Kenwood 2006 Annual Report Download - page 12

Completing Reforms of Financial Base and
Capital Structure
Completed the final stage of reforms on financial and
capital structures that started in fiscal year ended March
2003 by fully redeeming preferred stocks
The Company conducted an onerous redemption of a half of its
preferred stocks in the fiscal year ended March 2005, and redeemed
the remaining preferred stocks in the current fiscal year ended
March 2006. As a result, the Company became Japan’s first
company to fully redeem preferred stocks through a debt-for-equity
swap, and completed the final stage of the reforms on financial and
capital structures and also finished a series of its structural reforms.
These reforms on financial and capital structures contributed to
the financial results for the current fiscal year. Compared to the
previous fiscal year, financial results significantly improved.
Specifically, consolidated shareholders’ equity for the current fiscal
year finished at JPY37.5 billion, shareholders’ equity ratio settled at
approximately 34.2%, consolidated retained earnings totaled
approximately JPY18.3 billion, and net debt was approximately
JPY12.2 billion.
Additionally, the Company returned to the national government
past service pension assets that it had been managing within the
employees’ pension fund in July 2005, and generated an
extraordinary profit of approximately JPY4.9 billion. As a result, the
amount of retirement benefit liabilities fell by approximately half,
and these measures are also projected to significantly reduce future
liabilities.
Redemption of all preferred stocks due to
elimination of all negative legacies, and reducing
the dilution impact to shareholders
In August 2005, the Company completed the redemption of its
Class B Preferred Stock by returning JPY15.0 billion to the preferred
shareholder (Resona Bank). In order to do this, approximately
JPY11.0 billion was raised through a public offering, and combined
with approximately JPY4.0 billion of cash on hand. By doing so, the
Company was able to return more than the book value of the stock
(JPY12.5 billion) to its Class B Preferred Shareholder, similar to
payments made to the Class A Preferred Shareholder in the previous
fiscal year. Moreover, all of the preferred stocks issued as a result of
the debt-for-equity swap carried out in December 2002 were
redeemed, allowing the Company to reduce the dilution impact on
shareholder value to 40% of the dilution that would have been seen
if all of the preferred stocks had been converted to common
stock.
As shown above, the Company succeeded in improving its
financial base and capital structure, eliminating all negative legacies
left behind from prior years, and completing the series of structural
reforms that it has been implementing since the fiscal year ended
March 2003. At this time, we would like to again thank all the
shareholders and creditors, with a special thank you to financial
institutions, for their support and patience through this transitional
time.
Extraordinary Profit due to returning to the
national governmental past service pension
assets and reduction of retirement benefit
liabilities by half
Following on from the Company obtaining approval to be released
from paying future portions of past service pension assets managed
by the Kenwood Pension Fund on April 1, 2004, the Company
received permission to return to the national government a certain
portion of these assets on July 1, 2005. As expected, the Company
generated an extraordinary profit of approximately JPY4.9 billion in
the first half of the fiscal year as a result of this move. As a result,
the amount of retirement benefit liabilities fell by approximately half
from JPY38.4 billion at the end of the previous fiscal year to JPY18.6
billion at the end of the current fiscal year, and future related
liabilities were also reduced significantly.
Major Accomplishments of Consolidated Accounts for the Fiscal Year Ended March 2006
Shares in Million
JPY in Billion
Class B Preferred Stock
Class A Preferred Stock
Redemption of All Preferred Stocks
Common Stock
2005/32004/3
128
Potential
Common
Stock
(55% reduced)
128
210
92
216
133
as of 2005/8/8
60
Public offering
JPY22 billion
Public offering
JPY11 billion
500
300
400
200
100
0
Shareholders' Equity and Equity Ratio
Shareholders' Equity Ratio
(%)
Shareholders' Equity
2003/32002/3 2005/3 2006/3
2004/3
13.7
−17.0
33.1
JPY25 billion of preferred stock through DES
JPY2 billion by third party allocation
JPY22 billion by
public offering
Redemption of JPY16.1 billion
of preferred stock
JPY11.1 billion by
public offering
Redemption of JPY15 billion
of preferred stock
−9.3%
9.6%
20.2
14.9%
28.5%
37.5
34.2%
-10
10
20
30
40
-20
0
40
-10
20
10
30
-20
0
12