Financial Statements KAJI TECHNOLOGY CORPORATION. For the Year Ended March 31, 2017 Together with Independent Auditors' Report

Transcription

1 Financial Statements KAJI TECHNOLOGY CORPORATION For the Year Ended March 31, 2017 Together with Independent Auditors' Report KPMG AZSA LLC June 2017

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3 Balance Sheets KAJI TECHNOLOGY CORPORATION Thousands of yen FY2016 FY2015 As of March 31, 2017 March 31, 2016 ASSETS Current Assets: Cash and deposits 479, ,515 Notes receivable - trade 712, ,165 Accounts receivable 1,969,858 2,234,860 Finished product 17,541 17,982 Raw materials 290, ,656 Work in progress 830, ,557 Supplies 19,932 18,046 Deposits paid 2,400,000 2,100,000 Prepaid expenses 7,865 9,074 Deferred tax assets 114, ,941 Other current assets 24,049 4,542 Allowance for doubtful accounts (21,500) (22,000) Total current assets 6,844,455 7,100,338 Non-Current Assets: Property, plant and equipment: Buildings 776, ,448 Accumulated depreciation (663,687) (654,024) Buildings (net) 112, ,424 Structures 158, ,706 Accumulated depreciation (124,609) (120,729) Structures (net) 34,337 31,977 Machinery and equipment 1,609,664 1,621,403 Accumulated depreciation (1,482,721) (1,467,172) Machinery and equipment (net) 126, ,231 Vehicles 21,247 21,247 Accumulated depreciation (21,247) (20,988) Vehicles (net) Tools, furniture and fixtures 368, ,562 Accumulated depreciation (328,552) (317,462) Tools, furniture and fixtures (net) 40,318 45,100 Land 447, ,526 Construction in progress 1, Total property, plant and equipment 763, ,497 Intangible fixed assets: Software 77,940 82,349 Telephone subscription rights 2,879 2,879 Other intangible fixed assets 8,000 18,148 Total intangible fixed assets 88, ,376 Investments and other assets: Investment securities - 15,193 Long-term prepaid expenses 1,913 5,754 Deferred tax assets 195, ,012 Other investments and other assets 34,256 34,488 Allowance for doubtful accounts (550) (550) Total investments and other assets 231, ,897 Total non-current assets 1,083,668 1,159,770 Total assets 7,928,123 8,260,108

4 Thousands of yen FY2016 FY2015 As of March 31, 2017 March 31, 2016 LIABILITIES Current Liabilities: Notes payable - trade 688, ,819 Accounts payable 161, ,027 Short-term loans payable 130, ,000 Accounts payable - other 6,166 22,089 Accrued expenses 130, ,607 Accrued income taxes 47, ,346 Accrued consumption taxes 37,174 43,426 Advances received 4,545 58,499 Deposit received 8,473 8,348 Provision for bonuses 140, ,935 Provision for loss on orders received 89,000 51,600 Other current liablities - 92 Total current liabilities 1,444,866 1,893,788 Non-Current Liabilities: Provision for retirement benefits 597, ,451 Provision for directors retirement benefits - 98,373 Other non-current liabilities 100,200 10,000 Total non-current liabilities 697, ,824 Total liabilities 2,142,663 2,621,612 NET ASSETS Shareholders Equity: Capital stock 1,440,000 1,440,000 Capital surplus Capital reserve 1,203,009 1,203,009 Total capital surplus 1,203,009 1,203,009 Retained earnings Legal reserve 141, ,600 Other retained earnings General reserve 625, ,000 Retained earnings brought forward 2,482,921 2,330,703 Total retained earnings 3,249,521 3,097,303 Treasury stock (107,243) (106,639) Total shareholders equity 5,785,287 5,633,673 Valuation And Translation Adjustments: Net unrealized holding gains on available-for-sale securities - 4,887 Deferred hedge profit (loss) 173 (64) Total valuation and translation adjustments 173 4,823 Total net assets 5,785,460 5,638,496 Total liabilities and net assets 7,928,123 8,260,108

5 Statements of Income KAJI TECHNOLOGY CORPORATION Thousands of yen FY2016 FY2015 For the years ended March 31, 2017 March 31, 2016 Net Sales 5,072,004 5,424,700 Cost of Sales Finished product at beginning of year 17,982 14,383 Product costs 3,724,983 4,113,785 Total 3,742,965 4,128,168 Finished product at end of year 17,540 17,982 Provision for loss on orders received 37,400 (37,000) Valuation difference of inventories 111 3,871 Total cost of sales 3,762,936 4,077,057 Gross profit 1,309,068 1,347,643 Selling, General and Administrative Expenses Directors' compensation 140, ,244 Salaries and bonuses 263, ,225 Provision of bonuses 36,167 34,888 Legal welfare expenses 54,251 54,342 Provision of directors' retirement benefits 4,947 20,245 Retirement benefit expense 17,070 20,388 Travel expenses 46,200 49,552 Depreciation 20,340 20,436 Rent 33,461 36,431 Provision of allowance for doubtful accounts (500) 6,900 Research expenses 46,119 45,153 Estimation cost of customers' inquiries 111,393 - Miscellaneous expenses 172, ,632 Total selling, general and administrative expenses 945, ,436 Operating income 363, ,207 Non-operating income Interest 6,979 7,203 Dividend income Compensation for damage 2, Other non-operationg income 3,675 2,719 Total non-operating income 14,209 11,304 Non-operating expenses Interest expense 1,252 1,478 Loss on sales of non-current assets - 1,699 Loss on disposal of non-current assets 498 3,928 Expenses related to tender offer from parent company 15,037 - Other non-operationg expenses 1, Total non-operating expenses 17,937 7,451 Ordinary income 360, ,060 Extraordinary gain Gain on sales of investment securities 8,989 - Total extraordinary gain 8,989 - Net income before income taxes 369, ,060 Income taxes 106, ,937 Income taxes - deferred 10,856 33,844 Total income taxes 117, ,781 Net Income 251, ,279

6 Statements of Changes in Net Assets KAJI TECHNOLOGY CORPORATION Balance at Beginnig of FY2015 Change during the fiscal year Cash dividends Net income for the year Purchases of treasury stock (Net) change in items other than shareholders equity during the fiscal year Total change during the fiscal year Balance at End of FY2015 Balance at Beginnig of FY2015 Change during the fiscal year Cash dividends Net income for the year Purchases of treasury stock (Net) change in items other than shareholders equity during the fiscal year Total change during the fiscal year Balance at End of FY2015 Balance at Beginnig of FY2016 Change during the fiscal year Cash dividends Net income for the year Purchases of treasury stock (Net) change in items other than shareholders equity during the fiscal year Total change during the fiscal year Balance at End of FY2016 Balance at Beginnig of FY2016 Change during the fiscal year Cash dividends Net income for the year Purchases of treasury stock (Net) change in items other than shareholders equity during the fiscal year Total change during the fiscal year Balance at End of FY2016 (Thousands of yen) Shareholders Equity Capital Stock Retained earnings Capital Surplus Other retained earnings Legal reserve Capital reserve Total capital surplus General reserve Retained earnings brought forward Total retained earnings 1,440,000 1,203,009 1,203, , ,000 2,044,551 2,811,151 Treasury stock (33,127) (33,127) 319, , , ,152 1,440,000 1,203,009 1,203, , ,000 2,330,703 3,097,303 Shareholders Equity Total shareholders equity Net unrealized holding gains on available-for-sale securities Valuation And Translation Adjustments Deferred hedge profit (loss) Total valuation and translation adjustments Total net assets (105,137) 5,349,023 7,516-7,516 5,356,539 (33,127) (33,127) 319, ,279 (1,502) (1,502) (1,502) (2,629) (64) (2,693) (2,693) (1,502) 284,650 (2,629) (64) (2,693) 281,957 (106,639) 5,633,673 4,887 (64) 4,823 5,638,496 (Thousands of yen) Shareholders Equity Capital Stock Retained earnings Capital Surplus Other retained earnings Legal reserve Capital reserve Total capital surplus General reserve Retained earnings brought Total retained earnings 1,440,000 1,203,009 1,203, , ,000 2,330,703 3,097,303 (99,358) (99,358) 251, , , ,218 1,440,000 1,203,009 1,203, , ,000 2,482,921 3,249,521 Shareholders Equity Valuation And Translation Adjustments Net unrealized holding gains on Total valuation and translation Total net assets Treasury stock Total shareholders equity Deferred hedge profit (loss) available-for-sale securities adjustments (106,639) 5,633,673 4,887 (64) 4,823 5,638,496 (99,358) (99,358) 251, ,576 (604) (604) (604) (4,887) 237 (4,650) (4,650) (604) 151,614 (4,887) 237 (4,650) 146,964 (107,243) 5,785, ,785,460

7 Statements of Cash Flows KAJI TECHNOLOGY CORPORATION Thousands of yen FY2016 FY2015 For the years ended Cash Flows from Operating Activities: March 31, 2017 March 31, 2016 Net income before income taxes 369, ,060 Depreciation 103, ,992 Increase (decrease) in provision for retirement benefits (21,854) (49,489) Increase (decrease) in provision for directors retirement benefits (98,373) 20,245 Increase (decrease) in allowance for doubtful accounts (500) 6,900 Increase (decrease) in provision for bonuses 2,728 9,854 Increase (decrease) in provision for loss on order received 37,400 (37,000) Interest and dividend income (7,657) (7,944) Interest expense 1,252 1,478 Loss on disposal of non-current assets (Gain) loss on sales of non-current assets (502) 281 (Gain) loss on sales of investment securities (8,989) (201) (Increase) decrease in trade notes and accounts receivable 9,001 (851,774) (Increase) decrease in inventories 35,137 (90,516) (Increase) decrease in other current assets (18,081) (1,354) Increase (decrease) in trade notes and accounts payable (220,353) 396,246 Other, net 66,416 9,094 Subtotal 248,888 20,710 Interest and dividends received 7,657 11,286 Interest paid (1,216) (1,461) Income taxes paid (210,028) (53,928) Net cash provided by operating activities 45,301 (23,393) Cash Flows from Investing Activities Purchase of tangible fixed assets (51,303) (55,915) Proceeds from sales of non-current assets Purchase of intangible fixed assets (21,052) (36,229) Proceeds from sales of investment securities 18,811 1,569 Deposit placement (300,000) (1,600,000) Other incomes 232 7,402 Net cash used in investing activities (352,617) (1,682,741) Cash Flows from Financing Activities Proceeds from short-term loans payable (70,000) - Purchase of treasury stock (604) (1,502) Cash dividends paid (99,380) (32,975) Net cash used in financing activities (169,984) (34,477) Net Increase (Decrease) in Cash and Cash Equivalents (477,300) (1,740,611) Cash and Cash Equivalents at Beginning of Year 956,515 2,697,126 Cash and Cash Equivalents at End of Year 479, ,515

8 Notes to the Financial Statements KAJI TECHNOLOGY CORPORATION March 31, 2017 and 2016 (Summary of significant accounting policies) The following is a summary of the significant accounting and reporting policies adopted by the KAJI TECHNOLOGY CORPORATION (the "Company") in the preparation of the accompanying financial statements. 1. Inventory valuation basis and method Inventory held for sale purposes Inventories are accounted for by the cost method. (The value on the Balance Sheet is calculated by devaluing the book value based on lower profitability.) (1) Finished product and work in progress Specific cost method (2) Raw materials Moving average method (3) Supplies Last purchase price method 2. Fixed asset depreciation method (1) Property, plant and equipment The declining balance method is applied. However, the straight-line method is applied to buildings, excluding building and accompanying facilities acquired after April 1, and facilities attached to buildings and structures, which were acquired since April 1, Main useful lives are as below. Buildings: 3~41 years Machinery and equipment: 4~12 years (2) Intangible fixed assets The straight-line method is applied. Furthermore, with regards to software, the straight-line method is applied based on the internally defined useful life of 5 ye defined useful life of 5 years. 3. Calculation of allowance (1) Allowance for doubtful accounts For possible loss on doubtful accounts, we provide allowance for estimated uncollectible amounts based on the actual rate of loss for general accounts and the collectability of special cases in which the risk of loss is more significant. (2) Provision for bonuses For payment of bonuses to employees, we provide the partial amount of the estimated payment that needs to be put aside within the fiscal year. (3) Provision for loss on orders received For possible loss in relation to received orders in which a loss on outstanding orders at the end of the term is reasonably certain and the amount of loss may be rationally estimated, we provide the estimated amount of loss. (4) Provision for retirement benefits For payment of retirement benefits to employees, we provide the partial amount of the estimated payment based on the retirement benefit liabilities and pension assets expected at the end of the fiscal year. 1 The method of attributing expected benefits to periods The method of attributing expected benefits to periods of service is applied on a benefit formula basis. 2 Expense method of actuarial differences, prior service cost and transitional liability for defined benefit plan Unrecognized actuarial differences are treated as expense in the following fiscal period by the straight-line method based on average remaining working years of the employees (14~17 years). Prior service cost is treated as expense at the time of occurrence. 4. Hedge accounting method (1) Hedge accounting method As a general rule, deferred hedge treatment is adopted. Furthermore, designation treatment is adopted for exchange contracts that fulfill the conditions of designation treatment. (2) Hedging instruments and items Hedging instruments: Forward exchange contracts Hedge items: Monetary assets and liabilities and forecasted transactions denominated in foreign currencies (3) Hedging policy In ordinary operating activities, the transactions are executed as forward exchange reservation transactions in order to minimize the risks of foreign currency transactions derived from future exchange rate fluctuations. (4) Evaluation method for hedging effectiveness As the notional amounts of hedging instruments and significant conditions related to the hedging items are the same and as at the hedging start and onwards it is possible to forecast the complete offset of exchange rate fluctuation or cash flow fluctuation, an evaluation of hedging efficacy is omitted. 5. Statements of Cash Flows In preparing the statements of cash flows, cash on hand, readily available deposits, time deposits and deposits paid with maturities not exceeding three months at the time of purchase are considered cash and cash equivalents. 6. Other significant matters for preparing financial statements Accounting for consumption tax Accounting for consumption tax is based on the tax exclusion method.

9 Changes in accounting policy Due to amendments to the Japanese Corporation Tax Act, the Company adopted Practical Solution on a change in depreciation method due to Tax Reform 2016 (Practice Issue Task Force No.32, June 17, 2016 (hereinafter, PITF No. 32 )) from the current fiscal year and changed the depreciation method for buildings and facilities attached to buildings and structures acquired since April 1, 2016 from the declining balance method to the straight line method. This change had no effect on the financial statements of the current fiscal year. Change in Presentation of Financial Statements Statements of Income From current year, expenses for the estimation of customer's inquiries which had been included in cost of sales before prior year was changed to 'Estimation cost of customers' inquiries' in Selling, General and Administrative Expenses. This change was implemented to account for some activities for supporting sales more appropriately, as a result of reconsidering the recording method of the customers' inquiries when organization was revised in order to enforce sales promotion in current year. These expenses of the prior year were not reclassified in comparative information since it is practically difficult to record them into a revised account from past information. Additional information Termination of directors retirement benefits rule In past years, provision for directors retirement benefits was recognized based on the amount of required benefits as provided by internal regulations. However, it was resolved at the regular shareholders' meeting held on June 28, 2016 that a final distribution would be paid due to the termination of the directors' retirement benefit rule. As such, provision for directors retirement benefits was reversed and JPY 90,200 thousand of payables for final distribution was recognized in other non-current liabilities on the balance sheets.

10 Income Taxes 1. Significant components of deferred tax assets and liabilities are as follows: As of FY 2016 March 31, 2017 (Thousands of yen) FY 2015 March 31, 2016 Deferred tax assets Provision for bonuses Provision for retirement benefits Losses on golf club memberships Provision for directors' retirement benefits Long-term accounts payable - other Experiment and research expenses Allowance for doubtful accounts Others Subtotal deferred tax assets Valuation allowance Total deferred tax assets 43,465 42, , ,514 8,045 8,071-30,225 27,647-10,240 13,250 6,643 6,798 62,923 61, , ,390 (31,488) (31,952) 310, ,438 Deferred tax liabilities Net unrealized holding gains on available for sale securities Deferred hedge loss (profit) Total deferred tax liabilities - (485) (77) - (77) (485) Net deferred tax assets 310, , The following table summarizes the significant differences between the statutory tax rate and the Company's effective tax rate For the years ended FY 2016 March 31, 2017 FY 2015 March 31, 2016 Statutory tax rate 30.90% 33.1% Adjustments Non-deductible expenses for tax purposes (e.g., entertainment expenses) Resident tax on per capita basis Decrease in deferred tax assets due to a change in tax rates Deduction for experiments and reseach expenses (1.2) (1.4) Movement in valuation allowance (0.1) 0.8 Others 0.1 (0.3) Effective tax rate 31.8% 36.7%

11 Segment Information FY2016 and 2015 As the Company is composed of a single reportable segment ("Compressors"), segment information has been omitted.

12 Related Party Transactions 1. Transactions with major shareholders of the Company are as follows: FY 2016 Category Name Location Amount of capital (Millions of yen) Industry Voting rights Business relationship Details of transactions Transaction amout (Thousands of yen) Account Balance at the end of fiscal year (Thousands of yen) Parent company Mitsui Engineering & Shipbuilding Co., Ltd. Chuo, Tokyo 44,384 Manufacturing 51.30% of the Company's rights are owned by Mitsui Engineering & Shipbuilding Co., Ltd. directly Fund transactions Sales of the Company's products Proceeding deposits Receiving interests Sales of compressors 300,000 6, ,752 Deposits paid 2,400,000 Accounts receivable 225,619 Trading conditions and policy for deciding such conditions, etc. (1) With regard to sales of compressors, the trading conditions including prices are determined by adopting the equivalent conditions of third parties. The Company does not have a disadvantage with the conditions. (2) The transaction amounts do not include consumption taxes. However, the balance of notes receivable includes consumption taxes. (3) With regard to deposits, interest rates are determined by referring to market rates based on the basic agreement. FY 2015 Category Name Location Amount of capital (Millions of yen) Industry Voting rights Business relationship Details of transactions Transaction amout (Thousands of yen) Account Balance at the end of fiscal year (Thousands of yen) Affiliated company Mitsui Engineering & Shipbuilding Co., Ltd. Chuo, Tokyo 44,384 Manufacturing 32.50% of the Company's rights are owned by Mitsui Engineering & Shipbuilding Co., Ltd. directly Fund transactions Sales of the Company's products Proceeding deposits Receiving interests Sales of compressors 1,600,000 5, ,346 Deposits paid 2,100,000 Accounts receivable 124,354 Trading conditions and policy for deciding such conditions, etc. (1) With regard to sales of compressors, the trading conditions including prices are determined by adopting the equivalent conditions of third parties. The Company does not have a disadvantage with the conditions. (2) The transaction amounts do not include consumption taxes. However, the balance of notes receivable includes consumption taxes. (3) With regard to deposits, interest rates are determined by referring to market rates based on the basic agreement.

13 Per Share Information (Yen) FY 2016 FY 2015 Net assets per share Net income per share (Notes) 1. Diluted net income per share is not reported since there were no outstanding securities with a potential dilutive effect. 2. The basis for the calculation of net income per share is as follows: For the years ended FY 2016 March 31, 2017 FY 2015 March 31, 2016 Net income per share Net income (thousands of yen) 251, ,279 Amount not attributable to ordinary shareholders (thousands of yen) Net income attributable to ordinary shares (thousands of yen) Average number of shares outstanding during the period (shares) , ,279 16,558,975 16,562, The basis for the calculation of net assets per share is as follows: As of FY 2016 March 31, 2017 FY 2015 March 31, 2016 Total net assets (thousands of yen) 5,785,460 5,638,496 Amount excluded from total net assets (thousands of yen) Net assets attributable to ordinary shares (thousands of yen) - - 5,785,460 5,638,496 Number of ordinary shares used in calcualtion of net assets per share (shares) 16,557,767 16,559,857

14 Subsequent Events Consolidation of Shares and Change in the Number of Shares per Share Unit The Company resolved at its Board of Directors meeting held on May 19, 2017 to submit a proposal for the consolidation of shares and change the number of shares per share unit to the 84th ordinary general meeting of shareholders. The resolution was approved in the ordinary general meeting of shareholders held on June 29, Purpose of consolidation of shares and change in the number of shares per share unit All Japanese securities exchanges announced and are promoting the Action Plan for Consolidating Trading Units under which the trading units of common shares for domestically listed companies are uniformly set at 100 shares. In light of the intent of this action plan, a Company whose shares are listed on the Tokyo Stock Exchange will change the share unit number from the current 1,000 shares to 100 shares. Along with the change in the share unit, the Company will also carry out a consolidation of the Company s shares under which every ten (10) shares will be consolidated into one (1) share in order to maintain the price level per trading unit considered preferable for its shares by the Stock Exchange (from 50,000 yen less than 500,000 yen per unit). 2. Details of consolidation of shares (1) Class of shares to be consolidated Common stock (2) Consolidation method and ratio The Company will consolidate every 10 shares into one share on October 1, 2017 based on the number of shares held by shareholders listed in the final shareholders register as of September 30, (3) Decrease in number of shares due to consolidation Number of outstanding shares before consolidation (as of March 31, 2017) Decrease in number of shares due to consolidation Number of outstanding shares after consolidation 17,180,000 shares 15,462,000 shares 1,718,000 shares Note: The Decrease in number of shares due to consolidation is a theoretical value calculated by multiplying the number of outstanding shares before consolidation by the consolidation ratio. 3. Handling of fractional shares of less than one share If any fractional shares arise as a result of the consolidation of shares, pursuant to the provisions of the Companies Act, the Company will sell all such fractional shares and distribute the proceeds to shareholders having fractional shares in proportion to their respective fractions. 4. Total number of authorized shares as of the effective date 3,600,000 shares The number of authorized shares will be decreased from 36 million shares to 3.6 million shares according to the ratio of the consolidated shares. Pursuant to Article 182, Paragraph 2 of the Companies Act, the total number of authorized shares as stipulated in Article 6 (Total Number of Shares That Can Be Issued) of the Articles of Incorporation shall be deemed to be changed from the current 36 million shares to 3.6 million shares on October 1, 2017, the effective date for the consolidation of shares. 5. Details of changes in number of shares per share unit Concurrently with the effectiveness of the consolidation of shares, the Company will change the number of shares per share unit for common stock from 1,000 to Dates for consolidation of shares and change in number of shares per share unit Resolution at the Board of Directors meeting Resolution at the general meeting of shareholders Effective date of consolidation of shares and change in number of shares per share unit May 19, 2017 June 29, 2017 October 1, Effect on per share information Per share information for the years ended March 31, 2017 and 2016 on the assumption that the consolidation of shares had been implemented as of April 1, 2015 is as follows: (Yen) FY2016 FY2015 Net assets per share 3, , Net income per share Note: Diluted net income per share is not reported since there were no outstanding securities with a potential dilutive effect.