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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F/A
(Amendment No. 1)
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDEDMARCH 31, 2009 |
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
OR
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
DATE OF EVENT REQUIRING THIS SHELL COMPANY REPORT ____________
Commission file number000-11743
KABUSHIKI KAISHA WACOAL HOLDINGS
(Exact Name of Registrant as Specified in Its Charter)
WACOAL HOLDINGS CORP.
(Translation of Registrant’s Name Into English)
Japan
(Jurisdiction of Incorporation or Organization)
(Jurisdiction of Incorporation or Organization)
29 Nakajima-cho, Kisshoin, Minami-ku, Kyoto 601-8530, Japan
(Address of Principal Executive Offices)
(Address of Principal Executive Offices)
Masaya Wakabayashi, +81-75-682-1006, m-wakaba@wacoal.co.jp, +81-75-672-3219
29 Nakajima-cho, Kissyoin, Minami-ku, Kyoto 601-8530, Japan
29 Nakajima-cho, Kissyoin, Minami-ku, Kyoto 601-8530, Japan
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange On Which Registered | |
Common Stock | NASDAQ Capital Market | |
American Depositary Shares (each representing 5 shares of such Common Stock) |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common
stock as of the close of the period covered by the annual report.
stock as of the close of the period covered by the annual report.
Common Stock Outstanding:
140,450,847 shares
140,450,847 shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP þ | International Financial Reporting Standards as issued by the International Accounting Standards Board o | Other o |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Amendment No. 1 on Form 20-F/A contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about our company and our industry. You can identify these statements by the fact that they do not relate strictly to historic or current facts. The forward-looking statements discuss future expectations, identify strategies, contain projections of results of operations or of financial condition, or state other “forward-looking” information. In particular, the forward-looking statements may include statements relating to the impact of the ongoing global economic downturn and financial crisis, our development and sale of products, the expansion and operation of our specialty retail store network, our sales activities through catalog and Internet channels, the implementation of our CAP 21 strategic plan through strategic investments, acquisitions and other initiatives, continued development of our overseas business and operations, developments in our product sourcing and manufacturing practices and strategies, sales efforts, expenses, outcomes of contingencies and financial results. Forward-looking statements are contained in the section entitled “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and elsewhere in this Amendment No.1.
The forward-looking statements are subject to various risks and uncertainties. Information contained in the section listed above and elsewhere in this Amendment No. 1 identifies factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied in any forward-looking statement.
We undertake no obligation to update any forward-looking statements contained in this Amendment No. 1, whether as a result of new information, future events or otherwise.
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EXPLANATORY NOTE
This Amendment No. 1 on Form 20-F/A is being filed to amend our annual report on Form 20-F for the fiscal year ended March 31, 2009, which was filed with the Securities and Exchange Commission on July 29, 2009 (the “2009 Form 20-F Annual Report”), for the sole purpose of addressing the following items:
• | to correct clerical errors in the dates of the Reports of Independent Registered Public Accounting Firm under Item 17 on pages F-2 and F-3 of the 2009 Form 20-F Annual Report; and | ||
• | to correct clerical errors in the list of years covered by the table summarizing our lease obligations for the year ended March 31, 2009 under “Item 11. Quantitative and Qualitative Disclosures about Market Risks — Interest Rate Risk” on page 88 of the 2009 Form 20-F Annual Report. |
This Amendment No. 1 consists of the Form 20-F/A cover page; a cautionary statement regarding forward-looking statements; this explanatory note; Items 11 and 17 (each, as amended), including the F-pages; the signature page for Form 20-F/A; and an index to exhibits and the accompanying exhibits, including the required certifications of our principal executive officer and chief financial officer.
Other than as expressly set forth herein, this Amendment No. 1 does not, and does not purport to, amend or restate any other information contained in the 2009 Form 20-F Annual Report nor does this Amendment No. 1 reflect any events that have occurred after the 2009Form 20-F Annual Report was filed with the Securities and Exchange Commission.
As used in this Amendment No. 1, unless the context otherwise requires, the “Company” and “Wacoal Holdings” refer to Wacoal Holdings Corp., and “Wacoal”, “we”, “us”, “our” and similar terms refer to Wacoal Holdings Corp. and its consolidated subsidiaries.
The Company’s fiscal year-end is March 31. In this Amendment No. 1, “fiscal 2009” refers to our fiscal year ended March 31, 2009, and other fiscal years are referred to in a corresponding manner.
We publish our financial statements in Japanese yen. In this Amendment No. 1, references to “U.S. dollars” or “$” are to the currency of the United States and references to “yen” or “¥” are to the currency of Japan.
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Item 11. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risk, including changes in prices of marketable securities and marketable investments, interest rates and foreign exchange rates. We use derivative financial instruments to reduce our exposure to market risks from changes in interest rates and foreign exchange rates. The instruments primarily used are foreign exchange forward contracts and interest rate swaps. We believe our credit risk is minimal on these transactions, as the counterparties are major financial institutions. We do not hold or issue financial instruments for trading purposes.
Maturities and fair values of our marketable securities as of March 31, 2009 were as follows (yen amounts in millions):
Year ended | Due after | Due from | Due from | Due from | ||||||||||||||||||||||||||||
March 31, | Debt | Due within | one to | two to | three to | four to | Due after | Equity | ||||||||||||||||||||||||
2009 | securities | one year | two years | three years | four years | five years | five years | securities | ||||||||||||||||||||||||
Cost | 10,757 | 2,330 | 3,176 | 1,573 | 2 | 650 | 3,026 | 22,505 | ||||||||||||||||||||||||
Fair Value | 10,483 | 2,367 | 3,218 | 1,590 | 2 | 762 | 2,544 | 26,293 |
Maturities and fair values of our marketable securities as of March 31, 2008 were as follows (yen amounts in millions):
Year ended | Due after | Due from | Due from | Due from | ||||||||||||||||||||||||||||
March 31, | Debt | Due within | one to | two to | three to | four to | Due after | Equity | ||||||||||||||||||||||||
2008 | securities | one year | two years | three years | four years | five years | five years | securities | ||||||||||||||||||||||||
Cost | 12,186 | 2,593 | 1,397 | 3,544 | 1,597 | 5 | 3,050 | 25,762 | ||||||||||||||||||||||||
Fair Value | 12,048 | 2,595 | 1,366 | 3,577 | 1,597 | 4 | 2,909 | 36,981 |
Equity Price Risk
We hold marketable securities for short-term investment. In general, highly-liquid and low-risk instruments are preferred in the portfolio. Marketable securities included in other assets are held as longer-term investments. Our investments in equity securities consist mainly of stocks of financial institutions. We do not hold marketable securities for trading purposes. As of March 31, 2009, we held available-for-sale marketable equity securities with a fair value of ¥26,293 million. The historical cost of these securities is ¥22,505 million, and gross unrealized gains and losses of ¥5,961 and ¥2,173 million, respectively have been recognized since the time the securities were acquired.
Impairment charges on investments are charged to earnings when a decline in fair value below the cost is other than temporary. We make a determination each quarter, and we principally consider that an other-than-temporary impairment has occurred when the decline in fair value below the carrying value continues for over nine consecutive months. We may also consider other factors, including our ability and intent to hold the applicable investment securities and the severity of the decline in fair value. Other-than-temporary impairment charges were ¥3,550 million for fiscal 2009 and ¥937 million for fiscal 2008.
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Foreign Exchange Risk
Our international operations expose us to the risk of changes in foreign currency exchange rates. We occasionally use forward currency exchange contracts to manage our exposure to foreign currency fluctuation on the transactions denominated in foreign currencies. As of March 31, 2009, the notional amount of our open forward currency contract was for the purchase of $15 million dollars. We recorded an increase in the fair value of the derivative contract of ¥62 million in other income since it was not designated as a hedge in fiscal 2009. No derivative contract was outstanding as of March 31, 2009 and March 31, 2008.
Interest Rate Risk
As of March 31, 2009, our interest rate risk on short-term borrowings (¥5,221 million) and lease obligations (¥81 million) was immaterial. We do not expect interest rates to rise sharply in the near future. Although our lease obligations have fixed interest rates, the amount outstanding is not material. As of March 31, 2008, our interest rate risk on short-term borrowings (¥5,572 million) and lease obligations (¥129 million, including the current portion) was immaterial.
The following table provides information about our lease obligations that are sensitive to changes in interest rates as of March 31, 2009.
Lease Obligations (Including Due within One Year)
Wacoal Holdings and Subsidiaries
Wacoal Holdings and Subsidiaries
Expected maturity date | ||||||||||||||||||||||||||||||||
Year ended | (yen in millions) | Estimated | ||||||||||||||||||||||||||||||
March 31, 2009 | Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | fair value | ||||||||||||||||||||||||
Lease Obligations | 81 | 39 | 42 | — | — | — | — | 81 |
The following table provides information about our lease obligations that are sensitive to changes in interest rates as of March 31, 2008.
Lease Obligations (Including Due within One Year)
Wacoal Holdings and Subsidiaries
Wacoal Holdings and Subsidiaries
Expected maturity date | ||||||||||||||||||||||||||||||||
Year ended | (yen in millions) | Estimated | ||||||||||||||||||||||||||||||
March 31, 2008 | Total | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | fair value | ||||||||||||||||||||||||
Lease Obligations | 129 | 48 | 81 | — | — | — | — | 129 |
We had no outstanding interest rate swaps as of March 31, 2009 or March 31, 2008.
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Item 17. Financial Statements.
The information required by this item is set forth beginning on page F-2 of this Amendment No. 1 on Form 20-F/A.
Item 19. Exhibits.
Exhibits filed as part of this Amendment No. 1 on 20-F/A.
Exhibit | ||
Number | Description | |
12.1 | Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12.2 | Certification of the chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
13.1 | Certification of the principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
13.2 | Certification of the chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
WACOAL HOLDINGS CORP. (Registrant) | ||||
By | /s/ Masaya Wakabayashi | |||
Masaya Wakabayashi | ||||
General Manager, Corporate Planning | ||||
Date: August 19, 2009
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Wacoal Holdings Corp. and Subsidiaries
Index
Page | ||
F-2-3 | ||
FINANCIAL STATEMENTS: | ||
F-4-5 | ||
F-6-7 | ||
F-8 | ||
F-9 | ||
F-10-11 | ||
F-12-39 |
SCHEDULES:
Schedules are omitted because they are not applicable, not required, or because the required information is included in the consolidated financial statements or notes thereto.
F-1
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Wacoal Holdings Corp.
Kyoto, Japan:
Wacoal Holdings Corp.
Kyoto, Japan:
We have audited the accompanying consolidated balance sheets of Wacoal Holdings Corp. and subsidiaries (the “Companies”) as of March 31, 2009 and 2008, and the related consolidated statements of income, comprehensive (loss) income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2009, all expressed in Japanese yen. These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Certain information required by Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” has not been presented in the accompanying financial statements. In our opinion, presentation of segment information concerning the Companies’ operations is required for a complete presentation of the Companies’ consolidated financial statements.
In our opinion, except for the omission of segment information, such consolidated financial statements present fairly, in all material respects, the financial position of Wacoal Holdings Corp. and subsidiaries as of March 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 20 to the consolidated financial statements, on May 8, 2009, the board of directors of Wacoal Holdings Corp. resolved to make Lecien Corporation its wholly owned subsidiary through a share exchange.
Our audits also comprehended the translation of the Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. The translation of the financial statement amounts into U.S. dollars has been made solely for convenience of readers outside of Japan.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companies’ internal control over financial reporting as of March 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 26, 2009 expressed an unqualified opinion on the Companies’ internal control over financial reporting.
/s/ Deloitte Touche Tohmatsu | ||||
Osaka, Japan | ||||
June 26, 2009 |
F-2
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Wacoal Holdings Corp.
Kyoto, Japan:
Wacoal Holdings Corp.
Kyoto, Japan:
We have audited the internal control over financial reporting of Wacoal Holdings Corp. and subsidiaries (the “Companies”) as of March 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companies’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companies’ internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Companies maintained, in all material respects, effective internal control over financial reporting as of March 31, 2009, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended March 31, 2009 of the Companies and our report dated June 26, 2009 expressed an unqualified opinion on those financial statements, except for the omission of segment information required by Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.”
/s/ Deloitte Touche Tohmatsu | ||||
Osaka, Japan | ||||
June 26, 2009 |
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Wacoal Holdings Corp. and Subsidiaries
Consolidated Balance Sheets
March 31, 2009 and 2008
March 31, 2009 and 2008
Thousands of | ||||||||||||
U.S. Dollars | ||||||||||||
Millions of Yen | (Note 2) | |||||||||||
2009 | 2008 | 2009 | ||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents: | ||||||||||||
Cash | ¥ | 13,378 | ¥ | 15,857 | $ | 134,927 | ||||||
Time deposits and certificates of deposit | 9,561 | 12,186 | 96,430 | |||||||||
Total | 22,939 | 28,043 | 231,357 | |||||||||
Marketable securities (Notes 3 and 19) | 10,483 | 12,614 | 105,729 | |||||||||
Notes and accounts receivable: | ||||||||||||
Trade notes | 541 | 353 | 5,456 | |||||||||
Trade accounts (Note 16) | 19,422 | 22,337 | 195,885 | |||||||||
Allowance for returns and doubtful receivables (Note 4) | (2,279 | ) | (3,145 | ) | (22,985 | ) | ||||||
Inventories (Note 5) | 31,153 | 30,020 | 314,201 | |||||||||
Deferred income taxes (Note 15) | 5,395 | 5,411 | 54,412 | |||||||||
Other current assets | 2,965 | 3,212 | 29,904 | |||||||||
Total current assets | 90,619 | 98,845 | 913,959 | |||||||||
PROPERTY, PLANT AND EQUIPMENT: | ||||||||||||
Land | 20,502 | 20,711 | 206,777 | |||||||||
Buildings and building improvements | 58,216 | 58,575 | 587,151 | |||||||||
Machinery and equipment | 13,660 | 14,448 | 137,771 | |||||||||
Construction in progress | 68 | 99 | 686 | |||||||||
Total | 92,446 | 93,833 | 932,385 | |||||||||
Accumulated depreciation | (43,407 | ) | (42,285 | ) | (437,791 | ) | ||||||
Net property, plant and equipment | 49,039 | 51,548 | 494,594 | |||||||||
OTHER ASSETS: | ||||||||||||
Investments in affiliates (Note 6) | 13,283 | 18,942 | 133,969 | |||||||||
Investments (Notes 3 and 19) | 29,182 | 38,056 | 294,322 | |||||||||
Goodwill (Notes 9 and 10) | 11,203 | 11,203 | 112,990 | |||||||||
Other intangible assets (Notes 9 and 10) | 13,242 | 13,216 | 133,555 | |||||||||
Prepaid pension expense (Note 11) | 3,444 | |||||||||||
Deferred income taxes (Note 15) | 1,088 | 1,462 | 10,973 | |||||||||
Other | 5,830 | 4,903 | 58,800 | |||||||||
Total other assets | 73,828 | 91,226 | 744,609 | |||||||||
TOTAL | ¥ | 213,486 | ¥ | 241,619 | $ | 2,153,162 | ||||||
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Thousands of | ||||||||||||
U.S. Dollars | ||||||||||||
Millions of Yen | (Note 2) | |||||||||||
2009 | 2008 | 2009 | ||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Short-term bank loans (Note 7) | ¥ | 5,221 | ¥ | 5,572 | $ | 52,658 | ||||||
Notes and accounts payable: | ||||||||||||
Trade notes | 2,498 | 1,935 | 25,194 | |||||||||
Trade accounts (Note 16) | 9,172 | 9,394 | 92,506 | |||||||||
Other payables | 5,817 | 6,327 | 58,669 | |||||||||
Accrued payroll and bonuses | 6,336 | 6,645 | 63,903 | |||||||||
Income taxes payable | 747 | 3,872 | 7,534 | |||||||||
Current portion of long-term debt (Notes 7 and 18) | 39 | 48 | 393 | |||||||||
Other current liabilities (Note 11) | 2,113 | 2,217 | 21,311 | |||||||||
Total current liabilities | 31,943 | 36,010 | 322,168 | |||||||||
LONG-TERM LIABILITIES: | ||||||||||||
Long-term debt (Notes 7 and 18) | 42 | 81 | 424 | |||||||||
Liability for termination and retirement benefits (Note 11) | 4,090 | 2,181 | 41,251 | |||||||||
Deferred income taxes (Note 15) | 8,346 | 14,527 | 84,175 | |||||||||
Other long-term liabilities (Notes 11 and 15) | 1,098 | 1,356 | 11,074 | |||||||||
Total long-term liabilities | 13,576 | 18,145 | 136,924 | |||||||||
MINORITY INTERESTS | 2,094 | 2,351 | 21,120 | |||||||||
COMMITMENTS AND CONTINGENCIES (Note 8) | ||||||||||||
SHAREHOLDERS’ EQUITY (Note 12): | ||||||||||||
Common stock, no par value — authorized, 500,000,000 shares in 2009 and 2008; issued 143,378,085 shares in 2009 and 2008 | 13,260 | 13,260 | 133,737 | |||||||||
Additional paid-in capital (Note 13) | 29,316 | 29,262 | 295,673 | |||||||||
Retained earnings | 138,235 | 136,589 | 1,394,201 | |||||||||
Accumulated other comprehensive (loss) income (Note 14): | ||||||||||||
Foreign currency translation adjustments | (8,288 | ) | 248 | (83,591 | ) | |||||||
Unrealized gain on securities | 325 | 5,295 | 3,278 | |||||||||
Pension liability adjustments (Note 11) | (3,383 | ) | 514 | (34,120 | ) | |||||||
Total accumulated other comprehensive (loss) income | (11,346 | ) | 6,057 | (114,433 | ) | |||||||
Less treasury stock at cost — 2,927,238 shares and 35,998 shares in 2009 and 2008 | (3,592 | ) | (55 | ) | (36,228 | ) | ||||||
Total shareholders’ equity | 165,873 | 185,113 | 1,672,950 | |||||||||
TOTAL | ¥ | 213,486 | ¥ | 241,619 | $ | 2,153,162 | ||||||
See notes to consolidated financial statements.
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Wacoal Holdings Corp. and Subsidiaries
Consolidated Statements of Income
Years Ended March 31, 2009, 2008 and 2007
Years Ended March 31, 2009, 2008 and 2007
Thousands of | ||||||||||||||||
U.S. Dollars | ||||||||||||||||
Millions of Yen | (Note 2) | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
NET SALES (Note 16) | ¥ | 172,276 | ¥ | 165,761 | ¥ | 166,410 | $ | 1,737,529 | ||||||||
OPERATING COSTS AND EXPENSES (INCOME): | ||||||||||||||||
Cost of sales (Notes 11 and 16) | 84,686 | 83,127 | 84,658 | 854,120 | ||||||||||||
Selling, general and administrative (Notes 11 and 13) | 77,399 | 69,245 | 68,831 | 780,625 | ||||||||||||
Impairment charges on long-lived assets | 29 | 33 | 293 | |||||||||||||
Loss (gain) on sale or disposal of property, plant and equipment | 33 | (184 | ) | 25 | 333 | |||||||||||
Total operating costs and expenses | 162,147 | 152,221 | 153,514 | 1,635,371 | ||||||||||||
OPERATING INCOME | 10,129 | 13,540 | 12,896 | 102,158 | ||||||||||||
OTHER INCOME (EXPENSES): | ||||||||||||||||
Interest income | 274 | 303 | 236 | 2,763 | ||||||||||||
Interest expense | (75 | ) | (78 | ) | (73 | ) | (756 | ) | ||||||||
Dividend income | 677 | 641 | 603 | 6,828 | ||||||||||||
Gain on sale or exchange of marketable securities and investments (Note 3) | 19 | 715 | 406 | 192 | ||||||||||||
Impairment charges on marketable securities and investments (Notes 1 and 3) | (3,550 | ) | (937 | ) | (423 | ) | (35,804 | ) | ||||||||
Other — net | 153 | 169 | 275 | 1,543 | ||||||||||||
Total other (loss) income — net | (2,502 | ) | 813 | 1,024 | (25,234 | ) | ||||||||||
INCOME BEFORE INCOME TAXES, EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES, AND MINORITY INTERESTS (Note 15) | 7,627 | 14,353 | 13,920 | 76,924 | ||||||||||||
INCOME TAXES (Note 15): | ||||||||||||||||
Current | 2,717 | 5,577 | 2,874 | 27,403 | ||||||||||||
Deferred | 496 | 276 | 3,628 | 5,003 | ||||||||||||
Total income taxes | 3,213 | 5,853 | 6,502 | 32,406 | ||||||||||||
INCOME BEFORE EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES, AND MINORITY INTERESTS | 4,414 | 8,500 | 7,418 | 44,518 | ||||||||||||
EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES (Note 6) | 893 | (3,392 | ) | 1,771 | 9,007 | |||||||||||
MINORITY INTERESTS | (77 | ) | (142 | ) | (160 | ) | (777 | ) | ||||||||
NET INCOME | ¥ | 5,230 | ¥ | 4,966 | ¥ | 9,029 | $ | 52,748 | ||||||||
(Continued)
F-6
Table of Contents
Wacoal Holdings Corp. and Subsidiaries
Consolidated Statements of Income
Years Ended March 31, 2009, 2008 and 2007
Years Ended March 31, 2009, 2008 and 2007
U.S. Dollars | ||||||||||||||||
Yen | (Note 2) | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
EARNINGS PER SHARE (Note 17): | ||||||||||||||||
Basic | ¥ | 36.75 | ¥ | 35.14 | ¥ | 63.18 | $ | 0.37 | ||||||||
Diluted | ¥ | 36.74 | ¥ | 35.14 | ¥ | 63.18 | $ | 0.37 | ||||||||
EARNINGS PER AMERICAN DEPOSITARY RECEIPT (5 shares of common stock) (Note 17): | ||||||||||||||||
Basic | ¥ | 183.74 | ¥ | 175.72 | ¥ | 315.90 | $ | 1.85 | ||||||||
Diluted | ¥ | 183.72 | ¥ | 175.72 | ¥ | 315.90 | $ | 1.85 | ||||||||
See notes to consolidated financial statements.
(Concluded)
F-7
Table of Contents
Wacoal Holdings Corp. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
Years Ended March 31, 2009, 2008 and 2007
Years Ended March 31, 2009, 2008 and 2007
Thousands of | ||||||||||||||||
U.S. Dollars | ||||||||||||||||
Millions of Yen | (Note 2) | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
NET INCOME | ¥ | 5,230 | ¥ | 4,966 | ¥ | 9,029 | $ | 52,748 | ||||||||
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX (Note 14): | ||||||||||||||||
Foreign currency translation adjustments | (8,536 | ) | (468 | ) | 1,452 | (86,092 | ) | |||||||||
Unrealized (losses) gains on securities | (4,970 | ) | (9,133 | ) | 117 | (50,126 | ) | |||||||||
Pension liability adjustments | (3,897 | ) | (3,616 | ) | (39,304 | ) | ||||||||||
OTHER COMPREHENSIVE (LOSS) INCOME | (17,403 | ) | (13,217 | ) | 1,569 | (175,522 | ) | |||||||||
COMPREHENSIVE (LOSS) INCOME | ¥ | (12,173 | ) | ¥ | (8,251 | ) | ¥ | 10,598 | $ | (122,774 | ) | |||||
See notes to consolidated financial statements.
F-8
Table of Contents
Wacoal Holdings Corp. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Years Ended March 31, 2009, 2008 and 2007
Years Ended March 31, 2009, 2008 and 2007
Millions of Yen | ||||||||||||||||||||||||
Shares of Outstanding | Additional | Accumulated Other | ||||||||||||||||||||||
Common Stock | Common | Paid-in | Retained | Comprehensive | ||||||||||||||||||||
(Thousands) | Stock | Capital | Earnings | Income | Treasury Stock | |||||||||||||||||||
BALANCE, APRIL 1, 2006 | 143,916 | ¥ | 13,260 | ¥ | 25,242 | ¥ | 134,515 | ¥ | 13,575 | ¥ | (117 | ) | ||||||||||||
Net income | 9,029 | |||||||||||||||||||||||
Other comprehensive income | 1,569 | |||||||||||||||||||||||
Cash dividends paid, ¥100 per 5 shares of common stock | (2,878 | ) | ||||||||||||||||||||||
Repurchase of treasury stock | (3,339 | ) | (5,047 | ) | ||||||||||||||||||||
Adjustment to initially apply SFAS No. 158, net of tax (Note 11) | 4,130 | |||||||||||||||||||||||
BALANCE, MARCH 31, 2007 | 140,577 | 13,260 | 25,242 | 140,666 | 19,274 | (5,164 | ) | |||||||||||||||||
Net income | 4,966 | |||||||||||||||||||||||
Other comprehensive loss | (13,217 | ) | ||||||||||||||||||||||
Cash dividends paid, ¥110 per 5 shares of common stock | (3,093 | ) | ||||||||||||||||||||||
Repurchase of treasury stock | (3,936 | ) | (6,015 | ) | ||||||||||||||||||||
Cancellation of treasury stock | (5,950 | ) | 5,950 | |||||||||||||||||||||
Issuance of new shares to acquire a subsidiary (Note 9) | 3,261 | 4,474 | ||||||||||||||||||||||
Distribution of treasury stock to acquire a subsidiary (Note 9) | 3,440 | (454 | ) | 5,174 | ||||||||||||||||||||
BALANCE, MARCH 31, 2008 | 143,342 | 13,260 | 29,262 | 136,589 | 6,057 | (55 | ) | |||||||||||||||||
Net income | 5,230 | |||||||||||||||||||||||
Other comprehensive loss | (17,403 | ) | ||||||||||||||||||||||
Cash dividends paid, ��125 per 5 shares of common stock | (3,584 | ) | ||||||||||||||||||||||
Repurchase of treasury stock | (2,891 | ) | (3,537 | ) | ||||||||||||||||||||
Share-based compensation granted (Note 13) | 54 | |||||||||||||||||||||||
BALANCE, MARCH 31, 2009 | 140,451 | ¥ | 13,260 | ¥ | 29,316 | ¥ | 138,235 | ¥ | (11,346 | ) | ¥ | (3,592 | ) | |||||||||||
Thousands of U.S. Dollars (Note 2) | ||||||||||||||||||||
Additional | Accumulated Other | |||||||||||||||||||
Common | Paid-in | Retained | Comprehensive | |||||||||||||||||
Stock | Capital | Earnings | Income | Treasury Stock | ||||||||||||||||
BALANCE, MARCH 31, 2008 | $ | 133,737 | $ | 295,129 | $ | 1,377,600 | $ | 61,089 | $ | (555 | ) | |||||||||
Net income | 52,748 | |||||||||||||||||||
Other comprehensive loss | (175,522 | ) | ||||||||||||||||||
Cash dividends paid, $1.26 per 5 shares of common stock | (36,147 | ) | ||||||||||||||||||
Repurchase of treasury stock | (35,673 | ) | ||||||||||||||||||
Share-based compensation granted (Note 13) | 544 | |||||||||||||||||||
BALANCE, MARCH 31, 2009 | $ | 133,737 | $ | 295,673 | $ | 1,394,201 | $ | (114,433 | ) | $ | (36,228 | ) | ||||||||
See notes to consolidated financial statements.
F-9
Table of Contents
Wacoal Holdings Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2009, 2008 and 2007
Years Ended March 31, 2009, 2008 and 2007
Thousands of | ||||||||||||||||
U.S. Dollars | ||||||||||||||||
Millions of Yen | (Note 2) | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net income | ¥ | 5,230 | ¥ | 4,966 | ¥ | 9,029 | $ | 52,748 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 4,546 | 3,908 | 3,735 | 45,850 | ||||||||||||
Provision for returns and doubtful receivables | (725 | ) | 190 | 173 | (7,312 | ) | ||||||||||
Deferred income taxes | 496 | 276 | 3,628 | 5,003 | ||||||||||||
Loss (gain) on sale or disposal of property, plant and equipment | 33 | (184 | ) | 25 | 333 | |||||||||||
Impairment charges on long-lived assets | 29 | 33 | 293 | |||||||||||||
Gain on sale or exchange of marketable securities and investments | (19 | ) | (715 | ) | (406 | ) | (192 | ) | ||||||||
Impairment charges on marketable securities and investments (Note 1) | 3,550 | 937 | 423 | 35,804 | ||||||||||||
Equity in net (income) loss of affiliated companies, less dividends | (296 | ) | 4,198 | (1,164 | ) | (2,986 | ) | |||||||||
Changes in assets and liabilities: | ||||||||||||||||
Decrease in notes and accounts receivable | 2,109 | 1,822 | 401 | 21,271 | ||||||||||||
(Increase) decrease in inventories | (2,494 | ) | 1,218 | (2,897 | ) | (25,154 | ) | |||||||||
Decrease (increase) in other current assets | 105 | 49 | (371 | ) | 1,059 | |||||||||||
Increase (decrease) in notes and accounts payable | 841 | (2,614 | ) | 219 | 8,482 | |||||||||||
Decrease in liability for termination and retirement benefits | (1,209 | ) | (2,613 | ) | (2,472 | ) | (12,194 | ) | ||||||||
(Decrease) increase in accrued expenses, income taxes payable and other current liabilities | (3,550 | ) | 2,681 | (696 | ) | (35,804 | ) | |||||||||
Other | (478 | ) | 73 | (288 | ) | (4,821 | ) | |||||||||
Net cash provided by operating activities | 8,168 | 14,225 | 9,339 | 82,380 | ||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Proceeds from sales and redemption of marketable securities | 7,124 | 10,506 | 28,509 | 71,851 | ||||||||||||
Payments to acquire marketable securities | (5,439 | ) | (9,892 | ) | (9,929 | ) | (54,856 | ) | ||||||||
Proceeds from sales of property, plant and equipment | 159 | 1,057 | 524 | 1,604 | ||||||||||||
Capital expenditures | (2,362 | ) | (1,211 | ) | (2,536 | ) | (23,823 | ) | ||||||||
Payments to acquire intangible assets | (1,846 | ) | (1,678 | ) | (984 | ) | (18,618 | ) | ||||||||
Proceeds from sales of investments | 30 | 1,414 | 8 | 303 | ||||||||||||
Payments to acquire investments in affiliated companies | (15,326 | ) | ||||||||||||||
Payments to acquire investments | (1,871 | ) | (618 | ) | (1,887 | ) | (18,871 | ) | ||||||||
Cash balances of subsidiary acquired in excess of cash paid | 80 | |||||||||||||||
Cash balances of subsidiary acquired through share exchanges (Note 9) | 4,115 | |||||||||||||||
Other | (509 | ) | (103 | ) | 356 | (5,134 | ) | |||||||||
Net cash (used in) provided by investing activities | (4,714 | ) | 3,590 | (1,185 | ) | (47,544 | ) | |||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Decrease in short-term bank loans — net | (279 | ) | (259 | ) | (575 | ) | (2,814 | ) | ||||||||
Proceeds from issuance of long-term debt | 18 | 130 | ||||||||||||||
Repayments of long-term debt | (48 | ) | (51 | ) | (34 | ) | (484 | ) | ||||||||
Repurchase of treasury stock | (3,537 | ) | (6,015 | ) | (5,047 | ) | (35,673 | ) | ||||||||
Dividends paid on common stock | (3,584 | ) | (3,093 | ) | (2,878 | ) | (36,147 | ) | ||||||||
Net cash used in financing activities | (7,448 | ) | (9,400 | ) | (8,404 | ) | (75,118 | ) | ||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (1,110 | ) | (188 | ) | 173 | (11,195 | ) | |||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS — (Forward) | ¥ | (5,104 | ) | ¥ | 8,227 | ¥ | (77 | ) | $ | (51,477 | ) |
See notes to consolidated financial statements.
(Continued)
F-10
Table of Contents
Wacoal Holdings Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2009, 2008 and 2007
Years Ended March 31, 2009, 2008 and 2007
Thousands of | ||||||||||||||||
U.S. Dollars | ||||||||||||||||
Millions of Yen | (Note 2) | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS — (Forward) | ¥ | (5,104 | ) | ¥ | 8,227 | ¥ | (77 | ) | $ | (51,477 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 28,043 | 19,816 | 19,893 | 282,834 | ||||||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | ¥ | 22,939 | ¥ | 28,043 | ¥ | 19,816 | $ | 231,357 | ||||||||
ADDITIONAL CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid for: | ||||||||||||||||
Interest | ¥ | 75 | ¥ | 78 | ¥ | 70 | $ | 756 | ||||||||
Income taxes | 7,268 | 2,542 | 4,667 | 73,303 | ||||||||||||
NONCASH INVESTING ACTIVITIES: | ||||||||||||||||
Fair value of certain marketable securities received in exchange for other marketable securities with a carrying values of ¥7 million ($71 thousand) and ¥48 million in 2009 and 2008, respectively | ¥ | 9 | ¥ | 143 | $ | 91 | ||||||||||
Acquisition of subsidiary through share exchanges (Note 9) | 9,194 |
See notes to consolidated financial statements.
(Concluded)
F-11
Table of Contents
Wacoal Holdings Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Financial Statements— Wacoal Holdings Corp. (the “Company”) and subsidiaries are predominantly engaged in one industry, the manufacture and sale of apparel, including foundation garments, lingerie, nightwear and outerwear in Japan, the United States of America, Europe and certain Asian countries. | ||
The accompanying consolidated financial statements, stated in Japanese yen, have been prepared on the basis of accounting principles generally accepted in the United States of America except for the omission of segment information as required by Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” | ||
Consolidation— The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries (collectively, the “Companies”). All intercompany transactions and balances are eliminated. | ||
Foreign subsidiaries of the Company have a fiscal year ending December 31. The accounts of those subsidiaries are included in the Company’s consolidated financial statements based on the subsidiaries’ fiscal year. As further described in Note 9 to the financial statements, on January 10, 2008, the Company acquired the remaining 51% interest in a domestic subsidiary with a fiscal year ended February 29, 2008. Prior to January 10, 2008, the Company accounted for its original investment of 49% in this subsidiary using the equity method. As of March 31, 2008 and thereafter, the subsidiary is included in the Company’s consolidated balance sheet based on the subsidiary’s fiscal year end. However, because the subsidiary’s results of operations and changes in financial position between January 10, 2008 and March 31, 2008 were not significant, the Company continued to account for its investment using the equity method and the income from the subsidiary’s operations for the fiscal year ended February 29, 2008 was included in equity in net income (loss) of affiliated companies in the consolidated statements of income. The subsidiary is included in the Company’s consolidated statements of income for the year ended March 31, 2009 based on the subsidiary’s fiscal year end for the year ended February 28, 2009. | ||
Investments in affiliates where the Company’s ownership is 20% to 50% are accounted for using the equity method. | ||
Significant influence is generally deemed to exist if the Companies have an ownership interest in the voting stock of the investee of between 20% to 50%, although other factors are considered in determining whether the equity method of accounting is appropriate. | ||
Use of Estimates —The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
Cash and Cash Equivalents— Cash and cash equivalents include all time deposits and certificates of deposit (all of which are interest-bearing) with original maturities of three months or less, which can be withdrawn at face value at any time without diminution of principal. |
F-12
Table of Contents
Foreign Currency Translation— Assets and liabilities of foreign subsidiaries have been translated to Japanese yen at period-end exchange rates and income and expenses have been translated using weighted-average exchange rates for the period. Translation adjustments are included in other comprehensive (loss) income, a separate component of shareholders’ equity. Exchange gains and losses resulting from foreign currency transactions and the conversion of monetary assets and liabilities denominated in foreign currencies are included in other income (expenses) in the consolidated statements of income. | ||
Marketable Securities and Investments— The Companies classify their debt and marketable equity securities as available-for-sale and carry them at fair value with a corresponding recognition of unrealized holding gains or losses (net of tax) in other comprehensive (loss) income, a separate component of shareholders’ equity, until realized. Equity securities that do not have readily determinable fair values are recorded at cost. Gains and losses on sales of investments are computed based on cost determined using the average cost method. | ||
If a decline in the fair value of marketable securities and investments is determined to be other-than-temporary, an impairment charge is recorded in the consolidated statements of income. The Companies periodically determine whether a decline in the fair value of marketable securities and investments is deemed to be other-than temporary based on criteria that include the duration of the market decline, the extent to which cost exceeds market value, the financial position and business outlook of the issuer and the intent and ability of the Companies to retain the impaired marketable securities and investments for a sufficient period of time for anticipated recovery in market value. | ||
Inventories— Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method for raw materials and the average cost method for work in process and finished products. | ||
Property, Plant and Equipment— Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation of property, plant and equipment is computed by the declining-balance method, except for buildings acquired on or after April 1, 1998, which are depreciated using the straight-line method, based upon the estimated useful lives of the assets. The estimated useful lives are as follows: |
Buildings and building improvements: | 5 - 50 years (Mainly 38 years) | |
Machinery and equipment: | 2 - 20 years (Mainly 5 years) |
Goodwill and Other Intangible Assets— Goodwill represents the excess of the purchase price over the related underlying tangible and intangible net asset values of business acquired. Annually, or more frequently if conditions indicate an earlier review is necessary, the carrying value of the goodwill of reporting unit is compared to an estimate of its fair value. The annual or more frequent evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. | ||
Other intangible assets with estimable useful lives consist primarily of customer list and software and are amortized over their estimated useful lives using the straight-line method. The estimated useful lives are as follows: |
Customer list: | 7 years | |
Software: | 5 years |
Other intangible assets with indefinite useful lives are evaluated for potential impairment in a manner consistent with goodwill. |
F-13
Table of Contents
Impairment of Long-lived Assets— The carrying values of long-lived assets, held and used by the Companies, are evaluated for impairment whenever there is an event or change in circumstances that indicates that such assets have been impaired or that the carrying amounts of such assets might not be recoverable. | ||
The Companies recorded ¥29 million ($293 thousand) and ¥33 million in impairment charges on long-lived assets for the years ended March 31, 2009 and 2008, respectively, which resulted from the impairment of primarily buildings of certain factory in the year ended 2009, and land and buildings of a company residence in the year ended 2008. The Company decided to close its wholly owned manufacturing subsidiary, Tokai Wacoal Sewing Corp., and to sell its property, plant and equipment to an unrelated party in the year ended March 31, 2009. Therefore, the Companies recognized an impairment of the asset to be disposed of by sale at the amount of the difference between the sales price and the Company’s book value. In the year ended March 31, 2008, the Company decided to sell the company residence to an unrelated party. The Company entered into a sales contract in March 2008 and the sales transaction completed in April 2008. Therefore, the Companies recognized an impairment of the asset to be disposed of by sale at the amount of the difference between the sales price and the Company’s book value. No impairment charges were recorded in the year ended March 31, 2007. | ||
Derivatives— Derivative instruments, including certain derivative instruments embedded in other contracts, are accounted for in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities an Amendment of the Financial Accounting Standards Board (“FASB”) Statement No. 133,” and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” Changes in the fair value of a derivative are recorded in earnings, since derivative instruments are not designated as a hedge. | ||
Asset Retirement Obligations —The Companies have obligations arising from contractual commitments to remove leasehold improvements from leased facilities and return the property to a specified condition when the lease terminates. Lease contracts have automatic renewal articles and therefore, the Companies use their best estimate to determine the lease termination dates for the purpose of calculating asset retirement obligations. | ||
Termination and Retirement Plans— Termination and retirement benefits are accounted for in accordance with SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” Provisions for termination and retirement benefits include those for directors and corporate auditors of the Companies. | ||
As allowed under SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” the Companies do not recognize a gain or loss on settlement of the pension obligation when the cost of all settlements in a year is less than or equal to the sum of the service cost and interest cost components of net periodic pension cost for the plan for the year. | ||
Leases —Certain noncancelable leases are classified as capital leases and the leased assets are included as part of property, plant and equipment. Such leasing arrangements involve the computer aided design system and the computer hardware. Other leases are classified as operating leases and are not capitalized. The payments on such leases are recorded as expense. The rental expense under operating leases is recognized on a straight-line basis. | ||
Treasury Stock —The Companies account for treasury stock under the cost method and include treasury stock as a component of Shareholders’ Equity. | ||
Acquisition— The Company accounts for acquisitions using the purchase method in accordance with SFAS No. 141, “Business Combinations.” The Company allocates the purchase price to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition, including intangible assets that can be identified and named. The purchase price in excess of the fair value of the net assets and liability is recorded as goodwill. |
F-14
Table of Contents
Share-Based Compensation —Share-based compensation is accounted for in accordance with SFAS No. 123(R) (revised 2004), “Share Based Payment.” The Company measures share-based compensation cost at the grant date, based on the fair value of the award and is recognized over the requisite service period, which is the vesting period. The fair value of the award is estimated using the Black-Scholes option-pricing model. | ||
Revenue Recognition— The Companies recognize revenue on sales to retailers, mail order catalog sales and internet sales when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred resulting in transfer of title and risk of loss, (3) the sales price is fixed or determinable, and (4) collectibility is reasonably assured. The Companies establish allowances for estimated returns based on historical experience. As for consignment sales, the Companies recognize revenue when the products are sold to the ultimate customer. The Companies recognize revenue on direct retailing sales at the Companies’ directly managed retail stores at the point of sale to the customer. | ||
Advertising Expenses —Advertising costs are expensed as incurred. Advertising expenses for the years ended March 31, 2009, 2008 and 2007 were ¥13,624 million ($137,408 thousand), ¥11,768 million and ¥12,084 million, respectively and have been included in selling, general and administrative expenses. | ||
Shipping and Handling Costs —Shipping and handling costs for the years ended March 31, 2009, 2008 and 2007 were ¥4,895 million ($49,370 thousand), ¥4,062 million and ¥4,186 million, respectively, and have been included in selling, general and administrative expenses. | ||
Research and Development Costs —Research and development costs are expensed as incurred. Research and development costs for the years ended March 31, 2009, 2008 and 2007 were ¥768 million ($7,746 thousand), ¥766 million and ¥714 million, respectively, and have been included in selling, general and administrative expenses. | ||
Income Taxes —The provision for income taxes is determined under the asset and liability method pursuant to SFAS No. 109, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined for temporary differences between the financial statement and tax bases of assets and liabilities at presently enacted tax rates. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future. | ||
Provisions are made for taxes on undistributed earnings and cumulative translation adjustments of foreign subsidiaries whose earnings are not deemed to be permanently invested. | ||
On April 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. | ||
Reclassifications— Certain reclassifications have been made to the prior years’ financial statements to conform with the current year’s presentation. | ||
To conform to the 2009 presentation, the Companies have reclassified impairment charges on marketable securities to “Impairment charges on marketable securities and investments,” which had previously been presented as “Other” in other expenses in the consolidated statements of income and “Other” in operating activities in the consolidated statements of cash flows. |
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Table of Contents
Recent Accounting Pronouncements: | ||
Fair Value Measurements —In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS No. 157 for one year for certain nonfinancial assets and liabilities. The Companies adopted SFAS No. 157 in the first quarter beginning April 1, 2008 for all financial assets and liabilities that are recognized or disclosed at fair value. This adoption did not have a material impact on the Companies’ consolidated results of operations and financial position. The Companies are currently in the process of assessing the impact of the adoption of SFAS No. 157 for all nonfinancial assets and liabilities, since the adoption of SFAS No. 157 for all nonfinancial assets and liabilities is effective for the fiscal years beginning after November 15, 2008. See Note 19 for disclosures required by SFAS No. 157. | ||
In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active,” which clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP No. FAS 157-3 is effective upon issuance. This adoption did not have a material impact on the Companies’ consolidated financial position, result of operations or cash flows. | ||
In April 2009, the FASB issued FSP No. FAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which provides additional guidance on measuring the fair value of financial instruments when markets become inactive and quoted prices may reflect distressed transactions. FSP No. FAS 157-4 is effective for interim or fiscal years ending after June 15, 2009. The Companies are currently in the process of assessing the impact of adoption of FSP No. FAS 157-4 on its financial position, results of operation or cash flows. | ||
The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115- In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” SFAS No. 159 provides entities with an option to report selected financial assets and liabilities at fair value, with changes in fair value recorded in earnings. It also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a impact on the consolidated financial statements, since the Companies did not elect to report financial assets and liabilities at fair value. |
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Table of Contents
Business Combinations— In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) replaces SFAS No. 141, “Business Combinations.” This statement establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. This statement also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. In April 2009, FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP No. FAS 141(R)-1 amends and clarifies SFAS No. 141(R) to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. SFAS No. 141(R) and FSP No. FAS141(R)-1 are effective for business combinations for which the acquisition date is on or after the beginning of the fiscal year beginning on or after December 15, 2008. The Companies are currently in the process of assessing the impact the adoption of SFAS No. 141(R) and FSP No. FAS 141(R)-1 will have on their consolidated financial position, cash flows or results of operations. | ||
Noncontrolling Interest in Consolidated Financial Statements— In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51.” This statement establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Companies are currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on its financial position, results of operations or cash flows. | ||
Disclosure about Derivative Instruments and Hedging Activities— In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. According to FSP No. FAS 133 and FIN 45-4, the Companies adopted SFAS No. 161 in the fourth quarter ended March 31, 2009. SFAS No. 161 impacts disclosures only. See Note 19 for disclosures required by SFAS No. 161. | ||
Employer’s Disclosures about Postretirement Benefit Plan Assets —In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” FSP No. FAS 132(R)-1 requires providing detailed disclosures about fair value measurements of plan assets such as information about how investment allocation decisions are made, the fair value of each major category of plan assets, information about the inputs and valuation techniques used to develop fair value measurements, and significant concentrations of risk. FSP No. FAS 132(R) impacts disclosures only. FSP No. FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. |
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Recognition and Presentation of Other-Than-Temporary Impairments —In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP No. FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP No. FAS 115-2 and FAS 124-2 are effective for interim or fiscal years ending after June 15, 2009. The Companies are currently in the process of assessing the impact the adoption of FSP No. FAS 115-2 and FAS 124-2 will have on their consolidated financial position, cash flows or results of operations. | ||
Subsequent Events— In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 provides guidance to establish general standards of accounting for and disclosure of events that occur after balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim or fiscal years ending after June 15, 2009. The Companies are currently evaluating the potential impact, if any, of the adoption of SFAS No. 165. | ||
2. | TRANSLATION INTO U.S. DOLLAR STATEMENTS | |
The financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for convenience of readers outside of Japan and have been made at the rate of ¥99.15 to $1, the noon buying rate for yen in New York City at March 31, 2009. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at the above or any other rate. | ||
3. | MARKETABLE SECURITIES AND INVESTMENTS | |
The fair value of debt and marketable equity securities is based on quoted market prices at March 31, 2009 and 2008. The fair values of the debt and marketable equity securities were as follows: |
Millions of Yen | ||||||||||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
2009 | Cost | Gain | Loss | Fair Value | ||||||||||||
Current: | ||||||||||||||||
Corporate debt securities | ¥ | 5,011 | ¥ | 56 | ¥ | 143 | ¥ | 4,924 | ||||||||
Bank debt securities | 100 | 100 | ||||||||||||||
Mutual fund | 3,987 | 261 | 461 | 3,787 | ||||||||||||
National debt securities | 1,659 | 13 | 1,672 | |||||||||||||
Total | ¥ | 10,757 | ¥ | 330 | ¥ | 604 | ¥ | 10,483 | ||||||||
Noncurrent: | ||||||||||||||||
Equity securities | ¥ | 22,505 | ¥ | 5,961 | ¥ | 2,173 | ¥ | 26,293 | ||||||||
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Millions of Yen | ||||||||||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
2008 | Cost | Gain | Loss | Fair Value | ||||||||||||
Current: | ||||||||||||||||
Corporate debt securities | ¥ | 4,302 | ¥ | 4 | ¥ | 127 | ¥ | 4,179 | ||||||||
Bank debt securities | 100 | 1 | 99 | |||||||||||||
Mutual fund | 5,475 | 118 | 144 | 5,449 | ||||||||||||
National debt securities | 2,309 | 12 | 2,321 | |||||||||||||
Total | ¥ | 12,186 | ¥ | 134 | ¥ | 272 | ¥ | 12,048 | ||||||||
Noncurrent: | ||||||||||||||||
Equity securities | ¥ | 25,762 | ¥ | 13,333 | ¥ | 2,114 | ¥ | 36,981 | ||||||||
Thousands of U.S. Dollars | ||||||||||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
2009 | Cost | Gain | Loss | Fair Value | ||||||||||||
Current: | ||||||||||||||||
Corporate debt securities | $ | 50,540 | $ | 565 | $ | 1,442 | $ | 49,663 | ||||||||
Bank debt securities | 1,008 | 1,008 | ||||||||||||||
Mutual fund | 40,212 | 2,633 | 4,650 | 38,195 | ||||||||||||
National debt securities | 16,732 | 131 | 16,863 | |||||||||||||
Total | $ | 108,492 | $ | 3,329 | $ | 6,092 | $ | 105,729 | ||||||||
Noncurrent: | ||||||||||||||||
Equity securities | $ | 226,979 | $ | 60,121 | $ | 21,916 | $ | 265,184 | ||||||||
There were no securities which had been in a continuous unrealized loss position for more than 12 months at March 31, 2009 and 2008. Gross unrealized holding losses and fair values of debt and marketable equity securities, all of which have been in a continuous unrealized loss position for less than 12 months at March 31, 2009 and 2008, were as follows:
Millions of Yen | Thousands of U.S. Dollars | |||||||||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
2009 | Fair Value | Loss | Fair Value | Loss | ||||||||||||
Current: | ||||||||||||||||
Corporate debt securities | ¥ | 3,638 | ¥ | 143 | $ | 36,692 | $ | 1,442 | ||||||||
Bank debt securities | 100 | 0 | 1,008 | 0 | ||||||||||||
Mutual fund | 2,247 | 461 | 22,663 | 4,650 | ||||||||||||
Total | ¥ | 5,985 | ¥ | 604 | $ | 60,363 | $ | 6,092 | ||||||||
Noncurrent: | ||||||||||||||||
Equity securities | ¥ | 5,862 | ¥ | 2,173 | $ | 59,123 | $ | 21,916 | ||||||||
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Millions of Yen | ||||||||
Gross | ||||||||
Unrealized | ||||||||
2008 | Fair Value | Loss | ||||||
Current: | ||||||||
Corporate debt securities | ¥ | 3,675 | ¥ | 127 | ||||
Mutual fund | 2,943 | 144 | ||||||
Bank debt securities | 99 | 1 | ||||||
National debt securities | 810 | |||||||
Total | ¥ | 7,527 | ¥ | 272 | ||||
Noncurrent: | ||||||||
Equity securities | ¥ | 5,351 | ¥ | 2,114 | ||||
The unrealized losses on investments were caused primarily by a general decline in stock prices in Japan as of the end of the fiscal year. The Companies periodically determine whether a decline in the fair value of marketable securities and investments is deemed to be other-than temporary based on criteria that include the duration of market decline, the extent to which cost exceeds market value, the financial position and business outlook of the issuer and the intent and ability of the Companies to retain the impaired marketable securities and investments for sufficient period of time for anticipated recovery in market value as described in Note 1. No investments were identified that meet the Companies’ criterion for recognition of an impairment loss on investments in unrealized loss position presented above. Therefore, the Companies do not believe the unrealized losses represent an other-than-temporary impairment as of March 31, 2009 and 2008. | ||
Future maturities of debt securities and mutual fund classified as available-for-sale at March 31, 2009 were as follows: |
Thousands of | ||||||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||||||
Fair | Fair | |||||||||||||||
Cost | Value | Cost | Value | |||||||||||||
�� | ||||||||||||||||
Due within one year | ¥ | 2,330 | ¥ | 2,367 | $ | 23,500 | $ | 23,873 | ||||||||
Due after one year through five years | 5,402 | 5,572 | 54,483 | 56,198 | ||||||||||||
Due after five years through ten years | 1,501 | 1,351 | 15,138 | 13,626 | ||||||||||||
After ten years | 1,524 | 1,193 | 15,371 | 12,032 | ||||||||||||
Total | ¥ | 10,757 | ¥ | 10,483 | $ | 108,492 | $ | 105,729 | ||||||||
Proceeds from sales of available-for-sale securities were ¥304 million ($3,066 thousand), ¥2,136 million and ¥2,573 million for the years ended March 31, 2009, 2008 and 2007, respectively. The gross realized gains on the sales of available-for-sale securities for the years ended March 31, 2008 and 2007 were ¥557 million and ¥408 million, respectively. No realized gains were recorded in 2009. The gross realized losses on the sales of available-for-sale securities for the year ended March 31, 2007 were ¥2 million. No realized losses were recorded in 2009 and 2008. | ||
During the years ended March 31, 2009 and 2008, the Companies exchanged certain equity securities for other marketable securities. The Companies recorded the newly received securities at fair value and recognized a gain of ¥2 million ($20 thousand) and ¥95 million in the years ended March 31, 2009 and 2008. No such exchanges were made in 2007. | ||
The Companies recognized impairment charges on marketable securities and investments of ¥3,550 million ($35,804 thousand), ¥937 million and ¥423 million in the years ended March 31, 2009, 2008 and 2007, respectively. |
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Investments in non-marketable equity securities for which there is no readily determinable fair value were accounted for using the cost method and aggregated ¥2,865 million ($28,896 thousand) and ¥1,019 million at March 31, 2009 and 2008, respectively. Investments in non-marketable equity securities are reviewed annually or upon the occurrence of an event for other-than temporary impairment. | ||
The Company’s subsidiary in the United States of America adopted a non-qualified deferred compensation plan and trust agreement. Investments consist of several mutual funds, which are recorded at the fair market value of ¥24 million ($242 thousand) and ¥56 million as of March 31, 2009 and 2008, respectively. | ||
4. | VALUATION AND QUALIFYING ACCOUNTS | |
Information related to the Companies’ allowance for doubtful receivables was as follows: |
Thousands of | ||||||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
Balance at beginning of year | ¥ | 77 | ¥ | 82 | ¥ | 92 | $ | 777 | ||||||||
Charged to costs and expenses | 13 | 10 | 10 | 131 | ||||||||||||
Balances written-off/reversed | (8 | ) | (15 | ) | (20 | ) | (81 | ) | ||||||||
Balance at end of year | ¥ | 82 | ¥ | 77 | ¥ | 82 | $ | 827 | ||||||||
Information related to the Companies’ allowance for returns was as follows: |
Thousands of | ||||||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
Balance at beginning of year | ¥ | 3,068 | ¥ | 2,897 | ¥ | 2,686 | $ | 30,943 | ||||||||
Charged to costs and expenses | 2,197 | 3,068 | 2,897 | 22,158 | ||||||||||||
Balances utilized | (3,068 | ) | (2,897 | ) | (2,686 | ) | (30,943 | ) | ||||||||
Balance at end of year | ¥ | 2,197 | ¥ | 3,068 | ¥ | 2,897 | $ | 22,158 | ||||||||
5. | INVENTORIES | |
Inventories at March 31, 2009 and 2008 were as follows: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Finished products | ¥ | 26,702 | ¥ | 25,653 | $ | 269,309 | ||||||
Work in process | 3,269 | 3,097 | 32,970 | |||||||||
Raw materials | 1,182 | 1,270 | 11,922 | |||||||||
Total | ¥ | 31,153 | ¥ | 30,020 | $ | 314,201 | ||||||
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6. | INVESTMENTS IN AFFILIATES | |
Investments are accounted for using the equity method of accounting if the investment provides the Companies the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the Companies have an ownership interest in the voting stock of the investee of between 20% to 50%, although other factors are considered in determining whether the equity method of accounting is appropriate. The Companies record investments in equity method investees meeting these characteristics as “Investments in affiliates.” Under the equity method, the Companies record their proportionate share of an affiliate’s income or loss based on the most recently available financial statements. | ||
The Companies’ investments in affiliated companies and percentage of ownership at March 31, 2009 and 2008 include, among others, the following companies: |
2009 | ||||||||||||||||||||
Thousands of | ||||||||||||||||||||
Yen | Millions of Yen | U.S. Dollar | U.S. Dollars | |||||||||||||||||
Aggregate Value | Aggregate Value | |||||||||||||||||||
Percentage of | Quoted Market | of Quoted | Quoted Market | of Quoted Market | ||||||||||||||||
Name of Investee | Ownership (%) | Price | Market Price | Price | Price | |||||||||||||||
Thai Wacoal Public Company Limited | 34 | ¥ | 97 | ¥ | 3,896 | $ | 978 | $ | 39,294 | |||||||||||
Shinyoung Wacoal Inc. | 25 | 6,046 | 1,360 | 60,978 | 13,717 | |||||||||||||||
Indonesia Wacoal Co., Ltd. | 42 | |||||||||||||||||||
Taiwan Wacoal Co., Ltd. | 50 | |||||||||||||||||||
House of Rose Co., Ltd. | 20 | 1,334 | 1,267 | 13,454 | 12,779 |
2008 | ||||||||||||
Yen | Millions of Yen | |||||||||||
Aggregate Value | ||||||||||||
Percentage of Ownership | Quoted Market | of Quoted Market | ||||||||||
Name of Investee | (%) | Price | Price | |||||||||
Thai Wacoal Public Company Limited | 34 | ¥ | 111 | ¥ | 4,488 | |||||||
Shinyoung Wacoal Inc. | 25 | 15,064 | 3,389 | |||||||||
Indonesia Wacoal Co., Ltd. | 42 | |||||||||||
Taiwan Wacoal Co., Ltd. | 50 | |||||||||||
House of Rose Co., Ltd. | 20 | 1,370 | 1,302 |
The following tables represent the summarized information from the balance sheets and statements of operations for the affiliated companies which are accounted for under the equity method as of and for the years ended March 31, 2009 and 2008. |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Current assets | ¥ | 30,974 | ¥ | 40,330 | $ | 312,395 | ||||||
Noncurrent assets | 24,926 | 37,690 | 251,397 | |||||||||
Total | ¥ | 55,900 | ¥ | 78,020 | $ | 563,792 | ||||||
Current liabilities | ¥ | 8,247 | ¥ | 13,223 | $ | 83,177 | ||||||
Noncurrent liabilities | 5,771 | 5,885 | 58,205 | |||||||||
Minority interests | 1 | 1 | 10 | |||||||||
Net assets | 41,881 | 58,911 | 422,400 | |||||||||
Total | ¥ | 55,900 | ¥ | 78,020 | $ | 563,792 | ||||||
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Thousands of | ||||||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
Net sales | ¥ | 57,488 | ¥ | 81,466 | ¥ | 75,414 | $ | 579,808 | ||||||||
Gross profit | 30,388 | 44,063 | 38,260 | 306,485 | ||||||||||||
Income before income taxes | 3,630 | 7,480 | 7,011 | 36,611 | ||||||||||||
Net income | 2,832 | 5,087 | 5,052 | 28,563 |
Dividends received from the affiliated companies were ¥597 million ($6,021 thousand), ¥806 million and ¥607 million during the years ended March 31, 2009, 2008 and 2007, respectively. | ||
7. | SHORT-TERM BANK LOANS AND CAPITAL LEASE OBLIGATIONS | |
Short-term bank loans at March 31, 2009 and 2008 consisted of the following: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Unsecured bank loans | ¥ | 5,221 | ¥ | 5,572 | $ | 52,658 |
The weighted-average annual interest rates on short-term bank loans as of March 31, 2009 and 2008 were 1.5% and 1.3%, respectively. | ||
Capital lease obligations at March 31, 2009 and 2008 consisted of the following: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Capital lease obligations | ¥ | 81 | ¥ | 129 | $ | 817 | ||||||
Less current portion | (39 | ) | (48 | ) | (393 | ) | ||||||
Capital lease obligations, less current portion | ¥ | 42 | ¥ | 81 | $ | 424 | ||||||
The future minimum payments required at March 31, 2009 were as follows: |
Millions of | Thousands of | |||||||
Year Ending March 31 | Yen | U.S. Dollars | ||||||
2010 | ¥ | 39 | $ | 393 | ||||
2011 | 42 | 424 | ||||||
Total | ¥ | 81 | $ | 817 | ||||
In 2009 and 2008, no assets were pledged as collateral. |
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8. | LEASES | |
The Companies lease most of their store premises, some of their distribution centers, and certain equipment. Most leases have automatic renewal provisions and allow the Companies to extend the lease term beyond the initial base period, subject to the terms agreed at lease inception. Future minimum rental commitments on non-cancelable operating leases are presented below: |
Millions of | Thousands of | |||||||
Year Ending March 31 | Yen | U.S. Dollars | ||||||
2010 | ¥ | 820 | $ | 8,271 | ||||
2011 | 713 | 7,191 | ||||||
2012 | 535 | 5,396 | ||||||
2013 | 505 | 5,093 | ||||||
2014 | 164 | 1,654 | ||||||
Thereafter | 946 | 9,541 | ||||||
Total | ¥ | 3,683 | $ | 37,146 | ||||
Rental expenses were ¥4,800 million ($48,411 thousand), ¥3,979 million and ¥3,795 million for the years ended March 31, 2009, 2008 and 2007, respectively. | ||
9. | ACQUISITION | |
On January 10, 2008, the Company acquired the remaining 51% of the outstanding common shares of Peach John Co., Ltd. (“PJ”), primarily a mail-order innerwear retailer, through share exchange. Until then, the Company had held a 49% of the issued common shares since the initial acquisition on June 2, 2006. This acquisition aimed to expand its innerwear operations’ market area by including customer age groups and product styles that it had not been able to develop fully. | ||
This transaction was accounted for as a purchase. PJ is included in the Company’s consolidated balance sheet as of March 31, 2008 based on PJ’s fiscal year end, which is February 29, 2008. However, because PJ’s results of operations and change in financial position between January 10, 2008 and March 31, 2008 were not significant, the Company continued to account for its investment using the equity method and the income from PJ’s operations for the fiscal year ended February 29, 2008 was included in equity in net income (loss) of affiliated companies in the consolidated statements of income. | ||
The purchase cost of the additional shares was ¥9,266 million, which consisted of the fair value of the shares distributed to the shareholder of PJ and the direct costs of the business combination. As consideration for the acquisition, the Company distributed 3,261,400 new shares and 3,440,000 shares of treasury stock to the shareholder of PJ. Those shares were valued at ¥1,372 per share which was the five-day average stock price before the acquisition announcement on November 9, 2007. | ||
The purchase price of additional PJ shares was allocated based upon the estimated fair value of the identifiable assets acquired and liabilities assumed. The Company’s new basis of investments in PJ was ¥21,814 million, including the initial investment of ¥10,670 million for the 49% shares and the corresponding amount of deferred tax liability of ¥1,878 million for the outside basis temporary differences, which the Company recognized on investment in PJ upon the acquisition. | ||
As a result of the allocation of new basis of investment in PJ, the Company recognized goodwill of ¥11,203 million and intangible assets of ¥8,677 million, in aggregate, which were classified as goodwill and other intangible assets in the consolidated balance sheets. Intangible assets consisted of trademark of ¥5,316 million and customer list of ¥3,361 million. The trademark is not subject to amortization and the customer list is subject to amortization over estimated useful life of 7 years. Goodwill is not deductible for tax purpose. |
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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. |
Millions of | ||||
Yen | ||||
2008 | ||||
Current assets | ¥ | 6,808 | ||
Property, plant, and equipment | 698 | |||
Intangible assets | 8,677 | |||
Goodwill | 11,203 | |||
Other assets | 692 | |||
Total assets acquired | 28,078 | |||
Current liabilities | 2,432 | |||
Long-term debt | 3,832 | |||
Total liabilities assumed | 6,264 | |||
Net assets acquired | ¥ | 21,814 | ||
Unaudited Pro Forma Results | ||
Unaudited pro forma financial information is presented below as if the acquisition of PJ occurred at the beginning of the 2008 and 2007. |
Millions of Yen | ||||||||
2008 | 2007 | |||||||
Pro forma sales | ¥ | 180,407 | ¥ | 181,820 | ||||
Pro forma operating income | 14,627 | 14,219 | ||||||
Pro forma net income | 5,492 | 9,802 |
Yen | ||||||||
2008 | 2007 | |||||||
Pro forma earnings per share | ¥ | 39 | ¥ | 66 |
10. | GOODWILL AND OTHER INTANGIBLE ASSETS | |
The components of acquired intangible assets excluding goodwill at March 31, 2009 and 2008 were as follows: |
2009 | ||||||||||||||||
Millions of Yen | Thousands of U.S. Dollars | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Year Ended March 31 | Amount | Amortization | Amount | Amortization | ||||||||||||
Amortized intangible assets: | ||||||||||||||||
Customer list | ¥ | 3,361 | ¥ | 480 | $ | 33,898 | $ | 4,841 | ||||||||
Software | 7,118 | 2,730 | 71,790 | 27,534 | ||||||||||||
Other | 945 | 386 | 9,531 | 3,893 | ||||||||||||
Total | ¥ | 11,424 | ¥ | 3,596 | $ | 115,219 | $ | 36,268 | ||||||||
Unamortized intangible assets: | ||||||||||||||||
Trademark | ¥ | 5,316 | $ | 53,616 | ||||||||||||
Other | 98 | 988 | ||||||||||||||
Total | ¥ | 5,414 | $ | 54,604 | ||||||||||||
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2008 | ||||||||
Millions of Yen | ||||||||
Gross | ||||||||
Carrying | Accumulated | |||||||
Year Ended March 31 | Amount | Amortization | ||||||
Amortized intangible assets: | ||||||||
Customer list | ¥ | 3,361 | ||||||
Software | 5,633 | ¥ | 2,356 | |||||
Other | 1,414 | 251 | ||||||
Total | ¥ | 10,408 | ¥ | 2,607 | ||||
Unamortized intangible assets: | ||||||||
Trademark | ¥ | 5,316 | ||||||
Other | 99 | |||||||
Total | ¥ | 5,415 | ||||||
Intangible assets acquired during the year ended March 31, 2009 totaled ¥1,846 million ($18,618 thousand) which primarily consist of software of ¥1,832 million ($18,477 thousand). Trademark and customer list are recorded from acquired business. Trademark is not subject to amortization, customer list is subject to amortization over estimated useful life of 7 years and software is subject to amortization over estimated useful life of 5 years. | ||
Aggregate amortization expenses related to intangible assets and future estimated amortization expense were as follows: |
Millions of | Thousands of | |||||||
Yen | U.S. Dollars | |||||||
2009 | 2009 | |||||||
Year Ended March 31 | ||||||||
Aggregate amortization expense | ||||||||
2009 | ¥ | 1,496 | $ | 15,088 | ||||
Year Ending March 31 | ||||||||
Estimated amortization expense | ||||||||
2010 | 1,570 | 15,835 | ||||||
2011 | 1,541 | 15,542 | ||||||
2012 | 1,441 | 14,534 | ||||||
2013 | 1,251 | 12,617 | ||||||
2014 | 967 | 9,752 | ||||||
Total | ¥ | 6,770 | $ | 68,280 | ||||
Millions of | ||||
Yen | ||||
2008 | ||||
Year Ended March 31 | ||||
Aggregate amortization expense | ||||
2008 | ¥ | 909 | ||
Year Ending March 31 | ||||
Estimated amortization expense | ||||
2009 | 1,379 | |||
2010 | 1,260 | |||
2011 | 1,200 | |||
2012 | 1,084 | |||
2013 | 841 | |||
Total | ¥ | 5,764 | ||
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There were no changes in the carrying amount of goodwill for the year ended March 31, 2009. | ||
11. | TERMINATION AND RETIREMENT PLANS | |
Employee Retirement Plans- The Companies sponsor termination and retirement benefit plans that cover substantially all employees. Benefits are based on the employee’s years of service, position and performance. If the termination is involuntary or caused by death, the employee is usually entitled to greater payments than in the case of voluntary termination. | ||
The Companies have a contributory defined retirement benefit plan, several partially funded plans administered by independent trustees and several unfunded termination plans administered by the Companies. Benefits under the contributory defined retirement benefit plan are usually paid in a lump sum at the earlier of termination or retirement, although periodic payments are available under certain conditions. Benefits under the other termination and retirement benefit plan are paid either as a lump-sum payments or a periodic payments under certain conditions. The benefits are usually paid as a lump-sum payment, if the employee resigns before the mandatory retirement age. | ||
The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Change in benefit obligation: | ||||||||||||
Benefit obligation at beginning of year | ¥ | 32,819 | ¥ | 33,059 | $ | 331,003 | ||||||
Service cost | 812 | 858 | 8,190 | |||||||||
Interest cost | 751 | 761 | 7,574 | |||||||||
Participants’ contributions | 73 | 73 | 736 | |||||||||
Actuarial loss (gain) | 61 | (1,041 | ) | 615 | ||||||||
Benefits paid from plan assets | (492 | ) | (394 | ) | (4,962 | ) | ||||||
Settlement paid from plan assets | (694 | ) | (569 | ) | (6,999 | ) | ||||||
Settlement paid by the Companies | (384 | ) | (187 | ) | (3,873 | ) | ||||||
Increase due to change in scope of consolidation | 259 | |||||||||||
Benefit obligation at end of year | 32,946 | 32,819 | 332,284 | |||||||||
Change in plan assets: | ||||||||||||
Fair value of plan assets at beginning of year | ¥ | 34,067 | ¥ | 38,048 | $ | 343,590 | ||||||
Actual return on plan assets | (5,963 | ) | (5,581 | ) | (60,141 | ) | ||||||
Employer contributions | 2,078 | 2,490 | 20,958 | |||||||||
Participants’ contributions | 73 | 73 | 736 | |||||||||
Benefit payments | (492 | ) | (394 | ) | (4,962 | ) | ||||||
Settlement payments | (694 | ) | (569 | ) | (6,999 | ) | ||||||
Fair value of plan assets at end of year | 29,069 | 34,067 | 293,182 | |||||||||
Funded status at end of year | ¥ | (3,877 | ) | ¥ | 1,248 | $ | (39,102 | ) | ||||
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Amounts recognized in the consolidated balance sheets at March 31, 2009 and 2008 consist of: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Prepaid pension expense | ¥ | 3,444 | ||||||||||
Accrued expenses | ¥ | (91 | ) | (104 | ) | $ | (918 | ) | ||||
Liability for termination and retirement benefits | (3,786 | ) | (2,092 | ) | (38,184 | ) | ||||||
¥ | (3,877 | ) | ¥ | 1,248 | $ | (39,102 | ) | |||||
Amounts recognized in accumulated other comprehensive income at March 31, 2009 and 2008 were as follows: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Actuarial loss | ¥ | (10,585 | ) | ¥ | (4,705 | ) | $ | (106,757 | ) | |||
Prior service benefit | 4,880 | 5,572 | 49,218 | |||||||||
¥ | (5,705 | ) | ¥ | 867 | $ | (57,539 | ) | |||||
The accumulated benefit obligation for all defined benefit plans at March 31, 2009 and 2008 were as follows: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Accumulated benefit obligation | ¥ | 32,023 | ¥ | 31,842 | $ | 322,975 |
Net periodic benefit costs for the Companies’ plans consisted of the following for the year ended March 31: |
Thousands of | ||||||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
Service cost | ¥ | 812 | ¥ | 858 | ¥ | 936 | $ | 8,190 | ||||||||
Interest cost on projected benefit obligation | 751 | 761 | 748 | 7,574 | ||||||||||||
Expected return on plan assets | (774 | ) | (788 | ) | (726 | ) | (7,806 | ) | ||||||||
Net amortization | 228 | (770 | ) | (826 | ) | 2,299 | ||||||||||
¥ | 1,017 | ¥ | 61 | ¥ | 132 | $ | 10,257 | |||||||||
The unrecognized net actuarial loss and prior service benefit are being amortized over 12 years (the average remaining service life of active participants) using the declining-balance method and the straight-line method, respectively. |
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Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended March 31, 2009 and 2008 were as follows: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Current year actuarial loss | ¥ | (6,800 | ) | ¥ | (5,328 | ) | $ | (68,583 | ) | |||
Amortization of actuarial loss (gain) | 919 | (79 | ) | 9,269 | ||||||||
Amortization of prior service benefit | (691 | ) | (691 | ) | (6,969 | ) | ||||||
¥ | (6,572 | ) | ¥ | (6,098 | ) | $ | (66,283 | ) | ||||
The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year are summarized as follows: |
2009 | ||||||||
Millions of | Thousands of | |||||||
Yen | U.S. Dollars | |||||||
Actuarial gain | ¥ | 1,852 | $ | 18,679 | ||||
Prior service benefit | (691 | ) | (6,969 | ) |
The Companies use a March 31 measurement date for its plans. The weighted-average assumptions used as of March 31, in computing the benefit obligation liabilities shown above were as follows: |
2009 | 2008 | |||||||
Discount rate | 2.5 | % | 2.5 | % | ||||
Rate of increase in future compensation | 0.0 | % | 0.0 | % |
The weighted-average assumptions used as of March 31, in computing the net periodic benefit cost shown above were as follows: |
2009 | 2008 | 2007 | ||||||||||
Discount rate | 2.5 | % | 2.5 | % | 2.5 | % | ||||||
Expected long-term rate of return on plan assets | 2.5 | % | 2.5 | % | 2.5 | % | ||||||
Rate of increase in future compensation | 0.0 | % | 0.5 | % | 0.5 | % |
The Company’s wholly owned subsidiary, Wacoal Corp.’s approach to establishing the discount rate is based upon long term Japanese government bond rates and corporate bond indices. The discount rate assumption is based upon the five-year average of the effective yields on the 20-year Japanese government bond, adjusted for an incremental yield of approximately 25 basis points that is achieved by selecting corporate bonds whose credit characteristics satisfy the quality requirements but whose yields are slightly higher than the yields on Japanese government bonds. For other plans, similar indices and methods are used. | ||
The expected long-term rate of return on plan assets is derived proportionally from return assumptions determined for each of the major asset classes. The return expectations for each of the asset classes are based largely on assumptions about economic growth and inflation, which are supported by long-term historical data. The estimated long-term rate of return is based on an asset allocation of equity securities of 36.0%, debt securities of 52.0%, and other investments of 12.0%. |
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The Companies’ investment strategy is to maintain actual asset weightings within a preset range of target allocations. The Companies’ investments are broadly diversified, typically consisting primarily of equity and debt securities. The Companies believe these ranges represent an appropriate risk profile for the planned benefit payments of the plans based on the timing of the estimated benefit payment. | ||
The asset allocation at March 31, 2009 and 2008 was as follows: |
2009 | 2008 | |||||||
Equity securities | 39.0 | % | 45.4 | % | ||||
Debt securities | 40.8 | % | 44.4 | % | ||||
Life insurance company general accounts | 14.8 | % | 8.4 | % | ||||
Cash and cash equivalents | 5.4 | % | 1.8 | % |
The target allocation percentages are reviewed and approved by the Pension Committee. The actual allocations for 2009 and 2008 are different from the target allocation percentages primarily because the Company maintained additional equity securities as the separate plan asset which was contributed to the plan based on an agreement between the Company and employees and are not governed by the Pension Committee. As such, the actual allocation percentage of equity securities to the total plan assets is higher than the target allocation, and similarly, the actual allocation for the debt securities and other types of assets are lower than the target allocation. | ||
The general funding policy of the funded plans is to contribute amounts computed in accordance with actuarial methods accepted by Japanese tax law. The Companies expect to contribute ¥1,479 million ($14,917 thousand) to their plans in the year ending March 31, 2010. | ||
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows: |
Millions of | Thousands of | |||||||
Year Ending March 31 | Yen | U.S. Dollars | ||||||
2010 | ¥ | 1,358 | $ | 13,696 | ||||
2011 | 1,512 | 15,250 | ||||||
2012 | 1,609 | 16,228 | ||||||
2013 | 1,781 | 17,963 | ||||||
2014 | 1,886 | 19,022 | ||||||
2015 - 2019 | 10,111 | 101,977 |
Employee Early Retirement Program- The Companies provide additional benefits to employees that elect to participate in the Companies’ early retirement program. Retirement benefits of ¥157 million ($1,583 thousand), ¥51 million and ¥14 million were paid in addition to normal benefits and charged to selling, general and administrative for the years ended March 31, 2009, 2008 and 2007, respectively. |
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Termination Plan for Directors and Corporate Auditors- The Company and certain subsidiaries had termination plans for directors and corporate auditors. Payment of termination benefits to directors and corporate auditors is made in a lump-sum upon termination and requires the approval of the shareholders before payment. In June 2005, the Company rescinded its termination plan for directors and corporate auditors upon the approval of its shareholders. The amount of benefit for each individual was fixed as of June 29, 2005 and will remain frozen until the retirement of each respective director and corporate auditor. The outstanding liabilities at March 31, 2009 and 2008 were ¥339 million ($3,419 thousand) and ¥368 million, respectively, and were recorded in other long-term liabilities. Subsidiaries still maintain plans for their directors and corporate auditors. In accordance with EITF 88-1, “Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan,” the subsidiaries recorded a liability for termination benefits for directors and corporate auditors at the amount that would be needed if all directors and corporate auditors were to resign at each balance sheet date. The liabilities for termination benefits for directors and corporate auditors at March 31, 2009 and 2008 were ¥304 million ($3,066 thousand) and ¥90 million, respectively, and were included in liability for termination and retirement benefits. | ||
12. | SHAREHOLDERS’ EQUITY | |
Since May 1, 2006, Japanese companies have been subject to the Companies Act of Japan (the “Companies Act”), which reformed and replaced the Commercial Code of Japan. The significant provisions in the Companies Act that affect financial and accounting matters are summarized below: |
(a) | Dividends | ||
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. The Company meets all the above criteria. The Board of Directors of companies with board committees (an appointment committee, compensation committee and audit committee) can also do so because such companies with board committees already, by nature, meet the above criteria under the Companies Act, even though such companies have an audit committee instead of the Board of Corporate Auditors. | |||
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain limitation and additional requirements. | |||
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million. | |||
The amount of retained earnings available for dividends under the Companies Act was ¥95,616 million ($964,357 thousand) as of March 31, 2009, based on the amount recorded in the parent company’s general books of account. |
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(b) | Increases/decreases and transfer of common stock, reserve and surplus | ||
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders. | |||
(c) | Treasury stock and treasury stock acquisition rights | ||
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula. | |||
Under the Companies Act, stock acquisition rights are now presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights. |
13. | SHARE-BASED COMPENSATION | |
The Company adopted stock option plan in the year ended March 31, 2009. Under the 2009 stock option plan, the Company granted its shares of common stock to directors of the Company and the Company’s wholly owned subsidiary, Wacoal Corp. except outside directors in the year ended March 31, 2009. The Company believes that such awards better align the interests of its directors with those of its shareholders, by sharing both risk and return of fluctuations in stock prices and giving motivation to heighten its corporate value. The compensation cost is valued at fair value on the grant date. Options vest over one year in proportion to the service months of directors, and are exercisable from the day after the date of retirement up to (i) twenty years from the grant date or (ii) five years from the day after the date of retirement, whichever is earlier. | ||
The fair value of the options is estimated by using the Black-Scholes option-pricing model with following assumptions. | ||
Expected volatility is based on the historical volatility of the Company’s share over the most recent period commensurate with the expected term of the Company’s stock options. Expected term of options granted is based on the average remaining service period of directors, assuming that those who are granted options will render service until the stated retirement date and they will exercise options immediately after their retirement. Expected dividend yield is based on the actual payout of dividend in the last fiscal year and the closing price of the Company’s common stock on the grant date. | ||
Risk-free interest rate is based on the Japanese government bonds yield curve in effect at the time of grant for a period commensurate with the expected term of the Company’s share options. |
2009 | ||||
Expected volatility | 24.7 | % | ||
Expected dividends | 2.0 | % | ||
Expected term | 4.8 | years | ||
Risk-free rate | 1.0 | % |
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A summary of option activity under the Plan as of March 31, 2009, and changes for the year ended March 31, 2009, were as follows: |
Years | ||||||||||||||||||||||||
Yen | U.S. Dollars | Weighted-Average | Millions | Thousands of U.S. | ||||||||||||||||||||
Weighted-Average | Remaining | of Yen | Dollars | |||||||||||||||||||||
Shares | Exercise Price | Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||||
Outstanding at April 1, 2008 | — | — | — | |||||||||||||||||||||
Granted | 57,000 | 1 | 0 | |||||||||||||||||||||
Exercised | — | — | — | |||||||||||||||||||||
Forfeited or expired | — | — | — | |||||||||||||||||||||
Outstanding at March 31, 2009 | 57,000 | 1 | 0 | 19.4 | 65 | 656 | ||||||||||||||||||
Exercisable at March 31, 2009 | — | — | — | — | — |
Total compensation cost recognized and the total recognized tax benefit related thereto during the years 2009 were ¥54 million ($544 thousand) and ¥22 million ($222 thousand), respectively. | ||
The weighted-average grant date fair value of options granted during the year ended March 31, 2009, was ¥1,137 ($11). | ||
As of March 31, 2009, there was ¥11 million ($111 thousand) of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over 0.25 year. | ||
14. | OTHER COMPREHENSIVE (LOSS) INCOME | |
The changes in the components of accumulated other comprehensive (loss) income were reported net of income taxes as follows: |
Millions of Yen | ||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||||||
Tax | ||||||||||||||||||||||||||||||||||||
Pre-Tax | (Expense) | Net | Pre-Tax | Tax | Net | Pre-Tax | Tax | Net | ||||||||||||||||||||||||||||
Amount | Credit | Amount | Amount | Credit | Amount | Amount | Expense | Amount | ||||||||||||||||||||||||||||
Foreign currency translation adjustments | ¥ | (9,228 | ) | ¥ | 692 | ¥ | (8,536 | ) | ¥ | (506 | ) | ¥ | 38 | ¥ | (468 | ) | ¥ | 1,598 | ¥ | (146 | ) | ¥ | 1,452 | |||||||||||||
Unrealized (loss) gain on securities: | ||||||||||||||||||||||||||||||||||||
Unrealized holding (loss) gain | (10,078 | ) | 4,024 | (6,054 | ) | (14,658 | ) | 5,972 | (8,686 | ) | 56 | (15 | ) | 41 | ||||||||||||||||||||||
Reclassification adjustments | 1,828 | (744 | ) | 1,084 | (754 | ) | 307 | (447 | ) | 129 | (53 | ) | 76 | |||||||||||||||||||||||
Net unrealized (loss) gain | (8,250 | ) | 3,280 | (4,970 | ) | (15,412 | ) | 6,279 | (9,133 | ) | 185 | (68 | ) | 117 | ||||||||||||||||||||||
Pension liability adjustment: | ||||||||||||||||||||||||||||||||||||
Unrealized holding (loss) gain | (6,800 | ) | 2,768 | (4,032 | ) | (5,328 | ) | 2,168 | (3,160 | ) | ||||||||||||||||||||||||||
Reclassification adjustment | 228 | (93 | ) | 135 | (770 | ) | 314 | (456 | ) | |||||||||||||||||||||||||||
Net unrealized (loss) gain | (6,572 | ) | 2,675 | (3,897 | ) | (6,098 | ) | 2,482 | (3,616 | ) | ||||||||||||||||||||||||||
Other comprehensive (loss) income | ¥ | (24,050 | ) | ¥ | 6,647 | ¥ | (17,403 | ) | ¥ | (22,016 | ) | ¥ | 8,799 | ¥ | (13,217 | ) | ¥ | 1,783 | ¥ | (214 | ) | ¥ | 1,569 | |||||||||||||
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Thousands of U.S. Dollars | ||||||||||||
2009 | ||||||||||||
Tax | ||||||||||||
Pre-Tax | (Expense) | Net | ||||||||||
Amount | Credit | Amount | ||||||||||
Foreign currency translation adjustments | $ | (93,071 | ) | $ | 6,979 | $ | (86,092 | ) | ||||
Unrealized loss on securities: | ||||||||||||
Unrealized holding loss | (101,644 | ) | 40,585 | (61,059 | ) | |||||||
Reclassification adjustments | 18,437 | (7,504 | ) | 10,933 | ||||||||
Net unrealized loss | (83,207 | ) | 33,081 | (50,126 | ) | |||||||
Pension liability adjustment: | ||||||||||||
Unrealized holding (loss) gain | (68,583 | ) | 27,917 | (40,666 | ) | |||||||
Reclassification adjustment | 2,300 | (938 | ) | 1,362 | ||||||||
Net unrealized (loss) gain | (66,283 | ) | 26,979 | (39,304 | ) | |||||||
Other comprehensive loss | $ | (242,561 | ) | $ | 67,039 | $ | (175,522 | ) | ||||
15. | INCOME TAXES | |
Income before income taxes, equity in net income (loss) of affiliated companies, and minority interests is summarized as follows: |
Thousands of | ||||||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
Japan | ¥ | 12,553 | ¥ | 15,959 | ¥ | 14,487 | $ | 126,606 | ||||||||
Foreign | (4,926 | ) | (1,606 | ) | (567 | ) | (49,682 | ) | ||||||||
Total | ¥ | 7,627 | ¥ | 14,353 | ¥ | 13,920 | $ | 76,924 | ||||||||
Income taxes expense consists of: |
Thousands of | ||||||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||||||
2009 | 2008 | 2007 | 2009 | |||||||||||||
Current: | ||||||||||||||||
Japan | ¥ | 2,214 | ¥ | 4,652 | ¥ | 1,446 | $ | 22,330 | ||||||||
Foreign | 503 | 925 | 1,428 | 5,073 | ||||||||||||
¥ | 2,717 | ¥ | 5,577 | ¥ | 2,874 | $ | 27,403 | |||||||||
Deferred: | ||||||||||||||||
Japan | ¥ | 522 | ¥ | 280 | ¥ | 3,854 | $ | 5,265 | ||||||||
Foreign | (26 | ) | (4 | ) | (226 | ) | (262 | ) | ||||||||
¥ | 496 | ¥ | 276 | ¥ | 3,628 | $ | 5,003 | |||||||||
Total income taxes | ¥ | 3,213 | ¥ | 5,853 | ¥ | 6,502 | $ | 32,406 | ||||||||
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The Companies are subject to a number of different taxes based on income. The effective income tax rates differed from the normal statutory rates for the following reasons for the years ended March 31, 2009, 2008 and 2007: |
2009 | 2008 | 2007 | ||||||||||
Normal Japanese statutory rates | 40.7 | % | 40.7 | % | 40.7 | % | ||||||
Increase in taxes resulting from: | ||||||||||||
Permanently non-deductible expenses | 5.8 | 2.9 | 6.5 | |||||||||
Change in valuation allowance | 4.1 | (1.5 | ) | (2.0 | ) | |||||||
Undistributed earnings of foreign subsidiaries | (2.1 | ) | 2.6 | 0.8 | ||||||||
Differences in subsidiaries’ tax rate | (3.4 | ) | (2.5 | ) | (0.8 | ) | ||||||
Tax exemption | (0.3 | ) | (0.2 | ) | (1.3 | ) | ||||||
Other — net | (2.7 | ) | (1.2 | ) | 2.8 | |||||||
Effective tax rates | 42.1 | % | 40.8 | % | 46.7 | % | ||||||
The approximate effect of temporary differences and tax loss carryforwards that gave rise to deferred tax balances at March 31, 2009 and 2008 were as follows: |
Thousands of | ||||||||||||||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||||||||||||||
2009 | 2008 | 2009 | ||||||||||||||||||||||
Deferred | Deferred | Deferred | Deferred | Deferred | Deferred | |||||||||||||||||||
Tax | Tax | Tax | Tax | Tax | Tax | |||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||
Sales returns | ¥ | 838 | ¥ | 1,082 | $ | 8,452 | ||||||||||||||||||
Allowance for doubtful receivables | 257 | ¥ | 252 | 2,592 | ||||||||||||||||||||
Inventory valuation | 1,469 | 1,201 | 14,816 | |||||||||||||||||||||
Intercompany profits | 268 | 248 | 2,703 | |||||||||||||||||||||
Accrued bonuses | 1,415 | 1,420 | 14,271 | |||||||||||||||||||||
Impairment charges on marketable securities and investments | 985 | 1,141 | 9,934 | |||||||||||||||||||||
Advanced depreciation on property, plant and equipment | ¥ | 1,696 | 1,753 | $ | 17,105 | |||||||||||||||||||
Undistributed earnings of foreign subsidiaries | 1,712 | 2,695 | 17,267 | |||||||||||||||||||||
Net unrealized gain on marketable securities and investments | 1,430 | 4,511 | 14,423 | |||||||||||||||||||||
Net realized gain on exchange of equity securities | 2,448 | 2,453 | 24,690 | |||||||||||||||||||||
Capitalized supplies | 227 | 291 | 2,289 | |||||||||||||||||||||
Enterprise taxes | 52 | 363 | 525 | |||||||||||||||||||||
Accrued vacation | 842 | 902 | 8,492 | |||||||||||||||||||||
Pension expense | 2,104 | 966 | 815 | 21,220 | ||||||||||||||||||||
Tangible fixed assets | 1,328 | 1,343 | 13,394 | |||||||||||||||||||||
Tax loss carryforwards | 1,733 | 2,054 | 17,479 | |||||||||||||||||||||
Intangible assets | 3,337 | 3,532 | 33,656 | |||||||||||||||||||||
Investment in a subsidiary | 1,878 | 1,878 | 18,941 | |||||||||||||||||||||
Other temporary differences | 767 | 4 | 679 | 37 | 7,736 | 40 | ||||||||||||||||||
Total | 12,285 | 12,505 | 11,690 | 17,926 | 123,903 | 126,122 | ||||||||||||||||||
Valuation allowance | (1,643 | ) | (1,418 | ) | (16,571 | ) | ||||||||||||||||||
Total | ¥ | 10,642 | ¥ | 12,505 | ¥ | 10,272 | ¥ | 17,926 | $ | 107,332 | $ | 126,122 | ||||||||||||
The valuation allowance increased by ¥225 million ($2,269 thousand) for the year ended March 31, 2009 and decreased by ¥47 million for the year ended March 31, 2008. |
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At March 31, 2009, certain subsidiaries had loss carryforwards which are available to offset future taxable income of such subsidiaries expiring as follows: |
Thousands of | ||||||||
Year Carryforward Expires | Millions of Yen | U.S. Dollars | ||||||
2010 | ¥ | 457 | $ | 4,609 | ||||
2011 | 592 | 5,971 | ||||||
2012 | 482 | 4,861 | ||||||
2013 | 299 | 3,016 | ||||||
2014 | 602 | 6,072 | ||||||
2015 | 472 | 4,760 | ||||||
2016 | 564 | 5,688 | ||||||
Indefinitely until utilized | 963 | 9,713 | ||||||
Total | ¥ | 4,431 | $ | 44,690 | ||||
The portion of the undistributed earnings of foreign subsidiaries which were deemed to be permanently invested amounted to ¥5,239 million at March 31, 2008. Provisions were not made for income taxes on undistributed earnings of foreign subsidiaries to the extent that they are deemed to be permanently invested. There was no such portion of undistributed earnings as of March 31, 2009. | ||
The Companies adopted FIN 48 effective April 1, 2007. As a result of implementation of FIN 48, the Companies recognized a tax benefit of ¥181 million as of April 1, 2007, and did not require a cumulative-effect adjustment to retained earnings. | ||
A reconciliation of beginning and ending amount of unrecognized tax benefits was as follows: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Balance at beginning of year | ¥ | 420 | ¥ | 181 | $ | 4,236 | ||||||
Additions based on tax positions related to the current year | 20 | 332 | 202 | |||||||||
Additions for tax positions of prior years | 29 | |||||||||||
Reductions for tax positions of prior years | (334 | ) | (122 | ) | (3,369 | ) | ||||||
Balance at end of year | ¥ | 106 | ¥ | 420 | $ | 1,069 | ||||||
Total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is ¥106 million ($1,069 thousand) and ¥420 million at March 31, 2009 and 2008, respectively. | ||
The Companies recognize interest and penalties accrued related to unrecognized tax benefits in income taxes in the consolidated statements of income. Total amounts of interest and penalties recognized in the consolidated statements of income for the years ended March 31, 2009 and 2008 were not material. | ||
The Companies file income tax returns in Japan and various foreign tax jurisdictions. With few exceptions, the Companies are no longer subject to regular income tax examinations by the tax authority for years before 2007. In the current year, the transfer pricing examination of certain domestic subsidiary’s 2002 to 2007 fiscal year and certain the U.S. subsidiary’s 2003 and 2004 fiscal year was completed. |
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16. | RELATED PARTY TRANSACTIONS | |
The Companies purchase merchandise from numerous suppliers throughout the world, including certain affiliates of the Companies. The Companies purchased merchandise from affiliates in the amount of ¥1,674 million ($16,884 thousand), ¥1,031 million and ¥1,588 million in the fiscal years ended March 31, 2009, 2008 and 2007, respectively. The accounts payable to affiliates were ¥34 million ($343 thousand) and ¥48 million at March 31, 2009 and 2008, respectively. | ||
The Companies also sell supplies, materials and products to certain affiliates. Aggregate sales to affiliates were ¥958 million ($9,662 thousand), ¥803 million and ¥1,042 million in fiscal years ended March 31, 2009, 2008 and 2007. The accounts receivable from affiliates were ¥123 million ($1,241 thousand) and ¥60 million at March 31, 2009 and 2008, respectively. | ||
17. | EARNINGS PER SHARE AND AMERICAN DEPOSITARY RECEIPT | |
The Company accounts for its earnings per share in accordance with SFAS No. 128, “Earnings per Share.” Basic net income per share has been computed by dividing net income available to common shareholders by the weighted-average number of common stock outstanding during each year. Diluted net income per share assumes the dilution that could occur if share-based option to issue common stock were exercised. | ||
The computation of earnings per American Depositary Receipt (“ADR”), each ADR representing 5 shares of common stock, is based on the weighted-average number of common shares outstanding. The weighted-average number of common stock outstanding used in the computations of basic net income per share was 142,316,921 shares for 2009, 141,304,256 shares for 2008 and 142,910,187 shares for 2007. The weighted-average number of diluted common stock outstanding used in the computations of diluted net income per share was 142,336,296 shares, 141,304,256 shares and 142,910,187 shares for 2009, 2008 and 2007. | ||
18. | FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK | |
Fair Value of Financial Instruments —The carrying amount of cash and cash equivalents and short-term bank loans approximates fair value because of the short maturities of these instruments. The fair values of marketable securities, as presented in Note 3, are primarily estimated based on quoted market prices for these securities. However investments in non-marketable securities for which there is no readily determinable fair value were accounted for using the cost method and are reviewed annually or upon the occurrence of an event for other-than temporary impairment. | ||
The fair value of long-term debt, including current portion, consists of lease obligation, and there is no long-term debt which is required to disclose its fair value at March 31, 2009 and 2008. | ||
Limitations —Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. | ||
Forward Currency Exchange Contracts— The Companies occasionally uses forward currency exchange contracts to manage their exposure to foreign currency fluctuation on the transactions denominated in foreign currencies. The Companies measures forward currency exchange contracts at the fair value since they were not designated as a hedge. |
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Concentration of Credit Risk —The Companies’ business consists primarily of sales of women’s intimate apparel to a large number of diverse customers in the Japanese retail industry, which include well established department stores, general merchandise stores and other general retailers and to specialty stores. No single customer constitutes 10.0% or more of the total sales, although the general retail customers that are consolidated companies in the Aeon Group collectively accounted for approximately 9.8%, 11.2% and 10.1% of the total sales in fiscal years ended March 31, 2009, 2008 and 2007, respectively. | ||
19. | FAIR VALUE MEASUREMENTS | |
The Companies adopted SFAS No. 157 on April 1, 2008. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value as follows: |
Level 1 | — | Inputs are quoted prices in active markets for identical assets or liabilities. | ||
Level 2 | — | Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | ||
Level 3 | — | Inputs are unobservable. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis | ||
Assets and liabilities at fair value on a recurring basis as of March 31, 2009 were as follows: |
Millions of Yen | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
Assets: | |||||||||||||||||
Marketable securities | ¥ | 1,662 | ¥ | 8,821 | ¥ | ¥ | 10,483 | ||||||||||
Investments | 26,317 | 26,317 | |||||||||||||||
Total assets | ¥ | 27,979 | ¥ | 8,821 | ¥ | ¥ | 36,800 | ||||||||||
Liabilities: | |||||||||||||||||
Financial instruments | ¥ | ¥ | (84 | ) | ¥ | ¥ | (84 | ) | |||||||||
Thousands of U.S. Dollars | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Marketable securities | $ | 16,763 | $ | 88,966 | $ | $ | 105,729 | |||||||||
Investments | 265,426 | 265,426 | ||||||||||||||
Total assets | $ | 282,189 | $ | 88,966 | $ | $ | 371,155 | |||||||||
Liabilities: | ||||||||||||||||
Financial instruments | $ | $ | (847 | ) | $ | $ | (847 | ) | ||||||||
Marketable securities presented in Level 1 include government bonds. Marketable securities presented in Level 2 include principally corporate debt securities. Investments presented in Level 1 include principally equity securities. |
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Marketable securities and investments presented in Level 1 are valued using an unadjusted quoted market price in active markets with sufficient volume and frequency of transactions. Marketable securities presented in Level 2 are valued using quoted market price obtained from third parties. | ||
As presented in Note 3, the Companies recorded impairment charges on marketable securities and investments if a decline in fair value of marketable securities and investments is determined to be other than temporary. | ||
Financial instruments are comprised of foreign currency exchange contracts. Financial instruments are valued using quotes obtained from third parties. | ||
The changes in the fair value of the foreign currency exchange contracts are recorded in earnings, since the foreign currency exchange contracts are not designate as a hedge. The Companies recognized ¥62 million ($625 thousand) and ¥35 million in other income (expenses) in the years ended March 31, 2009 and 2008. No foreign currency exchange contract was outstanding as of March 31, 2007. | ||
The Companies recorded the financial instruments as other current liabilities in the consolidated balance sheet at fair value of ¥84 million ($847 thousand) at March 31, 2009. | ||
20. | SUBSEQUENT EVENTS | |
On May 8, 2009, the Board of Directors resolved to pay a cash dividend of ¥125 ($1.26) per 5 shares of common stock to holders of record as of March 31, 2009 (aggregate amount of ¥3,511 million ($35,411 thousand)). | ||
On May 8, 2009, the Board of Directors of the Company resolved to make Lecien Corporation (“Lecien”) its wholly owned subsidiary through a share exchange. Upon the resolution of the board of directors, the Company entered into a share exchange agreement with Lecien. | ||
Lecien is a manufacturing and wholesale company which manufactures and sells women’s mid-priced innerwear and clothing, lace and other handicrafts accessories. This business integration with Lecien aims to enable the Company to enhance its adaptability to the new innerwear business in the domestic market. | ||
According to the share exchange agreement, 0.065 shares of the Company’s common stock will be allocated and distributed in exchange for each share of Lecien’s stock on August 17, 2009. There will be no issuance of new shares of common stock upon the share exchange. The Company will distribute 2,104,441 shares (tentative) of its treasury stock for the share exchange. | ||
Unaudited financial results of Lecien which is prepared on the basis of accounting principles generally accepted in Japan for the recent fiscal years were as follows: |
Thousands of | ||||||||||||
Millions of Yen | U.S. Dollars | |||||||||||
2009 | 2008 | 2009 | ||||||||||
Sales | ¥ | 17,013 | ¥ | 19,326 | $ | 171,589 | ||||||
Net loss | 260 | 899 | 2,622 | |||||||||
Total assets | 10,647 | 11,872 | 107,383 |
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