The 20th term business report.April 1, 2006 to March 31, 2007 [ILLUSTRATION OMITTED] Japan Third Party Co., Ltd. Message from Top Management JTP was founded 20 years ago as a company specializing in providing outsourcing of technical services of overseas companies' Japanese subsidiaries. Since then, we have established a unique position through our business deals with a variety of customers around the world, from global IT venture firms to leading companies. For overseas companies seeking to expand their sales of IT products, building and maintaining a service framework presents a more important management challenge than establishing sales channels because the cycles of such products are short. In Japan, manufacturers usually establish integrated business operations on their own, covering everything from the development and production of IT products to the provision of services. In other countries on the cutting edge of IT technology, however, the prevailing business formula is to maximize the leverage by outsourcing non-core operations, such as production, logistics and services while retaining core operations like marketing, technology development and sales. For manufacturers seeking to establish their own service frameworks in the IT sector, wherein technological innovation occurs rapidly, an enormous initial investment in personnel is required so as to secure human resources and provide technical training and education. Furthermore, in order to cope with a rapidly changing market environment, it is necessary to adopt a flexible service framework, closing in some cases and restructuring it in others. The effectiveness of our business model in reducing the costs necessary for such flexibility has been widely recognized in Japan. Having already begun preparations for spreading our business model throughout the Asian region in response to customer requests, we intend to actively operate in the region in anticipation of opportunities for further business expansion. Under these circumstances, in our 20th term we managed to post the best business results in our corporate history in terms of both sales and profits, and also consolidate our management foundation. For this, we are appreciative of the support from our customers, shareholders and employees. June 2007 Business Model We serve as a "second service division" of leading overseas companies by providing business solutions and technical support services. [GRAPHIC OMITTED] Business Strategy "SMS Strategy"--Business Model that Enables Quick Adaptation to Changes in Business Environments When an overseas high-tech company engages in business in Japan, it can be assumed that they face three stages in their business life cycle: 1. Business growth following market entry (Sunrise), 2. Business maturity (Midday) and 3. Withdrawal from the market (Sunset). JTP provides a "framework" and "service system" that enable flexible actions at each stage. More specifically, JTP provides software solutions, field solutions and hardware solutions in the manner best suited to each stage. [ILLUSTRATION OMITTED] JTP's Advantage 1 We have earned the trust of major global companies in our role as their strategic partner over the past 20 years. [ILLUSTRATION OMITTED] JTP's Advantage 2 We provide world-class human resources and service quality through the "Muscat Strategy." Licenses obtained by business divisions and individual employees
Support based on
Vendor names License names international standards
* Sun Microsystems * SCSA * SJC-D
* SCNA * SJC-Wc
* SCSecA * SJD-EA
* SISC * SJD-BC
* SCFE * Star Suite
* SJC-P
* Hewlett Packard * HP-UX * HP-HA
* Cisco Systems * CCNA * CCIE
* CCDA * CSE
* CCNP * WLAN
* CCIP
* Linux Professional * LPIC Level 1
Institute * LPIC Level 2
* Oracle * Silver * Platinum
* Gold
* Microsoft * MCP * MCSE
* MCSA * MCDST
* VERITAS * SFS * DPS-X
* DPA-X * DPS-W
* DPA-W * HAS-X
* BUES * HAS-W
* EMC * Associate Level
* Specialist Level
* XML * XML Master Basic
* OMG * UML Professional
Fundamental
* CheckPoint * CCSA
* IBM * SCS
* Comp TIA * A+
* NETWORK+
* Brocade * CFP
* SAP * ABAP
* Turbolinux * Turbolinux
* OGC * ITIL
[ILLUSTRATION OMITTED] Qualifications acquired by individual employees Bilingual Multilingual engineers who can communicate in several languages TOEIC It is quite natural for JTP engineers working across national borders to have full command of English as an international language. Employees make full use of their skills in English, Chinese (Mandarin and Cantonese) and Korean when engaging in business activities in the Asia-Pacific region, including business negotiations, system design, training, technical transfers and presentation. To facilitate this, we foster an environment that enables all of our employees to improve their capabilities as multilingual engineers. Qualifications acquired by business divisions Acquisition of ISO9001: 2000 certificate Education division JQA-2598 Repair center division JQA-2699 IT-based system support division JQA-QM5320 Computer system support JQA-QM6085 Integration support JQA-QM6413 Computer system support (peripherals) JQA-QM8338 Through the "Muscat Strategy" (which owes its name to an analogy with the Muscat variety of grape), we simultaneously seek to develop human resources in ways wherein individual employees are trained so as to be able to work proactively and effectively as an individual (like individual grapes in a bunch), thereby enhance the entire organization (the whole bunch). In order to ensure the provision of high-quality services, JTP has in place the Lx[e.sup.2] system, which outlines individual employees' skills in numerical terms for easy recognition and provides quality assurance based on our acquisition of ISO9001 certification. Furthermore, JTP trains its employees in ways that enables them to perform multiple jobs, thus enhancing efficiency. Moreover, thanks to its combination of high service quality and price competitiveness in international markets, JTP has been designated as a participant in international competitive bids. Future Challenges Challenge 1 Maintaining a Slim but Strong Management Based on the "Pay-As-You-Use" Pricing System Instead of Fixed-Rate Contracts You pay as you use in the case of utility services such as electricity, gas and water supply. In your everyday life, one can sense a shift to this type of service pricing system taking place in Japan's IT sector. For example, you can obtain a mobile phone for free and pay a monthly bill for a variety of services, such as voice calling and e-mails, based only to the extent to which you actually used said services. Thus, the utility service model that is becoming popular in the United States and Europe is also starting to take hold in Japan. Until now, the business management of IT service companies has mostly relied on stable revenue assured by a fixed-rate system based on annual contracts that factor in possible system glitches and breakdowns, just like non-refundable insurance contracts that require fixed-premium payments on the assumption of possible accidents and diseases. Under our "pay-as-you-use" pricing system, we charge a fee each time we provide our services aimed at solving customer problems. From a customer standpoint, we simply provide services and charge fees as necessary. We will maintain this management principle without being tempted by the comfort of the fixed-rate contract system. Challenge 2 Aiming to Become a Future Employment Magnet for School Children Receiving Education Grounded in High Technology Elementary school children who are now using high-tech machines like PCs and advanced mobile terminals in their classrooms are set to join society as adults in ten years' time. We endeavor to become the kind of company that would appear attractive to such people as a potential employer. The key words for achieving this end are "suitability for international business" and "social contributions." By developing employees into "human assets" well suited to international business by way of our unique education system, we aim to become over the next ten years a knowledge-intensive support company that provides up-to-date technical expertise and information and multi-faceted skills. Challenge 3 Presenting the Ultimate Support System Based on Web-Based Knowledge and Information Instead of Physical Support Service and support businesses involve labor-intensive operations that are constantly faced with a labor shortage problem. In a move that overturns conventional wisdom, we are preparing to implement a plan to establish a system capable of applying Web-based support to resolve problems faced by customers in the field of IT system design and integration. We can realize such a system merely by way of the technical experience, knowledge and information that we have accumulated through our business activities with our numerous overseas companies over the past 20 years. Business Review During the term under review, securing profits, as opposed to business expansion, emerged as a challenge for Japan's IT sector and became a focal point of interest as the maturation of the market progressed. Meanwhile, the economy recovered, led by the utilization of human resources and the start of business operations in Asian countries. In light of this situation, JTP endeavored to expand its business activities by providing services that meet a variety of needs of customers, including overseas manufacturers, while maintaining service quality, as well as by achieving service costs that are competitive in the Asian region. Moreover, having strengthened its financial foundation as well as having made organizational preparations, JTP obtained in June 2006 a stock listing on the JASDAQ stock market, a goal of the company since its foundation. As a result, JTP generated net sales of 5,357 million yen in this term, up 5.4% from the previous year and earned an operating income of 511 million yen, up 122.1%, an ordinary income of 524 million yen, up 92.1%, and a net income of 261 million yen, up 365.1%. Software Solution Business This business division provides software "localization" services to overseas IT manufacturers entering the Japanese and Asian markets. Such services include translation of technical manuals and educational materials, training of engineers at JTP training facilities, software technology service support for end users and technical help desk operations for helping engineers and end users resolve their problems (technical call centers). Although help desk operations posted steady growth this term, net sales declined 3.5% from the previous year to 1,806 million yen due to the postponement of a system modification at an end user to the next term. [ILLUSTRATION OMITTED] [ILLUSTRATION OMITTED] Field Solution Business This business division provides on-site solutions by establishing a framework for efficient services with regard to high-mix, low-volume systems and equipment manufactured and sold by overseas IT producers, including computer systems, network systems, medical equipment, chemical analyzers and semiconductor-manufacturing equipment. During this term, JTP actively engaged in consulting services that formulate proposals for customer-oriented solution systems based on comprehensive use of our technological know-how, and also endeavored to obtain contracts for related network integration work. As a result, net sales in this term rose 11.3% to 2,650 million yen. [ILLUSTRATION OMITTED] [ILLUSTRATION OMITTED] Hardware Solution Business This business division, in which the need for cost reduction is acute in the Asian region in particular, supports product assembly, software integration, product customization and pre-shipment inspection at Japanese plants belonging to overseas IT manufacturers by proposing solution to customers through consulting services with regard to strategies for building frameworks for ensuring speedy, low-cost product delivery in Asia. In this term, our solution proposals led to a business expansion, with net sales increasing 8.4% to 900 million yen. [ILLUSTRATION OMITTED] [ILLUSTRATION OMITTED]
Sales by business segment
([yen] thousand)
Software Field Hardware
solution solution solution
business business business
18th term (March 31, 2005) 1,250,861 2,492,055 851,391 4,594,307
19th term (March 31, 2006) 1,872,492 2,380,680 830,762 5,083,934
20th term (March 31, 2007) 1,806,038 2,650,756 900,565 5,357,360
Note: Table made from bar graph.
Financial Highlights Net sales ([yen] thousand) 16th Term (to March 31, 2003) 3,695,856 17th Term (to March 31, 2004) 4,175,608 18th Term (to March 31, 2005) 4,594,307 19th Term (to March 31, 2006) 5,083,934 20th Term (to March 31, 2007) 5,357,360 Note: Table made from bar graph. Operating income ([yen] thousand) 16th Term (to March 31, 2003) 204,418 17th Term (to March 31, 2004) 403,720 18th Term (to March 31, 2005) 397,179 19th Term (to March 31, 2006) 230,434 20th Term (to March 31, 2007) 511,817 Note: Table made from bar graph. Ordinary income ([yen] thousand) 16th Term (to March 31, 2003) 199,020 17th Term (to March 31, 2004) 390,110 18th Term (to March 31, 2005) 392,178 19th Term (to March 31, 2006) 272,800 20th Term (to March 31, 2007) 524,108 Note: Table made from bar graph. Net income ([yen] thousand) 16th Term (to March 31, 2003) 74,338 17th Term (to March 31, 2004) 194,643 18th Term (to March 31, 2005) 196,016 19th Term (to March 31, 2006) 56,298 20th Term (to March 31, 2007) 261,863 Note: Table made from bar graph. Net assets ([yen] thousand) 16th Term (to March 31, 2003) 1,000,619 17th Term (to March 31, 2004) 1,158,188 18th Term (to March 31, 2005) 1,309,454 19th Term (to March 31, 2006) 1,746,000 20th Term (to March 31, 2007) 2,473,159 Note: Table made from bar graph. Total assets ([yen] thousand) 16th Term (March 31, 2003) 2,273,069 17th Term (March 31, 2004) 2,713,310 18th Term (March 31, 2005) 2,814,170 19th Term (March 31, 2006) 3,389,480 20th Term (March 31, 2007) 3,812,543 Note: Table made from bar graph. Net assets per share ([yen]) 16th Term (March 31, 2003) 67,959.36 17th Term (March 31, 2004) 78,557.91 18th Term (March 31, 2005) 88,319.71 19th Term (March 31, 2006) 99,988.44 20th Term (March 31, 2007) 123,337.31 Note: Table made from line graph. Net income per share ([yen]) 16th Term (to March 31, 2003) 4,445.87 17th Term (to March 31, 2004) 12,489.27 18th Term (to March 31, 2005) 11,973.19 19th Term (to March 31, 2006) 2,048.65 20th Term (to March 31, 2007) 13,476.83 Note: Table made from line graph. Financial Statements Consolidated Balance Sheets
As of March 31, 2007 and 2006
([yen]thousand)
2007 2006
Assets
Current assets 3,097,739 2,664,367
Cash and deposits 1,786,055 1,525,909
Notes receivable -- trade 36,353 9,570
Accounts receivable -- trade 1,052,744 919,080
Raw materials 46,214 49,574
Work in process 715 --
Prepaid expenses 46,244 49,377
Deferred tax assets 109,002 90,184
Other 24,638 24,372
Allowance for doubtful accounts (4,229) (3,704)
Fixed assets 714,804 725,112
Tangible fixed assets 124,862 138,536
Equipment and facilities in buildings 96,201 99,069
Vehicles 275 275
Furniture and fixtures 28,385 39,192
Intangible fixed assets 23,870 18,335
Software 15,286 9,750
Telephone subscription rights 8,584 8,584
Investments and other assets 566,070 568,241
Investment securities 54,000 54,000
Stocks in subsidiaries and affiliates 61,915 38,431
Investments in capital to subsidiaries and 15,219 15,219
affiliates
Long-term loans to employees 631 1,581
Long-term loans to subsidiaries and 40,298 --
affiliates
Claims in bankruptcy, reorganization 985 1,011
claims, and similar claims
Deferred tax assets 156,858 147,990
Guarantee deposits 220,635 287,719
Other 18,129 23,298
Allowance for doubtful accounts (2,605) (1,011)
Total assets 3,812,543 3,389,480
Liabilities
Current liabilities 864,313 1,206,690
Accounts payable -- trade 174,969 196,992
Short-term borrowings -- 453,000
Accounts payable -- other 106,785 97,319
Accrued expenses 88,964 109,939
Income taxes payable 177,714 49,726
Accrued consumption taxes 27,584 40,872
Advances received 62,223 78,023
Deposits received 26,516 14,666
Reserve for bonuses 176,556 166,150
Reserve for directors' bonuses 23,000 --
Fixed liabilities 475,070 436,788
Reserve for retirement benefits 361,020 329,029
Reserve for directors' retirement benefits 98,620 87,160
Other 15,429 20,598
Total liabilities 1,339,384 1,643,479
Shareholders' equity
Capital stock -- 535,075
Capital surplus -- 386,775
Capital reserve -- 386,775
Retained earnings -- 824,150
Earned reserve -- 9,926
Voluntary reserve -- 490,000
Special reserve -- 490,000
Unappropriated retained earnings for the term -- 324,224
Total shareholders' equity -- 1,746,000
Total liabilities and shareholders' equity -- 3,389,480
Net assets
Shareholders' equity 2,473,159 --
Capital stock 795,475 --
Capital surplus 647,175 --
Capital reserve 647,175 --
Retained earnings 1,030,509 --
Earned reserve 9,926 --
Other retained earnings 1,020,583 --
Special reserve 490,000 --
Retained earnings carried forward 530,583 --
Total net assets 2,473,159 --
Total liabilities and net assets 3,812,543 --
Note: Amounts less than one thousand yen are omitted. Consolidated Statements of Income
Years ended March 31, 2007 and 2006
([yen] thousand)
2007 2006
Net sales 5,357,360 5,083,934
Cost of sales 4,245,697 4,354,997
Gross profit 1,111,662 728,936
Selling, general and administrative expenses 599,845 498,502
Operating income 511,817 230,434
Non-operating income 30,378 54,023
Non-operating expenses 18,088 11,656
Ordinary income 524,108 272,800
Extraordinary income -- 35,326
Extraordinary loss 43,558 120,363
Income before income taxes 480,549 187,764
Income taxes -- current 246,373 145,423
Income taxes -- deferred (27,686) (13,957)
Net income 261,863 56,298
Unappropriated retained earnings brought -- 267,925
forward
Unappropriated retained earnings for the term -- 324,224
Note: Amounts less than one thousand yen are omitted. Consolidated Statements of Cash Flows
Years ended March 31, 2007 and 2006
([yen] thousand)
2007 2006
Cash flows from operating activities 280,402 136,528
Cash flows from investing activities (49,546) 71,250
Cash flows from financing activities 19,781 306,373
Effect of exchange rate changes on cash and cash 9,508 33,425
equivalents
Increase in cash and cash equivalents 260,145 547,577
Cash and cash equivalents at beginning of term 1,525,909 978,332
Cash and cash equivalents at end of term 1,786,055 1,525,909
Note: Amounts less than one thousand yen are omitted. Consolidated Statement of Changes in Shareholders' Equity
Year ended March 31, 2007
([yen] thousand)
Shareholders' equity
Capital surplus
Capital Total capital
Capital stock reserve surplus
Balance as of March 31, 2006 535,075 386,775 386,775
Changes during the term
Issuance of new stock 260,400 260,400 260,400
Dividends from surplus -- -- --
Net income -- -- --
Directors' bonuses from -- -- --
surplus
Total changes during the term 260,400 260,400 260,400
Balance as of March 31, 2007 795,475 647,175 647,175
Shareholders' equity
Retained
earnings
Other retained earnings
Retained
Earned earnings
reserve Special reserve carried forward
Balance as of March 31, 2006 9,926 490,000 324,224
Changes during the term
Issuance of new stock -- -- --
Dividends from surplus -- -- (34,504)
Net income -- -- 261,863
Directors' bonuses from -- -- (21,000)
surplus
Total changes during the term -- -- 206,359
Balance as of March 31, 2007 9,926 490,000 530,583
Shareholders' equity
Retained
earnings
Total Total
retained shareholders' Total net
earnings equity assets
Balance as of March 31, 2006 824,150 1,746,000 1,746,000
Changes during the term
Issuance of new stock -- 520,800 520,800
Dividends from surplus (34,504) (34,504) (34,504)
Net income 261,863 261,863 261,863
Directors' bonuses from (21,000) (21,000) (21,000)
surplus
Total changes during the term 206,359 727,159 727,159
Balance as of March 31, 2007 1,030,509 2,473,159 2,473,159
Note: Amounts less than one thousand yen are omitted. NETWORK [GRAPHIC OMITTED] Shareholders' Memo Shareholders' Information Stock Code: 2488 Fiscal Year: From April 1 of each year to March 31 of the following year Annual Shareholders' Meeting: June Record Date for Voting Rights at Annual Shareholders' Meeting: March 31 In other cases where deemed necessary, the Company will set another record date, following a prior public announcement. Record Dates for Dividends: Year-end dividends: March 31 Interim dividends: September 30 (if any) Administrator of Shareholders Register: Mitsubishi UFJ Trust and Banking Corporation Address: 1-4-5 Marunouchi, Chiyoda-ku, Tokyo Administrative Office of Administrator of Shareholders Register (contact by mail and telephone): Mitsubishi UFJ Trust and Banking Corporation, Corporate Agency Division Address: 7-10-11 Higashisuna, Koto-ku, Tokyo 137-8081 Telephone: 0120-232-711 (toll free) Intermediary Offices of Administrator of Shareholders Register: All branches nationwide of Mitsubishi UFJ Trust and Banking Corporation and Nomura Securities Co., Ltd. Public Notice Circulation Method: Public notices of the Company will be given by means of electronic notification at the website: http://www.jtp.co.jp/ However, in cases where electronic notification is not available due to accidents or any other unavoidable reasons, public notices will be given in the Nihon Keizai Shimbun. Request for Registration Forms: Please call the transfer agent toll free at 0120-244-479, available 24 hours a day, for forms for reporting changes to your address or the designation of and changes to your bank account for dividends, or forms for requesting the procedures for inheriting shares. Stock Procedure Details: Please refer to the website of Mitsubishi UFJ Trust and Banking Corporation: http://www.tr.mufg.jp/daikou/ Japan Third Party Co., Ltd. Shinagawa InterCity Bldg. A, 13F, 2-15-1, Konan, Minato-ku, Tokyo 108-6012, Japan TEL: +81-3-5782-7600 FAX: +81-3-5479-4797 http://www.jtp.co.jp/english/ * The names of companies and products mentioned herein are the registered trademarks of their respective owners. * All unapproved reproductions and redistribution thereof are forbidden. President and Chief Executive Officer Kazuaki Mori [ILLUSTRATION OMITTED] |
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