SKY Perfect JSAT Holdings Inc. For the year ended March 31, Annual Report 2014 BRIDGE TO NEW ERA

Transcription

1 SKY Perfect JSAT Holdings Inc. Annual Report 214 For the year ended March 31, 214 BRIDGE TO NEW ERA

2 Who we are Fiscal 213 Revenues Total billion *The percentages are calculated on the basis of the figures of sales to external customers (including internal transactions) Multichannel Pay TV Business 66.1% Space & Satellite Business 33.9% SKY Perfect JSAT is the largest satellite-based multichannel pay TV in Japan and is the largest satellite communications operator in Asia.

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4 Multichannel Pay TV Business Media Center The media center digitalizes program content received from broadcasters for satellite transmission. The center also produces original programs for its broadcast channels. SKY PerfecTV! All Japanese digital TVs have built-in tuners preset for SKY PerfecTV! enabling any viewer to easily receive and enjoy program broadcasts. Customer Center The Customer Center operators provide customer services in all business areas from processing subscription applications, programming requests, and contract modifications to subscription billing and payments. We provide SKY PerfecTV!, Japan s Largest satellite based multichannel pay TV broadcast service. We provide a wide variety of content ranging from sports, movies and music to TV dramas and anime. SKY Perfect JSAT Holdings Inc. 2

5 Space & Satellite Business Mobile Station Satellite Control Center The Satellite Control Center carries out operations to monitor satellite connection conditions and quality and oversees the communications and other services utilizing the satellites as well as monitors satellite conditions and controls orbital slots. Earth Station A terrestrial satellite communications facility. Mobile stations enable satellite communications from any location using transportable broadcast and transmission equipment, such as antennas that can be mounted on vehicles. Mobile stations are often used for on-site gathering of data by TV news broadcasters and for communication connections in emergency situations. Mobile Satellite Communications Mobile satellite communications enable Internet connections on seagoing vessels and airplanes. The coverage of our 16 communications satellites spans all of Asia, Oceania and North America. We are the largest satellite communications provider in Asia and Oceania. We provide satellite communications services to companies and government agencies in Asia and are actively developing global operations. 3 Annual Report 214

6 MARKET & POSITION Multichannel Pay TV Business Largest subscriber base in the Japanese satellite pay TV market The Japanese multichannel pay TV market is slowly but steadily growing as a strong offering of a wide variety of specialty channel needs is appealing to diverse viewer interests and preferences. Multichannel Pay TV Market in Japan (Unit: Thousands of subscribers) 15, CATV IPTVs 3.7 million subscribers 12, 9, 3, , ,725 1,9 3, , ,717 6, 3, 7,142 7,243 7,429 7,94 7,95 8, Years ended as of March 31 Sources: Materials from the Ministry of Internal Affairs and Communications, HOSO JOURNAL, and our own research. A Market with substantially more room to grow The Japanese Pay TV market still has substantial room to grow as the household penetration rate for multichannel pay TV broadcasts is still lower in Japan than in Europe and the United States. Penetration Rate of Multichannel Pay TV (%) Major Pay TV Services in Japan Type DTH (and FTTH) DTH (and FTTH) J:COM TV Cable TV IPTV (FTTH) Subscribers* channels 2.5 millions 1.57 millions 3.11 millions 7ch 17ch 77ch n/a 8ch (Basic) 2 24* JAPAN UK USA * Multichannel pay TV subscribers for Japan as above refers to the sum total of multichannel cable TV subscribers, SKY PerfecTV! subscribers, IPTV subscribers (except for NHK BS subscribers). See a November 211 report from Goldman Sachs on household penetration rates for pay TV in the UK and US. STB VOD Service Not required SKY PerfecTV! On-Demand Required Required J:COM On-Demand *The number of subscribers is as of March 31, 214. Required Video Service SKY Perfect JSAT Holdings Inc. 4

7 Space & Satellite Business The No.1 satellite operator in Asia, No.5 in the world Our 16 satellites make us the largest satellite operator in Asia and fifth in the world. Satellite Operators Ranking *1 in the Global Satellite Market Luxembourg Luxembourg France Canada Japan Fiscal 213 Revenues *2 (US$ in millions) 2,64 2,56 1, *3 Satellites in orbit *1 Companies listed here are fixed satellite services (FSS) operators (exluding MSS operators) *2 The above revenues are in millions of U.S. dollars for the year ended Dec. 31, 213, exluding SKY Perfect JSAT. Figure for the company is only for the year ended Mar. 31, 214. *3 The revenue figure for SKY Perfect JSAT represents sales of its Space and Satellite Business only. The translations of yen amounts into U.S. dollar amounts are for the convenience of readers outside Japan and have been made at the rate of JPY12.92 to $1, the approximate rate of exchange at March 31, 214. Source: Spacenews dated July 7th, 214 Global market growth led by Asia and Oceania Satellite communications business is expected to continue growing, with Asia at the forefront of the growth. We will expand operations by leveraging our strong position as the largest satellite operator in Asia and enter into collaborations and partnerships with other operators to promote our global development. Demand Forecast in Global Satellite Market ( E) Satellite Transponders Demand Forecast in the world: Ku/C-band in TPEs* Western Europe 675 to 664 CAGR:(.2)% Eastern Europe 334 to 42 CAGR:3.3% Russia CIS 393 to 647 CAGR:7.4% North America 95 to 866 CAGR:(.6)% Sub Saharan Africa 696 to 857 CAGR:3.% ME & North Africa 545 to 585 CAGR:1.% South East Asia 419 to 618 CAGR:5.7% Australia & Pacific 225 to 25 CAGR:1.5% Latin America 838 to 1,176 CAGR:5.% * Equivalent to 36MHz Transponder * : Service areas of SKY Perfect JSAT Corporation. Sources: Euroconsult Satellite Communications and Broadcasting Market Survey by way of Goldman Sachs s discussion materials 5 Annual Report 214

8 BUSINESS MODEL & STRENGTHS Multichannel Pay TV Business SKY PerfecTV! is a multichannel pay TV platform linking broadcasters and subscribers and with comprehensive operations in the multichannel pay TV business, from TV channel broadcasting to customer management and sales promotion operations. Business Framework Broadcasters/Program Providers Subscribers Program Program/ Packages Offering various content from entertainment such as music, movies, sports and documentaries to information, shopping and education Programs/packages that fit their lifestyle and tastes. Service Portfolio SKY PerfecTV! offers three service menus based on reception environment and channel lineups and differentiates its products from cable TV and other providers by specially priced basic subscription packages as well as subscription contracts for as few as a single channel. Number of Subscribers *1 (Thousands) 2,55 1,57 9 Channels (HD) 7 (35) 17 (12) 15 (12) STB Not Required Required Required *1. The number of Subscribers is as of March 31, 214. Content catering to myriad devices Users of our SKY PerfecTV! On-Demand (video-on-demand) service are steadily growing as we develop content, led by live broadcasts of J-League games (professional Japanese soccer) in particular, and other sports, catering to myriad devices such as smart phones and tablets. SKY Perfect JSAT Holdings Inc. 6

9 SKY PerfecTV! available to virtually every household All Japanese digital TVs have built-in tuners, enabling any viewer to easily receive SKY PerfecTV! broadcasts via a satellite antenna. This is a formidable advantage over cable TV and other operators where reception requires purchase or rental of an external set-top box. Unparalleled number of HD channels The SKY PerfecTV! Premium Service offers some 12 high-definition channels that meet the highest image quality expectations of viewers in a wide range of genres from sports, including 9 Japanese professional soccer league games each year, to movies, music, and foreign TV dramas. Cumulative Subscriber Growth* for the Basic SKY PerfecTV! Service for TVs with a Built-in Tuner (*this figure does not include SKY PerfecTV! premium service subscribers) Number of HD Channels (ch) 15 (Subscribers) 2,5, 121ch 12ch 2,, 1,5, CAGR: 23.2% ( ) 1 72ch 88ch 1,, 5 5, 15ch Apr. 28 Mar. 214 Aug. 8 Oct. 9 Feb. 11 Sep. 12 Mar. 14 Viewership boosted by seniors In Japan, free-to-air TV programming largely focus on creating programs for the trend-setting younger viewers but Japan s aging demographic is boosting our subscriber numbers as active seniors are attracted to our diversity of specialty channels providing entertaining viewing in their various areas of interest. Advantages of satellites to next-generation Ultra HD Satellite broadcasting is considered the best choice for Ultra HD (4K/8K) since it is able to transmit a large volume of high resolution pictures at very high speed across the country. Percentage of Subscribers by Age Distribution 1% 1S 6S 18% 12% 2S 5S 2% 23% 3S 4S 26% 4K broadcast with breathtaking high-resolution images 7 Annual Report 214

10 BUSINESS MODEL & STRENGTHS Space & Satellite Business Our satellite communication system employs the optimal method for communicating large volumes of real time data to a multitude of reception sites, uplinking data from the ground to communications satellites in geostationary orbit 36, kilometers above the equator then downlinking to reception sites back on earth. The satellite communication services we provide to corporations and government agencies take full advantage of the benefits of our satellite systems, including the wide coverage, multi-destination distribution, and disaster resistance. In-orbit resources Business Framework Signals Satellite Control Center (SKY Perfect JSAT) Data, Video, Audio Corporate Customers/ Government Agencies JCSAT-11R 11 E N-SAT E Superbird-3 93 E JCSAT E JCSAT-6 82 E JCSAT-1B 15 E JCSAT-2A 154 E Superbird-B2 162 E Horizons-2 85 E JCSAT-4B 124 E JCSAT-3A 128 E Superbird-C2 144 E N-STARc 136 E JCSAT-5A 132 E Horizons W JCSAT-RA in-orbit back up Our Satellite Fleet Used primarily for Multichannel Pay TV Business N-SAT-11 JCSAT-11R JCSAT-4B JCSAT-RA JCSAT-3A JCSAT-1B JCSAT-2A Orbital position 11ºE 11ºE 124 E (In-orbit back-up) 128ºE 15ºE (inclined) 154ºE Launch date (Japan time) Oct. 7, 2 Aug. 7, 211 May 16, 212 Aug. 22, 29 Aug. 12, 26 Dec. 3, 1997 Mar. 29, 22 Launch vehicle Ariane 4 Ariane 5 Ariane 5 Ariane 5 Ariane 5 Ariane 4 Ariane 4 Satellite bus A21AX A21A A21AX A21AX A21AX Boeing 61 Boeing 61 Design life 15 years 15 years 15 years 15 years 15 years 12 years 11 years Frequency band Ku band Ku band Ku band Ku band C band Ku band C band Ku band Ku band C band SKY Perfect JSAT Holdings Inc. 8

11 Satellite communications strength confirmed after the Great East Japan Earthquake Small and lightweight portable equipment allows satellite connections in any location, including mountainous areas outside terrestrial network ranges and when terrestrial lines are damaged by an earthquake or other causes. Satellite communications were used in place of landline and mobile phones for rescue and relief activities after the 211 Great East Japan Earthquake. Satellite communications were also key to Internet connections for government agencies and evacuation centers and as a backhaul connection for mobile phones. Satellite communications are now revaluated as effective back up communications in a time of disasters. Strengthening the foundation for full-fledged expansion in Asia Satellite communication demand is increasing in Asia and Oceania, which encompasses innumerable islands and is seeing increasing mining activity for natural resources. We are fortifying our operating foundation for full-fledged expansion in the Asian region, including the May 212 successful launch of the JCSAT-4B satellite equipped with a Southeast Asian beam and the opening of a representative office in Jakarta, Indonesia. JCSAT-4B Coverage Area of JCSAT-4B As of June 31, 214 Used primarily for Space & Satellite Business JCSAT-6 JCSAT-5A JCSAT-85 Horizons-1 Horizons-2 Superbird-B2 Superbird-3 Superbird-C2 N-STAR c 82ºE 132ºE 85ºE 127ºW 85ºE 162ºE 93ºE (inclined) 144ºE 136ºE Feb. 16, 1999 Apr. 13, 26 Dec. 1, 29 Oct. 1, 23 Dec. 22, 27 Feb. 18, 2 Jul. 28, 1997 Aug. 15, 28 Jul. 6, 22 Atlas 2AS Zenit-3SL Zenit-3SLB Zenit-3SL Ariane 5 Ariane 4 Atlas 2AS Ariane 5 Ariane 5 Boeing 61 A21AX STAR-2 Boeing 61HP STAR-2 Boeing 61HP Boeing 61 DS2 STAR years 12 years 15 years 15 years 15 years Over 13 years Over 1 years 15 years 1 years Ku band Ku band C band S band Ku band Ku band Ku band Ku band Ka band Ku band Ku band S band C band 9 Annual Report 214

12 HISTORY SKY Perfect Communications Inc., and JSAT Corporation were consistent leaders in multichannel pay TV broadcasting and satellite communications, respectively. In April 27, SKY Perfect JSAT Corporation was established as a holding company of those two companies, now SKY Perfect JSAT Holdings Inc. Furthermore, Broadcasting: Milestones 1986 NHK commenced trial BS broadcasts 199 WOWOW INC. began Japan s first private-sector satellite broadcast service 1997 The Ministry of Posts and Telecommunications (now the Ministry of Internal Affairs and Communications) decided to digitalize BS broadcasts from 2 DirecTV started broadcasts in Japan using Superbird-C 1998 Five commercial broadcasters, plus WOWOW INC. and STAR CHANNEL, INC., received approval to deliver BS digital broadcasts under contract Terrestrial digital broadcasts began on a trial basis 2 BS digital broadcasts began Multichannel Pay TV Business 1994 DMC Planning Inc. established (In 1995, name changed to Japan Digital Broadcast Service Co., Ltd.) 1998 Merged and renamed its service SKY PerfecTV! 1996 Japan Sky Broadcasting Co., Ltd. (JSkyB) established 1996 PerfecTV! started March 2 Announcement of intention to cooperate in migration of DIRECTV Japan subscribers to SKY PerfecTV! after the termination of DIRECTV Japan s services June 2 Company name changed to SKY Perfect Communications Inc. October 2 SKY Perfect Communications Inc., listed on Mothers of Tokyo Stock Exchange Satellite Japan Corporation established 1985 Japan Communications Satellite Company, Inc. established 1985 Space Communications Corporation established 1993 Name changed to Japan Satellite Systems Inc. upon the merger April 2 Company name changed to JSAT Corporation August 2 JSAT listed on the first section of Tokyo Stock Exchange Space & Satellite Business Telecommunication: Milestones 1985 Nippon Telegraph and Telephone Corporation (NTT) formed through the privatization of Nippon Denshin Denwa Kosha 1991 The Internet services commercially started in the United States NTT launched N-STAR a, the first of its own satellites The Informative Superhighway concept was declared in the United States 1989 Japan Communications Satellite Company, Inc. launched JCSAT-1, the first commercial communications satellite in Japan, at the 15 degrees east longitude 21 Intelsat became a private company Intelsat, Ltd. SKY Perfect JSAT Holdings Inc. 1

13 Space Communications Corporation joined SKY Perfect Communications and JSAT in a three-way merger in October 28, marking a new start for the SKY Perfect JSAT Group, with SKY Perfect JSAT Corporation representing the business core. 23 Terrestrial digital broadcast began 26 One-Seg terrestrial digital broadcasts began 29 Satellite broadcasts separated into two parts Special Satellite Broadcasting (integration of BS and 11 E CS broadcasts) and General Broadcasting in advance of the next-stage launch of BS digital broadcastingnine companies received approval as Special Satellite Broadcasting contracted providers 211 End of terrestrial analog and BS analog broadcasts. Start of Special Satellite Broadcasting 24 The 11-degree CS broadcasting company Plat One Corp., Ltd. was merged into the company 24 Company was changed to the first section of Tokyo Stock Exchange April 1, 27 SKY Perfect Communications Inc. and JSAT Corporation announced integration of their businesses as wholly owned subsidiaries of the holding company formed by joint stock transfer Establishment of SKY Perfect JSAT Corporation and listed on the 1st section of Tokyo Stock Exchange SKY Perfect Tokyo Media Center March 31, 28 Making Space Communications Corporation a subsidiary June 27, 28 The group holding company SKY Perfect JSAT Corporation changed its name to SKY Perfect JSAT Holdings Inc. October 1, 28 SKY Perfect Communications Inc., JSAT Corporation, and Space Communications Corporation merged and began operation as a new company, SKY Perfect JSAT Corporation 27 Multifunctional cellular phone (smart phone), iphone started sale 26 Intelsat, Ltd. announced acquisition of the U.S. company PanAmSat Corporation to become the world s largest satellite operator 11 Annual Report 214

14 How we re Broadcasting SKY Perfect JSAT Holdings Inc. 12

15 Who we are 1 Profile 4 Market & Position 6 Business Model & Strengths Overview 1 History doing How we re doing 14 Consolidated Financial Highlights Consolidated Financial Highlights 16 To Our Shareholders and Investors To Our Shareholders and Investors 18 Review of Operations 18 Multichannel Pay TV Business 2 Space and Satellite Business Review of Operations Communications What we re planning 22 President Interview 31 Special Feature: Ready for the World Special Feature Our Management 34 Corporate Governance Corporate Governance 4 Corporate Social Responsibility Corporate Social Responsibility 42 Financial Section Financial Section 71 Corporate Data Satellite Basics Glossary Corporate Data Satellite Basics/Glossary 13 Annual Report 214

16 SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries CONSOLIDATED FINANCIAL HIGHLIGHTS Years ended March 31, except Per Share Data and Selected Financial Indicators Thousands of U.S. dollars, except per share data (Note 1) For the Year: Revenues 141,69 141,85 155, ,61 171,683 $ 1,668,121 Cost of Services 86,151 86,28 99,62 16, ,253 1,8,961 Selling, General and Administrative Expenses 39,825 42,319 38,694 37,289 38, ,19 Operating Income 15,93 13,53 17,486 16,153 21,713 21,97 Income before Income Taxes and Minority Interests 16,446 9,862 15,897 15,644 18,543 18,173 Net Income 14,223 4,421 8,569 9,683 9,659 93,853 Comprehensive Income 3,658 9,65 11,358 11,53 17,397 EBITDA (Note 2) 41,72 35,257 42,6 42,448 43, ,341 Depreciation and Amotization 23,87 24,39 24,892 26,995 25, ,931 Capital Expenditures 29,71 18,757 13,972 13,851 23,2 223,493 Net Cash Provided by Operating Activities 39,34 38,957 39,977 38,372 33, ,994 Net Cash Provided by (Used in) Investing Activities (23,887) (28,595) 1,995 (11,119) (18,97) (184,316) Free Cash Flow (Note 3) 15,453 1,362 41,972 27,253 14, ,678 Net Cash (Used in) Provided by Financing Activities 1,836 (17,32) (34,993) (19,42) (25,444) (247,224) At Year-End: Cash and Cash Equivalents 66,727 59,5 66,45 74,473 63,784 $ 619,74 Total Assets 335, ,79 3,133 29, ,58 2,794,211 Interest-Bearing Debt 17,511 91,693 62,56 49,398 44, ,895 Total Equity 183,338 18,65 185,52 192, ,68 1,794,41 Per Share Data (Yen and U.S. dollars) Net Income (Note 4) $.29 Total Equity (Note 4) Cash Dividends (Note 4) Selected Financial Indicators (%) Operating Margin EBITDA Margin Equity Ratio (Note 5) ROE (Note 6) Dividend Payout Ratio Notes: 1. U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of to $1, the approximate rate of exchange at March 31, EBITDA is calculated as Net Income + Tax Expense + Depreciation Expense + Interest Expense. 3. Free Cash Flow is calculated as Net Cash Provided by Operating Activities + Net Cash Provided by (Used in) Investing Activities. 4. Per share figures have been restated, as appropriate, to reflect a hundred-for-one stock split effected October 1, In calculating Equity Ratio, equity excludes minority interests and stock acquisition rights. 6. In calculating ROE, equity excludes minority interests and stock acquisition rights. SKY Perfect JSAT Holdings Inc. 14

17 Overview Revenues () 2, , ,61 15, 141,69 141,85 1, 5, Operating Income, Operating Margin () (%) 25, 5, Operating Income Operating Margin 21, Net Income () 2, 2 17,486 15, 14,223 16,153 15,93 15, 13, ,683 1, ,569 1, 1 5 2, 5, 4, Consolidated Financial Highlights To Our Shareholders and Investors EBITDA, EBITDA Margin () 5, 4, 3, 2, 1, 41, ,257 42, EBITDA EBITDA Margin 42, ,673 (%) Depreciation and Amotization () 3, 26,995 23,87 24,39 24,892 25,311 2, 1, Capital Expenditures () 4, 29,71 3, 23,2 18,757 2, 13,972 13,851 1, Review of Operations Special Feature Free Cash Flow () 5, 41,972 4, 3, 27,253 2, 15,453 14,375 1,362 1, Cash and Cash Equivalents () 1, 8, 74,473 66,727 66,45 63,784 59,5 6, 4, 2, Total Equity, Equity Ratio () (%) 25, 2, 15, 1, 5, 183,338 18,65 185, Total Equity Equity Ratio 1 192, , Corporate Governance Corporate Social Responsibility ROE (%) Dividend Payout Ratio (%) Revenues by Sector, Operating Income by Sector (%) Revenues by Sector Multichannel Pay TV Business Space & Satellite Business Operating Inceme by Sector See page for more details of each sector. 5.3 Financial Section Corporate Data Satellite Basics/Glossary 15 Annual Report 214

18 TO OUR SHAREHOLDERS AND INVESTORS We are overhauling the earning and cost structures with the aim of generating new growth. Shinji Takada Representative Director/President We achieved profitability for the Multichannel Pay TV Business and recorded high operating income. The Multichannel Pay TV Business recorded its first-ever net decrease in subscribers, making fiscal 213 challenging year for the business. However, increased viewing revenue from the better-than-expected transition of the standard-definition service to high-definition (HD) service, reduced customer center operating costs, and other factors contributed to the segment achieving profitability for the year. The Space & Satellite Business recorded substantial profit growth on system update orders from government agencies and steady performance of its international services. The result was year-on-year growth in both revenue and income with operating revenue rising 7.6% to billion and operating income growing 34.4% to 21.7 billion. Funds will be strategically allocated to content and customer service. We have designated fiscal 214, the penultimate year of the Medium-term Business Plan, as the Year of Transformation that will position the Company to achieve the plan s goals and set a solid course for future growth. The cost structure of the Multichannel Pay TV Business will change drastically with the end of standard-definition broadcasts in the premium service at the end of May. Free of the cost burden associated with the transition, we will strategically allocate funds to fortify content and enhance customer service. The objectives of this cost structure reform, running the new customer management system, and marketing reform using data collected from audience trend surveys and other sources are to increase subscribers (other than the forced subscription cancellations caused by ending standard-definition broadcasts) and viewing revenue. We will also actively implement new measures to create a foundation for future growth, including increasing the number of users paying for the any device, anytime, anywhere SKY PerfecTV! On Demand service, fully participating in next-generation TV broadcasting, such as Channel 4K beamed via the JCSAT- 3A satellite, and further developing and expanding the WAKU- WAKU JAPAN channel for overseas markets. We also plan to increase operating revenue in the Space & Satellite Business by further strengthening our business development activities in the domestic market for emergency response services and in the global market in the Asia and SKY Perfect JSAT Holdings Inc. 16

19 Overview Revenues +7.6% Operating Income +34.4% Net Income -.2% EBITDA +2.9% Consolidated Financial Highlights > Revenues () 2, 155,242 15, 1, 5, 159,61 171,683 > Operating Income () 25, 2, 17,486 16,153 15, 1, 5, 21,713 Net Income () 1, 8,569 5, > 9,683 9,659 EBITDA () 5, 42,6 4, 3, 2, 1, > 42,448 43,673 To Our Shareholders and Investors Review of Operations (Years ended March 31) (Years ended March 31) Oceania regions where economic growth is expected. We will also focus on responding to growing demand in the mobile market, such as for Internet service on airplanes and ships. We achieve our Medium-term Business Plan targets and accelerate growth. Our outlook for fiscal 214 includes a decline in revenue from basic fees and other charges caused by the forced cancellation of some viewer contracts with the end of standard-definition broadcasts in the premium service, a decline in revenue from standard-definition broadcasters satellite usage fees, and a temporary fallback in the Space & Satellite Business from the fiscal 213 profit level. Overall, we anticipate year-on-year declines in both revenue and profit, on an operating income basis, in fiscal 214. At the same time, we project rebounding revenue and profit in fiscal 215, the final year of the Medium-term Business Plan. We also expect the operating income base to rise as the temporary factors restraining revenue in fiscal 214 fall away. In addition, we expect steadily progress toward the operation of next generation X-band satellite communication functions for (Years ended March 31) (Years ended March 31) the Ministry of Defense*, advances in global businesses, an optimized cost structure, and other developments to propel operating revenue to the 2 billion level while operating income surpasses the 2 billion target to reach 25 billion. We plan to keep internal reserves for future growth investment while maintaining steady dividend payments. While ensuring there are sufficient internal funds for future growth investments and taking into consideration the ability to maintain steady dividend payments, we determined to distribute an annual dividend of 1,2 per share trading unit in fiscal 213. We currently plan to provide dividend payment of 1,2 per share trading unit ( 12 per share) in fiscal 214. We look forward to the continued support of our shareholders. July 214 * A project in which we plan to launch and operate two out of three X-band satellites operated by the Ministry of Defense and the Self-Defense Force. Next generation X-band communication is apt to be unaffected by climate change and able to communicate in fast and stable manner, utilizing a high frequency band not less than 8GHz. Special Feature Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 17 Annual Report 214

20 REVIEW OF OPERATIONS Multichannel Pay TV Business With the business now generating profits, we plan to strategically allocate funds to fortify content and enhance customer service while securing profits by developing new strategies to SKY PerfectTV! On Demand, internet-based service, as another core business. Akira Tanaka Director, in charge of Multichannel Pay TV Business Review of Fiscal 213 The operating environment for the Multichannel Pay TV Business is changing at an ever-faster pace as the proliferation of smartphones and tablet computers creates a wider diversity of viewing situations and new technology enables 4K and 8K Ultra HD broadcasts and other next-generation transmission services. In this environment, our top priority in fiscal 213 was to migrate customers of our SKY PerfecTV! Premium Service from standard-definition broadcasts to our HD service. Our strategies worked well as the number of subscribers that upgraded to the new service was 286,843 and surpassed our target of 246, set at the beginning of the year. Operating revenue rose 6.8% year on year to billion and cost-cutting efforts, such as trimming operating costs at our customer centers to reduce outsourcing expenses, helped improve operating income by 2. billion, enabling the Multichannel Pay TV Business to post a profit of 1.1 billion. At the same time, however, our subscription numbers deteriorated significantly as the number of new subscriptions declined by 142,269 from the end of the previous fiscal year to 479,98, and the net result of contract cancellations and new subscriptions was a decline of 112,85. We launched SKY PerfecTV! Select 5 package service in March 214 to counter this trend and attract new subscriptions. Outlook for Fiscal 214 In fiscal 214, we will completely revise our spending on marketing aimed at new subscriptions and put more emphasis on allocating funds to content development. With these initiatives, we will be fortifying our foundation for growth on several levels, including further differentiating our services from those of competitors and attracting new subscriptions as well as lowering the contract cancellation rate, Revenues () 15, 12, 9, 6, 3, 114, , , (Forecast) Operating Income (Loss) () 1,5 1, , 1,184 1, (Forecast) (Years ended March 31) raising average monthly revenue per unit (ARPU), and fully developing the Internet video streaming service. We believe video streaming can become a core part of our future business and will focus on developing new channels and content and broadening subscription access routes. We also plan to take solid steps to prepare the SKY PerfecTV! Premium Service for the coming era of 4K/8K Ultra HD broadcasts. We will also seek to further raise customer satisfaction by developing customer loyalty programs, effectively applying the new customer management system, and enhancing our marketing efforts. Our new business development activities include the launch of the all-japanese channel WAKUWAKU JAPAN in Indonesia in February 214 and in Myanmar in June. We see significant growth potential for the channel in Asian countries and plan to continue expanding the broadcast range. While advancing these initiatives, we will also seek to minimize the impact from the termination of the standard definition broadcasts. We are aiming to maintain fiscal 214 operating revenue and operating income at the same levels of the previous fiscal year, or billion and 1.2 billion, respectively. SKY Perfect JSAT Holdings Inc. 18

21 Overview Main Indicators for the Multichannel Pay TV Business Key Performance indicators* Number of New Subscribers (units: thousand) Net Increase (units: thousand) Cumulative Total Subscribers (units: thousand) FY212 FY ,829 3,717 Average Monthly Subscriber s Payment * (Yen) 4, 3, 2, 1, 3,223 3,238 3,194 3, ,63 2,623 2,577 2, * Total for three services. 3,19 3,198 3,174 3, ,573 2,588 2,566 2, Q/FY212 2Q 3Q 4Q 1Q/FY213 2Q 3Q 4Q Consolidated Financial Highlights To Our Shareholders and Investors Subscribers Shifted to HDTV (units: thousand) Average Monthly Subscriber s Payment (units: JPY) ARPU (units: JPY) SAC (units: JPY) *Sum of SKY PerfecTV!, Premium Service and Premium Service HIKARI ,2 3,179 1,784 2,4 29,931 36,7 ARPU (Average Monthly Revenue per Unit) * (Yen) 2,5 1,938 1,991 2,32 2, , 1,738 1,765 1,88 1, ,5 1, 5 1,157 1,188 1,216 1Q/FY212 2Q 3Q 4Q 1Q/FY213 2Q 3Q 4Q Basic fee Rental fee Monthly subscription fee PPV subscription fee 1, * Total for all three services. 1,338 1,396 1,433 1, Revenues from SKY Perfect s own content Review of Operations Special Feature 4, 3, 2, 1, Churn Rate * ,712 24, ,342 Annual churn rate : 18.5% , ,684 15,924 14, , ,491 1Q/FY212 2Q 3Q 4Q 1Q/FY213 2Q 3Q 4Q Churn rate Churn rate after the exclusion of re-subscriptions , ,445 24,444 19,938 16, ,19 (%) ,415 Churn Re-registered subscribers * The quarterly average of monthly churn rate. Calculated for all of the three services.. SAC per unit (Subscriber Acquisition Cost) * (Yen) 5, 4, 3, 2, 1, SAC total (Subscriber Acquisition Cost) * () 7, 6, 5, 4, 3, 2, 1, 1Q/FY212 2Q 3Q 4Q 1Q/FY213 2Q 3Q 4Q 26,117 4, , , ,244 5,285 5, , Q/FY212 2Q 3Q 4Q 1Q/FY213 2Q 3Q 4Q Advertising expenses Promotional expenses Sales incentives Campaign expenses * Total for three services. 28,319 31, , ,764 Others 561 1, ,22 3,121 4, , ,17 32,888 4, , ,524 4, , Free content costs 44,558 * Total for all three services. The SAC unit price excludes the costs of content provided free of charge. 6, , Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 19 Annual Report 214

22 REVIEW OF OPERATIONS Space & Satellite Business The Space & Satellite Business currently owns and operates 16 satellites, making it the largest satellite communications company in Asia and the fifth largest in the world. The segment, which is entering its 25th year anniversary, plans to continue expanding with the launches of four additional satellites by 216. Koki Koyama Director, in charge of Space & Satellite Business Review of Fiscal 213 Demand for satellite-based services continued growing worldwide, particularly in emerging countries in Asia. In Japan as well, government agencies and private enterprises are increasingly looking to utilize satellite transmissions for disaster contingency and business continuity plans (BCPs). In our overseas businesses in fiscal 213, use of our satellites expanded in Southeast Asia, including by the LIPPO Group of Indonesia which began using our network for its BiG TV broadcasts in September, in North America, Asia, and Oceania for services provided to U.S. government agencies, and in Russia. The mobile satellite communications business also grew on expanded OceanBB broadband service for vessels and satellite transmission services for in-flight Internet access services. In addition, consolidated subsidiary JSAT Mobile Communications teamed with OnAir in March 214 to begin providing Inmarsat SwiftBroadband in-flight satellite communication services to the Japanese market. Domestic business revenues were boosted by expanding satellite use in disaster contingency plans and BCPs and received a strong contribution from satellite communication system upgrades for government agencies. Operating revenue in fiscal 213 rose 1.5% from the previous fiscal year to 62.6 billion supported by government orders for system upgrades and other single-year factors. Operating Revenues () 8, 6, 4, 2, 56,646 Nipponmaru 62,587 53, (Forecast) Operating Income () 25, 2, 15, 1, 5, 17,599 21,83 17, (Forecast) (Years ended March 31) SKY Perfect JSAT Holdings Inc. 2

23 Review of Operations Special Feature To Our Shareholders and Investors Consolidated Financial Highlights Overview Yokohama Satellite Control Center (YSCC) income increased 19.8% to 21.1 billion, which included a decline in satellite-related depreciation expenses. Outlook for Fiscal 214 In fiscal 214, we anticipate a decline in revenue following the termination of the SKY PerfecTV! Premium Service s standard-definition broadcasts at the end of May 214 and a fallback from temporary rise in system orders from government agencies. As a result, we forecast fiscal 214 operating revenue declining by 15.% year on year to 53.2 billion and operating income falling 17.% to 17.5 billion, roughly to the level of the previous fiscal 212. During the year, we will be preparing to launch the JCSAT- 14 in the first half of fiscal 215, which will enable a huge boost in transmission capacity to the Asia and Oceania regions where demand for satellite is booming. These preparations will Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary include fortifying our business activities in the global markets with a focus on the Asia and Oceania regions. We will also continue actively advancing tie-up opportunities with overseas satellite operators. In the mobile satellite communications business, we will focus on expanding sales of the OceanBB satellite broadband service for vessels, such as by using the JCSAT-85 satellite that is jointly owned with Intelsat Ltd., and of satellite transmission sales in the expanding market for in-flight Internet connection services. In our domestic businesses, we will continue fortifying our operations used in disaster contingency plans and BCPs. Consolidated subsidiary DSN Corporation will also continue maintaining and managing the relay function and other operations of the X-Band satellite system for the Ministry of Defense. 21 Annual Report 214

24 What we re planning SKY Perfect JSAT Holdings Inc. 22

25 SPECIAL FEATURE 1: PRESIDENT INTERVIEW Aiming well above the Mid-term target and accelerating reform for new growth In our medium-term business plan, we set consolidated numerical With targets the growth for fiscal pace year of operating 215 to exceed income appearing to have slowed, how confident 2 billion in operating revenue, 2 billion in operating income, and 4 million in SKY PerfecTV! total are you at this moment about reaching subscribers. At this point, given the current situation, we forecast the reaching targets 3.8 and million what is total your subscribers, basis for believing time, however, so? we expect to vastly ex- including those of our video on demand (VOD) service. At the same ceed our consolidated operating income target and are now looking to attain 25 billion in fiscal year 215. Q1 Overview To Our Shareholders and Investors Financial Section Corporate Data Satellite Basics/Glossary Corporate Social Responsibility Corporate Governance Review of Operations Consolidated Financial Highlights 19 billion yen 25 billion yen Special Feature FY211 FY212 FY213 FY214 (forcast) Revenues Operating Income FY215 (outlook) 23 Annual Report 214

26 Q1 The consolidated forecast for operating income in fiscal year 214 is calling for a 17.1% year-on-year decline to 18. billion. Do you still aim to surpass the initial target by 5. billion to reach 25. billion in fiscal year 215, the final year of the medium-term business plan? We fully believe we can reach the new target. The declines we anticipate in fiscal year 214 mainly represent a fallback from the jump in income in fiscal year 213 from the large government project order. This dynamic will not be in play in fiscal year 215, when we also expect to benefit from the Ministry of Defense project and our cost restructuring. Our revenue and cost structure will also change dramatically during 214 with the ending of the MPEG-2 format standard-definition broadcasts at the end of May 214 that we have been offering since The Multichannel Pay TV Business will no longer be burdened by costs associated with the transition to the H.264 format high-definition services. In addition, we had been maintaining and operating three broadcast centers two for standard-definition service and one for high-definition service. Consolidating these into a single high-definition broadcast center will also reduce operating costs. One area where we will see a decline is in basic subscription fee revenue because of the contract cancellations with the end of standard-definition broadcasts. The Space & Satellite Business will also see a fallback from the fiscal year 213 performance levels following the substantial contribution from the government order for system updates in the past year while the end of standard-definition broadcasts will decrease fee revenue from satellite communications services. We see fiscal year 214 as a year where we will see a concentration of temporary factors that will hold down profits but that will mark a turning point for new growth going forward. The growth will begin quickly in fiscal year 215 when the benefits of our cost structure reform efforts start to appear, our maintenance and operating services for the Ministry of Defense s X-band satellite operations begin fully contributing to revenue, and our satellite depreciation expenses decline. We believe the combination of increasing revenue and reduced costs will place consolidated operating income of 25 billion well within our reach in fiscal year 215. Performance Results and Forecast FY211 FY212 FY213 FY214 FY215 (Results) (Results) (Results) (Forecast) (Target) (Outlook) Revenues (billion yen) Operating Income (billion yen) Total Subscribers (thousands) 3,814 3,829 3,717 3,557 4, 3,8 (VOD added) SKY Perfect JSAT Holdings Inc. 24

27 Overview Q2 Total subscribers to the SKY PerfecTV! service declined by approximately 113, to 3,717, in fiscal year 213. The Company forecasts total subscribers of 3,557, (excluding VOD) at the end of fiscal year 214, including approximately 25, cancellations associated with the termination of the standard-definition service. How does the Company plan to reestablish its subscriber numbers? People are watching content in increasingly diverse settings and cross-media competition is intensifying. In this environment, the Multichannel Pay TV Business plans to generate profit by focusing on fortifying content, enhancing customer services, and fully developing our VOD services. Consolidated Financial Highlights To Our Shareholders and Investors Change Cost structure reform to increase subscription fee revenue The first change is to fortify our content and customer services. With the end of standarddefinition service, we will no longer bear expenses from the shift to HD service contracts. In addition, the funds saved from the cost-efficient advertising and customer acquisition activities will be allocated to our content. The BS SKY PerfecTV! Channel will be reorganized in autumn. The business model will be revamped to better differentiate the service from other platforms, and the service will initially be positioned as a showcase channel to attract subscribers. We will also introduce a Support and Reward Program based on subscription fees (ARPU) and contract length and create a service structure to attract and keep more viewers longer. Data on monthly subscription fees reveals that a large portion of revenue comes from certain customers that pay premium fees while they account for a relatively small portion of total customers. We will put particular focus on this group. At the same time, we launched the SKY PerfecTV! Select 5 in March 214 offering viewers to select five channels for a monthly fee of 1,98 to raise ARPU in the low subscription Subscribers Outlook Results and Forecasts fee zone. The Select 5 is also encouraging competition among broadcasters. VOD Product competitiveness is required to be selected from the (currently) 45 channels, which helps us fortify our MPEG-2 H.264 content and promotions. The number of high subscription fee customers is holding steady and our target of having existing subscribers of basic channel contracts add Select 5 is being realized while over 1% of new subscribers are opting for the Select 5. Beginning in fiscal year 214, we plan to actively allocate funds toward enhancing content and creating new systems for raising customer satisfaction while also developing initiatives to increase subscriptions as well as to raise overall subscription revenue. Review of Operations Special Feature Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 25 Annual Report 214

28 Change 2 Utilizing big data to improve service The second change is to revamp our marketing strategy. We initiated a new customer management system to better interact with customers on an individual basis and actively work to improve our service. The new system replaces the previous method of gathering customer information based on the IC card units with a new system with the ability to consolidate the information of multiple contracts and follow trends on a household basis. We are also revising our online viewing procedures to enable online subscription applications and increasing the number of application procedures than can be completed online, which will enable quick-response to demand to view new channels while further lowering our customer center costs. We also conducted our first survey of viewer trends for the satellite broadcast of our multichannel pay TV service. With the cooperation of some 1, subscribers, we collected minute-by-minute data on which programs were being watched on which channels, when they were watching, and other attributes that we will use to develop attractive products and formulate our channel formats. We will also integrate big data gathered from consumer behavior surveys and social media to develop marketing programs better designed to meet customer needs. Change 3 Developing SKY PerfecTV! On Demand into a core service The third change is to develop the SKY PerfecTV! On Demand into one of our major services. We launched this video on demand (VOD) service in October 211 with the primary aim of adding convenience to existing customers by enabling access multiple devices, including smartphones, computers, and tablets. However, Towards Positioning SKY PerfecTV! On Demand as our Main Service the proliferation of smartphones and tables has led to a growing number of new registrations for VOD-only subscriptions. We are responding to this trend by providing viewers with the ability to watch anywhere and to watch programs they had missed and also by actively developing products and packages specifically for SKY PerfecTV! J.League On Demand On Demand and increasing our links with other platforms, such as PlayStation Vita TV. We plan to continue developing VOD into a core service for attracting new pay TV Linkage with other platforms Availability on multiple devices users. To promote the market penetration of SKY Perfec- TV! On Demand, in April 214 we also began broadcasts on the J.COTT, smart TV service for cable TV stations. At the end of fiscal year 213, SKY PerfecTV! On Demand s 56 channels and 11 content genres had attracted CATV Fiber Internet PC Smart Phone Tablet approximately 274, member registrations including 126, paying users. We plan to increase the number of paying VOD users to 2, in fiscal year 215. SKY Perfect JSAT Holdings Inc. 26

29 Financial Section To Our Shareholders and Investors Review of Operations Special Feature Corporate Governance Corporate Social Responsibility Overview Q3 How will you advance the Company s medium and long term growth strategies in the current environment where public and private demand is calling for the quick realization of next-generation broadcasts and the Cool Japan initiative is gaining momentum? We are focusing our efforts on advancing Ultra HD broadcast technology for the 22 Tokyo Olympics and Paralympics and developing Japanese content channels for overseas markets centered on Asia. The first step is to provide 4K/8K Ultra HD broadcasts, which will be known as Super Hi-Vision in Japan. The Next Generation Television & Broadcasting Promotion Forum (NexTV-F), of which we are a founding member, is establishing a roadmap for the promotion of Ultra HD broadcasts. NexTV-F began test broadcasts of a 4K channel in June 214 via our JCSAT-3A (128 E) satellite on bandwidth that opened up after our standard-definition service ended. Satellites are the logical choice for large-volume data broadcasts such as for Ultra HD, and we plan to increase broadcast periods as sales of 4K receivers are accelerating. We are also strengthening our ties with the NTT Group to continue technology verification for 4K broadcasts using the NTT Flet s Hikari fiber network while also aiming for early introduction of 4K broadcasts on our SKY PerfecTV! Premium Service Hikari. In terms of content, we are developing the all-japanese channel WAKUWAKU JAPAN business for the Asia market. In February 214, we launched the 24-hour channel WAKUWAKU JAPAN s Japanese programming in local languages via satellite platform owned by MNC Group, the leading media company in Indonesia. The interest in Japanese content in Indonesia was vastly apparent from the channel s very first broadcasts. In June, Myanmar s leading media company the Forever Group began terrestrial digital broadcasts of WAKUWAKU JAPAN through its 4TV pay TV service. (Please see Feature 2 on page 31 for further details.) We plan to actively develop the WAKUWAKU JAPAN business and establish a firm revenue structure while continuing to explore ways to link with the Cool Japan strategy and media operations in Southeast Asia. Consolidated Financial Highlights Corporate Data Satellite Basics/Glossary 4K broadcast with four times as many pixels as HD full high vision TV 27 Annual Report 214

30 Q4 What are the conditions in the domestic market for the Space & Satellite Business now that the surge in demand from satellite communications after the 211 the Great East Japan earthquake has settled down? In Japan, satellite systems are being recognized reliable and useful in disaster situations and business continuity planning (BCP). We are fortifying our operations to address growing number of inquiries over the protective measures against potential earthquakes in Japan. The business is also steadily preparing to launch the X-band communications satellites for the Ministry of Defense. Local governments are increasingly using satellite communications in their nuclear disaster prevention efforts. Satellite systems are also being looked to as remote monitoring posts for their ability to remain operational even while terrestrial systems are down. Gas utility companies are also increasingly using satellites to monitor their pipeline as part of their BCP. In January 213, the Ministry of Defense selected a consortium led by SKY Perfect JSAT to maintain and operate two X-band military telecommunications satellites scheduled for launches in December 215 and January 217. The Space & Satellite Business will be responsible for operating two of the three X-band satellites the Self-Defense Forces of the Ministry of Defense use as communication infrastructure interlinking the land, sea and air activities of the nation s Self-Defense Forces. In addition, in October 213, Japan s three major expressway companies (NEXCOs) NEXCO East Japan, NEXCO Central Japan, and NEXCO West Japan asked us to provide the satellites for their planned communications systems upgrade, and we are progressing with the system installation for operations to start in the first half of 215. The business also continues to promote usage and operational services of the Kizuna (WINDS) satellite enabling ultra-high-speed Internet access for the Japan Aerospace Exploration Agency (JAXA) and has begun working with public and private agencies to monitor space debris and ocean conditions. The enactment of the Aerospace Basic Act is expected to increase business opportunities in the space exploration field, and we are widening our scope beyond the broadcasting and communications fields to enter new business domains where we can generate synergies with our existing business operations. Satellite System for BCP Image of Space Debris in Low Orbit Monitoring Center SKY Perfect JSAT Holdings Inc. 28

31 Overview Q5 Consolidated Financial Highlights To Our Shareholders and Investors Review of Operations Special Feature Corporate Governance What global business development is the company engaged in other than the overseas satellite business, such as the BiG TV broadcasting for the LIPPO Group of Indonesia started in September 213? The Space & Satellite Business is aiming to grow into a super regional player with a strong base in Asia and Oceania and is also focusing on developing projects with the Japan consortium. The Asia and Oceania region, which contains over half of the world s population and is expected to have growing number of middle-income households, is already our main coverage area and we are accelerating development to fulfill the business potential. Pre-marketing activities are under way in Asia, Oceania and also Russia in preparation for the planned 215 launch of the JCSAT-14 satellite, which will be the successor to the JCSAT-2A (154 E) satellite. In addition, Japan s satellite communications system for disaster prevention that was used during the Great East Japan earthquake and subsequently improved from what was learned from the experience is drawing increasing attention from countries in earthquakeprone regions. We are currently proposing hardware and software packages incorporating Japan consortium equipment, facilities, and operational expertise for disaster response satellite communications systems to Turkey and Chile. At the same time, our satellite communications services for mobile vehicles continues to grow with the provision of satellite connections for US-based Panasonic Avionics, which provides onboard Wi-Fi service for clients such as for Japan Airlines. In March 214, we partnered with OnAir to provide in-flight Wi-Fi services to All Nippon Airways using the Inmarsat satellite communication service. We are also expanding our satellite communications use for Internet connection services to the oceangoing vessels of Japan s three major commercial shipping operators NYK, Mitsui O.S.K. Lines, and Kawasaki Kisen Kaisha and increased the number of contracted vessels from 95 to 16 in fiscal year 213. We plan to step up our marketing activities to other commercial shippers. SKY Perfect JSAT C and Ku-band Coverage Forecast for Satellite Demands in Asia-Pacific Region MHz 8, 6, Corporate Social Responsibility C-band coverage Ku-band coverage 4, 2, Financial Section Total bandwidth of satellite transponders (MHz) Source: Northern Sky Research Corporate Data Satellite Basics/Glossary 29 Annual Report 214

32 Q6 What is your plan for the shareholder return policy? We plan to invest aggressively, such as launching four satellites, to establish a foundation for future growth while maintaining healthy financial condition and to review our shareholder return policy after achieving the medium-term business plan targets. We are currently entering a stage where we will vastly increase investment to advance our strategies for growth, which includes launching four satellites from fiscal year 215 to the first half of fiscal year 216 and in April 214 entered into an agreement with Space Systems/Loral of the United States for procurement of its new JCSAT-15 and JCSAT-16 satellites. JCSAT-15 will succeed and replace N-SAT-11, being used at 11 east longitude for broadcasting the SKY PerfecTV! service, and JCSAT-16 will function as an inorbit back-up satellite enabling provision of more stable satellite services. In the Multichannel Pay TV Business, investment will focus on fortifying programming content and preparing for 4K broadcasting with the aim of upgrading and expanding our global business. Laying the foundation for new growth strategies in fiscal year 214 The Company has a firm financial foundation with an equity ratio of 64.1% at the end of fiscal year 213. As a corporate group providing broadcasting and communications services in Japan and overseas. We, as being in the public interest, believe is it our responsibility to maintain a healthy financial position and plan to continue fulfilling our commitment to return profit to shareholders upon achieving our medium-term business plan target of 25 billion in operating income in fiscal year 215, the last year of the plan. To realize these, we want to make fiscal year 214 a Year of Transformation in which we advance steadily toward meeting the medium-term business plan operating income target and establish a foundation for new growth strategies. Future Satellite Launch Plans JCSAT-14 (Successor to JCSAT-2A) First half of FY215 (scheduled) (Billion yen) (Billion yen) 5 Capital Expenditures and Free Cash Flow 5 Interest-Bearing Debt and Equity Ratio 1 Superbird-8 (Successor to Superbird-B2) JCSAT-15 (Successor to N-SAT-11) Second half of FY215 (scheduled) First half of FY216 (scheduled) Zero net debt JCSAT-16 (Back-up) First half of FY216 (scheduled) Capital Expenditures Interrest-Bearing Debt Free Cash Flow Equity Ratio SKY Perfect JSAT Holdings Inc. 3

33 SPECIAL FEATURE 2: THE WAKUWAKU JAPAN CHANNEL READY for WORLD the Overview To Our Shareholders and Investors Financial Section Corporate Data Satellite Basics/Glossary Corporate Social Responsibility Consolidated Financial Highlights Corporate Governance Special Feature Review of Operations WAKUWAKU JAPAN 31 Annual Report 214

34 First overseas WAKUWAKU JAPAN channel launched in Indonesia WAKUWAKU JAPAN In Indonesia in February 214, we launched WAKUWAKU JAPAN specializing in Japanese content for overseas audiences. Available via two of Indonesia s leading direct broadcast satellite providers, INDOVISION and Okevision, WAKUWAKU JAPAN offers a selection of the most popular Japanese Dramas, Movies, Music, Anime/Tokusatsu, Sports, and other programs all in local languages 24 hours a day, 7 days a week. We also embarked on the pay TV services BiGTV, First Media, Orange TV, Transvision in June to reach an estimated 2.5 million households in Indonesia. WAKUWAKU JAPAN debuts in Myanmar WAKUWAKU JAPAN commenced broadcasting in Myanmar in June 214 via the 4TV, a terrestrial broadcast pay TV service provided by the Forever Group, Myanmar s leading media company. We plan to continue expanding the broadcast region for WAKUWAKU JAPAN with a focus on Southeast Asia. Leveraging the Japan Boom in Asia WAKUWAKU JAPAN WAKUWAKU JAPAN is being promoted across Indonesia with a new commercial featuring the popular Indonesian idol group JKT48. The content market in Japan is currently second only to the United States in terms of size, yet just 5% of the content is exported outside of the country. Additionally in Japan, while broadcast content accounts for over 3 percent of the total content and has 1 times the volume of the South Korean broadcast market, it only commands one-third of the export value of programs to South Korea. However, the Japanese government s Cool Japan strategy to promote Japan s SKY Perfect JSAT Holdings Inc. 32

35 Overview creative industries overseas is belatedly gaining momentum in both the government and the private sector. Effectively communicating the attractiveness of Japanese industries from programming content to fashion, lifestyle, cuisine, services, and various fields is a strategy that can fuel the Japan boom and capture overseas demand. Moreover, the 22 Summer Olympics in Tokyo will provide a golden opportunity to spread Japanese culture around the world. Joining with the Cool Japan Fund Inc. to set up a profit plan In this environment, in November 213 the Japanese government established Cool Japan Fund Inc., a public-private fund with 3 billion in government and 7.5 billion in private corporate funding to promote development of demand overseas by disseminating and present Japanese culture worldwide. While providing Japanese content overseas through WAKUWAKU JAPAN, we entered into a basic agreement with Cool Japan Fund Inc. beginning of the joint review towards clarifying plans for the media and related businesses in and around the Southeast Asia region. By combining the knowledge and connections of the initiative s resources from both sides, we will aim to construct a media platform that highlights the attractiveness of Japanese content and business resources and promotes their development overseas. Consolidated Financial Highlights To Our Shareholders and Investors Review of Operations Special Feature Hugely popular Japanese content Our first viewer survey in Indonesia found that some 7% of viewers knew of WAKUWAKU JAPAN and daily average viewing of the channel was over two hours. The Sports, Anime/Tokusatsu, Drama, and Travel/Food programs were very popular and viewership was extremely high for J. League professional soccer games, Ultraman Cosmos, and the NHK serial drama Ama-chan, which were aggressively advertised at the channel s launch. As Soccer is especially popular in Indonesia, J.league content is deemed profitable. We are developing a diverse range of business tie-ins including selling event tickets and goods. J.LEAGUE PHOTOS Corporate Governance Corporate Social Responsibility Survey Area: Jakarta, Indonesia No knowledge of channel 9.4% Not much knowledge of channel 21.5% Awareness of WAKUWAKU JAPAN Very familiar with channel 7.4% Aware of channel 61.7% Target Population: 89 persons aged 1-49 from 22 households with access to WAKUWAKU JAPAN extratcted by quote sample Period: March 1, 214 to March 23, 214 Survey Method: Diary survey and program guide survey Financial Section Corporate Data Satellite Basics/Glossary 33 Annual Report 214

36 Our Management BOARD DIRECTORS AND CORPORATE AUDITORS (As of June 2, 214) Board Director Koki Koyama Board Director Masao Nito Representative Director, President Shinji Takada Representative Director, Chairman Shigeki Nishiyama Board Director Akira Tanaka SKY Perfect JSAT Holdings Inc. 34

37 To Our Shareholders and Investors Corporate Data Satellite Basics/Glossary Consolidated Financial Highlights Overview Representative Director, Chairman Shigeki Nishiyama Review of Operations Special Feature Corporate Social Responsibility Financial Section 211 Representative Director, Chairman, In charge of Internal Control (to the present) Representative Director, Chairman, SKY Perfect JSAT Corporation (to the present) Representative Director, President Shinji Takada 211 Representative Director, President, (to the present) Representative Director, President & Chief Executive Officer, SKY Perfect JSAT Corporation (to the present) Board Director Masao Nito 28 Director (to the present) Director, Senior Executive Vice President, SKY Perfect JSAT Corporation (to the present) 21 In charge of Corporate Planning& Strategy (to the present), Chief Risk Management Officer (to the present) 211 Chief Information Management Officer (to the present) 213 In charge of Finance and Administration, In charge of Engineering, Chief Group Compliance Officer (to the present) Board Director Akira Tanaka 28 Senior Managing Executive Officer, SKY Perfect JSAT Corporation (to the present) 213 Director, In charge of Multichannel Pay TV Business (to the present) Director, Senior Managing Executive Officer, SKY Perfect JSAT Corporation (to the present) Board Director Koki Koyama 214 Director, In charge of Space & Satellite Business (to the present) Director, Senior Managing Executive Officer, SKY Perfect JSAT Corporation (to the present) Board Directors (Non-Standing) Iwao Nakatani (outside)* Masakatsu Mori (outside)* Kazunobu Iijima Masayuki Hirata (outside) Corporate Auditors Noriaki Sakamoto (outside) Ryoji Hirabayashi Corporate Auditors (Non-Standing) Toshiaki Katsushima (outside)* Tetsuya Fujita (outside) Corporate Governance *Independent director/auditor 35 Annual Report 214

38 CORPORATE GOVERNANCE The SKY Perfect JSAT Group strives to maintain transparent corporate governance systems that are able to meet the demands of a rapidly changing business environment. As a corporate entity that provides the highly public services of broadcasting and communications, we pursue rigorous corporate ethics based on legal compliance and ongoing reinforcement of our risk management system. 1. Appropriate, Efficient, and Highly Transparent Corporate Governance Board of Directors The Company s Board of Directors consists of 9 directors, three of whom are outside directors, as of June 2, 214. As the basis of the system to ensure efficient execution of duties of the directors, the Board meets once monthly in principle, and on other occasions as necessary, to make decisions concerning important business matters for the Company and Group companies. The directors also share information on important facts related to individual group companies and conduct risk management in an appropriate and prompt manner. Along with defining clearly the duties of each director, the company clarifies their roles in business execution based on our regulations, as well as appoints a responsible leader of each division. With this system, the Company ensures the conduct of Corporate Governance Systems SKY Perfect JSAT Holdings Inc. General Meeting of Shareholders Report Appoints Appoints Board of Corporate Auditors: 4 Corporate Auditors (3 Outside Corporate Auditors) Audits Board of Directors: 9 Directors (2 Representative Directors) (3 Outside Directors) Consults Nomination and Remuneration Committee Report Chairman Auditors Consults Management Committee Accounting Audit President Divisions: Internal Audit/Internal Control Promotion/Corporate Planning/ Human Resource/Corporate Communications & Investor Relations/ Finance/Accounting/General Affairs/ Legal/Information Systems Information Disclosure Committee (As of June 2, 214) SKY Perfect JSAT Holdings Inc. 36

39 Consolidated Financial Highlights To Our Shareholders and Investors Review of Operations Special Feature Corporate Governance Corporate Social Responsibility Overview FY213 Major Activities Conducted by Outside Directors Name Iwao Nakatani Activities Nakatani attended all of the 14 Board of Directors meetings held in the fiscal year under review. With regard to the business deliberation and other matters, he provided advice as necessary based on his high level of expertise in the field of economics and business management. Masakatsu Mori Mori attended all of the 14 Board of Directors meetings held in the fiscal year under review. With regard to business deliberation and other matters, he provided advice as necessary based on the abundance of experience and knowledge in the field of corporate management that he has acquired as a manager of a consulting firm. Masayuki Hirata Hirata attended all of the 1 Board of Directors meetings held in the fiscal year under review. With regard to business deliberation and other matters, he provided advice as necessary based on his abundance of experience and knowledge in the fields of communications. Tadashi Saito Saito attended 8 of the 1 Board of Directors meetings held in the fiscal year under review. With regard to business deliberation and other matters, he provided advice as necessary based on his abundance of experience and knowledge in the fields of electronics. appropriate and efficient business execution. Meanwhile, the appointment of three outside directors, who possess a wealth of expertise and experience in corporate management, enriches discussions at Board of Directors meetings with a variety of viewpoints and enhances the rationality and appropriateness of decision-making, as well as increases the effectiveness of the corporate governance system. Management Committee The Company has clarified the scope of decision-making authority, including the President s, based on the regulations on the authority of management. Along with this, the Company has established a Management Committee as a consultative body that helps the President make decisions on business execution-related matters as necessary. The Committee meets as necessary and members discuss important matters relating to the business of the Company and its subsidiaries. It also performs a Group governance function through the sharing of information on the progress of the business operations of subsidiaries. Moreover, SKY Perfect JSAT Corporation, a core business company of the Group, holds weekly executive meetings where important matters relating to the Company s business execution are discussed. Other Committees The Company has a Nomination and Remuneration Committee that acts as an advisory body to the Board of Directors. The Committee makes independent recommendations concerning the nomination of officials and the setting of remuneration. In addition, the Company has an Information Disclosure Committee, which presents suggestions to the President concerning timely and accurate information disclosure. The Committee convenes weekly, as a general rule, to consider information that is intended for disclosure. The Committee is chaired by the President, and includes the manager in charge of information disclosure and Board directors involved in information disclosure. Full-time auditors also attend the Committee s meetings as observers. The general manager of the Corporate Communications and Investor Relations Division serves as secretary of the Information Disclosure Committee, which functions as the official entity for examining and confirming the Timely Disclosure Rules of the Tokyo Stock Exchange. Financial Section Corporate Data Satellite Basics/Glossary 37 Annual Report 214

40 2. System Ensuring and Supervising Sound Business Management Appointment of Independent Directors/Auditors To protect general shareholders and enhance cooperate governance, the Tokyo Stock Exchange, on which the Company is listed, requires that all listed domestic companies appoint at least one independent director/auditor. An independent director/auditor is an outside director or auditor who is unlikely to have any conflict of interest with general shareholders. In other words, an independent director/auditor is a person who participates in management from a neutral and objective standpoint and who does not have any interests in the Company or Group. In accordance with this requirement, the Company has two independent directors and one independent auditor. Board of Corporate Auditors The Company s Board of Corporate Auditors consists of four members, two of whom are outside auditors. Corporate auditors attend important decision-making meetings, including Board of Directors and Management Committee meetings, where they engage in frank and free exchanges of ideas and opinions. They conduct investigations of departments and subsidiaries based on annual plans, and audit the business performance of directors. The Board of Corporate Auditors receives audit reports from account auditors as necessary, and the board receives reports from the Internal Audit Division, provides advice, and exchanges opinions on the status of internal controls. Major Activities Conducted by Outside Auditors Name Toshiaki Katsushima Activities Katsushima attended 13 of the 14 Board of Directors meetings and 12 of the 13 Board of Auditors meetings held in the fiscal year under review. He provided advice as necessary with regard to the business deliberation and other matters from his standpoint as a certified public accountant and a certified tax account based on his abundance of experience and knowledge in the field of financial accounting. Shinji Takeda Takeda attended 8 of the 14 Board of Directors meetings and 11 of the 13 Board of Auditors meetings held in the fiscal year under review. He provided advice as necessary with regard to the business deliberation and other matters based on his abundance of experience and knowledge in the field of broadcasting. 3. Status of Development of Internal Control Compliance Committee and Compliance Help Line To ensure that business execution of the Company s directors and employees comply with relevant laws and regulations, articles of incorporation and various internal regulations, the Company has established a Compliance Committee and its Secretariat, the Compliance Promotion Office. The Committee appoints a Chief Compliance Officer who acts as chairperson of the Committee. The Committee chairperson submits issues on including compliance program matters and facts regarding compliance to the Committee for deliberation, as well as reports the deliberation results to the Board of Directors as necessary. The Compliance Promotion Office is in charge of maintaining, managing and determining the content of compliance programs for the entire company, and it provides compliance education and training to members of the Board of Directors, executives, and employees. Moreover, the Company has put into place an internal and external Compliance Help Line system that enables those who suspect they have discovered illegal business activities or practices by employees, executives or members of the Board of Directors to report them immediately or discuss their concerns with internal Help Line staff. Risk Management Committee To recognize and evaluate risks related to business execution comprehensively and conduct appropriate risk management, the Company has established risk management regulations. To ensure the effectiveness of the regulations, the Company has established a Risk Management Committee, which is chaired by the Chief Risk Management Officer. The Committee determines risk management policies, evaluates risks, and examines risk prevention measures. At the same time, the Committee is responsible for strengthening the overall risk management system through the study of individual events. The Chief Risk Management Officer reports to the Board of Directors on the status of risk management and other matters as necessary. SKY Perfect JSAT Holdings Inc. 38

41 To Our Shareholders and Investors Review of Operations Special Feature Overview 4. Remuneration System Designed to Raise Corporate Value The Company has adopted a performance-linked cash remuneration system. Under this system, in addition to a basic salary, directors also receive remuneration based on their achievement of management indices established at the beginning of the fiscal year as an incentive to improve corporate performance. The Nomination and Remuneration committee is chaired by an outside director and is composed of a majority of outside directors. Consolidated Financial Highlights Remuneration of Directors and Auditors in the Year under Review Total Remuneration ( millions) Position Basic Performance-linked Number of Eligible Recipients Directors (Excluding Outside Directors) Auditors (Excluding Outside Auditors) 26 2 Outside Directors/Auditors 46 6 With a strong sense of social responsibility as a public service provider of broadcasting and communications, the SKY Perfect JSAT Group contributes to creating an affluent society. The fundamental objective of corporate governance is to maximize the Group s corporate value in the capital market as a responsible listed company. To achieve this objective, we make establishing good relationships not only with our shareholders and customers to whom the Group provides services, but also with the Group s various stakeholders, including our clients and employees, a top priority of our business management. On top of this, we pursue swift decision-making in a changing social and economic environment with a strong recognition of the importance of corporate ethics based on legal compliance, along with further enhancement of sound business operations. To our shareholders and investors, we ensure prompt and accurate information disclosure, as well as increase our management transparency by providing extensive information. Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary Shigeki Nishiyama Representative Director and Chairman in charge of internal control 39 Annual Report 214

42 CORPORATE SOCIAL RESPONSIBILITY As we regard it as part of the SKY Perfect JSAT Group s social responsibility to provide educational support for children, on whose shoulders the future rests, and foster human resources involved in the utilization and development of the space, we engage in a variety of corporate social responsibility (CSR) activities. For example, At the Sochi Paralympics we set up 24-hour dedicated channel and broadcast over 9 days. We also visited a Junior high school in Tokyo to discuss how to achieve their dreams. Through these activities, we raise public awareness about the social roles of satellite communications and satellite broadcasting. 24-hour channel dedicated to the Sochi Paralympics SKY PerfecTV! launched Japan s first channel solely dedicating to providing 24-hour coverage of the Paralympics. The broadcasts of the Sochi 214 Paralympic Winter Games focused on broadening awareness about the profile of para-sport and getting across the attractiveness of sport itself. The coverage conveyed paralympians who stayed committed to athletic training vying to succeed in intense and thrilling competition and the excitement of competitive sport. Photo: aflo SKY Perfect JSAT Holdings Inc. 4

43 To Our Shareholders and Investors Review of Operations Special Feature Overview Production and Distribution of an Educational Comic Book Titled Secrets of Multichannel Satellite Broadcasting and Satellite Communications The SKY Perfect JSAT Group has produced with Gakken Publishing Co., Ltd. an educational comic book titled Secrets of Multichannel Satellite Broadcasting and Satellite Communications for free distribution to around 22,3 public elementary schools and about 3,2 public libraries across Japan. By making use of the comic book style, with which children are familiar, we hope that they can understand the mechanism of multichannel satellite broadcasting and satellite communications, and we seek to inform them, in a natural way, of the fact that satellites are making significant contributions to our daily lives. Consolidated Financial Highlights SKY Perfect JSAT Executive Visits Junior high School Corporate Governance SKY Perfect JSAT team conducted special courses at junior high school near our headquarters in central Tokyo in a program to stimulate and encourage the people who will be the next generation of our nation s workforce. The executive officer talked about their school experiences, dreams they had when they were young,and efforts made in school days along, stressing to students the importance of learning about a wide range of subjects to making their dreams come true. Staff instructed and supported in a training program aimed for students working in small groups to enhance their communication skills. Financial Section Corporate Data Satellite Basics/Glossary Corporate Social Responsibility 41 Annual Report 214

44 SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries Consolidated Financial Highlights For the years ended as of March 31, 21, 211, 212, 213 and 214, except Per Share Data and Selected Financial Indicators Thousands of U.S. dollars, except per share data (Note 1) For the Year: Revenues 141,69 141,85 155, ,61 171,683 $ 1,668,121 Cost of Services 86,151 86,28 99,62 16, ,253 1,8,961 Selling, General and Administrative Expenses 39,825 42,319 38,694 37,289 38, ,19 Operating Income 15,93 13,53 17,486 16,153 21,713 21,97 Income before Income Taxes and Minority Interests 16,446 9,862 15,897 15,644 18,543 18,172 Net Income 14,223 4,421 8,569 9,683 9,659 93,853 Comprehensive Income 3,658 9,65 11,358 11,53 17,397 EBITDA (Note 2) 41,72 35,257 42,6 42,448 43, ,341 Depreciation and Amotization 23,87 24,39 24,892 26,995 25, ,93 Capital Expenditures 29,71 18,757 13,972 13,851 23,2 223,493 Net Cash Provided by Operating Activities 39,34 38,957 39,977 38,372 33, ,995 Net Cash (Used in) Provided by Investing Activities (23,887) (28,595) 1,995 (11,119) (18,97) (184,314) Free Cash Flow (Note 3) 15,453 1,362 41,972 27,253 14, ,681 Net Cash (Used in) Provided by Financing Activities 1,836 (17,32) (34,993) (19,42) (25,444) (247,224) At Year-End: Cash and Cash Equivalents 66,727 59,5 66,45 74,473 63,784 $ 619,74 Total Assets 335, ,79 3,133 29, ,58 2,794,211 Interest-Bearing Debt 17,511 91,693 62,56 49,398 45, ,895 Total Equity 183,338 18,65 185,52 192, ,68 1,794,41 Per Share Data (Yen and U.S. dollars) Net Income (Note 4) $.29 Total Equity (Note 4) Cash Dividends (Note 4) Selected Financial Indicators (%) Operating Margin EBITDA Margin Equity Ratio (Note 5) ROE (Note 6) Dividend Payout Ratio Notes: 1. U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of to $1, the approximate rate of exchange at March 31, EBITDA is calculated as Net Income + Tax Expense + Depreciation Expense + Interest Expense. 3. Free Cash Flow is calculated as Net Cash Provided by Operating Activities + Net Cash Used in Investing Activities. 4. Per share figures have been restated, as appropriate, to reflect a hundred-for-one stock split effected October 1, In calculating Equity Ratio, equity excludes minority interests and stock acquisition rights. 6. In calculating ROE, equity excludes minority interests and stock acquisition rights. SKY Perfect JSAT Holdings Inc. 42

45 Management s Discussion and Analysis Operating Environment The Japanese economy recovered at a moderate pace in the fiscal year ended March 31, 214, supported by a solid global economy led by developed countries and improving private consumption and corporate earnings in the domestic market. The operating environment for the SKY Perfect JSAT Group is rapidly evolving with the multichannel pay TV broadcast industry growing to encompass Internet Protocol television (IPTV) and a wide range of competitive services and with the diversifying viewing conditions accompanying the diffusion of smartphones and tablet computers. Advances in new technologies, such as 4K/8K Ultra HD broadcasts, are also providing opportunities to provide increasingly sophisticated services. Conditions in the space and satellite industry included growing domestic demand to use satellite transmissions for disaster contingency and business continuity plans and an increasingly competitive global market amid strong demand for satellite services particularly in emerging countries in Asia. Performance Overview In these conditions, the Group steadily implemented its medium and long-term growth strategies. In the Multichannel Pay TV Business, the Group advanced measures centered on attracting customers for the SKY PerfecTV! services, transitioning subscribers to the high-definition H.264 format services of the SKY PerfecTV! Premium Service, and developing new business operations. In the Space & Satellite Business, the Group focused on providing solutions for corporate and government disaster contingency and business continuity plans, fortified the global business operations, and actively expanded the satellite-based mobile communications business. The SKY Perfect JSAT Group s consolidated revenues, supported by increased viewer revenue, amounted to 171,683 million in fiscal year 214, representing a year-on-year increase of 12,73 million or 7.6%. The rise in operating revenue supported a yearon-year increase of 5,56 million or 34.4% in operating income to 21,713 million. Income before income taxes and minority interests amounted to 18,543 million, an increase of 2,899 million or 18.5% from the previous fiscal year. Total income taxes were 8,961 million, an increase of 2,982 million. Net income ultimately declined year on year 24 million or.2% to 9,659 million. Financial Position Total Assets At March 31,214, the Group had total assets of 287,58 million, down 2,97 million from a year earlier. The main increasing factors were work in process, which grew 9,643 million, affiliated companies receivables, which grew 3,46 million, and construction in progress, which grew 11,535 million. Principal declining factors were investment securities, down 5,527 million, cash and cash equivalents down 1,689 million. Total Liabilities Total liabilities increased 5,16 million from the previous year end, to 12,9 million. The principal increase were payables up 5,517 million and income taxes payables, up 3,598 million. The major decliner was long-term debt (including current portion of long term debt), down 3,43 million. Total Equity Total equity, including minority interests, was 184,68 million at March 31, 214, down 8,13 million from a year earlier. The primary decrease was retained earnings, which was the net result of an increase of 5,846 million by net income and other items and a decrease of 15,245 million by an acquisition of treasury stocks. The equity ratio was 64.1%, down 2.1 percentage points from March 31, 213. Consolidated Financial Highlights To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Revenues () 2, 171, , ,61 141,69 141,85 15, 1, 5, (Years ended March 31) Selling, General and Administrative Expenses () 5, 42,319 39,825 38,694 37,289 38,717 4, 3, 2, 1, Operating Income () 25, 2, 15,93 15, 13,53 1, 5, 17,486 16,153 21, Net Income () 15, 14,223 1, 5, 4,421 8,569 9,683 9, Financial Section Corporate Data Satellite Basics/Glossary 43 Annual Report 214

46 Liquidity and Capital Resources Cash Flows For the year, net cash provided by operating activities amounted to 33,345 million (compared with 38,372 million in the preceding year). Major contributing factors included income before income taxes and minority interests of 18,543 million, depreciation and amortization of 24,433 million, and amortization of goodwill of 878 million. Net cash used in investing activities totaled 18,97 million (compared with net cash provided by investing activities of 11,119 million in the previous year). Major factors included purchases of property and equipment and intangible fixed assets of 22,323 million. Net cash used in financing activities was 25,444 million (down from 19,42 million in the previous year). Major factors included dividends paid of 4,35 million, repayments of long-term debt of 13,722 million and acquired treasury stocks of 15,252 million. As a result, cash and cash equivalents amounted to 63,784 million at March 31, 214, down 1,689 million from a year earlier. Capital Expenditure In the year under review, the Group made capital expenditures totaling 23,2 million. The spending was allocated mainly to upgrading broadcasting facilities at the SKY PerfecTV! Tokyo Media Center (Multichannel Pay TV Business) and procurement of a communications satellite intended to ensure the stability, reliability and efficiency of the operation of satellites in the Space & Satellite Business. Finance The Group borrowed 8,574 million from its main financing institutions in the fiscal year under review to procure funds for the maintenance and operation of the X-band satellite relay communications. The Group maintains a 77,5 million commitment line agreement (limited loan agreement) with its main financing institutions for funding related to the project. Performance Forecasts For the fiscal year ending March 31, 215, the Group aims to increase the total number of new subscribers to all SKY PerfecTV! Services from the previous year s level to 569,. However, assuming that the number of subscribers cancellation will increase due to the termination of the standard-definition service based on the MPEG-2 format on May 31, 214, the Group forecasts a net decrease of 16, subscribers during the year. (thousand) Fiscal Year (target)* Growth Rate New Subscribers (Total) % Net Increase % Cumulative Subscribers 3,717 3, % * As of March 31, 215 We have made the following consolidated forecasts for the year ending March 31, 215: revenues of 163,5 million (down 4.8% year on year), operating income of 18, million (down 17.1%), ordinary income of 17,5 million (down 18.7%) and net income of 12, million (up 24.2%). Note: The above forecasts for the year ending March 31, 215 and other forward looking predictions are based on judgments of Group management using information available at the present time. Actual results may differ from such forecasts due to various unforeseen circumstances. Dividend Policy and Return to Shareholders The SKY Perfect JSAT Group maintains a long-term and comprehensive approach to shareholder return as an important management priority. Our aim is to pay stable dividends while retaining sufficient earnings to fund our aggressive business development plans. Our policy is to determine cash dividend amounts following extensive consideration of our financial position, level of earnings, and payout ratio. Total Assets Total Equity Equity Ratio () 4, 3, 2, 335, ,79 3,133 29, ,58 () 2, 192, , ,52 184,68 18,65 15, 1, (%) , 5, (Years ended March 31) SKY Perfect JSAT Holdings Inc. 44

47 To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Consolidated Financial Highlights Furthermore, our Articles of Incorporation include the provision that the Board of Directors determines dividends from surplus, as provided in Article 459 (1) of the Companies Act and dividend are basically paid twice a year: an interim dividend and a year-end dividend. The amounts in the table below shows the actual dividend per share declared and paid to shareholders in 213 and 214. Date of Record October 3, 213 Resolution of the Board of Directors May 8, 214 Resolution of the Board of Directors Total Dividend Payment () Per Share Dividend (Yen) 2,19 6 1,849 6 Note: The Company executed a 1 for 1 stock split on October 1, 213. Upon resolution of the Board of Directors on October 3, 213, the per share dividend represents the actual payment amount per share prior to the stock split. Financial Risks Financial Products, Associated Risks and Risk Management System Notes and accounts receivable, which constitute the Group s operating receivables, are subject to credit risk on the client side. Management of such risk is based on relevant time periods and the balance of receivables of each client, pursuant to the credit management criteria established by the Group. A system allowing regular monitoring of the credit status of major subscribers is also in place. Marketable and investment securities held by the Group are mainly in the form of bonds for the temporary management of retained earnings, and of shares in client and other corporations with which the Group has business relationships. Although such securities are subject to the risk of market price fluctuations, the Group regularly monitors market prices and the financial situations of bond issuers (client corporations) and submits reports to the Board of Directors. Practically all notes and accounts payable, which constitute the Group s operating payables, are due within one year. The Group also borrows from banks and issues corporate bonds in order to raise funds for operating transactions and capital expenditures. Borrowings with variable interest rates are subject to the risk of interest rate fluctuations. The Group endeavors to mitigate interest rate risk on interest payable by fixing the rates of some of its long-term borrowings. To this end, the Group enters into derivative (interest rate swap) contracts for each loan as a hedge mechanism. Operating payables and borrowings are also subject to liquidity risk. Each Group company manages such risk in various ways, including by preparing monthly financing plans. With respect to derivatives, the Group enters into forward exchange contracts as a hedge against currency fluctuation risk affecting funds raised to purchase broadcasting rights and communications satellite equipment. The Group also enters into interest rate swap transactions as a hedge against interest rate risk affecting its borrowings. The execution and management of derivative transactions is based on internal regulations that determine transaction authority. To alleviate credit risk, the Group enters derivative contracts only with financial institutions with high credit ratings. Business Risks Below is a summary of the main factors deemed by the Group as potential risks that could affect its future business performance and/or financial position. Forward-looking statements contained in the following are based on the Group s judgment at the end of the fiscal year under review. 1. General Risks Legal restrictions The Group s business involves domestic satellite broadcasting and the launch, operation, and commercial use of satellites in domestic and overseas markets. Any changes to legal requirements regarding communications satellites could have a potentially negative effect on our operation. The Group currently carries out its business without any hindrance from legal regulations. However, there is no guarantee that these regulations will continue in their current format or that the Group will not be adversely affected by these regulations, nor is there any guarantee that we will not be required to halt part of our operations. Security of subscriber information The Group pays the highest attention to the protection of client information, including subscriber information. However, in cases where subscriber information leaks from the Group or business partners after illegal access by third parties or other factors, the loss of confidence and/or the burden of unexpected costs might affect our business results. Risks related to serious damage to facilities caused by a large scale natural disaster The Group has three uplink facilities in the Tokyo metropolitan area that function as broadcast facilities for multichannel pay TV broadcasts transmitted via communications satellites. They are the playout facilities centered on the SKY PerfecTV! Tokyo Media Center, which integrated Aomi Broadcasting Center in March 214, the Meguro Media Center, and the platform facilities centered on the SKY PerfecTV! Tokyo Media Center. Therefore, because the Group does not have full backup facilities for these broadcasting facilities, the advent of an unforeseen large-scale disaster that destroys or causes similar damage to the Group s buildings or uplink facilities could adversely impact the Group s business results. The Group also has facilities that control communications satellites and facilities Financial Section Corporate Data Satellite Basics/Glossary 45 Annual Report 214

48 that serve as hubs for satellite communications services. They are the Yokohama Satellite Control Center, Ibaraki Network Control Center, Yamaguchi Network Control Center, and Gunma Satellite Control Station. Although the operations of these satellite control centers are set up so that services will not be seriously affected should one center cease to operate, it is possible that the other centers may not be able to perform certain satellite communications services. Therefore, a disaster could adversely impact the Group s business results. 2. Risks Related to Satellite Infrastructure Operational failure of satellites The Group s communications satellites are used for a comparatively long period of between 1 and 2 years, and it is not possible to undertake repairs while satellites are operated in their orbital slots. Therefore, a manufacturing defect, defective part, magnetic storm caused by solar activity, a collision with a meteorite, excessive fuel consumption, control or operational problems, or some other reasons might stop a satellite from functioning or impede its performance, in which case there are a limited number of options available to the Group to secure the safe operation of the satellite for its scheduled period of use. Should this sort of situation arise, the Group s business results could be adversely affected. The Group has one satellite in orbit in the 11 degrees East longitude slot exclusively for emergency backup, and also maintains one other backup satellite in another orbital slot. However, in some cases these backup satellites are unable to replace the full capacity of a failed satellite. In the event of failure, it takes more than a week to reposition the backup satellite in the orbital slot of the failed satellite. Also, the consumption of fuel during relocation shortens the service life of the backup satellite. Furthermore, should the normal backup satellite be in operation, it is not able to replace the functions of other satellites. Therefore, during the period from when the backup satellite begins to replace the functions of the failed satellite through to the launch of a successor, there is no backup satellite available to fill the breach in the event that another satellite encounters difficulties. Procurement of communications satellites In order to continuously maintain and expand satellite services, the Group must efficiently procure and launch satellites. There are considerable risks inherent in the manufacture and launch of satellites. These risks include manufacturing delay, launch failure, breakdown, interference, or other damage that hinders appropriate operation for commercial purposes, and inaccurate orbital positioning. It takes approximately two to three years from placing an order with a manufacturer through to the satellite s launch and the commencement of operation. The Group s policy is to place an order for the manufacture of a successor at least two years before the expected end of a satellite s life. There are satellite operators that place orders for successors even earlier as a provision for launch failure or some other delay. However, because the Group has its own backup satellites it normally does not adopt this kind of precautionary measure. Therefore, should there be a delay in the commencement of operation of a satellite due to some reason or other, and if a backup satellite is unable to completely backup the functions of the satellite, the Group s operations could be adversely affected due to the loss of its competitive and/or strategic advantage stemming from the loss in profit, defamation, or the loss of potential customers. The Group outsources the manufacture and launch of satellites. Because globally there is a limited number of companies that manufacture and launch satellites, there are instances where the Group is unable to place a manufacturing order so that the satellite will be ready by the required future date, or the launch of a satellite is not possible on the scheduled date. Also, if the manufacture and/ or launch of the scheduled satellite is delayed due to a technical problem or some other problem on the part of the manufacturer or launch service provider, it is extremely difficult to subcontract the manufacture and/or launch to another manufacturer or launch service provider due to technological constraints and the considerable impact on scheduling and economic impact such an event would have. When the Group procures satellites, although normally there is a maximum price, it concludes contracts on the condition it will receive partial compensation from the manufacturer if there is a delay in the delivery schedule, and also on the condition that it receives guarantees concerning defects in design, materials, workmanship etc. to within an allowable limit. The Group s contracts with launch service provider contracted to launch its satellites do not hold launch service provider liable for a launch delay attributable to the launch service provider. There are times when the Group bears unscheduled expenses that arise from a design-related reason or some other reason during a satellite s manufacturing period. Insurance covering communications satellites The Group purchases two types of insurance policies for its satellites: one covering the launch period and the other covering the period of operation in its orbital slot. Launch insurance is normally effective for a period of one year from the launch time and also includes compensation covering the initial orbital phase. If all or part of a satellite is damaged, this launch insurance covers the cost of a replacement satellite and other repair costs. However, there are cases where on account of the extent or cause of the damage, or for some other reason, the insurance does not cover the full cost of ordering a replacement satellite and launch expenses. If a satellite is damaged or its performance is impaired due to a fault with the launch rocket, some contracts with launch service provider require that the launch service provider pays a partial refund proportionate to the extent of the damage, while if the satellite is completely destroyed some contracts require the launch SKY Perfect JSAT Holdings Inc. 46

49 To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary Consolidated Financial Highlights service provider to launch the replacement satellite free of charge. However, because loss of earnings and other incidental losses are not covered by launch insurance payments or the guarantees provided by launch service provider, all of the Group s losses are not covered. It should be noted that because of the volatility of the space insurance market from which the Group procures insurance, the Group may not always be able to receive launch insurance cover with the conditions it wants for future satellite launches as well. The Group purchases in-orbit insurance for all of the satellites it launches. This insurance takes effect upon the expiry of launch insurance. This in-orbit insurance is based on a satellite s book value and does not cover the cost of a replacement satellite. Furthermore, this insurance does not cover the Group s third-party liability or damage to business (includes decline in market share, profit loss, and accidental or consequential loss) caused by the total technical failure of a satellite. In-orbit insurance is usually renewed annually, but due to the aforementioned volatility of the space insurance market, the Group may not always be able to renew its policy with the conditions it wants when the policy comes up for renewal each year. The Group s insurance policies do not cover loss caused by any of the following: * War, insurgency, or acts of terror * Nuclear weapons, laser weapons, or directed-energy beams that target a communications satellite * Government confiscation * Nuclear reaction and radioactive pollution other those which naturally occur in outer space * Radio frequency damage (excludes physical damage) * Deliberate or planned non-performance of obligations by the insured or its subcontractors * Loss of income * Third-party liability 3. Risks Related to Multichannel Pay TV Broadcasting Platform Service Subscriber acquisition and retention The acquisition and retention of subscribers is a major factor in the Group s profit growth. The number of subscriptions in total stood at 3,717 thousand as of March 31, 214. However, there is no guarantee that the number of subscriptions will increase in line with the Group s projections in the future. If the number of subscriptions does not increase as projected despite marketing activities such as developing contents, strengthening promotional activities, carrying out sales campaigns and offering incentives to agents, the Group s business performance could be adversely affected. Should a larger-than-expected number of subscribers cancel their subscriptions, the cumulative number of subscribers would decline, which could adversely impact the Group s business results. Broadcaster-related risks The Group provides broadcast services for around 1 broadcasting companies, including some that are experiencing challenging financial conditions. Therefore, the cessation of broadcast services or a decline in programming quality caused by financial difficulties, or a decrease in the number of channels due to the abolition or consolidation of a broadcasting company, could adversely impact the Group s business results. Broadcasters hold the right to determine viewing fees. Therefore, if the lowering of fees cannot be offset by an increase in subscribers, or the number of subscribers decreases due to the raising of fees, the Group s commission income would decrease, which could adversely impact the Group s business results. The Group s consignment agreements with broadcasters are valid for either one-year, three-year, or five-year periods. Therefore, the failure of negotiations concerning contract conditions, or a deterioration in contract conditions, could adversely impact the Group s business results. Risks Related to Security of IC Cards Regarding the B-CAS card, which can be used individually by different pay TV operators, methods of altering the card and practices of alterations that could enable illegal viewing of pay TV programs have been continuously posted on Internet bulletin boards. Such practices could not only have significant adverse effects on the sound diffusion of multichannel pay TV services as a whole but also adversely affect the Group s business performance. The Group will strictly deal with cases of illegal viewing in cooperation with other pay TV operators and BS Conditional Access Systems Co., Ltd., which owns the right to the B-CAS card, by taking all available measures, including legal actions such as lawsuits. 47 Annual Report 214

50 SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries Consolidated Balance Sheet March 31, 214 Thousands of U.S. dollars (Note 1) ASSETS Current Assets: Cash and cash equivalents (Note 13) 74,473 63,784 $ 619,74 Receivables (Note 13): Trade 19,718 21,14 25,43 Affiliated companies 95 3,141 3,522 Other 578 1,322 12,841 Allowance for doubtful receivables (715) (637) (6,192) Inventories: Broadcasting rights 3,483 3,649 35,452 Work in process 179 9,822 95,432 Other 655 1,91 1,65 Deferred tax assets (Note 8) 1,354 1,433 13,923 Short-term loans (Note 13) 2,115 2,575 25,15 Other 2,497 2,588 25,158 Total current assets 14,432 19,98 1,67,899 Property and Equipment: Buildings and structures 21,873 22, ,323 Machinery, equipment and vehicles 58,14 66,26 643,281 Telecommunications satellites 25,285 25,285 2,431,843 Land 3,41 3,41 29,549 Lease assets 4,9 2,51 24,3 Construction in progress 67 12,25 118,59 Other 11,473 12,72 117,285 Total property and equipment 349, ,574 3,581,171 Accumulated depreciation (27,696) (228,227) (2,217,516) Net property and equipment 141,759 14,347 1,363,655 Investments and Other Assets: Software 4,369 3,512 34,127 Goodwill 7,97 7,92 68,91 Investment securities (Notes 3 and 13) 12,434 6,97 67,112 Investment in and advances to affiliated companies (Note 13) 9,315 8,923 86,699 Deferred tax assets (Note 8) 7,69 8,31 8,741 Other 2,651 2,632 25,567 Allowance for doubtful accounts (52) (51) (499) Total investments and other assets 44,296 37, ,657 Total 29, ,58 $ 2,794,211 See notes to consolidated financial statements. SKY Perfect JSAT Holdings Inc. 48

51 Consolidated Financial Highlights Thousands of U.S. dollars (Note 1) LIABILITIES AND EQUITY Current Liabilities: Current portion of long-term debt (Notes 4 and 13) 12,256 26,79 $ 259,511 Payables (Note 13): Trade 16,18 21,447 28,388 Affiliated companies ,59 Income taxes payable (Note 13) 2,451 6,49 58,77 Subscription fees received (Note 13) 1,234 9,913 96,315 Accrued bonus ,34 Asset retirement obligations (Note 6) ,235 Other 9,366 8,926 86,739 Total current liabilities 51,33 74, ,321 Long-Term Liabilities: Long-term debt (Notes 4 and 13) 37,142 19, ,384 Liabilities for retirement benefits (Note 5) 3,736 3,999 38,853 Deferred tax liabilities (Note 8) 892 1,166 11,324 Asset retirement obligations (Note 6) 1,985 2,15 2,454 Other 2,79 2,16 2,474 Total long-term liabilities 46,464 28, ,489 Commitments and Contingent Liabilities (Notes 9 and 14): To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Equity (Note 7): Common stock Authorized, 1,45,, shares; Issued, 344,63,7 shares in 213 and 214* 1, 1, 97,163 Capital surplus 158, ,194 1,537,57 Retained earnings 27,882 33, ,714 Treasury stock at cost, 8,51,8 shares in 213 and 36,387,6 shares in 214* (3,884) (19,129) (185,859) Accumulated other comprehensive income Unrealized gain (loss) on available-for-sale securities ,39 Deferred gain on derivatives under hedge accounting ,44 Foreign currency translation adjustments (1,137) 138 1,34 Defined retirement benefit plans (3) (28) Total 192, ,352 1,791,217 Minority interests ,184 Total equity 192, ,68 1,794,41 Total 29, ,58 $ 2,794,211 *Shares have been restated, as appropriate, to reflect a hundred-for-one stock split effected October 1, 213. Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 49 Annual Report 214

52 SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries Consolidated Statement of Income Year Ended March 31, 214 Thousands of U.S. dollars (Note 1) Revenues (Note 17) 159,61 171,683 $ 1,668,121 Operating Expenses: Cost of services (Notes 1 and 17) 16, ,253 1,8,961 Selling, general and administrative expenses (Notes 11 and 17) 37,289 38, ,19 Operating Income (Note 17) 16,153 21,713 21,97 Other Income (Expenses): Interest and dividend income ,31 Interest expense (Note 4) (671) (62) (6,26) Foreign currency transaction gain net Equity in net losses of affiliated companies (8) (191) (1,851) Commission fee (385) Gain on sales of investment securities (Note 3) Gain on reversal of stock acquisition rights 22 Gain on redemption of securities 52 Impairment loss (Note 12) (124) (78) (761) Write-down of investment securities (Note 3) (2,976) (28,916) Other net Other Expenses Net (59) (3,17) (3,798) Income before Income Taxes and Minority Interests 15,644 18,543 18,172 Income Taxes (Note 8): Current 6,387 9,773 94,952 Deferred (48) (812) (7,888) Total Income Taxes 5,979 8,961 87,64 Net Income before Minority Interests 9,665 9,582 93,18 Minority Interests in Net Loss (18) (77) (745) Net Income 9,683 9,659 $ 93,853 Yen U.S. dollars (Note 1) 213* Per Share of Common Stock (Note 2.s): Net Income Basic $.29 Diluted Cash dividends applicable to the year *Per share figures have been restated, as appropriate, to reflect a hundred-for-one stock split effected October 1, 213. See notes to consolidated financial statements. SKY Perfect JSAT Holdings Inc. 5

53 SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries Consolidated Statement of Comprehensive Income Year Ended March 31, 214 Consolidated Financial Highlights Thousands of U.S. dollars (Note 1) Net income before minority interests 9,665 9,582 $ 93,18 Other comprehensive income (Note 15): Unrealized gain (loss) on available-for-sale securities 947 (1) (969) Deferred gain on derivatives under hedge accounting ,843 Foreign currency translation adjustments 483 1,274 12,373 Share of other comprehensive income in affiliated companies accounted for using the equity method Total other comprehensive income 1,693 1,471 14,289 Comprehensive income 11,358 11,53 17,397 To Our Shareholders and Investors Special Feature Total comprehensive income attributable to: Owners of the parent 11,376 11,13 $ 18,141 Minority interests (18) (77) (744) See notes to consolidated financial statements. Review of Operations Corporate Data Satellite Basics/Glossary Financial Section Corporate Social Responsibility Corporate Governance 51 Annual Report 214

54 SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries Consolidated Statement of Changes in Equity Year Ended March 31, 214 Outstanding number of shares of common stock* Common stock Capital surplus Stock acquisition rights Retained earnings Treasury stock Accumulated other comprehensive income Unrealized gain (loss) on available-for-sale securities Deferred gain on derivatives Foreign currency under hedge translation accounting adjustments Defined retirement benefit plans Total Minority interests Total equity Balance at April 1, ,551,9 1, 158, ,238 (3,884) (93) 19 (1,619) 184, ,52 Net income 9,683 9,683 9,683 Cash dividends, 12. per share* (4,39) (4,39) (4,39) Net change in the year (22) , ,997 Balance at April 1, ,551,9 1, 158,194 27,882 (3,884) (1,137) 192, ,693 Net income 9,659 9,659 9,659 Cash dividends, 12. per share* (4,39) (4,39) (4,39) Purchase of Treasury stock (28,335,8) (15,245) (15,245) (15,245) Change in scope of entities accounted for by the equity method Net change in the year (98) 295 1,275 (3) 1,469 (83) 1,386 Balance at March 31, ,216,1 1, 158,194 33,728 (19,129) (3) 184, ,68 Outstanding number of shares of common stock* Common stock Capital surplus Stock acquisition rights Retained earnings Thousands of U.S. dollars (Note 1) Treasury stock Accumulated other comprehensive income Unrealized gain (loss) on available-for-sale securities Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments Defined retirement benefit plans Total Minority interests Total equity Balance at April 1, ,551,9 $97,163 $1,537,57 $ 27,97 $ (37,738) $ 8,342 $ 3,573 $ (11,33) $ 1,868,271 $ 3,992 $ 1,872,263 Net income 93,853 93,853 93,853 Cash dividends, $.12 per share* (39,239) (39,239) (39,239) Purchase of Treasury stock (28,335,8) (148,121) (148,121) (148,121) Change in scope of entities accounted for by the equity method 2,193 2,193 2,193 Net change in the year (952) 2,867 12,373 (28) 14,26 (88) 13,452 Balance at March 31, ,216,1 $97,163 $1,537,57 $ 327,714 $ (185,859) $ 7,39 $ 6,44 $ 1,34 $ (28) $ 1,791,217 $ 3,184 $ 1,794,41 *Shares and per share figures have been restated, as appropriate, to reflect a hundred-for-one stock split effected October 1, 213. See notes to consolidated financial statements. SKY Perfect JSAT Holdings Inc. 52

55 SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries Consolidated Statement of Cash Flows Year Ended March 31, 214 Consolidated Financial Highlights Thousands of U.S. dollars (Note 1) Operating Activities: Income before income taxes and minority interests 15,644 18,543 $ 18,172 Adjustments for: Depreciation and amortization (Note 17) 26,116 24, ,398 Impairment loss Amortization of goodwill ,532 Interest and dividend income (445) (443) (4,31) Interest expense ,26 Equity in net losses of affiliated companies ,851 Gain on sales of investment securities (74) (723) Write-down of investment securities 2,976 28,916 Increase in receivables trade and affiliated companies (1,84) (4,33) (41,813) Decrease(increase) in broadcasting rights 972 (166) (1,615) Decrease(increase) in other receivables 3,7 (761) (7,391) Decrease(increase) in inventories 21 (1,79) (97,93) Increase in payables trade and affiliated companies 1,436 5,586 54,271 Decrease in subscription fees received (2,976) (321) (3,121) Increase(decrease) in deferred revenues 643 (444) (4,313) Other net 2,789 2,95 28,672 Subtotal 47,48 39, ,392 Interest and dividends received ,367 Interest paid (694) (669) (6,52) Income taxes paid (8,48) (6,99) (59,262) Net cash provided by operating activities 38,372 33, ,995 Investing Activities: Proceeds from sales and redemption of short-term investments 98 Purchases of property and equipment (11,646) (21,66) (24,683) Proceeds from sales of property and equipment Purchases of intangible fixed assets (1,938) (1,257) (12,29) Purchases of investment securities () (8) (775) Proceeds from sales and redemption of investment securities 1,568 2,516 24,443 Proceeds from collection of long-term loans 1,949 2,387 23,194 Payments for additional acquisition of shares of affiliates (974) (1,522) (14,787) Other net (244) (12) (122) Net cash used in investing activities (11,119) (18,97) (184,314) Financing Activities: Repayments of finance lease obligations (2,12) (2,16) (2,461) Proceeds from long-term debt 9,68 94,5 Repayments of long-term debt (13,591) (13,722) (133,323) Proceeds from paid-in capital from minority shareholders 35 Purchase of treasury stock (15,252) (148,196) Dividends paid (4,35) (4,35) (39,26) Dividends paid to minority shareholders (6) (9) (88) Net cash used in financing activities (19,42) (25,444) (247,224) Foreign currency translation adjustments on cash and cash equivalents ,684 Net increase (decrease) in cash and cash equivalents 8,68 (1,689) (13,859) Cash and cash equivalents, beginning of year 66,45 74, ,599 Cash and cash equivalents, end of year 74,473 63,784 $ 619,74 See notes to consolidated financial statements. To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 53 Annual Report 214

56 SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries Notes to Consolidated Financial Statements Year Ended March 31, 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 accordance with accounting principles generally accepted in Japan ( Japanese GAAP ), which are different in certain respects as to application and disclosure requirements of accounting principles generally accepted in the United States of America and International Financial Reporting Standards. 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 that is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 213 consolidated financial statements to conform to the classifications used in 214. The consolidated financial statements are stated in Japanese yen, the currency of the country in which SKY Perfect JSAT Holdings Inc. (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 to $1, the approximate rate of exchange at March 31, 214. 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 consolidated financial statements as of March 31, 214, include the accounts of the Company and its significant subsidiaries (together, the Companies ). Consolidation of the remaining subsidiaries would not have a material effect on the accompanying consolidated financial statements. The numbers of consolidated subsidiaries and affiliated companies in which investments are accounted for under the equity method, at March 31, 213 and 214, are summarized below Consolidated subsidiaries 1 1 Affiliated companies: Unconsolidated subsidiaries 4 4 Associated companies 7 7 Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control over operations are consolidated, and those companies over which the Companies have the ability to exercise significant influence are accounted for under the equity method. Investments in unconsolidated subsidiaries and associated companies are accounted for under the equity method. Goodwill, which represents the excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiaries and associated companies at the date of acquisition, is amortized on a straight-line basis over its estimated useful life. Goodwill incurred from the acquisition of JSAT Corporation (JSAT) and Space Communications Corporation (SCC) is amortized over 15 years. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Companies are eliminated. b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements In May 26, 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 that 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. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America tentatively may be used for the consolidation process, except for the following items that 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 the equity; 3) expensing capitalized development costs of research & development (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; and 5) exclusion of minority interests from net income, if contained in net income. c. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method In March 28, 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 generally accepted accounting principles in the United States of America 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 directed 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; and 5) exclusion of minority interests from net income, if contained in net income. SKY Perfect JSAT Holdings Inc. 54

57 To Our Shareholders and Investors Consolidated Financial Highlights d. 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, commercial paper, and mutual funds investing in bonds, all of which mature or become due within three months of the date of acquisition. e. Inventories Inventories consist primarily of broadcasting rights and work in process. The Companies purchase rights relating to broadcasting of programs, which are capitalized and then amortized based on the number of showings. Inventories are stated at the lower of cost, determined by the specific identification method for broadcasting rights and work in process, and by the first-in, first-out method for merchandise and storage, or net selling value. f. Capitalization of Interest Interest costs incurred for satellite construction projects conducted by certain subsidiaries in order to finance the satellite communication business of X band during the satellite procurement have been capitalized as a part of the construction cost of the projects. Interest expense capitalized was 16 million ($165 thousand) for the year ended March 31, 214. g. Securities Securities are included in short-term investments and investment securities in the consolidated balance sheets. Securities are classified as trading securities, held-to-maturity debt securities or available-for-sale securities depending on management s intent. Held-to-maturity debt securities, for which there is the positive intent and ability to hold to maturity, are stated at amortized cost. Marketable available-for-sale securities are stated at fair value with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of securities sold is determined based on the moving-average method. Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method. For other-than-temporary declines in fair value, securities are reduced to net realizable value by a charge to income. h. Allowance for Doubtful Receivables The allowance for doubtful receivables is stated in amounts considered to be appropriate based on the Companies past credit loss experience and evaluation of potential losses in the receivables outstanding. i. Property and Equipment Property and equipment are stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. The estimated useful lives for property and equipment are principally as follows: Buildings and structures Machinery, equipment and vehicles Telecommunications satellites Other 2 5 years 2 17 years years 2 2 years j. Software Software is stated at cost less accumulated amortization and is amortized on a straight-line method over its estimated useful life (mainly 5 years). k. Impairment for Long-Lived Assets The Companies review their long-lived assets for impairment whenever events or changes in circumstance 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. l. Retirement and Pension Plans The subsidiaries of the Company have unfunded defined benefit severance indemnity plans covering substantially all of their employees other than directors, executive officers and Audit & Supervisory Board Members. Certain subsidiaries of the Company also participate in a contributory multi-employer pension plan covering all of their employees. The costs of the multi-employer plan are accrued based on the contribution amounts. The Companies record the liabilities for retirement benefits based on the projected benefit obligations required at the balance sheet date to provide for future payments. The projected benefit obligations are attributed to periods on a straight-line basis. Unrecognized actuarial differences are amortized on a straight-line method over the average remaining service years of the employees or a shorter period (1 19 years), starting from the year following the year in which the differences occur. Unrecognized prior service cost is amortized on a straight-line method over the average remaining service years of the employees (12, 17 years), starting from the year in which it occurs. In May 212, the ASBJ issued ASBJ Statement No. 26, Accounting Standard for Retirement Benefits and ASBJ Guidance No. 25, Guidance on Accounting Standard for Retirement Benefits, which replaced the accounting standard for retirement benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2, and the other related practical Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 55 Annual Report 214

58 guidance, and were followed by partial amendments from time to time through 29. (a) Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus is recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits). (b) The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or loss. Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining service period of the employees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss are included in other comprehensive income and actuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period shall be treated as reclassification adjustments (see Note 2.t). (c) The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected future salary increases. This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on or after April 1, 213, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 214, or for the beginning of annual periods beginning on or after April 1, 215, subject to certain disclosure in March 215, both with earlier application being permitted from the beginning of annual periods beginning on or after April 1, 213. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods is required. The Company applied the revised accounting standard and guidance for retirement benefits for (a) and (b) above, effective March 31, 214. As a result, liability for retirement benefits of 3,993 million ($38,793 thousand) was recorded as of March 31, 214, and accumulated other comprehensive income for the year ended March 31, 214, decreased by 3 million ($28 thousand). The annual provision for retirement benefits for directors, executive officers and Audit & Supervisory Board Members are calculated as a liability at the amount that would be required if they retired at each balance sheet date. m. Asset Retirement Obligations In March 28, the ASBJ issued 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 asset. 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 the 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 adjustment to the carrying amount of the liability and the capitalized amount of the related asset retirement cost. n. Leases In March 27, the ASBJ issued ASBJ Statement No. 13, Accounting Standard for Lease Transactions, which revised the previous accounting standard for lease transactions. The revised accounting standard for lease transactions was effective for fiscal years beginning on or after April 1, 28. 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 note to the lessee s financial statements. The revised accounting standard requires that all finance lease transactions should be capitalized by recognizing lease assets and lease obligations in the balance sheet. In addition, the revised accounting standard permits leases that 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. The Companies applied the revised accounting standard effective April 1, 28. In addition, the Companies continue to account for leases that existed at the transition date and do not transfer ownership of the leased property to the lessee as operating lease transactions. All other leases are accounted for as operating leases. o. Income Taxes The provision for 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 bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax rates to the temporary differences. SKY Perfect JSAT Holdings Inc. 56

59 To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary Consolidated Financial Highlights The Companies file a tax return under the consolidated corporate tax system, which allows companies to base tax payments on the combined profits or losses of the parent company and its wholly owned domestic subsidiaries. p. Foreign Currency Transactions All monetary receivables and payables denominated in foreign currencies are translated into yen at the exchange rates at the consolidated balance sheet date. The foreign exchange gains and losses from transactions are recognized in the consolidated statements of income to the extent that they are not hedged by forward exchange contracts. q. Foreign Currency Financial Statements The balance sheet accounts of the consolidated foreign subsidiaries are translated into yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation are shown as Foreign currency translation adjustments under accumulated other comprehensive income in a separate component of equity. Revenue and expense accounts of the consolidated foreign subsidiaries are translated into yen at the average exchange rate. r. Derivative Financial Instruments The Companies use derivative financial instruments to manage their exposures to fluctuations in foreign exchange. Foreign exchange forward contracts are utilized by the Companies to reduce foreign currency exchange risk. The Companies do not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statements of income and b) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. Certain liabilities hedged by foreign exchange forward contracts are translated at the forward exchange contract rates. s. Per Share Information Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. The weighted-average numbers of shares of common stock for the years ended March 31, 213 and 214, were 336,551,9 and 327,468,918, respectively. Diluted net income per share of common stock is not disclosed because the Companies had no securities outstanding which might dilute the per-share information for the years ended March 31, 213 and 214. Cash dividends per share presented in the accompanying consolidated statements of income refer to the dividends applicable to the respective years including dividends to be paid after the end of the year. On October 1, 213, the Company effected a hundred-for-one stock split by way of a free share distribution based on the resolution of the Board of Directors meeting held on May 8, 213. All prior year share and per share figures have been restated to reflect the impact of the stock split, and to provide data on a basis comparable to the year ended March 31, 214. Such restatements include calculations regarding the Company s weighted-average number of common shares, basic net income per share, diluted net income per share, and cash dividends per share. t. New Accounting Pronouncements Accounting Standard for Retirement Benefits On May 17, 212, the ASBJ issued ASBJ Statement No. 26, Accounting Standard for Retirement Benefits and ASBJ Guidance No. 25, Guidance on Accounting Standard for Retirement Benefits, which replaced the Accounting Standard for Retirement Benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2, and the other related practical guidance, and were followed by partial amendments from time to time through 29. Major changes are as follows: (a) Treatment in the balance sheet Under the current requirements, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are not recognized in the balance sheet, and the difference between retirement benefit obligations and plan assets (hereinafter, deficit or surplus ), adjusted by such unrecognized amounts, is recognized as a liability or asset. Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss shall be recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus shall be recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits). (b) Treatment in the statement of income and the statement of comprehensive income The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or loss. Those amounts would be recognized in profit or loss over a certain period no longer than the expected average remaining service period of the employees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss shall be included in other comprehensive income and actuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period shall be treated as reclassification adjustments. 57 Annual Report 214

60 (c) Amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected future salary increases The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected future salary increases. This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on or after April 1, 213, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 214, or for the beginning of annual periods beginning on or after April 1, 215, subject to certain disclosure in March 215, both with earlier application being permitted from the beginning of annual periods beginning on or after April 1, 213. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods is required. The Company applied the revised accounting standard for (a) and (b) above effective March 31, 214, and expects to apply (c) above from April 1, 214, and is in the process of measuring the effects of applying the revised accounting standard for (c) above in future applicable periods. Accounting Standards for Business Combinations and Consolidated Financial Statements On September 13, 213, the ASBJ issued revised ASBJ Statement No. 21, Accounting Standard for Business Combinations, revised ASBJ Guidance No. 1, Guidance on Accounting Standards for Business Combinations and Business Divestitures, and revised ASBJ Statement No. 22, Accounting Standard for Consolidated Financial Statements. Major accounting changes are as follows: Transactions with noncontrolling interest A parent s ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of minority interest is adjusted to reflect the change in the parent s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Under the current accounting standard, any difference between the fair value of the consideration received or paid and the amount by which the minority interest is adjusted is accounted for as an adjustment of goodwill or as profit or loss in the consolidated statement of income. Under the revised accounting standard, such difference shall be accounted for as capital surplus as long as the parent retains control over its subsidiary. Presentation of the consolidated balance sheet In the consolidated balance sheet, minority interest under the current accounting standard will be changed to noncontrolling interest under the revised accounting standard. Presentation of the consolidated statement of income In the consolidated statement of income, income before minority interest under the current accounting standard will be changed to net income under the revised accounting standard, and net income under the current accounting standard will be changed to net income attributable to owners of the parent under the revised accounting standard. Provisional accounting treatments for a business combination If the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisioned amounts for the items for which the accounting is incomplete. Under the current accounting standard guidance, the impact of adjustments to provisional amounts recorded in a business combination on profit or loss is recognized as profit or loss in the year in which the measurement is completed. Under the revised accounting standard guidance, during the measurement period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and that would have affected the measurement of the amounts recognized as of that date. Such adjustments shall be recognized as if the accounting for the business combination had been completed at the acquisition date. Acquisition-related costs Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs to effect a business combination. Under the current accounting standard, the acquirer accounts for acquisition-related costs by including them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall be accounted for as expenses in the periods in which the costs are incurred. The above accounting standards and guidance for transactions with noncontrolling interest, acquisition-related costs and presentation changes in the consolidated financial statements are effective for the beginning of annual periods beginning on or after April 1, 215. Earlier application is permitted from the beginning of annual periods beginning on or after April 1, 214, except for the presentation changes in the consolidated financial statements. In case of earlier application, all accounting standards and guidance above, except for the presentation changes, should be applied simultaneously. Either retrospective or prospective application of the revised accounting standards and guidance for transactions with noncontrolling interest and acquisition-related costs is permitted. In retrospective application of the revised standards and guidance for transactions with noncontrolling interest and acquisition-related costs, accumulated effects of retrospective adjustments for all transactions with noncontrolling interest and acquisition-related costs which occurred in the past shall be reflected as adjustments to the beginning balance of capital surplus and retained earnings for the year of the first-time application. SKY Perfect JSAT Holdings Inc. 58

61 To Our Shareholders and Investors Special Feature Consolidated Financial Highlights In prospective application, the new standards and guidance for transactions with noncontrolling interest and acquisition-related costs shall be applied prospectively from the beginning of the year of the first-time application. The changes in presentation shall be applied to all periods presented in financial statements containing the first-time application of the revised standards and guidance. The revised standards and guidance for provisional accounting treatments for a business combination is effective for a business combination which will occur on or after the beginning of annual periods beginning on or after April 1, 215. Earlier application is permitted for a business combination which will occur on or after the beginning of annual periods beginning on or after April 1, 214. The Company expects to apply the revised accounting standards and guidance from the beginning of the annual period beginning on April 1, 215, and is in the process of measuring the effects of applying the revised accounting standards and guidance in future applicable periods. 3. INVESTMENT SECURITIES Investment securities as of March 31, 213 and 214, consisted of the following: Thousands of U.S. dollars Investment securities: Equity securities 5,378 1,998 $ 19,49 Debt securities 6,534 4,423 42,974 Other ,729 Total 12,434 6,97 $ 67,112 The costs and aggregate fair values of certain investment securities at March 31, 213 and 214, were as follows: Cost Unrealized gain 213 Unrealized loss Fair value Securities classified as: Available-for-sale Equity securities 1, ,857 Debt securities 5, ,534 Other Held-to-maturity Debt securities 1, Cost Unrealized gain 214 Unrealized loss Fair value Securities classified as: Available-for-sale Equity securities 1, ,482 Debt securities 3, ,423 Other Cost Thousands of U.S. dollars Unrealized gain 214 Unrealized loss Fair value Securities classified as: Available-for-sale Equity securities $ 14,652 $ 389 $ 645 $ 14,396 Debt securities 38,486 5, ,974 Other 2, ,281 The information of available-for-sale securities which were sold during the year ended March 31, 213 and 214, was as follows: 213 Proceeds Realized gain Realized loss Available-for-sale: Equity securities 35 Other 1,94 15 Total 1, Proceeds Realized gain Realized loss Available-for-sale: Equity securities Total Thousands of U.S. dollars 214 Proceeds Realized gain Realized loss Available-for-sale: Equity securities $ 1,824 $ 723 $ Total $ 1,824 $ 723 $ Write-down of available-for-sale securities for the year ended March 31, 214, was 2,976 million. The carrying values of debt securities and other investments by contractual maturities for securities classified as available-for-sale at March 31, 214, were as follows: Millions of yen Thousands of U.S. dollars Due within one year or less $ Due after one year through five years Due after five years through ten years 3,5 29,197 Due after ten years 1,418 13,777 Total 4,423 $ 42,974 Review of Operations Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 59 Annual Report 214

62 4. LONG-TERM DEBT Long-term debt at March 31, 213 and 214, consisted of the following: Thousands of U.S. dollars Long-term debt: Unsecured 1.23% yen bonds, due 214 2, 2, $ 194,326 Government-owned banks, maturing serially through 223, annual interest rates of.54% 1.4% at March 31, 213, and.46% 1.4% at March 31, 214 6,91 6,991 67,925 Banks and insurance companies, maturing serially through 223, annual interest rates of.56% 2.% at March 31, 213, and.44% 2.% at March 31, ,488 19,4 184,644 Total 49,398 45, ,895 Less current portion 12,256 26,79 259,511 Long-term debt, less current portion 37,142 19,286 $ 187,384 The annual maturities of long-term debt at March 31, 214, were as follows: Millions of yen Thousands of U.S. dollars Year ending March 31: ,79 $ 259, ,42 23, ,22 5, ,2 19, Thereafter 9,68 94,5 Total 45,995 $ 446,895 Certain domestic subsidiaries of the Company has concluded lines of credit agreements with certain financial institutions in order to achieve more efficient and flexible financing of working capital. The status of these lines of credit at March 31, 213 and 214, is as follows: Thousands of U.S. dollars Lines of credit 15,589 15,589 $ 151,467 Credit utilized Available credit 15,589 15,589 $ 151,467 The domestic subsidiary of the Company has concluded lines of credit agreements with certain financial institutions in order to finance about the satellite communication business of X band. The status of these lines of credit at March 31, 213 and 214, is as follows: Thousands of U.S. dollars Lines of credit 77,5 77,5 $ 753,12 Credit utilized 8,574 83,33 Available credit 77,5 68,926 $ 669,79 5. EMPLOYEES BENEFIT PLANS AND DIRECTORS SEVERANCE INDEMNITIES The subsidiaries of the Company have unfunded defined benefit severance indemnity plans under which substantially all of their employees, other than directors, executive officers and audit & supervisory board member, are entitled, under most circumstances, to lump-sum severance indemnities based on the level of compensation at retirement or earlier termination of employment, the length of service and other factors, upon mandatory retirement at normal retirement age or earlier termination of employment. The Welfare Pension Fund, in which certain consolidated subsidiaries participated, received approval of transfer of past benefit obligation of the substitutional portion on April 1, 213, from the Minister of Health, Labor and Welfare. In addition, the subsidiary withdrew from the multi-employer welfare pension plan, and implemented the multi-employer defined benefit corporate pension plan. The benefits for the multi-employer definded benefit corporate pension plan are based on a standard remuneration schedule under the length of participation, and other factors. However, assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Therefore, the contributions to the multi-employer defined benefit corporate plan are recognized as paid and accounted for as a component of net periodic retirement benefit costs. Year Ended March 31, 213 The funded status of the multi-employer defined benefit corporate plan at March 31, 212 (available information as of March 31, 213), to which contributions were recorded as net periodic retirement benefit costs, was as follows: Fair value of plan assets 65,155 Pension benefit obligation recorded by pension fund 77,84 Difference (12,649) The Companies contribution percentage for the multi-employer defined benefit corporate plan at March 31, 212 was 4.2%. The difference mainly resulted from prior service cost of 12,316 million, adjustment of asset valuation of 333 million. Prior service cost is amortized over 19 years. SKY Perfect JSAT Holdings Inc. 6

63 To Our Shareholders and Investors Special Feature Review of Operations Consolidated Financial Highlights The above contribution ratio does not conform to the actual ratio applied to the Group. The liability for retirement benefits at March 31, 213, consisted of the following: Projected benefit obligation 3,75 Fair value of plan assets Unrecognized actuarial gain (171) Unrecognized prior service cost 196 Net liability 3,73 The components of net periodic benefit costs for the year ended March 31, 213, were as follows: Service cost 377 Interest cost 57 Recognized actuarial gain (2) Amortization of prior service cost (26) Contribution to multi-employer defined benefit plan 13 Net periodic benefit costs 536 Assumptions used for the years ended March 31, 213 were set forth as follows: Discount rate 1.%-1.4% Recognition period of actuarial gain 1-19 years Amortization period of prior service cost 12, 17 years Year Ended March 31, 214 The changes in defined benefit obligation for the year ended March 31, 214, were as follows: Millions of yen Thousands of U.S. dollars Balance at beginning of year 3,52 $ 34,25 Current service cost 353 3,426 Interest cost Actuarial losses Benefits paid (161) (1,56) Past service cost (54) (524) Balance at end of year 3,764 $ 36,579 The changes in defined benefit liability for simplified method were as follows: Millions of yen Thousands of U.S. dollars Balance at beginning of year 185 $ 1,795 Periodic benefit cost Benefit paid (6) (57) Balance at end of year 228 $ 2,214 Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation as of March 31, 214 Millions of yen Thousands of U.S. dollars Unfunded defined benefit obligation 3,993 $ 38,793 Net liability (asset) for defined benefit obligation 3,993 $ 38,793 Millions of yen Thousands of U.S. dollars Liability for retirement benefits 3,993 $ 38,793 Net liability (asset) for defined benefit obligation 3,993 $ 38,793 The components of net periodic benefit costs for the year ended March 31, 214, were as follows: Millions of yen Thousands of U.S. dollars Service cost 352 $ 3,426 Interest cost Recognized actuarial losses Amortization of prior service cost (31) (34) Periodic benefit cost in simplified method Net periodic benefit costs 428 $ 4,164 Accumulated other comprehensive income on defined retirement benefit plans as of March 31, 214 Millions of yen Thousands of U.S. dollars Unrecognized prior service cost 218 $ 2,123 Unrecognized actuarial losses (219) (2,129) Total (1) $ (6) Assumptions used for the year ended March 31, 214, were set forth as follows: Discount rate % The amount of contributions to the multi-employer defined benefit corporate pension plan was 135 million for the years ended March 31, 214. The funded status of the multi-employer defined benefit corporate plan at March 31, 213 (available information as of March 31, 214), to which contributions were recorded as net periodic retirement benefit costs, was as follows: Fair value of plan assets 65,835 Pension benefit obligation recorded 81,138 Difference (15,33) Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 61 Annual Report 214

64 The Groups contribution percentage for the multi-employer defined benefit corporate plan at March 31, 213 was 4.4%. The difference mainly resulted from prior service cost of 11,954 million and adjustment of asset valuation of 3,348 million. Prior service cost is amortized over 18 years. The Group expensed special contributions of 44 million in the consolidated statement of operations and comprehensive income in the fiscal period ended March 31, 213. The above contribution ratio does not conform to the actual ratio applied to the Group. The subsidiaries of the Company also have directors unfunded severance indemnity plans. Benefits under the directors plans are based on the level of compensation at retirement, length of service and other factors. Liabilities for severance payments under the directors plans at March 31, 213 and 214, amounting to 6 million and 6 million ($6 thousand), respectively, were stated on the vested benefit obligation basis, which represents the amount that would be required to be paid if all directors and executive officers terminated their appointments as of the balance sheet date. 6. ASSET RETIREMENT OBLIGATIONS Asset retirement obligations are mainly recognized on restitution obligations associated with real estate rental agreements and leasehold establishment contracts. The amount of asset retirement obligations is computed using discount rates of.4% to 2.4% and estimated useful lives of 3 to 5 years after acquisition. The changes in asset retirement obligations for the years ended March 31, 213 and 214, were as follows: Thousands of U.S. dollars Balance at beginning of year 2,53 2,285 $ 22,26 Additional provisions associated with the acquisition of property and equipment ,77 Reconciliation associated with passage of time Reduction associated with settlement of asset retirement obligations (243) (11) (19) Other (49) Balance at end of year 2,285 2,438 $ 23, EQUITY Japanese companies are subject to the Companies Act of Japan (the Companies Act ). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below: a. Dividends Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as (1) having a Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors is prescribed as one year rather than two years as a normal term by its Articles of Incorporation, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if the company has prescribed so in its Articles of Incorporation. The Company meets all the above criteria. The Companies Act permits companies to distribute dividends-inkind (noncash assets) to shareholders subject to a certain limitation and additional requirements. Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than 3 million. b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus The Companies Act requires that an amount equal to 1% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the total aggregate amount of the legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and the legal reserve may be reversed without limitation. The Companies Act also provides that common stock, the legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders. c. Treasury Stock and Treasury Stock Acquisition Rights The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders, which is determined by a specific formula. Under the Companies Act, stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights. On October 1, 213, the Company effected a hundred-for-one stock split by way of a free share distribution based on the resolution of the Board of Directors, meeting held on May 8, INCOME TAXES The Companies are subject to a number of different income taxes which, in the aggregate, indicate a normal effective statutory tax rate of approximately 38.% for the year ended March 31, 213,and 214. SKY Perfect JSAT Holdings Inc. 62

65 Consolidated Financial Highlights The tax effects of significant temporary differences and tax loss carryforwards that resulted in deferred tax assets and liabilities at March 31, 213 and 214, were as follows: Thousands of U.S. dollars Deferred tax assets: Depreciation 6,269 6,565 $ 63,788 Operating loss carryforwards 2,891 2,74 2,151 Write-down of investment securities 539 1,6 15,542 Liabilities for retirement benefits 1,357 1,437 13,965 Asset retirement obligations ,533 Income enterprise taxes payable ,958 Other 1,488 1,48 14,37 Less valuation allowance (3,939) (3,919) (38,76) Total 9,755 1,625 13,231 Deferred tax liabilities: Depreciation in foreign subsidiaries (893) (1,166) (11,327) Asset retirement obligations (383) (378) (3,671) Deferred gain on derivatives under hedge accounting (213) (36) (3,498) Other (195) (147) (1,433) Total (1,684) (2,51) (19,929) Net deferred tax assets 8,71 8,574 $ 83,32 A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 213 and 214, is as follows: Normal effective statutory tax rate 38.% 38.% Expenses not deductible for taxation.7.6 Revenues not taxable (12.3) (1.5) Change in valuation allowance (3.) 6.1 Consolidation adjustment for dividend income Amortization of goodwill Equity in net losses of affiliated companies..4 Adjustment of the year-end deferred tax assets caused by reduction in statutory tax rate.9 Other.4.5 Actual effective tax rate 38.2% 48.3% New tax reform laws enacted in 214 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on or after April 1, 214, from approximately 38.% to 35.6%. The effect of this change was to decrease deferred tax assets in the consolidated balance sheet as of March 31, 214, by 16 million ($1,554 thousand) and to increase income taxes deferred in the consolidated statement of income for the year then ended by 16 million ($1,554 thousand). 9. LEASES a. Finance Lease Pro forma information of leased property whose lease inception was before March 31, 28 ASBJ Statement No. 13, Accounting Standard for Lease Transactions, requires that all finance lease transactions should be capitalized to recognize lease assets and lease obligations in the balance sheet. However, ASBJ Statement No. 13 permits leases that do not transfer ownership of the leased property to the lessee and whose lease inception was before March 31, 28, to be accounted for as operating lease transactions if certain as if capitalized information is disclosed in the note to the financial statements. The Company applied ASBJ Statement No. 13 effective April 1, 28, and accounted for such leases as operating lease transactions. As lessee: Pro forma information of leased property whose lease inception was before March 31, 28, such as acquisition cost, accumulated depreciation, accumulated impairment loss, obligations under finance leases, depreciation expense, interest expense and other information of finance leases that do not transfer ownership of the leased property to the lessee on an as if capitalized basis was as follows: 213 Machinery and Software Total equipment Acquisition cost 1, ,93 Accumulated depreciation 1, ,296 Net leased property Machinery and equipment Software Total Acquisition cost 1,146 1,146 Accumulated depreciation Net leased property To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 63 Annual Report 214

66 Thousands of U.S. dollars 214 Machinery and Software Total equipment Acquisition cost $ 11,138 $ $ 11,138 Accumulated depreciation 8,674 8,674 Net leased property $ 2,464 $ $ 2,464 Obligations under finance leases: Thousands of U.S. dollars Due within one year $ 1,253 Due after one year ,324 Total $ 2,577 Depreciation expense, interest expense and other information under finance leases: Thousands of U.S. dollars Depreciation expense $ 1,84 Interest expense Total $ 1,19 Lease payments $ 1,26 Depreciation expense and interest expense, which are not reflected in the accompanying consolidated statements of income, are computed by the straight-line method and the interest method, respectively. b. Operating Lease The minimum rental commitments under noncancelable operating leases at March 31, 213 and 214, were as follows: Thousands of U.S. dollars Due within one year 1,469 1,739 $ 16,892 Due after one year 8,65 8,585 83,415 Total 1,119 1,324 $ 1, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The major components of selling, general and administrative expenses for the years ended March 31, 213 and 214, were as follows: Thousands of U.S. dollars Salaries and wages 4,51 4,357 $ 42,331 Provision for accrued bonuses ,95 Provision for liabilities for retirement benefits ,531 Advertising expenses 7,48 8,316 8,84 Sales promotion expenses 5,35 5,792 56,274 Sales incentives 2,594 2,141 2,81 Subcontracting fees 5,791 6,66 64,71 Provision for doubtful receivables ,77 Research and development expenses ,534 Other 1,336 1,22 97,43 Total 37,289 38,717 $ 376, IMPAIRMENT LOSS The Companies reviewed their long-lived assets for impairment as of March 31, 213. As a result, the Company recognized an impairment loss of 124 million as other expense for the Space & Satellite Business. Due to a continuous operating loss at that unit, the carrying amount of the relevant assets was written down to the recoverable amount. The recoverable amount was nil since no future cash inflows are expected. The impairment loss consisted of 121 million for software and 3 million for the other assets. The Companies reviewed their long-lived assets for impairment as of March 31, 214. As a result, the Companies recognized an impairment loss of 78 million ($761 thousand) as other expense for the Space & Satellite Business. Due to a continuous operating loss at that unit, the carrying amount of the relevant assets was written down to the recoverable amount. The recoverable amount was nil since no future cash inflows are expected. The impairment loss consisted of 78 million ($761 thousand) for software. 1. COST OF SERVICES Write-downs of inventories and other assets, which were charged to cost of services for the years ended March 31, 213 and 214, amounted to 229 million and 3 million ($29 thousand), respectively. SKY Perfect JSAT Holdings Inc. 64

67 To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary Consolidated Financial Highlights 13. FINANCIAL INSTRUMENTS a. Policy for Financial Instruments The Companies are financed by bank loans and issuance of bonds. Temporary cash surpluses, if any, are invested in low-risk financial assets. Derivatives are used, not for speculative purposes, but to manage exposure to financial risks as described in Note 14. b. Nature, Extent of Risks Arising from Financial Instruments and Risk Management for Financial Instruments Receivables, such as trade notes and trade accounts, are exposed to customer credit risk. The Companies manage due dates and balances by customers and periodically evaluate the credit standing of major customers based on their credit control rules. Marketable and investment securities, mainly bond securities invested for the purpose of temporary cash surplus and equity instruments of customers and suppliers of the Company, are exposed to the risk of market price fluctuations. The Board of Directors of the Company is periodically provided a report on the fair value and financial position of the issuing entities (customers and suppliers). Payment terms of payables, such as trade notes and trade accounts, are less than one year. Bank loans and bonds provide financing related to operations and capital expenditures. Although trade accounts and loans are exposed to the risk of liquidity, the Companies manage this risk by preparing monthly statements of cash receipts and disbursements and by entering into commitment line agreements. Derivatives include forward foreign currency contracts, which are used to manage exposure to market risks from changes in foreign currency exchange rates related to financing for purchase of broadcasting rights, capital expenditures of telecommunications satellites and foreign currency-based operating receivables that the Company expects to occur as a result of forecasted transaction. Please see Note 14 for more details about derivatives. The Company executes and manages derivative transactions in accordance with the internal policies that regulate the authorization and guidelines as follows. The Company enters into derivative transactions only with financial institutions with high credit standing to reduce credit risks. c. Fair Values of Financial Instruments Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is not available, other rational valuation techniques are used instead. The results of valuations may differ based upon assumptions used because rational valuation techniques include variable factors. The nominal amounts disclosed in Note 14 do not reflect market risks regarding derivative transactions. (1) Cash and cash equivalents The carrying values of cash and cash equivalents approximate fair value because of their short maturities. (2) Receivables The carrying values of receivables which are collectible within a short period approximate fair values. The fair values of receivables with long-term collection periods are measured at the amount to be received discounted at a rate considering the period to maturity and credit risk. (3) Investment securities The fair values of investment securities are measured at the quoted market price of the stock exchange for equity instruments, and at the quoted price obtained from the financial institution for certain debt instruments. Fair value information for investment securities by classification is included in Note 3. (4) Short-term loans and advances to affiliated companies The carrying values of short-term loans and advances to affiliated companies approximate fair values because the interest rates of the loans are variable and reflect market interest rates for a short period, unless the credit standings of borrowers vary greatly. (5) Payables, income taxes payable and subscription fees received The carrying values which will be settled within a short period approximate fair value. (6) Current portion of long-term loans and long-term loans The carrying values of the current portion of long-term loans and long-term loans with floating interest rates approximate fair values because the interest rates of the loans are variable and reflect market interest rates for a short period, and the credit standing of the Company does not vary greatly. The fair values of the current portion of long-term loans and long-term loans with fixed interest rates are measured at the present value of both interest and principal by each period of the loans, discounted at the Company s assumed corporate borrowing rate. (7) Current portion of bonds and bonds The fair values of bonds are measured at the present value, which is the amount of both interest and principal to be paid, discounted at the rate considering the period to maturity and credit risk. 65 Annual Report 214

68 (8) Derivatives Fair value information for derivatives is included in Note 14. Fair value of financial instruments: 213 Carrying amount Fair value Unrealized gain/loss Cash and cash equivalents 74,473 74,473 Receivables 2,391 Allowance for doubtful receivables (715) Net 19,676 19, Short-term loans 2,115 2,115 Investment securities: Held-to-maturity securities 1, 956 (44) Available-for-sale securities 7,799 7,799 Investment in and advances to affiliated companies: Advances 2,114 2,114 Total 17,177 17, Current portion of long-term debt: Current portion of long-term loans 12,256 12, Payables 16,245 16,245 Income taxes payable 2,451 2,451 Subscription fees received 1,234 1,234 Long-term debt: Bonds 2, 2, Long-term loans 17,142 17, Total 78,328 78, Derivatives Carrying amount Fair value Unrealized gain/loss Cash and cash equivalents 63,784 63,784 Receivables 25,63 Allowance for doubtful receivables (637) Net 24,966 25,51 85 Short-term loans 2,575 2,575 Investment securities: Available-for-sale securities 6,242 6,242 Total 97,567 97, Current portion of long-term debt: Current portion of bonds 2, 2,42 42 Current portion of long-term loans 6,79 6,711 2 Payables 21,762 21,762 Income taxes payable 6,49 6,49 Subscription fees received 9,913 9,913 Long-term debt: Long-term loans 19,286 19, Total 83,719 83, Derivatives Thousands of U.S. dollars 214 Carrying amount Fair value Unrealized gain/loss Cash and cash equivalents $ 619,74 $ 619,74 $ Receivables 248,766 Allowance for doubtful receivables (6,192) Net 242, , Short-term loans 25,15 25,15 Investment securities: Available-for-sale securities 6,65 6,65 Total 947, , Current portion of long-term debt: Current portion of bonds 194, , Current portion of long-term loans 65,185 65,24 19 Payables 211, ,447 Income taxes payable 58,77 58,77 Subscription fees received 96,315 96,315 Long-term debt: Long-term loans 187, , Total 813, , Derivatives $ 9,69 $ 9,69 $ Available-for-sale securities and held-to-maturity securities for which the fair value was not readily determinable at March 31, 213 and 214, were as follows: Carrying amount Thousands of U.S. dollars Equity securities 1,721 9,439 $ 91,712 Other ,449 Total 1,836 9,588 $ 93,161 Maturity analysis for financial assets and securities with contractual maturities: Due in one year or less Due after one year through five years 214 Due after five years through ten years Due after ten years Cash and cash equivalents 63,787 Receivables 23,488 1,515 6 Short-term loans 2,575 Investment securities: Available-for-sale securities 3,5 1,418 Total 89,85 1,515 3,65 1,418 SKY Perfect JSAT Holdings Inc. 66

69 To Our Shareholders and Investors Consolidated Financial Highlights Due in one year or less Thousands of U.S. dollars Due after one year through five years 214 Due after five years through ten years Due after ten years Cash and cash equivalents $ 619,776 $ $ $ Receivables 228,219 14,72 5,827 Short-term loans 25,16 Investment securities: Available-for-sale securities 29,196 13,777 Total $ 873,11 $ 14,72 $ 35,23 $ 13, DERIVATIVE INSTRUMENTS Certain consolidated subsidiaries of the Company use derivative financial instruments, which include foreign exchange forward contracts. Foreign exchange forward contracts are used for the purpose of reducing the risk arising from changes in anticipated cash flows of forecasted transactions associated with certain payments for overseas broadcasting rights, telecommunications satellites and foreign currency-based operating receivables that it expects to occur as a result of forecasted transaction. Foreign exchange forward contracts are subject to market risk. Because the counterparties to those derivatives are limited to major international financial institutions, the Companies do not anticipate any losses arising from credit risk. Derivative transactions are executed and controlled by the Finance and Accounting Division of those certain subsidiaries in accordance with the internal policies that regulate the authorization and guideline, and the transaction status and performance are periodically reported to the Board of Directors of those subsidiaries. The notional amounts of derivatives that are shown in the above table do not represent the amounts exchanged by the parties and do not measure the Company s exposure to credit or market risks. Derivative transactions to which hedge accounting is not applied at March 31, 213, were as follows: Contract amount 213 Contract amount due after one year Fair value Unrealized gain/loss Foreign currency forward contracts Buying U.S. dollars 9 (1) (1) There was no applicable transaction for the fiscal year ended March 31, 214. Derivative transactions to which hedge accounting is applied at March 31, 213 and 214, were as follows: Foreign currency forward contracts Buying U.S. dollars Fair value and deferral Selling U.S. dollars Fair value and deferral Foreign currency forward contracts Buying U.S. dollars Fair value and deferral Buying Euro Fair value and deferral Foreign currency forward contracts Buying U.S. dollars Fair value and deferral Buying Euro Fair value and deferral Hedged item 213 Contract amount Contract amount due after one year Fair value Forecasted foreign currency transactions 3,275 1, Forecasted foreign currency transactions 75 (6) Hedged item 214 Contract amount Contract amount due after one year Fair value Forecasted foreign currency transactions 16,945 1, Forecasted foreign currency transactions Hedged item Thousands of U.S. dollars 214 Contract amount Contract amount due after one year Fair value Forecasted foreign currency transactions $ 164,643 $ 1,289 $ 8,964 Forecasted foreign currency transactions $ 8,442 $ $ 645 Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 67 Annual Report 214

70 15. COMPREHENSIVE INCOME Other comprehensive income for the years ended March 31, 213 and 214, consists of the following: Thousands of U.S. dollars Other comprehensive income: Unrealized gain (loss) on availablefor-sale securities Gains arising during the year 1,38 (63) $ (617) Reclassification adjustments to profit or loss (52) (68) (66) Amount before income tax effect 1,256 (131) (1,277) Income tax effect (39) Total 947 (1) (969) Deferred gain on derivatives under hedge accounting Gains arising during the year 43 1,318 12,83 Reclassification adjustments to profit or loss Amounts transferred to the initial carrying amounts of hedged items (54) (895) (8,695) Amount before income tax effect ,218 Income tax effect (143) (141) (1,375) Total ,843 Foreign currency translation adjustments 483 1,274 12,373 Share of other comprehensive income in affiliated companies accounted for using the equity method Gains arising during the year Amounts transferred to the initial carrying amounts of hedged items 3 (6) (53) Total Total other comprehensive income 1,693 1,471 $ 14, RELATED PARTY DISCLOSURES Year Ended March 31, 213 Transactions of the Companies with affiliated companies for the year ended March 31, 213 were as follows: Collection of loans 1,949 Interest income 6 The balances due to or from the Companies with affiliated companies at March 31, 213 were as follows: Short-term loans 2,114 Long-term loans 2,114 Other current assets 18 Year Ended March 31, 214 The information for the fiscal year ended March 31, 214 is omitted since the aggregate value is immaterial. 17. SEGMENT INFORMATION Under ASBJ Statement No. 17, Accounting Standard for Segment Information Disclosures and ASBJ Guidance No. 2, Guidance on Accounting Standard for Segment Information Disclosures, an entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. 1. Description of reportable segments The Company s reportable segments are those for which separate financial information is available and regular evaluation by the Company s management is being performed in order to decide how resources are allocated among the Company. The Company has established service divisions at SKY Perfect JSAT Corporation, which is a core operating consolidated subsidiary of the Company and such service divisions design the strategies for their services and deploy operating activities. The Company consists of service segments based on the operating divisions of SKY Perfect JSAT Corporation, which include Multichannel Pay TV Business and Space & Satellite Business as the reportable segments. The Multichannel Pay TV Business offers platform services, such as customer management activities to the broadcasting businesses and delivers broadcasting services via communication satellite and fiber optic network. Space & Satellite Business offers communication satellite circuits (transponders) to the broadcasting businesses and satellite communication services such as data communication and mobile communication, to the government, public entities and corporations. SKY Perfect JSAT Holdings Inc. 68

71 To Our Shareholders and Investors Special Feature Review of Operations Corporate Governance Consolidated Financial Highlights 2. Methods of measurement for the amounts of sales, profit (loss), assets, liabilities and other items for each reportable segment The accounting policies of each reportable segment are consistent with those disclosed in Note 2, Summary of Significant Accounting Policies. Intersegment sales or transfers are determined based on market prices. 3. Information about sales, profit (loss), assets, liabilities and other items is as follows: Multichannel Pay TV Business Space & Satellite Business 213 Reconciliations (Note 1) Consolidated (Note 2) Sales to external customers 19,722 49, ,61 Intersegment sales or transfers 4,694 6,758 (11,452) Total 114,416 56,646 (11,452) 159,61 Segment profit (loss) (819) 17,599 (627) 16,153 Segment assets 54,9 15,387 85,2 29,487 Other: Depreciation and Amortization 8,47 17, ,116 Amortization of goodwill Investment in affiliated companies accounted for using the equity method 3,51 4,15 7,21 Increase in property and equipment and intangible assets 7,353 6, ,851 Note 1. Reconciliations are as follows: (1) A reconciliation of segment profit or loss in the amount of (627) million is 139 million of intersegment sales and (766) million of corporate expenses not allocated to each reportable segment. Corporate expenses mainly consist of general and administrative expenses that are not attributable to any segment. (2) A reconciliation of segment assets in the amount of 85,2 million is (818) million of intersegment assets and 86,18 million of corporate assets not allocated to each reportable segment. Corporate assets mainly consist of cash and cash equivalents and securities and assets related to administrative divisions. (3) A reconciliation of depreciation in the amount of 455 million is depreciation of corporate assets not allocated to each reportable segment. (4) A reconciliation of increase in property and equipment and intangible assets in the amount of 69 million is increase in property and equipment and intangible assets not allocated to each reportable segment. Note 2. Segment profit (loss) is reconciled with operating income in the consolidated statements of income. Multichannel Pay TV Business Space & Satellite Business 214 Reconciliations (Note 1) Consolidated (Note 2) Sales to external customers 117,488 54, ,683 Intersegment sales or transfers 4,667 8,392 (13,59) Total 122,155 62,587 (13,59) 171,683 Segment profit (loss) 1,184 21,83 (554) 21,713 Segment assets 5, ,93 74, ,58 Other: Depreciation and Amortization 8,563 15, ,433 Amortization of goodwill Investment in affiliated companies accounted for using the equity method 2,899 6,24 8,923 Increase in property and equipment and intangible assets 7,57 15, ,2 Multichannel Pay TV Business Thousands of U.S. dollars Space & Satellite Business 214 Reconciliations (Note 1) Consolidated (Note 2) Sales to external customers $ 1,141,549 $ 526,572 $ $ 1,668,121 Intersegment sales or transfers 45,35 81,537 (126,887) Total 1,186,899 68,19 (126,887) 1,668,121 Segment profit (loss) $ 11,55 $ 24,849 $ (5,383) $ 21,971 Segment assets 487,915 1,584, ,635 2,794,211 Other: Depreciation and Amortization 83,23 15,11 4,85 237,398 Amortization of goodwill 8,532 8,532 Investment in affiliated companies accounted for using the equity method 28,167 58,532 86,699 Increase in property and equipment and intangible assets 73, ,21 2, ,493 Note 1. Reconciliations are as follows: (1) A reconciliation of segment profit or loss in the amount of (554) million ($(5,383) thousand) is 169 million ($1,643 thousand) of intersegment sales and (723) million ($(7,26) thousand) of corporate expenses not allocated to each reportable segment. Corporate expenses mainly consist of general and administrative expenses that are not attributable to any segment. (2) A reconciliation of segment assets in the amount of 74,271 million ($721,635 thousand) is (814) million ($(7,914) thousand) of intersegment assets and 75,85 million ($729,549 thousand) of corporate assets not allocated to each reportable segment. Corporate assets mainly consist of cash and cash equivalents and securities and assets related to administrative divisions. Corporate Social Responsibility Financial Section Corporate Data Satellite Basics/Glossary 69 Annual Report 214

72 (3) A reconciliation of depreciation in the amount of 42 million ($4,85 thousand) is depreciation of corporate assets not allocated to each reportable segment. (4) A reconciliation of increase in property and equipment and intangible assets in the amount of 31 million ($2,923 thousand) is increase in property and equipment and intangible assets not allocated to each reportable segment. Note 2. Segment profit (loss) is reconciled with operating income in the consolidated statements of income. Related information: 1. Information about products and services Information about products and services is omitted, as the same information is disclosed in Information about sales, profit (loss), assets, liabilities and other items above. 2. Information about geographical areas (1) Sales Under Japanese accounting regulations, the Companies are not required to disclose geographical segment information about sales because sales to external customers in Japan represented more than 9% of that of the Companies for the period presented herein. (2) Property and equipment Under Japanese accounting regulations, the Companies are not required to disclose geographical segment information about property and equipment because property and equipment located in Japan represented more than 9% of that of the Companies for the period presented herein. 3. Information about major customers Under Japanese accounting regulations, the Companies are not required to disclose major customer information because sales to any one external customer do not represent more than 1% of that of the Companies for the period presented herein. Information about impairment losses on long-lived assets by reportable segment: Information about impairment losses on long-lived assets by reportable segment at March 31, 213 and 214, is as follows: 213 Multichannel Pay TV Space & Satellite Reconciliations Consolidated Business Business Impairment losses Multichannel Pay TV Space & Satellite Reconciliations Consolidated Business Business Impairment losses Thousands of U.S. dollars 214 Multichannel Pay TV Space & Satellite Reconciliations Consolidated Business Business Impairment losses $ $ 761 $ $ 761 Information about amortization of goodwill and goodwill: Information about amortization of goodwill and goodwill at March 31, 213 and 214, is as follows: 213 Multichannel Pay TV Business Space & Satellite Business Reconciliations Consolidated Amortization of goodwill Goodwill at March 31, 213 7,97 7, Multichannel Pay TV Business Space & Satellite Business Reconciliations Consolidated Amortization of goodwill Goodwill at March 31, 214 7,92 7,92 Thousands of U.S. dollars 214 Multichannel Pay TV Business Space & Satellite Business Reconciliations Consolidated Amortization of goodwill $ $ 8,532 $ $ 8,532 Goodwill at March 31, ,91 68,91 Information about recognized bargain purchase gain (negative goodwill) by reportable segment: Not applicable. 18. SUBSEQUENT EVENTS Appropriations of Retained Earnings The following appropriation of retained earnings at March 31, 214, was approved at the Board of Directors meeting held on May 8, 214: Millions of yen Thousands of U.S. dollars Year-end cash dividend, 6 ($.6) per share 1,849 $ 17,968 SKY Perfect JSAT Holdings Inc. 7

73 Independent Auditors Statements Corporate Corporate Data Data Satellite Basics/Glossary Satellite Basics/Glossary Special Feature To Our Shareholders To Our Shareholders Consolidated Financial Consolidated Financial Overview and Investors and Investors Highlights Highlights Financial Section Financial Section Corporate Social Corporate Social Responsibility Responsibility Corporate Governance Corporate Governance Special Feature Review of Operations Review of Operations 71 Annual Report 214

74 CORPORATE DATA Investor Information (As of March 31, 214) Corporate Name: SKY Perfect JSAT Holdings Inc. Headquarters: 14-14, Akasaka 1-chome, Minato-ku, Tokyo 17-52, Japan Telephone: URL: Established: April 2, 27 Number of Employees (Consolidated): 796 Capital: 1 billion Stock Listing: First Section, Tokyo Stock Exchange (Code 9412) Number of Shares Issued: 344,63,7 Total Number of Shareholders: 33,177 Fiscal Year-End: March 31 Annual General Meeting of Shareholders: June Payment of Dividends (Dividend Record Date): March 31 (and September 3 for interim dividends) Transfer Agent of Common Stock: Mizuho Trust & Banking Co., Ltd. Major Shareholders Number of shares held *1 Shareholding ratio (%) *2 Mizuho Trust & Banking Co., Ltd. (Pension trust account for ITOCHU Corporation) 34,657, Fuji Media Holdings, Inc. 28,35, NTT Communications Corporation 26,57, 8.45 Sumitomo Corporation 22,258, Nippon Television Network Corporation 2,891, Tokyo Broadcasting System Holdings, Inc. 18,434, 5.98 ITOCHU Corporation 13,65, Japan Trustee Services Bank, Ltd. (Pension trust account for Mitsui & Co., Ltd.) 13,45, Japan Trustee Services Bank, Ltd. (Trust Account) 7,392,8 2.4 The Master Trust Bank of Japan, Ltd. 5,638, *1 Our common shares have split at a ratio of 1;1 on October 1, 213 *2 As of March 31, 213, the Company owns 36,387,6 shares of treasury stock. In calculating shareholding ratio, the treasury stock is excluded. Breakdown of Shareholders Breakdown by Number of Shareholders Government and Local Public Authorities Number of Shareholders % of Total. Financial Institutions 4.12 Securities Firms 29.8 Other Japanese Corporations Foreigners Individuals and Others 32, Treasury Stock 1. Breakdown by Number of Shares Government and Local Public Authorities Number of Shares % of Total. Financial Institutions 76,89, Securities Firms 3,88, Other Japanese Corporations 144,119, Foreigners 58,254, Individuals and Others 25,872, Treasury Stock 36,387, SKY Perfect JSAT Holdings Inc. 72

75 Group Companies Consolidated Financial Highlights Corporate Name: SKY Perfect JSAT Corporation Capital: 5,83 million Principal Activities: Provision of satellite communications and multichannel pay TV platform services Ownership: 1.% To Our Shareholders and Investors Corporate Name: Capital: SKY Perfect Customerrelations Corporation 1 million Principal Activities: Provision of subscriber management services for multichannel broadcasting Ownership: 1.% Corporate Name: Capital: SKY Perfect Broadcasting Corporation 2,5 million Principal Activities: Provision of broadcasting programs Ownership: 1.% Corporate Name: Capital: SKY Perfect Entertainment Corporation 1 million Principal Activities: Licensed broadcaster providing multichannel highdefinition pay TV services via CS11-degree platform Ownership: 1.% Corporate Name: Capital: JSAT International Inc. US$25 million Principal Activities: U.S. subsidiary working with joint venture partner, Intelsat, to market capacity on satellites in North America Ownership: 1.% Corporate Name: JSAT MOBILE Communications Inc. Capital: 2 million (Capital appropriation: 175 million) Principal Activities: A provider of mobile satellite communications (Inmarsat) services Ownership: 53.3% Corporate Name: Capital: Principal Activities: Ownership: 92.% Satellite Network, Inc. 1,6 million Telecommunications carrier and a systems integrator for satellite communications and broadcasting services Special Feature Review of Operations Corporate Governance Corporate Social Responsibility Multichannel Pay TV Business SKY Perfect Broadcasting Corporation SKY Perfect Entertainment Corporation SKY Perfect Customer-relations Corporation Financial Section SKY Perfect JSAT Holdings Inc. SKY Perfect JSAT Corporation Space & Satellite Business Satellite Network, Inc. JSAT MOBILE Communications Inc. JSAT International Inc. Corporate Data Satellite Basics/Glossary 73 Annual Report 214

76 SATELLITE BASICS Communication satellite s main components Solar Array Panel The solar array panel uses solar power to generate electricity. Deployable Mirrored Antenna This antenna receives and transmits signals. The antenna is called deployable because the antenna opens to receive commands from earth after the satellite is launched into space and reaches the proper orbital slot. Telemetry Command Omni Antenna This antenna receives and transmits signal while a satellite is being launched into orbit before the deployable antennas can be opened. Thruster Thrusters keep the satellite positioned at the correct orbit. Heat Dissipation Panel Satellites easily accumulate heat, and this panel dissipates the heat via embedded heat conducting pipes to maintain a constant temperature inside the satellite. Communications satellites are generally about as big as a railroad car but can be various sizes depending on the type of satellite. Do rain and wind affect communication satellite s signals? Not all frequencies sent by communications satellites are affected by rain. Radio wave frequencies that are affected and not affected Diagnostic X-ray Ultraviolet by rain can be divided. The most common frequency ranges for satellite communications in Japan are the Ku band and C band. C band frequencies have been widely used since satellite communications began because they are not affected by heavy rain, but low frequencies require large antennas for reception. The Ku band frequencies enable small antennas to receive large amounts of data making it suitable for SKY PerfecTV! broadcasts and communications in Japan. The advantage of reception by small antennas is somewhat compromised by the fact that the signals are weakened High-frequency GHz MHz Visible light Infrared light Television FM radio Frequency list Ka Ku X C S L (GHz) when they bump against water particles in the atmosphere, such as during heavy rain, which can affect reception. Wind has no affect on signals from communication satellites. Low-frequency KHz Marine Communication

77 glossary ARPU Average Monthly Revenue per Unit and actually recognized revenues of our group in the average spending per subscriber for monthly subscription fee, etc. Average Monthly Subscriber s Payment Average spending per subscriber for monthly subscription fee, etc. Conventional Gross ARPU. BS Broadcasting satellite that provides BS digital broadcasting services in Japan. C-band/Ku-band C band refers to the GHz range of frequencies. Downward transmissions from communications satellites to the earth are typically in the GHz frequency band, whereas transmissions in the opposite direction use the GHz band. The Ku band is the GHz frequency range. In this band, signals from communications satellites to the earth are transmitted at GHz, and downward transmissions use the GHz range. CS Communications satellite is an artificial satellite equipped with transponders originally designed for communications services. CS has also been used for broadcasting services since 1992 in Japan. SKY PerfecTV! s services currently use three communications satellites: JCSAT-3A (128 degrees east longitude), JCSAT-4B (124 degrees east longitude) and JCSAT-11R (11 degrees east longitude) and BS. DTH DTH is, direct to the home, the direct transmission of content to households via satellite or other means. FSS (Fixed Satellite Services) The official classification (used mainly in North America) for geostationary communications satellites that provide broadcasting service to TV stations, communications and data communications for companies and governnment agencies. FTTH FTTH is a network in which an optical fiber runs from the telephone exchange directly to the home. H.264 (H.264/MPEG-4 AVC) H.264 is an video data compression coding method endorsed by the International Telecommunication Union (ITU) in May 23 that is able to provide the same image quality as the existing MPEG-2 with only about half of the data volume. H.264 is used to distribute large data volume, high quality video such as for high-definition TV. HDTV High-definition television. MPEG-2 (Moving Picture Experts Group phase 2) MPEG-2 is a video data compression method and is one of the MPEG standards used for DVD video and standard digital televisions. MSS (Mobile satellite services) MSS refers to networks of communications satellites intended for use with mobile and portable wireless telephones. There are three major types: AMSS (aeronautical MSS), LMSS (land MSS), and MMSS (maritime MSS.) SAC Subscriber Acquisition Cost. SDTV Standard-definition television. Ultra-HD (4K/8K) Ultra HD is ultra high definition imaging and display technology. The K stands for Kilo, which means thousand. Compared to full HD, which has a pixel count of 192 x 18 pixels, 4K HD has approximately four times and 8K approximately 16 times the number of pixels. Uplink/Downlink An uplink is a transmission from ground transmission facilities to communications satellites. A downlink is a transmission from communications satellites to ground transmission facilities. X-band X band is the frequency band from 7.75 to 8.5 GHz primarily used by military communications, weather, and earth observation satellites.