Consolidated Financial Results for the Fiscal Year Ended March 31, 2009

Transcription

1 Consolidated Financial Results for the Fiscal Year Ended March 31, 2009 This document has been prepared as a guide for non-japanese investors and contains forward-looking statements that are based on managements estimates, assumptions and projections at the time of publication. A number of factors could cause actual results to differ materially from expectations. This document is a translation of excerpts taken from the Japanese language original. All numbers are rounded down to the nearest unit in accordance with standard Japanese practice. Please be advised that the Company cannot accept responsibility for investment decisions made based on the information contained in this report. Company Name: KITZ CORPORATION Stock Listing: Tokyo Stock Exchange Stock Code: 6498 Head Office: Chiba (URL: ) President and Chief Executive Officer: Yasuyuki Hotta Inquiries: Taro Kimura, General Manager, Accounting Department TEL: Date of General Meeting of Shareholders (Planned): June 26, 2009 Date of Payment of Dividends (Planned): June 11, 2009 Reporting Date of Financial Statement: June 26, Consolidated Financial Results for the Fiscal Year Ended March 2009 (Apr. 1, 2008 Mar. 31, 2009) (1) Consolidated Operating Results (Note: In this report, amounts of less than one million yen are omitted and per share figures are rounded down to two decimal places.) Net sales Operating income Ordinary income Net income Millions of yen % Millions of yen % Millions of yen % Millions of yen % Year ended Mar. 31, ,095 (14.9) 7,188 (38.1) 6,475 (38.5) 3,396 (46.0) Year ended Mar. 31, ,274 (0.2) 11, ,525 (1.2) 6,290 (36.9) Net income per share (basic) Net income per share (diluted) Return on equity Ratio of ordinary income to total assets Ratio of operating income to net sales Yen Yen % % % Year ended Mar. 31, Year ended Mar. 31, Notes: Gain from investments in subsidiaries and affiliates accounted for by the equity method: Year ended Mar. 31, 2009: Year ended Mar. 31, 2008: (2) Consolidated Financial Position Total assets Net asset Equity ratio Net assets per share Millions of yen Millions of yen % Yen Mar. 31, ,101 50, Mar. 31, ,310 53, Reference: Equity Mar. 31, 2009: 50,036 million yen Mar. 31, 2008: 52,391 million yen (3) Consolidated Cash Flows Net cash provided by (used in) operating activities Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities Cash and cash equivalents at end of fiscal year Millions of yen Millions of yen Millions of yen Millions of yen Year ended Mar. 31, ,101 (3,945) (1,470) 10,309 Year ended Mar. 31, ,949 (3,288) (8,362) 5,069 1

2 2. Dividends Cash dividends per share Record dates 1Q 2Q 3Q 4Q Total Total dividends from surplus (Annual) Payout ratio (Consolidated) Dividends to net assets ratio (Consolidated) Yen Yen Yen Yen Yen Millions of yen % % Year ended Mar. 31, , Year ended Mar. 31, , Year ending Mar. 31, 2010 (Planned) Forecast for the Fiscal Year Ending March 2010 (Apr. 1, 2009 Mar. 31, 2010) (Note: Percentages are year on year changes in consolidated figures for the second quarter of the fiscal year and the fiscal year.) Six month period ending Sept. 30, 2009 Year ending Mar. 31, 2010 Net sales Operating income Ordinary income Net income Net income per share Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen 44,200 (37.6) 850 (81.7) 550 (87.1) 250 (89.9) ,000 (29.2) 2,600 (63.8) 2,000 (69.1) 1,050 (69.1) Others (1) Changes in significant subsidiaries (Changes in subsidiaries affecting the scope of consolidation): None (2) Revisions in accounting rules, procedures and presentations concerning preparation of consolidated financial statements (Revisions in significant items concerning the basis for preparing consolidated financial statements) 1. Revisions involving a change to accounting standards: Yes 2. Other revisions: Yes (3) Number of shares outstanding (Common shares) 1. Shares issued and outstanding (including treasury stock) Year ended March 2009: 120,396,511 Year ended March 2008: 120,396, Treasury stock Year ended March 2009: 7,306,065 Year ended March 2008: 7,279,922 Note: Please see Per share data on page 25 for information concerning the number of shares used to calculate consolidated net income per share. 2

3 (Reference) Non-Consolidated Financial Results 1. Non-Consolidated Financial Results for the Fiscal Year Ended March 2009 (Apr. 1, 2008 Mar. 31, 2009) (1) Non-Consolidated Operating Results (Note: In this report, amounts of less than one million yen are omitted and per share figures are rounded down to two decimal places.) Net sales Operating income Ordinary income Net income Millions of yen % Millions of yen % Millions of yen % Millions of yen % Year ended Mar. 31, ,318 (3.7) 4,506 (32.5) 4,400 (32.6) 2, Year ended Mar. 31, , , , ,311 (66.5) Net income per share Yen Diluted net income per share Year ended Mar. 31, Year ended Mar. 31, (2) Non-Consolidated Financial Position Yen Total assets Net asset Equity ratio Net assets per share Millions of yen Millions of yen % Yen Mar. 31, ,430 44, Mar. 31, ,530 44, Reference: Equity Mar. 31, 2009: 44,473 million yen Mar. 31, 2008: 44,667 million yen 2. Forecast for the Fiscal Year Ending March 2010 (Apr. 1, 2009 Mar. 31, 2010) (Note: Percentages are year on year changes in consolidated figures for the second quarter of the fiscal year and the fiscal year.) Six month period ending Sept. 30, 2009 Year ending Mar. 31, 2010 Net sales Operating income Ordinary income Net income Net income per share Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen 24,000 (29.7) 600 (77.9) 700 (76.2) 350 (81.1) ,000 (26.5) 1,200 (73.4) 1,000 (77.3) 500 (81.0) 4.42 Explanation regarding the appropriate use of forecasts of business results and other information The above forecasts are based on information currently available to the Company at the time of the release of this report. Actual results could differ materially from projections due to various factors. Refer to page 5 for information regarding the earnings forcast. 3

4 1. Business Results (1) Analysis of Results of Operations 1) Results of operations In the fiscal year that ended in March 2009, a global recession of unprecedented scale began as turmoil in financial markets originating in the United States had a negative impact on the real economy. In addition, the rapid appreciation of the yen significantly lowered earnings at export-dependent industries. The result was a steep economic downturn in Japan as companies reduced capital expenditures and cut their workforces. Consolidated sales in the fiscal year decreased 14.9% to 127,095 million yen. Sales in the valve manufacturing business declined in Japan and overseas and there was a big drop in sales in the brass bar manufacturing business as market prices of copper and zinc plummeted. Earnings were lower because of the decline in sales as well as an addition to the allowance for doubtful accounts, which resulted from the write-down of inventories based on a reexamination of the profitability of certain items. Operating income was down 38.1% to 7,188 million yen, and despite a decrease in interest expenses, ordinary income was down 38.5% to 6,475 million yen. Net income also reflected a valuation loss on investment securities and a fixed asset impairment loss associated with the integration of production activities of a subsidiary in the brass bar manufacturing business. As a result, net income fell 46.0% to 3,396 million yen. With regard to assets, inventories were reduced in response to plummeting demand in Japan and overseas and the downturn in prices of basic materials. However, cash and deposits were increased and the sale of highly liquid receivables was reduced in order to maintain a stable level of liquidity. Results by business segment 312Valve manufacturing business Sales to external customers decreased 9.6% to 89,627 million yen. In Japan, sales of valves used in residential and building construction were lower as companies cut capital expenditures. There was also a sharp drop in sales of valves used in semiconductor manufacturing equipment. Overseas, sales remained strong in North America and China, but yen translations of overseas sales were reduced by the yen s rapid appreciation in the fiscal year s second half. Earnings benefited as the lower cost of basic materials reduced the cost of sales and as cost containment initiatives lowered operating expenses. However, these benefits were outweighed by the drop in sales as sales volumes declined. In addition, there were expenses for a write-down of book value for inventories with lower profitability and expenses associated with product guarantees. The result was a 26.6% decrease in operating income to 10,306 million yen. 312Brass bar manufacturing business Sales to external customers fell 30.9% to 28,247 million yen. The causes were lower sales volumes due to a sharp downturn in demand along with a decline in sales prices as the price of copper fell. The combination of lower sales and an addition to the allowance for doubtful accounts resulted in an operating loss of 493 million yen, compared with an operating income of 290 million yen one year earlier. 312Services and other business Sales to external customers decreased 0.5% to 9,220 million yen. Fitness club sales were about the same as one year earlier, but sales were lower in the hotel business mainly because of a decline in the number of guests. Operating income was down 19.2% to 268 million yen. 4

5 2) Outlook for the fiscal year ending March 2010 The so-called once-in-a-century economic crisis is having a severe impact on Japan s economy, chiefly in export-dependent industries like automobiles and electrical products. Japanese companies are making progress in reducing their workforces and inventories. However, the outlook for further declines in consumer spending and private-sector capital expenditures indicate that Japan s economic downturn has not ended. Overseas, economies are contracting in industrialized nations and growth rates are slowing in emerging economies. The United States, China and other countries are expected to launch spending programs and other economic stimulus initiatives. However economies will probably continue to contract as a recovery is unlikely to happen for the time being. In the core valve manufacturing business, despite the outlook for sluggish demand in Japan, KITZ is aiming to increase its market share with sales activities and price strategies that target users needs. To capture market share overseas, and particularly in Asia, KITZ will speed up the collection and analysis of market information. For manufacturing activities, our goal is to cut costs while boosting productivity. At the same time, KITZ is building globally competitive operations in terms of quality, cost and delivery. This includes the start of operations at a factory in China that makes cast steel products. Regarding product development activities, the objective is to create products with more added valve. To accomplish this, KITZ will identify market needs even more accurately by reinforcing marketing activities. There was a situation involving water leaks from some KITZ copper alloy insertion joints sold between 2002 and 2005 (a total of about 980,000 units). The cause was the use of these joints in a corrosive environment that KITZ had not anticipated. KITZ is currently replacing these joints as a preventive measure. Estimated replacement expenses of 404 million yen were posted in the fiscal year that ended in March Expenses recorded thus far for this issue, including expenses for completed replacements, represent 29% of all applicable joints. KITZ will continue to make preventive replacements, but believes that most replacement expenses have already been recorded. In the brass bar manufacturing business, volatility in prices of copper, zinc and other materials is expected to have a negative effect on performance. Furthermore, a recovery in this business is unlikely because of the substantial drop in brass bar production volume caused by lower demand in Japan. In response, subsidiaries KITZ Metal Works Co., Ltd. and Kyoto Brass Co., Ltd. were merged in order to conduct all production activities at a single factory. KITZ plans to use this framework to improve operating efficiency and productivity in order to ensure the survival of this business. In services and other business, with regard to the fitness business, KITZ plans to increase sales at existing facilities and attract customers at new fitness centers. Interest in staying healthy is increasing in Japan due to the start of a metabolic examination system. In the hotel business, the goal is to increase the number of customers. Hotel renovations, including the addition of large bath areas, are making hotels more appealing. At the same time, expressway toll reductions and other events are creating a favorable operating environment. KITZ plans to lower its consolidated breakeven point by cutting fixed expenses and inventories in line with the decline in economic activity. KITZ is also rebuilding its management systems to build a sound base for growth once the economy starts to rebound. 5

6 (2) Analysis of Financial Condition 1) Assets, liabilities and net assets Total assets were 101,101 million yen at the end of March 2009, 8,208 million yen less than one year earlier. KITZ increased liquidity to improve financial soundness in response to the global recession and weakness in financial markets. However, total assets decreased mainly because of decreases in receivables, inventories and the market value of investment securities. Liabilities decreased 5,783 million yen to 50,189 million yen, including decreases in payables and income taxes payable. Net assets decreased 2,424 million yen to 50,912 million yen. The contribution from net income of 3,396 million yen was more than offset by a large downturn in valuation and translation adjustments. 2) Cash flows There was a net increase of 5,239 million yen in cash and cash equivalents to 10,309 million yen. Income before income taxes and minority interests in consilidated subsidiaries was about the same as one year earlier and cash was used for the repayment of debt. Cash flows and their major components were as follows. Cash flows from operating activities Net cash provided by operating activities was 11,101 million yen. Income before income taxes was 5,834 million yen, depreciation was 3,692 million yen and there were declines in notes and accounts receivable and inventories. Major uses of cash were a decrease in accounts payable and income taxes paid. Cash flows from investing activities Net cash used in investing activities was 3,945 million yen. The primary use of cash was 3,711 million yen for the acquisition of property, plant and equipment, mainly in the valve manufacturing business. Cash flows from financing activities Net cash used in financing activities was 1,470 million yen. There were payments of 7,267 million yen for the repayment of long-term debt and 2,748 million yen for the redemption of a private offering of bonds. However, measures were taken to improve the Group s financial soundness by increasing and stabilizing liquidity due to the global economic recession and financial market volatility. While repaying short-term loans, there were proceeds of 9,335 million yen from long-term debt and 2,457 million yen from a private placement of bonds. Cash used was thus the sum of the 76 million yen net decrease in interest-bearing debt and cash dividends paid. Notes: 1. To be prepared to meet short-term demands for working capital, KITZ has established an 8,000 million yen credit facility with a syndication of banks. As of March 31, 2009, KITZ had no loans through this credit facility. 2. On September 26, 2008, KITZ submitted a shelf registration to issue up to 20,000 million yen of bonds. (Reference) Cash flow indicators Years ended March Return on equity (%) Equity ratio based on market price (%) Ratio of cashflows to interest-bearing debt (%) Interest coverage ratio Equity ratio: Equity divided by total assets Equity ratio based on market price: Market capitalization divided by total assets Ratio of cashflows to interest-bearing debt: Interest-bearing debt by cashflows Interest coverage ratio: Operating cash flows divided by interest expenses Notes: 1. Consolidated financial data is used to calculate all figures. 2. Market capitalization is based on shares outstanding less treasury stock. 3. Cash flows are net operating cash flows. 4. Interest-bearing liabilities is the sum of all debt shown on the balance sheet on which interest is due. 6

7 (3) Fundamental Policy Regarding Distribution of Earnings KITZ considers the distribution of earnings to shareholders through dividend payments to be one of its highest management priorities. The policy is to pay a consistent and stable dividend while considering operating results: the need for funds for capital expenditures, new product development and M&A activities required for future growth, and the need for funds to repay loans and redeem bonds. Currently, KITZ believes that a dividend payout ratio of about 25% of consolidated net income is appropriate. However, in the future, the Company will aim to distribute about one-third of consolidated net income to shareholders through dividends and stock repurchases. Based on this fundamental policy, KITZ paid an interim dividend of 6 yen per share on December 5, 2008, and plans to pay a year-end dividend of 3 yen per share. This will result in an annual dividend of 9 yen per share (the previous year s dividend was 15 yen per share). The 9 yen dividend represents a consolidated payout ratio of 30%. There were no purchases of treasury stock during the fiscal year other than purchases of shareholdings of less than one unit (tangen). For the fiscal year ending in March 2010, KITZ plans to pay an annual dividend of 3 yen per share if consolidated net income is in line with the forecast. (4) Business and Other Risks The following is a list of the major items that may pose significant risks with regard to the KITZ Group s business activities, operating results and financial condition. Forward-looking statements in this section represent the Company s judgments based on information available to the Company at the time these materials were prepared. 1) Items concerning management policies unique to KITZ (a) In the KITZ Group s core valve manufacturing business, 30% of products are manufactured outside Japan. The primary overseas manufacturing bases are in Thailand (about 15% share of total valve output), Taiwan (about 6%) and China (about 7%). The ability to supply parts and products and to conduct other business activities may be greatly affected by political and economic developments, laws and taxes, natural disasters and other events in these countries. (b) Overseas markets account for about 21% of the KITZ Group s sales. Major overseas markets based on sales are Asia and North America. Sales volumes and other aspects of business activities as well as operating results in these regions may be greatly affected by political and economic developments, laws and taxes, natural disasters, and other events. (c) Many of the major business sites of KITZ and its group companies are located in northwestern Yamanashi Prefecture and neighboring southern Nagano Prefecture. An earthquake or other major natural disaster in this region may damage or destroy the Groups assets, force a suspension of business activities, or cause other problems that could have a significant impact on the Group s operating results. 7

8 2) Items concerning sudden changes in financial condition and operating results (a) Sales of valves and other fluid control devices, the major products of KITZ and its group companies, are vulnerable to fluctuations in the level of private sector capital expenditures on plants and buildings in Japan and overseas. Furthermore, sales in the brass bar manufacturing business are vulnerable to changes in the industries for architectural metal fixtures, electrical and gas devices, vehicles, and other product categories. Changes in these items may have a significant impact on the Group s operating results. In addition, demand in the semiconductor industry is extremely volatile. Changes in this demand may have a significant impact on the operating results of KITZ subsidiaries, where products used in semiconductor manufacturing equipment account for the majority of sales. (b) Most of the major products of the KITZ Group are sold by trading companies and sales agents in Japan and overseas or directly to engineering companies and end users. A change in the business terms, a dramatic decline in credit standing or any other significant change at these business partners and customers may have an impact on the Group s operating results. (c) In the KITZ Group s core valve manufacturing business, overseas sales accounted for about 29% of total sales and overseas production accounted for about 30% of total output in the fiscal year that ended in March As a result, changes in foreign currency exchange rates may have a significant impact on the Group s operating results. (d) The KITZ Group procures various types of metal (scrap, castings, components) made of copper, stainless steel, aluminum, iron and other materials in conjunction with the manufacture of valves. In addition, the Group procures metal materials such as copper and zinc for manufacturing activities in its brass bar manufacturing business. The Group may become unable to procure the necessary quantities of these materials due to a sudden rise in prices in Japan or in international markets, may be unable to raise prices in a timely manner to reflect higher costs, or may encounter similar problems. These events may have a significant impact on the Group s operating results. (e) The KITZ Group exercises care to protect its electric arc furnaces and other equipment and machinery from fires and other disasters. However, an unforeseen event of sufficient magnitude could force a suspension of manufacturing activities or cause other problems that could have an impact on the Group s operating results. (f) KITZ and its group companies exercise extreme care concerning the quality of products and services by conforming to various regulations and quality management standards. However, there is no assurance that all products and services are defect-free and that product liability, business facility liability and other expenses will not be incurred. There was a situation involving water leaks from some KITZ copper alloy insertion joints sold between 2002 and 2005 (a total of about 980,000 units). The cause was the use of these joints in a corrosive environment that KITZ had not anticipated. KITZ is currently replacing these joints as a preventive measure. Estimated replacement expenses of 404 million yen were posted in the fiscal year that ended in March Expenses recorded thus far for this issue, including expenses for completed replacements, represent 29% of all applicable joints. KITZ will continue to make preventive replacements, but believes that most replacement expenses have already been recorded. (g) The table below shows data concerning consolidated interest-bearing liabilities during the past two fiscal years. Since these liabilities are high as a percentage of total assets, the KITZ Group is using interest rate swaps to switch to fixed interest rates. However, a significant change in interest rates may affect the Group s operating results by raising interest expenses and other expenses. Millions of yen Years ended March Total interest-bearing liabilities 35,860 36,247 Long/short-term loans 24,618 24,757 Bonds 11,242 11,490 Total assets 101, ,310 Interest-bearing liabilities/assets (%)

9 (h) Long-term loans provided by syndicates have covenants placing restrictions on the ability to provide collateral for other liabilities, on the Company s financial position and on the ability to provide collateral for a public bond offering and unsecured bonds. In the event that KITZ violates a covenant, the debt may be regarded as in default. A summary of these covenants is presented below. i) Paid-in capital must not be less than total common shares on the interim and year-end balance sheet in each fiscal year. ii) iii) iv) Consolidated paid-in capital must not be less than total consolidated common shares on the interim and year-end consolidated balance sheet in each fiscal year. KITZ may not report an operating loss for two consecutive fiscal years as shown in the income statement presented in its financial report. KITZ may not report a consolidated operating loss for two consecutive fiscal years as shown in the consolidated income statement presented in its financial report. v) Maintain a Japan Credit Rating Agency long-term credit rating of at least BBB- (i) In the event that earnings from assets decline and asset impairment charges are posted for property and equipment, there may be an impact on the Group s operating results. (j) The KITZ Group holds inventories, real estate for business operations, investment securities, investment real estate, movable property and other assets. A significant decline in the market values of these assets may have an impact on the Group s operating results. (k) Due to the current weak performance by members of the KITZ Group, the reorganization of business activities, closing and consolidation of factories and other activities may have a significant impact on consolidated performance. In addition, changes in valuations of investments and loans, loan guarantees and other items may have a significant effect on the non-consolidated performance of KITZ. 3) Establishment of internal control systems The KITZ Group is establishing an internal control system that conforms to provisions of the Financial Instruments and Exchange Law. If the Group is unable to establish effective internal controls and maintain effectiveness, the independent accountant to be unable to perform a proper audit of management s evaluations due to ineffective internal controls, or if an independent accountant submits an audit report stating that the Group s internal controls for financial reports are ineffective, there may be an impact on the value of KITZ stock on stock exchanges. 4) Environmental regulations The KITZ Group conducts operations in line with its environmental philosophy and in accordance with environmental regulations in all countries where the Group operates. If the Group is unable to comply with these regulations, there may be severe restrictions on its business operations depending on the nature of the violation. 5) Legal restrictions applicable to the businesses of the KITZ Group In the valve manufacturing business, which is the core business of the KITZ Group, major products include items that receive Japan Industrial Standard (JIS) certification. A change in the JIS certification system could make it easier for new competitors to enter the valve market. 6) Protection of intellectual assets The KITZ Group has technologies and know-how that differentiate its products from those of competitors as well as valuable brands. Although the Group takes various actions to protect these assets, the Group may not be able to effectively prevent third parties in certain overseas regions from manufacturing and selling products that are copies of KITZ Group products. 7) Information management The operations of the KITZ Group rely on information management systems. Although the Group operates its systems properly and has suitable development and security programs, the operation of an information system could be suspended due to inability to keep up with technological progress or due to a natural disaster, computer virus or another cause. The inability to use an information system could have an impact on the Group s operating results. 9

10 8) Infectious diseases If there is an outbreak of infectious disease (such as a new flu strain) in an area where the KITZ Group does business, an economic recession and the resulting suspension or other disruption in business operations could have an impact on the Group s operating results. 2. Summary of Corporate Group This information is not provided because there were no significant changes during the fiscal year to the information provided in the business activities section and Group activities diagram presented in the securities report dated June 27, Management Policies (1) Fundamental Management Policy The management policy of KITZ is defined by the KITZ Group 21st Century Vision. a. Corporate Philosophy (KITZ Statement of Corporate Mission) To contribute to the global prosperity, KITZ is dedicated to continually enriching its corporate value by offering originality and quality in all products and services. b. Action Guide (Do it KITZ Way) Do it True Do it Now Do it New (2) Targeted performance indicators, medium- and long-term management strategies and important issues KITZ began a medium-term management plan called New Target 2010 in May The plan is intended to achieve sustained growth in corporate value by increasing global growth and building a highly profitable operating framework. KITZ has been working steadily on this plan, but due to the recent steep economic downturn, the company plans to announce a new long-term management plan called Target 2020 (tentative) during the fiscal year ending in March Operating goals KITZ uses cash return on assets (CROA) and return on equity (ROE) as its goals with regard to increasing corporate value. The Company then established the following targets for sales and earnings needed to raise CROA and ROE. Consolidated sales 180,000 million yen The goal for consolidated sales is 180,000 million yen. To reach this goal, the KITZ Group will have to further expand its current organization while acquiring companies worldwide in order to target new opportunities. KITZ is determined to reach this sales goal by quickly expanding business operations through the use of the Group s strengths, particularly those involving markets associated with established businesses. Operating income margin (vs. sales) 10%+ The Group aims to raise profitability by cutting manufacturing costs and raising operating efficiency while developing products and services with even more added value. Ordinary income margin (vs. sales) 9%+ The Group aims to maintain a high operating income margin by minimizing non-operating expenses through the reduction of interest-bearing liabilities. CROA 10%+ Through earnings growth and the productive use of assets, the Group aims to achieve a high return on its assets. Note: CROA = (net income + depreciation) / total assets ROE 13%+ The goal is to achieve a consistently high level of returns on investments through the efficient use of equity. 10

11 Business strategy Conduct business activities from a global perspective by positioning the valve and flow control, copper rolling, and services businesses as the KITZ Group s core businesses. Valve manufacturing business Sales strategy: Become one of the world s top-three valve companies based on sales. Increase sales in rapidly growing markets such as energy, water and the environment, and semiconductors. Increase market share of established products by offering greater automation, one-touch ease of operation, prefabrication and other forms of added value. Increase efficiency of sales activities by using IT, linking sales activities more closely to customers, and reinforcing the service infrastructure. Increase overseas sales by raising sales in growing overseas markets and using mergers and acquisitions. Manufacturing strategy: Be globally competitive in terms of product quality, cost, and delivery time. Meet global standards for product quality, cost and delivery schedules. Continue moving manufacturing activities to optimal locations. Improve productivity. Product development strategy: Develop unique products and improve the quality of product development activities. Gain expertise in basic technologies. Develop new products quickly. Establish a sound sales support organization. M&A strategy Target companies that can generate substantial synergies, that have a global presence, and that have technologies and products new to the KITZ Group. Brass bar manufacturing business: Increase market share and earnings. Increase sales volumes and market share. Become more profitable. Pursue greater synergies among KITZ Group copper rolling companies. Service business: Offer the best services in each region and become more profitable. Open more fitness clubs. Improve services in each service business and become consistently profitable. Pursue greater synergies. Corporate activities CSR strategy Eliminate all accidents at factories. Establish rigorous internal control and compliance systems. Conduct group environmental management programs. Human resources strategy Recruit and train capable people. Ensure fairness in evaluations and compensation. Fully utilize Group personnel, including the assignment of employees to other Group companies. Information strategy Restructure core business processes. Promote the globalization and centralization of information. Speed the dissemination of information and make this process more labor efficient. Financial and capital strategy Further improve financial soundness and credit ratings. Maintain a high stock price and conduct a flexible capital strategy. Aim to distribute one-third of consolidated net income to shareholders. 11

12 4. Consolidated Financial Statements (1) Consolidated Balance Sheets Classification As of Mar. 31, 2009 As of Mar. 31, 2008 (Assets) Millions of yen Millions of yen Current assets Cash in hand and in banks 10,309 5,069 Notes and accounts receivable trade 23,942 27,549 Inventories 19,623 Purchased and manufactured products 5,411 Work in process 3,227 Raw materials and supplies 5,861 Deferred tax assets current 1,414 1,830 Other 916 1,399 Allowance for doubtful accounts (53) (40) Total current assets 51,030 55,432 Fixed assets Property, plant and equipment Buildings and fixtures 38,252 38,685 Accumulated depreciation (23,972) (23,410) Buildings and structures, net 14,279 15,274 Machinery, equipment and vehicles 32,563 32,664 Accumulated depreciation (24,971) (24,497) Machinery, equipment and vehicles, net 7,591 8,167 Tools, furniture and fixtures 11,882 11,994 Accumulated depreciation (6,925) (6,781) Tools, furniture and fixtures, net 4,956 5,213 Land 11,345 11,634 Construction in progress Other Accumulated depreciation (13) (7) Other, net Total property, plant and equipment 38,965 40,961 Intangible assets Investments and other assets Investment securities 4,858 6,755 Deferred tax assets non-current 1,291 1,068 Other 4,966 4,806 Allowance for doubtful receivables (634) (373) Total investments and other assets 10,482 12,257 Total fixed assets 50,071 53,877 Total assets 101, ,310 12

13 As of Mar. 31, 2009 As of Mar. 31, 2008 (Liabilities) Millions of yen Millions of yen Current liabilities Notes and accounts payable trade 6,499 Account payable trade 3,383 Current portion of corporate bonds 2,738 2,648 Short-term bank loans 2,474 4,681 Current portion of long-term debt 12,505 6,677 Income taxes payable 496 1,624 Consumption taxes payable Accrued bonus to employees 1,402 1,740 Accrued bonus to directors Other 4,267 4,826 Total current liabilities 27,712 29,038 Long-term liabilities Corporate bonds 8,504 8,842 Long-term debt 9,638 13,398 Deferred tax liabilities 1,024 1,018 Accrued retirement benefits to employees Accrued retirement benefits to directors, corporate auditors and operating officers Other 2,581 2,970 Total long-term liabilities 22,476 26,933 Total liabilities 50,189 55,972 (Net assets) Shareholders equity Common stock 21,207 21,207 Additional paid-in capital 9,430 9,488 Retained earnings 24,228 22,364 Treasury stock (2,409) (2,395) Total shareholders equity 52,456 50,664 Valuation and translation adjustments Net unrealized gains on other securities 505 1,754 Translation adjustment (2,925) (26) Total valuation and translation adjustments (2,420) 1,727 Minority interests in consolidated subsidiaries Total net assets 50,912 53,337 Total liabilities and net assets 101, ,310 13

14 (2) Consolidated Statements of Income Millions of yen Classification Apr. 1, 2008 Apr. 1, 2007 Mar. 31, 2009 Mar. 31, 2008 Net sales 127, ,274 Cost of sales 99, ,028 Gross profit 27,724 32,246 Selling, general and administrative expenses 20,535 20,631 Operating income 7,188 11,615 Non-operating income Interest Dividend income Assurance income 2 Exchange gain Foreign exchange gain 12 Other Total Non-operating expenses Interest expenses Sales discounts Exchange loss 179 Loss on sales of notes receivable Other Total 1,380 1,729 Ordinary income 6,475 10,525 Extraordinary income Gain on sale of property, plant and equipment 4 91 Gain on sales of investment securities 11 Gain on liquidation of subsidiaries 230 Gain on sale of investment real estate 0 Reversal of allowance of doubtful accounts 0 2 Other 0 30 Total Extraordinary loss Loss on sale / removal of property, plant and equipment Impairment loss Write-down of investment securities Loss on liquidation of affiliated companies Other 0 3 Total 647 1,401 Income before income taxes and minority interests 5,834 9,489 Income taxes (Income, Residential and Enterprise taxes) 1,709 2,083 Income tax adjustment 692 1,080 Total 2,402 3,164 Minority interest in income of consolidated subsidiaries Net income 3,396 6,290 14

15 (3) Consolidated statement of changes in shareholders equity Millions of yen Classification Apr. 1, 2008 Apr. 1, 2007 Mar. 31, 2009 Mar. 31, 2008 Shareholders equity Common shares Balance as of end of previous fiscal year 21,207 21,207 Balance as of end of current fiscal year 21,207 21,207 Additional paid-in capital Balance as of end of previous fiscal year 9,488 9,416 Increase (decrease) due to change in accounting method for foreign subsidiaries (60) Change during fiscal year Sale of treasury stock 2 71 Total change during fiscal year 2 71 Balance as of end of current fiscal year 9,430 9,488 Retained earnings Balance as of end of previous fiscal year 22,364 17,924 Increase (decrease) due to change in accounting method for foreign subsidiaries 51 Change during fiscal year Dividends from surplus (1,583) (1,850) Net income 3,396 6,290 Total change during fiscal year 1,812 4,439 Balance as of end of current fiscal year 24,228 22,364 Treasury stock Balance as of end of previous fiscal year (2,395) (888) Change during fiscal year Acquisition of treasury stock (25) (1,550) Sale of treasury stock Total change during fiscal year (14) (1,506) Balance as of end of current fiscal year (2,409) (2,395) Total shareholders equity Balance as of end of previous fiscal year 50,664 47,659 Increase (decrease) due to change in accounting method for foreign subsidiaries (8) Change during fiscal year Dividends from surplus (1,583) (1,850) Net income 3,396 6,290 Acquisition of treasury stock (25) (1,550) Sale of treasury stock Total change during fiscal year 1,800 3,004 Balance as of end of current fiscal year 52,456 50,664 15

16 Apr. 1, 2008 Mar. 31, 2009 Apr. 1, 2007 Mar. 31, 2008 Valuation and translation adjustments Net unrealized gains on other securities Balance as of end of previous fiscal year 1,754 3,785 Change during fiscal year Aggregate net change in items other than in the shareholders equity section (1,249) (2,030) Total change during fiscal year (1,249) (2,030) Balance as of end of current fiscal year 505 1,754 Translation adjustment Balance as of end of previous fiscal year (26) 259 Change during fiscal year Aggregate net change in items other than in the shareholders equity section (2,898) (286) Total change during fiscal year (2,898) (286) Balance as of end of current fiscal year (2,925) (26) Minority interests in consolidated subsidiaries Balance as of end of previous fiscal year Change during fiscal year Aggregate net change in items other than in the shareholders equity section (69) 37 Total change during fiscal year (69) 37 Balance as of end of current fiscal year

17 (4) Consolidated Statements of Cash Flows Millions of yen Classification Apr. 1, 2008 Apr. 1, 2007 Mar. 31, 2009 Mar. 31, 2008 Cash flows from operating activities Income before income taxes 5,834 9,489 Depreciation 3,692 3,396 Amortization of goodwill 24 Amortization of negative goodwill (2) Exchange gain/loss (127) (61) Write-down of investment securities Gain on liquidation of subsidiaries (230) Loss on liquidation of affiliated companies Increase (decrease) in provision for allowance for doubtful accounts 277 (18) Increase (decrease) in accrued bonuses to employees (322) (110) Increase (decrease) in accrued retirement benefits to employees (203) (215) Increase (decrease) in allowance for retirement benefits to directors (248) 0 Increase (decrease) in provision for accrued bonuses to directors (46) (44) Interest and dividend income (205) (188) Interest expenses Gain/loss on sale/disposal of property, plant and equipment, net Impairment loss (Gain) loss on sale of investment securities (9) (Increase) decrease in notes and accounts receivable 2,496 (265) (Increase) decrease in inventories 3, (Increase) decrease in other current assets Increase (decrease) in accounts payable (2,351) (1,439) Increase (decrease) in other current liabilities Other, net Subtotal 14,451 13,988 Interest and dividend income received Interest expenses paid (759) (829) Income taxes paid (2,809) (1,397) Net cash provided by (used in) operating activities 11,101 11,949 Cash flows from investing activities Purchase of property, plant and equipment (3,711) (3,974) Sale of property, plant and equipment Purchase of investment securities (31) (273) Sale of investment securities 31 Collection of short-term loans Collection of long-term loans 0 2 Other, net (329) (61) Net cash provided by (used in) investing activities (3,945) (3,288) 17

18 Apr. 1, 2008 Mar. 31, 2009 Apr. 1, 2007 Mar. 31, 2008 Cash flows from financing activities Net increase (decrease) in short-term bank loans, net (1,853) (1,975) Procurement for long-term debt 9,335 3,330 Repayment of long-term debt (7,267) (6,040) Issuance of bonds 2, Redemption of bonds (2,748) (1,050) Sale of treasury stock Acquisition of treasury stock (25) (1,550) Cash dividends paid (1,583) (1,850) Cash dividends paid to minority interests (4) (6) Other, net 206 (18) Net cash provided by (used in) financing activities (1,470) (8,362) Effect of exchange rate changes on cash and cash equivalents (446) (288) Net increase (decrease) in cash and cash equivalents 5,239 9 Cash and cash equivalents at beginning of period 5,069 5,060 Cash and cash equivalents at end of period 10,309 5,069 18

19 Notes (Consolidated Statements of Income) Apr. 1, 2008-Mar. 31, 2009 Apr. 1, 2007-Mar. 31, 2008 Impairment loss on fixed assets The KITZ Group recorded impairment losses in the following asset groups. Impairment loss on fixed assets The KITZ Group recorded impairment losses in the following asset groups. Location Use Category Location Use Category Jyoyo city, Kyoto prefecture Ota city, Gunma prefecture Samutprakarn, Thailand Brass bar manufacturing equipment Valve manufacturing equipment Idle land Buildings and structures, machinery, equipment, auto, vehicles, tools and furnitures, fixtures, software Machinery and equipment, and construction in progress Investment real estate (Background) In the brass bar manufacturing business, KITZ Metal Works Co., Ltd. and Kyoto Brass Co., Ltd. merged and combined their production activities at a single factory. The book value of the manufacturing equipment not expected to be used after this integration has been written down to the amount that can be recovered. The resulting decrease in book value of 299 million yen was recorded as an extraordinary loss. In addition, for unused valve manufacturing equipment and idle land, the book values were written down to the amount that can be recovered. This resulted in asset impairment losses of 3 million yen and 6 million yen, respectively, that were recorded as extraordinary losses. Suwa city, Nagano prefecture Hokuto city, Yamanashi prefecture and others Hotel facility Valve manufacturing equipment Buildings, structures, machinery and equipment, land Machinery and equipment, tools and furniture, fixtures (Background) Based on an appraisal of the hotel properties operated by Hotel Beniya Co., Ltd., there was a decline in the value of these properties that was due in part to the consistently poor performance of the hotel business. As a result, the book value of hotel properties and facilities has been reduced to the amount that can be recovered, and this reduction of 988 million was recorded as an extraordinary loss. In addition, for valve manufacturing equipment, the book value of idle assets has been reduced to the amount that can be recovered, and the resulting asset impairment of 7 million yen has been recorded as an extraordinary loss. (Amount of impairment loss) (Category) Buildings, structures Machinery, equipment Auto and vehicles Tools and furniture, fixtures Construction in progress Software Investment real estate 116 million yen 164 million yen 0 million yen 11 million yen 1 million yen 7 million yen 6 million yen (Amount of impairment loss) (Category) Buildings, structures Machinery, equipment Tools and furniture, fixtures Land Total 584 million yen 25 million yen 0 million yen 386 million yen 996 million yen Total 309 million yen (Calculation of amount that can be recovered) Net sales proceeds are used as the basis for the amount that can be recovered for each asset group. Market values are the appraised values in accordance with real estate appraisal standards. (Method for grouping assets) The KITZ Group categorizes assets into business units that can be used for the efficient management of earnings. (Calculation of amount that can be recovered) Net sales proceeds are used as the basis for the amount that can be recovered for each asset group. Market values are the appraised values in accordance with real estate appraisal standards. (Method for grouping assets) The KITZ Group categorizes assets into business units that can be used for the efficient management of earnings. 19

20 Type and number of shares issued and type and number of shares of treasury stock Current fiscal year (April 1, 2008 March 31, 2009) (Thousands of shares) As of Mar. 31, 2008 Increase Decrease As of Mar. 31, 2009 Shares issued Common stock 120, ,396 Total 120, ,396 Treasury stock Common stock* 7, ,306 Total 7, ,306 Notes: 1. The increase of 59 thousand shares of common stock held as treasury stock is due to purchases of share holdings of less than one investment unit. 2. The decrease of 33 thousand shares of common stock held as treasury stock is due to a decrease of 2 thousand shares associated with the exercise of stock options and the sale of 31 thousand shares in amounts of less than one investment unit. Previous fiscal year (April 1, 2007 March 31, 2008) (Thousands of shares) As of Mar. 31, 2007 Increase Decrease As of Mar. 31, 2008 Shares issued Common stock 120, ,396 Total 120, ,396 Treasury stock Common stock* 4,814 2, ,279 Total 4,814 2, ,279 Notes: 1. The increase of 2,694 thousand shares of common stock held as treasury stock is due to the repurchase of 2,641 thousand shares in accordance with a resolution of the board of directors and the purchase of 53 thousand shares from share holdings of less than one investment unit. 2. The decrease of 229 thousand shares of common stock held as treasury stock is due to a decrease of 208 thousand shares associated with the exercise of stock options and the sale of 21 thousand shares in amounts of less than one investment unit. 20

21 Segment information 1. Operating Segment Information Current fiscal year (April 1, 2008 March 31, 2009) Valve manufacturing business I. Net sales and operating income/loss Sales (1) Sales outside customers Brass bar manufacturing business Services and other business Total Eliminations or corporate assets Millions of yen Consolidated total 89,627 28,247 9, , ,095 (2) Sales and transfers inter-segment 343 3, ,419 (3,419) Total 89,971 31,281 9, ,515 (3,419) 127,095 Operating expenses 79,665 31,775 8, ,434 (528) 119,906 Operating income / loss 10,306 (493) ,080 (2,891) 7,188 II. Assets, depreciation, impairment loss, and capital expenditures Assets 64,263 7,193 8,110 79,566 21, ,101 Depreciation 2, , ,692 Impairment loss Capital expenditures 9 2,802 Previous fiscal year (April 1, 2007 March 31, 2008) Valve manufacturing business I. Net sales and operating income/loss Sales (1) Sales outside customers Brass bar manufacturing business 197 Services and other business 309 3,303 Total 33 Eliminations or corporate assets 309 3,336 Millions of yen Consolidated total 99,118 40,886 9, , ,274 (2) Sales and transfers inter-segment 535 3, ,157 (4,157) Total 99,653 44,457 9, ,432 (4,157) 149,274 Operating expenses 85,607 44,167 8, ,764 (1,104) 137,659 Operating income 14, ,668 (3,053) 11,615 II. Assets, depreciation, impairment loss, and capital expenditures Assets 71,631 12,744 8,184 92,561 16, ,310 Depreciation 2, , ,396 Impairment loss Capital expenditures 7 3, ,270 Notes: 1. Classification of operating segments and major businesses in each segment (1) Operating segments are based on the line of products and the category of business (2) Major businesses and products in each segment are as follows: Operating segment Major products and businesses Valve Bronze valves, general service iron valves, valve-related products, filter-related products manufacturing business Brass bar Copper products, rolled copper products manufacturing business Services and other business Hotels and restaurants business, fitness club business, glass craft products marketing 2. Amounts included in Corporate and Eliminations and their significant components Millions of yen Current Previous Significant components fiscal year fiscal year Amounts of operating expenses included in Corporate and Eliminations (expenses that cannot be systematically allocated) Amounts of assets included in Corporate and Eliminations 2,896 3,055 26,075 23, ,280 Operating expenses included in Eliminations or Corporate consist primarily of expenses related to the head office general affairs division, accounting division and the management planning division and includes the Makuhari head office building management expenses. Assets included in Eliminations and Corporate consist primarily of current assets (cash on hand and in banks), property, plant and equipment related to the head office, including the Makuhari head office building, and long-term investments (investment securities, investment real estate, etc.). 21