Appendix 9-1 Illustration of Restatement of Japanese GAAP Financial Statements to a U.S. GAAP Basis In this appendix we show how GAAP restatements Comparative financial ratios for Toyoza and might be used to reduce the effects of accounting Lincoln Enterprises are provided in Exhibit 9-15. diversity that persist in a post-IASB world. Based on this preliminary analysis, Toyoza Exhibit 9-14 contains the year-end financial state- appears less liquid, less efficient, less profitable, ments of Toyoza Enterprises (Japan) and Lincoln and financially less solvent than Lincoln Corporation (United States), with relevant notes. Enterprises. But is it? A good analyst will attempt EXHIBIT 9-14 Year-End Unadjusted Financial Statements and Related Notes Toyoza Enterprises Lincoln Enterprises (¥Thousands) (SThousands) Income Statements Sales ¥1,400,000 $12,000 Operating expenses: Cost of sales 1,120,000 10,044 Selling and administrative 100,000 575 Other operating 114,200 319 Goodwill amortization 10 Operating income ¥ 65,800 $ 1,052 Gains (losses) Interest expenses 28,000 130 Income before taxes 37,800 922 Income taxes 23,800 258 Income after taxes 14,000 664 Equity in earnings of unconsolidated 116 subsidiaries Net income 14,000 $ 780 Balance Sheets Cash ¥ 124,500 $ 1,920 Accounts receivable, net 510,000 1,660 Marketable securities 45,000 500 Inventory 390,000 1,680 Investments 150,000 1,000 Plant and equipment, net 280,600 5,160 (continued) Toyoza Enterprises Lincoln Enterprises (¥Thousands) ($Thousands) Goodwill 80 Total assets ¥1,500,000 $12,000 Short-term payables ¥ 165,000 $ 1,800 Short-term debt 525,000 2,160 Deferred taxes Other current liabilities 90,000 Long-term debt 520,000 2,400 Reserves 90,000 Capital stock 75,000 960 Retained earnings 35,000 4,680 Total liabilities and owners' equity ¥1,500,000 $12,000 Notes to Toyoza's Financial Statements: 1. The balance sheet and income statement were prepared in accordance with the Japanese Commercial Code and related regulations. 2. Investments in subsidiaries and affiliated companies are accounted for using the equity method. 3. Inventories are stated at average cost. Ending inventories restated to a FIFO basis would have been ¥198 million higher. 4. Plant and equipment are carried at cost. Depreciation, with minor exceptions, is computed by the sum-of-the-years-digits method. Plant and equipment, purchased 2 years ago, have an estimated life of 4 years. 5. Operating expenses include lease rental payments of ¥40 million. The average term of the lease contracts is 4 years. All leases transfer ownership to the lessor at the end of the least term. Lincoln Enterprises' cost of capital is estimated to be 8 percent. 6. A translation gain of ¥20 million relating to consolidation of foreign operations with a net monetary liability position is being deferred under long-term debt. 7. Purchased goodwill is amortized over 20 years. The current period's amortization expense is ¥12 million for the year and is included under other operating expenses. Under a U.S. GAAP impairments test, it would have been 10% of that amount 8. Toyoza Enterprises is allowed to set up special-purpose reserves (i.e., government-sanctioned charges against earnings) equal to a certain percentage of total export revenues. This year's charge (including other operating expenses) was ¥26,400,000. Similarly, this year's addition to Toyoza's general-purpose reserves was ¥30,800,000. 9. The ¥/$ exchange rate at year-end was ¥110 = $1. 10. Toyoza Enterprise's marginal income tax rate is 35 percent. Notes to Lincoln Enterprises' financial statements: 1. The balance sheet and income statement are based on U.S. GAAP. 2. Inventories are carried at FIFO cost. 3. Plant and equipment are depreciated in straight-line fashion. 4. Foreign operations are consolidated with those of the parent using the temporal method of currency translation as Lincoln adopts the U.S. dollar as its functional currency.

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