Annual Report Year ended May 31,2011. Suminoe Textile Co., Ltd.

Transcription

1 Annual Report 2011 Year ended May 31,2011 Suminoe Textile Co., Ltd.

2 Company Purpose Company Motto We contribute to the improvement of society through production, sales of good products and prosperity of business. We pride ourselves as a pioneer in the interior design and furnishing industry and persist in the spirit of cooperation, sincerity and resolution. Suminoe Textile supplied carpet to various major architectural structures during the Meiji era. We have thus advanced together with Japan from its start as a modern nation. At the age of 35 founder Denshichi Murata purchased 3 looms in 1983 and began manufacturing carpets. History Shares listed on the Tokyo, Osaka, and Kyoto stock exchanges. Suminoe Textile Co., Ltd. is established. Suminoe Textile Joint-Stock Company established Showa Era Meiji Era Taisho Era 1883 In 1891, Suminoe Textile supplied carpet for the establishment of Japan's Imperial Diet Building in Hibiya. We have been serving as its supplier for 120 years since then. Successful production of hand-woven moquette, adopted by Japan National Railways for seat covering in Suminoe Textile Co., Ltd. Annual Report 2011

3 We are aiming for the creation of a globally optimized supply system. Subsidiary, Suminoe Teijin Techno Krishna India Pvt. Ltd. jointly established in India. Suminoe Textile Shanghai Co., Ltd. established in China. Subsidiary, SPM Automotive Textile Co., Ltd. jointly established in China. Suminoe Textile of America Corporation established in the U.S. Current subsidiary, Suzhou Suminoe Textile Co.,Ltd. established in China. Current subsidiary, Suzhou Suminoe Koide Automotive Accessories Co.,Ltd. jointly established in China. PT.Sinar Suminoe Indonesia jointly established in Indonesia Heisei Era Suminoe Textile of America Corp "Ecos" Recycled Carpet Tiles New Release Current subsidiary, T.C.H.Suminoe Co., Ltd. jointly established in Thailand. TRIPLE FRESH deodorant treatment technology developed. TRIPLE FRESH Nara Factory began production of Japan's first carpet tiles. Contents Financial Highlights 3 Top Interview 4 Starting with our supply of nylon seat covering to Toyota Motor Corporation in 1958, our products have been used by various Japanese automobile manufacturers one after another. Topics 9 Suminoe at a Glance 11 Financial Section 18 Corporate Data 43 Suminoe Textile Co., Ltd. Annual Report

4 Financial Highlights Thousands of U.S. Dollars For the Year: Net Sales 70,892 70,033 71,374 80,869 76,670 $875,210 Operating Income 1,184 1, ,302 2,025 14,617 Net Income (Loss) 662 1,413 (850) 983 2,720 8,173 At Year-End: Total Assets 72,878 74,383 68,483 79,936 77,177 $899,728 Total Equity 28,101 28,249 25,049 28,153 29, ,926 Per Share (Yen and U.S. Dollars): Net Income (Loss) (11.24) $0.11 Share Holder's Equity Cash dividends applicable to the year Financial Ratios (%): Equity Ratio 34.7% 34.8% 36.0% 34.8% 37.8% ROE (Net Income Base) (3.2) ROA (Ordinary Income Base) Notes:1. U.S. dollar amounts are converted from Japanese yen amounts at the rate of U.S.$1 to 81, the approximate rate on May 31,2011. Notes:2. Net income (loss) per share of common stock is computed based on the weighted average number of shares outstanding. Net sales (Millons of yen) 100,000 Operating Income (Millons of yen) 2,500 2,302 Net Income(Loss) (Millons of yen) 3,000 2,720 80,000 76,670 80,869 71,374 70,033 70,892 2,000 2,025 1,806 2,000 60,000 1,500 1,413 40,000 1,000 1,184 1, , ,000 (850) Total Assets (Millons of yen) Total Equity (Millons of yen) 100,000 40,000 80,000 60,000 77,177 79,936 68,483 74,383 72,878 30,000 29,512 28,153 25,049 28,249 28,101 20,000 40,000 20,000 10, Suminoe Textile Co., Ltd. Annual Report 2011

5 Top Interview Message from the President We would like to express our heartfelt gratitude for your patronage and support. Our deepest sympathy goes to all the victims of the Great East Japan Earthquake. We sincerely wish for their safety, and for the earliest possible recovery of the affected areas. Ichizo Yoshikawa, President Suminoe Textile Co., Ltd. Annual Report

6 Top Interview Q1 Could you show your business results for the fiscal year ended May 31, 2011? A:During the term under review, the Japanese economy continued its modest recovery with the help of the government s economic policies, but it suffered from tremendous human/property damage caused by the Great East Japan Earthquake on March 11, The quake also split supply chains of the manufacturing industry, causing a spiral of production suspensions with such serious impacts as the worsening of corporate performance and the employment situation. Markets for interior fittings and automotive textiles were also severely affected by these circumstances. In contrast to the steady growth until the third quarter of the term, our sales and income for the fourth quarter had a sharp decline as a consequence of the earthquake. As a result, the Group s consolidated business results were: 70,892 million ($875,210 thousand) in sales, an increase of 1.2% from the previous term; 1,184 million ($14,617 thousand) in operating income, a decrease of 34.4% from the same; and 662 million ($8,173 thousand) in net income, a decrease of 53.1% from the same. Consolidated Financial Results & Target Net Sales Operating Income Net Income 2012 (Target) 2011 (Result) 2010 (Result) 74,000 70,892 70,033 $875,210 $766,981 1,300 1,184 1,806 $14,617 $19, ,413 $8,173 $15,475 Exchange Rate (Yen) U.S.$1 = 81 U.S.$1 = 91 : $ : Thousands of Dollars 5 Suminoe Textile Co., Ltd. Annual Report 2011

7 Q2 Have there been any changes to your future outlook after the Great East Japan Earthquake? A:While supply chains have been recovering from the cutoffs caused by the Great East Japan Earthquake, the domestic economy especially in manufacturing has not yet achieved full recovery, partly owing to power shortages. At the same time, the economic instability in Europe as represented by the financial crisis in Greece, along with the economic downturn in the United States, provide quite clouded and risky prospects for the future. Under these circumstances, the Group set final targets for the fiscal year ended May 31, 2012 as 74,000 million in sales, 1,300 million in operating income, and 850 million in net income. We will continue our endeavors to achieve our goals, through prompt and accurate situation judgment and flexible operations in each segment. As for the medium-term outlook, our Challenge 2012 medium-term management plan, launched in June 2010, failed to reach its first-year numerical targets by a large margin due to the Great East Japan Earthquake. For the second year of the plan (the fiscal year ending May 31, 2012), we are still unable to escape the impacts of the quake in this current first-half period. Against this backdrop, while also considering drastic changes of the market environment as the basis of our business scheme, we have decided to discontinue our current management plan and release a new three-year management plan (of which the first year is the term ending May 31, 2013). Your understanding and approval would be highly appreciated. Q3 Please describe your policy for dividends. A:The Company positions shareholder return as a key management issue, and follows a policy of making stable dividend payments at an appropriate level, taking business results into account. Based on this policy, we paid 2.5 (US$0.03) per share as the year-end and interim dividend, respectively. Consequently, our annual dividend for the term under review totaled 5.0 (US$0.06) per share. We will maintain this policy, and will again pay 5.0 per share as the annual dividend for the current term ending May Suminoe Textile Co., Ltd. Annual Report

8 Q4 Please illustrate your overseas operations for automotive textiles. A:The Suminoe Textile Group is a globally unique team of suppliers capable of providing a whole range of automotive textiles including carpets, seat covering and ceiling and trunk materials, maintaining the top market share in Japan. In the overseas market, we have Suminoe Textile of America Corporation as our US subsidiary for manufacturing and sales, while also holding operational bases in China, Thailand and Indonesia. Not only that, we established two new companies in 2010: Suminoe Teijin Techno Krishna India Pvt. Ltd. in India, and Suminoe Textile Shanghai Co., Ltd. in China. Also in 2010, we reinforced cooperation among our group companies by converting our equity method affiliates into subsidiaries: T.C.H. Suminoe Co., Ltd. in Thailand, and Suzhou Suminoe Koide Automotive Accessories Co., Ltd. in China. The ongoing appreciation of the yen, along with the impacts of the Great East Japan Earthquake, has been accel- erating overseas production of automobiles. To cope with this situation, our Group will further promote globalization to establish a world-scale supply system, with Suminoe Textile Co., Ltd. and Suminoe Teijin Techno Co., Ltd. (which deals with automotive seat covering materials) at the core. Construction of a globally optimized supply system 7 Suminoe Textile Co., Ltd. Annual Report 2011

9 Q5 What are the main features of ECOS, your newly-launched recycled carpet tiles? A:Suminoe Textile Co., Ltd. manufactured Japan s first carpet tiles in 1980, started recycling waste carpets in 1982, and commenced production of SUMI- TRON fiber from recycled PET bottles in We have thus aggressively led the interior industry through our development of ecofriendly products. Now we are pleased to announce that we have installed a production line for ECOS recycled carpet tiles in Suminoe Nara Co., Ltd., our carpet manufacturing subsidiary. ECOS is the fruit of our unique business model for recycling, where our collected waste tile carpets are recycled with our revolutionary method into new carpet tiles for sale, which will be collected again after use. ECOS is an innovative product whose maximum content of post-consumer recycled materials (reprocessed materials made of waste collected from market) is as high as 77%, substantially exceeding the Eco Mark certification criteria. With a plan to replace all our carpet tiles with ECOS for future production and marketing, the whole Suminoe Group is determined to work on the development of environmentally friendly products, so that it will further contribute to the building of a sustainable society, advocating the keyword of resources for the future. Suminoe Textile Co., Ltd. Annual Report

10 Topic1 An article appeared by South China Morning Post South China Morning Post, a prestigious daily English-language newspaper published in Hong Kong since 1903, recently carried a feature article with an interview to introduce our Group s production of environmentally friendly products. 9 Suminoe Textile Co., Ltd. Annual Report 2011

11 Topic2 ECOS Recycled Carpet Tiles New Release Suminoe Textile has recently installed new dedicated production facilities for manufacturing carpet tiles from recycled materials made from the used carpet tiles. As a result of this large-scale investment, one of the company s largest ever capital expenditures, Suminoe Textile is now ready to engage in full-scale production and sale of ECOS tiles. Resources for the future. ECOS carpet tiles boast a number of beneficial features, including: (1) The achievement of up to 77% post-consumer recycled content, a significantly higher percentage than the Eco Mark environmental labeling requirement. Product safety is ensured by strict verification and clear disclosure of the origins of the recycled materials. (2) A carbon footprint reduction of up to 43% compared to the company s existing products (according to an LCA assessment by Mizuho Information & Research Institute). (3) Competitive pricing achieved by the avoidance of a green premium, a common disadvantage of many recycled products. Broad efforts to realize a low-carbon, resource-recycling economy and, ultimately, a sustainable society are expected to pick up even greater momentum in the future, and ECOS carpet tiles can make a positive contribution in this respect. Under the theme of Conserving resources for future generations, the new product line has established an eco-friendly value chain, which starts with the collection of used carpet tiles, moves through the recycling, manufacturing and sale of recycled carpet tiles, their use by consumers, and back to collection. ECOS Double Recycle System Surface : SUMITRON Continuous Fiber Made From Recycled PET Bottles 2 consumption 3 used PET bottle 1 PET bottle Reverse Side : Recycled Backing Material 2 construction 3 use 1 delivery of recycled carpet tiles 4 renewal 4 collection transportation 5 recycling 7 tufting 6 texturizng 5 Collection of used carpet tiles 8 shipping 6 recycling 7 tufting Suminoe Textile Co., Ltd. Annual Report

12 Suminoe at a Glance Contribution to Total Net Sales Net Sales Operating Income (Loss) (Millons of yen) 40,000 (Millons of yen) 1,500 32,760 32,617 Interior Fittings 46.1 % 30,000 20,000 10,000 1, Automotive Textiles and Traffic Facilities 49.5 % (Millons of yen) 40,000 30,000 20,000 10,000 33,568 35,038 (Millons of yen) 2,500 2,000 1,500 1, ,963 1, (Millons of yen) 4,000 3,538 (Millons of yen) 50 Functional Materials 4.4 % 3,000 2,000 1,000 3, (25) (50) (43) Suminoe Textile Co., Ltd. Annual Report 2011

13 Main Products Roll Carpets Carpet Tiles Rugs and Mats Curtains P13 Wallpaper Plush Hand-woven Curtains Hand-woven Carpet Hooked Rugs Nishijin Brocade Fabric Automotive Textiles Seat Covering and Ceiling Materials Traffic Facilities Floor Carpets Car Mats P15 Train Bus Ship Aircraft P17 Tispa Deodorization Related Brand Air-filter Products SUNITRON Continuous Fiber Made from Recycled PET OH TILE Olefin Flooring Material Nassenger Special Pigment Ink-jet Print Suminoe Textile Co., Ltd. Annual Report

14 Interior Fittings Comprehensive manufacturer of lifestyle Inspired Interior Products Total interior products manufacturer that creates lifestyles, Since our founder, Denshichi Murata, began manufacturing carpets in 1883, Suminoe Textile has supplied carpet for the establishment of Japan s Imperial Diet Building in 1891 and contributed to lifestyle modernization as a pioneer of Japanese interior decor. At present, our subsidiary, SUMINOE Co., Ltd., sells Suminoe brand name products consisting mainly of curtains and carpets, while another subsidiary, RUNON Co., Ltd., sells wallpaper, etc. Our diverse selection of interior products has been used in a wide variety of distinguished buildings such as the Diet Building, State Guest Houses, Japanese Prime Minister s Official Residence, hotels, and office buildings as well as general residences. In particular, we were the first successful domestic manufacturer of carpet tiles. At present, we use our own independently-produced continuous fiber recycled from PET bottles called SUMITRON for pile yarn, and we respond to themes including recyclability and CO 2 reduction necessary in offices today with our advanced technology. Based on our secure technology and abundance of experience, Suminoe Textile will continue to supply environmentally friendly and unique products matching diversified lifestyles and possessing excellent design as well as functionality. 13 Suminoe Textile Co., Ltd. Annual Report 2011

15 SUMINOE Co., Ltd. RUNON Co., Ltd. Carpet Tiles Rugs and Mats Curtains Wallpaper Tango Textile Co., Ltd. Suminoe Textile Co., Ltd. Kyoto Traditional Art and Craft Factory Plush Hand-woven Curtains National Theatre of Japan (Tokyo) Hand-woven Carpet Hooked Rugs Nishijin Brocade Fabric Business Overview For the fiscal year ended May 31, 2011 Sales of commercial-use carpets for office buildings, commercial facilities and hotels were affected by cancelled renewals and postponed new constructions as a consequence of the Great East Japan Earthquake. Carpets and rugs for general households also were affected by the accelerated slowdown in consumer spending. As a result, the Group s sales in both of these product categories fell below the previous year s level. Sales of curtains showed a slight year-onyear increase, thanks to the steady growth of our mainstay item modes Vol.5 and the new Design Life series of ready-made curtains, as well as to the continued increase in orders for Face Vol.16+ partition curtains from medical, nursing care, and educational institutions. Sales of wall coverings were down year-on-year as a whole, while we saw a growth in sales of such functional products as TF-V air-cleaning wall coverings. Operating income at the Interior Fittings segment fell below the previous year s level, despite our thorough curtailment of SG&A expenses, due to the increasing costs of raw materials and the intensified competition in sales prices among companies. As a result of the above, sales of the Interior Fittings segment recorded a year-on-year decrease of 0.4% to 32,617 million ($402,679 thousand), with operating income also falling 38.2% to 578 million ($7,136 thousand). Suminoe Textile Co., Ltd. Annual Report

16 Automotive Textiles Automotive Textiles and Traffic Facilities Segment Total Supplier of Automotive Textiles In 1931, Suminoe Textile supplied carpets and seat covering material to automobiles assembled and manufactured in Japan for Ford Motor Company and General Motors from the United States. Later, our products were regularly adopted in domestically manufactured automobiles whose production expanded along with national policy. At present, we supply products to all Japanese automobile manufacturers, and we have maintained the top market share in the domestic interior fitting market. Our greatest feature is that we are one of the few examples of a company in the world able to supply a total line of automotive interior fittings from floors to ceilings including carpets, seat covering materials, headliner, and trunk materials. We have established manufacturing and sales sites in the United States as well as China, Thailand, and Indonesia, and we are aiming for the creation of a globally optimized supply system. Suminoe Teijin Techno Co., Ltd. Suminoe Textile Co., Ltd. Seat Covering and Ceiling Materials Floor Carpets Car Mats 15 Suminoe Textile Co., Ltd. Annual Report 2011

17 Traffic Facilities (Interior Materials for Trains/Buses/Ships/Aircraft) SUMICUBE Seat Cushion Material A Leading Manufacturer of Interior Materials for railway vehicles Central Japan Railway Company, West Japan Railway Company : Sinkansen N700 series (bullet train) The cornerstone of our automotive textiles today is the manufacturing of seat covering materials for railway vehicles. In 1896, when construction of the railway network was rapidly progressing, we were the first to manufacture seat covering materials for railway vehicles in Japan. Since then, we have supplied seat covering materials to Japan National Railways and private rail- ways and we are extremely proud of our top market share for more than one century. Today, Suminoe Textile supplies seat covering materials and the highly recyclable seat cushion material SUMICUBE, etc., in public transportation vehicles such as Shinkansen (bullet trains), trains, buses, ships, and aircraft. Business Overview For the fiscal year ended May 31, 2011 In the area of Automotive Textiles, Suminoe Textile s automotive carpet business and the seat covering business by Suminoe Teijin Techno Co., Ltd. both posted sales and operating income below their initial projections, owing to the discontinuation of subsidies for eco-friendly cars and the halt of automobile production caused by the Great East Japan Earthquake. In the Group s overseas operations, our subsidiary Suminoe Textile of America Corporation made a considerable contribution to the Group s consolidated performance with its sales and operating income surpassing the previous year s results. In China, our subsidiary SPM Automotive Textile Co., Ltd. showed year-on-year decreases in both sales and operating income. In the area of Traffic Facilities, orders for interior furnishings for newly-built railway cars increased from the previous year, mainly thanks to the demand for the Kyushu Shinkansen (bullet train). Meanwhile, however, replacement demand showed a downturn due to the expansion of investments by railway operators in safety measures, along with the impacts of the Great East Japan Earthquake. Consequently, total sales and operating income of this category both posted year-on-year declines. As a result of the above, total sales in the Automotive Textiles and Traffic Facilities segment recorded a 4.4% increase to 35,038 million ($432,568 thousand), while operating income declined by 10.9% to 1,749 million ($21,593 thousand). Suminoe Textile Co., Ltd. Annual Report

18 "We aim to deploy new applications which extend beyond existing fields by actively engaging in the development of eco-friendly and user-friendly, high value-added products." Tispa Deodorization Related Brand The Tispa series, Real odor deodorization without disguising with a scent, is a stationary deodorizer for home use that uses a TRIPLE FRESH Bio filter adopted in refrigerators and air purifiers. Tispa features an extremely small amount of re-radiated odor due to a biomimetic enzyme that works as a catalyst for continually absorbing and decomposing odors. Air-filter Products Functional Materials Nassenger Special Pigment Ink-Jet Print OH TILE Olefin Flooring Material Triple-Fresh Bio is a new concept of deodorizing filter where a biomimetic enzyme is invested in to a corrugate carrier. It continuously deodorizes unpleasant odor gas. Biomimetic enzyme works as a catalyst, and decomposes and deodorizes unpleasant odor components by oxidation-reduction reaction. Therefore its validity is semipermanent. SUMITRON Continuous Fiber Made from Recycled PET Bottles SUMITRON, continuous fiber made from recycled PET bottles and manufactured in our Shiga Factory, (Suminoe Koka Co., Ltd.) holds the No. 1 position in production volume for recycled polyester BCF in the domestic market. SUMITRON is being adopted for our interior products and automotive textiles as well as dust control mats and brushes for house cleaning, etc. Business Overview For the fiscal year ended May 31, 2011 In the electric carpet business, our sales and operating income both declined due to the warm winter that forced us to reduce production, and also because of the strong yen and intensifying price wars. In our carpet tile OEM business, its overall results held the previous year s level while showing a small increase in domestic sales and slightly decreasing in exports; as for profit margins, the strong yen and the rising costs of raw materials caused them to post a year-on-year decrease. In the deodorizing filter business, our stationary deodorizing units for general households, marketed under the brand name of Real odor deodorization without disguising with a scent, showed a steady growth in their sales; our production of home appliance filters also expanded in the meantime. As a result of the above, total sales in the Functional Materials segment recorded a 12.8% year-on-year decrease to 3,084 million ($38,074 thousand), while operating loss was 43 million ($531 thousand) (operating income in the previous year: 18 million). 17 Suminoe Textile Co., Ltd. Annual Report 2011

19 Financial Section 2011 Year ended May 31,2011 Contents Consolidated Balance Sheets 19 Consolidated Statements of Income 21 Consolidated Statement of Comprehensive Loss 22 Consolidated Statements of Changes in Equity 23 Consolidated Statements of Cash Flows 24 Notes to Consolidated Financial Statements 25 Independent Auditors Report 42 Suminoe Textile Co., Ltd. Annual Report

20 Consolidated Balance Sheets Suminoe Textile Co., Ltd. and Subsidiaries May 31, 2011 and 2010 Thousands of U.S. Dollars (Note 1) ASSETS CURRENT ASSETS: Cash and cash equivalents (Note 14) 7,827 8,565 $ 96,630 Marketable securities (Notes 3 and 14) ,395 Short-term investments (Note 14) ,185 Receivables: Trade notes (Note 14) 7,277 7,492 89,840 Trade accounts (Note 14) 9,984 11, ,259 Other 1,054 1,068 13,012 Allowance for doubtful receivables (44) (58) (543) Inventories (Note 4) 10,588 10, ,716 Deferred tax assets (Note 9) ,704 Other 1,324 1,240 16,345 Total current assets 39,410 40, ,543 PROPERTY, PLANT AND EQUIPMENT (Notes 2.h and 6): Land (Note 5) 18,376 18, ,864 Buildings and structures (Note 5) 17,081 17, ,877 Machinery and equipment 19,771 18, ,086 Construction in progress ,050 Total 56,042 53, ,877 Accumulated depreciation (29,782) (28,377) (367,679) Net property, plant and equipment 26,260 25, ,198 OTHER ASSETS: Investment securities (Notes 3, 6 and 14) 4,316 4,866 53,284 Investments in associated companies Deferred tax assets (Note 9) 1,252 1,359 15,457 Other 1,794 1,936 22,148 Allowance for doubtful accounts (201) (255) (2,482) Total other assets 7,208 8,323 88,987 TOTAL 72,878 74,383 $899,728 See notes to consolidated financial statements. 19 Suminoe Textile Co., Ltd. Annual Report 2011

21 Thousands of U.S. Dollars (Note 1) LIABILITIES AND EQUITY CURRENT LIABILITIES: Short-term bank loans (Notes 6 and 14) 8,477 8,114 $104,654 Current portion of long-term debt (Notes 6, 13 and 14) 4,517 3,779 55,765 Payables: Trade notes (Note 14) 3,588 3,899 44,296 Trade accounts (Note 14) 10,748 11, ,691 Construction ,259 Accrued expenses 2,250 2,186 27,778 Income taxes payable ,543 Other (Note 9) ,532 Total current liabilities 30,579 30, ,518 LONG-TERM LIABILITIES: Long-term debt (Notes 6, and 14) 3,726 5,406 46,000 Liability for retirement benefits (Note 2.j and 7) 3,845 3,696 47,469 Deferred tax liabilities (Note 9) ,481 Deferred tax liabilities related to land revaluation excess (Note 2.h) 5,445 5,445 67,222 Negative goodwill (Note 2.d) ,840 Other ,272 Total long-term liabilities 14,198 15, ,284 COMMITMENTS AND CONTINGENT LIABILITIES (Notes 13 and 15 ) EQUITY (Notes 6, 8 and 17): Common stock - authorized, 300,000,000 shares; issued, 76,821,626 shares in 2011 and ,554 9, ,951 Capital surplus 2,652 2,653 32,741 Retained earnings 6,898 6,614 85,160 Treasury stock - at cost; 1,271,621 shares in 2011 and 1,247,054 shares in 2010 (329) (326) (4,062) Accumulated other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities (82) 497 (1,012) Deferred loss on derivatives under hedge accounting (38) (20) (469) Land revaluation excess (Note 2.h) 7,185 7,184 88,704 Foreign currency translation adjustments (583) (272) (7,198) Total 25,257 25, ,815 Minority interests 2,844 2,365 35,111 Total equity 28,101 28, ,926 TOTAL 72,878 74,383 $899,728 Suminoe Textile Co., Ltd. Annual Report

22 Consolidated Statements of Income Suminoe Textile Co., Ltd. and Subsidiaries Years Ended May 31, 2011 and 2010 Thousands of U.S. Dollars (Note 1) NET SALES 70,892 70,033 $875,210 COST OF SALES 54,756 54, ,000 Gross profit 16,136 16, ,210 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 10) 14,952 14, ,593 Operating income 1,184 1,806 14,617 OTHER INCOME (EXPENSES): Interest and dividend income ,395 Rental income ,975 Gain on change in equity (Note 18) 378 Amortization of negative goodwill ,111 Equity in earnings of associated companies ,210 Interest expense (232) (241) (2,864) Rental expense (60) (73) (741) Loss on sales and disposal of property, plant and equipment (37) (7) (457) Impairment loss for long-lived assets (Note 5) (42) (519) Write-down of investment securities (42) (182) (519) Extra retirement expenses (116) Loss on disaster (Note 11) (135) (1,667) Other net ,434 Other income (expenses) - net ,358 INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 1,294 2,241 15,975 INCOME TAXES (Note 9): Current ,309 Deferred ,370 Total income taxes ,679 NET INCOME BEFORE MINORITY INTERESTS ,296 MINORITY INTERESTS IN NET INCOME ,123 NET INCOME 662 1,413 $ 8,173 Yen U.S. Dollars PER SHARE OF COMMON STOCK (Note 2.r): Net income $0.11 Cash dividends applicable to the year See notes to consolidated financial statements. 21 Suminoe Textile Co., Ltd. Annual Report 2011

23 Consolidated Statement of Comprehensive Loss Suminoe Textile Co., Ltd. and Subsidiaries Year Ended May 31, 2011 Thousands of U.S. Dollars (Note 1) NET INCOME BEFORE MINORITY INTERESTS 834 $10,296 OTHER COMPREHENSIVE INCOME (LOSS) (Note 16): Unrealized loss on available-for-sale securities (580) (7,160) Deferred loss on derivatives under hedge accounting (18) (222) Foreign currency translation adjustments (351) (4,333) Share of other comprehensive income (loss) in associates (13) (161) Total other comprehensive income (loss) (962) (11,876) COMPREHENSIVE INCOME (LOSS) (Note 16) (128) $ (1,580) TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO (Note 16): Owners of the parent (264) $ (3,259) Minority interests 136 1,679 See notes to consolidated financial statements. Suminoe Textile Co., Ltd. Annual Report

24 Consolidated Statements of Changes in Equity Suminoe Textile Co., Ltd. and Subsidiaries Years Ended May 31, 2011 and 2010 Number of Shares of Common Stock Outstanding Common Stock Capital Surplus Retained Earnings Treasury Stock BALANCE, JUNE 1, ,583,667 9,554 2,653 5,201 (325) Net income 1,413 Purchase of treasury stock (9,317) (1) Disposal of treasury stock 222 (0) 0 Net change in the year BALANCE, MAY 31, ,574,572 9,554 2,653 6,614 (326) Net income 662 Cash dividends, 5.0 per share (377) Purchase of treasury stock (27,654) (4) Disposal of treasury stock 3,087 (1) 1 Reversal of land revaluation excess (1) Net change in the year BALANCE, MAY 31, ,550,005 9,554 2,652 6,898 (329) Unrealized Gain (Loss) on Available-for-sale Securities Accumulated Other Comprehensive Income (Loss) Deferred Loss on Derivatives under Hedge Accounting Land Revaluation Excess Foreign Currency Translation Adjustments Total Minority Interests Total Equity BALANCE, JUNE 1, (20) 7,184 (137) 24, ,049 Net income 1,413 1,413 Purchase of treasury stock (1) (1) Disposal of treasury stock 0 0 Net change in the year (48) 0 (135) (183) 1,971 1,788 BALANCE, MAY 31, (20) 7,184 (272) 25,884 2,365 28,249 Net income Cash dividends, 5.0 per share (377) (377) Purchase of treasury stock (4) (4) Disposal of treasury stock 0 0 Reversal of land revaluation excess 1 Net change in the year (579) (18) (311) (908) 479 (429) BALANCE, MAY 31, 2011 (82) (38) 7,185 (583) 25,257 2,844 28,101 Thousands of U.S. Dollars (Note 1) Common Stock Capital Surplus Retained Earnings Treasury Stock BALANCE, MAY 31, 2010 $117,951 $32,753 $81,654 $(4,025) Net income Cash dividends, $0.06 per share 8,173 Purchase of treasury stock (4,655) (49) Disposal of treasury stock (12) 12 Reversal of land revaluation excess (12) Net change in the year BALANCE, MAY 31, 2011 $117,951 $32,741 $85,160 $(4,062) 23 Suminoe Textile Co., Ltd. Annual Report 2011 Unrealized Gain (Loss) on Available-for-sale Securities Thousands of U.S. Dollars (Note 1) Accumulated Other Comprehensive Income (Loss) Deferred Loss on Derivatives under Hedge Accounting Land Revaluation Excess Foreign Currency Translation Adjustments Total Minority Interests Total Equity BALANCE, MAY 31, 2010 $ 6,136 $(247) $88,692 $(3,358) $319,556 $29,197 $348,753 Net income 8,173 8,173 Cash dividends, $0.06 per share (4,655) (4,655) Purchase of treasury stock (49) (49) Disposal of treasury stock 0 0 Reversal of land revaluation excess 12 Net change in the year (7,148) (222) (3,840) (11,210) 5,914 (5,296) BALANCE, MAY 31, 2011 $(1,012) $(469) $88,704 $(7,198) $311,815 $35,111 $346,926 See notes to consolidated financial statements.

25 Consolidated Statements of Cash Flows Suminoe Textile Co., Ltd. and Subsidiaries Years Ended May 31, 2011 and 2010 Thousands of U.S. Dollars (Note 1) OPERATING ACTIVITIES: Income before income taxes and minority interests 1,294 2,241 $15,975 Adjustments for: Income taxes paid (679) (325) (8,383) Income taxes refunds Depreciation and amortization 1,164 1,064 14,370 Amortization of negative goodwill (90) (44) (1,111) Increase (decrease) in allowance for doubtful receivables and accounts (68) 5 (840) Loss on sales and disposal of property, plant and equipment Write-down of investment securities Gain on change in equity (378) Equity in earnings of associated companies (98) (156) (1,210) Extra retirement expenses 116 Changes in assets and liabilities (Increase) decrease in notes and accounts receivable 1,931 (1,299) 23,840 (Increase) decrease in inventories (339) 1,126 (4,185) Decrease in notes and accounts payable trade (1,422) (570) (17,556) Increase (decrease) in liability for retirement benefits 150 (71) 1,852 (Increase) decrease in other current assets (0) 36 (0) Increase (decrease) in other current liabilities (255) 0 (3,148) Other net ,605 Total adjustments 1, ,630 Net cash provided by operating activities 2,479 2,547 30,605 INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment Purchases of property, plant and equipment (848) (1,145) (10,469) Proceeds from sales and redemption of securities 21,682 19, ,679 Purchases of marketable and investment securities (21,746) (19,126) (268,469) Proceeds from acquisition of subsidiaries (Note 12) ,062 Increase (decrease) in other assets (244) 218 (3,013) Net cash used in investing activities (1,044) (746) (12,889) FINANCING ACTIVITIES: Net change in short-term bank loans (127) 340 (1,568) Proceeds from long-term debt 2,449 2,100 30,235 Repayments of long-term debt (3,552) (1,647) (43,852) Repayments of lease obligations (520) (543) (6,420) Purchase of treasury stock (4) (1) (49) Dividends paid (380) (3) (4,691) Dividends paid to minority shareholders (6) Other net Net cash provided by (used in) financing activities (2,106) 240 (26,000) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (67) (5) (827) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (738) 2,036 (9,111) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,565 6, ,741 CASH AND CASH EQUIVALENTS, END OF YEAR 7,827 8,565 $96,630 See notes to consolidated financial statements. Suminoe Textile Co., Ltd. Annual Report

26 Notes to Consolidated Financial Statements Suminoe Textile Co., Ltd. and Subsidiaries Years Ended May 31, 2011 and BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan ( Japanese GAAP ), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards. Under Japanese GAAP, a consolidated statement of comprehensive income is required from the fiscal year ended May 31, 2011 and has been presented herein. Accordingly, accumulated other comprehensive income is presented in the consolidated balance sheets and the consolidated statements of changes in equity. Information with respect to other comprehensive income for the year ended May 31, 2010 is disclosed in Note 16. In addition, net income before minority interests is disclosed in the consolidated statement of income from the year ended May 31, In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2010 financial statements to conform to the classifications used in The consolidated financial statements are stated in Japanese yen, the currency of the country in which Suminoe Textile Co., Ltd. (the Company ) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of 81 to $1, the approximate rate of exchange at May 31, Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Consolidation The accompanying consolidated financial statements as of May 31, 2011 include the accounts of the Company and all subsidiaries (together, the Group ). Under the control or influence concept, those companies which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated. Investments in associated companies are accounted for by the equity method. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the date of acquisition, and is being amortized over a period not exceeding 20 years. All significant intercompany transactions and balances have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated. b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements In May 2006, the Accounting Standards Board of Japan (the ASBJ ) issued ASBJ Practical Issues Task Force (PITF) No. 18, Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements. PITF No. 18 prescribes: (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements, (2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States of America tentatively may be used for the consolidation process, (3) however, the following items should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are not material: 1) amortization of goodwill; 2) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in equity; 3) expensing capitalized development costs of R&D; 4) cancellation of fair value model accounting for property, plant, and equipment and investment properties and incorporation of cost model accounting; 5) recording the prior years effects of changes in accounting policies in the income statement where retrospective adjustments to financial statements have been incorporated; and 6) exclusion of minority interests from net income, if contained. c. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method In March 2008, the ASBJ issued ASBJ Statement No. 16, Accounting Standard for Equity Method of Accounting for Investments. The new standard requires adjustments to be made to conform the associate s accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate s financial statements are used in applying the equity method unless it is impracticable to determine adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP unless they are not material: 1) amortization of goodwill; 2) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in the equity; 3) expensing capitalized development costs of R&D; 4) cancellation of the fair value model accounting for property, plant, and equipment and investment properties and incorporation of the cost model accounting; 5) recording the prior year s effects of changes in accounting policies in the income statement where retrospective adjustments to the financial statements have been incorporated; and 6) exclusion of minority interests from net income, if contained. This standard was applicable to equity method of accounting for fiscal years beginning on or after April 1, The Company applied this accounting standard effective June 1, The effect of this change was immaterial. d. Business Combination In October 2003, the Business Accounting Council (the BAC ) issued a Statement of Opinion, Accounting for Business Combinations, and in December 2005, the ASBJ issued ASBJ Statement No. 7, Accounting Standard for Business Divestitures and ASBJ 25 Suminoe Textile Co., Ltd. Annual Report 2011

27 Guidance No. 10, Guidance for Accounting Standard for Business Combinations and Business Divestitures. The accounting standard for business combinations allows companies to apply the pooling of interests method of accounting only when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests. For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to be an acquisition and the purchase method of accounting is required. This standard also prescribes the accounting for combinations of entities under common control and for joint ventures. In December 2008, the ASBJ issued a revised accounting standard of business combinations, ASBJ Statement No. 21, Accounting Standard for Business Combinations. Major accounting changes under the revised accounting standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result, the pooling of interests method of accounting is no longer allowed. (2) The current accounting standard accounts for the research and development costs to be charged to income as incurred. Under the revised standard, in-process research and development (IPR&D) acquired in the business combination is capitalized as an intangible asset. (3) The previous accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets acquired and all of the liabilities assumed have been identified after a review of the procedures used in the purchase allocation. This standard was applicable to business combinations undertaken on or after April 1, 2010 with early adoption permitted for fiscal years beginning on or after April 1, For the year ended May 31, 2011, the Company acquired additional 0.2% (50.1% in the aggregate) of the shares of T.C.H. Suminoe Co., Ltd. on February 28, (See Note 18) For the year ended May 31, 2010, the Company acquired a business through the establishment of a new company through a joint spin-off on December 1, 2009 and accounted for it by the purchase method of accounting. The related negative goodwill will be by systematically amortized over 5 years. (See Note 18) e. Cash Equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits that represent shortterm investments, all of which mature within three months of the date of acquisition. f. Inventories Inventories are stated at the lower of cost, determined by the average method for finished products, purchased merchandise and work-inprocess and by the moving-average method for materials and supplies, or net selling value. g. Marketable and Investment Securities Marketable and investment securities are classified and accounted for, depending on management s intent, as follows: i) trading securities, which are held for the purpose of earning capital gains in the near term, are reported at fair value and the related unrealized gains and losses are included in earnings, ii) held-to-maturity debt securities, for which management has the positive intent and ability to hold to maturity, are reported at amortized cost, and iii) available-for-sale securities, which are not classified as either of the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported as a separate component of equity. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income. h. Property, Plant and Equipment Property, plant and equipment except land are stated at cost. Depreciation is computed over the estimated useful lives of the assets by the declining-balance method, while the straight-line method is applied to buildings acquired after April 1, 1998 at rates based on the useful lives of the assets. Depreciation of lease assets that are deemed not to transfer ownership is computed by the straight-line method over the respective lease period. The range of estimated useful lives is principally from 3 to 50 years for buildings and from 4 to 17 years for machinery and equipment. The useful lives for lease assets are the terms of the respective leases. Under the Law of Land Revaluation, promulgated and revised on March 31, 1998 and 1999, respectively, the Company elected a one-time revaluation of its own-use land to a value based on real estate appraisal information as of May 31, The resulting land revaluation excess represents unrealized appreciation of land and is stated, net of income taxes, as a component of equity. There was no effect on the consolidated statements of income from this revaluation. Continuous readjustment is not permitted unless the land value subsequently declines significantly such that the amount of the decline in value should be removed from the land revaluation excess account and related deferred tax liabilities. As of May 31, 2011, the carrying amount of the land after the above one-time revaluation was less than the market value by 4,182 million ($51,630 thousand). i. Long-lived Assets The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. Suminoe Textile Co., Ltd. Annual Report

28 j. Retirement Benefits The Company and certain subsidiaries have both lump-sum severance payments and defined contribution pension plans for employees retirement benefits and account for the liability for retirement benefits based on the projected benefit obligations at the balance sheet date. In addition, certain subsidiaries have a contributory trusted pension plan covering most of their employees together with multiemployers. They fund and record contributions as a charge to income as current period costs. The pension fund assets available for benefits under this plan were approximately 431 million ($5,321 thousand) and 367 million at May 31, 2011 and 2010, respectively. The Company provides for the liability for directors and corporate auditors retirement benefits at the amounts which would be required to be paid if all directors and corporate auditors retired at the balance sheet date. Amounts payable to directors and corporate auditors upon retirement are subject to the approval of shareholders. k. Asset Retirement Obligations In March 2008, the ASBJ published the accounting standard for asset retirement obligations, ASBJ Statement No. 18 Accounting Standard for Asset Retirement Obligations and ASBJ Guidance No. 21 Guidance on Accounting Standard for Asset Retirement Obligations. Under this accounting standard, an asset retirement obligation is defined as a legal obligation imposed either by law or contract that results from the acquisition, construction, development and the normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed assets. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as an increase or a decrease in the carrying amount of the liability and the capitalized amount of the related asset retirement cost. This standard was effective for fiscal years beginning on or after April 1, The Company applied this accounting standard effective June 1, The effect of this change was to decrease operating income by 1 million ($12 thousand) and income before income taxes and minority interests by 36 million ($444 thousand). l. Leases In March 2007, the ASBJ issued ASBJ Statement No. 13, Accounting Standard for Lease Transactions, which revised the previous accounting standard for lease transactions issued in June The revised accounting standard for lease transactions was effective for fiscal years beginning on or after April 1, Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain as if capitalized information was disclosed in the notes to the lessee s financial statements. The revised accounting standard requires that all finance lease transactions be capitalized to recognize lease assets and lease obligations in the balance sheet. In addition, the revised accounting standard permits leases which existed at the transition date and do not transfer ownership of the leased property to the lessee to continue to be accounted for as operating lease transactions with certain as if capitalized information disclosed in the notes to the lessee s financial statements. The Company applied the revised accounting standard effective June 1, In addition, the Company accounted for leases which existed at the transition date and do not transfer ownership of the leased property to the lessee as operating lease transactions. m. Construction Contracts In December 2007, the ASBJ issued ASBJ Statement No. 15, Accounting standard for Construction Contracts, and ASBJ Guidance No. 18, Guidance on Accounting Standard for Construction Contracts. Under the previous Japanese GAAP, either the completed-contract method or the percentage-of-completion method was permitted to account for construction contracts. Under this new accounting standard, the construction revenue and construction costs should be recognized by the percentage-of-completion method if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs and the stage of completion of the contract at the balance sheet date can be reliably measured, the outcome of the construction contract can be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on construction contracts. This standard is applicable to construction contracts and software development contracts and was effective for fiscal years beginning on or after April 1, n. Income Taxes The provision for current income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. 27 Suminoe Textile Co., Ltd. Annual Report 2011