Summary of Consolidated Financial Results for the Year Ended December 31, 2013 <Under Japan GAAP>

Transcription

1 February 12, 2014 Summary of Consolidated Financial Results for the Year Ended December 31, 2013 <Under Japan GAAP> Company name: PALTEK CORPORATION Shares Traded: Tokyo Stock Exchange Securities code: 7587 URL: Representative: Naohide Yabuki, President Inquiries: Hiroki Inoue, Director and General Manager, Operational Service Division TEL: Date of Annual General Meeting of Shareholders: March 29, 2014 Date of commencement of dividend payment: March 31, 2014 Date of filing of financial report: March 31, 2014 Preparation of supplementary material on financial results: Yes Holding of financial results presentation meeting: Yes (for analysts and institutional investors) (Millions of yen rounded down) 1. Consolidated Operating Results for the Year Ended December 31, 2013 (January 1, 2013 to December 31, 2013) (1) Consolidated Operating Results (% figures represent year-on-year increase or decrease) Net sales Operating income Ordinary income Net income Millions of yen % Millions of yen % Millions of yen % Millions of yen % Fiscal year ended December , Fiscal year ended December ,231 (19.2) (317) (185) (106) (Note) Comprehensive income: Fiscal year ended December 2013: 445 million yen [ %] Fiscal year ended December 2012: (105) million yen [ %] Net income per share Net income per share fully diluted Return on equity Ratio of ordinary income to total assets Ratio of operating income to net sales Yen Yen % % % Fiscal year ended December Fiscal year ended December 2012 (9.33) (1.3) (1.9) (2.4) (Reference) Equity in earnings (losses) of affiliates companies: December 2013 fiscal term: million yen December 2012 fiscal term: million yen (2) Consolidated Financial Position Total assets Net assets Equity ratio Net assets per share Millions of yen Millions of yen % Yen As of December 31, ,886 8, As of December 31, ,266 7, (Reference) Total equity: As of December 31, 2013: 8,274 million yen As of December 31, 2012: 7,889 million yen (3) Consolidated Cash Flow Position Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of period Millions of yen Millions of yen Millions of yen Millions of yen Fiscal year ended December 2013 (1,414) (43) 918 1,198 Fiscal year ended December 2012 (202) (495) (67) 1,739

2 2. Dividends End of 1Q End of 2Q Annual Dividends End of 3Q End of 4Q Annual Dividends (Total) Payout ratio (Consolidated) Ratio of dividends to net sales (Consolidated) Yen Yen Yen Yen Yen Million yen % % Fiscal year ended December Fiscal year ended December Fiscal year ending December 2014 (Forecast) Forecasts of Consolidated Operating Results for the Fiscal Year Ending December 31, 2014 (January 1, 2014 to December 31, 2014) (% figures represent year-on-year increase or decrease) Net income Net sales Operating income Ordinary income Net income per share Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen Interim period 9, (50.6) 230 (48.9) 145 (43.9) Full year 19, (32.7) 510 (34.8) 320 (27.9) * Notes (1) Changes in material subsidiaries during the term (changes in specific subsidiaries affecting the scope of consolidation): No New: - (Company name: ) Excluded: - (Company name: ) (2) Changes in accounting policies, changes in accounting estimates, and restatement of prior term financial statements after error corrections (1) Changes in accounting policies due to revisions to accounting standards: Yes (2) Changes in accounting policies due to other reasons: No (3) Changes in accounting estimates: Yes (4) Restatement of prior term financial statements after error corrections: No (3) Number of outstanding shares (common shares) 1) Number of shares outstanding at term-end (including treasury shares) As of December 31, 2013: 11,849,899 shares As of December 31, 2012: 11,849,899 shares 2) Number of treasury shares at term-end As of December 31, 2013: 430,937 shares As of December 31, 2012: 420,917 shares 3) Average number of shares during the term Fiscal year ended December 2013: 11,419,739 shares Fiscal year ended December 2012: 11,429,113 shares

3 Reference Non-Consolidated Operating Results Non-Consolidated Operating Results for the Year Ended December 31, 2013 (January 1, 2013 to December 31, 2013) (1) Non-Consolidated Operating Results (% figures represent year-on-year increase or decrease) Net sales Operating income Ordinary income Net income Millions of yen % Millions of yen % Millions of yen % Millions of yen % Fiscal year ended December , Fiscal year ended December ,086 (19.4) (298) (163) (139) Net income per share Yen Net income per share fully diluted Fiscal year ended December Fiscal year ended December 2012 (12.25) (2) Non-Consolidated Financial Position Yen Total assets Net assets Equity ratio Net assets per share Millions of yen Millions of yen % Yen As of December 31, ,794 8, As of December 31, ,258 7, (Reference) Total equity: As of December 31, 2013: 8,302 million yen As of December 31, 2012: 7,913 million yen * Indication Regarding Execution of Audit Procedures The audit procedures pursuant to the Financial Instruments and Exchange Act do not apply to this financial results report. At the time of disclosure of this financial results report, the audit procedures pursuant to the Financial Instruments and Exchange Act are incomplete. * Proper Use of Business Results Forecasts and Other Notes The forward-looking statements, including business results forecasts, contained in these materials are based on information currently available to the Company and on certain assumptions deemed to be reasonable. Actual business and other results may differ substantially due to a number of factors. Please refer to 1. Analysis of Operating Results and Financial Position, (1) Analysis of Operating Results on page 2 of the attached material for the matters concerning business results forecasts, etc.

4 Attached Material Index 1. Analysis of Operating Results and Financial Position... 2 (1) Analysis of Operating Results... 2 (2) Analysis of Financial Position... 3 (3) Basic Policy Regarding Profit Allocation, and Dividends in the Current and Next Term... 4 (4) Business Risks Corporate Group Situation Management Policy... 7 (1) The Company s Basic Management Policy... 7 (2) Targeted Management Indexes... 7 (3) Mid-and-Long Term Company Strategies and Issues to Address... 7 (4) Other Company Management Priorities Consolidated Financial Statements... 8 (1) Consolidated Balance Sheets... 8 (2) Consolidated Statements of (Comprehensive) Income Consolidated Statements of Income Consolidated Statements of Comprehensive Income (3) Consolidated Statements of Changes in Equity...12 (4) Consolidated Statements of Cash Flows Non-Consolidated Financial Statements (1) Balance Sheets (2) Statements of Income (3) Statements of Changes in Equity Other (1) Change in Directors and Audit & Supervisory Board Members (2) Other

5 1. Analysis of Operating Results and Financial Position (1) Analysis of Operating Results 1) Operating results in this term In the Japanese economy during this consolidated fiscal year, the stock market saw increased activity due to Abenomics, and improved consumer sentiment led to increased personal consumption. Boosted by a jump in demand before the consumption tax increase, housing investment was also strong. Japan s export environment improved against the backdrop of a weaker yen against the U.S. dollar, the U.S. economy improved, and such factors lifted corporate earnings. Strengthened by both post-earthquake recovery demand and the impact of economic measures, demand from public works projects strengthened even outside earthquake affected regions. However, although exports to the U.S. were firm, the momentum of increase in exports weakened amid concerns of economic slowdown in some of the emerging countries. In the electronics industry in which the PALTEK Group belongs, strong activity continued mainly for automobile related business, mobile information devices such as smartphones and tablet PCs, and communication infrastructure, which is being propelled by spread of smartphones. The consumer market field, however, continued to be in a difficult competitive environment and remained sluggish. Amid this business environment, the Group achieved growth in semiconductors for medical equipment, which had been weak in the previous fiscal year, as well as in semiconductors for communication infrastructure on the back of active investment in communication infrastructure, which is being propelled by the expansion of smartphone users, and there was an increase in semiconductors for broadcasting equipment and industrial equipment on the back of a rise in customers beginning new deals. These factors contributed to significant growth in semiconductors. Also, in the design service (design outsourcing) business, significant growth was achieved owing to firm performance in development projects for medical equipment, broadcasting equipment and communication equipment as well as the inclusion of net sales from Explorer Inc., which was made part of the Group from July 2012 and contributed a full-year of net sales for the first time this consolidated fiscal year. As a result, net sales were 17,611 million yen, an increase of 33.1% compared with the previous fiscal year. Operating income was boosted by increased gross profit from the considerable growth in net sales and constrained costs owing to a significant increase in the valuation amount of U.S. dollar-denominated purchase allowances held by the Company toward vendors due to the weaker yen against the U.S. dollar, resulting in an operating income of 772 million yen compared with an operating loss of 317 million yen in the previous fiscal year. Ordinary income was 782 million yen, compared with an ordinary loss of 185 million yen in the previous fiscal year, and net income was 443 million yen, compared with 106 million yen net loss in the previous fiscal year. 2) Forecasts for the next term In our outlook over the next term, we expect difficult condition including intensified global competition in the electronics industry in which the PALTEK Group belongs, due to a rising presence from manufacturers in the emerging countries. Nevertheless, we expect the trend of weak yen to the U.S. dollar to continue and for there to be firm demand for automotive applications, industrial equipment, and mobile information devices, such as smartphones and tablet PCs. In light of such a business environment, the Group aims to boost revenues by making efforts in the semiconductor business, the foundation business of the Group, in the highly profitable design service (design outsourcing) business, and in the smart energy business. In the semiconductor business, the Group aims to propose and sell various semiconductor products in wide range of fields including industrial equipment such as medical equipment, broadcasting equipment, measurement equipment, factory automation (FA), and communication infrastructure, mobile information devices such as smartphones, and storage. In addition, in the design service business, while increasing design outsourcing in fields such as medical equipment, broadcasting equipment and communication equipment, the Group will also make efforts to develop and sell products manufactured by the Group as well as in the ODM(*) business. In particular, the Group will focus on advancing development of 4K-compatible H.265 codec system with rate control, a project selected as an Innovation Commercialization Venture Support Project of the New Energy and Industrial Technology Development Organization (NEDO), and strengthening promotion of this to the market to start sales. By coordinating promotion for that with promotion for the existing H.264 codec devices, the Group will aim to accelerate sales for these devices. Furthermore, in the smart energy business, a new business field of the Group, in which we aim to realize a secure and stable society with low energy needs by making efforts to utilize renewable energy, promote energy conservation, and take measures to prevent and reduce disaster impact, the Group will promote proposals for emergency power generator systems that are designed to provide long-lasting supply of electric power to hospitals and clinics. Through the activities outlined above, the consolidated earnings forecasts for the Group are: net sales of 19,000 million yen (up 7.9% from the previous fiscal year), operating income of 520 million yen (down 32.7% from the previous fiscal year), ordinary income of 510 million yen (down 34.8% from the previous fiscal year), and net income of 320 million yen (down 27.9% from the previous fiscal year). In the previous fiscal year, because of the weakening of the yen to the U.S. dollar, the valuation of U.S. dollar-denominated purchase allowances held by the Company toward vendors increased by 336 million yen to significantly lower costs and increase operating income. In the current earnings forecast, fluctuation from the difference in the valuation amount of U.S. dollar-denominated purchase allowances is not taken into account as it is difficult to predict the trend of the yen to the U.S. dollar exchange rate. (*)ODM (Original Design Manufacturing) refers to not only designing the product to be sold under the brand of the ordering company, but also manufacturing it. 2

6 (2) Analysis of Financial Position 1) Assets, liabilities and net assets Total assets for this fiscal year increased by 1,620 million yen as compared with the level at the end of the previous fiscal year to 10,886 million yen. The breakdown was current assets increasing 1,644 million yen to 10,280 million yen, and non-current assets decreasing 24 million yen to 606 million yen. The increase in current assets was principally increases in notes and accounts receivable - trade, merchandise and accounts receivable - other, whilst there was a decrease in consumption taxes receivable. The decrease in non-current assets was mainly due to a decrease in deferred tax assets. Liabilities increased 1,236 million yen compared with the level at the end of the previous fiscal year to 2,612 million yen. The major factors were increases in notes and accounts payable - trade and short-term loans payable. Net assets increased by 384 million yen as compared with the level at the end of the previous fiscal year to 8,274 million yen. While there was a payment of 57 million yen in dividends, mainly due to recording of 443 million yen net income, retained earnings increased 386 million yen compared with the level at the end of the previous fiscal year to 4,435 million yen. 2) Cash flows Cash flow situations for this consolidated fiscal year, and relevant causes, are as follows. (Cash flow from operations) Regarding cash flow from operations, whilst there were a recording of income before income taxes and minority interests of 761 million yen and a decrease in consumption taxes refund receivable, due to increases in notes and accounts receivable - trade, inventories and accounts receivable - other and other reasons, cash flow from operations came to an outlay of 1,414 million yen (against an outlay of 202 million yen in the previous fiscal year). (Cash flow from investment) Regarding cash flow from investment, whilst there were proceeds from withdrawal of investments in subsidiaries resulting from the exclusion of Spinnaker Systems, Inc. from consolidation carried out in December 2012, due to purchase of property, plant and equipment and intangible assets and other reasons, cash flow from investment came to an outlay of 43 million yen (against an outlay of 495 million yen in the previous fiscal year). (Cash flow from financing) Regarding cash flow from financing, due to new loans, proceeds from sales and leasebacks and other reasons, cash flow from financing came to an income of 918 million yen (against an outlay of 67 million yen in the previous fiscal year). Trends in indicators of cash flows for the Group are as follows: FY 2009 Ended December FY 2010 Ended December FY 2011 Ended December FY 2012 Ended December FY 2013 Ended December Equity ratio (%) Equity ratio (market value basis) (%) Interest-bearing debt to cash flow ratio (years) Interest coverage ratio (times) Notes: Equity ratio: Total equity/total assets Equity ratio (market value basis): Market capitalization/total assets Interest-bearing debt to cash flow ratio: Interest-bearing debt/cash flow Interest coverage ratio: Cash flow/interest payment (1) Each indicator is calculated based on consolidated financial statements. (2) Market capitalization is calculated based on the number of outstanding shares excluding treasury shares. (3) For the cash flow, the cash flow from operating activities is used. (4) Interest-bearing debts cover all liabilities with interest payments under the liabilities section of the consolidated balance sheets. Interest payments equal the amount of interest expenses paid on the consolidated statements of cash flows. 3

7 (3) Basic Policy Regarding Profit Allocation, and Dividends in the Current and Next Term The Group recognizes profit returns to all shareholders as one of the important business issues. For this reason, whilst striving to improve performance and business efficiency, and continually maintaining profitability, we have a basic policy of providing fair profit allocation, with consideration given to enhancement of our management base and future business evolution. Regarding dividends, we will determine dividend amounts after taking into account payout ratios for performance, whilst maintaining the steady dividends that we have offered up until now. Regarding year-end dividends for this consolidated fiscal year, as per the revision announcement dated December 9, 2013, as a result of a comprehensive consideration of factors including trends in operating results, the financial position and the payout ratio against earnings, we have increased the year-end dividend per share by three yen from the initially forecasted five yen to eight yen. Also, regarding dividends in the next term, basing our decision on the basic policy of profit allocation outlined above, we are planning to offer year-end dividends of eight yen per share. The Group will strive to achieve the earnings forecast and further increase revenues. (4) Business Risks The following are items that may affect the Group s operating results or financial situation. The Group recognizes the potential for these risks to arise, and works to prevent them from arising, and to respond in cases where they do arise. Although future matters are included among these items, judgments that have been made with regard to these items are current as of the end of this consolidated fiscal year. 1) Variable factors determined by dependence on semiconductors The Group s clients are mainly within the domestic electronics industry, and the Group s performance is affected by trends in product demand and capital investment trends within the industry, and may also be affected by cyclically occurring economic fluctuations in the semiconductor industry as a whole. In response to these, profit structure reforms are being imposed at the Group in order to be able to cope with these kinds of fluctuations, but rapid economic fluctuations in the domestic electronics industry and changes in demand trends may impact upon the Group s performance. 2) Dependence upon specific suppliers The Group s main supplier is Xilinx. This consolidated fiscal year, sales of products from this company accounted for approximately 39 percent of consolidated sales. Although business relations with Xilinx are currently progressing steadily, if difficulties should arise in continuing our business relationship due to the supplier changing its distribution policy or engaging in restructuring, such difficulties might impact upon the Group s performance. To avoid these risks, the Group is sharing business strategies with current suppliers and is aiming to expand sales and strengthen the relationship. Also, by always understanding the needs of the customer and establishing new suppliers with competitive advantage, we are striving to expand our business and reduce our dependence upon specific suppliers. 3) Regarding outflow of information assets As a key tool of its sales strategy, the Group holds various information assets. The Company has always regarded information security as a vital duty, and made efforts to draw up privacy policies and introduce a wide range of technological measures. Furthermore, in order to build a more robust information management system, the Company acquired ISMS certification(*) in December 2004, and based on the conversion of this certification to ISO in November 2007, the Company received ISO27001 (JIS Q 27001) certification. Through these activities, as well as introducing encryption software to notebook computers, as a result of providing regular education about information security, the Company has worked to increase employees awareness of appropriate handling of information assets, and has strived to prevent information leaks from the aspects of both hardware and software. However, where outflow of information assets occurs due to unintended system failure, incorrect operation, intrusion or attack from outside, or other unforeseen circumstances, this may impact upon performance through either a loss of trust in the Group, or through claims for damages. (*)ISMS certification: Based on the introduction of international standards for information security management, and reforms made to the system for certifying businesses implementing safety measures for information systems within the information-processing industry, as announced by the Ministry of International Trade and Industry in July 2000, this is a private-sector driven third-party certification system that was started at the Japan Information Processing Development Corporation (JIPDEC). 4) Effects of foreign exchange rate fluctuations Sales of semiconductor-related products form the core of the Group s business, but its main suppliers are overseas manufacturers, and transactions in foreign currency constantly arise. For this reason, exchange rate fluctuations may affect the Group s performance. The Group takes various measures to lessen the risk of exchange rate fluctuations and avoid this outcome, but cannot ensure that risks posed by exchange rate fluctuations are fully avoided. Due to this, rapid exchange rate fluctuations may impact upon the Group s performance and financial situation. 5) Developing new suppliers and promoting business By making full use of the high engineering support capabilities that it has cultivated over many years, as well as its marketing ability that appeals to individuality, and by acquiring products that are highly competitive, even within the industry, and expanding its product line, the Group has worked towards expanding its areas of specialty and expanding its customer base. In the future, the Group will continue with its policies, and work towards further business evolution. However, in the fiercely competitive semiconductor industry, in which technological innovations happen quickly, competition to acquire these powerful new suppliers is becoming increasingly fierce, and even where powerful suppliers have been acquired and supply is made to customers, due to the effects of competition among finished products at the customer end, as well as the shortening lifecycles of these products, the Group s business plans may not always proceed according to plan. Thus, at the Group, 4

8 we are constantly keeping an eye on market and technological trends, and always work to acquire competitive new products, and to achieve business plans, but delays in business start-ups of new supplier products may impact upon the Group s performance. 6) Effects of clients shifting to overseas production At present, the Group sells products that are primarily semiconductors to domestic electronics manufacturers. Responding to the foreign exchange rate fluctuation while seeking production bases at lower costs and markets with high growth potential, these domestic electronics manufacturers are strengthening their moves to shift production bases to foreign countries such as China and other Asian countries. In order to respond to these overseas transfers by clients, and to continue supplying products and engineering support, the Group has established a branch office in Singapore to support customers with production bases in countries such as Malaysia, Thailand and Vietnam. The Group has also established a subsidiary in Hong Kong to respond to production transfers by Japanese manufacturers to Hong Kong and mainland China. However, in cases where a customer s product development in Japan is further shifted overseas to an area beyond the reach of the Group s sales operations, performance may be affected. 7) Effects of inventory disposal and evaluation In order to respond suitably to customers quantity requirements and delivery dates, the Group holds several months worth of inventory. In order to hold the optimum amount of inventory, as well as acquiring predictive information for quantities required by customers, and demand forecasts for merchandise with products equipped, the Group analyzes past situations in terms of fluctuations and orders, and coordinates issuance of orders to suppliers, to thereby procure and manage inventory. However, where there are rapid fluctuations in quantities required by customers or in market prices, or where discrepancies arise with quantities initially forecast as being required by customers for either discontinued products or products that have been stored as maintenance stock, it may be necessary for us to dispose of them or to revise asset value evaluations in accordance with accounting standards. Where such cases arise, performance may be affected. 5

9 2. Corporate Group Situation The Group s main business activities consist of selling semiconductor and design software for electronic equipment, and providing design support services. The following is a business system chart that broadly illustrates the relations between the Company and its affiliates within the Group s business operations. Business segment Description of business Major companies Semiconductor and related business Design, development and sales of semiconductor-related products, Support services for design technologies PALTEK CORPORATION, Explorer Inc. Overseas / Domestic suppliers Manufacturing subcontractors Products Products Explorer Inc. Merchandise Products and Services (design outsourcing services) PALTEK CORPORATION (the Company) Merchandise and Services (design outsourcing services) Domestic / Overseas users (Consolidated subsidiary) Products and Services (design outsourcing services) 6

10 3. Management Policy (1) The Company s Basic Management Policy With the ideal of co-existing with diverse ways of life, the Group aims to create value that is meaningful for stakeholders involved with the Group, including customers, suppliers, employees, shareholders and local societies. By clearly identifying the actual or potential needs of society and customers (the needs) and matching them with products and technologies that are the product of the world s diverse cultures (the seeds), the Group shall continually contribute to society by creating added value through the proposal of products and development of solutions and, thereby, contributing to customer development. (2) Targeted Management Indexes Operating in the electronics industry, which is constantly changing due to rapid globalization, technological innovation and rising awareness toward the environment, the Group considers it is necessary to run a highly profitable business in order to adapt to these environmental changes. Therefore, in addition to providing high added value products and solutions to achieve the Group s target management index of at least five percent for operating margin, the Group puts every effort to establish a stable corporate structure through extensive rationalization of management and further promotion of low-cost operations. (3) Mid-and-Long Term Company Strategies and Issues to Address In the electronics industry in which the Group belongs, global competition is intensifying due to an increasing presence of manufacturers in the emerging countries. Moreover, the speed of technological innovation is now faster than ever. Therefore, in order to grow in this industry, it is necessary to continually bring new products to the market that meet the needs. Amid this business environment, in order to adapt to the large changes in the economic environment and execute investment to realize the next step in growth, the Group recognizes that its most important business challenge is to improve profitability. The Group is making the following efforts to improve profitability. 1) Ensure stable profitability in the semiconductor business We will focus on markets with high growth potential and profitability and propose products tailored to each market. We will propose products at the system level, such as high performance power sources and interface products, with a focus on Programmable Logic Device (PLD) for which we can offer proposals from the initial stage of product development to enhance profitability. We will tap into markets in which the Company has yet to appeal to the full and expand earnings with a focus on general purpose ICs in which companies such as NXP Semiconductors and Microchip Technology Inc. have a track record. We will boost sales of ICs for specific purposes in which we have strengths, including communication equipment and industrial equipment. We will pursue further low-cost operation to improve profitability. 2) Strengthening the design service business and expanding business territory As the shift to overseas production progresses, the number of production bases located in Japan is declining annually. However, research and development still remains based in Japan. The Group commercialized its design service business, which provides design and development outsourcing services to customers, in 2008, and we have been providing support for design and development primarily to customers who deal with research and development of medical equipment, industrial equipment and communications equipment. In July 2012, the Company made Explorer Inc. part of the Group and strengthened its design service business. As a result, the Group is not only expanding design outsourcing services by taking advantage of Explorer s advanced image compression and processing technology, but also accelerating the promotion of the ODM business and expanding businesses with own original products drawing on fabless business model expertise. Based on this, we will build a business with even higher profitability. In addition, Explorer Inc. is now developing an H.265 codec system that is compatible with the next generation broadcasting format 4K, which is selected as an Innovation Commercialization Venture Support Project of the New Energy and Industrial Technology Development Organization (NEDO). In the future, the Group plans to propose the codec systems not just for the broadcasting sector, but also the medical sector, surveillance camera sector, and so forth. 3) Starting up new businesses Since the Great East Japan Earthquake in March 2011, the environment related to energy has changed dramatically. It is now necessary to respond to power outages lasting for periods longer than previously considered. Aiming to contribute to the achievement of energy-related sustainability in society, the Group will provide more practical solutions by improving the efficiency of energy supply, using renewable energy, promoting energy conservation, and providing methods to prevent and reduce disaster damage. Currently, the Group is building systems for power outage for hospitals and proposing them to hospitals and clinics. 4) Strengthening support for overseas transfer of business As an increasing number of Japanese makers transfer their production bases overseas, the number of overseas production contracts undertaken by the Group is on an upward trend. Providing support to these overseas customers has therefore become a priority issue. The Group currently has a branch office and a subsidiary in Singapore and Hong Kong, respectively, and these provide support for overseas production contracts. However, as we expect the transfer of production overseas to accelerate, we are taking measures to strengthen our support capabilities, which include increasing our personnel. (4) Other Company Management Priorities No applicable items. 7

11 4. Consolidated Financial Statements (1) Consolidated Balance Sheets Assets FY 2012 (As of December 31, 2012) FY 2013 (As of December 31, 2013) Current assets Cash and deposits 1,739,109 1,198,732 Notes and accounts receivable - trade 3,227,139 4,562,222 Merchandise 1,051,369 2,258,154 Supplies 7,236 6,252 Advance payments - trade Accounts receivable - other 919,401 1,767,604 Consumption taxes receivable 1,499, ,763 Deferred tax assets 124,053 58,394 Other 68,701 39,009 Allowance for doubtful accounts (995) (1,216) Total current assets 8,635,545 10,280,471 Non-current assets Property, plant and equipment Buildings and structures 175, ,727 Accumulated depreciation (119,702) (107,181) Buildings and structures, net 55,736 55,546 Vehicles 23,910 23,910 Accumulated depreciation (3,853) (8,635) Vehicles, net 20,056 15,275 Tools, furniture and fixtures 253, ,776 Accumulated depreciation (233,338) (227,934) Tools, furniture and fixtures, net 20,107 36,842 Land 44,686 44,686 Total property, plant and equipment 140, ,348 Intangible assets Goodwill 11,454 9,042 Other 29, ,838 Total intangible assets 40, ,881 Investments and other assets Investment securities 17,112 9,372 Deferred tax assets 154,843 52,665 Other 277, ,336 Allowance for doubtful accounts (130) (130) Total investments and other assets 449, ,244 Total non-current assets 630, ,474 Total assets 9,266,495 10,886,946 8

12 Liabilities FY 2012 (As of December 31, 2012) FY 2013 (As of December 31, 2013) Current liabilities Notes and accounts payable - trade 570, ,136 Short-term loans payable - 880,000 Income taxes payable 8, ,379 Provision for bonuses 22,134 40,325 Advances received 6, Lease obligations 5,021 29,467 Other 505, ,930 Total current liabilities 1,118,056 2,288,773 Non-current liabilities Provision for retirement benefits 45,493 37,407 Provision for directors retirement benefits 157, ,500 Lease obligations 16,072 89,412 Other 39,413 39,603 Total non-current liabilities 258, ,924 Total liabilities 1,376,535 2,612,697 Net assets Shareholders equity Capital stock 1,339,634 1,339,634 Capital surplus 2,698,526 2,698,526 Retained earnings 4,048,957 4,435,612 Treasury shares (195,516) (199,525) Total shareholders equity 7,891,601 8,274,248 Accumulated other comprehensive income Valuation difference on available-for-sale securities (1,642) - Total accumulated other comprehensive income (1,642) - Total net assets 7,889,959 8,274,248 Total liabilities and net assets 9,266,495 10,886,946 9

13 (2) Consolidated Statements of (Comprehensive) Income Consolidated Statements of Income FY 2012 (Fiscal year ended Dec. 31, 2012) FY 2013 (Fiscal year ended Dec. 31, 2013) Net sales 13,231,898 17,611,297 Cost of sales 11,106,472 14,423,299 Gross profit 2,125,426 3,187,997 Selling, general and administrative expenses Provision of allowance for doubtful accounts (1,034) 220 Salaries and allowances 1,081, ,462 Bonuses 167, ,830 Provision for bonuses 21,778 39,826 Rent expenses 218, ,376 Amortization of goodwill 602 2,411 Other 954, ,928 Total selling, general and administrative expenses 2,443,290 2,415,056 Operating income (loss) (317,864) 772,940 Non-operating income Interest income Dividend income 24 - Foreign exchange gains 145,181 8,892 Interest on refunds of consumption taxes 4,376 3,169 Commission fee 2,509 4,084 Insurance income 10,960 - Subsidy income - 35,278 Insurance premiums refunded cancellation - 12,057 Other 1,657 6,402 Total non-operating income 164,946 69,952 Non-operating expenses Interest expenses ,454 Commission fee 14,026 29,025 Losses on assignment of accounts receivable 12,398 12,152 Other 5,379 8,837 Total non-operating expenses 32,270 60,469 Ordinary income (loss) (185,187) 782,423 Extraordinary income Gain on sales of investment securities 1,107 - Gain on liquidation of investment securities 13,241 - Total extraordinary income 14,349 - Extraordinary losses Loss on valuation of investment securities - 10,234 Loss on sales of shares of subsidiaries and associates Restructuring loss 46,621 10,647 Loss on sales of golf club memberships Loss on cancellation of leases 4,441 - Total extraordinary losses 51,940 20,882 Income (loss) before income taxes and minority interests (222,779) 761,541 Income taxes - current 9, ,810 Income taxes - deferred (126,005) 166,930 Total income taxes (116,186) 317,741 Income (loss) before minority interests (106,592) 443,800 Net income (loss) (106,592) 443,800 10

14 Consolidated Statements of Comprehensive Income FY 2012 (Fiscal year ended Dec. 31, 2012) FY 2013 (Fiscal year ended Dec. 31, 2013) Income (loss) before minority interests (106,592) 443,800 Other comprehensive income Valuation difference on available-for-sale securities 626 1,642 Deferred gains or losses on hedges - - Total other comprehensive income 626 1,642 Comprehensive income (105,966) 445,442 Comprehensive income attributable to Comprehensive income attributable to owners of parent (105,966) 445,442 Comprehensive income attributable to minority interests

15 (3) Consolidated Statements of Changes in Equity FY 2012 (Fiscal year ended Dec. 31, 2012) Balance at beginning of current period Changes of items during period Capital stock Capital surplus Shareholders equity Retained earnings Treasury shares Total shareholders equity 1,339,634 2,698,526 4,212,696 (195,437) 8,055,419 Dividends of surplus (57,145) (57,145) Net loss (106,592) (106,592) Purchase of treasury shares Net changes of items other than shareholders equity Total changes of items during period Balance at end of current period (79) (79) - - (163,738) (79) (163,818) 1,339,634 2,698,526 4,048,957 (195,516) 7,891,601 Balance at beginning of current period Changes of items during period Accumulated other comprehensive income Valuation difference on available-for-sale securities Total accumulated other comprehensive income Total net assets (2,268) (2,268) 8,053,151 Dividends of surplus (57,145) Net loss (106,592) Purchase of treasury shares Net changes of items other than shareholders equity Total changes of items during period Balance at end of current period (79) (163,192) (1,642) (1,642) 7,889,959 12

16 FY 2013 (Fiscal year ended Dec. 31, 2013) Balance at beginning of current period Changes of items during period Capital stock Capital surplus Shareholders equity Retained earnings Treasury shares Total shareholders equity 1,339,634 2,698,526 4,048,957 (195,516) 7,891,601 Dividends of surplus (57,144) (57,144) Net income 443, ,800 Purchase of treasury shares Net changes of items other than shareholders equity Total changes of items during period Balance at end of current period (4,008) (4,008) ,655 (4,008) 382,647 1,339,634 2,698,526 4,435,612 (199,525) 8,274,248 Balance at beginning of current period Changes of items during period Accumulated other comprehensive income Valuation difference on available-forsale securities Total accumulated other comprehensive income Total net assets (1,642) (1,642) 7,889,959 Dividends of surplus (57,144) Net income 443,800 Purchase of treasury shares Net changes of items other than shareholders equity Total changes of items during period Balance at end of current period (4,008) 1,642 1,642 1,642 1,642 1, , ,274,248 13

17 (4) Consolidated Statements of Cash Flows FY 2012 (Fiscal year ended Dec. 31, 2012) FY 2013 (Fiscal year ended Dec. 31, 2013) Cash flows from operating activities Income (loss) before income taxes and minority interests (222,779) 761,541 Depreciation 38,778 51,147 Amortization of goodwill 602 2,411 Increase (decrease) in allowance for doubtful accounts (10,973) 220 Increase (decrease) in provision for bonuses (24,340) 18,190 Increase (decrease) in provision for retirement benefits 13,113 (8,085) Loss (gain) on sales of golf club memberships Interest and dividend income (260) (68) Interest expenses ,454 Foreign exchange losses (gains) 10,364 (29,935) Subsidy income - (35,278) Loss (gain) on valuation of investment securities - 10,234 Loss (gain) on sales of investment securities (1,107) - Loss (gain) on sales of shares of subsidiaries and associates Loss (gain) on liquidation of investment securities (13,241) - Loss on cancellation of leases 4,441 - Loss on business restructuring 46,621 10,647 Decrease (increase) in notes and accounts receivable - trade 962,122 (1,334,323) Decrease (increase) in inventories 111,236 (1,206,890) Increase (decrease) in notes and accounts payable - trade (370,651) 188,795 Decrease (increase) in consumption taxes refund receivable (11,996) 1,060,355 Decrease (increase) in accounts receivable - other (781,894) (941,361) Decrease (increase) in advance payments 357,987 (554) Increase (decrease) in advances received (323,243) (6,227) Other, net 20,719 50,412 Subtotal (193,155) (1,398,314) Interest and dividend income received Interest expenses paid (275) (10,367) Proceeds from subsidy income - 35,278 Payments for business restructuring - (54,844) Income taxes refund ,174 Income taxes paid (9,665) (13,752) Net cash provided by (used in) operating activities (202,315) (1,414,757) 14

18 FY 2012 (Fiscal year ended Dec. 31, 2012) FY 2013 (Fiscal year ended Dec. 31, 2013) Cash flows from investing activities Proceeds from sales of investment securities - 1,245 Dividends from liquidation of investment securities 15,020 - Purchase of property, plant and equipment (12,695) (54,802) Proceeds from sales of property, plant and equipment - - Purchase of intangible assets (14,713) (137,612) Payments for asset retirement obligations - (18,784) Purchase of shares of subsidiaries resulting in change in scope of consolidation (316,820) - Payments for sales of shares of subsidiaries resulting in change in scope of consolidation (165,992) - Proceeds from withdrawal of investments in subsidiaries - 117,101 Payments of loans receivable - (73) Collection of loans receivable 91 - Decrease (increase) in other investments 13 49,063 Net cash provided by (used in) investing activities (495,096) (43,861) Cash flows from financing activities Net increase (decrease) in short-term loans payable - 880,000 Repayments of lease obligations (9,908) (18,162) Purchase of treasury shares (79) (4,008) Cash dividends paid (57,495) (57,146) Proceeds from sales and leasebacks - 117,558 Net cash provided by (used in) financing activities (67,483) 918,241 Effect of exchange rate change on cash and cash equivalents 25,404 0 Net increase (decrease) in cash and cash equivalents (739,490) (540,376) Cash and cash equivalents at beginning of period 2,478,600 1,739,109 Cash and cash equivalents at end of period 1,739,109 1,198,732 15

19 5. Non-Consolidated Financial Statements (1) Balance Sheets FY 2012 (As of December 31, 2012) FY 2013 (As of December 31, 2013) Assets Current assets Cash and deposits 1,559,556 1,053,789 Notes receivable - trade 103, ,001 Accounts receivable - trade 3,032,392 4,327,537 Merchandise 1,010,528 2,209,586 Supplies 7,236 6,252 Advance payments - trade Prepaid expenses 35,056 30,568 Deferred tax assets 100,788 46,560 Short-term loans receivable 160,000 80,000 Accounts receivable - other 919,401 1,767,604 Income taxes receivable 24,975 - Consumption taxes receivable 1,499, ,763 Other 7,446 7,217 Allowance for doubtful accounts (812) (1,008) Total current assets 8,459,722 10,051,428 Non-current assets Property, plant and equipment Buildings 117, ,332 Accumulated depreciation (85,853) (71,166) Buildings, net 31,190 33,166 Vehicles 23,910 23,910 Accumulated depreciation (3,853) (8,635) Vehicles, net 20,056 15,275 Tools, furniture and fixtures 220, ,061 Accumulated depreciation (202,770) (192,608) Tools, furniture and fixtures, net 18,203 18,453 Total property, plant and equipment 69,450 66,892 Intangible assets Telephone subscription right 4,862 4,862 Software 10, ,109 Software in progress 12,800 - Total intangible assets 28, ,972 Investments and other assets Investment securities 17,112 9,372 Shares of subsidiaries and associates 282, ,296 Claims provable in bankruptcy, claims provable in rehabilitation and other Long-term prepaid expenses Deferred tax assets 126,088 8,324 Lease and guarantee deposits 87,691 58,410 Insurance funds 186, ,429 Long-term loans receivable from employees - 73 Other Allowance for doubtful accounts (130) (130) Total investments and other assets 700, ,482 Total non-current assets 798, ,347 Total assets 9,258,404 10,794,775 16

20 FY 2012 (As of December 31, 2012) FY 2013 (As of December 31, 2013) Liabilities Current liabilities Accounts payable - trade 566, ,589 Short-term loans payable - 800,000 Accounts payable - other 418, ,065 Accrued expenses 41,429 47,525 Income taxes payable 8, ,804 Advances received 6, Deposits received 32,591 37,092 Provision for bonuses 22,134 40,325 Lease obligations 5,021 29,467 Other 433 3,508 Total current liabilities 1,101,791 2,183,911 Non-current liabilities Provision for retirement benefits 30,293 22,207 Provision for directors retirement benefits 157, ,500 Lease obligations 16,072 89,412 Other 39,413 39,603 Total non-current liabilities 243, ,724 Total liabilities 1,345,070 2,492,635 Net assets Shareholders equity Capital stock 1,339,634 1,339,634 Capital surplus Legal capital surplus 1,678,512 1,678,512 Total capital surpluses 1,678,512 1,678,512 Retained earnings Legal retained earnings 46,100 46,100 Other retained earnings General reserve 4,200,000 3,600,000 Retained earnings brought forward 846,244 1,837,417 Total retained earnings 5,092,344 5,483,517 Treasury shares (195,516) (199,525) Total shareholders equity 7,914,975 8,302,140 Valuation and translation adjustments Valuation difference on available-for-sale securities (1,642) - Total valuation and translation adjustments (1,642) - Total net assets 7,913,333 8,302,140 Total liabilities and net assets 9,258,404 10,794,775 17

21 (2) Statements of Income FY 2012 (Fiscal year ended Dec. 31, 2012) FY 2013 (Fiscal year ended Dec. 31, 2013) Net sales 13,086,848 17,351,813 Cost of sales Beginning goods 1,120,476 1,010,528 Cost of purchased goods 10,901,519 15,520,407 Processing cost 35,328 42,641 Total 12,057,323 16,573,577 Transfer to other account 9,165 1,125 Ending goods 1,010,528 2,209,586 Cost of goods sold 11,037,630 14,362,865 Gross profit 2,049,218 2,988,947 Selling, general and administrative expenses Provision of allowance for doubtful accounts (413) 195 Directors compensations 93,465 82,128 Salaries and allowances 1,039, ,086 Bonuses 155, ,097 Welfare expenses 170, ,923 Provision for bonuses 21,778 39,826 Rent expenses 214, ,101 Depreciation 35,913 46,794 Commission fee 91,907 78,565 Other 524, ,736 Total selling, general and administrative expenses 2,347,851 2,161,455 Operating income (loss) (298,632) 827,492 Non-operating income Interest income 558 1,078 Dividend income 24 - Foreign exchange gains 145,216 8,892 Commission fee 2,509 3,769 Insurance income 10,960 - Interest on refund of income taxes and other - 3,759 Interest on refunds of consumption taxes - 3,169 Other 5,876 2,613 Total non-operating income 165,144 23,282 Non-operating expenses Interest expenses ,254 Commission fee 14,026 29,025 Losses on assignment of promissory notes 1,519 1,459 Losses on assignment of accounts receivable 12,398 12,144 Other 1,300 7,377 Total non-operating expenses 29,971 60,261 Ordinary income (loss) (163,459) 790,513 Extraordinary income Gain on sales of investment securities 1,107 - Gain on liquidation of investment securities 13,241 - Total extraordinary income 14,349 - Extraordinary losses Loss on sales of shares of subsidiaries and associates 52,553 - Loss on valuation of investment securities - 10,234 Restructuring loss 46,621 10,647 Loss on sales of golf club memberships Total extraordinary losses 99,719 20,882 18

22 FY 2012 (Fiscal year ended Dec. 31, 2012) FY 2013 (Fiscal year ended Dec. 31, 2013) Income (loss) before income taxes (248,829) 769,630 Income taxes - current 9, ,228 Income taxes - deferred (118,454) 171,085 Total income taxes (108,831) 321,313 Net income (loss) (139,998) 448,317 19

23 (3) Statements of Changes in Equity FY 2012 (Fiscal year ended Dec. 31, 2012) Balance at beginning of current period Changes of items during period Capital stock Capital surplus Legal capital surplus Legal retained earnings Shareholders equity Retained earnings Other retained earnings General reserve Retained earnings brought forward Total retained earnings Treasury shares Total shareholders equity 1,339,634 1,678,512 46,100 4,200,000 1,043,389 5,289,489 (195,437) 8,112,200 Dividends of surplus (57,145) (57,145) (57,145) Net loss (139,998) (139,998) (139,998) Purchase of treasury shares (79) (79) Net changes of items other than shareholders equity Total changes of items during period (197,144) (197,144) (79) (197,224) Balance at end of current period 1,339,634 1,678,512 46,100 4,200, ,244 5,092,344 (195,516) 7,914,975 Balance at beginning of current period Changes of items during period Valuation and translation adjustments Valuation difference on available-for-sale securities Total valuation and translation adjustments Total net assets (2,268) (2,268) 8,109,931 Dividends of surplus (57,145) Net loss (139,998) Purchase of treasury shares (79) Net changes of items other than shareholders equity Total changes of items during period (196,598) Balance at end of current period (1,642) (1,642) 7,913,333 20