ann taking on new challenges · flagship product strategy 14 social contribution and environmental...
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A n n u A l R e p O R t 2 0 1 3For the year ended november 30, 2013
Taking on New Challenges
OS
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orporation An
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20
13
OSG Corporation is the world’s leading manufacturer
of taps, end mills and rolling dies. As a comprehensive cutting tool maker,
it also manufactures and sells drills and many other products.
Cutting tools are essential to all manufacturing activities, and OSG
products are relied on to shape leading-edge product features in a wide
range of industries.
the automotive and other manufacturing industries are expanding
around the globe. OSG plans to grow with them by creating new products
and solutions to meet the future processing challenges of its customers.
to Our Shareholders 01Business Characteristics 02OSG at a Glance 05Financial Highlights 06An Interview with the president 07
Special Feature 1Business expansion in South Asia Markets
12
Special Feature 2Dynamic Implementation of Flagship Product Strategy
14
Social Contribution and environmental production 16
Financial Section 17Board of Directors 55Investor Information 55
Contents
GlOBAl pReSenCeAs a comprehensive cutting tool manufacturer, we make products that at a
fundamental level contribute to enhancing people’s quality of life. through
continuous growth, we have established a production, sales and technical
support network spanning 29 countries. Our corporate aim is to continue
to expand our operations globally and strengthen our contribution to the
manufacturing industries in the world.
tOOl COmmunICAtIOnto OSG, there is a close link between tools and communication. not only
is active two-way communication with customers an essential part of our
product development, it is also vital when we assist them in the selection and
application of tools, and provide after-sales service. thus, communication is
key to the success of our operations and to our commitment to develop ever-
better products. moreover, the excellent results brought by the use of high-
quality tools help to enhance business relationships.
Cautionary StatementWe would like to advise you that some forward-looking plans, prospects, and strategies, etc. written in this Report that are not historical facts have the possibility of including risk and uncertainties caused by future changes of surrounding circumstances. We would appreciate your understanding that actual results may differ from plans, prospects and strategies, etc.
Despite an overall recovery trend in the world
economy, the business environment remained
uncertain in fiscal 2013 (December 1, 2012 to
November 30, 2013) because of factors that
included lingering fears of stagnation in Europe. We
increased our sales for the fourth consecutive year,
thanks to aggressive marketing activities and market
development efforts involving the entire OSG Group
under our three-year management plan The Next
Stage 11 (2011–2013).
Under our policy on shareholder returns, which
calls for the maintenance of a consolidated payout
ratio of 30% or higher, we set the dividend for fiscal
2013 at ¥30 per share. This consisted of an interim
dividend of ¥10 and a final dividend of ¥20,
including a commemorative dividend of ¥3.
In the coming fiscal year, we will continue our
efforts to achieve sustainable growth and improve
our corporate value under our new three-year
management plan The Next Stage 14 (2014–2016).
Under this plan, we aim to achieve net sales of
¥100 billion in fiscal 2016 by developing major
users, especially in overseas growth markets, while
also bringing competitive products to market. We
have a long tradition of developing advanced
technology, and we will continue our efforts to
improve and refine that technology. Our commitment
to working with customers to find solutions to
problems will also never change.
OSG will continue to contribute to the world’s
manufacturing industries by creating high-added-
value product lines based on our state-of-the-art
technology. Our management approach will continue
to be guided by our sincere determination to
enhance the value and attractiveness of OSG for all
stakeholders. We look forward to the continuing
support and understanding of our stakeholders.
Teruhide OsawaChairman and CEO
Making new things happen for customersAs we move into the new management plan, We will accelerate our business development in overseas markets while continuing to deliver sustainable growth.
To Our Shareholders
01
Speed, Support, Solutions
1 BuSineSS MOdel Business Characteristics
OSG’s, production, sales and engineering
organizations work closely together to offer
optimal tools and processing methods to
suit each customer’s cutting environment.
We will continue to respond to the expec-
tations of our customers as a provider of
total solutions for all cutting-related
needs, including the provision of environ-
ment-friendly in-house regrinding and
recoating services, the improvement of
customers’ processes and cost reduction.
Winning and keeping customers with total cutting solutions
02
Business base Manufacturing and business base
ASiA
• 1970 Taiho Tool (Taiwan)• 1985 OSG Korea• 1990 OSG Asia (Singapore)• 1996 OSG THAi• 1997 dabao (dongguan) Tool (China)• 2001 OSG Shanghai• 2001 Carbide Cutting Tool (india)• 2004 OSG (Shanghai) Precision Tools• 2005 OSG indiA• 2007 OSG indOneSiA• 2007 ningbo Taiho (China)• 2007 OSG TRAdinG SHAnGHAi• 2008 OSG Vietnam• 2008 FudiAn (China)• 2008 KunSHAn TAiHO (China)• 2008 OSG Philippines• 2011 TAiHO COATinG (Taiwan)
euROPe
• 1997 OSG europe (Belgium)• 1997 OSG Belgium• 1997 OSG France• 1997 OSG nederland (netherlands)• 1999 OSG uK• 2000 OSG Scandinavia (denmark)• 2002 OSG Comaher (Spain)• 2003 OSG GmbH (Germany)• 2003 OSG iTAliA (italy)• 2012 Romsan international (Romania)• 2012 OSG POlAnd• 2012 OSG TuRKeY
THe AMeRiCAS
• 1968 OSG Tap & die (uSA)• 1974 OSG Sulamericana de Ferramentas
(Brazil)• 1988 OSG Canada• 1994 OSG Royco (Mexico)• 2004 OSG-Sterling die (uSA)• 2008 OSG de ARGenTinA
Closer to Customers
2 GlOBAl neTWORK Business Characteristics
expansion of Overseas Business
With production facilities in 15 countries around the world, OSG has estab-
lished a stable and efficient product supply system for global markets. in
addition, our global network of sales offices in 29 countries is structured to
both monitor customer needs in each country and also supply products with
the shortest possible delivery lead times. We will also continue to expand
and enhance our other services, such as regrinding and recoating, while
working as closely as possible with our customers to provide comprehensive
after-sales services and offer technology solutions.
enhancing customer satisfaction with our global support system
03
3 PROduCT deVelOPMenT CAPABiliTieSBusiness Characteristics
Cutting Edge Tools
Throughout its 75-year history, OSG has
continually worked to improve its cutting
tool processing technology. Our focus
today is the development of new products
tailored to customer needs, including
products based on our unique diamond
coating technology, as well as environ-
ment-friendly products. Other examples of
the application of advanced OSG technol-
ogy include our success in ensuring
consistent durability in products pro-
cessed using our recoating and regrinding
services. OSG will continue to use its
proven technological capabilities to build
customer confidence and enhance its
reputation by creating tools that provide
world-class quality and performance.
using advanced technology to solve customers’ problems
04
Cutting Edge Tools
Taps are used to cut screw threads on the inside surfaces of holes, creating the “female” half (nut) of the screw. High precision is of vital importance, particularly in areas such as automotive engines, which require precision screws. We offer a lineup of taps with diameters ranging from small to large and with specifications suitable for a wide variety of uses. We have the top market share for taps not just in Japan but also in the world.
End Mills
Rolling diEs
gaugEs and othER PRoducts
dRills
taPs
Drills are used to make holes in a wide range of surfaces. We have received high acclaim for our development of high-precision, high-value-added products for use in automotive and aircraft part manufacture, which demands advanced processing techniques and zero margin of error.
End mills are used to cut and contour molds for plastic parts, for instance for electric home appliances, as well as die-casting dies for automotive parts and stamping molds. To meet today’s demanding requirements, such as smaller size, lower weight and reduced cost, we are currently focusing on developing new products that utilize our advanced proprietary coating technology.
Thread rolling dies are used to copy threading onto metal bars to make “male” screws (bolts); the process consists of rolling the bar between two thread rolling dies tightly pressed to each side. OSG manufactures cylindrical and flat rolling dies for screws, worms and serrations, thread rolling planetary dies and counter-flow rolling dies, in accordance with their intended use.
Gauges are used to inspect the final dimension of holes and threads. We started to market screw thread gauges for ISO-class specifications soon after JIS (Japan Industrial Standards) introduced the ISO gauge standard. OSG provides not only gauges but also a gauge calibration service to meet customer demand.
’10’09
’09
16.9
’11
23.2
11.8
’10
16.3
’09
’09
’09
12.9
’10
16.2
4.7
’10
6.7
’10
0.9
6.1
7.0
’12 ’13
’13
’13
’13
’13
28.9 29.4 28.9
’11
18.3 19.8 20.7
’12
’11
17.8
’12
18.520.9
’11
7.1 7.3 7.7
’12
’11
1.1
6.1
1.1
7.8
7.28.9
1.2
7.9
9.1 1.2
9.0
10.2
’12
Gauges Other products
net Sales (Billions of yen)
net Sales (Billions of yen)
net Sales (Billions of yen)
net Sales (Billions of yen)
net Sales (Billions of yen)
No.1Global Sales
No.1Global Sales
No.1Global Sales
Europe The AmericasAsiaJapan
Overseas Sales Ratio9%
18%
26%
47%
Sales by Industry
Automotive industryAerospace industryMold and die industryPrecision instrumentsOther
54%
8%
12%
7%
19%
% of Net Sales
TapsDrillsEnd millsRolling diesGauges and other products
33%
23%
24%
9%
11%
The OSG Group will continue to offer
products with high-added value to
meet the expanding global demand for
tools. We will also continue our efforts
to achieve high levels of customer sat-
isfaction by providing reliable services
based on a strong commitment to
customer perspectives.
OSG at a Glance
05
Millions of yenThousands of U.S. dollars
FOR THe YeAR: 2013 2012 2013
Net sales ¥ 88,379 ¥ 84,084 $ 866,461
Domestic 41,106 43,686 403,000
Overseas 47,273 40,398 463,461
Operating income 12,827 13,954 125,755
Net income 8,619 7,138 84,500
EBITDA 19,544 19,642 191,608
EBITDA margin 22.1% 23.4%
AT YeAR-end:
Total assets ¥ 134,503 ¥ 121,690 $ 1,318,657
Total equity 87,622 71,471 859,039
PeR SHARe: Yen U.S. dollars
Net income ¥ 90.76 ¥ 75.16 $ 0.89
Diluted net income 82.80 70.67 0.81
Cash dividends applicable to the year
30.00 23.00 0.29
Payout ratio 33.1% 30.6%
Equity ratio 59.5% 53.0%
net Sales (Millions of yen)
Net sales increased by 5.1% year on year, thanks to a resurgence of produc-tion in the automotive industry.
Operating income and Operating income Margin (Millions of yen/%)
Sluggish tool demand caused a decline in factory operating rates in the first half of the year, with the result that operating income was 8.1% down year on year.
53,326
69,513
88,37984,084
▲2,735
7,525
12,827
12,831
19,54419,642
3,113
▲5.1
10.815.2 16.6 14.5
12,30513,95480,959
Operating IncomeOperating Income Margin
EBITDA EBITDA Margin
Total EquityEquity Ratio
17,962
22.2
61,735 63,163 65,348
87,622
71,471
’09 ’10 ’11 ’12 ’13’09 ’10 ’11 ’12 ’13
’09 ’10 ’11 ’12 ’13’09 ’10 ’11 ’12 ’13
5.8
18.5
23.422.1 56.949.3
54.1 53.0
59.5
eBiTdA and eBiTdA Margin (Millions of yen/%)
Lower operating income was reflected in a 1.3 percentage point decline in the EBITDA margin year on year.
Total equity and equity Ratio (Millions of yen/%)
An increase in retained earnings caused the equity ratio to increase by 6.5 percentage points year on year.
* 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 US$1=¥102.
Financial Highlights
06
Norio IshikawaPresident and COO
Would you summarize and assess
your financial results for the year
ended november 2013?
Fiscal 2013 (December 1, 2012–
November 30, 2013) was the final
year of our outgoing three-year management plan,
The Next Stage 11. We implemented various
initiatives to achieve our targets of net sales of
¥90 billion and operating income of ¥15 billion.
I will sum up our results for fiscal 2013
quarter by quarter. Net sales stagnated in the
first quarter because of a decline in automobile
production after September 2012 and worsening
Japan-China relations, which caused a downturn
in production by Japanese-owned vehicle
manufacturers who operate in China. Another
factor was the lower-than-normal number of
operating days in Europe and North America.
Changing faster than the products we shape
“Our entire organization is working with renewed determination to achieve our goal of building OSG into a global player with sales of ¥100 billion.”
An interview with the President
Q.1
A.1
07
However, both orders and net sales began to
recover strongly in the second and subsequent
quarters. The financial results also benefited
from exchange rate movements, and net sales
were 5.1% higher year on year at ¥88 billion.
Income was affected by a reactionary decline in
sales of taps, which are a core product category,
following price increases implemented in June
2012. This downswing lasted longer than
anticipated and was reflected in a lower operating
rate for our tap manufacturing operations. As a
result, operating income was 8.1% lower year on
year at ¥12.8 billion.
While the targets in our three-year management
plan were not achieved, I believe that in real
terms, after the elimination of exchange rate
factors, our net sales and income largely recovered
to the pre-Lehman Shock levels recorded in fiscal
2008. I also see fiscal 2013 as a year in which the
benefits of the various initiatives undertaken
during the previous three-year management plan
started to become apparent.
Can you provide some specific
examples of your initiatives under the
previous three-year management plan?
Our priority themes under the plan
were the expansion of our customer
base in key industrial markets, the expansion of
our capacity to win orders in Asia and the
expansion of our product line-up. We worked
steadily to achieve these goals. Our efforts to
build our customer base in key industrial markets
resulted in substantial growth in sales not only to
automobile manufacturers, which have
traditionally been major customers, but also to
the aerospace industry.
In addition to increased domestic demand
relating to production of the Boeing 787, we also
expanded production and strengthened our supply
systems for aerospace-related tools in the United
States. At the same time, we strengthened our
marketing and technical support structures.
These efforts steadily raised the presence of OSG
across a wide range of aerospace-related
industries in the United States.
Besides our existing major markets, such as
China and South Korea, our efforts to expand our
capacity to win orders in Asia also included
determined marketing activities in Thailand,
Vietnam, Indonesia and India. One of our
advantages in Asian markets is the diversification of
the level of our operations in each country according
to market characteristics. In 2013, we started up a
Q.2
A.2
FY 2008 Result FY 2013 Result
Sales ¥97,024 ¥88,379
Operating income ¥14,416 ¥12,827
Net income ¥ 7,376 ¥ 8,619
Net income per share (yen) ¥ 76.53 ¥ 90.76
Average exchange rate* (1 USD) ¥107.32 ¥ 93.16
FY 2008 Result vs FY 2013 Result (Millions of yen)
* October 1 to September 3008
regrinding plant in Vietnam, an inventory center in
Thailand, a regrinding plant in Indonesia and a tap
factory in India as part of our continuing efforts to
differentiate OSG from its competitors by creating
structures capable of providing a fine-tuned
response to user needs in each country.
Our efforts to expand our product line-up
included further improvements to the OSG
Phoenix range of indexable tools and the
enhancement of our range of diamond coated
tools for use in aerospace manufacturing. We
also continued to develop products with the
potential to become growth drivers, such as the
new A-TAP Series. Although the A-TAP Series are
standard catalog items, they provide considerable
added value.
We made significant progress through these
initiatives based on priority themes under our
previous three-year plan. In particular, we
achieved a major improvement in our global
competitiveness. In doing so, we strengthened
our ability to win orders. We differentiated our
products from those of our competitors. We built
up the local organizations of our overseas
businesses and we strengthened our capacity to
meet the needs of customers in overseas markets.
I believe that these achievements have brought
us much closer to the realization of our three-year
vision of building a global presence and becoming
a global player with net sales of ¥100 billion.
Fiscal 2013 was also a year in which a key
challenge facing OSG came into sharper focus.
How would you define that key
challenge?
The challenge that became apparent
in fiscal 2013 was the time required
to carry out the inventory adjustments
necessitated by slower sales of standard catalog
items. This resulted in lower operating rates in
our production facilities, and reduced income.
Now, to understand why this challenge was so
important to us, the source of our strength has
always been our business approach as a company.
Whether in Japan or overseas, we respond to the
needs of major users of our products through the
combined efforts of our engineering, sales and
production organizations. This approach has
allowed us to win major customers worldwide.
Under the previous three-year plan, we
successfully sowed seeds that we expect to
produce a major harvest in the form of increased
orders in the years ahead.
Most of the products that we supply to major
users are specialty items, for which inventory
requirements are minimal. However, small and
mid-size users inevitably rely on standard catalog
items, which they purchase through various
distributor networks or by means of on-line
ordering. Japanese small and mid-size companies
are currently shifting their production facilities
from Japan to other countries, especially in Asia.
This is the source of the challenge, and to
Q.3
A.3
in addition to increased domestic
demand relating to production of
the Boeing 787, we also expanded
production and strengthened our
supply systems for aerospace-
related tools in the united States.
“
”
09
Management Vision
FY2014–FY2016 Three-year Management Plan
The next Stage 14
address it, we need to develop sales and
distribution structures in Asia to supply standard
catalog items to these companies. That process
began in August 2013 with the opening of a new
inventory center in Thailand. The new facility is
stocked with a full range of 10,000 general-
purpose items to meet the needs of local small
and mid-size customers. As a result, we are now
able to fulfill orders in Thailand within one day,
compared with a one-week delivery lead time
when the products were sourced from Japan.
We also took steps to enhance the
competitiveness of our standard catalog items,
which we class as “flagship products.” OSG is
developing high-quality flagship products based
on the latest technology, while also keeping costs
low. Our aim is to secure market share in the
high-volume segments of the market. The first
products developed under this strategy were the
A-TAP series, which went on sale in July 2013.
This flagship product strategy will be a key
component of the new three-year plan that will
commence in fiscal 2014.
Would you provide an overview of the
new three-year management plan?
I will begin by stating our long-term
vision. Our vision is to make OSG the
world’s leading manufacturer of hole-making
cutting tools. Toward that goal, we are on track to
become a global player with sales of ¥100 billion
when the plan ends in 2016.
The main purpose of this plan is to define the
strategies needed to implement the long-term
vision. Our basic strategies are the development
of major users and the flagship product strategy.
In the areas of technology and manufacturing, we
Q.4
A.4
We will continue to build our
overseas business network
on a global scale through the
development of structures based
on the integration of engineering,
production and sales.
“
”
Global top market share in taps,end mills, drills, and rolling dies
Operating income margin of 20%
Consolidated net sales ¥100 billion
Consolidated operating income ¥17 billion
Long-term vision: The global top manufacturer of hole-making cutting tools
Three-year vision: The key global player with ¥100 billion in sales
Management Target for FY2016
10
also aim to strengthen our original core
technologies and build production capacity in
optimal locations in overseas markets. Through
these strategies, we will move forward steadily
toward our goal of becoming the world’s leading
manufacturer of hole-making tools.
In the year ending November 2016, which
will be the final year of the plan, our specific aim
is to achieve net sales of ¥100 billion and
operating income of ¥17 billion.
What initiatives will you undertake in
the first year of the plan?
In fiscal 2014 (the year ending
November 2014), we will invest
approximately ¥300 million in a project that will
double the present capacity of our factory in
Thailand by the fall of 2014. Depending on order
trends, we will then consider investing in further
expansion. In addition, we will use the
aforementioned inventory center in Thailand to
achieve dramatic growth in sales in Thailand.
We also plan to quadruple production capacity
at the new plant that we completed in Germany
in April 2013. This will further strengthen our
ability to supply tools to Europe’s expanding
automotive industry.
Our factory in Shanghai, China will switch to
the production of tools for the automotive
industry. In addition, we will step up our efforts
Q.5
A.5Q.6
A.6
Basic Strategies
The next Stage 14
1. development of new Customers
2. Flagship Product Strategy
l�Offer the best solution to each cus-tomer as a comprehensive cutting tool manufacturer
l�Provide high-value added products using the latest technology
l�Expand face-to-face business on a global basis
l��Launch new products in target high-volume market segments to increase market share
l�Expand the global sales network for enhancement of order in take
l�Enhance OSG’s brand value in the global market
to increase sales of standard catalog items to
local companies. We will also strengthen
production and sales of standard catalog items at
our new tap factory in India, which was completed
in November 2013.
At the same time, we will continue to build
our overseas business network on a global scale
through the development of structures based on
the integration of engineering, production and
sales. We expect these initiatives to result in net
sales of ¥96 billion and operating income of ¥15
billion in fiscal 2014.
To conclude, would you comment on
your future financial strategy?
We always take the cash flow position
into account in our management
decisions. Our financial performance has
improved steadily since the Lehman Shock, and
we have made good progress with our efforts to
strengthen the company’s financial structure.
In addition to our ongoing commitment to a 30%
dividend payout ratio, our capital policy also calls
for active capital investment to support
continuing growth and for the maintenance of a
sound financial structure through the
accumulation of equity. We aim to develop a
flexible financial strategy that also encompasses
mergers and acquisitions.
11
Making new things happen
Business Expansion in South Asia Markets
OSG aims to expand its business activities in South Asia through aggressive management policies targeting growth markets.
in recent years, South Asia has emerged as the world’s workshop for a
wide spectrum of manufacturing industries. OSG has identified Asia as a
key growth market under its new three-year management plan, The next
Stage 14, and aims to differentiate itself from its competitors by further
strengthening its capacity to win orders. Management resources will be
aggressively invested in the South Asia Block, which consists of South-
east Asia, india and the Middle east.
Japanese motorcycle and car manufacturers are relocating their manufactur-
ing operations to the South Asia Block at an accelerating pace. There is also
a tendency toward increased local sourcing of parts by these manufacturers,
and the quantities of parts supplied by small and mid-size companies in the
region is expected to expand.
OSG is responding to this situation by adopting a production strategy based
on increased local manufacturing of parts to meet local needs in each market
and by expanding its capacity to restore the cutting edges of used tools to the
same condition as new products through its regrinding and recoating services.
OSG’s sales strategy meanwhile emphasizes the expansion of its network of
sales offices to support a catch-up process based on direct contacts with
users. Another priority will be the restructuring of the distribution organization
to accelerate sales of standard catalog items. These initiatives will allow us to
respond effectively to demand for tools from small and mid-size local compa-
nies, which need the ability to cope with urgent orders.
In January 2013, OSG began to provide regrinding and recoating services
1Special Feature
12
OSG aims to expand its business activities in South Asia through aggressive management policies targeting growth markets.
Tap Factory in india
OSG has commenced production of taps in India. Taps produced to European specifica-tions are manufactured at our Manesar Fac-tory near Delhi, which also regrinds rolling dies. In addition to the Manesar Factory, OSG operations in India also include Car-bide Cutting Tool PVT, Ltd. (CCT), which produces carbide end mills and drills in Kolkata, and a regrinding facility in Pune.
inventory Center in Thailand
OSG’s new inventory center, which is based in a building con-taining the offices of several Japanese tool trading companies, is stocked with supplies of the main standard catalog items. Also located in the in-ventory center is a sales office serving the north-east area of Bangkok. It follows a sales office opened in Amata in 2013 as our third busi-ness site in Thailand.
Regrinding Factory in Vietnam
OSG has started to provide regrinding and recoating services for cutting tools at a facil-ity located in Ha Nam Province on the out-skirts of Hanoi. OSG is achieving sustained growth as the pioneer in this market.
Regrinding Factory in indonesia
Located in Karawang on the outskirts of Jakarta, the factory regrinds drills and end mills for specific users. There is fierce competition in Indonesia. However, OSG sees significant poten-tial in this market and will continue to invest aggres-sively in order to expand sales in Indonesia.
in Vietnam. In July it opened its fourth sales office in Vietnam in the central
city of Da Nang. In Thailand, we opened a new inventory center in August
2013 and commenced a factory expansion project in October. In Indonesia,
regrinding business began in September 2013, while in India, a tap manu-
facturing operation was launched in October. In 2014, OSG Asia is planning
to open a branch in Dubai in preparation for market development in the
Middle East, Central Asia and Africa.
We are determined to expand our market share by adapting our business
activities to changes in global manufacturing markets, and we will continue
to invest in growth markets.
13
Making new things happen
Dynamic Implementation of Flagship Product Strategy
2Special Feature
We will also target high-volume market segments by dynamically implementing our flagship product strategy.
OSG has excelled as a supplier of specialty products, which are high-
quality order-made items produced to meet a customer’s particular
need. Products in this category require a full range of services, in-
cluding after-sales services. However, we have experienced challenges
in the other side of our business, which consists of sales of standard
catalog items. under our new three-year management plan, The next
Stage 14, we will roll out a flagship product strategy designed to ex-
pand sales of standard catalog items and enhance our competitive-
ness as a comprehensive cutting tool manufacturer. That approach
will begin in fiscal 2014.
The aim of our flagship product strategy is to expand the market share of
OSG products in high-volume markets, where tool use is higher. We will
achieve this through a product strategy designed to raise the quality of our
products to a higher level through product reviews starting with basic tech-
nologies. At the same time, our sales strategy will consist of lowering prices
for our products. By supplying high-quality products at competitive prices,
we will encourage small and mid-size companies worldwide to use a wider
range of OSG’s high-quality cutting tools, thereby expanding sales of stan-
dard catalog items.
For the first time in approximately 20 years, OSG has updated the specifi-
cations for its standard catalog taps to create a new premium brand mar-
keted as the A-TAP Series. OSG has manufactured taps since its establish-
ment and today commands the biggest global market share. For the A-TAP
14
We will also target high-volume market segments by dynamically implementing our flagship product strategy.
Series development project, we went back to the very basics of cutting
technology and worked to optimize the most fundamental aspects of our
manufacturing processes. This work was guided by our determination to
ensure that the quality would be worthy of a number one share of the world
market. This project involved intensive research efforts by our design, devel-
opment and manufacturing teams, including the development of many core
technologies and systems to meet rigorous manufacturing standards. The
work culminated with the development of products capable of providing far
superior performance.
Full-scale sales of the OSG Phoenix Series of premium brand indexable
tools first began in 2012. The series includes tools for a wide range of
purposes from roughing to finishing. We also aim to expand sales of other
products based on original OSG technology, including PXD exchangeable
head drills and PXM exchangeable head end mills.
Moving forward, we will work to build our other products, including drills,
end mills, rolling dies and gauges, into flagship series with the potential to
become best sellers for OSG.
A-TAP Series
The A-TAP Series products embody knowledge built up during the 75-year history of OSG. These are revolutionary products that combine reliable cutting chip discharge performance with a wide variety of cutting speeds, a long tool life and the capac-ity to handle a large range of work materials and machinery.
OSG Phoenix Series
OSG first moved into the indexable tool market globally in earnest in 2012. Since then our Phoenix Series products have continued to evolve, and today we offer diverse combinations of bodies and chips to suit processing needs ranging from roughing to finishing.
Phoenix Finishing Radius End MillSpiral Fluted Tap
Phoenix Exchangable Head Drill
Spiral Pointed Tap
15
Following the establishment of a three-point declaration in 1996, in which the Company set out
to become a “Global Presence,” an “environment-friendly Company” and a “Promoter of Total
employee Health,” OSG has actively engaged in environmental protection activities.
Promotion of Carbide Tool Recycling
effective utilization of Valuable Resources
OSG is contributing to the creation of a recycling-oriented society by recovering
valuable resources through group-wide efforts to promote the reuse of valuable
resources by means of carbide tool recycling. The raw materials for carbide tools
include rare resources, such as tungsten and cobalt. OSG is working with product
recovery company NH Techno Co., Ltd. and carbide alloy material manufacturer
Nihon Hardmetal Co., Ltd. to recover used tools so that the valuable materials
they contain can be recycled and effectively reused.
NH Techno Co., Ltd.(Product recycling)
Rare metalTungsten
Refineries andmanufacturers
Nihon Hard MetalCo., Ltd.
(Carbide compoundmaterial manufacturer)
OSG(Carbide tool
manufacturer)
Customers(Carbide tool users)
End-of-life carbide toolsSludge
End-of-life carbide tools
Sludge
MaterialsProductsCollection
Recycling end-of-life Products
Material Conservation
new Modular System Reduces Waste
OSG has developed PXM exchangeable head end mills. Comparable to solid
end mills in terms of accuracy and rigidity, they are configurable for various
processes simply by selecting
heads and bodies. Because
bodies are reusable, there is
substantially less waste compared
with solid end mills. This tool is
also very operator-friendly, thanks
to the greater ease of mounting
and removal.
Regrinding and Recoating
used Tools Restored to Same Sharpness as new Products
Tool reconditioning services provided by the OSG Group restore used tools to the
same sharpness as new products. Because even worn cutting tools and rolling dies
can be restored to new condition, reconditioning is more economical for customers
than the purchase of new tools. Reconditioning also helps to reduce waste and
ensure effective utilization of limited natural resources, including the rare metals
used in the manufacture of tools. With regrinding facilities in 14 overseas countries,
the OSG Group can respond to customer needs worldwide.
Before After
Social Contribution and environmental Production
OSG PHOeniX: PXM Series
16
Financial Section
contents
18 Five-year summary
19 corporate Governance
20 Business Risks and other Risks
21 Management’s Discussion and Analysis
24 consolidated Balance sheet
26 consolidated statement of Income
27 consolidated statement of comprehensive Income
28 consolidated statement of changes in equity
29 consolidated statement of cash Flows
30 notes to consolidated Financial statements
54 Independent Auditor’s Report
17
Millions of yen Thousands of U.S. dollars
FoR the YeAR 2009 2010 2011 2012 2013 2013
Net sales ¥ 53,326 ¥ 69,513 ¥ 80,959 ¥ 84,084 ¥ 88,379 $ 866,461 Domestic 26,745 35,701 40,696 43,686 41,106 403,000 Overseas 26,581 33,812 40,264 40,398 47,273 463,461
Cost of sales 39,203 44,605 48,439 49,382 52,777 517,422 Selling, general and administrative expenses 16,858 17,383 20,215 20,748 22,775 223,284 Operating income (loss) (2,735) 7,525 12,305 13,954 12,827 125,755 Net income (loss) (3,770) 3,773 5,905 7,138 8,619 84,500
At YeAR-enDTotal assets 113,382 105,636 104,374 121,690 134,503 1,318,657 Total equity 61,735 63,163 65,348 71,471 87,622 859,039
PeR shARe Yen U.S. dollars
Equity 582.19 601.44 625.14 679.01 842.71 8.26 Net income (loss) (39.22) 39.34 62.18 75.16 90.76 0.89 Diluted net income — — — 70.67 82.80 0.81 Cash dividends 3.00 12.00 18.00 23.00 30.00 0.29
eBItDA Millions of yen Thousands of U.S. dollars
EBITDA 3,114 12,833 17,962 19,642 19,544 191,608 EBITDA margin (%) 5.8% 18.5% 22.2% 23.4% 22.1%
MAjoR oPeRAtInG RAtIoEquity ratio (%) 49.3% 54.1% 56.9% 53.0% 59.5% Return on equity (%) (6.3%) 6.7% 10.1% 11.5% 11.9%
sAles BY PRoDuctsCutting tools:
Taps 16,934 23,159 28,906 29,379 28,924 283,569 End mills 12,917 16,199 17,838 18,473 20,858 204,490 Drills and other cutting tools 11,771 16,266 18,285 19,839 20,725 203,186
Total 41,622 55,624 65,029 67,691 70,507 691,245 Rolling dies 4,669 6,664 7,067 7,281 7,682 75,314 Gauges 877 1,085 1,137 1,176 1,232 12,078 Other products 6,158 6,140 7,726 7,936 8,958 87,824
Total ¥ 53,326 ¥ 69,513 ¥ 80,959 ¥ 84,084 ¥ 88,379 $ 866,461
Five-year summary
18
Basic Philosophy
Our fundamental management policy calls for fair and
transparent business activities in compliance with
regulatory requirements and guided by a social
conscience. We believe that this approach to business
contributes to sustainable corporate growth and the
enhancement of corporate value.
Good corporate governance is essential to the
achievement of this goal, and we regard the continuing
improvement of governance as a vital management
priority. Related policies include the establishment of
efficient and transparent management structures, and
the development of systems to ensure the prompt and
fair disclosure of accurate information.
One of the tools that we use to strengthen our
corporate governance is the OSG Philosophy, a specific
code of conduct designed to raise our corporate ethical
standards. We improve compliance awareness and
contribute to society in general by disseminating the
OSG Philosophy to all directors, auditors, executive
officers and employees of OSG Group companies,
including OSG Corporation itself.
Development of corporate Governance and
Internal control systems
1. corporate Governance structure
OSG is structured as a company with auditors. We
have 11 directors, including one appointed from
outside of the Company, and four corporate auditors,
including two appointed from outside of the Company.
The Board of Directors normally convenes once a
month, but special meetings may be held if required.
Directors deliberate on important matters and make
management decisions. They also supervise the
performance of business operations. We have set the
term of office for directors at one year to maintain the
vitality of the Board.
We have introduced an executive officer system to
clarify operational executive functions and
responsibilities, ensure an appropriate response to
changing business conditions, and improve speed and
flexibility in the performance of business operations.
Monthly meetings of the Management Committee,
which consists of directors, executive officers and heads
of divisions, are forums for lively discussion. The
meetings are used to disseminate management policies
and business plans adopted by the Board of Directors,
and to receive reports about business operations from
executive officers and heads of divisions.
2. Reasons for Adopting this structure
By establishing these systems, we have enhanced the
decision-making functions of the Board of Directors
and its capacity to supervise operational
performance. The resulting structure has also
improved management efficiency and given us the
capacity to make management decisions that are
both appropriate and strategic.
Management supervision is provided by four
corporate auditors, who audit the performance of
directors’ duties and business operations, as well as
the financial situation. Two of the four auditors are
appointed from outside of the Company. Both have
submitted notifications as independent officers under
the listing rules. The presence of these outside
auditors creates an environment in which there is
effective management supervision from outside of the
Company. On this basis, we believe that our corporate
governance structure is capable of verifying and
ensuring appropriate and transparent management.
3. Internal control systems
To strengthen OSG’s internal control systems, in June
2006 we established a Management Audit Section that
reports directly to the President. We have also taken
steps to ensure compliance with laws, regulations and
the Articles of Incorporation by developing internal
regulations, including rules on corporate ethics and
risk management under the Basic Policy on Internal
Control Systems, which was adopted by the Board of
Directors in May 2006. Through these efforts, we
maintain internal control systems capable of earning
and retaining the confidence of our stakeholders.
4. Risk Management systems
We strive to maintain high standards of management
transparency and fairness through timely disclosure.
We have also established risk management regulations
as a framework for our efforts to maintain financial
soundness and good business ethics. To ensure
effective and efficient risk management under these
regulations, we have established a Risk and
Compliance Management Committee, which formulates
basic risk management policies and systems, assesses
the significance and urgency of risks, and considers,
adopts and implements timely countermeasures.
Internal Audits, Audits by corporate Auditors,
Independent Audits
1. Internal Audits
The mission of the two-member Management Audit
Section is to verify that the business operations of the
OSG Group are performed in an appropriate manner. It
regularly checks compliance with management
policies, internal regulations and other requirements.
The Management Audit Section also works with the
Corporate Auditors and independent auditors to
improve internal control functions by ensuring the
soundness of business activities and the reliability of
financial reports.
2. Audits by corporate Auditors
The corporate auditors attend important meetings,
including meetings of the Board of Directors, to audit
decisions and monitor the performance of directors.
They formulate audit policies and plans based on
standards established by the Board of Corporate
corporate Governance
19
Auditors and audit the Company’s operational and
financial situation. When necessary, the corporate
auditors also obtain business reports from subsidiaries.
The task of the two outside auditors is to strengthen
management supervision and ensure transparent and
appropriate management. They also enhance
management supervision by sharing information with
the standing auditors and independent auditors.
3. Independent Audits
We have an audit agreement with Deloitte Touche
Demand Risks Arising
from the economic situation in the Market
The products of the OSG Group are used in a wide
range of industries, and sold in Japan, other Asian
countries, Europe and the Americas. The Group’s
business performance and financial position could
therefore be affected by reduced demand in the
relevant industries, and by economic recessions in
Japan and other parts of the world.
Risks Relating to exchange Rate Fluctuations
The OSG Group uses forward exchange contracts to
hedge against the risk of exchange rate fluctuations.
However, it is possible that the Group’s business
performance and financial position could be affected
by exchange rate fluctuations.
Risks Relating to changes in Raw Material Prices
The main products of the OSG Group are cutting tools,
made primarily from carbide alloys, high-speed steel
Tohmatsu, which provides independent audit services.
In accordance with the audit plan, the independent
auditors audit the accounts of the parent company and
subsidiaries and discuss their findings with
management. Reports are regularly submitted to the
corporate auditors.
outside Director and outside corporate Auditors
OSG has appointed an outside director, who is
strengthening our supervisory functions by providing
appropriate opinions and advice from an independent
perspective concerning the management of OSG. We
have also appointed two outside corporate auditors to
ensure the independence and objectivity of the audit
activities of corporate auditors. These people bring
extensive experience and sophisticated insights to
their work in auditing the performance of duties by
both the board of directors and individual directors.
and die steel. The raw materials used include rare
metals, such as cobalt, vanadium, molybdenum and
tungsten. Rare metals must be obtained from a limited
range of sources and suppliers, and market prices can
fluctuate dramatically. Such fluctuations may affect
the procurement costs of the OSG Group.
We endeavor to reflect raw material price increases in
our product prices. However, this could affect the Group’s
business performance, since there may be a time lag
between increases in raw material prices and adjustments
to selling prices, and because it is not always possible to
fully pass on increases in raw material prices.
Risks Relating to overseas Business expansion
Major users in automotive industries and other sectors
are relocating operations overseas. The OSG Group is
responding by developing business operations in the
Americas, Europe, Asia and elsewhere, and by
establishing production and sales systems in optimal
locations close to its markets. The business
performance and financial position of the OSG Group
could be affected if its operations are impeded as a
result of changes to legal and tax systems or shifts in
social and political conditions in other countries.
Risks Relating to Price Fluctuation of
Marketable securities
The OSG Group owns marketable securities, such as
stock. The business performance and fiscal position of
the OSG Group could be affected if the price of these
securities falls.
Risks Relating to earthquakes and
other natural Disasters
The head office and production and R&D facilities of
the OSG Group are concentrated in the Higashi-
Mikawa district of Aichi Prefecture. The business
performance and fiscal position of the OSG Group
could be affected if this area is struck by a natural
disaster, such as a major earthquake.
Business Risks and other Risks
20
overviewnet sales
The key factors affecting the world economy in fiscal
2013 (December 1, 2012 to November 30, 2013) were
continued growth in China and Asian emerging
economies, albeit amid signs of a slowdown, and the
strong performance of the U.S. economy, which
benefited from buoyant consumer spending. There
were also indications that Europe was about to emerge
from prolonged stagnation. In Japan, the correction of
the overvalued yen was reflected in rising expectations
of an improvement in business performance, and both
consumption and production activity rallied.
Market conditions for the cutting tool industry were
affected by production cutbacks implemented by the
automotive industry in 2012. While this was reflected
in slow demand for machine tools in the early months
of 2013, however, demand gradually recovered, and
market trends were generally firm.
The financial performance of the OSG Group
slowed in the first quarter because of a combination of
factors, including the termination of Japan’s eco-car
subsidy scheme, tensions between Japan and China,
and economic stagnation in Europe. However, dynamic
global marketing of our machine tools, especially to
the automotive and aerospace industries, produced a
recovery in our performance, and overall trends
net sales (Billions of yen)
cost of sales (Billions of yen)
operating Income (loss) (Billions of yen/%)
net Income (loss) (Billions of yen/%)
remained firm in the second and subsequent quarters.
The results for the whole of the fiscal year were
strongly influenced by slower performance in the
Japanese market during the early months of the year,
and by the effects of exchange rate movements.
Consolidated net sales for fiscal 2013 were 5.1%
higher year on year at ¥88,379 million. The overseas
sales ratio rose by 5.5 percentage points to 53.5%. In
addition to lower sales in the Japanese market, this
increase also reflects higher sales in the Americas and
Europe on a local currency basis, as well as the effect
of exchange rate movements on foreign currency
translations.
costs and Profits
Higher net sales were reflected in the cost of sales, which
increased by 6.9% year on year to ¥52,777 million. The
cost of sales ratio deteriorated by 1.0 percentage points,
from 58.7% to 59.7%. The main reason for this was a
decline in operating rates at production sites in Japan
and overseas due to reduced demand.
Selling, general and administrative expenses
increased by ¥2,027 million over the previous year’s
level to ¥22,775 million because of higher figures for
payroll costs, R&D expenditure, depreciation and other
items. The ratio to net sales was 1.1 percentage points
higher at 25.8%.
These factors resulted in an 8.1% year-on-year
decline in operating income, which amounted to
¥12,827 million.
Regional overviewjapan
Our financial performance shifted to an improving
trend in the second half of the year thanks to the
correction of the overvalued yen and a recovery in
production in the automotive industry, which is a major
user of our products. However, stagnation in the early
months of the year resulted in reduced sales in key
product categories including taps, carbide drills and
rolling dies, and both net sales and operating income
were lower year on year.
Net sales declined by 5.6% to ¥55,716 million, and
operating income by 12.7% to ¥6,788 million.
the Americas
North America is a key market for the OSG Group.
Increased production in major user industries,
including automobile and aerospace manufacturers,
brought growth in net sales. Despite the effects of a
slowdown in South America and cost increases,
operating income increased year on year in yen terms.
Strong performance in the aerospace industry resulted
in a substantial increase in North American sales of
’10
69.5
81.088.4
84.1
’09
53.3
’11 ’12 ’13 ’10’09 ’11 ’12 ’13
44.648.4 49.4
52.8
39.2
’10’09 ’11 ’12 ’13
7.5
Operating income ratio
10.8
12.3
15.2
14.012.8
16.614.5
(2.7)
(5.1)
’10’09 ’11 ’12 ’13
5.4
3.87.3
5.9
8.59.8
7.18.6
(7.1)
(3.8)
Net income ratio
Management’s Discussion and Analysis
21
carbide end mills.
Net sales increased by 17.9% year on year to
¥16,283 million. Operating income was 2.7% higher at
¥1,644 million.
europe
With the easing of the financial crisis, Europe generally
followed a recovery trend, led by Germany, Belgium and
other major economies. However, some southern
European countries remained locked in recession. The
OSG Group has a relatively small market share in Europe.
Increased marketing efforts resulted in higher sales of
taps, carbide end mills and other products in several
markets, including Belgium, Germany, France and Italy.
This was reflected in a year-on-year increase in net sales
for this segment. Operating income was also higher in
yen terms, despite an increase in selling, general and
administrative expenses and other cost items.
Net sales amounted to ¥7,852 million, a year-on-
year increase of 20.5%, while operating income was
15.0% higher at ¥766 million.
Asia
There was considerable regional variation in economic
performance, and sales of key products, including
taps, were lower because of economic downturns in
China, South Korea, Taiwan and Singapore. However,
sales and operating Income (loss) in japan (Billions of yen/%)
sales and operating Income in the Americas (Billions of yen/%)
sales and operating Income in europe (Billions of yen/%)
sales and operating Income in Asia (Billions of yen/%)
continued dynamic marketing efforts in the growth
markets of Thailand and India were reflected in strong
financial results. Net sales for the Asia segment as a
whole were higher year on year, in part because of
foreign exchange movements. However, lower results
from the greater China region, which is a relatively
large market, resulted in lower operating income.
Net sales increased by 13.8% over the previous
year’s figure to ¥23,805 million. Operating income
declined by 1.6% to ¥4,212 million.
net IncomeIn fiscal 2013, we recorded net other income of
¥1,610 million, compared with net other expenses of
¥139 million in the previous year. This increase in
other income resulted mainly from exchange gains of
¥1,427 million, compared with ¥165 million in the
previous year, and gains on negative goodwill
amounting to ¥443 million.
As a result, net income before income taxes and
minority interests was 4.5% higher year on year at
¥14,437 million. Total income taxes decreased by
¥1,119 million to ¥4,409 million, and the effective tax
rate (the corporation tax rate after application of tax
effects) was 30.5%.
Minority interests, which consist mainly of the
interests of minority shareholders in domestic and
Asian subsidiaries, increased by ¥260 million year on
year to ¥1,409 million.
On this basis, net income amounted to ¥8,619
million, a year-on-year increase of 20.8%. Net income
per share increased by ¥15.6 to ¥90.76, and ROE
increased by 0.4 percentage points to 11.9%.
Financial PositionAssets
Total assets amounted to ¥134,503 million as of
November 30, 2013, an increase of ¥12,813 million
from the level a year earlier. Current assets were
¥8,385 million higher at ¥72,237 million because of
increases in cash and deposits, notes and accounts
receivable, inventories and other items. Higher figures
for machinery and equipment and other items were
reflected in net property, plant and equipment, which
increased by ¥4,455 million to ¥52,468 million.
Despite an increase in investment securities, total
investments and other assets declined by ¥26 million
from the position a year earlier to ¥9,798 million, in
part because of reductions in other assets.
liabilities and equity
Total liabilities as of November 30, 2013 amounted to
¥46,882 million, a year-on-year reduction of ¥3,337
million. Current liabilities increased by ¥6,026 million
’10’09 ’11 ’12 ’13
Operating income (loss)SalesOperating income ratio
(4.5)(4.5) 2.92.9
33.4
47.2
(13.6)
6.1
6.3
55.5
11.4
7.8 6.8
59.0 55.7
13.2 12.2
’10’09 ’11 ’12 ’13
Operating incomeSalesOperating income ratio
0.31.0
9.6
11.5
3.0
9.0
1.4
12.9
10.7
1.6 1.6
13.8
16.3
11.6
10.1
’10’09 ’11 ’12 ’13
Operating incomeSalesOperating income ratio
0.10.5
5.4 5.5
9.4
0.7 0.80.9
6.6 6.5
7.9
12.9
10.2 9.8
1.7
’10’09 ’11 ’12 ’13
Operating incomeSalesOperating income ratio
1.13.1
4.3 4.3 4.2
12.1
17.2
21.3
20.3
20.9
23.8
20.517.7
9.4
17.9
22
to ¥27,470 million. One reason for the higher figure
was an increase in long-term debt repayable within
one year. Fixed liabilities were ¥9,364 million lower
year on year at ¥19,411 million, in part because of the
reduction of long-term debt.
Net assets amounted to ¥87,622 million as of
November 30, 2013, an increase of ¥16,150 million
compared with the position a year earlier. The higher
figure is mainly attributable to increases in retained
earnings and foreign currency translation adjustments.
As a result, the equity ratio rose by 6.5 percentage
points, from 53.0% at end of the previous fiscal year
to 59.5% as of November 30, 2013.
cash FlowsConsolidated cash and cash equivalents as of November
30, 2013 amounted to ¥16,803 million, an increase of
¥5,134 million from the position a year earlier.
net cash Provided by operating Activities
Net cash provided by operating activities increased by
¥3,885 million year on year to ¥16,171 million. This
consisted mainly of net income before income taxes and
minority interests of ¥14,437 million, depreciation of
¥6,717 million, a ¥1,618 million reduction in accounts
payable, and income tax payments of ¥3,847 million.
total shareholders’ equity (Billions of yen)
total equity (Billions of yen)
equity Ratio (%)
eBItDA (Billions of yen/%)
net cash used in Investing Activities
Net cash used in investing activities amounted to ¥2,972
million, a reduction of ¥16,774 million compared with
the previous year’s total. The main items were
expenditure of ¥5,877 million on acquisitions of property,
plant and equipment, ¥1,198 million in payments for
purchases of subsidiaries’ stock, and ¥5,159 million in
proceeds from refunds of time deposits.
net cash Provided by Financing Activities
Net cash used in financing activities totaled ¥9,424
million, compared with net cash provided of ¥8,643
million in the previous year. The main items were a
¥2,776 million decrease in short-term borrowings,
repayments of long-term debt amounting to ¥3,663
million, and dividends paid of ¥2,182 million.
Basic Policy on Income Distribution, Dividends for the current and next Fiscal Years We recognize the distribution of income to shareholders
is an important management priority. When setting
dividends, we take cash flows, our financial position and
other factors into account, and we aim to maintain a
consolidated payout ratio of 30% or higher.
When making decisions about the investment of free
cash flow, we give priority to business activities with the
potential to enhance our corporate value, such as the
expansion of existing core businesses and the
development of our global business operations. We also
make flexible use of share buyback schemes as a way
of returning profits to shareholders while optimizing
investment efficiency from a long-term perspective.
Internal reserves are used for new product
development, the reinforcement and expansion of
production and sales in Japan and overseas, and the
strengthening of our financial position and management
infrastructure from a long-term perspective.
We have set the final dividend for fiscal 2013 at
¥20 per share. This consists of an ordinary dividend of
¥17 per share, and a ¥3 commemorative dividend to
mark the 75th anniversary of the founding OSG. This
brings the total dividend for the year, including the
¥10 interim dividend, to ¥30, an increase of ¥7 over
the previous year’s figure. In the next fiscal year, we
plan to pay a dividend of ¥28, consisting of interim
and final dividends of ¥14 each.
’10’09 ’11 ’12 ’13
57.1 59.464.5
80.0
55.9
’10’09 ’11 ’12 ’13
63.2 65.371.5
87.6
61.7
’10’09 ’11 ’12 ’13
54.1
56.9
53.0
59.5
49.3
’10’09 ’11 ’12 ’13
DepreciationOperating income (loss)EBITDA margin
12.8
18.0
7.5
5.7
12.3
5.3
3.1
(2.7)
5.85.8
18.522.2
19.6 19.5
5.7 6.7
12.814.0
23.422.1
23
Millions of yen Thousands of U.S. dollars(Note 1)
2013 2012 2013
AssetscuRRent Assets:
Cash and cash equivalents (Note 12) ¥ 16,803 ¥ 11,670 $ 164,735 Time deposits (Notes 6 and 12) 7,073 9,366 69,343 Notes and accounts receivable (Note 12):
Trade notes 3,674 3,341 36,020 Trade accounts 15,578 13,230 152,725 Other 506 719 4,961 Allowance for doubtful accounts (192) (182) (1,882)
19,566 17,108 191,824 Inventories (Note 4) 25,622 22,653 251,196 Deferred tax assets (Note 9) 1,457 1,425 14,284 Prepaid expenses and other current assets (Note 3) 1,716 1,630 16,824
Total current assets 72,237 63,852 708,206
PRoPeRtY, PlAnt, AnD equIPMent (Notes 6 and 17) :Land 12,984 11,961 127,294 Buildings and structures 37,342 34,515 366,098 Machinery and equipment 87,146 77,107 854,372 Tools, furniture, and fixtures 5,989 5,225 58,716 Construction in progress 821 1,700 8,049 Other 51 65 500
Total 144,333 130,573 1,415,029 Accumulated depreciation (91,865) (82,559) (900,637)
Net property, plant, and equipment 52,468 48,014 514,392
InvestMents AnD otheR Assets:Investment securities (Notes 3 and 12) 4,996 2,961 48,980 Investments in unconsolidated subsidiaries and associated companies 865 668 8,480 Goodwill 251 310 2,461 Other intangible assets 1,458 1,968 14,294 Deferred tax assets (Note 9) 538 1,045 5,275 Other assets (Note 6) 1,690 2,872 16,569
Total investments and other assets 9,798 9,824 96,059 totAl ¥ 134,503 ¥ 121,690 $ 1,318,657
OSG Corporation and Consolidated SubsidiariesNovember 30, 2013
consolidated Balance sheet
24
Millions of yen Thousands of U.S. dollars(Note 1)
2013 2012 2013
lIABIlItIes AnD equItYcuRRent lIABIlItIes:
Short-term borrowings (Notes 5, 6, and 12) ¥ 2,982 ¥ 4,756 $ 29,235 Current portion of long-term debt (Notes 5, 6, and 12) 10,131 3,631 99,324 Notes and accounts payable (Notes 6 and 12):
Trade notes 722 683 7,078 Trade accounts 2,979 3,003 29,206 Other 1,132 1,297 11,098
4,833 4,983 47,382 Income taxes payable (Note 12) 2,020 1,600 19,804 Accrued expenses 6,100 5,572 59,804 Other current liabilities 1,404 902 13,765
Total current liabilities 27,470 21,444 269,314
lonG-teRM lIABIlItIes:Long-term debt (Notes 5, 6, and 12) 17,242 26,949 169,039 Liability for employees' retirement benefits (Note 7) 296 291 2,902 Retirement allowances for directors and Audit & Supervisory Board members 55 52 539 Deferred tax liabilities (Note 9) 678 482 6,647 Other long-term liabilities 1,140 1,001 11,177
Total long-term liabilities 19,411 28,775 190,304
contInGent lIABIlItIes (Note 14)
equItY (Notes 5, 8, and 18) :Common stock:
Authorized— 200,000 thousand shares at November 30, 2013 and 2012Issued— 98,955 thousand shares at November 30, 2013 and 2012 10,404 10,404 102,000
Capital surplus 14,198 14,198 139,196 Retained earnings 61,566 55,131 603,588 Treasury stock—at cost
3,994 thousand and 3,990 thousand shares at November 30, 2013 and 2012, respectively (4,838) (4,832) (47,431) Accumulated other comprehensive income:
Unrealized gain on available-for-sale securities 1,728 482 16,941 Deferred gain on derivatives under hedge accounting — 2 —Foreign currency translation adjustments (3,033) (10,903) (29,735) Total 80,025 64,482 784,559
Minority interests 7,597 6,989 74,480 Total equity 87,622 71,471 859,039
totAl ¥ 134,503 ¥ 121,690 $ 1,318,657 See notes to consolidated financial statements. 25
Millions of yen Thousands of U.S. dollars(Note 1)
2013 2012 2013
net sAles ¥ 88,379 ¥ 84,084 $ 866,461 cost oF sAles (Note 10) 52,777 49,382 517,422
Gross profit 35,602 34,702 349,039
sellInG, GeneRAl, AnD ADMInIstRAtIve exPenses (Note 10) 22,775 20,748 223,284 Operating income 12,827 13,954 125,755
otheR IncoMe (exPenses):Interest and dividend income 225 247 2,206 Interest expense (340) (398) (3,333) Foreign exchange gain 1,427 165 13,990 Sales discounts (540) (591) (5,294) Gain on sales of property, plant, and equipment—net 89 21 872 Write-down of securities — (13) —Equity in earnings of associated companies 5 10 49 Gain on negative goodwill 443 — 4,343 Grants received — 117 —Other—net 301 303 2,951
Other income (expenses)—net 1,610 (139) 15,784 IncoMe BeFoRe IncoMe tAxes AnD MInoRItY InteRests 14,437 13,815 141,539
IncoMe tAxes (Note 9) :Current 4,072 3,141 39,921 Deferred 337 2,387 3,304
Total income taxes 4,409 5,528 43,225 net IncoMe BeFoRe MInoRItY InteRests 10,028 8,287 98,314 MInoRItY InteRests In net IncoMe 1,409 1,149 13,814 net IncoMe ¥ 8,619 ¥ 7,138 $ 84,500
Yen U.S. dollars
PeR shARe oF coMMon stock (Notes 2(s) and 16) :Basic net income ¥ 90.76 ¥ 75.16 $ 0.89 Diluted net income 82.80 70.67 0.81 Cash dividends applicable to the year 30.00 23.00 0.29
See notes to consolidated financial statements.
OSG Corporation and Consolidated SubsidiariesYear Ended November 30, 2013
consolidated statement of Income
26
Millions of yen Thousands of U.S. dollars(Note 1)
2013 2012 2013
net IncoMe BeFoRe MInoRItY InteRests ¥ 10,028 ¥ 8,287 $ 98,314
otheR coMPRehensIve IncoMe (Note 15) :Unrealized gain (loss) on available-for-sale securities 1,268 (230) 12,431 Deferred (loss) gain on derivatives under hedge accounting (2) 10 (20)Foreign currency translation adjustments 9,264 551 90,824 Share of other comprehensive income in associates 7 1 69 Total other comprehensive income 10,537 332 103,304
coMPRehensIve IncoMe ¥ 20,565 ¥ 8,619 $ 201,618
totAl coMPRehensIve IncoMe AttRIButABle to:Owners of the parent ¥ 17,733 ¥ 7,206 $ 173,853 Minority interests 2,832 1,413 27,765
See notes to consolidated financial statements.
OSG Corporation and Consolidated SubsidiariesYear Ended November 30, 2013
consolidated statement of comprehensive Income
27
Thousands Millions of yen
Outstanding Number of Shares of
Common Stock
CommonStock
CapitalSurplus
RetainedEarnings
Treasury Stock
Accumulated Other Comprehensive Income
TotalMinorityInterests
Total Equity
Unrealized Gain on
Available-for-sale Securities
Deferred Gain (Loss) on
Derivatives under Hedge Accounting
Foreign Currency Translation
Adjustments
BAlAnce, DeceMBeR 1, 2011 94,967 ¥ 10,404 ¥ 14,198 ¥ 50,082 ¥ (4,830) ¥ 715 ¥ (8) ¥ (11,193) ¥ 59,368 ¥ 5,980 ¥ 65,348
Net income — — — 7,138 — — — — 7,138 — 7,138
Cash dividends, ¥22 per share — — — (2,089) — — — — (2,089) — (2,089)
Net change in unrealized gain on available-for-sale securities — — — — — (233) — — (233) — (233)
Net change in foreign currency translation adjustments — — — — — — — 290 290 — 290
Purchase of treasury stock (2) — — — (2) — — — (2) — (2)
Other — — — — — — 10 — 10 — 10
Net change in the year — — — — — — — — — 1,009 1,009
BAlAnce, noveMBeR 30, 2012 94,965 10,404 14,198 55,131 (4,832) 482 2 (10,903) 64,482 6,989 71,471
Net income — — — 8,619 — — — — 8,619 — 8,619
Cash dividends, ¥23 per share — — — (2,184) — — — — (2,184) — (2,184)
Net change in unrealized gain on available-for-sale securities — — — — — 1,246 — — 1,246 — 1,246
Net change in foreign currency translation adjustments — — — — — — — 7,870 7,870 — 7,870
Purchase of treasury stock (4) — — — (6) — — — (6) — (6)
Other — — — — — — (2) — (2) — (2)
Net change in the year — — — — — — — — — 608 608
BAlAnce, noveMBeR 30, 2013 94,961 ¥ 10,404 ¥ 14,198 ¥ 61,566 ¥ (4,838) ¥ 1,728 — ¥ (3,033) ¥ 80,025 ¥ 7,597 ¥ 87,622
Thousands of U.S. dollars (Note 1)
CommonStock
CapitalSurplus
RetainedEarnings
Treasury Stock
Accumulated Other Comprehensive Income
TotalMinorityInterests
Total Equity
Unrealized Gain on
Available-for-sale Securities
Deferred Gain (Loss) on
Derivatives under Hedge Accounting
Foreign Currency Translation
Adjustments
BAlAnce, noveMBeR 30, 2012 $ 102,000 $ 139,196 $ 540,500 $ (47,373) $ 4,725 $ 20 $ (106,892) $ 632,176 $ 68,520 $ 700,696
Net income — — 84,500 — — — — 84,500 — 84,500
Cash dividends, $0.23 per share — — (21,412) — — — — (21,412) — (21,412)
Net change in unrealized gain on available-for-sale securities — — — — 12,216 — — 12,216 — 12,216
Net change in foreign currency translation adjustments — — — — — — 77,157 77,157 — 77,157
Purchase of treasury stock — — — (58) — — — (58) — (58)
Other — — — — — (20) — (20) — (20)
Net change in the year — — — — — — — — 5,960 5,960
BAlAnce, noveMBeR 30, 2013 $ 102,000 $ 139,196 $ 603,588 $ (47,431) $ 16,941 — $ (29,735) $ 784,559 $ 74,480 $ 859,039
OSG Corporation and Consolidated SubsidiariesYear Ended November 30, 2013
consolidated statement of changes in equity
28
Millions of yen Thousands of U.S. dollars(Note 1)
2013 2012 2013
oPeRAtInG ActIvItIes:Income before income taxes and minority interests ¥ 14,437 ¥ 13,815 $ 141,539 Adjustments for:
Income taxes—paid (3,847) (3,264) (37,716)Income taxes—refund 119 110 1,167 Depreciation and amortization 6,717 5,688 65,853 Amortization of goodwill 72 134 706 Gain on sales of property, plant, and equipment—net (89) (21) (872)Gain on negative goodwill (443) — (4,343)Write-down of securities — 13 —Equity in earnings of an associated company (5) (10) (49)Changes in assets and liabilities:
Decrease (increase) in notes and accounts receivable 425 (21) 4,166 Decrease (increase) in inventories 342 (3,739) 3,353 Decrease in notes and accounts payable (1,618) (751) (15,863)Increase (decrease) in accrued expenses 237 (136) 2,323 (Decrease) increase in liability for employees’ retirement benefits (22) 20 (216)Increase (decrease) in retirement allowances for directors and Audit & Supervisory Board members 2 (0) 20 Decrease (increase) in interest and dividends receivable 42 (55) 412 Decrease in allowance for doubtful accounts (24) (8) (235)Decrease in interest payable (6) (10) (59)
Other—net (168) 522 (1,647)Net cash provided by operating activities 16,171 12,287 158,539
InvestInG ActIvItIes:Payments for time deposits (987) (12,121) (9,676)Proceeds from refunds of time deposits 5,159 3,477 50,578 Purchases of investment securities (438) (27) (4,294)Acquisitions of property, plant, and equipment (5,877) (10,284) (57,617)Acquisitions of intangible assets (101) (129) (990)Proceeds from sales of property, plant, and equipment 248 138 2,431 Payments for purchases of subsidiaries' stock (1,198) (401) (11,745)Other—net 222 (399) 2,176
Net cash used in investing activities (2,972) (19,746) (29,137)FInAncInG ActIvItIes:
Decrease in short-term borrowings—net (2,776) (1,287) (27,216)Proceeds from long-term debt — 16,004 —Repayments of long-term debt (3,663) (3,588) (35,912)Dividends paid (2,182) (2,086) (21,392)Dividends paid to minority shareholders (799) (390) (7,833)Purchases of treasury stock (6) (2) (59)Other—net 2 (8) 20
Net cash (used in) provided by financing activities (9,424) 8,643 (92,392)FoReIGn cuRRencY tRAnslAtIon ADjustMents on cAsh AnD cAsh equIvAlents 1,358 73 13,313 net IncReAse In cAsh AnD cAsh equIvAlents 5,133 1,257 50,323 cAsh AnD cAsh equIvAlents, BeGInnInG oF YeAR 11,670 10,413 114,412 cAsh AnD cAsh equIvAlents, enD oF YeAR ¥ 16,803 ¥ 11,670 $ 164,735 See notes to consolidated financial statements.
OSG Corporation and Consolidated SubsidiariesYear Ended November 30, 2013
consolidated statement of cash Flows
29
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in accordance with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards (IFRS). 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
OSG Corporation and Consolidated SubsidiariesYear Ended November 30, 2013
1. BAsIs FoR the PResentAtIon oF consolIDAteD FInAncIAl stAteMents
2. suMMARY oF sIGnIFIcAnt AccountInG PolIcIes
outside Japan. In addition, certain reclassifications have been made in the 2012 consolidated financial statements to conform to the classifications used in 2013. The consolidated financial statements are stated in Japanese yen, the currency of the country in which OSG CORPORATION (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 ¥102 to $1, the approximate rate of exchange at November 30, 2013. 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.
(a) consolidation The consolidated financial statements as of November 30, 2013, include the accounts of the Company and its 46 significant (47 in 2012) subsidiaries (together, the “Group”). 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 Group has the ability to exercise significant influence are accounted for by the equity method. Investments in three (two in 2012) associated companies were accounted for by the equity method in 2013. Investments in the remaining 14 (14 in 2012) unconsolidated subsidiaries 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 be material. The differences between the cost and the fair value of the net assets of the acquired subsidiaries at the date of the acquisition are accounted for as goodwill. Goodwill arising from domestic consolidated companies is amortized by the straight-line method over five years and that from foreign consolidated companies over 10 years. 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 also eliminated. The accounts of those subsidiaries that have fiscal periods differing from that of the parent company have been adjusted for significant transactions to properly reflect their financial positions at November 30 of each year and their results of operations for the years then ended.
(b) unification of Accounting Policies Applied to Foreign subsidiaries for the consolidated Financial statements
In May 2006, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Practical Issues Task Force (PITF) No.18, “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements.” PITF No.18 prescribes that 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. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America tentatively may be used for the consolidation process, except for the following items which should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gains or losses of pensions that has been directly recorded in equity; (c) expensing capitalized development costs of research and development (“R&D”); (d) cancellation of the fair value model accounting for property, plant, and equipment and investment properties and incorporation of cost model accounting; and (e) exclusion of minority interests from net income, if contained in net income.
(c) unification of Accounting Policies Applied to Foreign Associated companies for the equity Method
In March 2008, the ASBJ issued ASBJ Statement No.16, “Accounting Standard for Equity Method of Accounting for Investments.” The new standard requires adjustments to be
notes to consolidated Financial statements
30
made to conform the associate’s accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate’s financial statements are used in applying the equity method, unless it is impracticable to determine such adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States of America tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in the equity; (c) expensing capitalized development costs of R&D; (d) cancellation of the fair value model accounting for property, plant, and equipment and investment properties and incorporation of the cost model accounting; and (e) exclusion of minority interests from net income, if contained in net income.
(d) 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 short-term investments, all of which mature or become due within three months of the date of acquisition.
(e) Inventories The inventories of the Company and domestic consolidated subsidiaries are stated at the lower of cost, as determined principally by the average method, or net selling value. The inventories of foreign consolidated subsidiaries are stated at the lower of cost, determined principally by the average method or first-in first-out method, or net selling value.
(f) Marketable and Investment securities Marketable and investment securities are classified and accounted for, depending on management’s intent, as follows: i) Held-to-maturity debt securities, for which there is the
positive intent and ability to hold to maturity, are reported at amortized cost; and
ii) Available-for-sale securities, which are not classified as the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported as a separate component of equity.
Nonmarketable available-for-sale securities are 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.
(g) Property, Plant, and equipment Property, plant, and equipment are stated at cost. Depreciation of property, plant, and equipment of the Company and domestic consolidated subsidiaries is computed by the declining-balance method, while the straight-line method is applied to buildings acquired after April 1, 1998. Foreign consolidated subsidiaries mainly utilize the straight-line method. The range of useful lives is principally 3 to 50 years for buildings and structures and principally 4 to 12 years for machinery and equipment. Effective December 1, 2012, the Company and domestic consolidated subsidiaries changed their depreciation method for property and equipment acquired on and after December 1, 2012, in accordance with the change in the method prescribed by the Japanese income tax law. The effect of this change in the depreciation method on the consolidated statement of income for the year ended November 30, 2013, was immaterial.
(h) long-lived AssetsThe Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that 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. In 2013 and 2012, the Group did not recognize any impairment losses.
(i) other Intangible AssetsIntangible assets are amortized by the straight-line method.
(j) Bonuses to Directors and Audit & supervisory Board Members
Bonuses to directors and the audit and supervisory board (“Audit & Supervisory Board”) members are accrued at the year-end to which such bonuses are attributable.
31
(k) liability for employees’ Retirement Benefits The Company has a defined contribution plan for a majority of employees and an unfunded retirement benefit plan for certain employees. Subsidiaries have noncontributory funded defined benefit pension plans, unfunded retirement benefit plans, and defined contribution plans. The Company applied the simplified method to record the liability at the amount which would be paid if the employees retired at the balance sheet date. Certain subsidiaries, which have defined benefit pension plans, account for the liability for retirement benefits based on projected benefit obligations and plan assets at the balance sheet date and apply the corridor approach when recognizing actuarial gain/loss. (l) Retirement Allowances for Directors and Audit &
supervisory Board MembersCertain domestic consolidated subsidiaries provide for retirement allowances to directors and Audit & Supervisory Board members. The liability is recorded at the amount which would be paid if they retired at the balance sheet date in accordance with internal policies.
(m) R&D costsR&D costs are charged to costs and expenses as incurred.
(n) leases In March 2007, the ASBJ issued ASBJ Statement No.13, “Accounting Standard for Lease Transactions,” which revised the previous accounting standard for lease transactions issued in June 1993. The revised accounting standard for lease transactions was effective for fiscal years beginning on or after April 1, 2008. Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain “as if capitalized” information was disclosed in the notes to the lessee’s financial statements. The revised accounting standard requires that all finance lease transactions be capitalized by recognizing lease assets and lease obligations in the balance sheet. In addition, the accounting standard permits leases which existed at the transition date and do not transfer ownership of the leased property to the lessee to continue to be accounted for as operating lease transactions. The Group applied the revised accounting standard effective December 1, 2008. In addition, the Group continues to account for leases which existed at the transition date and do not
transfer ownership of the leased property to the lessee as operating lease transactions. All other leases are accounted for as operating leases.
(o) Income taxes The provision for income taxes is computed based on the pretax income included in the consolidated statement of income. 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.
(p) 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 statement of income to the extent that they are not hedged by forward exchange contracts.
(q) Foreign currency Financial statementsThe balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical exchange rate. Differences arising from such translation are shown as “Foreign currency translation adjustments” under accumulated other comprehensive income in a separate component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rates.
(r) Derivatives and hedging ActivitiesThe Company and certain subsidiaries use derivative financial instruments to manage their exposure to fluctuations in foreign exchange. The Group does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fair value and gains or losses on derivative transactions are recognized in the consolidated statement of income, and b) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high
32
correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on those derivatives are deferred until the maturity of the hedged transactions. Foreign exchange forward contracts employed to hedge foreign exchange exposures for export sales and import purchases are measured at fair value and the unrealized gains/losses are recognized in income.
(s) Per share InformationBasic net income per share is computed by dividing net income 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 reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding stock acquisition rights. Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective years, including dividends to be paid after the end of the year.
(t) Accounting changes and error correctionsIn December 2009, the ASBJ issued ASBJ Statement No. 24, “Accounting Standard for Accounting Changes and Error Corrections” and ASBJ Guidance No. 24, “Guidance on Accounting Standard for Accounting Changes and Error Corrections.” Accounting treatments under this standard and guidance are as follows: (1) Changes in Accounting Policies—When a new accounting policy is applied with revision of accounting standards, the new policy is applied retrospectively, unless the revised accounting standards include specific transitional provisions. When the revised accounting standards include specific transitional provisions, an entity shall comply with the specific transitional provisions. (2) Changes in Presentations—When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates—A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections of Prior-Period Errors—When an error
in prior-period financial statements is discovered, those statements are restated.
(u) new Accounting PronouncementsAccounting standard for Retirement Benefits—On June 16, 2011, the International Accounting Standards Board revised International Accounting Standard No. 19, “Employee Benefits.”
Major changes are as follows:(a) Abolition of the option of deferred recognition for actuarial
gain/loss and prior service costs(b) Change in the method of calculation of retirement benefit cost
The Company applies “Tentative Accounting Treatment for Foreign Subsidiaries in the Preparation of Consolidated Financial Statements” (ASBJ PTIF No. 18 issued February 19, 2010) in the preparation of its consolidated financial statements, using the financial statements prepared by certain foreign subsidiaries in accordance with IFRS. The fiscal year-end for certain foreign consolidated subsidiaries using IFRS is September 30, and the changes will apply to these foreign subsidiaries from the fiscal period beginning on October 1, 2013. The Company is in the process of measuring the effects of applying the revised accounting standard for the year ending November 30, 2014.
Accounting standards for Business combinations and consolidated Financial statements—On September 13, 2013, the ASBJ issued revised ASBJ Statement No. 21, “Accounting Standard for Business Combinations,” revised ASBJ Guidance No. 10, “Guidance on Accounting Standards for Business Combinations and Business Divestitures,” and revised ASBJ Statement No. 22, “Accounting Standard for Consolidated Financial Statements.”
Major accounting changes are as follows:Transactions with noncontrolling interestA parent’s ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of minority interest is adjusted to reflect the change in the parent’s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Under the current accounting standard, any difference between the fair value of the consideration received or paid and the amount by which the minority interest is adjusted is accounted for as an adjustment of goodwill or as profit or loss in the
33
consolidated statement of income. Under the revised accounting standard, such difference shall be accounted for as capital surplus as long as the parent retains control over its subsidiary.
Presentation of the consolidated balance sheetIn the consolidated balance sheet, “minority interest” under the current accounting standard will be changed to “noncontrolling interest” under the revised accounting standard.
Presentation of the consolidated statement of incomeIn the consolidated statement of income, “income before minority interest” under the current accounting standard will be changed to ”net income” under the revised accounting standard, and “net income” under the current accounting standard will be changed to “net income attributable to owners of the parent” under the revised accounting standard.
Provisional accounting treatments for a business combinationIf the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisioned amounts for the items for which the accounting is incomplete. Under the current accounting standard guidance, the impact of adjustments to provisional amounts recorded in a business combination on profit or loss are recognized as profit or loss in the year in which the measurement is completed. Under the revised accounting standard guidance, during the measurement period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and that would have affected the measurement of the amounts recognized as of that date. Such adjustments shall be recognized as if the accounting for the business combination had been completed at the acquisition date.
Acquisition-related costsAcquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs to effect a business combination. Under the current accounting standard, the acquirer accounts for acquisition-related costs by including them
in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall be accounted for as expenses in the periods in which the costs are incurred. The above accounting standards and guidance for “transactions with noncontrolling interest”, “acquisition-related costs” and “presentation changes in the consolidated financial statements” are effective for the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted from the beginning of annual periods beginning on or after April 1, 2014, except for the presentation changes in the consolidated financial statements. In case of earlier application, all accounting standards and guidance above, except for the presentation changes, should be applied simultaneously. Either retrospective or prospective application of the revised accounting standards and guidance for “transactions with noncontrolling interest” and “acquisition-related costs” is permitted. In retrospective application of the revised standards and guidance for “transactions with noncontrolling interest” and “acquisition-related costs”, accumulated effects of retrospective adjustments for all “transactions with noncontrolling interest” and “acquisition-related costs” which occurred in the past shall be reflected as adjustments to the beginning balance of capital surplus and retained earnings for the year of the first-time application. In prospective application, the new standards and guidance for “transactions with noncontrolling interest” and “acquisition-related costs” shall be applied prospectively from the beginning of the year of the first-time application. The changes in presentation shall be applied to all periods presented in financial statements containing the first-time application of the revised standards and guidance. The revised standards and guidance for “provisional accounting treatments for a business combination” is effective for a business combination which will occur on or after the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted for a business combination which will occur on or after the beginning of annual periods beginning on or after April 1, 2014. The Company expects to apply the revised accounting standards and guidance from the beginning of the annual period beginning on December 1, 2015, and is in the process of measuring the effects of applying the revised accounting standards and guidance in future applicable periods.
34
Marketable securities, which were included in other assets, and investment securities at November 30, 2013 and 2012, consisted of the following:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Current:Debt securities ¥ 2 ¥ 0 $ 20
Total ¥ 2 ¥ 0 $ 20Noncurrent:
Equity securities ¥ 4,822 ¥ 2,907 $ 47,274Debt securities 174 54 1,706
Total ¥ 4,996 ¥ 2,961 $ 48,980
The costs and aggregate fair values of securities at November 30, 2013 and 2012, were as follows:
Millions of yen
November 30, 2013 Cost Unrealized Gains Unrealized Losses Fair Value
Available-for-sale:Equity securities ¥ 2,538 ¥ 2,254 ¥ 80 ¥ 4,712Debt securities 176 0 — 176
Millions of yen
November 30, 2012 Cost Unrealized Gains Unrealized Losses Fair Value
Available-for-sale:Equity securities ¥ 2,228 ¥ 947 ¥ 358 ¥ 2,817
Debt securities 54 0 — 54
Thousands of U.S. dollars
November 30, 2013 Cost Unrealized Gains Unrealized Losses Fair Value
Available-for-sale:Equity securities $ 24,882 $ 22,098 $ 784 $ 46,196 Debt securities 1,726 0 — 1,726
Information on available-for-sale securities, which were sold during the year ended November 30, 2013 and 2012, was as follows:
Millions of yen
November 30, 2013 Proceed Realized Gains Realized Losses
Available-for-sale: Equity securities ¥ 1 ¥ 1 ¥ —
Total ¥ 1 ¥ 1 ¥ —
3. MARketABle AnD InvestMent secuRItIes
35
Millions of yen
November 30, 2012 Proceed Realized Gains Realized Losses
Available-for-sale: Equity securities ¥ 0 ¥ 0 ¥ 1
Total ¥ 0 ¥ 0 ¥ 1
Thousands of U.S. dollars
November 30, 2013 Proceed Realized Gains Realized Losses
Available-for-sale: Equity securities $ 10 $ 10 $ —
Total $ 10 $ 10 $ —
Impairment losses on available-for-sale equity securities for the years ended November 30, 2013 and 2012, were nil and ¥13 million, respectively.
4. InventoRIes
5. shoRt-teRM BoRRoWInGs AnD lonG-teRM DeBt
Inventories at November 30, 2013 and 2012, consisted of the following:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Merchandise ¥ 5,007 ¥ 4,589 $ 49,088 Finished products 10,748 9,183 105,373Work in process 4,056 3,546 39,765Raw materials 4,737 4,386 46,441Supplies 1,074 949 10,529
Total ¥ 25,622 ¥ 22,653 $ 251,196
Short-term borrowings at November 30, 2013 and 2012, mainly consisted of notes to banks. The weighted-average interest rate on short-term bank loans was 1.8% as of November 30, 2013, and 1.9% as of November 30, 2012.
Long-term debt at November 30, 2013 and 2012, consisted of the following:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Unsecured zero coupon convertible bonds with stock acquisition rights, due 2022 ¥ 15,000 ¥ 15,000 $ 147,059
Borrowings from banks and other financial institutions, due serially to 2018 with weighted-average interest rates of 1.6% (2013) and 1.7% (2012) 11,082 14,528 108,647
Other 1,291 1,052 12,657 Total 27,373 30,580 268,363
Less: Portion due within one year (10,131) (3,631) (99,324)Long-term debt, less current portion ¥ 17,242 ¥ 26,949 $ 169,039
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The stock acquisition rights issued with the zero-coupon convertible bonds entitle the holders to acquire shares of the Company’s common stock through March 21, 2022, at the conversion price of ¥1,643 ($16.11) per share at November 30, 2013. If all these outstanding stock acquisition rights had been exercised at November 30, 2013, 9,129,640 shares of common stock would have been issued. However, prior to October 4, 2021, the stock acquisition rights may be exercised by the holder of a bond during any particular calendar quarter (or, in case of a calendar quarter commencing on October 1, 2021, until October 3, 2021) only if the closing price of the shares for any 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 120% of the conversion price in effect on the last trading day of such immediately preceding calendar quarter. The conversion price is subject to adjustments to reflect
stock splits and certain other events. Effective December 1, 2013, the conversion price is ¥1,640.6 ($16.08) in accordance with the moving strike clause of the convertible bonds.
The annual maturities of long-term debt at November 30, 2013, for the next five years and thereafter were as follows:
Years ending November 30 Millions of yen Thousands ofU.S. dollars
2014 ¥ 10,131 $ 99,324 2015 571 5,598
2016 483 4,735
2017 165 1,618
2018 64 6272019 and thereafter 15,959 156,461
Total ¥ 27,373 $ 268,363
6. PleDGeD Assets
7. lIABIlItY FoR eMPloYees’ RetIReMent BeneFIts
The carrying amounts of assets pledged as collateral for notes and accounts payable of ¥380 million ($3,725 thousand), short-term borrowings of ¥273 million ($2,676 thousand), and long-term debt (including current portion) of ¥2,408 million ($23,608 thousand), as of November 30, 2013, were as follows:
Millions of yen Thousands ofU.S. dollars
Time deposits ¥ 1,010 $ 9,902 Property, plant, and equipment
Land 3,513 34,441Buildings and structures 5,550 54,412Machinery and equipment 1,052 10,314Tools, furniture, and fixtures 117 1,147
Other assets 43 421Total ¥ 11,285 $ 110,637
The Company and certain domestic subsidiaries have defined contribution plans for the majority of employees. Other subsidiaries have noncontributory- and contributory-funded defined benefit pension plans and unfunded retirement benefit plans. Contributions to the defined contribution plans for the years ended November 30, 2013 and 2012, were ¥536 million ($5,255 thousand) and ¥482 million, respectively.
The contributory-funded defined benefit pension plan is a multiemployer plan and the Company and domestic subsidiaries recognize as net pension cost the required contribution for the period. Contributions for the years ended November 30, 2013 and 2012, for this plan were ¥574 million ($5,627 thousand) and ¥575 million, respectively.
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The liability for employees’ retirement benefits at November 30, 2013 and 2012, consisted of the following:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Projected benefit obligation ¥ 728 ¥ 590 $ 7,137 Fair value of plan assets (602) (419) (5,902)
Net liability 126 171 1,235 Prepaid pension cost 170 120 1,667 Amount recognized as liability ¥ 296 ¥ 291 $ 2,902
The components of net periodic retirement benefit costs for the years ended November 30, 2013 and 2012, were as follows:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Service cost ¥ 120 ¥ 99 $ 1,176
8. equItY Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:
(a) DividendsUnder the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria such as (1) having a board of directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, 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. However, the Company cannot do so because it does not meet all the above criteria. The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to certain limitations and additional requirements. Semiannual interim dividends may also be paid once a year upon resolution by the board of directors if the articles of incorporation of the company so stipulate. The Companies Act also 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 surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account charged upon the payment of such dividends until the total aggregate amount of the legal reserve and additional paid-in capital equals 25% of common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.
(c) treasury stock and treasury stock acquisition rightsThe Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the board of directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders, which is determined by specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.
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9. IncoMe tAxes The Company and its domestic subsidiaries are subject to Japanese national and local income taxes, which, in the aggregate, resulted in normal effective statutory tax rates of approximately 37.3% and 39.9%, respectively, for the years ended November 30, 2013 and 2012. The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax assets and liabilities at November 30, 2013 and 2012, were as follows:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Deferred tax assets:Retirement benefits for employees ¥ 126 ¥ 120 $ 1,235 Retirement allowances for directors and Audit & Supervisory Board members 19 18 186 Unrealized gains on inventories and property, plant, and equipment 1,021 357 10,010 Tax loss carryforwards 137 1,087 1,343 Enterprise taxes payable 118 84 1,157 Bad debt allowance 40 32 392 Depreciation 82 89 804 Write-down of inventories 314 250 3,079 Write-down of golf memberships 105 107 1,029 Write-down of securities 519 525 5,088 Other 686 588 6,726 Deferred tax assets subtotal 3,167 3,257 31,049 Less valuation allowance (827) (825) (8,108)Total 2,340 2,432 22,941
Deferred tax liabilities:
Deferred gains on property, plant, and equipment 103 102 1,010 Unrealized gains on available-for-sale securities 366 65 3,588 Other 554 277 5,431 Total 1,023 444 10,029
Net deferred tax assets ¥ 1,317 ¥ 1,988 $ 12,912
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A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended November 30, 2013, with the corresponding figures for 2012, is as follows:
2013 2012
Normal effective statutory tax rate 37.3% 39.9%Expenses not deductible for income tax purposes 1.3 1.5
Income not taxable for income tax purposes (0.2) (0.2)
Per capita tax 0.3 0.3
Lower income tax rates applicable to income in certain foreign countries (5.6) (6.8)
Amortization of goodwill 0.2 0.4
Unrecognized deferred taxes on unrealized intercompany profit (2.6) 1.4
Net change in valuation allowance 0.1 0.1
Gain on negative goodwill (1.1) —
Effect of change in tax rate — 0.9 Other—net 0.8 2.5
Actual effective tax rate 30.5% 40.0%
On December 2, 2011, a tax reform law was enacted in Japan, which changed the normal effective statutory tax rate from approximately 39.9% to 37.3% for the years ending November 30, 2013, 2014, and 2015, and 34.9% for the years ending on or
after November 30, 2016, effective for years beginning on or after December 1, 2012. The effect of this change was to increase income taxes-deferred in the consolidated statement of income for the year ended November 30, 2012, by ¥122 million.
10. R&D costs
11. leAses
R&D costs charged to costs and expenses were ¥1,373 million ($13,461 thousand) and ¥1,099 million for the years ended November 30, 2013 and 2012, respectively.
(As lessee)The Group leases certain machinery, equipment, tools, furniture, and fixtures as a lessee.
Minimum rental payments under noncancelable operating leases subsequent to November 30, 2013 and 2012, were as follows:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Due within one year ¥ 79 ¥ 34 $ 775 [amount of sublease] [9] [11] [88]Due after one year 85 47 833[amount of sublease] [15] [15] [147]Total ¥ 164 ¥ 81 $ 1,608 [amount of sublease] [24] [26] [235]
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Pro forma Information of leased Property Whose lease Inception Was before november 30, 2008ASBJ Statement No. 13, “Accounting Standard for Lease Transactions” requires that all finance lease transactions be capitalized to recognize lease assets and lease obligations in the balance sheet. However, ASBJ Statement No. 13 permits leases without ownership transfer of the leased property to the lessee and whose lease inception was before November 30, 2008, to continue to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the note to the financial statements. The Company applied ASBJ Statement No. 13 effective December 1, 2008, and accounted for such leases as operating lease transactions. Pro forma information of leased property whose lease inception was before November 30, 2008, was as follows:
Millions of yen
November 30, 2013Machinery
and EquipmentTools, Furniture
and Fixtures Total
Acquisition cost ¥ 404 ¥ 6 ¥ 410Accumulated depreciation 313 6 319Net leased property ¥ 91 ¥ 0 ¥ 91
Millions of yen
November 30, 2012Machinery
and EquipmentTools, Furniture
and Fixtures Total
Acquisition cost ¥ 748 ¥ 24 ¥ 772Accumulated depreciation 537 22 559
Net leased property ¥ 211 ¥ 2 ¥ 213
Thousands of U.S. dollars
November 30, 2013Machinery
and EquipmentTools, Furniture
and Fixtures Total
Acquisition cost $ 3,961 $ 59 $ 4,020 Accumulated depreciation 3,069 59 3,128Net leased property $ 892 $ 0 $ 892
Obligations under finance leases:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Due within one year ¥ 63 ¥ 119 $ 617 Due after one year 32 103 314Total ¥ 95 ¥ 222 $ 931
Depreciation expense and interest expense under finance leases:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Depreciation expense ¥ 54 ¥ 123 $ 529 Interest expense 5 10 49
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Depreciation expenses are computed by the straight-line method and interest expenses are computed by the interest method. Total lease payments under finance leases accounted for as operating lease transactions for the years ended November 30, 2013 and 2012, were ¥71 million ($696 thousand) and ¥142 million, respectively.
(As lessor)Expected lease revenues to be received under the noncancelable operating lease subsequent to November 30, 2013 and 2012, were as follows:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Due within one year ¥ 70 ¥ 67 $ 686 [amount of sublease] [70] [67] [686]Due after one year 125 120 1,226[amount of sublease] [125] [120] [1,226]Total ¥ 195 ¥ 187 $ 1,912 [amount of sublease] [195] [187] [1,912]
12. FInAncIAl InstRuMents AnD RelAteD DIsclosuRes
(1) Group Policy for Financial InstrumentsThe Group uses financial instruments, mainly long-term debt, including bank loans, based on its capital financing plan. Cash surpluses, if any, are invested in low-risk financial assets. Derivatives are used not for speculative purposes, but to manage exposure to financial risks as described in (2) below.
(2) nature and extent of Risks Arising from Financial Instruments
Receivables, such as trade notes and trade accounts, are exposed to customer credit risk. Although receivables in foreign currencies are exposed to the risk of fluctuation in foreign currency exchange rates, the positions are hedged by using forward foreign currency contracts and currency options. Marketable and investment securities, mainly equity instruments of customers and suppliers of the Group, are exposed to the risk of market price fluctuations. Payment terms of payables, such as trade notes and trade accounts, are less than one year. Although payables in foreign currencies are exposed to the risk of fluctuation in foreign currency exchange rates, those risks are hedged by using forward foreign currency contracts. Derivatives mainly include forward foreign currency contracts and currency options, which are used to manage exposure to market risks from changes in foreign currency exchange rates of receivables and payables. Please see Note 13 for more detail about derivatives.
(3) Risk Management for Financial instrumentscredit risk managementCredit risk is the risk of economic loss arising from a counterparty’s failure to repay or service debt according to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balances of customers to identify default risk of customers in early stage. Please see Note 13 for more detail about derivatives. The maximum credit risk exposure of financial assets is limited to their carrying amounts as of November 30, 2013.
Market risk management (foreign exchange risk and interest rate risk)Foreign currency trade receivables and payables are exposed to risks resulting from fluctuations in foreign currency exchange rates. Such foreign exchange risks are hedged principally by forward foreign currency contracts. In addition, when foreign currency trade receivables and payables are expected from forecasted transactions, forward foreign currency contracts may be used under the limited contract term of one year. Marketable and investment securities are managed by monitoring market values and the financial position of issuers on a regular basis. Internal guidelines stating the basic principles for derivative transactions have been prepared and are required to be followed. Reconciliation of the transactions and balances with
42
customers is made, and the transaction data is reported to the director in charge of the operations and the management meeting on a monthly basis.
liquidity risk managementLiquidity risk comprises the risk that the Group cannot meet its
contractual obligations in full on maturity dates. The Group manages its liquidity risk by holding adequate volumes of liquid assets along with adequate financial planning by the finance group.
(4) Fair values of Financial InstrumentsFair values of financial instruments are based on quoted prices in active markets. If quoted prices are not available, other rational valuation techniques are used instead. Please see Note 13 for details of the fair value of derivatives.
(a) Fair value of financial instruments
Millions of yen
November 30, 2013 Carrying Amount Fair Value Unrealized Loss
Cash and cash equivalents ¥ 16,803 ¥ 16,803 —Time deposits 7,073 7,073 —Trade notes and accounts receivable 19,252 19,252 —Marketable and investment securities 4,888 4,888 —Total ¥ 48,016 ¥ 48,016 —Short-term borrowings ¥ 2,982 ¥ 2,982 —Trade notes and accounts payable 3,701 3,701 —Income taxes payable 2,020 2,020 —Long-term debt, including current portion 27,373 30,651 ¥ (3,278)Total ¥ 36,076 ¥ 39,354 ¥ (3,278)
Millions of yen
November 30, 2012 Carrying Amount Fair Value Unrealized Loss
Cash and cash equivalents ¥ 11,670 ¥ 11,670 —Time deposits 9,366 9,366 —
Trade notes and accounts receivable 16,571 16,571 —Investment securities 2,871 2,871 —
Total ¥ 40,478 ¥ 40,478 —
Short-term borrowings ¥ 4,756 ¥ 4,756 —Trade notes and accounts payable 3,686 3,686 —
Income taxes payable 1,600 1,600 —Long-term debt, including current portion 30,580 31,185 ¥ (605)
Total ¥ 40,622 ¥ 41,227 ¥ (605)
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Thousands of U.S. dollars
November 30, 2013 Carrying Amount Fair Value Unrealized Loss
Cash and cash equivalents $ 164,735 $ 164,735 —Time deposits 69,343 69,343 —Trade notes and accounts receivable 188,745 188,745 —Marketable and investment securities 47,922 47,922 —Total $ 470,745 $ 470,745 —Short-term borrowings $ 29,235 $ 29,235 —Trade notes and accounts payable 36,284 36,284 —Income taxes payable 19,804 19,804 —Long-term debt, including current portion 268,363 300,500 $ (32,137)Total $ 353,686 $ 385,823 $ (32,137)
cash and cash equivalents and time DepositsThe carrying values of cash and cash equivalents approximate fair value because of their short maturities.
Investment securitiesThe fair values of equity securities are measured at the quoted market price of the stock exchange for the equity instruments. The fair value of debt securities is measured at the present value of the amounts to be received and is discounted at the current rate for equivalent debt for certain debt instruments. Information about the fair value of investment securities by classification is included in Note 3.
trade notes and Accounts Receivable and Payable, short-term Borrowings, and Income taxes PayableThe carrying values of trade notes and accounts receivable and payable, short-term borrowings, and income taxes payable approximate fair value because of their short maturities.
long-term DebtThe fair value of long-term debt is determined by discounting the cash flows related to the debt at the Group’s assumed corporate borrowing rate. The fair value of convertible bonds is measured at the market price obtained from financial institutions.
DerivativesFair value information for derivatives is included in Note 13.
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Investments in equity instruments that do not have a quoted market price in an active market ¥ 110 ¥ 90 $ 1,078
Investments in unconsolidated subsidiaries and associated companies 865 668 8,480
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(5) Maturity Analysis for Financial Assets and securities with contractual Maturities
Millions of yen
November 30, 2013Due in One Year or Less
Due After One Year Through Five Years
Due After Five Years Through Ten Years
Due After Ten Years
Cash and cash equivalents ¥ 16,803 — — —Time deposits 7,073 — — —Trade notes and accounts receivable 19,252 — — —Available-for-sale securities with contractual maturities 2 ¥ 68 ¥ 100 —Total ¥ 43,130 ¥ 68 ¥ 100 —
Thousands of U.S. dollars
November 30, 2013Due in One Year or Less
Due After One Year Through Five Years
Due After Five Years Through Ten Years
Due After Ten Years
Cash and cash equivalents $ 164,735 — — —Time deposits 69,343 — — —Trade notes and accounts receivable 188,745 — — —Available-for-sale securities with contractual maturities 20 $ 667 $ 980 —Total $ 422,843 $ 667 $ 980 —
Please see Note 5 for annual maturities of long-term debt and Note 11 for obligations under finance leases.
13. DeRIvAtIves The Company and certain subsidiaries enter into foreign currency forward contracts and currency option contracts to hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies. All derivative transactions are entered into to hedge foreign currency exposures incorporated within its business. Accordingly, market risk in these derivatives is basically offset by opposite
movements in the value of hedged assets or liabilities. Because the counterparties to these derivatives are limited to major international financial institutions, the Company and subsidiaries do not anticipate any losses arising from credit risk. Derivative transactions entered into by the Company and subsidiaries have been made in accordance with internal policies which regulate the authorization and credit limit amount.
Derivative transactions to Which hedge Accounting is not Applied
Millions of yen
November 30, 2013Contract Amount
Contract Amount Due After One Year
FairValue
Unrealized Losses
Foreign currency forward contracts:Buying YEN ¥ 1,292 — ¥ (154) ¥ (154)Selling U.S.$ 1,592 — (45) (45)
45
Millions of yen
November 30, 2012Contract Amount
Contract Amount Due After One Year
FairValue
UnrealizedGains (Losses)
Foreign currency forward contracts:Buying U.S.$ ¥ 6 — ¥ 0 ¥ 0
YEN 434 — (1) (1)
EURO 4 — 0 0
Selling U.S.$ 1,862 — (50) (50)
EURO 234 — (11) (11)
Currency option contracts:
Buying:
Call
U.S.$ ¥ 404 — ¥ 11 ¥ 11
(Option fee) (—) (—)
Selling:
Put
U.S.$ 430 — (10) (10)
(Option fee) (—) (—)
Call
U.S.$ 404 — (2) (2)
(Option fee) (—) (—)
Thousands of U.S. dollars
November 30, 2013Contract Amount
Contract Amount Due After One Year
FairValue
Unrealized Losses
Foreign currency forward contracts:Buying YEN $ 12,667 — $ (1,510) $ (1,510)Selling U.S.$ 15,608 — (441) (441)
Derivative transactions to Which hedge Accounting is Applied
Millions of yen
November 30, 2012 Hedged Item Contract Amount
Contract Amount Due After One Year
FairValue
Foreign currency forward contracts:Buying EURO Payables ¥ 73 — ¥ 3
14. contInGent lIABIlItIes At November 30, 2013, the Group had contingent liabilities for notes endorsed with recourse of ¥66 million ($647 thousand).
46
15. coMPRehensIve IncoMe The components of other comprehensive income for the years ended November 30, 2013 and 2012, were as follows:
Millions of yen Thousands of U.S. dollars
2013 2012 2013
Unrealized gain (loss) on available-for-sale securities:Gains (losses) arising during the year ¥ 1,578 ¥ (308) $ 15,471 Reclassification adjustments to profit or loss (1) 10 (10)Amount before income tax effect 1,577 (298) 15,461 Income tax effect (309) 68 (3,030)Total ¥ 1,268 ¥ (230) $ 12,431
Deferred (loss) gain on derivatives under hedge accounting:Gains (losses) arising during the year ¥ 8 ¥ (1) $ 78 Reclassification adjustments to profit or loss (11) 18 (108)Amount before income tax effect (3) 17 (30)Income tax effect 1 7 10 Total ¥ (2) ¥10 $ (20)
Foreign currency translation adjustments:Adjustments arising during the year ¥ 9,264 ¥ 551 $ 90,824 Total ¥ 9,264 ¥ 551 $ 90,824
Share of other comprehensive income in associates— Gains arising during the year ¥ 7 ¥ 1 $ 69
Total ¥ 7 ¥ 1 $ 69 Total other comprehensive income ¥ 10,537 ¥ 332 $ 103,304
16. net IncoMe PeR shARe Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended November 30, 2013 and 2012, is as follows:
Millions of yen Thousands of shares Yen U.S. dollars
For the year ended November 30, 2013 Net Income Weighted-Average Shares EPS
Basic EPSNet income available to common shareholders ¥ 8,619 94,963 ¥ 90.76 $ 0.89
Effect of dilutive securities:
Convertible bonds — 9,130Diluted EPS
Net income for computation ¥ 8,619 104,093 ¥ 82.80 $0.81
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17. RelAteD-PARtY tRAnsActIons
18. suBsequent event
19. seGMent InFoRMAtIon
The Company’s Audit & Supervisory Board member is a representative director of ONOCOM Co., Ltd., which engages in the construction business. The Company purchased properties
The following appropriations of retained earnings at November 30, 2013, were approved at the Company’s shareholders’ meeting held on February 22, 2014:
Millions of yen Thousands ofU.S. dollars
Year-end cash dividends, ¥20 ($0.20) per share ¥ 1,899 $ 18,618
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures” and ASBJ Guidance No.20, “Guidance on Accounting Standard for Segment Information Disclosures,” an entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.
from ONOCOM Co., Ltd. for the years ended November 30, 2013 and 2012, in the amount of nil and ¥897 million, respectively.
1. Description of Reportable Segments The Group is engaged in the manufacturing and sale of cutting tools for industrial applications and has key entities in each region in Japan, the Americas (USA, Canada, Mexico, Brazil, and Argentina), Europe (UK, Belgium, France, Netherlands, Denmark, Spain, Germany, and Italy), and Asia (China, Singapore, Thailand, Taiwan, South Korea, and India). Such key entities are independent management units, which develop and execute a comprehensive regional product strategy. Therefore, the Group consists of four regional segments (Japan, the Americas, Europe, and Asia).
2. Methods of Measurement for the Amounts of Sales, Profit, Assets, and Other Items for Each Reportable Segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summary of Significant Accounting Policies.”
Millions of yen Thousands of shares Yen
For the year ended November 30, 2012 Net Income Weighted-Average Shares EPS
Basic EPSNet income available to common shareholders ¥ 7,138 94,966 ¥ 75.16
Effect of dilutive securities:
Convertible bonds — 6,037
Diluted EPSNet income for computation ¥ 7,138 101,003 ¥ 70.67
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3. Information about Sales, Profit, Assets, and Other Items
Millions of yen
Reportable Segment
2013 Japan The Americas Europe Asia Total Reconciliations Consolidated
SalesSales to external customers ¥ 41,922 ¥ 16,094 ¥ 7,828 ¥ 22,535 ¥ 88,379 — ¥ 88,379Intersegment sales or transfers 13,794 189 24 1,270 15,277 ¥ (15,277) —
Total ¥ 55,716 ¥ 16,283 ¥ 7,852 ¥ 23,805 ¥ 103,656 ¥ (15,277) ¥ 88,379
Segment profit ¥ 6,788 ¥ 1,644 ¥ 766 ¥ 4,212 ¥ 13,410 ¥ (583) ¥ 12,827Segment assets 90,710 17,332 8,037 40,934 157,013 (22,510) 134,503Other:
Depreciation and amortization 4,103 605 176 1,945 6,829 (112) 6,717Amortization of goodwill — — 59 31 90 — 90
Amount of investment in equity of affiliates 117 8 — — 125 — 125
Increase in property, plant, and equipment and intangible assets 2,381 923 455 1,898 5,657 (103) 5,554
Millions of yen
Reportable Segment
2012 Japan The Americas Europe Asia Total Reconciliations Consolidated
SalesSales to external customers ¥ 44,212 ¥ 13,606 ¥ 6,492 ¥ 19,774 ¥ 84,084 — ¥ 84,084Intersegment sales or transfers 14,819 209 23 1,149 16,200 ¥ (16,200) —
Total ¥ 59,031 ¥ 13,815 ¥ 6,515 ¥ 20,923 ¥ 100,284 ¥ (16,200) ¥ 84,084
Segment profit ¥ 7,773 ¥ 1,601 ¥ 666 ¥ 4,280 ¥ 14,320 ¥ (366) ¥ 13,954
Segment assets 90,296 13,109 5,528 34,132 143,065 (21,375) 121,690
Other:
Depreciation and amortization 3,922 484 126 1,256 5,788 (100) 5,688
Amortization of goodwill － 29 123 — 152 — 152
Amount of investment in equity of affiliates 103 9 — — 112 — 112
Increase in property, plant, and equipment and intangible assets 5,091 1,235 494 4,275 11,095 (302) 10,793
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Thousands of U.S. dollars
Reportable Segment
2013 Japan The Americas Europe Asia Total Reconciliations Consolidated
SalesSales to external customers $ 411,000 $ 157,784 $ 76,745 $ 220,932 $ 866,461 — $ 866,461 Intersegment sales or transfers 135,235 1,853 236 12,451 149,775 $ (149,775) —
Total $ 546,235 $ 159,637 $ 76,981 $ 233,383 $ 1,016,236 $ (149,775) $ 866,461
Segment profit $ 66,549 $ 16,118 $ 7,510 $ 41,294 $ 131,471 $ (5,716) $ 125,755 Segment assets 889,314 169,921 78,794 401,314 1,539,343 (220,686) 1,318,657Other:
Depreciation and amortization 40,226 5,931 1,725 19,069 66,951 (1,098) 65,853Amortization of goodwill — — 578 304 882 — 882
Amount of investment in equity of affiliates 1,147 78 — — 1,225 — 1,225
Increase in property, plant, and equipment and intangible assets 23,343 9,049 4,461 18,608 55,461 (1,010) 54,451
Notes:1. The reconciliation amount for segment profit, segment assets, depreciation and increase in property, plant, equipment, and intangible assets is the elimination of
intersegment transactions.2. Segment profit is reconciled to operating income in the consolidated statement of income.
Associated Information1. Information about products and services
Millions of yen
2013
Taps End mills Drills & other Rolling dies Gauges Other Total
Sales to external customers ¥ 28,924 ¥ 20,858 ¥ 20,725 ¥ 7,682 ¥ 1,232 ¥ 8,958 ¥ 88,379
Millions of yen
2012
Taps End mills Drills & other Rolling dies Gauges Other Total
Sales to external customers ¥ 29,379 ¥ 18,473 ¥ 19,839 ¥ 7,281 ¥ 1,176 ¥ 7,936 ¥ 84,084
Thousands of U.S. dollars
2013
Taps End mills Drills & other Rolling dies Gauges Other Total
Sales to external customers $ 283,569 $ 204,490 $ 203,186 $ 75,314 $ 12,078 $ 87,824 $ 866,461
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2. Geographical information(1) Sales
Millions of yen
2013
Japan USA Other Americas Europe China Other Asia Other Total
¥ 41,106 ¥ 11,355 ¥ 4,674 ¥ 7,881 ¥ 10,352 ¥ 13,007 ¥ 4 ¥ 88,379
Millions of yen
2012
Japan USA Other Americas Europe China Other Asia Other Total
¥ 43,685 ¥ 9,302 ¥ 4,225 ¥ 6,539 ¥ 8,976 ¥ 11,355 ¥ 2 ¥ 84,084
Thousands of U.S. dollars
2013
Japan USA Other Americas Europe China Other Asia Other Total
$ 403,000 $ 111,323 $ 45,824 $ 77,265 $ 101,490 $ 127,520 $ 39 $ 866,461
Note: Sales are classified by country or area based on the location of customers.
(2) Property, plant, and equipment
Millions of yen
2013
Japan The Americas Europe Asia Total
¥ 29,859 ¥ 4,882 ¥ 1,471 ¥ 16,256 ¥ 52,468
Millions of yen
2012
Japan The Americas Europe Asia Total
¥ 31,132 ¥ 3,475 ¥ 932 ¥ 12,475 ¥ 48,014
Thousands of U.S. dollars
2013
Japan The Americas Europe Asia Total
$ 292,735 $ 47,863 $ 14,422 $ 159,372 $ 514,392
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3. Information about goodwill and negative goodwill by reportable segment
Millions of yen
2013
Japan The Americas Europe Asia Corporate/Elimination Total
Amortization of goodwill — — ¥ 59 ¥ 31 — ¥ 90Amount of goodwill at November 30, 2013 — — ¥ 251 — — ¥ 251
Millions of yen
2012
Japan The Americas Europe Asia Corporate/Elimination Total
Amortization of goodwill — ¥ 29 ¥ 123 — — ¥ 152Amount of goodwill at November 30, 2012 — — ¥ 310 — — ¥ 310
Thousands of U.S. dollars
2013
Japan The Americas Europe Asia Corporate/Elimination Total
Amortization of goodwill — — $ 578 $ 304 — $ 882 Amount of goodwill at November 30, 2013 — — $ 2,461 — — $ 2,461
The amount and amortization of negative goodwill allocated by business combinations completed before April 1, 2010, are as follows:
Millions of yen
2013
Japan The Americas Europe Asia Corporate/Elimination Total
Amortization of negative goodwill — ¥ 2 — ¥ 16 — ¥ 18Amount of negative goodwill at November 30, 2013 — ¥ 11 — ¥ 64 — ¥ 75
Millions of yen
2012
Japan The Americas Europe Asia Corporate/Elimination Total
Amortization of negative goodwill — ¥ 2 — ¥ 16 — ¥ 18Amount of negative goodwill at November 30, 2012 — ¥ 13 — ¥ 80 — ¥ 93
Thousands of U.S. dollars
2013
Japan The Americas Europe Asia Corporate/Elimination Total
Amortization of negative goodwill — $ 19 — $ 157 — $ 176 Amount of negative goodwill at November 30, 2013 — $ 108 — $ 627 — $ 735
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4. Gain on negative goodwillGain on negative goodwill was recognized in Japan due to the purchases of stock of subsidiaries. The amount of gain on negative goodwill was ¥443 million ($4,343 thousand) and nil for the years ended November 30, 2013 and 2012, respectively.
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Independent Auditor’s Report
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Board of Directors
Investor Information
(February 22, 2014)
(November 30, 2013)
Number of Shares Held (Thousands)
Percent Ownership
(%)
State Street Bank and Trust Company 3,914 4.12
The Master Trust Bank of Japan, Co., Ltd. (Trust Account) 3,063 3.23
Northern Trust Company (AVFC) Sub Account American Clients 2,943 3.10
OSG Agent Association 2,858 3.01
OSG Stock Holding Association 2,518 2.65
JuNiPeR 2,374 2.50
Northern Trust Company (AVFC) Sub Account British Clients 2,102 2.21
Sumitomo Mitsui Banking Corporation 2,100 2.21
Toyota Motor Corporation 2,100 2.21
Nomura Trust and Banking Co., Ltd. (investment Trust Account) 2,097 2.21
exeCutIve OFFICeRS
executive officer taeil Chungexecutive officer Koji takeoexecutive officer mike Granthamexecutive officer Kazumasa Koikeexecutive officer mitsuyoshi Hikosakaexecutive officer Hiromi Ohnoexecutive officer Hitoshi masuokaexecutive officer Jeffrey tennantexecutive officer Yasutaka Yoneda
DIReCtORS
ChairmanChief executive officer teruhide Osawa
PresidentChief operating officer norio Ishikawa
Managing Director masatoshi SakuraiManaging Director Koji SonobeManaging Director toru endoManaging Director nobuaki OsawaManaging Director tetsuro HayasakaManaging Director Jiro OsawaManaging Director toshitaka YoshizakiManaging Director Hideaki OsawaDirector takeo nakagawa*1
*1 outside Director
Corporate Auditors
Standing Corporate Auditor Gohei OsawaCorporate Auditor Koji KatoCorporate Auditor Hiroyuki Ohmori*2, *3
Corporate Auditor Kyoshiro Ono*2, *3
Corporate Auditor Yoshiyuki Sakaki*2
*2 outside Auditor*3 Independent Director
Tokyo Stock exchange, Nagoya Stock exchange
CORpORAte DAtA mAJOR SHAReHOlDeRS
StOCK lIStInGS
Date established:
March 26, 1938
Capital:
¥10,404,381,114
Headquarters:
3-22, Honnogahara, Toyokawa, Aichi Prefecture 442-8543, Japan uRL: http://www.osg.co.jp/
http://www.osg-global.jp/Telephone: (+81) 533-82-1113 Fax: (+81) 533-82-1131
number of employees:
5,118 (Consolidated)
number of Shares of Common Stock Issued and outstanding:
98,955,226 shares
Minimum Purchasing Unit of Shares:
100 shares
number of Shareholders:
9,099
Transfer Agent for Shares:
Sumitomo Mitsui Trust Bank, Limited
(Appointed April 1, 2014)
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3-22, Honnogahara, Toyokawa, Aichi Prefecture 442-8543, JapanURL: http://www.osg.co.jp/ http://www.osg-global.jp/
Printed in Japan
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