SAKATA INX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 SAKATA INX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presenting Consolidated Financial Statements The accompanying consolidated financial statements of SAKATA INX CORPORATION (the Company ) and its consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations and in conformity with generally accepted accounting principles in Japan ( Japanese GAAP ), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards (IFRS). The accounts of the Company s consolidated foreign subsidiaries are based on IFRS or generally accepted accounting principles in the United States of America (U.S. GAAP). The accompanying consolidated financial statements have been restructured and translated into English with some expanded descriptions and the inclusion of consolidated statements of shareholders equity from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements. 2. Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of the Company and its twenty-nine significant subsidiaries (twenty-seven in 2012). The principal subsidiaries of the Company are THE INX GROUP LIMITED, INX International Ink Co., P.T. SAKATA INX INDONESIA and SAKATA INX (INDIA) LIMITED. Due to their increased significance, CDI SAKATA INX CORP. and one other subsidiary are included in the scope of consolidation beginning with the year ended March 31, All significant intercompany transactions and accounts have been eliminated. The fiscal year-end of the consolidated foreign subsidiaries, excluding SAKATA INX (INDIA) LIMITED, is December 31 and is different from the March 31 year-end of the Company. Significant transactions between December 31 and March 31 are reflected in the consolidated financial statements. In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are evaluated using the fair value at the time the Company acquired control of the respective subsidiary. Differences between the cost of investments in consolidated subsidiaries and the equity in the net assets at the date of acquisition are amortized over a period that is within twenty years. The equity method is applied to four affiliates (four in 2012). The principal affiliate of the Company is SIIX Corporation. Two affiliates (two in 2012), including ETERNAL SAKATA INX CO., LTD., are not accounted for by the equity method because the impact on the Company s share of net income or loss and retained earnings as of and for the year ended March 31, 2013 was immaterial. Securities The Companies classify securities as (a) securities held for trading purposes ( trading securities ), (b) debt securities intended to be held to maturity ( held-to-maturity debt securities ), (c) equity securities issued by subsidiaries and affiliated companies and (d) all other securities that are not classified in any of the above categories ( available-for-sale securities ). The Companies do not hold trading securities or held-to-maturity debt securities. Equity securities issued by subsidiaries and affiliated companies that are not consolidated or accounted for by the equity method are stated at moving average cost. Available-for-sale securities with available fair values are stated at fair value. Unrealized gains and unrealized losses on these securities are reported, net of applicable income 9

2 taxes, as a separate component of shareholders equity. Realized gains and losses on sales of such securities are computed using moving average cost. Other securities with no available fair value are stated at moving average cost. Inventories Inventories of the Company and its consolidated domestic subsidiaries are stated at cost based on the moving average method, in which the amount of inventories shown on the balance sheet are written down based on any decrease in profitability. Inventories of the consolidated foreign subsidiaries are stated principally at the lower of cost or market, cost being determined by the first-in, first-out method. Property, plant and equipment Property, plant and equipment are carried at cost. The Company and its consolidated domestic subsidiaries provide depreciation principally by the declining balance method over the estimated useful life of the asset. However, depreciation for buildings, excluding building fixtures, of the Company and its consolidated domestic subsidiaries acquired after March 31, 1998 is provided by the straight-line method. Certain consolidated foreign subsidiaries compute depreciation by the straight-line method over the estimated useful life of the asset. The range of useful lives is summarized as follows: Buildings and structures Machinery, equipment and vehicles Other 3 to 60 years 2 to 20 years 2 to 20 years Change in accounting policy that is difficult to distinguish from change in accounting estimate The Company and its domestic consolidated subsidiaries have changed the depreciation method for property, plant and equipment acquired on or after April 1, 2012 due to the revision of the Corporate Tax Law. The effect of this change on operating income and income before income taxes and minority interests for the year ended March 31, 2013 was immaterial. Intangible assets Intangible assets consist of in-house software, goodwill and other. The straight-line method is used to amortize intangible assets. The amortization of in-house software is computed using the straight-line method based on the estimated useful life of five years. Goodwill is amortized using the straight-line method over periods not exceeding twenty years. Finance leases Lease assets under finance lease transactions that do not transfer title of the lease assets are capitalized and depreciated on a straight-line basis, with the lease period used as the useful life and no residual value. Finance lease transactions that did not transfer title of the lease assets and that commenced prior to April 1, 2009 are accounted for as operating leases. Allowance for doubtful accounts The Company and its consolidated subsidiaries (the Companies ) have adopted the policy of providing an allowance for doubtful accounts in an amount sufficient to cover possible losses on collection mainly by estimating the uncollectible amounts of certain receivables and applying a percentage based on collection experience to the remaining receivables. Bonuses The Company and certain consolidated subsidiaries provide for employees bonuses at the balance sheet date based on the estimated amounts of projected bonus payments. Retirement benefits The Company and certain domestic consolidated subsidiaries provide funded non-contributory pension 10

3 plans, which include defined benefit pension plans and unfunded lump-sum payment plans, under which all eligible employees are entitled to benefits based on the level of wages and salaries at the time of retirement or termination, length of service and certain other factors. Certain foreign consolidated subsidiaries provide defined contribution plans as well as defined benefit pension plans. The liabilities and expenses for retirement benefits are determined based on the amounts actuarially calculated using certain assumptions. The Company and certain consolidated subsidiaries provide for employees retirement benefits at the balance sheet date based on the estimated amounts of projected benefit obligation and the fair value of plan assets at that date. Prior service costs are recognized mainly as current costs, and actuarial gains and losses are recognized in expenses using the straight-line method over mainly 15 years, a period which reflects the average of the estimated remaining service years of employees, commencing with the current period. Translation of foreign currencies Receivables and payables denominated in foreign currencies are translated into Japanese yen at year-end rates. All revenues and expenses in foreign currencies are translated at the exchange rates prevailing when such transactions are made. The resulting gains and losses are recognized in the statements of income. The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at year-end rates, except for equity, which is translated at historical rates. Differences arising from the translations are presented as Foreign currency translation adjustment and Minority interests in net assets. Income statement accounts of the consolidated foreign subsidiaries are translated at the average annual rates. Derivatives and hedge accounting The Companies state derivative financial instruments at fair value and recognize changes in the fair value as gain or loss unless the derivative financial instrument is used for hedging purposes. If derivative financial instruments are used as hedges and meet certain hedging criteria, the Companies defer recognition of gain or loss resulting from a change in fair value of the derivative financial instrument until the corresponding loss or gain on the hedged item is recognized. However, if forward foreign exchange contracts are used as hedges and meet certain hedging criteria, forward foreign exchange contracts and hedged items are accounted for in the following manner: 1. If a forward foreign exchange contract is executed to hedge an existing foreign currency receivable or payable, (a) the difference, if any, between the Japanese yen amount of the hedged foreign currency receivable or payable translated using the spot rate at the inception date of the contract and the book value of the receivable or payable is recognized in the statement of income in the period which includes the inception date, and (b) the discount or premium on the contract (the difference between the Japanese yen amount of the contract translated using the contracted forward rate and that translated using the spot rate at the inception date of the contract) is recognized over the term of the contract. 2. If a forward foreign exchange contract is executed to hedge a future transaction denominated in a foreign currency, the future transaction will be recorded using the contracted forward rate, and no gain or loss on the forward foreign exchange contract will be recognized. Also, if interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted from the interest on the hedged assets or liabilities. Cash and cash equivalents Cash on hand, readily available deposits and short-term highly liquid investments with maturities not exceeding three months at the time of purchase are considered to be cash and cash equivalents. Research and development expenses Research and development expenses are charged to income as incurred. Research and development expenses for the years ended March 31, 2013 and 2012 were 2,085 million and 2,004 million, 11

4 respectively. Income taxes The asset-liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss and tax credit carryforwards. Consumption taxes Consumption taxes are excluded from revenue and expense accounts. Amounts per share (a) Net income per share of common stock The Companies have adopted ASBJ Statement No. 2, Accounting Standard for Earnings Per Share, and Financial Accounting Standards Implementation Guidance No. 4, Implementation Guidance for Accounting Standard for Earnings Per Share. (b) Cash dividends per share Cash dividends per share presented in the statements of income represent the cash dividends declared applicable to the year, including dividends declared and paid after the end of the year. Net assets Under the Japanese Corporation Law (the Law ) and regulations, the entire amount paid for new shares is required to be designated as common stock. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one half of the price of the new shares as additional paid-in capital, which is included in capital surplus. The Law requires that an amount equal to 10% of dividends must be appropriated as additional paid-in capital or legal earnings reserve until the total aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Additional paid-in capital and legal earnings reserve may not be distributed as dividends. However, all additional paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends. The maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statements of the Company in accordance with the Law. 3. Accounting Standards to Be Applied ASBJ Statement No. 26, Accounting Standard for Retirement Benefits, and ASBJ Guidance No. 25, Guidance on Accounting Standard for Retirement Benefits, issued on May 17, 2012 (1) Summary Under the amended rules, actuarial gains and losses and past service costs that have not been recognized in profit or loss are recognized within the net asset section, after adjustment for tax effects, and the deficit or surplus is recognized as a liability or asset without any adjustments. For determining the method of attributing expected benefit to periods, the standard now allows a choice of benefit formula basis or straight-line basis. The method for determining the discount rate has also been amended. (2) Effective dates Except for amendments related to the determining the method of attributing expected benefits to periods, the standard will be effective for the end of annual periods ending on or after March 31, Amendments related to determining the method of attributing excepted benefit to periods are effective from the beginning of annual periods ending on or after March 31,

5 (3) Effect of application of the standard The Company and its consolidated domestic subsidiaries are currently in the process of determining the effects of the new standard on the consolidated financial statements. 4. Deferred Capital Gains on Tangible Fixed Assets Under certain conditions, such as the exchange of similar kinds of fixed assets, gains from insurance claims and sales and purchases resulting from expropriation, Japanese tax laws permit companies to defer gains arising from such transactions by reducing the cost of the assets acquired. Accordingly, deferred capital gains from insurance claims were deducted from the cost of replacement properties, which amounted to 41 million and 41 million as of March 31, 2013 and 2012, respectively. 5. Securities Lent under Loan Agreements Investment securities include securities lent of 316 million and 246 million as of March 31, 2013 and 2012, respectively. 6. Effect of Bank Holiday As financial institutions in Japan were closed on March 31, 2013 and March 31, 2012, amounts that would normally be settled on March 31 were collected or paid on the following business day. The amounts actually settled on the first business day in April were follows: Notes and accounts receivable 1,075 1,103 Notes and accounts payable

6 7. Financial Instruments 1. Qualitative Information on Financial Instruments (1) Policies for Using Financial Instruments The Companies have policies to limit fund management to the use of short-term deposits and financing to the use of bank loans. Derivative transactions are used to avoid the risk of fluctuation in the interest rate of bank loans with variable interest rates. The Companies do not use derivative transactions for speculation. (2) Contents, Risk and Risk Management Structure for Financial Instruments Operating receivables such as Notes and accounts receivable - trade are exposed to customer credit risk. Due dates and the balances of operating receivables by customer are monitored by reviewing overdue receivable reports to manage such risk. In addition, credit research is performed regularly on customers whose accounts need attention. Securities such as available-for-sale securities are exposed to market fluctuations risk, but they consist mainly of securities of the parties with whom the Companies have business relationships. The Companies monitor the fair value of the securities and the financial condition of the investees regularly to evaluate investment policy, taking the business relationships with the investees into consideration. Operating payables such as Notes and accounts payable: Trade are mostly due within one year. Short-term loans payable and lease obligations on finance leases are used as financing mainly for operating transactions, and long-term loans payable and lease obligations on finance leases are used as financing mainly for capital expenditure. Loans payable at variable interest rates are exposed to the risk of interest rate fluctuation. However, for some long-term loans payable, derivative transactions (interest rate swap contracts) are used as hedging instruments to avoid the interest rate risk and stabilize interest expense. Hedge effectiveness testing is not conducted as the interest rate swap contracts meet certain hedging criteria. The execution and management of derivative transactions are performed under the Company s derivative transaction management rules and regulations, and the counterparties of derivative financial instruments are limited to high credit rating financial institutions to mitigate credit risk. Operating payables and bank loans are exposed to liquidity risk, but the Companies manage the risk by preparing and reviewing respective monthly cash management plans. (3) Supplementary explanation for the fair value of financial instruments The contract amounts for the derivative transactions under Note 13, Derivative transactions, do not reflect the market risk for the derivative transactions themselves. 14

7 2. Fair values of financial instruments Consolidated balance sheet amounts and fair values of financial instruments and any difference as of March 31, 2013 and 2012 are set forth in the tables below. Note that the following tables do not include fair values for financial instruments for which the fair value was extremely difficult to measure. Year ended March 31, 2013 Consolidated balance sheet amount Fair value Difference (1) Cash and deposits 5,861 5,861 - (2) Notes and accounts receivable - trade 38,197 38,197 - (3) Short-term investments (4) Investments: Equity securities Available-for-sale securities 6,231 9,473 8,564 9,473 2,333 - Total assets 59,762 62,095 2,333 (1) Notes and accounts payable: Trade 22,294 22,294 - (2) Short-term loans payable 5,788 5,788 - (3) Long-term loans payable 12,853 12, (4) Notes and accounts payable: Other Other noncurrent liabilities Lease obligations Total liabilities 41,832 41, Derivative transactions (*) (17) (17) - (*) Derivative assets and (liabilities) are on a net basis. Year ended March 31, 2012 Consolidated balance sheet amount Fair value Difference (1) Cash and deposits 5,194 5,194 - (2) Notes and accounts receivable - trade 36,547 36,547 - (3) Short-term investments (4) Investments: Equity securities Available-for-sale securities 4,846 7,984 7,512 7,984 2,666 - Total assets 54,576 57,242 2,666 (1) Notes and accounts payable: Trade 22,295 22,295 - (2) Short-term loans payable 6,488 6,488 - (3) Long-term loans payable 12,982 13, (4) Notes and accounts payable: Other Other noncurrent liabilities Lease obligations Total liabilities 42,543 42, Derivative transactions (*) (17) (17) - (*) Derivative assets and (liabilities) are on a net basis. Note 1: Determination of fair value of financial instruments, securities and derivative transactions Assets (1) Cash and deposits, (2) Notes and accounts receivable - trade and (3) Short-term investments The fair value approximates the carrying amount because of the short maturity of these instruments. 15

8 (4) Investments The fair value of securities is stated at quoted market price. The securities are classified as securities in affiliates or available-for-sale securities. Consolidated balance sheet amount, acquisition cost and any difference as of March 31, 2013 and 2012 were as follows: Year ended March 31, 2013 Securities with consolidated balance sheet amount exceeding acquisition cost Consolidated balance sheet amount Acquisition cost (*) Difference 14,342 5,525 8,817 Securities with consolidated balance sheet amount not exceeding acquisition cost 1,362 1,666 (304) Total 15,704 7,191 8,513 (*) Acquisition cost is the consolidated balance sheet amount after write-down. The amount of write-down accounted for as of and for the year ended March 31, 2013 was 7 million. Year ended March 31, 2012 Securities with consolidated balance sheet amount exceeding acquisition cost Consolidated balance sheet amount Acquisition cost (*) Difference 11,740 5,803 5,937 Securities with consolidated balance sheet amount not exceeding acquisition cost 1,090 1,376 (286) Total 12,830 7,179 5,651 (*) Acquisition cost is the consolidated balance sheet amount after write-down. Proceeds from the sale of available-for-sale securities and the related gains amounted to 63 million and 46 million respectively for the year ended March 31, Liabilities (1) Notes and accounts payable: Trade and (2) Short-term loans payable The fair value approximates the carrying amount because of the short maturity of these instruments. (3) Long-term loans payable The fair value of long-term loans payable is estimated by the present value of the total amount of principal and interest discounted at the interest rate that would apply to similar new borrowing. For variable interest, long-term loans payable which are hedged by interest rate swap contracts and meet certain hedging criteria (See Note 13, Derivative Transactions ), the principal and interest booked with an interest rate swap as a unit is assessed by discounting at the reasonably estimated interest rate of similar borrowing. (4) Lease obligations The fair value of lease obligations is estimated by the present value of the principal and interest discounted at the assumed interest rate of similar lease transactions. 16

9 Derivative transactions Refer to the Note 13, Derivative Transactions. Note 2: Financial instruments for which the fair value is extremely difficult to measure Available-for-sale securities (non-listed equity securities) in the consolidated balance sheet amount of 1,047 million as of March 31, 2013 and 1,392 million as of March 31, 2012 were not included in Assets (4) Investments because they had no quoted market price, future cash flows were not estimable and the fair values were unavailable. Proceeds from the sale of available-for-sale securities and the related gains amounted to 14 million and 7 million respectively for the year ended March 31, The amount of write-down accounted for as of and for the year ended March 31, 2012 for available-for-sale securities (non-listed equity securities) was 2 million. Note 3: Aggregate annual maturities of money claims and securities with maturities as of March 31, 2013 and 2012 were as follows: Year ended March 31, and thereafter Cash and deposits 5, Notes and accounts receivable - trade 38, Total 44, Year ended March 31, and thereafter Cash and deposits 5, Notes and accounts receivable - trade 36, Short-term investments Total 41, Note 4: Aggregate annual maturities of long-term loans payable and lease obligations as of March 31, 2013 and 2012 were as follows: Year ended March 31, and thereafter Long-term loans payable 5,018 1,409 2, , Lease obligations Total 5,316 1,632 2, , Year ended March 31, and thereafter Long-term loans payable 6,683 4, Lease obligations Total 6,915 4,

10 8. Securities The following tables summarize the consolidated balance sheet amount, acquisition cost and fair value of available-for sale securities as of March 31, 2013 and March 31, Available-for-sale securities (non-listed equity securities) in the consolidated balance sheet amount of 242 million as of March 31, 2013 and 173 million as of March 31, 2012 were not included in Equity securities because they had no quoted market price, the future cash flows were not estimable and the fair values were unavailable. For the year ended March 31, 2013, proceeds from the sale of available-for-sale securities amounted to 14 million and the related gains amounted to 7 million. For the year ended March 31, 2012, the proceeds and gains were 63 million and 46 million, respectively. The amount of available-for-sale securities impaired for the year ended March 31, 2013 and March 31, 2012 was 7 million and 2 million, respectively. Regarding impairment loss, when the fair value at the fiscal year end is lower than acquisition cost by 50% or more, the whole amount of such difference is recorded as an impairment loss, in principle. When the fair value at the fiscal year end is lower than acquisition cost by between 30% and 50%, an amount deemed to be necessary is recorded as an impairment loss in determining recoverability by considering the quoted market price transaction during a certain period in the past, business performance and other factors. Year ended March 31, 2013 Securities with consolidated balance sheet amount exceeding acquisition cost Consolidated balance sheet amount Acquisition cost Difference 8,112 5,062 3,050 Securities with consolidated balance sheet amount not exceeding acquisition cost 1,362 1,666 (304) Total 9,474 6,728 2,746 Year ended March 31, 2012 Securities with consolidated balance sheet amount exceeding acquisition cost Consolidated balance sheet amount Acquisition cost Difference 6,894 5,340 1,554 Securities with consolidated balance sheet amount not exceeding acquisition cost 1,090 1,376 (286) Total 7,984 6,716 1, Inventories Inventories at March 31, 2013 and 2012 consisted of the following: Finished goods 5,734 5,200 Merchandise Work-in-process Raw materials and supplies 4,934 4,329 12,017 10,929 18

11 10. Short-term Loans Payable and Long-term Loans Payable Short-term loans payable at March 31, 2013 and 2012 consisted of short-term notes generally for one year bearing interest ranging from 0.41% to 13.20%. Long-term loans payable at March 31, 2013 and 2012 consisted of the following: Secured: Loans principally from banks at 0.45% % maturing through ,925 1,965 Unsecured: Loans principally from banks at 0.45% % maturing through ,928 11,017 12,853 12,982 Less amounts due within one year 5,018 6,683 7,835 6,299 The aggregate annual maturities of long-term loans payable at March 31, 2013 were as follows: Year ending March 31, , , , and thereafter 3,203 12,853 The Company has specific commitment lines with two banks to finance working capital as follows: Specific commitment lines 3,000 million Unused portion as of March 31, ,500 million 11. Assets Pledged as Collateral Assets pledged as collateral as of March 31, 2013 and 2012 were as follows: Notes and accounts receivable - trade Property, plant and equipment, net of accumulated depreciation 2,813 2,971 Investments in other ,048 3,211 Liabilities secured by the above assets were as follows: Short-term loans payable Current portion of long-term loans payable Notes and accounts payable Long-term loans payable 1,153 1,707 Other noncurrent liabilities 1 2 2,533 2,616 19

12 12. Finance Leases 1. Non-capitalized finance leases of the Companies at March 31, 2013 and 2012 were as follows: (As lessee) (1) Acquisition cost, accumulated depreciation and book value of leased properties, including interest: Machinery, equipment and vehicles: Acquisition cost 1,167 1,342 Accumulated depreciation Book value Other property, plant and equipment: Acquisition cost Accumulated depreciation Book value 3 36 (2) Future minimum lease payments, including interest: Due within one year Due over one year Total (3) Lease payments and equivalent depreciation amount Lease payments under the above leases for the years ended March 31, 2013 and 2012 were 186 million and 265 million, respectively. (4) Depreciation method of lease equivalents Accumulated depreciation of lease assets under non-capitalized finance lease transactions are computed using the straight-line method, with the lease period used as the useful life and no residual value. 2. Capitalized finance leases of the Companies at March 31, 2013 and 2012 were as follows: (As lessee) Finance leases for which the ownership of the leased assets is not considered to be transferred to the lessee as of and for the years ended March 31, 2013 and March 31, 2012 were as follows: (1) Description of leased assets Tangible fixed assets: Mainly the production facilities in the printing ink business (machinery and equipment) and computers (tools, furniture and fixtures) for common purpose or each business etc.. (2) Depreciation method for leased assets As described in Note 2, Significant Accounting Policies - Finance leases. 20

13 13. Derivative Transactions 1. Derivative transactions to which hedge accounting has not been applied Year ended March 31, 2013 Section Transactions except market transactions Hedging instruments Interest rate swap contracts Pay fixed, Receive variable 21 Contract amount Over 1 year Fair value (*) () Gain (loss) on evaluation (17) 1 (*)The fair values of derivative transactions are determined at the quoted price obtained from the relevant financial institutions. Year ended March 31, 2012 Section Transactions except market transactions Hedging instruments Interest rate swap contracts Pay fixed, Receivable variable Contract amount Over 1 year Fair value (*) () Gain (loss) on evaluation (17) (17) (*)The fair values of derivative transactions are determined at the quoted price obtained from the relevant financial institutions. 2. Derivative transactions to which hedge accounting has been applied Year ended March 31, 2013 Hedge accounting Certain hedging criteria for interest rate swap contracts Hedging instruments Interest rate swap contracts Pay fixed, Receivable variable Hedged items Long-term loans payable Contract amount Over 1 year Fair value () Evaluation of fair value 2,000 - (*) - (*) The fair value is booked with the hedged items such as long-term loans payable as a unit because the transaction meets certain hedging criteria for interest rate swap contracts. The fair value is included in the fair value of long-term loans payable in Note 7, Financial Instruments. Year ended March 31, 2012 Hedge accounting Certain hedging criteria for interest rate swap contracts Hedging instruments Interest rate swap contracts Pay fixed, Receivable variable Hedged items Long-term loans payable Contract amount Over 1 year Fair value () Evaluation of fair value 5,000 2,000 (*) - (*) The fair value is booked with the hedged items such as long-term loans payable as a unit because the transaction meets certain hedging criteria for interest rate swap contracts. The fair value is included in the fair value of long-term loans payable in Note 7, Financial Instruments.

14 14. Provision for Retirement Benefits The Company and certain domestic consolidated subsidiaries provide funded non-contributory pension plans, which include defined benefit pension plans and unfunded lump-sum payment plans. Certain foreign consolidated subsidiaries provide defined contribution plans as well as defined benefit pension plans. The liability for retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2013 and 2012 consisted of the following: Projected benefit obligation 10,668 9,498 Less unrecognized actuarial differences (2,146) (1,761) Less unrecognized prior service cost 0 0 Less fair value of pension assets (6,172) (5,591) Prepaid pension expenses Liability for retirement benefits 2,876 2,727 Retirement benefit expenses included in the consolidated statements of income for the years ended March 31, 2013 and 2012 consisted of the following: Service costs benefits earned during the year Interest cost on projected benefit obligation Expected return on plan assets (166) (162) Reversal of prior service costs 0 0 Amortization of actuarial differences Retirement benefit expenses The discount rate changed from mainly 2.00% in 2012 to 1.25% in 2013, and the rate of expected return on plan assets was mainly 3.00%. The estimated amount of all retirement benefits to be paid at future retirement dates is allocated equally to each service year using the estimated total number of service years. Prior service costs are recognized mainly as current costs, and actuarial gains and losses are recognized in the consolidated statements of income using the straight-line method over mainly 15 years, which is within the average of the estimated remaining service years of employees, commencing with the current period. 22

15 15. Deferred Income Taxes Significant components of the Companies deferred tax assets and liabilities as of March 31, 2013 and 2012 were as follows: Deferred tax assets: Allowance for doubtful accounts Provision for bonuses Provision for retirement benefits Write-down of inventories Intangible assets Tax loss carryovers Other Subtotal 3,334 3,300 Valuation allowance (807) (850) Total deferred tax assets 2,527 2,450 Deferred tax liabilities: Valuation difference on available-for-sales securities (965) (446) Special reserves (798) (414) Provision of reserve for special account for advanced depreciation of noncurrent assets (226) - Other (1,304) (1,122) Total deferred tax liabilities (3,293) (1,982) Net deferred tax assets (liabilities) (766) 468 The reconciliation between the effective tax rate reflected in the consolidated financial statements and the statutory tax rate for the years ended March 31, 2013 and 2012 were summarized as follows: Statutory tax rate of the Company 38.0% -% (Reconciliation) Expenses not qualifying for deduction Revenues not in gross revenue (2.2) - Corporate inhabitants tax Tax credits (1.6) - Equity in earnings of affiliates (3.5) - Elimination of dividend income Valuation allowance (0.9) - Other Effective tax rate after adoption of tax-effect accounting 35.0% -% A reconciliation for the year ended March 31, 2012 is omitted the because difference between the statutory tax rate and the effective tax rate after adoption of tax-effect accounting was less than 5% of the former rate for the year. 23

16 16. Contingent Liabilities (Contingent liabilities) At March 31, 2013 and 2012, the Companies were contingently liable as follows: The Company provides letters of awareness to banks for bank loans of unconsolidated subsidiaries and affiliated companies, and the Company also provides guarantees of indebtedness for leases of unconsolidated subsidiaries and affiliated companies. The guarantee obligations include the amount guaranteed by the other parties, and that amount is excluded from the amount stated above. (Amount guaranteed by the other parties) 17. Selling, General and Administrative Expenses The main items of selling, general and administrative expenses for the years ended March 31, 2013 and March 31, 2012 were as follows: Freightage and packing expenses 3,784 3,748 Salaries and allowances 7,030 6,792 Depreciation Provision of allowance for doubtful accounts Provision for bonuses Retirement benefit expenses Research and development expenses 2,085 2, Gain on Sales of Property, Plant and Equipment Gain on sales of property, plant and equipment resulted from the sales of the former Funabashi plant. 24

17 19.Impairment Loss Impairment loss recognized for the year ended March 31, 2013 was as follows: Location Type Amount () Europe Goodwill 65 The full book value of the above asset was recognized as impairment loss since the originally expected return from the investment became unlikely due to changes in market conditions. The recoverable value of the asset was calculated based on its value in use and was assessed as zero. 20. Consolidated Statements of Comprehensive Income Reclassification adjustment and the tax benefit concerning other comprehensive income for the years ended March 31, 2013 and March 31, 2012 were as follows: Valuation difference on available-for-sale securities Unrealized holding gains arising during the period 1,470 (1,201) Reclassification adjustment included in net income 7 (46) Pre-tax amount 1,477 (1,247) Tax benefit (520) 576 Valuation difference on available-for-sale securities 957 (671) Foreign currency translation adjustment Amount arising during the period 1,612 (871) Share of other comprehensive income of affiliates accounted for using equity method Amount arising during the period 837 (437) Total other comprehensive income 3,406 (1,979) 25

18 21. Segment Information 1. Overview of reportable segments The Companies reportable segments are components of the Companies for which separate financial information is obtainable and which the Board of Directors and Management Committee regularly consider in order to determine the allocation of business resources and to evaluate business performance. The Companies are mainly engaged in the manufacture and sale of printing. Multiple divisions of the Company are engaged in the domestic market and the foreign subsidiaries are engaged in their own respective oversea markets such as markets of Asia, North America and Europe. Foreign subsidiaries that have independent management units establish their own comprehensive strategy and develop business activities in their respective regions and surrounding areas. Besides the sale of printing, the Company purchases and sells graphic arts materials in the domestic market. In addition, the Company purchases and sells printing equipment in the domestic market. The digital & specialty products business such as inkjet ink, toner, pigment dispersion and others developed through the basic technology of printing like pigment dispersion make up various independent operational segments. The Companies focus on expanding the revenue base of the digital & specialty products business led by the Company. Therefore, the Companies printing business, our core business, comprises the geographic segments based on the production and sales structure. The Companies printing business consists of the four reportable segments of and graphic arts materials (Japan), (Asia), (North America) and (Europe). Furthermore, the Digital & Specialty products business, in which the Companies promote business expansion, constitutes another reportable segment for a total of five reportable segments. Reportable segment and graphic arts materials (Japan) (Asia) (North America) (Europe) Digital & Specialty products Main products and merchandise News paper printing ink, Commercial printing ink, Packaging ink, Flexible packaging gravure ink, Print and plate making equipment and materials, Packaging equipment and supplies News paper printing ink, Commercial printing ink, Metal decorating ink, Packaging ink, Flexible packing gravure ink Commercial ink, Metal decorating ink, Packaging ink, Flexible packaging gravure ink Commercial ink, Metal decorating ink, Packaging ink, Flexible packaging gravure ink Inkjet ink, Toner, Pigment dispersion for color filter, Functional coating 2. Basis of measurement for reported segment sales, profit or loss, assets and other items The accounting policies of the reportable segments are essentially the same as those described in Note 2, Significant Accounting Policies. Segment profit or loss is stated on an operating income basis. Intersegment income and transfers are based on the prevailing markets prices. 26

19 3. Information about reported segment sales, segment profit or loss, segment assets and other items Year ended March 31, 2013 Reportable Segment and graphic arts materials (Japan) (Asia) (North America) (Europe) Digital & Specialty products Total Other businesses (*1) Total Adjustments (*2) Consolidated (*3) Net sales to outside customers 58,792 19,002 26,246 5,711 5, ,333 7, , ,099 Intersegment and transfers , ,115 4,379 6,494 (6,494) - Total 58,830 19,081 28,010 5,838 5, ,448 12, ,593 (6,494) 123,099 Segment profit 3,668 1, (61) 32 5, , ,790 Segment assets 36,060 15,469 12,467 5,705 5,709 75,410 4,187 79,597 20,053 99,650 Depreciation , ,417-2,417 Amortization of goodwill Increase in property, plant and equipment and intangible assets 1, ,128 3, ,021 1,470 5,491 (*1) The Other businesses category includes the chemical products business, color film developing and printing services and equipment for color matching systems not shown in reportable segments. (*2) Adjustments are as follows: 1. The adjustment of 204 million for segment profit includes eliminations for intersegment transactions of 395 million and corporate expenses of (191) million that have not been allocated to any segment. Corporate expenses are mainly service fees to unconsolidated subsidiaries and affiliates. 2. The adjustment of 20,053 million for segment assets includes eliminations for intersegment transactions of (3,316) million and corporate assets of 23,369 million that have not been allocated to any segment. Corporate assets are mainly investment securities held for a common purpose. 3. The adjustment of 1,470 million for increase in property, plant and equipment and intangible assets is capital investment of corporate assets that have not been allocated to any segment. (*3) Segment profit is adjusted to be consistent with operating income shown on the consolidated statements of income. 27

20 Year ended March 31, 2012 Reportable Segment and graphic arts materials (Japan) (Asia) (North America) (Europe) Digital & Specialty products Total Other businesses (*1) Total Adjustments (*2) Consolidated (*3) Net sales to outside customers 59,282 15,498 24,937 5,541 6, ,370 8, , ,571 Intersegment and transfers , ,042 4,317 6,359 (6,359) - Total 59,317 15,650 26,524 5,740 6, ,412 12, ,930 (6,359) 119,571 Segment profit 3, (294) , , ,261 Segment assets 36,164 11,720 11,044 4,133 5,387 68,448 5,692 74,140 16,855 90,995 Depreciation , ,494-2,494 Amortization of goodwill Increase in property, plant and equipment and intangible assets ,107 2, ,744-2,744 (*1) The Other businesses category includes the chemical products business, color film developing and printing services and equipment for color matching systems not shown in reportable segments. (*2) Adjustments are as follows: 1. The adjustment of 185 million for segment profit includes eliminations for intersegment transactions of 374 million and corporate expenses of (189) million that have not been allocated to any segment. Corporate expenses are mainly service fees to unconsolidated subsidiaries and affiliates. 2. The adjustment of 16,855 million for segment assets includes eliminations for intersegment transactions of (2,630) million and corporate assets of 19,485 million that have not been allocated to any segment. Corporate assets are mainly investment securities held for a common purpose. (*3) Segment profit is adjusted to be consistent with operating income shown on the consolidated statements of income. 28

21 (Related Information) Year ended March 31, Information about each product and service Year ended March 31, 2013 Graphic arts materials Digital & Specialty products Other Total Net sales to outside customers 90,646 19,199 5,582 7, , Information about geographic areas Year ended March 31, 2013 Japan Asia America Europe Other Total Net sales 68,205 19,938 24,444 6,150 4, ,099 Property, plant and equipment 14,094 2,984 3,604 2, ,895 Note: Net sales are classified by country and region based on customer location. 3. Major customers No information is available as there were no outside customers accounting for 10% or more of the Companies total net sales. (Loss on impairment of fixed assets by reportable segments) Year ended March 31, 2013 Reportable Segment and graphic arts materials (Japan) (Asia) (North America) (Europe) Digital & Specialty products Total Other businesses Adjustments Consolidated Loss on impairment of fixed assets (Amortization and unamortized balance of goodwill) Year ended March 31, 2013 Reportable Segment and graphic arts materials (Japan) (Asia) (North America) (Europe) Digital & Specialty products Total Other businesses Adjustments Consolidated Amortization of goodwill Balance as of March 31,

22 (Negative goodwill in other income by reportable segments) Not applicable Year ended March 31, Information about each product and service Year ended March 31, 2012 Graphic arts materials Digital & Specialty products Other Total Net sales to outside customers 84,949 20,466 6,112 8, , Information about geographic areas Year ended March 31, 2012 Japan Asia America Europe Other Total Net sales 69,232 16,701 23,437 6,182 4, ,571 Property, plant and equipment 11,631 2,784 3,492 1, ,239 Note: Net sales are classified by country and region based on customer location. 3. Major customers No information is available as there were no outside customers accounting for 10% or more of the Companies total net sales. (Loss on impairment of fixed assets by reportable segments) Not applicable (Amortization and unamortized balance of goodwill) Year ended March 31, 2012 and graphic arts materials (Japan) (Asia) Reportable Segment (North America) (Europe) Digital & Specialty products Other businesses Adjustment Consolidated Amortization of goodwill Balance as of March 31, Total (Negative goodwill in other income by reportable segments) Not applicable 30

23 22. Related Party Transactions Transactions with related parties required to be disclosed by Japanese GAAP for the years ended March 31, 2013 and 2012 were as follows: Year ended March 31, 2013 Attribute Name Location Capital stock (Millions of RMB) Operations or occupation Holding equity (%) Relationship Transaction details Transaction amount (Millions of yen) Account Balance at year end (Millions of yen) Affiliate SHENZHEN SAKATA INX CO., LTD. Shenzhen, China 2 ink Direct 25.0 Sales of finished goods Sales of finished goods 1,739 Notes and accounts receivable - trade Investments and other assets: Other Note 1: The trade terms of the above transactions were determined using the same method as for third party transactions. 1, Note 2: The amount of 107 million was accounted for as allowance for doubtful accounts to cover possible losses on collection from SHENZHEN SAKATA INX CO., LTD., and the amount of bad debt expense accounted for the year ended March 31, 2013 was 32 million. Year ended March 31, 2012 Attribute Name Location Capital stock (Millions of RMB) Operations or occupation Holding equity (%) Relationship Transaction details Transaction amount (Millions of yen) Account Balance at year end (Millions of yen) Affiliate SHENZHEN SAKATA INX CO., LTD. Shenzhen, China 2 ink Direct 25.0 Sales of finished goods Sales of finished goods 998 Notes and accounts receivable - trade Investments and other assets: Other Note 1: The trade terms of the above transactions were determined using the same method as for third party transactions. 1, Note 2: The amount of 62 million was accounted for as allowance for doubtful accounts to cover possible losses on collection from SHENZHEN SAKATA INX CO., LTD., and the amount of bad debt expense accounted for the year ended March 31, 2012 was 3 million. 31

24 23. Changes in Net Assets 1. Information on type and number of shares issued and treasury stock Type and number of shares issued and treasury stock in the year ended March 31, 2013 Number of shares as of the beginning of current period Increase in number of shares during the period Decrease in number of shares during the period Number of shares as of the end of current period Shares issued: Common stock 62,601, ,601,161 Treasury stock: Common stock 2,085,645 4,243-2,089,888 Note: The increase in number of shares of treasury stock was due to the purchase of fractional shares. Type and number of shares issued and treasury stock in the year ended March 31, 2012 Number of shares as of the beginning of current period Increase in number of shares during the period Decrease in number of shares during the period Number of shares as of the end of current period Shares issued: Common stock 62,601, ,601,161 Treasury stock: Common stock 2,082,767 2,878-2,085,645 Note: The increase in the number of shares of treasury stock was due to the purchase of fractional shares. 2. Information on dividends Dividends paid in the year ended March 31, 2013 Date of resolution Type of shares Amounts of dividends () Cash dividends per share (Yen) Record date Effective date Annual meeting of stockholders held on June 28, 2012 Common Stock March 31, 2012 June 29, 2012 Directors' meeting held on November 7, 2012 Common Stock September 30, 2012 December 3, 2012 Dividends paid in the year ended March 31, 2012 Date of resolution Annual meeting of stockholders held on June 29, 2011 Directors' meeting held on November 9, 2011 Type of shares Common Stock Common Stock Amounts of dividends () Cash dividends per share (Yen) Record date March 31, 2011 September 30, 2011 Effective date June 30, 2011 December 2,