FOSTER ETHOS
4. Dividends
Kokuyo aims for shareholder-centric management, and will imple-ment a dividend policy based on the goal of achieving a dividend payout ratio of 20% or higher, taking into account consolidated operating results as well as our policy of paying a stable dividend.
Based on this policy, we paid a cash dividend in fiscal 2007 of ¥15 per share, comprising an interim dividend of ¥7.5 and a year-end dividend of ¥7.5. Since the next fiscal period will be nine months long due to the change in fiscal year-end, dividends per share are scheduled to be ¥11.25, comprising an interim dividend of ¥7.5 and a year-end dividend of ¥3.75. This represents nine months’ worth of an annual dividend of ¥15.
Outlook
The Japanese economy is expected to post solid growth going forward, supported by robust capital investments and personal spending, but there are concerns such as continued high levels for raw material prices and overseas economic trends, so there is no room for excessive optimism.
The Kokuyo Group will change its fiscal year-end from March 31 to December 31 from the next fiscal period. This will avoid the fiscal year-end coinciding with the peak-demand season from January to March. This nine-month period will be the final “year”
of our management plan, “The Next 100—Creating an Alliance of the Best.” The Kokuyo Group will strive to expand earnings by creating New Businesses, incubating Growth Businesses and streamlining Mature Businesses. We will also continue to innovate in our business activities and provide services and products that offer added value by increasing opportunities for direct dialog with customers.
Business Risks
Economic Situation and Business Climate in Japan
Almost all Kokuyo Group’s revenues are derived from markets within Japan. Consequently, changes in the Japanese business climate may have an impact on operating results.
Increases in Raw Material Prices
The main raw materials used by the Kokuyo Group include base paper, plastics, and steel. Kokuyo purchases its raw materials from manufacturers in Japan and overseas. Therefore, there is a risk that higher raw materials prices resulting from sharp increases in crude oil prices, rapidly increasing demand in China, and other factors may affect the Group’s operating results.
Development of New Products
In its development of products and services, the Kokuyo Group aims to create new products, services, and businesses outside estab-lished business domains. However, it is not always possible to accurately predict which new products and technologies will win support in their markets. If sales of such products are unsuccessful, there is a possibility that future growth and profitability may decline, with a negative impact on operating results.
Information Systems
Businesses such as the Kokuyo Group’s office supply mail order business depend on communications networks linking computer systems. However, there is a risk that a natural disaster or other unforeseen event could cause the networks to cease functioning, making it impossible to process product orders. In addition, there is a risk that Kokuyo’s internal computer system could be infiltrated by unauthorized means, and information on the website altered or important data fraudulently obtained. Infection by a computer virus may also lead to the loss of important data. If such a situation oc-curs, there is a risk of a negative impact on operating results.
Protection of Personal Information
Kokuyo takes all possible measures in the management of personal information, but there is a risk that information could leak due to unforeseen circumstances. If such a situation occurs, it could result in a decline in the Group’s brand equity and give rise to significant financial liability.
Natural Disasters
In the event of a natural disaster such as an earthquake or typhoon, there is a risk that the Kokuyo Group’s production, retail, and logis-tics bases could sustain heavy damage.
Product Liability
There is a risk that defects could occur in the products or services provided by the Kokuyo Group. In the event of product liability compensation, product recalls, or other similar situations arising, a decline in the Group’s brand equity and significant financial liability could result.
Significant Changes in Overseas Economies
Part of the Kokuyo Group’s sales, manufacturing, and procurement operations are conducted in Asia and other parts of the world.
There is a risk that changes in the political, economic, or social situation in any of these regions or changes in local regulations could have a detrimental impact on operating results.
Fluctuations in Foreign Exchange Levels
A portion of the Kokuyo Group’s export and import of products and import of raw materials is denominated in foreign currency. The Kokuyo Group also owns foreign currency-denominated assets, and there is a risk that earnings could be affected if there are large fluctuations in the foreign exchange markets.
Fluctuations in the Value of Marketable Securities
The Kokuyo Group holds securities for investment purposes. How-ever, there is a risk that a downturn in securities markets could result in revaluation losses being incurred for such securities.
Environmental Regulations
The Kokuyo Group is subject to a number of statutory environmental regulations with regard to the various types of waste generated during production processes and emissions into the atmosphere and water. The Group has historically undertaken a range of activities aimed at environmental preservation, including compliance with statutory environmental regulations. However, should additional obligations for compliance with environmental laws and contribu-tion to environmental reform give rise to addicontribu-tional expenses, such expenses could have an impact on operating results.
Consolidated Balance Sheets
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES YEARS ENDED MARCH 31, 2007 AND 2006
Thousands of U.S. dollars
Millions of yen (Note 1)
ASSETS
2007 2006 2007Current assets:
Cash and cash equivalents ¥ 14,334 ¥ 9,281 $ 121,382
Notes and accounts receivable:
Trade notes and accounts:
Unconsolidated subsidiaries and affiliates 12,333 11,930 104,437
Other 80,339 73,713 680,320
Other receivables 4,238 5,020 35,888
Allowance for doubtful receivables (52) (712) (440)
96,858 89,951 820,205
Inventories (Note 5) 31,827 30,142 269,515
Deferred tax assets (Note 13) 2,170 2,654 18,376
Other current assets 2,782 2,300 23,558
Total current assets 147,971 134,328 1,253,036
Investments and other assets:
Investments in unconsolidated subsidiaries and affiliates 6,190 6,720 52,418
Investments in securities (Note 3) 55,690 54,343 471,589
Long-term loans receivables 1,495 1,014 12,660
Deferred tax assets (Note 13) 1,925 1,641 16,301
Other non-current assets 13,479 11,518 114,142
Allowance for doubtful receivables (515) (725) (4,361)
Total investments and other assets 78,264 74,511 662,749
Property, plant and equipment, at cost (Note 6) :
Land 42,271 46,472 357,956
Buildings and structures 82,185 91,904 695,952
Machinery and equipment 30,874 32,757 261,445
Other 20,028 20,494 169,599
Construction in progress 1,674 591 14,175
177,032 192,218 1,499,127
Less accumulated depreciation (97,683) (102,485) (827,191)
Property, plant and equipment, net 79,349 89,733 671,936
Intangible assets 14,449 16,001 122,356
¥320,033 ¥ 314,573 $2,710,077
See the accompanying notes to the consolidated financial statements.
Thousands of U.S. dollars
Millions of yen (Note 1)
LIABILITIES AND NET ASSETS
2007 2006 2007Current liabilities:
Short-term loans, including long-term debt due within one year (Note 6) ¥ 9,160 ¥ 8,241 $ 77,568 Trade notes and accounts payable:
Unconsolidated subsidiaries and affiliates 2,840 2,644 24,049
Other 62,272 55,248 527,327
Accrued employees’ bonuses 2,346 2,213 19,866
Income taxes payable 3,745 3,947 31,713
Other current liabilities 11,487 11,290 97,274
Total current liabilities 91,850 83,583 777,797
Long-term liabilities:
Long-term debt due after one year (Note 6) 28,362 28,250 240,173
Employees’ severance and retirement benefits (Note 7) 2,258 1,896 19,121
Deferred tax liabilities (Note 13) 338 179 2,862
Guarantee deposits 5,436 5,092 46,033
Other long-term liabilities 1,881 2,051 15,928
Total long-term liabilities 38,275 37,468 324,117
Contingent liabilities (Note 9)
Net assets
Shareholders’ equity (Note 10):
Common stock
Authorized—398,000,000 shares
Issued—128,742,463 shares 15,847 15,847 134,194
Capital surplus 19,068 19,068 161,470
Retained earnings 158,491 154,731 1,342,121
Treasury stock, at cost, 10,436,316 shares in 2007 (14,312) (9,829) (121,196)
(7,926,642 shares in 2006)
Total shareholders’ equity 179,094 179,817 1,516,589
Valuation and translation adjustments
Net unrealized gains (losses) on securities 10,027 12,005 84,910
Deferred gains (losses) on hedges 71 12 601
Foreign currency translation adjustments (519) 10 (4,395)
Total valuation and translation adjustments 9,579 12,027 81,116
Minority interests 1,235 1,678 10,458
Total net assets 189,908 193,522 1,608,163
¥320,033 ¥314,573 $2,710,077
See the accompanying notes to the consolidated financial statements.
Consolidated Statements of Income
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES YEARS ENDED MARCH 31, 2007 AND 2006
Thousands of U.S. dollars
Millions of yen (Note 1)
2007 2006 2007
Net sales ¥339,559 ¥303,959 $2,875,426
Cost of sales 228,959 202,879 1,938,852
Gross profit 110,600 101,080 936,574
Selling, general and administrative expenses (Note 14) 99,237 86,975 840,351
Operating income 11,363 14,105 96,223
Other income (expenses):
Interest and dividend income 934 1,813 7,909
Interest expense (643) (479) (5,445)
Income from real estate, net 712 711 6,029
Gain on sales of investment securities, net 88 258 745
Gain (loss) on sales of property, plant and equipment, net 4,379 (607) 37,082
Loss on disposal of property, plant and equipment (1,261) (2,337) (10,678)
Gain (loss) on revaluation of interest rate swaps (106) 563 (898)
Sales discount (330) (335) (2,794)
Loss on impairment of fixed assets (Note 15) — (992) —
Lump-sum payment for transfer of employees — (631) —
Expense for 100th anniversary — (988) —
Loss on revaluation of investment securities of unconsolidated subsidiaries (497) — (4,209)
Loss on dissolution of unconsolidated subsidiaries (449) — (3,802)
Amortization of goodwill (362) — (3,065)
Loss on disposal of inventories (642) — (5,437)
Loss on voluntary recall of products (225) — (1,905)
Other, net 199 (926) 1,685
1,797 (3,950) 15,217
Income before income taxes and minority interests 13,160 10,155 111,440
Income taxes (Note 13):
Current 6,104 6,119 51,689
Deferred 1,698 (160) 14,379
7,802 5,959 66,068
Minority interests in net income of consolidated subsidiaries 264 (51) 2,236
Net income ¥ 5,622 ¥ 4,145 $ 47,608
Yen U.S. dollars
Basic net income per share ¥46.94 ¥33.82 $0.40
Diluted net income per share ¥ — ¥31.80 $ —
See the accompanying notes to the consolidated financial statements.
Millions of yen Shareholders’ equity Number of
shares of Treasury Total
common stock Common Capital Retained stock, shareholders’
(thousands) stock surplus earnings at cost equity
Balance at March 31, 2005 128,742 ¥15,847 ¥19,068 ¥153,828 ¥ (7,018) ¥181,725
Change during accounting period
Cash dividends paid (2,258) (2,258)
Directors’ and statutory auditors’ bonuses (62) (62)
Net income 4,145 4,145
Purchase of treasury stock (2,811) (2,811)
Other — — (922) (922)
Total change during accounting period — — 903 (2,811) (1,908)
Balance at March 31, 2006 128,742 ¥15,847 ¥19,068 ¥154,731 ¥ (9,829) ¥179,817
Change during accounting period
Cash dividends paid (1,812) (1,812)
Directors’ and statutory auditors’ bonuses (50) (50)
Net income 5,622 5,622
Purchase of treasury stock (4,483) (4,483)
Other — — 0
Total change during accounting period — — 3,760 (4,483) (723)
Balance at March 31, 2007 128,742 ¥15,847 ¥19,068 ¥158,491 ¥(14,312) ¥179,094
Millions of yen
Valuation and translation adjustments Minority Total net interests assets
Foreign Total
Net unrealized Deferred currency valuation and gains (losses) gains (losses) translation translation
on securities on hedges adjustments adjustments
Balance at March 31, 2005 ¥ 5,895 ¥ (5) ¥(577) ¥ 5,313 ¥ 340 ¥187,378
Change during accounting period
Cash dividends paid (2,258)
Directors’ and statutory auditors’ bonuses (62)
Net income 4,145
Purchase of treasury stock (2,811)
Other 6,110 17 587 6,714 1,338 7,130
Total change during accounting period 6,110 17 587 6,714 1,338 6,144
Balance at March 31, 2006 ¥12,005 ¥12 ¥ 10 ¥12,027 ¥1,678 ¥193,522
Change during accounting period
Cash dividends paid (1,812)
Directors’ and statutory auditors’ bonuses (50)
Net income 5,622
Purchase of treasury stock (4,483)
Other (1,978) 59 (529) (2,448) (443) (2,891)
Total change during accounting period (1,978) 59 (529) (2,448) (443) (3,614)
Balance at March 31, 2007 ¥10,027 ¥71 ¥(519) ¥ 9,579 ¥1,235 ¥189,908
Thousands of U.S.dollars (Note 1) Shareholders’ equity
Total
Common Capital Retained Treasury shareholders’
stock surplus earnings stock, at cost equity
Balance at March 31, 2006 $134,194 $161,470 $1,310,281 $ (83,233) $1,522,712
Change during accounting period
Cash dividends paid (15,344) (15,344)
Directors’ and statutory auditors’ bonuses (424) (424)
Net income 47,608 47,608
Purchase of treasury stock (37,963) (37,963)
Other — — 0
Total change during accounting period — — 31,840 (37,963) (6,123)
Balance at March 31, 2007 $134,194 $161,470 $1,342,121 $(121,196) $1,516,589
Thousands of U.S.dollars (Note 1)
Valuation and translation adjustments Minority Total net interests assets
Foreign Total
Net unrealized Deferred currency valuation and gains(losses) gains (losses) translation translation on securities on hedges adjustments adjustments
Balance at March 31, 2006 $101,660 $102 $ 85 $101,847 $14,210 $1,638,769
Change during accounting period
Cash dividends paid (15,344)
Directors’ and statutory auditors’ bonuses (424)
Net income 47,608
Purchase of treasury stock (37,963)
Other (16,750) 499 (4,480) (20,731) (3,752) (24,483)
Total change during accounting period (16,750) 499 (4,480) (20,731) (3,752) (30,606)
Balance at March 31, 2007 $ 84,910 $601 $(4,395) $ 81,116 $10,458 $1,608,163
Consolidated Statements of Changes in Net Assets
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES YEARS ENDED MARCH 31, 2007 AND 2006
Consolidated Statements of Cash Flows
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES YEARS ENDED MARCH 31, 2007 AND 2006
Thousands of U.S. dollars
Millions of yen (Note 1)
2007 2006 2007
Cash flows from operating activities:
Income before income taxes and minority interests ¥13,160 ¥ 10,155 $111,440
Depreciation and amortization 6,057 6,082 51,291
Loss on impairment of fixed assets — 992 —
Amortization of goodwill 999 208 8,460
Decrease in allowance for doubtful receivables (870) (379) (7,367)
Increase (decrease) in employees’ severance and retirement benefits 362 (59) 3,065
Interest and dividend income (934) (1,814) (7,909)
Interest expense 643 479 5,445
Equity in earnings of unconsolidated subsidiaries and affiliates (15) (14) (127)
Loss (gain) on sales of property, plant and equipment, net (4,379) 607 (37,082)
Loss on disposal of property, plant and equipment 1,261 1,385 10,678
Gain on sales of investment securities, net (88) (258) (745)
Loss on revaluation of investment securities of unconsolidated subsidiaries 497 — 4,209
Loss on dissolution of unconsolidated subsidiaries 299 — 2,532
Decrease (increase) in receivables (7,029) 2,093 (59,522)
Decrease (increase) in inventories (2,326) 256 (19,697)
Increase (decrease) in payables 7,221 (1,298) 61,148
Other, net (867) (1,694) (7,342)
Sub-total 13,991 16,741 118,477
Interest and dividends received 897 1,823 7,596
Interest paid (646) (487) (5,470)
Income taxes paid (6,306) (6,589) (53,400)
Net cash and cash equivalents provided by operating activities 7,936 11,488 67,203
Cash flows from investing activities:
Purchases of property, plant and equipment (2,935) (5,176) (24,854)
Proceeds from sales of property, plant and equipment 14,246 3,391 120,637
Purchase of intangible assets (2,064) (866) (17,478)
Purchase of investment securities (7,584) (13,110) (64,222)
Proceeds from sales of investment securities 2,833 7,227 23,990
Purchase of investments in consolidated subsidiaries and affiliates — (8,318) —
Decrease (increase) in short-term loans receivable, net (172) 1,280 (1,457)
Disbursements for long-term loans receivable (317) (330) (2,684)
Proceeds from long-term loans receivable 92 779 779
Other, net (1,710) (2,094) (14,481)
Net cash and cash equivalents used in investing activities 2,389 (17,217) 20,230
Cash flows from financing activities:
Increase in short-term loans, net 978 2,187 8,282
Proceeds from long-term debt 336 5,000 2,845
Repayment of long-term debt (284) (77) (2,405)
Increase in treasury stock, net (4,482) (2,811) (37,954)
Cash dividends paid (1,820) (2,240) (15,412)
Net cash and cash equivalents provided by financing activities (5,272) 2,059 (44,644)
Effect of exchange rate changes on cash and cash equivalents — 13 —
Net decrease in cash and cash equivalents 5,053 (3,657) 42,789
Cash and cash equivalents at beginning of year 9,281 12,807 78,593
Cash and cash equivalents held by newly consolidated subsidiaries — 131 —
Cash and cash equivalents at end of year ¥14,334 ¥ 9,281 $121,382
See the accompanying notes to the consolidated financial statements.