EX-99.1 11 ex991aimservicesfinancials.htm AIM SERVICES CO., LTD. FINANCIAL STATEMENTS EX 99.1 AIM SERVICES Financial Statements
Exhibit 99.1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
AIM SERVICES Co., Ltd.
Tokyo, Japan:

We have audited the accompanying consolidated financial statements of AIM SERVICES Co., Ltd. and its subsidiaries (the "Company"), which comprise the consolidated balance sheets as of March 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended March 31, 2014, and the related notes to the consolidated financial statements (all expressed in Japanese yen).
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan ("Japanese GAAP"); this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AIM SERVICES Co., Ltd. and its subsidiaries as of March 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2014 in accordance with Japanese GAAP.
Emphasis of Matter
Japanese GAAP varies in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 14 to the consolidated financial statements. Our opinion is not modified with respect to this matter.
Convenience Translations
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

/s/DELOITTE TOUCHE TOHMATSU LLC

Tokyo, Japan
July 30, 2014



AIM SERVICES Co., Ltd. and Subsidiaries

Consolidated Balance Sheets
March 31, 2014 and 2013
 
Thousands of Yen
 
Thousands of U.S. Dollars (Note 1)
 
2014
 
2013
 
2014
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
Cash and cash equivalents (Note 2.b)
¥
7,090,200

 
¥
7,709,209

 
$
68,837

Time Deposit
100,000

 
—

 
971

Receivables:
 
 
 
 
 
Trade notes
3,490

 
2,241

 
34

Trade accounts
14,432,939

 
14,292,354

 
140,126

Other
364,654

 
167,262

 
3,540

Inventories (Notes 2.c and 4)
1,907,259

 
1,762,801

 
18,517

Short-term loans
2,275

 
3,117

 
22

Deposit (Notes 2.b and 12)
5,250,000

 
3,500,000

 
50,971

Deferred tax assets (Notes 2.p and 7)
1,867,208

 
1,814,557

 
18,128

Prepaid expenses and other
518,700

 
352,779

 
5,036

Allowance for doubtful accounts
(4,668
)
 
(8,933
)
 
(45
)
Total current assets
31,532,057

 
29,595,387

 
306,137

 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT (Notes 2.f, 2.h, 2.m, 2.n, 8 and 9):
 
 
 
 
 
Land
213,238

 
292,423

 
2,070

Buildings and structures
1,258,555

 
1,209,382

 
12,219

Machinery and equipment
326,741

 
288,072

 
3,172

Furniture and fixtures
1,706,971

 
1,731,085

 
16,573

Lease assets
1,791,451

 
1,594,140

 
17,393

Total
5,296,956

 
5,115,102

 
51,427

Accumulated depreciation
(3,110,669
)
 
(2,834,722
)
 
(30,201
)
Net property, plant and equipment
2,186,287

 
2,280,380

 
21,226

 
 
 
 
 
 
INTANGIBLE ASSETS (Note 2.h):
 
 
 
 
 
Software (Note 2.g)
     589,720

 
     690,359

 
5,725

Goodwill (Note 2.a)
934,295

 
1,252,233

 
9,071

Other assets
47,128

 
51,830

 
458

Total intangible fixed assets
1,571,143

 
1,994,422

 
15,254

 
 
 
 
 
 
INVESTMENTS AND OTHER ASSETS:
 
 
 
 
 
Investment securities (Notes 2.d and 3)
841,751

 
756,298

 
8,172

Investment in an associated company (Note 2.e)
1,001,298

 
910,378

 
9,721

Golf membership (Note 2.i)
190,155

 
190,155

 
1,846

Lease deposits (Note 2.j)
921,493

 
908,267

 
8,947

Insurance deposits (Note 2.k)
311,986

 
413,418

 
3,029

Deferred tax assets (Notes 2.p and 7)
691,854

 
479,500

 
6,717

Other assets (Note 5)
247,520

 
265,756

 
2,403

Allowance for doubtful accounts
(58,837
)
 
(71,445
)
 
(571
)
Total investments and other assets
4,147,220

 
3,852,327

 
40,264

TOTAL
¥
39,436,707

 
¥
37,722,516

 
$
382,881

Continued on following page.

2

AIM SERVICES Co., Ltd. and Subsidiaries

Consolidated Balance Sheets
March 31, 2014 and 2013    
 
Thousands of Yen
 
Thousands of
U.S. Dollars
(Note 1)
 
2014
 
2013
 
2014
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
Payables:
 
 
 
 
 
Trade notes
¥
162,880

 
¥
220,560

 
$
1,581

Trade accounts (Note 12)
8,426,198

 
8,050,403

 
81,808

Other
167,014

 
396,519

 
1,621

Income tax payable
1,603,427

 
1,273,328

 
15,567

Consumption tax payable
783,006

 
1,008,494

 
7,602

Accrued bonuses to employees
3,926,631

 
3,587,549

 
38,123

Accrued bonuses to directors and corporate auditors
29,250

 
29,250

 
284

Other accrued expenses
6,777,089

 
6,819,843

 
65,797

Other current liabilities (Notes 2.m and 8)
1,144,098

 
1,534,547

 
11,108

Total current liabilities
23,019,593

 
22,920,493

 
223,491

 
 
 
 
 
 
LONG‑TERM LIABILITIES:
 
 
 
 
 
Liability for retirement benefits (Notes 2.l and 5)
1,784,428

 
1,109,515

 
17,325

Retirement benefits for directors and corporate auditors (Note 2.l)
61,358

 
63,596

 
596

Long-term lease obligations (Notes 2.m and 8)
699,597

 
747,683

 
6,792

Other long-term liabilities (Notes 2.n and 9)
272,450

 
228,645

 
2,645

Total long-term liabilities
2,817,833

 
2,149,439

 
27,358

EQUITY (Notes 6 and 13)
 
 
 
 
 
Common stock—authorized, 7,000,000 shares; issued, 556 shares in 2014 and 2013; and class shares subject to call option-authorized, 14,000,000 shares; issued, 11,507,826 shares in 2014 and 2013
1,909,797

 
1,909,797

 
18,542

Class A shares—authorized, 7,000,000 shares;
issued, no shares in 2014 and 2013
—

 
—

 
—

Additional paid-in capital
2,591,398

 
2,591,398

 
25,159

Retained earnings (Note 2.q)
10,169,355

 
8,766,148

 
98,732

Treasury stock—at cost:
 
 
 
 
 
Common stock—2 shares in 2014 and 2013; and class shares subject to call option—11,507,826 shares in 2014 and 2013
(680,820
)
 
(680,820
)
 
(6,610
)
Accumulated other comprehensive income (Note 2.t)
 
 
 
 
 
Unrealized gain on available-for-sale securities
118,295

 
66,061

 
1,148

Remeasurements of defined benefit plans (Note 2.l)
(508,744
)
 
—

 
(4,939
)
Total equity
13,599,281

 
12,652,584

 
132,032

TOTAL
¥
39,436,707

 
¥
37,722,516

 
$
382,881


See notes to consolidated financial statements.

3


AIM SERVICES Co., Ltd. and Subsidiaries

Consolidated Statements of Income
Years Ended March 31, 2014, 2013 and 2012
 
Thousands of Yen
 
Thousands of U.S. Dollars
(Note 1)
 
2014
 
2013
 
2012
 
2014
NET SALES (Note 2.s)
¥
156,001,090

 
¥
151,125,577

 
¥
147,608,039

 
$
1,514,574

COST OF SALES (Notes 8 and 12)
138,273,766

 
133,416,552

 
130,143,576

 
1,342,464

Gross profit
17,727,324

 
17,709,025

 
17,464,463

 
172,110

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 2.j, 8 and 12)
12,389,362

 
12,252,188

 
11,640,463

 
120,285

Operating income
5,337,962

 
5,456,837

 
5,824,000

 
51,825

OTHER INCOME (EXPENSES):
 
 
 
 
 
 
 
Interest and dividend income
19,862

 
21,252

 
22,957

 
193

Interest expense
(23,523
)
 
(24,168
)
 
(21,356
)
 
(228
)
Loss on impairment of long-lived assets (Note 2.h)
(79,184
)
 
(2,749
)
 
(14,614
)
 
(769
)
Gain on insurance claim (Note 2.k)
124,029

 
—

 
—

 
1,204

Compensation for loss due to disaster (Note 2.t)
41,542

 
—

 
—

 
403

Equity in earnings of associated company (Note 2.e)
109,690

 
97,328

 
110,410

 
1,065

Other-net
36,626

 
22,990

 
43,631

 
356

Other income-net
229,042

 
114,653

 
141,028

 
2,224

INCOME BEFORE INCOME TAXES
5,567,004

 
5,571,490

 
5,965,028

 
54,049

INCOME TAXES (Notes 2.p and 7):
 
 
 
 
 
 
 
Current
2,793,881

 
2,714,671

 
2,927,892

 
27,125

Deferred
(13,975
)
 
(36,737
)
 
110,495

 
(136
)
Total income taxes
2,779,906

 
2,677,934

 
3,038,387

 
26,989

NET INCOME
¥
2,787,098

 
¥
2,893,556

 
¥
2,926,641

 
$
27,060


 
Yen
 
U.S. Dollars
(Note 1)
 
2014
 
2013
 
2012
 
2014
PER SHARE OF COMMON STOCK (Note 2.r):
 
 
 
 
 
 
 
    Net income
¥
5,030,864.47

 
¥
5,223,024.82

 
¥
5,282,745.54

 
$
48,843.34

    Cash dividends applicable to the year
2,515,000

 
9,831,000

 
2,641,000

 
24,417


See notes to consolidated financial statements.





4

AIM SERVICES Co., Ltd. and Subsidiaries

Consolidated Statements of Comprehensive Income
Years Ended March 31, 2014, 2013 and 2012
 
Thousands of Yen
 
Thousands of
U.S. Dollars
(Note 1)
 
2014
 
2013
 
2012
 
2014
NET INCOME
¥
2,787,098

 
¥
2,893,556

 
¥
2,926,641

 
$
27,060

OTHER COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
Unrealized holding gain on available-for-sale securities (net of tax)
52,234

 
68,864

 
4,806

 
507

Remeasurements of defined benefit plans
(net of tax) (Note 2.l)
(508,744
)
 
—

 
—

 
(4,939
)
Total other comprehensive (loss) income
(456,510
)
 
68,864

 
4,806

 
(4,432
)
COMPREHENSIVE INCOME
¥
2,330,588

 
¥
2,962,420

 
¥
2,931,447

 
$
22,628


See notes to consolidated financial statements.



5

AIM SERVICES Co., Ltd. and Subsidiaries

Consolidated Statements of Changes in Equity
Years Ended March 31, 2014, 2013 and 2012    
 
 
 
Thousands of Yen
 
Outstanding
Number of
Shares of
Common Stock
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury Stock
 
Unrealized
Gain (Loss) on
Available-
for-Sale
Securities
 
Remeasurements of defined benefit plans
 
Total Equity
BALANCE, APRIL 1, 2011
¥
554

 
¥
1,909,797

 
¥
2,591,398

 
¥
10,124,683

 
¥
(680,820
)
 
¥
(7,609
)
 
¥
—

 
¥
13,937,449

Net income
—

 
—

 
—

 
2,926,641

 
—

 
—

 
—

 
2,926,641

Cash dividends, ¥3,090,000 per share
—

 
—

 
—

 
(1,711,860
)
 
—

 
—

 
—

 
(1,711,860
)
Net change in the year
—

 
—

 
—

 
—

 
—

 
4,806

 
—

 
4,806

BALANCE, MARCH 31, 2012
554

 
1,909,797

 
2,591,398

 
11,339,464

 
(680,820
)
 
(2,803
)
 
—

 
15,157,036

Net income
—

 
—

 
—

 
2,893,556

 
—

 
—

 
—

 
2,893,556

Cash dividends, ¥9,868,000 per share
—

 
—

 
—

 
(5,466,872
)
 
—

 
—

 
—

 
(5,466,872
)
Net change in the year
—

 
—

 
—

 
—

 
—

 
68,864

 
—

 
68,864

BALANCE, MARCH 31, 2013
554

 
1,909,797

 
2,591,398

 
8,766,148

 
(680,820
)
 
66,061

 
—

 
12,652,584

Net income
—

 
—

 
—

 
2,787,098

 
—

 
—

 
—

 
2,787,098

Cash dividends, ¥2,498,000 per share
—

 
—

 
—

 
(1,383,891
)
 
—

 
—

 
—

 
(1,383,891
)
Net change in the year
—

 
—

 
—

 
—

 
—

 
52,234

 
(508,744
)
 
(456,510
)
BALANCE, MARCH 31, 2014
¥
554

 
¥
1,909,797

 
¥
2,591,398

 
¥
10,169,355

 
¥
(680,820
)
 
¥
118,295

 
¥
(508,744
)
 
¥
13,599,281

 
 
 
Thousands of U.S. Dollars (Note 1)
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury Stock
 
Unrealized
Gain (Loss) on
Available-
for-Sale
Securities
 
Remeasurements of defined benefit plans
 
Total Equity
BALANCE, MARCH 31, 2013
 
 
$
18,542

 
$
25,159

 
$
85,108

 
$
(6,610
)
 
$
641

 
—

 
$
122,840

Net income
 
 
—

 
—

 
27,060

 
—

 
—

 
—

 
27,060

Cash dividends, $24,252 per share
 
 
—

 
—

 
(13,436
)
 
—

 
—

 
—

 
(13,436
)
Net change in the year
 
 
—

 
—

 
—

 
—

 
507

 
(4,939
)
 
(4,432
)
BALANCE, MARCH 31, 2014
 
 
$
18,542

 
$
25,159

 
$
98,732

 
$
(6,610
)
 
$
1,148

 
$
(4,939
)
 
$
132,032

See notes to consolidated financial statements.


6

AIM SERVICES Co., Ltd. and Subsidiaries

Consolidated Statements of Cash Flows
Years Ended March 31, 2014, 2013 and 2012

 
Thousands of Yen
 
Thousands of U.S. Dollars (Note 1)
 
2014
 
2013
 
2012
 
2014
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Income before income taxes
¥
5,567,004

 
¥
5,571,490

 
¥
5,965,028

 
$
54,049

Adjustments for:
 
 
 
 
 
 
 
Income taxes-paid
(2,460,167
)
 
(3,362,203
)
 
(2,039,547
)
 
(23,885
)
Depreciation and amortization
913,587

 
816,840

 
738,495

 
8,870

Amortization of goodwill
317,938

 
317,938

 
317,938

 
3,087

Reversal of allowance for doubtful receivables
(16,873
)
 
(1,472
)
 
(17,219
)
 
(164
)
Equity in earnings of an associated company
(109,690
)
 
(97,328
)
 
(110,410
)
 
(1,065
)
(Gain) loss on sales of property, plant and equipment
(200
)
 
5,280

 
(1,194
)
 
(2
)
Loss on disposal of property, plant and equipment
20,204

 
5,763

 
7,304

 
196

Loss on impairment of long‑lived assets
79,184

 
2,749

 
14,614

 
769

Write-off of investment securities
104

 
 
 
9,696

 
1

(Increase) decrease in receivables-trade accounts
(134,642
)
 
326,483

 
(986,530
)
 
(1,307
)
Increase in inventories
(144,458
)
 
(71,333
)
 
(232,712
)
 
(1,403
)
Decrease (increase) in interest receivable
(194
)
 
302

 
(594
)
 
(2
)
Increase (decrease) in trade payables
318,116

 
(394,907
)
 
861,880

 
3,089

Decrease in interest payable
 
 
 
 
(244
)
 
 
(Increase) decrease in other current assets
(355,671
)
 
(33,864
)
 
423,385

 
(3,453
)
(Decrease) increase in other current liabilities
(903,712
)
 
458,095

 
1,088,654

 
(8,774
)
Increase (decrease) in accrued bonuses to employees
339,082

 
128,757

 
(52,642
)
 
3,292

Decrease in accrued employees’ retirement benefits
(113,910
)
 
(108,814
)
 
(105,136
)
 
(1,106
)
(Decrease) increase in accrued retirement benefits for director and corporate auditors
(2,238
)
 
7,530

 
(24,277
)
 
(22
)
Prepaid pension costs
49,545

 
133,121

 
64,655

 
481

Other-net
21,679

 
32,059

 
1,805

 
210

Total adjustments
(2,182,316
)
 
(1,835,004
)
 
(42,079
)
 
(21,188
)
Net cash provided by operating activities—(Forward)
¥
3,384,688

 
¥
3,736,486

 
¥
5,922,949

 
$
32,861


Continued on following page.

7

AIM SERVICES Co., Ltd. and Subsidiaries

Consolidated Statements of Cash Flows
Years Ended March 31, 2014, 2013 and 2012
 
Thousands of Yen
 
Thousands of U.S. Dollars (Note 1)
 
2014
 
2013
 
2012
 
2014
Net cash provided by operating activities—(Forward)
¥
3,384,688

 
¥
3,736,486

 
¥
5,922,949

 
$
32,861

 
 
 
 
 
 
 
 
INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Payments into time deposit
(100,000
)
 
—

 
—

 
(971
)
Purchases of marketable securities
—

 
—

 
(99,970
)
 
—

Redemption of marketable securities
—

 
100,000

 
100,000

 
—

Purchases of property, plant and equipment
(269,458
)
 
(355,616
)
 
(549,038
)
 
(2,616
)
Proceeds from sales of property, plant and equipment
5,580

 
1,431

 
2,363

 
54

Purchases of software
(139,043
)
 
(327,493
)
 
(253,142
)
 
(1,350
)
Purchases of other intangible assets
(1,936
)
 
(3,022
)
 
(730
)
 
(19
)
Proceeds from sales of intangible assets
496

 
—

 
—

 
5

Purchases of investment securities
(9,536
)
 
(10,804
)
 
(15,880
)
 
(93
)
Proceeds from sales of investment securities
4,594

 
57,861

 
26,845

 
45

Change in deposit to a subsidiary of a shareholder
(1,752,376
)
 
2,497,890

 
(6,004,069
)
 
(17,013
)
Proceeds from collections of loans
2,808

 
3,486

 
3,972

 
27

Proceeds from refund of rental deposits of headquarter
—

 
—

 
390,609

 
—

Other
(4,315
)
 
(48,320
)
 
(106,035
)
 
(42
)
Net cash (used in) provided by investing activities
(2,263,186
)
 
1,915,413

 
(6,505,075
)
 
(21,973
)
 
 
 
 
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Increase in short‑term bank loans
11,950,000

 
13,500,000

 
12,800,000

 
116,019

Decrease in short‑term bank loans
(11,950,000
)
 
(13,500,000
)
 
(14,800,000
)
 
(116,019
)
Repayments of capital lease obligation
(356,620
)
 
(301,269
)
 
(202,090
)
 
(3,462
)
Dividends paid
(1,383,891
)
 
(5,466,872
)
 
(1,711,860
)
 
(13,436
)
Net cash used in financing activities
(1,740,511
)
 
(5,768,141
)
 
(3,913,950
)
 
(16,898
)
 
 
 
 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(619,009
)
 
(116,242
)
 
(4,496,076
)
 
(6,010
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
7,709,209

 
7,825,451

 
12,321,527

 
74,847

CASH AND CASH EQUIVALENTS, END OF YEAR
¥
7,090,200

 
¥
7,709,209

 
¥
7,825,451

 
$
68,837


Continued on following page.


8

AIM SERVICES Co., Ltd. and Subsidiaries

Consolidated Statements of Cash Flows
Years Ended March 31, 2014, 2013 and 2012

ADDITIONAL INFORMATION

Interest and dividend receipts and interest payments for the years ended March 31, 2014, 2013 and 2012 were as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars (Note 1)
 
2014
 
2013
 
2012
 
2014
Interest and dividend receipts
¥
39,136

 
¥
43,608

 
¥
44,744

 
$
380

Interest payments
¥
23,523

 
¥
24,168

 
¥
21,600

 
$
228


Non-cash investing and financing activities were as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars (Note 1)
 
2014
 
2013
 
2012
 
2014
Acquisition of lease assets and obligations under finance leases
¥
346,531

 
¥
541,644

 
¥
371,433

 
$
3,364


See notes to consolidated financial statements.


9

AIM SERVICES Co., Ltd. and Subsidiaries

Notes to Consolidated Financial Statements

1.    BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
AIM SERVICES Co., Ltd. (the “Company”) mainly provides business dining services in Japan and is owned 50 percent by Mitsui & Co., Ltd. and 50 percent by Aramark Services Inc. and Aramark Japan Inc., which are subsidiaries of Aramark. ARAMARK Holding Corporation and ARAMARK Corporation were renamed to Aramark and Aramark Service Inc., respectively, on May 9, 2014.
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Companies Act of Japan (the “Companies Act”) and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”). Japanese GAAP varies in certain significant respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). Information relating to the nature and effect of such differences is presented in Note 14 to the consolidated financial statements.
In preparing these consolidated financial statements, certain reclassifications and rearrangements, including additions of the consolidated statements of cash flows and footnote disclosures, have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2013 and 2012 consolidated financial statements to conform to the classifications used in 2014.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translation of Japanese yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan and has been made at the rate of ¥103 to $1, the approximate rate of exchange at March 31, 2014. Such translation should not be construed as a representation that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a.
Consolidation—The consolidated financial statements as of March 31, 2014 include the accounts of the Company and all 11 subsidiaries (together, the “Group”). Under the control concepts, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated.
An investment in an associated company (a company over which the Company has the ability to exercise significant influence) is accounted for by the equity method. Refer to Note 2.e.
The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiaries at the date of acquisition is represented as “Goodwill” on the consolidated balance sheets and is being amortized on a straight-line basis over a period from 10 to 13 years.
Intercompany balances and transactions have been eliminated in consolidation. Unrealized profit included in assets resulting from transactions within the Group is eliminated.
b.
Cash and Cash Equivalents—Cash 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 which mature or become due within three months of the date of acquisition.
A deposit is a contract in which cash is trusted to the subsidiary of the Company’s shareholder. The cash can be readily withdrawn within a few days, however the Company does not have the intention to do so as the Company has sufficient working capital and does not need this deposit within a short period of time (i.e., three months). Based on this, the Company did not treat deposits as cash and cash equivalents.
c.
Inventories—Inventories are mainly stated at the latest purchase price which approximates the first-in, first-out cost method. In accordance with Accounting Standard Board of Japan (the “ASBJ”) Statement No. 9, “Accounting Standard for Measurement of Inventories,” inventories held for sale in the ordinary course of business are measured at the lower of cost or net selling value, which is defined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses. The replacement cost may be used in place of the net selling value, if appropriate.
d.
Investment Securities—Investment securities are classified and accounted for, depending on management’s intent, as follows: (1) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity, are reported at amortized cost and (2) 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 in a separate component of equity.

10

Declines in fair value of held-to-maturity and available-for-sale securities are analyzed to determine if the decline is temporary or “other than temporary.” When other than temporary declines occur, the investment is reduced to its fair value and the amount of the reduction is reported as a loss. Any subsequent increases in other than temporary declines in fair value will not be realized until the securities are sold.
Non-marketable available-for-sale securities are stated at cost determined by the moving-average cost method. For other than temporary declines in fair value, non-marketable available-for-sale securities are reduced to net realizable value by a charge to income.
e.
Investment in Associated Company—The Company uses the equity method of accounting for its investment in and earnings or losses of an associated company that the Company does not control but over which the Company does exert significant influence. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of an investee of between 20% and 50%. The Company determines whether a decline in fair value is other than temporary by considering various factors, such as historical financial data, product development activities and the overall health of the affiliate’s industry. If the Company considers any such decline to be other than temporary, then a write-down to the estimated fair value is recorded.
f.
Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Group is computed substantially by the declining-balance method at rates based on the estimated useful lives of the assets, while the straight-line method is applied to the buildings which were acquired after April 1, 1998. The range of useful lives is principally from 3 to 47 years for buildings and structures, from 2 to 10 years for machinery and equipment, from 5 to 20 years for furniture and fixtures, and 5 years for lease assets.
Amendments to the Corporate Tax Law in Japan have resulted in changes to the depreciation methods used for property, plant and equipment acquired since April 1, 2007. Prior to these amendments, the Group’s depreciation methods were based on a depreciation limit of 95% and a residual value of 5% of the acquisition price of an asset. This depreciation limit and residual value were removed and the full acquisition price can now be depreciated to the nominal value of ¥1 at the end of the asset’s useful life, either on a straight-line basis or on a declining-balance basis. The depreciation rates for both methods, set forth by the Corporate Tax Law, were also amended. Assets acquired on or after April 1, 2007 are depreciated according to the new depreciation methods while existing assets acquired on or before March 31, 2007 are depreciated based on the traditional methods with the depreciation limit written off equally over 5 years.
Effective April 1, 2012, as a result of the revision of the Corporate Tax Law in Japan, the Company and its consolidated subsidiaries changed their depreciation method for property, plant and equipment acquired on or after April 1, 2012 to the method stipulated under the revised corporate tax law. The effect of this change was immaterial.
g.
Software—Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. Costs directly associated with identifiable and unique software products, which are likely to generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Software is carried at cost less accumulated amortization, which is calculated using the straight-line method over the estimated useful lives of 5 years.
h.
Impairment of Long-Lived Assets—The Group reviews its long-lived assets including goodwill for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
For the fiscal years ended March 31, 2014, 2013 and 2012, the Company wrote down the book value of its idle facilities amounting to ¥79,184 thousand ($769 thousand), ¥2,749 thousand and ¥14,614 thousand, respectively, as an impairment loss. The impairment loss for the fiscal year ended March 31, 2014 was due to the decline in market value of land.
i.
Golf Membership—Golf membership is stated at cost. For other than temporary declines in fair value, golf membership is reduced to net realizable value by a charge to income.
j.
Lease Deposits—Lease deposits are mainly related to the Group’s office spaces and are refundable at the termination of each lease contract.
k.
Insurance Deposits—Insurance deposits consist of life insurance policies for ex-directors for which the Company is the named beneficiary. Most of the insurance deposits are refundable. Gain on insurance claim of ¥124,029 thousand recorded in the consolidated statement of income for the year ended March 31, 2014 includes that related to the life

11

insurance claim against the death of ex-director by ¥82,679 thousand.
l.
Retirement and Pension Plans—The Company and certain subsidiaries have defined benefit corporate pension plans covering substantially all of their regular employees. The Group accounts for the liability for retirement benefits based on projected benefit obligations and plan assets at the balance sheet date.
Retirement benefits to directors and corporate auditors are provided at the amount which would be required if all directors and corporate auditors retired at the balance sheet date.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25, “Guidance on Accounting Standard for Retirement Benefits”.
In accordance with the revised standard and the other related practical guidance, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within shareholders’ equity (accumulated other comprehensive income, hereinafter, “AOCI”), after adjusting for tax effects, and the difference between retirement benefit obligations and plan assets shall be recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).
Moreover, actuarial gains and losses and past service costs that arose in the current period and yet to be recognized in profit or loss shall be included in AOCI and actuarial gains and losses and past service costs that were recognized in other comprehensive income, hereinafter ‘‘OCI’’, in prior periods and then recognized in profit or loss in the current period shall be treated as reclassification adjustments. No retrospective application of this accounting standard to consolidated financial statements in prior periods is required.
The Company adopted the revised standard during the year ended March 31, 2014. Compared with the previous fiscal year, the changes in standards related to the liability for retirement benefits had caused an increase in liability by ¥788,823 thousand ($7,658 thousand) and a decrease in AOCI by ¥508,744 thousand ($4,939 thousand) as of March 31, 2014.
m.
Leases—In March 2007, the ASBJ issued an Accounting Standard-ASBJ Statement No. 13, “Accounting Standard for Lease Transaction and its Implementation Guidance” and ASBJ Guidance No. 16, “Guidance on Accounting Standard for Lease Transactions.” The new standard and related implementation guidance eliminated a transitional rule where companies were allowed to account for finance leases that did not transfer ownership at the end of the lease term as operating leases and required the companies to recognize them as finance leases on their balance sheet.
In accordance with new accounting standard for lease, the Company capitalized all finance leases on its consolidated balance sheets and is depreciating the lease assets by the straight-line method over their respective lease terms. However, finance leases that do not transfer ownership and whose commencement day falls prior to April 1, 2008 continue to be accounted for as operating leases with required disclosure in the notes in accordance with an exceptional rule in the new accounting standard.
n.
Asset Retirement Obligations—ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations” and ASBJ Guidance No. 21, “Guidance on Accounting Standard for Asset Retirement Obligations” require companies to recognize asset retirement obligations as liabilities and the corresponding asset retirement costs as tangible fixed assets.
The Group leases several corporate and regional offices and has installed leasehold improvements, such as partitions, counters and phone systems, in these leased properties. Most lease agreements in Japan require the lessee to restore the leased property to its original condition, including removal of the leasehold improvements the lessee has installed when the lessee moves out of the leased property. As a result, the Group will incur certain future costs for the restorations that are required under the lease agreements.
o.
Financial Instruments—In accordance with ASBJ Statement No. 10, “Accounting Standard for Financial Instruments” and ASBJ Guidance No. 19, “Guidance on Disclosures about Fair Value of Financial Instruments”, the Group disclosed fair value information for items that meet the definition of financial instruments.
p.
Income Taxes—The Group adopted the accounting standard for interperiod allocation of income taxes based on the asset and liability method. Deferred income taxes are recorded to reflect the impact of operating loss carryforwards and temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred taxes are measured by applying currently enacted tax laws to the operating loss carryforwards and temporary differences. The Group determined the recoverability of deferred tax assets based on all future information currently available.
Amendments to the Japanese tax regulations were enacted into law on November 30, 2011. As a result of these amendments, the statutory income tax rate was reduced from approximately 40% to 38% effective from the fiscal year beginning April 1, 2012, and it was further planned to be reduced to approximately 35% effective from the fiscal year beginning April 1, 2015 and thereafter. However, the Japanese tax regulation was amended again on March 31, 2014

12

and it resulted in a statutory income tax rate for periods subsequent to March 31, 2014 to be approximately 35%. Consequently, the statutory income tax rate utilized for deferred tax assets and liabilities expected to be settled or realized in the period from April 1, 2012 to March 31, 2014 is approximately 38% and for periods subsequent to March 31, 2014 is approximately 35%. The adjustments to deferred tax assets and liabilities resulting from the reduction in the tax rate was an increase in income taxes of ¥122,349 thousand ($1,188 thousand) and ¥176,903 thousand, and have been reflected in income taxes in the consolidated statement of income for the year ended March 31, 2014 and 2012, respectively.
q.
Appropriations of Retained Earnings—Appropriations of retained earnings at each year-end are reflected in the consolidated financial statements in the year following shareholders’ approval.
r.
Per Share Information—Basic 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. 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.
s.
Revenue Recognition—Most of the operating businesses of the Group has contractual relationships with customers. In these businesses, revenue is recognized in the period in which the services are provided pursuant to the terms of the contracts. Revenue from dining, delivery food and beverage services is recognized upon delivery of food and beverage products.
t.
Other Income—Compensation for loss due to disaster of ¥41,542 thousand recorded in the consolidated statement of income for the year ended March 31, 2014 is compensation received from Tokyo Electronic Power Company, Incorporated (“TEPCO”) for lost earnings during the period of business suspension due to nuclear accident caused by TEPCO.
u.
Dividend Distribution—Dividend distribution to the Company's shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.
3.    INVESTMENT SECURITIES
Investment securities at March 31, 2014 and 2013, consisted of the following:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
Non‑current-Investment securities:
 
 
 
 
 
Marketable equity securities
¥
518,106

 
¥
432,653

 
$
5,030

Non‑marketable equity securities
323,645

 
323,645

 
3,142

Total
¥
841,751

 
¥
756,298

 
$
8,172

Information regarding marketable equity securities classified as available-for-sale and held-to-maturity debt securities at March 31, 2014 and 2013, was as follows:
 
Thousands of Yen
March 31, 2014
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Available‑for‑sale marketable equity securities
¥
253,959

 
¥
268,578

 
¥
4,429

 
¥
518,106

March 31, 2013
 
 
 
 
 
 
 
Available‑for‑sale marketable equity securities
¥
249,142

 
¥
193,616

 
¥
10,105

 
¥
432,653

 
Thousands of U.S. Dollars
March 31, 2014
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Available‑for‑sale marketable equity securities
$
2,466

 
$
2,608

 
$
44

 
$
5,030


13

Carrying amounts of available-for-sale securities whose fair value is not readily determinable as of March 31, 2014 and 2013 were as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
Available‑for‑sale-Non‑marketable equity securities
¥
323,645

 
¥
323,645

 
$3,142
4.    INVENTORIES
Inventories at March 31, 2014 and 2013, consisted of the following:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
Merchandise
¥
511,842

 
¥
498,042

 
$
4,969

Raw materials
1,140,494

 
1,037,374

 
11,073

Supplies
254,923

 
227,385

 
2,475

Total
¥
1,907,259

 
¥
1,762,801

 
$
18,517

5.    LIABILITY FOR EMPLOYEES’ RETIREMENT BENEFITS
The Company and certain subsidiaries have defined benefit corporate pension plans for employees.
Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment from the Company or from certain subsidiaries and annuity payments from a trustee. Employees are entitled to larger payments if the termination is involuntary, by retirement at the mandatory retirement age, or by death.
The liability for employees’ retirement benefits at March 31, 2014 and 2013, consisted of the following:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
Projected benefit obligation
¥
9,722,444

 
¥
9,250,237

 
$
94,393

Fair value of plan assets
(8,028,910
)
 
(7,198,328
)
 
(77,951
)
Unrecognized actuarial loss (*)
—

 
(1,082,833
)
 
—

Net amount on the consolidated balance sheets
1,693,534

 
969,076

 
16,442

Prepaid pension costs (included in other assets)
(90,894
)
 
(140,439
)
 
(883
)
Employees’ retirement benefits
¥
1,784,428

 
¥
1,109,515

 
$
17,325

(*) As discussed in note 2.l, the Company adopted the revised standards for retirement benefits for the year ended March 31, 2014, which resulted in the recognition of unrecognized actuarial gain or loss on the consolidated balance sheet as of March 31, 2014.
The components of net periodic benefit costs are as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2012
 
2014
Service cost
¥
604,045

 
¥
590,253

 
¥
544,854

 
$
5,865

Interest cost
92,957

 
90,884

 
153,935

 
902

Expected return on plan assets
(143,967
)
 
(124,615
)
 
(114,443
)
 
(1,398
)
Recognized actuarial loss
167,463

 
264,415

 
166,003

 
1,626

Net periodic benefit costs
¥
720,498

 
¥
820,937

 
¥
750,349

 
$
6,995


14

Assumptions used for the years ended March 31, 2014, 2013 and 2012, are set forth as follows:
 
2014
 
2013
 
2012
Discount rate
From 0.7% to 1.1%
 
From 0.7% to 1.1%
 
From 0.7% to 1.1%
Expected rate of return on plan assets
2.0%
 
2.0%
 
2.0%
Recognition period of actuarial gain/loss
From 5 to 12 years
 
From 5 to 12 years
 
From 5 to 12 years
6.    EQUITY
The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:
a.
Dividends
Under 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. If companies meet certain criteria such as (1) having a Board of Directors, (2) having independent auditors, and (3) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in-kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. The Company meets the above criteria.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act 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 ¥3,000 thousand.
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 of the aggregate amount of legal reserve and additional paid-in capital equals 25% of the 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 Rights
The Companies Act also allows 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 a specific formula. Under the Companies Act, stock acquisition rights, which were previously presented as a liability, are now 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.
Class shares subject to call option included a call option which allowed the Company, at its option, to exchange all of the class shares subject to call option for new common shares at an exchange ratio of 20,000 class shares to 1 new common share. On November 1, 2007, the Company exercised its call options and exchanged all of its issued class shares for new shares of common stock. Class A shares are the shares without the right for the distribution of residual property.

15

7.    INCOME TAXES
The tax effects of temporary differences which resulted in deferred tax assets at March 31, 2014 and 2013, are as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
Current:
 
 
 
 
 
Deferred tax assets:
 
 
 
 
 
Accrued bonuses to employees
¥
1,404,943

 
¥
1,363,008

 
$
13,640

Accrued enterprise taxes
111,312

 
114,388

 
1,081

Accrued social insurance contributions by employer
248,779

 
214,909

 
2,415

Accrued business office taxes
15,881

 
16,343

 
154

Accrued rent
26,336

 
54,203

 
256

Tax loss carry forward
17,345

 
—

 
168

Other
42,612

 
51,706

 
414

Total
1,867,208

 
1,814,557

 
18,128

Net deferred tax assets
¥
1,867,208

 
¥
1,814,557

 
$
18,128

Non‑current:
 
 
 
 
 
Deferred tax assets:
 
 
 
 
 
Employees’ retirement benefits
¥
628,643

 
¥
392,198

 
$
6,103

Retirement benefits for directors and corporate auditors
21,682

 
22,429

 
211

Impairment loss on investment securities
39,462

 
43,841

 
383

Impairment loss on golf membership
11,110

 
11,110

 
108

Impairment loss on long‑lived assets
87,940

 
61,495

 
854

Allowance for doubtful accounts
20,061

 
24,120

 
195

Asset retirement obligations
29,096

 
24,085

 
282

Tax loss carry forward
10,706

 
 
 
104

Other
31,781

 
33,251

 
308

Less valuation allowance
(95,902
)
 
(68,655
)
 
(931
)
Total
784,579

 
543,874

 
7,617

Deferred tax liabilities-net unrealized gain on available‑for‑sale securities
92,725

 
64,374

 
900

Total
92,725

 
64,374

 
900

Net deferred tax assets
¥
691,854

 
¥
479,500

 
$
6,717

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statements of income for the years ended March 31, 2014, 2013 and 2012, is as follows:
 
2014
 
2013
 
2012
Normal effective statutory tax rate
38%
 
38%

 
40%

Expenses not deductible for income tax purposes
1
 
1

 
1

Non-deductible per capita levy of local taxes
6
 
6

 
5

Non-deductible amortization of goodwill
1
 
2

 
2

Effect of amendments to the Japanese tax regulations
2
 
—

 
3

Other-net
2
 
1

 
—

Actual effective tax rate
50%
 
48%

 
51%

As discussed in Note 2.p, as a result of amendment of the Japanese tax regulations on November 30, 2011, the tax rate applied to the Company was reduced approximately from 40% to 38% effective from the year beginning April 1, 2012, and it was further planned to be reduced to approximately 35% effective from the fiscal year beginning April 1, 2015 and thereafter. However, the Japanese tax regulation was amended again on March 31, 2014 and it resulted in the statutory income tax rate for periods subsequent to March 31, 2014 to be approximately 35%. The effect of adjustments to deferred assets and liabilities

16

resulting from the reduction in the tax rate was an increase in income taxes of ¥122,349 thousand ($1,188 thousand) and ¥176,903 thousand, and have been reflected in income taxes in the consolidate statement of income for the year ended March 31, 2014 and 2012, respectively.
8.    LEASES
The Group leases certain machinery, dining support service related equipment, office space and other assets.
Rent expenses for operating leases for the years ended March 31, 2014, 2013 and 2012 amounted to ¥1,321,303 thousand ($12,828 thousand), ¥1,295,970 thousand and ¥1,207,902 thousand, respectively.
Obligations under finance leases and future minimum payments under noncancelable operating leases were as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2014
 
Finance
Leases
 
Operating
Leases
 
Finance
Leases
 
Operating
Leases
Due within one year
¥
368,746

 
¥
97,643

 
$
3,580

 
$
948

Due after one year
699,597

 
186,259

 
6,792

 
1,808

Total
¥
1,068,343

 
¥
283,902

 
$
10,372

 
$
2,756

As discussed in Note 2.m, the Company accounts for leases which existed at the transition date of the new accounting standards on April 1, 2008 and do not transfer ownership of the leased property to the lessee as operating lease transactions.
As of March 31, 2013 and 2014, such leases no longer existed due to expiration or cancellation. Lease payments under such leases for the years ended March 31, 2013 and 2012 were ¥30,952 thousand and ¥132,016 thousand, respectively and there were no lease payments for the years ended March 31, 2014.
Pro forma information of such leased property existing at the transition date on an “as if capitalized” basis for the year ended March 31, 2012 was as follows:
 
Thousands of Yen
 
2012
 
Machinery
and
Equipment
 
Furniture
and
Fixtures
 
Software
Acquisition cost
¥
3,945

 
¥
332,194

 
¥
336,139

Accumulated depreciation
(3,737
)
 
(300,178
)
 
(303,915
)
Net leased asset
¥
208

 
¥
32,016

 
¥
32,224

Depreciation expense and interest expense as if capitalized:
 
Thousands of Yen
 
2013
 
2012
Depreciation expense
¥
28,981

 
¥
124,449

Interest expense
360

 
2,299

Total
¥
29,341

 
¥
126,748

Depreciation expense and interest expense, which are not reflected in the accompanying consolidated statements of income, are computed by the straight-line method and the interest method, respectively.
9.    ASSET RETIREMENT OBLIGATIONS
The Company recognizes asset retirement obligations for its headquarters and some regional offices on the basis of lease agreements. To estimate asset retirement obligations, the Company uses the estimated useful lives for periods ranging from 5 to 29 years and discount rates ranging from 0.326% to 2.130%.
For the year ended March 31, 2013, the Company added ¥9,577 thousand to the balance of asset retirement cost because it has become clear that retirement cost for some assets will be more than the estimation previously calculated.

17

The following represent the changes in asset retirement obligations for the years ended March 31, 2014 and 2013:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
Asset retirement obligations at beginning of year
¥
145,823

 
¥
131,213

 
$
1,416

Additions to asset retirement obligations
9,366

 
3,904

 
91

Accretion of discount
2,360

 
2,368

 
23

Liabilities settled during the year
—

 
(1,239
)
 
—

Revision to estimate
—

 
9,577

 
—

Asset retirement obligations at end of year
¥
157,549

 
¥
145,823

 
$
1,530

1.
FINANCIAL INSTRUMENTS
(1) Financial Instruments
The Company obtains operating funds through loans from financial institutions such as banks, and excess funds are invested only in short-term deposit with banks and deposited with subsidiaries of shareholders. Interest rates for the loans are determined based on discussion with the financial institutions considering the current short-term money market.
Credit risks for notes receivable and accounts receivable are managed based on internal risk management policy.
The Company’s investment securities mainly consist of equity securities. For listed shares, the Company reviews their fair value on a quarterly basis.
(2) Fair Value of Financial Instruments
The carrying amounts of financial instruments recorded in the Company’s consolidated balance sheets and their estimated fair values as of March 31, 2014 and 2013, are as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
 
Carrying Amount (*)
 
Fair Value (*)
 
Carrying Amount (*)
 
Fair Value (*)
 
Carrying Amount (*)
 
Fair Value (*)
Cash and cash equivalents
¥
7,090,200

 
¥
7,090,200

 
¥
7,709,209

 
¥
7,709,209

 
$
68,837

 
$
68,837

Notes receivable and accounts receivable
14,436,429

 
14,436,429

 
14,294,595

 
14,294,595

 
140,160

 
140,160

Deposit
5,250,000

 
5,250,000

 
3,500,000

 
3,500,000

 
50,971

 
50,971

Bank deposit with maturity term over three months
100,000

 
100,000

 
 
 
 
 
971

 
971

Investment securities-
Available-for-sale marketable equity securities
518,106

 
518,106

 
432,653

 
432,653

 
5,030

 
5,030

Notes payable and accounts payable
(8,589,078
)
 
(8,589,078
)
 
(8,270,963
)
 
(8,270,963
)
 
(83,389
)
 
(83,389
)
(*) ()indicates liability account.
In accordance with the requirement of ASBJ Statement No. 10, “Accounting Standard for Financial Instruments,” the Company has provided the above fair value estimates and the following information about valuation methodologies.
Cash and cash equivalents
Due to nature of cash and cash equivalents, the fair value approximates the carrying value.
Notes receivable and accounts receivable
As these are settled in a short-term period, the fair value approximates the carrying value.
Deposit
As these are settled in a short-term period, the fair value approximates the carrying value.
Bank deposit with maturity term over three months
As these are settled in a short-term period, the fair value approximates the carrying value.
Investment securities
Equity securities are valued using quoted market prices.

18

Notes payable and accounts payable
As these are settled in a short-term period, the fair value approximates the carrying value.
Because unlisted shares do not have market price and future cash flows are not estimable, it was determined that obtaining fair value information for non-marketable equity securities was not practicable. Thus, unlisted shares, whose carrying amount as of March 31, 2014 and 2013 were ¥1,324,942 thousand ($12,864 thousand) and ¥1,234,022 thousand, respectively, are not included in “Investment securities-Available-for-sale marketable equity securities” in the list above.
11.    SEGMENT INFORMATION
Information about industry segments of the Group for the years ended March 31, 2014, 2013 and 2012, is set forth below.
Industry Segments
a.
Sales and Operating Income
 
Thousands of Yen
 
2014
 
Food Business
 
Office Coffee and Tea Services
 
Other Services
 
Total
 
Eliminations/
Corporate
 
Consolidated
Sales to customers
¥
148,902,884

 
¥
6,760,543

 
¥
337,663

 
¥
156,001,090

 
¥
—

 
¥
156,001,090

Intersegment sales
2,110,695

 
1,411,913

 
284,252

 
3,806,860

 
(3,806,860
)
 
—

Total sales
151,013,579

 
8,172,456

 
621,915

 
159,807,950

 
(3,806,860
)
 
156,001,090

Operating expenses
143,222,817

 
7,988,166

 
656,373

 
151,867,356

 
(1,204,228
)
 
150,663,128

Operating income (loss)
¥
7,790,762

 
¥
184,290

 
¥
(34,458
)
 
¥
7,940,594

 
¥
(2,602,632
)
 
¥
5,337,962

b.
Total Assets, Depreciation, Capital Expenditures and Information about Goodwill
 
Thousands of Yen
 
2014
 
Food Business
 
Office Coffee and Tea Services
 
Other Services
 
Total
 
Eliminations/
Corporate
 
Consolidated
Total assets
¥
28,488,355

 
¥
2,874,588

 
¥
38,543

 
¥
31,401,486

 
¥
8,035,221

 
¥
39,436,707

Depreciation and other
424,333

 
245,826

 
448

 
670,607

 
242,980

 
913,587

Capital
expenditures (*)
352,851

 
336,558

 
—

 
689,409

 
191,387

 
880,796

Goodwill:
 
 
 
 
 
 
 
 
 
 
 
Unamortized balance
537,154

 
397,141

 
—

 
934,295

 
—

 
934,295

Amortization
119,368

 
198,570

 
—

 
317,938

 
—

 
317,938

a.
Sales and Operating Income
 
Thousands of U.S. Dollars
 
2014
 
Food Business
 
Office Coffee and Tea Services
 
Other Services
 
Total
 
Eliminations/
Corporate
 
Consolidated
Sales to customers
$
1,445,659

 
$
65,636

 
$
3,279

 
$
1,514,574

 
$
—

 
$
1,514,574

Intersegment sales
20,492

 
13,708

 
2,760

 
36,960

 
(36,960
)
 
—

Total sales
1,466,151

 
79,344

 
6,039

 
1,551,534

 
(36,960
)
 
1,514,574

Operating expenses
1,390,513

 
77,555

 
6,373

 
1,474,441

 
(11,692
)
 
1,462,749

Operating income (loss)
$
75,638

 
$
1,789

 
$
(334
)
 
$
77,093

 
$
(25,268
)
 
$
51,825


19

b.
Total Assets, Depreciation, Capital Expenditures and Information about Goodwill
 
Thousands of U.S. Dollars
 
2014
 
Food Business
 
Office Coffee and Tea Services
 
Other Services
 
Total
 
Eliminations/
Corporate
 
Consolidated
Total assets
$
276,586

 
$
27,909

 
$
374

 
$
304,869

 
$
78,012

 
$
382,881

Depreciation and other
4,120

 
2,387

 
4

 
6,511

 
2,359

 
8,870

Capital
expenditures (*)
3,425

 
3,268

 
—

 
6,693

 
1,858

 
8,551

Goodwill:
 
 
 
 
 
 
 
 
 
 
 
Unamortized balance
5,215

 
3,856

 
—

 
9,071

 
—

 
9,071

Amortization
1,159

 
1,928

 
—

 
3,087

 
—

 
3,087

a.
Sales and Operating Income
 
Thousands of Yen
 
2013
 
Food Business
 
Office Coffee and Tea Services
 
Other Services
 
Total
 
Eliminations/
Corporate
 
Consolidated
Sales to customers
¥
144,335,546

 
¥
6,503,205

 
¥
286,826

 
¥
151,125,577

 
¥
—

 
¥
151,125,577

Intersegment sales
2,032,169

 
1,356,948

 
272,106

 
3,661,223

 
(3,661,223
)
 
—

Total sales
146,367,715

 
7,860,153

 
558,932

 
154,786,800

 
(3,661,223
)
 
151,125,577

Operating expenses
138,497,390

 
7,736,571

 
621,821

 
146,855,782

 
(1,187,042
)
 
145,668,740

Operating income (loss)
¥
7,870,325

 
¥
123,582

 
¥
(62,889
)
 
¥
7,931,018

 
¥
(2,474,181
)
 
¥
5,456,837

b.
Total Assets, Depreciation, Capital Expenditures and Information about Goodwill
 
Thousands of Yen
 
2013
 
Food Business
 
Office Coffee and Tea Services
 
Other Services
 
Total
 
Eliminations/
Corporate
 
Consolidated
Total assets
¥
28,308,623

 
¥
2,930,439

 
¥
38,242

 
¥
31,277,304

 
¥
6,445,212

 
¥
37,722,516

Depreciation and other
412,729

 
207,923

 
448

 
621,100

 
195,740

 
816,840

Capital
expenditures (*)
657,684

 
285,038

 
 
 
942,722

 
345,938

 
1,288,660

Goodwill:
 
 
 
 
 
 
 
 
 
 
 
Unamortized balance
656,522

 
595,711

 
 
 
1,252,233

 
 
 
1,252,233

Amortization
119,368

 
198,570

 
 
 
317,938

 
 
 
317,938


20

a.
Sales and Operating Income
 
Thousands of Yen
 
2012
 
Food Business
 
Office Coffee and Tea Services
 
Other Services
 
Total
 
Eliminations/
Corporate
 
Consolidated
Sales to customers
¥
140,895,794

 
¥
6,529,919

 
¥
182,326

 
¥
147,608,039

 
¥
—

 
¥
147,608,039

Intersegment sales
2,027,093

 
1,331,024

 
267,648

 
3,625,765

 
(3,625,765
)
 
—

Total sales
142,922,887

 
7,860,943

 
449,974

 
151,233,804

 
(3,625,765
)
 
147,608,039

Operating expenses
134,730,976

 
7,885,922

 
511,873

 
143,128,771

 
(1,344,732
)
 
141,784,039

Operating income (loss)
¥
8,191,911

 
¥
(24,979
)
 
¥
(61,899
)
 
¥
8,105,033

 
¥
(2,281,033
)
 
¥
5,824,000

b.
Total Assets, Depreciation, Capital Expenditures and Information about Goodwill
 
Thousands of Yen
 
2012
 
Food Business
 
Office Coffee and Tea Services
 
Other Services
 
Total
 
Eliminations/
Corporate
 
Consolidated
Total assets
¥
28,135,318

 
¥
3,111,591

 
¥
41,890

 
¥
31,288,799

 
¥
9,227,202

 
¥
40,516,001

Depreciation and other
391,714

 
157,196

 
505

 
549,415

 
189,080

 
738,495

Capital
expenditures (*)
407,875

 
290,053

 
872

 
698,800

 
258,009

 
956,809

Goodwill:
 
 
 
 
 
 
 
 
 
 
 
Unamortized balance
775,889

 
794,282

 
—

 
1,570,171

 
—

 
1,570,171

Amortization
119,368

 
198,570

 
—

 
317,938

 
—

 
317,938

(*) Capital expenditures include the amounts of lease assets acquired during the period.
The Company has no branch offices or subsidiaries in foreign countries, therefore geographic segment information has not been disclosed. Also, sales to foreign customers have not been presented because neither the Company nor its subsidiaries recorded foreign sales for the years ended March 31, 2014, 2013 and 2012.
12.    RELATED PARTY TRANSACTIONS
Transactions between the Company and subsidiaries of shareholders and other related parties for the years ended March 31, 2014, 2013 and 2012, were as follows:
 
Thousands of Yen
 
Thousands of
U.S. Dollars
 
2014
 
2013
 
2012
 
2014
Tax accountant fee to corporate auditors
¥
2,588

 
¥
2,357

 
¥
2,014

 
$
25

Purchase transactions with subsidiaries of shareholders during the year
12,038,768

 
11,366,274

 
10,688,971

 
116,881

Deposit made to a subsidiary of a shareholder during the year (*)
4,617,808

 
5,679,641

 
4,892,076

 
44,833

(*) Deposit made to subsidiaries of shareholders generally has terms of less than one month. The amounts in the table represent the average balances of the deposits during the year.
The balances due to or from these subsidiaries of shareholders at March 31, 2014 and 2013, were as follows:
 
Thousands of Yen
 
Thousands of
U.S. Dollars
 
2014
 
2013
 
2014
Deposits to subsidiaries of shareholders
¥
5,250,000

 
¥
3,500,000

 
$
50,971

Accounts payable to subsidiaries of shareholders
2,008,091

 
2,004,693

 
19,496


21

13.    SUBSEQUENT EVENT
On June 18, 2014, the shareholders of the Company approved payments of cash dividends to the shareholders of record on March 31, 2014 of ¥1,061 thousand ($10 thousand) per share or a total of ¥578,794 thousand ($5,619 thousand) at the Company’s ordinary general meeting of shareholders.

22

14.    RECONCILIATION TO U.S. GAAP
The consolidated financial statements of the Group are prepared in accordance with Japanese GAAP, which varies in certain respects from U.S. GAAP. The following are reconciliations of equity and net income of the Group applying U.S. GAAP instead of Japanese GAAP.
The Group’s equity as of March 31, 2014 and 2013, is reconciled as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
Equity in accordance with Japanese GAAP
¥
13,599,281

 
¥
12,652,584

 
$
132,032

Differences arising from different accounting for:
 
 
 
 
 
a. Goodwill, intangible assets and other business combination related adjustments
6,902,307

 
6,998,290

 
67,013

b. Accrued vacation
(2,482,973
)
 
(2,399,827
)
 
(24,106
)
c. Employees’ retirement benefits
(720,006
)
 
(1,408,285
)
 
(6,990
)
d. Capital leases
(12,207
)
 
(12,745
)
 
(119
)
e. Tax effect of adjustments
(175,267
)
 
(50,481
)
 
(1,702
)
Total
3,511,854

 
3,126,952

 
34,096

Equity in accordance with U.S. GAAP
¥
17,111,135

 
¥
15,779,536

 
$
166,128

The Group’s net income for the years ended March 31, 2014, 2013 and 2012, is reconciled as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2,014
 
2,013
 
2,012
 
2014
Net income in accordance with Japanese GAAP
¥
2,787,098

 
¥
2,893,556

 
¥
2,926,641

 
$
27,060

Differences arising from different accounting for:
 
 
 
 
 
 
 
a. Goodwill, intangible assets and other business combination related adjustments
(95,983
)
 
(289,983
)
 
(95,983
)
 
(932
)
b. Accrued vacation
(83,147
)
 
(88,027
)
 
(45,588
)
 
(808
)
c. Employees’ retirement benefits
144,681

 
99,262

 
36,265

 
1,405

d. Capital leases
538

 
3,707

 
(2,944
)
 
5

e. Tax effect of adjustments
67,703

 
143,326

 
226,435

 
657

Total
33,792

 
(131,715
)
 
118,185

 
327

Net income in accordance with U.S. GAAP
¥
2,820,890

 
¥
2,761,841

 
¥
3,044,826

 
$
27,387

ASC 220, “Comprehensive Income,” establishes rules for the reporting of comprehensive income and its components. The following table summarizes the components of comprehensive income under U.S. GAAP for the years ended March 31, 2014, 2013 and 2012:

23

 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2014
 
Gain (loss) before income tax expense
 
Income tax (expense) benefit
 
Gain (loss) after income tax expense
 
Gain (loss) before income tax expense
 
Income tax (expense)
 benefit
 
Gain (loss) after income tax expense
Net income
¥
—

 
¥
—

 
¥
2,820,890

 
$
—

 
$
—

 
$
27,387

Other comprehensive income:
—

 
—

 
—

 
 
 
 
 
 
Unrealized gain on available-for-sale securities
80,586

 
(28,351
)
 
52,235

 
782

 
(275
)
 
507

Total
80,586

 
(28,351
)
 
52,235

 
782

 
(275
)
 
507

Loss associated with employees’ retirement benefits
(251,644
)
 
89,863

 
(161,781
)
 
(2,443
)
 
872

 
(1,570
)
Reclassification adjustments for gain included in net income
6,420

 
(2,274
)
 
4,146

 
62

 
(22
)
 
40

Total
(245,224
)
 
87,589

 
(157,635
)
 
(2,381
)
 
850

 
(1,530
)
Other comprehensive loss
(164,638
)
 
59,238

 
(105,400
)
 
(1,599
)
 
575

 
(1,023
)
Comprehensive income
 
 
 
 
¥
2,715,490

 
 
 
 
 
$
26,364

 
Thousands of Yen
 
2013
 
Gain (loss) before income tax expense
 
Income tax (expense) benefit
 
Gain (loss) after income tax expense
Net income
¥
—

 
¥
—

 
¥
2,761,841

Other comprehensive income:
 
 
 
 
 
Unrealized gain on available-for-sale securities
102,240

 
(33,376
)
 
68,864

Total
102,240

 
(33,376
)
 
68,864

Gain associated with employees’ retirement benefits
644,294

 
(228,389
)
 
415,905

Reclassification adjustments for gain included in net income
71,957

 
(25,458
)
 
46,499

Total
716,251

 
(253,847
)
 
462,404

Other comprehensive income
818,491

 
(287,223
)
 
531,268

Comprehensive income
 
 
 
 
¥
3,293,109

 
Thousands of Yen
 
2012
 
Gain (loss) before income tax expense
 
Income tax (expense) benefit
 
Gain (loss) after income tax expense
Net income
¥
—

 
¥
—

 
¥
3,044,826

Other comprehensive income:
 
 
 
 
 
Unrealized loss on available-for-sale securities
(10,237
)
 
8,781

 
(1,456
)
Reclassification adjustments for gain included in net income
9,696

 
(3,434
)
 
6,262

Total
(541
)
 
5,347

 
4,806

Loss associated with employees’ retirement benefits
(423,086
)
 
167,941

 
(255,145
)
Reclassification adjustments for gain included in net income
49,835

 
(17,073
)
 
32,762

Total
(373,251
)
 
150,868

 
(222,383
)
Other comprehensive loss
(373,792
)
 
156,215

 
(217,577
)
Comprehensive income
 
 
 
 
¥
2,827,249


24

The analysis of changes in equity under U.S. GAAP is as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2012
 
2014
Equity at beginning of year
¥
15,779,536

 
¥
17,953,299

 
¥
16,837,910

 
$
153,200

Total comprehensive income (net of tax)
2,715,490

 
3,293,109

 
2,827,249

 
26,364

Cash dividends
(1,383,891
)
 
(5,466,872
)
 
(1,711,860
)
 
(13,436
)
Equity at end of year
¥
17,111,135

 
¥
15,779,536

 
¥
17,953,299

 
$
166,128

The following is a summary of the significant adjustments made to equity and net income to reconcile the Japanese GAAP results with U.S. GAAP. The paragraphs below refer to the corresponding items set forth above.
a. Business Combinations
Under Japanese GAAP, the Business Accounting Council issued a Statement of Opinion, “Accounting for Business Combinations” in October 2003 which was effective for fiscal years beginning on or after April 1, 2006. Before this statement, there was no specific accounting standard addressing accounting for business combinations; therefore, companies followed common business practices dictated by the Commercial Code of Japan (the “Code”), currently the Code of the Companies Act.
Under the purchase method, which isgenerally applied by Japanese companies, goodwill is measured as the excess of purchase price over the carrying values of the individual assets acquired and liabilities assumed at the acquisition date. Subsequently, the goodwill is amortized on a straight-line basis over a number of years that may vary, depending on the nature of the acquired business.
Under U.S. GAAP, all business combinations (excluding combinations of entities under common control) are accounted for using the acquisition method as defined in ASC 805, “Business Combinations.” ASC 805 requires that the net assets, tangible and identifiable intangible assets less liabilities of the acquired company be recorded at fair value, with the excess of the cost of an acquired company over the fair value of the acquired net assets recorded as goodwill. Also, after the adoption of ASC 350, “Intangibles-Goodwill and Other,” goodwill and recognized indefinite-lived intangible assets in a business combination are not amortized, but are tested for impairment at least annually, as well as on an interim basis if events or changes in circumstances indicate that the goodwill or indefinite-lived intangible assets might be impaired. Separate intangible assets that are not deemed to have an indefinite life are amortized over their expected economic life and also tested for impairment.
In 2000, the Company purchased 100% of the outstanding common stock of KK Kizembo (“Kizembo”). In December 2005, the Company purchased 100% of the common stock of Yamato Corporation (“Yamato”). In July 2002, the Company purchased 100% of the common stock of Atlas Co. (“Atlas”) which owned 52.8% of the common stock of Mefos Co. (“Mefos”); subsequently, Atlas acquired the remaining 47.2% of common stock of Mefos in a series of step acquisitions that concluded in December 2005.
In March 2006, the Company and Atlas merged, with the Company as the surviving entity. As a result of the merger, the Company directly held 100% of the common stock of Mefos. Under Japanese GAAP, and in line with the Code, the Company consolidated the net carrying amount of the assets and liabilities of Mefos and wrote off the unamortized amount of goodwill related to the previous acquisition of Atlas and its subsidiary, Mefos.
Under U.S. GAAP, the March 2006 merger between the Company and Atlas was accounted for as a transfer of net assets or equity interests between entities under common control. Such transfer is accounted for by the receiving entity (the Company) at the carrying amounts, including goodwill in the accounts of the transferring entity (Atlas) at the date of the transfer. Consequently, the one-time accelerated goodwill amortization charge is reversed for U.S. GAAP reporting purposes.
On November 1, 2007, the Company completed its merger with Yamato, a wholly owned subsidiary. On April 1, 2008, the Company also completed its merger with its wholly owned subsidiaries, Kizembo and AIM Dining Support Co., Ltd. All assets and liabilities of these entities were transferred to the Company at the appropriate carrying amount and there is no impact on the Company’s consolidated financial statements or the reconciliation to U.S. GAAP.

25

Goodwill:
The following table presents the carrying amount of goodwill under Japanese GAAP and U.S. GAAP as of March 31, 2014 and 2013:
 
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
 
2014
 
2014
 
 
Japanese GAAP
 
U.S. GAAP
 
Japanese GAAP
 
U.S. GAAP
Acquired Company
 
Carrying
Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Carrying Amount, Net of Impairment
 
Goodwill Related
Reconciliation
Item
 
Carrying
Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Carrying Amount, Net of Impairment
 
Goodwill Related
Reconciliation
Item
Kizembo
 
¥
482,935

 
¥
(482,935
)
 
¥
—

 
¥
332,018

 
¥
332,018

 
$
4,689

 
$
(4,689
)
 
$
—

 
$
3,223

 
$
3,223

Mefos
 
6,175,740

 
(5,638,587
)
 
537,153

 
1,875,532

 
1,338,379

 
59,959

 
(54,744
)
 
5,215

 
18,209

 
12,994

Yamato
 
2,982,465

 
(2,585,323
)
 
397,142

 
1,918,419

 
1,521,277

 
28,955

 
(25,099
)
 
3,856

 
18,626

 
14,770

Total
 
¥
9,641,140

 
¥
(8,706,845
)
 
¥
934,295

 
¥
4,125,969

 
¥
3,191,674

 
$
93,603

 
$
(84,532
)
 
$
9,071

 
$
40,058

 
$
30,987

 
 
Thousands of Yen
 
 
2013
 
 
Japanese GAAP
 
U.S. GAAP
Acquired Company
 
Carrying
Amount
 
Accumulated Amortization
 
Net
Carrying Amount
 
Carrying Amount, Net of Impairment
 
Goodwill Related
Reconciliation
Item
Kizembo
 
¥
482,935

 
¥
(482,935
)
 
 
 
¥
332,018

 
¥
332,018

Mefos
 
6,175,740

 
(5,519,219
)
 
656,521

 
1,875,532

 
1,219,011

Yamato
 
2,982,465

 
(2,386,753
)
 
595,712

 
1,918,419

 
1,322,707

Total
 
¥
9,641,140

 
¥
(8,388,907
)
 
¥
1,252,233

 
¥
4,125,969

 
¥
2,873,736

Under Japanese GAAP, goodwill is amortized on a straight-line basis over a period from 10 to 13 years as described in note 2.a., including an accelerated amortization for Atlas in the year ended March 31, 2006, which are reversed under U.S. GAAP.
For U.S. GAAP reporting purposes, the Company recognized goodwill impairment loss of ¥194,000 thousand ($2,063 thousand) for the year ended March 31, 2013 in connection with goodwill of Yamato, which represents the office coffee and tea services (the “OCS”) business reporting unit. Goodwill was impaired primarily due to reduced profitability of the OCS business reporting unit resulting from macro and micro economic factors surrounding the OCS business reporting unit.
The amount of the impairment was determined based on the estimated fair value of the OCS business reporting unit using a discounted cash flow model as compared to the carrying amount of the OCS business reporting unit, including goodwill.
For the years ended March 31, 2014, 2013 and 2012, the net income reconciliation item related to goodwill represents the reversal of the goodwill amortization charge amounting to ¥317,938 thousand ($3,087 thousand), ¥317,938 thousand and ¥317,938 thousand, respectively, recorded under Japanese GAAP and the recognition of goodwill impairment loss under U.S.GAAP as referred above.

26

Under Japanese GAAP, the estimated aggregate amortization expense for goodwill for the next five years is as follows:
Year Ending March 31
 
Thousands of Yen
 
Thousands of U.S. Dollars
2015
 
¥
317,938

 
$
3,087

2016
 
317,938

 
3,087

2017
 
119,368

 
1,159

2018
 
119,368

 
1,159

2019
 
59,684

 
579

Adjustment to intangible assets:
Under Japanese GAAP, the Company did not recognize identifiable intangible assets, other than goodwill, as part of purchase price allocation in a business combination.
In connection with the above-mentioned acquisitions, under U.S. GAAP, the Company recognized identifiable intangible assets and is amortizing those over the expected economic life of each intangible asset. The table below presents the gross carrying amount, accumulated amortization and net carrying amount, in total and by major class of intangible assets acquired in the above-mentioned business combinations as of March 31, 2014 and 2013:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
 
Gross
Carrying
Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross
Carrying
Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross
Carrying
Amount
 
Accumulated Amortization
 
Net Carrying Amount
Customer contracts
¥
7,366,836

 
¥
(3,993,503
)
 
¥
3,373,333

 
¥
7,366,836

 
¥
(3,579,582
)
 
¥
3,787,254

 
$
71,523

 
$
(38,772
)
 
$
32,751

Trademarks
361,723

 
—

 
361,723

 
361,723

 
—

 
361,723

 
3,512

 
—

 
3,512

Total
¥
7,728,559

 
¥
(3,993,503
)
 
¥
3,735,056

 
¥
7,728,559

 
¥
(3,579,582
)
 
¥
4,148,977

 
$
75,035

 
$
(38,772
)
 
$
36,263

For the years ended March 31, 2014, 2013 and 2012, the net income reconciliation item related to intangible assets represents the intangible assets amortization charge recognized under U.S. GAAP amounting to ¥413,921 thousand ($4,019 thousand), ¥413,921 thousand and ¥413,921 thousand, respectively.
Customer contracts are being amortized on a straight-line basis over periods of 14 to 20 years. Trademarks are not amortized but are tested for impairment at least annually, as well as on an interim basis if events or changes in the circumstances indicate that the trademarks might be impaired.
Under U.S. GAAP, the estimated aggregate amortization expense for intangible assets acquired for the next five years is as follows:
Year Ending March 31
 
Thousands of Yen
 
Thousands of U.S. Dollars
2015
 
¥413,921
 
$4,019
2016
 
413,921
 
4,019
2017
 
413,921
 
4,019
2018
 
413,921
 
4,019
2019
 
413,921
 
4,019

27

Other adjustment in connection with business combinations:
The following table represents an other adjustment in connection with the Yamato business combination as described above as of March 31, 2014 and 2013:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
As of
March 31, 2014
 
As of
March 31, 2013
 
As of
 March 31, 2014
Land
¥
(24,423
)
 
¥
(24,423
)
 
$
(237
)
Business combinations adjustments summary:
The following table summarizes the U.S. GAAP adjustments related to the above-mentioned business combinations:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2012
 
2014
 
As of
March 31,
2014
 
Year Ended March 31,
2014
 
As of
March 31,
2013
 
Year Ended March 31,
2013
 
As of
March 31,
2012
 
Year Ended March 31,
2012
 
As of
March 31,
2014
 
Year Ended March 31,
2014
Goodwill
¥
3,191,674
 
 
¥
317,938
 
 
¥
2,873,736

 
¥
123,938

 
¥
2,749,798

 
¥
317,938

 
$
30,987

 
$
3,087

Intangible assets
3,735,056
 
 
(413,921
)
 
4,148,977

 
(413,921
)
 
4,562,898

 
(413,921
)
 
36,263

 
(4,019
)
Land
(24,423
)
 
—
 
 
(24,423
)
 
—

 
(24,423
)
 
—

 
(237
)
 
—

Total
¥
6,902,307
 
 
¥
(95,983
)
 
¥
6,998,290

 
¥
(289,983
)
 
¥
7,288,273

 
¥
(95,983
)
 
$
67,013

 
$
(932
)

28

a.Accrued Vacation
Japanese GAAP does not specifically require a company to accrue liabilities for future compensated absences (short-term employee benefits). Under U.S. GAAP, in accordance with ASC 710, “Compensation-General,” absences such as vacations are accrued when earned by employees.
b.Employees’ Retirement Benefits
Japanese GAAP and U.S. GAAP follow similar principles in accounting for retirement benefit obligations; however, there are currently several differences in the detailed application of these principles. (See Notes 2.l and 14.g for Recent Accounting Pronouncements Adopted and to Be Adopted in Future Periods for Retirement Benefits in Japanese GAAP.)
The following represent the most relevant differences between Japanese GAAP and U.S. GAAP in connection with assumptions used to calculate the pension liability:
(1)Unlike U.S. GAAP, there is no corridor approach and actuarial gain or loss is always amortized under Japanese GAAP.
(2)Under Japanese GAAP, the prior service credits of ¥37,370 thousand which were recognized as a result of amendments of the pension plans were included in net periodic pension credit entirely in the year ended March 31, 2011. Under U.S. GAAP, the prior service credit was recognized as a charge to other comprehensive income at the date of amendment and amortized as a component of net periodic pension cost over the average remaining service period. Unamortized prior service credits as of March 31, 2014 and 2013 were ¥183,427 thousand ($1,781 thousand) and ¥210,783 thousand, respectively, and were included in accumulated other comprehensive income.
(3)Under Japanese GAAP, it is acceptable to select the same discount rate as the prior year unless there would not be a material difference between the projected benefit obligations estimated using the rate as of the balance sheet date and the one estimated using the prior year’s rate. However, there is no such exception under U.S. GAAP.
(4)Under Japanese GAAP, it was not required to recognize the overfunded or underfunded status of a defined benefit postretirement plan in accumulated other comprehensive income in the balance sheet. Under U.S. GAAP, such amounts are recognized in accumulated other comprehensive income, net of tax, in the balance sheet, and also the actuarial gains or losses and prior service costs that arise during the period but are not recognized as components of net periodic benefit cost are recognized as a component of other comprehensive income.
As of March 31, 2014, the Company adopted the revised Japanese accounting standard, as described in note 2.l, and the differences between the fair value of the plan assets and the projected benefit obligation of pension or post retirement plans are recognized on the consolidated balance sheet as described in note 5.
The liability for employees’ retirement benefits at March 31, 2014 and 2013, under U.S. GAAP consisted of the following:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2014
Projected benefit obligation
¥
(10,442,450
)
 
¥
(9,575,689
)
 
$
(101,383
)
Fair value of plan assets
8,028,910

 
7,198,328

 
77,951

Net liability under U.S. GAAP
(2,413,540
)
 
(2,377,361
)
 
(23,432
)
Net liability under Japanese GAAP:
 
 
 
 
 
Employees’ retirement benefits
(1,784,428
)
 
(1,109,515
)
 
(17,325
)
Prepaid pension costs
90,894

 
140,439

 
883

Total
(1,693,534
)
 
(969,076
)
 
(16,442
)
Equity reconciliation item
¥
(720,006
)
 
¥
(1,408,285
)
 
$
(6,990
)

29

Under U.S. GAAP, the components of net periodic benefit costs for the years ended March 31, 2014, 2013 and 2012, are as follows:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2012
 
2014
Service cost
¥
609,354

 
¥
676,744

 
¥
656,630

 
$
5,916

Interest cost
104,010

 
101,071

 
125,660

 
1,010

Amortization of prior service credit
(27,356
)
 
(26,442
)
 
(26,899
)
 
(266
)
Expected return on plan assets
(143,967
)
 
(128,097
)
 
(118,041
)
 
(1,398
)
Recognized actuarial loss
33,776

 
98,399

 
76,734

 
328

Net periodic benefit costs under U.S. GAAP
575,817

 
721,675

 
714,084

 
5,590

Net periodic benefit costs under Japanese GAAP
720,498

 
820,937

 
750,349

 
6,995

Net income reconciliation item
¥
(144,681
)
 
¥
(99,262
)
 
¥
(36,265
)
 
$
(1,405
)
The U.S. GAAP assumptions used for the years ended March 31, 2014, 2013 and 2012, are set forth below:
 
2014
 
2013
 
2012
Discount rate
From 0.8% to 1.10%
 
1.10%
 
1.10%
Expected rate of return on plan assets
2.0%
 
2.0%
 
2.0%
Amortization period of prior service credit relating to the plan amendment
From 8 to 12 years
 
From 8 to 12 years
 
From 8 to 12 years
Recognition period of actuarial gain/loss
From 11 to 12 years
 
From 8 to 12 years
 
From 5 to 12 years
c.Capital Leases
Previously, Japanese GAAP permitted finance leases that did not transfer ownership of the leased property to a lessee 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. However, as explained in Note 2.m, the new accounting standard for lease required the Company to capitalize finance leases on its consolidated balance sheet.
Finance leases that do not transfer ownership and whose commencement date falls prior to the first year of implementation of this accounting standard may continue to be accounted for as an operating lease with required pro forma disclosure in the notes in accordance with an exception rule in the new accounting standard. Refer to Notes 2.m and 8.
U.S. GAAP requires the application of ASC 840, “Leases,” in order to determine whether a lease should be classified as an operating or capital lease. The Group analyzed its leases in accordance with the criteria specified in ASC 840 and determined that certain of its leases should be capitalized.
The following table presents a summary of the differences between Japanese GAAP and U.S. GAAP for lease-related assets and liabilities as of March 31, 2014, 2013 and 2012, and income statement related information for the years ended March 31, 2014, 2013 and 2012:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2012
 
2014
Machinery and equipment
¥
98,066

 
¥
69,451

 
¥
77,032

 
$
952

Furniture and fixtures
530,366

 
533,333

 
886,733

 
5,149

Other assets
10,751

 
18,713

 
50,694

 
104

Accumulated depreciation
(315,712
)
 
(285,510
)
 
(608,492
)
 
(3,065
)
Lease obligation
(335,678
)
 
(348,732
)
 
(422,504
)
 
(3,259
)
Other long-term liabilities
—

 
—

 
85

 
—

Net impact on equity
(12,207
)
 
(12,745
)
 
(16,452
)
 
(119
)
Reversal of operating lease expense
138,049

 
170,842

 
259,943

 
1,340

Lease asset depreciation under U.S. GAAP
(129,782
)
 
(158,839
)
 
(253,049
)
 
(1,260
)
Lease related interest expense under U.S. GAAP
(7,729
)
 
(8,296
)
 
(9,838
)
 
(75
)
Lease related impact on net income before income tax
¥
538

 
¥
3,707

 
¥
(2,944
)
 
$
5


30

d.Tax Effect of Adjustments
Accounting for income taxes in accordance with Japanese GAAP is substantially similar to accounting for income taxes in accordance with ASC 740, “Income Taxes.” Other than the deferred tax impact related to the U.S. GAAP reconciliation items, there is no material difference in connection with accounting for income taxes resulting from the application of U.S. GAAP.
The following table illustrates the impact on the Japanese GAAP deferred tax assets and liabilities in the Group’s consolidated balance sheets as a result of the U.S. GAAP adjustments as of March 31, 2014 and 2013:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2014
 
Japanese
GAAP
Balances
 
ASC 740 Applied to U.S. GAAP Adjustments
 
U.S. GAAP Balances
 
Japanese GAAP Balances
 
ASC 740 Applied to U.S. GAAP Adjustments
 
U.S. GAAP Balances
Balance sheet:
 
 
 
 
 
 
 
 
 
 
 
Current deferred tax assets
¥
1,867,208

 
¥
879,391

 
¥
2,746,599

 
$
18,128

 
$
8,538

 
$
26,666

Non-current deferred tax assets
691,854

 
22,708

 
714,562

 
6,717

 
220

 
6,937

Non-current deferred tax liabilities
—

 
(1,077,366
)
 
(1,077,366
)
 
—

 
(10,460
)
 
(10,460
)
Net deferred tax assets
¥
2,559,062

 
¥
(175,267
)
 
¥
2,383,795

 
$
24,845

 
$
(1,702
)
 
$
23,143

 
Thousands of Yen
 
2013
 
Japanese
GAAP
Balances
 
ASC 740 Applied to U.S. GAAP Adjustments
 
U.S. GAAP Balances
Balance sheet:
 
 
 
 
 
Current deferred tax assets
¥
1,814,557

 
¥
906,836

 
¥
2,721,393

Non-current deferred tax assets
479,500

 
13,110

 
492,610

Non-current deferred tax liabilities
—

 
(970,427
)
 
(970,427
)
Net deferred tax assets
¥
2,294,057

 
¥
(50,481
)
 
¥
2,243,576

Tax effects arising from U.S. GAAP adjustments for the years ended March 31, 2014, 2013 and 2012, were charged or credited to the following items:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2012
 
2014
Income taxes
¥
67,703

 
¥
143,326

 
¥
226,435

 
$
657

Other comprehensive income:
Employees’ retirement benefits
(192,488
)
 
(253,847
)
 
150,868

 
(1,869
)
Total tax effects
¥
(124,785
)
 
¥
(110,521
)
 
¥
377,303

 
$
(1,212
)
U.S. GAAP adjustments related to the reversal of goodwill amortization charges recorded under Japanese GAAP have no tax effects since they are not deductible for tax purposes under Japanese Tax Laws and Regulations.
e.Cash and Cash Equivalents
The adjustment in the statements of cash flows to U.S. GAAP from Japanese GAAP mainly consisted of certain lease transactions which are only accounted for as capital leases under U.S. GAAP. Lease payments related to such are presented in financing activities under U.S. GAAP rather than operating activities under Japanese GAAP.

31

The following table represents the Group’s condensed consolidated information related to the statements of cash flows under U.S. GAAP for the years ended March 31, 2014, 2013 and 2012:
 
Thousands of Yen
 
Thousands of U.S. Dollars
 
2014
 
2013
 
2012
 
2014
Net cash provided by operating activities
¥
3,588,766

 
¥
3,896,823

 
¥
6,087,013

 
$
34,842

Net cash (used in) provided by investing activities
(2,263,186
)
 
1,916,363

 
(6,427,498
)
 
(21,973
)
Net cash used in financing activities
(1,944,589
)
 
(5,929,428
)
 
(4,155,591
)
 
(18,879
)
Net decrease in cash and cash equivalents
(619,009
)
 
(116,242
)
 
(4,496,076
)
 
(6,010
)
Cash and cash equivalents at beginning of year
7,709,209

 
7,825,451

 
12,321,527

 
74,847

Cash and cash equivalents at end of year
¥
7,090,200

 
¥
7,709,209

 
¥
7,825,451

 
$
68,837

f.Recent Accounting Pronouncements Adopted and to Be Adopted in Future Periods
U.S. GAAP
In May 2011, the FASB issued Accounting Standard Update No. 2011-04, “Fair Value Measurement (Topic 820)-Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The guidance amends the terms used in the requirements for fair value measurements and disclosures under ASC 820, “Fair Value Measurement.” It also amends certain principles and requirements of fair value measurements and disclosures, and expands the disclosure requirements. This guidance was effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance had no impact on the Company’s financial position and results of operations.
In June 2011, the FASB issued Accounting Standard Update No. 2011-05, “Comprehensive Income (Topic 220)-Presentation of Comprehensive Income.” The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in equity and requires that all non-owner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance was effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this provision had no impact on the Company’s financial position and results of operations.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Intangibles-Goodwill and Other (Topic 350)-Testing Goodwill for Impairments.” The guidance allows companies an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis forvdetermining if it is necessary to perform the two-step quantitative goodwill impairment test. Under the guidance, a reporting entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The effect of the adoption of this guidance on the Company’s financial position and results of operations was immaterial.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, “Balance sheet (Topic 210).” The guidance requires a reporting entity to disclose information about offsetting and related arrangements to enable financial statement users to understand the effect of such arrangements on the statement of financial position as well as to improve comparability of balance sheets prepared under U.S. GAAP and International Financial Reporting Standards. The guidance is required to be applied retrospectively and is effective for annual periods for fiscal years beginning on or after January 1, 2013. The effect of the adoption of this guidance on the Company’s financial position and results of operations was immaterial.
In July 2012, the FASB issued Accounting Standards Update No. 2012-02, “Intangibles-Goodwill and Other (Topic 350) : Testing Indefinite-lived Intangible Assets for Impairment.” The guidance allows entities an option to first assess qualitative factors to determine whether it is more likely than not that indefinite lived intangible assets are impaired as a basis for　determining if it is necessary to perform the quantitative impairment test. Under the new guidance, entities are no longer required to calculate the fair value of the assets unless the entities determine, based on the qualitative assessment, that it is more likely than not that indefinite lived intangible assets is impaired. The new guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The effect of the adoption of this guidance on the Company’s financial position and results of operations was immaterial.
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The guidance requires entities to report the significant reclassifications out of accumulated other comprehensive income if the amount is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required that provide additional detail about those amounts. This guidance only affects the presentation of other comprehensive income, and the Company does not expect its adoption will have a material impact on its financial position and results of operations.

32

In February 2013, the FASB issued Accounting Standards Update No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force).” This guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, plus any additional amount the reporting entity expects to pay on behalf of its co-obligors. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect its adoption will have a material impact on its financial position and results of operations.
In July 2013, the FASB issued Accounting Standards Update No.2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryfoward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This guidance requires an unrecognized tax benefit to be presented as a reduction to a deferred tax asset for a net operating loss, a similar tax loss, or a tax credit carryforward if certain criteria are met. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect its adoption will have a material impact on its financial position and results of operations.
In April 2014, the FASB issued Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 380): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” Under the new guidance, only disposals representing a strategic shift in operations that has, or will have, a major effect on the entity’s operations and financial results should be presented as discontinued operations. Additionally, the revised guidance requires additional disclosures for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The effect of this guidance will depend on the nature and significance of transactions after the adoption date.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). This new accounting guidance addresess revenue recognition which will supersede the current revenue recognition requirements, including most industry-specific guidance. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The effect of this guidance, as well as the transition method, is being evaluated and will depend upon the method of transition as well as the nature and significance of transactions upon adoption.
Japanese GAAP
In March 2011, the ASBJ issued Accounting Standard-ASBJ Statement No. 22, “Revised Accounting Standard for Consolidated Financial Statements,” ASBJ Guidance No. 15, “Revised Guidance on Disclosures about Certain Special Purpose Entities,” ASBJ Guidance No. 22, “Revised Guidance on Determining a Subsidiary and an Affiliate” and PITF No. 20, “Revised Practical Solution on Application of the Control Criteria and Influence Criteria to Investment Associations.” These revisions are aimed to provide a short-term improvement to the existing standards to address current treatment for certain special purpose entities. Those pronouncements will be effective for the annual periods beginning on or after April 1, 2013. Early adoption is permitted. The Company does not expect adoption of those pronouncements will have a significant impact on its financial position and results of operations.
In May 2012, the ASBJ issued Accounting Standard-ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25, “Guidance on Accounting Standard for Retirement Benefits.” In addition to the changes described in note 2.l above, the new accounting standard allows the choice of the method of attributing expected benefit to periods between the “Straight-line basis” and “Benefit formula basis”. The new accounting standard also revised the calculation method of the discount rate and requires that the discount rate reflect the expected timing of each benefit payment. These amendments will be applied from fiscal years beginning after March 31, 2014. The Company is currently evaluating the potential impact from adopting the standard and guidance on its financial position and results of operations.

33