Annual Report 2007
Year Ended March 31, 2007
Contents
Six-Year Summary ...1
Interview with the President ...2
SportiVITÀ ...5
Six-Year Summary
(Millions of yen)
2002 2003 2004 2005 2006 2007
For the year:
Net sales ¥128,901 ¥135,640 ¥140,498 ¥146,679 ¥171,036 ¥194,515
Sports shoes 66,054 74,263 80,199 89,168 112,742 135,248
Sportswear 43,574 42,682 42,565 41,278 41,199 42,672
Sports equipment 19,273 18,695 17,734 16,233 17,095 16,595
Cost of sales 82,938 86,394 87,462 88,244 98,578 110,051
Selling, general and administrative expenses 42,480 43,858 45,626 48,540 56,014 64,216
Operating income 3,483 5,388 7,410 9,895 16,444 20,248
Income before income taxes and minority interests 2,934 6,197 6,743 10,753 17,367 23,998
Net income 2,123 5,169 4,622 7,006 13,807 13,878
At year-end:
Total net assets ¥ 45,512 ¥ 49,917 ¥ 54,439 ¥ 58,450 ¥ 74,899 ¥ 93,165
Total assets 114,741 113,062 118,339 122,588 140,615 154,959
Per share of common stock (in yen):
Net income ¥ 9.92 ¥ 24.10 ¥ 21.80 ¥ 34.39 ¥ 69.02 ¥ 69.72
Cash dividends ― 2.00 2.50 3.50 6.00 8.00
Total net assets 212.74 233.50 261.83 293.17 375.79 450.78
Ratios:
Operating income ratio (%) 2.7 4.0 5.3 6.7 9.6 10.4
Return on assets (ROA) (%) 1.9 4.5 4.0 5.8 10.5 9.4
Shareholders’ equity ratio (%) 39.7 44.2 46.0 47.7 53.3 57.9
Net Income (Millions of yen)
’03 ’04 ’05 ’06 ’07 13,878
5,169 4,622
7,006 13,807
Net Sales by Geographic Area
Japan 87,631 ［6,192］ （43.5％）
Other areas 9,167 ［797］ （4.6％）
United States 43,184 ［4］ （21.4％）
Europe 61,526 ［—］ （30.5％）
(Millions of yen) ASICS Corporation and Consolidated Subsidiaries
Years ended March 31
Notes: 1. Net Sales by Geographic Area figures include the intersegment sales. The intersegment amount indicates in [ ]. 2. All the figures have been rounded off to the nearest millions of yen.
Net Sales
(Millions of yen)
’03 ’04 ’05 ’06 ’07 194,515
135,640 140,498146,679 171,036
Net Sales by Product
Sports shoes 135,248
（69.5％）
Sports equipment 16,595
（8.6％）
Sportswear 42,672
Q
Q
ASICS registered strong results in fiscal 2007.
How would you appraise performance in the fiscal year?
Fiscal 2007 (April 1, 2006 to March 31, 2007) marked the first year of the ASICS Challenge Plan (ACP), our new medium-term management plan. Consolidated sales totaled ¥194.5 billion. Operating income came to ¥20.2 billion, and net income was ¥13.8 billion. As such, sales and operating income rose to double digits year on year, and sales and income increased for the third straight fiscal year.
ACP is geared toward achieving the ASICS Group's goal to become “the World's No.1 Creator of Sports-, Health- and Comfort-Oriented Lifestyles”. The plan targets consoli-dated net sales of ¥300 billion (¥200 billion overseas and ¥100 billion in Japan) in fiscal 2011. We feel that the results achieved in fiscal 2007 underscore a strong start toward attaining these goals.
ASICS began aggressively investing in overseas businesses about 40 years ago with its sights firmly set on future growth. The Company's businesses have evolved and devel-oped on a global scale. As our operations expanded overseas, we channeled resources into the running field, which has been our core source of strength. These initiatives underpinned the healthy results seen in fiscal 2007.
Overseas businesses continued fueling robust sales and earnings, as was the case in fiscal 2006. Particularly in Europe and the United States, the ASICS brand image has made greater influences than we anticipated. In the ING New York City Marathon 2006 and in other major marathons events worldwide, many of the leading runners used our shoes. This attests to the technological prowess of our products and received the high acclaim in the athletic community.
Tell us about your initiatives overseas and the strong showings achieved in different regions.
In Europe, North America, Asia and Oceania and other regions, ASICS's marketing strategies are tailored toward the special characteristics that define each of these regions and the extent that the Company's brands have made inroads.
In Europe, the Company's edge stems from its side-by-side development of two principle brand names: ASICS and the Onitsuka Tiger. The latter is a specialty brand in the sports lifestyle field.
The North American market is vast, and ASICS has made considerable headway at the high end of the running shoe market. Looking ahead, the Company's focus will be on general consumers and on providing merchandise that satisfies the sports lifestyle needs of consumers in the region.
In Asia and Oceania businesses are still in the nascent growth stage, except in South Korea and Australia where results have been impressive.
Moreover, in sports apparel, the head office has now taken charge of product design and development. These operations were formerly handled in China and Taiwan.
Kiyomi Wada
President and Representative Director
Q
Q
We plan to actively pursue growth not only in the running shoes business, but in the apparel business as well going forward.
Your overseas businesses have been performing well, but your domestic businesses have been lackluster. What measures are you taking to address this problem?
We do not expect strong performance overseas to continue indefinitely. ASICS is cur-rently stepping up investment in Japan to ensure that domestic operations underpin growth when overseas businesses lose some of their momentum.
One way the Company is further strengthening its domestic operations is by develop-ing directly managed stores. Establishdevelop-ing sales floor space for ASICS goods and opendevelop-ing new directly managed stores gives us the means to directly tell the final consumer about the high-quality of our merchandise and the skillful engineering and craftsmanship embedded in our products. In March 2007, ASICS KIDS CUBE, a store specializing in children's goods and supplies, was opened in Yokohama. The store sells SUKU2and
WAN×TEN footwear and handbags and newly developed apparel for children. In April, the fourth ASICS LI-FEEL store targeting the health-conscious consumer was opened in Namba Parks, Osaka. In these ways, the Company continues developing a comprehen-sive range of merchandise in the walking, running, and fitness fields that are geared toward good health and well-being. These goods are sold at directly managed stores targeting children, middle-aged consumers, and senior citizens alike across generational lines.
ASICS was an official sponsor of Tokyo Marathon 2007.
Is this one of the ways you are energizing domestic operations?
Clearly, Tokyo Marathon 2007 (the lead sponsors were the Japan Association of Athletics Federations and the Tokyo metropolitan government) was a major publicity generator for us, and we believe it has helped considerably in further establishing the ASICS brand. Building on the advantages as a sponsor of the event, the Company opened ASICS STORE TOKYO, a directly managed store selling running goods, in Tokyo's Ginza district in February just before the Marathon was held. The store offers a wide range of services for customers. For example, they can purchase footwear installed with state-of-the-art measuring instruments, and women’s night runs are offered so that groups of women can enjoy the running experience together.
Indeed, ASICS had one more important aim from its official sponsorship of Tokyo Marathon 2007. Reaching the ACP target for net sales of ¥300 billion in fiscal 2011 will require each employee to take a different approach to his or her work practices, and my intention was to further promote changes in our internal corporate culture. The results have been steadily coming.
ASICS Brand
Our principal brand, specializing in competition sports goods, sports lifestyle goods, and health and comfort products
GEL-KINSEI
GD.WALKERBABY MT-JS蠡
RUN&GUN nextide CV DS LIGHT蠡
Smart Tops
Smart Pants
Q
Q
Looking ahead, what are the priority issues for achieving the goals of ACP?
One of our key initiatives is to reap strong results from sports apparel. Distinguishing our-selves from other companies through our leading technological prowess will be especially important, and we are proposing fresh and innovative concepts in the way that customers perceive and wear apparel. For example, Inner Muscle Shirt and Inner Muscle Tights are two product lines that enhance muscle tone and change body shape. They have been very popular since they were introduced. In fiscal 2008, we want to increase sales of these products by offering them in sets and by developing corner displays in stores for showcas-ing them, rather than by merely sellshowcas-ing them separately and individually.
The driving force for achieving such targets is the persistent zeal and passion we have showed for developing and producing exemplary products ever since the Company was established. I myself learned this lesson from Kihachiro Onitsuka, our founder. ASICS has been able to sign sponsorship contracts with Major League all-star Ichiro Suzuki and other leading sports athletes only because our products are built to meet their rigorous demands through the highest engineering skills and technological capabilities. As a manufacturer, our focuses are on how to hone our technological advantages and make products that ensure the trust of our customers. These are our only real pursuits.
Finally, what message would you like to convey to shareholders?
ASICS has been promoting a number of strategies for realizing the goals of ACP. For example, the Company has been stepping up direct marketing of its products overseas and working to revitalize domestic businesses while also advancing into new retail for-mats. Through these initiatives, we plan to maintain consistent growth and increase enterprise value. I would like to thank our shareholders for their continuing support and understanding as we work toward achieving the aims I have outlined here.
June 2007
Kiyomi Wada
President and Representative Director
Onitsuka Tiger Brand
Specializing in sports lifestyle goods
MEXICO66
FABRE DC-S
TAI-CHI
RUNSPARK
POLO SHIRT
SportiVITÀ
Sportività means sportsmanship in Italian. It is a combination of the words 'sports' and 'vità', or life.
The special feature of our annual report this year underscores our affection and feelings for sports and the
emotions and passions they convey.
Highly functional Inner Muscle underwear developed by Institute of Sport Science The human muscle system is comprised of outer layers running along just under the skin's surface and core inner muscles deep within the body. ASICS works to develop underwear with an eye on improving muscle functionality in terms of both physical strength and movement. These efforts yielded the development of the Inner Muscle series of highly functional underwear, which enables muscles to recover lost core functionality and helps support ideal body development and physical motion. Our independently developed technology has been used for gaining efficiency from core muscles deep within the body and ensuring smoother muscular motion and activity.
●Inner Muscle Shirt
Shoulder joints connect the shoulder blades with bones in the upper arm and have the widest range of all the joints in the body. However, they are extremely unstable and can only stay in the right place and ensure proper body movement if the right balance is struck between outer muscles and inner core muscles.
Inner Muscle Shirt is composed of a highly elastic material (Diamondback) that pulls the shoul-der blades closer to the backbone, enabling broashoul-der movement from the shoulshoul-der joints. Wearing it stimulates and increases sensation in the dorsal muscles. Also, in sports, it improves performance by enhancing shoulder joint motion and oxygen intake while running or partaking in other activi-ties. It alleviates tightness in muscles around the shoulders, corrects posture, and helps enhance beauty and health in many ways.
●Inner Muscle Tights
The greater psoas muscle is a core inner muscle deep within the abdomen. It is vital for lifting the legs, bending the upper torso, developing S-shaped spinal columns, and keeping the pelvis properly positioned. Training to strengthen the greater psoas
mus-cle has become an important focus not just in athletics but also for improving general health. Inner Muscle Tights, developed by ASICS, use a highly elastic H-shaped fabric that exerts pressure on the backside (H area) for enhancing the efficiency of the greater psoas muscle. The benefits con-tinue after the spats are taken off. Another major feature is its ability to concon-tinue strengthening the greater psoas muscle even as the wearer goes about his normal daily activities. It elevates athletic skills, helps prevent aging, and offers other advantages for users as well.
*Patent pending
*Patent pending
Diamondback
Diamondback
Shoulder blades
Greater psoas muscle
Highly elastic H-shaped
fabric Tensileforce
●SUKU2lineups expanded
ASICS has been developing and expanding its SUKU2 line of children's footwear since 1997 under the theme "barefoot on land". The Company took advantage of the opening of the ASICS KIDS CUBE store to add to its series of children's clothing and bags. Developed under the concept that children should be able to play with a carefree joys all day long with unrestrained feel-ings of clothes, the line features unique tailoring and touch and an array of special features, including sweat-absorbent materials. Three types of bags, shoulder bags, drum bags, and handbags amenable to children are offered.
Topics
Sound bodies, spirit, and minds: Tapping into the children's market
In March 2007, ASICS KIDS CUBE, a directly managed store specializing in children's goods, was opened in LaLaport YOKOHAMA. The store sells SUKU2and WAN×TEN footwear for children,
which the Company has been developing and promoting, as well as handbags and children's apparel developed with special features specifically for children. The store was named to denote growth of children. That is, it conjures the image of a strongbox, which is three-dimensional and cube-shaped stuffed with many good things for stimulating the body, the spirit, and the mind of children.
Column
ASICS STORE TOKYO, a directly managed store, which introduces consumers to the pleasures of running, was opened
ASICS STORE TOKYO, a directly managed store opened in Tokyo's Ginza district in February 2007, is a comprehensive specialty retail outlet for running gear that not only sells merchandise, but also introduces consumers to the pleasures of running for the first time. For example, runners can select their ideals shoes following analysis on a treadmill and have the shape of their feet measured using special instruments. Also, special events such as night runs for women and
clinics for improving running skills are offered. In these ways, the store serves as a forum for communication between runners and pro-vides services based on the Company's cumulative expertise in the running field. We are introducing a membership system which will give its members to receive precision feet measurements and analysis and entry to some events free of charge.
Company launches spiked baseball shoes specifically for children’s baseball spikes
In January 2007, ASICS introduced LITTLEHOMER spiked baseball shoes, which were developed to conform to the way the feet of elementary school students grow. Children's feet are noteworthy for
F i n a n c i a l S e c t i o n
Contents
Management’s Discussion & Analysis
Overview
During fiscal 2007, ended March 31, 2007, the Japanese economy recovered modestly, as personal consumption remained flat, but corporate earnings improved and capital investment continued increasing. The global economy was generally strong despite some concerns about crude oil prices and other adverse factors.
The sporting goods industry was robust on the whole, backed by keener interest in sports and sporting activities because of greater health consciousness.
Under these conditions, the ASICS Group introduced its top-end GEL-KINSEI model of running shoes and other high-performance running shoes in markets worldwide and worked to increase its lineup of products geared toward women in order to further strengthen and expand its running shoes business. The Company opened ASICS STORE TOKYO, a directly managed store in Tokyo's Ginza district, which edu-cates consumers on ways to enjoy new lifestyles centered on running and related physical activities and creates opportuni-ties for customers to enjoy new experiences new enhance meaning in their lives.
As part of its marketing activities, ASICS was an official sponsor of the ING New York City Marathon, Tokyo Marathon 2007, the Gold Coast Airport Marathon, the Olympus Hamburg Marathon, and other leading international marathon events. The Company worked to further build name recognition of the ASICS brand by providing informa-tion and services to participants in these marathons,
furnish-ing charity services, and other means.
In the Onitsuka Tiger and sports lifestyle businesses, the Company opened directly managed stores in Europe and Japan and make concerted efforts to expand operations in the apparel business.
In Japan, ASICS expanded its lineup of kids shoes based on its research into the particular ways that children move their feet and their skeletal frames when walking and running. The Company opened ASICS KIDSCUBE, a directly managed store that sells goods ranging from children's shoes to attire, and it took important steps to increase sales.
Performance Analysis
During fiscal 2007, consolidated net sales increased 13.7% year on year to ¥194,515 million. Domestic sales rose 0.7% to ¥79,471 million, as sales of baseball gear and some other products were sluggish, but walking shoes sold well. Overseas sales advanced 24.9% to ¥115,044 million, fueled by persistently strong sales of running shoes and sportstyle shoes, particularly in Europe and the United States.
By business segment, sales of running shoes and sportstyle shoes remained robust, and walking shoes sold well in Japan. As a result, sales of sport shoes increased 20.0% to
¥135,248 million. Sportswear sales rose 3.6% to ¥42,672 million, buoyed by strong sales of athletic wear. Sales of baseball gear and other sports equipment were weak in Japan, resulting in a 2.9% decrease in sports equipment sales to ¥16,595 million.
Gross Profit
(Billions of yen)
49.2
’03 ’04 ’05 ’06 ’07
53.0 58.4
72.5
84.5
Operating Income
(Billions of yen)
5.4
’03 ’04 ’05 ’06 ’07
7.4 9.9
16.4
20.2
Working Capital
(Billions of yen)
41.2
’03 ’04 ’05 ’06 ’07
42.3 42.8 53.7
Gross profit totaled ¥84,464 million, rising 16.6%. Growth here was mainly attributable to sales of running shoes and sportstyle shoes, which were especially strong overseas. This boosted overall sales and improved the cost of sales ratio. In turn, the gross profit margin rose 1.0 percentage point, to 43.4%.
Selling, general and administrative expenses increased 14.6% to ¥64,216 million. The gain mainly reflected a 17.9% rise in total business expenditures to ¥39,413 million, prompted by higher advertising and publicity costs. As a result, operating income came to ¥20,248 million, an increase of 23.1% from the previous fiscal year.
Net other income surged to ¥3,750 million, with the gain driven mainly by interest income, exchange gain, and gain on sales of tangible assets.
Consequently, net income edged up 0.5% to ¥13,878 million.
Financial Conditions
At the end of the fiscal year under review, total assets were up 10.2% from the previous year to ¥154,959 million. Current assets rose 10.0% to ¥109,942 million, owing princi-pally to increases in notes and accounts receivable and inven-tories because of sales growth. Total liabilities declined 1.7% to ¥61,794 million, due to repayment of loans and bond nev-ertheless accrued income taxes increased.
Cash Flows
Cash flows from operating activities came to ¥13,606 million, marking an increase of ¥8,621million from the previous fiscal year. Income consisted mainly of proceeds totaling ¥23,998 million from income before income taxes and minority inter-ests, ¥1,718 million from depreciation and amortization, and a ¥1,118 million increase in notes and and accounts payable. Outlays consisted principally of growth in notes and accounts receivable totaling ¥3,201 million, growth in inventories of ¥2,279 million, and income tax paid totaling ¥5,089 million.
Cash flows used in investing activities came to ¥5,743 mil-lion, representing an increase in outlays of ¥3,478 million from the previous fiscal year. Income consisted mainly of ¥2,178 million in proceeds from sale of property, plant and equipment. Outlays mainly comprised increases in purchases of time deposits included in short-term investments of ¥2,200 million, purchase of of property, plant and equipment totaling ¥2,923 million, and purchase of intangible assets totaling ¥1,440 million.
Cash flows used in financial activities amounted to ¥10,424 million, marking an increase in outlays of ¥9,860 million from the previous fiscal year. The principal outlays were ¥5,675 million for net decrease in short-term bank loans, ¥1,788 million for the payment of long-term loans, ¥2,000 million for payment of bond, and ¥1,196 million for cash dividends paid to the Company’s shareholders.
As a result, cash and cash equivalents came to ¥10,196 million at the end of the fiscal year under review, down ¥1,858 million from a year earlier.
Long-Term Debt
(Billions of yen)
10.1
’03 ’04 ’05 ’06 ’07
11.0
8.4 7.4
4.2
Total Net Assets
(Billions of yen)
49.9
’03 ’04 ’05 ’06 ’07
54.4 58.5 74.9
93.2
Total Assets
(Billions of yen)
113.1
’03 ’04 ’05 ’06 ’07
118.3 122.6 140.6
Consolidated Balance Sheets
ASICS Corporation and Consolidated Subsidiaries March 31, 2007 and 2006
Thousands of U.S. dollars Millions of yen (Note 1)
ASSETS 2007 2006 2007
Current assets:
Cash and cash deposits (Note 4) ... ¥ 10,933 ¥ 12,055 $ 92,653
Short-term investments (Note 5) ... 1,197 1,169 10,144
Notes and accounts receivable:
Trade... 55,236 49,381 468,102
Less allowance for doubtful receivables ... (2,738) (1,885) (23,203)
Inventories (Note 6) ... 35,795 32,125 303,347
Deferred income taxes (Note 13)... 3,172 2,582 26,881
Other current assets... 6,347 4,491 53,789
Total current assets ... 109,942 99,918 931,713
Property, plant and equipment:
Land (Note 14)... 5,825 5,971 49,364
Buildings and structures... 23,651 22,915 200,432
Machinery and equipment ... 12,197 11,478 103,364
Less accumulated depreciation... (24,394) (24,549) (206,729)
Property, plant and equipment, net ... 17,279 15,815 146,431
Investments and other assets:
Investments in securities:
Unconsolidated subsidiaries and affiliates ... 5,401 5,096 45,771
Other (Note 5)... 10,931 11,642 92,636
Long-term loans receivable ... 830 791 7,034
Intangible assets ... 2,631 1,531 22,297
Deferred income taxes (Note 13)... 435 469 3,686
Other assets... 8,057 6,501 68,280
Less allowance for doubtful receivables... (547) (1,148) (4,636)
Total investments and other assets... 27,738 24,882 235,068
Total assets... ¥154,959 ¥140,615 $1,313,212
Thousands of U.S. dollars Millions of yen (Note 1)
LIABILITIES AND NET ASSETS 2007 2006 2007
Current liabilities:
Short-term bank loans (Note 7)... ¥ 5,901 ¥ 11,235 $ 50,008
Current portion of long-term debt (Note 7)... 4,151 3,721 35,178
Notes and accounts payable:
Trade... 20,389 18,528 172,788
Construction ... 95 87 805
Accrued income taxes (Note 13) ... 5,662 1,299 47,983
Accrued expenses ... 8,272 7,376 70,102
Other current liabilities... 4,417 3,932 37,432
Total current liabilities... 48,887 46,178 414,296
Long-term liabilities:
Long-term debt (Note 7) ... 4,174 7,428 35,373
Deferred income taxes (Note 13)... 764 704 6,475
Accrued retirement benefits for employees (Note 8)... 6,619 6,619 56,093
Accrued retirement benefits for directors and corporate auditors (Note 2(i)) ... 512 561 4,339
Other long-term liabilities ... 838 1,391 7,102
Total long-term liabilities... 12,907 16,703 109,382
Minority interests... — 2,835 —
Contingent liabilities
Net assets (Note 3 (b)):
Shareholders’ equity (Note 12): Common stock:
Authorized shares—790,000,000 shares at March 31, 2007 and March 31, 2006
Issued shares —199,962,991 shares at March 31, 2007
and March 31, 2006... 23,972 23,972 203,153
Capital surplus... 17,182 17,182 145,610
Retained earnings (Note 17) ... 43,459 30,704 368,297
Less treasury stock, at cost
(952,276 shares at March 31, 2007 and 809,299 shares at March 31, 2006).... (551) (354) (4,669)
Total shareholders’ equity ... 84,062 71,504 712,391
Valuation and translation adjustments:
Unrealized holding gain on securities (Note 5) ... 3,692 4,272 31,288
Unrealized deferred gain on hedges ... 184 — 1,559
Land revaluation reserve (Note 14) ... (747) (747) (6,331)
Translation adjustments ... 2,519 (130) 21,347
Total valuation and translation adjustments... 5,648 3,395 47,863
Minority interests... 3,455 — 29,280
Total net assets ... 93,165 74,899 789,534
Total liabilities and net assets... ¥154,959 ¥140,615 $1,313,212
Consolidated Statements of Income
ASICS Corporation 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 ... ¥194,515 ¥171,036 $1,648,432 Cost of sales (Note 11)... 110,051 98,578 932,636
Gross profit ... 84,464 72,458 715,796
Selling, general and administrative expenses (Note 11)... 64,216 56,014 544,203
Operating income... 20,248 16,444 171,593
Other income (expenses):
Interest and dividend income ... 1,008 687 8,542
Interest expense... (475) (478) (4,025)
Equity in earnings of affiliates ... 333 398 2,822
Exchange gain (loss)... 819 (124) 6,941
Gain on sales of tangible assets ... 1,716 118 14,542
Gain on sales of investments in securities (Note 5) ... 1 423 8
Provision of retirement benefits for directors and corporate auditors (Note 2 (i))... — (499) —
Other, net ... 348 398 2,949
3,750 923 31,780
Income before income taxes and minority interests ... 23,998 17,367 203,373
Income taxes (Note 13):
Current... 9,273 4,623 78,585
Deferred ... 81 (1,897) 686
9,354 2,726 79,271
Income before minority interests ... 14,644 14,641 124,102
Minority interests... 766 834 6,492
Consolidated Statements of Changes in Net Assets
ASICS Corporation and Consolidated Subsidiaries Years ended March 31, 2007 and 2006
Millions of yen
Number of Unrealized Unrealized issued Treasury holding deferred Land
shares of Common Capital Retained stock, gain on gain on revaluation Translation Minority Total common stock stock surplus earnings at cost securities hedges reserve adjustments interests net assets
Balance at March 31, 2005... 199,962,991 ¥23,972 ¥17,182 ¥17,475 ¥(170) ¥1,945 ¥ — ¥(422) ¥(1,532) ¥ — ¥58,450 Net income... — — — 13,807 — — — — — — 13,807 Dividends... — — — (698) — — — — — — (698) Bonuses to directors... — — — (2) — — — — — — (2) Net change in treasury stock... — — — — (184) — — — — — (184) Net change arising from initial
consolidation of subsidiaries... — — — 122 — — — — — — 122 Other changes... — — — — — 2,327 — (325) 1,402 — 3,404 Balance at March 31, 2006 .... 199,962,991 23,972 17,182 30,704 (354) 4,272 — (747) (130) — 74,899 Reclassified balance at
March 31, 2006 ... — — — — — — — — — 2,835 2,835 Net income ... — — — 13,878 — — — — — — 13,878 Dividends ... — — — (1,195) — — — — — — (1,195) Bonuses to directors and
corporate auditors... — — — (53) — — — — — — (53) Net change arising from initial
consolidation of a subsidiary.... — — — 125 — — — — — — 125 Net change in treasury stock... — — — — (197) — — — — — (197) Other changes... — — — — — (580) 184 — 2,649 620 2,873 Balance at March 31, 2007 ... 199,962,991 ¥23,972 ¥17,182 ¥43,459 ¥(551) ¥3,692 ¥184 ¥(747) ¥ 2,519 ¥3,455 ¥93,165
Thousands of U.S. dollars (Note 1)
Unrealized Unrealized Treasury holding deferred Land
Common Capital Retained stock, gain on gain on revaluation Translation Minority Total stock surplus earnings at cost securities hedges reserve adjustments interests net assets
Balance at March 31, 2006 ... $203,153 $145,610 $260,203 $(3,000) $36,203 $ — $(6,331) $ (1,102) $ — $634,736 Reclassified balance at
March 31, 2006 ... — — — — — — — — 24,025 24,025 Net income ... — — 117,610 — — — — — — 117,610 Dividends ... — — (10,127) — — — — — — (10,127) Bonuses to directors and
corporate auditors... — — (448) — — — — — — (448) Net change arising from initial
consolidation of a subsidiary... — — 1,059 — — — — — — 1,059 Net change in treasury stock... — — — (1,669) — — — — — (1,669) Other changes... — — — — (4,915) 1,559 — 22,449 5,255 24,348 Balance at March 31, 2007 ...$203,153 $145,610 $368,297 $(4,669) $31,288 $1,559 $(6,331) $21,347 $29,280 $789,534
Consolidated Statements of Cash Flows
ASICS Corporation and Consolidated Subsidiaries Years ended March 31, 2007 and 2006
Thousands of U.S. dollars Millions of yen (Note 1)
2007 2006 2007
Operating activities:
Income before income taxes and minority interests... ¥ 23,998 ¥17,367 $203,373
Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities:
Depreciation and amortization ... 1,718 1,370 14,559
Increase in allowance for doubtful receivables ... 186 556 1,576
Decrease in accrued retirement benefits for employees ... (16) (567) (136)
(Decrease) increase in accrued retirement benefits for directors and corporate auditors ... (49) 561 (415)
Decrease in allowance for loss on business restructuring ... — (200) —
Gain on sales of investments in securities ... (1) (423) (8)
Interest and dividend income ... (1,008) (687) (8,542)
Interest expense... 475 478 4,025
Equity in earnings of affiliates ... (333) (398) (2,822)
Gain on sales of tangible assets... (1,716) (118) (14,542)
Other, net ... (746) 584 (6,322)
Increase in operating assets:
Notes and accounts receivable ... (3,201) (4,603) (27,127)
Inventories ... (2,279) (3,567) (19,314)
Other operating assets ... (1,245) (1,571) (10,551)
Increase (decrease) in operating liabilities:
Notes and accounts payable... 1,118 661 9,475
Accrued consumption taxes ... (64) 40 (542)
Other operating liabilities ... 1,287 1,135 10,907
Bonuses paid to directors and corporate auditors ... (54) (2) (458)
Subtotal ... 18,070 10,616 153,136
Interest and dividends received ... 1,108 817 9,390
Interest paid... (483) (502) (4,093)
Income taxes paid ... (5,089) (5,946) (43,127)
Net cash provided by operating activities... 13,606 4,985 115,306 Investing activities:
Purchases of time deposits included in short-term investments ... (2,200) (100) (18,644)
Proceeds from time deposits withdrawn ... 100 0 847
Purchases of property, plant and equipment... (2,923) (2,274) (24,771)
Proceeds from sales of property, plant and equipment... 2,178 493 18,458
Purchases of intangible assets ... (1,440) (842) (12,203)
Increase in securities included in short-term investments ... (28) (163) (237)
Purchases of investments in securities... (637) (692) (5,398)
Proceeds from sales and redemption of investments in securities ... 35 1,881 297
Net increase in short-term loans receivable ... (29) (4) (246)
Long-term loans receivable made ... (81) (131) (686)
Collection of long-term loans receivable... 28 154 237
Other, net ... (746) (587) (6,322)
Net cash used in investing activities... (5,743) (2,265) (48,668) Financing activities:
Net (decrease) increase in short-term bank loans ... (5,675) 3,702 (48,093)
Proceeds from long-term loans... 949 2,749 8,042
Repayment of long-term loans ... (1,788) (2,421) (15,153)
Repayment of bond ... (2,000) (3,000) (16,949)
Purchases of treasury stock ... (197) (184) (1,669)
Cash dividends paid to the Company's shareholders ... (1,196) (689) (10,136)
Cash dividends paid to minority interests... (424) (591) (3,593)
Other, net ... (93) (130) (788)
Net cash used in financing activities ... (10,424) (564) (88,339)
Effect of exchange rate changes on cash and cash equivalents... 658 227 5,576
Net (decrease) increase in cash and cash equivalents... (1,903) 2,383 (16,125) Cash and cash equivalents at beginning of year... 12,055 9,366 102,161 Increase in cash and cash equivalents arising from
initial consolidation of a subsidiary... 44 306 373 Cash and cash equivalents at end of year (Note 4)... ¥ 10,196 ¥12,055 $ 86,409
Notes to Consolidated Financial Statements
ASICS Corporation and Consolidated Subsidiaries Years ended March 31, 2007 and 2006
Basis of Preparation
1
ASICS Corporation (the “Company”) and its domestic consolidated subsidiaries maintain their books of account in con-formity with accounting principles generally accepted in Japan, and its overseas subsidiaries, in concon-formity with those of their respective countries of domicile.
The accompanying consolidated financial statements of the Company and consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated finan-cial statements prepared by the Company as required by the Securities and Exchange Law of Japan.
Certain reclassifications of previously reported amounts have been made to the consolidated financial statements for the year ended March 31, 2006 to conform it to the 2007 presentation. Such reclassifications had no effect on consoli-dated net income.
The U.S. dollar amounts in the accompanying consolidated financial statements have been translated from yen amounts solely for convenience and, as a matter of arithmetic computation only, at ¥118=U.S.$1.00, the rate of exchange prevailing on March 31, 2007. This translation should not be construed as a representation that the yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.
Summary of Significant Accounting Policies
2
(a) Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and significant companies which it controls directly or indirectly. All significant intercompany transactions and accounts have been eliminated in consolidation. The overseas consolidated subsidiaries are consolidated on the basis of fiscal years ending December 31, which differs from the balance sheet date of the Company. As a result, adjustments have been made for any sig-nificant intercompany transactions which took place during the period between the year end of these overseas con-solidated subsidiaries and the year end of the Company.
The investment in one affiliate, ASICS Trading Co., Ltd., over which the Company exercises significant influence in terms of its operating and financial policies, is accounted for by the equity method. The Company includes its share in the net income or loss of this company in consolidated net income and records its investment at cost as adjusted for its share in the net income or loss and for any cash dividends received.
All assets and liabilities of the consolidated subsidiaries are revalued on acquisition, if applicable. The difference, not significant in amount, between the cost of investments in subsidiaries and the equity in their net assets at the respec-tive dates of acquisition is amortized over a period of 5 years on a straight-line basis, except that immaterial amounts are charged to income as incurred.
Other affiliates are not significant in terms of their total assets, net income or loss, and retained earnings. Accordingly, these other affiliates have not been accounted for by the equity method. Investments in such affiliates are stated at cost.
(b) Foreign currency translation
All monetary assets and liabilities denominated in foreign currencies are translated into yen at the rates of exchange in effect at the balance sheet date and gain or loss on each translation is credited or charged to income. Revenue and expense items arising from transactions denominated in foreign currencies are generally translated into yen at the rates in effect at the respective transaction dates. Foreign exchange gain or loss is credited or charged to income in the period in which the gain or loss is recognized for financial reporting purposes.
(c) Cash and cash equivalents
For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash on hand, deposits with banks withdrawable on demand, and short-term investments which are readily convertible into cash subject to an insignificant risk of any change in their value and which were purchased with an original maturity of three months or less.
(d) Securities
Marketable securities classified as other securities are carried at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, reported as a separate component of net assets (shareholders’ equity in 2006). Cost of securities sold is determined by the moving-average method. Non-marketable equity securities classi-fied as other securities are stated at cost determined by the moving-average method. Non-marketable debt securities classified as other securities are stated at net necessary amortized cost.
(e) Inventories
Inventories are stated principally at cost determined by the first-in, first-out method.
(f) Property, plant and equipment
The Company and its domestic consolidated subsidiaries compute depreciation of property, plant and equipment by the declining-balance method over the useful lives of the respective assets, except that the straight-line method is applied to buildings (other than structures attached to the buildings) acquired on or subsequent to April 1, 1998. Overseas consolidated subsidiaries compute depreciation of property, plant and equipment by the straight-line method over the useful lives of the respective assets. Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to income as incurred.
(g) Allowance for doubtful receivables
The Company and its domestic consolidated subsidiaries provide an allowance for doubtful receivables at an amount calculated based on their historical experience of bad debts on ordinary receivables plus an additional estimate of probable specific bad debts from customers experiencing financial difficulties.
The overseas consolidated subsidiaries provide an allowance for doubtful receivables at an amount calculated based on probable specific bad debts from their customers.
(h) Retirement benefits for employees
Accrued retirement benefits for employees are provided principally at an amount calculated based on the retirement benefit obligation and the fair value of the pension plan assets as adjusted for unrecognized actuarial gain or loss. The retirement benefit obligation is attributed to each period by the straight-line method over the estimated remaining years of service of the eligible employees.
Net retirement benefit obligation at transition is amortized by the straight-line method over a period of 15 years. Past service cost is amortized by the straight-line method over a period within the estimated average remaining years of service of the eligible employees. Amortization is deducted from retirement benefit expenses.
Actuarial gain or loss is amortized in the year following the year in which the gain or loss is recognized, principally by the straight-line method, which falls within the estimated average remaining years of service of the eligible employees.
(i) Retirement benefits for directors and corporate auditors
Up to the year ended March 31, 2005, the Company and its consolidated subsidiaries charged retirement benefits to directors and corporate auditors directly to income when they were paid. Effective the year ended March 31, 2006, the liability for the payment of retirement benefits to directors and corporate auditors has been accrued and recog-nized in the consolidated balance sheets at the aggregate amount of retirement benefits payable to directors and cor-porate auditors, pursuant to internal corcor-porate by-laws.
In recent years, the accounting policy of providing an accrual for retirement benefits for directors and corporate auditors has gained wider acceptance. Defining this common accounting practice for the Company and its consolidat-ed subsidiaries and distributing retirement benefit expenses over the period in which directors and corporate auditors remain in office will ensure a more appropriate interperiod allocation of income/loss and enhance the financial posi-tion of the Company and its consolidated subsidiaries.
minori-At a meeting of the Board of Directors of the Company held on June 23, 2006, the Company approved a resolution for the abolishment of the unfunded retirement benefit plan for directors and corporate auditors. The Company has discontinued any provision for accrued retirement benefits for directors and corporate auditors as of that date and the amount as of March 31, 2007 was for those officers who held their positions before the above resolution was approved.
Consolidated subsidiaries have continued their unfunded retirement benefit plans and accrued estimated amounts under the above internal regulations.
(j) Leases
Finance leases other than those which transfer the ownership of the leased property to the lessee are accounted for as operating leases.
(k) Research and development costs and computer software
Research and development costs are charged to income as incurred. Expenditures relating to computer software developed for internal use are charged to income as incurred, except if the software is expected to contribute to the generation of future income or to cost savings. Such expenditures are capitalized as assets and amortized by the straight-line method over their respective estimated useful lives, generally a period of 5 years.
(l) Income taxes
Deferred income taxes are provided for temporary differences between the balances of assets and liabilities reported for financial purposes and the corresponding balances for tax reporting purposes.
(m) Derivatives and hedging activities
Derivatives positions are carried at fair value with any changes in unrealized gain or loss charged or credited to income, except for those which meet the criteria for deferral hedge accounting under which unrealized gain or loss is deferred as a component of net assets. Receivables and payables hedged by qualified forward foreign exchange con-tracts are translated at the corresponding foreign exchange contract rates. Interest-rate swaps which meet certain conditions are accounted for as if the interest rates applied to the swaps had originally applied to the underlying debt.
(n) Appropriation of retained earnings
The new Corporation Law of Japan (the “Law”), which superseded most of the provisions of the Commercial Code of Japan, went into effect on May 1, 2006. Under the Law, the appropriation of retained earnings with respect to a given financial period is made by resolution of the shareholders at a general meeting held subsequent to the close of the financial period. The accounts for that period, therefore, do not reflect such appropriations. Refer to Note 17.
3
(a) Accrued bonuses for directors and corporate auditors
Effective the year ended March 31, 2007, the Company and its domestic consolidated subsidiaries have adopted “Accounting Standard for Directors’ Bonuses” (Accounting Standards Board of Japan (ASBJ) Statement No. 4 issued on November 29, 2005).
As a result of the adoption of this accounting standard, operating income and income before income taxes and minority interests decreased by ¥30 million ($254 thousand) for the year ended March 31, 2007 from the amounts which would have been recorded under the method applied in the previous year.
(b) Presentation of net assets in the balance sheet
Effective the year ended March 31, 2007, the Company has adopted a new accounting standard for the presentation of net assets in the balance sheet and the related implementation guidance. In addition, effective the year ended March 31, 2007, the Company is required to prepare consolidated statements of changes in net assets instead of con-solidated statements of shareholders’ equity. Under this accounting standard, certain items which were previously presented as assets and liabilities are now presented as components of net assets. Such items include minority inter-ests and deferred gain and loss on hedges.
Total shareholders’ equity prior to the adoption of this accounting standard amounted to ¥89,526 million ($758,695 thousand).
Short-Term Investments and Investments in Securities
5
4
Information regarding other securities with determinable market value at March 31, 2007 and 2006 is summarized as follows:
Millions of yen Thousands of U.S. dollars
2007 2006 2007
Acquisition Carrying Unrealized Acquisition Carrying Unrealized Acquisition Carrying Unrealized costs value gain (loss) costs value gain (loss) costs value gain (loss)
Securities whose carrying value exceeds their acquisition costs:
Equity securities . . . ¥3,538 ¥ 8,492 ¥4,954 ¥3,031 ¥ 9,635 ¥6,604 $29,983 $71,966 $41,983
Other . . . 449 1,201 752 399 779 380 3,805 10,179 6,374
Subtotal . . . 3,987 9,693 5,706 3,430 10,414 6,984 33,788 82,145 48,357
Securities whose carrying value does not exceed their acquisition costs:
Equity securities . . . 4 4 (0) 4 4 (0) 34 34 (0)
Corporate bonds . . . 606 579 (27) 607 552 (55) 5,136 4,906 (230)
Subtotal . . . 610 583 (27) 611 556 (55) 5,170 4,940 (230)
Total . . . ¥4,597 ¥10,276 ¥5,679 ¥4,041 ¥10,970 ¥6,929 $38,958 $87,085 $48,127
The total amount of gain and loss on sales of investments in securities for the year ended March 31, 2007 was immaterial. The amount of gain and loss on sales of investments in securities for the years ended March 31, 2006 is summarized as follows:
Thousands of Millions of yen U.S. dollars
Total sales . . . ¥1,301 $11,120 Gross gain on sales . . . 423 3,615 Gross loss on sales . . . 0 0 The balances of cash and deposits reflected in the consolidated balance sheets at March 31, 2007 and 2006 were recon-ciled to the balances of cash and cash equivalents as presented in the consolidated statements of cash flows for the years then ended as follows:
Thousands of Millions of yen U.S. dollars
2007 2006 2007
Cash and deposits . . . ¥10,933 ¥12,055 $92,653
Time deposits with original maturities in excess of three months,
included in cash and deposits . . . (737) — (6,244)
Cash and cash equivalents . . . ¥10,196 ¥12,055 $86,409
7
The average annual interest rates on short-term bank loans were 5.0% and 2.9% at March 31, 2007 and 2006, respectively. Long-term debt at March 31, 2007 and 2006 consisted of the following:
Thousands of Millions of yen U.S. dollars
2007 2006 2007
2.74% yen secured bonds, due 2006 . . . ¥ — ¥ 2,000 $ —
1.22% yen unsecured bonds, due 2008 . . . 1,600 1,600 13,559
1.12% yen unsecured bonds, due 2008 . . . 800 800 6,780
1.60% yen unsecured bonds, due 2008 . . . 800 800 6,780
Unsecured loans primarily from banks, due 2008 through 2013,
at interest rates ranging from 0.8% to 5.5% . . . 5,125 5,949 43,432
8,325 11,149 70,551
Current portion of long-term debt . . . (4,151) (3,721) (35,178)
¥ 4,174 ¥ 7,428 $ 35,373
Short-Term Bank Loans and Long-Term Debt
Inventories
6
The following is a summary of inventories at March 31, 2007 and 2006:
Thousands of Millions of yen U.S. dollars
2007 2006 2007
Finished products . . . ¥33,960 ¥30,110 $287,797
Work in process . . . 295 287 2,500
Raw materials and supplies . . . 1,540 1,728 13,050
¥35,795 ¥32,125 $303,347
The carrying value of other securities without determinable market value at March 31, 2007 and 2006 is presented as follows:
Thousands of Millions of yen U.S. dollars
2007 2006 2007
Money trusts in commingled funds . . . ¥1,197 ¥1,169 $10,144
Unlisted equity securities . . . 655 672 5,551
¥1,852 ¥1,841 $15,695
At March 31, 2007, the redemption schedule for other securities by maturity date was as follows:
Millions of yen Thousands of U.S. dollars
Due after Due after Due after Due after Due in one year five years Due in one year five years
one year through through Due after one year through through Due after or less five years ten years ten years or less five years ten years ten years
Corporate bonds . . . ¥— ¥— ¥92 ¥ — $— $— $780 $ — Beneficial securities in
investment trusts . . . — — — 109 — — — 924
8
The Company and its domestic consolidated subsidiaries have defined benefit plans, i.e., welfare pension fund plans (“WPFPs”), tax-qualified pension plans and lump-sum payment plans, covering substantially all employees who are enti-tled to lump-sum or annuity payments, the amounts of which are determined by reference to each retiree’s position and basic salary at termination as well as length of service and certain other factors.
The following table sets forth the funded and accrued status of the defined retirement benefit plans of the Company and its domestic consolidated subsidiaries at March 31, 2007 and 2006:
Thousands of Millions of yen U.S. dollars
2007 2006 2007
Retirement benefit obligation . . . ¥(15,329) ¥(14,970) $(129,907)
Plan assets at fair value . . . 7,921 7,106 67,127
Unfunded retirement benefit obligation . . . (7,408) (7,864) (62,780)
Unrecognized net retirement benefit at transition . . . 1,717 1,932 14,551
Unrecognized actuarial loss . . . 628 1,074 5,322
Unrecognized past service cost . . . (1,172) (1,758) (9,932)
Prepaid retirement benefits . . . (384) (3) (3,254)
Accrued retirement benefits . . . ¥ (6,619) ¥ (6,619) $ (56,093)
As permitted under the accounting standard for retirement benefits, the domestic consolidated subsidiaries calculate their retirement benefit obligation by simplified methods.
The components of retirement benefit expenses for the years ended March 31, 2007 and 2006 are outlined as follows:
Thousands of Millions of yen U.S. dollars
2007 2006 2007
Service cost . . . ¥ 741 ¥ 648 $ 6,280
Interest cost . . . 294 286 2,492
Expected return on plan assets . . . (148) (110) (1,254)
Amortization of net retirement benefit obligation at transition . . . 127 127 1,076
Recognized net actuarial loss . . . 209 295 1,771
Recognized past service cost . . . (586) (586) (4,966)
¥ 637 ¥ 660 $ 5,399
Retirement Benefits
The aggregate annual maturities of long-term debt subsequent to March 31, 2007 are summarized as follows:
Thousands of
Years ending March 31, Millions of yen U.S. dollars
The retirement benefit expenses of the domestic consolidated subsidiaries have been calculated by simplified methods and are included in service cost in the above table.
The assumptions used in accounting for the retirement benefit plans for the years ended March 31, 2007 and 2006 were as follows:
2007 2006
Discount rate . . . 2.5% 2.5% Expected rate of return on plan assets . . . 2.5% 2.5%
9
The Company and its consolidated subsidiaries lease machinery and equipment and other assets. The following pro forma
amounts represent the acquisition costs (including the interest portion), accumulated depreciation and net book value of the leased assets at March 31, 2007 and 2006, which would have been reflected in the balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases.
Millions of yen Thousands of U.S. dollars
2007 2006 2007
Acquisition Accumulated Net book Acquisition Accumulated Net book Acquisition Accumulated Net book costs depreciation value costs depreciation value costs depreciation value
Buildings and structures . . . . ¥1,617 ¥ 189 ¥1,428 ¥1,445 ¥ 24 ¥1,421 $13,703 $ 1,602 $12,101
Machinery and equipment 3,073 904 2,169 2,036 852 1,184 26,042 7,661 18,381
Other assets . . . 448 223 225 399 203 196 3,797 1,890 1,907
Total . . . ¥5,138 ¥1,316 ¥3,822 ¥3,880 ¥1,079 ¥2,801 $43,542 $11,153 $32,389
Lease payments relating to finance leases accounted for as operating leases amounted to ¥938 million ($7,949 thousand) and ¥580 million for the years ended March 31, 2007 and 2006, respectively. These amounts were equal to the depreciation of the leased assets computed by the straight-line method over the respective lease terms assuming a nil residual value.
Future minimum payments (including the interest portion thereon) subsequent to March 31, 2007 under finance leases other than those which transfer the ownership of the leased property to the Company and its consolidated subsidiaries are summarized as follows:
Thousands of Millions of yen U.S. dollars
Due within one year . . . ¥ 944 $ 8,000
Due after one year . . . 2,878 24,389
Total . . . ¥3,822 $32,389
11
Research and development costs included in product manufacturing costs and in selling, general and administrative expenses for the years ended March 31, 2007 and 2006 amounted to ¥516 million ($4,373 thousand) and ¥532 million, respectively.
Research and Development Costs
12
The Law provides that an amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve and the legal reserve equals 25% of the capital stock account. Such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if cer-tain conditions are met.
The Company’s legal reserve included in retained earnings was nil at March 31, 2007 and 2006.
Treasury Stock
Movements in treasury stock for the year ended March 31, 2007 are summarized as follows:
Number of Shares 2007
March 31, 2006 Increase Decrease March 31, 2007
Treasury Stock 809,299 142,977 — 952,276
Shareholders’ Equity
10
Derivative financial instruments are utilized by the Company and its consolidated subsidiaries (the “Group”) principally in order to manage risk arising from adverse fluctuation in foreign currency exchange rates and interest rates. The Group does not hold or issue derivatives for speculative trading purposes.
The Group is exposed to market risk arising from their forward foreign exchange contracts, currency swaps, currency options, interest-rate swaps and interest-rate options. The Group is also exposed to the risk of credit loss in the event of nonperformance by the counterparties to these derivatives transactions; however, the Group does not anticipate nonper-formance by any of these counterparties, all of whom are international financial institutions with high credit ratings.
The open interest-rate-related derivatives positions at March 31, 2007 and 2006 were as follows:
Millions of yen Thousands of U.S. dollars
2007 2006 2007
Notional Unrealized Notional Unrealized Notional Unrealized amount Fair value gain (loss) amount Fair value loss amount Fair value gain (loss)
Currency options . . . ¥ 4,063 ¥237 ¥237 ¥1,851 ¥ (8) ¥ (8) $ 34,432 $2,008 $2,008
Currency swaps . . . 13,416 309 309 — — — 113,695 2,619 2,619
Interest-rate swaps: Variable-rate into
fixed-rate obligations . . . — — — 2,000 (20) (20) — — —
Interest-rate options:
Interest-rate floor sold . . . 1,500 (4) (4) — — — 12,712 (34) (34)
Disclosure of the corresponding information on derivatives which qualified for deferral hedge accounting has been omitted.
13
Income taxes applicable to the Company and its domestic consolidated subsidiaries consist of corporation, inhabitants’ and enterprise taxes. The statutory tax rate in Japan for the years ended March 31, 2007 and 2006 was, in the aggregate, approximately 40.5%. The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2007 and 2006 differed from the above statutory tax rate for the following reasons:
2007 2006
Statutory tax rate: . . . 40.5)% 40.5)% Permanently non-deductible expenses . . . 0.5 0.3 Permanently non-taxable income . . . (0.0) (0.0) Changes in valuation allowance . . . (3.5) (21.9) Tax rate differences at overseas consolidated subsidiaries . . . (5.0) (3.2) Allowance for doubtful receivables . . . — 1.0 Equity in earnings of an affiliate . . . (0.6) (0.7) Other . . . 0.1 (0.3) Effective tax rates . . . 39.0)% 15.7)%
Deferred income taxes reflect the net tax effect of the temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the corresponding amounts for income tax purposes. The signifi-cant components of the deferred tax assets and liabilities of the Company and consolidated subsidiaries at March 31, 2007 and 2006 are summarized as follows:
Thousands of Millions of yen U.S. dollars
2007 2006 2007
Deferred tax assets:
Inventories . . . ¥ 1,054 ¥ 1,271 $ 8,932
Allowance for doubtful receivables . . . 1,097 839 9,297
Allowance for employees’ bonuses . . . 737 712 6,246
Accrued retirement benefits for employees . . . 2,407 2,586 20,398
Tax loss carryforwards . . . 950 981 8,051
Other . . . 2,839 1,949 24,058
Gross deferred tax assets . . . 9,084 8,338 76,982
Less valuation allowance . . . (2,698) (2,690) (22,864)
Total deferred tax assets . . . 6,386 5,648 54,118
Deferred tax liabilities:
Unrealized holding gain on securities . . . 2,095 2,806 17,754
Other . . . 1,448 495 12,272
Total deferred tax liabilities . . . 3,543 3,301 30,026
Net deferred tax assets . . . ¥ 2,843 ¥ 2,347 $ 24,092
15
Amounts per share at March 31, 2007 and 2006 and for the years then ended were as follows:
Yen U.S. dollars
2007 2006 2007
Net assets . . . ¥450.78 ¥375.79 $3.82
Net income:
Basic . . . 69.72 69.02 0.59
Cash dividends applicable to the year . . . 8.00 6.00 0.07
The amount per share of net assets have been computed based on the net assets available for distribution to sharehold-ers of common stock and the number of shares of common stock outstanding at the year end. Net income per share has been computed based on the net income available for distribution to shareholders of common stock and the weighted-average number of shares of common stock outstanding during the year. Diluted net income per share has not been pre-sented because there were no potentially dilutive shares at March 31, 2007 and 2006.
Cash dividends per share represent the cash dividends proposed by the Board of Directors as applicable to the respec-tive years.
Amounts per Share
16
(1) Business Segments
The Company and its consolidated subsidiaries are primarily engaged in the manufacture and sale of sporting goods in Japan and overseas. As most of the consolidated net sales were related to sports and leisure-related products, the disclosure of business segment information has been omitted.
(2) Geographical Segments
The domestic and overseas operations of the Group for the years ended March 31, 2007 and 2006 are summarized as follows:
Millions of yen
2007
Eliminations
United States Other and
Japan of America Europe areas Total corporate Consolidated
Net sales:
Sales to customers . . . ¥81,439 ¥43,180 ¥61,526 ¥8,370 ¥194,515 ¥ — ¥194,515
Intersegment . . . 6,192 4 — 797 6,993 (6,993) —
Net sales . . . 87,631 43,184 61,526 9,167 201,508 (6,993) 194,515
Operating expenses . . . 83,286 39,675 50,661 7,227 180,849 (6,582) 174,267
Operating income . . . ¥ 4,345 ¥ 3,509 ¥10,865 ¥1,940 ¥ 20,659 ¥ (411) ¥ 20,248
Total assets . . . ¥92,557 ¥19,863 ¥36,619 ¥7,888 ¥156,927 ¥(1,968) ¥154,959
Segment Information
14
At March 31, 2002, ASICS Trading Co., Ltd., an affiliate of the Company, revalued its land held for business use. The dif-ference on land revaluation was accounted for as “land revaluation reserve” under shareholders’ equity and was calculat-ed at the Company’s share of the net amount of the relevant tax effect.
Millions of yen 2006
Eliminations
United States Other and
Japan of America Europe areas Total corporate Consolidated
Net sales:
Sales to customers . . . ¥81,427 ¥32,170 ¥51,502 ¥5,937 ¥171,036 ¥ — ¥171,036 Intersegment . . . 4,860 10 11 697 5,578 (5,578) — Net sales . . . 86,287 32,180 51,513 6,634 176,614 (5,578) 171,036 Operating expenses . . . 82,379 29,476 42,663 5,131 159,649 (5,057) 154,592 Operating income . . . ¥ 3,908 ¥ 2,704 ¥ 8,850 ¥1,503 ¥ 16,965 ¥ (521) ¥ 16,444 Total assets . . . ¥89,564 ¥15,250 ¥31,331 ¥6,136 ¥142,281 ¥(1,666) ¥140,615
Thousands of U.S. dollars
2007
Eliminations
United States Other and
Japan of America Europe areas Total corporate Consolidated
Net sales:
Sales to customers . . . $690,161 $365,932 $521,407 $70,932 $1,648,432 $ — $1,648,432
Intersegment . . . 52,475 34 — 6,754 59,263 (59,263) —
Net sales . . . 742,636 365,966 521,407 77,686 1,707,695 (59,263) 1,648,432
Operating expenses . . . 705,814 336,229 429,331 61,245 1,532,619 (55,780) 1,476,839
Operating income . . . $ 36,822 $ 29,737 $ 92,076 $16,441 $ 175,076 $ (3,483) $ 171,593
Total assets . . . $784,381 $168,331 $310,331 $66,847 $1,329,890 $(16,678) $1,313,212
(3) Overseas Sales
Overseas sales, which include export sales of the Company and its domestic consolidated subsidiaries and sales (other than exports to Japan) of the overseas consolidated subsidiaries, for the years ended March 31, 2007 and 2006 are summarized as follows:
Thousands of Millions of yen U.S. dollars
2007 2006 2007
Overseas sales:
North America . . . ¥ 42,826 ¥ 31,684 $ 362,932
Europe . . . 60,881 51,070 515,941
Other areas . . . 11,337 9,324 96,076
Total . . . ¥115,044 ¥ 92,078 $ 974,949
Consolidated net sales . . . ¥194,515 ¥171,036 $1,648,432
Overseas sales as a percentage of consolidated net sales:
North America . . . 22.0% 18.5% Europe . . . 31.3 29.9 Other areas . . . 5.8 5.4
17
The following appropriation of retained earnings of the Company, which has not been reflected in the accompanying consolidated financial statements for the year ended March 31, 2007, was approved at a meeting of the shareholders of the Company held on June 22, 2007:
Thousands of Millions of yen U.S. dollars
Cash dividends (¥8.00=U.S.$0.07 per share) . . . ¥1,592 $13,492
