FINANCIAL REPORT
April 2004 March 2005
1. Basic Management Policy
Since its foundation, Amano’s first priority has been to maximize customer satisfaction – that is, listening to the voice of the customer. Based on the corporate themes of “people and time” and “people and the environment,” all employees, including the staff of our sales, production, and development divisions, focus on customer satisfaction through- out all business activities.
In accordance with this fundamental policy, Amano has continued to undertake busi- ness activities with the goal of earning the trust and high regard of all those who have been supporting us: customers, employees, shareholders, business associates, and the local community. Amano has set out to achieve this by providing a variety of products, systems, services, and solutions that accurately respond to the needs of customers in fields related to “people and time” and “people and the environment.”
Amano Corp. and the group companies are working to maximize corporate value by promoting management reforms, and by creating a strong profit structure and ensuring sustainable growth.
2. Basic Policy on Dividends
Amano has always placed a high priority on policies related to dividends paid to share- holders. The foundation of these policies – returning earnings to the shareholders – rests on maintaining a stable annual dividend of 18 yen (interim: 9 yen; end of term: 9 yen), offering reasonable dividends that reflect actual performance, and executing an organic redemption of treasury stocks.
Currently, dividends to shareholders are paid on the basis of a payout ratio of 35% or more, and Amano will make every effort to achieve a 2-percent or higher dividend rate for shareholder’s equity in the medium term.
Regarding end-of-term dividends for the current term, based on the basic policy out- lined above and in consideration of business performance, we plan to increase these dividends by 4 yen per share, to 13 yen. In combination with the dividend payment of 9 yen per share already made in the interim term, the total annual dividend will be 22 yen per share.
Retained earnings will be used to strengthen our management capabilities through ef- fective investments, such as research and development activities, the expansion and enhancement of existing business fields, and strategic investments in growing business areas. Other goals for retained earnings will include cost reductions and streamlining of production facilities as a means of improving quality.
3. Medium- and Long-Term Management Strategy
Amano and each of its Group companies maintain the tradition of continuously evolv- ing in response to the changing times, while adhering to the four fundamental strategies of the Amano Group.
(1) Emphasis on the Time & Ecology business fields / enhancement of our core business (2) Being a niche leader in the company’s specialty business fields
(3) Constant restructuring
(4) Management based on cash flow
Management Policy
Amano initiated a new three-year medium-term management plan in April 2003 based on these four fundamental strategies. Results of business performance during the current term, which was the second year of this plan, exceeded the plans for the final year of the plan, so we have established the next new three-year medium-term management plan, which was implemented in April 2005. Following is an overview of the medium-term plan.
[1] Basic Policy
The new medium-term management plan, which is based on the management concept of “A strong profit structure and sustainable growth,” involves a transition to “Aggressive management” aiming for new growth. We will devote our energies to attaining net sales of 84 billion yen and operating profit of 10.4 billion yen in the final year of the plan (the fiscal year ending March 2008). In order to achieve the goals of this new plan, we will focus on the following key issues, which are based on the previous medium-term man- agement strategies.
(1) Enhancement of marketing capability
- Cultivate new markets by adding direct-sales capability, Amano’s specialty, to the customer base that Amano has accumulated (the “accumulated market”)
- Expand peripheral businesses related to existing businesses, and open up new pe- ripheral businesses
- Create and nurture new business projects rooted in the strengths of the Group by strengthening ties with Group companies
- Expand service operations throughout all business areas
- Expand growing Chinese markets and reconstruct markets in Southeast Asia [2] Enhancement of cost competitiveness
* Further improve the profitability of parking and environment-related businesses
* Ensure differentiation from the competition using cost-competitive products
* Reduce production costs (indirect overhead, overseas production, overseas pro- curement, and outsourcing costs)
* Develop global products through selection and concentration (Japan, U.S., Eu- rope, China)
* Increase efficiency of sales and administrative expenditures
Increase and expand profitability
・ Improve the profitability of each business
・ Use the Group’s strength to increase and expand profitability
New driving forces for growth
・ Open up and expand peripheral and new businesses
・ Develop and introduce new products
Profitability Growth capabilities
Sustainable Growth
[2] Numerical plan
By the end of March 2008, which will mark the completion of this plan, the following management indexes should be achieved as targets on a consolidated basis.
(1) Consolidated operating profit to sales: 12% or more (2) ROE: 7.5%
(3) Earnings per share: 77 yen or more
Note: The projected negative growth rate for operating profit and ordinary profit in the year ending March 2006 compared to the previous year is due to the effects of special demand in the previous year in the parking business which resulted from the issuing of new yen bills.
4. Basic approach to corporate governance and status of implementation of policies
(Basic approach to corporate governance)
In the context of management, Amano places a high priority on healthy management and the importance of corporate ethics. We are fully aware that ensuring the effective- ness of corporate governance achieves management with a high degree of fairness and transparency are the best means of maximizing corporate value.
(Implementation of policies related to corporate governance)
In addition to regular meetings held once a month, the Board of Directors holds extraor- dinary meetings on a flexible basis whenever such meetings are deemed necessary. The structure of these meetings encompasses deliberation and decisions on important items related to management as well as reports on the status of the execution of operations, in order to facilitate speedy management decisions.
A Group Company Management Meeting, comprised of top management from the Amano Group Companies, is also held on a regular basis, to monitor the status of management at each company and the progress of profit plans, and to promote improved corporate governance.
Amano has adopted an auditor system, and has appointed four auditors, two of whom are part-time auditors from outside the company. The auditors attend meetings of the Board of Directors and participate actively in various committees and meetings within the company, forming the basis for a system that enables oversight of the execution of the Directors’ operations.
The external auditors have no vested interest in Amano Corp. Internal audits are con- ducted by the Accounting Division with regard to both accounting and administrative
Net sales Operating profit Operating profit to sales Ordinary profit Net profit
Consolidated management targets
Year ending March 2006
(Unit: million yen)
75,000 8,800 11.7% 8,600 5,300
2.5
△3.0
△4.0 3.7
79,000 9,500 12.0% 9,300 5,600
5.3 8.0
8.1 5.7
84,000 10,400 12.4% 10,500 6,300
Year ending March 2007 Year ending March 2008 Amount YOY change (%) Amount YOY change (%) Amount YOY change (%)
6.3 9.5
12.9 12.5
Kaoru Haruta President and CEO
In addition to conducting regular audits, this body provides Amano with appropriate advice when the need arises, and assists Amano in increasing the transparency and accuracy of ac- counting processes. With regard to legal issues in General, Amano receives advice and guidance when the need arises from a law office that has entered into a contract as an advisor.
(Status of activities over the past year targeting strengthened corporate government at Amano Corp.)
1. Starting from April 1, 2005, Amano Corp. introduced an Executive Director system to catego- rize and clarify the functions and responsibilities related to the execution of management and company operations, and to increase the speed of decision-making and the efficiency of management. Based on this new system, the number of Directors will be reduced from the current 19 to 8 as of the end of the regular General Meeting of Shareholders scheduled for June 29 of this year.
2. After establishing a “Compliance Program” in January 2004, outlining the company’s basic policies with regard to the protection of personal information in order to ensure the safe and accurate handling of the customer’s confidential information, Amano put in place an organi- zational and management structure and created an education program to ensure that per- sonal information is handled accurately and securely, and has undertaken educational activi- ties targeting all directors and all employees.
By establishing organizations and operation systems for promoting and implementing these policies, we will ensure conformance with all relevant laws and regulations in the execution of administrative practices and the promotion of business activities by all Directors and em- ployees, as well as behavior based on a strict code of corporate ethics, so that Amano will gain an even higher degree of trust throughout society.
5. Approaches regarding the lowering of investment units
Amano is aware that reducing the size of stock investment units is an effective method of in- creasing fluidity in the stock market and expanding the base of private investors. Regarding investment units, we plan to reduce the size of investment units as soon as possible during fiscal 2005 to make it easier for more investors to make investments, and we are already making preparations for this change.
M a n a g e m e n t p e r fo r-
mance and financial status
1. Management performance Looking at the Japanese economy during the year in question, the first half of the year saw strong movement in the economy in the backdrop of factors such as improved corporate profits and increases in capital invest- ments. During the second half of the year, there was growing pressure from price increases in raw materials and other materials as a result of dramatic increases in oil prices, and there were some concerns about the effects on the economy, but overall there was
strong movement that maintained the positive trends from the first half. In this management environment, based on the new medium-term management plan that started in April 2003, Amano has concentrated the effor ts of all group companies on a reconfiguration of profit structures. These activities have focused on strengthening marketing capabilities, and on improving cost competitive- ness, for example by reducing fixed and original costs and improving pro- ductivity.
In terms of the consolidated business performance, the sales volume to- taled 73.140 billion yen (up 10.7 per- cent from the same period last year),
operating profits totaled 9.074 billion yen (up 71.3 percent), and ordinary profit totaled 8.956 billion yen (up 77.0%).For the term under review, the company posted extraordinary losses totaling 611 million yen including 213 million yen in losses on sale of prop- er ty, plant and equipment and 296 million yen in losses on sales of in- vestments in securities), resulting in a net profit for the current term of 5.18 billion yen, up 80.1% from the previ- ous period. The company thus dem- onstrated record performance in terms of both sales and operating profits.
The performance by business division is as indicated below.
Note: Industrial cleaners, which had been given as part of Cleaning Systems until the previous year, will be given as part of Environmental Systems starting from the current year. As a result, the amounts and component ratios (%) shown above for the Previous Consolidated Fiscal Year indicate figures, reflecting this change. Amounts and component ratios before the change are indicated below these figures, in parenthe- ses.
Sales by business division
(Unit: million yen)(Time Information System Business) Information Systems
Time Management Products Parking Systems
Sub-total
(Environment System Business) Environmental Systems Cleaning Systems
Sub-total
Total
Division
Previous Consolidated Fiscal Year
April 2003 – March 2004
Change
Amount
10,900 16.3
11,910
7,302 9.8
7,127
25,019 39.9
29,213
43,222 66.0
48,251
13,244 20.6
15,094
9,598 9,794 13.4
22,843 24,888 34.0
66,065 100.0
73,140
16.5 1,010 9.3
11.1 △175 △2.4
37.9 4,194
65.5 5,029 11.6
20.0 1,849 14.0
14.5 196 2.0
34.5 2,045 9.0
100.0 7,074 10.7
Component ratio Amount Amount Component ratio Ratio Current Consolidated
Fiscal Year April 2004 – March 2005
16.8
Time Information System Busi-
ness
Time Information Systems:
・Time & Attendance (T&A), Payroll,
・Human-Resource Management
・Access Control
・Cafeteria Systems
Time Management Products:
・Time Recorder
・Time Stamp
Parking Systems:
・Parking Management Equipment
・Management Services
Information Systems
This Business Division has seen in- creased domestic demand mainly in large-scale companies, partly as a re- sult of increasingly strict regulation by the Labor Standards Inspection Of- fice with regard to working hours, and because door management (access management) policies implemented by these companies in preparation for the implementation of the Law Con- cerning the Protection of Personal Information have combined with the proliferation of IC cards to create a positive synergistic effect.
The public sector market – repre- sented mainly by municipal govern- ments – have been expanding, as core municipalities continue to promote the implementation of systems simi- lar to those used by private sector companies.
Performance in this business category during the current year improved dramatically, mainly as a result of strengthened mar keting systems based on the background factors noted above, and a general recovery in corporate performance. Compared to the previous year, the T&A Systems field saw an increase in income of 560 million yen (+7.2%), while income in the Access Management Systems field increased by 490 million yen (+173%) thanks to the favorable effects of the implementation of the Law Concern- ing the Protection of Personal Infor- mation.
In a breakdown by products, revenues from terminal devices increased 10.4% compared to the previous year and revenues from Software in- creased by 12.2% due in par t to in- creased sales in large-scale solution
projects. Meanwhile, revenues from maintenance/supply operations in- creased by 12.4% thanks to increased demand for IC cards, in addition to steady growth in maintenance con- tracts.
Overall business performance over- seas fell to 940 million yen (down 14.6% YOY) due to the effects of re- duced revenues from North America. As a result of the above activities, sales achieved by the Information Systems Division totaled 11.910 billion yen, an increase of 1.010 billion yen (+9.3%) compared to the previous year.
Time Management Products
This business division experienced reductions in both domestic and ex- por t income as a result of the shift to low-cost models in the demand structure for time recorders, and be- cause there was no recovery in de- mand throughout the market as a whole.
In the midst of this market environ- ment, there was an increased level of awareness in the domestic market regarding the TimeP@CK time re- corder with PC spreadsheet software. In terms of overseas business perfor- mance, revenues dropped off in North America due to the effects of the difference in exchange conversion rates; revenues increased slightly in Europe and remained level in Asia. Overall income in this category was 2.878 billion yen (down 1.0% YOY). As a result of the above activities, sales achieved by the Time Management Products Division totaled 7.127 bil- lion yen, a decrease of 175 million yen (-2.4%) compared to the previous year.
Parking Systems
In this business division, domestic business performance grew substan- tially because the demand for replace- ment bill readers accompanying the issuing of new yen bills came much earlier than originally expected, and because of sever al lar ge-scale projects including the Central Japan International Airport.
Regarding performance for the cur- rent year, in a breakdown by prod- ucts, revenues from system devices increased 13.1% compared to the previous year, while revenues from maintenance and supply operations increased dramatically, exceeding the previous year’s figures by 33.1%. Within the maintenance and supply category, demand for replacement bill readers contributed significantly to increase revenues, resulting in a ma- jor increase of 54.8% compared to the previous year.
In terms of overseas business perfor- mance, revenues grew in all regions: in North America, demand increased for payment machines with improved functions; in Europe, the sales area was expanded to include Spain; and in Asia, business performance im- proved in Korea. As a result of this growth, overseas sales totaled 3.946 billion yen (an increase of 25.5% com- pared to the previous term).
Based on the above, sales achieved by the Parking Systems Division to- taled 29.213 billion yen, an increase of 4.194 billion yen (+16.8%) com- pared to the previous year.
Environment System Business
Environmental Systems:
・Standard Dust Collectors
・Large Dust Collection Systems
・Pneumatic Powder Conveyance Sys- tems
・High-Temperature Hazardous-Gas Removal Systems
・Deodorization Systems
and Electrolyzed Water Generators and Garbage Reduction Systems Cleaning Systems:
・Dry-Care Cleaning Systems and Cleanliness Management Services
Environmental Systems
This business division enjoyed a revi- talization of domestic demand in a broad range of industries, supported by strong capital investments mainly in the manufacturing industry. Perfor- mance in the Standard Equipment Division grew substantially, mainly as a result of strong sales of small dust collectors.
The Large Systems Division also saw strong movement in new orders re- lated to the automotive field, recy- cling, and operations in China.
In a breakdown by products, all cat- egories demonstrated dramatic growth compared to the previous year: revenues from standard equip ment increased by 649 million yen (+13.3%); revenues from large sys- tems increased by 570 million yen (+11.4%); and revenues from main- tenance and supply operations in- creased by 629 million yen (+28.1%). In terms of overseas performance, demand surfaced mainly among Japa- nese corporations as a result of ex- pansions and strengthening of sales structures in China. Revenues in the Asia region overall grew dramatically, marking an increase of 624 million yen (+69.9%) over last year’s figures. Note that no business performance
was posted for this Business Division in North America or Europe. As a result of the above activities, sales achieved by the Environmental Sys- tems Division totaled 15.094 billion yen, an increase of 1.849 billion yen (+14.0%) compared to the previous year.
Cleaning Systems
In this business division, domestic sales of medium and small cleaners grew substantially as a result of aggressive marketing activities targeting large supermarkets and medium-scale commercial facilities. Performance in sweepers and cleaners for factories also improved in keeping with the recovery in capital investments in the manufacturing industry. Sales of small buffing machines for convenience stores remained level from last year. Looking at business performance overseas, revenues dropped in the Nor th American and Asian regions, but increased in Europe due to grow- ing demand for small cleaners. Rev- enues for all regions combined was thus 2.797 billion yen, a decrease of 0.8% year on year.
As a result of the above activities, sales achieved by the Cleaning Systems Division totaled 9.794 billion yen, an increase of 196 million yen (+2.0%) compared to the previous year.
Financial Status
Consolidated cash and cash equiva- lents (hereinafter referred to as
“funds”) rose to 34.9 billion yen in this consolidated accounting year, an increase of 7.334 billion yen (26.6%) over the previous term. This is mainly due to a substantial increase in in- come before income taxes, and to income from the sale and write-down of investments in securities.
Following is an outline of the status of each type of cash flow for the cur- rent consolidated accounting year, and of the reasons for these conditions.
Cash flow from the business activi- ties
The cash flow from the business ac- tivities in this consolidated account- ing year totaled 10.040 billion yen, an increase of 2.385 million yen (+32.1%) over the previous term. This increase was mainly due to factors such as the substantial increase in in- come before income taxes and in- creased accounts payable.
Cash flow from the investment ac- tivities
The cash flow from the investment activities was _ 1.254 billion yen, an increase in expenditures of 643 mil- lion yen (+105.2%) over the previ-
ous term. This is primarily due to re- duced income from the sale of in- vestments in securities and increased payment for the acquisition of prop- er ty and equipment and intangible fixed assets.
Cash flow from the financing activi- ties
The cash flow from the financing ac- tivities was _1.436 billion yen, a de- crease in expenditures of 56 million yen (-3.8%) compared to the previ- ous term. This is primarily due to re- duced payment for the acquisition of treasury stocks.
Note
Owners’ equity = Owners’ equity / Gross assets
Owners’ equity estimated at a current price = Total current price of equity / Total assets
Time period required to redeem liability = Debt with paid-interest/ Cash flow in business operations Interest coverage ratio = Cash flow in business operations / Interest payables
* Each index is calculated according to financial figures in the consolidated accounts.
* The total current price of equity is calculated according to an expression as follows: Final share price at the end of a fiscal year x the number of shares issued at the end of a fiscal year (after deduction of treasury stock).
* The cash flow in business operations is one according to business operations as specified in the report of calcula- tion of consolidated cash flow. The liability with paid-interest includes all liability paying an interest among those listed in the consolidated balance sheet. The interest payables is one paying an interest as that specified in the report of calculation of consolidated cash flow
Year ended March 2001 Owners’ equity (%)
Owners’ equity estimated at a current price Time period required to redeem liability (Year) Interest coverage ratio
Year ended March 2002 Year ended March 2003 Year ended March 2004
Trends in cash flow indexes are as indicated below.
76.7 86.5 0.8 20.7
76.4 80.5 0.5 35.8
74.8 52.6 0.4 88.4
75.5 76.6 0.3 165.7
72.5 95.0 0.3 255.8 Year ended March 2005
Outlook for the next
term, and issues requiring
the company’s attention
Regarding the economic outlook for the future, there are still concerns about the effects of dramatic in- creases in oil prices, as well as price increases in raw materials and other materials, and at the same time, with numerous factors contributing to in- stability, such as trends in personal consumption and in the American economy, we expect to see increas- ing uncertainty about the future. In the midst of this management en- vironment, Amano Corp. and the group companies will promote nu- merous activities, including: fur ther strengthening ties; creating new mar- kets in each business field; develop- ing aggressive sales activities based on close ties with customers; providing high value-added products through globalization of the development structure; and offering a wide range of solution services. At the same time, we will work to build a strong profit base and achieve sustainable growth.
Regarding business issues for the coming fiscal year, we will promote the following business strategies based on a new mid-term manage- ment plan.
Time Information Systems [Information Systems]
- Expand T&A Solutions Business tar- geting large corporations
- Promote proposals for T&A systems targeting local governments and other public markets
- Expand the door security (access management) market that has sur- faced in keeping with the implemen- tation of the Law Concerning the Protection of Personal Information [Time Management Products] - Strengthen sales activities targeting multi-store / multi-office applications by expanding the functions of the TimeP@CK time recorder with PC spreadsheet software
[Parking Systems]
- Strengthen structures targeting markets for new parking lot systems that have surfaced as a result of the
“illegally parked bicycle” problem - Strengthen promotions for up- grades of old systems
- Strengthen sales capabilities in man- agement service markets, which con- tinue to expand
- Strengthen sales capabilities in mar- kets in North America, Europe, and Asia.
Environment Systems [Environmental Systems]
- Strengthen product lineup target- ing environment-related markets such as the deodorization market and in- dustrial-use alkali cleaning fluids - Expand the general-purpose ma- chiner y market by developing and strengthening products that meet customers’ specification requirements - Strengthen sales and engineering structures in the Chinese market [Cleaning Systems]
- Strengthen customer management capabilities targeting large-scale super- markets and convenience stores - Strengthen sales capabilities target- ing mid-sized store markets and fac- tory markets
- Strengthen product lineups target- ing the “soft floor” market in which new demand is surfacing
Year ending March 2006 Year ending March 2005 Growth rate
(Unit: million yen) Net sales
75,000 73,140 2.5%
Operating profit 8,800 9,074
△3.0%
Ordinary profit 8,600 8,956
△4.0%
Net profit 5,300 5,108 3.7%
Based on the above, projected business performance for the coming fiscal year is as follows: net sales: 75 billion yen; operating profit: 8.8 billion yen; ordinary profit: 8.6 billion yen; and net profit: 5.3 billion yen.
Regarding dividends, we will work to achieve continued improvements in business performance, and will aim for annual dividends of 22 yen per share (interim: 11 yen; end of term: 11 yen).
Note: The projected negative growth rate for operating profit and ordinary profit compared to the previous year is due to the effects of special demand in the previous year in the parking business which resulted from the issuing of new yen bills.
Time Information Systems
Expectations for expansion of T&A Management Systems
In keeping with the increasing demand for Time and Attendance (T&A) Man- agement systems, Amano has re- leased the new product “Time Asset” as part of efforts to establish a large- scale T&A Solutions Business focus- ing on the metropolitan areas of To- kyo and Osaka. By implementing this product, in addition to achieving in- creased speed and optimization of attendance management, customers can also enjoy the benefits of struc- tured T&A Solution software that promotes greater overall work effi- ciency. This revolutionary system en- ables optimum structuring of the customer’s attendance management and staff management operations using four core modules: “Time cal- culation,” “Scheduling,” “Basic screen design,” and “Basic ledger design.” In terms of protecting personal infor- mation, the “Amano 1-door access pack,” which prevents unauthorized persons from entering server rooms and other important rooms, is a con- venient and inexpensive security sys- tem for small to middle-sized com- panies that also ser ves as an ex- tremely effective safety management system. In the future, we will actively expand on this package product tar- geting the door security market. Hav- ing laid down a firm base of informa- tion system installations with regional municipal governments, we expect to see fur ther growth in the IC card business, particularly with the market
expansion in the educational field at national universities and hospitals, as well as grade schools and “Juku” prep schools. We will encourage this growth by proposing electronic atten- dance log systems, starting with em- p l o ye e I D s t h a t i n c o r p o r a t e contactless IC cards.
ASP Human Resource Information Management Systems
Amano Business Solution Systems Corp. recently released “CYBER XEED Jinji (Human Resources),” an ASP service that enables central man- agement of in-house human resource information. Because this new service can be tied into two services already being offered – the T&A ASP “CYBER XEED Shugyo (T&A)” and the pay- roll ASP “CYBER XEED Kyuyo (Pay- roll),” customers can achieve out- standing operating efficiency through centralized management of the em- ployee information database that is
used by each of these systems. We will continue to promote new de- mand for these systems, focusing mainly on small to mid-sized compa- nies with less than one thousand employees.
Parking Systems
Central Japan International Airport combines the latest in parking sys- tem technologies
The Central Japan International Air- por t (“Centrair”), which opened in Februar y 2005, was constructed mainly through private sector activi- ties, with the goal of creating an air- port that is truly easy for travelers to use. The massive parking facilities, which can accommodate 4,000 ve- hicles, incorporate Amano’s parking systems, combining the latest in park- ing system technologies.
The system features centralized man- agement of the massive par king facility’s parking devices, management devices, and traffic guidance systems using integrated network software. The automatic payment machines use a pre-payment system with a univer- sal design that can be used easily by Business Activities
“iAccess” Room Access Management System
anyone, including seniors, the disabled, and non-Japanese customers. The credit card payment system increases the convenience of fee payments. The license number recognition system prevents unauthorized entry and ex- iting. The parking slips feature an il- lustrated map of the parking lot to make it easier for drivers to remem- ber where they parked their cars. Amano’s advanced technologies and extensive know-how regarding park- ing systems, combining hardware, soft- ware, and information technologies – for example, in the guidance system based on currently available parking spaces – have been brought to bear in all parts of this massive parking fa- cility to ensure safety and peace of mind and to increase overall operat- ing efficiency.
Expanding parking lot management services based on abundant know- how
Parking lot management and opera- tion ser vices that match customer needs for reductions in management costs and efficient parking lot opera- tions have been increasing in terms of the number of contracts due in par t to the trend toward business outsourcing. Amano is strengthening sales targeting public and wide-area service organizations, and is further strengthening its service capabilities by expanding the functions if the
“AMS Support Center.” We are also actively undertaking sales that pick up on and anticipates market trends, for example by providing “set” packages that combine management services
with parking lot systems in areas where demand is increasing, such as the establishment of paid parking ar- eas at commercial facilities and around train stations, as a means of reducing the number of illegally parked bicycles.
With the increasing trend toward private sector management of mu- nicipal parking lots through the intro- duction of the “Specified Manager System,” we expect that the demand for parking lot management will con- tinue well into the future.
Amano e-timing Services
Time Transmission / Authentication Service Business
Amid the proliferation of electronic documents, as evidenced by the implementation of the e-Document Law and the growing popularity of electronic document storage and e- commerce, we expect to see growth in the use of “time stamp services,” which are effective in guaranteeing
the validity of electronic documents. Anticipating fur ther rapid growth in the use of electronic documents in business, Amano quickly established a “Time Stamp Business,” called “Time Stamp Service 3161,” in conformance with international standards (JIS), with the goal of establishing a de facto stan- dard for time stamps. This year, “Time Stamp Service 3161” became the first such service to acquire certification as a “Time Authentication Business” under the “Time Business Reliability and Safety Certification System” cre- ated by the Japanese Data Commu- nication Association. Amano was also the first company to be cer tified in the “Time Distribution Business” cat- egory.
Environmental Systems
Strengthening sales structures for environment-related products in the growing Chinese market
Amano is strengthening its local sales structures in China to respond to the needs of automotive peripheral de- vice manufacturers expanding into that region following the growing trend in which more and more ma- jor automotive manufacturers are establishing new production plants in China.
The Group company Amano Inter- national Trading (Shanghai) Co., Ltd. (Amano Shanghai or AIT) has estab- lished its head office in Shanghai along with sales and ser vices bases in Shenzhen and Beijing. In order to pro- vide high-quality, competitive prod- ucts and services, while maintaining close ties with specified partner com- panies in China, Amano Shanghai is creating a structure that can provide a full range of user support, from the sales and design to installation and maintenance of environment devices and systems.
Creating new demand in the clean- ing field with alkali electrolytic clean- ing fluids
Alkali electrolytic fluids demonstrate powerful cleaning capabilities without using chemical synthetic materials. Amano is opening up new markets with cleaning fluids that reduce envi- ronment load while at the same time reducing the cost of operation. The only raw materials required are tap water and inorganic salt (potassium chloride). In the industrial cleaning field, we are proposing these prod- ucts as a cleaning fluid for industrial parts to factors introducing dust col- lectors and time recorders. In the
“Cleaning and Washing” field, we are
CWS-500 Tile carpet cleaner
CW660RT
Specialized carpet cleaner
proposing sales of “Cleaning fluids (alkali ion cleaning fluids) as a set with floor cleaners and carpet cleaners. Alkali electrolytic fluids are currently beginning to gain attention as a safe type of cleaning fluid that reduces environmental burden by enabling easy processing of cleaning waste flu- ids, and which has demonstrated out- standing cleaning results in test appli- cations.
Cleaning Systems
Opening up the Carpeted Floor Market with a New Product Lineup An increasing number of facilities have begun using carpeted floors, includ- ing amusement facilities, large-scale shopping centers, supermarkets, and public facilities such as schools, hos- pitals, and halls. In the midst of these trends, Amano is expanding its lineup by releasing numerous new carpet sweeper (vacuum cleaner) and car- pet cleaner products, in order to mount an offensive on this growing market. The CW660RT self-propelled carpet vacuum sweeper is a special- ized carpet cleaner that offers equally stable cleaning performance on both tile carpets and roll carpets. The
CWS-500 tile carpet cleaner is an environment-friendly carpet cleaner that prevents pollution by combining detergents with an alkali electrolytic cleaning fluid.
Amano Management Ser-
vice Corporation. (AMS)
Strengthening Management Services of parking lots
Amano Management Service Corp. (AMS) plays an impor tant role in Amano’s parking business. Parking operation and management systems represent a central pillar of Amano Management Service Corp. (AMS), which plays an impor tant role in Amano’s parking business. AMS has expanded the functions of the “AMS Suppor t Center,” which forms the core of the company’s operations. Specialized staff provides direct tele- phone suppor t to customers 24 hours a day, 365 days a year. At the end of March 2004, AMS was man- aging a total of 45,850 cars for com- missioned parking space - about ten times more than when the company was first established eight years ago. Having gained extensive experience in the fields of public finance initiative (PFI) business and the direct and com- missioned management of parking lots, AMS is steadily expanding its business to develop new fields, includ- ing proper ty management, offering new proposals to public and wide- area service agencies, and commis- sioned management of bicycle park- ing lots around train stations.
Amano Korea Corpora-
tion. (AKC)
Strong performance in parking busi- ness
Amano Korea Corp. (AKC), an Amano Group company, moved its office to a new building in March of last year. AKC’s business performance has improved each passing year, sup- ported by strong sales in parking man- agement software and parking sys- tems, including company’s original PC- based fee computers.
*Example of parking management system installation
The Chonho Station basement park- ing facility, which is operated by the Hyundai Department Store (part of the Hyundai Group), has six entrances and three exits, and can accommo- date 300 vehicles. With image sen- sors installed at each entrance and exit; when a vehicle enters the park- ing lot, its photo is taken, and when it exits the facility, the attendant com- pares the image with the photo on entry to calculate the fee. AKC de- veloped the entire system, from the PC-based fee computer to the imag- ing catch system.
*Exhibited at the “Security World Expo 2004” (held from April 26 - 29, 2004, at COEX (formerly the Korean Exhibition Center).
AKC received an excellent reaction at the “International Security World Expo,” the IT Trade Exhibition in Ko- rea, where it displayed parking man- agement systems, the TimeP@CK PC- linked time recorder, and the new
“iAccess” room access management system. -
AMS Support Center
Amano’s booth at “Security World Expo 2004”
PC-based Fee Computer
AMANO Corporation and Subsidiaries
Financial Highlights
For the years ended March 31, 2005 and 2004.
Yen in millions and U.S.dollars in thousands, except per share amounts - See Note 4 to the Consolidated Financial Statements.
2005 2004 2005
For the years ended March 31:
Net sales ... Net income ... Per share data:
Net income per share ... Cash dividends per common share ... At March 31:
Total assets ... Working capital ... Shareholders’ equity ... Sales by product:
Time information systems ... Time management equipment ... Parking systems ... Environmental systems ... Cleaning systems ...
Note: U.S.dollar amounts have been translated at the rate of ¥107 = US $1, the rate prevailing on March 31, 2005. - See Note 4 to the Consolidated Financial Statements.
0 10,000 20,000 30,000 40,000 50,000 60,000 80,000 70,000
0 0.00
10.00 20.00 30.00 40.00 50.00 60.00 70.00
1,000 2,000 3,000 6,000
5,000
4,000
Net Sales (Millions of Yen)
Net Income (Millions of Yen)
Net Income Per Share (Yen)
¥73,140 5,109
¥62.95 22.00
¥100,746 42,241 73,044
¥11,910 7,128 29,213 15,094 9,795
¥66,066 2,837
¥34.85 15.50
¥91,870 38,681 69,345
¥10,900 7,303 25,019 13,245 9,599
$683,551 47,748
$0.588 0.206
$941,551 394,776 682,654
$111,308 66,617 273,019 141,065 91,542
AMANO Corporation and Subsidiaries
Consolidated Balance Sheets
As at March 31, 2005 and 2004.
Thousands of U.S. Millions of Yen dollars (Note 4)
ASSETS 2005 2004 2005
Current assets:
Cash and bank deposits ... Marketable securities ... Notes and accounts receivable:
Trade ... Less allowance for doubtful accounts ...
Inventories ... Deferred tax assets ... Other current assets ... Total current assets ...
Investments and advances:
Investment in and advance to affiliates’ ... Investments in securities ... Other investments ... Total investments and advances ...
Property, plant and equipment, at cost:
Buildings ... Machinery and equipment ...
Less accumulated depreciation ...
Land ... Construction in progress ... Net property, plant and equipment ...
Fixed leasehold deposits... Deferred charges and other assets...
Total ...
The accompanying notes are an integral part of these statements.
¥34,900 26
20,269 (142) 20,127
7,319 1,199 748 64,319
409 3,885 6,571 10,865
24,671 17,459 42,130 (27,812)
14,318 5,885 260 20,463
991
4,108
¥100,746
¥28,841 419
19,596 (159) 19,437
5,695 997 640 56,029
251 4,630 5,425 10,306
24,276 17,061 41,337 (27,049)
14,288 6,011 208 20,507
1,163 3,865
¥91,870
$326,168 243
189,430 (1,327) 188,103
68,402 11,205 6,991 601,112
3,823 36,308 61,411 101,542
230,570 163,168 393,738 (259,925)
133,813 55,000 2,430 191,243
9,262
38,392
$941,551
Thousands of U.S. Millions of Yen dollars (Note 4)
LIABILITIES AND SHAREHOLDERS’ EQUITY 2005 2004 2005
Current liabilities:
Short-term bank loans ... Trade notes and accounts payable ... Accrued expenses ... Accrued income taxes ... Other current liabilities ... Total current liabilities ...
Long-term liabilities:
Accrued retirement benefits to employees ... Accrued retirement benefits to directors and corporate auditors .. Deferred tax liabilities ... Other ... Total long-term liabilities ...
Minority interests in consolidated subsidiaries...
Shareholders’ Equity: Common stock:
Authorized- 185,476,000 shares Issued :
March 31, 2005 - 81,257,829 shares ... March 31, 2004 - 81,257,829 shares ... Capital surplus ... Retained earnings ...
Net unrealized losses on other securities ... Foreign currency translation adjustments ... Treasury stock at cost, 1,558,747 shares in 2005 and 1,514,290 shares in 2004 ... Total shareholders’ equity ... Total ... The accompanying notes are an integral part of these statements.
¥847 11,356 3,760 2,921 3,195 22,079
4,096 675 42 445 5,258
365
18,240 – 19,293 38,296 75,829
105 (1,649)
(1,241) 73,044
¥100,746
¥694 9,110 3,446 1,027 3,071 17,348
3,981 635 35 274 4,925
252
– 18,240 19,293 34,671 72,204
(4) (1,657)
(1,198) 69,345
¥91,870
$7,916 106,131 35,140 27,299 29,860 206,346
38,280 6,308 393 4,159 49,140
3,411
170,467 – 180,308 357,907 708,682
981 (15,411)
(11,598) 682,654
$941,551
AMANO Corporation and Subsidiaries
Consolidated Statements of Income
For the years ended March 31, 2005 and 2004.
Thousands of U.S. Millions of Yen dollars (Note 4)
2005 2004 2005
Net sales ... Cost of sales... Gross profit ... Selling, general and administrative expenses ... Operating income ... Other income (expenses) :
Interest and dividend income ... Interest expense ... Amortization of goodwill ... Loss on disposal of property and equipment ... Loss on sale of buildings and land ... Gain on sale of investments in securities ... Loss on sale of investments in securities ... Loss on write-down of investments in securities ... Loss on write-down of golf club membership ... Other, net ... Income before income taxes ... Income taxes :
Current ... Deferred ... Income before minority interests ... Minority interests in net income of consolidated subsidiaries .. Net income ...
Yen U.S. dollars (Note 4)
Net income per share, basic... Cash dividends per common share ... The accompanying notes are an integral part of these statements.
¥73,140 39,291 33,849 24,775 9,074
102 (43) (320) (63) (214) 57 (297)
(36) – 158 8,418
3,545 (355) 5,228
(119)
¥5,109
¥62.95 22.00
¥66,066 36,898 29,168 23,869 5,299
113 (47) (320) (51) – 562 (548)
– (10) (139) 4,859
1,738 186 2,935 (98)
¥2,837
¥34.85 15.50
$683,551 367,205 316,346 231,542 84,804
953 (402) (2,991) (589) (2,000) 533 (2,776)
(336) – 1,477 78,673
33,131 (3,318) 48,860
(1,112)
$47,748
$0.588 0.206
AMANO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended March 31, 2005 and 2004.
Thousands of U.S. Millions of Yen dollars (Note 4)
2005 2004 2005
Cash Flows from Operating Activities:
Income before income taxes ... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ... Increase in provision for accrued retirement benefits ... Increase (decrease) in allowance for doubtful accounts ... Interest and dividend revenue ... Interest expenses ... Foreign currency translation loss ... Gain on sale of investments in securities ... Loss on sale of investments in securities ... Loss on write-down of investments in securities ... Loss on disposal of fixed assets ... Loss on sale of fixed assets ... Loss on write-down of golf club membership ... (Increase) decrease in trade notes and accounts receivable ... (Increase) decrease in inventories ... Increase (decrease) in accounts payable ... Others ... Subtotal ... Receipts from interest and dividends ... Interest paid ... Income taxes paid ... Net cash provided by operating activities ... Cash Flows from Investing Activities:
Payment for purchase of property and equipment ... Proceeds from sale of property and equipment ... Payment for acquisition of intangible assets ... Payment for acquisition of investments in securities ... Proceeds from sale of investments in securities ... Proceeds from maturities of investments in securities ... Increase in time deposits ... Decrease in time deposits ... Loans to third parties ... Collection of loans ... Net cash used in investing activities ... Cash Flows from Financing Activities:
Proceeds from short-term bank loans ... Repayment for short-term bank loans ... Proceeds from long-term debt ... Repayment for long-term deb ... Payment for acquisition of treasury stock ... Dividends paid ... Net cash used in financing activities ... Effect of exchange rate changes on cash and cash equivalents ... Net increase (decrease) in cash and cash equivalents ... Cash and cash equivalents at beginning of year ... Cash and cash equivalents at end of year ...
¥8,418
2,708 115 (4) (102) 43 (29) (57) 297
36 63 214 – (680) (1,628) 2,232
4 11,630 100 (39) (1,651) 10,040
(1,500) 139 (1,591)
(677) 1,276
300 (500) 1,275
– 23 (1,255)
250 (208) 208 (202) (42) (1,442) (1,436)
(15) 7,334 27,566
¥34,900
¥4,859
2,818 417 6 (112)
47 10 (562)
548 – 51 – 10 1,406 472 (457) (520) 8,993
114 (46) (1,406) 7,655
(1,261) 3 (1,152) (1,306) 3,985
– (1,000)
10 (21) 131 (611)
171 (269)
214 (196) (366) (1,047) (1,493) 116 5,667 21,899
¥27,566
$78,673
25,308 1,075 (37) (953) 402 (271) (533) 2,776
336 589 2,000 – (6,355) (15,215) 20,860
37 108,692 935 (365) (15,430) 93,832
(14,019) 1,299 (14,869)
(6,327) 11,925
2,804 (4,673) 11,916
– 215 (11,729)
2,336 (1,944)
1,944 (1,888)
(392) (13,477) (13,421)
(140) 68,542 257,626
$326,168
Millions of Yen
Common Capital Retained
(Number of Shares of Common Stock - Thousands) Stock Surplus Earnings
Balance at March 31,2003 (83,802)... Net income for the year ... Cash dividends ... Directors' bonuses ... Retirement of treasury stock (2,544) ... Balance at March 31,2004 (81,258) ... Net income for the year ... Cash dividends ... Directors' and corporate auditors' bonuses ... Balance at March 31,2005 (81,258) ...
Thousands of U.S. dollars (Note 4)
Common Capital Retained
Stock Surplus Earnings
Balance at March 31,2004 (81,258)... Net income for the year ... Cash dividends ... Directors' and corporate auditors' bonuses ... Balance at March 31,2005 (81, 258)... The accompanying notes are an integral part of these statements.
AMANO Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity
For the years ended March 31, 2005 and 2004.
¥18,240 – – – –
¥18,240 – – –
¥18,240
$170,467 – – –
$170,467
¥19,293 – – – –
¥19,293 – – –
¥19,293
$180,308 – – –
$180,308
¥34,924 2,837 (1,043)
(8) (2,039)
¥34,671 5,109 (1,435)
(49)
¥38,296
$324,028 47,748 (13,411)
(458)
$357,907
AMANO Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended March 31, 2004 and 2003.
1. Basis of Consolidated Financial Statements
The consolidated financial statements of AMANO Corporation (“the Com- pany”) and its subsidiaries (majority- owned companies) have been pre- pared in accordance with the account- ing standards for consolidated finan- cial statements in Japan. The ac- counts of the Company included in the consolidation are based on the ac- counting records maintained in accor- dance with the provisions of the Japa- nese Commercial Code and account- ing principles generally accepted in Japan, which are diffenent in certain respects as to the application and the disclosure requirements of Interna- tional Accounting Standards. The accounts of consolidated over- seas subsidiaries, as shown below, are based on audited financial statements prepared in conformity with account- ing practices prevailing in the coun- try of incorporation. In general, no adjustments to the accounts of over- seas consolidated subsidiaries have been reflected in the accompanying consolidated financial statements. The accompanying consolidated fi- nancial statements of the Company and its consolidated subsidiaries are essentially the translation of state- ments in the Securities Annual Re- port filed with the Ministry of Fi- nance and the Tokyo and Osaka Stock Exchanges, as required by the provi- sions of the Securities and Exchange Law and related regulations in Japan. The information in the consolidated
ture of that information, and is there- fore limited to that contained in the original text. However, certain re- classifications or summarizations of accounts have been made to present the consolidated financial statements in a form which is more familiar to the readers outside Japan.
The consolidated finacial statements are not intended to present the con- solidated financial position, results of operations and the cash flows in accordance with accounting prin- ciples and practices generally ac- cepted in countries and jurisdictions other than Japan.
2. Principles of Consolidation
(1) Scope of Consolidation The Company had 22 subsidiaries at March 31, 2005 and 2004. The Com- pany changed its consolidation policy from the application of the ownership concept to the control concept effec- tive April 1, 1999. Under the control concept, major subsidiaries in which the Company is able to exercise con- trol over operations are to be fully consolidated.
The accounts of the overseas consoli- dated subsidiaries are prepared on the basis of a December 31 fiscal year-end, and are consolidated ac- cordingly with the Company at March 31, 2005 and 2004, and for the years then ended.
The consolidated subsidiaries that have been consolidated with the Company for the year ended March
Amano USA, Inc.
100% US$55,623 Amano Cincinnati Inc.
100% US$25,985 Amano Cincinnati Canada Inc.
100% C$439
Time & Parking Systems, Inc.
100% US$294
Pioneer Eclipse Corp.
100% US$4,606 Amano Pioneer Credit Corp.
(d.b.a. Amano Business Credit)
84% US$135
Accutime Corp. 100% US$290
Amano Electronics
Europe N.V. 100% EUR24,974
Amano Cleantech
Malaysia Sdn. Bhd. 60% MR200 ATAS E&C Services (M) Sdn. Bhd.
70% MR150
Amano Time & Air
Singapore Pte. Ltd. 100% S$700 ATAS Services Pte. Ltd.
96% S$500
Amano Asia Management Pte. Ltd.
100% S$125
PT. Amano
Indonesia 100% IDR1,928,000 Amano International Trading
(Shanghai) Co., Ltd. 100% US$200 Amano Korea Corp. 100% W2,010,000 Amano Agency Corp.
44% ¥10,000
Environmental Technology Company
100% ¥10,000
Amano Management Service Corp.
68% ¥80,000
Amano Maintenance Engineering Corp.
70% ¥30,000
Amano Business Solutions Corp.
97% ¥300,000
Musashi Electric works Corp.
100% ¥10,000
Company Name Paid In Capital (Thousands) Equity
ownership
%
(2) Investments in Affiliates For the years ended March 31, 2003 and 2004, the Company has no af- filiate.
(3) Consolidation and Elimination For the purpose of preparing the con- solidated financial statements, all sig- nificant intercompany transactions, account balances, and unrealized profits among the Companies have been eliminated from the consoli- dated financial statements. Intrac- ompany profit included in the assets sold from the Company to the con- solidated subsidiaries has been en- tirely eliminated and charged against the consolidated earnings of the Com- panies. Intracompany profit included in the assets sold from the consoli- dated subsidiaries to the Company has been entirely eliminated and the portion applicable to minority inter- ests has been charged against minor- ity interests. Other consolidation dif- ferences are directly charged or cred- ited to income for the year, since such differences had no material effect on the consolidated result of operations, nor on the financial position at March 31.
3. Summary of Significant Accounting Policies
(1) Cash and Cash Equivalents Cash and cash equivalents include time deposits whose expiration dates are within three months.
(2) Inventories
Inventories are stated at cost. Cost is determined principally using the periodic average method.
(3) Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated de- preciation. Depreciation is computed on the declining balance method, ex- cept for buildings acquired from April 1, 1998, at rates based on the esti- mated useful lives. The range of the useful lives of assets is :
Buildings 3-50 years
Machinery and equipment 3-16 years
Cost of property, plant and equip- ment, retired or otherwise disposed of, and related accumulated depre- ciation, is eliminated from the respec- tive accounts, and the resulting gain or loss is reflected in income during the applicable period. Normal re- pairs and maintenance, including minor renewals and improvements, are charged to income as incurred.
(4) Deferred Charges and Other Assets
Intangible assets are amortized us- ing the straight-line method. Soft- ware costs for internal use are amor- tized by the straight-line method over their expected useful lives (five years). Goodwill represents the ex- cess of costs over the fair value of net assets of businesses acquired. The company’s U.S. consolidated subsidiaries adopted the provisions of SFAS No. 142 for the fiscal year beginning April 1, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite use- ful life are not amortized, and are instead tested for impairment at least annually in accordance with the pro- visions of SFAS No. 142. SFAS No. 142 required the Company to per-
form an assessment of whether there was an indication that goodwill is im- paired as of the date of adoption. The results of this assessment did not re- quire the Company to recognize an impairment loss.
(5) Accounting for Financial Instruments
(a) Derivatives
All derivatives are stated at fair value, with changes in fair value included in net profit or loss for the period in which they arise.
(b) Securities
Securities held by the Company and its subsidiaries are classified into four categories;
Trading securities, which are held for the purpose of generating profits on short-term differences in prices, are stated at fair value, with changes in fair value included in net profit or loss for the period in which they arise. Additionally, securities held in trusts for trading purposes are ac- counted for in the same manner as trading securities.
Held-to-maturity debt securities, that the Company and its subsidiaries have intent to hold to maturity, are stated at cost after accounting for premium or discount on acquisition, which are amortized over the period to maturity. Investments of the Company in eq- uity securities issued by unconsoli- dated subsidiaries and affiliates are accounted for by the equity method. Exceptionally, investments in certain unconsolidated subsidiaries and af- filiates are stated at cost because the effect of application of the equity method would be immaterial. Other securities for which market
quotations are available are stated at fair value. Net unrealized gains or losses on these securities are reported as a separate item in the sharehold- ers' equity at a net-of-tax amount. Other securities for which market quotations are unavailable are stated at cost, except as stated in the para- graph below.
In cases where the fair value of held- to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and affiliates, or other securities had declined significantly and such impairment of the value is not deemed temporary, those securi- ties are written down to the fair value and the resulting losses are included in net profit or loss for the period.
(6) Foreign Currency Translation Current monetary assets and current monetary liabilities denominated in foreign currencies held by the Com- pany are translated into Japanese yen at the rate of exchange prevailing at the balance sheet date. The result- ing translation gains or losses are charged or credited to income. Long- term monetary assets and liabilities denominated in foreign currencies, including investments in unconsoli- dated subsidiaries, are principally translated at the rate of exchange pre- vailing when such translations were made.
(7) Translation of Foreign Currency Financial Statements (Accounts of Overseas Subsidiaries) Foreign currency denominated state-
Japanese yen using the method pre- scribed by the Business Accounting Deliberation Council of Japan. All items are translated at the rate of ex- change prevailing at the balance sheet date, except common stock and capital surplus, which are translated at historical exchange rates. Differ- ences arising from translation are presented as “Foreign currency trans- lation adjustment” in the accompa- nying consolidated financial state- ments.
(8) Income Taxes
The Companies recognizes tax effect of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The provi- sion for income taxes is computed based on the pretax income included in the consolidated statements of in- come. The asset and liability ap- proach is used to recognize deferred tax assets and liabilities for the ex- pected future tax consequences of temporary differences.
(9) Appropriation of Retained Earnings
Under the Japanese Commercial Code and the Articles of Incorpora- tion of the Company, the plan for the appropriation of retained earnings (primarily cash dividend payments) proposed by the Board of Directors is subject to approval at the annual shareholders' meeting, which must be held within three months after the end of each fiscal year. The appro- priation of retained earnings re- flected in the accompanying consoli- dated financial statements represents
financial year, which was approved at the shareholders' meeting and dis- posed of during that year. Dividends are paid to shareholders listed on the shareholders' register at the end of each fiscal year. Bonuses are paid to directors and corporate auditors out of retained earnings, instead of be- ing charged to income for the year, which constitutes a part of the ap- propriation cited above.
(10) Provision for Accrued Expenses
(a) Allowance for doubtful accounts. In general, the Company and its sub- sidiaries provide the allowance based on the past receivables loss experi- ence for a certain reference period. Furthermore, for receivables with fi- nancial difficulty which could affect the debtors' ability to perform their obligations, the allowance is pro- vided for estimated unrecoverable amounts individually.
(b) Accrued pension and severance liabilities
Until the year ended March 31,2000,
“Accrued retirement benefits to em- ployees” represents the liability for which the Company has provided to the amount which would be required to pay if all eligible employees vol- untarily terminated their employ- ment at the respective balance sheet dates, less related benefits provided by the pension plan. Under the cur- rent retirement benefit program, the Company also has a funded pension plan which covers a portion of re- tirement benefits payable to employ- ees. The Company also provides for the accrual of lump-sum retirement
