usen annual report 2007 group companies auditor's report 24 26 27 28 30 50 26 ... bmb *the...
TRANSCRIPT
CONTENTS
Consol idated Balance Sheets
Consol idated Statements of Operat ions
Consol idated Statements of Changes in Equity
Consol idated Statements of Cash Flows
Notes to Consol idated Financial Statements
Independent Auditor's Report
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26
27
28
30
50
26
USEN CORPORATION andConsolidated Subsidiaries
CONTENTS
28
30
31
32
34
54
Consol idated Balance Sheets
Consol idated Statements of Operat ions
Consol idated Statements of Changes in Equity
Consol idated Statements of Cash Flows
Notes to Consol idated Financial Statements
INDEPENDENT AUDITORS' REPORT
Consolidated Financial Statements for the Years Ended August 31, 2007 and 2006, andIndependent Auditors' Report
Mita Twin Building East, Shibaura 4-2-8 Minato-ku Tokyo 108-0023 JAPANIP carrier services (High Speed Internet Optical Fiber Access, IP Transit Service); System monitoring/maintenance servicehttp://www.fttx.co.jp/
UCOM Corporation
Midtown Tower, Akasaka 9-7-1 Minato-ku Tokyo 107-6233 JAPANDevelopment, production and sales of karaoke equipment; karaoke musiccontent distritubion serviceshttp://www.bmb.co.jp/(Japanese only)
BMB
*The stated location of each company is their main business address.
Group Companies
Midtown Tower, Akasaka 9-7-1 Minato-Ku Tokyo 107-6233 JAPANThe "visual content provider"- film distribution via theaters, video, television, broadband and other mediahttp://www.gaga.co.jp/
GAGA COMMUNICATIONS INC.
Midtown Tower, Akasaka 9-7-1 Minato-ku Tokyo 107-6233 JAPANProduction of CDs, tapes and videos; management of music rightshttp://www.usmusic.co.jp/
U's Music Co., Ltd.
Midtown Tower, Akasaka 9-7-1 Minato-ku Tokyo 107-6233 JAPANProduction and distribution of billing systems for hospitals, hotels and golf courseshttp://www.almex.jp/(Japanese only)
ALMEX INC.
Sanno Park Tower, Nagata-cho 2-11-1 Chiyoda-ku Tokyo 100-6113 JAPANRecruitment Consulting Services, Career Web Site Services, Executive Search Serviceshttp://www.inte.co.jp/
INTELLIGENCE, LTD.(JASDAQ-listed company, ticker code: 4757)
Village Yoyogi B, 5-34-28 Yoyogi, Shibuya-ku, Tokyo 151-0053 JAPANDistribution of ditigal content; operates an internet shopping servicehttp://www.d-koen.com/(Japanese only)
Denshi-koen Co., Ltd.
Akasaka Matsubara Building 3F, Akasaka 6-8-8 Minato-ku, Tokyo 107-0052 JAPANPlanning, creation and distribution of visual content, CG and character merchandisehttp://www.tlip.jp/
TIME LINE PICTURES Co., Ltd.
Da Vinci Takaramachi 8F, 4-1-3 Hatchobori, Chuo-ku, Tokyo 104-0032 JAPANManagement of food distribution services for privately owned bars and restaurantshttp://www.shokudoraku.com/(Japanese only)
Evervision, Inc
Toranomon 15 Mori Building 7F, Toranomon 2-8-10 Minato-ku Tokyo 105-0001 JAPANFree Events Publicationhttp://www.tokyoheadline.com/(Japanese only)
Headline Co., Ltd
Midtown Tower, Akasaka 9-7-1 Minato-ku Tokyo 107-6233 JAPANOperation of a content streaming portal site for broadband usershttp://www.showtime.jp/(Japanese only)
ShowTime Co., Ltd.
2-6-12 Minamihonmachi, Chuo-ku Osaka-shi Osaka541-0054 JAPANSales and promotion servicehttp://www.benefitjapan.co.jp/(Japanese only)
BENEFIT JAPAN Co., Ltd.
P27
USEN Annual Report 2007
2928
ASSETS
CURRENT ASSETS:Cash and cash equivalentsTime deposits (Note 9)Receivables:
Trade notes (Note 9)Trade accountsOtherAllowance for doubtful accounts
Inventories (Note 5)Prepaid expensesDeferred tax assets (Note 13)Other current assets
Total current assets
PROPERTY AND EQUIPMENT (Notes 8 and 9):LandBuildings and structuresMachinery and equipmentFurniture and fixturesConstruction in progressRental equipment
TotalAccumulated depreciation and impairment loss
Net property and equipment
INVESTMENTS AND OTHER ASSETS:Investments in and advances to unconsolidated
subsidiaries and associated companies (Note 6)Investment securities (Notes 7 and 9)Long term loans receivableGoodwill (Note 8)Software (Note 8)ContentLeasehold depositsDeposits (Note 9)Long term prepaid expensesDeferred tax assets (Note 13)Other assetsAllowance for doubtful accounts
Total investments and other assets
TOTAL
2007
$ 281,18524,207
27,017291,473
46,786(17,992)97,59283,91429,67844,803
908,663
332,145622,913
28,38064,765
5,78491,705
1,145,692(459,266)
686,426
54,36025,79766,178
680,83578,59528,81317,849
103,85563,11622,17066,310
(99,904)
1,107,974
$ 2,703,063
2006
¥ 60,3142,913
5,44236,496
6,750(2,786)15,84011,141
5,8629,722
151,694
39,98277,21113,197
7,5702,666
13,189153,815(59,166)
94,649
3,2685,3157,165
80,8505,0103,3122,199
10,2429,0166,1017,075
(9,821)
129,732
¥ 376,075
2007
¥ 32,6372,810
3,13633,831
5,430(2,088)11,328
9,7403,4455,200
105,469
38,55272,302
3,2947,517
67110,644
132,980(53,307)
79,673
6,3102,9947,681
79,0259,1233,3442,072
12,0547,3262,5737,696
(11,596)
128,602
¥ 313,744
See notes to consolidated financial statements.
Millions of YenThousands of
U.S. Dollars (Note 1)
USEN CORPORATION and Consolidated Subsidiaries ー August 31, 2007 and 2006
LIABILITIES AND EQUITY
CURRENT LIABILITIES:Short term borrowings (Note 9)Current portion of long term debt (Note 9)Current portion of long term liability for right to use facilities (Note 15)Payables:
Trade notesTrade accountsOther
Income taxes payable (Note 13)Accrued expensesAdvances receivedOther current liabilities
Total current liabilities
LONG TERM LIABILITIES:Long term debt (Note 9)Long term liability for right to use facilities (Note 15)Long term other payableDeferred tax liabilities (Note 13)Liability for retirement benefits (Note 10)Other
Total long term liabilities
COMMITMENTS AND CONTINGENT LIABILITIES (Note 15)
EQUITY (Notes 9, 11 and 20):Common stock—195,977,600 shares authorized and 135,623,997 shares issued in 2007;
195,977,600 shares authorized and 101,710,080 shares issued in 2006Capital surplusStock acquisition rightsAccumulated deficitTreasury stock—at cost, 126,831 shares in 2007 and 2,123 shares in 2006Unrealized loss on available for sale securitiesDeferred loss on derivatives under hedge accountingForeign currency translation adjustmentsMinority interests
Total equity
TOTAL
2007
$ 273,583359,342
11,446
51,491127,185127,243
41,64556,26574,60061,470
1,184,270
532,39714,80049,457
47152,34016,514
665,979
546,279529,569
165(302,163)
(1,290)(1,237)
(23)831
80,683
852,814
$ 2,703,063
2006
¥ 48,56533,892
1,551
11,60613,74716,557
1,5457,484
10,2798,914
154,140
133,8063,1121,338
687,6153,367
149,306
50,90737,789
-(38,113)
(3)(36)-14
22,071
72,629
¥ 376,075
2007
¥ 31,75541,709
1,328
5,97714,76214,769
4,8346,5318,6597,134
137,458
61,7951,7185,740
556,0751,917
77,300
63,40761,467
19(35,072)
(150)(144)
(3)97
9,365
98,986
¥ 313,744
See notes to consolidated financial statements.
Millions of YenThousands of
U.S. Dollars (Note 1)
USEN CORPORATION and Consolidated Subsidiaries ー August 31, 2007 and 2006
Consolidated Balance Sheets
P29
USEN Annual Report 2007
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3332
OPERATING ACTIVITIES:Income (loss) before income taxes and minority interestsAdjustments for:
Income taxes—paidDepreciation and amortizationLoss on sale and disposal of property and equipment—netGain on sale of investments in subsidiaries and associated companies—netGain on sale of investment securities—netLoss on write down of investments in subsidiaries and associated companiesCable dismantling costs (Note 2.q)Provision for allowance for dismantling cables and related expenses (Note 2.q)
Impairment lossChanges in assets and liabilities:
Increase in trade receivables(Increase) decrease in other receivablesDecrease in inventoriesDecrease (increase) in advances paidIncrease in other payableDecrease in advances received
Other—netTotal adjustments
Net cash provided by (used in) operating activities—(Forward)
2007
$ 132,381
(24,197)197,581
25,243(208,994)
(2,826)1,311--
78,903
(47,241)(21,561)
5,71410,21143,597(4,705)34,95087,986
$ 220,367
2006
¥ (5,369)
(845)17,081
2,637(8,439)(9,203)
282,6954,1626,366
(1,432)2,0693,816
(2,665)11
(3,107)(8,005)
5,169
¥ (200)
2007
¥ 15,366
(2,809)22,933
2,930(24,258)
(328)152--
9,158
(5,483)(2,503)
6631,1855,060(546)
4,05810,212
¥ 25,578
See notes to consolidated financial statements.
Millions of YenThousands of
U.S. Dollars (Note 1)
USEN CORPORATION and Consolidated Subsidiaries ー Years Ended August 31, 2007 and 2006
Net cash provided by (used in) operating activities—(Continued)
INVESTING ACTIVITIES:Purchase of property and equipmentProceeds from sale of property and equipmentPayments for disposal of facilities and fixed assetsProceeds from sale of investment securitiesProceeds from sale and redemption of investments in subsidiaries and associated companiesPurchase of intangible assetsIncrease in investments in and advances to unconsolidated subsidiaries and associated companiesPurchase of newly consolidated subsidiaries' stock (Note 4)Proceeds from sale of subsidiaries’ stock (Note 4)Net increase in depositsOther—net
Net cash used in investing activities
FINANCING ACTIVITIES:(Decrease) increase in short term borrowings—netProceeds from long term debtRepayment of long term debtRepayment of lease obligationProceeds from issuance of common stockProceeds from sale of property and equipment under sale-leaseback transactionsProceeds from securitization of assetsNet proceeds from securities lending transactionsOther—net
Net cash (used in) provided by financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
2007
$ 220,367
(137,552)45,965
(22,798)17,974
8,186(77,157)
(205,401)-
230,598(29,886)(14,416)
(184,487)
(130,106)51,693
(493,955)(28,006)214,356
59,004-
66,682(14,845)
(275,177)
851
(238,446)
519,631
$ 281,185
2006
¥ (200)
(13,565)998
(3,452)19,53316,964(5,860
(1,341)(55,711)
-(3,446)
619
(45,261)
29,11115,795
(24,609)(4,316)29,972
2,70020,011
1,3103,454
73,428
27
27,994
32,320
¥ 60,314
2007
¥ 25,578
(15,966)5,335
(2,646)2,086
950(8,956)
(23,841)-
26,765(3,469)(1,671)
(21,413)
(15,101)6,000
(57,333)(3,251)24,880
6,849-
7,740(1,724)
(31,940)
98
(27,677)
60,314
¥ 32,637
See notes to consolidated financial statements.
Millions of YenThousands of
U.S. Dollars (Note 1)
USEN CORPORATION and Consolidated Subsidiaries ー Years Ended August 31, 2007 and 2006
Group Companies
Consolidated Statements of Cash Flows
P33
USEN Annual Report 2007
P32
Due within one yearDue after one year
Total
$ 17,34045,827
$ 63,167
¥ 2,0135,319
¥ 7,332
Millions of YenThousands ofU.S. Dollars
3534
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
USEN CORPORATION (the "Company") was incorporated in Osaka, Japan in 1964. The Company is a leading provider of cable radio services in Japan. The Company classifies its services into 8 segments: (1) broadcasting businesses, (2) broadband and telecom businesses, (3) karaoke businesses, (4) retail businesses, (5) visual content businesses, (6) operation system businesses, (7) recruitment consulting and part time information services and (8) other. The Company is presently devoting its efforts to the distribution of high quality content via "GyaO" and evolving into a fully fledged "Media Content Company."
In its normal course of business, the Company may encounter problems, delays and expenses, many of which may be beyond the Company's control. These may include, but are not limited to, problems related to technical development of systems, testing, regulatory compliance, the competitive and regulatory environment in which the Company operates, marketing problems, and costs and expenses that may exceed current estimates. There can be no assurance that substantial delays in any of the foregoing matters would not delay the Company's achieving of its objectives.
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain material respects as to application and disclosure requirements of accounting principles generally accepted in the United States of America ("U.S. GAAP") as well as International Financial Reporting Standards ("IFRS"). The Company believes that the application of U.S. GAAP or IFRS to the consolidated financial statements would have a material effect on the financial position, results of operations, cash flows and disclosures presented herein.
Certain disclosures contained herein are not required as part of the basic financial statements under Japanese GAAP but are presented herein as additional information. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2006 financial statements to conform to the classifications used in 2007.
The consolidated 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 the convenience of readers outside Japan and have been made at the rate of ¥116.07 to $1, the approximate rate of exchange at August 31, 2007. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. ConsolidationThe accompanying consolidated financial statements as of August 31, 2007 include the accounts of the Company and its 31 (37 in 2006) significant subsidiaries. Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Company and consolidated subsidiaries (collectively, the "Group") has the ability to exercise significant influence are accounted for under the equity method.Investments in 7 (4 in 2006) associated companies are accounted for under the equity method. Investments in the remaining 31 (26 in 2006) unconsolidated
subsidiaries and 3 (7 in 2006) associated companies are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not have been material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated.
For consolidated subsidiaries or associated companies whose closing dates are different from that of the Company, certain adjustments necessary to consolidate have been made.
In fiscal year 2007, the Company sold part of shares of UCOM Corporation ("UCOM") and Klab Inc. that had been directly or indirectly held by the Company. As a result, those former subsidiaries were excluded from scope of consolidation and became associated companies accounted for under the equity method.
In fiscal year 2007, FLAGSHIP No. 1 Limited Partnership was excluded from scope of consolidation due to completion of its liquidation process.
b. Business Combination and DivestitureIn October 2003, the Business Accounting Council (the "BAC") issued a Statement of Opinion, "Accounting for Business Combinations," and on December 27, 2005, the Accounting Standards Board of Japan ("ASBJ") issued ASBJ Statement No. 7, "Accounting Standard for Business Divestiture" and ASBJ Guidance No. 10, "Guidance for Accounting Standard for Business Combinations and Business Divestitures." These new accounting pronouncements are effective for fiscal years beginning on or after April 1, 2006.
The accounting standard for business combinations allows companies to apply the pooling of interests method of accounting only when certain specific criteria are met such that the business combination is essentially regarded as a uniting of interests.
For business combinations that do not meet the uniting of interests criteria, the business combination is considered to be an acquisition and the purchase method of accounting is required. This standard also prescribes the accounting for combinations of entities under common control and for joint ventures.
The Company adopted the new accounting standards effective from the fiscal year 2007. The accounting treatments for such transactions were made in accordance with the new accounting standards.
c. Cash EquivalentsCash equivalents are short term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits and money management funds, all of which mature or become due within three months of the date of acquisition.
d. InventoriesMerchandise and supplies are principally stated at cost determined by the moving average method, whereas the gross average method applied to that held by certain consolidated subsidiaries. Work in process inventories are stated at cost determined by the specific identification method.
Effective September 1, 2006, the Company changed its accounting policy for film use rights in order to evaluate them in more objective and conservative manner. Under the new accounting policy, film use rights are amortized by the declining balance method over the period of 2 years. Prior to the accounting change, film use
rights had been recognized as cost of sales upon realization of earning from respective rights that are divided into three categories: (1) cinema screening rights, (2) video/DVD conversion rights and (3) TV broadcasting rights. The effect of the accounting change for the year ended August 31, 2007 was to decrease income before income taxes and minority interests by ¥427 million ($3,680 thousand).In addition, the Company recognized ¥788 million ($6,788 thousand) of prior year amortization of film use rights as other expenses.
e. Property and EquipmentProperty and equipment are stated at cost. Depreciation is principally computed by using the declining balance method, whereas the straight line method is applied to communication facility for lease and buildings acquired after April 1, 1998. The range of useful lives is principally from 2 to 50 years for buildings, from 2 to 40 years for structures, from 5 to 15 years for machinery and from 3 to 20 years for equipment, respectively.
Cable facilities consist of costs for cables, parts and installation. These costs are capitalized as building and structures in the consolidated balance sheets, and depreciated over 10 years.
Rental equipment to customers is recorded at cost and is depreciated on the declining balance method over 2 to 5 years. Original terms of rents generally range up to 60 months. Minimum rental payments to be received at August 31, 2007 were as follows:
f. Long lived AssetsThe Group reviews its long lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
g. Investment SecuritiesInvestment securities are classified as available for sale securities. Available for sale securities, which are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of available for sale securities sold is principally determined based on the moving average method.
Non marketable available for sale securities are principally stated at cost determined by the moving average method. For other than temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.
h. Investments in and Advances to Unconsolidated Subsidiaries and Associated CompaniesInvestments in equity securities of unconsolidated subsidiaries and associated companies are principally stated at cost determined by the moving average method.
i. Investments in Venture Capital Funds and OthersInvestments in venture capital funds and others consist primarily of the Company's contributed capital in venture investment partnerships. The investments in these partnerships are accounted for under the equity method on the Company's consolidated balance sheets and statements of operations.
j. Long term Loans ReceivableLong term loans receivable represent financial loans provided to related parties and others, a portion of which is collateralized. Annual interest rates applicable to these loans ranged from zero to 8.0% for 2007 and 2006. Interest income on long term loans receivable is recognized on an accrual basis. k. GoodwillGoodwill represents the excess of the costs of an acquisition over the fair value of the net assets of the acquired specific business or subsidiary and is being amortized by the straight line method over the estimated period within 20 years.
In fiscal year 2007, the Group recognized write off of goodwill in the aggregate amount of ¥7,721 million ($66,522 thousand).
l. SoftwareSoftware used for internal purpose is recorded at cost, less accumulated amortization. Amortization is computed by using the straight line method over the estimated period of no more than 5 years, the estimated useful life of the software.
m. ContentPrior to the fiscal year 2006, content used for Visual Content Businesses is accounted as and included in software. Effective September 1, 2006, the Company changed its accounting policy for content due to expansion of GyaO and review of its nature. Under the new accounting policy, content is amortized by the straight line method over the estimated period of no more than 3 years.
n. Long term Prepaid ExpensesLong term prepaid expenses are amortized by the straight line method over 3 to 7 years.
o. Allowance for Doubtful AccountsThe allowance for doubtful accounts is stated in amounts considered to be appropriate based on the Group's past credit loss experience and an evaluation of potential losses in the receivables outstanding.
p. Allowance for Loss on GuaranteesThe allowance for loss on guarantees recognized by a consolidated subsidiary is stated in amounts considered to be appropriate based on the consolidated subsidiary's past fulfillment experience of guarantees and an evaluation of each warrantee's financial condition and others, if necessary.
q. Allowance for Dismantling Cables and Related ExpensesEffective from the fiscal year 2006, the Company recognizes the allowance for dismantling cables and related expenses because the costs and expenses which would be incurred from dismantling became reasonably estimable due to completion of the Company's inspections of utility poles and identifying those no longer used and available for dismantling.
後半財務ページ用ガイド
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USEN Annual Report 2007
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3736
Generally, the master contract agreements with utility pole owners are for one year from April to March and are cancelable by either party upon proper notification. At the end of the yearly contract period, the number of poles to be included and excluded from the new contract is determined. The number of the utility poles in the master contract agreement for fiscal 2007 and 2006 is approximately 3.0 million and 3.6 million, respectively. The actual cost of dismantling cables from utility poles no longer used in the business is borne by the Company. The allowance for dismantling cables and related expenses is stated in estimated amounts for dismantling costs and related expenses based on dismantling plans.
r. Employees' Retirement BenefitsEffective September 1, 2000, the Company adopted a new accounting standard for employees' retirement benefits and accounted for the liability for employees' retirement benefits based on projected benefit obligations and plan assets at the balance sheet date. The transitional obligation, determined as of September 1, 2000 and adjusted in subsequent periods is being amortized principally over the period from 5 to 15 years and the annual amortization is presented as other expense in the consolidated statements of operations. Actuarial gain or loss calculated at the beginning of each fiscal year is amortized over the period from 6 to 10 years using the straight line method starting in the following fiscal year. Prior service cost is amortized over 5 years using the straight line method.
The Company also has a point system and an advance payment system for the employee's retirement plan. According to the point system, each employee is vested points (¥10 thousand per point) based upon an employee's position, and at his/her retirement, the retirement payment amount will be determined based on the vested points multiplied by a certain percentage reflected by the period of each employee's service provided up to the retirement. When an employee becomes a senior manager, the advance payment system will be applied. In this system, accumulated retirement benefits earned from employment to senior manager are evenly allocated to the remaining periods until retirement, the age of 60, and paid with monthly payroll. In addition to these payments, additional wages will be paid every year once the advance payment system is applied.
In addition, from November 1, 2004, the Company applied an advance payment system for the employees' retirement plan covering all of the Company's employees.
On January 1, 2007, INTELLIGENCE, LTD. (INTELLIGENCE) terminated its contributory defined benefit pension plan and established a new defined contribution pension plan.
On November 20, 2005, BMB Corp. ("BMB"), a consolidated subsidiary of the Company, terminated a contributory defined benefit pension plan and accordingly recognized loss on change of a retirement plan as other expense in the consolidated statement of operations for 2006.
Under the new pension plan of BMB, each employee is able to choose his/her retirement plan from the advance severance payment system or the defined contribution pension plan. In addition, premium severance payment will be made to employees who meet certain requirements besides retirement allowance payments determined based upon actuarial calculation in accordance with an accounting standard for employees' retirement benefits.
s. Other Long term LiabilitiesNegative goodwill is recorded within net assets of the acquired subsidiary in excess of the costs and amortized by the straight line method over 20 years.
t. Revenue RecognitionRevenue from broadcasting businesses — Revenue from broadcasting businesses consists of initial set up fees and cable radio broadcasting service fees. Initial set up fees are recorded when equipment installation is completed. Cable radio broadcasting service fees are recognized as services are rendered. Fees are billed to customers at the end of the month for services to be provided in the following month. In the following month, the Company recognizes the revenue and associated cost. Certain customers prefer a yearly contract, in which case payments are recorded as advances received and revenue is recognized in the month in which services are actually provided.
Revenue from broadband and telecom businesses — Revenue from broadband and telecom businesses consists of initial set up fees and broadband network service fees. Initial set up fees are recorded when equipment installation is completed. Broadband network service fees are recognized as services are rendered. Fees are billed to customers at the end of the month for services to be provided in the following month. In the following month, the Company recognizes the revenue and associated cost. Certain customers prefer a yearly contract in which case payments are recorded as advances received and revenue is recognized in the month in which services are actually provided.
Revenue from karaoke businesses — Revenue from karaoke businesses consists of sales of karaoke equipment, karaoke music transmission services and management of karaoke stores establishments. Equipment sales are recognized once equipment is installed, while revenues from karaoke music transmission services and karaoke store operations are recognized as services are rendered.
Revenue from retail businesses — Revenue from retail businesses arises from sales of various kinds of goods and is recognized once goods are shipped and services are rendered. Effective from the fiscal year 2007, this segment was excluded from the business segment due to a transfer of the business.
Revenue from Internet services — Revenue from Internet services consists of initiation fees and Internet service fees. Initiation fees are recorded once a contract is signed. Internet service fees are recognized as services are rendered. Fees are billed to customers and recognized as revenue at the end of the month for services to be provided in the same month.
Revenue from visual content businesses — Revenue from visual content businesses arises from (1) distribution to cinemas, (2) video distribution and (3) TV broadcasting. Revenue from distribution to cinemas is recognized over a period of picture show based upon the amount distributed from box office sales at a constant rate which is agreed with theater management. Revenue from video licensing rights is recognized at the time when video software distributors, as licensees, initiate sales of video software. Revenue from licensing TV broadcasting rights is recognized at the time when TV broadcasting is contractually permitted.
Revenue from operation system businesses — Revenue from operation system businesses arises from development and sales of various kinds of operation systems and is recognized once goods and system are inspected by customers.
Revenue from recruitment consulting and part time information services — Revenue from recruitment consulting and part time information services consists of fees for recruiting and outsourcing information services as well as sales of advertising space across various media.
u. LeasesAll leases other than capitalized assets under the sale leaseback transaction are accounted for as operating leases. Under Japanese GAAP, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain "as if capitalized" information is disclosed in the notes to the lessee's financial statements.
v. Income TaxesThe provision for income taxes is computed based on the pretax income included in the consolidated statements of operations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.
A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefit, or that future deductibility is uncertain.
In fiscal year 2006, GAGA COMMUNICATIONS INC. ("GAGA"), a consolidated subsidiary of the Company, filed a tax return under the consolidated corporate-tax system. On October 17, 2006, the consolidated corporate-tax filing was cancelled as GAGA became a wholly owned subsidiary of the Company.
w. Accounting for Consumption TaxesThe consumption tax imposed on revenue from customers for the Group's services is withheld by the Group at the time of receipt and subsequently paid to the national government. The consumption tax withheld upon recognition of revenue and the consumption tax paid by the Group on the purchase of products, merchandise and services from vendors, are not included in the related accounts in the accompanying consolidated statements of operations. The consumption tax paid is generally offset against the balance of consumption tax withheld, and net overpayment is included in current assets and net overwithholding is included in current liabilities.
x. Stock OptionsOn December 27, 2005, the ASBJ issued ASBJ Statement No. 8, "Accounting Standard for Stock Options" and related guidance. The new standard and guidance are applicable to stock options newly granted on or after May 1, 2006. This standard requires companies to recognize compensation expense for employee stock options based on the fair value at the date of grant and over the vesting period as consideration for receiving goods or services. The standard also requires companies to account for stock options granted to non employees based on the fair value of either the stock option or the goods or services received. In the balance sheet, the stock option is presented as a stock acquisition right as a separate component of equity until exercised. The standard covers equity settled, share based payment transactions, but does not cover cash settled, share based payment transactions. In addition, the standard allows unlisted companies to measure options at their intrinsic value if they cannot reliably estimate fair value.
The Company applied the new accounting standard for stock options to those granted on or after May 1, 2006.
y. Presentation of EquityOn December 9, 2005, the ASBJ published a new accounting standard for presentation of equity. Under this accounting standard, certain items which were previously presented as liabilities are now presented as components of equity. Such items include stock acquisition rights, minority interests, and any deferred gain or loss on derivatives accounted for under hedge accounting. This standard is effective for fiscal years ending on or after May 1, 2006.
z. Foreign Currency TransactionsAll short term and long term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statements of operations to the extent that they are not hedged by forward exchange contracts.
aa. Foreign Currency Financial StatementsThe balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as at the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation were shown as "Foreign currency translation adjustments" in a separate component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.
ab. Derivative Financial InstrumentsThe Group uses derivative financial instruments ("derivatives") to manage their exposures to fluctuations in interest rates. Interest rate swaps are utilized by the Group to reduce interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.
Derivatives and foreign currency transactions are classified and accounted for as follows: (a) all derivatives be recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the income statement and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.
Interest rate swaps are utilized to hedge interest rate exposures of long term debt. These swaps which qualify for hedge accounting are generally measured at market value at the balance sheet date and the unrealized gains or losses are deferred until maturity as other liability or asset. However, in the case where the swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements are recognized and included in interest expense or income.
The foreign currency forward contracts employed to hedge foreign exchange exposures are measured at the fair value and the unrealized gains or losses are recognized in income, while the foreign exchange forward contracts which qualify for hedge accounting are also measured at the fair value at the balance sheet date but the unrealized gains or losses are deferred until the underlying transactions are completed.
ac. Appropriations of Retained EarningsAppropriations of retained earnings are reflected in the consolidated financial statements for the following year upon shareholders' approval.
ad. Per Share InformationBasic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share is not disclosed because the Company does not have any kind of securities with potentially dilutive effect for the fiscal year 2007. For the fiscal year 2006, diluted net income per share is not disclosed because of the Company's net loss position.
Notes to Consolidated Financial Statements
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Current assetsNon current assetsGoodwillCurrent liabilitiesNon current liabilitiesMinority interestsUnrealized profit and otherGain on saleSelling price
Cash and cash equivalents of thesubsidiary deconsolidated
Net cash proceeds from sale
$ 112,091156,817
26,235(78,240)
(153,520)(25,025)(10,742)102,202129,818
(23,671)$ 106,147
¥ 13,01018,202
3,045(9,081)
(17,819)(2,905)(1,247)11,86315,068
(2,748)¥ 12,320
Millions of YenThousands ofU.S. Dollars
Current assetsNon current assetsGoodwillCurrent liabilitiesNon current liabilitiesMinority interestsAcquisition cost
Cash and cash equivalents acquiredPayment for purchase of newly consolidated subsidiaries’ stock
¥ (18,720)(5,187)
(13,170)12,858
1,8882,986
(19,345)3,699
¥ (15,646)
Millions of Yen
Current assetsNon current assetsGoodwillCurrent liabilitiesNon current liabilitiesMinority interestsValuation of investment at equityAcquisition cost
Cash and cash equivalents acquiredPayment for purchase of newly consolidated subsidiaries’ stock
¥ (23,993)(18,686)(48,926)21,32915,136
3,744(224)
(51,620)12,240
¥ (39,380)
Millions of Yen
Current assetsNon current assetsGoodwillCurrent liabilitiesNon current liabilitiesMinority interestsGain on saleSelling price
Cash and cash equivalents of thesubsidiary deconsolidated
Net cash proceeds from sale
$ 18,9021,943
847(3,622)
(449)(5,562)16,08728,146
(13,818)$ 14,328
¥ 2,194226
98(420)
(52)(646)
1,8673,267
(1,604)¥ 1,663
Millions of YenThousands ofU.S. Dollars
Current assetsNon current assetsGoodwillCurrent liabilitiesNon current liabilitiesGain on saleSelling price
Cash and cash equivalents of thesubsidiary deconsolidated
Net cash proceeds from sale
$ 84,7736,175
23,707(70,687)
(910)51,71294,770
(6,868)$ 87,902
¥ 9,840717
2,752(8,205)
(106)6,002
11,000
(797)¥ 10,203
Millions of YenThousands ofU.S. Dollars
Acquisition costGoodwill
$ 42,99316,521
¥ 4,9901,918
Millions of YenThousands ofU.S. Dollars
Acquisition costGoodwill
$ 57,78557,783
¥ 6,7076,707
Millions of YenThousands ofU.S. Dollars
SalesOperating income
$ 20,276985
¥ 2,353114
Millions of YenThousands ofU.S. Dollars
MerchandiseFinished goodsMaterialSuppliesWork in processFilm use rights
Total
2007$ 36,742
4,2648,225
11,4963,242
33,623
$ 97,592
2006¥ 6,331
--
1,8614,1733,475
¥ 15,840
2007¥ 4,265
495955
1,334376
3,903
¥ 11,328
Millions of YenThousands ofU.S. Dollars
3938
ae. New Accounting PronouncementsMeasurement of Inventories — Under Japanese GAAP, inventories are currently measured either by the cost method, or at the lower of cost or market. On July 5, 2006, the ASBJ issued ASBJ Statement No. 9, "Accounting Standard for Measurement of Inventories," which is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. This standard requires that inventories held for sale in the ordinary course of business be measured at the lower of cost or net selling value, which is defined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses. The replacement cost may be used in place of the net selling value, if appropriate. The standard also requires that inventories held for trading purposes be measured at the market price.
Lease Accounting — On March 30, 2007, the ASBJ issued ASBJ Statement No. 13, "Accounting Standard for Lease Transactions," which revised the existing accounting standard for lease transactions issued on June 17, 1993.
Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized. However, other finance leases are permitted to be accounted for as operating lease transactions if certain "as if capitalized" information is disclosed in the note to the lessee's financial statements.
The revised accounting standard requires that all finance lease transactions be capitalized. The revised accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after April 1, 2007.
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements — Under Japanese GAAP, a company currently can use the financial statements of foreign subsidiaries which are prepared in accordance with generally accepted accounting principles in their respective jurisdictions for its consolidation process unless they are clearly unreasonable. On May 17, 2006, the ASBJ issued ASBJ PITF No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements." The new task force prescribes that: (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements, and that (2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States tentatively may be used for the consolidation process. (3) However, the following items, unless they are not material, should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP:
(1) Amortization of goodwill(2) Actuarial gains and losses of defined benefit plans recognized outside profit or loss(3) Capitalization of intangible assets arising from development phases(4) Fair value measurement of investment properties, and the revaluation model for property, plant and equipment, and intangible assets(5) Retrospective application when accounting policies are changed(6) Accounting for net income attributable to a minority interest
The new task force is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted.
3. BUSINESS COMBINATION AND DIVESTITURE
Share Exchange to Convert ALMEX INC.("ALMEX") into a Wholly Owned Subsidiary
On October 2, 2006, the Company executed share exchange transaction with ALMEX in order to convert ALMEX into a wholly owned subsidiary of the Company, for the purpose of improving operating synergy. ALMEX had been a consolidated subsidiary of the Company of which holding ratio of 67.4% before the share exchange. Under the new accounting standard of business combination, this share exchange is regarded as a transaction under common control. The Company issued 4,216,608 shares in total to all of existing shareholders of ALMEX in exchange rate of 1.76 shares for 1 share of ALMEX, which was to be transferred to the Company.
Acquisition cost and related goodwill are as follows:
Share Exchange to Convert GAGA into a Wholly Owned Subsidiary
On October 17, 2006, the Company executed share exchange transaction with GAGA in order to convert GAGA into a wholly owned subsidiary of the Company, for the purpose of improving visual content businesses of the Group. GAGA had been a consolidated subsidiary of the Company of which holding ratio of 60.1% before the share exchange. Under the new accounting standard of business combination, this share exchange is regarded as a transaction under common control. The Company issued 5,187,499 shares in total to al l of exist ing shareholders of GAGA in exchange rate of 0.15 shares for 1 share of GAGA, which was to be transferred to the Company.
Acquisition cost and related goodwill are as follows:
ALMEX's Business Divestiture and Sales of Shares of Newly Established Company
On October 27, 2006, ALMEX established ALMEX PE INC. ("ALMEX PE") by means of a business divestiture and transferred its plant equipment business to the new company for the purpose of focusing and concentrating business resources on the core businesses of the Group. After the establishment, all shares of ALMEX PE were sold to NIF Capital Partners F at the same date of the business divestiture.
Amount of sales and operating income of the plant equipment business included in the consolidated statement of operations for the year ended August 31, 2007 is as follows:
4. ADDITIONAL CASH FLOW INFORMATION
For the year ended August 31, 2007, the Company had ¥26,765 mill ion ($230,598 thousand) of cash proceeds from sale of stock of UCOM, Footnote Inc. (formerly known as GAGA Crossmedia Marketing, Inc.), ALMEX PE and other subsidiaries. Those subsidiaries have been excluded from the scope of consolidation due to decrease of the ownership percentage of the Company. Major components of such cash proceeds are as follows:
UCOM
Footnote Inc.
ALMEX PE
For the year ended August 31, 2006, the Company paid ¥55,711 million for purchase of stock of ALMEX, INTELLIGENCE and others. Those subsidiaries have been consolidated since acquisition as newly consolidated subsidiaries of the Company. Major components of cash payments for the acquisition are as follows:
ALMEX INC.
INTELLIGENCE
5. INVENTORIES
Inventories at August 31, 2007 and 2006 consisted of the following:
Notes to Consolidated Financial Statements
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Short-term borrowingsCurrent portion of long-term borrowingsLong-term borrowings
1.3%2.1%2.2%
2.6%2.5%2.3%
2007 2006
Due in one year $1,120¥130Millions of Yen
Thousands ofU.S. Dollars
Available for sale:Equity securitiesOther
Total
2007
$ 11,2883,231
$ 14,519
2006
¥ 2,192532
¥ 2,724
2007
¥ 1,310375
¥ 1,685
Millions of Yen
Carrying Amount
Thousands ofU.S. Dollars
Proceeds from saleGain on saleLoss on sale
2007$ 8,699$ 2,878
$ (52)
2006¥ 20,166
¥ 9,210¥ (7)
2007¥ 1,010
¥ 334¥ (6)
Millions of YenThousands ofU.S. Dollars
Marketable equity securitiesNon marketable equity securitiesMarketable debt securitiesOther
Total
2007$ 10,158
11,2881,1203,231
$ 25,797
2006¥ 2,461
2,192130532
¥ 5,315
2007¥ 1,179
1,310130375
¥ 2,994
Millions of YenThousands ofU.S. Dollars
Buildings and structuresLandEquipmentsConstruction in progressLeased assetsSoftwareGoodwillOther
Total
2007$ 1252,750
4342,8975,787
9966,522
289
$ 78,903
2006¥ 1,346
7421-
246-
4,679-
¥ 6,366
2007¥ 319
1550
336672
117,721
34
¥ 9,158
Millions of YenThousands ofU.S. Dollars
Millions of Yen
August 31, 2007Securities classified as available for sale:
Equity securitiesDebt securities
August 31, 2006Securities classified as available for sale:
Equity securitiesDebt securities
¥ 1,179130
2,461130
¥ (252)-
(434)-
¥ 249-
992-
¥ 1,182130
1,903130
Fair Value
Unrealized Losses
Unrealized GainsCost
Thousands of U.S. Dollars
August 31, 2007Securities classified as available for sale:
Equity securitiesDebt securities
$ 10,1581,120
$ (2,174)(1)
$ 2,151-
$ 10,1811,121
Fair Value
Unrealized Losses
Unrealized GainsCost
Unsecured: 0.8% (0.2% in 2006) domestic bonds due September 2008 0.8% (0.3% in 2006) domestic bonds due February 2009 Installment account payable, 1.7% (3.8% in 2006), due serially to 2010 Loans payable to banks and other financial institutions due serially to 2016 Zero coupon Japanese yen convertible typed bonds with warrants due February 2009 0.8% (0.3% in 2006) domestic bonds due August 2009 0.8% domestic bonds due September 2006 1.5% (1.0% in 2006) domestic bonds due September 2007 1.8% (1.3% in 2006) domestic bonds due September 2009 0.1% domestic bonds due December 2008 0.4% domestic bonds due August 2008 0.4% domestic bonds due September 2008 0.6% domestic bonds due January 2010 1.4% domestic bonds due March 2012Secured: Loans payable to banks and other financial institutions due serially to 2016 3.7% (1.2% in 2006) deposits payable
TotalLess current portion
Long term debt, less current portion
2007
$ 5,169
3,446
767
424,618
465
12,923
-
2,585
3,446
--
-
517862
314,209122,732891,739
(359,342)
$ 532,397
2006
¥ 1,000
600
2,276
83,578
25,017
2,100
300
300
400
252150
252
--
44,9676,506
167,698(33,892)
¥ 133,806
2007
¥ 600
400
89
49,285
54
1,500
-
300
400
--
-
60100
36,47014,246
103,504(41,709)
¥ 61,795
Millions of YenThousands ofU.S. Dollars
Long term debt at August 31, 2007 and 2006 consisted of the following:
InvestmentsAdvances
Total
2007$ 48,691
5,669
$ 54,360
2006¥ 2,743
525
¥ 3,268
2007¥ 5,652
658
¥ 6,310
Millions of YenThousands ofU.S. Dollars
200820092010201120122013 and thereafter
Total
$ 359,342248,023135,499101,633
42,3404,902
$ 891,739
¥ 41,70928,78815,72711,797
4,914569
¥ 103,504
Millions of YenYear Ending August 31Thousands ofU.S. Dollars
Annual maturities of long term debt at August 31, 2007 were as follows:
4140
6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES
Investments in and advances to unconsolidated subsidiaries and associated companies at August 31, 2007 and 2006 were as follows:
7. INVESTMENT SECURITIES
Investment securities as of August 31, 2007 and 2006 consisted of the following:
The carrying amounts and aggregate fair value of investment securities at August 31, 2007 and 2006 were as follows:
"Cost" in the above table is net book value after considering write down of securities. For fiscal years 2007 and 2006, the Group wrote down investment securities in aggregate amount of ¥487 million ($4,195 thousand) and ¥1 million, respectively.Available for sale securities whose fair value is not readily determinable as of August 31, 2007 and 2006 were as follows:
"Carrying amount" in the above table is net book value after considering write downs of securities. For fiscal years 2007 and 2006, the Company wrote down investment securities in the aggregate amount of ¥829 million ($7,144 thousand) and ¥1,673 million, respectively.
Proceeds from sales of available for sale securities for the years ended August 31, 2007 and 2006 were as follows:
The carrying values of debt securities by contractual maturities for securities classified as available for sale at August 31, 2007 are as follows:
For fiscal year 2006, the Group wrote down debt securities considered to be uncollectible in the aggregate amount of ¥626 million and accordingly, these securities are not included in the table above.
8. LONG LIVED ASSETS
The Group reviewed its long lived assets for impairment as of the years ended August 31, 2007 and 2006 and as a result, recognized an impairment loss of ¥9,158 million ($78,903 thousand) and ¥6,366 million, respectively.
To measure an impairment, assets are principally grouped by areas based upon the Group's industry segments: broadband and telecom business related assets and visual content business related assets, whereas each property or equipment categorized into rental assets, retail assets or idle assets is grouped at the lowest level, for which identifiable cash flows are largely independent of the cash flows generated by other assets or asset groups.
When the recoverable value of assets was estimated at net sale value, the recoverable value was determined based on real estate appraisals. When the recoverable value of assets was estimated at its value in use, the discount rate used for computation of present value of future cash flow for the years ended August 31, 2007 and 2006 was from 1.21% to 6.30% and from 3.00% to 5.50%, respectively.For the years ended August 31, 2007 and 2006, impairment losses were recognized for the following assets:
The Group recognized an impairment loss on property and equipment since it was not foreseeable to achieve anticipated earnings resulting from use of the assets or asset group, or land value continuously fell down. On the other hand, an impairment loss on goodwill was recognized since it was not foreseeable to achieve earnings anticipated based upon the business plan at the time of stock acquisitions.
9. SHORT TERM BORROWINGS AND LONG TERM DEBT
Short term borrowings of ¥31,755 million ($273,583 thousand) and ¥48,565 million at August 31, 2007 and 2006, respectively, mainly consisted of notes and loan agreements to banks and bank overdrafts.
The average interest rates applicable to the borrowings were as follows:
Notes to Consolidated Financial Statements
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Unsecured: 0.8% (0.2% in 2006) domestic bonds due September 2008 0.8% (0.3% in 2006) domestic bonds due February 2009 Installment account payable, 1.7% (3.8% in 2006), due serially to 2010 Loans payable to banks and other financial institutions due serially to 2016 Zero coupon Japanese yen convertible typed bonds with warrants due February 2009 0.8% (0.3% in 2006) domestic bonds due August 2009 0.8% domestic bonds due September 2006 1.5% (1.0% in 2006) domestic bonds due September 2007 1.8% (1.3% in 2006) domestic bonds due September 2009 0.1% domestic bonds due December 2008 0.4% domestic bonds due August 2008 0.4% domestic bonds due September 2008 0.6% domestic bonds due January 2010 1.4% domestic bonds due March 2012Secured: Loans payable to banks and other financial institutions due serially to 2016 3.7% (1.2% in 2006) deposits payable
TotalLess current portion
Long term debt, less current portion
2007
$ 5,169
3,446
767
424,618
465
12,923
-
2,585
3,446
--
-
517862
314,209122,732891,739
(359,342)
$ 532,397
2006
¥ 1,000
600
2,276
83,578
25,017
2,100
300
300
400
252150
252
--
44,9676,506
167,698(33,892)
¥ 133,806
2007
¥ 600
400
89
49,285
54
1,500
-
300
400
--
-
60100
36,47014,246
103,504(41,709)
¥ 61,795
Millions of YenThousands ofU.S. Dollars
Time depositsReceivables—trade notesInvestment securitiesProperty and equipment, net of accumulated
depreciation and impairment loss:LandBuildings
Leasehold deposits
Total
$ 18,3345,322
119
269,12564,994
1,292
$ 359,186
¥ 2,128618
14
31,2377,544
150
¥ 41,691
Millions of YenThousands ofU.S. Dollars
Decrease in projected benefit obligationsDecrease in fair value of plan assetsDecrease in transitional obligationDecrease in actuarial differenceDecrease in liability for retirement benefits
$ (32,802)25,455
5,993(6,446)(7,800)
¥ (3,807)2,954
696(748)(905)
Millions of YenThousands ofU.S. Dollars
InventoriesCurrent portion of long term debt
¥ 491872
Millions of Yen
Assets entrusted:StructuresMachines and equipments
Liabilities recorded:Current portion of long term debtLong term debt
Subordinated beneficial right
¥ 5,2284,196
1,73018,280
6,437
Millions of Yen
The CompanyBMBGAGAALMEXINTELLIGENCE
Total
¥ 1,90910,000
1,0566,250
10,440
¥ 29,655
¥ 38,191
2,644
10,560
¥ 51,395
¥ 40,10010,000
3,7006,250
21,000
¥ 81,050
Millions of Yen
RemainingBalance
OutstandingBalance
Total Amount
The CompanyBMBGAGAALMEXINTELLIGENCE
Total
$ 16,44986,155
9,09853,84789,946
$ 255,495
$ 329,032
22,779
90,980
$ 442,791
$ 345,48186,15531,87753,847
180,926
$ 698,286
Thousands of U.S. Dollars
RemainingBalance
OutstandingBalance
Total Amount
Projected benefit obligationFair value of plan assetsUnrecognized prior service costUnrecognized actuarial lossUnrecognized transitional obligation
Net liability
2007$ 66,626
(5,424)(5,675)(3,272)
85
$ 52,340
2006¥ 12,797
(3,738)(155)
(1,309)20
¥ 7,615
2007¥ 7,734
(630)(659)(380)
10
¥ 6,075
Millions of YenThousands ofU.S. Dollars
Service costInterest costExpected return on plan assetsAmortization of transitional obligationRecognized actuarial lossAmortization of prior service costPremium payment for Smaller Enterprise Retirement Allowance Mutual Aid CorporationPremium severance pay and othersLoss on termination on retirement benefit plan
Net periodic benefit costs
2007$ 1,752
1,467(344)151430
2,620
369120
$ 6,565
2006¥ 89164(6)3832
125
20425202
¥ 1,089
2007¥ 203
170(40)1750
304
4315
¥ 762
Millions of YenThousands ofU.S. Dollars
Decrease in projected benefit obligationsDecrease in fair value of plan assetsActuarial loss unrecognizedPrior service costs unamortizedDecrease in liability for retirement benefitsSeverance payment payable
Loss on termination of the retirement plan
¥ (875)198
9450
(533)735
¥ 202
Millions of Yen
Discount rateExpected rate of return on plan assetsAmortization period of prior service costRecognition period of actuarial gain/lossAmortization period of transitional obligation
1.5%–2.0%2.0%–4.5%
5 years6–10 years5–15 years
1.5%–2.0%2.0%–4.5%
5 years6–10 years5–15 years
2007
Assumptions used for the years ended August 31, 2007 and 2006 are set forth as follows:
2006
4342
The carrying amounts of assets pledged as collateral for short term bank loans, long term debt and advances received of ¥73,431 million ($632,642 thousand) at August 31, 2007 were as follows:
Due to a lending agreement for securities, investment securities were pledged as collateral for advances received.
Other than pledged assets mentioned above, 33,484,600 shares of BMB held by the Company were pledged as collateral under a loan agreement.
In addition, according to lending agreements for securities, 156,600 shares of common stock of INTELLIGENCE held by the Company were lent to third parties. However, voting rights and dividends on these shares were entitled to the Company under the agreement.As is customary in Japan, the Group maintains substantial deposit balances with banks with which it has borrowings. Such deposit balances are not legally or contractually restricted as to withdrawal.
General agreements with respective banks provide, as is customary in Japan, that additional collateral must be provided under certain circumstances if requested by such banks and that certain banks have the right to offset cash deposited with them against any long term or short term debt or obligation that becomes due and, in case of default and certain other specified events, against all other debt payable to the banks. The Group has never been requested to provide any additional collateral.
The remaining amount of zero coupon unsecured Japanese yen convertible typed bonds with warrants as of August 31, 2007 is ¥54 million ($465 thousand). The bonds are due February 25, 2009, and the warrants are detachable and entitle the holders to subscribe for shares of the Company's common stock through February 11, 2009, at the exercise price of ¥3,452.50 per share. If all of the warrants outstanding as of August 31, 2007 had been exercised, 15,719 shares of common stock would have been issued. The exercise price of the warrants is subject to adjustments to reflect stock splits and certain other events.
The Group has entered into commitment line and bank overdraft agreements with banks and syndicated financial institutions for working capital use. The amount of such commitment line and bank overdraft agreements as of August 31, 2007 is summarized as follows:
These commitment line and bank overdraft agreements are attached with financial and other restrictive covenants and cross-default clauses. Such covenants provide that the respective companies should maintain certain level of net assets, ordinary income/loss and other factors on consolidated/non consolidated financial statements for fiscal year/period end, as designated in the respective covenants in each agreement.If conflicted with such covenants, the respective companies shall be obligated to pay higher interest rate and/or to make an immediate lump sum repayment of the borrowings.
In the fiscal year 2006, in order to liquidate film use rights, GAGA raised funds through reproduction and distribution agreements for original master videotapes with a special purpose company for financing. These transactions were accounted for as financial transactions, not sales of related assets. The assets and liabilities related to this transaction as of August 31, 2006 were as follows:
In the fiscal year 2006, UCOM financed ¥20,000 million from a trust bank by way of asset liquidation. Under the scheme, UCOM entrusted its structures, machines and equipments and acquired three types of beneficial rights that were (1) senior beneficial right to receive dividend and entrusted principal preferentially, (2) subordinated beneficial right being pledged to securities companies, and (3) beneficial right from loan set up between the trust bank and the securities companies. Immediately after the acquisition of beneficial rights, UCOM transferred senior beneficial right to the securities company in consideration of ¥11 million and waived the beneficial right from loan on behalf of ¥20,000 million received from the trust bank. In addition, for the title to and ownership of the assets were transferred to the trustee, UCOM entered into a lease contract for the assets with the trustee effective from June 20, 2006 to June 30, 2021. As the risk and economic value of the related assets are not considered being transferred to third parties, UCOM treated this transaction as a financial transaction, not a sales transaction and accordingly, recorded current and long term debt in its balance sheet for the future lease payments
that fluctuate based on the future operating results of UCOM. The lease payment for the year ended August 31, 2006 was ¥698 million.
The assets entrusted, liabilities recorded and the subordinated beneficial right as of August 31, 2006 are as follows:
10. RETIREMENT BENEFITS
Employees whose service with the Group is terminated are, under most circumstances, entitled to retirement and pension benefits determined by reference to basic pay rates at the time of termination, length of service and conditions under which the termination occurs. If the termination is involuntary, caused by retirement at the mandatory retirement age or caused by death, the employee is entitled to greater payment than in the case of voluntary termination.
On January 1, 2007, INTELLIGENCE terminated its contributory defined benefit pension plan and established a new defined contribution pension plan.
On November 20, 2005, BMB terminated a contributory defined benefit pension plan and accordingly recognized loss on change of a retirement plan in the aggregate amount of ¥564 million, which includes premium severance payments of ¥362 million, as other expense in the consolidated statement of operations for 2006. BMB recognized payable for dissolution of the retirement plan in the aggregate amount of ¥669 million. The amount of payables included in the current and non current liability section in the consolidated balance sheet is ¥223 million and ¥446 million, respectively.
Under the new pension plan of BMB, each employee is able to choose his/her retirement plan from the advance severance payment system or the defined contribution pension plan. In addition, premium severance payment will be made to employees who meet certain requirements besides retirement allowance payments determined based upon actuarial calculation in accordance with an accounting standard for employees' retirement benefits.
The liability for employees' retirement benefits at August 31, 2007 and 2006 consisted of the following:
The components of net periodic benefit costs are as follows:
The effects on the assets and liabilities due to termination of retirement plan of INTELLIGENCE are as follows:
Loss on termination of a retirement plan that BMB recognized for the year ended August 31, 2006 consisted of the following:
Notes to Consolidated Financial Statements
後半財務ページ用ガイド
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USEN Annual Report 2007
P42
For the Year Ended August 31, 2007Non vested:
August 31, 2006—outstanding (shares)Granted (shares)Canceled (shares)Vested (shares)
August 31, 2007—outstanding (shares)Vested:
August 31, 2006—outstanding (shares)Vested (shares)Exercised (shares)Canceled (shares)
August 31, 2007—outstanding (shares)
Exercise price (Yen)
Average stock price at exercise (Yen)
Fair value price at grant date (Yen)
-500,000
--
500,000
-----
¥ 1,080($ 9.30)
-(-)267
($ 2.30)
2006 StockOption
2006 Stock Option
From May 18, 2009to May 17, 2012
Stock Option
12 directors 22 directors of subsidiaries
Persons Granted
500,000 shares
Number of Options Granted
May 17, 2007
Date ofGrant Exercise Period
The Company
2003 Stock Option
2004 Stock Option
From July 1, 2005 to June 30, 2008
From July 1, 2006to June 30, 2009
Stock Option
10 directors3 corporate auditors31 employees1 corporate auditors10 employees
Persons Granted
1,310,000shares
250,000shares
Number of Options Granted
August 8,2003
July 20, 2004
Date ofGrant Exercise Period
BMB
2001 Stock Option
2002 Stock Option
From December 27, 2003
to December 26, 2006From December 21,
2004 to December 20, 2009
Stock Option
4 directors26 employees
4 directors1 corporate auditor21 employees
Persons Granted
194,000shares
300,000shares
Number of Options Granted
March 15, 2002
April 11, 2003
Date ofGrant Exercise Period
GAGA
2002 Stock Option
2003 Stock Option
2004 Stock Option
2005 Stock Option
2006 Stock Option (1)
2006 Stock Option (2)2006 Stock Option (3)2006 Stock Option (4)
From December21, 2004
to December 20,2006
From December 23, 2005
to December 22, 2007
From December 21,2006
to December 20, 2008
From October 1, 2011to September 30, 2015
From February 21, 2008
to February 19, 2016From July 1, 2006
to February 19, 2016From July 1, 2006
to February 19, 2016From July 1, 2006
to March 13, 2016
Stock Option
3 directors5 operating
directors159 employees3 directors5 operating
directors228 employees1 director7 operating
directors201 employees2 directors7 operating
directors306 employees3 operating
directors
1 operating director
1 director
3 operating directors
Persons Granted
5,232shares
7,130shares
1,991shares
3,986shares
1,536shares
307shares3,074shares1,231shares
Number of Options Granted
April 30, 2003
February 25, 2004
March 2, 2005
February 15, 2006
February 20, 2006
February 20, 2006February 20, 2006March 14, 2006
Date ofGrant Exercise Period
INTELLIGENCE
The Company
For the Year Ended August 31, 2007Non vested:
August 31, 2006—outstanding (shares)Granted (shares)Canceled (shares)Vested (shares)
August 31, 2007—outstanding (shares)Vested:
August 31, 2006—outstanding (shares)Vested (shares)Exercised (shares)Canceled (shares)
August 31, 2007—outstanding (shares)
Exercise price (Yen)
Average stock price at exercise (Yen)
Fair value price at grant date (Yen)
-----
210,000-
201,000(9,000)
-¥ 550
($ 4.74)598
($ 5.15)-
(-)
2004 StockOption
-----
90,000-
90,000--
¥ 211($ 1.82)
598($ 5.15)
-(-)
2003 StockOption
BMB
For the Year Ended August 31, 2007Non vested:
August 31, 2006—outstanding (shares)Granted (shares)Canceled (shares)Vested (shares)
August 31, 2007—outstanding (shares)Vested:
August 31, 2006—outstanding (shares)Vested (shares)Exercised (shares)Canceled (shares)
August 31, 2007—outstanding (shares)
Exercise price (Yen)
Average stock price at exercise (Yen)
Fair value price at grant date (Yen)
-----
230,000--
(230,000)-
¥ 466($ 4.01)
-(-)-
(-)
2002 StockOption
-----
105,000--
(105,000)-
¥ 574($ 4.95)
-(-)-
(-)
2001 StockOption
GAGA
4544
11. EQUITY
From May 1, 2006, Japanese companies are subject to a new corporate law of Japan (the "Corporate Law"), which reformed and replaced the Commercial Code of Japan with various revisions that are, for the most part, applicable to events or transactions which occur on or after May 1, 2006 and for the fiscal years ending on or after May 1, 2006. The significant changes in the Corporate Law that affect financial and accounting matters are summarized below:
a. DividendsUnder the Corporate Law, 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 Corporate Law 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 Corporate Law 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.
b. Increases/Decreases and Transfer of Common Stock, Reserve and SurplusThe Corporate Law 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 Corporate Law, the total amount of additional paid in capital and legal reserve may be reversed without limitation. The Corporate Law 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 RightsThe Corporate Law 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 Corporate Law, stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of equity. The Corporate Law 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.
On November 29, 2005, the Company transferred share capital to accumulated deficit in the aggregate amount of ¥4,030 million.
On August 8, 2006, the Company newly issued 26,469,000 shares of its common stock to Mr. Yasuhide Uno, President and chief executive officer of the Company, at a price of ¥1,138 per share for net proceeds of ¥30,122 million. As a result of this transaction, common stock and capital surplus increased by ¥15,061 million and ¥15,061 million, respectively.
On October 2006, the Company acquired all shares of ALMEX and GAGA by way of share exchange. The number of shares issued for share exchange to acquire all shares of those new subsidiaries was 4,216,608 shares and 5,187,499 shares, respectively. As a result of those transactions, capital surplus and accumulated deficit increased by ¥11,686 million ($100,684 thousand) and ¥46 million ($400 thousand), respectively. In addition, treasury stock increased by 146 million ($1,264 thousand) due to repurchase of 124,190 shares in total by the Company.
On May 11, 2007, the Company newly issued 24,509,810 shares of its common stock to GSTK Holding 2 at a price of ¥1,020 ($8.8) per share for net proceeds of ¥25,000 million ($215,386 thousand). As a result of this transaction, common stock and capital surplus increased by ¥12,500 million ($107,693 thousand), respectively.
12. STOCK OPTION
The outline of stock option for the year ended August 31, 2007 is as follows:
The stock option activity is as follows:
Notes to Consolidated Financial Statements
Note: All stock options of GAGA were cancelled due to termination of stock option plan.
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For the Year Ended August 31, 2007Non vested:
August 31, 2006—outstanding (shares)Granted (shares)Canceled (shares)Vested (shares)
August 31, 2007—outstanding (shares)Vested:
August 31, 2006—outstanding (shares)Vested (shares)Exercised (shares)Canceled (shares)
August 31, 2007—outstanding (shares)
Exercise price (Yen)
Average stock price at exercise (Yen)
Fair value price at grant date (Yen)
-380--
380
-----
¥80,000
-
-
2005 StockOption
2003 Stock Option
2004 Stock Option
From July 1, 2005 to June 30, 2008
From July 1, 2006 to June 30, 2009
Stock Option
10 directors 3 corporate auditors31 employees1 corporate auditor10 employees
Persons Granted
1,310,000shares
250,000shares
Number of Options Granted
August 8, 2003
July 20, 2004
Date ofGrant Exercise Period
BMB
2005 Stock Option
From December 15, 2007
to December 14, 2010
Stock Option
3 directors3 operating
directors
Persons Granted
380 shares
Number of Options Granted
December 15, 2005
Date ofGrant Exercise Period
UCOM
-2006 Stock Option
Estimate method:Volatility of stock price:Estimated remaining outstanding period:Estimated dividend:Interest rate with risk free:
Black Scholes option pricing model45.88%3.5 years0.269%1.227%
The Company
2001 Stock Option
2002 Stock Option
From December 27, 2003
to December 26, 2006From December 21,
2004 to December 20, 2009
Stock Option
4 directors26 employees
4 directors1 corporate auditor21 employees
Persons Granted
194,000shares
300,000shares
Number of Options Granted
March 15, 2002
April 11, 2003
Date ofGrant Exercise Period
GAGA
UCOM
For the Year Ended August 31, 2007Non vested:
August 31, 2006—outstanding (shares)Granted (shares)Canceled (shares)Vested (shares)
August 31, 2007—outstanding (shares)Vested:
August 31, 2006—outstanding (shares)Vested (shares)Exercised (shares)Canceled (shares)
August 31, 2007—outstanding (shares)
Exercise price (Yen)
Average stock price at exercise (Yen)
Fair value price at grant date (Yen)
230,000-
(20,000)210,000
-
-210,000
--
210,000
¥550
-
-
2004 StockOption
-----
280,000-
190,000-
90,000
¥211
¥547
-
2003 StockOption
BMB
For the Year Ended August 31, 2007Non vested: August 31, 2006—outstanding (shares) Granted (shares) Canceled (shares) Vested (shares) August 31, 2007—outstanding (shares)Vested: August 31, 2006—outstanding (shares) Vested (shares) Exercised (shares) Canceled (shares) August 31, 2007—outstanding (shares)
Exercise price (Yen)
Average stock price at exercise (Yen)
Fair value price at grant date (Yen)
3,986---
3,986
-----
¥ 335,000($2,886.19)
-(-)-
(-)
2005 StockOption
1,991--
1,991-
-1,991
341-
1,650¥ 204,640($1,763.07)¥ 312,018($2,688.18)
-(-)
2004 StockOption
-----
5,488-
1,386-
4,102¥ 144,696($1246.63) ¥ 312,870($2,695.53)
-(-)
2003 StockOption
-----
1,496-
1,056(440)-
¥ 17,125($ 147.5)¥ 307,739($2,651.32)
-(-)
2002 StockOption
INTELLIGENCE
For the Year Ended August 31, 2007Non vested: August 31, 2006—outstanding (shares) Granted (shares) Canceled (shares) Vested (shares) August 31, 2007—outstanding (shares)Vested: August 31, 2006—outstanding (shares) Vested (shares) Exercised (shares) Canceled (shares) August 31, 2007—outstanding (shares)
Exercise price (Yen)
Average stock price at exercise (Yen)
Fair value price at grant date (Yen)
1,231--
1,231-
-1,2311,231--
¥58,343($502.65)¥ 274,550($2,365.38)
-(-)
2006 StockOption(4)
3,074--
3,074-
-3,0743,074--
¥58,343($502.65)¥ 274,550($2,365.38)
-(-)
2006 StockOption(3)
307--
307-
-307307--
¥58,343($502.65)¥ 274,550($2,365.38)
-(-)
2006 StockOption(2)
1,536---
1,536
-----
¥ 58,343($502.65)
-(-)-
(-)
2006 StockOption(1)
Deferred tax assets:Tax loss carryforwards Pension and severance costsWrite down of investmentsAccrued bonusesProvision for allowance for
doubtful accountsDepreciation and amortizationProvision for dismantling cables
from utility poles no longer usedOtherLess valuation allowance
TotalDeferred tax liabilities:
Unrealized gain on available for sale securities
Other
Total
Net deferred tax assets
2007
$ 169,18520,826
126,1697,953
27,47719,336
7,45238,472
(363,000)
53,870
(911)(1,582)
(2,493)
$ 51,377
2006
¥ 30,1713,0261,944
956
4,205280
1,87615,208
(45,345)
12,321
(396)(30)
(426)
¥ 11,895
2007
¥ 19,6372,417
14,644923
3,1892,244
8654,467
(42,133)
6,253
(106)(184)
(290)
¥ 5,963
Millions of YenThousands ofU.S. Dollars
For the Year Ended August 31, 2007Non vested:
August 31, 2006—outstanding (shares)Granted (shares)Canceled (shares)Vested (shares)
August 31, 2007—outstanding (shares)Vested:
August 31, 2006—outstanding (shares)Vested (shares)Exercised (shares)Canceled (shares)
August 31, 2007—outstanding (shares)
Exercise price (Yen)
Average stock price at exercise (Yen)
Fair value price at grant date (Yen)
-----
262,000--
(32,000)230,000
¥466
-
-
2002 StockOption
-----
115,000--
(10,000)105,000
¥574
-
-
2001 StockOption
GAGA
13. INCOME TAXES
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 40.7% for the years ended August 31, 2007 and 2006.
The tax effects of significant temporary differences resulted in deferred tax assets and liabilities at August 31, 2007 and 2006 are as follows:
4746
The Assumptions Used to Measure Fair Value of Stock Options Granted on or after May 1, 2006 are as follows:
Notes: 1. Volatility of stock price is calculated based on the actual stock prices of the Company marked in the period from November 2003 to April 2007.2. Estimated remaining outstanding period is determined based on the assumption that all options would be exercised by the middle date of the exercise period.3. Estimated dividend is determined based on the actual dividend applicable to the three years ended August 31, 2006.4. For the interest rate with risk free, the Company uses the yield of Japanese treasury bond applicable to the estimated remaining outstanding period of options.
Estimated number of stock options to be vested:
As the number of options to be cancelled in future is not readily estimable, the estimated number of options to be vested is not included in the calculation formula.
The outline of stock option for the year ended August 31, 2006 is as follows:
Notes to Consolidated Financial Statements
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For the Year Ended August 31, 2007
Due within one yearDue after one year
Total
2007$ 85,482203,262
$ 288,744
2006¥ 9,71423,829
¥ 33,543
2007¥ 9,92223,593
¥ 33,515
Millions of YenThousands ofU.S. Dollars
Due within one yearDue after one year
Total
$ 13930
$ 169
¥ 164
¥ 20
Millions of YenThousands ofU.S. Dollars
Depreciation expenseInterest expense
TotalReversal of allowance for impairment
loss on leased property
2007$ 95,064
11,253
$ 106,317
$ 1,552
2006¥ 8,805
1,047
¥ 9,852
¥ 217
2007¥ 11,034
1,306
¥ 12,340
¥ 180
Millions of YenThousands ofU.S. Dollars
Normal effective statutory tax rateInhabitants taxes—per capitaUnrealized benefitValuation allowancePermanent differenceAmortization of goodwillEquity earnings under the equity methodOther—net
Actual effective tax rate
(40.7)%6.6
(1.8)52.83.1
24.1-0.1
44.2%
40.7%2.3(1.4)29.41.0
(15.9)(3.8)1.1
53.4%
2007 2006
Millions of Yen
Acquisition costAccumulated
depreciationAccumulated
impairment loss
Net leased property
¥ 6,960
883
585
¥ 5,492
¥ 3,640
1,549
-
¥ 2,091
¥ 7,715
2,195
-
¥ 5,520
¥ 18,649
7,478
140
¥ 11,031
¥ 3,050
1,448
107
¥ 1,495
¥ 40,014
13,553
832
¥ 25,629
Buildings and
Structures
Machinery and
EquipmentRental
Equipment
Furniture and
Fixtures Software Total
For the Year Ended August 31, 2006
Obligations under finance leases:
Millions of Yen
Acquisition costAccumulated
depreciationAccumulated
impairment loss
Net leased property
¥ 3,732
211
196
¥ 3,325
¥ 6,153
2,017
-
¥ 4,136
¥ 5,428
1,137
-
¥ 4,291
¥ 30,724
14,813
13
¥ 15,898
¥ 3,251
1,313
103
¥ 1,835
¥ 49,288
19,491
312
¥ 29,485
Buildings and
Structures
Machinery and
EquipmentRental
Equipment
Furniture and
Fixtures Software Total
Thousands of U.S. Dollars
Acquisition costAccumulated
depreciationAccumulated
impairment loss
Net leased property
$ 59,961
7,606
5,037
$ 47,318
$ 31,359
13,346
-
$ 18,013
$ 66,474
18,914
-
$ 47,560
$ 160,672
64,423
1,212
$ 95,037
$ 26,274
12,479
919
$ 12,876
$ 344,740
116,768
7,168
$ 220,804
Buildings and
Structures
Machinery and
EquipmentRental
Equipment
Furniture and
Fixtures Software Total
200820092010
Total
11,4469,7745,026
$ 26,246
1,3281,134
584
¥ 3,046
Millions of YenYear Ending August 31Thousands ofU.S. Dollars
Guarantee of obligations under finance leasesGuarantee of obligations under installmentsTransfer of entrusted notes
$ 77,11612,15217,721
¥ 8,9511,4102,057
Millions of YenThousands ofU.S. Dollars
PayrollBonusEmployee benefitsRentUtilitiesRepairingCommissionDepreciationTravelingAdvertisement and promotionFreightLeaseTaxes and duesAmortization of goodwillOther
Total
2007$ 333,216
61,25948,70075,94014,16718,80885,27735,38524,522
127,84710,70320,59913,95864,465
108,269
$ 1,043,115
2006¥ 25,293
3,4563,1155,3771,0751,0296,3481,7541,6155,5461,0941,4941,1584,5247,921
¥ 70,799
2007¥ 38,676
7,1105,6538,8141,6442,1839,8984,1072,846
14,8391,2422,3911,6207,482
12,570
¥ 121,075
Millions of YenThousands ofU.S. Dollars
4948
The amount of obligations under finance leases includes the imputed interest expense portion.
Allowance for impairment loss on leased property of ¥487 million ($4,196 thousand) as of August 31, 2007 is not included in obligations under finance leases.
Depreciation expense, interest expense and other information under finance leases:
Depreciation expense and interest expense, which are not reflected in the accompanying consolidated statements of operations, are computed by the straight line method with no salvage value and the interest method, respectively.
Reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statements of operations for the years ended August 31, 2007 and 2006 is as follows:
14. LEASE
The Group leases certain buildings, rental equipment, computer equipment, office space and software.
Total rental expenses under the above leases for the years ended August 31, 2007 and 2006 were ¥21,007 million ($180,986 thousand) and ¥15,134 million, respectively, including ¥12,193 million ($105,046 thousand) and ¥9,757 million of lease payments under finance leases.
The Group recorded an impairment loss of ¥672 million ($5,787 thousand) and ¥246 million on certain leased property held under finance leases that do not transfer ownership for the years ended August 31, 2007 and 2006, respectively, and an allowance for impairment loss on leased property of ¥487 million ($4,196 thousand) and ¥270 million as of August 31, 2007 and 2006, respectively, which is included in current liabilities—other.
Pro forma information of leased property such as acquisition cost, accumulated depreciation, accumulated impairment loss, obligations under finance leases, depreciation expense and interest expense and other information of finance leases that do not transfer ownership of the leased property to the lessee on an "as if capitalized" basis for the years ended August 31, 2007 and 2006 was as follows:
The minimum rental commitments to be paid under noncancelable operating leases at August 31, 2007 were as follows:
15. COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS
The cable radio broadcasting businesses industry is subject to extensive regulation under Japanese laws. As a result, the Company is required to comply with many complex laws, rules and technical standards and its ability to so comply is dependent in large part upon the establishment of and maintenance of a qualified compl iance sys tem. The Company is aware of several ins tances of i t s noncompliance with applicable regulations. In particular, during the period from 1964 to 2000 the Company failed to comply with the Cable Radio Law, the Road Law and the River Law of Japan. In addition, during this period, the Company used utility poles and the land upon which they are erected without obtaining consents from the utility pole and land owners.
Pursuant to various settlement agreements, the Company agreed in the fiscal year 2000 to pay utility pole owners, road administrators and others for identified unauthorized use of the utility poles, roads and other landline facilities in prior periods, and the settlement liability amount was finally fixed in the fiscal year 2001.
At August 31, 2007, the annual maturities of the remaining settlement liability were as follows:
The Company has not received consent of the land owners because of the vast number of land owners that are impacted. The land owners consent is necessary to be in compliance with the Cable Radio Law.
The Company has not fully analyzed the cost of rectifying its cables to become compliant with various technical standards. The cost of the rectification process is not presently determinable.
At August 31, 2007, the Group had the following contingent liabilities:
Notes to Consolidated Financial Statements
Generally, creation of content such as movie takes time to be completed for more than one year from the point of purchase contract. The Group also enters into various purchase agreements for content that will be provided after one year or more. The aggregate amount of these agreements and commitments to purchase content in the future not reflected in the consolidated financial statements was ¥3,264 million ($28,119 thousand) as of August 31, 2007.
16. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the years ended August 31, 2007 and 2006 consisted of the following:
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Year end cash dividends, ¥5.00 ($0.04) per share $ 5,837¥ 677
Millions of YenThousands ofU.S. Dollars
Current assetsNon current assetsTotal assets acquiredCurrent liabilitiesNon current liabilitiesTotal liabilities assumed
$ 11,9302,618
$ 14,548$ 7,263
6,554$ 13,817
¥ 1,385304
¥ 1,689¥ 843
761¥ 1,604
Millions of YenThousands ofU.S. Dollars
Thousands of U.S. Dollars2007
Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)
$ 534,461
1,749
536,210
415,190
$ 121,020
$ 368,057
2,217
370,274
352,096
$ 18,178
$ 434,833
715
435,548
385,051
$ 50,497
$ 157,546
17,903
175,449
250,197
$ (74,748)
$ 196,744
375
197,119
194,239
$ 2,880
$ 882,095
1,713
883,808
841,771
$ 42,037
$ 21,581
8,348
29,929
29,739
$ 190
$ (33,020)
(33,020)
(10,152)
$ (22,868)
$ 2,595,317
-
2,595,317
2,458,131
$ 137,186
Broadcasting Businesses
Broadband and Telecom Businesses
Karaoke Businesses
Visual Content
Businesses
Operation Systems and
Plant Equipment Businesses
Recruitment Consulting and
Part-time Information Services Other
Eliminations/Corporate Consolidated
a. Sales and Operating Income (Loss)
b. Total Assets, Depreciation, Impairment Loss and Capital Expenditures
Thousands of U.S. Dollars2007
Total assetsDepreciationImpairment loss Capital expenditure
$ 335,56823,373
-57,746
$ 135,21228,464
2,89741,924
$ 528,37154,590
7,96940,556
$ 249,26017,35263,93122,157
$ 286,9502,366
1078,480
$ 702,91914,774
3,99948,045
$ 196,7262,285-
548
$ 268,0571,323-
7,980
$ 2,703,063144,52778,903
227,436
Broadcasting Businesses
Broadband and Telecom Businesses
Karaoke Businesses
Visual Content
Businesses
Operation Systems and
Plant Equipment Businesses
Recruitment Consulting and
Part-time Information Services Other
Eliminations/Corporate Consolidated
Millions of Yen2006
Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)
¥ 62,532
4
62,536
49,791
¥ 12,745
¥ 33,867
27
33,894
38,088
¥ (4,194)
¥ 49,135
175
49,310
42,692
¥ 6,618
¥ 22,984
389
23,373
33,107
¥ (9,734)
¥ 8,957
39
8,996
8,475
¥ 521
¥ 1,817
151
1,968
1,899
¥ 69
¥ (785)
(785)
1,540
¥ (2,325)
¥ 182,010
-
182,010
178,480
¥ 3,530
Broadcasting Businesses
Broadband and Telecom Businesses
Karaoke Businesses
¥ 2,718
-
2,718
2,888
¥ (170)
Retail Businesses
Visual Content
Businesses
Operation Systems and
Plant Equipment Businesses
Recruitment Consulting and
Part-time Information Services Other
Eliminations/Corporate Consolidated
a. Sales and Operating Income (Loss)
Millions of Yen2006
Total assetsDepreciationImpairment loss Capital expenditure
¥ 50,9932,5301,2383,846
¥ 46,3042,5644,7387,146
¥ 58,7376,956
3165,165
¥ 38,0631,272-
4,249
¥ 35,83348-63
¥ 91,808
--
¥ 4,016182--
¥ 47,2112607439
¥ 376,07513,9536,366
21,405
Broadcasting Businesses
Broadband and Telecom Businesses
Karaoke Businesses
¥ 3,110141-
897
Retail Businesses
Visual Content
Businesses
Operation Systems and
Plant Equipment Businesses
Recruitment Consulting and
Part-time Information
Services OtherEliminations/
Corporate Consolidated
b. Total Assets, Depreciation, Impairment Loss and Capital Expenditures
5352
Notes to Consolidated Financial Statements
20. SUBSEQUENT EVENTS
a. Appropriations of Retained EarningsThe following appropriations of retained earnings as of August 31, 2007 were approved at the Company's general shareholders meeting held on November 29, 2007:
b. Share Exchange to Convert BMB into a Wholly Owned SubsidiaryAt the meeting of the Board of Directors held on July, 2007, the Company decided to convert BMB into a wholly owned subsidiary of the Company by way of a share exchange. The transaction was executed and became effective on September 21, 2007. BMB had been a consolidated subsidiary of the Company of which holding ratio of 96.3% before the share exchange. The Company issued its shares to all of existing shareholders of BMB by 0.583 shares for 1 share of BMB, which was to be transferred to the Company. As a result, BMB became a wholly owned subsidiary of the Company on the above date.
c. Merger of Media K.K. ("Media") by UCOMOn October 1, 2007, the UCOM merged Media, a consolidated subsidiary of the Company, in order to improve their services and financial condition by uniting their business strength. As a result of the merger, Media was liquidated at the same date. The total number of shares exchanged was 25,048 in the appraised value of ¥85 million ($731 thousand), with exchange rate of shares of 1 and 0.0042625 applied to UCOM and Media, respectively.
The assets transferred and liabilities assumed as of the date of merger are as follows:
d. Sale of Fixed Assets of INTELLIGENCEAt the meeting of the Board of Directors held on October 5, 2007, INTELLIGENCE decided to sell its land and building that had been used as its office located in Ichigaya, Tokyo. Those fixed assets are planned to be sold for ¥13,063 million ($112,541 thousand) in the end of February 2008.
e. Syndicated Loan AgreementIn order to reinforce its financial condition and to obtain stable financing plan and structure, all of the Group’ s borrowing except that of INTELLIGENCE were united and refinanced to the syndicated loan agreement that the Company entered into on November 28. The syndicated loan agreement with 30 financial institutions is to set up a syndicated term loan of ¥120,000 million ($1,033,859 thousand) and a syndicated commitment line up to ¥15,000 million ($129,232 thousand) for the period of 5 years.
Notes: 1. Operating expenses incurred mainly in administrative departments that are unavailable to allocate into specific segments were included in "Eliminations/corporate" with the aggregate amounts of ¥2,811 million ($24,216 thousand) and ¥2,109 million for the years ended August 31, 2007 and 2006, respectively.
2. Total corporate assets of ¥38,161 million ($328,777 thousand) and ¥47,211 million included in "Eliminations/corporate" of total assets as of August 31, 2007 and 2006, respectively, mainly consist of surplus operating funds (cash and cash equivalents), long term investment funds (investment securities) and asset used in administrative departments.
3. Effective from the year ended August 31, 2007, "Retail businesses" was excluded from the business segment due to a transfer of the business. 4. "Operation systems and plant equipment businesses" has been renamed "Operation system businesses" due to a transfer of plant equipment division of ALMEX,
which had been engaged in the business. 5. The revenue and expenses in "Recruitment consulting and part-time information services" had not been recognized for the fiscal year 2006 because the account of profit
or loss incurred from INTELLIGENCE and other consolidated subsidiaries in this segment are not taken into consolidation for the year ended August 31, 2006. Balance sheet accounts of the subsidiaries are only consolidated as they were acquired in July 2006.
(2) Geographical SegmentsBecause the Company and subsidiaries are located and conduct their operations primarily in Japan, geographical segment information is not presented.
(3) Sales to Foreign CustomersBecause sales to foreign customers are not material, such information is not presented.
後半財務ページ用ガイド
P53
USEN Annual Report 2007
P52