Excerpt from Quarterly Report (Consolidated Financial Statements) (April 1 to December 31, 2012)

Transcription

1 Excerpt from Quarterly Report (Consolidated Financial Statements) (April 1 to December 31, 2012) Part 4. Financial Section 1. Preparation method of the quarterly consolidated financial statements Quarterly consolidated financial statements of DENTSU INC. (hereinafter Dentsu or the Company ) are prepared in accordance with the Regulations for Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements (Cabinet Office Ordinance No. 64, 2007; hereinafter the Regulations ). 2. Audit Certificate Pursuant to Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, the Company s quarterly consolidated financial statements for the third quarter ended December 31, 2012 (from October 1 to December 31, 2012) and the consolidated financial statements for the nine months (from April 1 to December 31, 2012) of the fiscal year ending March 31, 2013, which were compiled in Japanese, were subject to a quarterly review by Deloitte Touche Tohmatsu LLC. -1-

2 1. Quarterly Consolidated Financial Statements (1) Quarterly Consolidated Balance Sheets Previous fiscal year (As of March 31, 2012) The third quarter (As of December 31, 2012) Assets Current assets Cash and deposits 176,746 59,999 Notes and accounts receivable trade *2 491,398 *2 436,682 Short-term investment securities 218 1,114 Inventories 10,459 16,382 Other 45,754 68,399 Allowance for doubtful accounts (2,354) (1,792) Total current assets 722, ,786 Noncurrent assets Property, plant and equipment Land 160, ,749 Other, net 81,769 79,112 Total property, plant and equipment 242, ,861 Intangible assets Goodwill 44,339 52,615 Other 18,752 19,373 Total intangible assets 63,091 71,988 Investments and other assets Investment securities 113, ,395 Other 64,548 61,754 Allowance for doubtful accounts (3,784) (3,513) Allowance for investment loss (257) Total investments and other assets 174, ,636 Total noncurrent assets 479, ,487 Total assets 1,201,894 1,167,273 *2 Please refer to page 11 for details of the notes matured at the period-end. -2-

3 Previous fiscal year (As of March 31, 2012) The third quarter (As of December 31, 2012) Liabilities Current liabilities Notes and accounts payable trade *2 414,121 *2 380,135 Short-term loans payable 4,733 3,416 Income taxes payable 13,629 5,799 Provision Asset retirement obligations 0 Other 91,871 90,027 Total current liabilities 525, ,745 Noncurrent liabilities Long-term loans payable 54,604 29,943 Provision for retirement benefits 37,702 41,754 Other provision Asset retirement obligations Other 26,163 21,707 Total noncurrent liabilities 119,824 94,767 Total liabilities 645, ,513 Net assets Shareholders' equity Capital stock 58,967 58,967 Capital surplus 60,899 60,899 Retained earnings 487, ,238 Treasury stock (65,070) (65,073) Total shareholders' equity 541, ,031 Accumulated other comprehensive income Valuation difference on available-for-sale securities 12,135 19,041 Deferred gains or losses on hedges (453) 16,450 Revaluation reserve for land (5,931) (5,931) Foreign currency translation adjustment (11,389) (12,321) Total accumulated other comprehensive income (5,638) 17,239 Minority interests 20,598 21,489 Total net assets 556, ,760 Total liabilities and net assets 1,201,894 1,167,273 *2 Please refer to page 11 for details of the notes matured at the period-end. -3-

4 (2) Quarterly Consolidated Statements of Income and Comprehensive Income [Quarterly Consolidated Statements of Income] [For the nine months ended December 31, 2011 and 2012] Nine months ended December 31, 2011 (From April 1 to December 31, 2011) Nine months ended December 31, 2012 (From April 1 to December 31, 2012) Net sales 1,357,340 1,412,195 Cost of sales 1,122,565 1,163,232 Gross profit 234, ,963 Selling, general and administrative expenses Salaries and allowances 108, ,487 Provision for directors' bonuses Provision for retirement benefits 8,393 8,638 Provision for directors' retirement benefits Welfare expenses 14,898 15,905 Depreciation 8,978 7,701 Amortization of goodwill 1,810 2,505 Provision of allowance for doubtful accounts 1,538 (44) Other 59,110 60,270 Total selling, general and administrative expenses 204, ,846 Operating income 30,723 38,116 Non-operating income Interest income Dividends income 1,676 1,643 Equity in earnings of affiliates 4,019 1,701 Profit distributions 1,359 1,683 Other 2,534 2,086 Total non-operating income 10,091 7,414 Non-operating expenses Interest expenses 1,414 1,153 Foreign exchange losses 201 2,609 Amortization of long-term prepaid expenses 1,108 1,516 Other 781 1,153 Total non-operating expenses 3,505 6,433 Ordinary income 37,309 39,098-4-

5 Nine months ended December 31, 2011 (From April 1 to December 31, 2011) Nine months ended December 31, 2012 (From April 1 to December 31, 2012) Extraordinary income Gain on sales of noncurrent assets 13 9 Gain on sales of investment securities Dividends distribution from partnership Other Total extraordinary income Extraordinary loss Loss on sales of noncurrent assets 20 3 Impairment loss 1, Loss on valuation of investment securities Amortization of goodwill 617 Other 3, Total extraordinary losses 5,605 2,810 Income before income taxes and minority interests 32,203 36,521 Income taxes current 9,864 11,990 Income taxes deferred 8,187 3,474 Total income taxes 18,051 15,464 Income before minority interests 14,151 21,057 Minority interests in income 877 1,117 Net income 13,274 19,939-5-

6 [Quarterly Consolidated Statements of Comprehensive Income] [For the nine months ended December 31, 2011 and 2012] Nine months ended December 31, 2011 (From April 1 to December 31, 2011) Nine months ended December 31, 2012 (From April 1 to December 31, 2012) Income before minority interests 14,151 21,057 Other comprehensive income Valuation difference on available-for-sale securities 2,192 6,913 Deferred gains or losses on hedges (826) 16,918 Foreign currency translation adjustment (3,686) (953) Share of other comprehensive income of associates accounted for using equity method 1, Total other comprehensive income (1,162) 22,961 Comprehensive income 12,989 44,018 Comprehensive income attributable to Owners of the parent 12,068 42,818 Minority interests 921 1,200-6-

7 Changes in Scope of Consolidation and Application of the Equity Method Nine months ended December 31, 2012 (From April 1 to December 31, 2012) 1. Significant changes in scope of consolidation Dentsu has 150 consolidated subsidiaries including Dentsu East Japan Inc. The first quarter ended June 30, 2012 Effective from the first quarter ended June 30, 2012, Dentsu Macromill Inc. has been included in the scope of consolidation on the grounds that a new company was established. Four companies, including ISID Fairness, Ltd. have also been included in the scope of consolidation to reflect their increased importance. Meanwhile, effective from the first quarter ended June 30, 2012, SHINGATA SOKEN INC. was excluded from consolidation due to its liquidation process. Ad Area Co., Ltd. was also excluded from consolidation due to the decline in the equity ratio owned by the Company resulting from the sale of its shares. The second quarter ended September 30, 2012 Effective from the second quarter ended September 30, 2012, Beauchesne, Ostiguy et Simard Inc. has been included in the scope of consolidation on the grounds that the shares of the company were acquired under the umbrella of Dentsu Holdings USA, Inc. Dentsu Media Malaysia Sdn. Bhd. has also been included in the scope of consolidation to reflect its increased importance. The third quarter ended December 31, 2012 Effective from the third quarter ended December 31, 2012, Dentsu Mobius Pte. Ltd. (Singapore) has been included in the scope of consolidation on the grounds that a new company was established. Dentsu Media & Holdings India Pvt. Ltd. has also been included in the scope of consolidation to reflect its increased importance. Meanwhile, effective from the third quarter ended December 31, 2012, Dentsu Cayenne Holdings Ltd. (United Kingdom) was excluded from consolidation due to its liquidation process. 2. Significant changes in scope of application of the equity method 38 affiliated companies, including Video Research Ltd., are accounted for by the equity method. The first quarter ended June 30, 2012 Effective from the first quarter ended June 30, 2012, Kakaku.com, Inc. was included as an affiliated company accounted for by the equity method as shares of the company was acquired. ADK Digital Communications Inc. was included as an affiliated company accounted for by the equity method to reflect its increased importance. Also, effective from the first quarter ended June 30, 2012, Ad Area Co., Ltd. was excluded from consolidation due to the decline in the equity ratio owned by the Company resulting from the sale of its shares, but remains an affiliated company accounted for by the equity method. The second quarter ended September 30, 2012 Effective from the second quarter ended September 30, 2012, Shanghai Easy Digital Communication Co., Ltd. was included as an affiliated company accounted for by the equity method to reflect its increased importance. The third quarter ended December 31, 2012 Effective from the third quarter ended December 31, 2012, Brightcove, Inc. was excluded from the affiliated companies accounted for by the equity method category due to the sale of its shares. TSD Wellness Inc. was also excluded from the affiliated companies accounted for by the equity method category due to its liquidation process. -7-

8 Changes in Accounting Policies Nine months ended December 31, 2012 (From April 1 to December 31, 2012) 1. Changes in accounting policies difficult to distinguish from changes in accounting estimates The Company and its domestic consolidated subsidiaries have changed the depreciation method for the property, plant and equipment acquired on or after April 1, 2012 due to the revision of the Japanese Corporation Tax Act from the first quarter ended June 30, The impact of this change on the operating income, ordinary income and income before income taxes and minority interests for the nine months ended December 31, 2012 is minimal. Specific Accounting Treatments Adopted in the Quarterly Consolidated Financial Statements No items to report Additional Information Nine months ended December 31, 2012 (From April 1 to December 31, 2012) Dentsu has agreed to proceed with a recommended cash acquisition of the entire issued and to be issued ordinary share capital of Aegis Group plc, a major British advertising and media agency (Headquarters: London, United Kingdom; listed on London Stock Exchange; hereinafter Aegis ), to make it a wholly owned subsidiary of the Company (hereinafter the Transaction ), and has made a formal announcement of the Transaction in London on July 12, 2012, in compliance with the UK Takeover Code. The following is a summary of the Transaction: (1) Name, business, size, etc. of the company to be acquired 1) Name Aegis Group plc 2) Headquarters London, United Kingdom 3) Representative Jerry Buhlmann, CEO 4) Business Advertising and media services 5) Share capital GBP 64.4 million (as of December 31, 2011) 6) Number of shares outstanding 1,172,883,511shares (as of July 11, 2012) 7) Year of establishment ) Listed stock exchanges London Stock Exchange 9) Major shareholders and equity ratio (as of June 29, 2012) Bolloré Group 26.42% Fidelity (FMR LLC) 5.58% BlackRock 5.07% Mitchell family 3.96% Norges Bank 3.79% 10) Relationship with Dentsu There is no personal, capital or operational relationship. (2) Transaction Rationale 1) Expansion of global presence The geographical fit between Dentsu and Aegis is highly complementary. Dentsu has a leading market position in Japan s advertising and marketing sector, an established presence across Asia, and an increasingly expanding business in the US, with Dentsu McGarry Bowen, LLC as its core US subsidiary. Additionally, Aegis enjoys a leading position showing strong presence across Europe and increasingly in the US. Moreover, Aegis is rapidly growing its footprint across emerging markets, and has established robust positioning in Asia excluding Japan. Together, the enlarged group will be a stronger global competitor with the scope and scale to compete for and win international mandates across Japan, Europe, Asia Pacific and the Americas. The combined network with a full range of advertising, media and marketing services will enable -8-

9 Dentsu and Aegis to provide highly integrated services for local, regional and global clients across multiple international locations. 2) Enhanced service and integrated solution offerings Dentsu and Aegis each rely, in order to be competitive, on distinct service offerings and expertise, together with their creativity and integrity, to exploit best solutions with a variety of service offerings. Following the Transaction, the combined group will have a strengthened ability to offer a wider spectrum of niche services and expertise as a full service agency. With both Dentsu and Aegis s extensive experience and knowledge, the combined group will enhance its ability to offer integrated solutions to clients. 3) Intensified digital capabilities The adoption of scaled technologies by consumers has driven the proliferation of connected devices and advancements in communication technology, significantly affecting clients advertising and marketing activities. Dentsu faces strong client expectations to strengthen digital solutions. With the rise of digital consumption and client demand for digital services, Dentsu has successfully enhanced its digital solutions over the years. By integrating Aegis, with Isobar (Note 1) and iprospect s (Note 2) digital strengths in creative origination and performance marketing, the combined business will provide a powerful global platform for media, content and digital technology, and will increasingly support client activities. (Note 1) Isobar, one of Aegis s agency brands, is the world s first global digital network and has strengths in digital marketing. (Note 2) iprospect, one of Aegis s agency brands, has strengths in online solutions with an emphasis on search engine marketing. (3) Acquisition Price Dentsu has offered an acquisition price of 240 pence for each ordinary share. The total acquisition price is expected to be approximately GBP 3,164 million (approximately JPY 409,095 million). (4) Transaction Method The Transaction is planned to be implemented by means of a scheme of arrangement. A scheme of arrangement, in brief, is a process under English law for a recommended acquisition, conditional upon the approval of the target s shareholders, court approval and fulfillment of other conditions. To become effective, the Transaction must be approved by a majority in number of Aegis s shareholders (excluding Dentsu, which cannot vote its shares on the Transaction) representing 75% or more in value of the Aegis Shares voted. The recommended acquisition was approved at Aegis s Shareholder meetings on August 16, Competition law clearances must also be obtained from the related countries as they are a prerequisite for the Court s sanction of the scheme. Through these procedures, the acquirer acquires 100% shares of the target from the existing target shareholders in exchange for the agreed consideration. Dentsu is in the process of obtaining Competition law clearances from the related countries (8 countries), as these clearances are a prerequisite for the completion of all the acquisition procedures (i.e. completion of the acquisition as a result of the English Court s sanction of the scheme). All acquisition procedures are scheduled to be completed by March 28, Dentsu has purchased approximately % and 5.0% of the ordinary share capital of Aegis from the Bolloré Group, the largest shareholder of Aegis, as of July 12, 2012 and August 16, 2012, respectively. Furthermore, in compliance with scheme of arrangement procedures stipulated by the UK Takeover Panel, Dentsu has entered into a Commitment Line Agreement (with the initial maximum committed line of credit at JPY 395,800 million) with The Bank of Tokyo-Mitsubishi UFJ, Ltd., effective July 12, 2012, in order to provide proof of funding. After subsequent reductions in stages, the amount was reduced to JPY 356,700 million as of November 28, (5) Financing The Transaction will be funded through a combination of Dentsu s existing cash resources and loan facilities arranged for the purpose of this offer. -9-

10 Notes to the Quarterly Consolidated Financial Statements Quarterly Consolidated Balance Sheets 1. Contingent liabilities Previous fiscal year (As of March 31, 2012) (1) Liability on guarantee resulting from a loan scheme for housing funds for employees is JPY 1,507 million. (2) Contingent liabilities for items such as guarantees of loans of the following companies: Frontage Inc. 107 Media Shakers Inc. 208 Digital Egg Inc. 159 Dentsu Tec Beijing Advertising Co., Ltd. 200 Total 674 The third quarter of FY2012 (As of December 31, 2012) (1) Liability on guarantee resulting from a loan scheme for housing funds for employees is JPY 1,266 million. (2) Contingent liabilities for items such as guarantees of loans of the following companies: Tag Belgium SA (EUR 522 thousand) 59 Frontage Inc. 107 Media Shakers Inc. 208 Digital Egg Inc. 87 Dentsu Tec Beijing Advertising Co., Ltd. 200 Total

11 Previous fiscal year (As of March 31, 2012) (3) Lawsuits Lawsuits in connection to a business partnership with the objective of operating a live music club were filed against the Company by the following 2 companies and 2 leasing companies who are claiming a payment of outsourcing and lease fees they paid to fictitious orders made by a former employee of the Company who falsely used the name of the Company or said partnership. The Company s appeal is currently pending before the court. Although there is a possibility that the Company may incur damages based on the results of the lawsuits, it is not possible to make a rational estimate of these damages at this point in time. Plaintiff Planning and Publicity Cooperative Defendant Shibuya Entertainment Review 21 Joint Partnership, and its 3 partners including DENTSU INC. Mode2 inc. DENTSU INC. 2 leasing companies DENTSU INC. Lawsuit Status Amount 4,553 Lawsuit pertaining to outsourcing fees; currently pending before the District Court (court of first instance) 197 Lawsuit pertaining to outsourcing fees; currently pending before the District Court (court of first instance) 100 Lawsuit pertaining to lease fees; currently pending before the District Court (court of first instance) Total 4,851 The third quarter of FY2012 (As of December 31, 2012) (3) Lawsuits Lawsuits in connection to a business partnership with the objective of operating a live music club were filed against the Company by the following 2 companies and 2 leasing companies who are claiming a payment of outsourcing and lease fees they paid to fictitious orders made by a former employee of the Company who falsely used the name of the Company or said partnership. The Company s appeal is currently pending before the court. Although there is a possibility that the Company may incur damages based on the results of the lawsuits, it is not possible to make a rational estimate of these damages at this point in time. Plaintiff Planning and Publicity Cooperative Defendant Shibuya Entertainment Review 21 Joint Partnership, and its 3 partners including DENTSU INC. Mode2 inc. DENTSU INC. 2 leasing companies DENTSU INC. Lawsuit Status Amount 4,553 Lawsuit pertaining to outsourcing fees; currently pending before the District Court (court of first instance) 197 Lawsuit pertaining to outsourcing fees; currently pending before the District Court (court of first instance) 100 Lawsuit pertaining to lease fees; currently pending before the District Court (court of first instance) Total 4,851 *2. Notes matured at the end of the current third quarter are treated as if redeemed on the maturity date. As the end of the third quarter of fiscal 2012 fell on a holiday for financial institutions, the following notes, which matured at the end of the third quarter, have been accounted for as if redeemed on the maturity date. Previous fiscal year (As of March 31, 2012) The third quarter of FY2012 (As of December 31, 2012) Notes receivable trade 1,970 1,351 Notes payable trade

12 Quarterly Consolidated Statements of Income Nine months ended December 31, 2011 (From April 1 to December 31, 2011) and nine months ended December 31, 2012 (From April 1 to December 31, 2012) No items to report Quarterly Consolidated Statements of Cash Flows No Quarterly Consolidated Statements of Cash Flows have been prepared for the nine months ended December 31, The amounts of depreciation (including amortization of intangible assets excluding goodwill) and amortization of goodwill for the nine months ended December 31, 2011 and 2012 are as follows: Nine months ended December 31, 2011 (From April 1 to December 31, 2011) Nine months ended December 31, 2012 (From April 1 to December 31, 2012) Depreciation 10,798 9,524 Amortization of goodwill 1,810 3,122 Shareholders equity Nine months ended December 31, 2011 (From April 1 to December 31, 2011) 1. Dividends paid Resolution Ordinary general meeting of shareholders held on June 29, 2011 Board of Directors meeting held on November 9, 2011 Class of stock Common stock Common stock Source of dividends Retained earnings Retained earnings Total amount of dividends (Millions of yen) Dividend per share (Yen) Record date Effective date 3, March 31, 2011 June 30, , September 30, 2011 December 5, Dividends for which the record date is within the nine months ended December 31, 2011, and the effective date is after December 31, 2011 No items to report Nine months ended December 31, 2012 (From April 1 to December 31, 2012) 1. Dividends paid Resolution Ordinary general meeting of shareholders held on June 28, 2012 Board of Directors meeting held on November 8, 2012 Class of stock Common stock Common stock Source of dividends Retained earnings Retained earnings Total amount of dividends (Millions of yen) Dividend per share (Yen) Record date Effective date 3, March 31, 2012 June 29, , September 30, 2012 December 5, Dividends for which the record date is within the nine months ended December 31, 2012, and the effective date is after December 31, 2012 No items to report -12-

13 Segment and Other Information Segment information Nine months ended December 31, 2011 (From April 1 to December 31, 2011) 1. Net sales and income or loss by reportable segment Advertising Information Services Other Businesses Total Amount on Quarterly Adjustment Consolidated Statements of Income Net sales 1,315,869 43,846 13,722 1,373,438 (16,097) 1,357,340 Segment 28,312 (461) ,290 2,432 30,723 income (loss) Notes: 1. The difference between the total income or loss of reportable segments and the amount on the quarterly consolidated statements of income is due to the elimination of intersegment transactions and deduction of unrealized profits. 2. Segment income (loss) has been adjusted to equal the operating income on the quarterly consolidated statements of income. 2. Impairment loss of items such as noncurrent assets or goodwill by reportable segment No items to report Nine months ended December 31, 2012 (From April 1 to December 31, 2012) 1. Net sales and income or loss by reportable segment Advertising Information Services Other Businesses Total Amount on Quarterly Adjustment Consolidated Statements of Income Net sales 1,368,930 48,113 12,365 1,429,410 (17,214) 1,412,195 Segment income 35, ,672 1,444 38,116 Notes: 1. The difference between the total income of reportable segments and the amount on the quarterly consolidated statements of income is due to the elimination of intersegment transactions and deduction of unrealized profits. 2. Segment income has been adjusted to equal the operating income on the quarterly consolidated statements of income. 2. Impairment loss of items such as noncurrent assets or goodwill by reportable segment No items to report 3. Items concerning changes in reportable segments As stated in Changes in accounting policies difficult to distinguish from changes in accounting estimates, starting from the first quarter ended June 30, 2012, Dentsu and its domestic consolidated subsidiaries changed the depreciation method for the property, plant and equipment acquired on or after April 1, 2012 due to the revision of the Japanese Corporation Tax Act. Accordingly, the depreciation method used in the reportable segments has been changed to the method set forth in the revised Corporation Tax Act. The impact of this change on the segment income for the nine months ended December 31, 2012 is minimal. -13-

14 Reference Information By Geographic Area Nine months ended December 31, 2011 (From April 1 to December 31, 2011) Japan Overseas Total Eliminations/ Corporate Consolidated Net sales 1,195, ,782 1,363,764 (6,424) 1,357,340 Operating income 28,573 1,848 30, ,723 Nine months ended December 31, 2012 (From April 1 to December 31, 2012) Japan Overseas Total Eliminations/ Corporate Consolidated Net sales 1,217, ,980 1,418,676 (6,481) 1,412,195 Operating income 34,781 3,120 37, ,116 Note: Net sales have been classified by country or region, based on the location of each Group company. Countries or regions classified as Overseas consist substantially of the US and China. Overseas Sales Nine months ended December 31, 2011 (From April 1 to December 31, 2011) I. Overseas net sales: JPY 170,085 million II. Consolidated net sales: JPY 1,357,340 million III. Overseas net sales as a percentage of consolidated net sales: 12.5 % Nine months ended December 31, 2012 (From April 1 to December 31, 2012) I. Overseas net sales: JPY 204,373 million II. Consolidated net sales: JPY 1,412,195 million III. Overseas net sales as a percentage of consolidated net sales: 14.5 % Note: Net sales have been classified by country or region, based on locations of clients. Countries or regions classified as Overseas consist substantially of the US and China. -14-

15 Financial instruments Notes have been omitted in accordance with Article 17-2 of the Regulations. Securities Notes have been omitted in accordance with Article 17-2 of the Regulations. Derivative transactions Notes have been omitted in accordance with Article 17-2 of the Regulations. Per share information Net income per share (basic) and basis of computation, and net income per share (diluted) and basis of computation Item Nine months ended December 31, 2011 (From April 1 to December 31, 2011) Nine months ended December 31, 2012 (From April 1 to December 31, 2012) (1) Net income per share (basic) (Yen) (Basis of computation) Net income 13,274 19,939 Amount not attributable to common shareholders Net income available to common stock Average number of common stock outstanding for the period (Thousand shares) 13,274 19, , ,151 (2) Net income per share (diluted) (Yen) (Basis of computation) Adjustment to net income Major elements of the adjustment to net income used for computing net income per share (diluted) Subscription rights to shares and bonds with subscription rights to shares of affiliated companies Summary of significant changes since the end of the previous fiscal year relating to residual securities that were not included in the computation of net income per share (diluted) due to their having no dilutive effect -15-

16 2. Other Information (1) Dividends from surplus With regard to the interim dividend for the fiscal year ending March 31, 2013 (the 164th Fiscal Period: from April 1, 2012 to March 31, 2013), the Company resolved at its Board of Directors meeting held on November 8, 2012 that dividends shall be distributed to the shareholders whose names are recorded in the most recent register of shareholders as of September 30, 2012, in the following manner. 1) Total amount of dividends: JPY 3,986 million 2) Dividend per share: JPY ) Effective date of the right to demand payment and commencement date of dividend payment: December 5, 2012 (2) Significant lawsuits The Company is involved in litigation brought by several entities who were operating a live music club as a partnership business, and is being asked to pay subcontracting and lease fees with regard to a fictitious order made by a former employee who falsely used the name of the Company and the partnership. For details please refer to (3) Lawsuits on page