Annual Report 2012 Year ended May 31, 2012

Transcription

1 Annual Report Year ended May 31,

2 01 Company Purpose We contribute to the improvement of society through production, sales of good products and prosperity of business. Company Motto We pride ourselves as a pioneer in the interior design and furnishing industry and persist in the spirit of cooperation, sincerity and resolution. "ECOS" Recycled Carpet Tiles New Release. Subsidiary, Suminoe Teijin Techno Krishna India Pvt. Ltd. jointly established in India. Suminoe Textile Shanghai Co., Ltd. established in China. Suminoe Textile of America Corporation established in the U.S. Current subsidiary, Suzhou Suminoe Textile Co., Ltd. established in China. Current subsidiary, Suzhou Suminoe Koide Automotive Accessories Co., Ltd. jointly established in China. PT.Sinar Suminoe Indonesia jointly established in Indonesia. Subsidiary, SPM Automotive Textile Co., Ltd. jointly established in China. TRIPLE FRESH deodorant treatment technology developed. Current subsidiary, T.C.H.Suminoe Co., Ltd. jointly established in Thailand. Suminoe Textile supplied carpet to various major architectural structures during the Meiji era. We have thus advanced together with Japan from its start as a modern nation Taisho Era 1913 Showa Era Meiji Era At the age of 35 founder Denshichi Murata purchased 3 looms in 1983 and began manufacturing carpets.

3 100th anniversary The Company will celebrate the 130th anniversary of our founding and the 100th anniversary of our incorporation. 02 "ECOS" became the first product to obtain Eco Mark certification under the new certification criteria We are aiming for the creation of a globally optimized supply system. Contents Financial Highlights Heisei Era P3 Top Interview Nara Factory began production of Japan's first carpet tiles. Starting with our supply of nylon seat covering to Toyota Motor Corporation in 1958, our products have been used by various Japanese automobile manufacturers one after another. Shares listed on the Tokyo, Osaka, and Kyoto stock exchanges. Topics P4 P8 Suminoe Textile Co., Ltd. is established. Suminoe Textile Joint-Stock Company established. Successful production of hand-woven moquette, adopted by Japan National Railways for seat covering in In 1891, Suminoe Textile supplied carpet for the establishment of Japan's Imperial Diet Building in Hibiya.We have been serving as its supplier for 120 years since then. Suminoe at a Glance P11 Financial Section P18 Corporate Data P39

4 03 For the Year: Net Sales Operating Income Net Income (Loss) ,324 1, ,892 1, ,033 1,806 1,413 71, (850) 80,869 2, Thousands of U.S.Dollars $953,468 13,051 7,924 At Year-End: Assets Equity 76,663 29,049 72,878 28,101 74,383 28,249 68,483 25,049 79,936 28,153 $970, ,709 Per Share (Yen and U.S. Dollars): Basic Net Income (Loss) Share Holder's Equity Cash dividends applicable to the year (11.24) $ Financial Ratios (%): Equity Ratio ROE (Net Income Base) ROA(Ordinary Income Base) 34.2% % % % (3.2) % Notes:1. U.S. dollar amounts are converted from Japanese yen amounts at the rate of U.S.$1 to 79, the approximate rate on May 31,. Notes:2. Net income (loss) per share of common stock is computed based on the weighted average number of shares outstanding. Net sales (Millions of yen) Operating Income (Millions of yen) Net Income (Loss) (Millions of yen) 100,000 2,500 2,302 1,500 1,413 80,000 80,869 71,374 70,033 70,892 75,324 2,000 1,806 1, ,000 40,000 1,500 1,000 1,184 1, , ,000 (850) Assets (Millions of yen) Equity (Millions of yen) 90,000 80,000 70,000 60,000 79,936 68,483 74,383 72,878 76,663 35,000 30,000 25,000 28,153 25,049 28,249 28,101 29,049 50,000 20,000 40,000 15,000 30,000 20,000 10,000 10,000 5,

5 Top Interview Message from the President 04 Ichizo Yoshikawa President

6 05 Q1 Could you show your business results for the fiscal year ended May 31,? A In the consolidated fiscal year ended May, the Japanese economy suffered direct damage from the Great East Japan Earthquake and resulting decline in production activities due to shortages of electricity, as well as appreciation of the yen and sluggish domestic demand. Moreover, prolonged debt problems in Europe, economic slowdown in the U.S., and deceleration of growth in emerging countries made the outlook for the Japanese economy remain uncertain. Consolidated Financial Results & Targets Net Sales Operating Income Net Income Exchange Rate (Yen) 2013 (Target) 81,000 2,000 1,500 : $ : Thousands of U.S.Dollars - (Result) 75,324 $953,468 1,031 $13, $7,924 U.S.$1= (Result) 70,892 $875,210 1,184 $14, $8,173 U.S.$1= 81 Our Interior Fittings and Automotive Textiles segments saw an increase in sales thanks to reconstruction demand from the earthquake and the economic stimulus measures by the Government, though net income declined severely due to mixed factors of soaring raw materials prices, damages from the floods in Thailand, etc. As a result, the Group's consolidated business results were: 75,324 million (US$953,468 thousand) in sales, an increase of 6.3% from the previous term; 1,031 million (US$13,051 thousand) in operating income, a decrease of 12.9% from the same; and 626 million (US$7,924 thousand) in net income, a decrease of 5.4% from the same.

7 Top Interview Topic Suminoe at a Glance Financial Section 06 Q2 Please illustrate the present status of your overseas operations for automotive textiles. A Suminoe Teijin Techno Krishna India Pvt. Ltd., our newly established subsidiary in India, introduced manufacturing equipment for seat covering and commenced full-scale production in June. T.C.H.Suminoe Co., Ltd. in Thailand, which had suspended operation due to floods that occurred in October 2011, completed restoration of submerged manufacturing equipment and resumed full-scale operations in June. Our U.S. subsidiary Suminoe Textile of America Corporation recorded a surplus for two consecutive years, demonstrating its capacity to create stable profits. STA is expected to continuously lead our automotive textiles business overseas, and contribute to the entire Suminoe Textile Group s sales and profits for the next fiscal year. In addition to these three companies, we now have three subsidiaries in China and one in Indonesia, totaling seven. We will continue to actively promote expansion of our automotive textiles business overseas. Suminoe Teijin Techno Krishna India Pvt. Ltd. Construction of a globally optimized supply system

8 07 Q3 Please describe your policy for dividends. A The Company positions shareholder return as a key management issue, and follows a policy of making stable dividend payments at an appropriate level, taking business results into account. Based on this policy, we paid 2.5 (US$0.03) per share as the year-end and interim dividend, respectively. Consequently, our annual dividend for the term under review totaled 5.0 (US$0.06) per share. We will maintain this policy, and will again pay 5.0 per share as the annual dividend for the current term ending May Outlook for the current term Although the Japanese economy is on a gradual recovering trend, there are concerns about continuous appreciation of the yen and the hollowing-out of domestic manufacturing industry. Overseas, the debt problems are continuing in Europe while economic growth in China, India and other emerging countries is slowing down. Under these circumstances, in anticipation of the business recovery of our overseas subsidiaries including Suminoe Textile of America Corporation (U.S.) and T.C.H. Suminoe Co., Ltd. (Thailand), the Suminoe Textile Group set targets for the fiscal year ending May 31, 2013 of 81,000 million in net sales, 2,000 million in operating income, 2,350 million in ordinary income and 1,500 million in net income.

9 Top Interview Topic Suminoe at a Glance Financial Section 08 ECOS recycled carpet tiles became the first product to obtain Eco Mark certification under the new certification criteria. ECOS recycled carpet tiles, launched July 2011, became the first product to obtain Eco Mark certification under the new certification criteria. Adopting the concept of closed-loop recycling for the first time, the new certification criteria requires that each product satisfy both of the following criteria: 1) postconsumer recycled materials derived from used carpet tiles contained in the product account for 10% or more of the overall product mass, and 2) overall post-consumer recycled materials contained in the product account for 25% or more of the overall product mass. ECOS, in which recycled materials derived from used carpet tiles are used for backing, is a world s top class eco-friendly product whose recycled material content is as high as 77%. ECOS became first in the industry to acquire certification under the new criteria. The entire Suminoe Group is determined to work on developing environmentally friendly products, advocating the key phrase resources for the future. closed-loop recycling The type of recycling in which materials are recycled into the same product repeatedly.

10 09 "Global Evolution 2015" Medium-Term Management Plan Drastic changes in the market environment resulting from the Great East Japan Earthquake forced us to discontinue our Challenge former medium-term management plan, which was launched in June 2010, in its first year. As we have now almost escaped the impacts of the earthquake and the floods in Thailand, and are beginning to picture a vision for the future, a new 3-year management plan starting in June was drawn up. Basic Policies under Global Evolution 2015 Focusing on global expansion strategies for the Automotive Textiles and Traffic Facilities segment, and on the active promotion of one-of-a-kind products, including ECOS Recycled Carpet Tiles, for the Interior Fittings segment, the new medium-term plan aims at expanding our market share and increasing profit margins. Consolidated Performance Targets Targets for the 3-year period The plan aims at an increase of 10 billion yen in sales and 3% or more in operating margins. FY (2011/6-/5) FY2013 (/6-2013/5) Global Evolution 2015 FY2014 (2013/6-2014/5) FY2015 (2014/6-2015/5) Net Sales Sales Growth Rate Operating Income Operating Margin Ordinary Income Net Income ROE (Net Income Base) ROA (Ordinary Income Base) 75, % 1, % 1, % 1.7% 81, % 2, % 2,350 1, % 3.1% 83, % 2, % 2,980 2, % 3.8% 85, % 2, % 3,290 2, % 4.2% medium- to long-term targets The plan also announces the following medium- to long-term targets: 5% or more in operating margins 6% or more in ROA(Ordinary Income Base)

11 Top Interview Topic Suminoe at a Glance Financial Section 10 Targets per Segment Net Sales FY FY2013 FY2014 FY2015 Interior Fittings 33,747 34,600 35,000 35,600 Automotive Textiles and Traffic Facilities 37,558 42,200 43,400 44,500 Functional Materials 3,911 4,100 4,500 4,800 Others Reconciliations Consolidated 75,324 81,000 83,000 85,000 Operating Income FY FY2013 FY2014 FY2015 Interior Fittings Automotive Textiles and Traffic Facilities 1,802 2,700 3,140 3,260 Functional Materials Others Reconciliations 1,179 1,250 1,200 1,200 Consolidated 1,031 2,000 2,630 2,920 Overseas Business Expansion We will promote global management by increasing the ratio of overseas operations, mainly for the automotive textiles segment. The operating profits of the overseas group companies will surpass those of the domestic group companies by the end of May, 2014, the second year of the plan. Net Sales Overseas Domestic 75,324 10,191 81,000 83,000 85,000 16,000 17,600 18,800 Operating Income Overseas Domestic 65,133 65,000 65,400 66,200 1, ,150 1,430 1,560 1,200 1, Net Sales Overseas Sales Ratio of Overseas Sales America 5,126 FY FY2013 FY2014 FY ,324 81,000 83,000 85,000 10,191 16,000 17,600 18,800 Asia America Asia America Asia America 5,065 8,400 7,600 8,600 9,000 8,800 14% 20% 21% 22% Asia 10,000 Investment Plan Under the basic investment policy of efficient investing by placing high priority on return on capital invested, the Company will invest 4 billion, mainly in manufacturing equipment. Domestic Overseas IT 4.0 billion yen 2.0 billion yen 1.6 billion yen 0.4 billion yen Policy for Dividends The Company positions shareholder return as a key management issue, and follows a policy of making stable dividend payments at an appropriate level, taking business results into account. As to dividend payment, we will basically pay dividends twice: interim and year-end dividends each year. The plan presented in this document was prepared on the basis of currently foreseeable and reasonable prospects. Actual results may differ from the plan, due to various factors.

12 11 Contribution to Net Sales Net Sales (Millions of yen) 40,000 Interior 30,000 32,617 33,747 Fittings 44.9% 20,000 10,000 P Automotive Textiles and Traffic Facilities 49.9% (Millions of yen) 40,000 30,000 20,000 10,000 35,038 37,558 P (Millions of yen) 4,000 3,911 Functional 3,000 3,084 Materials 5.2% 2,000 1,000 P

13 Top Interview Topic Suminoe at a Glance Financial Section 12 Operating Income(Loss) Main Products (Millions of yen) Roll Carpets Carpet Tiles Rugs and Mats Curtains Wallpaper Plush Hand-woven Curtains Hand-woven Carpet and Hooked Rugs Nishijin Brocade Fabric Automotive Textiles Traffic Facilities (Millions of yen) 2,000 1,749 1,802 1,500 1,000 Seat Covering and Ceiling Materials Floor Carpets Train Bus Car Mats Ship Aircraft (Millions of yen) Electric Carpets Tispa Deodorization Related Brand Air-filter Products (43) 2011 SUMITRON Continuous Fiber Made from Recycled PET OH TILE Olefin Flooring Material Nassenger Special Pigment Ink-jet Print

14 13 Interior Fittings Comprehensive manufacturer of lifestyle Inspired Interior Products interior products manufacturer that creates lifestyles, Since our founder, Denshichi Murata, began manufacturing carpets in 1883, Suminoe Textile has supplied carpet for the establishment of Japan s Imperial Diet Building in 1891 and contributed to lifestyle modernization as a pioneer of Japanese interior decor. At present, our subsidiary, SUMINOE Co., Ltd., sells Suminoe brand name products consisting mainly of curtains and carpets, while another subsidiary, RUNON CO., LTD., sells wallpaper, etc. Our diverse selection of interior products has been used in a wide variety of distinguished buildings such as the Diet Building, State Guest Houses, Japanese Prime Minister s Official Residence, hotels, and office buildings as well as general residences. In particular, we were the first successful domestic manufacturer of carpet tiles. At present, we use our own independently-produced continuous fiber recycled from PET bottles called SUMITRON for pile yarn, and we respond to themes including recyclability and CO2 reduction necessary in offices today with our advanced technology. Based on our secure technology and abundance of experience, Suminoe Textile will continue to supply environmentally friendly and unique products matching diversified lifestyles and possessing excellent design as well as functionality.

15 Top Interview Topic Suminoe at a Glance Financial Section 14 SUMINOE Co., Ltd. RUNON CO., LTD. Suminoe Textile Co., Ltd. Kyoto Traditional Art and Craft Factory Wallpaper Nishijin Brocade Fabric Roll Carpets Carpet Tiles Tango Textile Co., Ltd. Rugs and Mats Curtains Plush Hand-woven Curtains Hand-woven Carpet and Hooked Rugs Business Overview For the fiscal year ended May 31, Sales of recycled carpet tiles ECOS, launched in July 2011, showed a steady increase. ECOS attracted customers for its excellent environmental performance, containing at maximum 77% post-consumer recycled materials, the highest level in Japan, and its reasonable prices, about the same as those of conventional products. Sales of commercial-use carpets for office buildings, commercial facilities and hotels were about the same as the sales of the previous year despite the impact of delays in progress for some large orders, thanks to an increase in demand after the Great East Japan Earthquake. Sales of carpets and rugs for general households exceeded those of the previous year, along with gradual recovery of personal consumption. Sales of curtains increased because of the steady growth of our mainstay items mode S Vol.5 and U-Life Vol.6, as well as the Disney series and Design Life, in addition to a continued increase in orders for Face Vol. 17 partition curtains from medical, nursing care and educational institutions. Sales of wall coverings exceeded those of the previous year due to steady demand for Runon Home1000. Heat-shield window film also showed growth because of the energy-saving trend. Profit margins on sales decreased due to intensifying price competition and soaring raw material prices, resulting in a decline in operating income. As a result of the above, total sales of the Interior Fittings segment recorded a year-on-year increase of 3.5% to 33,747 million (US$427,177 thousand), while operating income fell 48.5% to 297 million (US$3,760 thousand).

16 15 Automotive Textiles Supplier of Automotive Textiles In 1931, Suminoe Textile supplied carpets and s e a t c o v e r i n g m a t e r i a l t o a u t o m o b i l e s assembled and manufactured in Japan for Ford Motor Company and General Motors from the United States. Later, our products were regularly adopted in domestically manufactured automobiles whose production expanded along with national policy. At present, we supply products to all Japanese automobile manufacturers, and we have maintained the top market share in the domestic interior fitting market. Our greatest feature is that we are one of the few examples of a company in the world able to supply a total line of automotive interior fittings from floors to ceilings including carpets, seat covering materials, headliner, and trunk materials. We have established manufacturing and sales sites in the United States as well as China, Thailand, and Indonesia, and we are aiming for the creation of a globally optimized supply system. Suminoe Teijin Techno Co., Ltd. Suminoe Textile Co., Ltd. Seat Covering and Ceiling Materials Floor Carpets Car Mats

17 Top Interview Topic Suminoe at a Glance Financial Section 16 Traffic Facilities Interior Materials for Trains/Buses/ Ships/Aircraft Central Japan Railway Company, West Japan Railway Company : Sinkansen N700 series SUMICUBE Seat Cushion Material A Leading Manufacturer of Interior Materials for railway vehicles The cornerstone of our automotive textiles today is the manufacturing of seat covering materials for railway vehicles. In 1896, when construction of the railway network was rapidly progressing, we were the first to manufacture seat covering materials for railway vehicles in Japan. Since then, we have supplied seat covering materials to Japan National Railways and private railways and we are extremely proud of our top market share for more than one century. Today, Suminoe Textile supplies seat covering materials and the highly recyclable seat cushion material SUMICUBE, etc., in public transportation vehicles such as Shinkansen bullet trains, trains, buses, ships, and aircraft. Business Overview For the fiscal year ended May 31, In the area of Automotive Textiles, Suminoe Textile s automotive carpet business and the seat covering business by Suminoe Teijin Techno Co., Ltd. recorded an increase in both net sales and operating income from those in the previous year despite the impact of the Great East Japan Earthquake and the floods in Thailand in the first half of the year. This was because of the accelerated recovery in the later half of the year and an increase in orders for car models that were subject to the Eco-Car Subsidy. Overseas, despite the recovery trend from the impact of the earthquake and floods, our U.S. subsidiary Suminoe Textile of America Corporation showed a decrease from the previous year in both net sales and operating income, while our Chinese subsidiary SPM Automotive Textile Co., Ltd. saw an increase in sales but a decrease in operating income from the previous year. In the area of Traffic Facilities, the business environment was extremely severe, as the work related to the large orders for new railway cars we had received in the previous year was almost complete. Also, customers held down their spending due to the Great East Japan Earthquake, resulting in a decrease in reseating demand, as well as in orders for replacement of carpets and Sumi Cube cushions. Although we tried to solicit orders associated with the rush demand before implementation of the new regulations for buses and to expand sales of environmentally friendly products including OH film, a polyolefin warning floor film, both of net sales and operating income decreased from the previous year. As a result of the above, total sales in the Automotive Textiles and Traffic Facilities segment recorded a year-onyear increase of 7.2% to 37,558 million (US$475,418 thousand), while operating income rose 3.0% to 1,802 million (US$22,810 thousand).

18 17 Tispa Deodorization Related Brand The Tispa series, Real odor deodorization without disguising Functional Materials with a scent, is a stationary deodorizer for home use that uses a TRIPLE FRESH Bio filter adopted in refrigerators and air purifiers. Tispa features an extremely small amount of re-radiated odor due to a biomimetic enzyme that works as a catalyst for continually absorbing and decomposing odors. Air-filter Products Triple-Fresh Bio is a new concept of deodorizing filter where a biomimetic enzyme is invested in to a corrugate carrier. It continuously deodorizes unpleasant odor gas. Biomimetic enzyme works as a catalyst, and decomposes and deodorizes unpleasant odor components by oxidationreduction reaction. Therefore its validity is semi-permanent. SUMITRON Continuous Fiber Made from Recycled PET Bottles Electric Carpets SUMITRON, continuous fiber made from recycled PET bottles OH TILE Olefin Flooring Material and manufactured in our Shiga Factory, (Suminoe Koka Co., Ltd.) holds the No.1 position in production volume for recycled polyester Nassenger Special Pigment Ink-Jet Print BCF in the domestic market. SUMITRON is being adopted for our interior products and automotive textiles as well as dust control mats and brushes for house cleaning, etc. Business Overview For the fiscal year ended May 31, In the electric carpet business, because customers name of Real odor deodorization without disguising reconsidered the merits of electric carpets as energy- with a scent, also steadily increased. Sales of construc- saving products, orders increased substantially. In our tion materials including heat-shield roofing sheets and carpet tile OEM business, sales in Japan remained special-treated water-shield sheets for civil engineering solid, while exports showed only a slight increase in uses also contributed to the overall sales increase. terms of both sales and quantity. In the deodorizing filter As a result of the above, total sales in the Functional business, our sales rose because we obtained new Materials Segment recorded a year-on-year increase of orders for air purifier filters for home appliances; sales of 26.8% to 3,911 million (US$49,506 thousand), while existing filters grew; shipments of stationary deodorizing operating income was 76 million (US$962 thousand) units for general households, marketed under the brand (operating loss in the previous year : 43 million).

19 18 Financial Section Year ended May 31, Contents Consolidated Balance Sheet Consolidated Statement of Income P19 P21 Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity P22 P23 Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements P24 P25 INDEPENDENT AUDITOR'S REPORT P38 Corporate Data P39

20 19 Financial Section Suminoe Textile Co., Ltd. and Subsidiaries May 31, ASSETS 2011 Thousands of U.S. Dollars (Note 1) CURRENT ASSETS: Cash and cash equivalents (Note 14) Marketable securities (Notes 3 and 14) Short-term investments (Note 14) Receivables: Trade notes (Note 14) Trade accounts (Note 14) Other Allowance for doubtful receivables Inventories (Note 4) Deferred tax assets (Note 9) Other current assets 6, ,503 11,939 2,024 (33) 11, ,513 43,327 7, ,277 9,984 1,054 (44) 10, ,324 39,410 $ 87,241 4,025 2, , ,127 25,620 (418) 142,354 8,924 19, ,443 PROPERTY, PLANT, AND EQUIPMENT (Notes 2.h and 6): Land (Note 5) Buildings and structures (Note 5) Machinery and equipment Lease assets (Note 2.v) Construction in progress Accumulated depreciation Net property, plant, and equipment 18,332 17,094 18,968 1, ,317 (29,905) 26,412 18,376 17,081 19, ,042 (29,782) 26, , , ,101 12,709 11, ,873 (378,544) 334,329 INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 3, 6 and 14) Investments in associated companies Deferred tax assets (Note 9) Other Allowance for doubtful accounts investments and other assets 4, ,313 1,576 (175) 6,924 4, ,252 1,794 (201) 7,208 52, ,620 19,950 (2,215) 87,646 TOTAL 76,663 72,878 $970,418 See notes to consolidated financial statements.

21 Top Interview Topic Suminoe at a Glance Financial Section 20 LIABILITIES AND EQUITY 2011 Thousands of U.S. Dollars (Note 1) CURRENT LIABILITIES: Short-term bank loans (Notes 6 and 14) 9,453 8,477 $119,658 Current portion of long-term debt (Notes 6, 13 and 14) 2,122 4,517 26,861 Payables: Trade notes (Note 14) 4,253 3,588 53,835 Trade accounts (Note 14) 12,649 10, ,114 Construction ,658 Accrued expenses 1,857 2,250 23,506 Income taxes payable ,215 Other (Note 9) ,292 current liabilities 31,453 30, ,139 LONG-TERM LIABILITIES: Long-term debt (Notes 6, 13 and 14) 6,255 3,726 79,177 Liability for retirement benefits (Notes 2.j and 7) 3,958 3,845 50,101 Deferred tax liabilities (Note 9) ,241 Deferred tax liabilities related to land revaluation excess (Notes 2.h and 9) 4,763 5,445 60,291 Negative goodwill (Note 2.d) ,810 Other ,950 long-term liabilities 16,161 14, ,570 COMMITMENTS (Notes 13 and 15) EQUITY (Notes 6, 8 and 17): Common stock - authorized, 300,000,000 shares; issued, 76,821,626 shares in and 2011 Capital surplus Retained earnings Treasury stock - at cost; 1,275,413 shares in and 1,271,621 shares in 2011 Accumulated other comprehensive income: Unrealized loss on available-for-sale securities (Note 9) Deferred loss on derivatives under hedge accounting Land revaluation excess (Notes 2.h and 9) Foreign currency translation adjustments Minority interests equity TOTAL 9,554 2,652 7,147 (330) (23) (20) 7,867 (616) 26,231 2,818 29,049 9,554 2,652 6,898 (329) (82) (38) 7,185 (583) 25,257 2,844 28, ,937 33,570 90,468 (4,177) (291) (253) 99,582 (7,798) 332,038 35, ,709 76,663 72,878 $970,418

22 21 Suminoe Textile Co., Ltd. and Subsidiaries Year Ended May 31, Thousands of U.S. Dollars (Note 1) 2011 NET SALES 75,324 70,892 $953,468 COST OF SALES 59,314 54, ,810 Gross profit 16,010 16, ,658 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (Note 10) 14,979 14, ,607 Operating income 1,031 1,184 13,051 OTHER INCOME (EXPENSES): Interest and dividend income ,620 Rental income ,013 Amortization of negative goodwill ,127 Insurance income (Note 11) 618 7,823 Equity in (losses) earnings of associated companies (68) 98 (861) Interest expense (245) (232) (3,101) Rental expense (55) (60) (696) Loss on sales and disposal of property, plant, and equipment (25) (37) (316) Impairment loss for long-lived assets (Note 5) (42) Write-down of investment securities (186) (42) (2,354) Losses from a natural disaster (Note 12) (720) (135) (9,114) Other - net ,732 Other (expenses) income - net (89) 110 (1,127) INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 942 1,294 11,924 INCOME TAXES (Note 9): Current ,468 Deferred (67) 192 (848) income taxes ,620 NET INCOME BEFORE MINORITY INTERESTS ,304 MINORITY INTERESTS IN NET INCOME NET INCOME $ 7,924 Yen U.S. Dollars PER SHARE OF COMMON STOCK (Note 2.s): Basic net income $0.10 Cash dividends applicable to the year See notes to consolidated financial statements.

23 Top Interview Topic Suminoe at a Glance Financial Section 22 Suminoe Textile Co., Ltd. and Subsidiaries Year Ended May 31, Thousands of U.S. Dollars (Note 1) 2011 NET INCOME BEFORE MINORITY INTERESTS $ 8,304 OTHER COMPREHENSIVE INCOME (Note 16): Unrealized gain (loss) on available-for-sale securities (Note 9) 60 (580) 759 Deferred gain (loss) on derivatives under hedge accounting 18 (18) 228 Land revaluation excess (Note 9) 682 8,633 Foreign currency translation adjustments (59) (351) (747) Share of other comprehensive loss in associates (2) (13) (25) other comprehensive income (loss) 699 (962) 8,848 COMPREHENSIVE INCOME (LOSS) 1,355 (128) $17,152 TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the parent 1,352 (264) $17,114 Minority interests See notes to consolidated financial statements.

24 23 Suminoe Textile Co., Ltd. and Subsidiaries Year Ended May 31, BALANCE, JUNE 1, 2010 Net income Cash dividends, 5.0 per share Purchase of treasury stock Disposal of treasury stock Reversal of land revaluation excess Net change in the year BALANCE, MAY 31, 2011 Net income Cash dividends, 5.0 per share Purchase of treasury stock Disposal of treasury stock Increase of land revaluation excess (Note 9) Net change in the year BALANCE, MAY 31, BALANCE, JUNE 1, 2010 Net income Cash dividends, 5.0 per share Purchase of treasury stock Disposal of treasury stock Reversal of land revaluation excess Net change in the year BALANCE, MAY 31, 2011 Net income Cash dividends, 5.0 per share Purchase of treasury stock Disposal of treasury stock Increase of land revaluation excess (Note 9) Net change in the year BALANCE, MAY 31, Number of Shares of Common Stock Outstanding 75,574,572 (27,654) 3,087 75,550,005 (4,710) ,546,213 Common Stock 9,554 9,554 9,554 Capital Surplus 2,653 (1) 2,652 (0) 2,652 Accumulated Other Comprehensive Income Unrealized Gain (Loss)on Deferred Loss on Available-for-sale Derivatives under Securities Hedge Accounting 497 (20) (579) (82) 59 (23) (18) (38) 18 (20) Land Revaluation Excess 7, , ,867 Foreign Currency Translation Adjustments (272) (311) (583) (33) (616) Retained Earnings 6, (377) 25, (377) (4) 0 (908) 25, (377) (1) ,231 (1) 6, (377) 7,147 Minority Interests 2, ,844 (26) 2,818 Treasury Stock (326) (4) 1 (329) (1) 0 (330) Equity 28, (377) (4) 0 (429) 28, (377) (1) ,049 BALANCE, MAY 31, 2011 Net income Cash dividends, $0.06 per share Purchase of treasury stock Disposal of treasury stock Increase of land revaluation excess (Note 9) Net change in the year BALANCE, MAY 31, BALANCE, MAY 31, 2011 Net income Cash dividends, $0.06 per share Purchase of treasury stock Disposal of treasury stock Increase of land revaluation excess (Note 9) Net change in the year BALANCE, MAY 31, See notes to consolidated financial statements. Common Stock $120,937 $120,937 Unrealized (Loss) Gain on Deferred Loss on Available-for-sale Derivatives under Securities Hedge Accounting $(1,038) $(481) 747 $ (291) Thousands of U.S. Dollars (Note 1) Capital Surplus $33,570 (0) $33,570 Accumulated Other Comprehensive Income 228 $(253) Retained Earnings $87,316 7,924 (4,772) $90,468 Thousands of U.S. Dollars (Note 1) Land Revaluation Excess $90,949 8,633 $99,582 Foreign Currency Translation Adjustments $(7,380) (418) $(7,798) Minority Interests $319,709 $36,000 7,924 (4,772) (13) 0 8, (329) $332,038 $35,671 Treasury Stock $(4,164) (13) 0 $(4,177) Equity $355,709 7,924 (4,772) (13) 0 8, $367,709

25 Top Interview Topic Suminoe at a Glance Financial Section 24 Suminoe Textile Co., Ltd. and Subsidiaries Year Ended May 31, Thousands of U.S. Dollars (Note 1) 2011 OPERATING ACTIVITIES: Income before income taxes and minority interests Adjustments for: Income taxes - paid Income taxes - refunds Depreciation and amortization Amortization of negative goodwill Decrease in allowance for doubtful receivables and accounts Loss on sales and disposal of property, plant, and equipment Write-down of investment securities Equity in losses (earnings) of associated companies Insurance income Losses from a natural disaster (Note 2.v) Changes in assets and liabilities: (Increase) decrease in notes and accounts receivable Increase in inventories Increase (decrease) in notes and accounts payable - trade Increase in liability for retirement benefits Increase in other current assets Decrease in other current liabilities Other - net adjustments Net cash provided by operating activities INVESTING ACTIVITIES: Proceeds from sales of property, plant, and equipment Purchases of property, plant, and equipment Proceeds from sales and redemption of securities Purchases of marketable and investment securities Proceeds from acquisition of subsidiaries Other - net Net cash used in investing activities FINANCING ACTIVITIES: Net change in short-term bank loans Proceeds from long-term debt Repayments of long-term debt Repayments of lease obligations Proceeds from sale and lease-back transactions Purchase of treasury stock Dividends paid Other - net Net cash provided by (used in) financing activities FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR 942 (254) 139 1,247 (89) (37) (618) 720 (3,195) (730) 2, (636) (446) 670 (272) (1,997) 18,132 (18,194) 91 (1,889) 1,001 3,600 (4,182) (569) 873 (1) (378) (33) 311 (27) (935) 7,827 6,892 1,294 (679) 34 1,164 (90) (68) (98) 135 1,931 (339) (1,422) 150 (0) (255) 643 1,185 2, (848) 21,682 (21,746) 86 (244) (1,044) (127) 2,449 (3,552) (520) (4) (380) 28 (2,106) (67) (738) 8,565 7,827 $ 11,924 (3,215) 1,759 15,785 (1,127) (468) 316 2, (7,823) 9,114 (40,443) (9,241) 32,468 1,430 (8,051) (5,646) 8,484 (3,443) 8,481 1,000 (25,278) 229,519 (230,304) 1,152 (23,911) 12,671 45,570 (52,937) (7,203) 11,051 (13) (4,785) (417) 3,937 (342) (11,835) 99,076 $ 87,241 See notes to consolidated financial statements.

26 25 Suminoe Textile Co., Ltd. and Subsidiaries Year Ended May 31, 1. BASIS OF PRESENTATION OF CONSOLIDATED FINAN- CIAL STATEMENTS The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2011 consolidated financial statements to conform to the classifications used in. The consolidated financial statements are stated in Japanese yen, the currency of the country in which Suminoe Textile Co., Ltd. (the "Company"), is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of 79 to $1, the approximate rate of exchange at May 31,. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a.consolidation The accompanying consolidated financial statements as of May 31,, include the accounts of the Company and all subsidiaries (together, the "Group"). Under the control or influence concept, those companies which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated. Investments in associated companies are accounted for by the equity method. Goodwill represents the excess of the cost of acquisition over the fair value of the net assets of an acquired subsidiary at the date of acquisition, and is being amortized over a period not exceeding 20 years. All significant intercompany transactions and balances have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is also eliminated. b.unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements In May 2006, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Practical Issues Task Force (PITF) No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements." PITF No. 18 prescribes (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements, (2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States of America tentatively may be used for the consolidation process, (3) however, the following items should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in equity; (c) expensing capitalized development costs of research and development (R&D); (d) cancellation of fair value model accounting for property, plant, and equipment and investment properties and incorporation of cost model accounting; and (e) exclusion of minority interests from net income, if contained in net income. c.unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method In March 2008, the ASBJ issued ASBJ Statement No. 16, "Accounting Standard for Equity Method of Accounting for Investments." The new standard requires adjustments to be made to conform the associate's accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate's financial statements are used in applying the equity method, unless it is impracticable to determine such adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States of America tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (1) amortization of goodwill; (2) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in the equity; (3) expensing capitalized development costs of R&D; (4) cancellation of the fair value model accounting for property, plant, and equipment and investment properties and incorporation of the cost model accounting; and (5) exclusion of minority interests from net income, if contained in net income. d.business Combinations In October 2003, the Business Accounting Council issued a Statement of Opinion, "Accounting for Business Combinations," and in December 2005, the ASBJ issued ASBJ Statement No. 7, "Accounting Standard for Business Divestitures" and ASBJ Guidance No. 10, "Guidance for Accounting Standard for Business Combinations and Business Divestitures." The accounting standard for business combinations allows companies to apply the pooling-of-interests method of accounting only when certain specific criteria are met such that the business combination is essentially regarded as uniting of interests. For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to be an acquisition and the purchase method of accounting is required. This standard also prescribes the accounting for combinations of entities under common control and for joint ventures. In December 2008, the ASBJ issued a revised accounting standard of business combinations, ASBJ Statement No. 21,

27 Top Interview Topic Suminoe at a Glance Financial Section 26 "Accounting Standard for Business Combinations." Major accounting changes under the revised accounting standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result, the pooling-of-interests method of accounting is no longer allowed. (2) The previous accounting standard required R&D costs to be charged to income as incurred. Under the revised standard, in-process R&D costs acquired in the business combination is capitalized as an intangible asset. (3) The previous accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets acquired and all of the liabilities assumed have been identified after a review of the procedures used in the purchase allocation. The revised standard was applicable to business combinations undertaken on or after April 1, For the year ended May 31, 2011, the Company acquired additional 0.2% (50.1% in the aggregate) of the shares of T.C.H. Suminoe Co., Ltd., on February 28, For the year ended May 31, 2010, the Company acquired a business through the establishment of a new company through a joint spin-off on December 1, 2009, and accounted for it by the purchase method of accounting. The related negative goodwill is being systematically amortized over 5 years. e.cash Equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits that represent shortterm investments, all of which mature within three months of the date of acquisition. f.inventories Inventories are stated at the lower of cost, determined by the average method for finished products, purchased merchandise, and work-inprocess and by the moving-average method for materials and supplies or net selling value. g.marketable and Investment Securities Marketable and investment securities are classified and accounted for, depending on management's intent, as follows: (1) trading securities, which are held for the purpose of earning capital gains in the near term, are reported at fair value and the related unrealized gains and losses are included in earnings; (2) held-to-maturity debt securities, for which management has the positive intent and ability to hold to maturity, are reported at amortized cost; and (3) available-for-sale securities, which are not classified as either of the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported as a separate component of equity. Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method. For other-thantemporary declines in fair value, investment securities are reduced to net realizable value by a charge to income. h.property, Plant, and Equipment Property, plant, and equipment except land are stated at cost. Depreciation is computed over the estimated useful lives of the assets by the declining-balance method, while the straight-line method is applied to buildings acquired after April 1, 1998, at rates based on the useful lives of the assets. Depreciation of lease assets that are deemed not to transfer ownership is computed by the straight-line method over the respective lease period. The range of estimated useful lives is principally from 3 to 50 years for buildings and from 4 to 17 years for machinery and equipment. The useful lives for lease assets are the terms of the respective leases. Under the "Law of Land Revaluation," promulgated and revised on March 31, 1998 and 1999, respectively, the Company elected a onetime revaluation of its own-use land to a value based on real estate appraisal information as of May 31, The resulting land revaluation excess represents unrealized appreciation of land and is stated, net of income taxes, as a component of equity. There was no effect on the consolidated statements of income from this revaluation. Continuous readjustment is not permitted unless the land value subsequently declines significantly such that the amount of the decline in value should be removed from the land revaluation excess account and related deferred tax liabilities. As of May 31,, the carrying amount of the land after the above one-time revaluation exceeded the market value by 5,282 million ($66,861 thousand). i.long-lived Assets The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. j.retirement Benefits The Company and certain subsidiaries have both lump-sum severance payments and defined contribution pension plans for employees' retirement benefits and account for the liability for retirement benefits based on the projected benefit obligations at the consolidated balance sheet date. In addition, certain subsidiaries have a contributory trusted pension plan covering most of their employees together with multiemployers. They fund and record contributions as a charge to income as current-period costs. The pension fund assets available for benefits under this plan were approximately 443 million ($5,608 thousand) and 431 million at May 31, and 2011, respectively. The Company provides for the liability for directors and corporate auditors' retirement benefits at the amounts that would be required to be paid if all directors and corporate auditors retired at the consolidated balance sheet date. Amounts payable to directors and corporate auditors upon retirement are subject to the approval of shareholders.

28 27 k.asset Retirement Obligations In March 2008, the ASBJ published ASBJ Statement No. 18, "Accounting Standard for Asset Retirement Obligations" and ASBJ Guidance No. 21, "Guidance on Accounting Standard for Asset Retirement Obligations." Under this accounting standard, an asset retirement obligation is defined as a legal obligation imposed either by law or contract that results from the acquisition, construction, development, and normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed assets. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as an increase or a decrease in the carrying amount of the liability and the capitalized amount of the related asset retirement cost. l.r&d Costs R&D costs are charged to income as incurred. m.leases In March 2007, the ASBJ issued ASBJ Statement No. 13, "Accounting Standard for Lease Transactions," which revised the previous accounting standard for lease transactions issued in June The revised accounting standard for lease transactions was effective for fiscal years beginning on or after April 1, Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain "as if capitalized" information was disclosed in the notes to the lessee's financial statements. The revised accounting standard requires that all finance lease transactions be capitalized by recognizing lease assets and lease obligations in the balance sheet. In addition, the revised accounting standard permits leases which existed at the transition date and do not transfer ownership of the leased property to the lessee to continue to be accounted for as operating lease transactions with certain "as if capitalized" information disclosed in the notes to the lessee's financial statements. The Company applied the revised accounting standard effective June 1, In addition, the Company accounted for leases that existed at the transition date and do not transfer ownership of the leased property to the lessee as operating lease transactions. n.construction Contracts In December 2007, the ASBJ issued ASBJ Statement No. 15, "Accounting standard for Construction Contracts," and ASBJ Guidance No. 18, "Guidance on Accounting Standard for Construction Contracts." Under the previous Japanese GAAP, either the completed-contract method or the percentage-of-completion method was permitted to account for construction contracts. Under this accounting standard, the construction revenue and construction costs should be recognized by the percentage-of-completion method if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs, and the stage of completion of the contract at the consolidated balance sheet date can be reliably measured, the outcome of the construction contract can be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on construction contracts. o.income Taxes The provision for current income taxes is computed based on the pretax income included in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. p.foreign Currency Transactions All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the consolidated balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statements of income to the extent that they are not hedged by forward exchange contracts. q.foreign Currency Financial Statements The balance sheet accounts of foreign subsidiaries and associated companies are translated into Japanese yen at the current exchange rates as of the balance sheet dates except for equity, which is translated at the historical rates. Revenue and expense accounts of the foreign subsidiaries and associated companies are translated into Japanese yen at the current exchange rates as of the balance sheet dates. Differences arising from such translation are shown as "Foreign currency translation adjustments" under accumulated other comprehensive income in a separate component of equity. r.derivatives and Hedging Activities The Group uses foreign exchange forward contracts and interest rate swaps to manage its exposures to fluctuations in foreign exchange and interest rates. The Group does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (1) all derivatives are recognized as either assets or liabilities and measured at fair value and the resulting gains or losses are recognized in the consolidated statement of income and (2) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on those derivatives are deferred until maturity of the hedged transactions.