CHUGOKU MARINE PAINTS, LTD. Consolidated Financial ... · Acquisition of treasury stock (10,367 )...

CHUGOKU MARINE PAINTS, LTD.

Consolidated Financial Statements

for the years ended March 31, 2013 and 2012

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CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Consolidated Balance Sheets March 31, 2013 and 2012

Millions of Yen

Thousands of U.S. Dollars

(Note 4) ASSETS 2013 2012 2013

Current assets:

Cash on hand and in banks (Notes 18 and 20) ¥ 22,012 ¥ 17,615 $ 234,046 Trade notes and accounts receivable (Note 20) 36,944 37,695 392,812 Less, allowance for doubtful accounts (906) (830) (9,633) 36,038 36,865 383,179 Short-term investment securities (Notes 17 and 20) 101 487 1,074 Inventories (Note 5) 14,362 13,753 152,706 Deferred tax assets (Note 11) 778 703 8,272 Other current assets 1,024 810 10,888

Total current assets 74,315 70,233 790,165

Property, plant and equipment:

Buildings and structures (Note 12) 15,753 14,946 167,496 Machinery, equipment and vehicles 13,383 12,241 142,297 Tools, furniture and fixtures (Note 12) 3,899 3,523 41,456 33,035 30,710 351,249 Less, accumulated depreciation (22,937) (20,972) (243,881) 10,098 9,738 107,368 Land 13,090 13,093 139,181 Construction in progress 595 196 6,327

Total property, plant and equipment 23,783 23,027 252,876

Investments and other assets:

Investment securities (Notes 6, 17 and 20) 6,383 4,709 67,868 Deferred tax assets (Note 11) 249 489 2,648 Other assets (Note 14) 1,510 1,392 16,055

Total investments and other assets 8,142 6,590 86,571 Total assets ¥ 106,240 ¥ 99,850 $1,129,612

The accompanying notes are an integral part of these consolidated financial statements.

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CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Consolidated Balance Sheets March 31, 2013 and 2012

Millions of Yen


(Note 4) LIABILITIES AND NET ASSETS 2013 2012 2013

Current liabilities:

Short-term borrowings (Notes 6 and 20) ¥ 21,933 ¥ 23,436 $ 233,206 Current portion of long-term debt (Note 6) 66 73 702 Notes and accounts payable:

Trade (Note 20) 13,371 12,536 142,169 Other 3,092 3,026 32,876

16,463 15,562 175,045 Income taxes payable (Note 11) 817 847 8,687 Other current liabilities (Notes 6 and 13) 2,600 2,506 27,645

Total current liabilities 41,879 42,424 445,285 Non-current liabilities:

Long-term debt (Note 6) 3,314 2,848 35,236 Accrued retirement benefits (Note 7) 952 780 10,122 Deferred tax liabilities on land revaluation (Note 11) 2,616 2,644 27,815 Deferred tax liabilities (Note 11) 259 31 2,754 Other liabilities (Notes 6 and 13) 521 709 5,540

Total non-current liabilities 7,662 7,012 81,467 Total liabilities 49,541 49,436 526,752

Net assets (Note 8):

Shareholders’ equity: Common stock 11,626 11,626 123,615 Capital surplus 7,784 7,784 82,764 Retained earnings 34,868 32,722 370,739 Treasury stock, at cost (1,180) (205 ) (12,546)

Total shareholders’ equity 53,098 51,927 564,572 Accumulated other comprehensive income:

Net unrealized holding gain (loss) on other securities 884 (40 ) 9,399 Revaluation gain on land 3,499 3,551 37,204 Foreign currency translation adjustments (4,660) (8,131 ) (49,548)

Total accumulated other comprehensive income (277) (4,620 ) (2,945)

Minority interests 3,878 3,107 41,233

Total net assets (Note 16) 56,699 50,414 602,860 Commitments and contingent liabilities (Note 15) Total liabilities and net assets ¥ 106,240 ¥ 99,850 $ 1,129,612


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CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Consolidated Statements of Income For the years ended March 31, 2013 and 2012

Millions of Yen


(Note 4) 2013 2012 2013

Net sales ¥ 83,656 ¥ 93,561 $ 889,484 Cost of sales (Note 5) 61,577 68,705 654,726

Gross profit 22,079 24,856 234,758 Selling, general and administrative expenses

(Note 9) 17,363 19,381 184,615

Operating income 4,716 5,475 50,143

Non-operating income (expenses):

Interest and dividend income 349 252 3,711 Interest expense (370) (380 ) (3,934) Foreign currency exchange gain, net 95 343 1,010 Royalty income 93 74 989 Revenue from technical training 115 117 1,223 Other, net 121 160 1,286

Non-operating income, net 403 566 4,285

Ordinary income 5,119 6,041 54,428 Special gains (losses), net (Notes 10 and 12) (57) (11 ) (606) Income before income taxes and minority interests 5,062 6,030 53,822 Income taxes (Note 11):

Current 1,668 1,999 17,735Prior years – 428 – Deferred 5 138 53

1,673 2,565 17,788 Income before minority interests 3,389 3,465 36,034 Minority interests 411 397 4,370 Net income (Note 16) ¥ 2,978 ¥ 3,068 $ 31,664


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CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended March 31, 2013 and 2012

Millions of Yen


(Note 4) 2013 2012 2013 Income before minority interests ¥ 3,389 ¥ 3,465 $ 36,034 Other comprehensive income (Note 21):

Net unrealized holding gain (loss) on other securities 924 (87 ) 9,825 Revaluation gain on land – 382 – Foreign currency translation adjustments 3,985 (1,094 ) 42,371

Total other comprehensive income 4,909 (799 ) 52,196 Comprehensive income ¥ 8,298 ¥ 2,666 $ 88,230

Total comprehensive income attributable to

Shareholders of CHUGOKU MARINE PAINTS, LTD. ¥ 7,372 ¥ 2,460 $ 78,384Minority interests 926 206 9,846


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CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Net Assets For the years ended March 31, 2013 and 2012

For the year ended March 31, 2013 Millions of Yen Shareholders’ equity

Number ofshares of common

stock issued (Thousands)

Commonstock

Capital surplus

Retainedearnings

Treasury stock, at cost

Total shareholders’

equity Balance as of April 1, 2012 69,069 ¥ 11,626 ¥ 7,784 ¥ 32,722 ¥ (205) ¥ 51,927

Net income 2,978 2,978Cash dividends (884) (884)Acquisition of treasury stock (975) (975)Disposal of treasury stock (0) 0 0Reversal of revaluation gain on land 52 52Net changes in items other than shareholders’ equity Total changes in items during the year – (0) 2,146 (975) 1,171

Balance as of March 31, 2013 69,069 ¥ 11,626 ¥ 7,784 ¥ 34,868 ¥ (1,180) ¥ 53,098 Accumulated other comprehensive income

Net unrealized

holding gain (loss) on

other securities

Revaluation gain on

land

Foreign currency

translation adjustments

Total accumulated

other comprehensive

income Minority interests

Total net assets

Balance as of April 1, 2012 ¥ (40) ¥ 3,551 ¥ (8,131) ¥ (4,620 ) ¥ 3,107 ¥ 50,414Net income 2,978Cash dividends (884)Acquisition of treasury stock (975)Disposal of treasury stock 0Reversal of revaluation gain on land 52Net changes in items other than shareholders’ equity 924 (52) 3,471 4,343 771 5,114Total changes in items during the year 924 (52) 3,471 4,343 771 6,285

Balance as of March 31, 2013 ¥ 884 ¥ 3,499 ¥ (4,660) ¥ (277 ) ¥ 3,878 ¥ 56,699


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CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Net Assets For the years ended March 31, 2013 and 2012

Thousands of U.S. Dollars (Note 4) Shareholders’ equity



Commonstock

Capitalsurplus

Retained earnings



equity Balance as of April 1, 2012 69,069 $ 123,615 $ 82,764 $ 347,921 $ (2,179) $ 552,121

Net income 31,664 31,664Cash dividends (9,399) (9,399)Acquisition of treasury stock (10,367 ) (10,367)Disposal of treasury stock (0) 0 0Reversal of revaluation gain on land 553 553Net changes in items other than shareholders’ equity Total changes in items during the year – (0) 22,818 (10,367 ) 12,451

Balance as of March 31, 2013 69,069 $ 123,615 $ 82,764 $ 370,739 $ (12,546) $ 564,572 Accumulated other comprehensive income

Net unrealized


other securities

Revaluationgain on

land

Foreign currency


Total accumulated

other comprehensive


Total net assets

Balance as of April 1, 2012 $ (426) $ 37,757 $ (86,454) $ (49,123 ) $ 33,036 $ 536,034Net income 31,664Cash dividends (9,399)Acquisition of treasury stock (10,367)Disposal of treasury stock 0Reversal of revaluation gain on land 553Net changes in items other than shareholders’ equity 9,825 (553) 36,906 46,178 8,197 54,375Total changes in items during the year 9,825 (553) 36,906 46,178 8,197 66,826

Balance as of March 31, 2013 $ 9,399 $ 37,204 $ (49,548) $ (2,945 ) $ 41,233 $ 602,860

For the year ended March 31, 2012 Millions of Yen Shareholders’ equity



Commonstock

Capital surplus

Retainedearnings



equity Balance as of April 1, 2011 69,069 ¥ 11,626 ¥ 7,784 ¥ 30,548 ¥ (202 ) ¥ 49,756

Net income 3,068 3,068Cash dividends (894) (894)Acquisition of treasury stock (3) (3)Disposal of treasury stock (0) 0 0Net changes in items other than shareholders’ equity Total changes in items during the year – (0) 2,174 (3) 2,171

Balance as of March 31, 2012 69,069 ¥ 11,626 ¥ 7,784 ¥ 32,722 ¥ (205) ¥ 51,927 Accumulated other comprehensive income

Net unrealized


other securities

Revaluation gain on

land

Foreign currency


Total accumulated

other comprehensive


Total net assets

Balance as of April 1, 2011 ¥ 47 ¥ 3,169 ¥ (7,228) ¥ (4,012 ) ¥ 3,130 ¥ 48,874Net income 3,068Cash dividends (894)Acquisition of treasury stock (3)Disposal of treasury stock 0Net changes in items other than shareholders’ equity (87) 382 (903) (608) (23 ) (631)Total changes in items during the year (87) 382 (903) (608) (23 ) 1,540

Balance as of March 31, 2012 ¥ (40) ¥ 3,551 ¥ (8,131) ¥ (4,620 ) ¥ 3,107 ¥ 50,414


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CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended March 31, 2013 and 2012

Millions of Yen


(Note 4) 2013 2012 2013 Cash flows from operating activities:

Income before income taxes and minority interests ¥ 5,062 ¥ 6,030 $ 53,822 Depreciation and amortization 1,426 1,535 15,162 Impairment loss (Note 12) 30 – 319 (Decrease) increase in allowance for doubtful accounts (87) 81 (925) Increase in accrued retirement benefits 141 185 1,499 Interest and dividend income (349) (252 ) (3,711) Interest expense 370 380 3,934 Foreign currency exchange gain, net (34) (349 ) (362) Loss on sales of property, plant and equipment, net 7 8 74 Decrease in trade notes and accounts receivable 4,039 3,404 42,945 Decrease (increase) in inventories 762 (12 ) 8,102 Decrease in trade notes and accounts payable (356) (4,519 ) (3,785) Other, net (391) (134 ) (4,155)

Subtotal 10,620 6,357 112,919 Interest and dividend income received 345 252 3,668 Interest expense paid (375) (366 ) (3,987) Income taxes paid (1,871) (2,566 ) (19,894)

Net cash provided by operating activities 8,719 3,677 92,706

Cash flows from investing activities:

Increase in time deposits (5,677) (2,833 ) (60,362) Decrease in time deposits 3,881 1,784 41,265 Payments for purchases of investment securities (337) (148 ) (3,583) Decrease in short-term investment securities, net 51 184 542 Payments for purchases of property, plant and equipment (1,400) (1,139 ) (14,886) Proceeds from sales of property, plant and equipment 92 10 978 Payments for purchase of shares in subsidiaries resulting in

change in scope of consolidation (Note 18) (308) – (3,275)

Other, net 73 (12 ) 778

Net cash used in investing activities ¥ (3,625) ¥ (2,154 ) $ (38,543)


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CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended March 31, 2013 and 2012

Millions of Yen


(Note 4) 2013 2012 2013 Cash flows from financing activities:

(Decrease) increase in short-term borrowings, net ¥ (2,695) ¥ 4,419 $ (28,655) Increase in long-term debt 502 1,000 5,338 Repayment of long-term debt (78) (1,148) (829) Proceeds from sales of treasury stock 0 0 0 Payments for purchases of treasury stock (975) (3) (10,367) Cash dividends (884) (894) (9,399) Other, net (326) (279) (3,467)

Net cash (used in) provided by financing activities (4,456) 3,095 (47,379)

Effect of exchange rate changes on cash and cash equivalents 1,096 (268

) 11,653

Net increase in cash and cash equivalents 1,734 4,350 18,437 Cash and cash equivalents at beginning of the year 16,175 11,825 171,983 Cash and cash equivalents at end of the year (Note 18) ¥ 17,909 ¥ 16,175 $ 190,420


CHUGOKU MARINE PAINTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements

March 31, 2013 and 2012

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1. Summary of Significant Accounting Policies

a. Basis of presentation

The accompanying consolidated financial statements of CHUGOKU MARINE PAINTS, LTD. (the “Company”) and its consolidated subsidiaries (collectively, the “Companies”) have been prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and have been compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Act of Japan.

Certain amounts from prior years have been reclassified to conform to the current year’s presentation.

In preparing the accompanying consolidated financial statements, certain reclassifications and rearrangements have been made to the Company’s consolidated financial statements issued domestically in order to present them in a format, which is more familiar to readers outside Japan.

b. Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates

The accompanying consolidated financial statements include the accounts of the Companies. As of March 31, 2013 and 2012, the Company consolidated 26 and 25 subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

BOAT S.p.A. was included in the scope of consolidation due to stock acquisition during the year ended March 31, 2013. Since the acquisition date was deemed as March 31, 2013, financial results of the acquired company was not included in the consolidated statement of income for the year ended March 31, 2013, and only its balance sheet was consolidated as of March 31, 2013.

Any difference between the cost of an investment in a subsidiary and the amount of underlying equity in net assets (goodwill) is treated as an asset, and amortized on a straight-line basis over a period of five years.

The fiscal year-ends of consolidated subsidiaries are December 31, except for Kobe Paints, Ltd., whose year-end is March 31. For consolidation purposes, the Company uses their financial statements as of and for the year ended December 31 except for Kobe Paints, Ltd. with necessary consolidation adjustments made to reflect any significant transactions which occurred between January 1 and March 31.

As of March 31, 2013 and 2012, there were no unconsolidated subsidiaries or affiliates accounted for by the equity method.

c. Foreign currency translation

The Company translates the revenue and expense accounts of the overseas consolidated subsidiaries at the average rates of exchange in effect during the year. The balance sheet accounts, except for the components of shareholders’ equity, are translated into yen at the rates of exchange in effect at the balance sheet date. The components of shareholders’ equity are translated at their historical exchange rates. Differences arising from translation where two exchange rates have been used are presented under “Foreign currency translation adjustments” and “Minority interests” which are components of net assets.


March 31, 2013 and 2012

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Current and non-current monetary assets and liabilities denominated in foreign currencies of the Company and its domestic consolidated subsidiaries are translated into yen at the exchange rates in effect at the balance sheet date, except for those hedged by forward foreign exchange contracts which are translated at the contracted rates. All revenues and expenses denominated in foreign currencies of the Company and its domestic consolidated subsidiaries are translated at the average rates of exchange during the year. Gains and losses arising from foreign exchange translation differences are credited or charged to income in the years in which they are made or incurred, except for those arising from forward foreign exchange contracts.

d. Cash and cash equivalents

Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits withdrawable on demand, and short-term investment securities with an original maturity of three months or less which are readily convertible to cash and represent a minor risk of fluctuation in value.

e. Inventories

Inventories are mainly stated at cost determined by the moving-average method. Balance sheet amounts are calculated based on the method of reducing the book value in accordance with any decline in profitability.

f. Short-term investment securities and investment securities

Held-to-maturity bonds are either amortized or accumulated to face value. Other securities with quoted market prices are carried at market value. The difference between the acquisition cost and the carrying value of other securities, including unrealized gains and losses, net of the applicable income taxes, is recognized as a component of net assets and is reflected as “Net unrealized holding gain (loss) on other securities.” The cost of other securities sold is computed by the moving-average method. Other securities without quoted market prices are stated at cost based on the moving-average method.

If a decline in fair value below cost of an individual security is deemed to be material and other than temporary, the carrying value of the individual security is written down.

g. Property, plant and equipment and depreciation (except leased assets)

Property, plant and equipment are stated on the basis of cost. The Company and the domestic subsidiaries calculate depreciation principally by the declining-balance method based on the estimated useful lives of the respective assets, except for buildings (exclusive of any structures attached to the buildings) acquired on or after April 1, 1998 which are depreciated by the straight-line method. The overseas consolidated subsidiaries calculate depreciation principally by the straight-line method.

The range of estimated useful lives is summarized as follows:

Buildings and structures 7 – 50 years Machinery, equipment and vehicles 4 – 17 years Tools, furniture and fixtures 2 – 10 years


March 31, 2013 and 2012

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h. Intangible assets (except leased assets)

Intangible assets, included in other assets, are amortized on a straight-line basis over the period stipulated in the Corporation Tax Act of Japan, except for computer software for internal use which is amortized on a straight-line basis over its estimated useful lives (three to ten years).

i. Leases

Noncancellable lease transactions that transfer substantially all risks and rewards associated with the ownership of assets are accounted for as finance leases. All other lease transactions are accounted for as operating leases and relating payments are charged to income as incurred.

Leased assets capitalized as finance leases are initially accounted for at their acquisition costs and depreciated over the respective lease term by the straight-line method with a zero residual value. Finance lease transactions that do not transfer ownership of the leased property to the Companies whose term commences on or before March 31, 2008 are accounted for in a method similar to operating leases.

j. Allowance for doubtful accounts

Allowance for doubtful accounts is provided to cover possible losses on uncollectible accounts. It consists of an estimated uncollectible amount with respect to identified doubtful receivables and an amount calculated based on the historical bad debt ratio with respect to the remaining receivables.

k. Accrued product warranty costs

Accrued product warranty costs are included in “Other current liabilities.” Provision for estimated warranty costs is recorded based on the ratio of actual warranty costs incurred for the year against the related annual sales amount.

l. Accrued bonuses

Accrued bonuses are included in “Other current liabilities.” Certain consolidated subsidiaries provide for accrued bonuses for employees based on the amount attributed to services rendered during the year and estimated to be paid.

m. Accrued retirement benefits

The Company provides for accrued retirement benefits in preparation for payments of retirement benefits to employees at an amount based on the projected benefit obligation attributed to services rendered during the year reduced by pension plan assets at fair value at the end of the year.

The net retirement benefit obligation at transition of ¥1,296 million at the date of adoption is amortized by the straight-line method over a period of 15 years. The actuarial gain or loss is amortized by the straight-line method over a period of 10 years from the year following the year in which it arises.


March 31, 2013 and 2012

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n. Income taxes

Income taxes of the Company and its domestic subsidiaries consist of corporate income tax, local inhabitant taxes and enterprise tax.

Deferred income taxes are determined using the asset and liability method, whereby deferred tax assets and liabilities are recognized in respect of temporary differences between the tax bases of the assets and liabilities and the amounts reported in the financial statements.

o. Consumption taxes

The consumption taxes paid and withheld on purchases and sales of goods and services are not included in the respective amounts of cost, expense or revenue in the accompanying consolidated statements of income. The net balance of consumption taxes withheld and paid is included in “Other current assets” or “Other current liabilities” in the accompanying consolidated balance sheets.

p. Derivative financial instruments

All derivatives are stated at fair value, with changes in fair value included in net income or loss for the period in which they arise unless derivative instruments are used for hedging purposes. Certain consolidated subsidiaries utilize forward foreign exchange contracts to reduce the risk arising from exchange rate fluctuations in foreign-currency-denominated receivables and payables. Receivables and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding contract rates when the criteria are met.

At inception, the forward foreign exchange contracts are fixed at the same amount and at the same maturing as the hedged items in accordance with the Company’s risk management objective and policy for undertaking the hedge. As certain subsidiaries deem the hedging relationship regarding exchange rate fluctuations to be highly effective, the evaluation of hedge effectiveness at the fiscal year-end is not performed.

q. Impairment on fixed assets

In accordance with the accounting standard for impairment of fixed assets, the Companies periodically review their fixed assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Companies recognize an impairment loss in their statement of income if certain indicators of asset impairment exist and if the book value of an asset exceeds the undiscounted sum of its future cash flows. The standard states that impairment losses should be measured as the excess of the book value over the higher of (1) the fair market value of the asset, net of disposition costs, or (2) the present value of future cash flows arising from ongoing utilization of the asset and from its disposal after use. The standard covers land, factories, buildings and other forms of property, plant and equipment as well as intangible assets. Fixed assets are to be grouped at the lowest levels for which there are identifiable cash flows which are independent of the cash flows from other groups of assets.

r. Net income and cash dividends per share

Basic net income per share of common stock is based on the weighted average number of shares of common stock outstanding during each period.


March 31, 2013 and 2012

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Diluted net income per share has not been presented for both the years ended March 31, 2013 and 2012 as the Company had no potentially dilutive shares of common stock.

Cash dividends per share is applicable to the respective years and includes dividends to be paid on or after the effective date. Dividends are charged to retained earnings in the year in which they are paid.

Net assets per share is computed based on the net assets reduced by minority interests and the number of shares of common stock outstanding at the year-end.

s. Shareholders’ equity

The Companies Act of Japan (the “Act”) provides that an amount equal to 10% of the amount of the deduction from surplus as a result of the payment of such dividends of surplus shall be transferred to additional paid-in capital (a component of “Capital surplus”) or legal reserve (a component of “Retained earnings”) on the dividend date until the sum of additional paid-in capital and legal reserve equals 25% of the common stock account. Such distributions can be made at any time by resolution of the shareholders’ meeting or the board of directors if certain conditions are met.

2. Accounting Changes

(Change in depreciation method of property, plant and equipment)

Effective the year ended March 31, 2013, due to the revision of the Corporation Tax Act, the Company and its domestic consolidated subsidiaries changed their depreciation method to the method based on the revised Corporation Tax Act for the property, plant and equipment acquired on or after April 1, 2012.

This change had immaterial effect on “Operating income,” “Ordinary income” and “Income before income taxes and minority interests” for the year ended March 31, 2013.

3. Accounting Standard Issued but Not Yet Adopted

On May 17, 2012, the Accounting Standards Board of Japan (“ASBJ”) issued “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26) (the “Accounting Standard”) and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25) (the “Guidance”).

(1) Overview

Under the Accounting Standard, actuarial gains and losses and past service costs that have yet to be recognized in profit or loss would be recognized within the net assets of the consolidated balance sheet, after adjusting for tax effects, and the deficit or surplus would be recognized as a liability or an asset. Furthermore, as a method of attributing expected benefit to periods of service, the benefit formula basis would be allowed to be applied in addition to the straight-line basis, and the method to determine the discount rate would be amended.

(2) Date of application

The Companies will adopt the Accounting Standard and the Guidance from the fiscal year ending


March 31, 2013 and 2012

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March 31, 2014 except for the amendments relating to determination of the projected benefit obligations and the service cost which will be applied from the beginning of the fiscal year ending March 31, 2015.

(3) Effect of application

The effects of applying the Accounting Standard and the Guidance on the consolidated financial statements are currently under evaluation.

4. U.S. Dollar Amounts

Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥94.05 = U.S. $1.00, the rate of exchange prevailing as of March 31, 2013, has been used in the translation. The inclusion of such amounts is not intended to imply that Japanese yen has been or could be readily converted, realized or settled in U.S. dollars at this or any other rate.

5. Inventories

Inventories as of March 31, 2013 and 2012 comprised of the following:

As of March 31 Millions of Yen Thousands of U.S. Dollars

2013 2012 2013 Merchandise and finished goods ¥ 8,061 ¥ 7,675 $ 85,710 Raw materials and supplies 5,855 5,706 62,254 Work in process 446 372 4,742 Total ¥ 14,362 ¥ 13,753 $ 152,706

Cost of sales for the years ended March 31, 2013 and 2012 includes loss on valuation of inventories due to decline in profitability amounted to ¥51 million ($542 thousand) and ¥(43) million, respectively.

6. Short-Term Borrowings and Long-Term Debt

Short-term borrowings from banks outstanding consisted primarily of six-month notes issued by the Company to banks bearing interest at the weighted-average interest rate of 1.4% and 1.6% as of March 31, 2013 and 2012, respectively. Customarily, these notes are renewed at maturity subject to re-negotiation of the interest rates and other conditions.


March 31, 2013 and 2012

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Long-term debt and lease obligations as of March 31, 2013 and 2012 consisted of the following:


2013 2012 2013 Loans from banks and an insurance company ¥ 3,380 ¥ 2,921 $ 35,938 Lease obligations 110 108 1,170 Less, current portion of long-term debt (66) (73) (702) Less, current portion of lease obligations (46) (43) (489) Total long-term debt (*1) and lease obligations ¥ 3,378 ¥ 2,913 $ 35,917

(*1) The weighted-average interest rates on loans from banks and an insurance company were as follows:

as of March 31, 2013 1.5% as of March 31, 2012 1.5%

The maturities of long-term debt (excluding lease obligations) were as follows:

Millions of

Yen Thousands of U.S. Dollars

Years ending March 31: 2014 ¥ 66 $ 702 2015 48 510 2016 2,185 23,232 2017 1,048 11,143 2018 33 351 Total ¥ 3,380 $ 35,938

The maturities of lease obligations were as follows:

Millions of

Yen Thousands of U.S. Dollars

Years ending March 31: 2014 ¥ 46 $ 489 2015 28 298 2016 20 213 2017 12 128 2018 and thereafter 4 42 Total ¥ 110 $ 1,170


March 31, 2013 and 2012

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The Companies’ assets pledged as collateral for long-term debt of ¥500 million ($5,316 thousand) and ¥500 million as of March 31, 2013 and 2012 were summarized as follows:


2013 2012 2013 Investment securities ¥ 1,969 ¥ 807 $ 20,936

7. Retirement Benefit Plans

The Company has a funded defined benefit plan covering all of its employees. The consolidated subsidiaries, excluding certain overseas consolidated subsidiaries, have funded and/or unfunded defined benefit plans. In addition, the Companies may occasionally pay supplementary benefits to retired employees.

The following table sets forth the funded and accrued status of the Companies’ retirement benefit plans as of March 31, 2013 and 2012:


2013 2012 2013 Projected benefit obligations ¥ 5,062 ¥ 5,003 $ 53,822 Unrecognized net actuarial losses (95) (286) (1,010)

Unrecognized net retirement benefit

obligation at transition (173) (259) (1,839) Plan assets at fair value (3,842) (3,678) (40,851) Accrued retirement benefits ¥ 952 ¥ 780 $ 10,122

Certain consolidated subsidiaries adopt the simplified method in the calculation of their retirement benefit obligations.

Net periodic pension cost related to the retirement benefits for the years ended March 31, 2013 and 2012 was as follows:


March 31, 2013 and 2012

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For the years ended March 31 Millions of Yen Thousands of U.S. Dollars

2013 2012 2013 Service cost ¥ 397 ¥ 444 $ 4,221 Interest cost 71 74 755 Expected return on plan assets (49) (51) (521) Amortization of net actuarial losses 30 106 319

Amortization of net retirement benefit obligation at

transition 86 86 914 Net periodic pension cost ¥ 535 ¥ 659 $ 5,688

Pension benefit obligations are attributed to periods by the straight-line method over the estimated remaining years of service of the eligible employees.

Assumptions used in accounting for the above plans for the years ended March 31, 2013 and 2012 were as follows:

2013 2012

Discount rate 1.9% 1.9% Expected rate of return on plan assets 1.5 1.5


March 31, 2013 and 2012

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8. Net Assets

a. Shares issued and outstanding/Treasury stock For the year ended March 31, 2013 Thousands of Shares

Number of shares at April 1,

2012 Increase Decrease

Number of shares at

March 31, 2013

Shares issued: Common stock 69,069 – – 69,069 Treasury stock: Common stock (Notes 1 and 2) 336 2,502 0 2,838

Notes:

1. Details of the increase are as follows: (Thousands of Shares)

Increase due to purchase of treasury stock resolved by the board of directors: 2,500

Increase due to purchase of shares less than standard unit: 2

2. Details of the decrease are as follows:

Decrease due to sale of shares less than standard unit: 0

For the year ended March 31, 2012 Thousands of Shares

Number of shares at April 1,

2011 Increase Decrease

Number of shares at

March 31, 2012

Shares issued: Common stock 69,069 – – 69,069 Treasury stock: Common stock (Notes 1 and 2) 331 6 1 336

Notes:

1. Details of the increase are as follows: (Thousands of Shares)

Increase due to purchase of shares less than standard unit: 6

2. Details of the decrease are as follows:

Decrease due to sale of shares less than standard unit: 1

b. Share subscription rights

The Companies have no subscription rights as of March 31, 2013 and 2012.


March 31, 2013 and 2012

- 20 -

c. Dividends

(1) Dividends from retained earnings

The following appropriation of retained earnings applicable to the year ended March 31, 2013 was resolved by the board of directors on October 31, 2012:

(a) Total amount of dividends: ¥403 million ($4,285 thousand)

(b) Dividends per share: ¥6.00 ($0.06)

(c) Cut-off date: September 30, 2012

(d) Effective date: December 3, 2012

The following appropriation of retained earnings applicable to the year ended March 31, 2012 was approved at an annual general shareholders’ meeting held on June 27, 2012:


(b) Dividends per share: ¥7.00 ($0.07)

(c) Cut-off date: March 31, 2012

(d) Effective date: June 28, 2012

The following appropriation of retained earnings applicable to the year ended March 31, 2012 was resolved by the board of directors on October 31, 2011:

(a) Total amount of dividends: ¥412 million

(b) Dividends per share: ¥6.00

(c) Cut-off date: September 30, 2011

(d) Effective date: December 1, 2011

The following appropriation of retained earnings applicable to the year ended March 31, 2011 was approved at an annual general shareholders’ meeting held on June 28, 2011:


(b) Dividends per share: ¥7.00

(c) Cut-off date: March 31, 2011

(d) Effective date: June 29, 2011

(2) Dividends whose effective date is after the end of the current fiscal year and whose cut-off date is in the current fiscal year

The following appropriation of retained earnings which has not been reflected in the accompanying consolidated financial statements as of and for the year ended March 31, 2013 was approved at an annual general shareholders’ meeting held on June 26, 2013:


(b) Source of dividends: Retained earnings


March 31, 2013 and 2012

- 21 -

(c) Dividends per share: ¥7.00 ($0.07)

(d) Cut-off date: March 31, 2013

(e) Effective date: June 27, 2013

The following appropriation of retained earnings which has not been reflected in the accompanying consolidated financial statements as of and for the year ended March 31, 2012 was approved at an annual general shareholders’ meeting held on June 27, 2012:


(b) Source of dividends: Retained earnings

(c) Dividends per share: ¥7.00

(d) Cut-off date: March 31, 2012

(e) Effective date: June 28, 2012

9. Selling, General and Administrative Expenses

Significant components of “Selling, general and administrative expenses” for the years ended March 31, 2013 and 2012 were as follows:


2013 2012 2013 Depreciation ¥ 356 ¥ 405 $ 3,785 Provision of allowance for doubtful accounts 60 125 638 Provision for bonuses 52 97 553 Provision for product warranties 159 21 1,691 Retirement benefit expenses 349 429 3,711 Directors’ compensations and employees’ salaries

and bonuses 6,101 6,104 64,870

Transportation expenses 3,072 3,478 32,663 Sales commission 1,312 2,216 13,950 Other 5,902 6,506 62,754 Total ¥ 17,363 ¥ 19,381 $ 184,615

Research and development cost included in general and administrative expenses and manufacturing costs for the years ended March 31, 2013 and 2012 amounted to ¥1,790 million ($19,032 thousand) and ¥1,902 million, respectively.


March 31, 2013 and 2012

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10. Special Gains (Losses), net

Components of “Special gains (losses), net” for the years ended March 31, 2013 and 2012 were as follows:


2013 2012 2013 Special gains: Gain on sales of property, plant and equipment ¥ 9 ¥ 7 $ 96 Other 0 0 0 9 7 96 Special losses: Loss on sales of property, plant and equipment 7 3 74 Loss on liquidation of subsidiaries and affiliates – 5 – Loss on valuation of membership 24 10 255 Impairment loss 30 – 319 Other 5 – 54 66 18 702 Total ¥ (57) ¥ (11) $ (606)

Gain on sales of property, plant and equipment for the years ended March 31, 2013 and 2012 primarily resulted from the sales of “Machinery, equipment and vehicles,” “Tools, furniture and fixtures” and “Land” amounted ¥9 million ($96 thousand) and ¥7 million, respectively.

Loss on sales of property, plant and equipment for the years ended March 31, 2013 and 2012 primarily resulted from the sales of “Machinery, equipment and vehicles,” “Tools, furniture and fixtures” and “Land” amounted ¥7 million ($74 thousand) and ¥3 million, respectively.

11. Income Taxes

The Companies are subject to several taxes based on income, which in the aggregate, resulted in a statutory tax rate of approximately 37.8% and 40.5% for the years ended March 31, 2013 and 2012, respectively.


March 31, 2013 and 2012

- 23 -

Significant components of deferred tax assets and liabilities as of March 31, 2013 and 2012 were as follows:


2013 2012 2013 Deferred tax assets: Accrued retirement benefits ¥ 324 ¥ 269 $ 3,445 Allowance for doubtful accounts 165 139 1,754 Loss on valuation of investment securities 220 218 2,339 Loss on valuation of inventories 111 101 1,180 Accrued bonuses 227 219 2,414 Accrued enterprise tax 42 38 447 Long-term accrued amount payable 22 106 234 Elimination of unrealized gains 66 100 702 Tax loss carryforwards 10 33 106 Others 323 249 3,434 Gross deferred tax assets 1,510 1,472 16,055 Less, valuation allowance (251) (256) (2,669)

Total deferred tax assets 1,259 1,216 13,386 Deferred tax liabilities: Net unrealized holding gain on other securities (418) (1) (4,444) Others (73) (54) (776)

Total deferred tax liabilities (491) (55) (5,220)

Net deferred tax assets ¥ 768 ¥ 1,161 $ 8,166


March 31, 2013 and 2012

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Reconciliations of the statutory tax rate to the effective tax rates for the years ended March 31, 2013 and 2012 were as follows:

For the years ended March 31 2013 2012 Statutory tax rate 37.8% 40.5% Increase (decrease) in taxes resulting from:

Difference in statutory tax rates between parent and consolidated subsidiaries (12.9) (13.1)

Entertainment and other non-deductible expenses 4.5 4.2 Dividend income and other non-taxable income (5.6) (6.6) Dividends from retained earnings 13.2 16.5 Income taxes for prior years – 7.2 Foreign tax credit (1.4) (1.3) Special tax credit for research and development cost and others (2.1)

(2.5)

(Decrease) increase in valuation allowance of deferred tax assets (0.1)

0.7

Others (0.3) (3.1) Effective tax rates 33.1% 42.5%

12. Impairment Loss

Operating assets of the Companies are grouped based on the managerial accounting. Leased assets and idle assets are grouped on an individual asset basis.

Impairment losses on fixed assets for the year ended March 31, 2013 were as follows:

Location Use Class Millions of Yen Thousands of U.S. Dollars

Onomichi, Hiroshima

Sales office Buildings and structures, and others

¥ 30 $ 319

For the year ended March 31, 2013, the Companies made a management decision to dispose the decrepit assets. As a result, the Companies reduced the related carrying value to a recoverable value of zero and recorded the reduced amount as impairment losses of ¥30 million ($319 thousand) on buildings and structures and ¥0 million ($0 thousand) on tools, furniture and fixtures, respectively.

For the year ended March 31, 2012, the Companies recognized no impairment loss.


March 31, 2013 and 2012

- 25 -

13. Lease Transactions

The amounts of the outstanding future lease payments for operating lease transactions subsequent to March 31, 2013 and 2012 were as follows:


2013 2012 2013 Due within one year ¥ 54 ¥ 49 $ 574 Due after one year 61 24 649 Total ¥ 115 ¥ 73 $ 1,223

14. Asset Retirement Obligations

The liability related to the restoration of Tokyo office arising from contractual requirements set forth in the lease agreement is recorded as “Asset retirement obligation.”

Instead of recording the asset retirement obligation as a liability, a portion of the deposit deemed to be finally uncollectible is recognized as expense over 5 years from the commencement of the lease term. The uncollectible amount is reasonably estimated based on the lease agreement.

The amount deemed to be finally uncollectible as of March 31, 2013 and 2012 were ¥6 million ($64 thousand) and ¥11 million, respectively.

There was no other change in total amount of asset retirement obligations during the years ended March 31, 2013 and 2012.

15. Commitments and Contingencies

The Companies were contingently liable for outstanding endorsed notes of ¥1,136 million ($12,079 thousand) and ¥3,219 million as of March 31, 2013 and 2012, respectively.

The Company provided guarantees to an intermediary trading company of ¥960 million ($10,207 thousand) and ¥1,111 million for the collection of its accounts receivable from contracted sales agents/distributors as of March 31, 2013 and 2012, respectively.


March 31, 2013 and 2012

- 26 -

16. Amounts per Share

Net income per share for the years ended March 31, 2013 and 2012 and net assets per share as of March 31, 2013 and 2012 were as follows:

As of and for the years ended March 31 Yen U.S. Dollars

2013 2012 2013

Net income ¥ 44.21 ¥ 44.63 $ 0.47

Net assets 797.53 688.29 8.48

The bases for calculation of net income per share were as follows:

For the years ended March 31 Thousands of Shares 2013 2012 The number of shares of common stock used for the

calculation of net income per share 67,361 68,735


2013 2012 2013

Net income ¥ 2,978 ¥ 3,068 $ 31,664

Net income not attributable to shareholders of common stock – – –

Net income attributable to shares of common stock ¥ 2,978 ¥ 3,068 $ 31,664

The bases for calculation of net assets per share were as follows:

As of March 31 Thousands of Shares 2013 2012

The number of shares of common stock used for

the calculation of net assets per share 66,231 68,733


March 31, 2013 and 2012

- 27 -


2013 2012 2013 Total net assets ¥ 56,699 ¥ 50,414 $ 602,860 Amounts deducted from total net assets: Minority interests 3,878 3,107 41,233 Net assets attributable to shares of common stock ¥ 52,821 ¥ 47,307 $ 561,627

17. Securities

Held-to-maturity bonds as of March 31, 2013 were summarized as follows:

As of March 31, 2013 Millions of Yen

Carrying

value Fair value Gross

unrealized gain Gross

unrealized loss Held-to-maturity bonds: With fair value ¥ 20 ¥ 22 ¥ 2 ¥ –

As of March 31, 2013 Thousands of U.S. Dollars

Carrying

value Fair value Gross


unrealized loss Held-to-maturity bonds: With fair value $ 213 $ 234 $ 21 $ –

There were no held-to-maturity bonds as of March 31, 2012.


March 31, 2013 and 2012

- 28 -

Other securities as of March 31, 2013 were summarized as follows:


Acquisition

cost Fair value Gross


unrealized loss Other Securities: With fair value ¥ 4,302 ¥ 5,600 ¥ 1,439 ¥ (141) Without fair value 864

As of March 31, 2013 Thousands of U.S. Dollars

Acquisition



unrealized loss Other Securities: With fair value $ 45,742 $ 59,543 $ 15,300 $ (1,499) Without fair value 9,187

Other securities as of March 31, 2012 were summarized as follows:


Acquisition



unrealized loss Other Securities: With fair value ¥ 4,371 ¥ 4,332 ¥ 391 ¥ (430) Without fair value 864

Impairment loss for the year ended March 31, 2013 amounted to ¥4 million ($43 thousand) on listed equity securities under other securities. There was no impairment loss recorded for the year ended March 31, 2012.

No securities were sold for the years ended March 31, 2013 and 2012.


March 31, 2013 and 2012

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18. Supplementary Cash Flow Information

(1) Cash and cash equivalents as of March 31, 2013 and 2012 consisted of the following:


2013 2012 2013 Cash on hand and in banks ¥ 22,012 ¥ 17,615 $ 234,046

Less, time deposits with deposit term of over

three months (4,204) (1,879) (44,700) Short-term investment securities (MMF and others) 101 439 1,074 Cash and cash equivalents ¥ 17,909 ¥ 16,175 $ 190,420

(2) Assets and liabilities of a newly consolidated subsidiary through the acquisition of shares during the year ended March 31, 2013

Assets acquired and liabilities assumed through the acquisition of shares in BOAT S.p.A., related acquisition cost and net payments were as follows:

Millions of Yen Thousands of U.S. Dollars

2013 Current assets ¥ 769 $ 8,177

Non-current assets 5 53 Goodwill 129 1,372

Current liabilities (346) (3,679) Non-current liabilities (23) (244)

Minority interests (122 ) (1,298 ) Acquisition cost of shares 412 4,381

Foreign currency translation adjustments (36) (383) Cash and cash equivalents of BOAT S.p.A. (68) (723) Payments for purchase of shares in subsidiaries

resulting in change in scope of consolidation ¥ 308 $ 3,275


March 31, 2013 and 2012

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19. Derivative Transactions

Summary of transactions

Derivative transactions to which hedge accounting was not applied as of March 31, 2013 and 2012 were as follows:

Currency-related transactions Millions of Yen

2013 2012

Contract or notional amount Fair value

Valuation gain (loss)

Contract or notional amount Fair value


Foreign exchange forward contracts:

Short-term: Sell USD and

buy JPY ¥ 223 ¥ (17 ) ¥ (17) ¥ 208 ¥ (3 ) ¥ (3) Sell USD and

buy EUR – – – 113 (4 ) (4) Buy USD and

sell JPY 31 2 2 22 (0 ) (0) Buy USD and

sell EUR – – – 113 3 3 Buy JPY and

sell EUR 21 (1 ) (1) 39 1 1 Total ¥ (16) ¥ (3)

Thousands of U.S. Dollars 2013

Contract or

notional amount

Fair value


Foreign exchange forward contracts:

Short-term: Sell USD and

buy JPY $ 2,371 $ (181 ) $ (181)

Sell USD and buy EUR – – –

Buy USD and

sell JPY 330 21 21

Buy USD and sell EUR – – –

Buy JPY and sell EUR 223 (10 ) (10)

Total $ (170)


March 31, 2013 and 2012

- 31 -

The fair value has been quoted from financial institutions with which the Companies enter into foreign exchange forward contracts.

There were no interest-related transactions as of March 31, 2013 and 2012.

There were no derivative transactions to which hedge accounting was applied as of March 31, 2013 and 2012.

20. Financial Instruments

The Companies operate funds through highly liquid financial assets and finance short-term operating capital with bank loans. Derivative transactions are only utilized to hedge the following risks, and it is our policy not to enter into derivative transactions for speculative purposes.

Operating receivables such as “Trade notes and accounts receivable” are exposed to credit risk. Operating receivables denominated in foreign currencies from overseas operations are exposed to foreign currency risk. The Companies utilize foreign exchange forward contracts within the actual orders to hedge the risk. “Short-term investment securities” and “Investment securities” mainly consist of securities of companies with a business relationship and are exposed to market fluctuation risk.

Operating payables such as “Trade notes and accounts payable” are mainly due within one year. Some of the operating payables relating to imports of raw materials are denominated in foreign currencies and exposed to foreign currency risk. The Companies utilize foreign exchange forward contracts within the actual orders to hedge the risk. “Short-term borrowings” are mainly used for the purpose of financing operating capital.

The Companies utilize foreign exchange forward contracts to hedge foreign currency risk on operating receivables and payables denominated in foreign currencies. Please see Note 1. p, Derivative financial instruments, for hedge accounting.

Risk management on financial instruments is summarized as follows:

(1) Management of credit risk (risk of default by the counter parties)

In accordance with the Company’s internal rules, the sale planning department of the Company monitors the major customers’ credit conditions periodically and manages the due date and balance per each customer. The Company keeps track of the adverse financial conditions of the customers in the early stage to mitigate the bad debt. The consolidated subsidiaries follow the Company’s internal rules and manage the risk in the same manner. Regarding the derivative transactions, the Companies only deal with highly rated financial institutions and thus, there is little credit risk.

(2) Management of market risk (risk of fluctuations in foreign exchange)

The Companies utilize foreign exchange forward contracts within the actual orders to hedge foreign currency risk on the operating receivables and payables denominated in foreign currencies. Regarding the “Short-term investment securities” and “Investment securities,” the Companies regularly review the fair value and issuers’ financial conditions and readjust the Companies’ portfolio according to the market condition and the business relationship with the counterparties on


March 31, 2013 and 2012

- 32 -

an ongoing basis. Execution and management of derivative transactions for the Companies are managed in accordance with the Company’s internal rules.

(3) Management of liquidity risk on financing (risk of default at the due dates)

The treasury department of the Company timely prepares and updates the cash management plan based on the report from each department. The Company manages the liquidity risk by maintaining the on-hand liquidity. The consolidated subsidiaries manage the risk in accordance with the Company’s internal rules.

As well as the values based on market prices, fair values of financial instruments include values which are reasonably calculated in case that market prices are not available. As the calculation of those values includes variable factors, those values may vary in case different assumptions are applied. The contract or notional amount described in Note 19., Derivative Transactions, does not indicate market risk related to the derivative transactions.

The carrying value on the consolidated balance sheets, fair value and their difference of financial instruments as of March 31, 2013 and 2012 were as follows:

As of March 31 Millions of Yen

2013 2012

Carrying

value Fair value DifferenceCarrying

value Fair value Difference Cash on hand and in

banks ¥ 22,012 ¥ 22,012 – ¥ 17,615 ¥ 17,615 – Trade notes and

accounts receivable 36,944 36,944 – 37,695 37,695 – Short-term investment

securities and investment securities 5,620 5,622 ¥ 2 4,332 4,332 –

Total assets ¥ 64,576 ¥ 64,578 ¥ 2 ¥ 59,642 ¥ 59,642 –

Short-term borrowings ¥ 21,933 ¥ 21,933 – ¥ 23,436 ¥ 23,436 –

Trade notes and accounts payable 13,371 13,371 – 12,536 12,536 –

Total liabilities ¥ 35,304 ¥ 35,304 – ¥ 35,972 ¥ 35,972 – Derivatives (*) ¥ (16 ) ¥ (16) – ¥ (3) ¥ (3) –


March 31, 2013 and 2012

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Carrying value

Fair value Difference

Cash on hand and in

banks $ 234,046 $ 234,046 –

Trade notes and accounts receivable 392,812 392,812 –

Short-term investment securities and investment securities 59,756 59,777 $ 21

Total assets $ 686,614 $ 686,635 $ 21

Short-term borrowings $ 233,206 $ 233,206 –

Trade notes and accounts payable 142,169 142,169 –

Total liabilities $ 375,375 $ 375,375 –

Derivatives (*) $ (170) $ (170) – (*) Derivative assets and liabilities are presented as a net basis.

Carrying value of financial instruments whose fair value was deemed extremely difficult to determine, which was not included in the above tables, as of March 31, 2013 and 2012 was as follows:


2013 2012 2013 Unlisted equity securities ¥ 864 ¥ 864 $ 9,187

Valuation method of fair value of financial instruments and information about securities and derivative transactions are summarized as follows:

Cash on hand and in banks

The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.

Trade notes and accounts receivable



March 31, 2013 and 2012

- 34 -

Short-term investment securities and Investment securities

The fair value of stocks is based on the price on stock exchanges and that of bonds is based on the price on bond markets or the price presented by the counterparty financial institutions. The carrying value of MMF and others are deemed as the fair value since it is scheduled to be settled in a short period of time. Please see Note 17., Securities, for the notes regarding the securities by classification.

Short-term borrowings


Trade notes and accounts payable


Derivative transactions

Please see Note 19., Derivative Transactions.

Redemption schedule for monetary assets as of March 31, 2013 and 2012 is as follows:

Millions of Yen 2013

Due in one year or less

Due after one year through

five years

Due after five years through

ten years Due after ten years

Cash on hand and in banks ¥ 21,996 – – –

Trade notes and accounts receivable 36,944 – – –

Held-to-maturity bonds – ¥ 20 – –

Other securities 56 – – –

Total ¥ 58,996 ¥ 20 – –




five years



Cash on hand and in banks ¥ 17,597 – – –



Total ¥ 55,683 – – –


March 31, 2013 and 2012

- 35 -




five years



Cash on hand and in banks $ 233,876 – – –


Held-to-maturity bonds – $ 213 – –


Total $ 627,283 $ 213 – –

21. Other Comprehensive Income

Reclassification adjustments and tax effects allocated to each component of other comprehensive income for the years ended March 31, 2013 and 2012 were as follows:


2013 2012 2013 Net unrealized holding gain (loss) on other securities: Gains (losses) arising during the year ¥ 1,337 ¥ (146) $ 14,216 Reclassification adjustments 4 – 42 Amount before tax effect 1,341 (146) 14,258 Tax effect (417) 59 (4,433)

Net unrealized holding gain (loss) on other

securities 924

(87)

9,825 Revaluation gain on land: Tax effect – 382 – Foreign currency translation adjustments: Amount arising during the year 3,985 (1,094) 42,371 Total other comprehensive income ¥ 4,909 ¥ (799) $ 52,196


March 31, 2013 and 2012

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22. Segment Information

(1) Outline of reportable segment

The Companies’ reportable segments are those for which discrete financial information is available and regularly evaluated by the Company’s board of directors in order to make decisions about resource allocations and assess their performances. The Companies are mainly engaged in manufacturing and sales of paints, which are organized by geographical area based on comprehensive strategy for lines of business by each area, although each subsidiary is independently operated. As a result, the Companies have five reportable segments, (1) Japan (the Company), (2) China (CHUGOKU MARINE PAINTS (Shanghai), Ltd. and CHUGOKU MARINE PAINTS (Guang Dong), Ltd.), (3) Korea (CHUGOKU SAMHWA PAINTS, Ltd.), (4) South East Asia (CHUGOKU MARINE PAINTS (Singapore) Pte., Ltd. and CHUGOKU PAINTS (Malaysia) Sdn. Bhd.) and (5) Europe and U.S. (CHUGOKU PAINTS B.V.), respectively. “Japan” engages in the real estate management business in addition to manufacturing and sales of paints, and other reportable segments engage in manufacturing and sales of paints.

(2) Method of calculating net sales, income (loss), assets and other items by reportable segment

Accounting policies of the reportable segments are consistent with those described in Note 1., Summary of Significant Accounting Policies. Reportable segment income corresponds to operating income. Intersegment sales and transfers are based on the prevailing market price.

(Change in depreciation method of property, plant and equipment)

Effective the year ended March 31, 2013, due to the revision of the Corporation Tax Act, the Company and its domestic consolidated subsidiaries changed their depreciation method to the method based on the revised Corporation Tax Act for the property, plant and equipment acquired on or after April 1, 2012.

This change had immaterial effect on “Operating income,” “Ordinary income” and “Income before income taxes and minority interests” for the year ended March 31, 2013.


March 31, 2013 and 2012

- 37 -

(3) Net sales, income (loss), assets and other items by reportable segment

For the year ended March 31, 2013

Millions of Yen Reportable segment

Japan China Korea South East AsiaEurope/

U.S. Total Net sales:

External sales ¥ 34,183 ¥ 27,641 ¥ 6,203 ¥ 8,238 ¥ 7,391 ¥ 83,656 Intersegment sales or

transfers 2,852 3,746 257 2,860 674 10,389 Total ¥ 37,035 ¥ 31,387 ¥ 6,460 ¥ 11,098 ¥ 8,065 ¥ 94,045

Segment income (loss) ¥ 2,215 ¥ 1,090 ¥ (23) ¥ 978 ¥ (903) ¥ 3,357 Segment assets ¥ 58,255 ¥ 35,284 ¥ 5,511 ¥ 11,494 ¥ 7,636 ¥ 118,180 Other items:

Depreciation and amortization ¥ 647 ¥ 450 ¥ 69 ¥ 153 ¥ 43 ¥ 1,362

Amortization of goodwill 25 – – – 1 26

Increase in property, plant and equipment and intangible assets 536 524 37 142 87 1,326


Millions of Yen Reportable segment



External sales ¥ 37,530 ¥ 31,413 ¥ 9,098 ¥ 7,658 ¥ 7,862 ¥ 93,561 Intersegment sales or

transfers 3,703 4,427 220 2,797 592 11,739 Total ¥ 41,233 ¥ 35,840 ¥ 9,318 ¥ 10,455 ¥ 8,454 ¥ 105,300

Segment income (loss) ¥ 2,458 ¥ 1,653 ¥ 222 ¥ 812 ¥ (1,130) ¥ 4,015 Segment assets ¥ 58,853 ¥ 31,698 ¥ 5,912 ¥ 10,239 ¥ 5,718 ¥ 112,420 Other items:

Depreciation and amortization ¥ 710 ¥ 435 ¥ 89 ¥ 139 ¥ 47 ¥ 1,420


Increase in property, plant and equipment and intangible assets 579 266 23 259 29 1,156


March 31, 2013 and 2012

- 38 -


Thousands of U.S. Dollars Reportable segment



External sales $ 363,455 $ 293,897 $ 65,954 $ 87,592 $ 78,586 $ 889,484 Intersegment sales or

transfers 30,325 39,830 2,733 30,409 7,166 110,463 Total $ 393,780 $ 333,727 $ 68,687 $ 118,001 $ 85,752 $ 999,947

Segment income (loss) $ 23,551 $ 11,590 $ (245) $ 10,399 $ (9,601) $ 35,694 Segment assets $ 619,405 $ 375,162 $ 58,596 $ 122,212 $ 81,191 $ 1,256,566 Other items:

Depreciation and amortization $ 6,879 $ 4,785 $ 734 $ 1,627 $ 457 $ 14,482


Increase in property, plant and equipment and intangible assets 5,699 5,572 393 1,510 925 14,099

(4) Reconciliation between the total amounts of reportable segments and consolidated amounts

(a) Segment income


2013 2012 2013

Total of the segment income ¥ 3,357 ¥ 4,015 $ 35,694 Elimination of intersegment transaction 2,680 2,864 28,495 Other corporate expenses (1,321) (1,404) (14,046) Operating income on consolidated statements of income ¥ 4,716 ¥ 5,475 $ 50,143

Note: “Other corporate expenses” are mainly general and administrative expenses which are not allocated to each reportable segment.


March 31, 2013 and 2012

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(b) Segment assets


2013 2012 2013 Total of the segment assets ¥ 118,180 ¥ 112,420 $ 1,256,566 Elimination of intersegment transaction (21,893) (21,051) (232,781) Other corporate assets 9,953 8,481 105,827 Total assets on consolidated balance sheets ¥ 106,240 ¥ 99,850 $ 1,129,612

Note: “Other corporate assets” are mainly cash on hand and in banks and investment securities which are not allocated to each reportable segment.

(c) Other items Millions of Yen 2013

Reportable

segments total Adjustments Consolidated Depreciation and amortization ¥ 1,362 ¥ 64 ¥ 1,426 Amortization of goodwill 26 (1) 25

Increase in property, plant and equipment and intangible

assets 1,326 56 1,382


Reportable

segments total Adjustments Consolidated Depreciation and amortization ¥ 1,420 ¥ 115 ¥ 1,535 Amortization of goodwill 26 (1) 25


assets 1,156 33 1,189


Reportable

segments total Adjustments Consolidated Depreciation and amortization $ 14,482 $ 680 $ 15,162 Amortization of goodwill 276 (10) 266


assets 14,099 595 14,694


March 31, 2013 and 2012

- 40 -

Note: “Adjustments” for “Increase in property, plant and equipment and intangible assets” are mainly intangible assets which are not allocated to each reportable segment.

(Related information)

(1) Information by product and service

Millions of Yen Millions of Yen 2013 2012

Paint for ships

Paint for industrial

use Paint for

containers Others Total Paint for

ships


use Paint for

containers Others Total External sales ¥ 63,876 ¥ 10,994 ¥ 8,420 ¥ 366 ¥ 83,656 ¥ 71,236 ¥ 10,455 ¥ 11,504 ¥ 366 ¥ 93,561


Paint for ships


use Paint for

containers Others Total External sales $ 679,171 $ 116,895 $ 89,527 $ 3,891 $ 889,484

(2) Information by geographic area

(a) Net sales

Information about net sales by geographic area is omitted since the same information is disclosed in the information of reportable segment.

(b) Property, plant and equipment

Millions of Yen Millions of Yen 2013 2012

Japan China Korea

South East Asia

Europe/U.S. Total Japan China Korea

South East Asia

Europe/U.S. Total

Property, plant and equipment

¥ 16,167 ¥ 5,043 ¥ 684 ¥ 1,430 ¥ 459 ¥ 23,783 ¥ 16,407 ¥ 4,371 ¥ 601 ¥ 1,243 ¥ 405 ¥ 23,027


Japan China Korea

South East Asia

Europe/U.S. Total

Property, plant and equipment

$ 171,898 $53,620 $ 7,273 $ 15,205 $ 4,880 $252,876


March 31, 2013 and 2012

- 41 -

(3) Information about major customers

Information about major customers is omitted since there are no external sales to customers constituting more than 10% of net sales of the consolidated statements of income.

(Information about impairment loss on fixed assets by reportable segment)


Japan China Korea

South East Asia

Europe/U.S. Total

Impairment loss

¥ 30 – – – – ¥ 30

Thousands of U.S. dollars 2013

Japan China Korea

South East Asia

Europe/U.S. Total

Impairment loss

$ 319 – – – – $ 319

There was no impairment loss on fixed assets for the year ended March 31, 2012.

(Information about amortization of goodwill and unamortized balances by reportable segment)

Millions of Yen Millions of Yen 2013 2012 Reportable segment Reportable segment

Japan Europe/

U.S. Eliminationor corporate Total Japan

Europe/ U.S.

Elimination or corporate Total

Amortization during the year ¥ 25 ¥ 1 ¥ (1) ¥ 25 ¥ 25 ¥ 1 ¥ (1) ¥ 25

Unamortized balances (1) 129 – 128 24 1 (1) 24

Thousands of U.S. Dollars 2013 Reportable segment

Japan Europe/

U.S. Eliminationor corporate Total

Amortization during the year $ 266 $ 10 $ (10) $ 266

Unamortized balances (11) 1,372 – 1,361


March 31, 2013 and 2012

- 42 -

23. Business Combinations

Business combination through acquisition

(1) Outline of business combination

(a) Name and business of the acquired company

Company name: BOAT S.p.A.

Business description: Paints-related business

(b) Primary reasons for business combination

To expand business infrastructure in Europe by acquiring shares in BOAT S.p.A. which mainly operates in Italy.

(c) Date of business combination

November 14, 2012

(d) Legal form of business combination

Acquisition of shares for cash consideration

(e) Company name after business combination

Unchanged

(f) Percentage of voting rights acquired

Voting rights after acquisition: 70%

(g) Grounds for determining the acquiring company

CHUGOKU PAINTS B.V, a consolidated subsidiary of the Company, acquired shares in the acquired company for cash consideration.

(2) Period of the acquired company’s financial results included in the consolidated financial statements

Since the acquisition date was deemed as March 31, 2013, financial results of the acquired company was not included in the consolidated statement of income for the year ended March 31, 2013.

(3) Acquisition cost for the acquired company and its breakdown

Consideration paid for the acquisition: 3,427 thousands Euro

Expenses directly required for the acquisition: 165 thousands Euro

Acquisition cost: 3,592 thousands Euro

(4) Amount, cause, and method and period of amortization of goodwill

(a) Amount of goodwill

1,121 thousands Euro


March 31, 2013 and 2012

- 43 -

(b) Cause of goodwill

The goodwill arose from the future excess profitability that is expected as a result of expanding business.

(c) Method and period of amortization of goodwill

Straight-line basis over a period of five years

(5) Amounts of assets acquired and liabilities assumed at the date of business combination


Current assets ¥ 769 $ 8,177

Non-current assets 5 53 Total assets ¥ 774 $ 8,230

Current liabilities ¥ 346 $ 3,679

Non-current liabilities 23 244 Total liabilities ¥ 369 $ 3,923

(6) Estimated amount of effect on the consolidated statement of income for the year ended March 31, 2013 assuming that the business combination had been completed on April 1, 2012


Net sales ¥ 856 $ 9,102

Ordinary income 1 11 Net income 5 53

(Basis for calculation of estimated amount) The estimated amount provided above expresses the difference between the estimated net sales and earnings data assuming that the business combination had been completed on April 1, 2012 and the actual net sales and earnings data presented in the Company’s consolidated statement of income for the year ended March 31, 2013. Amortization of goodwill is adjusted based on the assumption that the goodwill recognized at the business combination arose on April 1, 2012.

The estimated amount is not audited.

CHUGOKU MARINE PAINTS, LTD. Consolidated Financial ... · Acquisition of treasury stock (10,367 )...

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