-chair package.

In February 2001, MMC launched theLANCER EVOLUTION VII, a high-perfor-mance, 4WD sports sedan. Based on theLANCER CEDIA, which underwent afull model change in May 2000, the

LANCER EVOLUTION VII features aproven high-performance 2-liter inter-cooler-turbocharged engine, MMC’s pro-prietary advanced 4WD system and abrake cooling system. The end result isa true sports-car driving experience. TheLANCER EVOLUTION VII also employsMMC’s newly developed ACD (activecenter differential), which yields en-hanced steering response and tractioncontrol. The LANCER EVOLUTION serieshas already proven its pedigree at thepinnacle of motorsports by winning theWorld Rally Championship with TommiMakinen and MMC team drivers at thewheel. In June 2001, MMC introduced anew model called the AIRTREK. This ex-citing new-generation crossover RV wascreated around the concept of a “smartall-rounder.”

Despite the favorable market responseto the new models, shipments of MMC-brand passenger cars in the Japanesemarket, particularly after July 2000, wereweakened by recall related problems.Consequently, total domestic shipmentsdropped to 426,000 units during fiscal2000, down approximately 19% from theprevious year’s figure. Domestic pro-duction was down 5%, at 857,000 units.

INTERNATIONAL OPERATIONSMMC exported 440,000 passenger carsduring fiscal 2000, an increase of 10%over the preceding year.


North AmericaTotal auto sales in the U.S. (represent-ing the combined sum of passengercars and small commercial vehicles)dropped slightly during the latter halfof the calendar year. However, the U.S.market still recorded its best sales year,with consumers buying 17,410,000 carsand trucks, an increase of 2.7% over theprevious year.

Despite the intensity of competition,Mitsubishi Motor Sales of America, Inc.(MMSA) sold 314,000 units, up 20% fromthe previous year’s figure. In fact, thiswas the second consecutive year ofrecord-setting sales, with key MMC

models such as the ECLIPSE, theGALANT and the MONTERO SPORT risingstrongly. Contributing to the brand’sgrowing sales were the new ECLIPSESPYDER and the redesigned MONTERO,launched in the spring of 2000.

Mitsubishi Motor Manufacturing ofAmerica, Inc. (MMMA), thanks to stron-ger sales by MMSA, produced 222,000units during 2000, a jump of 37.3% from

the prior year’s figure. MMC plans tointroduce a new SUV for the 2003model year. Designed exclusively for theU.S. market, it will be manufactured byMMMA. Sales of MMC models continueto grow in the U.S., as is amply evidencedby a lower break-even point, more robustoperating base and greater profitability.

EuropeTotal auto sales in Europe during 2000were 16,541,000 units, down 2% fromthe previous year. MMC’s share on thecontinent dropped 9% to 258,000 units.Viewing the situation by country,Germany saw its car sales plunge 11%to 3,565,000 units. MMC sold 52,000units in Germany—a 23% drop relativeto the preceding year—as the strongperformance of the new PAJERO wasovershadowed by flagging sales of theCARISMA and the MIRAGE models.In Italy, total car sales grew 3% to2,568,000 units, setting a new record. Ofthe MMC models, the STRADA showedparticularly impressive performance,with sales increasing 6% to 26,000 units.In the U.K., total sales were down 1% to2,439,000 units, yet with sales of the newPAJERO down, MMC sold 18,000 units, adecrease of 7%.

With regard to NedCar, MMC willcontinue to operate the Europeanproduction facility with Volvo Car until2004 under its agreement with theSwedish manufacturer. Thereafter,MMC plans to operate NedCar with DC,


jointly developing and producing the Z-Car, a compact and strategic world car.

Asia and OceaniaTHAILAND:Total auto sales in Thailand surged 20%to 253,000 units during 2000, althoughthe momentum was somewhat hurt byindications of an economic slowdown,which by midyear had begun to cast itsshadow over the market. MMC sold28,000 units—a jump of 65% over theprevious year—thanks to the new L200double cab pickup truck. MMC’s shareof the Thai market also grew to 11%from the previous year’s 8%.

PHILIPPINES:Total market sales in the Philippinesgrew 13%, coming in at 81,000 units for2000. Propelled by the strong perfor-mance of the L300 and the PAJERO,sales of MMC models rose to 15,000units (up 3% from the previous year),thus enabling MMC to maintain thenumber-two spot next to Toyota in thecountry’s auto market. MMC’s share,however, dropped to 19% from the 21%share it enjoyed in 1999.

INDONESIA:The automobile market in Indonesiasaw total sales soar 226% to 262,000units during 2000, as many consumerswho had withheld new car purchasesin the wake of economic crisis wereencouraged by the subsequent recovery

and started to purchase new cars. MMCsold 42,000 units in Indonesia, up 158%year on year. However, MMC’s sharewas reduced from the previous year’s20% to 16%. This was due mainly to in-creased competition resulting frommodel changes and new launches byother automobile manufacturers.

MALAYSIA:Total car sales in Malaysia grew 19% to332,000 units in 2000. PROTON—theMalaysian automobile manufacturerin which MMC has an equity stake—also enjoyed rising sales, growing 18%to 179,000 units. PROTON-brand modelscontinue to enjoy the lion’s share (54%)of that country’s automobile market.

CHINA:Total market sales in China grew 14%over the previous year, reaching1,882,000 units in 2000.

Reflecting the immense popularity ofthe PAJERO brand in China, 70% of the5,000 completed cars exported fromJapan were the new PAJERO models.


Regarding local operations, HunanChangfeng Motor Co., Ltd. (CFA)produced and sold 9,000 original PAJEROSUVs, 127% more than in the previousyear. Shenyang Aerospace MitsubishiMotors Engine Manufacturing Co., Ltd.(SAME) continued to increase produc-tion as well, selling 25,000 engines formid-sized cars. Moreover, HarbinDongan Automotive Engine Manufac-turing Ltd. (HDMC) began the trialproduction of small engines at the endof the year. MMC set up four dis-tributors in bonded areas in Shanghai,Guangzhou, Tianjin and Dalian in a bidto build its own sales network in China.

TAIWAN:Taiwan’s auto sales totaled 400,000units, a figure little changed from thatof the preceding year. MMC sold 84,000cars during 2000. This was a 5% dropfrom 1999 but was still sufficient tomaintain MMC’s position as the second-best-selling car brand on the island,next to Toyota. In terms of cumulativeunit sales (including trucks), MMC

retained its position as the number-onebrand for a fourth straight year. However,MMC’s share of Taiwan’s automobilemarket dropped slightly from the pre-vious year’s 22% to 21%.

INDIA:Overall sales in India during 2000 rose21% to 697,000 units.

In that country, MMC-brand cars areproduced and marketed by HindustanMotors and Mahindra & Mahindra, Ltd.MMC’s sales grew 12% during the year,coming in at 8,000 units.

AUSTRALIA:Australia’s total industry sales rose to767,000 units, up slightly from the pre-ceding year to the second-highest levelin history. MMC sold 71,000 units, up63% year on year, thanks to a strongshowing by the new PAJERO. MMCretained its 9% market share.

TRUCK & BUSJAPANTotal sales of trucks and buses roseslightly, despite continued weakness inthat sector. Japanese automobile manu-facturers sold 231,000 trucks and busesin fiscal 2000, up 5% from the previousyear. Of this number, regular trucks(with a vehicle weight of eight tons ormore under Japanese classification)accounted for 77,000 units, an increaseof 4% year on year.


MMC enjoys a secure position andsolid profit base in Japan’s truck andbus market. However, the recall-relatedissues in 2000 have hurt the brand’simage since last July, forcing MMC’stotal domestic shipments down 10%to 61,000 units. On the other hand,domestic production was up 5% to103,000 units.

New ProductsMMC added a new model to its SUPERGREAT series of large trucks. The newshort-cab version boasts the longestplatform and largest cargo capacity ofany domestic truck, and is driven by aninline six-cylinder intercooled turboengine that combines class-toppingoutput and high fuel efficiency.

MMC also launched its new AERO NO-STEP MIDI series during the period underreview. Not only do these medium- tosmall-sized route buses come equippedwith features for the physically chal-lenged, they also offer the largest no-step area and passenger capacity intheir class.

INTERNATIONAL OPERATIONSMMC exported 35,000 trucks andbuses in fiscal 2000, up 9% over theprevious year.

North AmericaTotal market sales in the region dipped4% to 367,000 units. MMC sales, at 5,000units, also dropped 9% relative to theprevious year. MMC is endeavoring toreverse that trend by revamping itsexisting dealer network, strengtheningits base of operations, and increasingthe number of sales outlets.

EuropeOverall sales of the CANTER small trucksin Europe rose 3% to 145,000 units. How-ever, sales of MMC brand trucks andbuses dropped by 2% to 11,000 units.

AustraliaAustralia’s total truck and bus salesremained at 19,000 units, reflectingthe end of the special demand thanksto the Sydney Olympics. MMC sold3,000 trucks and buses in that country,a year-on-year drop of 5%. MMC’sshare also declined slightly to 14%.

IndonesiaIndonesia’s truck and bus sales totaled37,000 units, a dramatic increase of 172%over the previous year. This activitywas supported by strong demand inthe replacement market. MMC salesechoed the market, soaring 187% to23,000 units, a 62% market share.


PRODUCTION UNITS OF PASSENGER CARS,TRUCKS AND BUSES BY REGION (PPC basis)

1999 calendar year 2000 calendar year

North America 159,850 +2% 222,390 +39%

South America 3,420 +119% 6,720 +97%

Europe 132,630 +32% 90,860 –31%

Africa 6,380 +139% 11,400 +79%

Asia 368,290 +34% 446,390 +21%

Oceania 34,570 –26% 38,570 +12%

Total 705,150 +21% 816,320 +16%

TaiwanPolitical uncertainties affected sales inTaiwan, with the overall marketshrinking 10% to 22,000 units. MMCsales dropped as well, down 15% to11,000 units. MMC’s share decreasedfrom 54% to 51%.

E-BUSINESSMMC is exploring various possibilitiesin an effort to maximize the salespotential of the Internet. The InternetShowroom in which catalogs and salesinformation are sent to users who logonto the website and request informa-tion is one such endeavor. Additionally,MMC is gradually expanding its use ofCarPoint and AutoByTel services. Otherefforts being promoted by MMC includethe use of Internet technology andonline databases in development andproduction, the promotion of efficiencyin administrative processes throughBPR (business process reengineering),

and the establishment of new businessmodels in conjunction with partners invarious industries.

MOTORSPORTSThe PAJERO achieved first and secondplaces in the 2001 Paris-Dakar Rally,where the MMC team added a sixthoverall championship to its record ofvictories. Further, The LANCER wasnamed the overall champion at the69th Monte Carlo Rally, the first race inthe 2001 World Rally Championship(WRC) series. In the Safari Rally in July2001—this year’s eighth WRC race—MMC took the manufacturer’s title andTommi Makinen, the Finnish driverknown for his skills at the wheel of theLANCER, won the driver’s champion-ship. (Victories in heated competitiveenvironments such as these serve todemonstrate the superiority of MMC’stechnology.)



1997 1998 1999 2000 2001 2001

Net sales ¥3,672,085 ¥3,735,228 ¥3,512,606 ¥3,334,974 ¥3,276,716 $26,446,457Operating income (loss) 45,660 (1,301) 32,147 22,473 (73,865) (596,166)Income (loss) before income

taxes and minority interests 13,968 (91,113) 11,783 (12,651) (407,289) (3,287,240)Net income (loss) 11,599 (101,846) 5,668 (23,331) (278,139) (2,244,867)

In yen In U.S. dollars

Per share data (yen and U.S. dollars):

Net income (loss):

Basic ¥12.59 ¥(110.49) ¥6.15 ¥(24.87) ¥(232.77) $(1.88)Fully diluted 11.34 – 5.93 – – –

Cash dividends 7.00 3.50 – – – –


Total assets ¥3,233,239 ¥3,370,526 ¥3,060,385 ¥2,784,119 ¥2,981,668 $24,065,117Total stockholders’ equity 486,457 349,747 353,613 347,363 256,068 2,066,731

Notes: 1. U.S. dollar amounts in this annual report are translated from yen, for convenience only, at the rate of ¥123.90=U.S.$1, the exchangerate prevailing on March 31, 2001.

2. Fully diluted net income per share for the years ended March 31, 1998, 2000 and 2001 is not available due to the loss for the periods.

FIVE-YEAR SUMMARYMitsubishi Motors Corporation and Consolidated SubsidiariesYears ended March 31


MANAGEMENT’S DISCUSSION AND ANALYSIS

Operational Review

Mitsubishi Motors Corporation (MMC) recorded an operating loss in fiscal 2000, ended March 31, 2001,

resulting from a slump in auto sales in Japan and Europe. MMC also recorded claims-handling ex-

penses and a one-time charge for the Mitsubishi Safety Support Program, a free-inspection program

implemented following last year’s recall, and wrote off retirement-benefit obligations in a lump sum.

Moreover, MMC recorded restructuring charges under the Turnaround Plan, which is aimed at restruc-

turing MMC’s operations. These and other non-recurring items amounted to ¥313.3 billion. Accordingly,

MMC posted a net loss of ¥278.1 billion.

MMC made a private placement of new shares to DaimlerChrysler (DC) in October 2000, thereby

allowing DC to acquire a 34% stake in MMC. In April 2001, MMC changed its strategic partner in Truck

& Bus operations from AB Volvo to DC.

MMC, under the alliance with DC, began implementing specific measures based on the Turnaround

Plan. MMC is promoting a Group-wide effort to achieve operating income of ¥20.0 billion and break

even on the bottom line in fiscal 2001 on a consolidated basis, and aims to increase its operating

income ratio to 2.5% in fiscal 2002 and 4.5% in fiscal 2003.

Net Sales and Operating Income

MMC recorded ¥3,276.7 billion in consolidated net sales in fiscal 2000, a drop of 1.7% from the preceding

year. This was due mainly to lower unit sales in Japan and the weakening euro, which had an effect

on MMC’s European unit sales. Gross profit decreased 4.4% to ¥522.1 billion. MMC posted an operating

loss of ¥73.9 billion, compared with operating income of ¥22.5 billion in fiscal 1999, despite a global

effort to cut costs.

UNIT SALES(MMC SHIPMENT BASIS)

Truck & Bus

Passenger Car

NET SALES

Truck & Bus

Passenger Car

OPERATING INCOME

Truck & Bus

Passenger Car

99 00

(FY)

0

1,000

2,000

3,000

4,000(¥ billion)

99 00

(FY)

–100

–50

0

50(¥ billion)

99 00

(FY)

0

500

1,000

1,500

2,000(1,000 units)


(Segment Information)

MMC has two business segments: Automobiles, which encompasses the manufacturing and sale of

passenger cars and trucks and buses; and Financial Services, which is centered around car financing.

Automobiles sales dropped ¥68.3 billion, or 2.1%, to ¥3,194.1 billion. The segment posted an

operating loss of ¥70.5 billion, as compared with operating income of ¥23.4 billion a year earlier.

Financial Services generated ¥94.0 billion in sales, up ¥9.0 billion, or 10.6%, over fiscal 1999. Oper-

ating income, however, dropped to ¥0.4 billion, a decrease of ¥0.1 billion relative to the previous year.

(Breakdown of Automobiles)

Automobiles is divided into the Passenger Car and Truck & Bus divisions. During the fiscal year in

review, MMC sold 146,000 trucks and buses on a shipment basis—an increase of 18.7% over the previous

fiscal year—and generated ¥718.5 billion in sales, an increase of 5.2%. Operating income was ¥9.4

billion, reversing a ¥6.2 billion loss for the preceding year.

MMC’s Truck & Bus operations have already turned around ahead of Passenger Car operations and

MMC is pushing ahead with further structural reforms. As part of the medium-term business plan

launched in 1998, the Truck & Bus Division closed down its Tokyo-based Maruko Plant in April 2001,

integrated and relocated production and development facilities and reduced the workforce by 14%.

These efforts have helped put the division back in the black.

Sales from the Passenger Car Division were down 3.5% to ¥2,558.2 billion, as higher worldwide sales

(1,702,000 cars on a shipment basis, up 4.0% over the preceding year) were overshadowed by a slump

in the Japanese market, where MMC sold 426,000 cars, 18.8% down year on year. The Passenger Car

Division posted an operating loss of ¥83.3 billion, compared with the ¥28.7 billion operating income it

recorded in fiscal 1999.

INTEREST-BEARING DEBT

Automobiles

Financial Services

NET LOSS

(FY)

0

500

1,000

1,500(¥ billion)

99 0099 00

(FY)

–300

–200

–100

0(¥ billion)


(Segment Information by Geographical Region)

Sales in Japan were ¥2,437.0 billion, down 0.9% from the previous fiscal year. This was due in large part

to a decline in unit car sales in the country generally. MMC recorded an operating loss of ¥61.2 billion,

as compared to operating income of ¥2.8 billion in fiscal 1999.

Sales in North America rose 23.8% to ¥911.2 billion, thanks to higher unit sales. Operating income

was ¥33.6 billion for the period in review, an increase of ¥16.0 billion over fiscal 1999.

Sales in Europe dropped 21.6% to ¥395.3 billion, due to shrinking sales. European operations posted

an operating loss of ¥30.3 billion, compared with an operating loss of ¥1.8 billion for the previous

fiscal year.

Sales in Asia rose 9.4% to ¥152.9 billion due to increased passenger car sales, which rose on the back

of an economic upturn in Southeast Asia. Adverse exchange rates and other factors, however, resulted

in an operating loss of ¥1.9 billion, compared with operating income of ¥3.8 billion in fiscal 1999.

Other Income and Expenses, and Net Loss

MMC’s interest expense during the fiscal year in review shrank to ¥35.8 billion, a drop of ¥9.2 billion

from the previous year, due to a decrease in interest-bearing debt.

MMC, as stated earlier, recorded non-recurring losses of ¥313.3 billion during fiscal 2000. The main

components were as follows:

First, the introduction of a new accounting standard resulted in a lump-sum write-off of retirement-

benefit obligations of ¥128.4 billion. Further, MMC took charges amounting to ¥105.8 billion for

restructuring under the Turnaround Plan. This amount includes extra fixed expenses of ¥59.3 billion

expected from production cutbacks at Netherlands Car B.V. in Europe; production restructuring charges

of ¥12 billion, including expenses associated with the planned closures of the Oye and Kyoto plants in

Japan; expenses of ¥7.7 billion from the discontinuation of unprofitable models; and reserves for early

retirement benefits and others.

Additionally, MMC expended an additional ¥50.7 billion for the Mitsubishi Safety Support Program

and the handling of claims, and recorded ¥28.5 billion in losses on asset revaluation and other.

All in all, MMC posted a net loss of ¥278.1 billion, including minority interests.

Financial Position

(Assets)

Trade notes and accounts receivable decreased by ¥72.4 billion due to the drop in sales, while deferred

tax assets increased by ¥77.5 billion. Fixed assets also expanded by ¥211.5 billion mainly due to the

adoption of new accounting standards for financial instruments, resulting in a ¥96.2 billion increase

in investment in securities and a ¥92.9 billion increase in investment and other assets.


(Liabilities)

Trade notes and accounts payable increased by ¥150.1 billion, of which ¥54.4 billion was due to the last

day of the fiscal year falling on a holiday. Accounts payable and accrued expenses rose ¥106.8 billion.

With the application of new accounting standards related to retirement benefits, accrued retirement

benefits increased to ¥202.9 billion. Additionally, MMC opened an interest-free long-term loan account

of ¥57.5 billion subsequent to the inclusion of NedCar in its consolidated financial statements.

Efforts to reduce debt, on the other hand, resulted in a ¥146.6 billion decrease in interest-

bearing liabilities.

(Stockholders’ Equity)

Consolidated retained earnings dropped by ¥277.1 billion. MMC’s capital was increased by ¥202.4 billion

through the private placement of new shares to DC.

Cash Flows

Net cash provided by operating activities dropped ¥87.9 billion from the previous fiscal year due to an

increase of ¥127.3 billion in cash outlays. While MMC posted a loss before income taxes and minority

interests of ¥407.3 billion, the diminished cash flow was mainly due to a ¥109.2 billion increase in

accrued retirement benefits, a decrease in trade notes and accounts receivable, and an increase in

trade notes and accounts payable.

Net cash used in investment activities increased by ¥4.5 billion due to a ¥91.4 billion increase in

outlays. This was due in large part to a net ¥62.5 billion outgoing for the purchase of property, plant

and equipment and a net ¥18.7 billion in loans made.

Net cash used in financing activities decreased ¥147.8 billion to ¥14.6 billion. Funds raised from the

private placement of shares to DC were offset by, among other factors, a decrease in short-term bor-

rowings and a decline in commercial paper amounting to ¥140.9 billion. Accordingly, the year-end

balance of interest-bearing debt was ¥1,326.7 billion, a decrease of ¥146.6 billion from that of the

preceding fiscal year. Of this amount, the Financial Services segment accounted for ¥358.4 billion, an

increase of ¥106.5 billion relative to the previous year, due to increased North American sales. The

Automobiles segment accounted for ¥968.3 billion, a decrease of ¥253.1 billion. The year-end balance

of interest-bearing debt has been dropping steadily since fiscal 1998.


CONSOLIDATED BALANCE SHEETSMitsubishi Motors Corporation and Consolidated SubsidiariesMarch 31, 2001 and 2000

In thousands ofU.S. dollars

In millions of yen (Note 4)

Assets 2001 2000 2001

Current assets:

Cash and cash equivalents ¥ 115,863 ¥ 89,590 $ 935,133

Trade notes and accounts receivable (Notes 5 and 9) 444,279 516,638 3,585,787

Marketable securities (Notes 8 and 9) 173 52,488 1,396

Inventories (Note 6) 350,807 341,443 2,831,372

Short-term loans (Note 5) 18,045 27,713 145,642

Deferred tax assets (Note 12) 97,102 19,637 783,713

Prepaid expenses and other current assets 214,462 141,788 1,730,928

Allowance for doubtful receivables (13,147) (11,517) (106,110)

Total current assets 1,227,588 1,177,781 9,907,893

Property, plant and equipment, net (Notes 7 and 9) 1,270,179 1,219,286 10,251,646

Intangible assets 11,024 26,560 88,975

Investments and other assets:

Investments (Note 8) 172,229 74,467 1,390,065

Long-term loans (Note 5) 84,432 90,668 681,453

Deferred tax assets (Note 12) 11,261 — 90,888

Long-term prepaid expenses and other 226,798 146,719 1,830,492

Allowance for doubtful receivables (21,844) (15,165) (176,303)

Investments and other assets, net 472,876 296,691 3,816,594

Translation adjustments — 63,798 —

Total assets ¥2,981,668 ¥2,784,119 $24,065,117

See accompanying notes to consolidated financial statements.




Liabilities, minority interests and stockholders’ equity 2001 2000 2001

Current liabilities:

Trade notes and accounts payable ¥ 633,511 ¥ 592,782 $ 5,113,083

Short-term borrowings (Note 9) 554,668 648,821 4,476,739

Current portion of long-term debt (Note 9) 284,501 223,580 2,296,215

Accrued income taxes 7,200 3,728 58,111

Other current liabilities (Note 12) 465,295 211,836 3,755,407

Total current liabilities 1,945,179 1,680,749 15,699,588

Long-term debt (Note 9) 545,025 600,879 4,398,910

Deferred tax liabilities (Note 12) 19,062 24,651 153,850

Accrued retirement benefits (Note 16) 202,939 89,814 1,637,926

Other 20,161 22,046 162,720

Total liabilities 2,732,368 2,418,142 22,053,010

Minority interests (6,768) 18,613 (54,625)

Stockholders’ equity:

Common stock:

Authorized: 3,220,000,000 shares

Issued and outstanding:

1,470,163,624 shares in 2001

970,307,624 shares in 2000 252,201 150,730 2,035,521

Capital surplus 220,816 119,846 1,782,211

Retained earnings (deficit) (200,304) 76,786 (1,616,659)

Unrealized holding gain on securities 36,400 — 293,785

Translation adjustments (53,045) — (428,128)

Total stockholders’ equity 256,068 347,363 2,066,731

Contingent liabilities (Note 10)

Total liabilities, minority interests and

stockholders’ equity ¥2,981,668 ¥2,784,119 $24,065,117


CONSOLIDATED STATEMENTS OF OPERATIONSMitsubishi Motors Corporation and Consolidated SubsidiariesYears ended March 31, 2001 and 2000



2001 2000 2001

Net sales ¥3,276,716 ¥3,334,974 $26,446,457

Cost of sales 2,754,852 2,789,769 22,234,479

Reversal of deferred profit on installment sales 239 802 1,929

Gross profit 522,103 546,006 4,213,906

Selling, general and administrative expenses 595,968 523,533 4,810,073

Operating (loss) income (73,865) 22,473 (596,166)

Interest and dividend income 12,162 17,138 98,160

Interest expense 35,784 44,996 288,814

Other, net (Note 11) (309,802) (7,266) (2,500,420)

Loss before income taxes and minority interests (407,289) (12,651) (3,287,240)

Income taxes:

Current 10,372 9,165 83,713

Deferred (118,996) 7,144 (960,420)

(108,623) 16,310 (876,699)

Minority interests 20,527 5,629 165,674

Net loss ¥ (278,139) ¥ (23,331) $ (2,244,867)

In U.S. dollarsIn yen (Note 4)

Per share of common stock:

Net loss:

Basic ¥ (232.77) ¥ (24.87) $ (1.88)

Diluted — — —

Cash dividends — — —



CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYMitsubishi Motors Corporation and Consolidated SubsidiariesYears ended March 31, 2001 and 2000



2001 2000 2001

Common stock:

Balance at beginning of year ¥ 150,730 ¥136,224 $ 1,216,546

Issuance of common stock 101,470 14,506 818,967

Balance at end of year 252,201 150,730 2,035,521

Capital surplus:

Balance at beginning of year 119,846 105,339 967,280

Issuance of common stock 100,971 14,506 814,939

Balance at end of year 220,816 119,846 1,782,211

Retained earnings (deficit):

Balance at beginning of year 76,786 112,049 619,742

Net loss (278,139) (23,331) (2,244,867)

Change due to inclusion of subsidiaries and

affiliates in consolidation or equity method

of accounting (117) (1,029) (944)

Prior period adjustments for adoption of

tax-effect accounting — (10,147) —

Prior period adjustments for subsidiaries 1,165 (754) 9,403

Balance at end of year (200,304) 76,786 (1,616,659)

Unrealized holding gain on securities:

Unrealized holding gain on securities 36,400 — 293,785

Translation adjustments:

Translation adjustments (53,045) — (428,128)

Balance at end of year ¥ 256,068 ¥347,363 $ 2,066,731



CONSOLIDATED STATEMENTS OF CASH FLOWSMitsubishi Motors Corporation and Consolidated SubsidiariesYears ended March 31, 2001 and 2000



2001 2000 2001

Operating activitiesNet loss ¥(278,139) ¥(23,331) $(2,244,867)Adjustments to reconcile net loss to net cash providedby operating activities:Depreciation and amortization 164,488 152,510 1,327,587Allowance for doubtful receivables, net of reversal 8,089 3,254 65,287Accrued retirement benefits, net of reversal 109,160 2,432 881,033Gain on sales of marketable securities, net — (13,572) —Gain on sales of investment in securities, net (7,750) — (62,550)Loss on revaluation of marketable securities 5,706 — 46,053Loss (gain) on sales and disposal of property,plant and equipment, net 3,629 (4,268) 29,290

Equity in income of affiliates (3,164) (9,132) (25,537)Deferred income taxes (118,996) 7,144 (960,420)Minority interests (20,527) (5,629) (165,674)Changes in operating assets and liabilities:

Trade notes and accounts receivable 87,700 79,487 707,829Inventories 7,131 29,294 57,554Other assets (51,272) (19,645) (413,818)Trade notes and accounts payable 87,050 (2,096) 702,583Other liabilities 111,486 14,158 899,806

Other 22,696 4,536 183,180Net cash provided by operating activities 127,289 215,140 1,027,353

Investing activitiesDecrease in short-term investments 1,814 12,620 14,641Purchase of property, plant and equipment (157,483) (217,830) (1,271,049)Proceeds from sales of property, plant and equipment 94,936 126,858 766,231Decrease (increase) in investments in securities 8,669 (455) 69,968Loans made (624,193) (372,350) (5,037,877)Collection of loans receivable 605,508 367,668 4,887,070Changes in scope of consolidation (15,650) (338) (126,312)Other (5,044) (3,116) (40,710)Net cash used in investing activities (91,441) (86,943) (738,023)

Financing activitiesDecrease in short-term borrowings (140,871) (244,154) (1,136,973)Proceeds from issuance of long-term debt 181,629 400,674 1,465,932Repayment or redemption of long-term debt (256,992) (347,714) (2,074,189)Issuance of common stock 201,745 28,867 1,628,289Other (78) (65) (630)Net cash used in financing activities (14,567) (162,392) (117,571)Effect of exchange rate changes on cashand cash equivalents 4,395 (5,868) 35,472

Net changes in cash and cash equivalents 25,675 (40,063) 207,224Cash and cash equivalents at beginning of year 89,590 123,294 723,083Adjustments to beginning balance for inclusion ofsubsidiaries in consolidation 597 6,359 4,818

Cash and cash equivalents at end of year ¥ 115,863 ¥ 89,590 $ 935,133



[1. Significant Accounting Policies](a) Basis of presentationMitsubishi Motors Corporation (“MMC”) and its domestic consolidated subsidiaries maintain their books of accountin conformity with the financial accounting standards of Japan, and its foreign subsidiaries, in conformity withthose of their countries of domicile.

The accompanying consolidated financial statements have been prepared in accordance with accountingprinciples and practices generally accepted and applied in Japan and have been compiled from the consolidatedfinancial statements filed with the Ministry of Finance as required by the Securities and Exchange Law of Japan.

The accompanying consolidated financial statements have been prepared from the accounts maintained byMMC and its consolidated subsidiaries in accordance with the provisions set forth in Japanese Commercial Codeand in conformity with accounting principles and practices generally accepted in Japan, which may differ in certainmaterial respects from accounting principles and practices generally accepted in countries and jurisdictions otherthan Japan.

In addition, the notes to the consolidated financial statements include information which is not required underaccounting principles generally accepted in Japan but is presented herein as additional information.

Certain reclassifications have been made to the prior year’s financial statements to conform to the currentyear’s presentation.

As permitted, amounts of less than one million yen have been omitted. Consequently, the totals shown in theaccompanying financial statements (both in yen and U.S. dollars) do not necessarily agree with the sum of theindividual amounts.

(b) Principles of consolidationAll material companies over which MMC has legal or effective control are consolidated. Significant affiliates whichMMC controls and certain unconsolidated subsidiaries have been accounted for by the equity method.

The accompanying consolidated financial statements include the accounts of MMC and its significant subsid-iaries controlled directly or indirectly by MMC and companies over which MMC exercises significant influence interms of their operating and financial policies have been included in the consolidated financial statements on anequity basis. All significant intercompany transactions and accounts have been eliminated in consolidation.

The difference at the date of acquisition between the costs and the underlying net equity in investments inconsolidated subsidiaries and other companies accounted for by the equity method is being amortized over aperiod of less than 10 years.

(c) Cash and cash equivalentsAll highly liquid investments with original maturities of three months or less when purchased are consideredcash equivalents.

(d) InventoriesInventories of MMC and its domestic consolidated subsidiaries are principally stated at cost determined by thefirst-in first-out or specific identification method. Inventories of the foreign consolidated subsidiaries are principallystated at the lower of cost or market cost being determined by the specific-identification method.

(e) InvestmentsHeld-to-maturity securities are stated at their amortized costs. Other securities with a market value are stated atfair value. Other securities without a market value are stated at cost determined by the moving average method.

The difference between the acquisition cost and the carrying value of other securities, including unrealizedgain and loss, is recognized in “Unrealized holding gain on securities.” The cost of other securities sold is computedbased on the moving average method. See Note 3 (b).

(f) DepreciationDepreciation of property, plant and equipment at MMC and its domestic consolidated subsidiaries is principallycalculated by the declining-balance method or the straight-line method over the estimated useful lives of therespective assets.

The following useful lives are assumed: buildings and structures – 3 to 65 years; machinery and equipment –2 to 17 years.

Depreciation of property, plant and equipment at the foreign subsidiaries is principally calculated by thestraight-line method over the estimated useful lives of the respective assets.

Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMitsubishi Motors Corporation and Consolidated SubsidiariesMarch 31, 2001


(g) Retirement benefitsAccrued retirement benefits for employees at March 31, 2001 have been provided mainly at an amount calculatedbased on the retirement benefit obligation and the fair value of the pension plan assets as of March 31, 2001, asadjusted for unrecognized actuarial gain or loss, and unrecognized prior service cost. See Note 3 (a).

The transition difference of ¥128,370 million ($1,036,077 thousand) arising from the adoption of the newaccounting standard is charged to expenses in the year ended March 31, 2001, and the amortization cost is includedin other income and expenses.

Prior service cost is being amortized by the straight-line method over periods of 10 to 18 years, which are withinthe estimated average remaining service years of the employees.

Effective the next fiscal year, actuarial gain and loss will be amortized by the straight-line method within 10 to18 years, which is within the estimated average remaining service years of the employees.

Directors and corporate auditors of MMC and its domestic consolidated subsidiaries are customarily entitledto lump-sum payments under their respective unfunded severance benefit plans subject to the stockholders’approval. Provision for severance benefits for those officers has been made at an estimated amount.

Accrued retirement benefits include ¥3,744 million ($30,218 thousand) for directors and corporate auditors ofMMC and its domestic consolidated subsidiaries at March 31, 2001.

(h) Revenue recognitionRevenue is generally recognized on sales of products at the time of shipment.

Certain domestic and foreign subsidiaries recognize revenues by the installment sales method whereby grossprofit on such sales is deferred and credited to income in proportion to the amount of the installment receivableswhich become due.

(i) Income taxesMMC and its consolidated subsidiaries provide for income taxes applicable to all items included in the consolidatedstatements of income regardless of when such taxes are payable. Income taxes arising from temporary differencesin the recognition of assets and liabilities for tax and financial reporting purposes are reflected as deferred incometaxes in the consolidated financial statements by the asset and liability method. See Note 3(d).

Deferred tax assets and liabilities were measured using the enacted tax rates which will be in effect when thetemporary differences are expected to reverse.

(j) Translation of foreign currency accountsThe accounts of the consolidated foreign subsidiaries are translated into yen as follows:a. Asset and liability items are translated at the rate of exchange in effect on the closing date of each subsidiary;b. Components of stockholders’ equity are translated at their historical rates at acquisition or upon occurrence;

andc. Revenues, expenses and cash flow items are translated at the average rate for the fiscal year of each subsidiary.

Translation adjustments were classified as assets in the prior year’s consolidated financial statements. In thecurrent year, they have been included in stockholders’ equity and minority interests, as a result of the amendmentto “Regulations Concerning Terminology, Forms and Method of Preparation of Consolidated Financial Statements.”See Note 3 (c).

(k) Amounts per shareThe computation of basic net income (loss) per share is based on the weighted average number of shares outstand-ing during each year. Diluted net income (loss) per share is computed based on the weighted average number ofshares of common stock outstanding each year after giving effect to the dilutive potential of common shares to beissued upon the exercise of warrants and the conversion of convertible bonds. Diluted net income (loss) per sharefor the years ended March 31, 2001 and 2000 is not presented as a loss was recorded. Cash dividends per sharerepresent cash dividends declared and paid in each respective year.

(l) Appropriation of retained earnings (deficit)Cash dividends, bonuses to directors and statutory auditors and other appropriations of retained earnings (deficit)are recorded in the financial year in which the appropriations are approved at a general meeting of the stockholders.

(m) LeasesNoncancelable lease transactions at MMC and its domestic consolidated subsidiaries are accounted for as operatingleases regardless of whether such leases are classified as operating or capital leases, except that lease agreementswhich stipulate the transfer of ownership of the leased property to the lessee are accounted for as capital leases.

Noncancelable lease transactions at the foreign subsidiaries except for operating leases are capitalized.


(n) Research and development costsResearch and development costs are expensed when incurred.

(o) Derivative financial instrumentsMMC and its consolidated subsidiaries are exposed to risks arising from fluctuations in foreign currency exchangerates and interest rates. In order to manage those risks, MMC and its consolidated subsidiaries enter into variousderivative agreements including forward foreign exchange contracts and interest rate swaps. Forward foreignexchange contracts are utilized to manage risks arising from foreign currency receivables from the export offinished goods. Interest rate swaps are utilized to manage interest rate risk for debts. MMC and its consolidatedsubsidiaries do not utilize derivatives for trading purposes.

Forward foreign exchange contracts are accounted for using deferral hedge accounting. Deferral hedge accountingrequires unrealized gains or losses to be deferred as liabilities or assets. Receivables and payables hedged by qualifiedforward foreign exchange contracts are translated at the corresponding foreign exchange contract rates.

MMC and its consolidated subsidiaries have also developed a hedging policy to control various aspects of thederivative transactions including authorization levels and transaction volumes. Based on this policy, MMC and itsconsolidated subsidiaries hedge, within certain limits, the risks arising from changes in foreign currency exchangerates and interest rates. MMC and its consolidated subsidiaries review, every month, the effectiveness of all hedgingpolicies considering the cumulative cash flows and changes in the market.

[2. Change in Accounting Policy]Until the year ended March 31, 1999, severance payments to directors and corporate auditors of the domesticconsolidated subsidiaries had been charged to income when paid. Effective April 1, 1999, an accrual for such sev-erance payments was recorded at an estimate of the amount which would be required to be paid if those eligibleofficers terminated their services as of the balance sheet date in order to conform to MMC. The cumulative effectof this change amounted to ¥3,767 million at April 1, 1999 and was recorded as other income and expenses for theyear ended March 31, 2000.

[3. New Accounting Standards](a) Effective the year ended March 31, 2001, MMC and its consolidated subsidiaries adopted the new accountingstandard for retirement benefits. In accordance with this standard, the allowance for retirement benefits foremployees is provided based on the projected retirement benefit obligation and the pension assets. In prior years,the retirement benefits had been provided as 40% of the retirement benefits payable at the year-end for employeeswho terminate services voluntarily. As a result of the adoption of this standard in the current year, retirementbenefit costs increased by ¥116,984 million ($944,181 thousand), and loss before income taxes and minority inter-ests increased by ¥117,569 million ($948,902 thousand).

(b) A new accounting standard for financial instruments, which became effective April 1, 2000, requires that secu-rities be classified into three categories: trading, held-to-maturity or other securities. Under the new standard,trading securities are carried at fair value and held-to-maturity securities are carried at amortized cost. Market-able securities classified as other securities are carried at fair value with changes in unrealized holding gain or loss,net of the applicable income taxes, included directly in stockholders’ equity. Non-marketable securities classifiedas other securities are carried at cost. Cost of securities sold is determined by the moving average method.

As of April 1, 2000, MMC and its consolidated subsidiaries assessed their intent to hold their investments insecurities and classified their investments as “held-to-maturity securities” or “other securities” and accounted forthe securities at March 31, 2001 in accordance with the new standard referred to above. As a result of the adoptionof this standard in the current year, securities in current assets decreased by ¥51,475 million ($415,456 thousand)and investment securities increased by ¥51,475 million ($415,456 thousand).

The effect of the adoption of this new standard for financial instruments was to increase Loss before incometaxes and minority interests by ¥9,680 million ($78,128 thousand) for the year ended March 31, 2001.

(c) A revised accounting standard for foreign currency translation became effective April 1, 2000. As a result oftranslating the long-term foreign loan receivable using the foreign exchange rate at the balance sheet date, theforeign exchange loss and Loss before income taxes and minority interests increased by ¥224 million ($1,808 thou-sand). Translation adjustments were classified in “Assets” in the prior year’s consolidated financial statements. Inthe current year, they are included in “Stockholders’ equity” and “Minority interests.”


(d) In accordance with a new accounting standard for income taxes, deferred tax assets and liabilities have beeninitially recognized in the consolidated financial statements for the year ended March 31, 2000 with respect to thedifferences between financial reporting and the tax bases of the assets and liabilities, and were measured using theenacted tax rates and laws which will be in effect when the differences are expected to reverse.

Until the year ended March 31, 1999, deferred income taxes had been recognized by MMC only for temporarydifferences between financial and tax reporting with respect to the elimination of unrealized intercompany profitsand other adjustments for consolidation purposes, although tax-effect accounting had been adopted by the foreignconsolidated subsidiaries. The effect of this change in method of accounting was to increase deferred tax assets incurrent assets by ¥14,552 million and in other assets by ¥1,182 million, investments in unconsolidated subsidiariesand affiliates by ¥233 million, and deferred tax liabilities by ¥24,519 million, and to decrease net loss by ¥2,637million and retained earnings by ¥7,509 million for the year ended March 31, 2000.

[4. U.S. Dollar Amounts]The U.S. dollar amounts in the accompanying consolidated financial statements are included, solely for conve-nience, at ¥123.90=U.S$1.00, the exchange rate prevailing on March 31, 2001. The translation should not be con-strued as a representation that the yen amounts represent or have been, or could be, converted into U.S. dollarsat that or any other rate.

[5. Accounts and Loans Receivable Sold to Others]The outstanding balances of notes and accounts receivable sold to others without recourse which have beendeducted from the respective accounts amounted to ¥99,201 million ($800,654 thousand) and ¥47,793 million as ofMarch 31, 2001 and 2000, respectively. Such amounts deducted from short-term and long-term loans receivablewere ¥493,562 million ($3,983,551 thousand) and ¥226,400 million as of March 31, 2001 and 2000, respectively.

[6. Inventories]Inventories at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Finished products ¥225,577 ¥225,239 $1,820,638Raw materials 38,903 27,046 313,987Work in process 86,326 89,157 696,739

¥350,807 ¥341,443 $2,831,372

[7. Property, Plant and Equipment]Property, plant and equipment at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Land ¥ 409,082 ¥ 412,405 $ 3,301,711Buildings and structures 540,527 507,035 4,362,607Machinery and equipment 1,837,419 1,658,419 14,829,855Construction in progress 34,760 31,294 280,549

2,821,790 2,609,154 22,774,738Accumulated depreciation (1,551,610) (1,389,868) (12,523,083)

Property, plant and equipment, net ¥ 1,270,179 ¥ 1,219,286 $ 10,251,646


[8. Investments](a) Held-to-maturity securities and other securities were as follows:

In millions of yen In thousands of U.S. dollars

Net NetCarrying Estimated unrealized Carrying Estimated unrealizedamount fair value gain amount fair value gain

Held-to-maturity securities:Securities with market value ¥ 173 ¥175 ¥2 $ 1,396 $1,412 $16Securities without market value 4,338 — — 35,012 — —

Total held-to-maturitysecurities ¥4,511 ¥175 ¥2 $36,408 $1,412 $16


Net NetAcquisition Carrying unrealized Acquisition Carrying unrealized

cost amount gain cost amount gain

Other securities:Securities with market value ¥66,357 ¥125,363 ¥59,005 $535,569 $1,011,808 $476,231Securities without market value 8,683 8,683 — 70,081 70,081 —

Total other securities ¥75,041 ¥134,046 ¥59,005 $605,658 $1,081,889 $476,231

(b) Investments in unconsolidated subsidiaries and affiliates, and investments in securities were as follows:


2001 2000 2001

Investments in unconsolidated subsidiaries and affiliates ¥ 38,183 ¥44,632 $ 308,176Investments in securities 134,046 29,835 1,081,889

¥172,229 ¥74,469 $1,390,065

[9. Short-Term Borrowings and Long-Term Debt]Short-term borrowings at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Loans, principally from banks ¥531,718 ¥624,184 $4,291,509Commercial paper 22,950 24,637 185,230

¥554,668 ¥648,821 $4,476,739


Long-term debt at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Loans, principally from banks and insurance companiesdue through 2022 at rates averaged 3.8%:Secured ¥ 115,793 ¥ 156,798 $ 934,568Unsecured 250,037 201,605 2,018,055

2.15% bonds due 2001 13,600 20,000 109,7661.9% bonds due 2001 26,100 30,000 210,6544.4% bonds due 2001 — 100 —2.25% bonds due 2002 20,000 20,000 161,4212.4% bonds due 2003 29,500 30,000 238,0952.7% bonds due 2004 20,000 20,000 161,4213.1% bonds due 2007 8,700 10,000 70,2183.3% bonds due 2009 26,400 30,000 213,0750.4% convertible bonds due 2003 80,094 81,275 646,4411.7% convertible bonds due 2003 19,200 — 154,964Euro medium-term notes due through2003 at rates ranging from 4.3% to 8.1% 220,101 224,681 1,776,441

829,525 824,460 6,695,117Less current portion (284,501) (223,580) (2,296,215)

¥ 545,025 ¥ 600,879 $ 4,398,910

The 0.4% unsecured convertible bonds due 2003 are convertible through March 28, 2003 into shares of commonstock of MMC at ¥887 ($7.16) per share. At March 31, 2001, if all the outstanding convertible bonds had beenconverted at the current conversion price, 90,297 thousand new shares would have been issuable. The conversionprice is subject to adjustment in certain cases including stock splits.

The 1.7% unsecured convertible bonds due 2003 are convertible through April 28, 2003 into shares of commonstock of MMC at ¥405 ($3.27) per share. At March 31, 2001, if all the outstanding convertible bonds had beenconverted at the current conversion price, 47,407 thousand new shares would have been issuable. The conversionprice is subject to adjustment in certain cases including stock splits.

The maturities of long-term debt are summarized as follows:

In thousandsYear ending March 31, In millions of yen of U.S. dollars

2002 ¥284,501 $2,296,2152003 251,743 2,031,8242004 110,655 893,0992005 50,418 406,9252006 19,122 154,334Thereafter 113,086 912,719

Total ¥829,525 $6,695,117

Assets pledged as collateral for short-term borrowings and long-term debt at March 31, 2001 and 2000 were as follows:


2001 2000 2001

Notes receivable ¥ 53,357 ¥ 49,318 $ 430,646Marketable securities — 20,698 —Investments 45,542 — 367,571Property, plant and equipment, net 141,020 139,934 1,138,176Other 4,059 4,202 32,760

¥243,979 ¥214,154 $1,969,161


[10. Contingent Liabilities]Notes discounted in the ordinary course of business at March 31, 2001 amounted to ¥1,954 million ($15,771 thousand).

Loans guaranteed and agreements similar to guarantees given in the ordinary course of business at March 31,2001 amounted to ¥31,562 million ($254,737 thousand) and ¥4,531 million ($36,569 thousand), respectively.

[11. Other Income and Expenses]Other income and expenses for the years ended March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Gain on sales of investment in securities ¥ 7,750 ¥13,572 $ 62,550(Loss) gain on sales and disposal of property, plant and equipment (3,629) 4,268 (29,290)Equity in income in affiliates 3,164 9,132 25,537Foreign exchange loss 31 19,512 250Severance payments for early retirement — (9,094) —Restructuring expense (105,786) — (853,801)Cost of extraordinary measures (50,652) — (408,814)Prior period adjustment of severance payment — (3,767) —Amortization of net retirement benefit obligation at transition (128,371) — (1,036,085)Other (32,247) (1,865) (260,266)

¥(309,802) ¥ (7,266) $(2,500,420)

Severance payments for early retirement for the year ended March 31, 2001 have been included in therestructuring expense.

[12. Income Taxes]MMC and its domestic consolidated subsidiaries are subject to corporation, inhabitants’ and enterprise taxes basedon taxable income, which, in the aggregate, resulted in a statutory tax rate of approximately 41.8% for the yearsended March 31, 2001 and 2000. Income taxes of the foreign consolidated subsidiaries are based generally on thetax rates applicable in their countries of incorporation.

The effective tax rates reflected in the consolidated statement of operations for the years ended March 31, 2001and 2000 differs from the statutory tax rate for the following reasons:

2001 2000

Statutory income tax rate for MMC 41.8% 41.8 %Loss at subsidiaries (11.3) (92.5)Increase in valuation allowance 0.2 (83.9)Equity in affiliates 0.2 30.2Amortization of consolidation adjustments (2.5) (19.5)Other (1.7) (5.0)

Income taxes as a percentage of loss before income taxes and minority interests 26.7% (128.9)%


The significant components of deferred tax assets and liabilities as of March 31, 2001 and 2000 were as follows:


2001 2000 2001

Deferred tax assets:Net operating loss carry forward ¥ 145,671 ¥ 113,247 $1,175,714Accrued retirement benefits — 8,858 —Accrued allowance for retirement benefits 57,412 — 463,374Foreign income tax credit — 8,631 —Other temporary differences 102,074 28,766 823,842Less valuation allowance on assets (109,507) (102,617) (883,834)

Total deferred tax assets 195,650 56,886 1,579,096Deferred tax liabilities:

Reserves under Special Taxation Measures Law (20,158) (21,053) (162,696)Differences between cost of investments andunderlying net equity at fair value (19,575) (19,575) (157,990)

Accelerated depreciation (20,657) (17,939) (166,723)Other temporary differences (45,982) (1,878) (371,122)

Total deferred tax liabilities (106,375) (60,448) (858,555)

Net deferred tax assets (liabilities) ¥ 89,275 ¥ (3,561) $ 720,541

Deferred tax assets and liabilities at March 31, 2001 and 2000 are included in the consolidated balance sheets as follows:


2001 2000 2001

Deferred income taxes ¥ 97,102 ¥ 19,637 $ 783,713Long-term prepaid expenses and other 11,261 1,483 90,888Other current liabilities (25) (30) (202)Deferred tax liabilities (19,062) (24,651) (153,850)

Net deferred tax assets (liabilities) ¥ 89,275 ¥ (3,561) $ 720,541


[13. Segment Information](a) Business SegmentsThe business segment information for MMC and its consolidated subsidiaries for the years ended March 31, 2001and 2000 is summarized as follows:


2001 2000 2001

SalesAutomobiles ¥3,194,059 ¥3,262,403 $25,779,330Financial services 93,962 84,944 758,370

Total 3,288,022 3,347,348 26,537,708Intersegment (11,305) (12,373) (91,243)

Consolidated ¥3,276,716 ¥3,334,974 $26,446,457

Operating income (loss)Automobiles ¥ (70,527) ¥ 23,359 $ (569,225)Financial services 365 476 2,946

Total (70,161) 23,835 (566,271)Intersegment (3,703) (1,362) (29,887)

Consolidated ¥ (73,865) ¥ 22,473 $ (596,166)

Total assetsAutomobiles ¥2,587,864 ¥2,442,870 $20,886,715Financial services 448,104 330,627 3,616,659

Total 3,035,968 2,773,497 24,503,374Corporate and eliminations (54,300) 10,621 (438,257)

Consolidated ¥2,981,668 ¥2,784,119 $24,065,117

DepreciationAutomobiles ¥ 113,648 ¥ 106,665 $ 917,256Financial services 40,949 39,839 330,500

Consolidated ¥ 154,598 ¥ 146,504 $ 1,247,764

Capital expendituresAutomobiles ¥ 75,102 ¥ 84,989 $ 606,150Financial services 111,251 134,597 897,910

Consolidated ¥ 186,353 ¥ 219,587 $ 1,504,060


(b) Geographical SegmentsThe geographical segment information for MMC and its consolidated subsidiaries for the years ended March 31,2001 and 2000 is summarized as follows:


2001 2000 2001

SalesJapan ¥2,436,967 ¥2,459,363 $19,668,822North America 911,158 736,136 7,353,979Europe 395,265 504,068 3,190,194Asia 152,903 139,704 1,234,084Other areas 230,257 245,577 1,858,410

Total 4,126,553 4,084,850 33,305,513Interarea (849,837) (749,875) (6,859,056)

Consolidated ¥3,276,716 ¥3,334,974 $26,446,457

Operating income (loss)Japan ¥ (61,246) ¥ 2,760 $ (494,318)North America 33,559 17,510 270,856Europe (30,278) (1,763) (244,374)Asia (1,901) 3,796 (15,343)Other areas (9,075) (4,941) (73,245)

Total (68,942) 17,361 (556,433)Interarea (4,922) 5,111 (39,726)

Consolidated ¥ (73,865) ¥ 22,473 $ (596,166)

Total assetsJapan ¥2,289,550 ¥2,166,061 $18,479,015North America 701,803 512,818 5,664,270Europe 255,638 156,887 2,063,261Asia 90,144 104,225 727,554Other areas 118,919 106,352 959,798

Total 3,456,055 3,046,344 27,893,906Interarea (474,386) (262,225) (3,828,781)

Consolidated ¥2,981,668 ¥2,784,119 $24,065,117

As a result of a change in method of accounting for retirement benefits related to the consolidated financesubsidiaries as explained in Note 3, operating expenses and operating loss in the “Japan” segment decreased by¥10,800 million ($87,167 thousand) for the year ended March 31, 2001.

As a result of a change in method of accounting for of derivatives related to the consolidated finance subsid-iaries as explained in Note 3, operating expenses and operating loss in “Japan” segment increased by ¥6,138 million($49,540 thousand) for the year ended March 31, 2001.


(c) Overseas salesOverseas sales, which include export sales of MMC and its domestic consolidated subsidiaries and sales (other thanexports to Japan) of the foreign consolidated subsidiaries for the years ended March 31, 2001 and 2000 are summa-rized as follows:


2001 2000 2001

Overseas salesNorth America ¥ 911,481 ¥ 765,327 $ 7,356,586Europe 404,920 518,306 3,268,119Asia 312,038 238,975 2,518,467Other areas 354,847 371,322 2,863,979

Total ¥1,983,287 ¥1,893,931 $16,007,159

Consolidated sales ¥3,276,716 ¥3,334,974 $26,446,457

Overseas sales as a percentage of consolidated salesNorth America 27.8% 22.9%Europe 12.4 15.5Asia 9.5 7.2Other areas 10.8 11.1

Total 60.5 56.8

[14. Derivatives]MMC and its consolidated subsidiaries utilize derivative financial instruments for the purpose of hedging theirexposure to adverse fluctuations in foreign currency exchange rates and interest rates such as forward foreignexchange contracts and interest rate swaps in the normal course of business, but they do not enter into suchtransactions for speculative or trading purposes.

MMC and its consolidated subsidiaries are exposed to the risk of credit loss in the event of nonperformance bythe counterparties to the derivatives, but any such loss would not be material because the Company enters intotransactions only with financial institutions with high credit ratings. The notional amounts of the derivative finan-cial instruments do not necessarily represent the amounts exchanged by the parties and, therefore, are not a directmeasure of the Company’s risk exposure in connection with derivatives.

Summarized below are the notional amounts and the estimated fair value of the derivative positions outstand-ing at March 31, 2001:


Notional Fair Unrealized Notional Fair Unrealizedamount value gain (loss) amount value gain (loss)

Forward foreignexchange contracts:Sell:

US $ ¥10,422 ¥10,740 ¥(317) $84,116 $86,683 $(2,559)£ stg — — — — — —

Total ¥10,422 ¥10,740 ¥(317) $84,116 $86,683 $(2,559)


Summarized below are the notional amounts and the estimated fair value of the derivative positions outstand-ing at March 31, 2000:


Notional Fair Unrealized Notional Fair Unrealizedamount value gain (loss) amount value gain (loss)

Forward foreignexchange contracts:Sell:

US$ ¥15,207 ¥15,210 ¥ (2) $143,260 $143,288 $ (19)£ stg 486 546 (59) 4,578 5,144 (556)

Options:Call options, sold:

US$ 4,139 38,992<Premium> <83> 40 42 <782> 377 396

Put options, purchased:US $ 4,139 38,992<Premium> <83> 187 104 <782> 1,762 980

Total ¥23,974 ¥15,984 ¥ 84 $193,495 $129,007 $ 678<166> <1,564>

[15. Leases]As lesseeMMC and its consolidated subsidiaries lease certain property, plant and equipment. For the years ended March 31,2001 and 2000, finance leases, except for agreements which stipulate the transfer of title of the assets to the lessee,were as follows:


2001 2000 2001

Finance lease obligations:Due within 1 year ¥22,918 ¥24,560 $184,972Due after 1 year 44,670 49,191 360,533

Total ¥67,588 ¥73,751 $545,504

At March 31, 2001, the equivalent of the acquisition cost of finance lease transactions, except for agreementswhich stipulate the transfer of title of the assets to the lessee, amounted to ¥91,136 million ($735,561 thousand) fortools and equipment and ¥31,967 million ($258,006 thousand) for others. The total equivalent of the related netbook value, which is less than the related accumulated depreciation of ¥76,751 million ($619,459 thousand), was¥46,352 million ($374,108 thousand).

For the year ended March 31, 2001, lease payments for finance lease transactions, except for agreements whichstipulate the transfer of title of the assets to the lessee, amounted to ¥29,434 million ($237,563 thousand). Theequivalent of the related depreciation and interest expense for the year ended March 31, 2001 amounted to ¥25,999million ($209,839 thousand) and ¥2,786 million ($22,486 thousand), respectively.


Operating lease transactions entered into as lessee by MMC and its consolidated subsidiaries at March 31, 2001and 2000 were as follows:


2001 2000 2001

Future minimum lease payments on operating leases:Due within 1 year ¥16,227 ¥17,859 $130,969Due after 1 year 70,638 72,208 570,121

Total ¥86,866 ¥90,067 $701,098

As lessorOperating lease transactions entered into as lessor by MMC and its consolidated subsidiaries at March 31, 2001 and2000 were as follows:


2001 2000 2001

Future minimum lease revenues from operating leases:Due within 1 year ¥ 52,904 ¥ 47,974 $426,990Due after 1 year 67,011 61,178 540,847

Total ¥119,916 ¥109,152 $967,845

[16. Retirement Benefits](a) MMC and its consolidated subsidiaries have several pension plans covering substantially all their employees inJapan. The contributory plan includes a portion of the government-sponsored welfare pension benefits whichwould otherwise be provided by the Japanese government in accordance with the Welfare Pension Insurance Lawof Japan. These contributory and noncontributory plans are funded in accordance with the funding requirementsset forth in the applicable government regulations.

(b) Fundamental assumptionsThe retirement benefit obligation has been allocated by the definite amount rule. The discount rate and the rateof return on plan assets assumed were 3.0% and 4.0%, respectively.

(c) Retirement benefit obligationThe retirement benefit obligation for MMC’s and its consolidated subsidiaries’ employees’ defined benefit plans forthe year ended March 31, 2001 is summarized as follows:

In thousandsIn millions of yen of U.S. dollars

Retirement benefit obligations ¥(258,825) $(2,088,983)Pension plan assets at fair value 53,585 432,486

Accrued pension liabilities (205,239) (1,656,489)Unrecognized actuarial gain 6,038 48,733Unrecognized prior service cost 6 48

Net recognized retirement benefit obligation (199,195) (1,607,708)

Allowance for retirement benefits ¥(199,195) $(1,607,708)


(d) Pension expensesPension expenses for MMC’s and its consolidated subsidiaries’ employees’ retirement defined benefit plans for theyear ended March 31, 2001 are as follows:

In thousandsIn millions of yen of U.S. dollars

Service cost ¥ 14,406 $ 116,271Interest cost 7,302 58,935Expected return on plan asset (1,697) (13,697)Amortization of net retirement benefit obligation at transition 128,370 1,036,077Amortization of prior service cost (5) (40)

Pension expenses ¥148,377 $1,197,554

[17. Supplemental Disclosures of Cash Flow Information]Interest and income taxes paid for the year ended March 31, 2001 amounted to ¥23,037 million ($185,932 thousand)and ¥6,896 million ($55,658 thousand), respectively.

[18. Subsequent Event]In the three months subsequent to March 31, 2001, no significant events occurred which would require disclosure.


Report of Independent Certified Public Accountants

The Board of Directors

Mitsubishi Motors Corporation

We have audited the consolidated balance sheets of Mitsubishi Motors Corporation and consolidated

subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements of operations,

stockholders’ equity, and cash flows for the years then ended, expressed in yen. Our audits were

made in accordance with auditing standards, procedures and practices generally accepted and

applied in Japan and, accordingly, included such tests of the accounting records and such other

auditing procedures as we considered necessary in the circumstances.

In our opinion, the accompanying consolidated financial statements, expressed in yen, present fairly

the consolidated financial position of Mitsubishi Motors Corporation and consolidated subsidiaries at

March 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for the

years then ended in conformity with accounting principles and practices generally accepted in Japan

consistently applied during the period subsequent to the change, with which we concur, made as of

April 1, 1999, in the method of accounting for severance payments to directors and corporate

auditors as described in Note 2.

As described in Note 3, Mitsubishi Motors Corporation and consolidated subsidiaries have adopted

new accounting standards for tax-effect accounting effective the year ended March 31, 2000 and for

employees’ retirement benefits, financial instruments and foreign currency translations effective the

year ended March 31, 2001 in the preparation of their consolidated financial statements.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the

year ended March 31, 2001 are presented solely for convenience. Our audit also included the

translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been

made on the basis described in Note 4.

Tokyo, Japan

June 26, 2001

See Note 1(a) which explains the basis of preparation of the consolidated financial statements of Mitsubishi

Motors Corporation and consolidated subsidiaries under Japanese accounting principles and practices.

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Head office

Engineering centers

Works

OFFICES AND WORKS

5-33-8, Shiba, Minato-ku, Tokyo 108-8410, JapanTelephone: +81-3-3456-1111 Telefax: +81-3-5232-7731

� Passenger Car� Car Research & Development Center

1, Nakashinkiri, Hashime-cho, Okazaki, Aichi 444-8501, JapanTelephone: +81-564-31-3100

� Tokachi Proving Ground22-1, Osarushi, Otofuke-cho, Kato-gun, Hokkaido 080-0271, JapanTelephone: +81-155-32-7111

� Truck & Bus� Truck & Bus Research & Development Center

10, Okura-cho, Nakahara-ku, Kawasaki, Kanagawa 211-8522, JapanTelephone: +81-44-587-2000

� Kitsuregawa Proving Ground4300, Washijuku, Kitsuregawa-cho, Shioya-gun, Tochigi 329-1411, JapanTelephone: +81-286-86-4711

� Passenger Car� Nagoya Plant-Oye (Assembly)

2, Oye-cho, Minato-ku, Nagoya, Aichi 455-8501, JapanTelephone: +81-52-611-9100

� Nagoya Plant-Okazaki (Assembly)1, Nakashinkiri, Hashime-cho, Okazaki, Aichi 444-8501, JapanTelephone: +81-564-31-3100

� Mizushima Plant (Assembly)1-1, Mizushima Kaigandori, Kurashiki, Okayama 712-8501, JapanTelephone: +81-86-444-4114

� Kyoto Plant-Kyoto (Engines & Transmissions)1, Uzumasa Tatsumi-cho, Ukyo-ku, Kyoto 616-8501, JapanTelephone: +81-75-864-8000

� Kyoto Plant-Shiga (Engines & Transmissions)2-1, Kosunacho, Kosei-cho, Koga-gun, Shiga 520-3212, JapanTelephone: +81-748-75-3131

� Kyoto Plant-Yagi (CVT)10-1, Yamada, Murohashi, Yagi-cho, Funai gun, Kyoto 629-0102, JapanTelephone: +81-771-43-2200

� Truck & Bus� Tokyo Plant-Kawasaki (Assembly)

10, Okura-cho, Nakahara-ku, Kawasaki, Kanagawa 211-8522, JapanTelephone: +81-44-587-2000

� Tokyo Plant-Nakatsu (Transmissions, Cogwheel-related parts)4001, Nakatsu Aza Sakuradai, Aikawa-cho, Aiko-gun, Kanagawa 243-0303, JapanTelephone: +81-462-86-8111


THE MMC GROUP OF COMPANIES

JapanMitsubishi Automotive Techno-Metal Co., Ltd.Mitsubishi Automotive Bus Manufacturing Co., Ltd.Mitsubishi Motors Training Center Co., Ltd.PABCO Co., Ltd.Pajero Manufacturing Co., Ltd.Mitsubishi Automotive Techno-Service Co., Ltd.Mitsubishi Automotive Engineering Co., Ltd.Mitsubishi Automotive Logistics Co., Ltd.Mitsubishi Auto Credit-Lease CorporationMMC IT Solutions Co., Ltd.Ralliart Inc.Tokyo Chuo Mitsubishi Motor Sales Co.Kinki Mitsubishi Motor Sales Co.Tokyo Mitsubishi Fuso Sales Co.Nagoya Mitsubishi Fuso Sales Co.Kyushu Mitsubishi Fuso Sales Co.

OverseasMitsubishi Motor Manufacturing of America, Inc.Mitsubishi Motor Sales of America, Inc.Mitsubishi Motors Credit of America, Inc.Mitsubishi Motors America, Inc.Mitsubishi Motors R&D of America, Inc.Mitsubishi Fuso Truck of America, Inc.Netherlands Car B.V.MMC International Finance (Netherlands) B.V.Mitsubishi Motors Europe B.V.Mitsubishi Motors Sales of Europe B.V.Mitsubishi Trucks Europe-Sociedade Europeia de Automoveis, S.A.MMC Sittipol Co., Ltd.Mitsubishi Motors Philippines CorporationMitsubishi Motors Australia LimitedMitsubishi Motors (Shanghai) Co., Ltd.Mitsubishi Motors (Guangzhou) Co., Ltd.Mitsubishi Motors (Tianjin) Co., Ltd.Mitsubishi Motors (Dalian) Co., Ltd.


DATE OF ESTABLISHMENTApril 22, 1970

PAID IN CAPITAL¥252,201,223,000

COMMON STOCKIssued and outstanding: 1,470,163,624 shares

NUMBER OF SHAREHOLDERS39,144

NUMBER OF EMPLOYEES21,076 (MMC)

(As at March 31, 2001. Board members were newly elected on June 26, 2001)

MAJOR SHAREHOLDERS % of total

DaimlerChrysler AG 34.00Mitsubishi Heavy Industries, Ltd. 14.96Mitsubishi Corporation 5.26Aktiebolaget Volvo 3.30The Bank of Tokyo-Mitsubishi, Ltd. 2.93The Mitsubishi Trust & Banking Corporation 1.98The Chase Manhattan Bank, NA London SL Omnibus Account 1.58Meiji Life Insurance Company 1.36MMC Employees Shareholding Association 1.32Boston Safe Deposit BSDT Treaty Clients Omnibus 1.17

SECURITIES TRADEDAll stock exchanges in Japan: Tokyo, Osaka, Nagoya, Kyoto,Fukuoka and Sapporo

TRANSFER AGENT AND REGISTERThe Mitsubishi Trust & Banking CorporationNagatacho 2-11-1, Sanno Park Tower, Chiyoda-ku,Tokyo 100-8212, Japan

ACCOUNTING AUDITORCentury Ota Showa & Co.

Members of the Board

Takashi Sonobe

Rolf Eckrodt

Takashi Usami

Steven A. Torok

Ulrich W. Walker

Junji Midorikawa

Hiroshi Yajima

Masanori Tani

Manfred Bischoff

Takashi Nishioka

Mikio Sasaki

Senior Executive Officers

Joachim Coers

Alexander Paufler

Masakatsu Suzuki

Atsushi Ueba

Akira Kijima

Motoaki Inukai

Harald Bolstler

Christian Cahn v. Seelen

Akio Hanawa

Hisashi Watanabe

CORPORATE INFORMATION

BOARD OF DIRECTORS AND SENIOR OFFICERS

Statutory Auditors

Takahiko Tsuyuno

Yasutoshi Shizukawa

Hiroshi Nanjo

Shigemitsu Miki

01.9.14, 5:24 PM Adobe PageMaker 6.5J/PPC

Printed in Japan

AN

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EPOR

T 2001

5-33-8, Shiba, Minato-ku, Tokyo 108-8410, Japan

Corporate Communications Department

Tel: +81-3-5232-7176 (Investor Relations)+81-3-5232-7165 (Media Relations)

Fax: +81-3-5232-7747

http://www.mitsubishi-motors.co.jp

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