Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements of
MegaChips Corporation (“the Company”) and its
consolidated subsidiaries have been prepared in
accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act and its related
accounting regulations and in conformity with
accounting principles generally accepted in Japan
(“Japanese GAAP”), which are different in certain respects
as to application and disclosure requirements from
International Financial Reporting Standards.
The significant portions of the accounts of the
Company’s overseas subsidiaries are based on their
accounting records maintained in conformity with
accounting principles generally accepted in Japan.
The accompanying consolidated financial
statements have been restructured and translated into
English from the consolidated financial statements of the
Company prepared in accordance with Japanese GAAP
and filed with the appropriate Local Finance Bureau of
the Ministry of Finance as required by the Financial
Instruments and Exchange Act. Certain supplementary
information included in the statutory Japanese
consolidated financial statements is not presented in the
accompanying consolidated financial statements.
The translation of the Japanese yen amounts into
U.S. dollar amounts is included solely for the
convenience of readers outside Japan, using the
prevailing exchange rate at March 31, 2014, which was
¥102.92 to US$1.00. The translations should not be
construed as representations that the Japanese yen
amounts have been, could have been or could in the
future be converted into U.S. dollars at this or any other
rate of exchange.
Certain 2013 consolidated financial statement items
have been reclassified to conform to the presentation for
2014.
As permitted, amounts of less than 1,000 yen are
omitted in the presentations for 2013 and 2014. As a
result, the totals shown in the accompanying
consolidated financial statements, both in yen and in U.S.
dollars, do not necessarily agree with the sum of the
individual amounts.
2. Significant accounting policies
(1) Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and four significant
subsidiaries over which the Company has power of
control through substantial ownership or the existence
of certain other conditions evidencing control by the
Company (together, referred to as the “Companies”).
The names of the significant subsidiaries are Shun
Yin Investment Ltd., MegaChips Technology America
Corporation, MegaChips Taiwan Corporation and
MegaChips Corporation, China (Shenzhen Office).
Of these, MegaChips Taiwan Corporation was
established in the fiscal year under review and is newly
included in the scope of consolidation.
Kawasaki Microelectronics, Inc. was merged with
the Company in the fiscal year under review and has
been eliminated from the scope of consolidation.
There are no equity method affiliates or non-equity
method affiliates. In the elimination of investments in
subsidiaries, the assets and liabilities of the subsidiaries,
including the portion attributable to minority
shareholders, are evaluated using the fair value at the
time the Company acquired control of the respective
subsidiary.
All significant intercompany transactions and
accounts have been eliminated.
(2) Cash and cash equivalents
Cash on hand, readily available deposits and short-term
highly liquid investments with maturities not exceeding
three months at the time of purchase and that carry
insignificant risk of change in value are considered to be
cash and cash equivalents.
(3) Allowance for doubtful receivables
The allowance for doubtful receivables is stated at an
amount based principally on the actual ratio of bad
debts in the past plus the estimated uncollectible
amounts of certain individual receivables.
Annual Report 2014
30
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
(4) Inventories
Work-in-process relating to contract work is stated at cost
determined by the specific identification method, while
other work-in-process is stated at cost determined by the
first-in, first-out method. Other inventories are stated
mainly at cost determined by the weighted average
method or the first-in, first-out method. For figures shown
on the balance sheet, the book value write-down method
based on decreased profitability is used.
(5) Securities and investments
Available-for-sale securities with available fair market
values are stated at fair market value, and unrealized
gains and unrealized losses on these securities are
reported, net of applicable income taxes, as a separate
component of net assets. The cost of sales of such
securities is computed using moving average cost.
Available-for-sale securities with no available fair market
value are stated at moving average cost.
Investments in business partnerships are increased
by earnings and decreased by losses and distributions
form the business partnerships, and included in
investment securities.
If the market value of equity securities or availablefor-sales securities including investments in business
partnerships, declines significantly and is not expected to
recover, such securities are stated at fair market value and
the difference between fair market value and the carrying
amount is recognized as a loss in the period of the decline.
If the fair market value of equity securities or
available-for-sales securities is not readily available, such
securities should be written down to net asset value with
a corresponding charge in the income statement in the
event net asset value declines significantly and is not
expected to recover. In these cases, such fair market
value or the net asset value will be the carrying amount
of the securities at the beginning of the year.
(6) Property and equipment
Property and equipment are stated at cost. Depreciation
is computed principally by the declining balance method
based on the estimated useful life of the asset.
Depreciation of property and equipment acquired
before March 31, 2007 is based on a previous fixed
percentage of diminishing value.
31 MegaChips Corporation
The principle estimated useful lives are as follows:
Buildings
Others
2014
2013
3～50 years
2～20 years
3～50 years
2～15 years
(7) Intangible assets
Capitalized costs of internal use software are amortized
by the straight-line method over the estimated useful life
of mainly 5 years.
Capitalized costs of producing product masters to be
sold are amortized by the straight-line method over the
estimated period of future sales of mainly 3 years.
Amortization of other intangible assets is computed
by the straight-line method.
(8) Long-term prepaid expenses
Long-term prepaid expenses are amortized by the
straight-line method.
Certain post-development stage expenses related
to the initial mass production of new products, except
for costs of producing product masters to be sold, are
amortized by the straight-line method over the
estimated period of future sales of 3 years.
(9) Bonuses
Accrued liabilities for employee bonuses as of the
balance sheet date are based on the estimated amounts
to be paid in the future.
(10) Provision for loss on construction contracts
When total cost of construction is likely to exceed total
revenue and the amount can be reasonably estimated,
the Companies record any amount estimated to exceed
the total construction revenue as provision for loss on
construction contracts.
(11) Basis for recording revenue on engineering
contracts
The percentage-of-completion method is applied to
engineering contracts for which the outcome of the
construction activity by the end of the fiscal year under
review is deemed certain. The percentage of
construction completed is estimated using the ratio of
the actual cost incurred to the total estimated cost.
The completed contract method is applied to other
construction contracts.
(12) Income taxes
Income taxes comprise corporation tax, prefectural and
municipal inhabitants taxes and enterprise tax.
The asset / liability approach is used to recognize
deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income
tax purposes.
(13) Translation of foreign currencies
All receivables and payables denominated in foreign
currencies are translated into Japanese yen at the
year-end rates.
Assets and liabilities and income and expenses of a
foreign subsidiary are translated into Japanese yen at the
year-end rates. Net assets of a foreign subsidiary are
translated into Japanese yen at historical rates. The
translation differences arising from the use of different
rates are recognized as foreign currency translation
adjustments in the consolidated balance sheets.
(14) P
er share amounts of net income and cash
dividends
The computation of net income per share shown in the
consolidated statements of income is based upon the
weighted average number of issued shares outstanding
during each period.
Cash dividends per share shown in the consolidated
statements of income represent actual amounts applicable
to earnings in the respective fiscal year, including dividends
to be paid after the end of the period.
3. Cash and cash equivalents
The relationship between the closing balance of cash and cash equivalents on the consolidated statements of cash flows
and the amount of cash and deposits on the consolidated balance sheet were as follows:
Thousands of
U.S. dollars
Thousands of yen
Cash and cash equivalents – balance sheets
Time deposits with more than 3 months to maturity
Cash and cash equivalents – statements of cash flows
2014
2013
¥ 10,474,476
(33,807)
¥ 10,440,669
¥ 10,431,546
—
¥ 10,431,546
2014
$ 101,772
(328)
$ 101,444
4.Financial Instruments
(1) Status of financial instruments
(i) Policies for the handling of financial instruments
To improve the efficiency with which funds are used
while applying appropriate risk control, the Companies
have adopted basic policies for concentrating the use of
funds on its main business activities, refraining from
speculative fund management, investing in financial
instruments only after the details of the products and
risks involved are clearly understood and making
investments only after fully evaluating the historical
performance and any potential investment impact.
The products in which the Companies invest are
limited to bank deposits and public and corporate bond
investment trusts, in which the principal is appropriately
protected and for which the liquidity is high, and
instruments in which credit and market risks are low. The
Companies do not invest in financial instruments such as
derivatives that carry significant investment risks. To
minimize risks associated with fund management, the
Companies manage funds in accordance with internal
rules that stipulate strict investment rules (including
those for which limit investment amounts, restrictions
on investment periods, and rating standards).
Furthermore, to reduce risks of fluctuations in
foreign exchange rates due to certain receivables and
payables denominated in foreign currencies, which occur
as a result of sales transactions, the Company uses
foreign exchange forward contracts in accordance with
Annual Report 2014
32
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
internal rules that stipulate the risk management
structure and policies.
Moreover, while the Companies maintain sufficient
funds to make payments on obligations arising from
unexpected developments, they also maintain an
appropriate level of funds for working capital. To meet
their needs for working capital, the Companies raise
funds, when necessary, but within establish limits for
borrowings from financial institutions and limits for the
sale of their accounts receivable. The Companies adapt
their policies each fiscal year by taking into account
factors such as their business performance, their funding
requirements and the efficiency of different methods of
funding.
(ii) Details and risks of financial instruments
Cash and deposits are mainly deposited in the current
accounts at the Companies’ banks, primarily for use as
working capital. These banks present almost no credit
risks as their credibility is very high.
Notes and accounts receivable and trade
receivables are exposed to the credit risk of customers.
In the year under review, 59.5% of the operating
receivables at the end of the consolidated fiscal year
(60.5% as at the end of the previous consolidated fiscal
year) were attributable to major customers. Considering
their operating results and credit status, the credit risk
associated with these receivables is believed to be
minimal.
Investment securities are categorized as availablefor-sale securities and consist mainly of stocks held for
investment and investment securities associated with
investment partnerships. All of these investments have
been made to collect information on present and future
business partners about investments and future
business development with the aim of achieving
synergies and improving corporate value. Consequently,
if the business policies of the Companies or those of the
issuing companies change, there is a risk that the initial
plans may not be realized.
In addition, among shares held by the Companies,
listed equity securities are exposed to market risk, while
unlisted equity securities may become subject to
accounting for impairment loss if the actual value of the
issuing companies falls because of poor business
performance or a deteriorating financial situation. Of all
33 MegaChips Corporation
investment securities held as of the end of the current
consolidated fiscal year, shares held by subsidiaries
accounted for 83.6% (62.7% as at the end of the
previous consolidated fiscal year).
All trade payable are due within one year.
Short-term loans payable mainly comprise funds
borrowed to finance business transactions, while the
current portion of long-term loans payable and longterm loans payable mainly comprise funds borrowed to
finance investment.
Trade receivables and trade payables denominated
in foreign currencies that occur as a result of sales
transactions are exposed to the risks of fluctuations in
foreign exchange rates. The Company seeks to reduce
these risks using foreign exchange forward contracts
when necessary for the amount after considering the
net position of accounts receivable-trade and accounts
payable-trade denominated in the same foreign
currency.
(iii) Risk management system
a. Credit risk
Credit risk is the risk of the Companies incurring loss as a
result of a decline in or loss of value of their assets due to
credit events (reasons) such as dishonored checks or
bankruptcy as a result of a deterioration in the financial
conditions of business partners or issuing companies. To
maintain sound assets, the Accounting Department, the
Finance Department and the Operating Department of
the Companies control the due dates associated with and
the outstanding balances of individual customers. The
Companies have also developed a system in which credit
screening, credit control and asset control are
consistently carried out in accordance with the relevant
accounting and sales management rules. In addition, the
Companies evaluate their assets in accordance with the
accounting standards and other related rules and adopt
impairment accounting and post allowances when
necessary.
b. Market risk
Market risk is the risk of the Companies incurring loss
due to changes in the fair market value of financial
instruments as a result of fluctuations in interest rates,
foreign exchange rates and stock prices. It is a general
term for risks associated with the assets or liabilities of
the Companies associated with the interest rate
fluctuation risk, exchange rate fluctuation risk and stock
price fluctuation risk.
In accordance with its accounting rules and cash
management rules, the Finance Department regularly
monitors the fair market value and the financial
condition of issuing companies. It also regularly reviews
its investment policies by obtaining information about
business plans and other relevant matters. The Finance
Department also monitors trends in interest rates,
foreign exchange rates and stocks in an effort to reduce
the market risks associated with the Companies’ assets
and liabilities.
In general, the Company does not make
investments as part of fund management in financial
products that involve risks related to fluctuations in stock
prices or foreign exchange rates. However, in accordance
with foreign exchange risk management rules, the
Company is engaged in managing risks of fluctuations in
foreign exchange rates related to certain receivables and
payables denominated in foreign currencies that occur
as a result of sales transactions. It also uses foreign
exchange forward contracts and other derivatives
products when necessary in an effort to reduce risks of
fluctuations in foreign exchange rates.
c. Liquidity risk
Liquidity risk is the risk of the Companies incurring loss
due to a shortage of available cash as a result of the
Companies’ inability to raise funds because of a
deterioration in their financial situation or other reason
or incurring loss because they are forced to accept
significantly worse than usual funding conditions. By
constantly monitoring the management of funds and
regularly preparing and updating funding plans, the
Finance Department ensures that the Companies
maintain an appropriate level of funds, including funds
sufficient to meet obligations that arise from unexpected
developments. As a measure to respond to liquidity risk,
the Companies have also established credit lines
overdraft agreements with their banks. No financial
covenants are attached to the these overdraft
agreements.
(iv) Supplementary explanation concerning the fair
market value, etc., of financial instruments
In addition to values based on market prices, the fair
market values of financial instruments include the
values that are reasonably computed when there are no
market prices available. When making such
computations, various factors are taken into account
and different conditions may be adopted. For these
reasons, fair market values may vary.
(2) Matters concerning the fair market values of
financial instruments
Information about figures for financial instruments
presented in the consolidated balance sheets, related
fair values and their differences as of March 31, 2013
and March 31, 2014 are set forth in the tables below.
Items whose fair market values were considered very
difficult to determine are not presented in the tables.
Annual Report 2014
34
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
(Cash and cash equivalents)
Because cash and cash equivalents are highly liquid, the fair market value is similar to the book value. Consequently,
the fair market value of cash and cash equivalents is based on book value.
Thousands of
U.S. dollars
Thousands of yen
2014
2013
Figures presented in the consolidated balance sheets
Fair value
Difference
¥ 10,474,476
10,474,476
¥
—
¥ 10,431,546
10,431,546
¥
—
$ 101,772
101,772
$
—
2014
Due in one year or less
¥ 10,474,476
¥ 10,431,546
$ 101,772
(Trade receivables)
Because trade receivables are highly liquid, the fair market value is similar to the book value. Consequently, the fair
market value of trade receivables is based on book value. Allowance for doubtful receivables associated with trade
receivables has been deducted.
Thousands of
U.S. dollars
Thousands of yen
2014
2013
Figures presented in the consolidated balance sheets
Fair value
Difference
¥ 14,889,743
14,889,743
¥
—
¥ 16,876,965
16,876,965
¥
—
$ 144,672
144,672
$
—
2014
Due in one year or less
¥ 14,889,743
¥ 16,876,965
$ 144,672
(Investment securities)
The fair values of shares, etc., are based on prices established on security exchanges.
Thousands of
U.S. dollars
Thousands of yen
2014
Figures presented in the consolidated balance sheets
Fair value
Difference
2013
¥ 1,519,112
1,519,112
¥
—
¥ 2,159,463
2,159,463
¥
—
2014
$ 14,760
14,760
$
—
(Note) The above table includes securities which are included in investments in business partnerships.
Financial instruments whose fair value was considered to be very difficult to obtain are shown below. These financial
instruments do not have a fair market value, and it is considered very difficult to obtain one because future cash flows
cannot be estimated. As a result, these financial instruments are not included among investment securities above.
Thousands of
U.S. dollars
Thousands of yen
2014
Available-for-sale securities
Non-listed equity securities
Non-listed bonds
Others
¥ 107,128
1,227
41,538
(Note) The above table includes securities which are included in investments in business partnerships.
35 MegaChips Corporation
2013
¥ 235,313
1,565
44,275
2014
$ 1,040
11
403
(Trade payables)
Because trade payables are highly liquid, the fair value is similar to the book value. Consequently, the fair value of trade
payables is based on book value.
Thousands of
U.S. dollars
Thousands of yen
2014
Figures presented in the consolidated balance sheets
Fair value
Difference
2013
¥ 4,154,275
4,154,275
¥
—
¥ 3,443,211
3,443,211
¥
—
2014
$ 40,364
40,364
$
—
(Long-term loans payable, Including in current portion of long-term loans payable)
The fair value of long-term loans payable is calculated by discounting the sum of principal and interest using the
hypothetical interest rate assumed applicable to new borrowing on similar conditions.
Thousands of
U.S. dollars
Thousands of yen
2014
2013
2014
Figures presented in the consolidated balance sheets
Fair value
Difference
¥ 4,250,002
4,254,753
¥    4,751
¥ 7,083,334
7,097,596
¥ 14,262
$ 41,294
41,340
$
46
Long-term loans payable due within one year
¥ 2,833,332
1,416,670
—
¥ 2,833,332
2,833,332
1,416,670
$ 27,529
13,764
—
Long-term loans payable due after one year but within two years
Long-term loans payable due after two years but within three years
5. Securities
(1) The following tables summarize the costs carrying amounts (the fair values) of and the unrealized gains and losses
on equity securities classified as available-for-sale securities for which fair values were available at March 31, 2013
and March 31, 2014:
(i) Securities with unrealized gains
(Equity securities)
Thousands of
U.S. dollars
Thousands of yen
2014
Cost
Carrying amount
Unrealized gains
¥ 19,455
123,767
¥ 104,311
2013
¥ 1,598,002
2,159,463
¥ 561,461
2014
$
189
1,202
$ 1,013
(Note) The above table includes securities which are included in investments in business partnerships.
Annual Report 2014
36
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
(ii) Securities with unrealized losses
(Equity securities)
Thousands of
U.S. dollars
Thousands of yen
2014
Cost
Carrying amount
Unrealized gains
2013
¥ 1,611,959
1,395,345
¥ (216,614)
¥　—
—
¥　—
2014
$ 15,662
13,557
$ (2,104)
(2) Total sales of available-for-sale securities for the year ended March 31, 2014 were as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Amount of sales
Total gain on sales
Total loss on sales
2013
¥ 1,053,728
588,479
346
¥　—
—
—
2014
$ 10,238
5,717
3
6. Derivative transactions
The details of derivative transactions have been omitted because they are not significant in the business management of
the corporate group.
7. Retirement benefits
(1) Summary of retirement benefits systems
The Company has adopted a prepaid retirement benefit system and a defined contribution plan system.
(2) Matters concerning retirement benefit expenses
Payments of prepaid retirement allowances and contributions for the defined contribution plan system for the years
ended March 31, 2013 and March 31, 2014 were as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Retirement benefit expenses
37 MegaChips Corporation
¥ 239,044
2013
¥ 152,648
2014
$ 2,322
8. Inventories
(1) Inventories at March 31, 2013 and March 31, 2014 consisted of the following:
Thousands of
U.S. dollars
Thousands of yen
2014
Finished products
Raw materials
Work-in-process
Supplies
Total
2014
2013
¥ 1,907,826
691,741
1,599,656
10,128
¥ 4,209,353
¥ 1,298,176
881,367
1,510,267
11,515
¥ 3,701,327
$ 18,536
6,721
15,542
98
$ 40,899
(2) Reduction of book value due to a decline in the profitability of inventories held for the purpose of ordinary sale for
the years ended March 31, 2013 and March 31, 2014 was as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Cost of sales
Other expenses
(Including loss on valuation of inventories
and loss on liquidation of business)
2014
2013
¥ 27,906
¥ 283,947
¥ 130,808
$
¥
$ 2,758
—
271
9. Provision for loss on construction contracts
(1) Inventories and the provision for loss on construction contracts related to construction contracts that are likely to
incur losses are presented as it is and are not offset. The amount equivalent to the provision for loss on construction
contracts included in inventories related to construction contracts that are likely to incur losses was as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Inventories
2014
2013
¥ 120,942
¥
—
$ 1,175
(2) The provision for loss on construction contracts (reversal of provision for loss on construction contracts) included in
the cost of sales for the consolidated fiscal years ended March 31, 2013 and March 31, 2014 was as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Cost of sales
¥ (183,312)
2013
¥ (35,816)
2014
$ (1,781)
Annual Report 2014
38
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
10. Intangible assets
Intangible assets at March 31, 2013 and March 31, 2014 consisted of the following:
Thousands of
U.S. dollars
Thousands of yen
2014
Computer software
Patent rights
Others
Total
2013
¥ 432,147
212,337
4,595
¥ 649,081
¥ 373,934
272,528
42,867
¥ 689,330
2014
$ 4,198
2,063
44
$ 6,306
11. Short-term debt
In order to achieve more efficient financing, the Companies have entered into overdraft agreements with certain
financial institutions. The status of these agreements at March 31, 2013 and March 31, 2014 were as follows:
Thousands of
U.S. dollars
Thousands of yen
Maximum overdraft amount
Credit used
Available credit
2014
2013
¥ 24,000,000
—
¥ 24,000,000
¥ 22,000,000
—
¥ 22,000,000
2014
$ 233,190
—
$ 233,190
12. Leases
Future lease payments required under non-cancelable operating lease transactions in the fiscal years ended March 31,
2013 and March 31, 2014 were as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Due within one year
Due after one year
Total
2013
¥ 191,361
621,924
¥ 813,286
¥ 143,521
813,286
¥ 956,807
2014
$ 1,859
6,042
$ 7,902
13. Research and development expenses
Research and development expenses are charged to income when incurred. Research and development expenses for
the years ended March 31, 2013 and March 31, 2014 were as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Research and development expenses
39 MegaChips Corporation
¥ 5,574,773
2013
¥ 2,879,921
2014
$ 54,166
14. Income taxes
Japan’s statutory tax rate related to income was 38.0% for the fiscal year ended March 31, 2013 and 38.0% for the fiscal
year ended March 31, 2014.
(1) Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2013 and March 31,
2014 were as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Deferred tax assets:
Accrued bonuses
Provision for loss on construction contracts
Enterprise taxes
Accrued legal welfare expenses
Valuation loss on inventory
Excess software costs
Excess long-term prepaid expenses costs
Directors’ and corporate auditors’ severance benefits
Loss on write-down of investment securities
Tax loss carryforwards
Others
Total deferred tax assets
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Enterprise taxes refund receivable
Net unrealized gains on securities
Others
Total deferred tax liabilities
Net deferred tax assets
2013
2014
¥ 243,300
167,897
—
34,398
134,784
698,156
74,688
10,731
44,304
3,531,610
484,310
5,424,182
(129,964)
5,294,218
¥ 240,497
292,482
56,598
36,214
145,426
150,239
321,918
11,641
31,186
3,234,000
29,266
4,549,472
(94,999)
4,454,473
$ 2,363
1,631
—
334
1,309
6,783
725
104
430
34,314
4,705
52,702
(1,262)
51,440
(4,187)
(39,175)
(20,079)
(63,442)
—
(150,217)
—
(150,217)
(40)
(380)
(195)
(616)
¥ 5,230,776
¥ 4,304,255
$ 50,823
Annual Report 2014
40
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
(2) The following table summarizes the significant differences between the statutory tax rate and the Companies’
effective tax rate for the years ended March 31, 2013 and March 31, 2014, after tax effect accounting was applied.
%
2014
Statutory tax rate
(Adjustment)
Expenses permanently non-deductible
Dividends income permanently non-deductible
Inhabitants per capita taxes
Effect of foreign tax
Tax credit for experiment and research expenses
Exclusion from tax effect of gain on bargain purchase
Tax loss carryforwards
Increase (decrease) in valuation allowance
Effect of merger
Effect of tax rate changes
Others
Effective tax rate
2013
38.0
38.0
2.1
(0.0)
0.2
3.5
(2.2)
—
—
1.2
(57.5)
7.7
(0.0)
(7.1)
1.7
(0.0)
0.2
2.6
(3.1)
(9.8)
8.6
(10.1)
—
—
(2.4)
25.6
(3) Revisions of deferred tax assets and liabilities due to change in income tax rate
On March 31, 2014, the Act to Amend the Income Tax Act (Law No. 10 of 2014) was promulgated, and under the
amended act, no special corporate tax for reconstruction shall be levied in a fiscal year starting on or after April 1, 2014.
Given the amendment, the normal effective statutory tax rate used in the calculation of deferred tax assets and liabilities
for temporary differences that are expected to be eliminated in the fiscal year starting April 1, 2014 has been lowered
from 38.0% to 35.6%.
Due to the change in the tax rate, deferred tax assets (after the deduction of deferred tax liabilities) has been
reduced ¥126,164 thousand ($1,225 thousand), and the adjustment has increased by the same amount.
41 MegaChips Corporation
15. Other comprehensive income
Reclassification adjustments and taxes related to other comprehensive income for the years ended March 31, 2013 and
March 31, 2014 were as follows:
Thousands of
U.S. dollars
Thousands of yen
2014
Net unrealized gains on securities
Increase (decrease) during the year
Reclassification adjustments
Subtotal before tax
Tax or benefit
Net unrealized gains on securities
Foreign currency translation adjustments
Increase (decrease) during the year
Subtotal before tax
Foreign currency translation adjustments
Total other comprehensive income
¥ 166,489
(604,408)
(437,919)
24,909
(413,009)
2013
¥ (446,388)
—
(446,388)
5,659
(440,728)
2014
$ 1,617
(5,872)
(4,254)
242
(4,012)
701,354
701,354
701,354
605,221
605,221
605,221
6,814
6,814
6,814
¥ 288,345
¥ 164,492
$ 2,801
16. Net assets
Under the Japanese Corporate Law (“the Law”), the
entire amount paid for new shares is required to be
designated as common stock. However, a company may,
by a resolution of the Board of Directors, designate an
amount not exceeding one half of the price of the new
shares as additional paid-in capital, which is included in
capital surplus.
Under the Law, in cases in which a dividend
distribution of surplus is made, the smaller of an amount
equal to 10% of the dividend or the excess, if any, of 25%
of common stock over the total of additional paid-in
capital and legal earnings reserve must be set aside as
additional paid-in capital or legal earnings reserve. Legal
earnings reserve is included in retained earnings in the
accompanying consolidated balance sheets.
Under the Law, legal earnings reserve and
additional paid-in capital could be used to eliminate or
reduce a deficit or could be capitalized by a resolution of
the shareholders’ meeting.
The Law also provides 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 Law, all additional paid-in capital and all
legal earnings reserve may be transferred to other capital
surplus and retained earnings, respectively, which are
potentially available for dividends.
The maximum amount that the Company can
distribute as dividends is calculated based on the
non-consolidated financial statements of the Company
in accordance with Japanese laws and regulations.
Annual Report 2014
42
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
17. Segment information
(1) Segment information
The MegaChips Group is mainly engaged in the design, development, manufacture (on an outsourcing basis) and sale of
system LSIs, based on its basic image, audio and communications technologies, and electronic devices and system
equipment that contain its system LSIs under the one business segment. As a result, the presentation of segment
information has been omitted.
(2) Information by geographic area
Information concerning net sales by geographic area in the consolidated fiscal years ended March 31, 2013 and March
31, 2014 was as follows.
Thousands of
U.S. dollars
Thousands of yen
Net sales:
Japan
Asia (excluding Japan)
Others
Total
2014
2013
¥ 40,082,053
14,645,540
3,742,110
¥ 58,469,703
¥ 41,258,578
9,826,867
2,537,728
¥ 53,623,174
2014
$ 389,448
142,300
36,359
$ 568,108
Information concerning property, plant and equipment by geographic area in the consolidated fiscal years ended March
31, 2013 and March 31, 2014 was as follows.
Thousands of
U.S. dollars
Thousands of yen
2014
Property, plant and equipment:
Japan
Asia (excluding Japan)
Others
Total
¥ 1,570,738
238,619
64,797
¥ 1,874,155
2013
¥ 1,650,095
197,992
45,805
¥ 1,893,893
2014
$ 15,261
2,318
629
$ 18,209
(3) Net sales to major customers for the consolidated fiscal year ended March 31, 2013 were as follows:
Thousands of yen
2013
Nintendo Co., Ltd.
¥ 29,531,702
Thousands of
U.S. dollars
2013
$ 314,000
(4) Net sales to major customers for the consolidated fiscal year ended March 31, 2014 were as follows:
Thousands of yen
2014
Nintendo Co., Ltd.
Wah Lee Industrial Corp.
43 MegaChips Corporation
¥ 26,932,409
10,508,975
Thousands of
U.S. dollars
2014
$ 261,682
102,108
18. Other income (expenses)
(1) The loss on liquidation of business in the fiscal year ended March 31, 2014 was due to a review of operations related
to eco-friendly energy.
(2) Other income (expenses): others net in the consolidated statements of income comprised the following:
Thousands of
U.S. dollars
Thousands of yen
2014
Gain (loss) on investments in partnerships
Loss on insurance cancellation
Head office transfer cost
Loss on revision of retirement benefit plan
Others, net
Total
2013
¥ 27,108
—
—
—
(46,117)
¥ (19,009)
¥ (512)
(12,353)
(46,382)
(37,176)
24,907
¥ (71,516)
2014
$ 263
—
—
—
(448)
$ (184)
19. Related party transactions
Transactions with a corporate auditor, who is also the Company’s lawyer, for the years ended March 31, 2013 and March
31, 2014 were as follows:
Thousands of
U.S. dollars
Thousands of yen
Legal advisory fees
2014
2013
¥ 15,900
¥ 16,450
2014
$ 154
20. Business combinations
(Transactions under common control, etc.)
(1) Outline of transaction
(i) Names and business of the combined company
Name of the company: Kawasaki Microelectronics, Inc.
(hereinafter Kawasaki Micro)
Business details: design, development,
manufacture and sales of semiconductor integrated
circuits
(ii) Date of the business combination
April 1, 2013
(iii) Legal form of the business combination
The Company became a surviving company and
Kawasaki Micro became an absorbed company through
this absorption-type merger. The Company has omitted
a resolution made by the General Meeting of
Shareholders pursuant to the provisions provided in
Article 796, paragraph 3 of the Companies Act.
(iv) Name of the company after the business combination
MegaChips Corporation
(v) Other matters concerning the transaction
The electronics and semiconductor field is marked by
rapid technological advancement, with previous
business models having become obsolete. The industry
has consequently reached a crossroads on a global level,
resulting in significant changes to the environment
surrounding the Company. Given this background, the
Company and Kawasaki Micro decided to combine their
management resources to continue developing by
responding flexibly to changes, while also ensuring their
co-existence and co-prosperity with customers and
expanding their contributions to society.
With this merger, the Company will build a
business portfolio that can respond to environmental
changes and deliver continuous, stable profits, thereby
preparing for global expansion centering on application
and system planning and the providing of solutions.
Annual Report 2014
44
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
(2) Outline of accounting treatment
This combination was treated as a transaction under
common control in accordance with the “Accounting
Standard for Business Combinations (ASBJ Statement
No. 21, issued on December 26, 2008)” and the
“Guidance on Accounting Standard for Business
Combinations and Accounting Standards for Business
Divestiture (ASBJ Guidance No. 10, issued on December
26, 2008).”
21. Subsequent events
(Dividend distribution of surplus)
On May 9, 2014, the Company’s Board of Directors resolved a dividend distribution as follows:
Thousands of yen
Cash dividends – ¥34 ($0.33) per share
¥ 793,864
Thousands of
U.S. dollars
$ 7,713
(Stock Purchase by Consolidated Subsidiary (Becoming Second Tier Subsidiary) )
Based on the resolution that the Company adopted on April 21, 2014 in accordance with Article 370 of the Japanese
Corporate Law, the Company’s consolidated subsidiary, MegaChips Taiwan Corporation (Main Office: Taipei, Taiwan ;
hereinafter, “MegaChips Taiwan”) subscribed for new shares issued by Modiotek Co., Ltd. (Main Office: Hsinchu, Taiwan ;
hereinafter, “Modiotek”) and made Modiotek its subsidiary on April 23, 2014.
(1) The purpose of investment
In an effort to expand its business in East Asia, by making
Modiotek one of its group companies, the MegaChips
Group aims to expand the channels to customers and
enhance its capabilities in marketing, sales, development
and customer support in Asia, mainly in Taiwan and
China.
(2) Outline of the subsidiary (MegaChips Taiwan)
that subscribed for new shares
(i) Name
MegaChips Taiwan Corporation
(ii) Location
RM. B 2F, Worldwide House, No.129, Min Sheng E. Rd.,
Sec. 3, Taipei 105, Taiwan
(iii) Title and name of representative
Chairman: Shigeki Matsuoka (Executive Vice President of
the Company and the Officer of the Corporate Business
Management Office)
(iv) Business details
Marketing, production management, development and
technical support and other related activities mainly in
Taiwan as the business control base for East Asia,
excluding Japan
45 MegaChips Corporation
(v) Capital
NT$610,000 thousand
(vi) Established
September 2013
(vii) Major shareholders and their shareholding ratio
MegaChips Corporation: 59.0%; Shun Yin Investment
Ltd.: 41.0%
(3) Outline of the acquired second tier subsidiary
(Modiotek)
(i) Name
Modiotek Co., Ltd.
(ii) Location
4F, No.3, Creation Road III, Science Park, HsinChu, Taiwan
(iii) Title and name of representative
Chairman: Miin Wu (Chairman & CEO of Macronix
International Co., Ltd.)
(iv) Business details
Fabless solution provider which develops and outsources
the manufacture of semiconductor products for 3D
remote controllers for smart TV and audio/music
processing for portable devices
(v) Capital
NT$80,810 thousand as of March 12, 2014 (Note)
(Note) Modiotek carried out a capital reduction on March
12, 2014, the record date, to eliminate all the
existing cumulative losses. As a result, capital now
stands at NT$80,810 thousand. Modiotek also
carried out a capital increase of NT$210,000
thousand on April 23, 2014, the record date of the
issuance of new shares, for all of which MegaChips
Taiwan subscribed. As a result, Modiotek’s capital
after the capital increase stands at NT$290,810
thousand.
(vi) Established
August 16, 2006
(vii) Major shareholders and their shareholding ratio
Macronix International Co., Ltd.: 74.2%
(viii) Relations between MegaChips Corporation and
Modiotek
Capital relations
There are no applicable matters to be stated.
Personnel relations
There are no applicable matters to be stated.
Commercial relations
There are no applicable matters to be stated.
(ix) Consolidated business performance and financial conditions of Modiotek for the last three financial years
Thousands of N.T. dollars
FY2011
Net assets
Total assets
Net sales
Operating income (loss)
Net income (loss)
Dividends
(4) Method of stock purchase
Modiotek increased its capital by issuance of new shares
in the amount of NT$210,000 thousand, and MegaChips
Taiwan subscribed for all of the increased shares. As a
result, MegaChips Taiwan acquired 72.2% of outstanding
shares of Modiotek.
Because Modiotek’s capital is more than one-tenth
of the Company’s capital, Modiotek is a specified
subsidiary of the Company.
(5) Number and value of shares purchased and the
shareholding ratio before and after the stock
purchase
(i) Number of shares owned before stock purchase
0 shares (Number of voting rights: -) (Shareholding ratio: -%)
226,047
244,521
23,035
(121,725)
(107,409)
—
FY2012
FY2013
101,535
117,628
23,760
(124,809)
(124,220)
—
80,543
96,583
16,841
(122,125)
(119,755)
—
(ii) Number and value of shares purchased
21,000 thousand shares (Number of voting rights: 21,000
thousand) (Proportion to outstanding shares: 72.2%)
(Purchase value: NT$210,000 thousand)
(iii) Number of shares owned after stock purchase
21,000 thousand shares (Number of voting rights: 21,000
thousand) (Shareholding ratio: 72.2%)
(6) Schedule
(i) Date of decision at MegaChips Corporation
April 21, 2014
(ii) Payment date
April 22, 2014
(iii) Acquisition date
April 23, 2014
Annual Report 2014
46
Notes to the Consolidated Financial Statements
MegaChips Corporation and its Consolidated Subsidiaries
(Acquisition of Treasury Shares)
By a resolution of the Board of Directors on May 13, 2014, under Article 370 of the Japanese Corporate Law (a resolution
in writing deemed to be a resolution of the Board of Directors), the Company resolved to acquire treasury shares under
the provision of its Articles of Incorporation pursuant to Article 459, Paragraph 1 of the Japanese Corporate Law and
acquired treasury shares. The details of the acquisition are as follows:
(1) Details of the resolution for the acquisition of
treasury stock
(i) Reasons for the acquisition of treasury shares
The Company will acquire its own shares to implement
flexible capital policies in response to changes in
business conditions and increase the return of profits to
shareholders.
(ii) Type of target shares for acquisition
Common shares of MegaChips Corporation
(iii) Total number of shares available for acquisition
1,000 thousand shares (maximum number)
(iv) Total share acquisition cost
¥1,500,000 thousand (maximum cost) ($14,574
thousand)
47 MegaChips Corporation
(v) Acquisition period
From May 14, 2014 to June 6, 2014
(vi) Acquisition method
Market purchase on the Tokyo Stock Exchange
(2) Other
Through the market purchase described above, from
May 14, 2014 to June 3, 2014, the Company acquired
1,000 thousand common shares in the Company
(acquisition cost: ¥1,262,987 thousand ($12,271
thousand)).