29

Financial Review

Note: Amounts in U.S. dollars are included solely for the convenience of non-Japanese readers.
A rate of ¥94.05 = US$1, the approximate rate of exchange prevailing on March 31, 2013, has been used in translation.

As of March 31, 2013, the ITHD Group comprised parent company IT Holdings Corporation (“ITHD” or “the Company”) and43 consolidated subsidiaries, including principal companies TIS Inc., INTEC Inc., AGREX INC., QUALICA INC. and AJS Inc.
The scope of consolidation was affected by several changes during fiscal 2013. On April 1, 2012, System Support Co.,
Ltd., merged into TIS System Service Inc. and SORUN ESTATE CORPORATION merged into TIS Total Service Co., Ltd.,effectively removing the two absorbed companies from the scope of consolidation. On January 1, 2013, SKY INTEC Inc.
merged into INTEC Amenity Inc., and the absorbed company was removed from the scope of consolidation. All shares held
in SORUN HOKURIKU CORPORATION were sold in April 2012, leading to the company’s exclusion from the scope of
consolidation in fiscal 2013. CAREER SERVICE CORPORATION, a consolidated company as fiscal 2012, was liquidated
and removed from the scope of consolidation in fiscal 2013.

Profit and Loss Analysis
Net Sales
Net sales reached ¥337,834 million ($3,592 million), up 3.2% from a year ago, underpinned by accelerating demand forindustrial IT services and gradual recovery in demand for financial IT services.
A breakdown of performance by business segment is presented below.
(Sales by segment include intersegment sales.)(1) IT Infrastructure Services
Consolidated sales increased 1.2% year-on-year, to ¥112,666 million ($1,197 million) and operating income declined
11.8%, to ¥7,101 million ($75 million). While net sales rose steadily as major customers started using the Group’s data
centers, operating income declined from the previous fiscal year, owing to the impact of up-front investments made in
response to increased demand for data center services as well as a rise in electricity charges.
(2) Financial IT Services
Segment sales rose 2.0% year-on-year, to ¥71,499 million ($760 million) and operating income jumped 32.8%, to ¥6,021
million ($64 million). The increases in sales and income were primarily driven by the resumption of IT-related investments by
the Group’s key customers in the credit card industry and the success of cost-cutting measures.
(3) Industrial IT Services
Segment sales increased 4.2% year-on-year, to ¥155,689 million ($1,655 million), while operating income soared 87.8%, to¥4,992 million ($53 million). A large-scale system development project for a major manufacturer fueled the sales increase,
while income improved by virtue of cost reductions.
(4 ) Other
Segment sales decreased slightly year-on-year, to ¥16,232 million ($172 million), and operating income retreated 5.4%, to¥2,153 million ($22 million).

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Sales and Income by Business Segment

Millions of yen
2013

2012

% change

Net sales¥337,834¥327,417+3.2

IT infrastructure services

110,076

109,234+0.8

Financial IT services

70,99469,659+1.9Industrial IT services

149,565

141,862+5.4

Other business

7,196

6,661

+8.0

Operating income

18,171

15,621+16.3%IT infrastructure services

7,101

8,049

-11.8

Financial IT services

6,021

4,534

+32.8

Industrial IT services

4,992

2,658

+87.8

Other business

2,153

2,277

-5.4

Intersegment elimination/adjustments-2,097-1,898-Note : Sales by segment in the above chart exclude intersegment sales.

Segment Business Content
IT Infrastructure Services

Provide self-administered computer utility or system operation services through large IT facilities, including data
centers.

Financial IT Services

Support clients in their efforts to make greater use of IT in their operations and in the execution of their businessactivities with IT expertise and business know-how specific to the finance industry.

Industrial IT Services

Support clients in their efforts to make greater use of IT in their operations and in the execution of their businessactivities with IT expertise and business know-how in areas other than finance, namely industrial and public sectors.

Other Business

Activities other than those described above.

Costs, Expenses and Earning
Operating income came to ¥18,171 million ($193 million), up 16.3% year-on-year and surpassing expectations. This
improvement is largely due to the higher net sales starting point and enhanced productivity as well as the appearance oftangible results from office relocation and centralization and benefits realized through measures paralleling merger activity
among subsidiaries. Recurring profit climbed 13.3%, to ¥17,440 million ($185 million). Net income skyrocketed 174.9%, to¥5,868 million ($62 million), reflecting higher operating income as well as lower extraordinary losses, such as the cost of
structural reforms.
Millions of yen

Cost of sales

2013

2012

% change¥276,935¥266,159

+4.0%

82.0%

Cost of sales ratio

60,899Gross profit

18.0%

Gross profit margin

42,727

Selling, general and administrative expenses

12.6%

Ratio of selling, general and administrative expenses to net sales

18,171

Operating income

5.4%

Operating income ratio

5,868

Net income

1.7%

Return on sales

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81.3%
61,25818.7%
45,636
13.9%
15,6214.8%
2,135+0.7 points-0.6%-0.7 points-6.4%+1.3 points+16.3%+0.6 points+174.90.7%+1.0 points

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Financial Review

Financial Position
AssetsTotal assets stood at ¥302,302 million ($3,214 million) as of March 31, 2013, down 2.5% from a year earlier. Of thisamount, current assets accounted for ¥138,219 million ($1,469 million), up 3.0% year-on-year, and total fixed assets
accounted for ¥164,083 million ($1,744 million), down 2.1%. Total liabilities dropped 9.4%, to ¥144,143 million ($1,532
million), and total net assets reached ¥158,159 million ($1,681 million), up 4.8% from the end of March 2012. Equity capital,
calculated by subtracting ¥7,602 million ($80 million) in minority interest in consolidated subsidiaries and ¥42 million ($446
thousand) in subscription rights from net assets, rose 4.8%, or ¥150,514 million ($1,600 million) over the previous fiscal
year, and the equity ratio rebounded 3.5 percentage points, to 49.8%.
Millions of yen
2013

2012

Total assets¥302,302¥310,003-2.5%

Total liabilities

144,143

159,038-9.4

Total net assets

158,159

150,965

+4.8

7,602

7,267

+4.6

42

38

+10.5

150,514

143,658+4.8

Minority interests
Stock acquisition rights
Equity capital
Key ratios:% change%

Equity ratio

1

49.8%

46.3%

+3.5 points

4.0

1.5

+2.5 points

Return on equity

2

Notes : 1. Equity ratio = ( Equity capital / Total assets ) x 100
2. Return on equity = Net income / Equity capital [ ( equity capital at the beginning of the term + equity capital at the end of term) / 2 ] x 100

Cash Flow Status
Cash and cash equivalents (“cash”) totaled ¥28,433 million ($302 million) as of March 31, 2013, down 30.9% from a year
earlier.
Net cash provided by operating activities grew 9.1%, to ¥21,515 million ($228 million). This change is mainly due to thefact that cash outflow, namely, a ¥4,088 million ($43 million) increase in notes and accounts receivable and ¥4,180 million($44 million) in income tax payments, were more than offset by income before taxes and minority interests of ¥11,185
million ($118 million) and ¥12,920 million ($137 million) in depreciation.
Net cash used in investing activities decreased 5.1%, to ¥14,391 million ($153 million), as cash inflow, mainly ¥2,263
million ($24 million) in proceeds from lease and guarantee deposits, was overshadowed by cash outflow, particularly ¥7,454
million ($79 million) in payments for the acquisition of property and equipment), ¥5,600 million ($59 million) for theacquisition of securities, and ¥4,149 million ($44 million) for the acquisition of intangible assets.
Net cash used in financing activities more than quadrupled, to ¥19,883 million ($211 million). This reflects cash outflow,such as ¥24,294 million (¥258 million) for repayment of long-term bank loans and a ¥4,053 million ($43 million) net
decrease in short-term borrowings, which negated cash inflow such as ¥12,500 million ($132 million) in proceeds fromlong-term bank loans.
Millions of yen

Profile

2013

2012

Cash and cash equivalents at end of year

¥28,433¥41,119-30.9%Net cash provided by operating activities

21,51523,658+9.1

Net cash used in investing activities(14,391)(15,158)-5.1

Net cash used in financing activities(19,883)(4,230)+370.0Financial
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Dividend Policy
ITHD has made the long-term, comprehensive return of profits to shareholders a management priority and seeks tomaintain stable dividends—targeting a consolidated payout ratio of 30%—while taking into account performance trends,
financial status, and the need to enrich retained earnings to support business growth.
In fiscal 2013, the Company booked consolidated extraordinary losses comprising approximately ¥2,600 million ($27
million) in expense following changes to the pension program at consolidated subsidiary TIS, Inc., approximately ¥1,500
million ($15 million) in real estate impairment loss, approximately ¥700 million ($7 million) in loss on disposal of fixed assets
and a total of approximately ¥800 million ($8 million) spent on structural reform-related activities. The Company also took
into account the need to secure sufficient internal reserves to fund continued growth. Management therefore decided on a
year-end dividend of ¥14 ($0.14) per share.
For fiscal 2014, management expects to distribute an annual dividend of ¥25 per share, including an interim dividend of¥8 per share.

Yen
2013

% change

2012

Per share data:

Net income per share¥ 66.86¥ 24.33+174.8%

Net assets per share

1,714.88

1,636.72+4.8%

Dividends per share

21.00

18.00

+16.7%

Payout ratio

31.4%

74.0%

-42.6 points

Business and Other Risks
Risk specific to each business segment may arise. In the software development business, for example, projects could turn
unprofitable, while system malfunctions could interrupt services in the outsourcing business. The Company applies various
measures to prevent the manifestation of such risks.
In the IT infrastructure business, data centers under the Group umbrella offer outsourcing and cloud computing services
at home and abroad—in Tokyo, Osaka, Kanagawa Prefecture, Tochigi Prefecture, Toyama Prefecture and Aichi Prefecture aswell as in Tianjin, China, and other locations—24 hours a day every day of the year. A variety of a installations, such as abase-isolation structure for enhanced earthquake tolerance, an on-site generator to ensure uninterrupted power supply, andcrime-prevention systems to thwart unauthorized access, have been incorporated into the buildings to control foreseeablerisk. Nevertheless, if an extraordinarily significant event, such as an extended power failure, a large-scale natural disaster,international conflict or an act of terrorism, or major criminal activity, were to occur and disrupt the smooth execution of data
center activities, the Group’s business results and financial position could be adversely affected.
All forward-looking statements in this document are based on information available to management as of May 10, 2013.

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Consolidated Balance Sheets
IT Holdings Corporation and Its Consolidated Group Companies
As of March 31, 2012 and 2013
2012

2013

Millions of yen

Millions of yen¥ 41,365¥ 28,633
68,249
9,322
5,401
3,035
7,091
200

AssetsCurrent assets
		 Cash and deposits		Raw materials and supplies

64,591
8,942
201
2,633
8,278
209

		
		

Deferred tax assets
Other current assets

8,027
8,305

8,523
7,846

		
		

Allowance for doubtful accounts
Total current assets(112)
142,442(85)
138,219

58,635
4,360

58,133
4,231

22,2663,455
6,074
94,792

21,135
3,615
6,475
93,592

3,471
14,047
17,5191,784
13,487
15,272

28,693
8,597
19,98632,633
6,823
17,577(2,028)55,248167,560¥310,003(1,816)55,218164,083¥302,302

		
		

Notes and accounts receivable
Lease receivables and lease investment assets

		Marketable securities
		 Merchandise and finished goods
		 Work in process

Fixed assets
		 Property and equipment
						

Buildings and structures, net
Machinery and equipment, net

			Land			Leased assets, net
			 Other property and equipment, net
			Total property and equipment

		Intangible assets
			Goodwill
			Other intangible assets
			Total intangible assets
		 Investments and other assets
			Investment securities
			Deferred tax assets
			Other assets						Allowance for doubtful accounts
Total investments and other assets
		 Total fixed assets
Total assets

Basis of Presenting the Consolidated Financial Statements
The accompanying consolidated financial statements have been compiled from the consolidated financial statements
prepared by the Company as required under the Financial Instruments and Exchange Act of Japan, and have been
prepared in accordance with accounting principles generally accepted in Japan.

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Consolidated Balance Sheets
IT Holdings Corporation and Its Consolidated Group Companies
As of March 31, 2012 and 2013
2012

2013

Millions of yen

Millions of yen

Liabilities
Current liabilities
		 Notes and accounts payable¥ 17,917¥ 17,692

		Short-term borrowings
		 Corporate bonds (redeemed within one year)

23,126100

32,881—

		 Income taxes payable
		 Accrued bonuses to directors and employees
		Other allowances

2,341
11,115322
28,141
83,065

3,112
11,074551
25,75091,06353,288
4,723
503
869
12,359107
4,120
75,972
159,038

27,668
5,501
492
732
12,762
108
5,813
53,079144,143

		Common stock
		 Additional paid-in capital

10,00186,787

10,00186,787

		Retained earnings
		 Less treasury stock, at cost

47,673(25)
144,436

51,596(27)
148,357

1,210(1,718)

4,271(1,967)

(270)
(778)

(147)
2,157

38
7,267
150,965¥310,003

42
7,602
158,159¥302,302

		

Other current liabilities

		 Total current liabilities
Non-current liabilities
		Long-term debt
		Lease obligations
		 Deferred tax liabilities
		 Deferred tax liabilities from revaluation of land
		 Accrued retirement benefits to employees
		 Accrued retirement benefits to directors
		 Other non-current liabilities
		 Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity

		 Total shareholders’ equity
Accumulated other comprehensive income				Net unrealized gains on other securities
Revaluation of land				

Foreign currency translation adjustments
Total accumulated other comprehensive income

Stock acquisition rights
Minority interests
Total net assets
Total liabilities and net assets

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Consolidated Statements of Income
IT Holdings Corporation and Its Consolidated Group Companies
For Years Ended March 31, 2012 and 2013

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividend income

2012

2013

Millions of yen

Millions of yen¥327,417
266,159
61,25845,636
15,621¥337,834
276,935
60,89942,727
18,171

23
619

23
565

18
266
270
449
1,646

184
257
—
427
1,458

898
202
—
773
1,874
15,393

789
105
482
813
2,189
17,440Foreign exchange gains
Rental income from real estate
Reversal of allowance for doubtful accounts
Other
Total non-operating income
Non-operating expenses
Interest expenses
Equity in losses of non-consolidated subsidiaries and affiliates
Provision of allowance for doubtful accounts
Other
Total non-operating expenses
Recurring profit
Extraordinary income
Gain on sale of fixed assets

62

44

1,142

95

103
1,307

36
175

249
766

662
1,523

318
381
7,852
—
1,010
10,579
6,121
4,068
(170)
3,897
2,224
89
¥ 2,135

71
—
843
2,609
720
6,431
11,185
5,224
(349)
4,874
6,310
441
¥ 5,868

Gain on sale of investment securities
Other
Total extraordinary income
Extraordinary losses
Loss on disposal of fixed assets
Impairment loss
Valuation loss on investment securities
Merger-related expenses
Structural reform-related expenses
Loss on partial termination of retirement benefit scheme
Other
Total extraordinary losses
Income before income taxes and minority interests
Income taxes: current
Income taxes: deferred
Total income taxes
Income before minority interests
Minority interests in earnings (losses) of consolidated subsidiaries
Net income

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Consolidated Statements of Comprehensive Income
IT Holdings Corporation and Its Consolidated Group Companies
For Years Ended March 31, 2012 and 2013
2012

2013

Millions of yen

Millions of yen¥2,224¥6,310

(514)
123
33

3,108
(248)
169

(5)
(363)
1,860

4
3,033
9,343

1,772
¥ 87

8,804
¥ 539

Income before minority interests
Other comprehensive income
Net unrealized gains on other securities
Difference in revaluation of land
Foreign currency translation adjustments
Share of other comprehensive income of associates accounted forusing the equity method
Total other comprehensive income
Comprehensive income
Components:
		 Comprehensive income attributable to owners of the parent
		 Comprehensive income attributable to minority interests

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Consolidated Statements of Changes in Net Assets
IT Holdings Corporation and Its Consolidated Group Companies
For Years Ended March 31, 2012 and 2013
2012

2013

Millions of yen

Millions of yen¥ 10,001¥ 10,001

10,001

10,00186,78886,787

(0)
(0)

(0)
(0)

86,78786,78747,29847,673

			Dividends from surplus
			Net income(1,755)2,135(2,194)
5,868

			
			

(0)
—
(3)
375
47,673

—
248
—
3,923
51,596

Balance at end of previous fiscal year
Changes during the fiscal year

(24)

(25)

Acquisition of treasury stock
Disposal of treasury stock

(1)
0

(2)
0

			 Net changes during the fiscal year
		 Balance at end of fiscal year

(1)
(25)

(2)
(27)

Total shareholders’ equity
		 Balance at end of previous fiscal year

144,062

144,436(1,755)
2,135
(1)
0
(0)

(2,194)
5,868
(2)
0
—

—
(3)

248
—

374
¥144,436

3,920¥148,357

Shareholders’ equity
Common stock		 Balance at end of previous fiscal year
		 Balance at end of fiscal year
Additional paid-in capital
		 Balance at end of previous fiscal year
		 Changes during the fiscal year			 Disposal of treasury stock			

Total changes during the fiscal year

		 Balance at end of fiscal year
Retained earnings				Balance at end of previous fiscal year
Changes during the fiscal year

Change in scope of equity method
Reduction in revaluation reserve for land

			 Decrease from merger of consolidated and non-consolidated subsidiaries
			 Net changes during the fiscal year
		 Balance at end of fiscal year
Treasury stock
		
		

			
			

		 Changes during the fiscal year
			Dividends from surplus
			Net income
			 Acquisition of treasury stock						

Disposal of treasury stock
Change in scope of equity method

			
			

Reversal of land revaluation difference
Decrease from merger of consolidated and non-consolidated subsidiaries

			 Net changes during the fiscal year
		 Balance at end of fiscal year

Continued on the next page

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Consolidated Statements of Changes in Net Assets
Continued from the previous page

Accumulated other comprehensive income
Net unrealized gains on other securities
		 Balance at end of previous fiscal year
		 Changes during the fiscal year
			 Items other than changes in shareholders’ equity, net
			 Net changes during the fiscal year
		 Balance at end of fiscal year
Revaluation reserve for land
		 Balance at end of previous fiscal year
		 Items other than changes in shareholders’ equity, net
Total change during the fiscal year
Balance at end of the fiscal year
Foreign currency translation adjustments
		 Balance at end of previous fiscal year
		 Changes during the fiscal year
			 Items other than changes in shareholders’ equity, net
			 Net changes during the fiscal year
		 Balance at end of fiscal year
Accumulated other comprehensive income
		 Balance at end of previous fiscal year
		 Changes during the fiscal year
			 Items other than changes in shareholders’ equity, net
			 Net changes during the fiscal year
		 Balance at end of fiscal year
Stock acquisition rights
Balance at end of previous fiscal year
Changes during the fiscal year
		 Items other than changes in shareholders’ equity, net
		 Net changes during the fiscal year
Balance at end of fiscal year
Minority interests
Balance at end of previous fiscal year
Changes during the fiscal year
		 Items other than changes in shareholders’ equity, net
		 Net changes during the fiscal year
Balance at end of fiscal year
Total net assets
Balance at end of previous fiscal year
Changes during the fiscal year
		 Dividends from surplus
		Net income
		 Acquisition of treasury stock		 Disposal of treasury stock
		 Change in scope of equity method
		 Reversal of land revaluation difference		 Decrease from merger of consolidated and non-consolidated subsidiaries
		 Items other than changes in shareholders’ equity, net
		 Net changes during the fiscal year
Balance at end of fiscal year

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2012

2013

Millions of yen

Millions of yen

¥

¥

1,729

1,210

(519)
(519)
1,210

3,061
3,061
4,271

(1,841)
123
123(1,718)(1,718)(248)(248)(1,967)

(303)

(270)

33
33
(270)

123
123
(147)

(415)

(778)

(362)
(362)
(778)

2,935
2,935
2,157

29

38

9
9
38

3
3
42

7,434

7,267

(166)
(166)
7,267

334
334
7,602

151,110

150,965(1,755)
2,135
(1)
0
(0)
—
(3)
(519)
(145)
¥150,965(2,194)
5,868
(2)
0
—
248
—
3,273
7,194
¥158,159

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Consolidated Statements of Cash FlowsIT Holdings Corporation and Its Consolidated Group Companies
For Years Ended March 31, 2012 and 2013
2012

2013

Millions of yen

Millions of yen¥ 6,121
12,745¥11,185
12,920

766
249

1,523
662

318
1,882

71
1,670

(8)
(391)
547
(642)
898
(5,235)(2,214)
2,710
2,388
8,448
28,585656(897)(4,685)

(11)
(238)
413
(589)
789
(4,088)
770
(71)
(401)
1,331
25,936578(819)(4,180)23,65821,515Acquisitions of property and equipment
Acquisitions of intangible assets(400)(9,519)(4,927)(5,600)(7,454)(4,149)Proceeds from sale and redemption of investment securities
Payment of lease and guarantee deposits

2,314(2,009)

990
(308)

538

2,263

(1,153)(15,158)(134)(14,391)

4,403
16,637(14,662)(7,500)(4,053)
12,500(24,294)(100)(1,755)(2,194)(155)(1,197)(4,230)(199)(1,540)(19,883)

31
4,301
36,492
325—¥41,119

109(12,649)
41,119—(36)¥28,433

Cash flows from operating activities
Income before income taxes and minority interests
Depreciation
Impairment loss
Loss on disposal of fixed assets
Valuation (gain) loss on investment securities
Amortization of goodwill
Increase (decrease) in accrued bonuses to directors and employees
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in accrued retirement benefits to employees
Interest and dividend income
Interest expenses(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable
Structural reform-related expenses
Other, net
		Subtotal
Interest and dividend income received
Interest expenses paid
Income taxes paid
		 Net cash provided by operating activities
Cash flows from investing activities
Purchase of marketable securities

Collection of lease and guarantee deposits
Other, net
		 Net cash used in investing activities
Cash flows from financing activities
Increase (decrease) in short-term borrowings, net
Proceeds from long-term debt
Repayments of long-term debt
Redemption of bonds
Dividends paid
Dividends paid to minority shareholders
Other, net
		 Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents resulting from merger
Decrease in cash and cash equivalents due to corporate division
Cash and cash equivalents at end of year

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