UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2004
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-14601
Arch Chemicals, Inc.
(Exact name of registrant as specified in its charter)
Virginia | 06-1526315 | |
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) | |
501 Merritt 7 Norwalk, CT | 06851 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(203) 229-2900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock | New York Stock Exchange | |
Series A Participating Cumulative | New York Stock Exchange | |
Preferred Stock Purchase Rights |
Securities Registered Pursuant to Section 12(g) of the Act:
None
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 x No o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes x No o
As of June 30, 2004, the aggregate market value of registrant’s voting and non-voting common equity held by non-affiliates of registrant was approximately $672,418,000.
As of January 31, 2005, 23,594,255, shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this Form 10-K as indicated herein:
Document | Part of 10-K into which incorporated | |
Proxy Statement relating to Arch’s 2005 | Part III | |
Annual Meeting of Shareholders | ||
EXPLANATORY NOTE
This amendment to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2004 of Arch Chemicals, Inc. (the “Company”) is being filed to include the audited financial statements of FUJIFILM Electronic Materials Co., Ltd. for the fiscal year ended March 31, 2005 at the request of the staff of the Securities and Exchange Commission. The Company sold its 49% equity interest in the FUJIFILM Electronic Materials Co., Ltd. (then known as FUJIFILM Arch Co., Ltd.) on November 30, 2004. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the text of the amended item is set forth in its entirety in the pages attached hereto.
A consent of KPMG AZSA & Co., independent registered public accounting firm for the FUJIFILM Electronic Materials Co., Ltd., is being filed as an exhibit hereto.
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PART IV
Item 15. | Exhibits and Financial Statement Schedules |
(a) 1. Financial Statements
The following is a list of the Financial Statements included in Item 8 of the Form 10-K Report:
Page | ||||
Report of Independent Registered Public Accounting Firm | 47 | |||
Consolidated Balance Sheets as of December 31, 2004 and 2003 | 48 | |||
Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002 | 49 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002 | 50 | |||
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2004, 2003 and 2002 | 51 | |||
Notes to Consolidated Financial Statements | 52 |
2. Financial Statement Schedules
Except as noted below, schedules not included herein are omitted because they are inapplicable or not required or because the required information is given in the consolidated financial statements and notes thereto.
The financial statements of the Company’s Nordesclor joint venture and Koppers Arch joint venture have been summarized within the Notes to the Consolidated Financial Statements due to the significance of their results to the consolidated Company. Separate financial statements of the remaining 50% or less owned companies accounted for by the equity method are not summarized herein and have been omitted because they would not constitute a significant subsidiary.
Due to the significance of the Company’s former FUJIFILM Arch joint venture as of December 31, 2003, the Company filed audited financial statements of the joint venture for the fiscal year ended March 31, 2004 and certain unaudited financial information for the fiscal years ended March 31, 2003 and 2002, pursuant to SEC Rule 3-09 of Regulation S-X. The Company filed the financial statements as an amendment to its December 31, 2003 10-K on July 22, 2004.
In February 2005, the SEC staff asked the Company to amend its 2003 10-K filing to include audited financial statements for the fiscal year ended March 31, 2003 and unaudited financial statements for the fiscal year ended March 31, 2002 for this joint venture. Under the staff's interpretation, the Company was required to perform the test of significance in 2003, of the prior year, utilizing the restated financial information for 2002 that resulted from a business being treated as discontinued operations. As a result, the joint venture was a significant subsidiary in 2002 as well as 2003. The Company appealed the staff’s position. That appeal was successful. However, the SEC staff and the Company ultimately agreed to file audited financial statements of this joint venture for the fiscal year ending March 31, 2005. This joint venture which was sold in connection with the sale of the majority of its microelectronic materials business in 2004 and which along with the other microelectronic materials businesses sold are reflected as discontinued operations in the Company’s financial statements for all periods contained in this Report. The joint venture is now known as FUJIFILM Electronic Materials Co., Ltd.
The Company has filed audited consolidated financial statements for FUJIFILM Electronic Materials Co., Ltd. (formerly known as FUJIFILM Arch Co., Ltd.) and its subsidiaries with this Report. Such financial statements are as follows:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2004 and March 31, 2005
Consolidated Statements of Income for the Years Ended March 31, 2003 (unaudited), 2004 and 2005
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended March 31, 2003
(unaudited), 2004 and 2005
Consolidated Statements of Cash Flows for the Years Ended March 31, 2003 (unaudited), 2004 and 2005
Notes to Consolidated Financial Statements
In light of the particular factors and circumstances regarding this matter, the Company has modified its detailed procedures in preparation of its 10-K to add a specific reference that Rule 1-02(w) be reviewed in light of the staff’s position in the event of a restatement.
3. Exhibits
Management contracts and compensatory plans and arrangements are listed as Exhibits 10.7 through 10.19 below.
2.1 | Share Purchase Agreement, dated August 11, 2003, among Hickson Limited, Greentag (8) Limited, Hickson International Limited, Arch Chemicals, Inc. and Hickson & Welch Chemical Products Limited — Exhibit 2 to the Company’s Current Report on Form 8-K, filed August 18, 2003.* |
2.2 | Restated Sale and Purchase Agreement dated as of 8th March 2004, restating an agreement made between the parties on 4th March 2004 — Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed March 9, 2004.* |
2.3 | Stock and Asset Purchase Agreement dated as of October 24, 2004 between Arch Chemicals, Inc. and Fuji Photo Film Co., Ltd. — Exhibit 2 to the Company’s Current Report on Form 8-K, filed October 24, 2004.* |
* | Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-14601 unless otherwise indicated. |
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2.4 | First Amendment dated as of November 30, 2004 to the Stock and Asset Purchase Agreement dated as of October 24, 2004 between Arch Chemicals, Inc. and Fuji Photo Film Co., Ltd. — Exhibit 2 to the Company’s Current Report on Form 8-K, filed December 6, 2004.* |
3.1 | Amended and Restated Articles of Incorporation of the Company — Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 17, 1999.* |
3.2 | Bylaws of the Company as amended July 22, 2004 — Exhibit 3 to the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2004.* |
4.1 | Specimen Common Share certificate — Exhibit 4.1 to the Company’s Registration Statement on Form 10, as amended.* |
4.2 | Amended and Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 hereto).* |
4.3 | Bylaws of the Company (filed as Exhibit 3.2 hereto).* |
4.4 (a) | Rights Agreement dated as of January 29, 1999 between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent — Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed February 17, 1999.* |
4.4 (b) | Amendment No. 1, dated July 25, 1999, to Rights Agreement, dated as of January 29, 1999 — Exhibit 4 to the Company’s Quarterly Report on Form 10-Q, for the period ending June 30, 1999.* |
4.4 (c) | Amendment No. 2, dated April 26, 2002, to Rights Agreement, dated as of January 29, 1999 — Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2002.* |
4.5 | Form of Rights Certificate (attached as Exhibit B to the Rights Agreement filed as Exhibit 4.4(a) hereto).* |
4.6 (a) | Revolving Credit Agreement, dated as of June 20, 2003 among Arch Chemicals, Inc., The Lenders Party hereto, JPMorgan Chase Bank, as Administrative Agent, J.P. Morgan Securities Inc., as Joint Lead Arranger and Joint Book Manager, Banc of America Securities, L.L.C., as Joint Lead Arranger and Joint Book Manager, Bank of America, National Association, as Documentation Agent, and Fleet National Bank, as Syndication Agent, — Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2003.* |
4.6 (b) | First Amendment entered into as of February 20, 2004 relating to the Revolving Credit Agreement dated as of June 30, 2003 among the Company, The Lenders Party hereto, JPMorgan Chase Bank, as administrative agent, JPMorgan Securities Inc., as Joint Lead Arranger and Joint Book Manager, Banc of America Securities, L.L.C., as Joint Lead Arranger and Joint Book Manager, Bank of America, National Association, as Documentation Agent, and Fleet National Bank, as Syndication Agent — Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed March 9, 2004.* |
4.7 (a) | Note Purchase Agreement, dated as of March 20, 2002, among the Company and the purchasers named therein, relating to the Company’s $149,000,000 Senior Notes, Series A, due March 20, 2007 and $62,000,000 Senior Notes, Series B, due March 20, 2009 — Exhibit 4.8 to the Company’s Annual Report on Form 10-K for the period ending December 31, 2001.* |
4.7 (b) | First Amendment entered into as of February 27, 2004 relating to the Note Purchase Agreement dated as of March 20, 2002 among the Company and the purchasers named therein, relating to the Company’s $149,000,000 Senior Notes, Series A, due March 20, 2007 and $62,000,000 Senior Notes, Series B, due March 20, 2009 — Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed March 8, 2004.* |
10.1 | Distribution Agreement, dated as of February 1, 1999, between the Company and Olin — Exhibit 2 to the Company’s Current Report on Form 8-K, filed February 17, 1999.* |
10.2 | Form of Employee Benefits Allocation Agreement between the Company and Olin — Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the period ending December 31, 1998.* |
10.3 | Form of Intellectual Property Transfer and License Agreement between the Company and Olin — Exhibit 10.9 to the Company’s Registration Statement on Form 10, as amended.* |
10.4 | Form of Sublease between the Company and Olin — Exhibit 10.5 to the Company’s Registration Statement on Form 10, as amended.* |
10.5 | Tax Sharing Agreement, dated as of February 8, 1999, between the Company and Olin — Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the period ending December 31, 1998.* |
10.6 | Charleston Services Agreement, dated as of February 8, 1999, between the Company and Olin — Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the period ending December 31, 1998.* |
10.7 (a) | Form of Executive Agreement — Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 5, 2005.* |
10.7 (b) | Form of Change in Control Agreement — Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed January 5, 2005.* |
10.8 | 1999 Stock Plan for Non-employee Directors, as amended October 28, 2004 — Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2004.* |
10.9 | 1999 Long Term Incentive Plan, as amended through February 9, 2005. |
10.10 | Supplemental Contributing Employee Ownership Plan, as amended and restated January 30, 2003 — Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the period ending December 31, 2003.* |
* | Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-14601 unless otherwise indicated. |
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10.11 | Supplementary and Deferral Benefit Pension Plan, as amended July 29, 1999 — Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the period ending December 31, 1999.* |
10.12 | Senior Executive Pension Plan, as amended and restated as of October 23, 2003 — Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the period ending December 31, 2003.* |
10.13 | Employee Deferral Plan, as amended and restated January 30, 2003 — Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the period ending December 31, 2003.* |
10.14 | Key Executive Death Benefits — Exhibit 10.19 to the Company’s Registration Statement on Form 10, as amended.* |
10.15 | Form of Endorsement Split Dollar Agreement — Exhibit 10.20 to the Company’s Registration Statement on Form 10, as amended.* |
10.16 | Arch Chemicals, Inc. Annual Incentive Plan, as amended December 9, 1999 and April 27, 2000 — Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the period ending December 31, 2000.* |
10.17 | Senior Management Incentive Compensation Plan, as amended through February 9, 2005. |
10.18 | Form of Award Description and Agreement for Performance Share Awards granted under Arch Chemicals, Inc. 1999 Long Term Incentive Plan. |
10.19 | Form of Award Description and Agreement for Performance Retention Share Awards granted under Arch Chemicals, Inc. 1999 Long Term Incentive Plan. |
10.20 (a) | Receivables Sale Agreement, dated as of March 19, 2002, between the Company, Arch Specialty Chemicals, Inc., Arch Chemicals Specialty Products, Inc., Arch Electronic Chemicals, Inc., Arch Wood Protection, Inc., Arch Personal Care Products, L.P., and Arch Chemicals Receivables Corp. — Exhibit 10.25(a) to the Company’s Annual Report on Form 10-K for the period ending December 31, 2001.* |
10.20 (b) | First Amendment to Receivables Sale Agreement, dated as of March 18, 2003, among Arch Chemicals, Inc. and certain affiliates and Arch Chemicals Receivables Corp. |
10.20(c) | Receivables Purchase Agreement, dated as of March 19, 2002, between Arch Chemicals Receivables Corp., the Company, Blue Ridge Asset Funding Corporation and Wachovia Bank, N.A., as agent — Exhibit 10.25(b) to the Company’s Annual Report on Form 10-K for the period ending December 31, 2001.* |
10.20 (d) | First Amendment, dated as of April 10, 2002, to Receivables Purchase Agreement, dated as of March 19, 2002, among Arch Chemicals Receivables Corp., Arch Chemicals, Inc., Blue Ridge Asset Funding Corporation, and Wachovia Bank, National Association — Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2002.* |
10.20 (e) | Second Amendment, dated as of May 15, 2002, to Receivables Purchase Agreement, dated as of March 19, 2002, among Arch Chemicals Receivables Corp., Arch Chemicals, Inc., Blue Ridge Asset Funding Corporation and Wachovia Bank, National Association — Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2002.* |
10.20 (f) | Third Amendment, dated as of March 18, 2003, to Receivables Purchase Agreement, dated as of March 19, 2002, among Arch Chemicals Receivables Corp., Arch Chemicals, Inc., Blue Ridge Asset Funding Corporation and Wachovia Bank, National Association — Exhibit 10.18(e) to the Company’s Annual Report on Form 10-K for the period ending December 31, 2003.* |
10.20 (g) | Fourth Amendment to Receivables Purchase Agreement, dated as of December 10, 2003, entered into by and among Arch Chemicals Receivables Corp., as seller, Arch Chemicals, Inc., as the servicer, Blue Ridge Asset Funding Corporation, as a purchaser and Wachovia Bank, National Association, as the Agent — Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2004.* |
10.20 (h) | Fifth Amendment to Receivables Purchase Agreement, dated as of January 9, 2004, entered into by and among Arch Chemicals Receivables Corp., as seller, Arch Chemicals, Inc., as the servicer, Blue Ridge Asset Funding Corporation, as a purchaser and Wachovia Bank, National Association, as the Agent — Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2004.* |
10.20 (i) | Sixth Amendment to Receivables Purchase Agreement, dated as of March 31, 2004, entered into by and among Arch Chemicals Receivables Corp., as seller, Arch Chemicals, Inc., as the servicer, Blue Ridge Asset Funding Corporation, as a purchaser and Wachovia Bank, National Association, as the Agent — Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2004.* |
* | Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-14601 unless otherwise indicated. |
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10.20 (j) | Omnibus Amendment No. 1 to Receivables Sale Agreement and Receivables Purchase Agreement (Arch Chemicals Receivables Corp.) entered into as of June 25, 2003, by and among Arch Chemicals Receivables Corp., Arch Chemicals, Inc. and certain affiliates, Arch Chemicals Receivables Corp., Blue Ridge Asset Funding Corporation, the liquidity banks and Wachovia Bank, National Association. |
10.20 (k) | Omnibus Amendment No. 2 to Receivables Sale Agreement and Receivables Purchase Agreement (Arch Chemicals Receivables Corp.) entered into as of November 12, 2004, by and among Arch Chemicals Receivables Corp., Arch Chemicals, Inc. and certain affiliates, Arch Chemicals Receivables Corp., Blue Ridge Asset Funding Corporation, the liquidity banks and Wachovia Bank, National Association. |
21. | List of Subsidiaries. |
23. | Consent of KPMG LLP. |
23.1 | Consent of KPMG AZSA & Co.** |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a). |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a). |
31.3 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a).** |
31.4 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a).** |
32. | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350. |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350.** |
* | Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-14601 unless otherwise indicated. |
** | Filed with Amendment No. 1 to Company’s Annual Report on Form 10-K for the period ending December 31, 2004. |
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Report of Independent Registered Public Accounting Firm
The Board of Directors
FUJIFILM Electronic Materials Co., Ltd.:
We have audited the accompanying consolidated balance sheets of FUJIFILM Electronic Materials Co., Ltd. (a Japanese corporation) and subsidiaries as of March 31, 2004 and 2005, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing standards. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FUJIFILM Electronic Materials Co., Ltd. and subsidiaries as of March 31, 2004 and 2005, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements as of and for the year ended March 31, 2005, have been translated into United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed in yen have been translated into United States dollars on the basis set forth in note 2 of the consolidated financial statements.
KPMG AZSA & Co.
Tokyo, Japan
December 2, 2005
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FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Consolidated Balance Sheets
March 31, 2004 and 2005
Assets | 2004 | 2005 | ||||||||
Current assets: | Thousands of yen | Thousands of yen | U.S. dollars | |||||||
Cash and cash equivalents | ¥ | 2,659,622 | 1,456,707 | $ | 13,564,643 | |||||
Accounts and notes receivable: | ||||||||||
Trade | 5,067,522 | 5,541,131 | 51,598,203 | |||||||
Notes | 1,441,283 | 1,899,141 | 17,684,523 | |||||||
FUJI and its subsidiaries (note 4) | 27,265 | 755,154 | 7,031,884 | |||||||
ARCH and its subsidiaries (note 4) | 696,350 | — | — | |||||||
Allowance for doubtful accounts | (25,328 | ) | (38,752 | ) | (360,853 | ) | ||||
Net accounts and notes receivable | 7,207,092 | 8,156,674 | 75,953,757 | |||||||
Inventories (note 3) | 2,162,967 | 3,132,292 | 29,167,446 | |||||||
Deferred tax assets (note 8) | 305,710 | 298,277 | 2,777,512 | |||||||
Other current assets | 388,415 | 933,399 | 8,691,675 | |||||||
Total current assets | 12,723,806 | 13,977,349 | 130,155,033 | |||||||
Property, plant, and equipment: | ||||||||||
Land | 207,106 | 212,923 | 1,982,708 | |||||||
Buildings | 5,040,387 | 6,406,346 | 59,654,959 | |||||||
Machinery and equipment | 7,968,472 | 8,356,583 | 77,815,281 | |||||||
Vehicle, tools, furniture and fixtures | 2,412,099 | 2,830,551 | 26,357,677 | |||||||
Construction in progress | 531,727 | 872,617 | 8,125,682 | |||||||
16,159,791 | 18,679,020 | 173,936,307 | ||||||||
Less accumulated depreciation and amortization | (8,574,731 | ) | (9,786,629 | ) | (91,131,660 | ) | ||||
Net property, plant, and equipment | 7,585,060 | 8,892,391 | 82,804,647 | |||||||
Deferred tax assets (note 8) | 69,008 | — | — | |||||||
Other assets (note 9) | 352,021 | 336,592 | 3,134,295 | |||||||
Total assets | ¥ | 20,729,895 | 23,206,332 | $ | 216,093,975 |
See accompanying notes to consolidated financial statements.
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FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Consolidated Balance Sheets
March 31, 2004 and 2005
Liabilities and Stockholders’ Equity | ||||||||||
Current liabilities: | 2004 | 2005 | ||||||||
Short-term loans (notes 4 and 6): | Thousands of yen | Thousands of yen | U.S. dollars | |||||||
Banks | ¥ | 1,065,811 | — | $ | — | |||||
FUJI | 900,000 | 2,500,000 | 23,279,635 | |||||||
1,965,811 | 2,500,000 | 23,279,635 | ||||||||
Current installments of long-term debt | ||||||||||
(notes 4 and 7) | 780,000 | — | — | |||||||
Accounts and notes payable: | ||||||||||
Trade | 1,289,820 | 1,315,381 | 12,248,635 | |||||||
FUJI and its subsidiaries (note 4) | 4,756,415 | 7,242,632 | 67,442,332 | |||||||
ARCH and its subsidiaries (note 4) | 195,564 | — | — | |||||||
Other | 1,808,319 | 1,317,516 | 12,268,517 | |||||||
8,050,118 | 9,875,529 | 91,959,484 | ||||||||
Income taxes payable | 1,054,672 | 1,060,671 | 9,876,813 | |||||||
Accrued expenses and other liabilities (note 5) | 1,240,407 | 1,492,442 | 13,897,403 | |||||||
Total current liabilities | 13,091,008 | 14,928,642 | 139,013,335 | |||||||
Long-term debt, excluding current installments | ||||||||||
(notes 4 and 7) | 1,650,000 | — | — | |||||||
Deferred tax liabilities (note 8) | — | 14,328 | 133,420 | |||||||
Other liabilities (notes 5 and 9) | 183,666 | 116,550 | 1,085,296 | |||||||
Total liabilities | 14,924,674 | 15,059,520 | 140,232,051 | |||||||
Commitments and contingencies (notes 5 and 12) | ||||||||||
Stockholders’ equity (note 10): | ||||||||||
Common stock, no par value. Authorized 20,000 | ||||||||||
shares; issued and outstanding 9,800 shares | 490,000 | 490,000 | 4,562,808 | |||||||
Legal reserve | 122,500 | 155,538 | 1,448,347 | |||||||
Retained earnings | 5,184,505 | 7,457,463 | 69,442,807 | |||||||
Accumulated other comprehensive income | 8,216 | 43,811 | 407,962 | |||||||
Total stockholders’ equity | 5,805,221 | 8,146,812 | 75,861,924 | |||||||
Total liabilities and stockholders' equity | ¥ | 20,729,895 | 23,206,332 | $ | 216,093,975 |
See accompanying notes to consolidated financial statements.
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FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Consolidated Statements of Income
Years ended March 31, 2003 (unaudited), 2004 and 2005
(Unaudited) | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
Revenues: | Thousands of yen | Thousands of yen | Thousands of yen | U.S. dollars | |||||||||
Products sales | |||||||||||||
Third parties | ¥ | 10,035,335 | 12,822,056 | 13,445,029 | $ | 125,198,147 | |||||||
FUJI and subsidiaries (note 4) | 201,087 | 126,133 | 786,340 | 7,322,283 | |||||||||
ARCH and subsidiaries (note 4) | 620,040 | 1,195,863 | 1,264,728 | 11,776,963 | |||||||||
Total net sales of products | 10,856,462 | 14,144,052 | 15,496,097 | 144,297,393 | |||||||||
Merchandise sales | |||||||||||||
Third parties | 6,485,225 | 11,677,068 | 19,894,186 | 185,251,755 | |||||||||
ARCH and subsidiaries (note 4) | 219,393 | 316,211 | 392,492 | 3,654,828 | |||||||||
Total net sales of merchandise | 6,704,618 | 11,993,279 | 20,286,678 | 188,906,583 | |||||||||
Total net sales | 17,561,080 | 26,137,331 | 35,782,775 | 333,203,976 | |||||||||
Other (note 4) | 18,463 | 35,940 | 23,467 | 218,521 | |||||||||
Total revenues | 17,579,543 | 26,173,271 | 35,806,242 | 333,422,497 | |||||||||
Costs and expenses: | |||||||||||||
Cost of goods sold (note 4) | |||||||||||||
Cost of goods sold - products | 6,205,514 | 7,272,370 | 7,606,945 | 70,834,761 | |||||||||
Cost of goods sold - merchandise | 6,411,604 | 11,524,716 | 19,429,657 | 180,926,129 | |||||||||
Total cost of goods sold | 12,617,118 | 18,797,086 | 27,036,602 | 251,760,890 | |||||||||
Selling, general, and administrative | |||||||||||||
expenses (note 4) | 2,815,332 | 3,627,196 | 3,849,031 | 35,841,615 | |||||||||
Loss on settlement of governmental | |||||||||||||
pension plan (note 9) | 3,246 | — | — | — | |||||||||
Loss on disposal of property, plant | |||||||||||||
and equipment | 10,901 | 125,785 | 32,568 | 303,268 | |||||||||
Interest expense | 56,972 | 37,000 | 26,526 | 247,006 | |||||||||
Foreign currency transaction (gain) loss, net | 72,229 | 144,850 | (60,419 | ) | (562,613 | ) | |||||||
Other | 26,678 | 29,096 | — | — | |||||||||
Total costs and expenses | 15,602,476 | 22,761,013 | 30,884,308 | 287,590,166 | |||||||||
Income before income taxes | 1,977,067 | 3,412,258 | 4,921,934 | 45,832,331 | |||||||||
Income taxes (note 8) | |||||||||||||
Current | 753,336 | 1,379,086 | 1,570,574 | 14,624,956 | |||||||||
Deferred | (44,838 | ) | (91,824 | ) | 90,844 | 845,926 | |||||||
Net income | ¥ | 1,268,569 | 2,124,996 | 3,260,516 | $ | 30,361,449 |
See accompanying notes to consolidated financial statements.
10
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Years ended March 31, 2003 (unaudited), 2004 and 2005
Accumulated | ||||||||||||||||
other | Total | |||||||||||||||
Common | Legal | Retained | comprehensive | stockholders’ | ||||||||||||
(Thousands of Yen) | stock | reserve | earnings | income | equity | |||||||||||
Balances at April 1, 2002(unaudited) | ¥ | 490,000 | 122,500 | 2,369,140 | 26,661 | 3,008,301 | ||||||||||
Net income | 1,268,569 | 1,268,569 | ||||||||||||||
Net unrealized change in: | ||||||||||||||||
Translation adjustments (net of nil tax) | (66,226 | ) | (66,226 | ) | ||||||||||||
Comprehensive income | 1,202,343 | |||||||||||||||
Dividends declared, ¥9,600 per share | (94,080 | ) | (94,080 | ) | ||||||||||||
Balances at April 1, 2003 (unaudited) | 490,000 | 122,500 | 3,543,629 | (39,565 | ) | 4,116,564 | ||||||||||
Net income | 2,124,996 | 2,124,996 | ||||||||||||||
Net unrealized change in: | ||||||||||||||||
Translation adjustments (net of nil tax) | 47,781 | 47,781 | ||||||||||||||
Comprehensive income | 2,172,777 | |||||||||||||||
Dividends declared, ¥49,400 per share | (484,120 | ) | (484,120 | ) | ||||||||||||
Balances at April 1, 2004 | 490,000 | 122,500 | 5,184,505 | 8,216 | 5,805,221 | |||||||||||
Net income | — | — | 3,260,516 | — | 3,260,516 | |||||||||||
Net unrealized change in: | ||||||||||||||||
Translation adjustments (net of nil tax) | — | — | — | 35,595 | 35,595 | |||||||||||
Provision for legal reserves (note 10) | 33,038 | (33,038 | ) | |||||||||||||
Comprehensive income | — | — | — | — | 3,296,111 | |||||||||||
Dividends declared, ¥97,400 per share | — | — | (954,520 | ) | — | (954,520 | ) | |||||||||
Balances at March 31, 2005 | ¥ | 490,000 | 155,538 | 7,457,463 | 43,811 | 8,146,812 |
Accumulated | ||||||||||||||||
other | Total | |||||||||||||||
Common | Legal | Retained | comprehensive | stockholders’ | ||||||||||||
(U.S. Dollars) | stock | reserve | earnings | income | equity |
Balances at April 1, 2004 | $ | 4,562,808 | 1,140,702 | 48,277,354 | 76,506 | 54,057,370 | ||||||||||
Net income | — | — | 30,361,449 | — | 30,361,449 | |||||||||||
Net unrealized change in: | ||||||||||||||||
Translation adjustments | — | — | — | 331,456 | 331,456 | |||||||||||
Provision for legal reserves (note 10) | 307,645 | (307,645 | ) | |||||||||||||
Comprehensive income | — | — | — | — | 30,692,905 | |||||||||||
Dividends declared, $907 per share | — | — | (8,888,351 | ) | — | (8,888,351 | ) | |||||||||
Balances at March 31, 2005 | $ | 4,562,808 | 1,448,347 | 69,442,807 | 407,962 | 75,861,924 |
See accompanying notes to consolidated financial statements.
11
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended March 31, 2003 (unaudited), 2004 and 2005
(Unaudited) | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
Cash flows from operating activities | Thousands of yen | Thousands of yen | Thousands of yen | U.S. dollars | |||||||||
Net income | ¥ | 1,268,569 | 2,124,996 | 3,260,516 | $ | 30,361,449 | |||||||
Adjustments to reconcile net income to net | |||||||||||||
cash provided by operating activities: | |||||||||||||
Depreciation and amortization | 1,103,502 | 1,444,238 | 1,504,997 | 14,014,312 | |||||||||
Provision for deferred income taxes | (44,838 | ) | (91,824 | ) | 90,844 | 845,926 | |||||||
Loss on disposal of property, plant and equipment | 10,192 | 123,906 | 32,568 | 303,268 | |||||||||
Changes in operating assets and liabilities net of business contributed: | |||||||||||||
Notes and accounts receivable | (1,344,961 | ) | (2,237,663 | ) | (539,340 | ) | (5,022,255 | ) | |||||
Inventories | (316,860 | ) | (539,911 | ) | (530,634 | ) | (4,941,186 | ) | |||||
Other current assets | 3,452 | (387,325 | ) | (544,984 | ) | (5,074,811 | ) | ||||||
Notes and accounts payable | 1,447,685 | 2,258,022 | 1,831,311 | 17,052,901 | |||||||||
Income taxes payable | 608,103 | 358,645 | (861 | ) | (8,018 | ) | |||||||
Accrued expenses and other current liabilities | 47,860 | 274,107 | 252,035 | 2,346,913 | |||||||||
Other | 51,917 | 180,853 | 204,361 | 1,902,980 | |||||||||
Net cash provided by operating activities | 2,834,621 | 3,508,044 | 5,560,813 | 51,781,479 | |||||||||
Cash flows from investing activities: | |||||||||||||
Cash paid for property, plant and equipment | (849,174 | ) | (3,330,658 | ) | (3,455,722 | ) | (32,179,179 | ) | |||||
Other | (31,578 | ) | (146,173 | ) | (61,353 | ) | (571,309 | ) | |||||
Net cash used in investing activities | (880,752 | ) | (3,476,831 | ) | (3,517,075 | ) | (32,750,489 | ) | |||||
Cash flows from financing activities: | |||||||||||||
Proceeds from issuance of short-term loans from FUJI | 300,000 | 900,000 | 3,183,208 | 29,641,568 | |||||||||
Proceeds from issuance of short-term loans from | |||||||||||||
banking facilities | 6,487,765 | 3,466,756 | — | — | |||||||||
Principal payments on short-term debt to FUJI | (300,000 | ) | (300,000 | ) | (1,900,000 | ) | (17,692,523 | ) | |||||
Principal payments on short-term debt to banking facilities | (7,045,177 | ) | (4,983,445 | ) | (1,064,998 | ) | (9,917,106 | ) | |||||
Proceeds from issuance of long-term debt from FUJI | 300,000 | 1,760,000 | 301,205 | 2,804,777 | |||||||||
Principal payments on long-term debt to FUJI | (410,000 | ) | (230,000 | ) | (2,731,205 | ) | (25,432,582 | ) | |||||
Principal payments on long-term debt to banking facilities | (164,000 | ) | (90,000 | ) | — | — | |||||||
Principal payments on under capital lease obligations | (86,691 | ) | (83,518 | ) | (83,548 | ) | (777,986 | ) | |||||
Dividends paid | (94,080 | ) | (484,120 | ) | (954,520 | ) | (8,888,351 | ) | |||||
Net cash used in financing activities | (1,012,183 | ) | (44,327 | ) | (3,249,858 | ) | (30,262,203 | ) | |||||
Effect of changes in exchange rate on cash and | |||||||||||||
cash equivalents | (15,393 | ) | (2,564 | ) | 3,205 | 29,844 | |||||||
Net increase (decrease) in cash and | |||||||||||||
cash equivalents | 926,293 | (15,678 | ) | (1,202,915 | ) | (11,201,369 | ) | ||||||
Cash and cash equivalents at beginning of year | 1,749,007 | 2,675,300 | 2,659,622 | 24,766,012 | |||||||||
Cash and cash equivalents at end of year | ¥ | 2,675,300 | 2,659,622 | 1,456,707 | $ | 13,564,643 | |||||||
Supplemental disclosures of cash flow information: | |||||||||||||
Cash paid for: | |||||||||||||
Interest | ¥ | 42,992 | 46,536 | 26,526 | $ | 247,006 | |||||||
Income taxes | 142,339 | 1,030,148 | 1,576,611 | 14,681,171 | |||||||||
Non cash investing and financing activities: | |||||||||||||
Increase in property, plant and equipment through | |||||||||||||
capital lease obligations | ¥ | 274,748 | — | — | $ | — | |||||||
Contribution of the net assets of AMM Business in | |||||||||||||
Hong Kong and Singapore in exchange for short | |||||||||||||
term loans payable | — | — | 316,792 | 2,949,921 |
See accompanying notes to consolidated financial statements.
12
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
1) | Description of Business, Basis of Financial Statements and Summary of Significant Accounting Policies and Practices |
(a) | Description of Business |
FUJIFILM Electronic Materials Co., Ltd. (the “Company”), formerly FUJIFILM Arch Co., Ltd., was incorporated in Japan on July 29, 1983, under a joint venture agreement between Fuji Photo Film Co., Ltd. (“FUJI”) and Arch Specialty Chemicals, Inc. (“ASC”), (a subsidiary of Arch Chemicals, Inc. (“ARCH”)). On November 30, 2004, FUJI acquired the remaining 49 percent ownership interest that it did not already own in the Company from ASC and at the same time ARCH sold the majority of the operations of its Microelectronic Materials business (“AMM”) to FUJI. As a result of the acquisition transaction, the Company became a wholly owned subsidiary of FUJI and changed its corporate name to FUJIFILM Electronic Materials Co., Ltd. Prior to the transaction, FUJI had a 51 percent ownership interest and ASC had a 49 percent ownership interest in the Company. Upon acquisition of the AMM business FUJI contributed the net assets of AMM business in Hong Kong and Singapore principally consisting of accounts receivable, inventories and accounts payable to the Company at the then net book value of ¥316,792 thousand ($2,949,921), which is payable in cash to FUJI and is included in Short term loans - FUJI in the accompanying consolidated balance sheets. The operations of the AMM business in Hong Kong and Singapore are not material to the consolidated financial statements of the Company.
The Company manufactures and distributes photo-resist products for semiconductor devices and color resist products for color filter array incorporated in flat panel display devices and color imaging devices. The Company also distributes FUJI TAC WV films for liquid crystal display panels and other microelectronic materials used in the manufacturing process for semiconductor devices, color filter array, photo-mask making and printed wire board. The Company has a manufacturing plant in Japan and wholly owned subsidiaries in Taiwan and Korea, which have been established for on-site production and reinforcement of marketing activities. The Company also has wholly owned subsidiaries in Hong Kong and Singapore, which are engaged in the former AMM business.
Total revenue consisted of photo-resist products, color resist products, FUJI TAC WV films and other microelectronic materials, representing 25%, 37%, 30% and 8%, representing 22%, 32%, 39% and 7%, and representing 24%, 25%, 48% and 3%, respectively, of the total for the years ended March 31, 2003 (unaudited), 2004 and 2005. Approximately 65%, 70% and 83% of the revenues were generated outside Japan, principally in the following Asian countries, Taiwan, Korea, China and Singapore for the years ended March 31, 2003 (unaudited), 2004 and 2005, respectively.
(b) | Basis of Financial Statements |
The accompanying consolidated financial statements as of and for the year ended March 31, 2003, and the related notes herein are unaudited and, in the opinion of management, include all necessary adjustments for the fair presentation of the Company’s financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the Unites States of America (“U.S. GAAP”) and are consistent in all material respects with those applied in the Company’s consolidated financial statements as of and for the years ended March 31, 2004 and 2005. The Company maintains its books of account in conformity with financial accounting standards of Japan, and its foreign subsidiaries generally maintain their books of account in conformity with those of the countries of their domicile. The consolidated financial statements presented herein have been prepared in a manner and reflect certain adjustments which are necessary to conform them with U.S. GAAP. The major adjustments include those related to accounting for leases, post retirement benefits and accruals for certain expenses.
13
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Financial statements prepared in accordance with U.S. GAAP that are furnished to the United States Securities and Exchange Commission (“SEC”) are generally required to record adjustments to the basis of assets and liabilities for the effect of the “push down” of consideration paid for substantially all of an entity’s equity. Pushdown adjustments reflect the difference between the historical carrying amount and fair value of assets acquired and liabilities assumed as evidenced by the consideration paid by third parties. On August 2, 2005, the SEC accepted the Company’s proposal to omit the effect of the pushdown adjustments on the basis that such adjustments would be neither appropriate nor meaningful. Accordingly, the accompanying consolidated financial statements do not reflect any adjustments for the pushdown of consideration paid to ASC by FUJI.
(c) | Principles of Consolidation |
The consolidated financial statements include the financial statements of FUJIFILM Electronic Materials Co., Ltd., and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
(d) | Foreign Currency Translation |
The Company’s foreign subsidiaries use the local currency as their functional currency. Accordingly, assets and liabilities are translated into the reporting currency, using exchange rates in effect at the balance sheet date and income and expenses are translated using the average exchange rate prevailing during the year. Adjustments resulting from this translation process are accumulated in other comprehensive income (loss), a separate component of stockholders’ equity. Foreign currency receivables and payables are translated at the applicable current rates on the balance sheet date. All revenue and expenses associated with foreign currencies are converted at the rates of exchange prevailing when such transactions occur. The resulting exchange gains or losses are reflected in foreign currency transaction (gain) and loss, net in the consolidated statements of income.
(e) | Cash Equivalents |
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
(f) | Notes and Trade Accounts Receivable |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Notes receivables are accepted as promissory notes in settlement for trade accounts receivable and also do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on past actual rates of bad debt losses and by examining the underlying financial conditions for receivables from companies that have or are expected to have serious problems in settlement of their payables.
14
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(g) | Inventories |
Inventories are stated at the lower of cost or market. The cost is determined principally on the average cost method. Elements of costs in inventories include raw materials, direct labor and manufacturing overhead.
(h) | Property, Plant and Equipment |
Property, plant, and equipment are stated at cost. Plant and equipment under capital leases are initially stated at the present value of minimum lease payments.
Depreciation on plant and equipment is calculated on the declining balance method, and depreciation on buildings is calculated on the straight-line method, over the estimated useful lives of the assets. The estimated useful lives of property, plant and equipment are as follows:
Buildings | 5 - 40 years |
Machinery and equipment | 3 - 12 years |
Vehicles, tools, furniture and fixtures | 3 - 8 years |
Plant and equipment held under capital leases are amortized on the declining-balance method over the shorter of the lease period or estimated useful lives of the assets.
Total depreciation expense for the years ended March 31, 2003 (unaudited), 2004 and 2005 was ¥1,054,217 thousand, ¥1,365,243 thousand and ¥1,415,304 thousand ($13,179,104), respectively.
(i) | Research and Development |
Research and development are expensed as incurred. Research and development costs amounted to ¥1,513,604 thousand, ¥2,119,222 thousand and ¥2,344,032 thousand ($21,827,284) for the years ended March 31, 2003 (unaudited), 2004 and 2005, respectively, and are included in selling, general and administrative expenses in the consolidated statement of income.
(j) | Income Taxes |
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(k) | Use of Estimates |
The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment; valuation allowances for receivables, carrying amount of inventories and deferred income tax assets, and assets and obligations related to employee benefits. Actual results could differ from those estimates.
15
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(l) | Revenue Recognition |
The Company recognizes revenue when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable.
In the normal course of business, the Company frequently acts as an intermediary or agent in executing transactions with third parties. In these arrangements, the Company determines whether to report revenue based on the “gross” amount billed to the ultimate customer for goods or services provided or in the ”net” amount received from the customer after commissions and other payments to third parties. However, the amount of gross profit and net income are not affected by whether revenue is reported on a gross or net basis. Determining whether revenue should be reported gross or net is based on an assessment of whether the Company is acting as a “principal” or an “agent” in a transaction. Accordingly, to the extent that the Company is principal in a transaction, the Company reports revenue on a gross basis and to the extent that the Company acts as an agent in a transaction, the Company reports revenue on a net basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of an arrangement.
(m) | Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of |
The Company’s long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less costs to sell.
(n) | Employee Retirement Benefit |
The measurement of pension costs and liabilities is determined in accordance with SFAS No. 87, “Employers’ Accounting for Pensions.” Under SFAS No. 87, changes in the amount of either the projected benefit obligation or plan assets resulting from actual results different from that assumed and from changes in assumptions can result in gains and losses not yet recognized in the consolidated financial statements. Amortization of an unrecognized net gain or loss is included as a component of the net periodic benefit plan cost for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of (1) the projected benefit obligation or (2) the fair value of that plan’s assets. In such case, the amount of amortization recognized is the resulting excess divided by the average remaining service period of active employees expected to receive benefits under the plan. The expected long-term rate of return on plan assets used for pension accounting is determined based on the current expectations for future returns and actual historical long-term rate of returns on plan assets. The discount rate is determined based on the rates of return of high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits.
16
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(2) | US dollar amounts |
Solely for the convenience of the reader, the amounts in the consolidated financial statements as of and for the year ended March 31, 2005 have been translated from Japanese yen, reporting currency, into U.S. dollars at the rate of ¥107.39 = U.S. $1.00, the exchange rate prevailing on March 31, 2005. The translation should not be construed as a representation that Japanese yen could be converted into U.S. dollars at this rate.
(3) | Inventories |
Inventories at March 31, 2004 and 2005 consisted of the following:
2004 | 2005 | 2005 | ||||||||
Thousands of Yen | Thousands of Yen | U.S. dollars | ||||||||
Merchandise goods | ¥ | 479,619 | 856,219 | $ | 7,972,986 | |||||
Finished goods | 520,244 | 1,032,117 | 9,610,923 | |||||||
Work in process | 411,380 | 326,665 | 3,041,857 | |||||||
Raw materials | 586,521 | 772,553 | 7,193,901 | |||||||
Packaging materials | 165,203 | 144,738 | 1,347,779 | |||||||
¥ | 2,162,967 | 3,132,292 | $ | 29,167,446 |
(4) | Related Party |
In conducting its business, the Company has executed various agreements with FUJI and ASC. These agreements provide for royalty payments by the Company, principally as follows:
(a) | Under a tripartite agreement among the Company, ASC and FUJI for licensing certain technology on photo-resist products, which allows the Company to manufacture and distribute the products by using technical information and patents held by ASC and FUJI, the Company is liable to pay a royalty ranging from 1% to 2% on net sales of the products to ASC and FUJI. The initial royalty agreement was terminated following FUJI’s acquisition of AMM in November 2004 and was replaced with a new agreement with similar terms between FUJI and the Company as of March 31, 2005. |
(b) | Under a royalty agreement with FUJI in relation to the technology license agreement on color resist products, which have colored photosensitive liquid compositions containing pigment or dye, the Company and subsidiaries are liable to pay a royalty ranging from 1% to 2% on net sales of the products. The royalty agreement is effective thorough March 29, 2008. |
17
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(c) | Under a royalty agreement with ARCH in relation to the technology license agreement on polyimide products, the Company is liable to pay a royalty to ARCH on net sales of the products manufactured in its facility. In relation to the articles of the agreement for technical alliance, which the Company provides technical support on both facilities' products in the Company's sales territory, ARCH is liable to pay sales commissions to the Company on sales of the products which are directly sold to the customers by ARCH in the Company's sales territory. This agreement has been terminated following FUJI’s acquisition of AMM in November 2004. |
The Company purchases raw materials used in its manufacturing operations and merchandise that it distributes from FUJI and its subsidiaries. The Company also sells its manufactured products to FUJI and its subsidiaries. Effective November 30, 2004 upon FUJI’s acquisition of AMM, all transactions with ARCH and its subsidiaries of a similar nature were terminated. The Company leases land and a portion of a building at its manufacturing facility from FUJI and a warehouse from one of FUJI’s subsidiaries. The amounts paid and received by the Company in connection with the aforementioned transactions are considered to be comparable to those amounts that would have been paid or received had such transactions been entered into on a similar basis with unrelated third parties.
Upon becoming a wholly owned subsidiary of FUJI, the Company became a part of the group finance program, which is managed by FUJI and requires the Company to obtain working capital financing and other credit enhancements from the group finance program. Although FUJI and the Company have not as of yet entered into a formal contract, the Company has access to the funding available for the group companies under the program. The following table is a summary of balances of receivables and payables as of March 31, 2004 and 2005 and transactions during the years ended March 31, 2003 (unaudited), 2004 and 2005:
2004 | 2005 | 2005 | ||||||||
Thousands of Yen | Thousands of Yen | U.S. dollars | ||||||||
Accounts receivable: | ||||||||||
FUJI and its subsidiaries | ¥ | 27,265 | 755,154 | $ | 7,031,884 | |||||
ARCH and its subsidiaries | 696,350 | ― | ― | |||||||
Accounts payable: | ||||||||||
FUJI and its subsidiaries | ¥ | 4,756,415 | 7,242,632 | $ | 67,442,332 | |||||
ARCH and its subsidiaries | 195,564 | ― | ― | |||||||
Short term loans -FUJI (note 6) | ¥ | 900,000 | 2,500,000 | $ | 23,279,635 | |||||
Long term loans -FUJI (note 7) | 2,430,000 | ― | ― |
18
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited) 2003 | 2004 | 2005 | 2005 | ||||||||||
Thousands of Yen | Thousands of Yen | Thousands of Yen | U.S. dollars | ||||||||||
FUJI and its subsidiaries: | |||||||||||||
Sales | ¥ | 201,087 | 126,133 | 786,340 | $ | 7,322,283 | |||||||
Commission revenue | ― | ― | 5,655 | 52,659 | |||||||||
Inventory purchases | 6,034,137 | 11,382,922 | 18,484,798 | 172,127,740 | |||||||||
Royalty expenses | 288,293 | 281,966 | 315,133 | 2,934,472 | |||||||||
Building and land leases payments (note 5) | 100,739 | 159,137 | 77,797 | 724,434 | |||||||||
Interest expenses | 9,579 | 16,851 | 16,170 | 150,573 | |||||||||
Warehousing and related charges | 337,248 | 400,902 | 477,669 | 4,447,984 | |||||||||
ARCH and its subsidiaries: | |||||||||||||
Sales | ¥ | 839,433 | 1,512,074 | 1,657,220 | $ | 15,431,791 | |||||||
Commission revenue | 3,915 | 8,993 | 9,398 | 87,513 | |||||||||
Inventory purchase | 805,099 | 780,488 | 559,233 | 5,207,496 | |||||||||
Royalty expenses | 53,166 | 68,622 | 35,914 | 334,426 |
(5) | Leases |
The Company is obligated under capital leases covering certain equipment that expire at various dates during the next 5 years. At March 31, 2004 and 2005, the gross amount of equipment and related accumulated amortization included in property, plant and equipment recorded under capital leases were as follows:
2004 | 2005 | 2005 | ||||||||
Thousands of Yen | Thousands of Yen | U.S. dollars | ||||||||
Machinery and equipment | ¥ | 405,022 | 299,175 | $ | 2,785,874 | |||||
Less accumulated amortization | (283,465 | ) | (222,810 | ) | (2,074,774 | ) | ||||
Net | ¥ | 121,557 | 76,365 | $ | 711,100 |
Amortization of assets held under capital leases is included with depreciation expense.
19
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of March 31, 2005 are:
Capital leases | Operating leases | ||||||||||||
Thousands of Yen | U.S. dollars | Thousands of Yen | U.S. dollars | ||||||||||
Year ending March 31: | |||||||||||||
2006 | ¥ | 60,328 | $ | 561,766 | ¥ | 512,605 | $ | 4,773,303 | |||||
2007 | 52,368 | 487,643 | 401,552 | 3,739,194 | |||||||||
2008 | 7,953 | 74,057 | 309,215 | 2,879,365 | |||||||||
2009 | 3,965 | 36,922 | 307,685 | 2,865,118 | |||||||||
2010 | 2,642 | 24,602 | 295,739 | 2,753,878 | |||||||||
Net minimum lease payments | 127,256 | 1,184,990 | ¥ | 1,826,796 | $ | 17,010,858 | |||||||
Less amount representing interest (at rates ranging from 2.1% to 2.2%) | (5,518 | ) | (51,383 | ) | |||||||||
Present value of net minimum capital lease payments | 121,738 | 1,133,607 | |||||||||||
Less current installments of obligations under capital leases | 57,623 | 536,577 | |||||||||||
Obligations under capital leases, excluding current installments | ¥ | 64,115 | $ | 597,030 |
The Company has no capital lease arrangements with related parties and has operating lease arrangements with related parties (note 4).
Rental expense under operating leases including those that are cancelable for the years ended March 31, 2003 (unaudited), 2004 and 2005 amounted to ¥254,410 thousand, ¥241,258 thousand and ¥502,235 thousand ($4,676,739), respectively, including rental payments made to FUJI and its subsidiaries (note 4).
(6) | Short-Term loans |
Short term loans at March 31, 2004 and 2005 consists of the following:
2004 | 2005 | 2005 | ||||||||
Thousands of Yen | Thousands of Yen | U.S. dollars | ||||||||
Loans due to FUJI with interest rate at 0.40% through 0.44% (note 4) | ¥ | 900,000 | 2,500,000 | $ | 23,279,635 | |||||
Unsecured bank loans | 965,811 | — | — | |||||||
Overdraft | 100,000 | — | — | |||||||
¥ | 1,965,811 | 2,500,000 | $ | 23,279,635 |
The weighted-average annual interest rate on short-term loans outstanding at March 31, 2004 and 2005 was 0.66% and 0.41%, respectively.
20
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(7) | Long-Term loans |
Unsecured long-term loans payable at March 31, 2004 consisted of the following:
Thousands of Yen | ||||
Due September 2004, with interest rate at 0.62% - FUJI | 300,000 | |||
Due March 2005, with interest rate at 0.78% - FUJI | 300,000 | |||
Due March 2005, with interest rate at 0.52% - FUJI | 180,000 | |||
Due September 2005, with interest rate at 0.59% - FUJI | 150,000 | |||
Due March 2006, with interest rate at 0.61% - FUJI | 1,500,000 | |||
Total | 2,430,000 | |||
Less current portion | 780,000 | |||
Long term loans excluding current portion | ¥ | 1,650,000 |
Unsecured long-tem loans payable were repaid in full during the year ended March 31, 2005.
(8) | Income Taxes |
The Company is subject to a national corporate tax of 30%, an inhabitant tax of 6.15% and a deductible business tax of 10.08%, which in the aggregate resulted in a statutory income tax rate of approximately 42% for each of the years in the two-year period ended March 31, 2004. On March 24, 2003, the Japanese Diet approved the Amendments to Local Tax Law, which reduced standard business tax rates from 9.60% to 7.68% and levied an additional business tax based on corporate size effective for fiscal years beginning on April 1, 2004. Consequently, the combined statutory tax rate has been lowered to approximately 40.6% effective for deferred tax assets and liabilities expected to be settled or realized commencing April 1, 2004 and the effect of the tax rate change of ¥1,769 thousand and ¥11,907 thousand were charged to income taxes for the years ended March 31, 2003 and 2004, respectively. The foreign subsidiaries are subject to taxes based on income at rates from 20% to 29.7%.
21
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Domestic and foreign components of income before income tax expense and current and deferred income tax expenses (benefits) for the years ended March 31, 2003 (unaudited), 2004 and 2005 are as follows:
Domestic | Foreign | Total | ||||||||
Thousands of Yen | ||||||||||
2003 (unaudited): | ||||||||||
Income before income taxes | ¥ | 1,708,623 | 268,444 | 1,977,067 | ||||||
Income taxes: | ||||||||||
Current | ¥ | 750,000 | 3,336 | 753,336 | ||||||
Deferred | (47,643 | ) | 2,805 | (44,838 | ) | |||||
¥ | 702,357 | 6,141 | 708,498 |
Domestic | Foreign | Total | ||||||||
Thousands of Yen | ||||||||||
2004: | ||||||||||
Income before income taxes | ¥ | 2,970,833 | 441,425 | 3,412,258 | ||||||
Income taxes: | ||||||||||
Current | ¥ | 1,273,692 | 105,394 | 1,379,086 | ||||||
Deferred | (105,734 | ) | 13,910 | (91,824 | ) | |||||
¥ | 1,167,958 | 119,304 | 1,287,262 |
Domestic | Foreign | Total | ||||||||
Thousands of Yen | ||||||||||
2005: | ||||||||||
Income before income taxes | ¥ | 4,012,574 | 909,360 | 4,921,934 | ||||||
Income taxes: | ||||||||||
Current | ¥ | 1,360,057 | 210,517 | 1,570,574 | ||||||
Deferred | 84,245 | 6,599 | 90,844 | |||||||
¥ | 1,444,302 | 217,116 | 1,661,418 |
Domestic | Foreign | Total | ||||||||
U.S. dollars | ||||||||||
2005: | ||||||||||
Income before income taxes | $ | 37,364,503 | 8,467,828 | 45,832,331 | ||||||
Income taxes: | ||||||||||
Current | $ | 12,664,652 | 1,960,304 | 14,624,956 | ||||||
Deferred | 784,477 | 61,449 | 845,926 | |||||||
$ | 13,449,129 | 2,021,753 | 15,470,882 |
22
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
A reconciliation of the differences between the Japanese statutory tax rate and the effective tax rates for the years ended March 31, 2003 (unaudited), 2004 and 2005 is as follows:
(Unaudited) 2003 | 2004 | 2005 | |||||||||||
Statutory tax rate | 42.0 | % | 42.0 | % | 40.6 | % | |||||||
Increase (decrease) in income taxes resulting from: | |||||||||||||
Entertainment expenses | 0.7 | 0.5 | 0.9 | ||||||||||
Tax credits - R&D and other | (2.1 | ) | (4.6 | ) | (4.5 | ) | |||||||
Changes in tax rates | (0.1 | ) | (0.3 | ) | — | ||||||||
Difference in statutory tax rates of foreign subsidiaries | (2.3 | ) | (2.2 | ) | (2.8 | ) | |||||||
Other | (2.4 | ) | 2.3 | (0.4 | ) | ||||||||
Effective tax rates | 35.8 | % | 37.7 | % | 33.8 | % |
The significant components of deferred tax assets and liabilities at March 31, 2004 and 2005 are as follows:
2004 | 2005 | 2005 | ||||||||
Thousands of Yen | Thousands of Yen | U.S. dollars | ||||||||
Deferred tax assets: | ||||||||||
Enterprise tax | ¥ | 108,610 | 61,464 | $ | 572,344 | |||||
Accrued expense | 172,489 | 173,692 | 1,617,395 | |||||||
Inventory | 50,558 | 50,728 | 472,372 | |||||||
Property, plant and equipment Capital leases | 49,157 25,482 | 47,120 8,772 | 438,774 81,684 | |||||||
Other | 35,337 | 18,208 | 169,550 | |||||||
Total deferred tax assets | 441,633 | 359,984 | 3,352,119 | |||||||
Deferred tax liabilities: | ||||||||||
Prepaid pension expenses | (22,153 | ) | (31,021 | ) | (288,863 | ) | ||||
Undistributed earnings of foreign subsidiaries | (44,542 | ) | (44,542 | ) | (414,769 | ) | ||||
Other | (220 | ) | (472 | ) | (4,395 | ) | ||||
Total deferred tax liabilities | (66,915 | ) | (76,035 | ) | (708,027 | ) | ||||
Net deferred tax assets | ¥ | 374,718 | 283,949 | $ | 2,644,092 |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.
23
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
At March 31, 2005, the Company did not recognize deferred tax liabilities of ¥94,060 thousand ($875,873) on a certain portion of the undistributed earnings of the Company’s foreign subsidiaries because these earnings are deemed to be permanently reinvested. At March 31, 2005, the undistributed earnings not subject to deferred tax liabilities were ¥601,491 thousand ($5,600,996).
(9) | Employee Retirement and Severance Benefits |
Employees of the Company who terminate their employment are entitled to lump-sum payments and/or pension payments determined by reference to their basic rate of pay, length of service and the conditions under which termination occurs. The Company also has a funded noncontributory defined benefit pension plan whose assets are maintained at a trust bank and an insurance company. The pension benefits are determined based on years of service and compensation as stipulated in the pension plan’s regulation.
On March 18, 2003, the Company transferred the obligation to pay benefits for employee service related to the substitutional portion under the Japanese Welfare Pension Insurance Law and related plan assets to the Japanese government. Upon the transfer, the Company made a settlement payment of ¥267,374 thousand and eliminated accrued pension liability of ¥264,128 thousand. The difference of ¥3,246 thousand was charged to expense, which is included in the accompanying consolidated statements of income.
24
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Reconciliations of beginning and ending balances of the pension benefit obligations and the fair value of the plan assets are as follows:
2004 | 2005 | 2005 | ||||||||
Thousands of Yen | Thousands of Yen | U.S. dollars | ||||||||
Change in benefit obligations | ||||||||||
Benefit obligations at beginning of year | ¥ | 383,749 | 384,932 | $ | 3,584,431 | |||||
Service cost | 42,832 | 45,294 | 421,771 | |||||||
Interest cost | 4,283 | 5,774 | 53,767 | |||||||
Actuarial gain (loss) | 1,475 | (15,804 | ) | (147,165 | ) | |||||
Benefits paid | (47,407 | ) | (17,768 | ) | (165,453 | ) | ||||
Benefit obligations at end of year | 384,932 | 402,428 | 3,747,351 |
Change in plan assets | ||||||||||
Fair value of plan assets at beginning of year | 306,725 | 417,187 | 3,884,784 | |||||||
Contributions | 54,707 | 42,942 | 399,870 | |||||||
Benefits paid | (141 | ) | (191 | ) | (1,779 | ) | ||||
Actual return on plan assets | 55,896 | 19,445 | 181,069 | |||||||
Fair value of plan assets at end of year | 417,187 | 479,383 | 4,463,944 | |||||||
Funded Status | 32,255 | 76,955 | 716,593 | |||||||
Unrecognized prior service costs and actuarial (gain) loss | 1,475 | (13,947 | ) | (129,872 | ) | |||||
Unrecognized gain | (41,491 | ) | (51,341 | ) | (478,080 | ) | ||||
Net amount recognized | ¥ | (7,761 | ) | 11,667 | $ | 108,641 |
Pension expense for each of the two year period ended March 31, 2005 included the following:
2004 | 2005 | 2005 | ||||||||
Thousands of Yen | Thousands of Yen | U.S. dollars | ||||||||
Service cost | ¥ | 42,832 | 45,294 | $ | 421,771 | |||||
Interest cost | 4,283 | 5,774 | 53,767 | |||||||
Expected return on plan assets | (7,055 | ) | (9,595 | ) | (89,347 | ) | ||||
Net amortization and deferral | 2,082 | - | - | |||||||
¥ | 42,142 | 41,473 | $ | 386,191 | ||||||
Prepaid (accrued) benefit cost recognized in the consolidated balance sheets | ¥ | (7,761 | ) | 11,667 | $ | 108,641 |
25
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
The accumulated benefit obligation for the pension plan was ¥360,397 thousand and ¥372,454 thousand ($3,468,237) at March 31, 2004 and 2005, respectively.
Weighted-average assumptions used to determine benefit obligations at March 31, 2004 and 2005 were as follows:
2004 | 2005 | ||
Discount rate | 1.5% | 1.5% | |
Expected long-term rate of return on plan assets | 2.3% | 2.3% | |
Rate of compensation increase | 2.0% | 2.0% |
Weighted-average assumptions used to determine net benefit cost for the years ended March 31, 2004 and 2005 were as follows:
2004 | 2005 | ||
Discount rate | 1.5% | 1.5% | |
Expected long-term rate of return on plan assets | 2.3% | 2.3% | |
Rate of compensation increase | 2.0% | 2.0% |
The Company’s overall expected long-term rate of return on assets is 2.3 percent. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories.
Measurement date:
The Company’s measurement date for its plan is March 31.
(unaudited) | |||||||||||||
2003 | 2004 | 2005 | 2005 | ||||||||||
Thousands of yen | Thousands of yen | Thousands of yen | U.S. dollars | ||||||||||
Benefit cost | ¥ | 225,644 | 42,142 | 41,473 | $ | 386,188 | |||||||
Employer contributions | 49,747 | 54,707 | 42,942 | 399,870 | |||||||||
Benefits paid | 32,917 | 47,407 | 48,778 | 454,214 |
The funding policy to make actuarially determined contributions to provide the plans with sufficient assets to meet future benefit payments.
Plan Assets
The weighted-average asset allocation of the Company’s pension assets at March 31, 2004 and 2005 were as follows:
Asset Category | 2004 | 2005 | |||||||
Equity securities | 51 | % | 51 | % | |||||
Debt securities | 40 | % | 41 | % | |||||
Other | 9 | % | 8 | % | |||||
Total | 100 | % | 100 | % |
The Company’s investment policies and strategies for the pension do not use target allocations for the individual asset categories. The Company’s investment goals are to maximize returns subject to specific risk management policies and to provide the plans with sufficient assets to meet future benefit payment requirements.
26
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Cash Flows
Contribution:
The Company expects to contribute ¥51,829 thousand ($482,624) to its plan in the year ending March 31, 2006.
Estimated future benefit payments:
The following benefits payments, which reflect expect future service, as appropriate, are expected to be paid:
Year ending March 31: | Thousands of Yen | U.S. dollars | |||||
2006 | ¥ | 45,700 | $ | 425,552 | |||
2007 | 25,200 | 234,659 | |||||
2008 | 30,200 | 281,218 | |||||
2009 | 47,800 | 445,107 | |||||
2010 | 24,200 | 225,347 | |||||
¥ | 173,100 | $ | 1,611,883 |
Defined contribution plan
Since April 1, 2003, the Company has also sponsored a defined contribution pension plan for all employees and certain directors who are under the age of 60. Contribution amount is calculated as 2.3% of adjusted salary subject to a regulatory limit of JPY 18,000 per month for each employee or director. The Company funds the calculated pension contribution costs monthly. No contributions are made by eligible participants. For the years ended March 31, 2004 and 2005, the Company funded ¥12,215 thousand and ¥13,145 thousand ($122,404), respectively, for the plan.
(10) | Shareholders’ equity |
The Commercial Code of Japan (the “Code”) provides that earnings in an amount equal to at least 10% of appropriations of retained earnings that are paid in cash shall be appropriated as a legal reserve until an aggregated amount of capital surplus and the legal reserve equals 25% of stated capital. The Code imposes certain limitations on the amount of retained earnings available for dividends, which is based on the amount recorded in the Company’s non-consolidated books of account in accordance with financial accounting standards of Japan. Under the Code, the maximum amount of retained earnings available for dividends in the Company’s non-consolidated books of account under the Code at March 31, 2005 was ¥6,691,850 thousand ($62,313,530). Certain foreign subsidiaries are also required to appropriate their earnings to legal reserves under the laws of the respective countries. During the year ended March 31, 2005, earnings of ¥33,038 thousand ($307,645) was appropriated as legal reserve for a foreign subsidiary.
(11) | Fair Value of Financial Instruments |
The following tables present the carrying amounts and estimated fair values of the Company’s financial instruments at March 31, 2004 and 2005. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.
27
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004 | March 31, 2005 | ||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||
Thousands of Yen | Thousands of Yen | ||||||||||||
Financial assets: | |||||||||||||
Cash and cash equivalents | ¥ | 2,659,622 | 2,659,622 | 1,456,707 | 1,456,707 | ||||||||
Trade accounts and notes receivable | 7,207,092 | 7,207,092 | 8,156,674 | 8,156,674 | |||||||||
Financial liabilities: | |||||||||||||
Accounts and notes payable | ¥ | 8,050,118 | 8,050,118 | 9,875,529 | 9,875,529 | ||||||||
Short term loans | 1,965,811 | 1,965,811 | 2,500,000 | 2,500,000 | |||||||||
Accrued expenses | 1,240,407 | 1,240,407 | 1,492,442 | 1,492,442 | |||||||||
Income taxes payable | 1,054,672 | 1,054,672 | 1,060,671 | 1,060,671 | |||||||||
Long-term-debt | 2,430,000 | 2,415,326 | — | — |
March 31, 2005 | |||||||
Carrying amount | Fair value | ||||||
U.S. dollars | |||||||
Financial assets: | |||||||
Cash and cash equivalents | $ | 13,564,643 | 13,564,643 | ||||
Trade accounts and notes receivable | 75,953,757 | 75,953,757 | |||||
Financial liabilities: | |||||||
Accounts and notes payable | $ | 91,959,484 | 91,959,484 | ||||
Short term loans | 23,279,635 | 23,279,635 | |||||
Accrued expenses | 13,897,403 | 13,897,403 | |||||
Income taxes payable | 9,876,813 | 9,876,813 |
The carrying amounts shown in the table are included in the accompanying consolidated balance sheets.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents, accounts and notes receivable, short-term loans, accounts and notes payable, accrued expenses and income taxes payable:
The carrying amounts approximate fair value because of the short maturity of these instruments.
Long-term debt: The fair value of the Company’s long-term debt is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company’s bankers.
28
FUJIFILM Electronic Materials Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(12) | Commitments and Contingencies |
Commitments outstanding at March 31, 2005 for purchases of property, plant and equipment amounted to ¥89,429 thousand ($832,750).
The Company was contingently liable relating to ¥61,616 thousand ($573,759) of export bills of exchange discounted with banks in the ordinary course of business at March 31, 2005.
The Company guarantees certain indebtedness of others. At March 31, 2005, the maximum potential amount of future payments the Company could be required to make under the guarantee was ¥306,193 thousand ($2,851,225), of which ¥277,740 thousand represents guarantee of bank loans of an affiliate company. The maximum potential amount of undiscounted future payments the Company could be required to make, which would be required in the event of default by the affiliate company, is ¥277,740 thousand at March 31, 2005. As of March 31, 2005, no amount has been accrued for any estimated losses under the obligations, as it is probable that the affiliate company will be able to make all scheduled payments.
(13) | Business and Credit Concentrations |
The Company manufactures its products and also purchased inventory from FUJI and ARCH, and sells products to domestic and foreign customers. The Company continues to purchase inventory from FUJI but no longer purchases inventory from ARCH since the acquisition transaction occurred in November 2004. Sales to the top 5 customers accounted for 65%, 64% and 65% for the year ended March 31, 2003 (unaudited), 2004 and 2005, respectively. Related account receivables to top 5 customers accounted for 57% at March 31, 2004 and 2005. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company has one significant customer, Opitimax Technology Corporation located in Taiwan which accounted for approximately 30%, 38% and 47% of total sales for the year ended March 31, 2003 (unaudited), 2004 and 2005, respectively, and accounted for approximately of 36% and 45% of account receivables at March 31, 2004 and 2005, respectively.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ARCH CHEMICALS, INC. (Registrant) | ||||||
By | /s/ STEVEN C. GIULIANO | |||||
Date: December 15, 2005 | Controller |
30
EXHIBIT INDEX FOR FORM 10-K/A
23.1 | Consent of KPMG AZSA & Co. |
31.3 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a). |
31.4 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a). |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350. |