41 41
Severance and pension costs of the Company and its consolidated subsidiaries included the following components for the fiscal years ended December 31 and March 31, 2007.
Millions of yen
Thousands of U.S. dollars
2007/12 2007/3 2007/12
Service cost ¥ 795 ¥ 959 $ 6,964
Interest cost 219 294 1,918
Expected return on plan assets (417) (506) (3,653)
Amortization of actuarial differences 530 685 4,643
Amortization of prior service costs (credits) (195) (260) (1,708)
Other (including early retirement benefits) 113 346 990
Net benefit cost ¥1,045 ¥1,518 $ 9,154
Note: Contributions of employees to the governmental welfare contributory pension plan are not included in service cost.
Assumptions used in accounting for the defined benefit plans for the fiscal years ended December 31 and March 31, 2007 were as follows:
2007/12 2007/3
Method of attributing benefit to periods of service Straight-line method Straight-line method
Discount rate 1.5% 1.5%
Long-term rate of return on fund assets 2.4%–3.2% 2.4%–3.2%
Amortization period for actuarial losses Primarily 10–15 years
(within the average of the estimated remaining service years)
Primarily 10–15 years
(within the average of the estimated remaining service years)
Amortization of prior service costs 15 years
(within the average of the estimated remaining service years)
15 years
(within the average of the estimated remaining service years)
8. Information for certain leases
(1) As lessee:
Information on non-capitalized finance leases at December 31 and March 31, 2007 was as follows:
December 31, 2007
Millions of yen Thousands of U.S. dollars
Acquisition cost
Accumulated depreciation
Net book value
Acquisition cost
Accumulated depreciation
Net book value
Machinery and equipment and transportation equipment ¥5,126 ¥2,183 ¥2,943 $44,902 $19,122 $25,780
Other (furniture and equipment) 2,687 1,393 1,294 23,537 12,202 11,335
Software 333 163 170 2,917 1,428 1,489
Total ¥8,146 ¥3,739 ¥4,407 $71,356 $32,752 $38,604
March 31, 2007 Millions of yen Acquisition
cost
Accumulated depreciation
Net book value
Machinery and equipment ¥5,259 ¥1,993 ¥3,266
Transportation equipment 4 2 2
Furniture and fixtures 1,083 635 448
Software 578 357 221
Total ¥6,924 ¥2,987 ¥3,937
Millions of yen
Thousands of U.S. dollars
2007/12 2007/3 2007/12
Future minimum lease payments inclusive of interest:
Current ¥1,386 ¥ 887 $12,141
Non-current 3,464 3,050 30,343
Total ¥4,850 ¥3,937 $42,484
(2) The ratio of pension premiums expensed from April 1, 2006 to March 31, 2007 by the Company and its subsidiaries to the total pre-mium amount was 1.64%.
(3) Additional information
The net balance above (1) is mainly due to the prior service liabilities of
¥47,763 million ($418,386 thousand) and total of loss carryforward and reserves of ¥32,641 million ($285,923 thousand). The prior service liabilities are being amortized over the average estimated remaining service years of 9 to 20 years. The Company and its domestic
consolidated subsidiaries expensed special contributions of ¥18 million ($158 thousand) in the consolidated statement of operations in the fiscal year ended December 31, 2007. Loss carryforward in the amount of
¥6,149 million ($53,863 thousand) would be compensated by raising the ratio of special contributions where deemed necessary.
The above contribution ratio (2) does not conform to the actual charge ratio applied to those domestic consolidated subsidiaries because special contributions are calculated based on a certain rate and the actual amount of base salary.
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Lease payments for finance leases which do not transfer ownership were ¥995 million ($8,716 thousand) and ¥938 million for the fiscal years ended December 31 and March 31, 2007, respectively.
Operating leases at December 31 and March 31, 2007 were as follows:
Millions of yen
Thousands of U.S. dollars
2007/12 2007/3 2007/12
Future minimum lease payments:
Current ¥ 9 ¥ 9 $ 79
Non-current 4 11 35
Total ¥13 ¥20 $114
(2) As lessor:
Other assets included in property, plant and equipment include the following leased assets at December 31 and March 31, 2007:
December 31, 2007
Millions of yen Thousands of U.S. dollars
Acquisition cost
Accumulated
depreciation Net book value Acquisition cost
Accumulated
depreciation Net book value
Other (furniture and equipment) ¥3 ¥2 ¥1 $26 $17 $9
March 31, 2007 Millions of yen Acquisition
cost
Accumulated
depreciation Net book value
Other (furniture and equipment) ¥1,647 ¥1,087 ¥560
Millions of yen
Thousands of U.S. dollars
2007/12 2007/3 2007/12
Future minimum lease receipts inclusive of interest:
Current ¥216 ¥236 $1,892
Non-current 250 324 2,190
¥466 ¥560 $4,082
Lease receipts under finance leases were nil and ¥285 million for the fiscal years ended December 31 and March 31, 2007, respectively.
9. Contingent liabilities
Contingent liabilities at December 31 and March 31, 2007 consisted of the following:
Millions of yen
Thousands of U.S. dollars
2007/12 2007/3 2007/12
Guarantees of bank loans and other indebtedness of unconsolidated subsidiaries and affiliates,
employees and others ¥840 ¥831 $7,358
11. Related party transactions
Purchases of securities from a director of the Company for the fiscal year ended March 31, 2007 were ¥204 million.
12. Segment information
The operations of the Company and its subsidiaries are classified into three industry segments as follows:
Stationery segment:
—Notes, albums, binders, forms, pencils and others Furniture segment:
—Desks, tables, chairs, cabinets, lockers and others Store fixtures segment:
—Shop display shelves, shop counters, glass showcases, shopping carts and wagons and others As described in Note 2 Accounting Standard for Presentation of Net Assets
in the Balance Sheet, net assets comprises four subsections, which are shareholders’ equity, accumulated gains (losses) from valuation and transla-tion adjustments, share subscriptransla-tion rights and minority interests.
The Japanese Corporate Law (“the Law”) became effective on May 1, 2006, replacing the Japanese Commercial Code (“the Code”). The Law is generally applicable to events and transactions occurring after April 30, 2006 and for fiscal years ending after that date.
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one-half of the price of the new shares as addi-tional paid-in capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in-capital and legal earnings reserve must be set aside as addi-tional paid-in-capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside an amount equal to at least 10% of the aggregate amount of cash dividends and other cash appropriations as legal earnings reserve until the total of legal earnings reserve and additional paid-in capital equaled 25% of common stock.
Under the Code, legal earnings reserve and additional paid-in capital could be used to eliminate or reduce a deficit by a resolution of the shareholders’ meeting or could be capitalized by a resolution of the Board of Directors. Under the Law, both of these appropriations gener-ally require a resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Code, however, on the condition that the total amount of legal earnings reserve and additional paid-in capital remained equal to or exceeded 25% of common stock, they were available for distribution by resolution of the shareholders’ meet-ing. Under the Law, all additional paid-in-capital and all legal earnings reserve may be transferred to other capital surplus and retained earn-ings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as divi-dends is calculated based on the non-consolidated financial statements of the Company in accordance with Japanese laws and regulations.
At the annual shareholders’ meeting held on March 28, 2008, the shareholders approved cash dividends amounting to ¥444 million ($3,889 thousand). These appropriations have not been accrued in the consolidated financial statements as of December 31, 2007. Such appropriations are recognized in the period in which they are approved by the shareholders.
10. Net assets
45 45
A summary of business segment information for the fiscal years ended December 31 and March 31, 2007 is as follows:
2007/12 Millions of yen Stationery
segment
Furniture segment
Store fixtures
segment Corporate
Consolidated total
Net sales ¥127,168 ¥107,945 ¥17,711 ¥– ¥252,824
Cost and expenses 125,435 108,176 17,811 – 251,422
Operating income (loss) ¥ 1,733 ¥ (231) ¥ (100) ¥– ¥ 1,402
2007/12 Millions of yen Stationery
segment
Furniture segment
Store fixtures
segment Corporate
Consolidated total
Assets ¥104,943 ¥99,483 ¥8,991 ¥87,770 ¥301,187
Depreciation and amortization 2,182 1,821 165 262 4,430
Capital expenditure 2,741 4,554 196 242 7,733
2007/12 Thousands of U.S. dollars Stationery
segment
Furniture segment
Store fixtures
segment Corporate
Consolidated total
Net sales $1,113,945 $945,559 $155,142 $– $2,214,646
Cost and expenses 1,098,765 947,582 156,018 – 2,202,365
Operating income (loss) $ 15,180 $ (2,023) $ (876) $– $ 12,281
2007/12 Thousands of U.S. dollars Stationery
segment
Furniture segment
Store fixtures
segment Corporate
Consolidated total
Assets $919,262 $871,435 $78,758 $768,833 $2,638,288
Depreciation and amortization 19,114 15,951 1,445 2,295 38,805
Capital expenditure 24,010 39,891 1,717 2,120 67,738
2007/3 Millions of yen Stationery
segment
Furniture segment
Store fixtures
segment Corporate
Consolidated total
Net sales ¥170,272 ¥145,802 ¥23,485 ¥– ¥339,559
Cost and expenses 163,420 141,372 23,404 – 328,196
Operating income ¥ 6,852 ¥ 4,430 ¥ 81 ¥– ¥ 11,363
2007/3 Millions of yen Stationery
segment
Furniture segment
Store fixtures
segment Corporate
Consolidated total
Assets ¥111,045 ¥110,870 ¥10,148 ¥87,970 ¥320,033
Depreciation and amortization 2,895 2,401 221 540 6,057
Capital expenditure 2,859 1,820 179 141 4,999
13. Income taxes
The Company and its consolidated domestic subsidiaries used the aggregate statutory income tax rate of 40.6% for the fiscal years ended December 31 and March 31, 2007.
The following table summarizes the significant differences between the statutory tax rate and the Company’s effective tax rate for financial state-ment purposes for the fiscal years ended December 31 and March 31, 2007.
And the significant differences between the statutory tax rate and the Company’s effective tax rate for financial statement purposes for the fiscal year ended December 31, 2007 is not applicable, for income before income taxes and minority interests was a loss.
2007/3
Statutory tax rate 40.6%
Non-deductible expenses 1.9
Non-taxable dividend income (0.7)
Per capita inhabitants’ tax 0.7
Fluctuation of temporary differences expected to be unutilized 16.4
Other 0.4
Effective tax rate 59.3%
The ratios of domestic net sales and assets to consolidated net sales and assets for the fiscal years ended December 31 and March 31, 2007 were over 90%.
The international sales of the Company and its consolidated subsid-iaries for the fiscal years ended December 31 and March 31, 2007 were less than 10% of consolidated net sales.
“Assets” in the “Corporate” column of the above-mentioned tables mainly consists of cash and cash equivalents, marketable securi-ties and investments in securisecuri-ties and assets of administrative divisions of the Company.
As described in Note 2, “Property, plant and equipment,” in the fiscal year ended December 31, 2007 and in accordance with an amend-ment of the Corporate Tax Law in 2007, the Company and its domestic consolidated subsidiaries recorded depreciation expenses using the depreciation method prescribed in the amended Corporate Tax Law for
tangible assets acquired on and after April 1, 2007. The effect of this change was to both increase operating expenses and decrease operat-ing income by ¥10 million ($88 thousand) in the stationery segment and by ¥13 million ($114 thousand) in the furniture segment.
As described in Note 2 “Property, plant and equipment,” in accor-dance with the amended Corporate Tax Law for tangible fixed assets acquired by the Company and its domestic consolidated subsidiaries prior to March 31, 2007 that have been depreciated to the remaining book value of 5% of acquisition cost, the remaining book value is depreciated in equal amounts over five years from the year following the year in which the remaining book value falls to 5% of the acquisi-tion cost. The effect of this change was to both increase operating expenses and decrease operating income by ¥50 million ($438 thou-sand) in the stationery segment and by ¥6 million ($53 thouthou-sand) in the furniture segment.
47 47
Significant components of deferred tax assets and liabilities as of December 31 and March 31, 2007 were as follows:
Millions of yen
Thousands of U.S. dollars
2007/12 2007/3 2007/12
Deferred tax assets:
Excess bonuses accrued ¥ 268 ¥ 859 $ 2,348
Accrued enterprise tax 62 353 543
Write-down of investment securities 921 876 8,068
Retirement benefits 4,430 4,128 38,805
Allowance for doubtful receivables 231 157 2,023
Net operating loss 11,357 7,812 99,483
Other 1,479 2,518 12,955
Subtotal 18,748 16,703 164,225
Valuation allowance (10,092) (5,140) (88,402)
Total deferred tax assets 8,656 11,563 75,823
Deferred tax liabilities:
Net unrealized gains and losses on securities (4,986) (6,792) (43,676)
Adjustments to fixed assets based on corporate tax law (991) (999) (8,681)
Other (464) (52) (4,064)
Total deferred tax liabilities (6,441) (7,843) (56,421)
Net deferred tax assets ¥ 2,215 ¥ 3,720 $ 19,402
Millions of yen
Thousands of U.S. dollars
2007/12 2007/3 2007/12
Deferred tax assets in the consolidated balance sheet:
Current ¥ 985 ¥2,170 $ 8,628
Non-current 1,372 1,925 12,018
Deferred tax liabilities in the consolidated balance sheet:
Current – (38) –
Non-current (142) (337) (1,244)
Net deferred tax assets ¥2,215 ¥3,720 $19,402
14. Selling, general and administrative expenses
Selling, general and administrative expenses principally consisted of the following:
Millions of yen
Thousands of U.S. dollars
2007/12 2007/3 2007/12
Packing and delivery expenses ¥20,250 ¥24,870 $177,383
Salaries and bonuses 21,707 26,284 190,145
Depreciation 2,812 3,765 24,632
Net retirement benefit cost 1,006 1,388 8,812
Provision for accrued bonuses 524 2,137 4,590
Other 29,611 40,793 259,382
¥75,910 ¥99,237 $664,944
15. Business combinations
1. To reorganize the Kokuyo Group’s distribution channels and to inte-grate the sales companies into core sales companies with business territories in big cities such as Tokyo, Nagoya and Osaka, and utilizing a high degree of market chain reaction and deploying a nationwide common business strategy, Kokuyo Tokyo Sales Co., Ltd. merged with Kokuyo Nishikanto Sales Co., Ltd., Kokuyo Chubu Sales Co., Ltd. and Kokuyo Kinki Sales Co., Ltd. on October 1, 2007. As part of the merger, Kokuyo Tokyo Sales Co., Ltd. took over the entire business of Kokuyo Nishitokyo Sales Co., Ltd. – including the assets and liabilities of the company at carrying value on October 1, 2007. The name of the entity after the reorganization is Kokuyo Marketing Co., Ltd.
Except for the Kokuyo Nishitokyo Sales Co., Ltd., which is a non-consolidated subsidiary, these companies are the non-consolidated subsid-iaries of the Company.
2. In the major business segments of the Kokuyo Group, the R&D and production functions in the stationery business and furniture business have been carried out by Kokuyo S&T Co., Ltd. and Kokuyo Furniture Co., Ltd., respectively. Kokuyo Logitem Co., Ltd., which is a consoli-dated subsidiary and fully owned by Kokuyo Furniture Co., Ltd., carried out the distribution function for both businesses.
To enhance management from production through distribution, speed up the decision making process, improve customer satisfaction and reduce cost Kokuyo Logitem Co., Ltd. separated the distribution function for the stationery and furniture businesses on October 1, 2007.
Kokuyo Logitem Co., Ltd. retained the function for the furniture busi-ness, while the distribution function for the stationery business was absorbed by Kokuyo Supply Logistics Co., Ltd., a subsidiary of Kokuyo S&T Co., Ltd.
3. The accounting method applied to the above business combinations was the merger and acquisition, and business separation transaction under the common control of the Company in accordance with
“Accounting Standard for Business Combination” (issued by the Busi-ness Accounting Council on October 31, 2003) and “Guidance on Accounting Standard for Business Combination and Business Separa-tion” (Accounting Standards Board of Japan Guidance No. 10 issued on December 27, 2005).
49 49
16. Subsequent events
1. Appropriations of retained earnings:
The following appropriations of retained earnings of the Company for the year ended December 31, 2007 were approved at the general meeting of shareholders held on March 28, 2008.
Millions of yen
Thousands of U.S. dollars
Cash dividends (¥3.75 per share) ¥444 $3,889
2. The withdrawal risk from employees’ pension fundamental fund:
Kokuyo Marketing Co., Ltd. and Kokuyo Chugoku Sales Co., Ltd., which are domestic consolidated subsidiaries of the Company, decided to withdraw from contributory funded multi-employer pension plans in accordance with resolutions approved by each company’s Board of Directors’ meeting held in January 2008 and by each company’s meeting of delegates of pension plans in February 2008.
In the fiscal year ended December 31, 2008, those pension plans are to be transferred to a new defined benefits pension plan and a new defined contribution pension plan. By the Welfare Pension Insurance Law and other related regulations, special contributions of ¥1,100 million ($9,636 thousand) are to be expensed as other expense in the fiscal year ended December 31, 2008.
17. Net income per share
Reconciliation of the difference between basic and diluted net income per share for the fiscal years ended December 31 and March 31, 2007 is as follows.
And diluted net income (loss) per share is not disclosed because there are no outstanding potentially dilutive securities.
Millions of yen
Thousands
of shares Yen U.S. dollars
For the year ended December 31, 2007 Net loss
Weighted
average shares Net loss per share Basic net loss per share
Net loss available to common shareholders ¥(5,326) 118,303 ¥(45.02) $(0.39)
Millions of yen
Thousands
of shares Yen
For the year ended March 31, 2007 Net income
Weighted
average shares Net income per share Basic net income per share
Net income available to common shareholders ¥5,622 119,778 ¥46.94