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KAJI TECHNOLOGY CORPORATION
Financial Statements
KPMG AZSA LLCJune 2018
Auditors' ReportTogether with Independent
For the Year Ended March 31, 2018
Balance SheetsKAJI TECHNOLOGY CORPORATION
As ofASSETS Current Assets: Cash and deposits ¥ 509,791 ¥ 479,215 Notes receivable - trade 623,884 712,212 Accounts receivable 1,395,157 1,969,858 Finished product 35,073 17,541 Raw materials 267,369 290,284 Work in progress 1,119,879 830,347 Supplies 17,746 19,932 Advance payments 27 - Deposits paid 2,700,000 2,400,000 Prepaid expenses 4,981 7,865 Deferred tax assets 131,172 114,652 Other current assets 71,590 24,049 Allowance for doubtful accounts (16,200) (21,500) Total current assets 6,860,469 6,844,455
Non-Current Assets: Property, plant and equipment: Buildings 771,199 776,307 Accumulated depreciation (667,257) (663,687) Buildings (net) 103,942 112,620 Structures 159,724 158,946 Accumulated depreciation (127,726) (124,609) Structures (net) 31,998 34,337 Machinery and equipment 1,547,041 1,609,664 Accumulated depreciation (1,430,542) (1,482,721) Machinery and equipment (net) 116,499 126,943 Vehicles 21,247 21,247 Accumulated depreciation (21,247) (21,247) Vehicles (net) 0 0 Tools, furniture and fixtures 361,959 368,870 Accumulated depreciation (328,617) (328,552) Tools, furniture and fixtures (net) 33,342 40,318 Land 447,526 447,526 Construction in progress 1,351 1,662 Total property, plant and equipment 734,658 763,406
Intangible fixed assets: Software 47,487 77,940 Telephone subscription rights 2,879 2,879 Other intangible fixed assets 8,000 8,000 Total intangible fixed assets 58,366 88,819
Investments and other assets: Long-term prepaid expenses 6,893 1,913 Deferred tax assets 195,140 195,824 Other investments and other assets 34,053 34,256 Allowance for doubtful accounts (550) (550) Total investments and other assets 235,536 231,443
Total non-current assets 1,028,560 1,083,668
Total assets ¥ 7,889,029 ¥ 7,928,123
March 31, 2018 March 31, 2017FY2016
Thousands of yen
FY2017
As ofLIABILITIES Current Liabilities: Notes payable - trade ¥ 587,628 ¥ 688,766 Accounts payable 241,838 161,927 Short-term loans payable 60,000 130,000 Accounts payable - other 4,877 6,166 Accrued expenses 165,889 130,703 Accrued income taxes 42,101 47,449 Accrued consumption taxes - 37,174 Advances received 84,921 4,545 Deposit received 8,846 8,473 Provision for bonuses 134,693 140,663 Provision for loss on orders received 74,400 89,000 Other current liablities 971 - Total current liabilities 1,406,164 1,444,866
Non-Current Liabilities: Provision for retirement benefits 586,563 597,597 Other non-current liabilities 53,980 100,200 Total non-current liabilities 640,543 697,797 Total liabilities 2,046,707 2,142,663
NET ASSETS Shareholders’ Equity: Capital stock 1,440,000 1,440,000 Capital surplus Capital reserve 1,203,009 1,203,009 Total capital surplus 1,203,009 1,203,009 Retained earnings Legal reserve 141,600 141,600 Other retained earnings General reserve 625,000 625,000 Retained earnings brought forward 2,541,832 2,482,921 Total retained earnings 3,308,432 3,249,521 Treasury stock (108,445) (107,243) Total shareholders’ equity 5,842,996 5,785,287 Valuation And Translation Adjustments: Deferred hedge profit (loss) (674) 173 Total valuation and translation adjustments (674) 173 Total net assets 5,842,322 5,785,460Total liabilities and net assets ¥ 7,889,029 ¥ 7,928,123
Thousands of yen
FY2017 FY2016March 31, 2018 March 31, 2017
Statements of IncomeKAJI TECHNOLOGY CORPORATION
For the years ended Net Sales ¥ 4,364,806 ¥ 5,072,004Cost of SalesFinished product at beginning of year 17,540 17,982Product costs 3,101,533 3,724,983Total 3,119,073 3,742,965Finished product at end of year 35,073 17,540Provision for loss on orders received (14,600) 37,400Valuation difference of inventories (142) 111Total cost of sales 3,069,258 3,762,936Gross profit 1,295,548 1,309,068Selling, General and Administrative Expenses Directors' compensation 121,883 140,627 Salaries and bonuses 274,690 263,085 Provision of bonuses 33,846 36,167 Legal welfare expenses 54,739 54,251 Provision of directors' retirement benefits - 4,947 Retirement benefit expense 17,166 17,070 Travel expenses 45,673 46,200 Depreciation 18,235 20,340 Rent 30,721 33,461 Provision of allowance for doubtful accounts (5,300) (500) Research expenses 106,663 46,119 Estimation cost of customers' inquiries 183,242 111,393 Miscellaneous expenses 195,053 172,101 Total selling, general and administrative expenses 1,076,611 945,261Operating income 218,937 363,807Non-operating incomeInterest 7,529 6,979Dividend income - 678Compensation for damage 299 2,877Other non-operationg income 3,272 3,675Total non-operating income 11,100 14,209Non-operating expensesInterest expense 536 1,252Loss on sales of non-current assets 751 -Loss on disposal of non-current assets 239 498Foreign exchange losses 1,665 -Expenses related to tender offer from parent company - 15,037Other non-operationg expenses 375 1,150Total non-operating expenses 3,566 17,937Ordinary income 226,471 360,079Extraordinary gainGain on sales of investment securities - 8,989Total extraordinary gain - 8,989Net income before income taxes 226,471 369,068Income taxes 83,674 106,636Income taxes - deferred (15,461) 10,856Total income taxes 68,213 117,492Net Income ¥ 158,258 ¥ 251,576
Thousands of yen
FY2017 FY2016March 31, 2018 March 31, 2017
Statements of Changes in Net AssetsKAJI TECHNOLOGY CORPORATION
(Thousands of yen)
Capital reserve Total capital surplus General reserve Retained earnings brought forward¥ 1,440,000 ¥ 1,203,009 ¥ 1,203,009 ¥ 141,600 ¥ 625,000 ¥2,330,703 ¥ 3,097,303
(99,358) (99,358)
251,576 251,576
- - - - - 152,218 152,218
¥ 1,440,000 ¥ 1,203,009 ¥ 1,203,009 ¥ 141,600 ¥ 625,000 ¥2,482,921 ¥ 3,249,521
Treasury stock Total shareholders’ equity Net unrealized holding gains onavailable-for-sale securities Deferred hedge profit (loss) Total valuation and translation
adjustments¥(106,639) ¥ 5,633,673 ¥ 4,887 ¥ (64) ¥ 4,823 ¥ 5,638,496
(99,358) (99,358)
251,576 251,576
(604) (604) (604)
(4,887) 237 (4,650) (4,650)
(604) 151,614 (4,887) 237 (4,650) 146,964
¥(107,243) ¥ 5,785,287 - ¥ 173 ¥ 173 ¥ 5,785,460
(Thousands of yen)
Capital reserve Total capital surplus General reserve Retained earnings broughtforward
¥ 1,440,000 ¥ 1,203,009 ¥ 1,203,009 ¥ 141,600 ¥ 625,000 ¥2,482,921 ¥ 3,249,521
(99,347) (99,347)
158,258 158,258
- - - - - 58,911 58,911
¥ 1,440,000 ¥ 1,203,009 ¥ 1,203,009 ¥ 141,600 ¥ 625,000 ¥2,541,832 ¥ 3,308,432
Treasury stock Total shareholders’ equity Net unrealized holding gains onavailable-for-sale securities Deferred hedge profit (loss) Total valuation and translation
adjustments¥(107,243) ¥ 5,785,287 - ¥ 173 ¥ 173 ¥ 5,785,460
(99,347) (99,347)
158,258 158,258
(1,202) (1,202) (1,202)
- (847) (847) (847)
(1,202) 57,709 - (847) (847) 56,862
¥(108,445) ¥ 5,842,996 - ¥ (674) ¥ (674) ¥ 5,842,322
Total change during the fiscal year
Balance at End of FY2016
Change during the fiscal year
Cash dividends
Net income for the year
Purchases of treasury stock (Net) change in items other than shareholders’equity during the fiscal year
Shareholders’ Equity Valuation And Translation AdjustmentsTotal net assets
Balance at Beginnig of FY2016
Purchases of treasury stock (Net) change in items other than shareholders’equity during the fiscal year
Total change during the fiscal year
Balance at End of FY2016
Shareholders’ Equity
Capital Stock Capital Surplus Retained earnings
Legal reserve Other retained earnings Total retained earnings
Balance at Beginnig of FY2016
Change during the fiscal year
Cash dividends
Net income for the year
Shareholders’ Equity
Capital Stock Capital Surplus Retained earnings
Legal reserveOther retained earnings
Total retained earnings
Balance at Beginnig of FY2017
Change during the fiscal year
Cash dividends
Net income for the year
Purchases of treasury stock (Net) change in items other thanshareholders’ equity during the fiscal year
Total change during the fiscal year
Balance at End of FY2017
Shareholders’ Equity Valuation And Translation AdjustmentsTotal net assets
Balance at Beginnig of FY2017
Change during the fiscal year
Cash dividends
Net income for the year
Purchases of treasury stock (Net) change in items other thanshareholders’ equity during the fiscal year
Total change during the fiscal year
Balance at End of FY2017
Statements of Cash FlowsKAJI TECHNOLOGY CORPORATION
For the years ended Cash Flows from Operating Activities:Net income before income taxes ¥ 226,471 ¥ 369,068Depreciation 97,080 103,697Increase (decrease) in provision for retirement benefits (11,034) (21,854)Increase (decrease) in provision for directors’ retirement benefits - (98,373)Increase (decrease) in allowance for doubtful accounts (5,300) (500)Increase (decrease) in provision for bonuses (5,970) 2,728Increase (decrease) in provision for loss on order received (14,600) 37,400Interest and dividend income (7,529) (7,657)Interest expense 536 1,252Loss on disposal of non-current assets 239 498(Gain) loss on sales of non-current assets 751 (502)(Gain) loss on sales of investment securities - (8,989)(Increase) decrease in trade notes and accounts receivable 663,029 9,001(Increase) decrease in inventories (281,963) 35,137(Increase) decrease in other current assets (44,949) (18,081)Increase (decrease) in trade notes and accounts payable (20,653) (220,353)Other, net 21,652 66,416Subtotal 617,760 248,888Interest and dividends received 7,529 7,657Interest paid (523) (1,216)Income taxes paid (83,283) (210,028) Net cash provided by operating activities 541,483 45,301Cash Flows from Investing ActivitiesPurchase of property, plant and equipment (36,094) (51,303)Proceeds from sales of property, plant and equipment - 695Payments from disposal of property, plant and equipment (944) -Purchase of intangible fixed assets (3,948) (21,052)Proceeds from sales of investment securities - 18,811Deposit placement (300,000) (300,000)Other incomes 203 232 Net cash used in investing activities (340,783) (352,617)Cash Flows from Financing ActivitiesProceeds from short-term loans payable (70,000) (70,000)Purchase of treasury stock (1,203) (604)Cash dividends paid (98,921) (99,380) Net cash used in financing activities (170,124) (169,984)Net Increase (Decrease) in Cash and Cash Equivalents 30,576 (477,300)Cash and Cash Equivalents at Beginning of Year 479,215 956,515Cash and Cash Equivalents at End of Year ¥ 509,791 ¥ 479,215
Thousands of yen
FY2017 FY2016March 31, 2018 March 31, 2017
Notes to the Financial StatementsKAJI TECHNOLOGY CORPORATIONMarch 31, 2018 and 2017
(Summary of significant accounting policies)The following is a summary of the significant accounting and reporting policies adopted by the KAJI TECHNOLOGY CORPORATION (the "Company")in the preparation of the accompanying financial statements.
1. Inventory valuation basis and methodInventory held for sale purposesInventories are accounted for by the cost method. (The value on the Balance Sheet is calculated by devaluing the book value based on lower profitability.)(1) Finished product and work in progress Specific cost method(2) Raw materials Moving average method(3) Supplies Last purchase price method
2. Fixed asset depreciation method (1) Property, plant and equipment
Main useful lives are as below. Buildings: 3~41 years Machinery and equipment: 4~12 years
(2) Intangible fixed assets
defined useful life of 5 years.
3. Calculation of allowance(1) Allowance for doubtful accounts
(2) Provision for bonuses For payment of bonuses to employees, we provide the partial amount of the estimated payment that needs to be put aside within the fiscal year.(3) Provision for loss on orders received
(4) Provision for retirement benefits
① The method of attributing expected benefits to periods The method of attributing expected benefits to periods of service is applied on a benefit formula basis.② Expense method of actuarial differences, prior service cost and transitional liability for defined benefit plan Unrecognized actuarial differences are treated as expense in the following fiscal period by the straight-line method based on average
Prior service cost is treated as expense at the time of occurrence.
4. Hedge accounting method(1) Hedge accounting method
(2) Hedging instruments and items Hedging instruments: Forward exchange contracts Hedge items: Monetary assets and liabilities and forecasted transactions denominated in foreign currencies(3) Hedging policy
5. Statements of Cash Flows
6. Other significant matters for preparing financial statements Accounting for consumption tax Accounting for consumption tax is based on the tax exclusion method.
possible to forecast the complete offset of exchange rate fluctuation or cash flow fluctuation, an evaluation of hedging efficacy is omitted.
In preparing the statements of cash flows, cash on hand, readily available deposits, time deposits and deposits paid with maturities not exceeding threemonths at the time of purchase are considered cash and cash equivalents.
As a general rule, deferred hedge treatment is adopted. Furthermore, designation treatment is adopted for exchange contracts that fulfill the conditions of designation treatment.
In ordinary operating activities, the transactions are executed as forward exchange reservation transactions in order to minimize the risks of
foreign currency transactions derived from future exchange rate fluctuations.
As the notional amounts of hedging instruments and significant conditions related to the hedging items are the same and as at the hedging start and onw (4) Evaluation method for hedging effectiveness
For payment of retirement benefits to employees, we provide the partial amount of the estimated payment based on the retirement benefit liabilities and pension assets expected at the end of the fiscal year.
remaining working years of the employees (14~17 years).
For possible loss in relation to received orders in which a loss on outstanding orders at the end of the term is reasonably certain and the amount of loss may be rationally estimated, we provide the estimated amount of loss.
The declining balance method is applied. However, the straight-line method is applied to buildings, excluding building and accompanying facilities acquired after April 1, 1998. and facilities attached to buildings and structures, which were acquired since April 1, 2016.
The straight-line method is applied. Furthermore, with regards to software, the straight-line method is applied based on the internally
For possible loss on doubtful accounts, we provide allowance for estimated uncollectible amounts based on the actual rate of loss for general accounts and the collectability of special cases in which the risk of loss is more significant.
(Standards and guidance not yet adopted)The following standard and guidance were issued but not yet adopted.- “Accounting Standard for Revenue Recognition” (ASBJ Statement No.29, March 30, 2018)- “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No.30, March 30, 2018)
(1) OverviewThe above standard and guidance provide comprehensive principles for revenue recognition. Under the standard and guidance, revenue is recognized by applyingfollowing 5 steps:Step1: Identify contract(s) with customers.Step2: Identify the performance obligations in the contract.Step3: Determine the transaction price.Step4: Allocate the transaction price to the performance obligation in the contract.Step5; Recognize revenue when (or as) the entity satisfies a performance obligation.(2) Effective dateEffective from the beginning of the fiscal year ending March 31, 2022.
(3) Effects of the application of the standardsThe Company is currently in the process of determining the effects of these new standards on the financial statements.
Income Taxes
1. Significant components of deferred tax assets and liabilities are as follows:(Thousands of yen)
Deferred tax assets
Provision for bonuses
Provision for retirement benefits
Losses on golf club memberships
Long-term accounts payable - other
Experiment and research expenses
Allowance for doubtful accounts
Others
Subtotal deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Deferred hedge loss (profit)
Total deferred tax liabilities
Net deferred tax assets
2. The following table summarizes the significant differences between the statutory tax rate and the Company's effective tax rate
28,110 10,240
179,488 183,078
8,045 8,045
22,978 27,647
41,216 43,465
As ofFY 2017
March 31, 2018FY 2016
March 31, 2017
4,957 6,643
66,081 62,923
350,875 342,041
(24,563) (31,488)
326,312 310,553
- (77)
- (77)
326,312 310,476
The differences between the aggregate statutory tax rate and the effective tax rate after applying tax effect accounting were omittedfor the years ended March 31, 2018 and 2017 as the differences between them was less than 5%.
Segment Information
FY2017 and 2016As the Company is composed of a single reportable segment ("Compressors"), segment information has been omitted.
Related Party Transactions
1. Transactions with major shareholders of the Company are as follows:
FY 2017
Trading conditions and policy for deciding such conditions, etc.(1) With regard to sales of compressors, the trading conditions including prices are determined by adopting the equivalent conditions of third parties. The Company does not have a disadvantage with the conditions.(2) The transaction amounts do not include consumption taxes. However, the balance of notes receivable includes consumption taxes.(3) With regard to deposits, interest rates are determined by referring to market rates based on the basic agreement.
FY 2016
Trading conditions and policy for deciding such conditions, etc.(1) With regard to sales of compressors, the trading conditions including prices are determined by adopting the equivalent conditions of third parties. The Company does not have a disadvantage with the conditions.(2) The transaction amounts do not include consumption taxes. However, the balance of notes receivable includes consumption taxes.(3) With regard to deposits, interest rates are determined by referring to market rates based on the basic agreement.
(4) As of April 1, 2018, Mitsui Engineering & Shipbuilding Co., Ltd. changed to a holding company by company split, and was renamed Mitsui E & S Holdings Co., Ltd. . As a result, among the rights and obligations relevant to transactions between the Company andMitsui Engineering & Shipbuilding Co., Ltd, the ones generated by fund transactions were taken over by Mitsui E & S Holdings Co., Ltd. and the ones generated by other transactions were taken over by its subsidiaries.
59,786
Balance at the end offiscal year
(Thousands of yen)
Parent company Mitsui Engineering &Shipbuilding Co., Ltd. Chuo, Tokyo 44,384 Manufacturing
51.30% of theCompany's rights are
owned by MitsuiEngineering &
Shipbuilding Co., Ltd.directly
Fund transactions
Proceedingdeposits 300,000
Deposits paid 2,700,000Receivinginterests 7,529
Transactionamout
(Thousands ofyen)
42,855
AccountCategory Name LocationAmount of
capital(Millions of yen)
Industry
Sales of the Company'sproducts
Sales ofcompressors
Voting rights Business relationship Details oftransactions
Accountsreceivable
225,619
Manufacturing
Sales of the Company'sproducts
Sales ofcompressors 227,752 Accounts
receivable
Parent company Mitsui Engineering &Shipbuilding Co., Ltd. Chuo, Tokyo
Business relationship Details oftransactions
Fund transactions
Proceedingdeposits
Receivinginterests
Category Name Location Amount of capital(Millions of yen) Industry Voting rights
51.30% of the Company'srights are owned by
Mitsui Engineering &Shipbuilding Co., Ltd.
directly
44,384
Balance at the end offiscal year
(Thousands of yen)
300,000
Deposits paid 2,400,000
6,979
Transaction amout(Thousands of
yen)Account
Per Share Information
(Yen)
Net assets per share
Net income per share
(Notes)
3. The basis for the calculation of net income per share is as follows:
4. The basis for the calculation of net assets per share is as follows:
2. The Company implemented a share consolidation in which ten shares were consolidated into one share on October 1,2017. Net assets per share and net income per share were calculated based on the assumption that the share consolidationwas executed at the beginning of the fiscal year ended March 31, 2017.
FY 2017 FY 2016
3,529.33 3,494.11
95.59 151.93
1. Diluted net income per share is not reported since there were no outstanding securities with a potential dilutive effect.
For the years ended
FY 2017March 31, 2018
FY 2016March 31, 2017
Net income per share
Net income (thousands of yen) 158,258 251,576
Amount not attributable to ordinary shareholders(thousands of yen) - -
Net income attributable to ordinary shares(thousands of yen) 158,258 251,576
Average number of shares outstanding during theperiod (shares) 1,655,560 1,655,898
Number of ordinary shares used in calcualtion ofnet assets per share (shares) 1,655,363 1,655,777
Amount excluded from total net assets (thousandsof yen) - -
Net assets attributable to ordinary shares(thousands of yen) 5,842,322 5,785,460
As of
FY 2017March 31, 2018
FY 2016March 31, 2017
Total net assets (thousands of yen) 5,842,322 5,785,460