Summarized Business Results Consolidated Financial Statements for Fiscal 2003

Transcription

1 Summarized Business Results Consolidated Financial Statements for For Immediate Release May 23, 2003 The management of Focus Systems Corporation (4662 JASDAQ), is pleased to inform you of the Company s summarized business results for fiscal 2003, ended March 31, If you have any question, please address, call, or send to: Mr. Yoshifumi Hatayama, Senior Managing Director Focus Systems Corporation 7-8, Higashi-Gotanda 2-chome, Shinagawa-ku, Tokyo , Japan Tel: Fax: hatayama@focus-s.com 1. Performance in (from April 1, March 31, 2003) *s under one million yen have been rounded down. *Numbers in parentheses indicate percentage increase/decrease over previous fiscal year. (1) Results (Millions of yen, except for per share figures) Net Sales Operating Income Ordinary Income 13,849 ( 3.3%) 168 ( 28.8%) 86 ( 45.0%) 14,317 ( 5.5%) 237 ( 78.5%) 156 ( 85.0%) Net Income Net Income per Share (Yen) Fully Diluted Net Income per Share (Yen) Return on Equity (%) Ordinary Income/Total Assets (%) Ordinary Income/Net Sales (%) 1,314 ( %) % 0.6% 0.6% 559 ( %) % 1.0% 1.1% Notes: 1. Gain/loss on investments based on equity method: 9 million (fiscal 2002: 19 million) 2. Weighted average numbers of shares of common stock issued in fiscal 2003, ,036,100 shares 9,036,100 shares 3. Changes in accounting method: Applicable 4. Percentage figures shown in the net sales, operating income, ordinary income, and net income columns indicate year-on year changes for those items.

2 (2) Financial Position 15,268 Total Assets Notes: Number of shares of common stock issued at end of the year : 9,036,100 shares : 9,036,100 shares Shareholders Equity 4,945 (Millions of yen, except for per share figure) Equity Ratio (%) 32.4% Shareholders Equity per Share (Yen) ,182 6, % (3) Cash Flows Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities (Millions of yen) Cash and Cash Equivalents at End of Year ,345 1, ,484 1,137 (4) Included in Scope of Consolidation or Applicable under Equity Method Consolidated subsidiaries: 5 Nonconsolidated subsidiaries: 1 Affiliates: 1 (5) Changes in Scope of Consolidation or Equity Method Consolidated subsidiaries Newly included: 0 Newly exempted: 0 Affiliates (based on equity method) Newly included: 1 Newly exempted: 1 2. Projections for Fiscal 2004 (from April 1, March 31, 2004) (Millions of yen) Net Sales Ordinary Income Net Income First six months Full year 5,400 13, Reference: Projected net income per share (full year): Please refer to pages six and seven (3. Performance and 4. Financial Position) of the appended materials for details of the assumptions behind the above forecasts and information on related matters. 2

3 1. The Focus Systems Group The Focus Systems Group comprises the parent company, five consolidated subsidiaries, one nonconsolidated subsidiary accounted for by the equity method, and one affiliate accounted for by the equity method. The consolidated subsidiaries are Vista Co., Ltd., C4 Technology, Inc., Open Technology Co., Ltd., Focus Pictures Corporation, and Kanet Inc. The nonconsolidated subsidiary is C4 Systems, Inc. and the affiliate is Inos Co., Ltd. Group businesses encompass commissioned software development, systems maintenance, sales of security products based mainly on Focus Systems C4 encryption technology, and the marketing of imaging products. Each company concentrates on commissioned software development, systems maintenance and operations, and information security. Such operations are central to our drive to contribute to society as a leading information technology player. Focus Systems is striving to absorb and accumulate state-of-the-art technologies through its investments, which include those in companies that can become subsidiaries. The Group s structure is as follows: Customers Orders Deliveries Focus Systems Corporation Handling external orders and stocking and selling products Consolidated subsidiaries Equity method nonconsolidated subsidiaries Equity method affiliates Vista Co., Ltd. Partner management Commissioned work relating to personnel training C4 Technology, Inc. Security business Developing encryption engine Open Technology Co., Ltd. Commissioned development of core software for DVD and other new media Kanet, Inc. Virtual private network and software development Focus Pictures Corporation Producing, selling, and importing still image and video contents Outsourced and joint development C4 Systems, Inc. Software development Inos Co., Ltd. Software development Note: Effective July 1, 2002, C4 Technology acquired all the issued and outstanding shares of Vie System. From October 1, 2002, the second half of fiscal 2003, the latter company was accounted for under the equity method as a nonconsolidated subsidiary. Effective April 1, 2003, Vie System was renamed C4 Systems, Inc. On February 25, 2003, consolidated subsidiary C4 Technology listed on Mothers, a high-growth and emerging stocks market that the Tokyo Stock Exchange established in

4 1) Basic Management Policies Our Group management philosophy is to contribute to society through our growth. Our basic policy is to provide advanced software that enhances security and efficiency, thereby continuing to progress with our customers, shareholders, business partners, and employees. 2) Basic Dividend Policies Management accords top priority to returning profits to shareholders. We aim to ensure stable dividends while striving to maintain and expand our competitiveness and building enterprise value. Our profit-sharing policies center on performance-based payout ratios. 3) Management Indices The Focus Systems Group aims to boost long-term revenues and earnings, as part of which it seeks a medium-term return on equity of 10%. This level would allow the Group to remain an independent provider of leading-edge technology. 4) Medium-Term Management Strategies 2. Management Policies The Group plans to become stronger through a basic strategy of all its companies working together to expand their enterprise values. While tackling near-term management issues, we are also working to respond flexibly to potential changes in the operating environment through management initiatives that we update annually. While concentrating on stably expanding commissioned software development operations, we will also endeavor to reinforce our systems maintenance and operations capabilities as our second business pillar. To that end, in April 2003 we separated the IT Services Business Department from the Development Department. With the earlier creation of the Security Department, we now have an operating structure of three core businesses. Despite posting a net loss for the second consecutive year, the Company was able to secure sufficient working capital, such as by concluding a commitment line agreement on March 27, The extraordinary losses registered during the term mainly reflected temporary factors, notably efforts to eliminate unprofitable projects. The Company will harness its positive ties with its customers to improve management transparency and efficiency. 4

5 5) Challenges Our first priority is to swiftly set up a management structure that allows us to win entire projects with high returns, to that end cultivating managers to spearhead such projects. Second, it is critical to expand our customer base beyond outstanding companies. Third, we will take advantage of the listing of Group company C4 Technology so our C4 brand of encryption products can contribute fully to sales and profits. 6) Basic Stance and Policies on Corporate Governance Focus Systems has long endeavored to ensure fast, dynamic decision-making by maintaining a small board of directors. Two of our three auditors are from outside the Company. One of the external auditors is a taxation accountant, while the other is a former president of one of our business partners. We strive to disclose of important corporate information in a timely and equitable manner and maintain fair and transparent management practices. 5

6 3. Performance 1) Results The Japanese economy remained stagnant in the year under review. Toward the end of the term, the world experienced the turmoil of the U.S. attack on Iraq and new gaps I the international cooperative structure, making it difficult to confidently establish an outlook for the year ahead. In the information services industry end users again constrained their spending on information technology and became more selective. This maintained downward pricing pressure and resulted in more projects that were unprofitable. Against this backdrop, the Focus Systems Group took various steps to turn around sales and earnings, but failed to reach its goals. The revenues and earnings of the commissioned software development, systems maintenance and management, and security businesses were all less than anticipated. We intend to create a structure in which we can consistently deliver attractive sales and profits by reviewing our project administration techniques, stepping up cost controls, and assessing orders more accurately. While maintaining friendly relationships with customers, management recognized the need to take decision steps to reduce the number of unprofitable projects. It became particularly clear in the second half of the term that the Company would have to terminate some projects, while losses became apparent in other projects during that period, prompting ongoing discussions to tackle these issues. The Company thus posted 2,133 million in extraordinary losses, which included 1,770 million in write-off of inventories and 291 million in compulsory write down of investment securities. As a result of the above factors, net sales were 13,849 million, ordinary income was 86 million, and net loss was 1,314 million. 2) Outlook for Fiscal 2004 The prospects for the Japanese economy remain unclear. Nonetheless, we are increasingly confident in our performance outlook. That is because we expect awareness of our C4 encryption software brand to improve in light of the February 25, 2003, listing of Group company C4 Technology on the Mothers section of the Tokyo Stock Exchange. For fiscal 2004, we project consolidated net sales of 13,500 million, ordinary income of 500 million, and net income of 350 million. 6

7 4. Financial Position Focus Systems registered only minimal earnings at the recurring level in fiscal Although liquidity shrank, management was able to cover the shortfall with borrowings from financial institutions. At the end of the year, cash and cash equivalents comprised cash and readily accessible bank accounts and were up 302 million from a year earlier, at 1,440 million. Net cash used in operating activities was down, at 834 million, reflecting reduced order prices, a decline in sales following adjustments to small projects, and unprofitable projects. Net cash used in investing activities decreased 208 million, owing to mainly because of payments for purchases of intangible fixed assets. Net cash provided by financing activities increased to 1,345 million, owing mainly to additions to proceeds from long-term debt and proceed from bond issuance. In fiscal 2004, Focus Systems intends to improve profitability by stepping up budget management by project. We assume that the valuation of our marketable securities portfolio will be the same as in fiscal 2003, so these should be no valuation losses. The Company will post extraordinary losses on retirement benefit obligations, although these will be well within manageable limits. 7

8 Consolidated Balance Sheet ASSETS Current Assets: Cash and time deposits Notes and accounts receivable trade Inventories Deferred income taxes Other current assets Less: Allowance for doubtful accounts Total Current Assets (at March 31, 2003) 1,716,390 3,920,376 1,289, , ,256 47,212 7,740,077 Share of Total (%) 50.7 (at March 31, 2002) 1,597,768 4,331,341 1,572, , ,065 46,516 7,989,053 Share of Total (%) 52.6 (Thousands of yen) Increase/ Decrease over 118, , , , , ,976 Fixed Assets: Property and Equipment: Buildings and structures Land Other Total property and equipment 673,202 3,304, ,592 4,142, ,193 3,304, ,069 4,156, ,990 11,476 14,467 Intangible fixed assets Software Goodwill Other Total Intangible fixed assets 943,628 60,303 30,473 1,034, , ,721 26, , ,629 49,417 3,939 58,151 Investments and Other Assets: Investment securities Long-term loans Deferred income taxes Other investments Less: Allowance for doubtful accounts Total investments and other assets 572, , , ,663 17,857 2,351, , , , ,861 17,871 2,059, , , ,425 53, ,375 Total Fixed Assets 7,528, ,192, ,059 Total Assets 15,268, ,182, ,082 Notes: s under one thousand yen have been rounded down. 8

9 LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITY (at March 31, 2003) Share of Total(%) (at March 31, 2002) Share of Total(%) (Thousands of yen) Increase/ Decrease over Current Liabilities: Accounts payable trade 1,694,292 1,663,573 30,719 Bonds due within one year Bank loans Current portion of long-term debt Accrued income taxes Accrued bonuses Other current liabilities Total Current Liabilities 120,000 1,730,600 1,518,608 29, , ,661 5,775, ,267,800 1,277,095 28, , ,714 5,960, , , ,513 1, , ,875 Long-term Liabilities: Corporate bonds Convertible bonds Long-term debt Accrued severance indemnities Other long-term liabilities Total Long-term Liabilities Total Liabilities 1,080, ,000 2,705, ,027 12,845 4,115,342 9,890, ,000 2,516, ,755 25,184 2,803,350 8,763, ,080, ,059 55,272 12,338 1,311,992 1,127,116 Minority Interest 432, , ,388 Shareholders Equity: Common stock Additional paid-in capital Retained earnings Unrealized net losses on securities Less: Common stock held in treasury at cost Total Shareholders Equity Total Liabilities, Minority Interest and Shareholders Equity 2,855,421 2,799, ,087 19,119 4,945, ,945,122 15,268, (4.5) (0.1) 32.4 (0.0) ,855,421 2,799, , ,895 6,270, ,270,545 15,182, (0.7) 41.3 (0.0) ,423,199 97,776 1,325,423 1,325,423 86,082 Note: s under one thousand yen have been rounded down. 9

10 Consolidated Income Statements Net Sales Cost of Sales Gross Profit Selling, General and Administrative Expenses Operating Income Other Income Interest and dividend income Rental income Return from insurance Equity in gain of affiliated companies Other Other Expenses Interest Expense Loss on sales of investment securities New share issue costs Amortization of bond issue costs Provision for doubtful accounts Equity in loss of affiliated companies Other Ordinary Income Non-recurring Income Gain on investment in subsidiaries due to change in ownership rate Gain on sales of affiliate Non-recurring Loss Write-off of inventories Write down of investment securities Write down of membership Write-off from changes in accounting standards for estimated retirement allowance Bad debt loss Debt guarantee loss Loss on disposition of intangible fixed assets Loss on investments in subsidiaries due to change in ownership rate Loss resulting from the cansellation of outsourcing contract Loss on disposition of prepayments Office relocation expense Other Income orloss before Income Taxes Income Taxes: Current Income taxes-deferred Minority interest in income (loss) of consolidated subsidiaries Net Loss (ended March 31, 2003) 13,849,696 12,048,723 1,800,972 1,632, , ,799 26,321 26,968 5,951 9,151 41, , ,816 20,509 33,990 27,266 86,126 69,101 49,532 19,568 2,133,343 1,770, ,329 17,249 24,248 9,527 9,010 11,192 1,978,115 56, , ,314,766 Share of Total (%) (14.3) 0.4 (5.2) (0.0) (9.5) (ended March 31, 2002) 14,317,482 12,457,873 1,859,608 1,622, ,096 78,438 28,641 21,133 11,144 17, ,986 90,474 15,489 17,821 19,155 16, ,548 12,545 12, , ,399 24, ,323 18,665 15,453 21,300 43, ,297 55, ,612 7, ,100 Share of Total (%) (5.7) 0.4 (2.2) (0.0) (3.9) (Thousands of yen) Increase/ Decrease over 467, ,150 58,636 9,550 68,186 31,360 2,319 5,834 5,192 9,151 23,888 33,596 20,341 15,489 20,509 33,990 17,821 19,155 11,220 70,422 56,555 49,532 7,022 1,150,951 1,770,783 2,929 17, ,323 18,665 15,453 21,300 43,000 9,527 9,010 11,192 1,164,818 1, ,043 6, ,665 Notes: s under one thousand yen have been rounded down. 10

11 Consolidated Statements of Retained Earnings (ended March 31, 2003) (Thousands of yen) (ended March 31, 2002) Balance at Begining of Year 1,424,645 Decrease Cash dividends Directors bonus Net Loss Balance at End of Year 108,433 25, , , ,111 CAPITAL SURPLUS: Balance at Begining of Year Additional paid-in capital at begining of Year Balance at End of Year 2,799,948 2,799,948 EARNED SURPLUS: Balance at Begining of Year Consolidation retained earnings at begining of Year Decrease in Retained Earnings Cash dividends Net Loss Balance at End of Year 108,433 1,314, ,111 1,423, ,087 Note: s under one thousand yen have been rounded down. 11

12 Consolidated Statements of Cash Flows (Thousands of yen) Cash Flows from Operating Activities: Income before income taxes Depreciation Amortization of software Amortization of goodwill Provision for doubtful accounts Provision for employee retirement benefits Increase ( decrease) in bonuses Interest and dividend income Interest expence Gain on sales of affiliate Loss on sales of investment securities Equity in loss ( gain) of affiliated companies Write down of marketable and investment securities Loss resulting from the cancellation of outsourcing contract ( Gain) or loss on investment in subsidiaries due to change in ownership rate Loss on disposition of intangible fixed assets Bad debt loss Loss on disposition of prepayments ( Increase) Decrease in notes and accounts receivable ( Increase) Decrease in inventories Decrease in accounts payable Decrease in accrued consumption tax Payments for directors bonuses Other, net Sub total Interest and dividends received Interest paid Income taxes paid Net cash used in operating activities Cash Flows from Investing Activities: Payments for deposit account Proceeds from payout of time deposit account Proceeds from sales of marketable securities Payments for purchases of investment securities Proceeds from sales of investment securities Payments for additional investments in subsidiary Payments for additional investments in subsidiary according to changes on scope of consolidation Proceeds from sales of affiliated company Payments for loans Proceeds from collection of loans Payments for acquisition of tangible fixed assets Payments for purchases of intangible fixed assets Other Net cash used in investing activities Note: s under one thousand yen have been rounded down. (ended March 31, 2003) 1,978, , ,827 22, , , ,816 19,568 9, ,329 49,532 9, , ,579 81,783 30, , ,795 26, ,040 55, , , ,843 32,678 10,000 4,100 64, , , , ,050 (ended March 31, 2002) 813, ,647 89,164 13,183 11,526 48,969 13,984 28,641 90,474 12,545 15,489 19, ,399 43,000 21,300 15, , , , ,196 10,960 25,000 48, ,829 27,902 92, , , ,569 50,066 60,250 39,586 81, ,000 5,089 26, , , , ,470 3, ,773 12

13 Consolidated Statements of Cash Flows (Thousands of yen) Cash Flows from Financing Activities: Increase ( Decrease) in short-term borrowings Proceeds from issuance of long-term debt Payments of long-term debt Proceeds from bond issuance Proceeds from minority shareholders Dividends paid Proceeds from share issuance Net cash provided by financing activities Net Increase ( Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year Note: s under one thousand yen have been rounded down. (ended March 31, 2003) 537,200 4,731,560 4,300,988 1,200, , ,399 1,345, ,799 1,137,888 1,440,688 (ended March 31, 2002) 482,500 6,259,383 5,179,849 1, ,532 27,500 1,484, ,442 1,560,331 1,137,888 13