Kenwood 2005 Annual Report Download - page 10

Major Accomplishments of Consolidated Accounts

Complete Elimination the “Negative Legacy” of the Past to Resume
Distribution of Dividends and Implement Strategies for Full Scale Growth
2005.3
During the last term ended March 2005, which marks the second year of the
first mid-term business plan, the “Excellent Kenwood Plan,” we sought to
enhance our competitiveness of business operations and promote the
growth strategy. This was done by eliminating the “negative legacy” of the
past, achieving a resumption of dividends after six terms by drastically
reforming the financial base and capital structure, implementing
“Production Innovation” as well as M&A, to achieve dramatic growth in the
car electronics OEM business and communications equipment business, with
“Strategic Investments” for the purpose of new growth making a significant
leap into the future.
Successful completion of the “New Financial Strategy” with a
resumption of dividends through carrying out the mid-term
business plan one year ahead of schedule
Dramatic improvement of the financial base and capital
structure through the elimination of the cumulative loss,
redemption of preferred stocks and completion of
refinancing
฀
The “New Financial Strategy” was formulated in May 2004, in order to drastically
reform the financial base and capital structure. We obtained an understanding as
well as the support from the Resona Bank and other financial institutions we deal
with, along with investors and shareholders to complete a scheme that has never
been seen before in Japan, “elimination of the cumulative loss, the redemption of
preferred stocks (halved), termination of financial agreements and dramatic
reduction of interest-bearing debts.”฀
฀

1Elimination of the cumulative loss by capital reduction without
compensation฀
Back on track with the “Resumption of Dividends”
A capital reduction without compensation amounting to JY20 billion through a
procedure involving merely a formality on the books resulted in the elimination of
the cumulative loss both for consolidated and non-consolidated accounts without
changing the amount of net assets or total number of outstanding shares. This
made it possible to redirect the company back on the path with the “Resumption of
Dividends” and changed our capital structure into a sound one.

2Redemption of half of preferred stocks through public share offering฀
A dramatic reduction of impact on shareholders from diluted
shareholder values
Funds were procured through an increased amount of capital gained through public
offering and the issuance of new shares for JY23 billion. A capital reduction with
compensation was also carried out by paying back JY16.1 billion to the first tranche
class-A preferred shareholder (Resona Bank). This resulted in the erasure of half of
preferred stocks issued by us, dramatically reducing the impact from a dilution of
shareholder values in the future.

3Termination of financial agreement and dramatic reduction of interest-
bearing debts by means of refinance: ฀
Independence gained in terms of financial affairs
We procured approximately JY30 billion through a new syndicated loan that
became available due to the elimination of cumulative loss and by halving the
preferred stocks. These funds together with funds on hand were used to complete
Changes in Retained Earnings (Cumulative Loss)
Billions of yenShares in millionBillions of yen
2003/3 2004/32002/3 2005/3
-50
-40
-30
-20
-10
0
10
20
Non-consolidated Consolidated
44.6
38.6 40.3
34.2
18.1
9.8
4.7
13.2
Reduction of Impact from Dilution in
Shareholders’ Value
Common stock
Number of shares if all of Class B Preferred stock has been converted to common stock
Class A Preferred Stock
Number of new shares issued in the public offering
Class B Preferred Stock
2004/3 2005/3
0
100
200
300
400
500
approx.
128
approx.
128
approx.
133
approx.
92
potential
common
stock
0
20
40
60
80
100
120
140
Changes in Interest-bearing Debts and Net Debt
Net debt Degree of indebtedness
%฀
90
20
30
40
50
70
60
80
2003/32002/3 2004/3
Cash & deposits
2005/8
67.3
29.9
80.9
50.1
Interest-
bearing
Debt
110.1
85.9
31.1
15.1
60.2%
56.9%
49.6%
26.8%
Syndicated loan agreement
with a commitment line of
JPY40 billon (as of 04/8/23)
Raised approx. JPY30 billon
(as of 04/8/31)
Elimination of the
Cumulative Loss by
reducing capital
(as of 04/8/6)
10 Fiscal Year through March 2005